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Operational Guidance Booklet - Wales Number 3c

Contracts and contract management Version 1.3 – April 2013

Contracts and Contract Management -

Wales



This is the Wales version of OGB3c authorised for use by Head of Procurement Wales.

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St Clements House

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Norwich NR3 1BQ

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The booklets are for the use of ex Forestry Commission Wales staff now working for

Natural Resources Wales (NRW). We may make them publicly available for

reference and because some of the advice they contain may help others create

their own guidance. However, please be aware of the following important points.

We will not provide support for anyone else using them.

Anyone outside NRW uses them at their own risk.

The guidance in the booklets is specific to NRW operations.

Our booklets refer to other internal guidance which is designed solely for NRW

use.

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version.

http://www.opsi.gov.uk/click-use/index



Contents 1. Foreword ............................................................................................... 7

2. Some terms explained ........................................................................... 8

3. What’s mandatory and recommended in OGB 3c? .............................. 11

3.1 Timebound mandatory elements .................................................................. 11

3.2 Mandatory elements ..................................................................................... 12

3.3 Recommendations ....................................................................................... 15

4. Introduction to contract management ................................................... 16

4.1 Contract groups and examples .................................................................... 16

4.2 Other contractual agreements ...................................................................... 17

5. Assessing the risk: how much contract management do you need? .... 18

5.1 What you need to do .................................................................................... 18

6. Relationship management and communications .................................. 22

7. Equality and diversity in contract management .................................... 23

7.1 Monitoring and reviewing ............................................................................. 23

7.2 Reporting equality in procurement ............................................................... 23

8. Training ............................................................................................... 24

Part 1 – Goods and non-operational service contracts ........... 25

9. Introduction to goods and non-operational service contracts ............... 25

10. Pre-supply and delivery meetings (pre-commencement meetings) ...... 25

10.1 Insurance and warranty ................................................................................ 26 10.1.1 Insurance ............................................................................................................... 26 10.1.2 Explanation of Employers Liability Insurance and Public Liability Insurance ........... 26 10.1.3 Employers’ Liability Insurance ................................................................................ 26 10.1.4 Public Liability Insurance ........................................................................................ 26 10.1.5 Product Liability Insurance ...................................................................................... 27 10.1.6 What level is required? ........................................................................................... 27 10.1.7 Professional Indemnity Insurance ........................................................................... 27 10.1.8 Insurance checks .................................................................................................... 28

11. Managing the goods and non-op service contract ................................ 28

11.1 Introduction .................................................................................................. 28

11.2 Monitoring and managing risk and your actions ........................................... 30

11.3 Responsibilities ............................................................................................ 32

11.4 Contract files ................................................................................................ 33

11.5 Health and safety in goods and non-op service contracts ............................ 34

11.6 Managing and monitoring the goods and non-op service contract ............... 35 11.6.1 Monitoring delivery and quality ............................................................................... 35

12. Service Level Agreements ................................................................... 36

13. Price variations and break points ......................................................... 38

13.1 Price variations ............................................................................................. 38

13.2 Break points ................................................................................................. 39

14. Contract closure and review ................................................................ 39

14.1 Contract closure ........................................................................................... 39

14.2 Contract review ............................................................................................ 40



14.3 Lessons learned ........................................................................................... 40

Part 2 – Works and operational service contracts ................... 41

15. Introduction to works and operational service contracts ....................... 41

16. Contract related matters ...................................................................... 41

16.1 Insurance ..................................................................................................... 41 16.1.1 Explanation of Employers Liability Insurance and Public Liability Insurance ........... 41 16.1.2 Employers Liability Insurance ................................................................................. 42 16.1.3 Public Liability Insurance ........................................................................................ 42 16.1.4 £5 Million or £2 million? .......................................................................................... 42 16.1.5 Insurance checks .................................................................................................... 43

16.2 Health and safety in managing contracts ..................................................... 43 16.2.1 The health and safety legislation ............................................................................ 43 16.2.2 A framework for managing health and safety in forestry ......................................... 44

16.3 The Construction (Design and Management) Regulations (CDM) ............... 44 16.3.1 Background ............................................................................................................ 44

16.4 Gangmaster licensing ................................................................................... 45

16.5 Employing workers from overseas ............................................................... 46

17. Pre-commencement meetings for works and operational service contracts .............................................................................................. 47

17.1 The requirements ......................................................................................... 47

17.2 The meeting ................................................................................................. 47

18. Managing the works and operational service contract ......................... 48

18.1 Introduction .................................................................................................. 48

18.2 Contract files ................................................................................................ 48


18.4 Responsibilities ............................................................................................ 53 18.4.1 Responsibilities in managing the health and safety in works and service contracts ............................................................................................................................ 54

18.5 Health and safety in works and operational service contracts ...................... 55 18.5.1 Applying the health and safety framework for works and service contracts ............. 55

19. Contract completion – your actions ...................................................... 59

19.1 Contract closure ........................................................................................... 59

20. Contract review .................................................................................... 59

20.1 Lessons learned ........................................................................................... 59

21. Updating other systems – SCDB ......................................................... 59

22. Price variations and break points ......................................................... 60

22.1 Price variations ............................................................................................. 60

22.2 Break points ................................................................................................. 61

Part 3 – Timber sales contracts ................................................. 62

23. Introduction to timber sales contracts .................................................. 62

24. Contract matters .................................................................................. 62

24.1 Insurance for standing sales contracts ......................................................... 62 24.1.1 Public Liability Insurance ........................................................................................ 62 24.1.2 Standing sales checks ............................................................................................ 62

24.2 Gangmasters, and employing overseas workers ......................................... 63



24.3 Pre-commencement meetings for standing sales contracts ......................... 63 24.3.1 The requirements ................................................................................................... 63 24.3.2 Standing sales contracts ......................................................................................... 63

25. Managing the standing sales contract .................................................. 64

25.1 Introduction .................................................................................................. 64

25.2 Contract files ................................................................................................ 64


25.4 Responsibilities ............................................................................................ 70 25.4.1 Responsibilities in managing health and safety in standing sales contracts ............ 72

25.5 Health and safety in standing sales contracts .............................................. 74 25.5.1 Applying the health and safety framework for standing sales .................................. 74

25.6 Monitoring the contract ................................................................................. 75

25.7 Contract extensions for standing sales ......................................................... 76 25.7.1 Extensions to expiry date ........................................................................................ 76 25.7.2 Amending the quantity of work ................................................................................ 76

26. Contract completion ............................................................................. 76 26.1.1 Contract closure ..................................................................................................... 76

27. Contract review .................................................................................... 77

28. Updating other systems – SCDB and SRP .......................................... 77

Part 4 – Problem solving and changes ..................................... 78

29. Changes, problem solving and termination .......................................... 78

29.1 Changes within the contract ......................................................................... 78 29.1.1 Change in requirements ......................................................................................... 78 29.1.2 Contract extensions for goods, works and Service contracts .................................. 78

29.2 Handling disputes and unfulfilled obligations ................................................ 79

29.3 Minor discrepancies and errors .................................................................... 81

29.4 Actions to take on breach of contract ........................................................... 81 29.4.1 First material breach ............................................................................................... 81 29.4.2 Repeated material breach ...................................................................................... 81 29.4.3 Persistent material breach ...................................................................................... 82 29.4.4 Irremediable or serious breaches ........................................................................... 82 29.4.5 Termination ............................................................................................................ 82

Part 5 – Financial control and records ...................................... 83

30. Introduction – eFinancials .................................................................... 83

30.1 Background .................................................................................................. 83

30.2 Invoice payment and control ........................................................................ 83

30.3 Prompt payment to contractors .................................................................... 84 30.3.1 Payment retention .................................................................................................. 84 30.3.2 Payments in advance ............................................................................................. 84

30.4 Monitoring contract value and credit limits ................................................... 84

31. Record keeping and archiving ............................................................. 85

31.1 Archiving contracts ....................................................................................... 87

32. Supporting documents ......................................................................... 87



Figures

Figure 1 The risk matrix for all contract types ................................................................... 20

Figure 2 Health and safety triangle for managing contracts ............................................. 21

Figure 3 Contract management process for goods and non-ops contracts ...................... 29

Figure 4 Risk management chart for goods and non-operational service contracts ......... 31

Figure 5 Risk management chart for works and operational service contracts ................ 50

Figure 6 Contract management flow for works and operational service contracts ........... 52

Figure 7 Contract management processes for standing sales contracts .......................... 67

Figure 8 Risk management chart for standing sales contracts ......................................... 69

Figure 9 Handling problems, disagreements and disputes ............................................... 80



1. Foreword

This Guidance Booklet is one of a series covering various subjects in Natural

Resources Wales (NRW). Contracts and contract management has been written to

support OGB 3a Buying goods, works and services and OGB 3b Timber sales

contracts and to help you make the right decisions and follow the correct processes

in this sometimes complex process when managing your contracts, whatever they

are for.

We have designed the booklet to be:

a reference work;

a supporting and instructional document; and

the basis for follow-up support visits and audits.

We hope you find it useful. You may also see:

Mandatory elements. These are auditable actions necessary to meet

legal requirements or to deliver or report on corporate policy.

Timebound mandatory elements. As above, but to a deadline.

Recommendations. These are auditable actions that you should

practise for efficiency and effectiveness. Any variation must be

defined and authorised by unit managers.

Cautions against certain actions, or things to avoid.

Examples, Best Practice and Important Reader Information are shown in light blue

boxes like this.

If you have any comments on this booklet, its procedures, or any new ways of

presenting this subject please contact Procurement Services in Finance Hub Office,

Aberystwyth.

There will be a link on the Procurement Services Wales pages to this OGB.

From time to time, there may be legal or policy changes that cannot wait until the

next update, and if this is the case, we will tell you in an email and/ or the Connect

Bulletin.



2. Some terms explained

In contract management, as with many processes, there is a lot of jargon and there

are many abbreviations. Here we explain them before you read them.

Term or abbreviation Explanation

AFAG Arboriculture and Forestry Advisory Group. Usually

referring to a series of safety guides.

Aggregation Adding together the value of separate contracts for

the same goods, services or works.

Contract A binding agreement made between two or more

parties, which is intended to be enforceable at law.

Contractor An organisation or individual who has made a

contract to provide goods, provide services or

undertake works (including suppliers). We will use this

term to cover, supplier, purchase and contract

holder throughout this OGB.

Contract Manager The person who will be responsible for the day-to-day

management of the contract and the relationship

with the contractor.

ELI Employers’ Liability Insurance.

EOI Expression of Interest.

EU Procurement Directives Procurement legislation that is binding on all

European Union Member States and implemented

through national legislation.

FOI Freedom of Information.

FWM Forestry Works Manager.

HASAWA The Health and Safety At Work Act 1974.

Framework Agreement An arrangement that sets up with several providers

the terms by which we can later enter contracts with

them and call-off goods or supplies as we need

them.

Goods Actual tangible products.

H&S Questionnaire Questionnaire relating to health and safety designed

to allow you to assess contractors based on their

competence for health and safety.

Highly-competitive Where there are a large number of potential

contractors in the marketplace, and they are likely to

want to offer a good deal through our procurement

exercise to win our business.

HSE Health and Safety Executive.




ICT Information and Communication Technology.

Index link Where prices or rates are adjusted according to the

value of the retail price index – see Page 9.

ITT Invitation to Tender. An invitation to contractors to

bid for providing goods, services or works.

Market or Marketplace All the available contractors who could provide the

goods, services or works you require.

Mini competition Where all the capable contractors on a Framework

Agreement are given the opportunity to bid for a

specific piece of work.

Pan-government Across all government and associated organizations.

PLI Public Liability Insurance

PQQ Pre-qualification Questionnaire. A questionnaire pro-

forma completed by bidders that want to be

considered for a procurement. It is designed to

assess the bidder’s suitability in principle to provide

your requirement.

Quality The level of fitness-for-purpose which is specified for,

or achieved by, the goods, services or works.

Resumption system A diary or computer system that reminds you to do

tasks that are repeated regularly. For example a unit

manager must check a sample of contracts each

year. Please refer to OGB 34 Resumption Diaries for

more information.

Retail price index. An index of the variation in the prices of goods and

other items.

SCDB Sub-compartment database.

Service Level Agreement

(SLA)

A service level agreement is a mutual agreement

between two parties wherein one is the customer

and the other is the service provider.

SLA Service Level Agreement.

SME/Small Medium

Enterprises

Small and Medium Size Enterprise – often associated

with local suppliers or contractors.

SRP The Sales Recording Package that the FC uses for

preparing, monitoring and managing all timber sales

parcels.

Stakeholder An individual or organization that has an active

interest or a stake in a particular requirement or issue.

Sub-contracting The process where a contractor assigns part of the




contract to another contractor.

Sustainable procurement The environmental, social and ethical issues that you

need to consider in a procurement.

Tender See ITT.

Transparency Being seen to be open and fair, and giving equal

opportunity to all contractors.

TUPE The Transfer of Undertakings (Protection of

Employment) Regulations (TUPE) protects employees'

terms and conditions of employment when a

business is transferred to another company.

Value for Money Providing the right goods and services from the right

source, of the right quality, at the right time,

delivered to the right place and at the right price

(judged on whole-life costs and not simply initial

purchase costs).

Whole Life Costs The cost of goods, services or works throughout their

entire life – not just the purchase price but any other

associated costs.



3. What’s mandatory and recommended in OGB 3c?

In this section we gather together all the mandatory and recommended elements in

OGB 3c in one place as a summary of what you must do, and we give you the

relevant section to refer to if you need more information.

