Route 3 - Contract & Supplier Management - Admin & Tools

Contract Administration Checklist

What you need to do

Points to consider

Administration of the contract is important

Contract administration is concerned with the mechanics of the relationship between the customer and supplier.

Its importance should not be underestimated. Clear administrative procedures ensure that all parties to the contract understand who does what, when and how.

The elements that need managing are likely to include:

  • Contract maintenance and change control
  • Notice periods, contract closure or termination
  • Charges and cost monitoring
  • Ordering procedures
  • Payment procedures
  • Budget procedures
  • Resource management and planning
  • Management reporting
  • Asset management

Maintain the contract documentation

The contract will have to evolve to reflect changes in arrangements.

Contract maintenance means keeping the documentation up to date and relevant to what is happening on the ground.

Maintaining contract documentation is an important activity.

Establish procedures to keep contract documentation up to date (including how to store/archive documentation) and ensure that all documents relating to the contract are consistent and that all parties have the correct version.

Changes must be controlled

Changes to services, procedures or contracts may have an effect on service delivery, performance, costs and on whether the contract represents value for money. The specification and administration of change control is an important area of contract administration.

Appropriate structures need to be in place with representatives of both customer and supplier management for reviewing and authorising change requests.

Be careful that changes do not fall outside the scope of the original OJEU advertisement and conflict with procurement regulations – seek advice if you’re unsure.

It is particularly important that additional demands on the supplier should be carefully controlled.

Formal authorisation procedures will be required to ensure that only those new requirements that can be justified in business terms are added to the service.

Make sure management understands what is happening

Management reporting procedures ensure that information about problems with a contract reaches those with power to act as soon as it is possible.

Requirements for service performance reports and management information should be built into the contract and confirmed at the tender stage.

Where possible, use should be made of your Organisation's own management information and performance measurement systems.

For many business managers a summary of the service they have received along with a note of exceptions is normally sufficient.

Information requirements may change over the life of a contract.


Contract Changes/Variations

Background to Contract Variations

Provision to allow and regulate contract variations should be a standard feature of all contracts. Although a supplier may request a contract variation, the ability to vary the contract must be approved, managed and controlled by the customer.

It is accepted practice for the variation process to provide a mechanism for variations to be agreed between the customer and the supplier in writing through a formal amendment of the contract. This practice is also known as a "change management process", "change control procedure" or something similar.

It is critical that no-one involved in managing and administering the contract unilaterally agrees to informal contract amendments. All potential contract variations/changes must be fully explored with the appropriate contract managers/stakeholders. Any agreed variations should be undertaken in line with the change management process .

The reasons for the variation should be clearly documented. Variations should not be used to mask poor performance or serious underlying problems and the effect on original timeframes, deliverables and value for money should be assessed. If the effects are significant, senior management and other stakeholders must be consulted and/or advised.

They should therefore be planned accordingly. Customers should be alert to the risk that multiple changes made to a contract over a period of time may shift the overall allocation of contract risk or transfer particular risks to your Organisation. It is important to analyse all consequences of a proposed contract amendment and make sure there are no detrimental effects to the contract or service levels.

Contract managers must ensure that the contract variations are not of such a level that they significantly change the contract requirement and/or substantial parts of the original transaction – ‘substantial modification’ under The Public Contracts (Scotland) Regulations 2015. If this is the case, it will be necessary to undertake another procurement exercise  because the revised arrangements are substantially different from those selected through the original procurement.  If a new procurement is not undertaken your Organisation may be open to challenge from another supplier.


When Contract Change Can Occur

For above OJEU contracts, the starting position is that contract changes will require a new competition to be held, unless one of six exceptions can be applied. These exceptions are:

  1. Where the change is provided for in a clear, precise and unequivocal review clause which was included in the initial procurement documents.
  2. For services or supplies where a change of supplier is not possible for economic or technical reasons and would result in significant inconvenience or substantial duplication of costs (provided that any increase in price does not exceed 50% of the initial contract value).
  3. Where the need for change is brought about by circumstances which an organisation could not reasonably have foreseen, does not alter the overall nature of the contract and does not result in a price increase greater than 50% of the contract value.
  4. Replacement of the original supplier by another under a review clause; universal or partial succession, perhaps due to takeover, merger, acquisition or insolvency; or where the organisation steps in and assigns some or all of the goods, or services back to itself.
  5. Where changes, irrespective of their value, are not substantial (this could include a change in the nature of the contract, a change to the economic value of the contract in favour of the successful supplier).
  6. For minor changes, which don’t affect the nature of the contract valued below the EU threshold and 10% of the initial contract value for supplies and services.

