Good Contract Management, a Local SA Municipality perspective

1. 1ST
LEGAL & FINANCIAL COMPLIANCE FOR
CONTRACT
MANAGEMENT
IN GOVERNMENT & SOE’S
DATE: 21 & 22 MAY 2013
VENUE: CSIR INTERNATIONAL CONVENTION CENTRE, PRETORIA
PRESENTED BY
JB NARTEY, bernardnartey13@yahoo.com, 073-7369034
Good Contract Management
– A Municipal Perspective

2. TABLE OF CONTENTS
 GOOD CONTRACT MANAGEMENT
 CONTRACT MANAGEMENT-DESCRIPTION
 PROBLEM STATEMENT
 CONTRACT MANAGEMENT TURNAROUND STRATEGY
 PROBLEM DIAGNOSIS(ROOT CAUSE ANALYSIS)
 ENVIRONMENTAL ANALYSIS(SWOT/SLEPT ANALYSIS)
 VISION,MISSION
 STRATEGIC OBJECTIVES
 STRATEGIC INITIATIVES/ACTIONS(SOLUTIONS)
 STRATEGIC PERFORMANCE MANAGEMENT SYSTEM
 CONTRACT MANAGEMENT TURNAROUND STRATEGY
IMPLEMENTATION AND CHANGE MANAGEMENT
 REFERENCES

3. HUMOUR

4. GOOD CONTRACT MANAGEMENT
Contract Management Regulations/
Legislation/Guidelines/Standards
Good Contract Management
(system, practices, processes, controls etc)
SA Constitution-Section 217(1)
- Principle of contracting for goods and services
in a manner that is fair, equitable, transparent, competitive
and cost-effective
COMPLIANCE

5. CONTRACT MANAGEMENT- DESCRIPTION
TypesofcontractsintheMunicipality
PublicBody
OtherPublic
BodiesSuppliers
Contractors Consultants
Employees Banks
Otherservice
providers
CONTRACT MANAGEMENT
REGULATIONS/LAWS/LEGISLATIONS
SA Constitution Section 217(1)
Contract Management Regulations/guidelines/standards
MFMA,SCM
Regulions/Policies,CMF,MSA,CIDB
Act,BBBEE Empow erment Act,CIDB
Guidelines,ECM Guidelines,Treasury
instruction notes/guidelines etc
Formal,standardized and structured contract management
procedures/processes

6. CONTRACT
MANAGEMENT
PROCESS-
CREATION
Contract
Identification &
Classification
System(ERF)?
Contract
Inventory/Registration
System?
Contract Mgt
Plan/strategy?
Contract
documents
Ambiguities?
Expect Judgment?
Risk Analysis?
Risk Analysis?
Risk Analysis?
Risk Analysis?
Value for money
analysis? Sensitivity
Analysis?
Stakeholder
Involvement?
Risk Analysis?
Excessive Delays?
Deviations?
Market Research? Soft wares; ECM,ERP?
Political Influences?
Quality Mgt. Systems?
Transparency?
Leadership
oversight/Monitoring?
Fierce tender
competition?
Very Slow?
Record Keeping?
Contract Performance
Mgt./feedback
Systems?

7. CONTRACT MANAGEMENT PROCESS-CONTRACT EXECUTION
Soft wares; ECM,ERP?
SMMEs?
Organisational technical
capacity/competence?
Stakeholder
Involvement?
Political Influences?
Record Keeping?
Contract Performance
Mgt./feedback
Systems?
Risk Monitoring &
Control?