3.1 Timebound mandatory elements

No. Timebound requirement Reference

Training

1. All staff who work with contracts must have attended the relevant

Learning and Development course. If they have not, then they

must attend it within two years of the release of this OGB

(expected April 2011). Staff who have already attended the

course should attend a refresher within five years.

Section 8

Insurance for goods and non-operational service contracts

2. Unit managers must carry out an annual exercise to obtain copies

of their contractors’ Employers Liability Insurance Certificate and

Public Liability Insurance Certificate for all live contracts at that

time.

Section 10

Insurance for works and service contracts

3. Unit managers should carry out one annual exercise to obtain

copies of their contractors’ Employers Liability Insurance Certificate

and Public Liability Insurance Certificate for all live contracts at that

time.

Section 16

Insurance for sales contracts

4. Country office staff responsible for the customer (or district staff

where customers are managed by the district) must carry out one

annual check and obtain a copy of the insurance certificates:

Employers Liability Insurance - £5 million; and

Public Liability Insurance - £5 million.

Section 24

Monitoring all contracts

5. Line managers (usually unit managers or district foresters) of staff

who manage contracts must check the contract file and

countersign the Contracts Managers Checklist on a sample of

contracts (one contract for each relevant member of staff every

six months).

Section 11



3.2 Mandatory elements

No. Requirement Reference

Equality and diversity

1. You must monitor the equality element of all contracts as part of

the contract review process and as an integral part of the

agenda at any contract review meeting. Additionally, you must

monitor the performance of those contracts that contain

additional specific equality duties against those specific duties.

You must report to the Diversity Team, by sending them a copy of

the completed Information Gathering and Approach template

for all the procurement exercises you have undertaken where

equality and diversity have been required as part of the delivery.

Section 7

Pre-commencement meetings

2. The unit manager must make sure that:

a pre-commencement meeting is held for all FC Contracts

where the financial or reputational risks identified on the

Outline Risk Assessment are deemed to be high;

a pre-commencement meeting is held for every standing

sale following agreement of the contract by both parties

but before any work starts; and

any pre-commencement meeting must include all aspects

of work covered by the contract, including forestry,

construction, haulage, civil engineering, ICT, buildings-

based service contracts, networks, sound and stage

systems and any similar work.

Sections 10

Managing all contracts – responsibilities

3. Contract managers must follow the Contract Manager’s

Checklist from the start of each contract, keep it up to date

during the contract and file a copy in the contract file.

Section 11

Managing all contracts – contract files

4. The contract file must contain or be cross-referenced to a file that

contains the following:

Where you have carried out an expression of interest (EOI)

or a PQQ, all documents including:

o the EOI responses;

o the PQQ;

o PQQ response for the successful contractor;

where a tender has been arranged, all tender documents

Sections 11




including:

the invitation to tender;

the tender schedule;

details of any advertisements; and

all letters to successful and unsuccessful tenderers.

the contract including schedules.

all correspondence relating to the contract including items

such as the contract diary, a record of any meetings,

telephone calls, agreements.

Remember these are restricted documents and you must keep

them safe and secure.

Monitoring all contracts

5. You as the contract manager will require to carry out some or all

of these requirements dependant on the contract being

managed:

use site visits to monitor the contract;

monitor performance and outputs through Service Level

Agreements;

update progress using SRP (for timber sales contracts);

monitor payments based on progress;

discuss progress with the contract holder regularly;

keep your Procurement Officer informed of anything that

does not meet the terms of the contract and follow their

advice if things look as though they are going wrong; and

record any instances of poor performance and the action

you took in the contract file.

Sections 11

Health and safety in contracts

6. Even in non-operational contracts NRW must ensure that

appropriate notice is taken of any health and safety issues that

may arise.

Section 11

7. In its role as Landowner and FWM of service contracts NRW must

manage contracts for health and safety.

Section 16

8. In its role as Landowner for standing sales, NRW must manage

contracts for health and safety.

Section 25

Breach of contract




9. Take action through the contract where you identify a breach of

safety or the requirements of the contract. You should also inform

your Procurement Officer as soon as possible.

Section 29



3.3 Recommendations

No Recommendation Reference

Monitoring goods contracts

1. You should give regular and routine feedback to contractors on

their performance. You must also have formal performance

reviews at regular intervals. Make a record of these and any

agreed improvement plans where necessary.

Section 11

Contract filing for works and service contracts

2. You can use a duplicate ‘Field File’ to enable ‘remote’ staff to

record all relevant issues. This file must be returned when the

contract is complete and added to the contract file before it is

closed and archived. The original contract file must not be used

as a ‘Field File’, it must stay in the office all the time.

Section 18



4. Introduction to contract management

Once you have awarded a contract to the successful bidder(s) using the processes

in OGB 3a or completed your sale in 3b, it is important that you actively manage the

contract so that it delivers what you need and have specified.

If you manage the contract successfully, then all the time and effort that you have

put in earlier will be worthwhile. You will also see the benefits of good contract

management next time you have to draw up a contract, as you will have learned a

lot about the contract and how it operates. To hopefully save any

misunderstanding, we will use the term ‘contractor’ to cover supplier, contract holder

and timber purchaser.

We assume at this stage that you have followed the relevant procedures in either:

OGB 3a – Buying goods, works and services; or

OGB 3b – Timber sales contracts.

If so, we can now take you through what you have to do to manage your contract.

If you have not read OGB 3 a or b, then please contact your Procurement

Officer to make sure that you are using the right process for otaining your

goods, works or services. Remember, if you do not follow the correct

procedure you may be opening NRW to legal challenge.

We have divided this OGB into five main parts:

1. Goods and non-operational service contracts – Part 1 (Part 1);

2. Works and operational service contracts – Part 2 (Part 2);

3. Timber sales contracts – Part 3 (Part 3);

4. Problem solving and changes – Part 4 (Parts 4&5); and

5. Financial control and records – Part 5 (Parts 4&5).

These sections are available as separate documents on the intranet for you to

download.

4.1 Contract groups and examples

In the previous section we mentioned goods, works and service contracts and

described elements of these as ‘non-operational’ and ‘operational’ service

contracts. We have described goods, works and services in Table 1, but we can

best explain all the terms with some examples which are below.

Table 1 Contract groups and examples

Contract type or group Explanation with examples

Goods contracts A contract set up to buy items such as stationary, software,

and office furniture or office machines. These may also

involve contracts for buying vehicles and machines for the

forest by Mechanical Engineering Services.

http://alpacorn.forestry.gov.uk:7777/pls/portal/url/ITEM/9F4E43A93B4739E9E04012D309804AE4

http://alpacorn.forestry.gov.uk:7777/pls/portal/url/ITEM/9F50311C2A1C82A9E04012D309806409

http://alpacorn.forestry.gov.uk:7777/pls/portal/url/ITEM/9F50311C2A1D82A9E04012D309806409

http://alpacorn.forestry.gov.uk:7777/pls/portal/url/ITEM/9F4DEBDD6DFB060FE04012D3098051D8



Contract type or group Explanation with examples

Non-operational service

contracts

This is a wide ranging category. It will include ICT and other

systems contracts which may not be high value but will

carry significant service risk. This will also include contracts

for service such as office cleaning, catering for NRW staff,

supplying training services and consultancy. Many of these

services will be ‘building based’.

Works and operational

service contracts

Operational service contracts are usually for a ‘forest

operation’ run on the National Forest Estate, such as

planting, harvesting and fencing. Works contracts are

usually for construction or civil engineering work such as

building or maintaining the forest road system.

Timber sales contracts Set up through eSales and the Sales Recording Package to

sell timber produced as part of an annual programme in a

unit. Either standing or felled.

Essential to all these contract types is the risk involved in running and

managing them – please make sure you read Section 0 before going to

your chosen contract type.

4.2 Other contractual agreements

Although we do not cover them in this OGB, you will come across other agreements

that are equivalent to contracts:

Permissions – see OGB 42;

Leases – talk to your country estates service;

Partnerships and external funding agreements – talk to your Country Finance

Officer and read Money Matters No. 12 External Funding; and

Master Agreements for Motorsport – see OGB 20.

You may wish to check that your arrangement with a contractor is not verging on

‘employee status’ – read our guide to Contracts and the Law.



5. Assessing the risk: how much contract management do you need?

Understanding and managing contractual and contractor risk is important to the

success of the contract. Risk can come in six main forms.

1. Health and safety risks – see OGB 24, and the health and safety section for

each contract type – Sections 0 (Part 1), 0 (Part 2) and 25.5 (Part 3).

2. Financial risk – Money Matters No 11.

3. Risk to reputations – both theirs and ours.

4. Technological risks – for example, making sure a new computer software

package works with all related NRW systems.

5. Supply chain risk – supplies not available, obsolescence, liquidation or

administration.

6. Legislative risk – such as changes in standards or products that are banned

from sale, for example pesticides.

And remember that risks range from Low to High and can cover all six of the

elements above.

Assessing potential risk is not easy, but being able to understand what could go

wrong and how to deal with it in a contract might be the difference between

running a successful contract and failure. Look at Figure 1 for the matrix of how the

different contract types and risks fit together.

What you need to do

You should:

include risk management obligations in the contract if you need them;

if you have identified particular risks, insist on regular risk meetings and the

frequency and format of your reporting, such as site visits, and contractual

commitments – you may need to be flexible to increase or decrease

elements dependant on the level of risk; and

fully understand the contract and what each party will deliver – by doing this

you will recognise the risks.

To identify and manage risk, you should follow these six steps.

1. Work with the contractor, think about what could go wrong during the

contract, for example late delivery, materials not available, key personnel are

unable to work or they leave the company.

2. Decide on the likelihood and impact of each problem occurring.

3. Work with the contractor to agree ways to stop the problems occurring or

reduce the impact if they do. This will often involve site meetings and an

exchange of risk assessments – see Section 0 (Part 1).

4. Record this in your risk log or contract file and review it regularly as part of

monitoring contractors performance.

5. You may need to add new things to the log or file as the contract progresses



and you identify more risks.

6. Encourage the contractor to raise potential risks with you.

The chart in Figure 1 may help you and remind you why we take this element of

contract management so seriously and it can apply to all contracts.

We cover monitoring and managing risk for each contract type in more detail in

Sections 0 (Part 1), 0 (Part 2) and 25.3 (Part 1) and the actions you will need to take if

risk changes during a contract.


http://alpacorn.forestry.gov.uk:7777/pls/portal/url/ITEM/9F50311C2A1C82A9E04012D309806409




Figure 1 The risk matrix for all contract types



Figure 2 Health and safety triangle for managing contracts



6. Relationship management and communications

It is important to remember that the relationship starts before the contract does.

And you must remember that the way in which you run and handle PQQs, ITTs and

other pre-contract preparation will create first impressions in the relationship which

you may not be able to change later. So you should decide how you want the

relationship to be at the start, and maintain that throughout the contract.

There are a number of things you can do to make sure that you effectively manage

the contract for the benefit of both parties.

Set the ground rules from the start. For operational contracts this is done

through the pre-commencement meeting. For non-operational contracts

you will need an equivalent pre-start meeting, or phone call, as necessary for

the type of contract.

Make sure that all parties understand and work to accommodate each

other’s requirements.

Make sure that your role and that of others are clearly defined and fully

understood.

Make sure that all parties involved are given clear expectations and an

understanding of the contract and what is to be delivered.

Set up communication channels from the start – hold regular structured

communication or site meetings as you see fit. And for contracts requiring a

higher level of contract management based on the risk involved (see Section

0), you should also meet regularly with the contractor to review progress. You

should agree the frequency of these meetings as early as possible and stick

to them.

Make sure communications are kept open and that all parties allocate

specific contacts for dealing with enquiries. For contracts requiring minimal

contract management, this may simply be a person who you can contact if

any problems need to be escalated. Where you need a higher level of

contract management based on the risks involved, as we discussed in

Section 0, this could be a number of contacts allocated to deal with different

aspects of the contract, and you may need them to be available each day.

It is best to have continuity of key staff, and where you cannot have this, you

must have a formal handover with good communications.

Make sure that your processes for resolving problems are well defined and

you use them – see Section 0 (Parts 4&5). This will make sure that minor

problems do not escalate and cause contract and relationship difficulties.

Avoid a blame culture. Good contract monitoring and open communication

will help you avoid this.

Be prepared to make changes to the way you communicate, you may need

to change this if problems keep arising, or when your current system proves

that your communication is not effective. At these times, we advise you to

hold a meeting to discuss the problems with the contractor, set a clear

agenda and make sure all matters are resolved satisfactorily. Remember you

should be as consistent as possible. So if you have allowed a contractor to

take a short cut previously, and did not complain, then complaining about

the same instance later can be difficult. Always be firm, but fair, with your



contractors.

7. Equality and diversity in contract management

7.1 Monitoring and reviewing

The General Equality Duty from the Equality Act 2010, requires public bodies to make

sure they eliminate discrimination, victimisation and harassment, advance equality

of opportunity and foster good relations between people who share a protected

characteristic and those who don’t. The law requires us to consider equality when

undertaking procurement – see OGB 3a Section4.3.

It is important to understand that, whenever one of our functions is carried out by an

external contractor, NRW remains responsible for meeting the equality duty.

Organisations carrying out functions on our behalf are also subject to the General

Equality Duty while doing so. It is important that we remind them of their

responsibilities and help them to understand their obligations. You may direct them

to the Equality and Human Rights Commission’s Statutory Code of Practice on

Services, Public Functions and Associations.

Regardless of how relevant the procurement is to equality, all contracts must contain

conditions that:

prohibit the contractor from unlawfully discriminating under the Equality Act;

and

require them to take all reasonable steps to make sure that staff, suppliers,

and sub-contractors meet their obligations under the Equality Act.

