Transcript
Page 1: Good Contract Management;A municipality perspective

1ST LEGAL & FINANCIAL COMPLIANCE FOR

CONTRACTMANAGEMENT

IN GOVERNMENT & SOE’S

DATE: 21 & 22 MAY 2013VENUE: CSIR INTERNATIONAL CONVENTION CENTRE, PRETORIA

PRESENTED BY

JB NARTEY, [email protected], 073-7369034

Good Contract Management – A Municipal Perspective

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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

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HUMOUR

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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

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CONTRACT MANAGEMENT- DESCRIPTION

Types of contracts in the Municipality

Public Body

Other Public Bodies Suppliers

Contractors Consultants

Employees Banks

Other service 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

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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?

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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?

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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?

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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.

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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.

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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).

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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).

 

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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.

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HUMOUR

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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

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PROBLEM DIAGNOSIS-CAUSE-EFFECT ANALYSIS

ISHIKAWA DIAGRAM-CAUSE-EFFECT ANALYSIS

CONTRACT MGT.ETHICS PHYSICAL RESOURCES CONTRACT GOVERNANCE CONTRACT ENVIRONMENT CONTRACT MGT. SYSTEM

NON-COMPLIANCE TO CONTRACT MGT.REGULATIONS

LEADERSHIP CONTRACT MGT.STAFFCONTRACT MGT.LAWS/

REGULATIONS/POLICIES/STANDARDSFRAUD/CORRUPTION STAKEHOLDERS

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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

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CONTRACT MANAGEMENT-ENVIRONMENT ANALYSIS-INTERNAL/EXTERNAL

Org.System

administrative/operational System

Market(Public Service providers)Industry

Local Government SLEPT

Human & Socio-culturalLegal/Regulatory EnvironmentEconomicPoliticalTechnological

MACRO

ContractMgt.

SystemProject Mgt.

SystemInternalPoliticalSystem

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CONTRACT MANAGEMENT-SERVICE VALUE CHAIN

ServiceDelivery Value Chain

ContractManagement Service Value Chain

Interaction: Servitization

“Technology “ support systems (ECMsoftwares/ERP systems)

Human and social-cultural systems-

Legal /Regulatory systems- Ever changing

Economic systems- Globalization andeconomic impact

Contract Financial /Payment systems -Advance,retention,payments,incentives,penalties,

value for money analysis- WEAK

Contract Life CyclePre-award andpost-award phases

Quality of Service Delivery

Contract knowledge & Information Mgt systems - Automated /Computerised(ECM/Spreadsheets)

Relationship /Stakeholder Mgt Systems-Automated

Contract PerformanceMgt /feedback systems- Balanced Score cards, M& E, Value for Money ,buyer/seller ,contract -Automated

Contract Change ManagementSystems- 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/ Operating System

Political systems- Political Influences Risk Management Systems-policies,processes,procedures-

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CONTRACT MANAGEMENTSWOT 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

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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.

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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

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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

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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)

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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

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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

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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

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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)

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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.

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