- 1. Contracting in the Public Sector
- 2. Developing the Contract
- 3. Formalising the Contract
- 4. Entity Arrangements for Managing Contracts
- 5. Managing the Contract
- 6. Ending the Contract
- Managing the contract checklist
- Example contract management plan for simple procurements
- Example contract management plan for large/complex procurements
PDF version of guide [1.4MB]
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This part of the Guide discusses the factors involved in developing the key elements of a contract.
The contract development phase is critical to achieving the outcomes sought by the acquiring entity.
The contract development phase is critical to achieving the outcomes sought by the acquiring entity. It also lays the foundation for the effective management of the contract.
Contract development can start at various points in the procurement cycle. In many cases, a draft contract will be part of the request for tender, while in other cases contract development may only commence later in the cycle, for example, when the actual contractor has been chosen. Most acquiring entities will have a set of standard contracts, which should include standard form contracts and supporting documentation developed by the Department of Finance and Deregulation that can be drawn on in the contract development process.
Irrespective of when in the procurement cycle that contract development is undertaken, it is better practice to consider the risks to achieving contract objectives, resource and stakeholder requirements, the style of the contract and the contract provisions, to ensure the contract meets all legal and policy requirements. It is also important to establish a clear statement of the contract deliverables and an effective performance management regime.
Developing the contract will require some level of planning to ensure that all elements of the contract are appropriately considered.
Developing the contract will require some level of planning to ensure that all elements of the contract are appropriately considered. This need not be a time-consuming task requiring extensive effort. The extent of planning required will depend on the risks involved for the particular contract, its complexity, size, sensitivity and duration. The degree of effort and the costs incurred in developing the contract should be directly commensurate with the benefit that will be obtained through, for example, a reduction in risk and the clearer identification of contract requirements.
Some elements of the contract will be interrelated and these need to be linked when the contract is being developed, for example, payment provisions should be linked to the provisions dealing with contract performance.
To support effective contract start-up and ongoing management of the contract, it is beneficial to draft a contract management plan or checklist.
Depending at what stage of the overall procurement cycle the contract development is being undertaken, it may be possible to draw on relevant material developed earlier in the cycle. For example, useful information may be contained in policy documents on the decision to outsource the provision of goods or services, in tender documentation or other plans in place in the acquiring entity. Such material should be reviewed to ensure it is applicable to the current circumstances before it is used as a basis for contract development.
The following case study demonstrates the benefits of focusing at an early stage on planning the contract.
Case Study: Early planning for contract development
A group of agencies all received business critical services from a contractor under a cooperative procurement arrangement. One agency had a lead role in managing the contract. The contract was for a period of five years. Eighteen months before the contract was due to expire, all the agencies considered how best to manage the development of a replacement contract. They were aware that although they shared the same basic needs, there were still many variations in their requirements that would need to be factored into the service specification, and perhaps some conflicting requirements to be resolved. All the in-house expertise associated with the original contract process had since left the agencies.
Services being provided under the existing contract were regularly considered by a cross-agency steering committee. The agencies decided to have this steering committee also take responsibility for developing a new services contract, as the steering committee members had practical experience in the services and had specific ideas on some shortcomings in the current service arrangements that they wanted addressed in the new contract.
Early planning by the steering committee agreed the key project steps and the timetable, arrangements for funding the project, and that staff in the lead agency would undertake the work. Initial discussions by the steering committee also highlighted some of the differing priorities, such as differing views on quality and price.
Practical progress was slow in the next few months, partly due to a lack of availability of enough in-house staff time. With 12 months to go, the committee decided to engage external professional assistance to develop the request for tender documentation and manage the tender evaluation. They considered the advantages of this approach to include assurance of resourcing of the project, access to specialist knowledge and experience, and the availability of a neutral adviser to assist in resolution of the varying agency requirements.
This more formal approach encouraged the parties to focus on the prompt resolution of issues. It also resulted in key issues and decisions being fully documented (since, for example, the adviser presented options as papers to the steering committee, with decisions recorded in steering committee minutes). The remainder of the project proceeded on schedule. The steering committee met regularly, and members were focused on meeting the agreed project milestones. One last minute difficulty was the formal signing of the agreement by each agency. In some cases the correct delegate for an agency had not been identified by the relevant steering committee representative, or had not been kept fully informed of the project. This delayed the final signing while the relevant delegates were briefed and issues they raised were resolved.
Comment: By planning early, developing an overall plan, obtaining the right resources and actively involving the key people, the follow-on contractor was selected and engaged on time, with the desired service quality and at a competitive price.
 Standard form contracts and supporting documentation (currently for low risk procurement of goods and services, with an estimated value of less than $80,000) can be accessed from the Procurement Document Library on the Austender website at <https://www.tenders.gov.au/?event+public.document list>. Source IT Model contracts can be accessed from the Department of Finance and Deregulation website at <https://www.finance.gov.au/procurement/ict-procurement/index.html>.
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