For the purposes of this NASPO Contract Administration Best Practices Guide we included four steps, and activities for each phase that are typically involved in the contract administration process.
I. Kick-off/Pre-performance Period
NASPO recommends conducting pre-performance conferences or project “kick-off” meetings with all interested parties, especially for high-risk, high-dollar value contracts. All states interviewed conduct some type of a “kick-off” meeting at the initial period of performance. These tend to be very informal discussions and are not set up for all contracts. These meetings are important communication tools to use at the beginning of contract performance to discuss the roles and responsibilities for the central procurement office, agency, and the contractor, to determine how performance will be evaluated, documented and reported, and how best to set performance metrics, among other things. Having a good understanding of the standards of performance helps establish a positive relationship between the procurement office and contractor.
The NASPO State and Local Government Procurement: A Practical Guide recommends that all parties involved have a thorough understanding of their roles and responsibilities. There should be close communications, as early as possible, between the central procurement office and user agencies, so that members of the contract team know their authority, roles and responsibilities, and understand the importance of communication and coordination among the team.
Contractors who are successful in a competition must comply with business registration requirements and submission of financial documents prior to commencement of the contract, as a matter of showing that they meet responsibility criteria. As a part of the contract award process, state contracts are not executed before all documents are received, or in some states, the state may reject an otherwise successful vendor, due to failure to submit the required documentation, to timely submit it, or to provide documentation that does not meet applicable responsibility criteria.
II. Ongoing Maintenance for the Duration of the Contract
This is an important stage in the contract administration process. The contract manager plays a critical part and needs to ensure that all elements and planning tools that will guide the implementation are in place.
The NASPO State and Local Government Procurement: A Practical Guide recommends preparing a Contract Administration Plan (CAP) to document all aspects of the procurement process from the development of specifications to the contract closeout. The CAP document is a tool developed in the pre-award stage of contract management to aid in contract administration and ensure that all activities are carried out effectively.
The CAP should include critical elements and activities for effective contract management and quality assurance. Additional information that should be documented in the CAP include:
- Contract administration team members;
- Justification of solicitation source selection method;
- Scope of work or specifications that include deliverables;
- Contract goals;
- Pricing structure for contract;
- Delivery terms and requirements;
- Potential contractual risks and assignment of risk levels;
- Key contract terms and conditions to include risk mitigation and information security;
- Contract monitoring methods;
- How performance will be measured and accepted;
- Milestones for measurement (linked to payment terms);
- Payment terms;
- Reporting method and frequency;
- Documentation required; and
- Names of contract administration team members responsible for measuring performance, reporting, documenting files, payment, approval of change orders, contract closeout checklist, procedures, and who is responsible for contract closeout files.
The central procurement office should work with user agencies to determine:
- Roles and responsibilities and who is responsible for each activity;
- How performance will be evaluated, including milestones and performance metrics;
- Monitoring methods;
- Reporting tools and processes; and
- Process for resolution of disputes and claims.
Having the proper tools in place to support the procurement office in fulfilling its contract management and administration role is an essential element. However, some states continue to rely on home-grown solutions in the absence of some contract manager software. There is an opportunity for states that have implemented robust eProcurement systems to consider implementing a contract management module and fully utilize the existing functionality statewide, if a contract management solution is in place.
III. Monitoring Contractor Performance, Documenting and Record-keeping
Monitoring contract performance is a key function in the contract administration process to make sure that all involved parties are performing their duties in accordance with the contract.
More than half of the State Central Procurement Offices participating in the 2016 NASPO Survey of State Procurement Practices
record and track contractor performance. Requiring contractual usage reports is a practice used by many states. However, the content and compliance of contractor responses can vary.
Gathering feedback from user agencies about the service received and contractor performance, typically through surveys, telephone or face-to-face inquiry are some of the tools used by central procurement offices. Documenting and maintaining a contract file are good practices to ensure the delivery is in line with the contract requirements and issues are addressed timely. All contract performance issues should be properly documented and included in the official contract file.
