1 Introduction to Contract Management Framework WorkshopDecember 2014 Procurement Transformation Division < Month 2013 >

2 Workshop Outline 1. Purpose and objectives of this workshop 2. Why is contract management important? 3. QAO Audit Report Recommendations 4. Overview of One Government CMF 5. Supporting tools and templates 6. Effective contract management begins with early planning 7. Roles and responsibilities defined in the CMF 8. Value / risk approach to contract management 9. Contract management plans 10. Contract extensions and renewals 11. Re-cap key messages 12. Operationalising the CMF in Agencies 13. Further training and next steps

3 “A pessimist sees the difficulty in every opportunity“A pessimist sees the difficulty in every opportunity. An optimist sees the opportunity in every difficulty” Which do you choose to be?

4 Workshop purpose and objectivesto provide you with important information and improve your understanding of the new Contract Management Framework (CMF) and supporting tools so you can share knowledge and provide similar workshops within your own Agency. Objectives provide attendees with: an overview of the new CMF and supporting tools/templates and key messages an understanding of the key drivers behind the establishment of a contract management framework and supporting tools a better understanding of how some of the most frequently used tools are intended to be used (e.g. value risk matrix, contract management checklist, contract management plan, contract extension and renewal checklist) a presentation pack, that can be used to conduct training and information sessions within your agency. This is not a substitute for more comprehensive contract management training Workshop is directed at ‘contract management leaders’ – i.e. people that can help promote awareness and improve knowledge within their teams about the new CMF and supporting tools and templates. Not intended that this workshop is a substitute for more comprehensive contract management training (to be developed) by PTD with assistance from an external training provider.

5 Why is contract management important?

6 Why is contract management important?Benefits of contract management: The effective management of contracts with suppliers is critical to Queensland Government maximising benefits from procurement: Obtaining value for money Managing risk Maximising end user outcomes Value for money Procurement Activities Ongoing contract management (and category management activities) Time Contract management benefit Effective contract / supplier management VfM achieved through procurement Poor contract Role of contract management in retaining and improving value for money Benefits of contract management How value for money is achieved through contract management: By enabling savings opportunities identified during the procurement or contract management process. By enabling further benefits through ongoing performance reviews, service improvements, supply chain improvements, innovation, etc. There is a real risk that value will be lost if contracts are not properly managed. How contract management manages risk: Reduce contractual risks through the robust contract management practices. How contract management delivers end-user outcomes Maximise outcomes to end-users/customers by managing supplier performance, maintaining quality, improving productivity and identifying opportunities for improvement and innovation.

7 Contract management is a lot about common senseContract management is a lot about common sense. It is not rocket science. Keep it simple Don’t over-engineer or over-complicate it If you are finding it difficult: go back to basics – focus on outcomes and NOT the process think about the outcomes to be achieved under the contract and risks you need to manage. consider whether you might need more guidance or training and development to improve your understanding check whether there is any relevant guidance or supporting materials that can help you ask others for assistance

