For Care & Support Services please also read Additional Guidance when Reviewing a Care and Support Service.

In some areas Contract Management Officers routinely attend the Care Inspectorate’s post-inspection feedback sessions with suppliers.

Contracts are awarded following a thorough evaluation process which looks at some standard elements. Your Organisation should perform periodic supplier ‘health checks' should be undertaken throughout the life of the contract to ensure standards are maintained. These checks could include:

• Financial Status,
• CIS Registration,
• Business Probity,
• Conviction of Criminal Offences,
• Compliance with Legislation and Regulatory Provisions (including Equality),
• Corporate Social Responsibility:
• Sustainable Procurement and Environmental Practices
• Health & Safety
• Insurances
• Care Inspectorate Inspection reports and records.

The frequency of the checks depends on  the type of contract, e.g. strategic and bottleneck contracts will be checked more frequently than collaborative and routine contracts.

Understand Contract Terms & Conditions

The purpose of Contract and Supplier Management is to ensure suppliers meet their contractual obligations and the contract requirements are successfully delivered. 

It is essential that anyone engaged in managing suppliers reads and fully understands the contract's terms and conditions, otherwise they will be at a permanent disadvantage should any issues arise.

Your Organisation’s Contract Manager/Contract Management Officer should engage early in the process, from the Develop Strategy stage,  and participate in the development of terms and conditions.

The Full Balanced Scorecard is a recognised tool for monitoring and managing contract and supplier performance.

KPIs provide a way to measure the four quadrants of the balanced scorecard (Quality, Cost, Sustainability and Service).  KPIs help organisations understand how well they and/or their suppliers are performing against their strategic goals and objectives. 

You must ensure effective contract management so that the practice of blacklisting does not occur in public contracts.

MI is used to monitor the supplier's or contract's performance and ensures management have the information to make effective strategic and operational decisions.

You must clearly define your MI requirements and communicate these to your supplier(s).

Your MI reporting arrangements must be fair and proportionate and not duplicate information already provided.

Your MI reporting approach should minimise demands on suppliers for information about the delivery of the goods/services.

You can undertake a risk assessment to help decide what the frequency and level of reporting should be. This may change/increase in certain circumstances, for example if a complaint is made about the service/delivery.

The reporting arrangements can be included in your specification and/or in the terms and conditions of the contract.

For some specific services, you should avoid duplicating information which is collected by/available from regulatory bodies. This can be achieved through the development of Memoranda of Understanding and regular discussions between the organisation and the regulatory bodies.

Sustainable Procurement outcomes, for example Fair Work Practices, must be an integral element of the contract and supplier management process. They should be included as a standard agenda item at supplier review meetings and considered alongside all other contract management matters.

It is important to ensure monitoring includes the use of any agency or sub-contractor workers throughout the duration of the contract.  This will include any new members joining the workforce engaged on the contract’s delivery.

Evidence should be sought from suppliers to demonstrate compliance with agreed contract conditions. This includes what the main contractor is doing to ensure Sustainable Procurement outcomes, such as Fair Work First commitments, down the supply chain to subcontractors and to agency workers. Evidence which should be sough can include reviewing recruitment information which could include pay policy and the terms and conditions for workers involved in the delivery of the contract.

Where there are material concerns regarding a supplier’s compliance with any sustainable procurement commitments or the contractual obligations it has made, an Organisation could consider whether to undertake general sustainability audit of the contract.

You should detail what will happen if the contract is not being delivered or the agreed quality standards are not being met.

Performance issues should be addressed immediately, and escalated within the supplier organisation if not resolved promptly.

Contract Managers/Contract Management Officers should ensure the escalation process is clearly defined, understood and communicated to all stakeholders and end users.

If you find that the supplier is not delivering the agreed level of service:

• you should raise this with them immediately. For speed this can be done by telephone but should be followed up in writing.
• Ask your supplier for an action plan to ensure that the required levels of service re-commences in a short time frame.
• If the issue is major it may also be necessary to hold a face-to-face meeting with the supplier.
• All discussions/meetings etc. should be minuted to ensure an audit trail exists.
• If resolution of the issue is not completed within the timescales agreed then the issue should be escalated (see below) and your procurement contact notified of the problem.  When escalated with the supplier, and an early face-to-face meeting should be arranged.  Here actions and timescale to remedy the situation should be agreed and implemented.
• The recovery actions should be monitored on a regular basis to ensure that the agreed recovery / resolution dates do not slip.
• All discussions/agreements should be noted in writing.

There are specific contract terms and conditions that can be used appropriately to help drive and maintain contract compliance/performance. 

