The global economy is a complicated and challenging environment. The private sector has been pushed to find new and creative answers to these challenges and this has created an amazing evolution in the types of technology and services offered by providers as well as the manner of their consumption. The public sector, although different in many ways from the private, is not immune to the forces at play in the economy and has also been going through its own evolution with its own structures and the way in which it works with suppliers. Because of this complexity and associated risk, contract and commercial management are hot topics in the public sector and coincidentally why I spent a good portion of my summer holidays talking to government agencies.
Based upon what I am seeing in the market and what I am hearing first hand, I believe there are three concrete reasons why the Public Sector needs and is looking for more help in Contract Management.
1. Contract Risks
Putting aside that the actual language of contracts is getting more specialized and complicated, the subject matter is also more and more complicated. Public Sector entities have to address:
- New technologies such as cloud and robotics;
- New legislation addressing everything from personally identifiable information, ethical dealings, sustainability and foreign entities; and
- Logistical challenges with supply chain management and off-shoring.
All of these developments lead to risks in the contracts relating to money and service continuity of service. A proper contract management service will give greater visibility and control over these risks and allow for overall risk mitigation.
2. Vendor Spend
The International Association of Contract & Commercial Management and other advisors cite studies showing that companies lose between 5-10% of their contract value annually through poor contract management. This is usually shown as overspend or duplicative spend. Take that estimate and then apply it to a massive Public Sector entity with a huge procurement spend and you have a massive risk. Throw in the fact that because it is Public Sector and that every piece of spend is open to the public and potential criticism in the press and the voting booth and you have a lot of pressure to manage costs. Proper contract management includes commercial management which is built to preserve business cases and ensure that contractual spend stays to what was expected as opposed to +10%.
3. Internal Costs
Unless you work for a few companies in Silicon Valley, budgets are getting tighter everywhere. The same is true for Public Sector entities. They need to be lean, more process driven and manage internal costs. This means that with the challenges raised above there is a greater need for technology, process transformation and outsourcing in a multitude of areas – including the contract and commercial management space.
So as you see, Public Sector has many of the same forces affecting it as Private Sector does. As such, there is an increased need for more and better contract management.