CONTRACT MANAGEMENT FRAMEWORK

Transcription

1 FRAMEWORK CLIENT ENGAGEMENT 1 CONTRACT (T & Cs) COMMERCIAL ARRANGEMENTS (BUDGET) CUSTOMER REQUIREMENTS AND SCOPE BUSINESS CONTINUITY PLAN KEY PERFORMANCE BENCHMARKING 5 INDICATORS 6 7 PLAN / IMPLEMENTATION / CONTROL 8 OPERATIONAL STANDARDS 12 SYSTEMS 13 REGULAR REPORTING - Budget Management - Benefit Tracking - KPI s - Risks and Issues - Customer Satisfaction 9 RELATIONSHIP MANAGEMENT CONTRACT AUDIT - Contract Review - Continuous Improvement - Change Control/Variation - Dispute Resolution - Escalation - Market Intelligence 14 - HS&E - Legal Compliance - Operational Performance - Supplier Performance CUSTOMER INTERFACE MANAGEMENT INFORMATION 15

2 DESCRIPTION;- PROCUREMENT CLIENT ENGAGEMENT CONTRACT REF: / / CONTRACT TITLE: CLIENT DETAILS LEAD CLIENT: TOTAL CONTRACT SPEND FORECAST YEARLY SPEND OVER TERM CLIENT ORGANISATION: TERM / DURATION CONTRACT START NATIONAL OR LOCAL DATE STRATEGIC / PROCUREMENT / FULLY MANAGED CONTACT CONTRACT MANAGEMENT REPRESENTATIVE;- RESOURCE REQUIREMENTS;- CLIENT SUPPORT REQUIRED TO DELIVER;- SUPPORT FROM 3RD PARTIES / OTHER FUNCTIONS

3 PROCUREMENT CLIENT ENGAGEMENT CONTRACT REF: / / ENGAGEMENT / CONTRACT REQUIREMENTS PROCUREMENT CRITICAL SINGLE SOURCE Y / N Y / N CATEGORY A CATEGORY B NEW CONTRACT EXISTING / ADD ON EX / AD OBJECTIVE OF ENGAGEMENT ENGAGEMENT DELIVERABLES DEFINE TECHNICAL STANDARDS / QUALITY STANDARDS % CLIENT RESPONSIBILITY % PROCUREMENT RESPONSIBILITY ASSESSING TECHNICAL CAPABILITY HS&E REQUIREMENT Q REQUIREMENT LEGAL REQUIREMENT OTHER

4 PROCUREMENT CLIENT ENGAGEMENT CONTRACT REF: / / CONTRACT RISK EVALUATION RISK MITIGATION Variation Required;- Scope / Cost / Strategic Client delegated authority for variation sign off ;- PAYMENT PROCESS PAYMENT TERMS COST PLUS SCHEDULE RATES LUMP SUM FEE BONUS OTHER RETENTION REQUIRED Y / N. PAYMENT SYSTEM REQUIREMENTS / DETAILS ENGAGEMENT AGREEMENT CLIENT: Procurement: DATE: DATE:

5 PROCUREMENT CLIENT ENGAGEMENT CONTRACT REF: / / CONTRACT STRATEGY BENEFIT TRACKING PRE NEGOTIATION TENDER POST NEGOTIATION TENDER SAVING TENDER EVALUATION SCORES CONTRACT AWARD DATE SEALED CONTRACT:- COPY WITH LEGAL AGREE KPI S;- UNSUCCESSFUL TENDERS INFORMED SUPPLIER PERFORMANCE MEASUREMENT;- SUPPLIER REVIEW DATE OPTIONS / ALTERNATIVES OFFERED CONTRACT AGREEMENT CLIENT;- Procurement;- DATE;- DATE;-

