4.1 Accounting Officers are responsible for ensuring that value for money is achieved in all procurements. The National Audit Office (NAO) has defined procurement as being: "the whole-life process of the acquisition of goods, services and works from third parties, beginning when a potential requirement is identified and ending with the conclusion of a service contract or ultimate disposal of an asset1". The Treasury document Managing Public Money2 sets out the principles which apply to the public sector's acquisition of goods and services and the responsibility of Accounting Officers to ensure that value for money is achieved in all procurements. It defines value for money as, "securing the best mix of quality and effectiveness for the least outlay over the period of use of the goods or services bought. It is not about minimising upfront prices. Whether in conventional procurement, market testing, private finance or some other form of public private partnership, value for money will involve an appropriate allocation of risk".
4.2 This chapter distinguishes between:
• the investment decision, whether or not to proceed with a particular programme or project, based on Green Book3 analysis;
• the delivery model, regarding the appropriate procurement approach or model, including where appropriate those set out in Chapter 2; and
• the procurement process, and whether to compete the contract using the Open, Restricted or Competitive Dialogue approach.
| Box 4.1: Drivers of value for money in procurement The drivers of value for money set out below and their importance to a particular procurement, or programme of procurements, will depend on the particular nature and circumstances of the procurement being considered. Procuring authorities need to: • be clear in their objectives and assess these throughout the procurement process so that changing circumstances do not disproportionately affect desired outputs; • focus on whole life costs rather than just the upfront costs involved, and ensure that externalities, including sustainability issues, are properly taken into account; • use an outputs specification approach to drive the project description and procurement which, among other things, allows potential bidders to develop innovative approaches to satisfying the service needs of the procuring authorities; • optimise the allocation of risks between the various parties, so that risks are allocated to the party, or parties, which are best placed to manage, minimise and bear these risks over the relevant period; • rigorously identify, transfer and manage risks throughout the project lifetime so that the relevant costs and probabilities of occurrence can be controlled and minimised; • ensure there is a competitive market which has or can develop the ability to meet the public sector’s requirements effectively and efficiently; • ensure there are sufficient skills and expertise in both the public and private sectors, and that these are deployed effectively in planning the project during the procurement process and subsequent delivery; • structure the procurement process appropriately to enable any additional benefits to be realised, such as the release of any hidden asset values, or ensure that the overall costs are ameliorated through the use of any developed assets by third parties; • leave sufficient flexibility to ensure that any changes to the original specification or requirements of the procuring authority can be accommodated during the delivery life of the project at reasonable cost. They also need to ensure that any effects of changing technology or delivery methods can be accommodated or, alternatively, building in break points to allow for separate procurements at each stage in an overall programme; • ensure there are sufficient incentives within the procurement structure and the project contracts to ensure that assets and services are developed and delivered in a timely, efficient and effective manner, including both rewards and penalties as may be appropriate; • allow for sufficient and robust competition to drive effective value for money and ensure that the scale and complexity of the procurement are appropriate to obtain a sufficient response from bidders to enable a competitive procurement process; and • set an appropriate term for the contract to the scale of the project and the relevant lives of the underlying assets. As well as being important in terms of value for money this also has implications for affordability. |
4.3 The focus of this chapter is on how to drive value for money using generic value for money drivers set out in Box 4.1. Procuring authorities should adhere to these when evaluating and selecting the appropriate delivery model or approach. Where procuring authorities do not have relevant internal experience of alternative procurement routes, or limited capability in this often complex area, then they should discuss these issues with their departmental private finance unit in the first instance or the relevant Treasury spending team.
1 Improving procurement: progress by the Office of Government Commerce in improving departments capability to procure cost-effectively, NAO, 2004
2 Managing Public Money, HM Treasury, 2007
3 The Green Book: Appraisal and Evaluation in Central Government, HM Treasury