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CONTRACT MANAGEMENT & CONTRACTOR PERFORMANCE

MEASUREMENT

TALLAHASSEE NIGPOCTOBER 14, 2003Russ Rothman, CPPO

Chief Purchasing Operations Officerruss.rothman@myflorida.com

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WHY FOCUS ON CONRACT MANAGEMENT NOW?

Changes in purchasing from commodity transactions to commodity, service and system contracts, including outsourcing.

Report “Roadmap to Excellence in Contracting,” June 2003 by the Governor’s Inspector General, Derry Harper highlighted several problems…

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DMS shortcomings in leading contract management

Inadequate management of contracts by agencies due to abdication of leadership.

No collection of information on contractor performance.

Failure to share information on contractor performance among agencies.

Missed opportunity to use performance information in contracting decisions.

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COURSE OBJECTIVES:TO UNDERSTAND…

Part I:Overview of Contract Management Generally OUR MISSION THE DECISION TO CONTRACT WHAT GOES INTO A CONTRACT PERFORMANCE MEASURES VENDOR SELECTION AND PRICE DETERMINATION CONTRACT MANAGEMENT, PERFORMANCE

MONITORING PROBLEM RESOLUTION COMMON TERMINOLOGY

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COURSE OBJECTIVES:TO UNDERSTAND…(continued)

Part II:Collecting, Compiling and Sharing Contractor Performance Records, and Using for Contracting Decisions.

DOCUMENTS, FORMS AND TOOLS YOU CAN USE:

Contract files, spreadsheets, linked documents

What to do before, during and after the contract performance period

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PART ONE

Overview of Contract Management

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Four ways of looking at the issues:

Our Missions (including Governor, Secretary, Director of State Purchasing, Chief Purchasing Operations Officer).

Inspector General’s criticism. Statutory responsibility. NIGP’s Three Es of public purchasing.

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Our Mission at State Purchasing flows from the Governor’s top priorities:

1. Reducing Violent Crime and Drug Use2. Creating a Smaller, More Effective, and Efficient

Government3. Building Economic Opportunity for All4. Helping the Most Vulnerable5. Improving Quality of Life and the Environment6. Improving Student Achievement

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And From Our Secretary Bill Simon’s Mission:

To become a customer focused agency providing effective and efficient services in order to better enable state agencies and employees to deliver the Governor’s priorities to the people of Florida.

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Director of Purchasing Fred Springer’s Mission:

To gladly deliver useful and innovative purchasing services in order to become a customer focused agency providing effective and efficient customer services.

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 Chief Purchasing Operations Officer

Russ Rothman’s Mission:

To deliver effective and efficient support services, governance processes and professional training to State Purchasing and agency purchasing staffs in order to deliver useful and innovative purchasing services.

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What Do All These Aligned Missions Mean?

For DMS and State Purchasing, we see our role as driving down both your administrative costs and the prices you pay for goods and services by delivering…

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DELIVERING..

(1)   Purchasing statutes, rules and policies that support economical, efficient and effective purchasing on behalf of the State and its subdivisions.

(2)   An effective and efficient electronic purchasing system, MyFloridaMarketPlace.

(3)   State term contracts, strategically sourced, administratively easy to use, with the best value (prices, item/service quality, terms and conditions) obtainable by a customer of our stature.

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DELIVERING…

(4)   Training and support to State Purchasing, state agency and subdivision purchasing professionals in key skills, including general purchasing, contract negotiation, contract management, and management of purchasing operations.

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Audit Report, Derry Harper, Chief Inspector General, Office of the

Governor

Existing patchwork of statutes and rules…has failed to provide effective and consistent guidance in the contracting process to state agencies.

Staff assigned to contract with vendors too often lack the training and experience needed to obtain the best deal for the state.

There is no statewide system for logging vendor performance and sharing that information with other agencies as a measure for determining whether to contract with a particular vendor.