8. .
.
.
.
.
.
.
.
Not Attended/ Not yet to
completed
Attended
E
Attending Snag and Defects (if any
identified) during defects Liability
Period
By Contractor (Supervision – PSP,
PMU)
Attended Snags and
Defects (End of Defect
Liability)
By Contractor
Submission of Project Completion Report,
As-built Drawings;
Issuance of Completion Certificate and
Final Payment Certificate; Release of
Guarantee and Retention
By PSP (Supervision – PMU, CFO)
Project Completion Reports, As-
built Drawings, O&M Manual
Completion Certificate (Clause
51.4), 100% Release of Retention
and Guarantee
DEVELOPMENT COMPLETED
ENTERED INTO OPERATION &
MAINTENANCE (IN USE)
Project Completed in all
respect and enter into
Operation &
Maintenance
Operation & Maintenance
IN USE
Defect Liability, Final Completion and
Closing of project
CONTRACT MANAGEMENT PROCESS- CONTRACT EXECUTION
Completion Reports?
Organisational technical
capacity/competence?
Stakeholder
Involvement?
Contract Performance
Mgt./feedback
Systems?
Record Keeping?
Risk Monitoring &
Control?

9. PROBLEM STATEMENT/SYMPTOMS
- KPMG FORENSIC PROBE
 Three service providers were initially contracted to execute a sanitation project but reportedly failed to finish, later abandoning
the projects.
 The first contract went to Y contractor for the building of 2 483 toilet units estimated at R15.9-million in area 1, and the second
to Z Contractor for construction of 1 442 toilets at an estimated cost of R9.2million in area 2.
 Y Contractor had quoted R6 443 per toilet and Z Contractor had quoted R5 682 for each toilet structure.
 According to the Bid evaluation report, only Z Contractor was meant to be appointed as they had the lowest price.
 However, the two companies were jointly appointed by a senior official who allegedly asked to deviate from regular tender
processes, citing urgency in completing the unfinished projects as the reason.
 No irregularities in the payment to Y Contractor were identified in by KPMG.
 The report said it seemed highly irregular as the official had no authority to appoint suppliers, specifically for contracts above
R10-million.
 The deviation was allegedly approved by one of the implicated officials.
 The report states that approval of the deviation was a result of gross negligence It also said it was irregular as it was not in line
with the municipality’s supply chain management policy. “Their actions constituted an act of financial misconduct in terms of the
MFMA.” The report reveals that on certain occasions, Z contractor allegedly submitted invoices way above what it quoted and
also that it misinformed the council about the number of structures they had completed.
 According to the report, the municipality paid:
 R65 700 more to Z Contractor after it had submitted two different quotes to the company, with the municipality paying the highest
quote;
 R15.3-million for additional work that did not relate to an emergency situation;
 R390 835 for inflated prices of complete toilet structures other than the price agreed with the municipality; and
 R850 519 for incomplete work, which the company claimed it had completed.

10. PROBLEM STATEMENT/SYMPTOMS
-KPMG FORENSIC PROBE -CONT’D
 “The expenditure relating to these appointments was irregular in terms of section 1
of the MFMA,” states the report.
 “Further to that, the actions of [the senior official] to appoint these two service
providers constituted an act of financial misconduct, with her actions further
construed as gross negligence.
 “We also established that Z Contractor made a misrepresentation to the municipality
by presenting inflated numbers relating to work performed. “That action was
fraudulent and therefore constituted a criminal offence, so registering a criminal case
against them in respect of their fraudulent conduct is recommended,” continues the
report.

11. PROBLEM STATEMENT/SYMPTOMS
- AUDITOR GENERALS REPORT
 Irregular expenditure , High and increasing irregular expenditure due to not
following SCM requirements/procedures
 Inadequate training of SCM officials.
 Inadequate SCM Controls; Internal control deficiencies
 Inadequate contract management
 Uncompetitive or unfair procurement processes
 High number of awards to close family members of employees and
councillors without declaration in the financial statements-Non-prohibitive
 High number of awards to employees and councillors or other state
officials-Prohibitive awards
 No written price quotations for transaction value between R10,000 and
R200,000 as per SCM regulation 17a & c requirements.
 Service providers register non-compliance -Quotations accepted from
prospective providers who are not in the list of accredited prospective providers
as per SCM regulation 16b & 17b.
 Bid Specifications not always drafted by the Bid Specification Committee
which were composed of one or more officials of the department as required by
SCM regulation 27(3).

