Transforming Contract Management in the UK
Is Contract Management the new black for the procurement profession?
Tim Cummins, CEO of IACCM, has been broadcasting the value of contract management to his growing readership for some time now, demonstrating the virtues of good contract management, but also the growing necessity of it. In this eSeries we share 10 of Tim Cummins blogs which help define and demonstrate this statement. Part 10, ‘Transforming Contract Management in the UK’ below. Subscribe to our blog to receive the next installment directly to your inbox.
The UK government is at the forefront in its recognition of the importance of contract and commercial management. It is leading many private sector organisations in its efforts to transform. On March 23rd, the powerful Public Accounts Committee of the UK Parliament issued its review of progress. Here is IACCM’s perspective on that report.
“The Public Accounts Committee has rightly identified the need for ‘transforming contract management’. The challenging environment for delivering high quality and affordable public services necessitates far greater focus on integrated commercial competence and contract management capability. The committee highlights continuing gaps and urges an increased sense of urgency and control.
The scale of change implied by this ambition must not be underestimated. Private sector organisations face a similar dilemma and in many cases are not demonstrating great success in their change initiatives. Essentially, today’s business is struggling to adapt to a networked world in which digitisation is now fundamentally disrupting trading relationships, business capabilities and the terms of trade. Contract management sits at the nexus of these forces and is transforming from a largely administrative task to a dynamic role that orchestrates change and makes sense of market volatility.
In its March 23rd report on the state of contract management in the UK government, the Public Accounts Committee observes:
“While government has made encouraging progress in some areas, the pace of change is disappointing. We expect the Cabinet Office to raise its game, be more assertive and challenge those departments that are lagging behind, as well as supporting them where necessary. Given the increasing scale and complexity of government’s contracts, departments need to focus on the governance, systems and assurance frameworks around their major contracts, as well as recruiting more commercial staff. The government also needs to tackle the longstanding problem of a civil service culture that does not place enough value on commercial expertise. We expect the Cabinet Office and individual departments to accelerate the pace of change and be able to demonstrate tangible improvements by the end of this parliament, so that we see a civil service which is first rate at managing commercial contracts.”
IACCM’s unique experience in this field leads to the following observations.
The issue of assertiveness and challenge is a valid criticism. Contract management is a pervasive discipline with a myriad of stakeholders and interested parties. It is not simply about overseeing the performance of a signed agreement; it is essentially about ensuring that the agreement is fit for purpose. Many government contracts quite simply are not fit for purpose and there appear to have been limited efforts to challenge the historic models or their suitability.
When it comes to competence, there have indeed been efforts to assess contract management capability at a departmental level, but I would suggest that the model being used is timid and outdated. The assessment framework that has been deployed is almost 10 years old and it does not reflect the dramatic change in environment and needs that followed the financial crash and the massive re-think in public service delivery models. Departments are being tested for their ability to manage the past, not the future.
Some of the work that has been undertaken on skills is truly world-leading. However, it needs to move at a faster pace and the tone needs to impart a greater sense of urgency to individuals. Existing commercial staff will become an impediment to change if they are not energized and excited about the opportunities ahead and if they are not engaged in new ways of working that include the requirement to raise their skills. Too often, contract management is being seen as a sub-element of Procurement; this is a fundamental mistake and prevents rapid progress.
The Committee is mistaken in its apparent belief that increased recruitment is the answer and the Cabinet Office is similarly wrong to cite pay as the primary issue. While selective recruitment will assist, the real problem is a general lack of candidates with the skills that are needed. Industry is facing a similar challenge because there has been insufficient investment in these core competencies. Therefore, an urgent focus on skills development and training is critical, as well as more focus on implementing tools that will support commercial capability and efficiency.
Several departments have increased their focus on ‘contract owners’ and their accountability for driving performance and achieving outcomes. This is an insightful approach and there has been excellent work in designing and defining the program. Many of these contract owners are commercially astute and ready to challenge outdated contract and commercial practices. However, they need greater support and more opportunities for mentoring.
It is especially interesting to note that, while technology is fundamental in creating this challenge, there is no mention of it in the report. This is a massive omission and should be a core focus of any improvement. For example, last week the head of the US Armed Services Committee concluded that contracting today is so complex that it demands the application of artificial intelligence. Such vision is a glaring omission in the report and appears to be absent in a substantive way from the plans of the Cabinet Office. Without creative use of technology, the task of transformation will prove overwhelming and it will fail.
In conclusion, contract management transformation demands sustained executive focus and courage in the vision of what it must become. Given our experience at IACCM, the scale of change implied by this transformation will be achieved only through a fully integrated plan led and overseen by powerful executive sponsors. Right now, while there are some excellent individual initiatives, there is no evidence of a coherent master plan accompanied by a clear and well-communicated sense of future mission and purpose. To succeed, transformation demands a spirit of enthusiasm and excitement over what lies ahead. Instead, there is a real risk that the move to increase commercial skills and contract management capability becomes seen as an imposition and a threat.”
Our findings suggest that most business-to-business negotiations suffer from some (apparently fatal) defects. Among these are:
- a lack of coherence
- unclear goals
- rigid rules and standards
- lack of confidence in capabilities and process
- inconsistencies of culture or value which negotiators make little effort to understand
How do these manifest themselves? The findings here are interesting. For example, negotiators on both sides claim that they value a sense of partnership – yet in most cases, neither feels the counter-party offers this. Indeed, on digging further, you find that negotiators are generally not confident about the behavior or performance of their own organisation, so they are understandably hesitant in what they will commit, even though they expect full commitment from the other side.
Also, each side looks for ‘responsiveness’ and hopes for a ‘single point of contact, empowered to make decisions’. Yet again, they consistently feel this is something the counter-party lacks or – ironically – if they find a counter-party with these characteristics, they don’t believe what they are being told!
Flexibility is another key value – but is once more something that each side feels is missing. They criticise each other for the use of standard agreement templates which either reflect the wrong type of relationship or introduce an adversarial focus on legal and financial risk allocation. Often this is tied to issues of culture and the different attitudes to risk – yet there is little evidence that the parties seek to explore those differences and address their respective concerns.
Ultimately, many negotiations suffer from a lack of clear ownership and leadership. The interests of competing stakeholders make coordination extremely difficult and the growth of ‘specialism’ is making that increasingly difficult. As a result, negotiations are often quite fragmented and decision-making may be inconsistent. Desired characteristics like ‘partnering’ and ‘collaboration’ are lost in the more fundamental challenges of skepticism, cynicism and absence of trust.
When I was presenting recently to a group of senior supplier relationship managers, one of them posed the question: “Hands up if you think all suppliers are evil?” Every hand was raised.
In an environment of growing complexity and increased interdependency, the need for organisations to work together in relative harmony has never been greater. Right now, the framework and approaches to negotiation are clearly not helping. Yes, we reach agreement – but at what ultimate cost and with what loss of opportunity?
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