This page is part of our successful commissioning toolkit.



The obligation of individuals and organisations to report on their actions and be answerable to others for what they have done.

Administrative law

The branch of law which governs public bodies in the exercise of their public functions.

Advance payment

Payment made to a provider before that provider has incurred expenditure (that is eligible for repayment by the grant making or contracting public body) and before the product or service – or an agreed part of it – has been delivered.

Apportioned costs

The proportion of indirect costs that support each of a third sector organisation (TSO)’s different activities, calculated to inform the gross cost of each activity; a method used when applying Full Cost Recovery.

Arrears payment

Payment made after the provider has incurred the expenditure and after the product or service – or an agreed part of it – has been delivered.


Capacity is a measure of an organisation’s capability and potential to apply appropriate skills and resources to accomplish its goals and satisfy its stakeholders’ expectations.

High capacity organisations have:

  • strong leadership, professional expertise, and good physical resources so as to deliver the range, volume and quality of services consistent with their mission; and
  • the potential to extend the reach or variety of their services.

Low capacity organisations may be limited by:

  • weak management and governance structures;
  • a lack of management, financial or business skills; and
  • a lack of physical assets needed to support core activities.

Capacity building

Capacity building refers to activities that help organisations to develop skills and resources so that they can achieve their objectives and serve their stakeholders more effectively.  Public and private sector organisations fund this development from their own resources (including debt and equity financing in the private sector). Third sector organisations, particularly smaller ones, are less able to do so as:

  • many do not generate surpluses to invest in this area;
  • there is limited access to investment financing; and
  • donors generally prefer to pay for projects which deliver visible results, rather than fund ‘behind-the-scenes’ activities.

Third sector organisations

At its most broadly defined, this is the arena, outside of the family, the state, and the market where people associate to advance common interests.  It includes charities, community groups, faith-based organisations, professional associations, trade unions, self-help and advocacy groups.

The Government definition tends to be narrower and is akin to the ‘third sector’ (see below). (See also third sector organisations.)

Third sector organisations (TSOs)

The generic term applied by Government to mutuals, cooperatives, charities and social enterprises.


The concept that where an asset financed by public money is sold, all or part of the proceeds of the sale should be returned to the funder.


Those in public bodies responsible for, primarily involved in, commissioning.

Although we refer to ‘commissioners’ in this guide, the guidance is appropriate for anyone involved in assessing needs, designing services, sourcing providers, monitoring and evaluation and is applicable, among others, to those involved in policy, service delivery, procurement and legal functions.


The cyclical process by which public bodies assess the needs of people in an area, determine priorities, design and source appropriate services, and monitor and evaluate their performance.

Community interest company

Community Interest Companies (CICS) are limited companies, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit.


The voluntary and community sector’s written agreement with the government (or local public bodies) which has undertakings on both sides, shared principles and values such as recognising the sector’s independence, and mechanisms for making it work.


The extent to which the provision of a good or service is open to alternative suppliers.  The threat of such competition is a discipline on incumbent suppliers and tends to prevent prices rising far above costs.  Should this happen then alternative suppliers will enter the market to benefit from this and seek to ‘undercut’ existing suppliers.


Legally binding agreements between (in this case) a public body and a third sector or private sector organisations to provide services on behalf of the public body.  A contract will specify the services to be provided and what the contractor is to be paid for providing them. It will also include provisions, in greater or lesser detail, setting out the legal obligations which each of the parties accepts in order to fulfil the purposes of the contract.


An association or combination of TSOs, sometimes with private sector and / or public sector providers, for the purpose of providing a service or services in one locality or across a wider area.


A business whose profits are retained for the benefit of it members and/or the community it serves.


Economically worthwhile in terms of what is achieved for the amount of money spent; if an activity is cost-effective, it is good value for the amount of money it consumes.

Judging cost-effectiveness requires that all costs are taken into account when calculating the ‘money’ consumed i.e. all direct and indirect costs should be included e.g. costs of people, buildings, equipment, licences, consumables, and management etc.

Council of Voluntary Service (CVS)

The co-ordinating and support body for voluntary and community organisations in a geographic area.


Stopping provision of a service or a significant part of a service in order to bring about an improvement to existing service provision.

Decommissioning is a facet of commissioning – to be effective it needs to be embedded in your existing approach to commissioning and take a strategic and holistic commissioning approach.


Minimising the cost of resources used for an activity, while having regard to appropriate quality.

Economies of scale

The reduction in unit cost achieved by increasing the amount of production.

For example, re-routing enables a patient transport service to pick up and deliver more patients between their homes and treatment centres using the same number of drivers, drivers’ time, and vehicles.  The average cost of delivering a patient is reduced.


