Commercial Excellence
Commercial Audit Framework
Published in November 2016 by the NAO, Commercial and
contract management: insights and emerging best practice
draws on their audits of government contracts. It contains
the following 7 Key judgements for commercial
relationships:
Adapted from Commercial and contract management: insights and emerging best practice, ©National Audit Office, 2016
The NAO Commercial Audit Framework contained in the
document consists of a series of questions that enable
organisations to evaluate their commercial capability under
each of its 7 components/headings. These questions have
been adapted in the following text to align with the set text’s
Commercial Management Framework and to apply to both
buyers and suppliers.
1. Commercial strategy (Intent Stage)
Is there an overarching commercial strategy, with a clear
rationale and linkage to organisational strategy, and which
targets VFM(buyer)/ROI (supplier)?
1.1 Is there a clear and consistently held view of what the
contract is producing/delivering, the type of commercial
relationship desired, the basic contract structure and how it
will be managed?
1.2 Has there been an assessment of strategic drivers,
including policy drivers/commercial impetus, and the
internal and external environment?
1.3 Has the commercial strategy been based upon the
assessment of strategic drivers/commercial impetus and
the internal and external environment?
2. Commercial capability (Intent/Deal Creation/Execution
Stages)
Does the entity [buyer (organisation/business
unit/department) or supplier (contractor)] have the
commercial capability needed to manage the contract and is it
developing capability for the future?
2.1 Does the entity have the necessary commercial
capability, skills and systems?
2.2 Does the entity understand its future needs and is it
working towards meeting them?
2.3 Has the entity deployed its commercial capability in a
balanced way across the contract lifecycle and is
commercial capability effectively integrated within the
business?
3. Market management & sourcing/procurement
(Intent/Deal Creation Stages)
Has procurement/sales supported the commercial strategy
and followed recognised good practice to optimise VFM/ROI?
3.1 Has market management/customer relationship
management driven long term value for money/ROI?
3.2 Was there a defensible process that resulted in the
selection of a capable provider/advantageous opportunity?
3.3 Was there optimum use of competitive advantage to
attain commercial affinity?
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 Commercial Excellence
Commercial Audit Framework
4. Contract approach (Intent/Deal Creation Stages)
Has the contract set up risk and reward dynamics that will
encourage the parties to delivery on their commitments,
minimise perverse incentives/opportunistic behaviour and
promote good relationships?
4.1 Is there an appropriate allocation of risk between the
buyer and supplier?
4.2 Are there incentives to encourage the supplier to act in
the interest of the buyer?
4.3 Are suitable mechanisms established to drive the
desired relationship?
5. Contract management (Execution Stage)
Is the contract being managed well, with costs and
benefits/ROI being realised as expected?
5.1 Does the buyer and supplier have comprehensive
knowledge of service/delivery performance?
5.2 Is the supplier providing a service/capability/asset in
accordance with the contract and are they actively
managed by the buyer to meet or exceed requirements?
5.3 Is the buyer meeting its obligations?
6. Contract lifecycle (Execution Stage)
Adapted from Commercial and contract management: insights and emerging best practice, ©National Audit Office, 2016
Is the contract delivering value for money/ROI and will it
continue to do so through its lifecycle?
6.1 Does the contract continue to support the entity’s
strategic intent?
6.2 Are appropriate mechanisms used to ensure the
contract continues to deliver VFM/ROI over its life?
6.3 Is change controlled/recorded and well
managed/appropriately valued and does the contract
remain current?
7. Termination and transition (Execution Stage)
Is the buyer (commissioner) ready to move into a new
contract/Is the supplier ready to take on follow-on business,
re-bid or handover?
7.1 Has market management been undertaken to support
new contracts/Has customer relationship management
been undertaken to support follow-on business or re-bid?
7.2 Has the end of the contract been managed efficiently
and effectively to allow follow-on business, re-bid or
handover?
7.3 Are insights from the operation of the contract brought
to bear in developing the new contract/follow-on or new
business?
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