Example risks and risk treatments: Contract management phase Contract management risks will often be included in a risk

assessment undertaken at the commencement of the procurement cycle. Where this is the case, the risks should be reviewed and updated as necessary once the contract is signed. Risks to successful contract management are likely to arise from a number of sources. These include: Sources of risk Examples of risks Examples of risk treatments Recruit staff with relevant skills Provide training to address skills gaps Obtain expert advice or assistance in relevant areas Set priorities in relation to funding Stage project stages over financial years Brief senior management about 1. Failure to have sufficiently the contract and any issues skilled and experience Discuss and establish roles and resources to effectively responsibilities manage the contract(s) Have monitoring plans or Contract checklists in place management 2. Lack of recognition of the Ensure all staff understand their capability importance of contract responsibilities in relation to management performance management Establish and maintain a sound 3. Failure to act on contractor relationship with the contractor underperformance Hold regular meetings with the contractor to discuss progress and any problems Agree on remedial action Provide positive feedback when warranted Identify any problems at an early stage Provide any negative feedback in a professional manner 1. Failure to provide contract Establish a shared deliverables on time, to agreed understanding of the contract quality standards and the responsibilities of each party Contractor 2. Failure to adhere to agreed Monitor contractor performance performance budget regularly including of deliverables and all contract 3. Failure to comply with all conditions contract provisions e.g. Hold specific performance privacy, security, review meetings

Sources of risk

Examples of risks recordkeeping

Changes in circumstance and/or requirements

Examples of risk treatments Only make payments for satisfactory performance 4. Fraud and/or inefficient Ensure proper documentation conduct by the contractor and recordkeeping to provide necessary evidence to underpin actions or non-compliance Ensure risk assessment specifically addresses fraud and/or discuss alleged fraud with in-house fraud control unit Review the need to end the contract for breaches of conditions or non-performance Seek relevant advice on possible causes of action to end the contract Only discuss possible changes with those who have the authority to agree on changes Document all proposed contract changes and keep a central record of them Seek advice on when a contract variation is necessary Liaise at an early stage to 1. Contract changes not dealt foreshadow the need for with as contract variations changes Ensure proposed changes are 2. Contractor not prepared to possible within the existing agree to contract variations to contract accommodate changes in Discuss any proposed changes entity requirements at the appropriate level both in the acquiring entity and 3. Changes in circumstances contractors organisation and not managed in a timely have them agreed manner Explain reasons behind the need for changes Negotiate any changes to payments or conditions to bring about changes Establish roles, responsibilities and priorities, schedule tasks in advance and hold regular meetings

Sources of risk

Stakeholder relationships

Examples of risks Examples of risk treatments 1. Stakeholders not consulted Maintain informal and formal and/or kept informed about contact with important contract performance stakeholders Provide regular tailored briefings at the appropriate 2. Changes in stakeholder level of detail to ensure expectations not stakeholders are kept informed communicated to contract Invite, record and discuss manager feedback from stakeholders Discuss competing 3. Differing and/or conflicting requirements with stakeholders stakeholder expectations and negotiate a compromise

Example contract management plan for large or more complex procurements

This example shows the key elements of a contract management plan for large or more complex procurements. It could be used by the contract manager as the basis for developing a contract management plan. The amount of detail required for any section that is used should be adjusted to reflect the complexity of the contract, the level of risk associated with it and the internal processes of the entity. Insert title of plan and summarise its purpose. Also include details of name and date of the delegate approving the plan, including arrangements for reviewing and updating the plan. Summarise key contract details, for example, contract number, commencement date, contract term, procurement process (e.g. panel, open tender), delegate details, approved users of the contract, estimated contract value, reporting obligations completed (yes/no). Provide a brief summary of the procurement process that led to the contract. This may include the purpose, objectives, scope and key deliverables of the contract. Note: information should be detailed enough to allow a person, with no

Contract Management Plan:

Title and Purpose

Contract Structure:

Contract summary

Background

Documentation

Contract term and extension options Pricing Roles and Responsibilities:

Contact details

Identified roles and their descriptions

Stakeholder management and communications strategies Conditions of the General conditions Contract:

