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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.

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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.

"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."

Tim Burr, head of the National Audit Office


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