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INSPECTOR GENERAL (continued)

There are performance monitoring problems including risk of financial losses to the state, failure to obtain desired performance…payment for defective deliverables…”

“We recommend that DMS accept the mantle of leadership bestowed by Florida Statute.

We recommend DMS fulfill the statutory mandate to develop formal procedures for agencies to perform and document needs assessment.

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INSPECTOR GENERAL (continued)

We recommend a statewide training initiative led by DMS.We recommend a uniform vendor monitoring and rating system be created which incorporates links to contract monitoring reports, vendor websites, closeout evaluations, and a method for other agencies to access performance evaluations.

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DEFINITIONS: WHAT IS CONTRACT MANAGEMENT? CONTRACT

ADMINISTRATION? COMPARE NIGP AND FLORIDA STATUTES.

NIGP’s “CONTRACT MANAGEMENT” TEXT Contract Management: “All activity that occurs in the

contracting process, i.e., all activities that take place from the establishment of the original requirement until the contract is closed out.” 

Contract Administration: “The management of all actions, after the award of a contract, that must be taken to assure compliance with the contract; e.g. , timely delivery, acceptance, payment, closing contract, etc.”

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Florida Statutes

S. 287.057(15): “For each contractual services contract, the agency shall designate an employee to function as contract manager who shall be responsible for enforcing performance of the contract terms and conditions and serve as a liaison with the contractor. The agency shall establish procedures to ensure that contractual services have been rendered in accordance with the contract terms prior to processing the invoice for payment.”

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Florida Statutes

S. 287.057(16) “Each agency shall designate at least one employee who shall serve as a contract administrator responsible for maintaining a contract file and financial information on all contractual services contracts and who shall serve as a liaison with the contract managers and the department.”

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DMS’s Statutory responsibility.

S.287.042 “Development of procedures to be used by an agency in deciding to contract, including, but not limited to, identifying and assessing in writing project needs and reqirements, availability of agency employees, budgetary constraints or availability, facility equipment availability, current and projected agency workload capabilities, and the ability of any other state agency to perform the services.”

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S.287.042 FS, (continued)

“Development of procedures to be used by an agency in maintaining a contract file for each contract…”

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NIGP’s Three Es of public purchasing.

Effective service: Getting end users what they need, when they need it. 

Efficient operations: Getting the job done with minimum resources in minimum time. 

Economical purchasing: Obtaining the best value (lowest total cost of ownership or operation) for the dollars expended.

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What is a contract?

An agreement between two (or more) parties, written or oral, with some common elements.

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NIGP’s “Contract Management” includes

     Offer and Acceptance     Consideration: Each party agrees to do or

provide something. NIGP includes discussion of the related concept “Mutuality of Obligation,” meaning both parties are bound

     Competent parties (and agents if applicable).

     Legal purpose.

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Consideration & Obligations include:

General and special conditionsSpecifications and/or Statement of

WorkPrice(s)

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What kind of document is necessary?

S. 287.058(1) “Every procurement of contractual services in excess of the threshold amount provided in s.287.017 for Category Two…shall be evidenced by a written agreement embodying all provisions and conditions…In lieu of a written agreement, the department may authorize the use of a purchase order…”

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What kind of document is necessary (continued)?

Addressing the award of competitive solicitations, Florida Administrative Code Rule 60A-1.001(9): “The contract shall be awarded by purchase order or other written notice… Issuance of a written notice of award or a purchase order for the purchase of commodities shall establish a contract.”

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What goes into the decision to contract?

Consider Performance objectives, both outputs

and outcomes Availability of both internal resources and

external resources Compare as to anticipated cost; quality;

risks; core competencies; etc.

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What goes into the decision to contract (continued)?

Make/Buy decided by the objective of timely delivery of the required quantity and quality of service at the lowest cost, consistent with acceptable level of risk.

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WHAT PERFORMANCE MEASURES SHOULD BE

INCLUDED? Contracts can and usually do contain: “Deliverables,” (outputs) a definite or indefinite quantity of goods to be delivered and/or services to be performed, and 

Sometimes goals, objectives or purpose (outcomes) to be attained.  Outcomes can also apply to schedule, budget and customer service.

