The Teal Book: Part E
The purpose of procurement and contract management, in project delivery, is to ensure that the products and services bought as part of resourcing the work or developing the outputs represent value for money and can be delivered within an acceptable level of risk.
Government portfolios, programmes and projects are wide-ranging, delivering infrastructure through to the complex software, responding to humanitarian crises and transforming public services.
It is not possible or desirable for government organisations to maintain the permanent capability and capacity needed to deliver all this work. Procurement is the right approach when the supply market is better placed to provide the goods, works or services needed, helping achieve better value for money and mitigating risk through external support.
Once contracts are awarded, managing them effectively is what ensures suppliers deliver the intended deliverables, outputs and outcomes.
Procurement and contract management are the activities that enable the portfolio, programme or project manager to secure value for money when buying goods, works and services in the delivery of government policy.
Procurement and contract management activities include:
Where a solution is primarily delivered through a single procurement, these activities align to the reference project life cycle from the Government Functional Standard for Project Delivery (see Figure 25.1) with:
Programmes and projects might also have a number of procurements and contracts throughout the life cycle, providing different resources and developing different outputs that all contribute to the overall outcome.
Procurement and contract management must conform the Government Functional Standard for Commercial.
Everyone working in government project delivery has a responsibility to ensure that public resources are managed and used efficiently, effectively and in line with legal requirements, government policy and standards. This includes the need to procure services and work in a way which is transparent, meets requirements and is value for money.
Most project delivery requires the involvement of qualified commercial professionals. These could be working within the immediate team, sponsoring organisation or other organisations, such as the Government Commercial Function, or public buying organisations.
Accountability and responsibility for commercial management should be defined within the governance and management framework and reviewed on a regular basis.
It is important to understand how commercial roles work in relation to project delivery in government. The key roles are set out below, with more information available in the Government Functional Standard for Commercial and in the People standards for the commercial profession.
Commercial management in government takes place within a formal framework of accountabilities set out in the Government Functional Standard for Commercial.
Commercial directors and their teams work to the commercial strategy agreed for their department, supported by a number of central government commercial teams. Their activities are co-ordinated by the Government Chief Commercial Officer.
These central commercial teams offer specialist support for departments:
The portfolio director, in a portfolio, or senior responsible owner, in a programme or project, is accountable for ensuring effective commercial management, including owning the commercial management framework and plan. They ensure work is undertaken to determine if there is a need to procure services and work from the supply chain.
The portfolio, programme or project manager, as appropriate, is accountable for ensuring development and implementation of the commercial management framework and commercial plan, and ongoing commercial control, reporting and accounting activities. This work is normally led by a professionally qualified commercial practitioner, lead or specialist and supported by a commercial team, usually based within a support office.
Once the commercial agreement has been signed, the contract is managed by a contract manager. A contract manager should ideally be involved during the procurement and who fulfils this role will depend on the nature or complexity of the contract. For example, the contract manager could be fulfilled by a work package manager or, for complex contracts, could be fulfilled by a commercial practitioner.
More detail on professional commercial roles is set out in the Government Commercial Function’s People standards for the commercial profession.
The Procurement Act 2023 (and relevant regulations made under the Act) applies to contracting authorities in England, Wales and Northern Ireland and to contracting authorities with reserved functions carrying out procurement in Scotland. See Guidance: Contracting authority definition and Guidance: Devolved contracting authorities.
Some devolved Welsh and transferred Northern Ireland procurements are exempt from a small number of requirements of the Procurement Act 2023. These exemptions can be found in the Procurement Act 2023 knowledge drop for contracting authorities: Wales and Procurement Act 2023 Knowledge Drop for contracting authorities: Northern Ireland. Scotland maintains its own procurement legislation which also apply to devolved Scottish authorities.
Generally, the provisions in the Procurement Act 2023 must be applied to a ‘covered procurement’. A covered procurement is the award, entry into and management of a public contract. A public contract is a contract of a particular type that is above the relevant threshold (for goods, services and works) and which is not an exempted contract.
However, some rules in the Procurement Act 2023 must be applied to procurements not caught by the definition of ‘covered procurement’ and that is why there is a wider definition of ‘procurement’ (the award, entry into and management of a contract), which means any procurement. This allows some limited rules for contracts not caught under the definition of ‘covered procurement’, such as below-threshold procurements; this is to ensure certain treaty obligations are complied with.