12. PROBLEM STATEMENT/SYMPTOMS
- AUDITOR GENERALS REPORT
 Final awards/recommendations to the accounting officer were not always made by a
BAC as per SCM regulation 29(2)
 Awards were made to suppliers who did not submit a declaration on their employment by
the state or their relationship to a person employed by the state as per SCM regulation 13(c).
 Preference point system was not applied in all procurement of goods and services above
R30,000 as per section 2(a) of the PPPFA and SCM regulation 28(1)a.
 The performance of contractors or service providers was not monitored on a monthly basis
as per section 116(2)b of the MFMA.
 Contract performance measures and methods whereby they are monitored were insufficient
to ensure effective contract management as per section 116(2)c of the MFMA.
 No sufficient and appropriate audit evidence to prove that construction contracts were
awarded to contractors that were registered and qualified for the contract in accordance to the
prescripts of the CIDB Act.
 No updating of prospective providers lists for procuring goods and services through
quotations at least quarterly to include new suppliers that qualify for listing.
 Prospective providers were not invited to apply for listing at least once a year as per
SCM regulation 14(1)(a)(ii) and 14(2).


13. PROBLEM STATEMENT/SYMPTOMS- SUMMARY
“This is blatant disregard of Supply Chain/Contract
Management legislation”
It is time to do things differently.
One definition of insanity, attributed to Albert
Einstein, is doing the same thing over and over
again and expecting different results.

14. HUMOUR

15. FLAWED ?
CONFUSION?

16. CONTRACT MANAGEMENT
TURNAROUND/TRANSFORMATIONAL STRATEGY
Environmental Analysis(SWOT,SLEPT Analysis)
Contract Mgt. Goal, Mission
Contract Mgt. Strategic initiatives
Contract Mgt strategic objectives
Key strategy
drivers/enablers
Change Management
Root Causes
Countermeasures
Problem Analysis(Root Cause Analysis)
PMS

17. PROBLEM DIAGNOSIS
-CAUSE-EFFECT ANALYSIS
ISHIKAWADIAGRAM-CAUSE-EFFECTANALYSIS
CONTRACTMGT.ETHICS PHYSICALRESOURCES CONTRACTGOVERNANCE CONTRACTENVIRONMENT CONTRACTMGT.SYSTEM
NON-COMPLIANCETO
CONTRACTMGT.REGULATIONS
LEADERSHIP CONTRACTMGT.STAFF
CONTRACTMGT.LAWS/
REGULATIONS/POLICIES/STANDARDS
FRAUD/CORRUPTION STAKEHOLDERS

18. PROBLEM DIAGNOSIS-
ROOT CAUSES
 Fraud/Corruption –Institutionalised/Norm
 Contract Management System/Processes- Lengthy/Cumbersome,
Compliance difficulties etc
 Lack of Transparency
 Lack of professionalism
 SCM policies- Not reviewed to reflect market changes and Lessons Learned
 Unethical behaviours
 Contract Management-External- Lack of Industry Control/fierce competition,
Emerging/Inexperienced contractors(SMMEs)
 Contract governance- Non-aligned org./administrative structure ,Weak
Internal Control & Support Systems
 Political Influences/Interferences
 Leadership oversight and monitoring-Poor
 Insufficient physical resources
 Lack of Stakeholder Involvement- Internal/External

19. CONTRACT MANAGEMENT
-ENVIRONMENT ANALYSIS-INTERNAL/EXTERNAL
Org.System
administrative/operational System
Market(Public Service providers)
Industry
Local
Government SLEPT
Human & Socio-cultural
Legal/Regulatory Environment
Economic
Political
Technological
MACRO
Contract
Mgt.
System
ProjectMgt.
System
Internal
Political
System

