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Transcript of 6 th PROCUREMENT AND SUPPLIES PROFESSIONALS ANNUAL CONFERENCE. (6 th to 8 th DECEMBER, 2015), AICC,...
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6th PROCUREMENT AND SUPPLIES PROFESSIONALS ANNUAL CONFERENCE. (6th to 8th DECEMBER, 2015), AICC, ARUSHA
TOPIC: “Salient Features of Procurement Contract Management in Tanzania.”
By Mr. Peter S. Malembeka, (CSP (T), MSc.(Finance), AU 00550
THEME: “PROCUREMENT CONTRACT MANAGEMENT IN TANZANIA:
CHALLENGES AND THE WAY FORWARD.”
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INTRODUCTION – Contract Management Definition
• Contract Management is the art and science of managing a contractual agreement throughout the contracting process.
• It is an administrative process to ensure that all parties understand their responsibilities and obligations to a contract.
• Hence, contracting is an integral part of doing business in all stages of the contracting process.
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Contract Management as a Process
• Contracting is an integral part of doing business in both public & private sectors.
• There are number of factors that are important in all stages of the contracting process. These include:
Managing risksRelationships and resourcesSpecifying responsibilitiesBehaving ethically, andKeeping records.
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Contract Management as a Process (cont…)
• Contract management as a process enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract.
• It involves building a good working relationship between parties
• It involves managing proactively to anticipate future needs as well as reacting to situations that may arise.
• Foundations for contract management are laid in stages before the contract is awarded including the procurement process.
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Objectives of Contract Management
• Contract Management aims to:Ensure that value for money is achieved through
full compliance with the contractual requirementsThe terms and conditions of the contract are metThe goods/services/works provided by the
supplier/contractor meet the specified requirements
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Critical Success factors for an Effective Contract
• Good contract preparation and a Careful Supplier selection will result into the right contract
• Each party to the contract need to understand the objectives and business of the other party
• Appropriate service delivery management and contract administration
• Mutual trust and understanding, openness and excelent communication between the contracting parties
• There must be people with the interpersonal and management skills to manage these relationships
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Critical Success factors for an Effective Contract (cont…)
• Management of contracts usually require some flexibility on both sides & willingness to adapt its terms and conditions to reflect a rapidly changing world.
• Contracts should be capable of change (to terms, requirements & perhaps scope) & relationships should be strong & flexible enough to facilitate it
• Proactivity: Good contract management is not reactive, but it should aim to anticipate & respond to business needs of the future.
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The Process of Contract Management
• Contracts are frequently complex, more diverse, more independent.
• Contracts may involve multiple stakeholders, may last a long time and may consume many resources & hence more difficult to manage, hence it is important that they are properly managed.
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The Process of Contract Management (Cont….)
• Contract Management activities can be broadly grouped into three areas:
Delivery ManagementRelationship Mngt, &Contract Administration
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Delivery Management (DM)
• DM is about managing a supplier’s performance vs the performance indicators contained in the contract
• The principal objectives of managing contract delivery are:-
Developing Service Level Agreements (SLAs) Managing Performance based Contracts Developing a Performance Management System(PMS) Managing ongoing day-to-day issues, & Dealing with the possible effects of dissatisfaction with
service delivery.
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Measuring Service Delivery
• Normally, the PE & the Contractor/Supplier should agree on the initial performance during contract negotiations & record them in the contract
• These measures should be regularly reviewed to ensure that they remain relevant & useful
• In contract management, metrics (i.e. statistics) are used to measure performance (service quality)
• Aspects of service quality that can be measured include: Customer service, availability, efficiency, reliability, flexibility, timeliness, responsiveness, proactivity & problem solving methods.
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Measuring Service Delivery (cont…• Quality measures & metrics provide information on how well a
contractor/supplier is performing.• But, it of no use providing a perfect service if the costs are prohibitive, since,• Ensuring value for money (VFM) is about trade-off between service quality
& cost, however, • Contract Management should always focus on ensuring that VFM is
achieved over time, since• VFM comes from using resources effectively, efficiently & economically• Every contract should always contain mechanisms for measuring the
contractor’s/Supplier’s performance & determining the overall benefits achieved.
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Relationship Management
• Announcing the decision to the successful tenderer is the first step in establishing the working relationship that will underpin service delivery
• A contract will generally be successful if the Buyer/Supplier relationship is positive
• Relationships must be wholly professional throughout & must include a professional approach to managing issues & disputes resolution.
