Monitoring Contractor Performance
Getting the most out of your contracts
Gary Traynor
11th July 2013
Outline
• Maximising performance through contract structure
• What to manage
• Key metrics
• Reporting: achieving a balance
2
What is a Contract?
“A valid contract is an agreement made
between two or more parties whereby legal
rights and obligations are created which the
law will enforce”
What to manage ?
3
Contractor Performance Cycle
Setting
Performance
Objectives
Energy &
Sustainability
Quality of
Service
Total Cost
Management
Innovation
Risk &
Compliance
Reporting &
Administration
Relationship
Management
4
Governance structure
Semi-Annual/ Annually
Quarterly
Strategic
Management
•
Strategic alignment and overall direction
•
Innovation
•
Approve annual strategic plan
•
Review financial and operational objectives
•
Baseline Review
•
Monitor performance against the KPIs
•
Drive continuous improvement in service delivery
•
Compliance
•
Approve budgets
•
Manage change control process & escalations
• Monitor operational deliverables
Monthly
Operational
• Resolve delivery issues
• Review monthly scorecard
• Innovate service delivery
5
What to manage
1. Service requirements
2. Service quality
3. Value for money and price creep
4. Innovation and continuous improvement
5. Vendor management & vendor development
6. Performance management frameworks
7. Effective KPI measurement
8. Technology & reporting
6
1 - Service Requirements
What to do
• receiving less than what is in scope
• vendor disputing what is in scope
• vendor providing more than scope and
claiming additional fees
P
understand the scope for
the contracts you are
managing
P
manage disputes quickly
and seek advice from your
Contract Manager
P
adjust scope if required with
a contract change notice
7
2 - Service Quality
What to do
•
•
•
•
number of complaints received
time for vendor to respond
number of repeat complaints
subjective or objective situations
P
P
P
raise during the contract
management meetings
reflect in KPI scoring
escalate if there is an
ongoing problem
8
3 - Value for Money and Price Creep
What to do
P
•
•
•
•
requests for additional fees
large ad hoc spend
requests for change
monitor regularly
P
P
request quote and check it
against the contract rates
review volume of adhoc
services for the vendor and
assess the level of ad hoc
spend
make vendor accountable
for recommendation to
control
9
3 - Example A – Low Value Opex spend
Situation
• National office portfolio with filtered water taps on adhoc reactive call
outs
• 933 works orders issued in 1 year total approx. cost $317K (aver $347)
• Excessive call out costs and repair costs
Scope
• Review of adhoc spend identified and analysed
• Consultation with vendor to agree solution
Results
• Planned maintenance activity agreed with vendor accountable
• 40% savings made in first year
• Filter change programme agreed with minor repairs
• Cost creep contained and managed
3 - Example B – High Customer Visibility
Situation
• New cleaning company introduced for national commercial portfolio
• 3 month into contract variation requested for scope and shift changes
• An additional shift was requested to cover the gap between 2pm and
5pm
Scope
• Service specification review identified changes could be made to scope
and alteration to shifts
• Changes jointly agreed with no negative impact
Results
• Shift planning adjusted
• 10% Supervision variation rejected
• Quality of day cleaning improved
3 - Example C – Mechanical Reactive Spend
Situation
• Client historical spend review completed
• 12 months of incumbent HVAC reactive spend analysed:
- 2,885 work orders
- total additional cost of $833,000 (aver $288)
• No accountability for reactive spend
Scope
• Review ‘too hot / too cold’ reporting
• Adjust frequency of maintenance activity
• Quality of the maintenance received?
Results
• 30% reduction in reactive calls
• Improved customer satisfaction
• Lifespan of equipment improved
4 - Innovation and Continuous Improvement
1
2
3
Business Benefit
Capacity / Capability
Economy
identify new opportunity
for ways to benefit your
business
new skills, methodologies
and capabilities in service
delivery
better, more efficient and
cheaper services through
economy of scale,
process improvement
or rationalisation
13
4 - Innovation and Continuous Improvement
What are the new
technologies
available in the
market?
Are there
any potential
savings?
What upcoming
legislative or Australian
Standard changes
should you be aware of?
What recommendations
does the vendor have for
how to better deliver the
service?
Are there any trends
in ad hoc issues
and how can these
better be addressed?
Does the vendor
have any new
additional service
offerings?
14
5 - Vendor Management & Development
2.Vendor Management
to maintain and gradually
improve value
Contract Signed
1. Without active management
Time to Contracts
Vendor
Development
Expected Value
Value
Additional
Value
3. Vendor Development
To create new value from
vendors beyond that which
is in the contract
Vendor
Management
Time
15
6 - Performance Management Frameworks
Refine
KPIs & Reports
Undertake Improvement
Opportunities
Establish Dashboard and Reports
Finalise the tools and templates
Agree on KPI sets / Groupings for
Operational Measures
Confirm Strategic Principles / Measures
16
7 - Effective KPI measurement
• Set KPIs collaboratively
• Create realistic and effective KPIs
• Ensure clear categorisation of KPIs
• Measure correctly
• Address problems early
• Open and honest
• Goal is joint
17
8 - Technology & Reporting
• Achieving a balance on reporting frameworks
• Demonstrate the value of your metrics
• Be fair and reasonable with your expectations
What is the correct level of reporting?
• Develop correct level for contract size
• Ensure quality of reporting within your KPIs
• Understand time required by both parties
• Do not report for reporting sake…it costs you $
18
Property Management
As of 12/1/2006
8 - Technology & Reporting
Tier I: Executive Dashboards
Work Order Performance to SLA (P1 Cycle Time from
Creation to Customer Contact % within Spec)
Work Order Performance to SLA (Cycle Time from
Creation to Completion % Within Spec
First Time Completion (Ave # Calls Per Problem)
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
99.95%
99.96%
99.94%
99.99%
99.98%
99.95%
99.97%
99.98%
99.95%
99.97%
99.90%
99.99%
1.88
2.56
Tier II: Performance Reports
2.98
1.18
66,670 $
9,291 $
2.70
1.04
Variance to Operating Budget ($ Over or Under)
$
66,032 $ 98,826 $
62,585 $
5,909
100.00%
99.98%
99.96%
99.94%
99.92%
99.90%
99.88%
ct
-0
6
O
06
Se
p-
Ju
l-0
6
Au
g06
Work Order Performance
to SLA (P1 Cycle Time
from Creation to
Customer Contact %
within Spec)
Ju
n06
M
ay
-0
6
% Within Specification
Work Order Performance to SLA Over Time
Work Order Performance
to SLA (Cycle Time from
Creation to Completion
% Within Spec)
Time
Tier III: Detailed Scorecards incorporating the performance plans
19
Wrapping Up – Key things to remember
Contract
Management
takes time
and effort
KPIS are
reflection of
how contracts
working
Its all about
building
relationships
Structured
engagement
and reporting
is baseline for
success
No Surprises
manage
contractual
changes
Innovate and
always looks
to raise
benchmark
20
Wrapping Up – Key things to remember
Celebrate
Success
it’s a Long
Term
Relationship
21
Questions?
Copyright © Jones Lang LaSalle, 2013