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A guide to contract management

DEPARTMENT OF TRADE, BUSINESS AND INNOVATION

Document control

Document detailsDocument title A guide to contract managementContact details [email protected] and version 29 November 2017

Version 1.2Approved by Director, Procurement Strategy and CapabilityDate approved 13 December 2017Document review Every four months

Change historyVersion Date Author Change details0.1 November 2016 Procurement Policy Initial version1.0 30 November 2016 Procurement Policy Final version1.1 21 March 2017 Procurement Policy Minor amendments to terminology1.2 29 November 2017 Procurement Policy Updates to reflect new procurement

framework, plus changes to document structure and look and feel

AcronymsThe following acronyms are used in this documentAcronyms Full formCA Contract administratorCAPS Contract and Procurement ServicesCM Contract managerCMP Contract management planCO Contract ownerDCIS Department of Corporate and Information ServicesKPI Key performance indicatorNTG Northern Territory GovernmentTBD To be determinedVRS Value risk segmentation

DEPARTMENT OF TRADE, BUSINESS AND INNOVATION of 2729 November 2017, Version 1.2

Table of contents

Contents1 About this guide........................................................................................................................42 What is contract management?...............................................................................................5

2.1 What is a contract?..........................................................................................................6

3 Governance................................................................................................................................73.1 Probity..............................................................................................................................73.2 Defensible decision making.............................................................................................7

4 Roles and responsibilities........................................................................................................95 Establish the contract.............................................................................................................10

5.1 Confirm contract management roles..............................................................................105.2 Contract documentation and information management.................................................115.3 Classify contract based on value and risk.....................................................................115.4 Contract management plan...........................................................................................135.5 Risk management..........................................................................................................145.6 Establish key performance indicators............................................................................145.7 Manage the relationship................................................................................................155.8 Conduct the kick-off meeting.........................................................................................15

6 Manage the contract...............................................................................................................166.1 Manage contract performance.......................................................................................16

6.1.1 Monitor performance...............................................................................................166.1.2 Manage performance..............................................................................................16

6.2 Contract administration..................................................................................................186.2.1 Records management............................................................................................186.2.2 Financial administration..........................................................................................196.2.3 Contract variations..................................................................................................196.2.4 Contract extensions and renewals..........................................................................206.2.5 Manage the relationship.........................................................................................21

7 Close-out the contract............................................................................................................227.1 Manage defects and warranties.....................................................................................227.2 Manage transition..........................................................................................................227.3 Finalise contract.............................................................................................................237.4 Capture lessons learned................................................................................................237.5 Final performance review..............................................................................................24

8 Appendix A...............................................................................................................................259 Appendix B...............................................................................................................................26



1 About this guideThe guide to contract management provides recommended contract management practices for NTG agencies to effectively undertake the contract management stage of the procurement lifecycle (Figure 1).

The guide provides:

1. an understanding of the benefits associated with effective contract management practices

2. an overview of contract management practices

3. guidance on recommended activities to be performed in the contract management stage.

The guide must be read in conjunction with the procurement governance policy, procurement rules and procurement circulars. In addition, agencies must ensure that activities comply with any internal processes in place. This will enable agencies and its personnel to adopt compliant procurement practices that strive to deliver value for Territory.

The various templates and factsheets supporting this guide are listed in Appendix A and are referenced throughout the guide with the prefix C1, C2, C3 etc.

Figure 1



2 What is contract management?Within the NTG, contract management refers to the process of systemically and efficiently managing the contract establishment, execution and close to maximise operational and financial performance, and reduce risk. The main aim is to ensure that contract deliverables are provided on time, at the agreed cost and to the specified requirements.

Contract management comprises of the following three stages:

1. establish the contract (refer section 5)

2. manage the contract (refer section 6)

3. close-out the contract (refer section 7).

Each stage is further explained in sections 5 to 7 of the guide as noted above.

Purpose of contract managementWhy is contract management important?

to effectively deliver contracted supplies at agreed levels and pricing

to ensure ongoing contract compliance and performance

to develop and maintain a collaborative relationship with the contractor

to effectively deliver contracts at or under agreed costs and rates

to enforce and fulfil the contractual obligations of both parties as required

to keep key stakeholders informed

to capture changes to the contract and resolve disputes.

What are the risks if the contract is not managed effectively?

disruption of supply of goods and services

increased disputes and contract issues, with NTG being potentially exposed to claims

reputational damage for NTG and the contractor

value for Territory is not maximised

forecast benefits/savings are not realised.

Successful contract management sets standards for an efficient and effective process that allows both the principal and contractor to understand and meet the obligations of the contract. This is achieved by fostering and facilitating a collaborative approach, which prevents disputes, and supports the realisation of value for Territory and client satisfaction.

Successful contract management results in:

both parties being satisfied with service delivery results

the achievement of expected business benefits and value for Territory outcomes

cooperative and collaborative partnership with the contractor

better understanding by both parties of obligations under the contract

reduced likelihood of disputes and ‘surprises’.