8 QAO Audit Report Recommendations1. Improve capability 2. Value / risk approach Develop and implement a contract management capability framework On-line procurement induction program to include contract management module Contract management training Apply a value/risk matrix to define expectations for contract management and appropriate resource allocation to contracts Value/risk matrix One Government CMF Contract management plan and Contract management checklist templates 3. Contract extensions and renewals 4. Contract management lifecycle system Background information about the QAO Audit Report December “Contract management: renewal and transition – Report to Parliament 10: ” QAO audited 3 agencies: Department of Community Safety, Department of Housing and Public Works, Department of Transport and Main Roads 62 contracts were audited in detail as well as the decision to extend 209 service maintenance contracts in BAS. To summarise the findings of the QAO: Agencies could not consistently demonstrate they achieved value for money from their contracts, or got the best solution for the best price Poor performance management of suppliers Ineffective planning for contract expiry Insufficient contract management skills and systems to manage contracts consistently and to high standards Significant gap in skills capability including: Inability to establish contracts with clear performance expectations. (Only 13 of 62 contracts contained adequate KPI’s, targets and data sources to objectively assess performance) Inability to manage supplier performance (performance was regularly monitored in only 21 of 62 contracts) Inability to make a considered decision to renew, extend or re-tender contracts. Lack of rigour generally, e.g: No demand/supply analysis; No validation of original risk assessment; No confirmation of ongoing business need (this was only checked for 1 of the 62 contracts) Lack of rigour to inform decisions to extend a contract weakened transparency and accountability Little visibility of Whole of Government spend and contracts. No ability to consolidate contract data at a Whole of Government level to enable strategic procurement planning. Agencies did not fully comply with contract disclosure requirements (for contracts more than $10,000) Lack of contract management plans – a “key element of contract governance”. No risk framework to determine how contracts of differing levels of risk and value would be managed. (25 of the 37 contracts worth more than $1 million each did not have a contract management plan). Deficiencies in governance arrangements and contract management systems. Systems for managing contracts did not integrate with financial systems, provide automated alerts to enable early planning for contract expiry, and did not support and record details about the entire contract life cycle. QAO Audit Recommendations were as follows: Develop and implement a contract management capability framework to ensure the department has sufficient, appropriately skilled resources to manage contracts effectively. 2. Develop and apply a risk/ value matrix approach to: - define expectations for effective contract management and establish supplier performance monitoring regimes to ensure value for money is realised with contracts - allocate resources commensurate to the risk of contracts for efficient contract administration 3. Validate the value for money proposition of a contract before extending or renewing it, by reviewing: - the original assessment of risk, demand and the supplier market - the supplier’s performance 4. Implement a contract management life cycle system to enable: - consistent monitoring of supplier performance - spend analysis - an early trigger to prepare for contract expiry Validate value for money before extending/renewing a contract, through assessment of contract risk, demand, supply market and supplier performance Checklist for contract extensions/renewals Fact Sheet (including FAQ’s) Contract Review Report template One Govt CMF Implement a contract management lifecycle system to enable spend analysis, monitoring of supplier performance, early triggers to prepare for contract expiry Q-Contracts Supporting processes Contract register Q-Contracts

9 One Government Contract Management Framework

10 Contract Management Framework (CMF)Contract Management Framework available on HPW website Contract Management Guidance available on HPW website Background to its development and purpose: Consistency Ensure contractual obligations are met, risks are managed, value obtained Describes the three major phases of the contract management lifecycle and key activities: Phase 1 – Contract set up Phase 2 – Contract management Phase 3 – Contract close out Scope: focus is on contract management once a contract is in place (although planning is key) Supporting materials: Tools and templates (see next slide) Fact sheets: Value Risk Matrix, Extending and Renewing Contracts Procurement guidance – managing and monitoring supplier performance Background: One Government Contract Management Framework (CMF) is based on the CMF developed by KPMG for Queensland Health. PTD was engaged as a stakeholder during the development process, providing input. Once CMF developed for Queensland Health, a ‘One Government’ lens was applied to create the One Government CMF. The CMF was endorsed by CPO Steering Committee on 1 July It is available at Developing a One Government CMF was identified as a deliverable linked to the Queensland Audit Office recommendations. HPW Internal Audit and Queensland Audit Office have been updated about the development of the CMF and supporting tools and templates. Purpose: The purpose of the contract management framework is to provide a clear and standardised approach to managing and administering contracts for goods and services purchased from suppliers. The main objective of contract management is to ensure commitments and obligations from buyers and suppliers are effectively met, by delivering value for money outcomes and managing inherent risk. It describes the 3 major phases of the contract management lifecycle and key activities in each phase. Depending on how the contract is classified based on value and risk, the activities, focus and amount of effort can vary. Supporting materials: Numerous tools, templates and guidance material have been developed which support the contract management framework. They are all available on the HPW website at The Guidelines for Managing and monitoring suppliers’ performance are available at More guidance material will be developed and added over time.

