Contract Management Environment

Control Objectives for Contract Management Environment

(a) To ensure that contracting activities support the cost-effective

achievement of agreed business objectives;
(b) To provide and maintain suitable documented procedures in order that
contracting activities are effectively administered and so that staff malpractice and
fraud are prevented;
(c) To ensure that contract requirements are correctly identified, appraised,
justified, and documented;
(d) To ensure that the optimum contracting solution is selected;
(e) To ensure that contracts awarded represent value for money and meet the
required quality and performance standards;
(f) To ensure that only stable, financially secure, and appropriately qualified
contractors are engaged;
(g) To ensure that there is a fair and equitable basis for selecting contractors;
(h) To ensure that all requirements and objectives are identified, documented
and met;
(i) To ensure that all payments against the contract are valid, authorised, and
correctly accounted for;
(j) To ensure that contracts are completed on time, within budget and to the
required standard;
(k) To ensure that responsibilities are identified and allocated;
(l) To ensure that management information is accurate, appropriate,
complete and timely;
(m) To ensure that progress is adequately monitored and that problems are
promptly reacted to;
(n) To ensure that all statutory and regulatory issues are identified and
correctly addressed;
(o) To ensure that the most appropriate form of contract is utilised and that
the organisation is adequately protected in the event of contractor default;
(p) To ensure that any design requirements are fully explored and accurately
communicated;
(q) To ensure that subsequent design changes are authorised and/or
minimised;
(r) To ensure that delays and extensions of time are reported, minimised and
authorised where necessary;
(s) To ensure that price fluctuations throughout the course of the contract are
justified, authorised and correctly applied;
(t) To ensure that contractual claims are minimised, controlled and
satisfactorily resolved;
(u) To ensure that all project assets, plant and materials are adequately
protected and correctly accounted for;
(v) To ensure that valid claims for damages are correctly raised, pursued and
settled.

Risk and Control Issues for Contract Management Environment

1 Key Issues
1.1 How does management ensure that significant contract activity is in
accord with, and supports the achievement of, the business objectives of the
organisation?
1.2 What steps ensure that all potential contracts or projects are fully
appraised for viability, cost-effectiveness and justification (and how is this
evidenced)?
1.3 How are management assured that realistic and accurate contract
cost estimates are generated and subject to adequate ongoing monitoring
throughout the contract?
1.4 What processes ensure that the most appropriate form of
contract/project funding is selected and authorised (and how is this
evidenced)?
1.5 How can management be assured that the most suitable form of
contract is used, and that the clauses represent a fair balance of the risks
between the parties?
1.6 How does the organisation avoid the engagement of unstable,
financially insecure or inadequately skilled contractors?
1.7 What measures ensure that contractors are selected on a fair and
equitable basis (and how is staff malpractice and fraud prevented)?
1.8 How can management be assured that all the relevant requirements,
design, performance and quality criteria are accurately identified and
reflected in the contracting documentation?
1.9 What measures ensure that contracts are completed on time, within
budget, and to the required standards?
1.10 How can management be assured that all contract and related
management information is accurate, complete, up to date and
appropriately routed to all affected parties?
1.11 What steps ensure that all contract payments are for work actually
completed and are correctly calculated in accordance with the contract
conditions?
1.12 When applicable, what measures are in place to effectively deal with
price fluctuations during the course of a contract (and how is the
organisation protected from unreasonable amendments to contract
costings)?
1.13 Does management take steps to either prevent or minimise the effects
of potential contractor default?
1.14 Are all extensions of time subject to management authorisation, and
what prevents unauthorised extensions?
1.15 What steps are taken to minimise contractual claims and potentially
costly disputes?
1.16 What measures ensure that all contractual claims for damages
against the contractor are fully assessed, accurately costed, and authorised
to proceed (and how is this evidenced)?
1.17 What processes ensure that all valid/authorised damage claims are
pursued, settled and correctly paid?
1.18 How can management be certain that all contractor claims are
identified, assessed, and authorised (and what prevents the settlement of
unauthorised or invalid claims)?
1.19 How does management ensure that all project/contract assets, plant
and materials are accounted for and adequately protected from loss or
damage?
1.20 How does management confirm that the anticipated benefits arising
from contract activities are actually subsequently achieved, and what action
is taken to address weaknesses in both the specific and general contract
administration processes?

2 Detailed Issues

2.1 What specific measures would prevent any contractual activities which do
not comply with the strategic direction of the organisation?
2.2 How are management and staff made aware of their responsibilities with
regard to contracting activities, and has a suitable and workable procedural
framework been provided for their guidance?
2.3 Are all the potential options and solutions explored as part of the appraisal
process (and what prevents options being overlooked)?
2.4 What specific measures are in place to prevent and/or reveal staff
malpractice, bias or fraud?
2.5 What measures ensure that only suitably justified and authorised contracts
are progressed (and what specifically prevents the establishment of unauthorised
contract relationships)?
2.6 What measures ensure that all the implications and costs are identified and
reviewed (i.e. including ongoing running or maintenance costs)?
2.7 How can management be assured that all relevant insurance arrangements
are optimised and current throughout the life of the contract?
2.8 How does management ensure that contractors under consideration have
adequate and suitably skilled resources to meet the demands of the contract?
2.9 Whenever appropriate (or when required by legislation) are fair and
properly controlled Tendering procedures applied, and if so, what measures
ensure that all the bids are impartially reviewed?
2.10 How can management be assured that the design and specification
processes are adequate in order to avoid subsequent (and potentially costly)
design changes?
2.11 Are measures in place to review and specify the required design and
technical standards?
2.12 What steps are taken to ensure that realistic and workable targets and
milestones are established and communicated as the basis for subsequent progress
monitoring?
2.13 What measures ensure that contract/project progress and the achievement
of contractual obligations are accurately and effectively monitored (and how can
management be assured that problems, delays and shortcomings would be
promptly identified and dealt with)?
2.14 How can management be sure that adequate and appropriate resources
are provided (at the correct time) by the organisation in order to fulfill their
obligations?
2.15 What steps are taken to ensure that the organisations' staff resources are
adequately skilled and trained to discharge their contractual and administrative
obligations?
2.16 What measures ensure that key contract/project activities are adequately
documented and trailed?
2.17 What measures prevent the processing of unauthorised, invalid, duplicated
or incorrect contract payments (i.e. either for work not completed or for goods
not supplied)?
2.18 What measures ensure that all contract payments are accurately reflected
in the project and main accounting systems?
2.19 What action is taken to provide for adequate and accurate channels of
communication and representation (both between the employer and contractor,
and between affected areas within the employing organisation)?
2.20 Are actual costs adequately monitored against authorised budgets, and
would variances be promptly identified for follow-up?
2.21 If subsequent design changes prove necessary, are they subject to accurate
costing and authorisation (and how is this evidenced)?
2.22 What measures are in place to avoid the excessive cost and disruption of
litigation for disputed contract claims?
2.23 Whenever necessary, what measures ensure that all statutory and
regulatory issues are correctly addressed (and would non-compliance be promptly
identified)?