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Relationship Management (Cont…)
• Key factors to a successful relationship:Mutual respect & understanding (through
right attitudes & behavior)Open & excellent communication (sharing of
information enhances the relationship)Recognition of mutually beneficial objectives
between the contracting parties .
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Contract Administration
• The key procedures involved in Contract Administration are:
Maintaining contract related documentation & Keeping records
Ordering & paying for goods/services Monitoring deliverables & budgets Controlling changes & variations to the contract Managing & planning resources Undertaking management reporting & managing
assets
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Contract Management Framework (CMF)
• CMF provides a guide to the contract management process in order to effectively manage the contract
• CMF describes the required responsibilities associated with the following major cycles involved in CM cycle:
Contract Set up: This is normally undertaken during contract negotiation
Issues Management: It is the management of issues that arise during contract performance
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Contract Management Framework (CMF)
• Contract Management Plan (CMP): This details how the contract is to be managed to achieve outcomes
• Depending on the complexity of the contract, CMP includes: The monitoring of compliance with contract conditions Performance evaluation & reporting through SLAs & KPIs Effective performance indicators need to be SMART –
Specific; Measurable; Attainable; Relevant & Time based• Performance Measurement System should be developed &
applied for monitoring of service levels
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Contract Management Performance
• It involves:Performance monitoring (collecting data on
performance)Performance assessment (deciding whether
performance meets customer needs)Taking appropriate action(s). This must be
taken throughout the life of the contract
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Contract Risk Management
• Risk can be defined as uncertainty of outcome, whether positive opportunity or negative threat
• Risks are events that will impact on the ability of an organization to achieve its objectives
• Risks must be identified & documented through tendering process/evaluation & contract formation process
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Contract Risk Management (Cont…)
• Some of the risks related to managing a contract include: The failure of the other party to fulfill the conditions of the
contract Inadequately administering the contract Unauthorized changes to the contract & changing scope Fraud & lack of properly maintained records Unethical behavior or conflict of interest Changes/absence of key personnel, etc.• These risks must be monitored during the CM period• CM requirements progressively increase in accordance with
the complexity and value of the contract
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Contract Monitoring
• It aims at ensuring that suppliers comply with the contract terms; performance expectations are achieved & identify & resolve problems
• Effective contract monitoring requires the establishment & monitoring of KPIs & SLAs; monitor progress; conduct random inspections & ensure that all conditions & clauses are acted upon; develop effective feedback mechanisms
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Contract Change Management
• It is imperative to define the process in the contract
• Since these changes normally would modify the contract requirements, &
• They affect the triple constraints, i.e. costs, schedule & performance, so,
• Any changes to the contract must be authorised
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Contract Variations
• Is defined as a material amendment to the contract• It may impact the scope; the value of the contract;
the terms & conditions of the contract & the options to be exercised
• They should be documented as to what has been agreed showing the actual changes to the contract
• An assessment of the impact of a variation is required to determine its significance & the need for procurement approval or not
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Control of Claims and Disputes
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Control of Claims and Disputes(Cont…)
• Contract agreements are not perfect, misunderstandings inevitable, resulting into,
• Disagreement, claims & disputes which are normal part of contracting process
• These must be resolved promptly & dispassionately & they must not be allowed to disrupt performance
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Records Documentation & Payment Process
• The success of the contract depends on the accuracy & credibility of the information recorded, so,
• It should be well documented & organized for easy & reliable access
• Only authorized person must approve payments in relation to each procurement activity in accordance with the Public Procurement Act No.7 (2011) & its Regulations GN. No. 446 (2013) & Public Finance Act.
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Contract Close-Out
• This involves both product verification & administrative close-out
• It signifies completion of work done by compliance verification
• Contract documentation close-out checklist resulting to product/service completion
• It also involves acceptance; final payment; lessons learned documentation & termination
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Benefits of Effective Contract Management
• Contract Management is undertaken to ensure:- Timely delivery of goods & services Achieve the full benefits of the contract procurement process Minimize costs associated with risks arising during the term of
the contract Improve benefits flowing to customers/suppliers Create additional benefits for both parties through good
relationships Achieve value for money in the procurement of goods &
services
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Styles & Types of Contractual Relationships
• Application of the most appropriate contractual relationship can deliver significant performance improvement & savings in baseline costs
• These relationships can be classified either as traditional or partnering relationship
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Traditional Relationship
• Relationship between Buyers and Sellers • Are dominated by legal frameworks • Creates a strong compliance & control • Rely on extensive checking & verifying the contract
vs. the service delivery • Most beneficial where scope of service is narrow &
accurately defined &• When the contract period is low
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Partnering Relationship
• Is a formalized process underpinned by both a legal contract & moral commitment by key stakeholders & other parties to act in the best interest of each other
• The basis of partnering is: “Together we can solve problems & maximize benefits.”