The benefits of successful contract management are outlined in the following table.

Benefits Description of benefitsAchieving better value for Territory outcomes

realising cost savings and maximising the value delivered for the Northern Territory

limiting costs associated with risks arising during the term of the contract

monitoring costs in line with projections.

Improved operational performance and service outcomes

improving the benefits flowing to agencies and contractors by managing the contractor’s performance, maintaining quality, improving productivity and identifying opportunities for improvement

promoting innovation and continuous improvement

providing easy access to accurate contract information that can support effective decision making

building positive stakeholder relationships.

Reducing risk ensuring compliance with contract requirements

effectively managing risks inherent in the contract through robust contract management practices

providing an overview of key learnings that can be built into future contracts for goods and services.

Improved local business outcomes

realising local content commitments

enhancing relationships with local businesses

identifying additional local business opportunities during the contract period.

2.1 What is a contract?A contract refers to the documents that constitute or evidence the final and concluded agreement between the principal and the contractor concerning the delivery of supplies. In simplistic terms, a contract is a legally binding agreement between two (or more) parties. In the NTG, contracts generally consist of the following:

conditions of contract and any special conditions

notice of acceptance

request for tender

the contractor’s tender response

contract amendments and variations

other documents referred to in the conditions of contract, special conditions, and request for tender as forming part of the contract (e.g. specifications, standards, etc).

In some circumstances, the contract may be a single document executed by both parties. Either way, it is important that all staff involved in the management of a contract are aware of what forms their contract, and what the contract entails.



3 GovernanceTo ensure the success of the NTG’s procurement processes (including contract management), there is reliance on a number of structures already in place in agencies, in particular:

project planning and management

a sound financial management framework based on the Financial Management Act

audit and fraud prevention programs and frameworks

good standards in governance

professional conduct and capabilities of staff, based on Office of the Commissioner for Public Employment requirements

maintenance of appropriate records of procurement activities in accordance with NTG records management standards and guidelines.

Due to the varying agency organisational structures, recognition can only be given to generic contract management structures in this guide. Some interpretation will be needed in agencies to accommodate recommended approaches to suit their agency.

Staff managing contracts must ensure consideration of their agency structures and processes.

3.1 ProbityProbity aims to maintain the integrity of the public sector by adopting and following well-considered procedures and processes to ensure that procurement decisions are fair, transparent and defensible.

The broad objectives of probity in procurement are to:

provide accountability

maintain integrity

ensure compliance with processes

ensure that contractors are treated fairly

minimise potential conflicts and the potential for litigation

ensure the contract provides the best outcome

avoid the potential for misconduct, fraud and corruption.

When managing a contract, it is important to ensure:

fair and impartial behaviour

accountability and transparency

lawful behaviour

adequate management of conflicts of interest that may arise

security of commercially sensitive and confidential information.

It is important to ensure that procurement activities are always conducted with adequate probity in mind throughout the entire lifecycle.



3.2 Defensible decision makingThe agency and its personnel must ensure that all procurement recommendations, decisions and actions are defensible. Defensible means that the decision is based on proper consideration of the situation and information available at the time (including information that is reasonable to obtain), free from real or perceived bias and procedurally fair.

This applies throughout the entire procurement lifecycle. For example, in the contract management phase, it will apply to any decision to extend or vary a contract.

Further guidance on defensible decision making is provided in the guide to planning available on NTG Central1.

1 http://ntgcentral.nt.gov.au/ntg-tools-services/procurement-and-contracts/procurement/procurement-documents


http://ntgcentral.nt.gov.au/ntg-tools-services/procurement-and-contracts/procurement/procurement-documents


4 Roles and responsibilitiesThe table below defines key roles and responsibilities associated with the sourcing stage. The roles identified in the table may have alternative naming conventions within each NTG agency. Agencies should interpret roles and responsibilities to align with terminology relevant to their agency.

Clarity of roles and responsibilities is critical in achieving efficient and effective contract management. It is recommended that roles be allocated early in the procurement lifecycle, ideally in the planning stage to provide personnel the opportunity to be aware of, and provide input into, the procurement planning and sourcing stages.

Agencies should ensure that contract management personnel have the skills and training commensurate with the value and risk of the contract. Where necessary, and without compromising the procurement process, the same employee can be assigned to more than one roles.

Roles ResponsibilitiesContract owner (CO) oversees the contract and any major contractual changes

and strategies

accountable for the budget/cost centre that funds the contract

delegation to approve contract payments and variations

assigns contract management roles

final arbiter and decision maker with regard to contractual matters.

Contract manager (CM) manages contracts through post-award lifecycle as the single point of contact for the contractor on all contract matters

monitors contract performance and compliance

ensures delivery reflects the contract’s requirements

identifies and manages risk.

Contract administrator (CA) performs administrative activities over the contract management lifecycle (eg records and information management, cost control, etc)

regular checks key milestones and deliverables are occurring in accordance with the contract requirements

ensures payments are made in accordance with contractual requirements.



