Georgia Department of Audits and Accounts Performance Audit Operations Division

1. Components of an Effective Contract Monitoring System Georgia Department of Audits and Accounts Performance Audit Operations Division

2. Purpose of the Report • We frequently found that agencies did not have adequate information on the level/quality of services provided on their behalf by contractors. • Mentality was that someone else was responsible for providing the service, not the agency. • Agencies cannot contract out responsibility to be a good steward of public funds. • Published in July 2003 as a “Best Practices in Government” report, not a traditional performance audit.

3. Overview of Contract Monitoring • Process of ensuring that a contractor adequately performs a contracted service. • An agency’s contract monitoring system has numerous elements, many of which are instituted through policies and procedures. • The responsibility of multiple individuals, within both program offices and administrative offices. • Cannot be a consideration only during the contract period. Must be a consideration during the pre- and post-contract periods.

4. Components of a Monitoring System • Identified 15 components of an effective contract monitoring system. • Not all contracts are monitored using the same components, but a number of the components are necessary for an effective system.

5. List of Components • Contract Monitoring Training* • Written Policies and Procedures* • Contingency Plans* • Communicating Clear Expectations to Contractors* • Contract Administration Plan* • Organized Contract Files* • Payments Linked to Performance* • Regular Programmatic Reports from Contractor* • On-Site Monitoring • Use of Incentives and Consequences • Access to Records/Right to Audit* • Measuring Customer Satisfaction • Dispute Resolution Procedures* • Closeout Procedures • Post-Contract Review * NECESSARY

6. Training in Contract Monitoring* • Program employees responsible for much of the monitoring are often educated/experienced in their service area – not in contracting. • Many of the topics that should be included are listed as components in the report. • Ideally, training addresses agency-specific processes (e.g., agency’s policy on what types of contracts require a formal contingency plan).

7. Written Policies and Procedures* • Serve as a guide to agency personnel in ensuring a consistent, high-quality monitoring process. Policies in place often cover procurement with little attention paid to monitoring. • Items that should be covered in policies and procedures include: • Responsibilities of agency personnel • Contract correspondence • Contract monitoring reports • Defining conflicts of interest • Documenting contract administration decisions • Subcontractor administration • Standard contract terms • Dispute resolution • Contract closeout • Professional development of contract personnel

8. Contingency Plans* • Addresses how the agency would respond in the event of an interruption in service delivery. • Detailed, written plans may not be necessary for low-risk contracts. Risk level determines level of detail. • Plan options include: • Contracting with the next lowest bidder from the original solicitation • Using another current contractor • In-house delivery of the service • Contracting with another government entity

9. Communicating Clear Expectations* • Contract performance improved when agency and contractor are on the same page. • Three methods: • Detailed statement of work/scope of services • Performance measures and goals • Post-award meeting with contractor • Detailed Statement of Work • Begins as part of the solicitation document • Purpose of the contract, performance measures/goals, agency’s methods for monitoring performance, deliverables, and other requirements • Must be clear, concise, and free from ambiguity • As part of the contract, it contains responsibilities of the contractor, including those activities in which the contractor will engage, products to be produced, and timetables for the completion of activities. • Final SOW is a combination (and often a negotiation) of the SOW from the solicitation document and the contractor proposal.

10. Communicating Clear Expectations (continued) • Performance Measures and Goals • Established to evaluate the quality and quantity of services provided • Should be included in the solicitation document; if necessary, additional measures can be negotiated before the contract is signed • Generally should include outputs and outcomes • Outputs measure a process and are units of the service • Outcomes assess the quality or result of the service • Contract should state what data will be collected by the contractor, and how, when and to whom the data will be submitted • Meeting with Contractors to Clarify Work • Post-award or kickoff meeting between agency and contractor • Especially important when those individuals involved in the day-to-day execution of services (contractor) and monitoring (agency) are not significantly involved in the procurement • Topics include contract scope, reporting requirements, administration procedures, rights and obligations of parties, performance standards, monitoring procedures, and potential problem areas • Formal meeting may not be necessary for less complex contracts

11. Contract Administration Plan* • View of planned and completed activities and can be used as a status report. • Contains list of deliverables, milestones, contract modifications, summary of invoices submitted and paid, and renewal dates. • Also includes individuals responsible for monitoring each contract aspect, as well as the method of monitoring. • May be simple or complex, depending on the complexity of the contracted service, the contract value, and risk to the agency of poor performance. • Should consider that more intense monitoring early in the contract period will be beneficial.

12. Organized Contract Files* • Necessary to have access to the master contract files. • Files should have all information necessary to know what was expected and received under the contract, as well as the basis for any major decisions made related to the contract. • At a minimum, files should contain: • Signed contract and purchase order • Contract modifications • Contract administration plan • Contingency plan • Sources solicited • Evaluation method and award • Meeting minutes • Contract correspondence • Reports from any on-site visits • Performance reports • Records of complaints and contractor disputes • Invoices and vouchers

13. Payments Linked to Satisfactory Performance* • Payments should not be made unless the agency has assurance that the contractor is making satisfactory progress in fulfilling the contract. • Programmatic reports that directly relate to contract terms should be submitted with the invoice. • If a cost-reimbursement contract, adequate documentation to support an invoiced amount must be submitted. • Appropriate personnel, who may include a program official and an administrative (i.e., contracting) official, should review the invoice and supporting documentation prior to payment.

