What is Contract Administration?
Contract administration is the management of all actions that ensure a contract between an agency and a contractor is satisfactorily performed and the responsibilities of both parties are properly executed. Effective contract administration minimizes or eliminates problems and potential claims and disputes.
A contract is an agreement that creates a legally enforceable obligation to do or not do a particular thing. A contract consists of the following five elements:
- Offer: A willingness to enter into a contract based on certain terms. An acceptable bid or proposal received in response to a procurement action qualifies as an offer.
- Acceptance: A willingness to be bound by the terms and conditions of the offer. This includes the terms and conditions described in the procurement issued by an agency that have become part of the offer, plus additions such as pricing and delivery terms. The award of a contract qualifies as acceptance.
- Consideration: Anything of value promised to another in exchange for fulfillment of the offer. For example, the state promises money in exchange for products or services.
- Lawful purpose: A valid contract must have a legal purpose that is enforceable in court.
- Capacity: A party to a contract must have the ability, or legal competence, to enter into a contract.
A clear and comprehensive contract provides the legal basis for enforcing the agreement and has a direct effect on the management of the contract.
Roles and Responsibilities
An agency must appoint, in writing, a contract administrator for each contract. Contract administrators may report to the agency’s procurement organization or they may report to a program or business unit. The role of the contract administrator is to handle daily administration of the contract, which includes monitoring, tracking and reporting on contract performance.
Resource: Use the DAS Procurement Services
Contract Verification Form to document the contract administrator appointed to each contract.
The contract administrator performs the tasks to ensure that contract requirements are fulfilled, terms and conditions are met, and administrative processes are performed in a timely manner. The contract administrator may delegate certain responsibilities to a technical representative for specific day-to-day tasks. The number of staff delegated to support contract administration responsibilities will vary depending on the nature and scope of the contract. Regardless of the size of the team, the contract administrator remains responsible for overall administration of the contract.
A contract administrator, working within a program area outside of the agency’s procurement organization, must coordinate with the procurement professional that conducted the procurement to initiate a formal change to the contract. The contract administrator and the procurement professional that manages the contract should remain in constant communication with each other throughout the life of the contract.
Many of the tasks described in this section are led or delegated by the contract administrator. Where applicable, coordination with other individuals, whose roles may vary depending on an agency’s organization and the nature and scope of the contract, is described in more detail to clarify overall responsibilities for the management of a contract.
When to Perform Contract Administration
Contract administration is formally initiated after the award and execution of a contract, however, planning for contract administration occurs much earlier in the Plan stage. Planning outcomes include the development of a clear, concise performance-based statement of work that will provide a roadmap for contract administration.
In relation to the life cycle phases of contract management, contract administration begins after all the tasks of contract formation have been executed and the work in the Plan and Procure stages are complete.
Before an agency executes a new contract or amends an existing contract exceeding $150,000, the agency director must review and verify that the contract administrator has read and understands the advice and recommendations provided by DOJ, DAS or other legal counsel. The agency director may delegate this authority if it executes more than 12 contracts per year that exceed $150,000.
Resource: Use the DAS Procurement Services
Contract Verification Delegation Form to verify compliance with contract verification responsibilities.
How to Perform Contract Administration
Performing contract administration comprises the following nine tasks. Click on a task to learn more:
The Contract Administration Plan (CAP) defines how the agency will manage the contract and document, monitor and control contract performance. The CAP provides a mechanism to reconcile the various contract documents and the order of precedence into a management tool the agency can use to focus and govern implementation tasks.
An agency should develop and use a CAP for a contract with high risk or complexity. The plan elements and content will vary based on the contract scope, requirements, and the level of risk or complexity. The frame of the plan should focus on the who, what, when, where, and how of administering a contract. A CAP generally addresses a common set of topics, with particular emphasis on process, output and outcome.
Resource: Use the DAS Procurement Services
Contract Administration Plan Template to develop this plan.
If an agency determines that it will use a CAP to administer a contract, the procurement professional within the procuring agency, in coordination with the contract administrator, should initiate its development by extracting contract provisions that apply to the CAP. CAP topics may include:
- Project description.
- Period of performance.
- Schedule and critical milestones and delivery dates.
- Critical path tasks and deliverables.
- Roles and responsibilities.
- Data and deliverables.
- Testing, inspection and acceptance.
- Personnel requirements.Warranty provisions.
- Watch list items.
- Special terms and conditions.Insurance.Process for managing change and issue resolution.
