How sure are you that all your current contracts are still delivering their intended value? Or is the legacy beginning to hold you back?
In the third article in a series charting the key issues in public sector procurement, we examine the challenge of delivering value in long-term contracts.
As we have discussed in previous articles, time is a precious commodity in public sector procurement. The time taken to tender, retender or extend contracts needs to be factored in when making an initial decision on contract length.
Make the contract too short and there’s less scope for realising the value that you have worked into it, or very little incentive for suppliers to invest in the relationship (and potentially offer something of more value, for example, innovative solutions).
However, a contract that is too long has just as many issues. There’s more time for relationships to sour and more time away from the market where new solutions and technology might be providing better services and efficiencies. Finally it’s more time locked into a contract where costs are only likely to be on the rise.
There’s no right or wrong answer when it comes to contract length. A goods contract might benefit from a shorter term as it means new products or solutions can be assessed as the market develops them. There’s also the argument that for less complex goods a strong business relationship isn’t as critical, particularly if you aren’t going to do business with them again in the future.
That’s not to say certain products shouldn’t have longer contracts instead. Where there is high value, or a high level of complexity, a longer contract term may be necessary to ensure continuity of supply, or ensure the stability of a supplier.
A service contract might be better served with a longer contract. There’s more time for both parties to develop their relationship and gives the supplier time to understand the service without looking over their shoulder from Day 1.
But what of the contracts that professionals have no say over their length?
The Legacy Issue
It’s inevitable with the churn of professionals that at some point you will end up in a role where there are contracts that have been put in place by colleagues who have moved to a new role, or left the organisation entirely.
And you’ll certainly not be alone in thinking, “why have they done this?” when you get your hands on the contract specifics. You’ll probably even end up attributing issues on the contract to PBE (Previous Buyer Error) – even if you swore you’d never be one of those people!
In the public sector, the majority of these contracts will be in place for 3-5 years, potentially with an extension period should it be applicable for the contract, good or service. The extension could be up to another two years, meaning there’s a long time between procurement exercises for the product in question.
A hangover from previous public sector practice in procurement is perhaps the willingness to set contract length at 3 years and rarely changing. This might be the norm for frameworks (limited to 4 years at its longest length anyway), but as we have mentioned, there’s scope to make the length shorter where appropriate.
Another consideration for legacy contracts come in the information that is attached to them. It’s likely that, unless it’s been refreshed, most of the information will be out of date. Without the up to date information, you may not be able to see the full picture and it’s something that will have to be done as a priority when it comes to any extension or retender.
Finally, you should always be aware of what Terms & Conditions the contract was issued with and if it complies with all current regulations and legislation. Compliance is key here, so you shouldn’t hesitate to speak to your Legal team. It’s also something to remember when setting up new contracts that they account for all legislation, both current and potentially to come into force during the contract term.
From Legacy to Cutting-Edge
There’s no getting away from the legacy issue. You might put in a terrific, watertight contract now, but in 3-5 years’ time, it could be one of those legacy contracts your colleagues are wrangling with! If there’s no getting away from it then, what is there to do?
Never think you can’t put your own mark on a contract, even if it’s already up and running. Even a contract that’s over halfway through still has another half where you can contract manage and add value, all the while looking at options for the new contract.
So what are my top tips for dealing with the legacy issue? I’ve put some below:
1. It’s never too late to start contract management
Ultimately, preserving or releasing value in a contract comes down to the quality of the contract management. And it’s never too late to do some good contract management. If you work on the basis of any value is good value then even half a contract is enough time to make sure that your organisation is getting something out of this.
2. Use the time to build relationships
If you’re struggling to release any value from a legacy contract, use the remaining time to build up good relationships with the incumbent supplier. You’ll get to know their business and anything you learn can help when it comes to putting together new requirements for the next contract. At the very worst, you’ll get a chance to assess the whole market and see your other supply options!
3. Prepare for the new contract
Don’t leave it too late to start working on the new iteration of the contract (or retender). You might have planned for a good exit, but you need to be sure that any new contract going to do a better job. Use the time wisely and make sure that you put any lessons learned into practice.