The Contract File should contain the essential record of contract award and performance as follows:
- Pre-award documents
- Solicitation document
- All responses to bids or proposals
- Copy of the contract, including all attachments and amendments
- Post-award to contract closeout documents (Contract Administration files)
- Copies of all correspondence with the contractor
- Notes from all meetings and verbal communications
- Documentation of performance issues/complaints, cure letters
- Contract amendments
- Documentation of deliverables
- Payment records
- Contract closeout documentation
Documenting contract compliance and performance issues when the contractor is not able to perform as agreed upon and addressing them timely is an important activity in the administration process. Regular communications with the contractor should identify problems timely. Dispute resolution processes need to be in place to resolve problems and reach agreement rather than seeking legal remedies. Managing documentation is especially important in cases of disputes, assessment of liquidated or actual damages, and for justifying termination for default.
Contract changes are inevitable. Anticipated amendments such as contract prices, time of performance, extension and renewals, or other terms deemed appropriate should be built in the contract provisions.
Contract amendments are typically approved by the procurement office, especially for centralized statewide contracts. Involvement of legal counsel may be requested depending on contract complexity and the type of contract modification to the standard terms and conditions.
The importance of having a change management process in place cannot be overstated. A good practice for handling unforeseen amendments effectively should follow these principles:
- Only changes that are within the general scope of the original contract should be accepted;
- Changes should be in accordance with the terms of the contract;
- Only changes that are due to legitimate unforeseen circumstances should be allowed;
- Written determination should be required prior to amending the contract;
- Any changes need to be evaluated in terms of the impact on the scope, schedule and budget;
- Formal, written approval of all changes should be required prior to the change taking place.
A good practice for state central procurement offices is to provide written guidance to agencies on contract disputes and escalation procedures. The process for managing issues arising in contracts and how claims and disputes are addressed should be set in the contract terms and conditions.
Poor or non-performance should never be accepted. That is why documenting problems is critical when requesting a cure. Acceptable means to resolve disputes should be identified in the contract. They may include:
- Informal dispute resolution through collaboration and negotiation
- Alternative Dispute Resolution
- Liquidated damages
- Contract Termination/Cancellation
- Termination without Cause – mutual consent of both parties
- Termination for Convenience when the contract no longer serves the best interest of the government
- Termination for Default (Termination for Cause) due to failure to perform, failure to deliver on time, or failure to comply with other terms and conditions. Prior to terminating a contract for default, a cure notice must be sent to the contractor. If the contractor fails to remedy the contract deficiencies identified in the cure notice, the contract may be terminated.
- Repudiation – either the state of the contractor indicates that it cannot or will not perform.
Alternatives to termination for default that can be considered include: withholding payment until performance requirements are met, seeking an alternative source of supply, revising the contract or delivery schedule, or re-procuring the product or service.
IV. End of the Contract/Contract Closeout
Managing the closeout of the contract is the final phase in contract administration.
Documenting the life of the contract, including the history of the contract from the planning stage to contract completion, consistently reviewing contractor performance, and promptly evaluating challenges and successes are recommended steps.
The contract is considered successful when all obligations have been met, including the completion of all legal, administrative, and managerial tasks. A Contract Closeout Checklist
is a helpful tool to use during the final review of the contract to ensure that all the necessary steps in the closeout process are completed.
Contract Closeout General Tasks Checklist
- Conduct contract review activities
- Confirm that all contractual obligations have been completed
- Verify if the contract (including all optional renewals) expired
- Confirm that all testing reports have been received and analyzed
- Confirm that all inspections have been completed and accepted
- Confirm that any state-furnished property and/or information has been returned
- Confirm that no claims, issues, or unresolved matters exist on the contract
- Confirm that all required contract audits have been completed
- Confirm that all contractor invoices have been submitted and paid
- Confirm that contractor performance evaluation has been completed by the Contract Administration Team
- Determine if a termination for convenience was completed (if it was initiated)
- Determine if a cancellation for breach was initiated and if so, has the cancellation been completed?
- Determine if all outstanding subcontracting issues have been resolved
- Verify that the contract file includes:
- An updated copy of the contract
- Any contract amendments
- All original signatures for all file documents, including invoices, letters to contractor, etc.
- All change orders
- Communicate to contractor that the contract has been reviewed and is complete
- Contract Manager completes and signs the Contract Completion Statement (see Missouri’s Contract Completion Statement Template)
- Conduct a contract administrative analysis and document lessons learned, what has worked well and what activities failed
- Provide a report, including conclusions and recommendations from the contract administrative analysis to all stakeholders to prevent future issues with similar contracts.