Mitigating Risks in Professional Service Contracts

3-4-2016 | by Eric Baker

Both the government and third-party service providers face risks when working together. For example, government agencies have difficulty negotiating proper contracts while contractors often fall short of government expectations. Despite these uncertainties, there are steps that, when taken, reduce the risks of all parties involved.

Let’s break down eight of the best ways to mitigate risk when contractors provide services to the government.

Integrated Contract Team

To avoid contract ambiguity, government agencies should develop an Integrated Contract Team (ICT). The ICT will be made up of individuals who whose main purpose is to determine the agency’s professional service requirements. Following that, the team will continually coordinate with both the agency and contractor to ensure that the agency’s needs are met. The ICT’s presence will ensure both constant communication and a smoother relationship between all involved parties.

 

Statement of Objectives

The creation of a Performance Work Statement (PWS) or Statement of Objectives (SOO) allows government agencies and contractors to understand each other better. SOO documents quickly, yet explicitly, state the purpose and needs of government projects while a PWS is a contractor’s performance matrix and assurance of quality. Together, these documents solve many of the problems associated with government contracting.

 

Market Research

Government agencies need to undergo extensive market research before settling on a third party service provider. A team should be dedicated to evaluating all possible options in both the public and private sectors while also conducting interviews with potential contractors. This market research will give the ICT a better understanding of the options available to them and allow for a contractor who is better suited for the task at hand.

 

Commercial Quality Standards

When looking to acquire professional services, the ICT should analyze commercial quality standards. Instead of crafting their own metrics or standards of quality, government agencies must analyze existing performance standards while doing their market research. These figures will give agencies a far greater understanding of contractor’s performance quality.

 

Contract Incentives

When drafting contracts, government agencies should look to establish contract incentives. Understood when the contract is awarded, these incentives will drive contractors to be innovative and seek alternative methods for success. Likewise, an agency may choose to establish a negative incentive to encourage contractors to a higher standard of quality. Whatever the wording, incentives will motivate service providers to increase productivity.

professional-service-contract-risk-management

 

Quality Assurance Surveillance

In addition to an SOO, government agencies should construct a Quality Assurance Surveillance Plan (QASP). The QASP will help ensure that the government is receiving the services that it is paying for. This plan should include instructions for project surveillance, proper documentation for each surveillance method, and evaluation guides for each assessed task. When properly utilized, the QASP will create a healthy communication between agency and contractor and remove the risk of poor project management.

 

Project Management

Both government agencies and the prime contractors should employ dependable project managers. Productive project managers will be able to provide organizational breakdown structures, assign project responsibilities, and oversee the creation of a QASP. These individuals will also serve as a bridge to prime contractors and mitigate the risk of poor communication.

 

Pay-to-Performance

Government agencies and prime contractors should be working towards a common goal. One of the best methods in motivating contractors towards a goal is linking their pay to performance. In this way, contractors will strive to create the best possible product as their compensation is directly affected. This often results in greater collaboration between the involved parties and the achievement of better results.

 

References

 

  1. Government Contracting Risk Management, Part 3

http://www.navigant.com/~/media/WWW/Site/Insights/Government/US%20Government%20Contracting_%20Ris_Government.ashx

  1. Statement of Objectives (Wikipedia)