Time and again, we draw our readers’ attention to the need for and essential role of contract management in business transactions. We have an active research program to inform our Contract Management Risk Metrics in Procurisk®. The business content within which contract management skills is exercised varies enormously. This article has been informed by the Bruce Stadium Redevelopment audit in Australia. The informed reader will ask rhetorical questions, “Why did they do that?”, and “Why did they not do that?” The audit relates to the conduct of a sales and marketing program for the Bruce Stadium. A consortium was appointed in July 1998 at a fixed fee of approximately $1.8m plus commission to market and sell the products outlined in the Expression of Interest.
There were some ‘interesting’ milestones, noting that the appointment was made in July 1998. For example a draft contract was provided on 5th November 1998. Note the word ‘draft’ and the time lag. Attempts to conclude a contract continued to June 1999. No explanation is given for such a length of time; however, a procurement professional would surely conclude matters in a much shorter space of time, but that would assume a contract accompanied the motivation to tender.
At section 6 of the audit report, comments are made on the effectiveness of the executives in monitoring the performance of the sales and marketing consortium. The significant findings included:
- A number of functions essential to the effective monitoring of the consortium were not performed.
- The details of the way in which performance was to be monitored was not included in the contractual arrangements for the program; formal contractual arrangements were never completed.
- Written records of some significant dealings, meetings, and telephone conversations with the consortium were not maintained.
- The content of the reports required from the consortium was not specified until some months after the commencement of the program; in government executives’ view, the reports provided were not sufficiently comprehensive to facilitate effective monitoring.
- The consortium was not promptly advised in writing, of dissatisfaction with its performance.
- The only evidence of a formal assessment of the consortium’s efforts is documentation prepared in January 1999 in relation to a meeting between the consortium and executives.
Included in the detail of the audit report were the following comments:
- The draft contract required the consortium to prove a marketing plan which was to contain targets, timelines and milestones which may have provided the necessary measurable detail to enable monitoring of the consortium’s service delivery and performance. The consortium did not provide the plan in the course of the program.
BFL Comment: If the contract had been signed, the provision of marketing plan would have been a contracted obligation. Effective contract management would have ensured the plan was provided in a timescale stipulated in the contract. If the plan was not delivered on time the consortium would be in breach of the contract, giving remedial rights.
- There was a scarcity of written records of dealings with the consortium conducted by telephone or through meetings.
BFL Comment: Written records must be kept by contract management, whether by email or letters or reports. An audit trail is essential, particularly when disputes arise. The contract manager must not allow a suppliers’ written record of any contracted matter to be unread or, on occasions, unchallenged.
- The consortium was requested to advise the regular PCG meetings on how the marketing and sales campaign was progressing. The request did not specify that written reports were required and the content of the reports was also not specified.
BFL Comment: This is another classic mistake in some contracts. The fact that written reports are required is an obvious requirement and this should always be accompanied by details of the content require and the timing when reports have to be supplied. It is unsatisfactory to have a supplier table performance reports at a contract review meeting; this gives the buying organisation the time to verify the details.
- A file note was prepared which contained an assessment of the performance of the consortium. The note did not include a detailed assessment but contained in the main general impressions of how things were going to date. For example, the assessor of the advertising campaign consisted of one comment for $0.2m of expenditure.
BFL Comment: Throughout a contract, the suppliers’ performance must be assessed against all the contractual obligations, often set out as key performance indicators. The assessment must be based on fact – not opinion. The outcome of the assessment must be fed into contract review meetings, shortfalls in performance highlighted and the necessary action to correct matters should be agreed. This assumes that the faulty performance can be corrected and, if not, then contract termination becomes a very serious consideration.
In the second Bruce stadium audit report it is disclosed that the parties (the Stadiums Authority and the consortia of Spotless Services Australia Ltd. And NVM) had agreed to settle a claim for damages by mediation. The government Solicitors’ Office agreed to negotiate a settlement of up to $0.9m. The claim was for $1.2m and mainly arose from non-payment by the territory for services relating to the sales and marketing program.
Our article has focussed on contract management but there are many other factors of the Bruce Stadium project that will interest procurement professionals.
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We can help you to write the contract management section of a contract. We can also review your existing contract management practices, and, if necessary, can undertake contract management activities. Contact Ray Gambell on 01744 20698 or email@example.com for more information.
Read the Bruce Stadium Performance Audit in full here: http://goo.gl/Wrqm6K