5 Establish the contractThe focus of this step is to define the risks, roles, responsibilities, contract objectives and activities required to effectively manage a contract. The core purpose of this step is outlined in the following table.

Purpose of contract establishmentWhy is contract establishment important?

to define clear roles and responsibilities for managing the contract

to determine an information management structure

to classify the contract based on its value and risks, ensuring the allocation of appropriate resources

to define and agree on the necessary activities for managing the contract

to formulate a risk based contract management plan

to establish and document clear expectations with all parties at the commencement of the contract execution phase.

What are the risks if contract establishment is not performed?

lack of accountability for contract management activities

ineffective allocation of contract management resources without proper consideration of value and risk

failures on contract delivery due to poor planning/management

failure to realise local content commitments

failure to demonstrate procurement framework compliance.

5.1 Confirm contract management rolesAs noted earlier in this guide, there are three key roles supporting the management and administration of contracts. On appointment, it is recommended the contract owner appoints the roles of contract manager and contract administrator, ensuring the appointees understand their respective roles and responsibilities. The formulation and agreement of a RACI2 matrix (refer to Appendix B for an example) will assist to provide clarity of responsibilities and accountabilities.

It is important that the right people are assigned to the roles aligned with the value risk classification (see section 5.3) and nature of the contract. To support effective and efficient contract management, the contract owner should consider the following when selecting a contract management team:

Are specialist skills and experience necessary to manage the contract? Do we have the necessary capability within the agency?

Do the appointees have the required experience, knowledge and authority for the role given the contract classification and risk profile?

Are they able to allocate time to undertake this role?

Can one person assume multiple roles?2 The acronym stands for ‘responsibility, accountability, consulted, and informed’. A RACI matrix aims to identify the key positions/stakeholders involved with a particular task, or in some cases, a group of tasks and to identify the nature of the relationship that each position/stakeholder has with the relevant task or set of tasks.



Are they willing to take accountability for this role?

5.2 Contract documentation and information managementIf not already in place at the commencement of the contract management phase, it is recommended the contract manager establishes a contract information record management approach (ie, where, what and how to store contract related documents and communications) utilising a contract management information system such as Contrax or other form of information repository with appropriate access controls.

Should the appointed project officer and contract manager incumbents differ, it is strongly recommended that a handover is conducted to ensure the following:

handover of key contractual documents, ensuring all relevant documents are accessible by the contract management team, including but not necessarily limited to:

o conditions of contract and any special conditions

o notice of acceptance

o request for tender

o the contractor’s response

o contract amendments and variations

o any other documents referred to in the conditions of contract, any special conditions, and request for tender

o any applicable health and safety requirements

o draft contract management checklist/plan (if completed), including details of:

contract classification based on value and risk

contract scope and objectives

expected deliverables and milestones

payment terms

insurance and securities provided

key performance indicators (KPIs) and performance measures/service levels (if applicable)

o risk assessment (if previously undertaken)

o contract implementation plan (if applicable)

o insurance certificates of currency

o any other relevant documents (eg bank guarantees, key correspondences, etc)

review documents, contract scope and expected outcomes to assist contract manager to develop a thorough understanding of the contract.

5.3 Classify contract based on value and riskSegmenting contracts based on value and risk in the procurement planning process is required to effectively identify the key activities and resources required to plan, tender and manage a specific contract. If not completed earlier in procurement lifecycle, it is recommended to complete a value risk segmentation (VRS) to guide the contract management approach.

Below is a classification framework that categorises contracts into one of four types, segmenting contracts on the basis of value and risk, resulting in the following classifications:



routine contracts (low risk, low value)

leveraged contracts (low risk, high value)

focused contracts (high risk, low value)

strategic contracts (high risk, high value).

A copy of the VRS should be kept with the contract records. The VRS tool is provided at C1: Value risk segmentation tool.

The table below outlines the recommended contract management approach for each contract classification as determined by the VRS. Contracts identified as higher risk and higher value require experienced contract management personnel and greater rigour to manage than a routine contract. As a result, the approach to each contract management step can vary depending on a contract’s VRS.

Contract type Risk Value ApproachRoutine Low Low These contracts are generally transactional in nature and

will not require significant levels of contract management effort.

Leveraged Low High With low risk and high value contracts, the focus will be on how to leverage value from the agreement. The focus may include activities such as spend monitoring, minimising cost per unit (eg volume discounts) and managing efficiencies such as unit rate improvement or DIFOT performance (delivered in-full, on-time).

Focused High Low These contracts warrant a contract management plan (CMP), with a strong focus on risk mitigation through constructive relationship management, close monitoring of performance, and regular reporting and meetings with contractors.

Strategic High High High risk, high value strategic contracts require a significant



Contract type Risk Value Approachamount of effort and attention in order to safeguard the organisation and ensure the effective delivery of agreed outcomes and services. It is recommended that a suitably qualified contract manager is appointed to lead the development and execution of the detailed CMP required to competently manage a strategic contract.