11 Supporting tools and templatesPhase 1 – Contract set up tools and templates Value/risk matrix Classify a contract (as either routine, focused or strategic) based on value and risk. Contract management checklist  Suitable for routine contracts – a brief summary of key information relevant to contract management. Contract management plan  Define the key activities and responsibilities for managing the contract. Contract kick-off meeting template  A guide for the contract kick-off meeting. Phase 2 – Contract management tools and templates Contract performance review meeting template Support the contract manager to conduct and document a contract performance review meeting. Risk register template Record and maintain a single repository for contract risks. Checklist for contract extensions/renewals Record the value for money assessment of a contract extension or renewal (suitable for routine contracts) Contract review report  Record the analysis performed and recommendation to extend or renew a contract, or transition to other suppliers. All of these tools and templates are referred to in the CMF and are available on the HPW website at It is important to understand that these are just templates – examples of documents that Agencies can use as is, or adapt as required to meet Agency specific needs. It is recommended that the Checklist for contract extensions and renewals (to be discussed in more detail later in the presentation) is used as is if possible, as HPW Internal Audit have reviewed the checklist and given it their ‘tick of approval’ as an effective way of capturing relevant information when extending or renewing a contract. Phase 3 – Contract close-out tools and templates Lessons learned log template Document lessons learned throughout the contract lifecycle. Close-out check list  Confirm all close-out activities have been performed.

12 Effective contract management begins with good planning in procurement phaseContract management requires involvement during the Procurement process and not simply after the contract has been awarded. Effective contract management starts at the sourcing process through to the relationship management of the supplier to ensure the optimum efficiency and increased service levels so as to avoid having to utilise contractual terms to achieve the performance expectations. It’s a process that requires teamwork and partnership skills through regular reviews and engagement. Problems that typically arise if there is poor planning in regards to contract management include: Sub-optimal contracts being put in place with suppliers that do not best protect the interests of the customer Contract managers being placed in a position where they have to try and negotiate the inclusion of performance measures in the contract ‘after the fact’. It’s very difficult to negotiate a good outcome in these circumstances (customers often have very little leverage to get what they want): It’s not a great start, and can damage the relationship with the supplier (suppliers get annoyed – ‘moving the goal posts’ after negotiations have been finalised) It often comes at a cost (e.g. customer ‘pays’ for it through contract variations, additional fees being incurred).

13 Roles and responsibilities definedWhat is: a Contract Owner? a Contract Manager? a Contract Administrator? Greater collaboration between the procurement sourcing lead and contract manager Early identification of contract management skills and capability needed Contract managers contribute subject matter expertise and experience Sourcing lead in best position to develop contract management plan (in consultation with contract manager – see next slide) Problems that typically arise if there is poor planning in regards to contract management include: Sub-optimal contracts being put in place with suppliers that do not best protect the interests of the customer Contract managers being placed in a position where they have to try and negotiate the inclusion of performance measures in the contract ‘after the fact’. It’s very difficult to negotiate a good outcome in these circumstances (customers often have very little leverage to get what they want): It’s not a great start, and can damage the relationship with the supplier (suppliers get annoyed – ‘moving the goal posts’ after negotiations have been finalised) It often comes at a cost (e.g. customer ‘pays’ for it through contract variations, additional fees being incurred). Better handover between sourcing lead and contract manager = smoother transition Don’t “throw it over the fence!”