The contract administrator should use the CAP as a primary resource for day-to-day contract management.The CAP informs the tasks of contract administration, beginning with contract initiation. All parties to the contract should review and validate the CAP prior to beginning work on the contract.
As part of the contract initiation process, the agency should conduct a kick-off meeting prior to commencing the work, particularly for any contract for which a CAP has been developed. The kick-off meeting is a method to formally notify all team members, the contractor, and stakeholders that the contract work has commenced and to ensure that everyone has a common understanding of the requirements and each party’s roles and responsibilities.
The contract administrator should consider inviting the following representatives to participate in the meeting:
- Procurement professional.
- Contractor team.
- Project sponsor.
- Project manager.
- Internal project team.
- Legal representative, as applicable.
The purpose of the kick-off meeting is to:
- Review either the contract, CAP or both.
- Clarify how the parties will interact and exchange information.
- Clarify roles and responsibilities of all parties.
- Clarify key contacts and escalation processes.
- Ensure understanding and agreement on management elements used to track and monitor contract health.
The meeting should address the agency’s needs and requirements and also provide key information for contractors, for example, the payment process.
The contract administrator’s primary role is to monitor performance throughout the life of the contract. Contract monitoring is the process of identifying and tracking key aspects of the contract, and their impact on scope, schedule and budget to ensure active administration of the contract to successful completion.
Effective contract monitoring includes the following seven tasks:
- Gather the contract and all pertinent contract documents.
- Decide what to monitor.
- Decide how it will be monitored.
- Decide who will monitor.
- Gather information and data for monitoring.
- Analyze information and data for monitoring.
- Act in cases of non-compliance.
The contract administrator should also monitor and evaluate other aspects of a contract on an ongoing basis, such as risk, quality, deliverables, performance measures and service level agreements. The key is to work through the seven tasks and build a repetitive process for actively monitoring and managing the contract.More complex contracts and contracts for services that present a higher degree of risk may require both reviews and visits to the contractor’s facilities to ensure performance meets the contract requirements. An agency should consider the following types of monitoring activities based on the nature and complexity of the contract.
For information on required modification to the terms and condition of a contract or changes to the work that may affect contract scope, refer to amendments or change orders.
|Review of contractor submitted reports||Require the contractor to submit progress reports or other appropriate data or reports, based on pre-defined criteria, and review the contractor's reports to verify products or services provided and adherence to the agreement. Identify, document, and address substandard performance in a timely manner.|
|Onsite reviews and observations||Conduct onsite reviews, as appropriate, to verify actual performance against scheduled or reported performance. Onsite reviews can ensure the contractor is dedicating sufficient resources and appropriate personnel to the contract. Site visits reinforce the importance of the contract to the contractor, as well as provide the opportunity to enhance communications with the contractor.|
|Client surveys||Conduct a written survey of clients concerning agreement service delivery and quality. Require the contractor to resolve complaints. Keep records of both the complaint and method of resolution.|
|Other periodic contact||Maintain an open line of communications to review progress on a regular basis. Documenting all communication and contract becomes especially important when resolving an issue or concern regarding the agreement.|
|Agency review of audit reports||Review any required audit reports and ensure the contractor takes appropriate and timely corrective action.|
|Invoice review||Compare billings with terms agreed upon in the agreement. Ensure that the costs being charged are within the agreement parameters and required services have been performed.|
An effective state-contractor relationship is one that fosters a mutually beneficial business relationship. The goal is to create an environment where all parties are treated with courtesy, honesty and fairness. The contract administrator is responsible for managing relations between the agency and a contractor so that contractor meets obligations to the agency and the agency meets obligations to the contractor.The following list provides basic guidelines for interacting with contractors to ensure a successful business relationship is established and maintained:
- Know the contract. If the agency does not know what the contractor is required to do, the agency cannot manage the relationship.
- Reinforce roles and responsibilities. Reinforce the roles, responsibilities, and expectations of all parties to the contract to strengthen the agency’s position in administering the contract.
- Be fair, honest and ethical. An obvious guideline and also the key to building a positive relationship with the contractor.
- Be reasonable. Understand the needs of the agency and the contractor and strive to create a mutually beneficial business relationship.
- Communicate regularly. Without regular communication of contract performance, the business and contract relationship will suffer.
- Document everything.Trust but verify. If not reduced to writing, it does not exist in the contract.
- Pay promptly. Prompt payment demonstrates an agency’s commitment to its contractual obligations.
The contract administrator is responsible for ensuring that the contractor performs services and delivers products according to the contract requirements. The contract administrator is responsible for ensuring that prompt receipt, inspection,and acceptance of all products and services procured by the agency is performed.