The following table summarises the templates referred to throughout this guide and their relevance depending on contract classification.

Template/tool Routine Leveraged Focused StrategicValue risk segmentation tool High High High HighContract management plan - basic High High Low LowContract management plan - detailed Low Medium High HighContract kick-off meeting Medium High High HighContract performance review meeting Medium High High HighContract extension review - basic High High Low LowContract extension review - detailed Low Low High HighClose-out checklist High High High HighContract lessons learned Medium High High HighContract performance report High High High High

5.4 Contract management planA contract management plan (CMP) is a valuable tool for a contract management team to:

develop a comprehensive understanding of the contract deliverables and responsibilities of the parties involved.

establish value and risk based processes to monitor and guide performance management in order to achieve the contract’s objectives and realise value for Territory.

A detailed CMP is strongly recommended for significant procurements that are considered high risk, complex or of strategic importance to the NTG. Commensurate with the VRS classification, a CMP should include the following information:

contract summary:

o contract name and identification

o contractor details

o contract objectives, scope, key deliverables, due dates

o contract commencement, term and extension options, review dates, estimated value

o pricing and payment terms

key stakeholders, roles and responsibilities

contract risk management and risk value classification

KPIs, targets, monitoring and reporting requirements

performance reporting requirements (frequency, type, content and distribution)

meeting requirements and schedule

process for agreeing and controlling contract variations



other relevant information.

The CMP should be developed in the planning stage of procurement, particularly for high risk contracts, and reviewed throughout the procurement lifecycle. The contract manager is responsible for finalising the CMP during the contract establishment phase. It is recommended that the CMP is regularly reviewed and updated to address emerging issues, needs and opportunities, reflecting any changes throughout the contract term.

For routine (low risk, low value) and leveraged (low risk, high value) contracts, it is recommended at a minimum for a basic CMP to be completed (refer to C2: Contract management plan - basic template for guidance).

For focused (high risk, low value) and strategic (high risk, high value) contracts, it is recommended a detailed CMP is developed (refer to C3: Contract management plan - detailed template for guidance).

5.5 Risk managementContract risk management involves identifying and analysing events (likelihood and consequence) that have the potential to negatively impact on the achievement of a contract’s objectives. For focused and strategic contracts, it is recommended the contract manager actively compiles, manages and mitigates risks throughout the life of the contract.

A risk register template is included in the detailed CMP template. It is recommended that a risk register be completed for high risk contracts, periodically reviewed and updated as the contract progresses. Risk reviews can be incorporated into the performance review meetings to ensure they remain up to date. An escalation process should be put in place, with all high to extreme risks reported to the contract owner for immediate action.

5.6 Establish key performance indicatorsImplementing performance management activities is a fundamental element for delivering the expected value from contracts. It should be noted that not all contracts will have or require key performance indicators (KPIs), however contract objectives will have a better chance of being realised if there is a robust process for capturing and reporting relevant performance metrics.

KPIs are key to managing the performance of the contractor and should be identified early in the planning stage of the procurement lifecycle. If not already completed, this a critical step in establishing a contract. It is recommended the contract manager facilitate agreement as to what KPIs will be measured, how they will be measured, who is responsible for tracking performance and how frequently. This should be a key discussion point at the kick-off meeting (see section 5.8).

Key components of an effective performance management approach are:

appropriate and effective KPIs, aligned to contract objectives

clear and suitable targets

clear monitoring and reporting requirements.

The following table provides a description of example KPIs that may be used to manage the performance of a contract.

Example KPIs Description TargetQuality Quality level of goods and services delivered TBD at or before

commencementOutputs Productivity delivered by the contractor to

meet contract obligationsTBD at or before commencement

Productivity Measures the output produced/delivered per TBD at or before



Example KPIs Description Targetunit of input (eg number of services performed per day/week)

commencement

Cost Total cost incurred to deliver goods and services

TBD at or before commencement

Savings Total savings provided by the contractor to deliver the contract

TBD at or before commencement

Responsiveness Lead-time to respond to requests TBD at or before commencement

Delivered in-full, on-time

Percentage of orders delivered in-full, on-time TBD at or before commencement

5.7 Manage the relationshipPlanned proactive contract management is critical to establishing and maintaining a positive working relationship between the principal and contractor. Relationships are the foundation of success, with a collaborative approach facilitating the achievement of contract objectives, maximising value for Territory and preventing disputes.

Managing the contract in a transparent manner, by clearly and concisely communicating expectations and proactively managing issues as they arise, and investing time and effort into the relationship at the front end will enhance realised value.

5.8 Conduct the kick-off meetingThe contract kick-off meeting provides the opportunity to lay the foundation for a positive, mutually beneficial relationship and contract managers should prepare well to maximise this opportunity. It is recommended a kick-off meeting be organised by the contract manager as soon as possible following contract award and before commencement.