Contracting authorities should ensure they are familiar with the obligations set out in the Procurement Act 2023 as soon as they become aware they have to carry out a procurement. For example, this would include informative processes like pre-market engagement where they would need to have regard to the procurement objectives in choosing how and who to engage with. Also, when drafting the contract scope, award criteria and KPIs, consideration needs to be given to things like the National Procurement Policy Statement or the Wales Procurement Policy Statement. Procurement Act 2023 Guidance documents collection can help.
Portfolio, programme and project teams should continue to engage with professionally qualified commercial practitioners, leads or specialists from their organisation’s commercial team as soon as the potential need to procure has been identified. This will help to ensure that the requirements of the Procurement Act 2023, as well as other regulations, policies and procedures, are taken into account at the earliest opportunity.
Those with accountability for the appropriate procurement and management of contracts, such as portfolio directors and senior responsible owners should make themselves familiar with The Procurement Act 2023: A short guide for senior leaders. For members of portfolio, programme or project teams who are not commercial practitioners but have regular interactions with procurement should make themselves familiar with The Official Transforming Public Procurement Knowledge Drops and the supporting TPP Knowledge Drop supporting factsheets.
Procurement and contract management needs to integrate with the wider commercial management arrangements in the sponsoring organisation within which it sits. This is particularly the case at portfolio level, where a portfolio can cover the whole of an organisation’s procurement activities and associated investment and resource spend.
Commercial management arrangements should be consistent with the sponsoring organisation’s processes and use their commercial management and accounting systems wherever possible. The commercial processes should be designed and operated to ensure consistency with the organisational commercial hierarchy and in capturing data across the organisation’s portfolios, programmes and projects.
Government Commercial Agency publishes the Public procurement policy which sets out the directives, regulations, policies and guidance relating to the procurement of supplies, services and works for the public sector.
The commercial polices reflecting the government’s priorities are set out in Procurement policy notes and come with supporting guidance for implementation. Procurement policy notes detail the actions to be taken by contracting authorities when undertaking public sector procurement and so are implemented into the parent organisation’s commercial management arrangements. An example of a note is PPN 002: Taking account of social value in the award of contracts, which supports compliance with the Public Services (Social Value) Act 2012. See 19.6.3.5 on its role in supporting identifying and categorising a benefit.
The Department for Environment, Food and Rural Affairs also publish mandatory Government Buying Standards for buying goods and services to support procurement of more sustainable and efficient products and engage with your suppliers to understand and reduce the impacts of their supply chains
Commercial relationships with third-party suppliers can vary depending on the complexity and duration of the relationship. Project delivery teams, working with commercial specialists, should develop an understanding of how best to work with and access the market and suppliers.
Simple transactional commercial relationships might be suitable when the requirements are well understood and with limited risks. In these circumstances, it is often possible to procure from a pre-existing framework, catalogue or dynamic purchasing system, often administered by public buying organisations, such as:
For complex or high-risk requirements, it is necessary to establish a bespoke contract, through an open competition, with a third-party supplier or suppliers. The attributes of complex requirements in the context of procurement and contracts include:
Advice should be sought from commercial specialists where a procurement involves complex or high-risk requirements to understand how the market should be engaged and how to approach the procurement.
Project delivery teams should have a defined and established approach to commercial assurance which is integrated into the wider assurance and approvals framework for the portfolio, programme or project. Assurance activities focused on commercial activities and decisions should be proportionate to the complexity, risk and value of the procurement and contract.
In relation to the assurance of commercial activities, consideration should be given to:
Where relevant, commercial assurance activities should also be undertaken in accordance with the Government Functional Standard for Security and the Government Functional Standard for Counter Fraud.
When a complex service is outsourced for the first time and there is limited information available about the requirements and risks, a pilot should be run as part of a programme or project to test viability and make any necessary changes. Options for running pilots include:
Where the contract is high-risk (for example, complex requirements, unproven market capability, uncertain policy environment), methods such as ‘should cost’ modelling should be used to assess the risks relating to different offers. Such contracts usually require a bespoke procurement approach that allows for project delivery teams to obtain targeted responses from the supply market that meet the business needs.
Counter fraud risk assessments should be used when selecting suppliers for complex contracts and after the award of the contract to ensure payments are made in line with the agreed contractual terms.
When services, works or goods are being procured, how the contract is to be managed should be considered. The Contract management playbook sets out principles. This includes involving the intended contract manager during the procurement and ensuring that they have reviewed and understood aspects such as:
Strong internal and external working relationships help to facilitate the delivery and management of a contract. This can be achieved by a shared understanding of the role of the contract manager and the roles and responsibilities on the supplier side. Documenting these respective responsibilities, and behaviours, in a joint document, such as a contract management plan or charter, can help, especially if there is ever a change in the people involved.
