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November 2021

    Commercial strategy needs to be joined up to achieve best value

  • Posted on November 25, 2021 by

    Last December, the government published a Green Paper on Transforming Public Procurement. It  stressed that investments should be subject to consideration of the public good, including supporting national priorities. It discussed leveraging commercial activity to achieve social and environmental value.

    For our good practice guidance for managing the commercial lifecycle, we examined similar opportunities and how to support them. We shared fresh insights and learning from our extensive body of work on government’s commercial activities. In this latest post, I will share some of our insights on commercial strategy.

    Commercial strategy means thinking about the overall approach to ensure that procurement and other commercial activities provide the outcomes that government wants and benefit us all. This is the part of our guidance which really focuses on the context around what government does when it runs a competition or revises a contract, and the importance of joining up different elements.

    Joining up commercial strategy is vital if government wants to achieve its wider aims as well as value for money. That includes establishing a consistent approach to risk management, and the organisational capacity and capability to respond to uncertainty. It is also where other considerations come in, including where procurement can be a lever for larger goals like encouraging innovation or diversifying the landscape of suppliers to government. Commercial strategies should demonstrate how each commercial agreement aligns with wider strategic objectives and how this is then reflected in the approach for managing commercial risks and incentives throughout the commercial lifecycle.

    A couple of our past reports give good examples of the importance of joining up strategy at the programme level and more widely.

    Aligning timetables

    In 2018 we reported on The Ministry of Defence’s arrangement with Annington Property Limited, a sale and leaseback arrangement for accommodation. As part of our review, we found that the timetable for developing the Ministry of Defence’s wider estate strategies was not aligned with the timetable for rent reviews. The department was developing a ‘Future Accommodation Model’ intended to provide personnel with more flexible accommodation options. However, the timing meant that its negotiations on the sites with Annington would begin before a decision was taken on the wider model. This affected its ability to develop negotiating strategies for these sites. We recommended that the department align the timetables to use realistic scenarios in its negotiations, giving it a clearer strategic view.

    Leveraging procurement across government 

    On a wider scale, we reported in 2016 on the government’s spending with small and medium-sized enterprises (SMEs). The government recognised that SMEs could offer many benefits to the public sector, including flexibility, innovation and better value for money due to lower overhead costs, as well as increasing local investment and improving social outcomes. We recommended that the government should take a more focused approach, identifying where SMEs could bring the most benefit, and look into an integrated cross-government procurement platform to support its commercial strategy. The government has since introduced guidance for SMEs applying for contracts and promised to invest in joining up the different procurement systems. The intention is that this will help drive the commercial benefits from better data sharing – as part of changes to procurement processes following exit from the European Union.

    That is an example of the kind of strategic approach to identifying risks and opportunities which we want to see applied consistently across organisations, and we look forward to seeing how government’s follow-up to Transforming Public Procurement would help to further encourage this.

    What good looks like

    Our good practice guide sets out areas of improvement and outlines our expectations of best practice, with specific case study examples that demonstrate some of these expectations of a joined-up commercial strategy. They include:

    • Commercial, policy, operational and business teams work together to develop a clear understanding of the contracts and produce required outcomes
    • Each contract staffing model is developed early, regularly reviewed and tailored to different contract stages
    • Capability plans include operational resilience to address unplanned demands
    • Knowledge and experience of underlying contract issues is retained throughout the lifecycle of a commercial relationship
    • There is investment in the organisation and its people to ensure adequate access to training and development to support commercial awareness and expertise.

    About the author

    Iain Forrester

    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.


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  • A small leak will sink a great ship: the need to counter fraud and error in government

  • Posted on November 16, 2021 by

    My outdoor tap leaks. Not very much, just a small drip. And though I put a bucket underneath to catch the drips, I’ll admit that sometimes the bucket overflows before I can use the water in my garden. I know I should find out if it’s just a dodgy washer or I need a replacement tap but somehow it never makes it to the top of my to-do list.

    Out of interest, the other day I looked up how much a leaky tap costs the average household. Potentially hundreds of pounds each month, so safe to say it makes financial sense to get it fixed. Then I saw that leaky taps cost UK householders an estimated £3 million every year. Thousands of little drips adding up to a big chunk of money being washed away.

    The Government Counter Fraud Function (GCFF) faces a similar challenge when trying to tackle fraud against the public purse. Government estimates that £26.8 billion a year is lost to fraud and error in the tax and welfare system, but for me, the most surprising thing is that GCFF estimate that up to £25 billion a year more is lost through fraud and error in other areas of government spending. The measurement data available suggests that most departments are losing a relatively small amount to fraud and error every year, but these hundreds of small leaks add up to an eye watering cost to the taxpayer.

    Part of the problem government faces is this sheer diversity of risk – fraud and error impacts everything from grants and procurement to income collection. Fraud and error has also traditionally been the sole responsibility of each department to manage leading to considerable variations in approach to similar risks. Although this has clear benefits for accountability, focusing on risks by organisation rather than type and across multiple organisations leads to missed opportunities. Most government grant programmes are likely to face similar challenges when it comes to managing fraud and error risks, even if their exact nature varies.

    The GCFF was established in 2018 as a means to bridge these gaps and bring together the 16,000 or so people working in public sector counter-fraud to share knowledge and best practice. Though progress has been made, in June 2021 the Committee of Public Accounts reported that the

    Cabinet Office and HM Treasury’s central mechanisms for managing fraud and error are still in their infancy

    There are also less than 7,000 recognised counter-fraud professionals working across central and local government and policing, with more than 75% of these working in tax and welfare. That doesn’t leave many qualified specialists to tackle all the other fraud risks across government.