The contract manager, contractor and key stakeholders (such as the main customers, biggest buyer or other stakeholders directly impacted by the contract) should attend. The contract manager is generally responsible for conducting the kick-off meeting and ensuring minutes are recorded and distributed to all parties. A meeting agenda template is provided at C4: Contract kick-off meeting.

The purpose of the meeting is to:

ensure a common and agreed understanding of contract objectives and expectations of both parties.

establish and agree on communication, reporting, delegation of authorities, performance measurements, operational and commercial issues, and escalation pathways under the contract.

A successful kick off meeting will restate, not reshape, the essential elements of the agreement and lay the ground work for effective delivery under the contract.



6 Manage the contractThe focus of this step is to manage contract performance, carry out contract administration and manage the relationship.

6.1 Manage contract performanceManaging contract performance can be further broken down into the following four elements, which are addressed separately below:

monitor performance

manage performance.

6.1.1 Monitor performance

It is recommended the contract manager regularly reviews performance data based on the contract deliverables, obligations and KPIs in the agreement and CMP. Wherever possible, the responsibility for collecting and reporting performance data is placed on the contractor, with the contract manager reviewing and validating the data as deemed necessary to verify reported performance. There are commonly three aspects to performance measurement:

gathering of factual, objective information from the contractor – sometimes obtained from IT systems

gathering feedback from users about the goods and services received – typically through questionnaires, surveys, telephone or face-to-face enquiry

understanding the contractor’s own experience of dealing with the agency.

Obtaining regular feedback from the contractor about any concerns will help early identification of any internal issues that might be impacting performance or ability to provide the best quality of service.

Key contract stakeholders need to be aware of the contract deliverables and KPIs, in order to provide feedback on a regular basis. The table below provides suggested reporting guidelines for each contract classification.

Performance reporting monitoringContract type Routine Leveraged Focused StrategicFrequency By exception Quarterly Quarterly Monthly or bimonthlyAudience contract

owner

contractor

contract owner

contractor

contract users

contract owner

contractor

contract users

contract owner

contractor

contract users

6.1.2 Manage performance

When performance issues are identified during a contract, it is the responsibility of the contract manager to advise the contractor of the concerns, initiating discussions to resolve them. Formal dispute resolution (e.g. mediation, arbitration or taking formal legal action) is costly and should be considered a last resort, with the contract manager and contract owner engaging the contractor proactively to address issues as they arise. Proactive, clear, solution-focused communication leads to improved performance and will foster a professional working relationship between all parties.



To support a proactive approach, it is recommended that the contract manager facilitates regular contract performance review meetings with the contractor. Guidelines for the frequency of these meetings and attendees are provided in the following table.

Meetings to review contract performanceContract type Routine Leveraged Focused StrategicFrequency By exception Quarterly Quarterly Monthly or bimonthlyAudience contract

owner

contractor

contract owner

contractor

contract users

contract owner

contractor

contract users

contract owner

contractor

contract users

It is recommended that contract performance reviews be undertaken via face-to-face meetings, with the following approach:

be chaired by either the contract owner or contract manager

discuss issues openly and honestly

be based on facts and data

record and communicate meeting results, measures and actions

share relevant points with key stakeholders

develop acceptable solutions or remediation plans.

The follow table provides a suggested checklist for preparing for the meeting.

Pre-meeting activities ResponsibleCollect KPI information CMReview previous meeting actions CMConfirm meeting frequency, date and location CM/CASet meeting objectives CMDevelop meeting attendee list and agenda CM/CADevelop meeting materials (eg presentation) CM

The following table captures a suggested agenda for performance review meetings.

Example agenda for contract performance review meeting ResponsibleIntroduction/agenda CO/CMStatus of action items CAHealth, safety and environment CMKPIs and performance highlights CMRisks, issues and complaints (customer perspective) CMRisks, issues and complaints (contractor perspective) ContractorBenchmarking/best practices CM/contractorOpportunities (technical/innovation) ContractorPerformance improvement plans CM/contractorAny other business CAWrap-up/action items CA

A meeting agenda template is provided at C5: Contract performance review meeting.



Where there is a possibility that raised performance issues continue to impact on contract objectives, it may be necessary to escalate discussions and involve subject matter experts (e.g. procurement, technical, operational, finance, health, safety and environment, legal) to:

discuss the specific non-compliance and/or performance issues

allow the under-performing party an opportunity to discuss/respond to performance concerns

agree on measures to address performance issues, including timeframes for implementation, and document a performance improvement plan (if required)

agree on dates for performance review

discuss the need to provide a formal letter to the contractor.

It is recommended that performance monitoring activities increase during the agreed performance improvement period and the frequency of communication with the contractor and key stakeholders increased to keep all parties informed of progress.

All performance discussions should be documented in writing, such as meeting minutes, file notes, email and letter correspondence. This ensures all requirements for resolution of the issues are outlined and provides the necessary evidence should formal dispute resolution processes be required.

Periodically, it is recommended that the contract manager reviews the contract performance measures taking into consideration the below:

Are the KPIs still valid (e.g. following organisational, legislation and NTG policy changes)?