You must monitor the equality element of all contracts as part of the contract

review process and as an integral part of the agenda at any contract review

meeting. Additionally, you must monitor the performance of those contracts

that contain additional specific equality duties against those specific duties –

see OGB 3a Section 4.3.4.

Just like the monitoring of health and safety, this is a legal requirement and you must

be proactive in your management; if you find any breaches, take urgent steps to

put them right.

If the contractor is unable to provide a remedy to any breach, then you should

consider termination. Please contact your Procurement Officer for further guidance

and read Section 0 (Parts 4&5).

7.2 Reporting equality in procurement

We have a duty to report on our procurement impact to the Equality and Human

Rights Commission.

You must report to the Diversity Team, by sending them a copy of the

completed Information Gathering and Approach template for all the

procurement exercises you have undertaken where equality and diversity

have been required as part of the delivery.

This is just as important in managing contractors and you should make sure that you

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monitor this aspect of the contract. Either send the templates to Diversity as each

exercise is completed, or by 31 March each year.

Where you believe a contract is in breach of the equality clauses please contact

your Procurement Officer for advice.

If you require equality information, or wish to discuss equality issues, please contact

the Diversity Team, or look on their Intranet pages.

8. Training

Learning and Development (L&D) have designed courses specific to Contract

Management based on the OGB 3 series and we believe it is essential that anyone

working with contracts should attend the relevant courses which you can see the

details for by using Yourself. You do not need a password to do this. We have listed

the courses in Table 2.

All staff who work with contracts must have attended the relevant Learning and

Development course. If they have not, then they must attend it within two years

of the release of this OGB (expected April 2011). Staff who have already

attended the course should attend a refresher within five years.

Table 2 Learning and Development OGB 3 related courses

Course title Course reference

Contract Management 2.07



Part 1 – Goods and non-operational service contracts

9. Introduction to goods and non-operational service contracts

Goods and non-operational (non-op) contracts are rather different to works,

operational service and sales contracts, as the direct risks, such as health and safety,

may be lower. However, some of the financial, technological and reputational risks

may be higher and you should treat them just as seriously. You need to manage all

contract risks well to make sure you have a successful outcome for your contractual

relationship and the contract.

ICT and systems contracts, such as hardware maintenance and GIS contracts, L&D

training contracts, occupational health, relocation services, will require significant

contract management. They have very few health and safety and operational

management risks, but are key components in delivering effective day-to-day

services. You should manage contracts like these through a formal review

timetable, agreed management information and performance targets.

10. Pre-supply and delivery meetings (pre-commencement meetings)

Although there is no specific recording form for this meeting, as with other contract

types, you will need to at least discuss the following:

roles and responsibilities;

health and safety;

delivery, timing and quality;

risk monitoring and management;

response to requests for service;

disaster recovery plans; and

warranty provision and response.

It may be for non-operational contracts that this could be as simple as a telephone

conversation, especially for goods and small value contracts – but record on your

contract file that you have had it.

The unit manager must make sure that:

a pre-commencement meeting is held for all NRW contracts where the

financial or reputational risks identified are deemed to be high; and

any pre-commencement meeting includes all aspects of work covered by

the contract.



10.1 Insurance and warranty

Goods will normally be covered by the contractor’s or manufacturer’s warranty and

ultimately by the Sale of Goods Act where a product must be ‘fit-for-purpose’. For

more information on this please see our Legal Guide.

In some cases, such as contracts where access to our premises and using our

systems is necessary, you may need more insurance, such as product liability

insurance.

It is also important that where the contractors may need access to our systems or

infrastructure, that we make sure they have the necessary qualifications and skills to

carry out the work to the required standards, and that any systems and infrastructure

is working properly at the end of each task.

However, if you have a non-operational service contract, the contract holder may

well require insurance.

10.1.1 Insurance

In recent years insurance premiums have increased significantly and we need to be

proactive to make absolutely sure that contractors have the insurance required by

the terms of the contract and that the level of insurance that is being applied to the

risk is appropriate to the content of the contract.

10.1.2 Explanation of Employers Liability Insurance and Public Liability Insurance

There are three types of insurance that are particularly relevant to forest contractors:

Employers Liability Insurance (ELI);

Public Liability Insurance (PLI); and

Professional indemnity insurance.

10.1.3 Employers’ Liability Insurance

Most employers are required by law to insure against liability for injury or disease to

their employees arising from their employment under the Employers’ Liability

(Compulsory Insurance) Act 1969. Employers must be insured for at least £5 million.

Insurers provide a Certificate of Insurance that states the minimum level of cover

provided and the companies covered by the policy.

The HSE enforces the law on employer’s liability insurance, and HSE Inspectors can

check whether companies have employer’s liability insurance with an approved

insurer for £5 million. If a contractor is self employed or only employing close family

members, they do not need ELI.

HSE produce a free leaflet on this subject: http://www.hse.gov.uk/pubns/hse40.pdf

10.1.4 Public Liability Insurance

Public Liability Insurance (PLI) is for claims against the business by the public or other

businesses. This is not a legal requirement and consequently is not enforced by HSE.

However, it is included as a condition in all NRW contracts. It may be that it is not

appropriate to have this insurance as the contractors may not have dealings with

the public. However, some level of insurance may be required to cover dealings

with other contractors. The level of insurance required should take into

http://www.hse.gov.uk/pubns/hse40.pdf



consideration the risk and the cost of obtaining this insurance. If you are not sure,

then you should contact your Procurement Officer.

10.1.5 Product Liability Insurance

If you buy or give away a product (physical item), this insurance covers the

contractor against damages awarded as a result of damage to property or

personal injury caused by that product. It is not a legal requirement to hold this type

of insurance. However, when buying goods we would expect our contractors to

hold this type of insurance. Most businesses that supply products have cover of

between £1 million and £5 million. The norm is £2 million.

10.1.6 What level is required?

All contracts for service require the contract holder:

to comply with health and safety law, including the Employers’ Liability

(Compulsory Insurance) Act 1969;

to have public liability insurance; and

to indemnify NRW against any claims.

Current guidance is that NRW insist on having PLI, unless the contractor can make a

case against not having it based on risk.

Table 3 Levels of insurance you need

Level of insurance Operation

Work where a minimum of

£5 million is definitely

required.

High-risk work such as:

Major hardware or software upgrades.

Work where the level of

insurance should reflect

the risk

a) Low risk work such as:

ICT in general;

building based services such as cleaning or

catering; and

HR contracts, such as training and development.

b) Where the industry standard is £2 million and NRW

are prepared to accept this.

10.1.7 Professional Indemnity Insurance

This insurance indemnifies the policyholder against loss or circumstances incurred

only as a result of their negligence, error or omission in carrying out the policyholders

business.

You may not need this, but it is important in, for example, consultancy contracts

(especially construction ones), where acting on professional advice could have

potential implications against which we would want to protect ourselves.



10.1.8 Insurance checks

Unit managers must carry out an annual exercise to obtain copies of their

contractors’ Employers Liability Insurance Certificate and Public Liability

Insurance Certificate for all live contracts at that time.

Note: The supplier must provide evidence of PLI at the time of contract creation, as

the Contracts Database cannot print a contract without a current PLI certificate.

11. Managing the goods and non-op service contract

11.1 Introduction

In this section we cover the things you must do and consider when you have a

goods or non-op service contract. In Section 0 we gave you some examples of the

types of contracts these terms cover:

Goods contracts A contract set up to buy items such as stationary,

proprietary software, office furniture, proprietary

goods or spares or office machines. This will also

include contracts to buy vehicles and machines for

forest use by MES.

Non-operational service

contracts

This is a wide ranging category. It will include ICT

and other systems contracts which may not be high

value but carry significant service risk. This will also

include contracts for service such as office

cleaning, catering for NRW staff, supplying training

services and consultancy. Many of these services

will be ‘building based’.

We will treat the management of goods and non-operational contracts the same.

See Figure 3 for the process chart.



Figure 3 Contract management process for goods and non-ops contracts



11.2 Monitoring and managing risk and your actions

In Section 0 we introduced the subject of managing contracts based on risk that

each contract brings to NRW. Each contract will have different types of risk

associated with it – see Figure 4. You cannot identify and quantify all risks through

checklists and documents. In Wales we are using stakeholder mapping, supplier

preferencing and sustainable risk assessments which may help you with this process.

The key risk in this area is a failure to perform: making sure that this does not happen

should be the emphasis of any contract management plan.

You must agree the key risk areas at the start of the contract and agree the

expected quality of service in each risk area. Some of the risks you should consider

are:

change in contractor’s organisation or structure;

change in requirements;

inadequate control and reporting;

conflict of objectives;

wrong assumptions;

recovery from unforeseen events;

lack of management due to a lack of time or resources; and

any health and safety requirements.

You must also agree what is to be done if quality starts to fall and increases the risks

in the contract. The way you handle this aspect is essential to managing risk and

therefore the contract. You may want to do this by creating and agreeing a Service

Level Agreement (SLA) with the contractor. If you want to draw up an SLA please

talk to your Procurement Officer.

Agree a clear set of performance indicators with the contractor at the opening

contract meeting. Use these to monitor the health of the contract throughout its life

and as the basis of the review process. Most of these will be based on management

information pertinent to the contract, and will include financial, service,

performance and other key data.

Regular review meetings are the best way to reduce the risk of the contract going

wrong, as the regular review of the performance indicators should give you early

warning of anything going wrong and allow you to take quick corrective action.

Contracts deliver best value when you manage them well and consider all the risks

properly.

It is possible that you may feel that for many goods and non-operational service

contracts the perceived risks will be low; you must consider a contract on its merits,

establish the level of risk and monitor the risks throughout the contract.

Don’t expect even a relatively straightforward contract to run itself – it won’t.



Figure 4 Risk management chart for goods and non-operational service contracts



11.3 Responsibilities

Contract managers must follow the Contract Manager’s Checklist from the start

of each contract, keep it up to date during the contract and file a copy in the

contract file. A copy will be sent to you when you print a contract from the

Contracts Database

Contract manager’s checklist for

Goods and Non-operational Service Contract

Management

= Yes

= No

1. A valid contract exists before any work starts.

2. All mutually agreed changes have a formal addendum or letters of

agreement with any supporting documents such as project or delivery

plans and schedules agreed and signed by both parties.

3. Work has been carried out within the specified time limits in the contract

or during an agreed extension. Remember that extensions cannot be

given unless these were part of the original specification and advert.

4. Adequate insurance cover is in place at the start of any contract and

the cover is in line with the perceived risk attached to the contract. An

example might be an office based consultancy contract, vegetation

survey or land valuation survey, where the additional premium would

not make sense and possibly make the contract not viable for NRW or

the contractor.

5. Contracts are monitored regularly and interventions made quickly when

remedies are needed. All details of contract review meetings, site visits

and contract progress are held on the contract files. Record the full

minutes of each meeting and the actions and use them as a ‘live’

document through the life of the contract. See Forms Intranet Page for

examples of site visit report forms.

6. Payments to contractors are according to the contract specification,

they are strictly controlled, and they agree with the progress achieved

at the time.

7. Payments are made under normal credit trading terms, or in

accordance with any special terms agreed by the unit manager.

8. Payments are only made when the work is completed to the

specification – see Section 0 (Parts 4&5). This may be the full contract

quantity or an agreed portion of it. Please refer to Money Matters

Booklet No.6 – Expenditure: Policy and Practice.

9. All correspondence relating to contracts, tenders, or financial

arrangements is marked ‘Protect - Commercial’ including the subject

line of relevant emails.

10. When all the work or supply is completed to a satisfactory standard as

detailed in the Schedule and is accepted by the Contract Manager, a

Completion Certificate is issued and held on file.




Goods and Non-operational Service Contract

Management

= Yes

= No

11. In Wales, the contract file with completion certificate has been sent to

Finance Hub Aberystwyth for formal closure of the contract on the

database.

12. In Wales, the contract file with completion certificate has been sent to

Finance Hub Aberystwyth for formal closure of the contract on the

database.

Checklist signed off by Contract Manager:

Signed Date:

Line managers (usually unit managers or district foresters) of staff who

manage contracts must check the contract file and countersign the Contracts

Managers Checklist on a sample of contracts (say one contract for each

relevant member of staff every six months).

11.4 Contract files

The contract file must contain or be cross-referenced to the procurement file

that contains the following:

Where you have carried out an expression of interest (EOI) or a PQQ, all

documents including:

o the EOI responses;

o the PQQs and enquiries and answers;

o PQQ response for the successful supplier or contractor;

where a tender has been arranged, all tender documents including:

o the invitation to tender;

o the tender opening form;

o details of any advertisements;

o the tender response (original only needed) from the successful

contractor;

o the scoring documents;

o details of debriefs; and

o all letters to successful and unsuccessful tenderers;

the contract including specifications and delivery schedules;

any correspondence on service delivery, performance, action plans, recovery

plans, and management information; and



all correspondence relating to the contract including items, such as the contract

diary, minutes of meetings, telephone calls, amendments, price changes and

agreements.

11.5 Health and safety in goods and non-op service contracts

Health and safety in goods contracts relies mainly on the product being fit-for-

purpose and safe. It may also rely on your premises being safe to receive and store

the goods, and the contractors having the right equipment and trained staff to

safely deliver them.

Even in non-operational contracts, NRW must ensure that appropriate notice is

taken of any health and safety issues that may arise.

In non-operational contracts health and safety is usually dependant on the service

being offered and the place where the contract is being delivered.

Here are some examples.