6 CONTRACT (TERMS & CONDITIONS) Terms and Conditions are used within a Contract or Framework Agreement to establish specific obligations which are legally binding between the two parties. Methodology Terms and Conditions form the core part of an Invitation to Tender, whether that is a faxed enquiry (referencing standard Terms & Conditions) or a sealed bid tender. Agreement of the final Terms and Conditions is an element of the negotiation process. Procurement will lead the negotiation process in respect of standard Terms and Conditions, and must identify specific clauses to be incorporated in the contract to facilitate sufficient control throughout the contract duration. Additional clauses may be considered for specific commodity groups or standard clauses may be amended to suit the particular commodity group. Examples are, but not limited to:- Arbitration/Dispute resolution Termination Performance Measures/Service Level Agreements/Key Performance Indicators Audit Requirements Continuous Improvement/Gain share Pricing Regulation Payment Process/Terms/Volume Assignment Tooling Extension Delivery Rebates/Quantity Bands Management Information Benchmarking Contract Review Process/Frequency/Attendees Confidentiality Agreements Health, Safety and Environment Liquidated damages Incentives Claims Process Publicity Remedies Variation/Change Control process Contract Management Process Output Contract/Agreement with appropriate terms and conditions and contractual remedies to ensure that the contract can be effectively managed throughout the contract period.

7 COMMERCIAL ARRANGEMENTS (BUDGET) The contractual arrangements that stipulate what the payment process and method of operation within the contract will be. Methodology Contract Management need to influence the commercial arrangements incorporated into any contract to ensure that they are manageable. What the payment process is and who will manage the budget need to be established before the contract commences. The commercial arrangements need to drive performance and ensure that minimal contract leakage occurs. Therefore the customers will need to be advised of the correct process of operating the contract, for example how a hotel room is booked or how to order protective clothing. There are various methods of calculating payment to a Supplier/Contractor, which will be agreed and included within the Contract. Examples are:- Volume/Quantity Bands - price dependent on quantity purchased over a specified period. Schedule of Rates - range of prices for agreed activities, i.e. cost per hour. Cost Plus - actual cost plus % profit Fee Bonus - management fee plus bonus for increased performance. It is important that the payment mechanism is established and a reporting structure developed dependant on the method. Other issues that should be considered are as follows:- VAT Start up costs Payment terms Invoices Output To ensure that the value/benefit potential of any individual contract or group of contracts is maximised for the Company.

8 CUSTOMER REQUIREMENTS / SCOPE Identification of the customer s expectations and deliverables. The scope will detail the specification and method of operation. Methodology To initially define in the contract the general requirements, operating principles, roles/responsibilities and volumetric, and subsequently revisit the Client Engagement Form at pre determined intervals to re-establish the scope and objectives of the strategy, timeplans for delivery of the strategy and to ensure the scope and objectives of the strategy are met. To re-establish the Key members associated with the Commodity Group and confirm or redefine the responsibilities of all parties. At this point, constraints should also be identified and discussed with the Project sponsor. Suggested areas that should be included and regularly reviewed include, but are not limited to:- Volume/throughput of contract Innovation within the Commodity Group and Market Place Contract reviews Frequency of management information Process Changes Variations Customer requirements amendments Procurement resources Lessons learnt Specific deliverables contained within the contract Specific deliverables as instructed by the client Obligations of the parties/roles and responsibilities Implementation and start-up phase Changes to scope must be tracked/logged via change control process. Output - Specific requirements/scope detailed/base lined at outset and included in the contract. - Changes to scope tracked via change control process - Roles and responsibilities clearly identified - Record lessons learnt and communicate.

9 BUSINESS CONTINUITY PLAN To ensure that supply/service can continue to an acceptable level until normal operations are resumed in the event of the loss of a critical supplier/contractor. Process Contract details Operational Systems Output - Agreed Business Continuity Plan prior to operational commencement of the contract.

10 KEY PERFORMANCE INDICATORS Agreed performance measures on key areas of the contract to ensure alignment with organisational goals, these can be primary and secondary. Performance indicators are designed to set minimum acceptable standards of achievements for defined tasks which the contractor/supplier must perform and should be linked to payment mechanisms where appropriate. Methodology Primary key performance indicators monitor the particularly significant aspects of the service, e.g. monitor revenue performance on a monthly basis against the agreed budget and performance parameters these can be incentive based. i.e. budget service standards provision of MI unit costs Secondary key performance indicators monitor daily or more general performance, e.g. if providing a help line a secondary indicator would be the response time to answer a phone call. Key performance indicators should be smart and incentive driven to encourage the supplier/contractor to achieve more than the acceptable level, this can be done by linking performance against budget reduction. Procurement is required to determine customer s requirements in terms of services level expectations and contract performance. In addition the contract needs to identify an escalation procedure, including remedies and time scales in the event of a dispute. Performance Matrix The purpose of including a Performance Matrix within a Contract is that it provides a mechanism that enables the Client, the Customer and the Supplier to monitor and measure the performance of the contract. It is important that the Customer and the Supplier sign up to the creation of the original baseline score and any subsequent revisions. This facilitates that arena that allows for all parties to work in partnership to achieve the requirements. The scoring range, (vertical axis), should encompass the basic minimum requirement to the achievement of the world class status. Whilst the weighting, (top horizontal axis), can be tailored to meet any particular areas that need to be focused on. Revisions can of course be made during the lifetime of the Contract, but they should ideally not be made at less than six