Can the KPIs be objectively measured?

Are the measurements SMART (specific, measurable, actionable, realistic and time-bound)?

Does the performance process drive better contract outcomes or is it performance management for performance management sake?

Is the data readily available or will additional methods need to be implemented?

Should a change be deemed necessary and agreed on, the contract manager may need to amend the existing contract through the contract variation process, using a notice of amendment to include updated KPIs.

6.2 Contract administrationContract administration can be broken down into three elements, which are addressed separately below:

records management

financial administration

contract variations

contract extensions and renewals.

6.2.1 Records management

Information management is an important part of managing a contract as accurate records should be maintained and accessible as required. The contract administrator should keep key contract information updated in the contract management information system (e.g. Contrax) or relevant contract management document repository to drive transparency and compliance.

The following document types represent the potential records that may be required to be maintained and controlled during the term of the contract:



contract documents

insurances, bank guarantees and indemnities

procurement documentation

plans and schedules

safety management plans

variation advices and support information

project correspondence (in and out)

performance reviews (including contract performance reviews, performance reports)

meeting minutes and other records

financial control (including financial management spreadsheet, invoices, purchase orders and work orders)

plant and equipment schedules

contractor issues

claims communication

formal letters to the contractor (e.g. performance issue letters and complaints).

6.2.2 Financial administration

It is recommended the contract management team monitor contract expenditure throughout the duration of the contract, comparing actual expenditure against approved expenditure. The table below provides recommended frequency of financial reconciliations, depending on risk value classification is listed in the table below.

Financial administrationContract type Routine Leveraged Focused StrategicFrequency of reconciliation

By exception Quarterly Quarterly Monthly

Should actual contract expenditure be projected to exceed approved expenditure, the contract manager should seek approval from the contract owner or relevant procurement and financial delegate to increase the contract value (if required). This should be actioned before approved expenditure is exceeded. Contact your procurement services for assistance in determining the need for a notice of amendment and refer to section 6.2.3 for further guidance.

6.2.3 Contract variations

During the term of the contract, circumstances may require a contract to be varied by mutual agreement between both parties. Examples of why variations may be required include:

technological changes or improvements

changes in legislation that impact on the contract and its specification

specification revisions and adjustments

additional quantities of goods under the contract are required

fluctuations in external pricing drivers (e.g. labour rates, commodity prices).

In accordance with procurement rule 29, variations should only be made where the scope of the original contract does not change. Depending on the circumstances, consideration should be given to going back to market for the additional supplies.



Any decision to vary a contract must be defensible and approved by the appropriate delegate. Variations must not be confirmed with the contractor until delegate approval (in writing) has been received.

The standard process for undertaking a contract variation is as follows:

1. Discuss the variation with the contractor and any changes to the contract price. You should advise the contractor that you need to obtain approval for the variation and that it is not accepted until they are advised in writing.

2. Consult with your procurement unit to confirm the process required to accept the variation, including any forms that need to be used (a generic form is available on NTG Central3).

3. Obtain approval from the appropriate delegate for the variation.

4. Confirm with the contractor in writing that the variation has been accepted. This may require a formal notice of amendment letter. Your procurement unit or DCIS CAPS may undertake this task for you.

5. Ensure all documents relating to the extension are placed on file.

The variation process may differ between agencies. If you are unsure, you should contact your procurement unit to confirm the correct process.

6.2.4 Contract extensions and renewals

Period contracts require close monitoring to ensure that extensions or renewals are actioned prior to expiry. Extension refers to extending the expiry date for an existing contract without re-testing the market. Renewal refers to going back to the market to establish a new contract for the same or similar supplies.

For contracts with available extension options, the agency should first consider offering the extension to the contractor, particularly if the supplies remain unchanged and the contractor has been performing well.

If the scope of supplies have changed, the agency should consider going back to market to ensure that best value for Territory is being achieved. This would not necessarily apply to small changes in scope. For example, if the daily routine for a cleaning contract requires some amendments, extending the contract would be reasonable. However, if a new building needs to be included in the scope, it may be more appropriate to return to the market.

If the contractor has been performing poorly, the agency may choose not to extend the contract. The contractor should be made aware of their poor performance and given the opportunity to improve well before a decision to not extend is made. It is for this reason that actively managing the contract and undertaking regular reviews (good or bad) is important.

However, it is important to keep in mind that the contractor should be given the opportunity to improve their performance. It is for this reason that actively managing the contract and undertaking regular reviews is important. The contractor should be aware of their poor performance well before a decision to not extend is made.

The guide includes a contract extension review template that can assist with making the decision to extend a contract or not extend a contract.

The process for extending a contract is generally as follows:

1. obtain delegated approval to extend the contract

2. send the contractor an invitation to extend letter (where applicable, this should include an opportunity for contract rates to be reviewed)




3. if the contractor increases their rates, seek delegated approval to accept the new rates

4. issue a notice of amendment letter confirming the extension

5. ensure all documents relating to the extension are placed on file.