In ICT contracts, there may be parts which affect the infrastructure and require

electrical appliances or hardware to be disconnected and reconnected. This

will require assurances that the staff doing the work are trained and certified to

an appropriate standard.

In a cleaning contract, contractors must follow COSHH regulations and the staff

delivering the service must be suitably trained. Any chemicals should be stored

and labeled in accordance with legislation – see OGB 15 – Using chemicals in

the forest.

In plant delivery contracts we need to make sure the correct equipment is used

for handling and delivery, and waste is disposed of correctly – see OGB 35 –

Waste Management.

For pesticides, we need to make sure products are properly labelled and that all

the health and safety, handling and storage instructions have been supplied to

our district teams.

For fencing materials, we need to make sure deliveries are made with the correct

equipment, the delivery does not block a road, and if the delivery is taking place

on an NRW site, the public are not at risk.

But again you need to assess the risk as we have discussed in Section 0.

If your specification was completed correctly and the goods and service being

supplied fit that specification then they should meet whatever safety standards are

the minimum for that product. If they are not, then you must take this up with your

contractors – see Section 0 (Parts 4&5).

The health and safety risks in some non-op service contracts may be a little higher

than others for example.

You may require a site specific risk assessment if the goods are being

delivered to areas, such as your computer suite or the canteen kitchens.

Also you will have to provide specific instructions to contractors delivering, for

example chemicals, pesticides or foodstuffs to get them delivered to the

appropriate store and not the main office reception.



11.6 Managing and monitoring the goods and non-op service contract

11.6.1 Monitoring delivery and quality

In this section we look at making sure that the actual contract delivery meets the

agreed standards, specification and prices. The ability to measure the performance

of the contractor and to provide feedback is critical to successful contract

management and contractor development.

You should have set out your key performance indicators either in the Information

Gathering & Approach template if your requirement is over the £25,000 tender

threshold or in your request to quote so that contractors are fully aware of the

requirements on performance, quality and delivery and how you will measure these.

You must make sure that all parties understand these performance measures and

how they will be measured. Once the contract is in place, you will then need to

monitor the contractor’s performance against these agreed measures. It is

important that the performance measures you selected show that you and the

contractor are getting what they expected from the contract and the relationship.

You should cover the following issues:

cost and value obtained;

the management information that you require;

performance indicators and customer satisfaction;

compliance with health and safety if needed;

delivery improvement and added value;

assessing a bidder’s ability to deliver what you require;

delivery to specification;

benefits realised; and

relationship strength and responsiveness.

It is important to make sure that the measures you put in place are in proportion to

the contract, and as far as possible you should achieve these if the contract is

performed properly. Do not view performance measures as a method of control,

but as a proactive way of improving the performance of the contractor.

There are a number of themes that you could use to measure contractor

performance.

Product Quality – for example in a goods contract, you could measure the

percentage of delivery rejects or warranty claims.

Service Quality – using Key Performance Indicators, for example delivery of

goods at a set time on specified dates. In ICT contracts, it could be

downtime and response times to fix.

Relationship Management – for example accessibility and responsiveness and

regular review of service, for example customer surveys.

Commercial – for example costs are maintained or reduced and service

improved.



There are three aspects to performance measurement.

1. Gathering factual, objective management information from the contractor

and monitoring them against an agreed baseline performance.

2. Gathering feedback from users about the service they receive and

monitoring responses to complaints or other issues.

3. Understanding the contractor’s own experience of dealing with NRW through

meetings, feedback and discussion.

Have clear processes to handle problems and resolve issues as quickly as possible.

Have an issue log and resolution process, with targets for responses and resolution.

Also make sure that your escalation policy is defined and only the most serious issues

are escalated to senior management for resolution.

It is much better to try and work with your contractor to find a resolution if possible,

rather than having to go down a more formal route such as notice of breach and

ultimately termination and we suggest you follow the process in Section 0 (Parts

4&5).

You should give regular and routine feedback to contractors on their

performance. You must also have formal performance reviews at regular

intervals. Make a record of these and any agreed improvement plans

where necessary.

It is important to realise that problems or issues on the contract may not always be

down to the contractor, and you should ask them about NRW’s performance and if,

or how, you can make any changes to improve service delivery.

12. Service Level Agreements

A service level agreement (SLA) is a mutual agreement between two parties where

one is the customer and the other is the service provider.

The SLA records a common understanding about services, priorities, responsibilities,

guarantees, and warranties. Each area of service should have the level of service

defined as a key statement in the agreement. The SLA may also specify the levels of

availability, service, performance, operation, or other attributes of the service, such

as billing. The level of service can also be specified as a target and minimum, which

allows customers to be told what to expect, while providing a measure that shows

the level of performance.

In some agreements, penalties may be agreed in case of non-compliance to the

SLA. It is important to note that the agreement relates to the services the customer

receives, and not how the service provider delivers that service.

SLAs commonly include sections to address:

the definition of services;

key performance measurement;

problem solving;



customer duties;

warranties;

disaster recovery; and

exit planning.

Service level agreements are, by their nature, output based i.e. the result of the

service received by the customer is the subject of the agreement.

The service provider can demonstrate their value by proving their initiative,

capability, and knowledge to deliver the service required, in an efficient and

sometimes innovative way.

You should monitor and manage SLAs through regular review and meetings. It is

important to make sure that these reviews and meetings are two way, and seek to

deliver the agreement set out at the start of the contract.



13. Price variations and break points

13.1 Price variations

Consult your Procurement Officer for advice

Contractors may ask for a price increase or decrease at any time throughout the

contract. All such requests must be sent to the Contract Manager and must be in

writing or you cannot consider them.

If you have agreed in your original contract that prices are fixed for an agreed

period, then you must not accept an increase within this period unless it is

exceptional, and then you need to send a Price Increase Reject Letter and keep a

copy in your contract file.

Consider any other price increases case-by-case, and make sure this is supported by

evidence from the contractor on why the price increase is necessary. The best way

to do this is to index link any increases and have an agreed review date at an

agreed fixed period, for example annual or biannually. You can use index linking as

a way of assessing the validity of a price increase relative to a known commodity

group or raw material index. Chemical and base material prices can often

influence the price of finished goods, and it is therefore reasonable to link the

movement in price of the finished goods to these indexes. Any index however, must

be relevant to the goods being supplied. In haulage contracts fuel, which is a major

cost driver, can be monitored in this way, giving piece of mind to the contractor that

reasonable adjustments can be made to support their delivery of the contract.

Even where a fixed price period has ended, it may be that the contractor might be

able to hold their prices for longer. Just because the contractor can ask for a price

increase at that stage does not mean that you should automatically grant one.

There should always be a justification for a price increase request as NRW may not

be able to pass that increase on, and may have to absorb it into its own costs.

You should issue a Price Increase Accept or Price Increase Reject letter depending

on your decision and keep a copy in your contract file.

There may be exceptional circumstances where it would be unreasonable for NRW

not to accept a price increase request, for example where something unforeseen

has occurred that has affected prices in the relevant market, and rejection would

only worsen the effect on the marketplace and the NRW’s operations would be

affected. In this case it is not reasonable to hold a contractor to their prices.

However, you should still ask the contractor to provide the necessary evidence to

support and justify their request for an increase. This only applies in exceptional

circumstances, and the contractor should agree in writing that if things change then

the pricing will be revised the other way.

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13.2 Break points


Where you have made a break point in your contract, you should consider at the

beginning of the process when you will decide on whether to end the contract or to

continue with it – this should be done well in advance of the actual break point. You

must state within your quotation or tender documents how you will decide this, and

you must follow this through.

Ideally, you should only activate break point clauses if you are dissatisfied with the

contractor and you have proved this through good contract management. If you

do activate a break point clause, you must make the contractor fully aware of why

you have done this, and it should not come as any great surprise.

If you want to activate a break clause, you should have made sure that the notice

period gives you enough time to set up a new contract for the goods or service and

enough lead time to allow a smooth transition.

There may however be other reasons for activating a break point clause, such as

reorganisation, or a change of requirement or lack of funding. These may be

unavoidable despite the good service being given by the contractor.

14. Contract closure and review

14.1 Contract closure

At the end of any contract it is important to have an exit plan, and in the case of ICT

and systems and other service contracts, an agreed handover plan.

In an ICT or systems contract, it is most likely that the service will continue, although

with a new contractor. It is essential that you make sure that you set out and agree

your exit and handover plan at the start of the contract. This would also apply to

contracts where you have stocks as you might want to ‘run down’ your stock from

one contractor before placing new orders.

You must complete a Contract Completion Certificate. This should state the

timescales within which the work was carried out and the final cost, and you

should keep a copy in your contract file for audit.

You need to file the contract completion certificate in the contract file. You should

then send the file to Finance for closure on the contract database.



14.2 Contract review

If you have an ongoing requirement, then it is likely that you will have to re-tender –

you could look at the procurement process as a continuous cycle, so you would

need to go right back to the processes at the start of OGB 3a.

Consider proper preparation and timescales here. You should have a trigger point

date in the contract management plan to make sure that the required time for a

new procurement exercise is understood. For major ICT or systems contracts the

lead time could be as much as two years from the trigger point date to the first day

of the new contract.

14.3 Lessons learned

For all contracts, it is useful to carry out a ‘lessons learned’ exercise and keep details

of this in the contract file for future reference, particularly when the contract is going

to be re-tendered.

As part of this lessons learned you should:

allow key staff involved to discuss all aspects of the contract;

allow staff to build upon the success and note the best aspects to use in the

future;

allow discussion about the things that were not so good or could have been

done better; and

discuss and agree what you would do differently next time.



Part 2 – Works and operational service contracts

15. Introduction to works and operational service contracts

In Section 4.1 we discussed the differences between contract types and said that:

Works and operational

service contracts

Service contracts are usually for a ‘forest operation’

run on the National Forest Estate, such as planting,

harvesting and fencing. Works contracts are usually

for construction or civil engineering work such as

building or maintaining the forest road network.

While most of the management processes and techniques are the same for works

and operational service contracts we recommend that if you are considering a

Works project you should consult your local estates and civil engineering colleagues

for advice, and also read OGB 40 Managing Construction. It also follows that if you

are a civil engineer or in estates and are considering a Works contract you must

consult widely with all interested parties as well as read OGB 40.

16. Contract related matters

In this section we briefly cover:

insurance;

health and safety legislation;

the Construction (Design and Management) Regulations;

gangmaster licensing; and

employing workers from overseas.

16.1 Insurance

In recent years insurance premiums have increased significantly and we need to be

proactive to make absolutely sure that contractors have the insurance required by

the terms of the contract.

16.1.1 Explanation of Employers Liability Insurance and Public Liability Insurance

There are three types of insurance that are particularly relevant to forest contractors:

Employers Liability Insurance (ELI);

Public Liability Insurance (PLI); and

Professional indemnity insurance.



16.1.2 Employers Liability Insurance

Most employers are required by law to insure against liability for injury or disease to

their employees arising out of their employment under the Employers’ Liability

(Compulsory Insurance) Act 1969. Employers must be insured for at least £5 million.

Insurers provide a Certificate of Insurance that states the minimum level of cover

provided and the companies covered by the policy.

The HSE enforces the law on employer’s liability insurance, and HSE Inspectors can

check whether companies have employer’s liability insurance with an approved

insurer for £5 million. If a contractor is self-employed or only employing close family

members, they do not need ELI.

HSE produce a free leaflet on this subject: http://www.hse.gov.uk/pubns/hse40.pdf


Public Liability Insurance (PLI) is for claims against the business by the public or other


However, it is included as a condition in all NRW contracts. Both types of contracts

require the contract holder to have public liability insurance for at least £5 million per

claim. There is scope to reduce this to £2 million if the contract is considered low risk

– see Table 4.

16.1.4 £5 Million or £2 million?

All contracts for service require the contract holder:

to comply with health and safety law, including the Employers’ Liability

(Compulsory Insurance) Act 1969;

to have £5 million public liability insurance (or £2 million if agreed); and


Current guidance is that NRW will require PLI with a minimum third party cover of £5

million per claim that may, at the discretion of the unit manager, be reduced to £2

million for lower risk activities, such as inventory, where no machinery will be used.

Your decision to reduce PLI cover from £5 million to £2 million should be based on

the level of risk the work poses to third parties. Not every situation can be covered,

but Table 4 gives you some guidance.

Table 4 Levels of insurance you need



£5 million is definitely

required.

All harvesting work.

All work where there is machinery or power tools

are used.

All work involving the use of pesticides.

Major building work.

http://www.hse.gov.uk/pubns/hse40.pdf




Major electrical work.


£2 million is acceptable. a) Low risk work such as:

inventory;

vegetation survey; and

warden services.

b) Where the industry standard is £2 million and NRW is

prepared to accept this, such as:

tyre replacement companies; and

low loader deliveries.

Note: If you engage a contractor to carry out low-loader work using the standard

haulage contract (Section 17.1) you must state the insurance cover in the Schedule,

if less than £5 million.

16.1.5 Insurance checks

Unit managers should carry out one annual exercise to obtain copies of their

contractors’ Employers Liability Insurance Certificate and Public Liability

Insurance Certificate for all live contracts at that time.

Note: The supplier must provide evidence of PLI at the time of contract creation, as

the Contracts Database cannot print a contract without a current PLI certificate.

16.2 Health and safety in managing contracts

16.2.1 The health and safety legislation

The health and safety legislation (criminal law) relevant to contract sites includes:

HASWA Section 2 which deals with employers' responsibilities to employees, e.g.

training, supervision, protective clothing. This would be relevant where an NRW

employee visits a contract worksite. Examples of possible offences under HASAWA

Section 2 include:

if an NRW employee is crushed by a tree as they approach a harvester

operated by a contractor to ask about placement of a urea bowser and

they had not been instructed on the correct way to approach working

machines.

