Manchester City Council Report for Information Report To: Subject: Report of: Resources and Governance Overview and Scrutiny Committee- 15 December 2011 Contract Management City Treasurer Summary This report provides an update on the work being undertaken to strengthen the Council s approach to Contract Management. Recommendations Members are asked to note the progress made to-date on this project. Wards Affected: All Contact Officers: Name: Richard Paver Position: City Treasurer Telephone: 234 3564 E-mail: r.paver@manchester.gov.uk Name: Ian Brown Position: Head of Corporate Procurement Telephone: 234 3265 E-mail: i.brown@manchester.gov.uk Name: Chris Loveman Position: Project Manager Telephone: 245 7556 E-Mail: c.loveman@manchester.gov.uk Background documents (available for public inspection): Reports to the Resources and Governance Overview and Scrutiny Committee: 13 January 2011: Contract Management. 23 June 2011: Commissioning and Contract Management in Children s Services. 17 November 2011: Contract Management and Commissioning, Adults. 7
1.0 Introduction 1.1 This is the fourth report on contract management submitted to the Committee for consideration following the reports in January, June and November 2011, which have provided progress reports on the different aspects of the project. 1.2 The vision for Contract Management within the Council is to establish best in class contract management processes across the Council, applied in a consistent and effective manner to ensure value for money is achieved from all our contract activities. 1.3 The project s aim for contract management is to ensure that all officers who have responsibility for managing contracts have the right skills and support to ensure delivery of contracted services that are both effective in terms of service outcomes and are cost-effective throughout the life of the contract period. 1.4 The project will establish lessons learned and best practices programmes to streamline and improve contract management processes, standards and documentation, ensuring continuous improvement throughout all the Council s activities relating to contracts. 2.0 Background 2.1 The Contract Management Project Team was established within the Transformation Team in June 2010 and the Senior Responsible Officer for the Project is the City Treasurer. 2.2 The savings target set for the project is 1M in 2011/12 and 3M in 2012/13. 2.3 The Council currently spends around 780M each year with external providers across a wide range of goods and services to support the day-today activities of the Council for both capital and revenue requirements. 2.4 Following comprehensive research on contract management across various public and private sector bodies and the undertaking of a detailed assessment of contract management capabilities within the Council, key themes were identified which together help to define best practice in contract management: Early involvement of all stakeholders in the procurement process to develop clear, concise specifications Strong contract governance Close management of key performance indicators Control of payment mechanism Robust risk management Early dispute resolution Well documented contract change control and management 8
Highly developed supplier relationship management and continuous improvement culture 2.5 Developing strong contract management functions within the Council will deliver major benefits, including: Improved supplier performance improvement and better outcomes for client departments Improved supplier relations Cost reduction and cost recovery Reducing risks of supplier underperformance or failure Reducing the risk of challenge on procurement processes 3.0 Progress To-date 3.1 The Project Team identified the following key workstreams to improve contract management across the Council: 1. Review the structure: Design and form a contract management support function and its interface with the individual Directorates 2. Assess the Support Systems: Create an information repository to support contract performance monitoring 3. Support Review of Skills and Processes: Invest in the skills and understanding of contract management staff, and identify standard processes and build them into Business as Usual procedures and practice. 3.2 In order to support these workstreams, two key activities were necessary: 1. Establish the contract management support function within the existing Corporate Procurement resources 2. Engage external support from the market to undertake forensic reviews of high volume, high risk contracts. 4.0 The Contract Management Support Function Progress To-Date 4.1 The Contract Management Support Function 4.1.1 The monitoring and control of contracts, once they are awarded, is currently undertaken within each of the individual directorates and the project has shown that there are currently many good examples of best practice within the Council, but overall the processes and procedures are not being applied consistently. 4.1.2 Proactive management of contracts within the Council requires some upskilling of staff and supporting staff on key contracts to implement improved contract management. However, it became clear from the review work that it is essential to leave the key decision-making with subject matter experts in the Directorates with support on commercial issues being 9
provided by Corporate Procurement on a structured basis through regular contract reviews. 4.1.3 The Project Team sought the advice of the Directorates and key corporate functions to determine the optimum solution for contract management. From this consultation, it was clear the essential nature of the contract management support function should be modelled on the following key themes: Reporting to the Head of Corporate Procurement Utilising the existing staff within Procurement All staff managing contracts remain in Directorates Key strategic decisions will be taken jointly by the Directorates and the Corporate Centre to ensure all aspects of contract management are considered. Corporate Procurement is responsible for training programmes and process-checking contract management staff Corporate Procurement provides support and advice to Directorates on all major contracts Corporate Procurement oversees the contract process throughout the life of the contracts 4.1.4 The Corporate Procurement Team structure was reorganised in October 2011 to enable this support role to be formalised at no additional cost. 4.2 Forensic Review of High Value, High Risk Contracts 4.2.1 While the Contract Management Support Function concentrated on supporting Directorates to deliver the significant savings required to balance their reduced budgets in 2011/12, to deliver further benefits, the project team went out to tender to bring in external expertise to provide a forensic audit on a number of contract area s. The remit was to examine selected MCC contracts, detect opportunities for savings in them, and help the Council realise that benefit. 4.2.2 The service was procured through a competitive process in full compliance with European Procurement rules. 4.2.3 The two successful companies resulting from the tender process were Ernst & Young and KPMG. 4.2.4 Ernst & Young have been working with the project team and relevant Directorate staff on three contracts: 4.2.5 The commercial property management contract (Jacobs), where the focus is to improve performance management of the supplier, in order to deliver improved returns from Manchester s commercial estate. 10
4.2.6 The Streetlighting PFI (Amey), where the focus has been to review the detail of the 25-year contract, to identify potential savings throughout the life of the contract 4.2.7 Buildings maintenance (Manchester Working Limited), where the focus todate is on a detailed forensic analysis of spend since 2006 to identify potential savings. 4.2.8 In addition, it has recently been agreed with the Strategic Director Adults to extend the work of Ernst & Young in to the Adult Social Care spend. 4.2.9 KPMG have recently commenced work on reviewing seven of the Council s major ICT contracts which will also include a review of the Capita Building Schools for the Future contract, 4.3 The governance of these contract reviews is through the Council s Commercial Board, chaired by the Treasurer and, based on the work undertaken to-date, it is anticipated that the outcome from these reviews will deliver the targeted savings of 1M in 2011/12 and of 3M in 2012/13. 5.0 Next Steps 5.1 Building on the work already undertaken in the Adults and Childrens Directorates, work on planning the revised contract management function within Neighbourhood Services and the Corporate Core has commenced and will be complete by the 31 March 2012. 5.2 Training workshops for all Contract Managers are being arranged commencing in January and will include the provision of a best practice tool kit for contract management. Further workshops will be arranged throughout the year led by Corporate Procurement. 5.3 In relation to the use of IT systems to support the process, the Adults Directorate have created an inhouse information tool used for performance management of suppliers. This tool is being adapted for potential wider use across the Council as an interim measure pending the SAP upgrade in 2012 which will enable MCC to consider the use of the latest contract management system within SAP. 5.4 Finalise the work with Ernst & Young and KPMG to deliver the required level of savings for 2011/12 and 2012/13. 5.5 Corporate Procurement and the Transformation Team are working closely with both Ernst & Young and KPMG to ensure skills are transferred to Council staff to increase our staff capacity to undertake these reviews in the future. 6.0 Recommendations 11
6.1 Members are asked to note the progress made to date relating to delivering the improvements to contract management and the targeted savings. 12