• Partnering is a contractual arrangement between public sector & private sector (PPPs) for the provision of public assets & related services for public benefits through investments.
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Similarities Between Public vs. Private Contracting
• Both follow a similar contract management process• Both require well trained & educated people with
broad skills set• Both need to focus on delivering/providing quality
products, services & or solutions for their customers faster; better & cheaper
• Hence, Contract Management professionals must be knowledgeable workers in which individual effectiveness & growth is required through continuous learning
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Characteristics of PPPs
• Private sector is responsible for carrying out or operating the project & takes on a substantial portion of the associated risks
• Allocating risk to achieve added efficiency is what makes PPP a potential way of reducing costs & achieving improved VFM for the public sector
• During the operational life of the project, the PE’s role is to monitor the performance of the private sector & enforce the terms of the contract
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PPP Contract Management
• It should clearly define the roles & responsibilities for each party in order to ensure VFM is achieved
• SLAs which defines the KPIs/measures should be part of the PPP agreement
• The aspect of managing the PPP are contract management; performance monitoring. It continues throughout the life of the contract
• Contract management is a process that enables both the PE & the PPP provider to meet their contractual obligations in order to deliver the objectives of the contract
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Contract Management Principles under PPP (3Ps)
• PPPs are cooperative ventures built on the expertise of each partner that best meets clearly defined public needs through the most appropriate allocation of resources, risks & rewards
• The guiding principle of PPP policy is deliver improved services & better VFM through appropriate risk sharing between public and private sectors
• VFM under PPP is maximized by allocating risk optimally; since reduced risks ensure better value; lower costs & higher levels of risk
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PPPs in Tanzania
• Most PPPs implemented in Tanzania are concession arrangements for running existing enterprises with limited provisions for rehabilitation & new investments
• Other PPPs include operation of existing public assets; service management; leasing contracts; development & operation of new facilities (i.e. Joint Ventures); construction & ownership
• The above are governed by PPP – Policy (2009); PPP Act (Cap. 103); PPP Regulations, GN. No.165 (2010); Finance Act (2013); PP Act (2011);
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Constraints to Effective Contract Management
• One of the major constraints to effective contract management is CORRUPTION resulting to ambiguous cost overruns
• Others include: delayed funding; poor contractors’ capacity resulting to poor implementation; lack of resolute approach to contract monitoring; contractor’s failure to deliver required items; burdensome inflexible regulations; wrong product specifications by Users
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Why Organizations Fail to Manage Contracts Successfully
• Poorly drafted contracts due to lack f comprehensive technical, socio-economic & commercial feasibility studies
• Inadequate resources assigned to contract management• The context; complexities & dependencies of the contract not
well understood due to insufficient capacity to negotiate• Lack of performance measurements/benchmarking by PEs• Failure to monitor & manage risks, resulting to inadequate risk
sharing mechanisms particularly under PPPs• Wrong people are put in place leading t personality clashes• Lack of comprehensive policy, legal & institutional frameworks
that provide guidelines for development & implementation of PPPs
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The Way Forward There is need to have accountability & integrity measures in
contract management in both & private partnerships Need to develop capacity in procurement contract &
performance management Need to develop individual professional knowledge &
competencies in contract management through training Prepare & have Client Charters for contract performance
monitoring & evaluation Establish public expenditures tracking surveys where PEs &
CBOs track budget implementations & assess VFM regularly/yearly inspection audits as they are done by PPRA
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The Way Forward (Cont…)
Strengthening of Integrated Financial Management Systems to manage public expenditures in accordance with the approved budgets
Need for effective internal controls & proper risk assessment hence, PPRA should strengthen their oversight activities & take stern actions to all PEs in contravention of their legal obligations
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CONCLUSION
• This paper has shown that effective contract management relies on three separate but interrelated factors:-
Managing service delivery ensures that a contract is being delivered as agreed to the required performance levels
Managing relationships which are open & constructive aiming to resolve contractual problems when they arise
Contract administration which provides governance & accountability through tracking & recording delivery
All three factors must be managed effectively & consistently if the procurement contract is to succeed.
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