11 monthly intervals, this being the minimum time period that any improvements could be accurately tracked and plotted. Along the bottom horizontal axis the areas to be scored and weighted can be inserted. These should be areas that are sufficiently important and / or have already been included within the Contract. There can be more, or less, areas than those shown in the draft example. Obviously the more there are, the more the complex the matrix becomes. An example of how to score the matrix can be found at the end of this section and be modified to suit individual Contract requirements. Output - Key Performance Indicators included in contract linked to payment mechanism where appropriate - Monthly update of performance against Key Performance Indicators / Performance Matrix for management information pack.

12 CONTRACT REF NO: PRIMARY KEY PERFORMANCE INDICATORS OBJECTIVE: DEFINITION: SOURCE OF DATA: TARGET: DATA: +10% Budget -10% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec COMMENTS: (Reasons for the variation) IMPROVEMENTS TO DATE: NAME: Frequency of Reports (as stated): TITLE: Frequency of Measurement:

13 BENCHMARKING The activity of comparing operational and performance measures with internal and external organisations. Methodology Prior to carrying out any form of benchmarking, an As-Is statement should be produced to identify past and current working practices. The As-Is statement should indicate where the data has been obtained. To facilitate bench marking, any contracts awarded should identify what information the supplier/contractor would be required to provide as part of the contract. Improvement plans should be generated where gaps in performance are identified. Output - Report produced for inclusion in management information pack at required levels. - Improvement plans generated where gaps are identified.

14 PLAN, IMPLEMENTATION AND CONTROL To plan and document how a new or existing contract will be communicated, implemented or re-established to ensure that customers are aware of the contract and maximise the benefits. Process The Planning, Implementation and Control process should be designed to ensure the contract is successfully embedded into the business and provides the maximum value. It is important that Procurement work with the clients and suppliers to ensure that the contract is implemented and controlled correctly. The following should be included, but not limited to:- Methodology Plan/Implementation Identify key players for Implementation team Create project plan (realistic time scales/start and finish) Identify constraints, barriers, problems (where possible) Actions to reduce/eliminate above Identify database/information required Identify roles and responsibilities Ensure understanding and obtain sign on (from team) Set implementation review meetings Establish start date to receive implementation management information (MI) Define what implementation MI required Agree and detail recovery plan Draft out admin. Process/procedure (e.g. hoe to order x) + flow charts Establish any training required (build into programme) Decide mode of communication Develop roll-out programme Detail what information should be communicated (include when and who) Agree with PR ( if appropriate) Establish who will produce literature, boards, etc. Help Desk procedure (if appropriate) Problem resolution system Follow up/sweep up sessions time scales Customer satisfaction survey /feedback Disposal plan Branding

15 Communication Identify audience to send communication to Send out communication in planned mode Launch Road shows Review dates/amend plan during implementation Monitor progress/help desk Implement sweep up sessions Feedback questionnaires Publish success/lessons learnt Control Version control on project plan Process for channelling amendments to plan Agree review frequency Communicate to key members changes within a defined timescale Monitor Costs Output - Complete implementation plan agreed prior to contract award - Communication strategy to be agreed.

16 REGULAR REPORTING Standard mechanism for reporting key deliverables of the contract in a consistent manner within agreed time scales. Process Areas to be reported are but not limited to:- Budget Management Benefit Tracking Key Performance Indicators Risk & Issues Customer Satisfaction Budget Management It is essential that the budget for each contract is managed on the client s behalf. Any deviation from the budget forecast against actual expenditure should be tracked and where appropriate should be covered by a variation form. This should be communicated to the customer to ensure that the necessary adjustments are made. Output - Comparison of budget Vs actual costs for management information pack. Benefit Tracking This activity is critical because this will record the value added service that Procurement provides to its clients. Benefit Tracking to be recorded in accordance with Procurement s benefit tracking procedures. Output - Monthly reporting of benefits achieved Vs target for management information pack. Key Performance Indicators Once the Key Performance Indicators (KPI s) have been agreed it is important that these are measured and monitored to ensure that the acceptable standard is achieved. KPI s are to be reported on the monthly actual performance report output Comparison of target against actual performance for the management information pack. Output - Comparison of target against actual performance to be included in the management information pack.

