CONTRACT MANAGEMENT & CONTRACTOR PERFORMANCE MEASUREMENT

1. CONTRACT MANAGEMENT & CONTRACTOR PERFORMANCE MEASUREMENT TALLAHASSEE NIGP OCTOBER 14, 2003 Russ Rothman, CPPO Chief Purchasing Operations Officer russ.rothman@myflorida.com

2. 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…

3. 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.

4. 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

5. 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

6. PART ONE Overview of Contract Management

7. 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.

8. Our Mission at State Purchasing flows from the Governor’s top priorities: • Reducing Violent Crime and Drug Use • Creating a Smaller, More Effective, and Efficient Government • Building Economic Opportunity for All • Helping the Most Vulnerable • Improving Quality of Life and the Environment • Improving Student Achievement

9. 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.

10. 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.

11. 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.

12. 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…

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.”

19. 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.”

20. 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.”

21. 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.”

22. S.287.042 FS, (continued) “Development of procedures to be used by an agency in maintaining a contract file for each contract…”

23. 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.

24. What is a contract? An agreement between two (or more) parties, written or oral, with some common elements.

25. 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.

26. Consideration & Obligations include: • General and special conditions • Specifications and/or Statement of Work • Price(s)

27. 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…”

28. 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.”

29. 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.

30. 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.

31. 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. • Schedule • Budget • Customer Service should be added to these.

32. 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.

33. 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”);

34. Measurable standards applying to outputs and outcomes (continued) • More agencies with a higher percentage of certified purchasing professionals, making better purchasing decisions • Faster transaction processing • Better data for planning • More effective purchasing tools (e.g. eQuotes, SNAPS III, reverse auctions, single source procedures).

35. 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.

36. Contractor Selection and Price Determination Three factors affecting cost:  • To buy or not to buy, that is the (first) question • Specifications (gold, brass or plastic?) • Selection process

37. SELECTION PROCESSES 1. State Term Contract, SNAPS or Agency Contract 2. Informal Bid/Proposal/Negotiation 3. Invitation to Bid 4. Request for Proposal 5. Invitation to Negotiate 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.)

38. 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)

39. 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.)

40. 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

41. 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:

42. FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE   1. Requirements, including: A. Outputs: ·Deliverables ·Tasks ·Standards

43. FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE(1 continued) B. Outcomes ·Performance measures Quality

44. FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE(continued) 2. Schedule: milestones, completion 3. 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.

45. FOUR BASIC ELEMENTS OF CONTRACT PERFORMANCE(continued) 4. Customer Service Level (communication, reliability, flexibility, problem resolution, change order negotiation, exceptions, complaints)

46. 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

47. 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

48. Five ways of monitoring performance: • Contractor’s reports • Scheduled samples (at quantity intervals or temporal intervals) • Exceptions (complaints) • Surveys • Direct 100% monitoring

49. 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.

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