20. CONTRACT MANAGEMENT
-SERVICE VALUE CHAIN
Service Delivery Value Chain
Contract Management Service Value Chain
Interaction: Servitization
“Technology “ support systems (ECM softwares/ERP systems)
Human and social-cultural systems-
Legal /Regulatory systems-Ever changing
Economic systems-Globalizationand economic impact
Contract Financial /Payment systems-
Advance,retention,payments,incentives,penalties,
value for money analysis- WEAK
Contract Life Cycle
Pre-award and post-award phases
Quality of Service Delivery
Contract knowledge & Information Mgt systems- Automated
/Computerised(ECM/Spreadsheets)
Relationship /Stakeholder Mgt Systems-Automated
Contract Performance Mgt /feedback systems- Balanced Score cards,
M& E, Value for Money ,buyer/seller ,contract -Automated
Contract Change Management Systems-Change control
policies,processes,procedures etc.
Contract Communication Systems-policies,processes,procedures
Quality Management Systems-policies,processes,procedures-TQM,
ISO 9001/2008 Compliance
Conflict Management Systems-policies,processes,procedures-ISO
9001/2008 Compliance
Administrative /OperatingSystem
Political systems-Political Influences
Risk Management Systems-policies,processes,procedures-

21. CONTRACT MANAGEMENT
SWOT ANALYSIS
MICRO
ENVIRONMENT
Strengths;
 Good Contract Management
Regulations/Laws/Guidelines
 Financial Resources
Weaknesses;
 Weak internal control & risk
management
 Lack of effective contract
mgt. support systems
 Open system exposed to
environmental
influences(Political)
 Very Low technology use in
the processes
 Lack of technical
capacity/professionalism
 Inadequately resourced
departments
 Non-aligned administrative
structure(Weak Matrix)
 Poor Work ethics
 Internal Politics
 Negative Organisational
Culture
MACRO
ENVIRONMENT
Opportunities;
 Partnerships with other market
players; private sector
 Benchmarking with high
performers in the industry
Threats;
 Political Influences
 Globalisation-Global
Economic Recession
 Placed under provincial
administration
 Cutting of development
budgets by treasury

22. CONTRACT MANAGEMENT
–VISION,MISSION
 VISION
 The principles of contracting for goods and services in
a manner that is fair, equitable, transparent,
competitive and cost-effective is upheld; (SA
Constitution-Section 217(1))
 MISSION
 To ensure that contracts are planned, created and
executed on time, on budget and at the right
specification/quality to the satisfaction of all
stakeholders.

23.  To minimise fraud/corruption
 To optimise and streamline the Contract Management System/Processes-
 To ensure transparency in the contract management process
 Introduce professionalism into the contract management process
 Review the SCM policies to reflect market changes and Lessons Learned
 To ensure that all SCM staff is educated on contract management ethics
 To encourage consolidation in the form of mentorships, JVs,consortia amongst our
prospective contractors/suppliers
 To make emerging contractor development compulsory for the award of contracts
 To ensure a restructuring of the organisation to meet the requirements of the contract
management process
 To strengthen the Internal Control & risk management system
 To minimize political Influences/Interferences in the contract management process
 To provide leadership oversight and monitoring of the contract management process
 To provide adequate and quality physical resources for the contract management system
 To ensure compulsory internal/external stakeholder Involvement throughout the contract
management process
CONTRACT MANAGEMENT
–STRATEGIC OBJECTIVES

24. CONTRACT MANAGEMENT
-STRATEGIC INITIATIVES/ACTIONS
 Contract Management System and Processes-Redesign,
optimized and streamlined
 Internal Control and Risk Management; Strengthen
Internal audit committees
 Professionalism- Staff compulsory training, registration &
accreditation by SACPCMP,ECSA ,SAICE etc
 Benchmarking - High performing municipalities for peer
review.
 SCM Policy- Regular Review, changing contract
environment, lessons learnt, enforce mandatory time frames
for all the stages of the contract management process
 Contract performance management system- Earned
value analysis, NPV analysis, Value for money analysis,
Risk analysis etc

