6th PROCUREMENT AND SUPPLIES PROFESSIONALS  ANNUAL CONFERENCE. (6th to 8th  DECEMBER, 2015), AICC, ARUSHA

TOPIC: “Salient Features of Procurement Contract Management in Tanzania.”

By Mr. Peter S. Malembeka, (CSP (T), MSc.(Finance), AU 00550

THEME: “PROCUREMENT CONTRACT MANAGEMENT IN TANZANIA: 

CHALLENGES AND THE WAY FORWARD.”

INTRODUCTION – Contract Management  Definition

• Contract Management is the art and science of managing a contractual agreement throughout the contracting process.

• It is an administrative process to ensure that all parties understand their responsibilities and obligations to a contract.

• Hence, contracting is an integral part of doing business in all stages of the contracting process.

Contract Management as a Process

• Contracting is an integral part of doing business in both public & private sectors.

• There are number of factors that are important in all stages of the contracting process. These include:

Managing risksRelationships and resourcesSpecifying responsibilitiesBehaving ethically, andKeeping records.

Contract Management as a Process  (cont…)

• Contract management as a process enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract.

• It involves building a good working relationship between parties

• It involves managing proactively to anticipate future needs as well as reacting to situations that may arise.

• Foundations for contract management are laid in stages before the contract is awarded including the procurement process.

Objectives of Contract Management

• Contract Management aims to:Ensure that value for money is achieved through

full compliance with the contractual requirementsThe terms and conditions of the contract are metThe goods/services/works provided by the

supplier/contractor meet the specified requirements

Critical Success factors for an Effective Contract

• Good contract preparation and a Careful Supplier selection will result into the right contract

• Each party to the contract need to understand the objectives and business of the other party

• Appropriate service delivery management and contract administration

• Mutual trust and understanding, openness and excelent communication between the contracting parties

• There must be people with the interpersonal and management skills to manage these relationships

Critical Success factors for an Effective Contract (cont…)

• Management of contracts usually require some flexibility on both sides & willingness to adapt its terms and conditions to reflect a rapidly changing world.

• Contracts should be capable of change (to terms, requirements & perhaps scope) & relationships should be strong & flexible enough to facilitate it

• Proactivity: Good contract management is not reactive, but it should aim to anticipate & respond to business needs of the future.

The Process of Contract Management

•  Contracts are frequently complex, more diverse, more independent.

• Contracts may involve multiple stakeholders, may last a long time and may consume many resources & hence more difficult to manage, hence it is important that they are properly managed.

The Process of Contract Management (Cont….)

• Contract Management activities can be broadly grouped into three areas:

Delivery ManagementRelationship Mngt, &Contract Administration 

Delivery Management (DM)

• DM is about managing a supplier’s performance vs the performance indicators contained in the contract

• The principal objectives of managing contract delivery are:-

Developing Service Level Agreements (SLAs) Managing Performance based Contracts Developing a Performance Management System(PMS) Managing ongoing day-to-day issues, & Dealing with the possible effects of dissatisfaction with

service delivery.

Measuring Service Delivery

• Normally, the PE & the Contractor/Supplier should agree on the initial performance during contract negotiations & record them in the contract

• These measures should be regularly reviewed to ensure that they remain relevant & useful

• In contract management, metrics (i.e. statistics) are used to measure performance (service quality)

• Aspects of service quality that can be measured include: Customer service, availability, efficiency, reliability, flexibility, timeliness, responsiveness, proactivity & problem solving methods.

Measuring Service Delivery (cont…• Quality measures & metrics provide information on how well a

contractor/supplier is performing.• But, it of no use providing a perfect service if the costs are prohibitive, since,• Ensuring value for money (VFM) is about trade-off between service quality

& cost, however, • Contract Management should always focus on ensuring that VFM is

achieved over time, since• VFM comes from using resources effectively, efficiently & economically• Every contract should always contain mechanisms for measuring the

contractor’s/Supplier’s performance & determining the overall benefits achieved.

Relationship Management

• Announcing the decision to the successful tenderer is the first step in establishing the working relationship that will underpin service delivery

• A contract will generally be successful if the Buyer/Supplier relationship is positive

• Relationships must be wholly professional throughout & must include a professional approach to managing issues & disputes resolution.