17 Risks & Issues If any risks or issues are identified it should be reported immediately to the Procurement manager and recorded on the monthly performance report. Output - Report for the management information pack.

18 CONTRACT AUDIT To ensure compliance with the agreed contract clauses, performance criteria, legislation and HS&E. Methodology The Contract audit should include, but not limited to:- HS&E Legal Compliance Operational Performance Supplier Performance Bespoke audit can be developed, The frequency of the audit will be dependent on the complexity of the contract and contractual requirements. An example is given below: Criticality 1-4 HS&E Legal Operational Supplier 1 Bi-annual Bi-annual Annual Annual 2 Annual Annual Annual Annual 3 Annual Annual Annual Annual 4 Annual Annual Annual Annual All annual audits to be carried out within 6 months of contract commencement Output - Completed audit held on contract management fill, non conformances reported via management information pack. - Improvement/correction plans developed with responsibilities assigned to nominated officers.

19 CUSTOMER INTERFACE To describe the process and methodology to be used when defining the interfaces between Procurement and the client representative(s) as applied to the management of contracts and framework agreements. Process The process should be determined at the time of client engagement and contract award. This process should be tailored to meet the business needs and client expectations, and should fully address the issues of strategic importance and criticality. Methodology Regular client meetings should be held, the timetable and content of these meetings should be agreed with the customer. Whenever possible a single procurement contact should be nominated. The following list of subject areas, but not limited to, should be used to facilitate this process:- Provision of management information packs including contract take up and spend information. This should also include supplier performance analysis measured against contract key performance indicators, benefits, opportunities and issues. Customer feedback including the use of satisfaction questionnaires. Technical and specification review/monitor suggestion schemes. Establish if client requirements have changed/reviewed workload/deliverables. Monitor the market place and involve client. Lessons learnt to be recorded and held on file for future tendering process. Output - Meeting minutes/report held on file - Relevant information to be included within management information pack e.g. opportunities/issue.

20 OPERATIONAL STANDARDS Identification of all interfaces and agreed rules of engagement between parties Methodology Procurement is required to ensure that all parties understand and are aware of their roles and responsibilities. Who does what, when and how to achieve the agreed operational standards. This should be communicated to all clients so that they are aware of the operating procedures and the feedback process. In addition any relevant standards should be taken into consideration e.g. ISO9001 ISO14001 Kite Mark Output A manual of operating procedures detailing the interfaces between the parties and all relevant standards, to be produced within 3 months of contract commencement.

21 RELATIONSHIP MANAGEMENT Development of relationships ensure continuous improvement and enable the relationship to be measured through agreed performance and contract management systems, thus producing added value and benefit. Methodology The relationship management process will include contract review meetings, continuous improvement and management, relevant market intelligence collection and supplier. Contract Review Review meetings need to be scheduled in accordance with the criticality criteria to ensure that the pre determined contract deliverables are monitored. Continuous Improvement Suppliers/contractors should be encouraged to continuously improve the business sector to which they are part of, whether this be sharing best practice, innovations or stretching beyond industry standard performance e.g. :- Value Analysis Value Engineering Inbound Freight RPI X Packaging Demand Forecasting Change Control / Variation Process Before a change/variation is agreed, the following needs to be considered:- Is the change allowable under the terms of the contract? Impact of change/variation on the contract as a whole Cost implications/benefits both qualitative and quantitative. Resource issues Identification of Stakeholders Is the change necessary? Risks Authorisation level for variation A change management process will be agreed within the contract which will determine who can initiate the change control mechanism and authorisation process.