How the contract manager and supplier communicate should be considered and planned for. This includes both regular structured and informal communication routes which are open and easily used as well as routes for formal notices.
Preparing for commercial management is important, to ensure that the commercial management framework put in place meets the requirements in the Government Functional Standard for Commercial, the Procurement Act 2023 (see 25.6.1.1 on complying with the Act), any relevant Public procurement policy and organisational practices. In particular, there needs to be a clearly defined mandate and objectives for the work, as these will determine the nature of the commercial activities and resources involved and how these might need to be managed.
In a portfolio, for example, commercial management is closely linked to wider organisational commercial practices. Where a new portfolio is being established or arrangements are being reshaped, particularly at organisational level, strategic decisions might be needed from the accounting officer and executive board on how portfolio commercial activity is to be planned and managed.
Commercial management in programmes and projects normally operates within existing commercial management arrangements. Defining the commercial governance and management framework for the work is a critical early task, starting as soon as any need to source goods or services from a third-party has been identified. This helps ensure that commercial activities can be planned and costs can be budgeted for. Where necessary, an initial framework can be put in place and then developed as the work expands and commercial planning and management requirements increase.
The governance and management framework for commercial forms part of the overall governance and management framework for the work and should be integrated with the framework in place for the organisation.
The first step is to take a strategic view of likely requirements for commercial management. The commercial needs in project delivery can vary widely, from the outsourcing of the design, development and delivery of the solution, short term needs for professional services and goods through to commercial pipeline and market development activities. Depending on the likely commercial needs of a programme or project, Cabinet Office controls and the Treasury approvals process for projects and programmes might apply.
This initial view should provide a basis for defining the core elements of the framework. This should cover key requirements and controls, for example:
In a portfolio, the framework sets the parameters for managing commercial activities at portfolio level, as well as what is expected of programmes and projects within the portfolio, in line with the Government Functional Standard for Commercial and Government Functional Standard for Project Delivery. How this works depends on whether commercial management activities are undertaken through the portfolio, or separately. Even in the latter case, there should be full visibility of programme and project commercial needs and activities at portfolio level, as this is essential for accurate portfolio monitoring, reporting and intervention. Consideration should be given to whether a commercial pipeline, which feeds into the organisation’s commercial pipeline and might contribute to a published commercial projection, is needed. The portfolio commercial management framework should set out how this works.
For organisational portfolios, the framework should be approved by the chief commercial officer and accounting officer and the appropriate governance board, usually the organisational portfolio board or investment committee. Below this level, the framework should be approved by the portfolio director.
In a programme or project, the oversight of procurement and contract management should be delegated to the senior responsible owner to manage as a core element of their accountability for the work. The senior responsible owner can make further sub-delegations, normally to the programme or project manager, so they can manage commercial activities on a day-to-day basis, and sometimes beyond. The framework plays an important part in demonstrating how the senior responsible owner plans to exercise their commercial responsibilities in line with their delegated authority (and taking account of any sub-delegations), to meet the required standards and maintain commercial discipline in line with organisational and portfolio requirements. At programme and project level, the framework should be approved by the senior responsible owner and the appropriate governance board.
The platforms, applications, processes and tools needed to support commercial planning, procurement and control should be identified early. This usually means using existing organisational commercial and reporting platforms and established processes, but might need also to be supplemented by additional processes or specialist tools.
For smaller initiatives, commercial data, modelling and analysis is often handled on spreadsheets. Some organisations provide specialised tools for managing commercial activities which interface with their existing platforms, and these can save considerable time and effort on rekeying or uploading data, particularly at portfolio level but also for programme and project managers in reporting upwards. For larger and more complex endeavours, specialised planning and control software, incorporating commercial data, can be used: see Chapter 16: Planning.
Team members who interact or work with a supplier need to understand the contract and what its terms mean for on their own responsibilities. Contracts include obligations on both parties which, if not respected, can lead to a material breach of contract.
Team members should understand:
Contracts also include strict timescales and specify a route and named person for formal contract notices. It is the responsibility of the sender to make sure communications are received, not the receiving party.
Commercial management in project delivery involves a series of related activities, as shown in Figure 25.2 and considered below. These activities are undertaken by the commercial or procurement manager and the contract manager, and their respective teams.