14 Value/risk approach to contract management How to use the value/risk matrix (VRM)

15 Value / risk approach Value risk approach to contract management provides flexibility, requiring common sense and good judgment Contract management framework adopts a value/risk approach. Depending on how the contract is classified based on value and risk, the activities, focus and amount of effort can vary (see table on page 7 of CMF identifying whether key activities are required, recommended or optional). Discretion allowed, based on value and risk of contract. Apply common sense and good judgment. For example ‘routine’ contracts should be ‘light touch’. Value/risk assessment helps identify capability required to manage a contract What is the role of the value/risk matrix (VRM)? The VRM is available on the Housing and Public Works website How to use the matrix Some background about the questions on value (cost and ‘non-cost’ value) and risk Flexibility for agencies to apply their own risk assessment methodology to answer questions about risk Value risk approach to contract management provides flexibility, requiring common sense and good judgment QAO Audit Recommendations identified the need for a value / risk approach to contract management (using value risk matrix) ‘Value risk approach’ simply means making decisions on how to manage a contract based on the contract value ($) and risk to the organisation if the contract is not properly performed. It can also be an indicator of the capability and expertise required to manage a contract (e.g. strategic contracts should be managed by appropriately skilled and experienced personnel). This means that it will not always be ‘black or white’. A ‘common sense’ approach is required - exercise good judgment to determine what is appropriate based on the circumstances (value and risk) A value/risk approach is incorporated throughout the CMF. For example, there is a table showing the phases and key activities of contract management and whether each step is required (or not), recommended or optional depending on whether the contract has been assessed as routine, leveraged, focussed or strategic using the value risk matrix. Ultimately, a value risk approach provides more flexibility and allows discretion to be exercised. Use it wisely so that the approach to contract management for a contract is appropriate, sensible, and defensible. Don’t make it more complicated than it needs to be. What is the role of the value/risk matrix in contract management? The value risk matrix can be used to classify a contract (as either routine, leveraged, focussed or strategic) depending on its value and risk. The sourcing lead will have used the value risk matrix to assess the procurement activity. Once a supplier is identified and a contract is awarded, the “Contract” tab of the value risk matrix can be used to assess the value and risk of THAT contract with THAT supplier. The value and risk of a contract may be re-assessed at numerous times throughout the life of the contract, e.g. at the time of any extension or renewal, or if an event occurs that might cause the value/risk profile of the contract to change (e.g. unforeseen event that draws public scrutiny to the supplier or contract). The classification allocated to the contract provides some indication of how to approach contract management for that contract. The CMF identifies which key activities in the phases of contract management are required (or not required), optional or recommended depending on how the contract is classified. Short tutorial on how to apply the value risk matrix in contract management Open the value risk matrix and discuss the following features: There are 3 tabs in the value risk matrix (‘Category’, ‘Sourcing’, ‘Contracts’). If assessing the value and risk of a contract, then click on the ‘Contracts’ tab and ignore the others. Questions are divided into questions about value, and questions about risk. The questions and drop down options cannot be changed, and a score is automatically calculated based on your selection. If you want to see a complete list of the questions and how the scores are calculated, you can click on the last tab ‘question list and score’ Value questions: These questions focus on the total dollar value of the contract, as well as the ‘non-cost’ value. ‘Non-cost’ value means other value that the customer obtains under the contract that cannot necessarily be valued in $ terms but is still important to recognise as ‘value for money’ under the contract (e.g. value added services provided at no cost to the customer). For example, a supplier providing social services might provide other community services that the customer benefits from under the contract but which the customer does not strictly pay for in $ terms. The ‘non-cost’ question provides an opportunity to recognise this additional value as part of ‘weighing up’ the total value of the contract. The ‘cost’ value ($) focusses on estimated dollars the customer will spend under the contract. Users have a couple of options presented to them as to how they can assess this – either based on spend thresholds (probably most relevant for medium sized to large agencies). Or based on how the contract ‘ranks’ when compared with other contracts managed within the Agency. These alternatives are offered because of the varying sizes of agencies and their spend profile. The largest contract managed by one Agency may be very small when compared with the size of contracts entered into by other Agencies. Risk questions: These questions focus on risks specific to the supply of goods/services under THAT contract with THAT supplier General areas of risk are identified (criticality to business; interruption to business; financial risk; legal or regulatory risk; risk to health and safety of people; reputational, social/media risk; risks unique to the supplier such as past performance issues, financial viability, start-up, previous disputes, difficult supplier to deal with etc). The question about risks specific to the supplier is a recent improvement to the VRM. Answers have been drafted as a generic ‘low risk, medium risk, high risk’ response with a table at the bottom of the spreadsheet to provide guidance. Questions and answers are prepared in this way so that Agencies have the flexibility to apply their own risk assessment methodologies/guidelines to answer those questions. (For example, an Agency might have detailed risk assessment methodology which provides criteria/examples of when the risks identified in the VRM might be classified as low, medium or high in their environment).