HASWA Section 3 and MHSWR, Regulation 9 which deal with employers' duties to

persons not in their employment, e.g. other workers and members of the public.

HASWA Section 3 requires employers to conduct their undertaking in such a way as

to ensure, so far as is reasonably practicable, that persons not in their employment

who may be affected are not exposed to risks to their health and safety. Examples

of possible offences under HASWA Section 3 and MHSWR, Regulation 9 include:



a harvesting site is being worked jointly with NRW extraction and contract

felling. NRW forwarder operator is driving with vision obscured by a full bunk.

They injure a sub-contractor (chainsaw operator).

A decision in the House of Lords (known as The Octel Judgement) gave a strict

interpretation of HASWA Section 3. This decision has to be followed by all other

courts and has implications for NRW the management of service contracts.

HASWA Section 4 and MHSWR, Regulation 10 which deal with NRW's duty as a

controller of premises to non-employees using the premises as a place of work.

Examples of possible offences under HASWA Section 4 and MHSWR, Regulation 10

include:

NRW neglects to tell a contract holder that there are power lines across a site.

Their sub-contractor fells a tree onto the lines and is injured.

NRW neglects to tell a contractor that underground electric cables run along

the fence line. They strike the cable when digging the hole for a strainer and

are injured.

16.2.2 A framework for managing health and safety in forestry

The HSE have provided guidance to the forest industry on how to comply with health

and safety legislation when the work is done under the terms of ‘contracts of service

or employment’. HSE have introduced a framework, which they consider should be

used in the forestry industry to manage health and safety. The framework identifies

four roles in the contractual chain – see HSE Website. Each of the four roles has a

part to play in ensuring the health and safety of the operation. To do this, the HSE

have identified a range of tasks each role must fulfil.

The roles identified by HSE are:

Landowner The controller of land on which forestry works

takes place.

Forestry Works Manager (FWM) The commissioner of work on forestry site.

Contractor The provider of forestry service.

Sub-contractor Any person engaged by a contractor other

than by service employment.

16.3 The Construction (Design and Management) Regulations (CDM)

16.3.1 Background

A lot of construction and maintenance work takes place on the Natural Resources

Wales estate, including:

roads;

buildings;

trails and footpaths; and

http://www.hse.gov.uk/



bridges, dams, culverts and other structures.

Management of construction and maintenance work falls across a number of

disciplines in Natural Resources Wales, including civil engineering, land agents and

forest districts.

As well as general health and safety legislation such as the Health & Safety at Work

Act 1974 and the Working at Height Regulations 2005, there is specific legislation

covering construction work – in particular the Construction (Design & Management)

Regulations 2007. The CDM Regulations 2007 replaced the earlier CDM Regulations

of 1994.

Please read OGB 40 Managing Construction for more information.

16.4 Gangmaster licensing

Licensing is unlikely to be required for harvesting contracts as machinery is excluded

under Gangmasters Regulations 2010. You should however, have a good

understanding of our obligations as shown in OGB 3a and the monitoring process

below.

16.4.1 Contract Management – Monitoring license status

Monitoring

Subsequent monitoring of a contractor’s license status will be done through the

GLA’s Register for applications. This is called the ‘active check’ process. A unique

identification number is issued when a user logs onto the system for the first time.

Later, any changes to a contractor’s status are sent to the user’s address. Your

country manager will give you guidance on using this scheme.

Contract managers must monitor status using the ‘active check’ process for all

licensed contractors

We recommend that contract managers carry out monitoring each quarter.

NRW is not responsible for checking and monitoring sub-contractors. This is the

responsibility of the contract holder.

Breach of contract

A contractor will be considered to be in breach of contract if their licence is

revoked. If a licence is revoked without immediate effect, you may allow operations

to continue until we know the outcome of an appeal. The contract will be

terminated if the appeal is unsuccessful.

A contract must be terminated immediately when a contractor’s licence has

been revoked after an unsuccessful appeal.

16.4.2 Contractors

Contractors are responsible for complying with the law and licensing requirements.



Advising contractors

Explain NRW policy and this guide.

Encourage contractors to ask for advice from the GLA. The helpline for

contractors is 0845 602 50 20. The GLA website provides more information.

16.4.3 All media and trade enquiries

All media and trade enquiries should be directed to the GLA and copied to your

Unit Manager and Head of Procurement.

16.5 Employing workers from overseas

HSE have recently published guidance on employing workers from overseas, for

employers in agriculture and food processing:

http://www.hse.gov.uk/pubns/indg414.pdf?ebul=agric/issue06&cr=00

This guidance brings together information on:

1. Labour providers and users – this reflects guidance in managing health and

safety in a forestry framework, but provides additional guidance on the need

to consider language issues (spoken and written).

2. Risk assessment – emphasis on the need to take account of language issues

and competency in risk assessments by Forestry Work Managers (FWM) and

contractors.

3. Information, instruction and training.

4. Control measures – in forestry the controls are set out in AFAG Guides.

5. Record keeping.

For forestry, the main point from this guidance is that FWMs and contractors must

take account of language (spoken and written) in risk assessments and identify

suitable and sufficient control measures.

http://www.gla.gov.uk/

http://www.hse.gov.uk/pubns/indg414.pdf?ebul=agric/issue06&cr=00



17. Pre-commencement meetings for works and operational service contracts

17.1 The requirements


a pre-commencement meeting is held for all NRW Contracts where the level

of risk against any of the hazards on the Outline Risk Assessment is identified as

high; and

the pre-commencement meeting includes all aspects of work covered by the

contract, including forestry, construction and civil engineering – see OGB 40,

and haulage – see OGB 10.

Pre-commencement Meeting forms are produced through the Contract Database.

The forms also act as a useful record if your work is low risk and you only have a brief

meeting on the phone. Only complete the relevant parts.

17.2 The meeting

Pre-commencement meetings are an important part of forestry contract

management.

There are several reasons for holding such meetings:

as part of the duties incumbent on both NRW as ‘Landowner’ and ‘Forestry

Works Manager’ in fulfilling the requirements of HASWA;

for NRW as ‘Landowner’ and ‘Forestry Works Manager’ to make sure that

working methods meet all relevant safety, environmental and conservation

requirements; and

to minimise the likelihood of problems arising during the course of the

contract.

All contracts require some form of a pre-commencement meeting, this may be a

phone call or a brief meeting for low risk contracts, BUT if the level of risk against any

of the hazards on your outline risk assessment is medium or high then you must hold

a formal pre-commencement meeting.

All harvesting contracts and most forest management and construction contracts will

require a pre-commencement meeting. You do not need to complete all parts of

the form for all contracts.

Hold the pre-commencement meeting after the contract has been signed by both

parties, but before any work starts. Where the one contract contains several sites,

for example, fencing, it is enough to have a pre-commencement meeting at the

start of the contract.

Ideally, pre-commencement meetings should take place between the relevant

member of NRW staff and either the contract holder or a manager directly

employed by them. However, it is acceptable for the contractor who will actually

carry out the work to represent the contract holder, provided the contract holder

writes to confirm that they are authorised to for that contract.

The pre-commencement meetings will normally take place on the relevant work



site(s), and the results of the meeting must be recorded at the time on the contract

file.

An essential part of the pre-commencement meeting will be discussion of the

relevant site plan. You need to confirm that this discussion took place and note it in

the contract file.

Do not introduce any additional requirements or restrictions that are not in

the contract or schedules at your meeting. If it is not part of the contract,

you cannot ask them to do it.

18. Managing the works and operational service contract

18.1 Introduction

In this section we cover the things you must do and consider when you have a works

or an operational service contract.

18.2 Contract files

The contract file must contain or be cross-referenced to the procurement file

that contains the following:

where a tender has been arranged, all tender documents including:

o the invitation to tender;

o valuations and reserves for operational work;

o supporting schedules, maps and plans;

o the tenders received;

o the tender opening form;

o scores;

o details of all debriefs;

o details of any advertisements; and

o all letters to successful and unsuccessful tenderers.

the contract including schedules;

all correspondence relating to the contract including items such as the

contract diary, a record of any meetings, telephone calls, agreements;

a site plan (if applicable, including details of permitted access routes, any

hazards/constraints) or any other supplementary information provided to the

contractor;

the site safety rules and outline risk assessments;

a record of the pre-commencement meeting;

a copy of the contractor’s insurance certificate;

the completion certificate; and

CRoW authorisation for England and Wales.



Once a contract has been completed, the contract file must be returned to the

Procurement team in Aberystwyth Office so it can be closed on the database and

archived.

You can use a duplicate ‘Field File’ to enable ‘remote’ staff to record all

relevant issues. This file must be returned when the contract is complete

and added to the contract file before it is closed and archived. The

original contract file must not be used as a Field File’, it must stay in the

office all the time.


It is likely that for works and operational service contracts health and safety and

financial risks will be moderate to high, while reputational and technological risks will

probably be low, but you must consider each and monitor them throughout the

contract – see Figure 5.



Figure 5 Risk management chart for works and operational service contracts



You must decide how intensively you will need to manage your contract from the

start, and increase or decrease your management if risks change. Remember that

just because one contractor has passed your qualification tests does not mean they

are competent. Competence comes, amongst other things, with well-trained staff

and well-maintained machinery.

When monitoring contract progress, you must follow this process.

Carry out site visits or meetings.

Complete site diaries for every visit and file them.

Communicate regularly with the contract holder, both on site and by phone.

Monitor payments.

Monitor standards.

Record all changes and agreements.

Write to the contract holder if necessary to follow up any changes or

problems.

The chart in Figure 6 may help you.



Figure 6 Contract management flow for works and operational service contracts




Contract managers must follow the Contract Manager’s Checklist from the start

of each contract, keep it up to date during the contract and file a copy in the

contract file. A copy will be sent to you when you print a contract from the

Contracts Database


Works and Operational Service Contracts

= Yes

= No


2. All mutually agreed changes have a formal addendum or letters of agreement with

any supporting documents such as project or delivery plans and schedules agreed

and signed by both parties.

3. Work has been carried out within the specified time limits in the contract or during an

agreed extension.

4. Contract holders are formally notified of extensions in writing with specific reference to

the relevant contract.

5. Adequate insurance cover is in place at the start of any contract with a minimum Third

Party cover of £5 million per claim. The minimum cover may, for lower risk activities, be

reduced to £2 million with the unit manager’s authority; an example might be a

vegetation survey where the additional premium would make the task untenable.

6. For harvesting, haulage, and extraction contracts, a running record of dispatches is

maintained (usually in SRP the Sales Recording Package for haulage) in a format

containing the essential features.

7. All contracts for services are strictly and methodically controlled to make sure that

progress is acceptable and that the contractor is meeting the costs, terms, and

specifications of their contract.

Contracts are monitored regularly and interventions made quickly when remedies are

needed. All details of contract review meetings, site visits and contract progress are

held on the contract files. Record the full minutes of each meeting and the actions

and use them as a ‘live’ document through the life of the contract.

8. Payments to contractors are according to the contract specification, they are strictly

controlled, and they agree with the progress achieved at the time.

9. Payments are made under normal credit trading terms, or in accordance with any

special terms agreed by the unit manager.

10. Payments are only made when the work is completed to the specification – Section 0

(Parts 4&5) This may be the full contract quantity or an agreed portion of it. Please

refer to Money Matters Booklet No.6 – Expenditure: Policy and Practice.

11. Contracts between Natural Resources Wales and individuals or companies are treated

as confidential.

No information about the nature and value of the contract should be disclosed to

outside parties. Remember that Natural Resources Wales is subject to the Freedom of

Information Act and The Freedom of Information (Scotland) Act, and may be required

to disclose information to third parties if requested under these Acts.




Works and Operational Service Contracts

= Yes

= No

publication which require contract documents to be published on a public website.

12. All correspondence relating to contracts, tenders, or financial arrangements is marked

‘Protect - Commercial’ including in the subject line of relevant emails.

13. When all the work or supply is completed to a satisfactory standard as detailed in the

Schedule and is accepted by the Contract Manager, a Completion Certificate is

issued and held on file.

14. In Wales, has the contract file with completion certificate has been sent to Finance for

formal closure of the contract on the database?


Signed Date:

Checked and countersigned by Line or Unit Manager:

Signed Date:

Line managers (usually unit managers or district foresters) of staff who manage

contracts must check the contract file and countersign the Contracts Managers

Checklist on a sample of contracts (one contract for each relevant member of

staff every six months) See also Section 0.

18.4.1 Responsibilities in managing the health and safety in works and service contracts

In its roles as Landowner and FWM of service contracts NRW must manage

contracts for health and safety.

In the management of service contracts:

NRW Supervisors and contract managers must use the Site Visit Report to make sure

health and safety is managed correctly on their sites.

Here are their responsibilities

they should visit the site regularly (for example, once a week);

monitor health and safety by checking how the work is going against what

was planned, specified and agreed;

make sure that the site safety rules are being applied (AFAG Checklists do not

need to be completed by NRW on contractors or sub-contractors but NRW

Supervisors should use the site safety rules and AFAG Safety Guides to

highlight non-compliance);

maintain a diary as evidence of contract management. The diary record

should include:

o name of NRW supervisor;

o date and time of visit;



o name of people spoken to;

o brief description of work seen; and

o details of any breaches of site safety rules or AFAG Safety Guides

observed and action taken.

suspend operations if there is a risk of immediate serious personal injury;

write to the contract holder when they come across breaches of the Site

Safety Rules or significant breaches of AFAG Safety Guides. Occasionally

AFAG Safety Guides may not cover the operation. If there are no relevant

AFAG Safety Guides appropriate safety standards should be applied, for

example:

o Construction Industry Training Board (CITB) Publication PSN01 Safe

Operation of Plant and Equipment;

o Road Haulage of Round Wood Timber for haulage;

o HSE Publication AS7 Guns for firearms; and

o HSE Publication Agriculture Information Sheet 22 Gassing of Rabbits and

Vertebrate Pests for gassing rabbits;

ask the contract holder if they have completed AFAG Checklists on their

operations.

