Manage Contract Problems Guideline

A contract problem could be seen as, or caused by, an issue, conflict, disagreement, unexpected event, breach, variation, change, miscommunication, misinterpretation, failure, unrealised expectation, or similar situations relating to a contract.

The following suggestions may assist to minimise the likelihood of contract problems arising.
At an agency level:

• Allow time for forward planning - sufficient time is required to develop and execute a well-constructed, clear and comprehensive contract;
• Appropriately resource the contract management function – appoint a contract manager or management team with suitable skills, knowledge, time and support to undertake the role. Provide ongoing training as necessary; and
• Ensure appropriate governance structures are in place to encourage and support good contract management i.e. policy, procedures, checklists, forms, systems and standards.

At a contract manager level:

• Establish a solid understanding of the contract and the contract management role;
• Encourage ongoing and open lines of communications between the parties. This includes having an initial meeting with the contractor once a contract is awarded;
• Ensure any agency obligations (under the contract) are met as required;
• Actively manage the contract. Promptly address and follow up on any problem (no matter how minor) and provide feedback as required;
• Keep comprehensive records of actions, discussions and decisions made during the contract term. Record keeping is a legislative requirement and it is useful for many other reasons, including providing evidence should problems reoccur, informs of changes during the contract term, assists with audit requirements and/or for planning future contracts as examples;
• Look for opportunities to enhance contract management skills (e.g. training sessions, shadowing opportunities and mentoring); and
• Always seek advice, assistance and/or clarification when needed.

Even with a well-planned, clear and comprehensive contract, problems can still arise. If a problem is minor, having an informal discussion with the contractor is usually the most effective way of achieving a resolution.

In many cases, providing the opportunity to give/receive feedback will be sufficient to overcome a contract problem. It is always important to remember to document what was discussed and any agreed resolution for future reference.

When dealing with a contract problem, it is best practice to follow a structured process to help manage a more efficient and effective resolution. The process may also help provide evidence should the problem escalate. Should the problem be considered high risk, time sensitive or significantly serious then the appropriate course of action would be to seek advice before proceeding.

Depending on the type of problem this would generally be from your procurement or legal area.

As previously mentioned, the reasons for contract problems arising are many and varied and while it may appear that a contractor is not doing what they are contracted to do, it is often not that simple. A problem could exist for any number of reasons. These could include situations such as:

• The requirements of the contract are not clear or are open to misinterpretation. For example, something such as “delivery is to be within 10 days” could mean 10 calendar days, 10 business days or even 9 days. In these situations, assumptions are often made which may lead to a problem arising;
• The expectations for the contract are not realistic or well defined. This may result in the specific requirements not being covered under the contract or the outcomes not being achieved. For example, stating that the contract reporting is “as required” rather than specifying what reporting will be required;
• This can lead to frustration for all parties as the required data may not be available or additional costs may be incurred;
• Contractor performance is not monitored, discussed or documented. This may occur for many reasons such as the performance measures are not included in the contract, the measures are ambiguous or not relevant, and there may be issues with resourcing or communication. If a contractor is not made aware that there is a problem with its performance; and given the opportunity to rectify the situation, the problem will remain unresolved and potentially escalate;
• Establishing a contract, but not having suitable processes in place to support the management of the contract. For example, it would be good practice to put in place a communications book for a cleaning contract to document, monitor and resolve cleaning issues. Establishing sound processes assists to minimise the risk of miscommunication, unnecessary or unauthorised contract variations and budget blowout;
• Communication problems. Having limited, or poor communication, or even a personality clash between the parties may lead to communication difficulties. Selecting a suitable contract manager and having an appropriate communication strategy is an important factor in managing stakeholder relationships and minimising contract problems; and
• Having good communication with your contractor and ensuring that the roles, responsibilities and the requirements are understood by all parties will help to avoid problems and make for smoother contract management.

Terminating a contract may seem like the quick and easy solution; however, just because a problem occurs it does not necessarily give you the right to terminate a contract. Terminating a contract can be a very complex and lengthy process which needs to be handled carefully, and with legal advice being sought before proceeding. The situation can be made much worse if the required course of action is not appropriately executed. Where a contract problem exists, following the process as outlined in the steps  below should help to resolve it and also assist with providing evidence should the problem escalate.

Please note, the following steps are provided as a guide only. Should the problem be considered high risk, time sensitive or significantly serious then the appropriate course of action would be to seek advice before proceeding. Depending on the type of problem this would generally be from your procurement/legal area.

Step 1

A problem occurs/is identified. Gather any information and documentation related to the problem. What happens next? 

Step 2

Have you read and understood all the contract documents? (e.g. General Conditions of Contract, Request, Offer, Award letters).

If no, read and understand the contract documents.

If yes, proceed to Step 3.

Step 3

Have the agency obligations under the contract been met?

If no, ensure the agency obligations have been met.

If yes, process to Step 4.

Step 4

Do you feel comfortable dealing with, and understand, the problem at hand?

If no, seek advice, assistance and/or clarification where needed (e.g. from your procurement team, legal area and/or Finance) before proceeding. 

If yes, proceed to Step 5. 

Step 5

Would the problem be considered serious enough that it is unlikely to be resolved at an operational level?

If no, proceed to Step 6.

If yes, proceed to Step 7

Step 6

At an operational level, discuss the problem with the contractor and/or provide feedback as appropriate (in line with specific contract requirements and what is fair and reasonable). Document all discussions and, where applicable, the agreed resolution. Has the problem been resolved? 

If no, proceed to Step 7.

If yes, proceed to Step 10.

Step 7

Escalate the problem to management along with any appropriate documentation. Does management need to obtain any further advice, assistance and/or clarification in regards to the problem? Is a formal dispute notice required at this stage? 

If no, proceed to Step 9.

If yes, proceed to Step 8.

Step 8

Seek advice, assistance and/or clarification on the problem. If a formal dispute notice is required, it should be drafted in conjunction with legal advice. If unsure on how to proceed, seek advice. 

Go to Step 9.

Step 9

At a management level, discuss the problem with contractor and/or provide feedback as appropriate (in line with the specific contract requirements and what is fair and reasonable). Document all the discussions and any agreed resolution. Has the problem been resolved.

If yes, proceed to Step 10.

If no go back to Step 8.

Step 10

Implement the agreed resolution. File all appropriate documentation regarding the problem and the resolution for future reference. Monitor the resolution to ensure the problem is resolved and does not reoccur.

The problem has reoccurred

Depending on the nature of the problem and the process already followed, the options available may include another attempt to solve the problem at an operational and/or management level, escalating to management and seeking advice on how to proceed.