Contract Management - National Conference of State Legislatures

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State Agency Contracts
Considerations for
Performance Reviews
Introduction
 Performance reviews of contracts are
not mysterious
 Your audit goals and findings will
remain the same
 What’s typically unknown:
criteria, audit tasks, and evidence
2
Training Objectives
Participants should be able to:
 Identify the bodies of criteria that your
state has developed to ensure high
quality contracts
 Identify the key players in contract
management and accountability
 Develop a checklist of issues to cover in
your audit and ideas on how to address
those issues
3
Audit Criteria:
State Laws and Rules
for Contracts
Part 1 of 3
4
Audit Criteria:
State Laws and Rules
 Contract Components
 Contract Controls or Review
 Contract Management
 Contract Administration (if separate)
 Ethics
5
Contract Components
 Section 287.058, Florida Statutes
 “Every procurement of contractual
services in excess of the threshold
amount … shall be evidenced by a
written agreement embodying all
provisions and conditions…”
6
Contract Components
(continued)
State and federal statutes…
 specify components or even specific
language that must be a part of any state
agency contract
 require basic language (e.g. terms of
payment) and details unique to the state
(e.g. adherence to public records laws), and
 are often specific to the type of purchase,
e.g., service, construction, or commodities
7
Contract Review
“Each agency shall establish a review and
approval process for all contractual services
contracts ….which shall include, but not be
limited to, program, financial, and legal
review and approval. Such reviews and
approvals shall be obtained before the
contract is executed.”
s. 287.057(19), F.S.
8
Contract Management
For each services contract, state agencies should
designate an employee to enforce the contract
terms,
establish procedures to ensure that contractual
services have been rendered according to the
contract terms, and
pay the vendor if these terms have been met
s. 287.057(15), F.S.
9
Contract Administration
“Agencies 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.”
s. 287.057 (16), F.S.
10
Ethics of Contracting
 Solicitation or acceptance of gifts
 Conflicting employment or contractual
relationship
 Unauthorized compensation
 Misuse of public position
 Unauthorized commitment of state funds
11
Discussion: Part 1
1. What’s the point of these criteria?
Do they need to exist?
2. Do these criteria encourage
efficiency or are they merely
symbolic safeguards?
Discuss.
12
Players and Roles:
Who Will Be Enforcing
the Criteria?
Part 2 of 3
Players and roles:
who will be enforcing the criteria?
13
Who Ensures
Contract Accountability?
 Finance and Accounting
 Contract Manager
 Contract Administrator
 Legal Counsel
 Auditors
14
Finance and Accounting
 Contract Planning: Cost principles evaluation
 Contract Selection: Contractor financial viability
assessment
 Coordination: Relationship with state financial entity
 Accountability:

Allocations and Encumbrances

Invoice Processing

Warrant Distribution
Source for: Payment history and related support, warrant copies,
compliance information
15
Contract Manager
 Provider Selection
 Contract Amendments
 Contract Preparation
 Monitoring
 Ongoing Oversight
 Closeout
 Review reports and
deliverables
Source for: Documentation of day-to day vendor communications, activity log,
and of changes made based on their feedback to the vendors
16
Contract Administrator
 Maintain Files
 Management Reporting
 Financial Information  Legislative Analysis
 Liaison with contract  Technical Research
manager and state
purchasing entity
Source for: Contract files (correspondence, deliverables), solicitation
and award documentation, monitoring results
17
Legal Counsel
Can be internal or external, and can:




Advise on solicitation method
Assist in negotiations with vendors
Approve contract components
Provide enforcement support to contract
manager
Source for: resolving questions about contract content, documentation of
approval of contract, documentation on actions taken against vendors
18
Auditors
Financial, information technology, and
performance audits
 State audit entities
 Third party CPAs (single audit)
 Internal Audit/Inspector General
Source for: historical information on the contract that will help determine cause,
as well as implications for ongoing performance and compliance.
19
Discussion: Part 2
1. Review/Discuss: What kinds of
evidence/documentation (beyond the
content of the contract) would you look for
to determine whether agency staff were
adequately safeguarding the state’s
interests?
2. Why might it be problematic for a contract
manager to also be a contract
administrator?
20
Developing an Audit Checklist
for Contract Reviews
Part 3 of 3
Players and roles:
who will be enforcing the criteria?
21
Components of the
Contracting Process








