Contract Close out is not just administrative clean up but a critical moment in the contract which has significant consequences to the overall success of the project. Extra costs, delays, or deficiencies can quickly derail a project.
In a busy world for contract and procurement professionals, it can be easy to get into situations at the end of contracts when there are issues and deficiencies, and this is when the amount of leverage or solutions are increasingly limited. Hopefully, the tips below will help keep you ahead of this crunch and contract close out becomes second nature.
Contract Drafting – Get ahead of the issues
A lot of the issues can be avoided by good contract design, and therefore in your procurement stage, setting expectations, communications requirements, document requirements, and milestones, with associated payment structures, can help not only keep the contractors accountable, but also the contract manager. I have seen time and time again, the work of contract management fall by the wayside as people get too busy or competing priorities get in the way of contract success. By mandating requirements on both the contractor and contract manager, this will help those expectations of the contract remain current and a priority for both parties. For example, if you have quarterly meetings with payments tied to those meetings, this will ensure those meetings happen and keep communication current, rather than waiting until the completion of the contract.
With this structure, you can have ‘mini contract close outs’ at each milestone or payment schedule. This helps in getting your deliverables at intervals of the contract and therefore not have all those deliverables delivered at the end of the contract, where there is no time of edits or fixes. This can be impactful to ensure that the performance throughout the life of the contract is kept current and there is time and space for resolution.
Othe points to consider in designing the contract:
- Create a closeout timeline that includes review stages, documentation requirements, and approval steps. Treat closeout as a process, not a one-time event.
- Build in buffer periods for receipt of final reports and invoices
- Clearly defined complaint resolution processes and both parties responsibilities
Contract Management – Keeping on top of the contract
During the course of the contract, it is vital to tracking deliverables. Validating the receipt of goods, services and whether they meet expectations, is vital for smooth contract close out. The earlier in the contract issues can be found, the more time the contractor has to make amends. If you are at contract close out the only remedy is often financial compensation and it is more likely for conflict to rise, and potential risk to the receiver.
Financial paperwork can be an issue at the end of a contract. Focus on ensuring all invoices and reports are received prior to making that final payment. Once you have paid, your leverage is gone. Make sure you have everything covered by the contract while you still have some financial recourse in case something doesn’t go as planned.
One of the biggest pitfalls I have seen in public sector contracting is the payment of sub-contractors particularly in construction. Most contractors will be flexible with other contractors and have longer payment schedule than the public sector. Sub-contractors may not realise they are in an invoice dispute until the invoices is 120 days overdue, by which point you may have fully paid the contractor and closed out the contract, giving you little recourse to assist the sub-contractor. In the past, I have used statutory declaration to ensure that sub-contractors have been paid, and future claims are very unlikely. This practise is a standard approach in construction contracting under Canadian Construction Documents Committee (CCDC) This has come with draw backs though, again because it might not be clear to the contractor or sub-contractor that this is an invoice dispute until much later.
Contract Risks and mitigations
Any time a public sector organisation is using public money, it is important to ensure a number of risks are documented and mitigated. These can range from legal liabilities, reputational risk, and cost overages.
Again, contract design is important, but also expanding this to identify common risks and build in mechanisms to manage those risk are vital to contract success. As public servants, there is more risk than a standard contract between two parties. Consider having various internal resources help identify these risks early and often to help in the contract management. These can include legal, finance, operations and logistics or any technical expert that can provide insights and cover any risks that may exist.
Vendor Performance Review – the new trend
Vendor performance review programs are becoming increasingly prevalent across Canada, including the Government of Canda developing their own policy and program. These programs will have Key Performance Indicator (KPIs) which establish what good performance looks like and again will need to be included as part of the expectation management throughout the life of the contract. Periodic check ins where those KPIs are reviewed and discussed will help ensure good performance. Advanced programs will also allow the contractor to review the contract holder as both organisations impact each other’s ability to perform. You may wish to consider this throughout the life of the contract. These programs will help capture successes and issues, which can feed into future procurement planning.
These programs have significant potential for future procurements. Not only do they help contractors be accountable to the contract deliverables, but it can also create a record of good or poor performance. This can help contract design if you need to mitigate additional risks from contractors with poor performance records.
Always follow the processes and procedures of your organisation. Most organisations will have standardised contracts, and therefore established contract close-out requirements and processes. Again, ensuing you understand these as the contracts are drafted and procured, will help manage the contract throughout its life cycle.
Conclusion
Key takeaway is that contract closeout is proactive, structured and continuous through the contract. The best way to avoid pitfalls is to give contract management time and effort throughout each stage of the contract, and ensure expectations are communicated and followed up on.
Good contract design and contract management maximises value for the organisation, incentivise good performance, and mitigates risk. As public servants, this is where real tangible efficiencies and savings can be realised, ultimately benefitting Canadians.
Public Procurement In Canada:
Procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through procurement webinars, the landscape for public procurement offers many opportunities to explore.
The Procurement School encompasses a wide range of activities aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certification or a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management courses to ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by: Edward Claringbold