Contract Management: Shifting Models & Saving Money

I joined the Moranbah Airport team not long after it opened its new terminal and introduced two major operational contracts - one for airport management and the other for airport security.  

Without being too critical of the work that preceded me, let’s just say that the scopes of these contracts were a mixture of complex-consultant-drafted, techno-speak and standardised mining services requirements that had little applicability under civil aviation legislation or in airport operations, generally. These contracts also missed out on cleaning and grounds-keeping requirements and clashed with standard asset maintenance processes mandated elsewhere in the organisation.

Probably the biggest issue with the contracts were that they were set up for growth but by the end of the first year of their three-year term, the mining sector in Queensland had stopped growing and was about to enter into a very tough period. 

Contract Management as a Discipline

Managing an airport requires a certain set of skills and knowledge but managing a contract that includes managing an airport requires quite a different approach. While I took the personal angle of being a hands-on airport superintendent, when it came to making things happen and discussing issues, I had to use the language and the processes found in the contracts.  

Issues surrounding performance and compliance were uncovered in a relatively standard way under the airport’s Safety Management System but corrective actions had to be translated into contract performance and breach language to effect change. While going through these motions seemed overly officious and impersonal at times, it did establish a clearer understand of the reality of the relationship between the airport owner and the contractor. 

The Downturn

In the second half of 2013, mining was definitely on a downward trajectory and my organisation’s business model had to change. Operationally, the airport went from nearly 300,000 passengers per year to as low as 140,000 pax per year. Flying operations moved towards peaks and we lost a great deal of the efficiency that came through the previously significant and consistent flow of passengers.

The effect on the airport was threefold:

  • obviously, our passenger revenue and other traffic dependent revenues decreased

  • as part of a larger mining business, there was pressure to reduce to costs and an airport is not a mining revenue centre

  • as mentioned above, the existing contracts were designed for growth and based on ill-defined scopes of work and a high-price tag

My organisation commenced a significant program to reduce costs. Every part of the business was examined with ambitious targets set and an appropriate culture of urgency introduced. This wasn’t a program of slash and burn but rather, a persistent environment of asking why on everything we did with a clear cost-per-tonne goal in everyone’s mind.

Shifting Gears

Airport Management Capability

I’ve blogged on outsourcing airport operations before and in that article, I identify that some contracting companies simply hire their aerodrome capability to suit the contract. This was the case here. The airport management team were capable but beyond them, there was little support in the technical knowledge and skill required to run an airport. I saw this as an opportunity to save money through direct employment.

By increasing the in-house airport management team, I could not only save money on the corporate overhead that existed, I could also increase the resilience of my organisation’s airport capability, give the team a higher level of security, pay them better and increase loyalty to a greater depth at the airport.

Contractor Workforce

The bulk of the workforce would remain contractors. The market was much too volatile and we still needed flexibility should the airport operations continue to change.

I did, however, take the opportunity to fundamentally amend the contract scopes. The existing scopes were somewhat outcome focussed, which would normally be good, but not in the same way that the business was used to. Unfortunately, moving people through an airport is not the same as moving dirt or coal.

Using the previous three years, I had a very good understanding of what work was being carried out on site. In the previous year, I had introduced work menus and this provided a great source of data on the work activities and work times. It also gave me an opportunity to look for synergies in particular work activities, especially around grounds-keeping and habitat management.

As such, I decided to shift to a personnel-based contract. The contractor would provide my organisation with a set number of people, holding set qualifications, ready to work set hours and provided with basic requirements (clothes, etc.) and we would provide the rest. The plant, tools, equipment, vehicles, procedures and facilities were provided by my organisation as it had established procurement and maintenance arrangements in the area.

Getting Approval

While saving money was a significant objective, changes such as this had to be vetted and analysed and approved. Thanks again to the operational modelling I had completed using real-world airport experience, the financial modelling required to satisfy my management was relatively easy to develop. The introduction of additional employees at the airport increase the level of scrutiny. Such an experience can be frustrating and exhausting but the benefit is a high-level of confidence in the approach when the contracts finally go to tender.

Tenders & Negotiations

Using the organisation’s standard tendering process, multiple parties engaged in the process. Being the person who drafted the contract scopes allowed me to assist these parties in understanding what we were looking to get on award of the contract. I quickly saw how the previous contract situation had developed. If there is a distance between the contract scope development and the tender process, confusion and misunderstanding can be introduced easily.

Once proposals had been received and the tender closed, we set about the two step process of assessing each proposal. The first step was to assess the capability of the contractor to provide the service. This was carried out against pre-arranged criteria and without reference to the price schedule. After all organisations had been assessed, only the pricing for those contractors that met the minimum standard were reviewed.

After this, we entered into negotiations with all phase two contractors and eventually with the front-runners before settling on a preferred contractor. Final contractual negotiations were then finalised before announcing the award.

Transition

Unfortunately for the incumbent contractor, they were not awarded the new contracts. As such, we entered a complex transition period. With the shift in airport management approach, a great deal of work had to be completed to ensure that my organisation was ready to assume the greater level of responsibility required. This meant developing procedures, hiring staff and purchasing equipment while onboarding two new contractors and ensure the existing contractor continued to fulfil their obligations.

The Result

To the bottom line, the new contracts saw a reduction in operating costs of approximately 40%. This included the costs that were shifted internally.

Above this, the airport moved into a new phase with an almost instantaneous shift in culture and teamwork. The clarity provided by the new contracts allowed people to get on with the jobs. We introduced traineeships to develop local residents and we increased the level of support for the frontline team in terms of equipment, guidance and training.