Relationship Management (Cont…)

• Key factors to a successful relationship:Mutual respect & understanding (through

right attitudes & behavior)Open & excellent communication (sharing of

information enhances the relationship)Recognition of mutually beneficial objectives

between the contracting parties .

Contract Administration

• The key procedures involved in Contract Administration are:

Maintaining contract related documentation & Keeping records

Ordering & paying for goods/services Monitoring deliverables & budgets Controlling changes & variations to the contract Managing & planning resources Undertaking management reporting & managing

assets

Contract Management Framework (CMF)

• CMF provides a guide to the contract management process in order to effectively manage the contract

• CMF describes the required responsibilities associated with the following major cycles involved in CM cycle:

Contract Set up: This is normally undertaken during contract negotiation

Issues Management: It is the management of issues that arise during contract performance

Contract Management Framework (CMF)

• Contract Management Plan (CMP): This details how the contract is to be managed to achieve outcomes

• Depending on the complexity of the contract, CMP includes: The monitoring of compliance with contract conditions Performance evaluation & reporting through SLAs & KPIs Effective performance indicators need to be SMART –

Specific; Measurable; Attainable; Relevant & Time based• Performance Measurement System should be developed &

applied for monitoring of service levels

Contract Management Performance

• It involves:Performance monitoring (collecting data on

performance)Performance assessment (deciding whether

performance meets customer needs)Taking appropriate action(s). This must be

taken throughout the life of the contract

Contract Risk Management

• Risk can be defined as uncertainty of outcome, whether positive opportunity or negative threat

• Risks are events that will impact on the ability of an organization to achieve its objectives

• Risks must be identified & documented through tendering process/evaluation & contract formation process

Contract Risk Management (Cont…) 

• Some of the risks related to managing a contract include: The failure of the other party to fulfill the conditions of the

contract Inadequately administering the contract Unauthorized changes to the contract & changing scope Fraud & lack of properly maintained records Unethical behavior or conflict of interest Changes/absence of key personnel, etc.• These risks must be monitored during the CM period• CM requirements progressively increase in accordance with

the complexity and value of the contract

Contract Monitoring

• It aims at ensuring that suppliers comply with the contract terms; performance expectations are achieved & identify & resolve problems

• Effective contract monitoring requires the establishment & monitoring of KPIs & SLAs; monitor progress; conduct random inspections & ensure that all conditions & clauses are acted upon; develop effective feedback mechanisms

Contract Change Management

• It is imperative to define the process in the contract

• Since these changes normally would modify the contract requirements, &

• They affect the triple constraints, i.e. costs, schedule & performance, so,

• Any changes to the contract must be authorised

Contract Variations

• Is defined as a material amendment to the contract• It may impact the scope; the value of the contract;

the terms & conditions of the contract & the options to be exercised

• They should be documented as to what has been agreed showing the actual changes to the contract

• An assessment of the impact of a variation is required to determine its significance & the need for procurement approval or not

Control of Claims and Disputes

Control of Claims and Disputes(Cont…)

• Contract agreements are not perfect, misunderstandings inevitable, resulting into,

• Disagreement, claims & disputes which are normal part of contracting process

• These must be resolved promptly & dispassionately & they must not be allowed to disrupt performance

Records Documentation & Payment Process

• The success of the contract depends on the accuracy & credibility of the information recorded, so,

• It should be well documented & organized for easy & reliable access

• Only authorized person must approve payments in relation to each procurement activity in accordance with the Public Procurement Act No.7 (2011) & its Regulations GN. No. 446 (2013) & Public Finance Act.

Contract Close-Out

• This involves both product verification & administrative close-out

• It signifies completion of work done by compliance verification

• Contract documentation close-out checklist resulting to product/service completion

• It also involves acceptance; final payment; lessons learned documentation & termination

Benefits of Effective Contract Management

• Contract Management is undertaken to ensure:- Timely delivery of goods & services Achieve the full benefits of the contract procurement process Minimize costs associated with risks arising during the term of

the contract Improve benefits flowing to customers/suppliers Create additional benefits for both parties through good

relationships Achieve value for money in the procurement of goods &

services

Styles & Types of Contractual Relationships

• Application of the most appropriate contractual relationship can deliver significant performance improvement & savings in baseline costs

• These relationships can be classified either as traditional or partnering relationship

Traditional Relationship 

• Relationship between Buyers and Sellers • Are dominated by legal frameworks • Creates a strong compliance & control • Rely on extensive checking & verifying the contract

vs. the service delivery • Most beneficial where scope of service is narrow &

accurately defined &• When the contract period is low

Partnering Relationship

• Is a formalized process underpinned by both a legal contract & moral commitment by key stakeholders & other parties to act in the best interest of each other

• The basis of partnering is: “Together we can solve problems & maximize benefits.”

