1.3. Common issues in contracting

In addition to the legislative and policy requirements, the following factors are ones that are relevant throughout the procurement cycle. They are discussed here in a generic or introductory manner and are dealt with in more specific terms in the remainder of the Guide. The approach adopted, the resources devoted and the effort required in relation to each of these factors should be determined by the size, complexity, nature and risks of the entity’s contracting environment and each individual contract.

Managing risks

Managing risk is an integral part of good management. It is a process that is best embedded into existing practices or business processes.

The management of risks should therefore be an integral part of all aspects of procurement, including the development and management of contracts. This requires the identification of risks and, where appropriate, the implementation of risk treatments at key points in the procurement cycle. This in turn involves identifying the stages or events where risks are likely to be the highest and/or the adverse effect of an event or occurrence is likely to be the greatest. Wherever possible, the approach to managing risks for individual contracts should be consistent with the entity’s broader risk management framework. Risks to achieving contract objectives must be identified and treatments for addressing them must be developed and implemented. Treatments may be effected through contract provisions and through active management of the contract. A key issue to be considered is the level of risk assumed by each party to a contract. The CPGs present a balanced approach to risk allocation in contracts, noting that, as a general principle, risks should be borne by the party best placed to manage them.^[12]

Further information about risk management is available in the AS/NZS/ISO 31000:2009 standard and supporting guidance issued by Standards Australia.^[13]

Managing relationships

An important element in the formation and management of any contract is the quality of the relationship between the contract parties. There is an obligation on both sides to establish and maintain a productive relationship. Having a professional, constructive relationship with the contractor is a key ingredient to the successful delivery of the outcomes sought through the contract.

The aim of relationship management is to keep the communications between the parties open and constructive, non-adversarial and based on mutual understanding. This should assist in preventing problems from arising and also with resolving them in a timely manner should they arise. Having a professional, constructive relationship should assist the effective management of performance, particularly underperformance, should it occur. Maintaining a good relationship does not mean that issues of non-compliance or underperformance cannot be discussed and acted upon. It means that there is a greater likelihood that such issues can be discussed and resolved in a cooperative manner.

Relationships must be managed from the time they begin, in the early stages of the procurement cycle. Ideally, the contract manager should be involved in developing the contract and/or in contract negotiations to ensure effective transitioning. In circumstances where the contract manager is appointed following the award of the contract, the contract manager should seek to build on existing relationships.

Managing resources

To effectively meet an acquiring entity’s contracting responsibilities an appropriate level of investment is required. This requires the contracting function to have senior management support, the ability to access expert advice as necessary and personnel that have relevant skills or the opportunity to obtain them when considered necessary. One of the keys to successful contracting is the availability of personnel with interpersonal, subject matter and project management skills. In addition, the contract manager should be aware of the contractor’s capabilities so that the acquiring entity is able to act as an informed client—a client that understands the goods or services being provided and is able to judge whether the agreed performance standards are being met.

Specifying responsibilities

Establishing clear lines of responsibility and accountability for all decision-making is another important aspect of successful contracting. Ensuring the necessary authorisations and delegations are in place at the beginning of the procurement cycle is an important prerequisite to ensuring that all contracting decisions and payments are valid and legally appropriate. These instruments should be periodically reviewed and kept up-to-date.

Keeping records

All records that are created and received in conducting procurement activity, whether paper based or electronic, should be captured in an entity’s recordkeeping system(s) in accordance with the entity’s general recordkeeping policies and procedures. A systematic approach to recordkeeping at the beginning of a procurement cycle and throughout the cycle will assist an entity to:

• provide evidence of business conducted and decisions made;
• manage legal and other risks; and
• meet its accountability obligations.

As such, keeping good records should be seen as an integral part of, rather than incidental to, contracting activity.

Behaving ethically

All those involved in procurement activities have a responsibility to behave ethically at all times. Ethical behaviour supports openness and accountability in a procurement process and gives suppliers confidence to participate in the government market place. Ethical behaviour can also reduce the cost of managing risks associated with fraud, theft, corruption, and other improper behaviour, and enhance confidence in public administration.^[14]

For those staff employed in entities subject to the Public Service Act 1999, the standards of conduct required are contained in the APS Values and the APS Code of Conduct.^[15] While formal arrangements, including the engagement of probity advisors and/or auditors, to assist in managing ethical issues can be expected to be put in place at the commencement of the procurement cycle, contract managers and those with broader management responsibilities for contracting activities should be alert to issues and situations that involve judgements about ethical behaviour and practices. Suppliers must also act ethically, and contracting entities may issue a general statement that sets out their expectations of suppliers.

 

 

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Next: Appendix 1.1. Summary of relevant legislation and policies