Appropriate personnel, designated by the agency or delegated by the contract administrator, must certify that the products or services were received, that quantities were verified, that the products or services met specifications and contract terms and conditions, and that the condition was satisfactory or noted otherwise upon receipt.
Another critical function of contract administration is invoice approval and contractor payment. To receive payment, a contractor must submit an invoice to the agency with the detail as outlined in the contract.
Appropriate personnel, designated by the agency or delegated by the contract administrator, must review and verify the accuracy of the invoice and authorize payment consistent with the contract terms.The review should verify that:
- The contractor is invoicing only for products or services received.
- The products or services have been received and accepted.
- The invoice is correct and complies with terms and conditions of contract.
- Total payments do not exceed the contract limits.
An agency should not release final payment until it has verified that the contract is complete and all products and services have been received and accepted. For information on the contract closeout process, refer to Contract Closeout.
The contract administrator is responsible for recognizing, investigating, documenting and acting on emerging disputes or other risks, unique requirements, unusual situations or other issues that arise in managing a contract. The contract administrator must formulate appropriate responses and resolutions, seeking advice from legal counsel, risk management personnel or other persons when necessary.
An agency should include appropriate contract provisions and outline the processes to address issues and manage disputes when they arise. The following sections discuss the types of contract issues that may arise and how a contract administrator should use the contract terms and conditions to manage those issues.
Issue tracking and escalationThe contract administrator must act to address issues when they arise in a contract. While simple issues can be resolved directly, more complex issues may require escalation. In certain cases issues may be characterized by disagreement, leading to disputes between the contracted parties.
The key to effective contract issues management is to create a process for documenting, tracking, and escalating issues as necessary. This process provides a shared understanding of the triggers that drive issue escalation and knowledge of the available mechanisms to deal with issues as they progress through the escalation process.
The following sequence provides a basic issues escalation framework that can apply to most contracts:
- Contract administrator should attempt to resolve the problem by working with the contractor’s on-site supervisor or the lowest possible management level.
- Contract administrator contacts the contractor’s higher-level, off-site manager to resolve the performance issue or convenes a meeting with the contractor, procurement organization, and others as required. If a problem is severe enough, legal representation may be necessary.
- Action is taken according to the contract provisions and applicable laws. Examples include liquidated damages or notice to cure.
- Contract administrator works with the procurement organization and legal counsel to initiate steps toward contract termination.
The goal of the issue escalation process is to address areas of non-compliance and correct any deficiencies that exist.
Contract disputesSome issues that arise during contract performance are difficult to resolve. A dispute is a disagreement that is not resolvable between the parties to the contract. Contact your agency DPO and/or legal counsel for assistance in resolving disputes.
In certain cases, an agency may need to end a contract before the contractual period of performance has ended. The premature ending of a contract is referred to as termination and generally takes on one of the following forms:
- Termination for convenience.
- Termination for default.
Termination should begin only after sufficient consideration and consultation, as the consequences for both parties are extreme, and may require future litigation.
Termination for convenienceTermination for convenience is one of the most powerful provisions in any public contract as it gives the state the unilateral right to terminate all or part of the contract when it is in the state’s best interest. An agency may determine a need to exercise its termination for convenience for reasons such as a change in government priorities, funding or other unanticipated events.
Termination for convenience is generally not intended as a reflection of the contractor’s performance. This is typically executed when budget is cut for the contract and funds do not exist or future work is no longer required due to scope changes within a project.
Termination for defaultTermination for default, also referred to as termination for cause, is a standard contract provision that allows either party the right to cancel the contract due to failure of the other party to execute to contract requirements. Termination for default requires that the state provide documented proof that there is a reasonable likelihood that the contractor cannot cure the performance issue identified.
An agency must adhere to the contract provisions that establish the basis for termination for default and must follow prescribed procedures to ensure this action is legally enforceable.Failure to follow these procedures in the manner they are prescribed places the state at great risk. Agencies are strongly encouraged to consult with their procurement organization and the Attorney General or other legal counsel prior to proceeding with any termination action.
The contract administrator must understand the auditing requirements and procedures that apply to the contract being administered. The contract administrator must organize and maintain appropriate documentation and administrative practices to effectively manage the contract and meet auditing requirements. The contract administrator should coordinate closely with the procurement team throughout the life of the contract to ensure that the procurement file contains the appropriate contract administration documentation that must be retained according to the procurement method.For more information on required procurement and contract documentation and the proper management of these documents, refer to document management.