Posted on July 20, 2021 by Matthew Rees
The NAO’s good practice guide for managing the commercial lifecycle
The government’s response to the COVID-19 global pandemic has drawn renewed, and possibly unprecedented, attention to public procurement and commercial practice in government.
Our aim at the NAO is to provide an independent and evidence-based perspective, on how public authorities can achieve better outcomes and value for money throughout their commercial activities.
Through our value for money studies programme we have reported on procurement during the pandemic, the supply of PPE, availability of ventilators and preparations for COVID-19 vaccines. We have reported twice on Test and Trace – in an interim report and a progress update as well as the procurement of the free school meals voucher scheme. We have also kept track of the estimated cost of government measures in response to the pandemic, via the COVID-19 cost tracker which currently registers £372 billion.
Given that over £200 billion of UK taxpayers’ money is spent every year on the purchase of goods and services (and this excludes capital expenditure), it is right that attention is focused consistently on commercial activity. The diagram below shows the distribution of this expenditure by department in one financial year.
Annual expenditure on goods and services by government department (£ billion):
Enhancing our good practice guidance
Over the last couple of months we have engaged with government departments, local authorities, professional bodies, commercial experts and our colleagues to consider how to improve the NAO’s existing commercial guidance and we have listened carefully to helpful advice and suggestions. We have also reviewed the revised guidance issued by the government commercial function and discussed the government’s plans for amendments to domestic legislation.
Our conclusions and recommendations to government that support improved performance in procurement have featured in some 209 reports examining 350 contractual arrangements published throughout the last 20 years. Alongside our good practice guide we have also published a complete list of past reports, noting that many of the findings are applicable to the wider public sector
Our good practice guide draws on all these valuable sources of insight and practice, and it is intended to support public bodies prepare proactively for future procurements. It will help practitioners understand and effectively manage all elements of the commercial lifecycle, and will support senior leaders with governance responsibilities in asking the right questions about commercial activity in their organisations.
We have presented it in 10 sections as illustrated in the diagram below.
- Four strategic sections highlight the elements that support good commercial outcomes: commercial strategy, capability, accountability & governance, transparency & data.
- Six procedural stages address the end-to-end commercial lifecycle, starting with the identification of a requirement; choice of sourcing approach; market monitoring; process and agreement; contract management; and review, transition and exit.
Each of the ten sections contains a description, lists our expectations of good practice, supported by our extensive evidence base, and highlights what needs to improve. In addition, the guide contains useful way to find a wide range of relevant guidance issued by the government commercial function and professional practice.
Good practice guide for managing the commercial lifecycle
Our good practice guide also contains 20 case studies summarising the NAO’s findings from published reports. In the ‘commercial capability’ section we refer to our report on Managing the HMRC estate and outline how government negotiated improved cost transparency with its supplier. In this and other case studies in the guide we aim to bring our expectation of good practice to life.
This guidance is essential reading for policy and commercial staff involved at all levels of public procurement and commercial activities, including senior leaders and non-executive board members of public authorities. It complements our continuing programme of reviews to scrutinise public procurement and commercial activity across government.
In the coming months we will publish a series of blogs focussing on individual stages of the commercial lifecycle, and drawing out our findings and expectations for good practice. We hope to engage with as many of you as possible as we discuss this renewed interest in procurement and collaborate with colleagues across government and other organisations to embed good practice in procurement that will drive good outcomes for taxpayers and the public as a whole.
The good practice guide for manging the commercial lifecycle is published on the NAO website and can be accessed via this link.
About the authors:
Matthew Rees FCA, CPFA, FCSI: leads the NAO’s Commercial specialism. He also represents public sector issues as a co-opted member of the ICAEW Council. His commercial experience spans Big-Four audit and valuations, global investment banking and non-executive director and audit and risk committee chair in an energy sector consultancy. Matthew’s public sector experience includes merger and market investigations of a wide range of sectors at the CMA, economic regulation in the telecoms, water and the aerospace and defence sectors and value for money studies in relation to the UK government’s corporate finance activities.
Lilian Ndianefo is a qualified accountant with many years of experience working across disciplines at the NAO including public sector companies audits, government departments, and supporting the C&AG’s responsibilities for setting the Local Audit Code and developing Auditor Guidance for local government and NHS bodies. Prior to the NAO, Lilian worked in public practice, with years of experience of managing a large portfolio of corporate multinationals with the Big Four.
Iain Forrester is a qualified accountant with long experience of working on the NAO’s commercial and contracting related work. This has included cross-government work on grants, shared services, EU Exit, and the government’s response to COVID-19. He also worked on the commercial and contract management insights guide published in 2016.
Posted on July 7, 2021 by Emma Willson
At the National Audit Office, we come across many business cases when looking at government programmes. A strong business case is vital for effective decision making and for successfully delivering intended outcomes.