You should incorporate these into the Terms and Conditions (T & Cs) of contract. You should understand the specific contract T & C’s, and that any incentives and sanctions considered are appropriate and legally enforceable. You must seek legal advice if in doubt as to the wording, appropriateness or legality of a proposed condition.

Examples of incentives and sanctions which could be considered are listed below, but must not be applied on your own. Appropriate internal approval must be sought and received prior to implementation.

Incentives could include (subject to substantial modification):

• Contract extension options
• A longer contract opportunity could provide performance motivation
• Payment by result, e.g. by use of milestone payments (linked to defined deliverables)
• Reduced payment terms

Conditions of Contract could include:

• Retention e.g. legitimately withhold payment if deliverables are not completed (only with genuine and notified reason.  This must be compliant with previously agreed contract terms and conditions)
• Litigation
• Termination of the contract (Please note: you cannot terminate a contract with the aim of avoiding procurement rule obligations)
• Liquidated Damages (compensation amount(s) agreed to be paid when the contract was created if a specific breach occurs)

To enforce a sanction sufficient evidence is required to justify the claim or action. You must therefore have clear records e.g. agreed service levels, notice periods, reminders, communications, agreements, etc.

Any enforced incentive or sanction must comply with the agreed contract terms and conditions.

Improvement opportunities can be identified by anyone engaged with the Organisation, both internally and externally.

Many improvement ideas don’t come from management, but from employees and suppliers operationally involved in the delivery of the service.  These are the people who are regularly exposed to issues which may not be visible higher up in the Organisation.

Your Organisation should seek feedback and work to develop a culture where everyone  is encouraged to look for and suggest operational improvements.  To do so the Organisation must show that all suggestions will be considered.

Demand Management can be defined as:

“the alignment of a business’ consumption with its business requirements”

It applies to all goods and services where internal demand and consumption can be influenced to reduce costs.

Demand Management is a key aspect of aligning external resources to meet our requirements. People often think demand management is stopping people spending money. However there are a number of other ways to look at demand management without completely preventing spend.  These can still provide notable savings and have a less drastic impact on the business.

Demand often comes from internal practice and processes rather than real need. As the approach is about addressing change ‘in’ an organisation the starting point will be the culture, policy and behaviours of that organisation. The organisation can also participate by:

• sharing best practice
• benchmarking behaviour
• policy guidance
• peer review

Demand management can occur at different points in the procurement process.  For example:

• from initial purchase  - making sure that software licences are purchased for the correct number of users at a single point in time or
• where costs are reoccurring as an ongoing activity -  in a category where spend is ongoing and regular, such as stationery or postal services.

Demand Management, including behaviour change, represents a significant and untapped opportunity.

In the short term, this is about changing expectations; in the medium term about changing participation; and in the long term about reducing need.

There are 3 main principles of demand management:

1. Each business unit should have exactly what it needs in order to deliver its business objectives
2. Any resources consumed above this level represents a waste to the organisation
3. There may be many and very different ways of meeting a user need, with each way representing a different level of resource to achieve the same outcome

The three strategies listed below could be independently or jointly applied.

There are a number of benefits to an effective Demand Management strategy.  Many are driven by change in the organisation’s culture and outlook, and to how goods and services are specified and requested.

When robustly implemented across all goods and services, Demand Management drives public sector organisations to make the most efficient and effective use of procured external resources to meet the operational requirements.

The Demand Management process challenges the norms, standards, customs and practices of an organisation to a degree not usually found in other processes.

When used as a priming process for Strategic Sourcing, Demand Management can establish organisation requirements to be sourced to a very specific level.  This can avoid the development of a sourcing strategy that meets over-specified operational requirements.

As a routine part of an organisation operation Demand Management can ensure the greatest possible levels of resource are directed at front line services in the public sector.

You should consider forecasting demand  fluctuation management initially at the Shaping the Requirement Stage.  These should be subsequently monitored and managed throughout the lifetime of the contract. Failure to do so could result in:

• Excess material purchases and subsequent material write off/waste disposal costs
• material shortages resulting in additional recovery costs and/or service breakdown
• excess, inadequate or inappropriately positioned resource
• reputational damage as a result of service breakdown
• detrimental impact on the end user

You can manage your costs better, and have help your suppliers have the correct levels of resources in place, by using effective demand management forecasting. Also give the supply base the opportunity to manage their costs by positioning resource and material in line with demand.

Demand forecasting should be based on considerations such as:

• Historical consumption
• Supplier lead times
• Market forces
• Service criticality
• Key stakeholder input
• Purchase cost
• Information from other buying organisations, trade bodies and business support organisations e.g. Federation of Small Businesses and Chambers of Commerce etc.