Note: Your procurement unit or DCIS CAPS may issue the letters for you and the extension process may differ between agencies. If you are unsure, you should contact your procurement unit to confirm the correct process.

For contracts without extension options, the agency should go back to the market. Agencies should avoid varying in extension options wherever possible. Varying in extension can be indicative of poor planning and may be subject to criticism in an audit or review.

Any decision to vary in an extension option instead of going back to the market must be defensible. An example of where this may be defensible is a short-term extension to see out the completion of a program of works where going back to at market would not result in better value for Territory being achieved.

Agencies should have processes in place to monitor and renew their expiring contracts in order to avoid varying in extra extensions. The guide to procurement planning4 (available on NTG Central) includes a period contract register to assist with this.

Contracts that have already expired cannot be extended as they are no longer valid. Instead, the agency will be required to commence the planning stage for a new contract.

Agencies should consider the amount of time that will be required to renew or extend a contract to avoid a lapse in services. The time required will largely depend on the nature of the contract and whether it is being renewed or extended. For example, an extension of a cleaning contract may only require a few weeks, whereas the renewal of a large panel contract will likely require a minimum of six months.

Before a contract is extended or renewed, value for Territory should be assessed. For extensions, it is recommended that agencies complete the C6: Contract extension review – Basic for routine contracts and leveraged contracts if the reasons for the extension can be adequately explained in the checklist.

If the contract is considered high risk (i.e. focused or strategic), it is recommended that the C7: Contract extension review – Detailed template is completed, which contains more detailed information to support the request to extend a contract.

6.2.5 Manage the relationship

During the contract execution phase, it is important to continue investing in the relationship with the contractor by engaging in proactive and constructive manner. The processes described in this guide provides the basis for effective supplier (contractor) relationship management (SRM). The recommended processes facilitate a pre-emptive approach, developing a mutually beneficial relationship that enables both parties to identify and prevent issues before they have a tangible impact on contract deliverables.

In circumstances where a complaint is raised, it is recommended the contract manager approach the contractor in a constructive, transparent manner seeking to resolve the issue, facilitating the process where appropriate. This style of SRM will largely prevent adversarial relationships forming, foster a collaborative approach, and support the achievement of reduced costs and increased value for Territory.




7 Close-out the contractThe contract close-out is the step that finalises contract obligations and liabilities with the contractor. It may also include transitioning to another contractor for the provision of goods and services.

Purpose of contract close-outWhy is contract close-out important?

to set a clear completion of the contract with the contractor

to ensure a smooth transition to a new or alternative contractor.

What does contract close-out deliver?

minimises the risk associated with contract close-out.

What are the risks if contract close-out is not performed?

open contract obligations and liabilities

financial exposure

future contractual claims

operational impacts if the transition is not properly managed.

This stage is broken down into five elements, which are addressed separately below:

manage warranties or defects

manage transition

finalise contract

capture lessons learned

final performance review.

7.1 Manage defects and warrantiesLeading up to and on completion of final contract deliverables, the contract manager should conduct appropriate inspection/testing to check for any issues or defects. Where the contract manager identifies a deficiency in the deliverables, it is recommended the contract manager contact the contractor to facilitate a resolution, documenting and forwarding the request for resolution, and requesting the contractor to respond with details on how the deficiency will be rectified.

Following the contract manager’s acceptance of the correction plan and the contractor’s satisfactory correction of the deficiency, it is recommended the contract manager documents and issues a communication that the deficiency has been rectified.

7.2 Manage transitionIn some circumstances, the need for the contracted goods and services will continue, however, a commercial decision may be made to engage another entity to provide the same or similar set of deliverables.

The transition period from one contract to another can be a high-risk period for the agency. It is recommended the contract manager develops a transition plan, considering the following aspects:

identify any specific differences between the current and future contract

develop a communication plan, identify stakeholders, both internally and externally who may be impacted by the change



update internal processes or procedures with any changes required under the new contract.

Depending on the size and complexity of the contract, the transition period may take several months and require ongoing management by the contract manager.

Agencies should commence assessment of any procurement requirements beyond the term of the existing contract in sufficient time before contract expiration to allow for proper reassessment of the agency’s needs and planned procurement. Where the contract is large and/or complex, agencies may need to commence assessing their requirements and the procurement planning process at least 12 months prior to the expiry of the existing contract.

7.3 Finalise contractAt the conclusion of the contract, it is recommended the contract manager ensures the contract is formally closed according to the agreed terms and conditions, utilising C8: Close-out checklist to document the close-out activities. The following steps should be considered when finalising a contract:

verify all deliverables have been completed (technical and financial completion)

verify contractual requirements have been effectively met

complete and verify handover of deliverables (where relevant)

obtain all final reports, documentation and clearances from the contractor

make arrangements in regard to warranties available under the contract

settle any outstanding claims

confirm all contractual obligations have been fulfilled and the contractor has submitted all outstanding invoices

terminate all access arrangements (e.g. rights to site, premises and systems)

demobilise and transition staff

complete the close-out checklist

prepare a final account statement indicating all amounts owed by or to each party, including claims, and forward to contractor for agreement, then payment

where appropriate, the contract administrator should issue a practical completion certificate to formally recognise that all contractual obligations have been fulfilled.

