Press Release - Central government’s management of service
contracts
19 December 2008
Central government could make large savings by better managing
its contracts for services such as IT, security, catering and
cleaning, according to a report today by the National Audit Office.
Better contract management could potentially generate estimated
savings of between £160 million and £290 million a year, across
total annual expenditure on service contracts of around £12
billion. In addition, nearly all the organisations surveyed for the
report thought that better contract management could improve the
quality and/or quantity of the services provided by suppliers.
The report highlights a number of cases where central government
organisations are applying good practice. There are examples of
good senior level engagement with suppliers, the use of price
benchmarking to reduce costs, and joint working between government
organisations and suppliers to improve services and reduce costs.
Central government’s management of service contracts is not,
however, consistently delivering value for money. Organisations do
not always allocate appropriate skills and resources to management
of their contracts, or give contract management the priority it
deserves.
Service contractors deliver business-critical services, but not
all organisations are applying good practice risk management
processes. Thirty-seven per cent of the contract managers surveyed
for the report did not have a risk register and 56 per cent had no
contingency plan in case of supplier failure.
There are some weaknesses in key performance indicators and
limited use of financial incentives to improve supplier
performance. For example, over a third of contract managers did not
always invoke payment deductions in the event of supplier
underperformance, even when the contract entitled them to do
so.
To help central government improve its management of service
contracts, the National Audit Office, working with the Office of
Government Commerce, has published a good practice framework for
contract management alongside its report.
Tim Burr, head of the National Audit Office, said
today:
"Central government spends around £12
billion each year on service contracts, many of which are
critically important to the delivery of its objectives. Improving
the way these contracts are managed would not only save money, but
also improve services and reduce risk. There are examples where
public bodies and suppliers have worked together to improve
services and reduce costs. There remains a need for more qualified
people to manage these contracts, and for clear performance
indicators to show whether services match up to contract
objectives."
Notes for Editors:
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Tim Burr, is the
head of the National Audit Office which employs some 850 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
- Alongside the report, the National Audit Office, working
with the Office of Government Commerce, has published a good
practice framework for contract management. The framework is
available on the National Audit Office’s website, www.nao.org.uk
and on the Office of Government Commerce’s website, www.ogc.gov.uk.
All enquiries to Mark Anderson, NAO Press Office: Tel: 020 7798
7558
Mobile: 077796 937 119