Special conditions

Contract variations (price, product/services or other) Insurance

prior involvement in the contract to have a clear understanding of a contracts background. List all documentation relating to the contract that is held by the contract management team. This may include, for example, transition plans, tender evaluation reports, risk management plans etc., and identification of their location and when they were last updated. List contract start and end dates and contract extension options, if applicable. Total contract value, pricing arrangements and fee variations. If applicable, a fee schedule may also be included. At a minimum, the contract managers for both the acquiring entity and the contractor should be listed with their contact details. List key stakeholders, where they come from and their major responsibilities in relation to the contract. In some contracts there will be a number of parties with various levels of contractual, financial and reporting involvement. A map of these relationships may be useful for illustrating these relationships. Identify key methods to be used for liaison, reporting, signalling issues to, and building relationships with, key stakeholders identified above. Identify if any standard form contract is used (agency specific or whole-ofgovernment, such as Source IT model contracts). List any special conditions that are not covered elsewhere in this plan. For example, warranties, intellectual property ownership etc. List contract variations and requirements that need to be met to implement a variation. This should be consistent with the provisions in the contract. Record details of currency and adequacy of insurance certificates and procedures for

Financial Considerations:

Performance Measurement:

Contract Administration:

obtaining evidence from the contractor of future currency. Insert any clauses from the contract on payment conditions. The payment schedule should also be described, for example, the Payment conditions schedule may provide for monthly payment, or payment on completion of deliverables. Describe any incentive arrangements Incentives or rebates included in the contract and how they are to be calculated. Describe any penalties that may be Penalties or disincentives included in the contract and how they are to be calculated and applied. Detail the invoicing requirements for the Invoicing contract. List key performance measures/indicators to be used for measuring the performance Key performance of contract. These should be consistent measures with the performance measures identified in the tender documentation and the contract. List any non-financial performance Performance incentives or disincentives that are incentives/disincentives applicable to the contract and the key performance indicators that trigger them. Describe the data collection and analysis methods to be used for monitoring and assessing performance (e.g. user surveys, third party accreditation, benchmarking etc.) Also detail who will undertake Performance monitoring performance monitoring including: responsibility for collecting and analysing data; how frequently monitoring will take place; the reporting arrangements; and any processes to review the arrangements. Detail all obligations the contractor has under the contract. This may include goods or services to be provided, any other Providers obligations deliverables covered by the contract, timeframes to be met, specified personnel, reporting requirements, provision of equipment and back-up arrangements. Commonwealths Detail all obligations the Commonwealth

has under the contract. This may include access to premises, security arrangements, information to be made available to the contractor, equipment to be provided, accommodation, feedback and satisfaction reporting, scheduling of meetings. Detail any requirements included in the Product or service contract relating to product or service standards expected standards and how they are to be administered. Detail relevant procurement connected polices and obligations that the entity and the contractor are required to comply with and how these will be managed. Note: the Compliance management contract manager is responsible for the management of these obligations. It may be useful to include these as an attachment to the plan. Include here arrangements for managing Transition any transition and attach transition strategies or plans. List the reporting requirements, for Reporting requirements example, what is to be reported and the format/frequency of reporting. Detail any requirements for both internal and independent audits, and the elements of the contract to be audited. The Audit requirements timeframe for the audit, along with resources required (in-house or external) should also be identified. Detail a schedule of meetings specific to Contractor meetings the contract and the process for inviting and reminding relevant parties. Include details of earlier risk planning Risk Assessment conducted for earlier procurement phases and Management Procurement Risk Plan and highlight any risks that carry through Strategy: to the contract management phase. Insert details of contract risk planning, risks and mitigation strategies. Attach the Contract Risk Plan completed contract risk plan to this plan. An example of a contract risk and treatment plan is included in this Guide. Record any issues (realised risks) that may Issue Register arise and how they are to be managed,

obligations

Contract Review

including by whom. Outline regular reviews (for example,quarterly, annually). Detail how they will be conducted, including what data needs to be collected and by whom. Outline the trigger point(s) at which contract review becomes necessary due to underperformance. Detail any clauses specified in tender documents and the contract and detail procedures for addressing the dispute. Detail any clauses in the contract which may give rise to termination and detail the termination process to be followed. Outline the process to be followed in assessing whether to renew or extend a contract and the steps that need to be followed as the contract nears expiry. List the tasks that are required to successfully complete and close the contract. For example, recovery of Commonwealth material and equipment; handover procedures; security and access closure; contract evaluation, including the process and resources required (in-house or external); documentation of lessons learned; and notification to stakeholders. Depending on the type and scope of the contract a variety of attachments may be required. Examples include compliance management, risk management plans, transition plans, invoicing and payment schedules, service level agreements, and user/client survey questionnaires.

