Standard Contracts – Supporting the Government’s Transforming Procurement Agenda

April 3, 2007

Over the last few years, we have seen a rise in the use of high quality and effective standard contracts. And not without good reason. They remove the need to draft from scratch each time, often freeing up valuable time and resources to concentrate on the more challenging aspects of the procurement. Essentially, if used appropriately, standard contracts can improve efficiency and effectiveness in the procurement process.


In the public sector, it is widely accepted that good public services depend upon good procurement. John Oughton, former Chief Executive of OGC, commented:


“ Standards define what excellence looks like and their application can take us a leap forward in getting the best out of public procurement. A universal framework ensures consistency and a standard of quality that is acceptable to both sides of a transaction, and it promotes the interests of each.”


OGC’s model agreement and guidance for ICT services has been created to help reduce cost and improve the quality of government procurement. Originally developed in 2003 and enhanced substantially over the last year, the guidance provides a flexible and robust starting point from which to develop a more comprehensive set of contract documents.


All documents can be accessed for free from the Partnerships UK Web site Partnerships UK are OGC’s delivery partner. In addition to hosting the guidance they also operate a free helpdesk to assist and support those wishing to use it in their procurements.


Quality Assured


Recognising the value in using a standard contract is one thing but one must also look for quality in the documents. As is typical of OGC’s best practice, its model agreement and guidance draws upon the knowledge and experience of others, brought together through an extensive and continual programme of consultation and review. This is never a static process. While a piece of guidance may start out as fit for purpose, the business environment is continually changing and there is a need to keep up with developments in technology, increasing customer expectations and emerging best practice.


Since the guidance was introduced, comments and feedback about its usefulness in practice have been collected. This informed the creation of the current version, which published in September 2006. The majority of the drafting was undertaken by DLA-Piper with assistance from Partnerships UK and KPMG. Views from the ICT industry (in particular, Intellect) were also considered. As a result, the current version is more comprehensive than its predecessor and includes specific guidance on key cross-issue topics: VFM and payment issues; asset ownership; and IPR. In addition, the current version now contains a full set of populated schedules.


Underpinning Principles


The documents were drafted as a faithful representation of HM Treasury policy. The fundamental principles include the importance of incentivising delivery and performance rather than placing unnecessary burdens on suppliers. Payment should be linked to delivery and risks should be allocated to the party best able to manage them.


Benefits for All


The guidance works for the benefit of all parties involved. Through the use of a standard contract, suppliers have a clear understanding of the requirements for doing business with Government. Knowledge of its key commercial principles at an early stage potentially saves time and money, as it reduces the need for later revisions.


The guidance has itself benefited from over two years of user feedback. It is not only consistent and coherent but is also now very comprehensive. Increasing familiarity for users means less ‘reading time’ and allows them to concentrate on issues that really matter, ultimately leading to a more efficient and effective procurement.


Feedback to Date


The idea of a standard contract appears to enjoy broad support from Government, suppliers and advisers. There has been a particularly favourable response from the legal profession, where individuals are investing considerable energy in increasing their knowledge of the guidance.


An analysis of projects that have adopted the guidance to date suggests that it is sound and comprehensive. However, it is recognised that there is also a requirement to continue to refine and develop it. There is now increasing evidence to suggest that using the model contract has speeded up the procurement process on a number of programmes.


On a note of caution, it is important to point out that the model contract should not be seen as a fixed, one-size-fits-all solution but rather as a good starting point for developing project-specific contracts. Although it is very comprehensive, it is not a complete contract and does not obviate the need for specialist legal input. There is a high level of interdependency within the Terms and Conditions and Schedules.  What appears to a layman to be a minor change can have major consequences for the overall contract and balance of risk. Care, therefore, needs to be taken when adopting the guidance.


Supported by UK Government


The Government has recently published its plans for driving procurement reform: Transforming Government Procurement.   As a result, the Office of Government Commerce will have increased powers of scrutiny, oversight, and intervention, and will have a responsibility to encourage greater professionalism – all of which can be assisted by setting standards.


Developing more standardisation in contracting evidently supports this agenda.


The Future


OGC will continue to collect feedback and consult with stakeholders to inform the next version of the agreement and guidance, which is due for release in the summer. We would be particularly interested in views from the ICT legal profession. See the SCL survey and the PUK Web site for this. In the medium to long term it is likely that the guidance will need further analysis and drafting. There is also an active Development Agenda for new guidance/provisions that includes:


·         financial distress provisions

·         force majeure definition

·         step-in rights

·         milestone payment claw-back

·         compensation on termination provisions

·         multi-supplier/shared services issues.


The guidance needs to continue to evolve. We will establish an effective consultation process with users and ensure that those provisions attracting criticism are reviewed and updated as appropriate and in a timely fashion.


Essentially, we seek to maintain guidance that facilitates the appropriate allocation of risk, fostering productive commercial relationships, whilst also protecting the public sector’s legitimate interests.

By the end of 2007, we expect each UK government department when undertaking a major ICT services procurement, to give full consideration to the model agreement and guidance.


John Kenyan is Leader in Guidance Innovation at OGC.