Depending on the scale, cost and complexity of the commercial work, these roles may be fulfilled by members of the project delivery team or commercial specialists. Where commercial specialists are referred to as completing activities in the descriptions below, this refers to accredited members of the Government Commercial Function.
The approach to procurement and contract management should be defined including any processes, methods, tools and techniques to be used. This forms part of the overall governance and management framework for the work (see Chapter 4: Governance and management and 25.6.3.2 on defining the commercial management framework).
Commercial management in project delivery is governed by the overall government control framework in Managing public money (requires sign in), and how that is then applied within the organisation in which it takes place. It is important, nonetheless, to set out the specific commercial management controls required within the portfolio, programme or project, aligned to the scale, complexity and risk profile of the work. It is also important to monitor the operation of the framework to ensure that it remains effective and appropriate as the work proceeds, particularly if things change. If necessary, it should be updated.
Defining a procurement involves:
Options for commercial delivery should be evaluated at the outset of a new programme or project to inform the business need and provide sufficient time to select the commercial delivery model to be used.
An assessment of the delivery model should be undertaken to provide an analytical, evidence-based recommendation on whether a programme or project team should deliver a service or part of a service in-house, procure from the market or adopt a hybrid solution. Assessments should be proportionate to the scale and complexity of the work.
Commercial specialists should be appointed early to support definition of the business need and oversee the project delivery commercial activities and delivery model assessment.
Business needs should be translated into commercial requirements which can be defined in a contract or equivalent commercial format. Commercial requirements should be accessible to the supply market, be sufficiently flexible to allow for potential future changes or innovation and enable performance and outcomes to be measured.
Particular care should be given to the need to protect against the risk of fraud, bribery and corruption. There are clear rules and duties of due diligence which should be adhered to when awarding purchasing contracts or grants. This should be considered at an early stage, and the design of the proposal should consider proportionate counter measures. More detail can be found in the Green Book (requires sign in).
Early market engagement can lead to increased competition, promote innovation and improve value for money for contracts. Commercial specialists should ensure that potential suppliers have sufficient time to appropriately influence, understand and prepare to make an offer against the contract requirements when advertised (except in the case of a catalogue procurement) and the outcomes that are expected to be delivered.
A commercial specialist should assess the business need by conducting supply market analysis in order to recommend the most appropriate market engagement approach. Outcomes from the market engagement should be used to shape the business need, define the contract requirements and develop the commercial options.
Identifying and analysing commercial options enables effective appraisal and selection of the optimum commercial approach to deliver the intended outcome. Justification for choosing a particular commercial option should be documented. This should be done through cross-functional analysis and the timely production of commercial cases. Options should be assessed following the requirements of the Government Functional Standard for Analysis.
The criteria for selecting suppliers and offer evaluation method should be established before inviting offers from the supply market. Offer evaluation criteria should enable differentiation between supplier offers and should consider both priced and unpriced elements to identify the most economically advantageous offer.
Procuring services and goods involves:
The appropriate route to market is informed by the selected commercial approach and the associated complexity and risks. Project delivery teams should draw on the expertise of commercial specialists as appropriate to agree the route to market for non-transactional contracts. Additional advice might be needed from the chief commercial officer of the organisation for the most complex of contracts.
The selected route to market should be justified and aligned to the selected commercial option whole complying with commercial policy and regulations and ensuring opportunities are accessible.
A form of contract should be selected before inviting offers from the market. Model forms of contract should be used except when otherwise justified to facilitate more efficient sourcing and contract management. The Model services contract should be used as a reference for which terms and conditions should be used for major services contracts. It is intended for use by commercial specialists and lawyers to reduce administration, legal costs and negotiation time.
Proportionate key performance indicators should be refined, defined and included in contracts. These indicators should be developed in consultation with relevant stakeholders and be published in line with policy.
A draft contract and supporting tender documentation should be prepared using the chosen form of contract. Contracts can be output or outcome based and should be designed to promote proactive commercial assurance through its terms and conditions.
Suppliers should be invited to submit documented offers to deliver the requirement or, where a procurement involves using a pre-existing framework, catalogue or dynamic purchasing system, supplier offers should be identified. This should be done in accordance with the commercial governance and management framework, the organisation’s processes and controls and in compliance with regulations.
Effective supplier selection and evaluation of offers ensures the appropriate supplier is chosen to undertake the work to deliver the required outcomes and that value for money is achieved.
Proportionate due diligence should be carried out on the selected supplier before recommending a contract award. The evaluation of supplier proposals should be carried out using the criteria defined. Evaluations should be conducted with cross-functional support with evaluators having no conflicts of interest that could prejudice the activity and award.
