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Supplying Principles and Practices > USPS Supplying Practices Process Step 3: Select Suppliers > Define and Initiate Contract Management Activities
Define and Initiate Contract Management Activities
Contract management is the process of ensuring that the intent,
requirements, and terms and conditions of a contract are met from inception
to end of life. Administrative procedures must be clearly outlined to ensure
compliance by the parties to the agreement. While contract management
varies from contract to contract, the importance of these activities to the
success of the contract and to the relationship between the Postal Service
and the Supplier should not be underestimated.
The focus of contract management is on obtaining high-quality products and
services on time and within budget. Contract management activities must be
accurately and frequently performed to keep contract documentation up to
date, which ensures that all documents pertaining to the contract are
consistent and that all parties to the agreement have the correct version of
the contract. Ongoing contract management and administration are
imperative to ensure that the Supplier consistently meets the objectives set
forth in the contract.
Proper management is vital to the success of the contract and comprises
several procedures, including:
• Contract maintenance
• Change control procedures
• Charges and cost monitoring
• Management reporting
• Asset management
• Continuous improvement
Contract maintenance entails keeping contract documentation up to date and
relevant. Administrative procedures must be established to ensure proper
upkeep of the contract. Maintenance must be performed by the Contracting
Officer in an effort to ensure that any changes to the contract are fully
documented in the contract file. File documentation should be sufficient for a
third party to understand from the documentation what was done and why it
was done. The Contracting Officer must identify all documentation relating to
the contract and implement change control procedures to guarantee that no
changes are made without proper authorization.
Change control procedures are included in the contract and typically refer to
defining the roles and responsibilities of those involved in the contract, along
with the procedures for raising, evaluating, costing, and approving change
requests. Change control procedures provide a clear set of steps and clearly
allocated responsibilities, including:
• Requesting changes
• Assessment of impact by the Client, enablers, and the
Purchase/SCM Team
• Cost/price adjustment
• Prioritization and authorization
• Agreement with provider
• Control of implementation
• Documentation of change assessments and orders
Charges and cost monitoring entail the periodic review of the overall cost of
the contract to ensure that budgets are maintained. All supplier and internal
costs, including the costs of contract management, must be monitored by the
Pricing Analyst on a regular basis, especially when changes are made, to
ensure reasonableness and best value of the contract. The Purchase/SCM
Team and Supplier will agree upon a method by which the charges and costs
will be monitored. This will usually be in the form of an invoice or report sent
from the Supplier to the Contracting Officer, or to the Contracting Officer's
Representative (COR), on an agreed upon basis (e.g., weekly, monthly,
quarterly reports).
Charges and costs are incurred for fixed-price contracts when a change is
made involving any deviation from the fixed costs set forth in the contract. If
the costs are exceeded by the Postal Service, the Postal Service is
responsible for absorbing those costs because they are fixed in the contract,
and if the costs are exceeded by the Supplier, the Supplier will absorb those
costs, again because they are fixed in the contract.
Additional or unforeseen costs will be handled in a manner dependent upon
the type of contract, terms determined during discussions with the supplier, or
the dispute procedures contained in Clause B-9: Claims and Disputes. A
discussion of contract types can be found in the Select Contract Type topic of
the Develop Sourcing Strategy task of Process Step 2: Evaluate Sources.
During the early stages of the contract, the Contracting Officer should
develop a communications plan to ensure that all information is effectively
transmitted between the Supplier, Client, and various internal groups (e.g.,
Purchase/SCM Team, Marketing, Finance). This plan will include the
responsibilities, timing, and points of coordination for such items as:
• Business reviews
• Performance reports
• Subcontracting reports
• Diversity reports
• Configuration change
Changes and updates will likely occur during the lifetime of the contract, so
the contract must be flexible enough to provide for such events. Proper
management-reporting techniques are crucial to maintaining the most current
information regarding the contract.
The Contracting Officer must ensure that records are kept of property
provided to the Supplier or the Postal Service.
One constant goal for the Postal Service and the Supplier is to reduce the
total cost of ownership (TCO). Performance measures may be included in
any contract, but are most effective when used with a Performance-Based
Contract. Performance-based contracts are discussed in detail in the Select
Contract Type topic of the Develop Sourcing Strategy task of Process Step 2:
Evaluate Sources.
Performance measures are used to motivate the Supplier to improve in areas
important enough to be rated, but not to the detriment of overall performance.
Performance improvements such as quality of work, productivity, and
cost-efficiency must be embodied in the terms of the contract; they can be at
a number of levels, from price or turnaround time improvements to
encouraging innovation of service delivery. Improvements should aim for
alignment of objectives, so that the Client and Supplier are working toward
the same goals and both derive benefits when they are realized.
The allocation of resources for contract management activities affords the
Postal Service the opportunity to manage the contract by assigning funding,
staff, facilities, and/or tools to a given contract, based on the size, complexity,
and time frame established. Resource allocation ensures that the plans of the
Postal Service are integrated and sustainable within the resources available,
based on the contract management metrics that have been established.
These metrics are discussed in detail in the Define Contract Management
Metrics topic of the Perform Solicitation-Related Activities task of Process
Step 2: Evaluate Sources.
