Signing contracts is a complicated business – and too often, officials relax as soon as the ink has dried. But a recent round table heard that poor supplier management can wreck the best of contracts. Stuart Watson reports

For some years now the role of the civil service in directly delivering services has been shrinking; these days, departments are just as likely to commission external suppliers to handle the delivery end. That process is set to accelerate under coalition policies – and as more services are outsourced to suppliers from the private and charitable sectors, it will become ever-more important to ensure that those suppliers are delivering value for money.

Meanwhile, the government also needs to get better value from the contracts underpinning its own back office systems; the Cabinet Office has already produced big savings by renegotiating and aggregating departments’ contracts with big IT suppliers. However, the civil service’s record on contract management is patchy: several National Audit Office reports have called for the development of improved skills to get the most from relationships with suppliers.
That task is far from easy. Supplier management requires a clear agreement on outcomes, roles and responsibilities. And the environment in which it must be carried out is an increasingly complex one. Commercial professionals in the civil service will need to balance an increasing centralisation of supplier management – the Cabinet Office business plan says this shift will begin in July – with the coalition’s ambition to engage with a diverse group of service providers as part of the localisation and Big Society agendas. More challenges will be created by increasing the use of approaches such as payment by results.

Last month Civil Service Worldhosted a round table, sponsored by specialist sourcing adviser TPI, to examine the effectiveness of supplier management in the civil service, and to discuss how managers can ensure that contracts deliver both improvements in services and value for money.

An inconsistent record
As the discussion got under way, the assembled civil servants demonstrated that they were fully aware of the scale of the challenge in a blunt assessment of many existing supplier arrangements. The Government Property Unit’s Deborah Rowland said her team has identified 4,000 facilities management contracts across government: “Each one is different. Everyone has been using different standards. Some are good and a lot are bad,” she revealed.

Badly drafted contracts lead to ongoing difficulties in supplier management and greater costs, added Gerda Matthews, who commissions and manages HR-related services for the Ministry of Justice: “Contractors have not been clear on what their responsibilities are. There are areas where nobody seems to be responsible and you need to pay suppliers a lot more money to cover [those areas], or bring in another layer of suppliers,” she said.

Colin Welch from the UK Border Agency agreed that a lack of detail in the specifications given to suppliers, and poor clarity in the assignment of risk and responsibility, is the cause of poor performance in many cases. “How can you manage someone if you don’t have clear milestones?” he asked. Peter Walmsley, of the Foreign and Commonwealth Office, agreed: holding to clearly identified milestones is the basis of good project management, he said.
Matthews said she believes that people take short cuts in the procurement process and “get bitten by it later on” when contract management proves difficult as a result. However, several of the group also identified examples of good practice. Maria Woolstenholmes, who is responsible for managing the Department for Environment, Food and Rural Affairs’ largest ICT contract, said that when she took on the role she was very impressed with how it had been set up and managed previously.

The financial imperative
With contract management becoming an increasingly large part of administrative activity, it is clear that the civil service’s track record must be improved upon if efficiency savings are to be achieved. Gerry Marlow, head of resources and commissioning at the Home Office, said that only 20 per cent of his team’s activity is focused on procurement, with 80 per cent of its efforts engaged in managing existing arrangements: “With the state of our country’s finances, we need to do [contract management] better than ever before.”

One obstacle, suggested Marlow, is that a lack of hard data on the costs and savings attached to good contract management means that the work is not adequately resourced. The panel discussed how much could be saved through better supplier management. Welch reckoned that 8-12 per cent is achievable, but added that this saving has to be offset against the time and expense required to capture it. Danny Jones, coming at the question from another direction, said that neglecting supplier management leads to unnecessary expenditure in the range of 5-30 per cent of annual contract value.

The government, Welch argued, operates under a particular set of blockages and constraints that prevent civil servants from taking steps to reduce the cost of contracts; for example, its refusal to send sensitive information abroad for processing or management. A root-and-branch review of these obstacles should be undertaken, he argued, to ensure that they are all justified. “We need to look at what we can strip out of our contracts, but we always struggle in the area of IT,” he said. “Certain information cannot be off-shored.”

Danny Jones then raised another problem: in some fields, he said – such as major IT procurements – there are a limited number of organisations capable of meeting the contract’s requirements. In these areas, Jones questioned whether there’s a functioning market that can be used by government to drive down costs.

Becoming an ‘intelligent client’
The issue of whether government has the skills to manage suppliers well, and how these skills can be improved, was one the group returned to throughout the discussion. “Rarely do I see technical expertise, project management and procurement skills mesh together,” said Walmsley – an analysis that received general assent.

Walmsley introduced to the discussion the concept of the “intelligent client” – a term used to describe a manager who combines technical and commercial expertise. Marlow said that there are people in government with these skills, but Walmsley and Welch doubted that all those in key positions possess them: there are too many generalists among senior responsible officers, Welch suggested. A truly intelligent client, Welch argued, would be capable of challenging suppliers to drive costs down.

Defra’s Woolstenholmes raised another challenge. “We are not good at capturing knowledge on procurement,” she argued. “We have to get better at sharing best practice across departments.” The Home Office’s Bernard Quinn added that while there is expertise in contract management within government, better arrangements are required for the pooling of that knowledge so that all departments can access it.

Unfortunately, while there is a need to spread and develop good practice in this area, training budgets are being reduced across the civil service. “Government needs to learn that if it wants to get better it has to invest,” cautioned Welch.