14. Regular Programmatic Reports from Contractor* • Contract should require contractor to provide specific information at designated intervals to ensure that performance goals are being met. • Content of the reports should be outlined in the contract, with a template or example as an appendix. • Contract must also include: • reporting method, • the individual who should receive the report, • the reporting frequency, and what • actions the agency may take in response to an incomplete report. • Weakness – Submitted by the contractor, who has a financial interest in stating that contract terms are being met. Reports can be designed to decrease the likelihood of misinformation (e.g., requiring list of participants instead of just a number).

15. On-Site Monitoring • Can allow agency to verify actual performance against scheduled or reported performance. • Reinforces the importance of the contract to the contractor. • Provides an opportunity for enhanced communication. • Structured reviews are more productive than unstructured. • Should include random inspections of contractor records. • Can be resource-intensive; therefore, necessity dependent on the complexity and risk associated with the contracted service. • Written report detailing findings should be produced.

16. Incentives/Consequences Related to Performance • Performance reinforcements are helpful in achieving the contract goals. • Two types of incentives • Bonus: Superior performance may in the form of high quality work, completion of a project ahead of schedule, or saving the agency money. Agency must define the level of service required, the timeframe, or the amount of savings that must be realized. The incentive must be associated only with the most important contract requirements. • Revenue-sharing: If a contractor is operating a revenue-generating operation, it may be allowed to retain a portion of revenue. The portion retained can be increased as revenue levels increase.

17. Incentives and Consequences (Continued) • Three types of consequences • Liquidated Damages: Quantify an agency’s loss for poor performance and deduct that loss from payments to the contractor; must be reasonable to avoid reduced competition and/or higher costs. • Partial Takeover of Operations: Agency takes over operations of areas in non-compliance and reduces contractor payments by new operating costs. • Contract Termination: Used when contractor has been given clear warning about non-compliance.

18. Access to Records/Right to Audit* • Must have enough access to contractor files to ensure that services are adequately delivered and/or funds spent appropriately. • Cannot simply rely on reports submitted by contractor. • Ability to audit contractor records should also extend to the records of any subcontractor.

19. Measuring Customer Satisfaction • When an agency contracts out a service, the agency remains responsible for the customers’ satisfaction. • All service contracts have a customer, which may include the public, private companies, or other government agencies. • Satisfaction may be measured through: • Surveys: Distributed by contractor or agency, but results should be compiled by agency • Forums • Complaint/compliment forms: paper, online, or agency phone number

20. Dispute Resolution Procedures* • Clear contract language should limit disputes, but disagreements between parties inevitably result. • Dispute resolution is intended to address and solve problems before they escalate. • Minor disagreements may be worked out between those individuals providing the service and those doing the regular monitoring (should be documented in files). • If issue is significant, policy should require notification to the agency’s procurement office, which should provide the contractor with written notification of problems and a timetable for resolution. • If not resolved, DOAS State Purchasing Office should be notified.

21. Dispute Resolution Procedures (continued) • Agency policy should detail at what level of non-compliance a contractor will receive a letter threatening contract termination. • Dispute resolution clause should detail a procedure for contractor to appeal action taken by the agency. Depending on the action, the appeal may be to a higher ranking agency official or DOAS State Purchasing official. • Appeals should be settled by negotiation or arbitration.

22. Closeout Procedures • Formal, written closeout procedures ensure important elements are not overlooked. • Procedures related to contract performance but also include other administrative items. • Checklist should include verification that: • All invoices paid • All property returned • All deliverables/reports accepted • No lawsuits pending • Contract audit completed, if applicable • No outstanding changes or amendments • All security badges/keys returned • All disallowed costs settled

23. Post-Contract Review • Typically done at the end of a contract period, but if the contract is subject to renewal, it can be done late in the contract term. • Two purposes: • Evaluating contractor performance • Evaluating agency method of contract monitoring • Evaluating Contractor Performance • Determine if the contractor has adequately fulfilled contract terms. Simple task if the contract has been adequately monitored throughout the contract period. • Final product will identify those contractors with negative performance • May include a financial audit if agency determines risk makes it necessary

24. Post-Contract Review • Evaluating Agency Methods • Did the contract and meetings with the agency give the contractor an adequate understanding of expectations? • Did agency’s policies and procedures sufficiently address issues that arose during the contract period? • Did the contract administration plan allow the agency to properly and quickly assess the contractor? • Did agency personnel have the skills to monitor the contractor? • If incentives and penalties were used in the contract, did they improve contractor performance? • If dispute resolution was necessary, were the procedures adequate?

25. Questions • Report is available online at : www.audits.state.ga.us/searchRpts.html Search: “contract monitoring”