Contract award recommendations should be justified and approved. Where the contract is to develop or deliver the main solution for the work, this is normally combined with approval of the full business case.
Finalised contracts should reflect the negotiations with the prospective supplier and be signed by authorised representatives from the contracting party, after the required ‘stand still’ period. Negotiations should include documenting each contracting parties’ liabilities and obligations and any transition responsibilities.
The unsuccessful bidder(s) should be notified, and details of the awarded contract should be published on the relevant procurement portals.
Mobilisation begins delivery against the contract. Arrangements should establish the use of a contract management plan which defines the roles and responsibilities of each party and should be periodically reviewed. Any obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006(TUPE) in respect of employee transfers must be fulfilled as soon as the contract takes effect.
The support required from commercial specialists should be proportionate to the complexity and risks of the contract, with the simplest and lowest cost of contracts potentially needing no specialist support.
A contract management plan should be produced by the contract manager and should be approved by the senior business owner which, in the case of programmes and projects is likely to be the senior responsible owner and for portfolios the portfolio director.
The contract management plan should include aspects such as:
The budget and processes for committing and monitoring contract spend should be established (see Chapter 29: Finance).
The delivery of goods, works and services should be managed proportionately to the complexity, value and risk of the contract. Supplier performance should be monitored to ensure that intended outputs are delivered to contractual milestones and that outcomes and benefits from contracts are realised.
The contract manager should ensure that the necessary resources, processes and systems are in place that enables:
The contract manager should regularly report contract performance to the portfolio, programme or project manager and other relevant stakeholders, in support of monitoring the effective application of the contract management plan and the performance of the supplier.
Where performance does not or is unlikely to meet the requirements of the contract, preventative or corrective actions should be taken. These actions should be within the terms of the contract and should be aimed as remediating the situation. Examples include issuing a formal notice or issuing a notice for a performance improvement plan. Where performance does not improve, or in the event of serious or persistent breach of contract, specialist commercial advice, and if necessary legal advice, should be sought. Contract performance and any performance management action taken should be rigorously documented, ensuring that both client and supplier obligations are met at all times.
Periodically, through the life of the contract, the senior responsible owner, supported by the contract manager and commercial specialists, should review the contract and its arrangements. The aim of such reviews is to ensure that the contract accurately reflects the parties’ relationship, current risks, market conditions and that the contract continues to deliver the business needs and provides value for money.
Over the life of the contract, changes may be identified that need to be managed. All contract changes should be justified and controlled to ensure that the requirements continue to meet the business needs and align to the organisation’s financial processes. Contract change control should be fully integrated and aligned to the change control processes for the portfolio, programme or project (see Chapter 22: Change control).
During the life of the contract, the advice and support of commercial specialists might be needed. Advice and support can be provided on a range of topics and should be sought on aspects such as:
Contract transition ensures that handover is conducted smoothly with no unplanned interruption to service and happens in situations such as:
A transition plan should be established which defines the goals, responsibilities and activities of the transition. The plan should follow the guidance in Chapter 36: Transition into use and include:
Commercial knowledge assets can include intellectual property, research, data, expertise and other intellectual resources that have been developed by third-party suppliers when delivering a contract.
Contracts may be exited either when completed or when terminated early and can happen during the life cycle of a programme or project, or during their closure. Formal notice is usually required and should be reflected in planning. An exit plan may be separate or can be included in the contract management plan and should include:
Early termination of a contract should be a last resort, only enacted after other provisions for the delivery of the contract, including remedies, have been exhausted. When early termination is proposed, the cost and impact of the termination should be considered, including the likelihood and implications of any legal dispute, and specialist commercial and legal advice should be sought.
On contract closure, information systems should be updated, any staff and facilities reassigned and the contract documentation archived.
In a programme or project, following completion of the work, commercial management arrangements are brought to a close. In a portfolio, commercial management arrangements normally continue unless the portfolio is fully concluded and wound up, or substantially reset.
In some programmes or projects, commercial data, reporting and accounting arrangements are handed over to support commercial management as part of operations, particularly where there are ongoing contracts or follow up activities following programme or project close, or where the work moves into a sustainment model (whereby future development is carried out on an iterative basis as part of business as usual operations).
The effectiveness of commercial management should be evaluated as part of closing the work. Commercial management information should be archived in accordance with the sponsoring organisation’s information and data retention policies (see Chapter 24: Information and data management). The procurement and contract management framework should then be closed.
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