Implementing process change
A common problem identified by Welch is that when a relationship with a supplier has failed and a decision is made to sign up with a different contractor, the commissioning body is frequently faced with dealing with the same people, transferred to the new supplier under TUPE regulations.

However, Jones argued that the problem often lies not with the people, but with the process: before blaming a relationship or supplier for errors or failures, civil servants should make sure that the processes and systems embedded within contracts are robust and streamlined. “There are lessons to be learned from offshore outsourcing, where they have worked on processes and systems rather than one person’s knowledge,” he said. He added that fixing a flawed system is often more effective than, for example, driving down labour costs: “There are a lot of efficiency gains that don’t involve going to Bangalore.”

Jones contended that government has the scale and scope to specify where the risks will fall and who will pay for what, as long as it goes into sufficient detail at the procurement stage to drive out uncertainties.

The civil servants, however, identified a number of problems with changing processes. Walmsley said ministers need to consider the potential job losses involved in outsourcing. Welch added that regular changes of political leadership make it difficult to institute reforms that could take years to accomplish. “Unfortunately, a huge number of people in our environments know that if they sit still long enough, the bus will come around again,” he said.
Jones responded that in the commercial world the “payback period” for such process reforms is frequently one year. Fruitful reforms can often be achieved incrementally, he advised: “To eat an elephant you need to take many small bites.”

Centralisation or ‘Kremlinisation’?
Under the guidance of John Collington, head of procurement in the Cabinet Office’s Efficiency and Reform Group, procurement across government is being centralised and streamlined in certain key categories. The Cabinet Office has indicated similar plans for supplier management, outlining in its business plan last year that it will introduce centrally co-ordinated supplier management from July 2011. However, the round table revealed that procurement professionals have a limited understanding of the Cabinet Office’s approach and intentions, with many expressing concern that the centre will end up micromanaging and over-bureaucratising processes.

Property expert Rowland suggested that Collington’s team could be helpful in sharing expertise across departments, but the Home Office’s Marlow asked: “Is this Kremlinisation really a good idea, or are we kidding ourselves? The form-filling mentality could be a big retrograde step. You can have rationalisation and decentralisation.” Meanwhile, Welch feared that the centre was moving towards micro-management, which could undermine morale. Professionals must be trusted to do their jobs, he warned.

Julie Fox, assistant chief inspector at HM Inspectorate of Probation, added that a degree of flexibility across the country is needed in addition to standardised contracts: “You need to have wriggle-room on a local basis,” she suggested.

Walmsley submitted that with commodities such as travel it makes sense to reduce variety, but argued that services must be allowed to vary locally: “If you are designing a good service for a customer they will want some variety,” he argued.

Engaging SMEs and the third sector
The group felt that reforms to procurement are likely to mean dealing with fewer, bigger suppliers across government, and that could present a barrier to engagement with small businesses and charities – already a difficult task. “You would want to use the third sector for local engagement, but bringing them in can be challenging,” said Quinn.

Welch argued that small and medium-sized enterprises can often make quicker decisions and therefore deliver a new product in a shorter time. However, Rowland pointed to the dynamics pushing civil servants towards larger suppliers: in facilities management, for example, the government is likely to sign agreements with big companies, which will then themselves subcontract with smaller businesses.

Like most of the issues under discussion, the consensus among the panellists was that a balance must be sought. The importance of small businesses and efficient contracts; local choice and national thrift; and, perhaps above all, departments’ freedom of maneouvre and the strategic benefits of aligning government operations – all these have to be weighed carefully if civil service contract managers are ultimately to provide the nation with better services at a lower cost.

The last word: How can we manage supplier contracts better?
We asked this question at the end of the event. The responses were as follows:

Denise Colgan, marketing director for Europe, the Middle East and Africa, TPI: “It’s not just about managing an external relationship, but one with a whole ecosystem of internal service providers as well.”

Julie Fox, assistant chief inspector, HM Inspectorate of Probation: “We should have flexibility in contracts to allow for some different needs in local areas, as well as standard processes.”

Danny Jones, partner and director, public sector, TPI: “By creating a mechanism to share knowledge and experience between the people who know how to do this stuff.”

Gerry Marlow, head of resources and commissioning, leadership and change directorate, Home Office: “We need to look at the profile of the person and the skills needed for contract management that really delivers value, then departments must start doing some kind of skills gap analysis.”

Gerda Matthews, technology delivery review management, Ministry of Justice: “We need to be clear what we are asking the supplier to do at the outset. Identify all the gaps and who will cover them.”

Bernard Quinn, channels lead, digital delivery team, Home Office:“Be clear about the benefits of outsourcing at the business case stage. Improve the contract specification, ensure that outcomes are driven through, and manage risk intelligently. It’s not a bad thing to retain some risk.”

Deborah Rowland, head of facilities management, Government Property Unit:“Centralisation of procurement is going to happen, but we need to function as an intelligent client to make sure that local needs are addressed.”

Peter Walmsley, procurement performance, Foreign and Commonwealth Office: “If individuals are empowered with the right skills, a lot can be achieved.”

Colin Welch, assistant director, detention services, UK Border Agency: “We need a speedy conduit for communicating across government to share better practice.”

Maria Woolstenholmes, head of commercial and relationships, Department for Environment, Food and Rural Affairs, was also present but left before the end of the discussion

Written by Stuart Watson, CSW