Unit managers or district foresters should monitor that NRW policy is being complied

with:

use the Contract Manager’s Checklist to checking compliance and contract

files; and

record reviews of files and site visits on contract files.

Country Staff – HMOs and FMOs, should monitor that NRW policy is being complied

with:

use the Contract Manager’s Checklist to check compliance; and

and check to see if unit managers and district foresters have carried out their

checks.

18.5 Health and safety in works and operational service contracts

NRW policy on managing forestry contracts is based on specific guidance from HSE

which we have adapted slightly for our contract work. This guidance is to the forest

industry on how to comply with health and safety legislation, when the work is done

under works and operational service contracts.

18.5.1 Applying the health and safety framework for works and service contracts

Works and Service Contracts are where NRW commissions work on a site, this could

be harvesting work or building work. On both work sites NRW will be the Landowner



and the FWM. In order to comply with the criminal law, NRW will perform the

Landowner and FWM tasks.

Examples of Service Contract work sites:

NRW enters into a contract with a forestry contractor to do all the work on the

site. This Contractor then engages sub-contractors to do some of the work,

for example, a forwarder operator and a chainsaw operator. NRW is the

FWM of this forestry site. NRW then sells the timber at roadside to a timber

purchaser and the timber purchaser engages a haulier. The NRW will be the

Landowner, the timber purchaser will be the FWM of haulage and the haulier

will be the contractor or sub-contractor.

NRW enters into a number of separate contracts with a forestry contractor,

forwarder operator and a haulier. Any of these contractors may then

engage a sub-contractor or sub-contractors to do some of the work, for

example, a chainsaw operator or another haulier.

NRW enters into a contract with a contractor to repair fences on five different

sites.

Landowner Tasks Achieved by:

Gathering information about hazards on and

in the vicinity of forestry work to be used in

the role of FWM. Includes:

preparing maps showing the location

of hazards such as OHPLs, windblow,

public access, terrain and disease in

the crop;

specifying routes of access and exit.

Site Planning

Pre-commencement

meetings

Co-ordination of activities of the overall

forest environment for health and safety.

Includes:

the timing or sequence of work in the

forest with regard to third parties, for

example, members of the public,

tenants or other contractors; and

informing relevant parties, such as,

people who have a right of access,

other contractors, and permission

holders, of activities in the forest.

Site Planning

Pre-commencement

Meetings

FASTCo/AFAG

Managing Public Safety on

Harvesting Sites Booklet

FWM Task Achieved by:

Using the hazard information from the site

plan prepare a risk assessment for the work

on the site to establish:

the equipment suitable for the terrain

and work;

FWM - Outline Risk Assessment

OGB 24: Health & Safety: Risk

Assessment.

FASTCo/AFAG Managing



the level of training and competence

needed to work the site safely;

the organisational and physical

measures to protect the health and

safety of people working on and

visiting the site; and

the organisational and physical

measures to protect the health and

safety of members of the public.

Public Safety on Harvesting

Sites Booklet

Pre-commencement

Meetings

FASTCo/AFAG Safety Guides

Specifying the health and safety measures

for contractors working on and visiting the

site by:

exchanging information about the

job with contractors and agreeing

their risk assessments for the work

(including control measures and safe

working practices) before work on

the site begins; and

ensuring the co-ordination of

contractor activities so that no one’s

health and safety is put at risk.

Site Safety Rules

OGB 24: Health and Safety:

Risk Assessment.

Pre-commencement

meetings

FASTCo/AFAG Managing

Public Safety on Harvesting

Sites Booklet

OGB 34: FASTCo/AFAG Safety

Guides/FC Safety Standards

AFAG Safety Guides

Monitoring health and safety by checking

and recording how the work is going

against:

what was planned;

what was specified; and

what was agreed.

Site visit reports or diaries –

see

Liaison with contractors

As the FWM NRW will expect the contractor to:

provide NRW with risk assessments for their work on the site. If the contractor

does not have written risk assessments and they employ fewer than 5 people

NRW should formally record the verbal risk assessments, for example by

recording the date, time and place of discussions on risks and the controls put

in place.

As the FWM, NRW will expect the contractor and their sub-contractors to:

work to the site safety rules specified by NRW;

follow NRW arrangements for co-ordination and co-operation with other

contractors;

apply the control measures agreed with NRW on the site;



alert NRW to changes in the agreed working methods;

alert NRW if the agreed control measures are proving insufficient and the risk

assessment for their work on the site has been revised or requires revision; and

report any RIDDOR reportable accident, disease or dangerous occurrence.

As the FWM NRW will expect the contractor and sub-contractors to:

manage their own health and safety by, for example:

o wearing and maintaining their own personal protective equipment; and

o making sure that any machines they own are properly guarded and

maintained.



19. Contract completion – your actions

19.1 Contract closure

You should complete a Contract Completion Certificate. The certificate should

state the timescales within which the work was carried out and the final cost, and

should be saved in your contract file for audit. This process is completed in the

database and also scores the contractors performance.

The contract file should then sent to the Procurement Team so the contract can be

closed on the database and then archived.

20. Contract review

It is important to think about what will happen once the contract comes to an end.

If you have an continuing requirement, then it is likely that you will have to re-tender

– you could look at the procurement process as a continuous cycle, so you would

need to go right back to the processes at the start of OGB 3a.

20.1 Lessons learned



to be re-tendered.

As part of this lessons learned you should:

allow key staff involved to discuss all aspects of the contract;

allow staff to build upon the success and note the best aspects to use in the

future;

allow discussion about the things that were not so good or could have been

done better; and

discuss and agree what you would do differently next time.

21. Updating other systems – SCDB

Please make sure your planning and estates department have all the information

they need from you to update the sub-compartment database, GIS and Deeds

Management System with information about:

areas felled;

areas and species planted or replanted;

standing volumes after thinning;

changes to road alignments or new roads; and

new or extended buildings.

Please talk to your planning department and refer to Section 11.10 in the Survey

Handbook for more information on updating GIS and the Sub-compartment

Database.



22. Price variations and break points

22.1 Price variations


Contractors may ask for a price increase or decrease at any time throughout the

contract. All such requests must be sent to the Contract Manager and must be in

writing or you cannot consider them.

If you have agreed in your original contract that prices are fixed for an agreed

period, then you must not accept an increase within this period unless it is

exceptional, and then you need to send a Price Increase Reject Letter and keep a

copy in your contract file.

Consider any other price increases case-by-case, and make sure this is supported by

evidence from the contractor on why the price increase is necessary. The best way

to do this is to index link any increases and have an agreed review date at an

agreed fixed period, for example annual or biannually. You can use index linking as

a way of assessing the validity of a price increase relative to a known commodity

group or raw material index. Chemical and base material prices can often

influence the price of finished goods, and it is therefore reasonable to link the

movement in price of the finished goods to these indexes. Any index however, must

be relevant to the goods being supplied. In haulage contracts fuel, which is a major

cost driver, can be monitored in this way, giving piece of mind to the contractor that

reasonable adjustments can be made to support their delivery of the contract.

Even where a fixed price period has ended, it may be that the contractor might be

able to hold their prices for longer. Just because the contractor can ask for a price

increase at that stage does not mean that you should automatically grant one.

There should always be a justification for a price increase request as NRW may not

be able to pass that increase on, and may have to absorb it into its own costs.

You should issue a Price Increase Accept or Price Increase Reject letter depending

on your decision and keep a copy in your contract file.

There may be exceptional circumstances where it would be unreasonable for NRW

not to accept a price increase request, for example where something unforeseen

has occurred that has affected prices in the relevant market, and rejection would

only worsen the effect on the marketplace and the NRW’s operations would be

affected. In this case it is not reasonable to hold a contractor to their prices.

However, you should still ask the contractor to provide the necessary evidence to

support and justify their request for an increase. This only applies in exceptional

circumstances, and the contractor should agree in writing that if things change then

the pricing will be revised the other way.



22.2 Break points


Where you have made a break point in your contract, you should consider at the

beginning of the process when you will decide on whether to end the contract or to

continue with it – this should be done well in advance of the actual break point. You

must state within your quotation or tender documents how you will decide this, and

you must follow this through.

Ideally, you should only activate break point clauses if you are dissatisfied with the

contractor and you have proved this through good contract management. If you

do activate a break point clause, you must make the contractor fully aware of why

you have done this, and it should not come as any great surprise.

If you want to activate a break clause, you should have made sure that the notice

period gives you enough time to set up a new contract for the goods or service and

enough lead time to allow a smooth transition.

There may however be other reasons for activating a break point clause, such as

reorganisation, or a change of requirement. These may be unavoidable despite the

good service being given by the contractor.



Part 3 – Timber sales contracts

23. Introduction to timber sales contracts

In Section 4 we discussed the differences between contract types and said that:

Timber sales contracts Set up through eSales and the Sales Recording

Package to sell timber produced as part of an

annual programme in a unit. Usually standing

or felled.

In this section we concentrate on managing standing sale contracts.

If you have roadside or delivered-in timber sale contracts please refer to OGB 10 –

Timber Transport for the responsibilities for FC staff, the timber buyer and their haulier.

You will also need to refer to OGB 8 – Timber Security for standing sale monitoring

and despatch procedures.

24. Contract matters

In this section we briefly cover:

insurance;

gangmaster licensing; and

employing workers from overseas.

24.1 Insurance for standing sales contracts

We need to be proactive to make sure that purchasers have the insurance required

by the terms of the Contract. Purchasers’ insurance must be checked – see Section

24.1.2.


Public Liability Insurance is for claims against the business by the public or other


However, it is included as a condition in all FC contracts. Both types of contracts

require the contract holder to have public liability insurance for at least £5 million per

claim.

All standing sales contracts require the contract holder:

to have £5 million Public Liability Insurance (or £2 million if agreed); and


24.1.2 Standing sales checks

Country office staff responsible for the customer (or district staff where





customers are managed by the district) must carry out one annual check and

obtain a copy of the insurance certificates:


Public Liability Insurance - £5 million.

The exception here will be where the timber purchaser provides evidence that his

contractors have:


Public Liability Insurance - £5 million (or £2 million if agreed).

Note: There is no requirement for the FC to seek evidence that contractors and sub-

contractors on standing sales have ELI or PLI. The fact that we have checked the

Timber Purchaser’s insurance and that there is an indemnity clause in the contract is

enough. In the same way, there is no need to check the insurance of our

contractors’ sub-contractors.

24.2 Gangmasters, and employing overseas workers

Licensing is unlikely to be required for harvesting contracts as machinery is excluded

under Gangmasters Regulations 2010. You should however, have a good

understanding of our obligations as shown in OGB 3a.

24.3 Pre-commencement meetings for standing sales contracts

Pre-commencement meetings are an important part of contract management for

standing sales contracts. They show that you have discussed all matters of safety

and the site with the purchaser or their agent and the forms act as a record for both

sides.

Pre-commencement Meeting forms are available electronically from our Forms

Intranet Page or as ‘pre-carboned’ pads that can be sent to management units

directly from Safety, Health and Environment if you ask. Use these forms as a record

your meeting. In Wales, these forms are produced through the Contract Database.

24.3.1 The requirements


a pre-commencement meeting is held for every standing sale following

agreement of the contract by both parties, but before any work starts.

24.3.2 Standing sales contracts

Pre-commencement meetings are an important part of forestry contract

management.

There are several reasons for holding these meetings.

As part of the duties incumbent on both NRW as ‘Landowner’ and the

purchaser as ‘Forestry Works Manager’ in fulfilling the requirements of the



Health & Safety at Work Act (HASWA).

For NRW as ‘Landowner’ to make sure that the purchaser’s proposed working

methods meet all relevant safety, environmental and conservation

requirements.

To confirm individual responsibilities (established by HSE) to minimise the

chance of problems arising during the sale because of a lack of mutual

understanding or knowledge between Natural Resources Wales and the

purchaser.

Ideally, pre-commencement meetings should take place between the relevant

member of staff and either the purchaser or a manager directly employed by the

purchaser. However, it is acceptable for the contractor who will actually carry out

the work to represent the contract holder, provided they have written authority.

The pre-commencement meetings will normally take place on the relevant work

sites, and the results of the meeting recorded at the time on the standard forms

At the end of the meeting make sure that both parties sign the forms, and that two

copies of each form are given to the purchaser. The format of the forms has been

agreed with the trade, and should be kept the same.

An essential part of the pre-commencement meeting will be discussion of the

relevant site plan. You need to confirm that this discussion took place and note it in

the appropriate part at the end of the final form.

Do not introduce any additional requirements or restrictions that are not in

the contract or schedules at your meeting. If it is not part of the contract,

you cannot ask them to do it.

25 Managing the standing sales contract

25.1 Introduction

We have designed this section to cover standing sales monitoring, including

managing health and safety.

Section 7.1 of OGB 3b covers the administration of sales contracts and refers, where

relevant, to the Sales Recording Package (SRP) and the various reports that are

available from the system.

You will manage felling progress through the Sales Recording Package (SRP).