The foundation of a business case is a clear understanding of what success will look like for a programme – the strategic case. But when it’s not clear what a programme is trying to achieve, it’s hard for decision makers to know if this programme is the right thing to do, or to plan and focus resources. It creates the risk that different stakeholders have different expectations about what will be achieved. It makes it harder to spot where other programmes may contribute to similar goals or where there may be adverse impacts. And for the public, parliament and us as auditors, it makes it hard to understand if the programme has delivered good value for money.
Promoting the strategic case
The November 2020 update to HM Treasury’s Green Book (its guidance on how to appraise and evaluate spending proposals) introduces a stronger requirement to establish clear objectives up front. Proposals should be assessed primarily on how well they deliver policy objectives, and cannot be considered value for money without delivering these.
But for proposals to be assessed this way, the strategic case needs to be robust. Therefore, when auditing major programmes, we ask the seemingly simple question – is it clear what objective the programme is intended to achieve?
Our recent learning from COVID-19 re-emphasised the importance of government being clear and transparent about what it is trying to achieve, so that it can assess if it is making a difference. For example, HM Revenue & Customs agreed clear principles for its employment support schemes. Although the Bounce Back Loans Scheme achieved its initial objective of quickly supporting small businesses, a lack of more detailed scheme-specific objectives will make it difficult to measure its ultimate success.
The government’s commitment to ‘levelling up,’ and uncertainty over what this means, may create difficulties for programmes to set out what they will achieve. They will need clarity to produce a business case. It could be interpreted as giving everyone access to the same opportunities, or at least to the same minimum standards – say of health outcomes or broadband access. This prioritises spreading prosperity to deprived areas. However, it also could be framed as addressing gaps in potential by, for example, investing where an area should be showing higher productivity. This prioritises value for money investments. As these different goals require different policy solutions, it can be challenging to set out how an intervention will achieve ‘levelling up’. Later this year, government will publish a levelling up White Paper setting out how new policies will improve opportunity and livelihoods across the UK.
Whilst defending the economic case…
A strong strategic case alone does not mean an intervention is justified. There might be other ways to meet an objective which could be better value for money. We often see business cases that seem to justify a pre-selected solution, rather than exploring a range of options for meeting the objectives – what the Green Book calls ‘the long list’.
Our report on Hinkley Point C found that alternative ways of the government providing support for the planned nuclear power station could have resulted in lower costs to consumers over the life of the project, but weren’t considered. We have also seen departments not considering different options when thinking about how to deliver policy – nine out of the 24 business cases we reviewed as part of our report on arm’s length bodies did not consider a long-list of options.
The economic case is important in setting out value for money, often through formal modelling, the results of which will need to be considered alongside the strategic case. Our early work on High Speed 2 found that the relationship between savings (with the Department for Transport putting a high emphasis on journey time savings) and the strategic reasons for doing the programme, such as rebalancing regional economies, was unclear.
So, what do we expect from strategic cases?
Throughout a programme, the strategic case needs to help ensure effective decision-making. As well as specifying what should be achieved (with a clear, logical set of assumptions) it needs to:
- Be easily understandable so effective trade-offs can be made. Our lessons from major programmes describes how objectives need to be clear enough to be translated into a programme scope (what will be required and when). For example, government has been considering which objectives to prioritise for the roll-out of gigabit-capable broadband. In our report, we found that prioritising the speed of programme delivery over other objectives posed a risk to value for money.
- Help prioritise cross-government objectives. We see cases where objectives are neither coherent when taken together, nor clearly prioritised when tensions emerge between them. In November 2020 we considered progress in achieving government’s long-term environmental goals. The government set out 10 overarching goals but did not provide a clear and coherent set of objectives, with, for example, varying and often unclear timescales.
- Be measurable (where possible). The strategic case will capture those assumptions that cannot be equated to a monetary equivalent. And, the easier assumptions are to quantify, the easier it will be to assess progress. Our early High Speed 2 review found the strategic case should have been more developed. For example, it included limited evidence on forecast passenger demand which provided a weak foundation for securing and demonstrating success. The Department was working to strengthen its analysis. Also, our Hinkley Point C report found the Department put more weight on the wider, unquantified strategic case when the economic case weakened but had little control over these benefits and at the time of our report no plan to realise them.
Government plans to invest heavily in programmes, with £100 billion expected investment in 2021-22 alone. For government to secure best value from this it must set out clearly and logically what it wants, how to best deliver this and how it will show what has been achieved for the investment.
Authors: Ruth Kelly and Emma Willson
Emma Willson leads our Major Projects hub. She has worked at the NAO for almost 20 years, auditing a wide range of government programmes, from welfare reform to large-scale defence equipment projects. She is a qualified chartered accountant and holds an International Association for Contract and Commercial Management (IACCM) qualification.
Ruth Kelly is our Chief Analyst and has wide experience of applying economics and other analytical approaches to support policy evaluation, investment decisions and risk management. Prior to joining the NAO, she held business evaluation and risk management roles for a global resources company, and advised clients on carbon and energy issues for a Big 4 economic consultancy practice.