ScheduleBudget  Customer Service should be added to these.

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Measurable standards applying to outputs and outcomes

 Using State Purchasing deliverables to state agencies as an example, “Outputs” can be considered as measurable units of something delivered, e.g. state term contracts, training seminars, an eprocurement system, statutes, rules.

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Measurable standards applying to outputs and outcomes (continued)

“Outcomes” can be considered as the purpose of the “outputs,” e.g.Statutes and rules that result in the use of more “best practices;”Decreased administrative effort for state purchasing offices;Decreased prices of goods and services (or “better value”);

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Measurable standards applying to outputs and outcomes (continued)

More agencies with a higher percentage of certified purchasing professionals, making better purchasing decisionsFaster transaction processingBetter data for planningMore effective purchasing tools (e.g. eQuotes, SNAPS III, reverse auctions, single source procedures).

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Measurable standards applying to outputs and outcomes (continued)

Some outputs can be measured easily, like the number of training seminars or state term contracts completed each year. Outcomes may be tougher, from measuring savings to surveying customers on process times required or ease of use and effectiveness of procurement processes.

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Contractor Selection and Price Determination

Three factors affecting cost: 

1. To buy or not to buy, that is the (first) question

2. Specifications (gold, brass or plastic?)

3. Selection process

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SELECTION PROCESSES

1. State Term Contract, SNAPS or Agency Contract2. Informal Bid/Proposal/Negotiation 3. Invitation to Bid4. Request for Proposal5. Invitation to Negotiate6. Single Source (Necessary and Unique)7. Emergency (An immediate danger to the public

health, safety or welfare or other substantial loss to the state. S.287.057(5)(a), FS.)

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SELECTION PROCESSES (continued)

1. State Term Contract, SNAPS or Agency Contract (consider responsiveness, price and other factors)

2. Informal Bid/Proposal/Negotiation (ditto plus responsibility)

3. Invitation to Bid (consider responsiveness, responsibility, price)

4. Request for Proposal (More flexible than ITB; consider responsiveness, responsibility, price and other factors)

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SELECTION PROCESSES (continued)

5. Invitation to Negotiate (More flexible than ITB or RFP; consider responsiveness, responsibility, price and other factors)

6. Single Source (Necessary and Unique)7. Emergency (An immediate danger to the

public health, safety or welfare or other substantial loss to the state. S.287.057(5)(a), FS.)

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What is involved in contract management?

Read and understand the contract, identify Responsibilities of the agency and the contractor Pricing Schedule especially critical events Performance Measures Risks. Anticipate requirements evolution, and impact on

Specifications, Scope of Work, Cost and Term of Engagement

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What is involved in contract management (continued)?

  Communicate, e.g. pre-start meeting, and appropriate level throughout

  Cover the four basic elements of contract performance:

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FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE

   1. Requirements, including: A. Outputs:        Deliverables        Tasks        Standards

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FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE(1 continued)

B. Outcomes       Performance measures

Quality

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FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE

(continued)

2. Schedule: milestones, completion3. Budget: Contract delivered within

original budget. Accuracy, adequacy and timeliness of invoices, invoice processing and payment. Types of problems and how to handle. S. 215.422 FS requirements.

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FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE

(continued)

4. Customer Service Level (communication, reliability, flexibility, problem resolution, change order negotiation, exceptions, complaints)

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What is involved in contract management (continued):

  Contractor’s Reports: Specify content and frequency, by whom to whom.

  Contract Manager’s Record: What degree of detail is required? E.g., use spreadsheet or special software if category 3 ($50,000) or more and 12 months or more

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What is involved in contract management (continued):

  Make Sure It Gets Done: The contract manager is the agency’s front line resource for seeing that what is supposed to happen, actually happens.