When making successive modifications you must take care that the cumulative value of these does not breach any of the previous requirements. [this does not apply in the case of point 3, where the value limitation of successive modifications does not cumulate]

If planned modifications are determined not to meet these criteria or in any case have not been provided for in the original contract documentation then a new procurement procedure must be undertaken and legal advice should be sought


Change Management Process

There are a variety of issues that should be considered in any change management process to ensure that it is effective. Three key areas for consideration are:

  • the need for change impact reports;
  • any pricing principles that will apply to the change; and
  • the supplier's obligation to undertake the change.

Where the consequences of getting things wrong are significant and it is recognised that a change is required, it makes sense to run a formal pilot. If the pilot fails to meet expectations you can revisit and retest until you achieve the required results before committing your resources and reputation on a wider scale. For example ‘Plan, Do, Check, Act (PDCA)’ is a recognised continuous improvement (CIP) model which can be utilised to ensure that your change will deliver the desired results. As its name indicates, there are 4 steps to the model of which 2 steps and 3 can be repeated until the desired result is achieved. The 4 steps can be  summarised as:

  1. Plan: Define the problem to be addressed, collect the relevant data, and ascertain the problems root cause

  2. Do: Develop possible solutions, select the most appropriate and implement a small scale pilot solution; decide upon a measurement to gauge its effectiveness

  3. Check: Check the problems you have encountered and identify the root causes. Measure how effective the solution has been by comparing pre-pilot and post-pilot data. Depending on the success of the pilot, you have the option of repeating the “Do” and “Check” phases, incorporating additional improvements until you get the desired result

  4. Act: You can implement your solution. However, if you are using the PDCA as part of a continuous improvement initiative, you need to loop back to the Plan Phase (Step 1), and seek out further areas for improvement.

Change impact reports

Before any change request can be properly considered, the customer and the supplier must understand the implications of the proposed change. To facilitate this, the change management process may require the supplier (who will normally be in the best position to assess the likely impact of a change) to prepare an impact report. Ideally, the impact report will present a full description of the change, including how the change is to be implemented and, to the extent relevant, detail:

  • the feasibility of the change;

  • the likely effect of the change on the ability of the supplier to meet its obligations under the contract;

  • any cost implications of the change;

  • any consequential impact of the change;

  • where appropriate, acceptance testing procedures and acceptance criteria for the proposed change; and

  • any other information likely to be of relevance

Pricing principles

It is useful for the Change Management Process to specify how any costs associated with the change will be allocated between your Organisation and the supplier.

Ordinarily, the Organisation should be required to pay for a change only to the extent that the change cannot reasonably be considered as within the scope of the existing contract.

Where a change falls outside the scope of the existing contract, the Change Management Process may detail the principles that will determine the price to be paid by the customer. For example, the Change Management Process may stipulate that the price for any change should be:

  • reasonable;
  • competitive; and

  • no higher than the price at which a customer would be able to procure similar products or services from another supplier.

The Change Management Process may enable the Organisation to request the supplier to provide an auditor's certificate, confirming that the pricing of any change complies with the pricing principles.

Supplier's obligation to undertake the change

An otherwise detailed Change Management Process will be of little value if, even once the price to be paid by the Organisation has been determined, the supplier can simply refuse to implement the customer's change request.

Accordingly, the Change Management Process may provide that the supplier cannot unreasonably refuse (either directly or indirectly) a change requested by the Organisation. Unreasonable grounds for refusing a change might include:

  • demanding unreasonable charges for the change;

  • imposing unreasonable conditions for undertaking the change; or

  • refusing to include the change under the agreement despite the subject matter being reasonably related to or connected with the services.

Impact reports, pricing principles and the supplier's obligation to undertake the change are just some of the matters that need to be considered in any Change Management Process to ensure that it is effective. A carefully drafted Change Management Process can mean the difference between the system/services that a customer wanted on day one, and the system/services that a customer discovered it needed during the term of the contract.

Contract variations checklist

Key issues to consider in managing contract variations include:

  • following the procedures required by the contract;

  • assessing the reasons for the proposed variation and whether these may indicate an emerging or actual performance problem;

  • assessing the impact of the proposed variation on the contract deliverables, particularly whether the variation or the work it represents is actually required and whether it was part of the original contract deliverables;

  • determining the effect the proposed amendment will have on contract price;

  • considering the authority for making the variation;

  • properly documenting details of the variation and its impact;

  • meeting any reporting requirements.

Account Pack

The Account Pack is intended to be a repository where the current and historical contract / supplier status is be recorded. Ideally, if anyone wants to understand the contract status or how the supplier is performing, this pack should provide them with the current status.

Contract Termination

The possibility now exists for an organisation to terminate a contract during its term under certain circumstances which are covered in the Exit Strategy Station.

Any documents you need are listed below:

Account Pack (file type: pptx)

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