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    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.


  • 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.

  • Data is not just about numbers but opportunities

  • Posted on October 4, 2021 by

    We live in a time when more of our data is collected and connected than ever. It happens when I make an online lunch reservation and Google automatically turns the confirmation email into a reminder on my phone. The pandemic has taken this one step further. When I arrive at the restaurant I now need to scan a code to help supply information to the COVID-19 tracking app.

    Alongside an increase in demand for our own data there has been greater public expectation for government to be transparent with its data. For instance, in relation to the commercial elements of its pandemic response: from spending on Test and Trace to new contracts for PPE and for food boxes for the clinically extremely vulnerable.

    As the independent auditors of government, giving Parliament and the public greater transparency around government’s activities and the value for money that it delivers is at the heart of what we do.

    In our recently published Good practice guidance: managing the commercial lifecycle, we share fresh insights around what we learned from our extensive work on government’s commercial activities to help inform future actions and to support better sourcing of the things government needs. Transparency and data is one of four supporting elements which are important to the entire commercial lifecycle.

    There are many opportunities to make better use of the government’s commercial data and digital solutions to improve value for money throughout the commercial lifecycle. For example the process of publishing data could become easier; more useful connections can be created; and more insights could be gained from across the whole of government. But before this can be achieved, government must address challenges it has with late and incomplete disclosure of the information it is required to publish.

    This is because government’s stated policy is to adopt and encourage greater transparency in its commercial activity. Publishing information on contracts is an important part of its commitments. It recently reinforced this through a new Procurement Policy Notice. However we found in several past reports that publication of contract information fell short of what is required, for instance in not publishing details of contract awards within the timescales it is required to.

    Addressing these issues can go hand-in-hand with taking practical steps towards better use of commercial data. Analysis of our own reports on commercial topics over the past five years shows that there have been improvements, but we still found cases where the lack of commercial data has hampered government’s ability to analyse its spending and what it is getting in return.

    For instance, in the report Care leavers’ transition to adulthood, we looked at the data on local authority services. We found that without the data being accurate, complete and comparable, the Department for Education couldn’t support assessments to determine whether services offered good value for money.

    In our report on Improving value for money in non-competitive procurement of defence equipment, we saw an example of the potential benefits of increased transparency of information on costs for contracts. The Ministry of Defence told us that greater access to supplier cost information allowed it to monitor actual costs against the estimates in contract prices. It meant it could hold negotiations in a more informed way.

    Across government there is a chance to improve data and extend commercial transparency to give a clearer view of supplier profits and performance throughout its commercial arrangements. The government also needs a strategy and leadership to navigate the tensions between commercial sensitivity and the public interest. For instance, there should be a more consistent approach on which details need to be redacted from contracts for sensitivity reasons.

    In our good practice guide we highlight some of the key ways that improvements can be made in commercial data and transparency infrastructure and arrangements. Data and transparency are crucial to all steps of the commercial lifecycle. There is a big opportunity to implement improved infrastructure to make it easier to make better use of data.We include expectations that:

    • Transparency rules and guidance are consistently followed in full
    • Transparency principles are applied to what is procured and how, as well as to performance and changes to the contract.
    • The collection of data is transparent, proportionate and timely to support the understanding of processes and the market.
    • Data specification makes the data easy to share and use – consider open data standards, including common taxonomies and unique contract identifiers.

    We have also set expectations for good practice and what we see as the most important things for government to improve in other aspects of the commercial lifecycle, and will cover these in future posts, so keep tuned for further entries in this blog series.


    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. 

  • Supporting better value in public procurement

  • Posted on July 20, 2021 by

    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):

    Figures are for 2018-2019

    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. 

     

     

  • When regulation affects everything from education to transport, how do we make regulation effective?

  • Posted on May 25, 2021 by

    Regulation impacts all our lives in many ways. Where we live and work, how we travel and communicate, the food we eat, the gadgets we buy, the banks we use, the water and energy we run our homes with. All of these places, goods and services, and more, are regulated. 

    We don’t generally notice the business of regulation happening in our daily lives. But when regulation fails, it can have serious consequences for our finances or safety, the economy as a whole, or the environment. Some high-profile disasters in recent years are often described as regulatory failures: the explosion at the Buncefield oil terminal in 2005, the financial and banking crisis in 2008, the Deepwater Horizon pollution disaster in 2010, the Grenfell fire in 2017, and the list goes on.  

    As well as minimising the risk of failures like these, good regulation can be used to achieve a range of different aims and opportunities. It can support innovation, make workplaces safer, or help to keep essential services affordable. In a modern, mixed economy, like the UK, regulation is used in most areas of public policy, from education, healthcare and charities to transport, food, communications, utilities and employment.  

    What does good regulation involve? 

    It’s one thing to say what regulation is supposed to achieve, and quite another to make it work in practice. Being in the NAO’s Regulation team, we’re quite often asked: “what does good regulation actually look like?”. This question comes from regulators and policymakers, but it also comes from other people and organisations interested in making regulation work well, such as charities and trade bodies. And it’s not a simple question to answer, as much as we’d like it to be, because regulation can take different forms and exist for different purposes. Regulatory interventions vary, and most regulators and government departments will use a variety of approaches. 

    At one end of the spectrum are essentially unregulated, free markets where primarily the courts are the arbiter of any disputes. At the other end are areas with particular risks, such as the nuclear and pharmaceutical sectors, that have more prescriptive, rules-based systems of regulation. Between these lies a rich landscape of more principles-based approaches, varying from providing guidance and reputational incentives (for example, performance league tables), through various forms of self-regulation and codes of practice, to licensing regimes and the regulation of prices.  

