Create a Statewide Contract
Management Policy

Summary

Despite the expenditure of billions of dollars in contracted services by the state each year, contract administration has been closely scrutinized in recent years. The state government should establish a comprehensive statewide contract management policy to ensure that its contracts are administered effectively.

Background

Texas state government contracts for more than $14 billion worth of goods and services annually.[1] Given such stakes, the state should do everything it can to ensure that these contracts are managed effectively.

Yet the State Auditor’s Office (SAO) has uncovered a number of instances in which failures in the contract management process have put state resources or even state clients at risk. In the last two years, SAO has criticized the contract administration of the Department of Protective and Regulatory Services, Texas Tech University, the statewide “911” emergency phone system, and the Texas Workforce Commission.[2]

SAO offers a one-day training course on contract and grant administration.[3] The class focuses on key characteristics of good contract management and defines effective contract management as a process containing four basic components:

Fairly and objectively select the most qualified contractor.
Establish prices that are cost-effective and reflect the cost of providing the services.
Include provisions sufficient to hold the contractor accountable for results.
Monitor and enforce the terms of the contract.

In addition, the 1997 Legislature directed the General Services Commission (GSC) to prepare a mandatory training and certification course for all state agency and university purchasers. In response, GSC developed an eight-day training regimen; only one day of the course, however, is devoted to contract administration.[4]

The Information Resource Management (IRM) Act dictates that the Department of Information Resources (DIR) develop and implement a program to train state agency personnel in effectively negotiating contracts for the purchase of information resources technologies. DIR provides between one and three half-day, free briefings each year for state employees, and the agency also accepts GSC’s procurement training to fulfill this requirement of the IRM Act. The State thus, makes minimal contract negotiation and management training available, and only one course offered is mandatory for state purchasers.

Usually, an agency will correct its procedures only after deficiencies are uncovered by an outside audit and state resources have been lost. Texas has not mounted a unified effort across agency boundaries to train contract managers so that management errors can be eliminated or reduced before they are discovered through the auditing process.

Other Efforts in Contract Management Reform

Colorado and Georgia both have published contract management manuals that all state contract managers must follow, and they have realized significant savings and efficiencies as a result of the effort. Since Colorado began using its Contract Procedure and Management Manual, for instance, contract processing time at the state Controller’s office has fallen from an average of 12 days to five days. Moreover, prior to the manual’s adoption, many contracts had to be reviewed by the state Attorney General’s Office at a charge-back rate of $58 per hour. In most instances, this requirement now is waived as a result of a methodology developed in the manual.[5]

The Colorado and Georgia manuals stress that the primary responsibilities of a contract manager are:

participating, as necessary, in developing the solicitation and writing the contract.
monitoring the contractor’s progress and performance to insure that the goods and services provided conform to the contract requirements.
managing any state property used in contract performance.
making payments consistent with the contract requirements.
exercising state remedies, as appropriate, when a contractor’s performance proves deficient.
resolving disputes in a timely manner.
maintaining appropriate records.
properly closing out contracts.

It should be noted that both manuals stress that contract managers’ responsibilities do not end after a contractor begins work. A consistent level of oversight is needed from the time a contract is written until it is closed.

Federal government agencies often use centralized contract management resources to ensure quality. The Department of Defense created the Defense Contract Management Agency in March 2000, which oversees 23,000 contractors and more than 350,000 contracts–worth about $900 billion. The new agency will focus on the entire contracting cycle, not just the initial phase of awarding a contract.[6]

Recommendation

State law should be amended to require the State Auditor’s Office, Attorney General’s Office, the Texas Department of Information Resources and General Services Commission to develop common contract management guidelines and a common training curriculum that all state-employed contract managers must follow.

These agencies should begin development of the contract management guide and a training curriculum no later than March 1, 2002. The mandatory training for contract managers should begin on September 1, 2002. All state agencies and institutions should be required to report the training of contract managers in their strategic plans beginning on June 1, 2004.

Fiscal Impact

Savings to the state from this recommendation cannot be estimated. Recent SAO audits, however, indicate that Texas agencies’ contract management practices need considerable improvement. If contract managers across the state realize a savings of at least 0.5 percent on Texas’ contracts due to improved contract management skills, it would equate to at least $70 million annually.

The guide and subsequent training could be implemented with the existing resources of General Services Commission, State Auditor’s Office, and Office of the Attorney General.

[1] Texas Comptroller of Public Accounts, “Procurement Expenditures – By Fund Group, By Fund, FY 99,” (Austin, Texas, June 29, 2000). (Computer printout.)

[2] State Auditor’s Office, An Audit Report on The Department of Protective and Regulatory Services’ Administration of Foster Care Contracts, Austin, Texas, August 2000 (http://www.sao.state.tx.us/reports/report.cfm?report=2000/00-040); “Texas Tech University System, An Audit Report on Management Controls at Texas Tech University System, Austin, Texas, February 2000 (http://www.sao.state.tx.us/reports/report.cfm?report=2000/00-012); Advisory Commission on State Emergency Communications, An Audit Report on the Statewide 911 System, (Austin, Texas, July 1998) (http://www.sao.state.tx.us/Reports/1998/98-054.html); and A Follow-Up Audit on Management Controls at Texas Workforce Commission, Austin, Texas, August 1998 (http://www.sao.state.tx.us/Reports/1998/98-065.html). (Internet documents.)

[3] State Auditor’s Office, State Auditor’s Office Training Program, Contract/Grant Administration Training, Austin, Texas, May 19, 2000.

[4] General Services Commission, “Training Program Guidelines,” (Austin, Texas, August 2, 2000) (http://www.gsc.state.tx.us/stpurch/trn-guide.html). (Internet document.)

[5] Telephone interview with Phil Holtman, director of Statewide Contract Approval, Colorado State Controller’s Office, Denver, Colorado, August 16, 2000.

[6] Jim Garamone, American Forces Press Service, “US: New DOD Agency to Ensure Contract Quality,” May 5, 2000 (http://www.pdgs-ong/press-agency.htm).