25.2 Contract files

The contract file must contain or be cross-referenced to a file that contains the

following:

the contract including schedules.

all correspondence relating to the contract including items such as site visit

reports, the contract diary, a record of any meetings, telephone calls,

agreements.

a site plan (if applicable, including details of permitted access routes, any

hazards/constraints) or any other supplementary information provided to the



contract holder.

the site safety rules and outline risk assessments.

a record of the pre-commencement meeting.

a copy of the purchaser’s insurance certificate (see Section 0).

the completion certificate.

CRoW electronic map for England and Wales.

Remember that these are restricted documents and you must keep them safe and

secure.



You can use a duplicate ‘Field File’ to enable ‘remote’ staff to record all

relevant issues. This file must be returned when the contract is complete and

added to the contract file before it is closed and archived. The original

contract file must not be used as a Field File’, it must stay in the office all the

time.

The contract management chart in Figure 7 may help.



Figure 7 Contract management processes for standing sales contracts




In Section 0 (Part 1) we introduced the subject of managing contracts based on risk

and the six main types of risk.

It is likely that for standing sales contracts health and safety, reputational and

financial risks will be moderate to high, while technological risks will probably be low,

but you must consider each and monitor them throughout the contract – see Figure

8.

You will need to decide how intensively you need to manage your contract from

the start, or increase your management if risks change. Remember that one

standing sale purchaser with modern machinery and well trained staff, should pose

less of a risk to your contract than one that has lower standards.

Whatever you do, you must follow this process.

Carry out site visits or meetings.

Complete site diaries for every visit and file them.

Communicate regularly with the contract holder, both on site and by phone.

Monitor payments.

Monitor standards.

Record all changes and agreements.

Write to the contract holder if necessary to follow up any changes or

problems.




Figure 8 Risk management chart for standing sales contracts




Contract managers must complete the Contract Manager’s Checklist at the

start of each contract for every contract, keep it up to date during the contract

and file a copy in the contract file.


Standing Sales Contracts

= Yes

= No


2. All mutually agreed changes have a formal addendum or letters of agreement with

any supporting documents such as project or delivery plans and schedules agreed

and signed by both parties.

3. Work has been carried out within the specified time limits in the contract or during an

agreed extension.

4. Contract holders are formally notified of extensions in writing with specific reference to

the relevant contract.

5. Insurance cover is in place at the start of any contract with a minimum Third Party

cover of £5 million per claim.

6. A running record of dispatches is maintained in SRP( the Sales Recording Package)

7. All contracts are strictly and methodically controlled to make sure that progress is

acceptable and that the contractor is meeting the costs, terms, and specifications of

their contract.

Contracts are monitored regularly and interventions made quickly when remedies are

needed. All details of contract review meetings, site visits and contract progress are

held on the contract files. Record the full minutes of each meeting and the actions

and use them as a ‘live’ document through the life of the contract.

8. Payments by contract holders for standing sales are made on time and in advance of

progress.

9. Are payments made under normal credit trading terms unless the unit manager has

agreed special terms?

10. Contracts between Natural Resources Wales and individuals or companies are treated

as confidential.

No information about the nature and value of the contract should be disclosed to

outside parties. Remember that Natural Resources Wales is subject to the Freedom of

Information Act and The Freedom of Information (Scotland) Act, and may be required

to disclose information to third parties if requested under these Acts.

11. All correspondence relating to contracts, tenders, or financial arrangements is marked

‘Protect - Commercial’ including in the subject line of relevant emails.

12. When all the work or supply is completed to a satisfactory standard as detailed in the

Schedule and is accepted by the Contract Manager, a Completion Certificate is

issued and held on file.

13. In Wales, has the contract file with completion certificate has been sent to Finance for

formal closure of the contract on the database?


Signed Date:




Standing Sales Contracts

= Yes

= No

Checked and countersigned by Line or Unit Manager:

Signed Date:

Line managers (usually unit managers or district foresters)of staff who manage

contracts must check the contract file and countersign the Contracts Managers

Checklist on a sample of contracts (say one contract for each relevant member

of staff every six months) See also Section 25.6.

There is also an Audit Checklist for those carrying out support visits.



Responsibilities in managing health and safety in standing sales contracts

In its role as Landowner for Standing Sales, NRW must manage contracts for

health and safety.

In the management of standing sales: NRW supervisors should:

visit the site regularly (for example once a week);

monitor health and safety by checking how the work is going against the

contract;

maintain a diary as evidence of contract management. The diary record

should include:

o name of NRW supervisor;

o date and time of visit;

o names of people spoken to;

o brief description of the work seen, and issues discussed;

o details of any breaches of site safety rules/AFAG Safety Guides observed

and action taken.

suspend operations if there is a risk of immediate serious personal injury;

write to the contract holder (timber purchaser) when they come across

significant breaches of AFAG Safety Guides. Occasionally AFAG Safety

Guides may not cover the operation;

ask the contract holder (timber purchaser i.e. the FWM) for a copy of the site

safety rules; and

ask the contract holder (timber purchaser i.e. the FWM) for details of their site

supervision.

If the timber purchaser does not or is not willing to give NRW this information then the

forester must question whether they are complying with the HSE Guidance Note

Managing Health and Safety in Forestry and so with the terms of their contract. In

these instances, you should not allow the purchaser to start work and refer the

matter to your line manager.

And then:

write to the contract holder (timber purchaser) to say that you are very

concerned that compliance with AFAG Safety Guides does not appear to be

included as part of their site safety rules and that the breaches of AFAG

Safety Guides or significant breach of AFAG Safety Guide was not picked up

when the FWM was monitoring health and safety. Ask once more for:

o a copy of the outline risk assessment for all the work on the site;

o a copy of the site safety rules;

o details of the site safety co-ordinator;

o details of how they intend to monitor health and safety on the site; and

o if at this stage no information is received from the timber purchaser the

unit manager must refer the matter to the HMO and the Safety, Health

and Environment Officer.



Unit managers or district foresters will monitor that NRW policy is being complied

with:

use the Contract Managers Checklist to ensure compliance;

review NRW supervisor diaries at least every six months;

review NRW supervisor contract files or a sample of files at least every six

months. If warning letters are found this indicates that, although there is a

safety problem on site, it is being addressed. It is particularly important to visit

the site if no warning letters are found;

visit a number of standing sales sites to establish whether NRW supervisor

diaries and contract files are a reflection of safety on the sites; and

record reviews of files and site visits on contract files.

Country staff – HMOs, will monitor that NRW policy is being complied with:

use the Contract Managers Checklist to ensure compliance;

review a sample of NRW supervisor diaries and contract files at least every

two years;

establish if NRW supervisor contract files or a sample of files have been

reviewed by unit managers or district foresters in the last year;

establish if unit managers or district foresters have recorded reviews of files

and site visits on contract files in the last year; and

visit a number of standing sales sites to establish whether NRW supervisor

diaries and contract files are a reflection of safety on the sites.

Liaison with Forestry Works Manager

NRW will expect the Forestry Works Manager to inform them of:

any control measures identified by their or their contractor’s risk assessment

needing NRW co-operation;

any changes to working methods on the site that may affect the health and

safety of those in the wider forest environment; and

any failure of controls affecting members of the public or third parties, for

example, if cyclists are not observing existing diversions, information and

safety signs, and entering the worksite; or if tenants are not observing

diversions.

NRW will expect the Forestry Works Manager to provide them with:

a copy of the outline risk assessment for the work on the site;

a copy of the site safety rules; and

details of how they intend to monitor health and safety on the site.

The outline risk assessment, site safety rules and monitoring regime should include all

aspects of the sales contract, for example, forestry, haulage and, if appropriate, civil

engineering.



25.5 Health and safety in standing sales contracts

NRW policy on managing forestry contracts is based on specific guidance from HSE.

This guidance is to the forest industry on how to comply with health and safety

legislation, when the work is done under the terms of ‘timber purchase contracts’.

25.5.1 Applying the health and safety framework for standing sales

Timber sales are where NRW sells the timber standing to a timber purchaser who

then either:

commissions work on the site – for example:

to fell and extract standing timber and arrange to get it hauled.

works as a service on the site to fell and extract standing timber and arrange

to get it hauled.

The timber purchaser may as part of their undertaking, be required to construct

forest roads or forwarder tracks – see OGB 40 Section 8.2.10 and Construction FAQs –

“Who picks up the CDM Roles in a standing sale?” The construction of these roads

or tracks form part of the timber sales contract and must be managed in the same

way as the forestry work in the contract.

On standing sales sites NRW will be the landowner and, to comply with the criminal

law, will pick up the landowner tasks. The timber purchaser, as the commissioner of

work on the forestry worksite, will pick up the FWM tasks.

Landowner Tasks

Achieved by:

Gathering and passing on information to the

FWM about hazards on and in the vicinity of

forestry work. Includes:

preparing maps showing the location of

hazards such as OHPLs, windblow, public

access, terrain and disease in the crop;

and

specifying routes of access and exit.

Site Planning.

Pre-commencement Meetings.

FASTCo/AFAG Managing Pub.lic

Safety on Harvesting Sites

Booklet.

Co-ordination of activities of the overall forest

environment for health and safety. Includes:

the timing or sequence of work in the

forest with regard to third parties, for

example, members of the public, tenants

or other contractors; and

informing relevant parties, such as,

people who have a right of access, other

contractors, and permission holders of

activities in the forest.

Site Planning.


FASTCo/AFAG Public Safety on

Harvesting Sites Booklet.



Ensuring that activities of a particular worksite do

not affect the health and safety of others by:

considering the policies and procedures

for sub-contracting by the FWM;

agreeing with the FWM the measures and

arrangements to protect third party

safety before the work commences; and

monitoring the agreed measures.

Site Planning.


FASTCo/AFAG Managing Public


Booklet.

OGB19 Machine Certification

OGB 18 Chainsaws: use and

management.

Ensuring that activities of a particular worksite do

not affect the health and safety of others by:

considering the policies and procedures

for sub-contracting by the FWM;

agreeing with the FWM the measures and

arrangements to protect third party

safety before the work commences; and

monitoring the agreed measures.

Site Planning.


FASTCo/AFAG Managing Public


Booklet.

OGB19 Machine Certification.

OGB 18 Chainsaws: use and

management.

25.6 Monitoring the contract

You will:

use site visits to monitor the contract, including the management of health

and safety;

update progress using SRP;

monitor payments based on progress for standing sales;

discuss progress with the contract holder regularly;

keep your country office informed of anything that does not meet the terms

of the contract and follow their advice if things look as though they are going

wrong; and

record any instances of poor performance and the action you took in the

contract file.

For health and safety purposes, this should include the following.

A review of NRW supervisor diaries.

A review of NRW supervisor contract files. If you find warning letters this shows

that, although there is a safety problem on site, it is being addressed. It is

particularly important to visit the site if you do not find any warning letters.



Visit a number of standing sales sites to establish whether NRW supervisor

diaries and contract files are a true reflection of safety on those sites.

25.7 Contract extensions for standing sales

Where you need to make changes, you must use the formal addendum, agreed

and signed by both parties. Copies of letters, printed and signed emails, and any

verbal agreements should be kept in the contract file.

Keep a record of signed approval and justification for extensions on the

contract file. This may be a printed copy of an email.

25.7.1 Extensions to expiry date

Bearing in mind what we have said above, the contract manager should monitor

progress and liaise with the contract holder about contract completion. Either party

can ask for an extension. Keep extensions to a minimum, and never more that the

original term without approval from your Country Operations Teams. If you need an

extension, the contract manager should review contract progress with the contract

holder for issues like:

rate of uplift;

resource availability; and

projected profiles.

If you agree an extension, take all factors into account and be realistic.

Keep a record of approval and justification for extensions on the contract file.

25.7.2 Amending the quantity of work

Where you intend to extend or restrict the amount of timber available to a

purchaser under a roadside sale contract by + or – 10%, you must ask your Country

Operations Team.

26 Contract completion

Your contract has finished and you are satisfied with the outcome. There are still

things you have to do.

26.1.1 Contract closure

Never close a contract until all the produce has been dispatched; the site cleared

up and repaired if necessary to your satisfaction. This is when you are happy to take

the site back under your control.

Please refer to SRP User Guide – Post sale for information on completing contract

screens. You will also need to look at SRP User Guide – Reports for information on

printing reports for:



the end of contract;

in year progress; and

the end of year.

Make sure you have a Contract Completion Certificate and a copy of the

Completion Letter that you sent to the contractor when the contract was

completed. Keep copies on the contract file for the full retention period – see

Section 0 (Parts 4&5).

You will need to explain any differences in the actual volume or weight supplied and

the contracted volume or weight on the Completion Certificate for both Standing

and Roadside contracts. Do this if the differences are more than 10 % below or

above the contracted amount.

27 Contract review

It is important to think about what will happen once the contract comes to an end.



to be re-tendered. Operations Managers may want to be involved in this review as

part of their monitoring.

28 Updating other systems – SCDB and SRP

Please make sure your planning department has all the information it needs from

you to update the sub-compartment database and GIS with areas felled and

standing volumes after thinning. They will guide you on what they need and when,

or refer to Section 11.10 in the Survey Handbook.



Part 4 – Problem solving and changes

29. Changes, problem solving and termination

29.1 Changes within the contract


Some change is almost inevitable during a contract, particularly in the case of large,

complex contracts such as those for construction. This is not a cause for concern

but, if you manage the changes correctly, you are likely to improve the

performance of your contract.

It is important to understand the implication of change for all parties. Significant

changes will affect the scope and viability of the contract for either party, and may

also have an impact on our compliance with EU Procurement Directives. If in doubt

you must contact your Procurement Officer.

