Good contract management

Negotiating contracts and managing supplier relationships can be a daunting prospect, particularly for school business managers, embarking on the procurement process for the first time. They are likely to face considerable pressure to secure the most cost effective deal whilst ensuring excellent service delivery. However, new research suggests procurement professionals in schools are not completely confident in their buying decisions and are facing challenges such as getting enough information about companies before using them and finding companies available to work with schools.
So what should schools, and particularly academies, do to ensure they are securing the right suppliers for their specific needs?
There are a number of factors that need to be considered when procuring services such as insurance and energy. Not only in relation to price, delivery and quality, but also to ensure that these services are fully compliant with procurement rules and regulations. In addition, good contract management will help to ensure that efficiencies and cost savings are achieved after the contract is awarded and that the goods or services remain fit for purpose in the future.

Do your research
Whatever product or service needs to be procured, there will undoubtedly be a large number of companies offering ‘the best deal’. How do you determine whether it is the best deal for your school or academy? The simple answer is research. In any competitive market it is vital to research your options. Find out more about potential suppliers, their reputation, pricing and the quality of the service they deliver.  
One way of ensuring you are receiving true market value for goods or services is by conducting a tender process. This could be done in a number of ways, for example, via e-auctions or sealed bids. This can be a time consuming and costly process but it is likely to deliver benefits in the long-term.  

Negotiating and Managing Contracts
Selecting the right supplier is crucial but it is only the first stage of the procurement process. Perhaps more important, is the second stage of negotiating and preparing the contract. Goods and services should never be obtained without ensuring a robust contract is in place. This all important document provides protection for both the purchaser and the supplier and ensures that what was agreed in principle is delivered in reality.

When putting a contract in place, it is vital that it clearly reflects the needs and requirements of the customer. Understanding the difference between essential and desirable requirements will help ascertain what the contract needs to include. It will also determine if and how a supplier can deliver these requirements. Ensuring that these are communicated and agreed at the outset of the process is crucial. Without a suitable contract in place, there is a risk that the service may not meet the requirements of the school or academy.
Through the tender process, the supplier may offer a variety of different incentives in order to win your business. Through effective contract management you can ensure that what is promised during the tender process is actually delivered. Having the right contract in place will not only help maintain a positive relationship with a supplier but will help to give school business managers a level of confidence in their buying decisions.

Contract Flexibility
A degree of flexibility in a contract will be beneficial to both supplier and customer. For example, the requirements of the purchaser are unlikely to remain the same throughout the contract. The level of demand may change, the environment in which the contract is needed may change or the supply chain may change. If any of these changes take place, good contract management will ensure that the customer is not negatively affected. In fact, a flexible contract will give the customer the option to review the contract against current requirements and renegotiate on key deliverables and pricing. For this reason, YPO recommends that all contracts are reviewed annually to guarantee customer satisfaction and that clauses are included in the contract to enable regular review.
Any contract should also be supported by a solid Service Level Agreement (SLA).  The purpose of a SLA is to set expectations on the service to be received, enabling the customer to monitor and control the performance received from the provider against mutually agreed standards, such as delivery and response times. Establishing key performance indicators as part of the SLA will help to measure the effectiveness of the service delivery and confirm that the school or academy is receiving what has been agreed and paid for within the desired timeframes.  We recommend that SLAs are reviewed on an annual basis.

Forming a good relationship
Good contract management and service delivery relies on effective supplier-customer relationships throughout the duration of the contract. Establishing a good working relationship with suppliers can benefit a business in the long run. Recognising their expertise and taking their advice will help to maintain confidence that they have your best interests at heart.
Of course, it is important that the customer flags any problems quickly to give the supplier an opportunity to rectify the situation. However, it is equally important to highlight when a job is done well. It is also courteous to alert the supplier when internal issues may affect their ability to deliver a service to a business.
In a worst case scenario if a service is not fit for purpose, it is important to have a well-designed escalation route in place. If the contract is, for any reason, not being followed, or the Service Level Agreement is not meeting the targets, backup and protection is required. In some cases the supplier could offer financial recompense or alternatively, ensure there is a clause in the contract enabling termination without any legal repercussions.

Pitfalls to avoid
When negotiating contracts with suppliers there are several pitfalls to avoid. Firstly, always be clear on the service or products required. Problems often arise if the requirements are not well‑defined or non‑essentials are included within the specification. The likely end result is that the customer over pays for what they actually need.
The second pitfall can arise when the customer fails to objectively evaluate bids. It is an easy trap to fall into but usually arises where either pre-existing relationships or other factors sway the decision making process. As signing contracts can often take some time, it is essential to only consider non subjective issues. Judging suppliers fairly and equally against a pre-determined checklist ensures the most satisfaction from a contract or service.
Be firm but fair. Remember that there will be a number of competing customers trying to get the time and resources from your supplier and the best way to ensure you get what you have been promised is to be firm when you don’t get what you need from a contract but fair when recognising good performance or when internal issues may affect the supplier’s ability to deliver a service for you.

Finally, it pays to be imaginative. If you can think of ways to reduce the cost of the supplier to deliver their goods or service to you then be up front about it and expect improvements within the terms you are paying.

Case study
Brunts Academy, a community academy in Mansfield with 1,600 students and 150 staff, required various classes of insurance to ensure that the school met its legal requirements in time for the new school term.
In order to achieve best value, Brunts Academy decided to use the national public sector Insurance Services framework agreement (RM958), which was developed collaboratively by Pro5 of which YPO is a member and Government Procurement Service. The framework offers a range of options and suppliers to cater for the varying needs of different public sector establishments and aims to deliver value for money through combining insurance spend. It is also compliant with procurement rules and regulations, ensuring fair and open competition through suppliers.
As the academy needed external insurance expertise, they undertook a further competition to source a multi-supplier insurance broker who could provide advice and help source the most suitable insurance requirement from insurance services. Aon was selected as the successful broker. They conducted a detailed analysis of the academy’s portfolio to determine their requirements, which resulted in a tailor-made solution in line with Education Funding Authority (EFA) requirements. Aon also undertook a further competition to source the required insurance in a swift and compliant manner, within a six week period compared to the normal timescales of eight to ten weeks. By using the framework, the academy saved 38 per cent on the previous arrangement (broker and premium).

Further information