An efficient activity maximises output for a given input, or minimises input for a given output and, in so doing, pays due regard to appropriate quality.


Successfully achieving the intended outcomes from an activity.


The extent to which a grant agreement or contract allows the funder to impose legally binding conditions between themselves and the service provider.


The assessment of the extent to which a programme or service has met its objectives: Its main purpose is to help an organisation reflect on what it is trying to achieve, assessing how far it is succeeding, and identify required changes.

There are two sorts of evaluation – formative and summative:

  • Formative evaluation assesses a programme as it is being put in place and delivered.  This should feedback into the delivery of that programme;
  • Summative evaluation assesses a programme when it is complete. This should feedback into future or other programmes.

Financial agreement

In the form of a grant agreement or contract.

Formative evaluation

See ‘Evaluation’.

Full cost recovery (FCR)

The principle that when a third sector organisation provides a service for a public body it should be able to recover all the costs of delivering that service.  This includes not just the direct costs of the service but also the relevant proportion of all overhead costs.  These overhead costs may include: premises and related costs; central functions, such as, human resources; governance and strategic development; provision for inflation and depreciation; and regulatory costs.

Funding channel

The means by which funds for a programme or service are transferred from the commissioning public body to the service provider.  There are basically three types of funding channel available to public bodies in funding so third sector organisations (TSOs): grant; grant-in-aid; and procurement.


Money given to a third sector organisation (TSO) without significant conditions being applied.


A sum of money given to an organisation in anticipation of it being applied for an agreed purpose.  This purpose may be very specific (e.g. to fit a smoke alarm in an old person’s house) or less specific (e.g. to promote fire safety among old people).


A sum of money given to an organisation to be applied in general support for the objectives of that organisation.

A payment by a government department (normally referred to as the “sponsor department”) to finance all or part of the costs of the body in receipt of the grant in aid. Grant in aid is paid where the government has decided, subject to Parliamentary controls, that the recipient body should operate at arm’s length. The sponsor department does not therefore seek to impose the same detailed controls over day-to-day expenditure as it would over a grant.

Intellectual property

Property is simply a bundle of rights to own, use and prevent others from using something, for example a plot of land, a car or a house. Intellectual Property (IP) is a bundle of rights that protects applications of ideas and information that have commercial value.  IP rights give creators certain exclusive rights over the knowledge and information they create (e.g. the text of a book) to prevent others using it without permission.

Unlike physical property, knowledge, ideas and creations are partial ‘public goods’. Knowledge is inherently non-rivalrous. That means one person’s possession, use and enjoyment of the good is not diminished by another’s possession, use and enjoyment of the good.  By contrast, physical property is typically rivalrous, with one person’s consumption preventing simultaneous consumption by another. Privatising property gives rights over it to a legal individual, creating a legal barrier which prevents others from accessing it. IP confers a set of time-limited legal rights over the expression and use of certain ideas. Although the knowledge protected by the IP remains non-rivalrous, the legal force of IP rights prevents others from using it.

From Gowers Review of Intellectual Property, HM Treasury, 2006

Infrastructure TSO

Third sector infrastructure organisations are organisations that ‘work behind the scenes’ to support frontline TSOs that provide services direct to users.  They provide their members, or organisations within their geographic area, with a range of services, development and advocacy support.  Infrastructure TSOs may be national, regional, sub-regional or local in their coverage.  They may be generalist, providing support to any TSO in their area, or more specialised, representing or supporting a particular element within their area e.g. BME or rural community organisations.

See also ‘Council of Voluntary Service’.

Local Area Agreement (LAA)

A Local Area Agreement is an agreement that sets out the priorities for a local area in certain policy fields as agreed between central government, the local authority and Local Strategic Partnership (LSP). The agreement is made up of outcomes, indicators and targets aimed at delivering a better quality of life for people through improving performance on a range of national and local priorities.

Local Strategic Partnership (LSP)

Cross-agency, umbrella partnerships, including the public, private, and third sectors. The LSP remit is aimed at working together to improve the quality of life in a particular locality.

Management cost

See ‘Full Cost Recovery’.


In this case, the ongoing collection of information about the programme and assessment of the implications. Such information may be needed for three purposes: effective management of the programme; wider accountability for the programme; and policy development.


A privately held company owned by its customers.


Something you need to achieve in order to meet your goal. To be effective, objectives should ALWAYS be written so that they are SMART (Specific, Measurable, Achievable/Agreed, Relevant and Time-bound).

Office of Government Commerce (OGC)

Originally, an independent office of HM Treasury, established to help Government deliver best value from its spending.  Now subsumed within the Efficiency and Reform Group in the Cabinet Office.


The term used to describe the totality of what a programme or project is set up to deliver or achieve.