29.1.1 Change in requirements

In your quotation or tender documents you must make a genuine estimate of the

value and nature of the goods, services or works you will provide under the contract,

this will allow contractors to provide you with realistic bids for the work required, and

will also help you plan for and identify risks.

Where there are changes to your requirements, you must consider how fundamental

these are to the scope of the contract, and whether they are likely to have

changed the outcome of the contract award process.

If the fundamental requirements of the contract remain unchanged, then you can

discuss the proposed changes with the contractor and make sure that they agree,

and you should then send a Variation Letter to them confirming the change.

Remember to make the relevant changes to the contract database, guidance on

creating addendums can be found in the Contracts Database manual.

If the required amendments would fundamentally change the requirements as set

out in your quotation or tender documents you may need to re-tender the contract,

and should ask your Procurement Officer for advice.

For works, goods and service contracts, any amendments to change the value of a

contract must not exceed 10%, except in exceptional circumstances, unforeseen

events or emergencies etc.

This does not apply to standing sales contracts and you should refer to your Country

Guidance for specific policy.

If you do not adhere to these requirements, you may be in breach of EU

Procurement Regulations and could face a legal challenge.

29.1.2 Contract extensions for goods, works and Service contracts

You should monitor progress and liaise with the contractor about contract

completion. Either party can ask for an extension, but only agree an extension if

there is a genuine need to do so, such as where the planned work has not been



completed in the original timescale, due to external factors that are not within the

contractors or NRW’s control, but must be completed. You cannot use extensions as

a substitute for poor planning. Please also read Section 25.7 (Part 3) for Timber Sales

Contracts.

With the exception of timber sales contracts, you can only extend a contract if you

have made provisions within your quotation or tender documents to do so; you must

have stated that there will be an extension option. This could be stated as a

monetary value or time. If you have not made these provisions or have already

used the provisions stated, you cannot extend further.

When deciding on whether to extend a contract, you must consider the contract

delivery aspect of the contract and whether the contractor is meeting their

obligations. It is important that the obligations are stated in the contract and

measured and monitor through the contract period.

You are unlikely to want to extend a contract with a contractor who is not

performing well.

You must make sure that you allow enough time to consider extensions, to make

sure that you are not left in a situation where you are unable to extend, and are

then left with no contract.

If you want to extend your contract, this is done by addendums via the Contracts

Database. The addendum should be agreed with the contractor to make sure that

they are able to accept the extension as provided for in the contract. You must

keep this in your contract file and record your justification for the extension.

Often a contractor will ask for a price increase at the time of being notified of the

contract extensions – these must be dealt with like any other Price Variation request

– Section 22.

29.2 Handling disputes and unfulfilled obligations


When handling disputes and unfulfilled obligations you should try to resolve issues as

quickly as possible. It is best to try and work with your contractor on a resolution if

possible, rather than having to go down a more formal route such as termination.

We suggest you follow process in Figure 9.



Figure 9 Handling problems, disagreements and disputes



29.3 Minor discrepancies and errors

We must be realistic; all contracts have minor problems that might technically be a

breach of contract, but can easily be dealt with by talking to the contract holder. A

few diplomatic words will often be enough to put things right with contractors. Just

remember to note it in your site visit report and file it in the contract file. Don’t revert

to the law when just talking may put things right!

29.4 Actions to take on breach of contract


When the action offered above fails to do the trick, you must take a more formal

approach. Breaches can be broken down into:

Material, Remedial – ‘Something not done that can be rectified;’

Persistent, Material, Remedial – ‘Repeatedly not doing something that can be

rectified;’

Material Irremediable,– ‘Something not done that cannot be rectified’.

The advice we give you here is for Material, Remedial Breaches which are the ones

that you are more likely to encounter:

Breaches associated with health and safety can be very serious, for example breach

of the two tree length rule, and require immediate action. Other than this, health

and safety breaches will fall into the categories set out here.

In addition to the following sections, please liaise with your Procurement Officer for

specific policy on dealing with breaches of contract as there may be other policies

in place such as ‘one warning then suspension of PIN issue’.

29.4.1 First material breach

A first minor breach in relation to any individual contract should result in a verbal

warning to the contract holder. Minor breaches can be dealt with by the unit

manager. It is not possible to create an exhaustive list of possible breaches and you

will have to use your professional judgement in what action to take.

If you give a contractor a verbal warning, then you must make a note on the

contract file. Follow up the warning to make sure that they put the breach right and

then amend the file note accordingly.

29.4.2 Repeated material breach

A repeated minor breach by any contractor should result in a warning letter being

sent to the contract holder. The letter (in consultation with your Procurement

Officer) should indicate that any further breach will result in a request to ban the

contractor or their sub-contractors or the drivers or a ban on the company, from

working the contract, for a stated period, or suspension of the contract.



29.4.3 Persistent material breach

A further repetition of a minor breach by an individual contractor should result in an

appropriate ban approved by your Procurement Officer just for that contract.

Where a company is involved in more than one incident of a minor nature on the

same contract, Head of Procurement may decide that no further bids for work will

be accepted from it for some time. A clear reason for the action, and duration of

the ban, will be recorded in the contract file. Such bans should not normally be

imposed unless the company or individual has been warned about the possible

consequences of repeated breaches.

29.4.4 Irremediable or serious breaches

Serious breaches of contract other than theft should in the first instance be brought

to the attention of your Procurement Officer as they may result in termination or

suspension. Such termination can be for an individual or company from a defined

contract and will be for an appropriate length of time that reflects the seriousness of

the breach.

Any instances of suspected theft should follow the procedures laid down in OGB 8

Timber Security

Take action through the contract where you identify a breach of safety or the

requirements of the contract.

It is important that you work with the contractor and discuss what is wrong and how

it can be put right when dealing with a breach of contract. Good communication is

essential if things are not going to plan.

29.4.5 Termination

If a contractor has failed to fulfil their obligations for the contract, and the dispute

resolution process shown in Figure 9 and the guidance in this Section has not

resolved your problem, you may have to terminate the contract. You will need to

assess the severity of the failure and the cost to NRW. If you believe that you have

grounds to terminate the contract you must contact your Procurement Officer for

advice and authorisation and read Section 0.

Remember, it is essential that you keep clear written evidence of the process you

have gone through and keep records of all correspondence. You must keep this on

the contract file.



Part 5 – Financial control and records

30. Introduction – eFinancials

NRW, like all businesses, must record and monitor financial income and expenditure

transactions both for business and legal purposes, and eFinancials accounting

software helps us to properly manage the finances of our business. It helps

managers, by making sure that a formal financial management system is operated

across NRW. This system supports the general objective of monitoring the regularity

and correctness of our financial dealings and achieves the business and legal

requirements of recording our financial transactions.

30.1 Background

Unless otherwise agreed in writing by the purchaser, the contractor will provide a

separate invoice for each consignment or section of work delivered under the

contract. Payment will be due 30 days after receipt of the goods, services or works

concerned or receipt of the correct invoice, whichever is the later. The invoice

should clearly show the Contract Reference Number on it.

Value Added Tax (VAT), where it applies, must be shown separately on all invoices

as a net extra charge.

30.2 Invoice payment and control

Guidance on actual payments is included in Money Matters Booklet No.6

Expenditure: Policy and Practice. However, the following provides a summary of the

procedures for dealing with invoices:

date stamp and initial all invoices with the date of receipt into the

department and show the correct accounting action;

check the invoice to make sure that it is arithmetically correct;

check the quantities contained on the invoice to make sure that they

correspond with the signed goods received note where there is one;

check the prices contained on the invoice to make sure that they agree with

the contract prices contained either on the purchase order or the price

schedule, and that any discounts agreed on the purchase have been

applied; and

check any VAT the contractor may charge matches the purchase and has

been charged at the correct rate.

Staff with the relevant delegated authority are asked to check, date, sign and write

on the invoices ‘Passed for Payment’ before passing to their finance department,

who will then process the invoice for payment in accordance with the guidance in

Section 5.2 of Money Matters Booklet No.6 Expenditure: Policy and Practice.



30.3 Prompt payment to contractors

NRW is committed to paying its contractors on time. Our Conditions of Contract

specify that payments will be made within 30 days of receipt of goods or services, or

a correct invoice, whichever is later. We aim to pay invoices within 10 days to meet

recent Government targets, but these are not the standard terms for payment, only

a target to aim for.

Stage and instalment payments

In general, we should act reasonably and only hold back what is agreed in the

terms of the contract – see Section 0. In the case of stage or instalment payments,

we should aim to make sure that stages represent a tangible, or at least measurable,

achievement (for example part delivery) while still making sure that the correct

proportion of the payment is linked to satisfactory completion.

30.3.1 Payment retention

You should adopt a payment retention system when:

there is a time delay before quality and quantity can be fully assessed, for

example, certain chemical spraying or timber production operations; or

services are supplied by a contractor with an unproven track record.

30.3.2 Payments in advance

Payment in advance entails greater risk passing to the purchaser, and it is NRW

policy that payments for goods and services are not made in advance, except in

exceptional circumstances, for example the offer of early payment discount, which

should be covered by appropriate contractual agreements.

You will also have to agree this in advance with your Finance Team. Do not enter a

contract specifying advance payment without first contacting your Procurement

Officer for authorisation.

Before you consider advance payment, you must make sure of the financial

soundness of the contractor and undertake a thorough risk analysis – it is likely that

your Procurement Officer will provide you with additional financial questions that

you will have to ask at the PQQ or ITT stage and they will help you evaluate this.

Note that for standing sale timber contracts, the customer must pay in advance of

felling.

30.4 Monitoring contract value and credit limits

You must monitor the amount of money being spent as a result of the contract, and

always bear in mind the original estimated value of the contract. This will allow you

to identify well in advance whether the contract is likely to exceed its estimated

value.

If the contract does exceed its estimated value, then you could be challenged. As

a rule, if the contract value is going to increase by more than 10% of what was

estimated, you must not continue to use the contract and you will need to re-tender

it. The Contracts Database monitors contract value and notifies the contract

manager when they are reaching the full contract value – please remember that

this does not remove your responsibility as contract manager for monitoring and



managing the contract yourself.

If you have a contract that this may apply to, contact your Procurement Officer as

soon as possible.

31. Record keeping and archiving

You should ensure that a record of all contracts and related transactions is kept on

registered files. The files must contain a complete and accurate record of all internal

and external documents so that the stages and reasoning for the transactions are

clear. Such accurate and authentic record keeping will make sure that there is an

adequate audit trail.

The number of documents generated by different types of contract will vary,

however it will usually consist of some or all of the following in addition to the ones

you should already have filed in your contract file:

conditions of contract;

contractor’s proposal;

evaluation criteria and report;

specification;

schedule of works;

drawings;

regulations (for example health and safety);

bills of quantity;

surveys;

final accounts;

certificates, such as test, authorising payments and fire;

minutes and papers of meetings;

claims and variations; and

signed contract.

Many contractual records need to be retained for six years after the end of the

contract for the majority of contractual records, while it will be shorter for many.

Table 5 Schedule of contractual records

Type Description Disposal

(maximum period)

Policy Matters Policy on contracts, normally

contained in a separate registered file

series.

At second review.

Contractual

Records

Records and documents relating to

contracts worth less than £5,000.

Destroy after 2 years

from end of contract.


goods contracts worth more than

Follow timescales for

PQQ or tendering given



Type Description Disposal

(maximum period)

£5,000. below.


services contracts worth more than

£5,000.

Destroy after 2 years

following payment of

the last invoice.


contracts for periods of more than 10

years.

Assess records after 5

years; those retained to

be re-assessed 5 years

later.

Initial Proposal Information, gathering and approach. 6 years.

Draft specification. Destroy when

specification has been

agreed.

Agreed specification. 6 years from end of

contract.

Invitation to

Quote-Written

and Verbal

Follow timescales given below for

tendering.

Pre-

Qualification

Questionnaire

Follow timescales given below for

tendering.

Tendering Invitation to tender. 6 years from end of

contract.

Unsuccessful tender documents. 1 year after date of last

paper.

Successful tender documents. 6 years from award of

contract.

Background information. 1 year after date of last

paper.

Tender panel-report and notes of

proceedings.

1 year from end of

contract.

Intent to Award letter. 1 year from end of

contract.

Award letter. 6 years from end of

contract.

Amendments to

Contracts

Changes to requirements. 6 years from end of

contract.

Forms of variation. 6 years from end of

contract.

Extensions to contract. 6 years from end of

contract.



31.1 Archiving contracts

Table 6 shows the timescales for retaining certain types of contract.

The start of the retention period is from the date the contract is Completed or

Terminated.

All archiving is done by the Finance Team and closed contracts are sent to National

Office, Aberystwyth when complete.

All documents, whether printed or electronic must be fully traceable and those that

are signed by a customer, are key documents, and you must keep printed copies.

Key documents are:

signed contracts;

signed variations to contracts; and

signed contract extensions.

Table 6 Retention times for contract types

Type of Contract Retention

Period (years)

Electronic

Retention?

Key signed

documents

e-Sales 7 Y – in SRP n/a

Long Term Sales

(SRP)

6 Y – in SRP n/a

Short term (annual)

Sales (SRP)

6 Y – in SRP n/a

Short term (annual)

Sales (Manuscript)

6 Yes, but probably

key

Y

Service contracts 6 Yes, but probably

key

Y

Supply of goods 6 Yes, but probably

key

Y

Works contract 6 Yes, but probably

key

Y

Longer retention periods may apply for archived contracts where they have

been externally funded through partnerships. You should check the terms of

any partnership or funding agreement, to confirm this.

32. Supporting documents

All the supporting documents that you need to use will be sent to you when you print

a contract from the contract database. If you require copies please contact the

Procurement Team in Aberystwyth

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