  Closeout: Evaluation, Payment, Analysis and Lessons for the future, Future use in selecting contractors and crafting contracts

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Five ways of monitoring performance:

1. Contractor’s reports2. Scheduled samples (at quantity

intervals or temporal intervals)3. Exceptions (complaints)4. Surveys5. Direct 100% monitoring

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Problem resolution:

Lowest level and least formality necessary Liquidated Damages Complaints to Vendor. Copy State Purchasing with complaints, and enter resolution in SP database. Requests for Assistance. Send to State Purchasing. Default, Cancellation and Suspension. Copy State Purchasing. Reimbursement and cure of deficiencies, Reinstatement. Notify State Purchasing. 

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PART II

Collecting, Compiling and Sharing Contractor Performance Records, and Using for Contracting Decisions.

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DOCUMENTS, FORMS AND TOOLS YOU CAN USE:

What to do before, during and after the contract performance period

Contract files, spreadsheets, contract management software, linked documents

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Contract files, spreadsheets, linked documents

A contract manager’s file should contain the contract, and reports, complaints, and correspondence materially related to the contract

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Contract files, spreadsheets, linked documents (continued)

Recommendation: Contract Manager maintain A spreadsheet, or other contract monitoring software, documenting contract performance. The contract administrator should collect and electronically file all contract management spreadsheets or other reports.The spreadsheet or other application will provide a single master document covering the life of the contract, and can link to other documents as needed.

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COLLECTION OF PERFORMANCE DATA

The contract closeout evaluation component of the spreadsheet should be provided to State Purchasing, for all contracts meeting a defined threshold, for example, dollar amount in excess of Category 3 or 4, and term equal to or greater than 12 months. Or maybe all…

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DEMONSTRATE SPREADSHEET

CONTRACT MANAGER Maintain a contract management spreadsheet. Include links to supporting documents.CONTRACT ADMINISTRATOR Maintain master file, and contract closeout spreadsheets submitted by contract managers. Update State Purchasing file with closeout information. Act as a resource for state personnel needing contractor performance information. 

RECOGNIZE superior performance by contractors

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POSSIBLE MFMP CONTRACTOR PERFORMANCE RATING TOOL IN THE WORKFLOW AS

APPROPRIATE

DEMONSTRATE TABLE

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WHERE WE NEED TO GO

State Purchasing needs to create on-line filesContract Manager/Administrator Input:-Vendor ratings (most important)-Superior performance-Complaints-Requests for Assistance-Agency SuspensionsState Purchasing Input:-State Suspensions.

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WHERE WE NEED TO GO (continued)

State Purchasing should plan to suspend a vendor, for example, when the vendor has three (3) ratings of overall poor performance within 36 months, and/or three continuing suspensions by three state agencies.

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WHERE WE NEED TO GO (continued)

Agency purchasing staffs should: Provide the info to State Purchasing, and update it as new contracts close or complaints, etc, arise, old complaints and suspensions are resolved, etc.

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WHERE WE NEED TO GO (continued)

Agency purchasing staffs should consider associating vendor ratings and complaints with the determination of responsibility or scoring on their solicitations. 

Simple examples for determining responsibility: Vendor suspended by two agencies within the last twelve months will not be considered, or vendor with two or more unresolved vendor complaints will not be considered.

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WHERE WE NEED TO GO (continued)

Simple example for scoring: Average of final scores on all state contracts completed last 12 months (24? 36?) and in the SP database will be added as bonus points to proposal score (1 to 5 points). No state contracts last 12 months, 3 points will be added. I.e. new vendors will be presumed “satisfactory” until proven otherwise. You are your agency’s critical resource for contracting. Step up to your responsibility of assuring that the agency’s requirements are met.

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WE NEED THE ADVICE AND CONSENT OF PURCHASING

PROFESSIONALS

PLEASE VOLUNTEER FOR A WORKING COMMITTEE ON THIS ISSUE, AND/OR LET FLORIDA STATE PURCHASING HAVE YOUR COMMENTS, QUESTIONS AND SUGGESTIONS:RUSS ROTHMAN, CPPO, CHIEF PURCHASING OPERATIONS OFFICER(850) 487-8778russ.rothman@myflorida.com