    The GCFF recognises that the information it holds on fraud and error losses outside the tax and welfare system needs improvement – its fraud loss estimate of 0.5% to 5% of expenditure is a massive potential range. In our Good Practice Guide on Fraud & Error, we set out how departments need to ensure they have a cost effective control environment. This means doing everything they reasonably can to minimise fraud and error, to the point where doing anything more would have a detrimental impact on wider objectives. In a world of limited resources is it enough to replace a washer or do they need a brand new tap?

    The Good Practice Guide also includes our Fraud and Error Audit Framework, developed over several years based on best practice in government and the private sector. Fraud and error risk is continuously evolving, and the Framework provides a structure for assessing how management uses an iterative approach to measure the effectiveness of its counter-fraud and error activities and to continuously improve its controls.

    Ultimately, without more precise information on the scale and causes of fraud and error outside the tax and welfare system, government risks large amounts of fraud and error remaining unidentified or untackled. Ensuring that more effort goes into improving government’s understanding of exactly where money is leaking from the system  is a key focus of our ongoing work on fraud and error. Now, more than ever, it’s important to make sure that vital taxpayers’ money isn’t being washed down the drain.

    About the author

    Katie Dixon manages our work on fraud and error within the Financial and risk Management Hub. She joined us as a trainee in 2011 and, after qualifying as an accountant, completed a masters degree in counter fraud and counter corruption studies. She has experience auditing fraud and error risks across financial, investigative and value for money audits and represents the NAO on several public sector fraud expert panels.

    Follow Katie on LinkedIn


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  • Capability is for contract life, not just for procurement

  • Posted on November 2, 2021 by

    The NAO’s work includes looking at a huge range of government activities, and the setting up and managing of commercial arrangements are central to many of them. This became very clear when looking back at twenty years of our work auditing government’s spending and reporting on its value for money for taxpayers. Over this time, we have assessed over 350 of government’s agreements with commercial partners to deliver services and goods for the public.  

    Government has come a long way in developing its expertise in this space, but the pandemic and the need to procure services quickly has highlighted the extent to which further improvements are needed. Our perspective looking right across government and its programmes puts us in a unique position to draw together lessons and the common themes which have kept coming up in our work. 

    One example is our recently published Good practice guidance: managing the commercial lifecycle. In it we share fresh insights and learning from our extensive body of work on government’s commercial activities. The guidance has 10 sections – six procedural steps and four supporting elements. I previously wrote about one of those supporting elements, data, and this time I want to focus on another: capability.  

    Capability covers both personal effectiveness and organisational capability. It means having people within commercial teams and elsewhere with the appropriate commercial skills, at the right time. It also means supporting them with appropriate organisational leadership, systems and levers to deliver the required outcomes. Achieving all of this will require some measure of collaboration across organisations – be they cross government, or the wider public and private sectors.  

    Getting these capability aspects right is crucial throughout the entire process of the commercial lifecycle, from requirement through to transition at the end of the contract and is a key area for improving outcomes. An important aspect of managing contracts is being able to respond to change.  

    Substantial additions to government’s programmes, like the purchasing of COVID-19 vaccines and the associated equipment to roll out the vaccine programme, have shown just how much change can occur in a short time. This comes alongside the pandemic’s disruption of long-held assumptions and traditions, with huge impacts to our ways of life. 

    If that much change can take place within a couple of years, it’s clear that contracts, which sometimes span decades, must often react to very significant changes. That means that organisations need to make sure they maintain the appropriate skills and capability to manage contracts and commercial activities as a whole.  

    Some of our past reports highlight the importance of capability approaches. For instance, in our progress report on Terminating the Magnox contract, we highlighted the importance of reassessing capability throughout the life of a contract.  

    In March 2017, the Nuclear Decommissioning Authority (NDA) decided, based on legal advice, to terminate a 14-year reactor decommissioning contract due to a “significant mismatch” between the work specified in the tendered contract and the work that needed to be done. The NDA decided to renegotiate the contract with the incumbent, with the contract ending in 2019, nine years earlier than originally planned. To react to the change in circumstance and to better equip itself, the NDA commissioned a review of the delivery plan to improve its intelligent client capability before changing contract arrangements. It also strengthened its executive team, including a new commercial director, and increased the capacity of its contract management team. These changes were an example of meeting the expectation that contract staffing models should be regularly reviewed and tailored to different contract stages.  

    In our report on the BBC’s TV licence fee collection, we recognised how the BBC had benefited from introducing contract governance and reporting, supported by a multi-disciplinary team model and a wider strategic contracts infrastructure. We also recommended that it should maintain information on commercial skills to enable it to adapt to changes, such as upgrades to technology and ICT, which require different skill sets. This point was particularly important because we had identified that the BBC did not routinely assess its commercial skills and future requirements. 

    In our good practice guide we emphasise ways that improvements can be made to organisational and people capability, and their application throughout the commercial lifecycle.  

    There is an opportunity to make projects more successful in the short and long-term. We include expectations that:  

    • Commercial, policy, operational and business teams work together to develop a clear understanding of the contracts and produce required outcomes 
    • Each contract staffing model is developed early, regularly reviewed and tailored to different contract stages 
    • Capability plans include operational resilience to address unplanned demands 
    • Knowledge and experience of underlying contract issues is retained throughout the lifecycle of a commercial relationship 
    • There is investment in the organisation and its people to ensure adequate access to training and development to support commercial awareness and expertise. 

    The guidance also includes our expectations of good practice for all other stages of the commercial lifecycle and draws attention to some of the most important things for government to improve in its commercial activities. Stay tuned for further entries in this blog series, the next of which will be on commercial strategy. 

    About the author

    Iain Forrester

    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.

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