• Partnering is a contractual arrangement between public sector & private sector (PPPs) for the provision of public assets & related services for public benefits through investments.

Similarities Between Public vs. Private Contracting

• Both follow a similar contract management process• Both require well trained & educated people with

broad skills set• Both need to focus on delivering/providing quality

products, services & or solutions for their customers faster; better & cheaper

• Hence, Contract Management professionals must be knowledgeable workers in which individual effectiveness & growth is required through continuous learning

Characteristics of PPPs

• Private sector is responsible for carrying out or operating the project & takes on a substantial portion of the associated risks

• Allocating risk to achieve added efficiency is what makes PPP a potential way of reducing costs & achieving improved VFM for the public sector

• During the operational life of the project, the PE’s role is to monitor the performance of the private sector & enforce the terms of the contract

PPP Contract Management

• It should clearly define the roles & responsibilities for each party in order to ensure VFM is achieved

• SLAs which defines the KPIs/measures should be part of the PPP agreement

• The aspect of managing the PPP are contract management; performance monitoring. It continues throughout the life of the contract

• Contract management is a process that enables both the PE & the PPP provider to meet their contractual obligations in order to deliver the objectives of the contract

Contract Management Principles under PPP (3Ps)

• PPPs are cooperative ventures built on the expertise of each partner that best meets clearly defined public needs through the most appropriate allocation of resources, risks & rewards

• The guiding principle of PPP policy is deliver improved services & better VFM through appropriate risk sharing between public and private sectors

• VFM under PPP is maximized by allocating risk optimally; since reduced risks ensure better value; lower costs & higher levels of risk

PPPs in Tanzania

• Most PPPs implemented in Tanzania are concession arrangements for running existing enterprises with limited provisions for rehabilitation & new investments

• Other PPPs include operation of existing public assets; service management; leasing contracts; development & operation of new facilities (i.e. Joint Ventures); construction & ownership

• The above are governed by PPP – Policy (2009); PPP Act (Cap. 103); PPP Regulations, GN. No.165 (2010); Finance Act (2013); PP Act (2011);

Constraints to Effective Contract Management

• One of the major constraints to effective contract management is CORRUPTION resulting to ambiguous cost overruns

• Others include: delayed funding; poor contractors’ capacity resulting to poor implementation; lack of resolute approach to contract monitoring; contractor’s failure to deliver required items; burdensome inflexible regulations; wrong product specifications by Users

Why Organizations Fail to Manage Contracts Successfully

• Poorly drafted contracts due to lack f comprehensive technical, socio-economic & commercial feasibility studies

• Inadequate resources assigned to contract management• The context; complexities & dependencies of the contract not

well understood due to insufficient capacity to negotiate• Lack of performance measurements/benchmarking by PEs• Failure to monitor & manage risks, resulting to inadequate risk

sharing mechanisms particularly under PPPs• Wrong people are put in place leading t personality clashes• Lack of comprehensive policy, legal & institutional frameworks

that provide guidelines for development & implementation of PPPs

The Way Forward There is need to have accountability & integrity measures in

contract management in both & private partnerships Need to develop capacity in procurement contract &

performance management Need to develop individual professional knowledge &

competencies in contract management through training Prepare & have Client Charters for contract performance

monitoring & evaluation Establish public expenditures tracking surveys where PEs &

CBOs track budget implementations & assess VFM regularly/yearly inspection audits as they are done by PPRA

The Way Forward (Cont…)

Strengthening of Integrated Financial Management Systems to manage public expenditures in accordance with the approved budgets

Need for effective internal controls & proper risk assessment hence, PPRA should strengthen their oversight activities & take stern actions to all PEs in contravention of their legal obligations

CONCLUSION

• This paper has shown that effective contract management relies on three separate but interrelated factors:-

Managing service delivery ensures that a contract is being delivered as agreed to the required performance levels

Managing relationships which are open & constructive aiming to resolve contractual problems when they arise

Contract administration which provides governance & accountability through tracking & recording delivery

All three factors must be managed effectively & consistently if the procurement contract is to succeed.