7.4 Capture lessons learnedOnce a contract has concluded, it is important that the contract is reviewed and lessons are logged. This supports NTG’s objective to continually improve its contract management capability.

It is recommended the contract manager brings together the contract management team and undertake a review session to capture the lessons learned using the C9: Contract lessons learned template. It is best to do this before any personnel moves on to other contracts or projects. The purpose facilitating a discussion with key personnel involved in the contract (including contract owner, contract administrator, contractor and key users) is to brainstorm the lessons learned throughout the contract lifecycle.

The following questions could assist in facilitating discussion:

What worked well? What did not work well?

How did the agency report the problems?

What changes are recommended for next time?

How might problems be avoided or resolved more quickly?



What did the agency learn about the industry?

What did the agency learn about the contractor?

What did the agency learn about the contract?

What did the agency learn about the category?

What lessons might affect how the agency agrees to future terms and conditions?

7.5 Final performance reviewThe objective of this activity is to evaluate the contractor’s performance, capturing feedback that can be used as a reference for future work.

The contract manager should conduct a final performance review and discuss any close-out or transition requirements. It is recommended the following should be taken into consideration as part of the review:

whether the contract achieved its objectives

the contractor’s performance

principal performance

satisfaction of the users

contract variations

contract disputes, and the way they were managed and resolved

budgeted versus actual costs

weaknesses and strengths in planning, management and procedures

opportunities for improvement

audit reports.

The depth and detail of the review process will vary depending on the contract, however the review process is critical regardless of the size and value of the contract. As required and where appropriate, the contract manager is to provide feedback from the contract review to the contractor and other parties (e.g. Contractor Accreditation Limited). This will enable any future arrangements to better meet the needs of the principal. A template is provided at C10: Contractor performance report.



8 Appendix A

Prefix and template name Description Location of reference in guide

C1: Value risk segmentation tool

Provides guidance in segmenting a contract based on value and risk, guiding the allocation of finite resources to support the realisation of value for Territory in the contract management phase of the procurement lifecycle.

5.3 - Classify contract based on value and risk

C2: Contract management plan - basic Provides a brief summary of key information for managing low risk contracts. 5.4 - Contract management plan

C3: Contract management plan - detailed Assists in defining and planning in detail key activities and responsibilities for managing higher risk, higher value contracts. 5.4 - Contract management plan

C4: Contract kick-off meeting Provides guidance for facilitating a contract kick-off meeting. 5.8 - Conduct kick-off meeting

C5: Contract performance review meeting Provides guidance in preparing, facilitating and documenting a contract performance review meeting. 6.12 - Manage performance

C6: Contract extension review - basicProvides guidance to contract managers in undertaking a value for Territory assessment to determine the appropriateness of extending a low-risk contract.

6.2.4 - Contract extensions and renewals

C7: Contract extension review - detailedProvides guidance to contract managers in undertaking a detailed value for Territory assessment to determine the appropriateness of extending a high risk contract.

6.2.4 - Contract extensions and renewals

C8: Close-out checklist Provides guidance on the type of activities that need to be completed on closing-out a contract. 7.3 - Finalise contract

C9: Contract lessons learned Assists in documenting the lessons learned throughout the contract lifecycle. 7.4 - Capture lessons learned

C10: Contractor performance report Assists in documenting contractor performance. 7.5 - Final performance review



9Appendix BR = Responsible (blue) A = Accountable (orange) C = Consulted (green) I = Informed (informed)

Step Activities Project

officerContract

ownerContract manager

Contract administrator Contractor Key

users

Esta

blis

h th

e co

ntra

ct

Hand-over of contract information

Contract hand-over to the appointed contract manager A/R C I I

Establish a contract management plan

Classify contract based on value and risk R I A

Confirm contract management roles A R I I

Finalise contract management plan R I A C CSet up information management structure I A/R

Conduct kick-off meeting C C A/R I C C

Man

age

the

cont

ract

Manage contract performance

Establish key performance indicators (KPIs)Review performance measuresMonitor performanceManage performance

I A/R C C

Undertake contract administration

Records managementFinancial administrationRisk managementContract extension, renewal or variation

R C A/R C C/I

Manage the relationship

Establish and maintain effective working relationships A R C C

Clo

se-o

ut Final performance

reviewConduct final performance review of contractor performance A R C C

Contract close-out or transition

Manage issues and defectsManage transitionFinalise contract

A R I I


A guide to contract managementSt

ep Activities Project officer

Contract owner

Contract manager

Contract administrator Contractor Key

users

the

cont

ractCapture lessons

learnedFacilitate discussion to capture the lessons learned throughout the contract lifecycle C C A/R C C C


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