22 The change control/variation form should be completed for any services or additional costs outside of the agreed contract. Output - Summary of variations and impact for management information pack - Trend analysis produced to identify possible areas for improvement. Dispute Resolution Disputes/Claims should be resolved in accordance with agreed process. Output - Update on outstanding disputes/claims for management information pack Escalation Process Any dispute/claim should be resolved in accordance with the agreed process. Where a dispute resolution clause is contained within the contract, this route should be followed. However if no satisfactory resolution is reached, this should be escalated to your manager and legal department if not already involved. If the dispute/claim is with a customer, every effort should be made to resolve the issue locally and within 7 days of the issue becoming known to either party. If no agreement is achieved between the parties within 30 days the issue should be escalated to your manager. Output - Report on progress via management information pack. Supplier Development Supplier Development has been defined as a mechanism for sharing or creating best practice between the supplier and the buying organisation, and when undertaken professionally and appropriately it can be extremely powerful and financially beneficial to all parties involved. There is no single approach to Supplier Relationship Management or Supplier Development. Procurement professionals must select the most appropriate approach to suit their relationship with the supplier that they have selected for development. It is often argued the Procurement professionals should only select their best suppliers for the Supplier Development but, believed that this is too prescriptive and that less than best suppliers can be developed as deemed appropriate. Supplier Development involves embracing supplier expertise and aligning it to the buying organisation s business need where appropriate vice versa. The objectives for development can be relatively minor such as basic improvements in the customer care, or very substantial such as the redevelopment of an entire range of critical products. There are many valid reasons for embarking on a supplier development exercise; examples would be to develop a product of currently available in the market place, or to generate competition for a high price product dominating the market place. Whatever is involved, Supplier Development should lead to improvements in the total added value from the supplier in question in terms of product, service, business processes and performance, improvements in lead times and delivery for instance.

23 Value Analysis is a key part of Supplier Development and its objective is to reduce the cost of a product or service without diminishing the operational value. It often involves developing a product s differentiation opportunities. Value Engineering is another aspect of Supplier Development and is similar to Value Analysis but it takes place before a new product is finalised. During Value Analysis or Value Engineering, the Purchasing professional and supplier work together with colleagues e.g. engineers, from both organisations to identify ways in which costs can be removed or the product differentiated. The end results of properly executed Supplier Development should always be quantifiable (and therefore financial) business benefit. Market Intelligence Market intelligence is a vital element of relationship management, know your supplier and the market place within which it operates.. This can be achieve in various ways:- Gathering of information regarding general trends within the product/service group i.e. what are the prospects for the sector, is it growing or reducing, what are the barriers of entry. Competitor analysis what is the source of competitive advantage i.e. technical, commercial, availability of new products? Customer analysis who are they? What are their buying/sourcing motives? How will the customer model change overtime e.g. relationship between asset/operation. Stakeholder analysis consider external forces and what legislation has an impact within the market sector. Output - meeting minutes/report held on file - opportunities identified and improvement plans established - relevant information to be incorporated into management information pack i.e. opportunities, issues and continuous improvement.

24 MANAGEMENT INFORMATION To produce regular and ad hoc management information to clearly demonstrate the benefits achieved and highlighted the opportunities and issues associated with current or future contractual arrangements. Methodology Regular Monthly Reporting Upon completion of the tracking process, reports of benefits accrued should be presented to the business client. These reports should be subject to a critique and produced monthly in accordance with the reporting pro forma document. Management Information Tailored to Client Requirements The collection of data that measures the usage and spend related to contracts and framework agreements. This data will also be used to measure the performance of Suppliers, Contractors and Service Providers. This information is critical to both the business client and Procurement. Process The collection and storage of MI will vary when applied to the procurement of goods, services or works. The tools and systems to be used are as follows (but not limited to):- Spreadsheets MS Project Providers own systems All suppliers and contractors are contractually obliged to provide management information. The format and delivery of this information should be agreed with the provider and must be consistent with the process detailed herewith. Goods Information collected should identify volume usage by unit, sales value, weight if applicable and also include information regarding delivery and logistics charges. This data should be captured by month and year to date. The aforementioned will aid the process of benefit tracking.

25 Services Management information to be collected should include details of activities completed, total cost of invoices submitted, total cost of invoices paid and the verification of rates. Timeliness of service delivery at agreed levels should be monitored and measured. Works Management information should capture progress or completion against project budget. Identify potential claims situations. Areas to be considered (but not limited to):- Weather Late delivery of free issue materials Incorrect materials ordered or supplied Incorrect information supplied, i.e. plans, maps, specification Unforeseen circumstances. Output - Detailed benefits tracked on a monthly basis and incorporated into management information pack - Management information pack produced monthly detailing performance and tracking:- * budget * key performance indicators * benefits * opportunities/continuous improvement * tailored management information to customer requirements