16 Contract Management Plans

17 Contract Management Plans“…To support the contract start-up and effective contract management, most of the work required for developing a contract management plan can and should be done before the contract is signed …” (Australian National Audit Office Better Practice Guide on Contract Management Sourcing lead is responsible for developing the CMP (see below extract from RACI in Contract Management Framework) Sourcing lead in best position to develop contract management plan Incorporate knowledge acquired through sourcing process and contract negotiations (e.g. risks to manage) Develop in consultation with contract manager Our templates: Contract Management Checklist and Contract Management Plan You can use a CMP for multiple contracts (e.g. to manage a group of contracts under a SOA) Save a copy in Q-Contracts. Keep it up to date – the CMP is a living document (not ‘set and forget). Activity Sourcing Lead Contract Owner Contract Manager Contract Administrator Supplier Key users 1.4 Finalise contract management plan R I A C QAO findings regarding contract management plans: 25 of 37 contracts worth more than $1 million each did not have a CMP Only 13 of 62 contracts audited had a CMP Contract risk should determine the level of effort and detail for a CMP. Sourcing lead is responsible for developing the CMP A draft of the CMP should have been developed during the sourcing process by the sourcing lead and finalised during the contract set-up step. Throughout the sourcing process, the sourcing lead will gain valuable information about the arrangements under the contract that will be important to reflect in the contract management plan, such as: detailed knowledge of the goods/services purchased under the contract and the objectives of both parties any risks that were identified (relating to either the goods/services purchased or the supplier) that need to be managed under the contract the rationale behind contract selection and development, including the performance management regime and governance frameworks incorporated in the contract (e.g. KPI’s reporting, meetings etc). negotiation experience with the supplier - sourcing lead may have unique knowledge of issues, risks or concerns specific to the supplier (e.g. issues raised by the supplier in its tender response or throughout contract negotiations) any savings or benefits that are expected to be achieved under the contract that need to be monitored and managed. The contract management plan (or contract management checklist) forms part of hand-over documentation to the contract manager The contract manager is accountable for the contract management plan. This means that it is their responsibility to ensure that the contract management plan is completed, is accurate and for ensuring that it is kept up to date. Our templates: Contract Management Checklist: Can be used for routine contracts where ‘light touch’ is appropriate. Captures key information (little detail) Contract Management Plan: This should be used for all other contracts (i.e. that are either high value or high risk, or both). The amount of effort and focus in the CMP will vary depending on the value and risk of the contract. Tips: There is a lot of flexibility to tailor the CMP to ‘fit’ the contract. Apply more focus where it is needed. (For example, high risk contracts will have a lot of focus on risk management and putting in place monitoring regimes so that risks can be managed proactively. High value contracts that are low risk may have very little focus on risk, but more focus on how to maximise the value from the contract, such as monitoring spend targets, rebates and discount arrangements etc so these benefits are fully utilised. The savings/benefits targets associated with the contract might also influence how the contract is managed. A Contract Management Plan can apply to multiple contracts (you do not have to have a separate CMP for each contract). For example it might make sense to have one CMP applying to a group of similar contracts, such as several suppliers that are part of the same Standing Offer Arrangement. The CMP could identify which contracts the CMP applies to, but develop just one CMP to cover all of the contracts. The CMP is a living document that should be updated to reflect any changes throughout the term of the contract.