Dispute Resolution Process Termination

Contract Review: Renewal or extension

Contract closure

Attachments:

Managing the Contract Checklist

Example contract management plans

Simple procurements This example shows the key elements of contract management for a simple procurement. It could be used by the contract manager as the basis for developing a contract management plan. Contract Management Plan Name: ABN: Address: Contractor Representative: Contractor Position: Telephone: Facsimile: Email: SME: Yes/No Contract Details: Specification or scope of work. Contract Manager: Note: the Contract Sponsor should have sufficient delegations to Contract Sponsor: approve contract invoices for payment and any variations to the contract under FMA Regulations 9 and 10. Contract Start Date: Contract End Date: Detail process for managing and assessing possible contract extension options. Contract extension options: Note: Possible contract extensions should be examined at least six months before the contract end date to give the agency time to go out to market if required. Payment Schedule: Total Contract Value: Payment Arrangements: Who will confirm invoices are correct? (should be Contract Manager). Invoice Verification: Who will authorise payment of invoices? (should be Contract Sponsor). Incentive or Penalty List any incentive or penalty payments that have been applied. Detail how often payments are to be made (e.g. on completion of deliverables, at milestones or monthly).

Payments: Milestones: Performance Measures: Reporting Requirements: Communication Protocols: Risk Assessment and Review: Contract Review

List all milestones and key dates. List performance measures and methods of data collection and analysis. Format/Frequency. How regularly will the entity and contractor communicate and format of communication? What is the risk assessment at the beginning of the contract? Regularly review the contract to determine if risk status has changed in any significant way. How will lessons learned be identified and recorded?

Contract Risk Management: A High Priority in the Upstream Oil Industry

Uncertain economic conditions and increasingly risky operating environments have made contract risk management a high priority for the upstream oil and gas industry. With investment in the sector dropping, it is essential that upstream oil and gas industry firms entering into contracts cushion themselves properly against potential risks, particularly as the BP oil spill has added to the uncertainty within the global market. Figures from Deutsche Bank suggest that the Deepwater Horizon spill could increase the cost of exploration and development by as much as 10 percent, to around $25 (16.51) per barrel. The investment bank pushed its long-term price of oil up by $5 to $10. Issues such as extra equipment, more expensive insurance, increased numbers of inspections and changes in investment will have an effect on the upstream oil and gas industry, according to experts. RCM Director Christopher Wheaton told MarketWatch: "There's no doubt we'll see increased regulation with time. You'll see more complexity in equipments and certification." Liability within the Upstream Oil and Gas Industry Liability is another key concern within the field of contract risk management for the upstream oil and gas industry which the BP incident has pushed into sharper focus. Transocean, which owned the submersible drilling rig involved in the Deepwater Horizon disaster, has been taking steps to reduce its liability in the wake of the incident. Initial arguments involved who was responsible for the cleanup and now the discussion has turned towards responsibility for paying out liability claims. Steps have been taken by the United States House of Representatives to prevent Transocean reducing its liability by passing a bill which invalidates three previous laws. The bill repeals the Limitation on Liability Act, which meant that vessel owners were only responsible for the value of the platform after the accident as long as it could be proved that they did not act negligently. It is under this old law that Transocean attempted to cap its liability.

According to the Associated Press, the changes in the law were welcomed by all sides as a way to ensure that those involved in the oil spill were not able to limit the damages paid out. High-Risk Areas As the wars in Iraq and Afghanistan begin to die down, the potential of their large reserves is being realised by the upstream oil and gas industry. Royal Dutch Shell recently signed a deal with Iraq to undertake a $17 billion joint venture project to develop natural gas resources in the south of the country. The joint venture, which in itself presents challenges for contract risk management, is being undertaken with the Basra Gas Company, Shell and Mitsubishi Corp, which will hold stakes of 51 percent, 44 percent and 5 percent respectively. However, the risk presented in Iraq means that few United States upstream oil and gas industry companies are choosing to invest in the region and China is taking the lead. Ruba Husari, an oil analyst in Baghdad who runs the Iraq Oil Forum, told the Washington Post: "[United States firms] made a mistake and overestimated the risk. I think they did not realise on the spot that it was the biggest window of opportunity, and they missed out." According to the United States Bureau of Economic, Energy and Business Affairs: "Iraq's oil licensing rounds in 2009 may have been the world's largest ever and were widely regarded as open, equitable, transparent, competitive, and free from corruption." The department warned that overall investors can expect "significant security costs; cumbersome and confusing procedures for business visas or new business registration; long payment delays on some Iraqi government contracts; and sometimes unreliable, non-transparent dispute resolution mechanisms."