    Despite this variety our work on regulation in the past decade has identified common themes and challenges that come up time and time again, such as the use of data to identify problems, how regulation is funded, or how regulators know whether they’re actually doing a good job or not. Based on this experience, we’ve published a good practice guide setting out broad principles of effective regulation, illustrated by case studies or further guidance for each principle. Our aim is to support policymakers, regulators and other stakeholders to design and implement regulation in a way that is effective at achieving what it is supposed to, whether this is protecting people and businesses, supporting economic growth, adapting to changes from EU Exit and technological developments, or safeguarding the environment and pursuing the priorities and challenges of the government’s net zero agenda.  

    The learning cycle 

    At the heart of our guide is a ‘learning cycle’ for assessing how well regulators and policymakers are applying the principles. Regulation is rarely a single programme of work with a simple beginning, middle and end, but tends to be an ongoing process of designing a regulatory framework, analysing what is needed, intervening, and then learning from experience in order to do things better in the future. If any one of these elements is overlooked there’s a risk that it can undermine the purpose and effectiveness of the regulatory framework.  

    When creating or making changes to a regulatory system, all aspects should be considered upfront – for example, if you don’t plan how you will measure the impact of changes, you probably won’t be collecting the data you’ll need later on. But each of the four stages has its own focus: 

    • The Design stage principles – such as objectives, powers, funding and accountability – are the most crucial to get right from the start. They help translate the policy intent into the design of a regulatory regime, and can be costly or disruptive to change later if they require new legislation.  
    • The Analyse stage is about identifying areas that present risks or opportunities, engaging with stakeholders to understand needs and priorities, and establishing what capacity is needed to respond appropriately. For example, the way data and intelligence are analysed is essential in assessing risks, identifying problems and targeting activities and resources. 
    • The Intervene stage principles are intended to help regulators intervene effectively by understanding what impact their actions might have, prioritising issues, and considering how best to respond in a proportionate, consistent and timely way.  
    • Finally, the Learn stage is about regulators, policymakers and others working collaboratively to measure progress, understand the real-world impact of interventions, and learn from experience to maximise effectiveness in the future.  

    We’ll continue to use our work across government to share principles, lessons and good practice, and we welcome any comments you may have. 

    About the authors: 

    Rich Sullivan-Jones manages our work on regulation, consumers and competition. His recent work has included reports on gambling regulation, problem debt, vulnerable consumers, regulatory performance measurement, and public service markets in higher and further education.  

    Peter Langham

    Peter Langham is a senior member of our regulation, consumer and competition team. He leads our work on public service markets, and has extensive experience of assessing the effectiveness of regulators and the UK competition regime.

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  • Getting contracts right and responding if they go wrong

  • Posted on May 22, 2019 by

    Photo of the game of jengeBillions of pounds of cost increase due to contractual change, delays introducing communication networks for our emergency services, potential strains on Army personnel – our recent reports illustrate the huge importance of getting contracts right, and what organisations need to do if they go wrong. They also reinforce the principles discussed in previous posts in our Contract insights series: the great value of information and the crucial need to act intelligently, get risk allocation right and take sufficient time to plan upfront for all scenarios. more… Getting contracts right and responding if they go wrong

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  • The power of information for contracts

  • Posted on October 1, 2018 by

    Concept image suggesting super importance of informationFrom the collapse of Carillion, to failures within Capita’s £1 billion worth of public contracts, recent NAO reports starkly reiterate the importance of information in managing contracts. As the Comptroller & Auditor General said in his post Risks, resources and government-supplier relationships, government ‘needs to assess the financial health and sustainability of its major contractors and use this information to protect the public interest’. Here we outline the crucial role of information throughout the commercial lifecycle. more… The power of information for contracts

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  • Contract management – challenges and consequences

  • Posted on November 23, 2017 by

    Picture with message stop and thinkEstablishing solid foundations early in the contract and commercial relationship lifecycle is critical for contracts to work. But this process starts long before contracts are signed. Two recent NAO reports provide insights into the importance of getting both the procurement strategy and process right. Experience has shown that not doing so can result in millions of pounds in legal costs – £100 million in one recent case – or an uncompetitive contract leading to additional costs. This latest blog in our commercial and contract management series shares our recent insights across the market management and sourcing domain of our contracts lifecycle. more… Contract management – challenges and consequences

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  • Intelligent contract competition and risk management

  • Posted on April 7, 2017 by

    Climbing competitionWhen it comes to public sector contracts, running proper competitions simply isn’t enough. Government needs to act intelligently to take advantage of competition between potential suppliers, weighing up options and considering who carries the risks, and at what cost. Since launching Commercial and contract management – insights and emerging best practice we’ve reported on two contracts that shed further light on these issues. We explore the new insights from these reports in this blog-post, the latest in our series on key issues for contracts and commercial relationships. more… Intelligent contract competition and risk management

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  • Setting up successful contracts

  • Posted on February 10, 2017 by

    Incentivising contractsCost savings failing to materialise. Customers hit with poor service and financial losses from public services. Contracts disputed and terminated. Contracts can go badly wrong before they even begin if the set up and management aren’t right. Since launching Commercial and contract management: insights and emerging best practice we’ve reported on three contracts that have enjoyed varying degrees of success. As part of our series to share insights into best practice contracting, in this blog-post we explore lessons from these three contracts. more… Setting up successful contracts

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  • About the NAO blog

    Our experts share their views about issues and common challenges facing government, what public sector leaders should look out for and how organisations have addressed issues. Our posts draw together threads from across our reports, share secrets spilled in events and reveal our experts’ expectations for the future.

    We encourage comments that support the exchange of ideas for improvement, but ask that those posting are respectful of others.

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