The Client and Contracting Officer will work together to determine how
resources will be allocated to manage a particular project, in conjunction with
input from the rest of the Purchase/SCM Team. When allocating resources
for any contract, it is important to identify the types of resources needed.
Depending on the commodity being purchased, there are five categories of
resources that need to be assessed:
• Funding - assess the current funding availability and compare it
with the funding required to accomplish the project
• People - ensure that there is sufficient human capital to develop,
manage, and operate the project
• Facilities - ensure that existing facilities can accommodate the
project
• Technology - analyze the organization's current state of
technology, and determine what will be required to enable
effective operation of the proposed project
• Other resources - analyze other resources that the organization
has, and determine which additional resources may be needed to
carry out the project
The Assess Resources topic of the Conceptualize Need task of Process
Step 1: Identify Needs should be revisited to gain further understanding of
the previously identified resources and to determine how they can be
allocated to ensure cost-effectiveness and best value to the Postal Service.
Once the resources for the contract have been allocated accordingly,
managing the project will be an ongoing task.
Planning for contract management entails determining how the requirements,
terms, and conditions of a contract are addressed and facilitates the activities
associated with eventual transactions between suppliers and the Postal
Service.
Planning for contract management will confirm the previously planned
activities associated with the administration of a contract and will provide an
outline that helps the Client, Contracting Officer, and Item Manager to monitor
the delivery and receipt of all purchased products and/or services. The
essential components and personnel that ensure best value and facilitate
contract management are:
• Current contract
• Cost and price control
• Resource management
• Contracting Officer's Representatives (CORs)
• Investment recovery plan
Current copies of contracts must be maintained. Changes to the current
contract regarding the scope of work, specifications, cost, or duration of the
project can be made only by contract modification. Only the Contracting
Officer can modify a contract.
As a result of the total cost of ownership analysis (TCO), funding
assessment, should-cost analysis, price analysis, and Supplier capability
analysis, the Purchase/SCM Team has already accumulated a large amount
of data regarding charges and costs associated with the performance of the
contract. Continuous monitoring measures must be implemented to ensure
the viability of the following elements, which are integral to Process Step 4:
Deliver and Receive Requirements:
• Contract's budget is not exceeded
• Ordering is accurate
• Shipping is facilitated
• Performance is met and of high quality
• Delivery is on time
• Receipt of product and/or services is properly recorded and
reported
• Products are appropriately accepted or rejected, depending on
the results of inspections
The Client is responsible for maintaining the contract budget and for reporting
any financial discrepancies to the Contracting Officer. The Contracting Officer
is responsible for ensuring that the Client is fully aware of all issues that may
impact funding and budgets, and for involvement in all decisions that affect
funding and budgets.
The Postal Service must maintain and appropriately manage the resources
allocated for a specific contract. Resources that are pertinent to a contract
are determined during Assess Resources activity of the Conceptualize Need
task and the Revisit/Update Resource Assessment topic of Decide on Make
vs. Buy task of Process Step 1: Identify Needs. Resources are allocated
during Allocate Resources for Contract Management activity of the Plan for
Contract Management task of Process Step 3: Select Suppliers. The Item
Manager and Contracting Officer must work together to successfully ensure
that all required assets are being allocated and, once allocated, are
functional.
Contracting Officer Representatives (CORs) are responsible for performing
functions that do not require contract changes in the scope of work,
specifications, cost, or duration within the meaning of the duties and
limitations established by the appointing Contracting Officer. CORs are
responsible for submitting reports that evaluate the Supplier's progress and
performance. The Contracting Officer is responsible for explicitly informing
the appointed CORs of the actual day-to-day duties and responsibilities that
will facilitate the efficiency and effectiveness of transactions, because CORs
act as liaisons between the Contracting Officer and the Supplier, oversee the
receipt and/or return of equipment, and oversee quality inspections. Ongoing
management and reporting will be necessary to ensure that the Supplier is
consistently meeting the objectives established in the contract.
The investment recovery plan outlines the identification, reuse, sale, or
disposal of surplus and/or idle assets and is used to generate significant
revenue and create cost savings, allowing the Postal Service to reduce waste
and increase revenue. It is a dynamic document that is revised and updated
throughout the project life cycle, and is finalized during the Finalize
Investment Recovery Plan topic of the Plan for Contract Management task of
Process Step 3: Select Suppliers. The investment recovery plan is
developed by the Client, and any information regarding the product that is
essential to changing and/or finalizing the plan is furnished by the Item
Manager.
Assess Resources topic, Conceptualize Need task, Process Step 1: Identify
Needs
Develop Preliminary Total Cost of Ownership (TCO) Estimate topic,
Conceptualize Need task, Process Step 1: Identify Needs
Analyze State of Technology topic, Decide on Make vs. Buy task, Process
Step 1: Identify Needs
Start Request for Proposals (RFP) Development topic, Prepare Project task,
Process Step 2: Evaluate Sources
Select Contract Type topic, Develop Sourcing Strategy task, Process Step 2:
Evaluate Sources
Appointment of Contracting Officer's Representatives (CORs) topic, Plan for
Contract Management task, Process Step 3: Select Suppliers
Define Contract Management Metrics topic, Perform Solicitation-Related
Activities, Process Step 2: Evaluate Sources
Finalize Investment Recovery Plan topic, Plan for Contract Management
task, Process Step 3: Select Suppliers
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