The end result of carrying out an activity – usually a product. It is important to distinguish what has been produced (the output) from the effect that it may be designed to help achieve (the outcome).

Payment formula

A financial model must include the appropriate mix of bases and timings – this is called the payment formula. The payment formula must follow from the objectives of the programme, and the agreed approach to risk management.


Acquisition of goods and services from third party suppliers under legally binding contractual terms. Such acquisitions are for the direct benefit of the contracting authority, necessary for the delivery of the services it provides or the running of its own business. Procurement is normally achieved through competition, and will be conducted in line with the government’s policy of value for money and in line with the Public Contracts Regulations 2006.


A portfolio of projects selected, planned and managed in a co-ordinated way.


A temporary organisation formed to produce a unique and pre-defined outcome, or result, to a pre-specified timescale, using predetermined resources. It is important to understand that a project is something that can be planned and is something with a specific end in sight and which is managed to deliver as a single coherent whole.


The principle of not burdening funded organisations out of proportion to the amount of funding, which applies especially to monitoring. Guidance states that monitoring arrangements etc. should be proportionate to the level of, and risk to, the amount of funds involved.


Linked to regularity, it is the further requirement that funds must be handled in accordance with Parliament’s intentions and Parliamentary control. Decisions must be taken fairly and be free from undue influence.

Public Service Agreement

An agreement negotiated between central government and a local authority to deliver improved outcomes in return for greater freedom in the means of delivery, and financial incentives. It specifies how public funds will be used to ensure value for money.


Linked to propriety, it is the requirement for funds to only be used for the purposes for which they were awarded.

Risk register

A document used to record the risks facing a project or programme, usually produced as a table. It should, as a minimum, record a description of each risk, an assessment of its likelihood and impact and the management actions to be taken to minimise the risk, though it can be more sophisticated.

Senior Responsible Owner (SRO)

The single individual with overall responsibility for ensuring that a project or programme meets its objectives and delivers the projected benefits.

Social Enterprise

A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximise profit for shareholders and owners.

Spending review

A statement of the government’s spending plans for a particular period.

Standards in Public Life

Expressed in seven principles which the Committee on Standards in Public Life believes all public servants must adhere to:

  1. Selflessness
  2. Integrity
  3. Objectivity
  4. Accountability
  5. Openness
  6. Honesty
  7. Leadership

State aid

EU law on state aid aims to prevent member states from unfairly distorting competition within the EU, except in certain permitted circumstances. A prohibited state aid exists if all of the following four criteria apply to the proposed programme:

  • It is granted by the state or through state resources
  • It favours certain undertakings or the production of certain goods
  • It distorts or threatens to distort competition
  • It has the potential to affect trade within the EU

Strategic grant

Used by local funders to support the ongoing core activities of an organisation.  Those activities are recognised to be of strategic importance in that they facilitate the achievement of other, more specific objectives of the funding organisation.

Strategic spending cycle

The period (usually 3 years) over which public funds are committed to address strategic goals.

Summative evaluation

See ‘Evaluation’.

Sustainable Communities Plan

Launched in 2003 by the Office of the Deputy Prime Minister (now Communities and Local Government) to guide its regeneration and departmental objectives at the regional level.

Sustainable financing

Paying an organisation the full cost of the activity which you are funding so as not to threaten their financial wellbeing. See also ‘Full Cost Recovery’.

Third sector

Non-governmental organisations that are value-driven and which principally reinvest their surpluses to further social, environmental or cultural objectives.  It includes voluntary and community organisations, charities, social enterprises, cooperatives and mutuals.  NAO guidance now uses the term ‘third sector organisations’.

Transparent costing

Means by which management costs are able to be apportioned to an organisation’s activities. See also ‘Apportioned costs’ and ‘Full Cost Recovery’.


An acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006.  The purpose of TUPE is to protect employees if a business or undertaking in which they are employed changes hands.

Value for money (VfM)

The optimum combination of whole-life cost and quality (or fitness for purpose) to meet the user’s requirement. Assessed by the National Audit Office using the criteria of economy, efficiency and effectiveness.


The power in legislation for the funder to carry out the activity envisaged in the policy intent for a programme. This may be a power that is specific to the programme; or it may be a more general power that may be used to fund a range of programmes, including the one at hand.

Voluntary and community sector (VCS)

Umbrella term used to refer to registered charities, non-charitable non-profit organisations, associations, self-help group and community groups.

Whole-life cost

The full cost to an organisation of a solution to a requirement over the full period that the requirement will exist. Whole life costs will take into account running costs such as energy usage, maintenance requirements, staff training needs, and disposal costs such as recycling, as well as the initial purchase price. The life span of the product will also need to be considered.

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