Planning
Decision to Contract
Vendor Performance Requirements
Solicitation Process (e.g. RFP process)
Award Process
Award Decision
Contract Provisions
Monitoring
22
Audit Checklist:
State Agency Planning
An agency’s plan to contract for services
should demonstrate:
 what services are needed
 how they should be provided
 what provisions should be in the contract
 how services will be evaluated
 what approvals will be required, if any
23
Audit Checklist:
The Decision to Contract
The agency should have:
 Determined whether state law either
prohibits contracting for these services or
requires the agency to demonstrate its
need to contract
 Analyzed its business needs, goals,
objectives
 Conducted a cost/benefit analysis and
evaluate options
24
Audit Checklist:
Vendor Performance Requirements
The contract should:
 Clearly state the services expected
 Clearly define performance standards and
measurable outcomes
 Identify how vendor performance will be evaluated
 Include positive or negative performance
incentives
 Identify the staff that will be responsible for
monitoring vendor performance
 Define procedures and conditions for modification
25
to the contract
Audit Checklist:
Solicitation Process
An RFP should…
 Clearly state performance requirements and
scope
 Include a statement of work
 Identify constraints, deadlines, mandatory items
 Specify required deliverables and payment terms
 Clearly state pricing requirements and evaluation
criteria
 Allow sufficient time for vendors to prepare good
proposals
26
Audit Checklist: Solicitation Process
(continued)
An RFP also should:
 Avoid specifications that favor a particular bidder
 Specify qualifications for the vendor personnel
who would be assigned to the project
 Identify federal and state requirements vendors
need to know
 Outline all communication devices the agency
will use to ensure equal access to information by
bidders
27
Audit Checklist: Award Process
The contract award process should:
 Ensure proposals are responsive to agency
needs
 Ensure contracts are awarded fairly
 Assure best value and defensible award
decisions
28
Audit Checklist: Award Decision
When an agency makes an award decision, it should:
 Control bids upon receipt to prevent leaks and additional
opportunities to cure deficits.
 Have appropriate procedures for handling late or
incomplete proposals
 Ensure that an adequate number of proposals were
received
 Use a trained, independent evaluation committee
 Use fixed, clear, consistent scoring scales to measure
proposals against RFP
 Check vendor references
 Document award decision and keep supporting materials
29
Audit Checklist:
Contract Provisions
Goals of the contract provisions:
 Protect the interests of the agency
 Identify the responsibilities of all parties to
the contract
 Define what is to be delivered
 Document the mutual agreement,
substance, and parameters of the terms
30
Audit Checklist: Contract Provisions
(continued)
 Scope, terms, renewals  Audit and inspection
 Deliverables and
reporting
 Conditions for termination
 Payment amounts,
schedules
 Conditions for
renegotiation and/or price
escalation
 Limits on the state’s
liability
 Tying payments to
deliverables
 Performance
standards/incentives
 Appropriate
signatures/review
31
Audit Checklist:
Contract Monitoring
Goals of monitoring:
 Ensure that contractors comply with
contract terms
 Ensure that performance expectations are
achieved
 Identify and resolve problems
32
Contract Monitoring
(continued)
Proper monitoring includes:
 Assigning a contract manager with adequate skills,
authority, resources, and time
 Tracking budgets and compare charges to terms an
conditions
 Ensuring on-time deliverables and document
acceptance/rejection
 Withholding payment until deliverables are received
 Retaining documentation supporting charges against
the contract
 Evaluating the contractor’s performance against
33
pre-established criteria
Discussion: Part 3
 Review/Discuss: What controls should be
in place to ensure a defensible award?
 What did we miss today, or what additional
information would your team need to
develop findings related to the contracting
process?
34
Links
 National State Auditors Association
www.nasact.org/
 National Association of State Procurement
Officers
www.naspo.org/
35
For More Information
Contact the Florida Legislature’s
OFFICE OF PROGRAM POLICY ANALYSIS
AND GOVERNMENT ACCOUNTABILITY
(850) 488-0021
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