Comprehensive Overview of Contract Management in Supply Chain
Understanding contract management within the supply chain is crucial for effective vendor management. This overview covers the legislative framework, contract management process, prescripts, causes of failure, departmental requirements, and more. It emphasizes the importance of maintaining control over contractual agreements to ensure successful outcomes.
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EXTENDED SCM FORUM CONTRACT MANAGEMENT 8 DECEMBER 2017 1
CONTENTS 1. 2. 3. 4. 5. 6. 7. Introduction Legislative Framework Contract Management Prescripts Supply Chain Management Value Chain Causes of Contract Management Failure Contract Management Process/Activities Departmental Requirements for Effective Contract Management Contract Management Framework 8.
1. INTRODUCTION A contract can be defined as the written agreement entered into between the purchaser and the supplier, as recorded in the contract signed by the relevant parties, including all attachments/appendices thereto and all documents incorporated by reference therein . Contract management can be defined as the process of maintaining control over the contractual arrangements between a department (purchaser) and the appointed supplier (contractor) being the other contracting party by performing the contractual management or administration activities commencing at the conclusion of a contract . 3
2. LEGISLATIVE FRAMEWORK Contract management falls under the umbrella of Supply Chain Management which is regulated, directly and indirectly, by a plethora of legislation and prescripts. The following are some of the critical pieces of legislation: Constitution of the Republic of South Africa, 1996; Public Finance Management Act (1 of 1999) (PFMA); Treasury Regulations issued in terms of Section 76 of the PFMA; Preferential Procurement Policy Framework Act (5 of 2000); Preferential Procurement Regulations of 2017; Broad-Based Black Economic Empowerment Act (53 of 2003); Construction Industry Development Board Act (38 of 2000); State Information Technology Agency Act (88 of 1998); Promotion of Access to Information Act (2 of 2000); Promotion of Administrative Justice Act (3 of 2000); and Prevention and Combating of Corrupt Activities Act (12 of 2004). 4
3. CONTRACT MANAGEMENT PRESCRIPTS The following prescripts have been issued by the National and Provincial Treasuries relating to contract management: National Treasury: National Treasury Contract Management Framework; and National Treasury Contract Management Guide. Provincial Treasury: Contract Management Strategy of the Eastern Cape Province. Other prescripts issued periodically that have contract management implications (circulars, practice notes and instruction notes). 5
4. SUPPLY CHAIN MANAGEMENT VALUE CHAIN Where does contract management fit into the SCM value chain? Needs analysis Planning & budgeting Specifications design/scoping Bidding strategy Invitation to bid Evaluation Adjudication Award Contract management Post- award Pre-bid Bidding 6
5. CAUSES OF CONTRACT MANAGEMENT FAILIURE Poor planning; Poor specifications; Poor contracting; Lack of tools/systems for managing contracts; Poor or non-management of contracts and contractors; Non-payment or delays in payments; Poor or no risk management; Poor or no oversight and governance; Poor management of price adjustments and variation orders; Non-application of penalties iro poor or non-performing contractors; Poor or ineffective document management; Lack of skills/inadequate resourcing of contract management units; Lack of ethics; and Fraud and corruption. 7
6. CONTRACT MANAGEMENT PROCESS/ACTIVITIES DRAFT SERVICE LEVEL AGREEMENT/ FORMAL CONTRACT SIGN-OFF SERVICE LEVEL AGREEMENT/ FORMAL CONTRACT CONDUCT POST-CONTRACT AWARD NEGOTIATIONS CONTRACT AWARD FINALISED ORIGINAL SERVICE LEVEL AGREEMENT/ FORMAL CONTRACT PLACED IN SAFE CUSTODY- DOCUMENT MANAGEMENT PLAN FOR MANAGING CONTRACT (RISK MANAGEMENT/ CONTRACT MANAGEMENT TOOL) COPIES OF SERVICE LEVEL AGREEMENT/ FORMAL CONTRACT AVAILED TO RELEVANT ROLE PLAYERS MANAGE CONTRACT AND CONTRACTOR PERFORMANCE CONTRACT CLOSE-OUT AND REPORTING GOVERNANCE AND OVERSIGHT 2015/06/04 8
6. CONTRACT MANAGEMENT PROCESS/ACTIVITIES (Cont.) Monitoring of contractual performance milestones utilising contract management tools/systems; Provide additional monitoring and support for SMMEs; Risk management; Price adjustments; Managing variations to the contract; Managing and monitoring payments; Dealing with poor and/or non-performance by contractors; Enforcement of the terms and conditions of the contract; Applying contractual default penalties; Managing cessions of contracts and/or payments; Document management; and Providing support during litigation. 9
7. DEPARTMENTAL REQUIREMENTS FOR EFFECTIVE CONTRACT MANAGEMENT Contract management framework; Supporting procedures and protocols; Contract management unit; Adequate number and skilled staff; Contract management systems/tools; Contract register; Active risk management; Support from executive management; Support from legal services; Effective dispute resolution mechanisms; and Effective relationships, internally and externally. 10
8. CONTRACT MANAGEMENT FRAMEWORK Contract management framework: Definitions, abbreviations and acronyms; Introduction and purpose; Regulatory framework; Role players; Relationship management; Governance and oversight; Risk management; Organisational arrangements; Resourcing and skills development; Contract management systems; Planning and managing the contract and contractor performance; Dispute resolution; and Review. 11
