Why do I need to review a contract and what should a review encompass?
Prior to the completion of any contract, and in time to allow the findings of the review to implemented, it is important to undertake a review to:
- determine what action, if any, should to be taken in relation to the future delivery of the goods or services;
- determine whether the contract has met the needs of users and delivered the identified outputs and outcomes at the time the contract was initially established; and
- assess the effectiveness of the contract.
Key milestones in the life of the contract, including contractual requirements in relation to contract extensions, will have been included in your contract management plan.
If the goods or services provided under the contract are required on an ongoing basis, then the review should also look at the following questions:
- Is the scope of the existing contract still relevant?
- What changes have there been to the agency's requirements since the contract was first established?
- What are the agency's future needs?
- Can the goods or services be delivered by another means?
- Has the performance of the current contractor been satisfactory?
- Reference should be made to performance reviews throughout the term of the contract, client surveys etc.
- What advances have there been in the market in relation to the goods or services?
- Are there new suppliers in the market?
- What technical advancements have occurred since the market was last tested?
- Have there been any difficulties associated with managing the contract in its current form?
- Are the performance and reporting requirements under the contract appropriate?
What happens next?
The action taken at the end of the contract will depend on the findings of the review process and the options available in the existing contract.
A new contract
In most cases, where the goods or services being delivered under the contract are required on an ongoing basis and a contract extension has not been provided for in the original contract (or all contract extensions have been exhausted), you will need to undertake a new procurement process (tender/quotation) prior to the completion of the existing contract. You should ensure that you allow sufficient time so that the new contract is awarded prior to the expiry of the current contract.
Make sure that you take account of the outcomes of your contract review when you are defining your specification and your new contract management plan.
A new contract following an appropriate procurement process is the default and preferred position.
Contract extension under the terms of the original contract
In some circumstances, it may be desirable to extend the existing contract, rather than seek new tenders or quotations for the delivery of the goods or services. However, a contract may generally only be extended by an agency where the original contract provided for an extension, ie provided for options to extend.
Contracts should only be extended:
- with the approval of your Head of Agency;
- following a full evaluation of the performance of the current contractor; and
- where the principles of open and effective competition are protected.
As a general rule, contracts should not be extended if:
- the market since the previous tender has changed substantially; or
- the nature of the goods/services required has substantially changed.
Contract extension outside the terms of the original contract
Treasurer's Instruction 1115 provides that while a contract must not be extended unless the original contract allows for an extension (refer above), in some cases an extension for a period of no longer than one year may be approved outside of these circumstances.
Approval needs to be given by your Head of Agency and may only be given where:
- the provisions of a free trade agreement do not apply;
- the extension does not include a significant expansion to the scope of the original contract; and
- either due to exceptional circumstances, the extension is required to enable a full procurement process to be properly undertaken or other exceptional circumstances exist that justify the extension.
Poor planning is generally considered insufficient to extend an existing contract outside its original terms.
A decision to extend a contract under Treasurer's Instruction 1115(2) cannot be delegated by those authorised in the Instruction to make such decisions and cannot be granted retrospectively.
Information on the requirements for approving an extension is available in Treasurer's Instruction 1115 and in the publication, Guidelines for Direct/Limited Submission Sourcing and TI 1115 Contract Extensions.
Outside of these circumstances approval for a direct or limited submission sourcing process may be possible.
If the goods or services provided under the contract are no longer required, then the contract can be allowed to expire. Despite this, some contract provisions, such as warranty, insurance and guarantee commitments may extend beyond the life of the contract and may need to be monitored beyond the expiry date.