You should try to reduce future demand and costs by using strategies such as:

• fully or partially transition to recycled goods instead of buying new
• reduce transactional cost by improving your purchase to pay system
• supplier(s) reducing mutual cost through innovation.  This should have been previously written into the contract / agreement with the supplier

To operate effectively your suppliers must understand and manage demand.  It can use this knowledge to set its resources and processes proportionately.  This will ensure their service delivery is efficient and cost effective.

By understanding your historical demand you can work with your suppliers to improve efficiency and reduce costs.

To forecast future demand you must consider a combination of:

• historical demand,
• market forces and
• the Organisation business plan/strategic direction.

Forecasting will never be 100% accurate However these elements should provide enough information to develop forecasts which are accurate enough to accommodate demand fluctuations. 

You should ensure the supplier stays in regular contact with all key stakeholders (including other suppliers).  This ensures that all parties are aware of the supply/demand position, especially during periods of fluctuation.

A key element of Contract and Supplier Management is the proactive identification and management of risk. More information can be found in Risk Management.

Fraud Prevention, Detection, Monitoring and Handling

More guidance on fraud is provided on the Scottish Government Website.

Weak links between the finance, commercial, and contract management functions provides an opportunity for fraud and/or overbilling.  This could be as a result of error and inefficiency or by deliberate intent.

Better scrutiny of payments, and a sound understanding of the contract, will quickly identify both overbilling and fraudulent activity, and allow the appropriate action to be taken.  You should not rely on your supplier to interpret the contract which could then result in billing errors.

Contracts are awarded following a thorough evaluation process which looks at some standard elements. Your Organisation’s Contract Managers/Contract Management Officers should perform periodic supplier ‘health checks’.  They should undertake these checks throughout the life of the contract to ensure standards  are maintained. These checks could include:

• Financial Status,
• CIS Registration,
• Business Probity,
• Conviction of Criminal Offences,
• Compliance with Legislation and Regulatory Provisions (including Equality),
• Corporate Social Responsibility:
• Sustainable Procurement and Environmental Practices
• Health & Safety and
• Insurances.

The frequency of the checks depends on the type of contract, e.g. strategic and bottleneck contracts will be checked more frequently than collaborative and routine contracts.

Contract management activities must include sufficient checks to ensure suppliers are meeting their Data Protection Legislation obligations as the Processor. These checks may include audits undertaken by the controller or a third party auditor.

If obligations are not being met, organisations should take urgent remedial action with the supplier to address issues and risks.

More detailed information can be found in Additional Resources.

Performance Review Meetings provide both your Organisation and the supplier with an opportunity to:

• focus on end to end performance,
• identify issues and opportunities and
• put the appropriate action plans in place.

The Performance Review Meeting standard agenda template can be completed by both your Organisation and the supplier in advance of the meeting.  This will provide a structure to the meeting.

You should hold at least one review annually for suppliers identified under the segmentation process as requiring ‘medium level’ supplier management.  Hold two review meetings for ‘high level’ suppliers.

A Review Meeting Template is available here, and a meeting agenda example is laid out below:

• You decide which spend category(s) you wish to perform the benchmarking exercise for.

• Complete a spend analysis on what you have purchased in that area for at least the last 12 months (by line item).

• Sort the data from the highest to lowest spend and then highlight the top 80 percent of the spend. This will normally be no more than 20 percent of the number of line items and should capture the majority of your spend.

You now have a manageable amount of data to go out into the market place with.

This will not cover every aspect of the potential scope of supply.  You may need to add items such as bottle-neck and specialised items. The aim is to gain an estimation of the market rates.

You should inform your existing supplier that you are planning to perform a benchmarking exercise before you go out to the market place.

Having selected the items you want to benchmark, you can now approach the market to understand the current costs.

Benchmarking is generally an informal process.  The Management Information Hub is a good source of information, as is the internet in general. You can also contact a number of suppliers directly.

It is important to ensure that the recipients of any requests understand it is a benchmarking exercise.  It is not a business opportunity. The request should be simple enough for the suppliers to provide information without having to spend a great deal of time doing so.

You can now compare the results of your benchmarking exercise.  For example, enter all costs into a spreadsheet to determine the price difference between your existing supplier and the  market rates. You can now determine where the incumbent supplier sits against the best, worst and average market rates.

If you are happy with where the incumbent supplier’s pricing fits in comparison to market rates, this shows the supplier is competitive and no further action need be taken.

If you are not happy then invite your supplier to a meeting.  Give them the opportunity to explain why they are not competitive against the current market rates.  You must not divulge the competitors’ names or pricing information.

If the supplier is willing to accept their prices are not in line with market rates then this will be a cost reduction for you. If however, the supplier is unwilling to negotiate a reduction, initiate your escalation process and include as an agenda item at the next Review Meeting.