25. CONTRACT MANAGEMENT
-STRATEGIC INITIATIVES/ACTIONS
 Staff Mentorship/Coaching Programs – Structured and
compulsory, 2-3 years
 Staff Continuous Training- Contract Management legislation/
policy compliance, technical competence
 Staff Performance Management Systems- effective and
efficient
 Staff Reward Systems- Performance-Reward linkages
 Staff Assistance Schemes-Personal needs, Marslow theory
 Industry Consolidations Policy; Compulsory mentorships,
JVs, partnerships and consortia amongst prospective
contractors.
 SMME development programs-Compulsory, structured
mentorships eg. Large Contractor Model(DRPW)

26. CONTRACT MANAGEMENT
-STRATEGIC INITIATIVES/ACTIONS
 Contract Governance De-politicization
 Organisational Restructuring Program
 Contract Management Support Systems-Adequate &
Effective
 Contract Management Computerization - Customized
ERP/ECM systems implemented with the necessary
and effective change management processes.
 Stakeholder involvement- Compulsory, Incentivised

27. TURNAROUND STRATEGY-
IMPLEMENTATION & CHANGE MGT
 Knowing is not enough, we must apply. Willing is not enough, we must do.
— Johann Wolfgang von Goethe
Requirements:
 Top Management Overhaul
 Strategic thinkers/Strategic Leadership
 Strategic Leadership/direction-top management commitment & involvement
 Need for the change & its possibility
 Understood and perceived by all stakeholders & employees
 Strategy & change management communication
 Engagement, understanding, support and commitment- All relevant stakeholders &
Employees(middle managers)
 Strategy implementation drivers; Strategic leadership, Organisational culture,
values, behaviours, attitudes, reward systems, organisational policies,
organisational structure, resource allocation and budgets
 Strong alignment and linkage of these strategy implementation drivers to the
strategy
 Employee roles and responsibilities -Key changes imust be clearly defined.
 Employee discipline and commitment- Value systems

28. TURNAROUND STRATEGY-IMPLEMENTATION &
CHANGE MGT
 Requirements:
 Necessary resources(competencies)
Special people management skills, Managerial
Competences, Motivation and Leadership skills -Top
Management
 Administrative support systems-Information &
communication systems- adequate & efficient PMS
 Strategy Champions/Leader
 Commitment & dedication
 Strategic business units
 Coordination of the strategy implementation efforts

29. TURNAROUND STRATEGY-IMPLEMENTATION &
CHANGE MGT
 Strategic Change Management process;
 Change Resistance Management -Education &
Communication, participation & involvement, power and
influence etc)
 Identify areas of change-Administrative/operational
systems, people & corporate values ,Strategic leadership,
Organisational culture, reward systems, organisational
policies, organisational structure, resource allocation and
budgets
 Become a learning organisation
 Continuous improvement-Benchmarking,TQM,6 sigma,
business process re-engineering)

30. REFERENCES
 www.treasury.gov.za
 www.cidb.org.za/gov
 Daily Despatch News
 OR Tambo District Municipality. 2012. IDP 2011-12 Review , March 2012. OR Tambo
District Municipality. [online] Available: http://www.ortambodm.org.za[Accessed 5 May
2013].
 Contract Management Framework and Guidelines Version 1- National Treasury
August 2010
 The Constitution of the Republic of SA,1996
 Municipal Administration- The Handbook 6th Edition 2011
 PROJECT MANAGEMENT INSTITUTE, 2004. A Guide to the Project Management
Body of Knowledge (PMBOK Guide). 5th ed. Pennsylvania: Project Management
Institute.
 BLANCHARD, B.S.,2008. System Engineering Management.4th Edition. Hoboken,
New Jersey: John Wiley & Sons Inc. Chapters 1-2
 Bolton P. 2007, The Law of Government procurement, LexisNexis,
 Ehlers, T & Lazenby, K (2004). Strategic Management: South Africa Concepts and
 Cases. Van Schaik Publishers.