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Contract Administration

Contract Administration. Darin Matthews, CPPO, C.P.M. Governmental Procurement, ISQA 440 Spring Term, 2012. Overview. Importance of active contract management Involvement of procurement professionals throughout contracting cycle Investing in your contracts early on

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Contract Administration

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  1. Contract Administration

    Darin Matthews, CPPO, C.P.M. Governmental Procurement, ISQA 440 Spring Term, 2012
  2. Overview Importance of active contract management Involvement of procurement professionals throughout contracting cycle Investing in your contracts early on Contract management tools
  3. Why is the Topic Important? Helps ensure your organization is getting what it is paying for Contract performance is a highly visible phase of the acquisition process Many contracts experience problems during post-award activities The majority of contracts experience cost overruns and schedule delays Prime area for the public procurement professional to “step up” and add value to their agency
  4. Cost Overruns and Schedule Delays One third of IT projects exceed budget and schedule by nearly 100% 60 percent of tech projects in healthcare industry are over budget by at least 30% Countless government transportation projects are 2 to 3 times the original project cost Public defense contracts have a track record of “over promising and under delivering” Sources: Gartner, Washington Post
  5. Active Contractor Management Procurement is part of the team throughout the contracting process Ongoing participation in meetings, reports and site visits when practical Operating in a proactive manner, not reactive Procurement is not the last to know about a performance problem
  6. Importance of Early Involvement
  7. Traditional Role of Procurement Not involved with planning phase Budget process handled by other business groups Specifications and works scopes developed without involvement from Procurement Actively involved in Bid/RFP process Assist with contract negotiation and award Contract then “handed off” to using department
  8. Acquisition Cycle Solicitation Phase Post-Award Phase Planning Phase
  9. Areas of Focus / Contract Management Ensure Delivery and/or Performance Verify Inspection Don’t Settle for Less Assist With Financial Management Engage Project and Program Managers Handle Contract Amendments Limits, Approvals Take Care of Disputes Don’t Disappear When Things Go Bad
  10. Preventing Cost Overruns Establish clear scope and key features before beginning the work Avoid scope creep and feature creep Assemble and prepare your technical team Assign based on capabilities Create positive work environments Thoroughly investigate contractor capabilities Past performance, references, key personnel Stay diligent about keeping project on track Pay attention to minor changes Avoid changes that impact cost and time Source: Suzanne Thornberry
  11. Role of Supply Management A leadership role – seeking new opportunities and driving them A managerial role – managing systems and relationships A creator role – identifying new opportunities and making them available to the organization (strategies, supply options, revenue streams) A needs enabler role – enabling others in the organization to satisfy their own needs Source: ISM, Joseph Cavinato, 2000
  12. Contract Administration Plan • Description and purpose Roles and responsibilities Period of performance/delivery dates Data and deliverables Testing Inspection and acceptance Warranty provisions Personnel requirements Special terms and conditions Watch list items/critical milestones Schedules and meetings
  13. Meet with apparent successful contractor Discuss scope, budget and project milestones Verify they have clear understanding of agency needs A “check point” prior to award Pre-construction conference or pre-work conferences Plan and strategize prior to mobilization or work beginning Pre-Award Conference
  14. Reporting Requirements Establish clear expectations in the Bid or RFP solicitation Period reporting of orders (quarterly, semi-annual) Performance reporting: work completed, quantities delivered, etc. Contractor achievements with regard to performance (sustainability factors, waste reduction, etc.) Final reporting at contract completion
  15. Identify Deliverables in Work Scope A tangible item that contractor delivers to agency Clearly spelled out in contract Component of the work scope Project milestones represented Ideal to tie deliverables to schedule and payment Training Delivery: Upon contractor’s successful completion of the first training on workforce diversity, agency shall pay contractor the amount of $5,500.
  16. Contractor Evaluation Formally evaluate and critique contractor’s performance Standardized process for evaluating areas such as Quality of work Adherence to agreed upon schedule Meeting project milestones Cost control performance Administrative areas Share with contractor Retain information for future contracts
  17. Supplier Score Card
  18. Financial Management of Contracts Partnership opportunity with using department and/or finance department Ensure that someone is “minding the store” Verify invoices are in accordance with contract Unit pricing Add alternates Project deliverables Amount paid should be comparable to amount of work completed Avoid “invoice-it is”
  19. Managing Price Adjustments Firm fixed pricing for set period (i.e. initial contract term) Be knowledgeable of allowable price adjustments Require justification for all price increases Don’t be afraid to “push back” Limit or tie adjustments to a price index (CPI, PPI) Realize that some commodities can experience price decreases
  20. Bonding Approaches Performance bonds (ensures performance of work) Payment bonds (labor and materials) Maintenance, warranty bond (guarantees work for set period) Issued by surety or bonding company, an independent third-party that guarantees contractor will do what is agreed to
  21. Liquidated Damages Damages agreed to by contract parties at the beginning of a project Normally in the form of monetary payment (or penalty) Often applied on a daily basis for non-completion of work May not be imposed as arbitrary penalty Must be reasonable and represent actual damages
  22. Performance Incentives Contract where vendor is incented to provide Savings Cost reductions Increased revenue Terms negotiated in agreement where government agrees to pay additional sum to contractor if performance is achieved Example: early completion of bridge repair
  23. Parting Tips Realize the importance of procurement’s role throughout the contract process Get involved early on, the sooner the better Do your best work up front, as it pays dividends down the road Use standard solicitation and contract documents
  24. Parting Tips Consider the use of contract administration plans Require ongoing reporting by your contractor Formally evaluate the performance of your suppliers and contractors Consider past performance in your contractor selection process
  25. Wrap Up Questions
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