18 Contract extensions and renewals

19 Contract extensions and renewalsQAO findings and recommendations Defensible position Checklist for contract extensions and renewals – what is its purpose? Contract Review Report template – when should it be used? Fact Sheet for Contract Extensions and Renewals – FAQ’s and useful examples Examples of when contracts might be extended/renewed (see Fact Sheet) Record keeping – keep a copy in Q-Contracts (or contract management system used by your Agency) QAO was highly critical of our failure to properly consider whether value for money was being obtained when extending and renewing contracts 58 out of 62 contracts audited were extended or renewed without proper consideration given to value for money. There are a number of reasons for this, including: Poor planning (reacting to contracts expiring with insufficient notice to properly make the assessment Lack of capability – no understanding as to how to do this properly, e.g. what questions to ask, what factors to consider etc. Poor record keeping of thought process / rationale behind decisions to extend and renew QAO made a specific recommendation about the need to improve the assessment of value for money when extending and renewing a contract. Decisions to extend / renew a contract need to be defensible decisions. It does not mean that it is bad or ‘frowned upon’ to extend or renew a contract. The key is to make sure the rationale behind the decision to extend / renew the contract is defensible. To achieve this, it is important to ‘tell the story’ about why the extension / renewal is required, the reasoning behind why extending/renewing the contract is preferred over other options (e.g. allowing the contract to lapse, or testing the market), the factors that have been considered to establish ‘value for money’ will be obtained, and documenting this. Checklist for contract extensions and renewals As a direct response to the QAO recommendations a Checklist for Contract Extensions / Renewals was created, together with a Contract Review Report Template. The Checklist has been shared with HPW internal audit for review and feedback. HPW internal audit were very supportive and complimentary of the new checklist and the behaviours it is intended to drive. The Checklist can be used for any contract extensions/renewals that are routine, or for other contracts where the rationale and ‘due diligence’ relating to the extension/renewal can be sufficiently captured using the Checklist. In circumstances where the extension/renewal is for a high value or high risk contract and the extension is significant (e.g. exercising an option period for a number of years, or where the value of the extended/renewed period is significant), then it is recommended a contract review report template is used. The Checklist includes some quick guidance notes. It is highly recommended that the Checklist is used in conjunction with the Fact Sheet for Contract Extensions and Renewals. It contains some really useful guidance material and FAQ’s. Contract Review Report template The Contract Review Report template captures the same kind of information as the Checklist, but allows the user to include more detailed information about the due diligence performed (e.g. market analysis, price benchmarking, assessing supplier performance, other sourcing strategies considered etc). An example of when it would be appropriate to use the Contract Review Report would be when considering whether to exercise an option to extend suppliers under a Standing Offer Arrangement. Record keeping Save a copy of the Checklist or Contract Review Report in Q-Contracts (or the contract management system used by your Agency) as part of the contract record.

20 Key messages

21 Re-cap on messages One Government CMF and supporting tools and templates are available to use Become familiar with the roles and responsibilities identified in the Contract Management Framework Need for greater collaboration between procurement/sourcing teams and contract managers in planning and development of contracts, and contract handover. Sourcing lead (procurement) is responsible for developing contract management plan Identify contract managers early so the ‘right people’ manage the ‘right contracts’ Templates can be adapted by Agencies and modified to suit Value / risk approach to contract management requires sound judgment and common sense to be applied For contract extensions and renewals use the Checklist and other tools / guidance material available Be diligent with record keeping Contract management implementation by Agencies should be consistent with CMF

22 Operationalising the CMF in agenciesWhat can agencies do to start ‘operationalising’ the CMF? Deliver introductory workshops (like this one). Develop process and Agency specific guidance (if necessary) Review and update any existing policies, procedures, guidance material to align with CMF and use tools available. Adapt the templates to further improve them as a ‘custom fit’ for your Agency. Participate in training and capability development initiatives Identify contract managers in your Agency (and share contacts with PTD) Share learnings and materials with PTD and other Agencies Ask for help if you need it Here is a list of suggested activities that Agencies might consider to operationalize the Contract Management Framework and supporting tools within Agencies: Contract management ‘leaders’ to deliver introductory workshops (like this one) within their Agency, using presentation and notes provided. Agencies are responsible for developing the next layer down’ of process and Agency specific guidance (if necessary) Agencies should review and update any existing policies, procedures, guidance material within Agencies to align with the new CMF and refer to the CMF and supporting tools and guidance material wherever possible. If necessary, Agencies can adapt the templates to further improve them, to make them ‘custom fit’ for your Agency. Be aware that ‘customising’ templates means that Agencies will be responsible for keeping them up to date (e.g. if templates change). Stay up to date with training and capability development, initiated by PTD. Agencies might choose to conduct a gap analysis and identify what other communications, training and development Agencies might offer in conjunction with (or in addition to) Whole of Government training programs. Recommended that Agencies identify which teams and individuals are responsible for contract management within their organization (and share with PTD) so that communications can be targeted to those individuals. Collaborate with PTD and ask for help if you need it Share learnings and any enhancements / materials with other agencies

23 Further training and next stepsContract management capability training and development … coming soon PTD will appoint a training provider to help develop training (including online training) in procurement and contract management that agencies can access. PTD also intends to make an audio recording of this presentation available online and via the ProQr Yammer Group Next steps Agencies can begin ‘operationalising’ CMF Contract management ‘leaders’ deliver introductory workshops within Agencies More information Join the ProQr – our procurement community of practice on QG Yammer. Just to be invited to the ProQr Yammer Group. Not on Yammer? Simply y @