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top tips for contract management in public procurement

7 December 2017

This article is taken from December's public matters newsletter. Click here to view more articles from this issue.

When considering how to put into place effective contract management procedures the focus is usually on the operational phase of the contract. However, truly effective contract management can only happen if you have laid the right foundations and planned for it during the procurement process. Public authorities often find themselves restricted in how they can manage their contracts and suppliers during the contract term, in the transition to a new supplier and even after the contract term. In this article we set out key top tips in managing public sector contracts and the considerations that need to be dealt with prior and during the tender process.

1. Managing poor performance and ability to exclude in the future 

Prior to the start of the procurement process the focus is usually on the drafting of specifications, tender documentation and determining appropriate award criteria that will be used to select suppliers. However, this is a crucial time to determine how the contract will be managed and performance monitored during the term of the contract. It is vital that this is established prior to the release of the tender documents so that a robust performance management procedure is included within the contract. These requirements will then be the primary focus for the management of the contract going forward. 

Having a performance framework in place is only effective if it is actually implemented. It is essential that a robust performance management system is included within the contract and providers are continually monitored against this mechanism so that any breaches of their obligations are identified. Once a contracting authority has experienced poor performance under a contract, understandably there is a hesitation to award any new contracts to that provider in the future. However, it is not as simple as that. In order to have the discretion to exclude a provider for poor performance (subject to the self-cleaning obligations) certain conditions under regulation 57 (8)(g) of the Public Contract Regulations 2015 (PCR) must be met, including:

  • the performance must have been significantly or persistently deficient;
  • that poor performance must have led to early termination, damages or other comparable sanctions; and 
  • a contractor can only be excluded during the three years after the relevant event (i.e. when the poor performance occurred).

If a contracting authority has acted upon and enforced all the breaches of the contract obligations and the failure of the provider to meet the performance indicators set out in the contract (for example by issuing default notices), there is a possibility that this would help to demonstrate a pattern of significant and persistent deficiencies in the performance to satisfy the first part of the test. Secondly, it is important that a contracting authority does not waive its right to seek the remedies available to them as a result of these persistent breaches, for example the ability to terminate the contract. 

It is likely that a contracting authority will only be able to consider poor performance of a supplier in future procurements if the performance mechanism in the contract was properly followed. Unfortunately, informal e-mails and meetings setting out concerns are unlikely to be enough regardless of the scale of under-performance by the supplier.

2. Changing Requirements

Sometimes changes within the contract during the term are inevitable, especially in the case of complex contracts with a long contract term. Any changes or proposed variations should be managed carefully to be sure it is considered a modification that is permitted under Regulation 72 of the PCR and that the implementation of these changes would not trigger the need for a new procurement process.

The easiest way to establish if amendments can be made to the contract is if there is an express provision within the contract setting out the scope and nature of possible modifications and in what circumstances they will be implemented. In these circumstances the change will be allowed under Regulation 72(1)(a) if it does not change the overall nature of the contract. It is therefore important at the pre-procurement stage to identify any potential amendments and build these into the contract documents.

3. Planning for a smooth exit

When a contracting authority is nearing the end of the contract period it should start to think about the information it might need from the incumbent provider, such as TUPE information. Its sounds like a simple request but there are some obstacles that contracting authorities commonly face when trying to get information. For example, the incumbent provider refuses to give you information about the transferring staff or claims that TUPE applies to a group of staff who you suspect are not entitled to transfer.

It is important that this information is acquired and is correct, so bidders in the re-procurement know about the potential staff they may inherit. If a contracting authority cannot supply them with this information, they will be basing their tender prices on flawed assumptions which may result in an inflated price to mitigate the unknown risks. Failure to get this right could result in a successful bidder pulling out before it even commences when the employment liabilities are finally received. A contracting authority may also find itself in a position where it needs to give the successful bidder an indemnity to cover these unknown employee liabilities.

So how can a contracting authority manage this? Prior to the release of the tender documents make sure that the contract contains an express provision requiring a provider to provide employee liability when requested by the contracting authority. It would also be helpful if the contract contained a warranty from the provider as to the accuracy of any TUPE, employee information they provide. Timing is critical, it is then important to diarise and request the information well in advance of the end of the contract so it can be included in the tender pack issued to bidders when the contract is re-procured.

Timing is so important when thinking about the transition between the current and new contract. Contracting authorities should give themselves sufficient time to run a procurement process (which can take anything up to 12 months for a particularly complex competitive dialogue procedure) and allow for any mobilisation period. This is a critical part of the contract management process, as a contracting authority does not want to reply upon the incumbent supplier agreeing to an extension of the existing contract as this is a risk for service continuity and may also be a breach of the PCR. Planning for the exit and diarising key dates is not a part of the contract management process that contracting authorities should take lightly.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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