Contract administration and post-contract management are listed as the final stage in the acquisition cycle in the Defence Procurement Procedure (DPP) 2016, which also assigns the responsibility for contract administration to the Service Headquarters (SHQ) concerned. The position regarding the responsibility for post-contract management is, however, no so clear.
The relevant provision in the DPP (Para 94, Chapter II) talks about post-contract monitoring and not management. These two activities are conceptually distinct. While monitoring implies periodic review of the progress of execution of a contract, management entails dealing with issues that impinge on, or facilitate, performance of the contract.
To be sure, there are sporadic references to post-contract management in the DPP, but these are in some other contexts. The responsibility for post-contract management of the offset contracts, for example, is assigned to the Defence Offset Management Wing (DOMW), while for shipbuilding and ‘Make’ projects the responsibility is assigned to the Naval Headquarters and the Capital Acquisition Wing, respectively.
The position is not very different in case of the Defence Procurement Manual (DPM) 2009, which goes into some details of post-contract management, but only in the context of design, development and fabrication contracts.
There is a need to evolve a protocol for contract administration and post-contract management of all capital and revenue contracts awarded by various departments of the Ministry of Defence (MoD) and the armed forces. There are three distinct aspects of this issue.
One, for effective administration and management of contracts it would be necessary to designate a contract officer and to put in place an effective mechanism for quick resolution of the issues that invariably crop up in the course of execution of practically every contract.
Two, the designated contract officers will be able to discharge their responsibility only if a charter of duties is laid down for them. It could be a generic charter that defines what constitutes contract administration and post-contract management and list out specific responsibilities, or it could even be a contract-specific charter.
Three, contract administration and post-contract management do not preclude the need for a monitoring mechanism. Such an overarching mechanism, comprising senior-level officials empowered to take decisions, is necessary if the designated contract officers are to resolve expeditiously any issue that crops up and threatens to impede execution of the contract before it becomes a buyer-seller dispute.
Laying down the charter of duties is the most crucial of these aspects for selection of the contract officers and the composition of the monitoring mechanism will depend on it. Evolving such a charter should not be difficult, though. One only needs to go through the standard contract document, prescribed in the DPP, to cull out the activities that need to be managed and to draw up a generic charter, which could be customised for specific contracts, if required.
The following responsibilities could be considered for inclusion in the generic charter of duties of the contract officers:
- Notification of the Effective Date of Contract: Normally the date of signing of the contract is the effective date of the contract, with reference to which all milestones are determined. In some contract, however, the effective date may be the date of occurrence of a specific event (such as release of the advance payment). The date on which the event happens in practice has legal implications and, therefore, it would be necessary to keep a watch on this and notify the effective date of the contract.
- Managing the Bank Guarantees: Every contract requires various kinds of bank guarantees to be given by the contractor after award of the contract. Receipt, safekeeping, renewal, return, and invocation of these guarantees need to be watched.
- Delivery: Apart from managing activities related to delivery, such as opening of letters of credit/direct bank transfer, arranging pre-deliver and joint receipt inspections, issuance of inspection note/acceptance certificate to the contractor to facilitate release of payment, rectification of defects after inspection, the contract officer’s responsibility could include triggering an alarm on likely slippages and bringing the matter to the notice of the monitoring committee.
- Claims: Raising and processing of quantity and quality claims.
- Liquidated Damages: Determination of the responsibility for delay and recovery of the liquidated damages.
- Timely payment: Watching over payments through designated paying agencies.
- Amendment: Ensuring timely amendments to contract, wherever required.
- Dealing with all issues related to warranty/guarantee, product support, maintenance contracts, etc.
- Resolution of issues, especially those raised by the vendor, during or after execution of the contract.
- Managing the arbitration proceedings, if the situation arises.
The points mentioned above are only illustrative of the responsibilities that a generic charter could possibly cover. It is also equally possible to formulate charters that are specific to various procurement categories listed in the DPP or customised charter that is specific to each contract.
It should be useful to have such a charter, considering that the officials dealing with contracts keep changing frequently and not all of them are trained to perform the job. The charter can serve the purpose of a checklist for them and also that of a running log reflecting the current status of execution of a contract at any given point of time.
It is essential for efficient contract administration and post-contract management that the contracts are drawn up in such a way that generally no issues arise therefrom which cannot be handled by the contract officers. This is possible if the standard contract format prescribed in the manuals is thoroughly reviewed to remove textual ambiguities and add/ delete clauses that have a bearing on the execution of contract.
It will be disingenuous, though, to believe that it is possible to draw up completely flawless contracts. Every contract throws up peculiar problems which must be resolved quickly as and when they arise. For this to happen, empowered contract administration committee, or committees, need to be set up and this should find a mention in each contract. This will help the contract officers in dealing with issues that are beyond their remit.
The writer is Former Financial Advisor (Acquisition), Ministry of Defence and Consultant, Institute for Defence Studies and Analyses (IDSA), New Delhi