7.8 As of today contracting authorities have reported over £1.5 billion of committed efficiencies and savings with a further £1 billion in discussion. These savings have been signed by both parties since July 2011 and build on savings already delivered under this administration prior to this date. In parallel, significant levels of cost have been avoided by increased central department involvement in, and support to, local projects in procurement prior to signature.
7.9 These savings come from work carried out by public sector bodies in more than a hundred contracts. Comprehensive reviews have been carried out in more than 15 projects and are underway or in planning in around 60 more. Of these around two thirds are from central government and around one third are in local bodies. Work completed and underway on these reviews represents around 10 per cent of the number of projects and about 30 per cent of the remaining unitary charge value.
7.10 These savings are being achieved without cutting the provision of critical services .The savings are retained by the contracting authority to support the continued delivery of high quality frontline services.
7.11 Savings included in the programme totals are nominal to reflect the indexation of the contract prices over time and must meet the following criteria:
• consider any risk retained and be presented net of actual costs;
• show current or near term gain (cash, reduced price or relevant quantifiable benefit) to justify the expense of delivery; and
• demonstrate long term value for money.
Box 7.A: Examples of efficiencies and savings identified The following categories of efficiencies and savings have been identified: • Renegotiating the scope of contracts, through: • removing services no longer required; • reducing over-specified performance levels; • changing the profile of planned maintenance; and • cancelling contracts for which there is no longer a requirement. • improving risk allocation by: • taking back energy consumption risk; • reducing requirements for hand-back condition to reasonable levels; and • sharing in insurance premium reductions. • improving efficiency by: • increasing occupancy levels of buildings; • improving energy efficiency through improved technology; • using government purchasing power to lower utility and consumables costs; and • merging contracts with the same provider into one to reduce management costs and introduce economies of scale. • cutting waste by: • preventing out of hours overtime work; • improved processes reducing unnecessary administrative costs; • mothballing unused facilities; • finding alternative uses for underutilised assets; and • reducing inflation mechanisms which do not reflect actual cost increases. • avoiding additional costs through: • better contract management to remove unnecessary in-service changes; and • simplifying procedures and charges for variations. |
7.12 At this stage the majority of savings have been identified in larger central government contracts. Following evidence from early reviews, it is expected that more local projects will undertake reviews. While it is expected the potential for savings is unlikely to be on the scale of those in larger contracts, savings will be significant enough to be both worthwhile and necessary in the current economic climate.
7.13 What has been demonstrated to date is that committed engagement by all contracting parties is needed to deliver improved outcomes. The availability of staff with the necessary commercial and specialist capabilities is critical to enable the effective delivery of efficiencies. In addition, the relationships and behaviours that have characterised some contracts which are not delivering demonstrable value for money need to be addressed. These issues can apply to the public as well as the private sector. Changes are needed to improve the cost effectiveness of the services for both sides as well as for the benefit of the taxpayer.
7.14 A key element of the work to improve the relationships is the development of a Voluntary Code of Conduct. This is intended to embed ground rules for both sides which represent a commitment to engage constructively and collaboratively to support greater transparency and understanding between the parties.
7.15 Initial engagement with a cross section of the private sector has shown an understanding of the need for such an instrument and a general willingness to sign up to many of the principles. It has highlighted a concern about the degree to which proposed commitments on the sharing of data could put an unnecessary burden on the private sector and increase costs unnecessarily.
7.16 The Government remains committed to the intent of a code which will support improved behaviours in a number of areas including greater transparency between the parties and is working to develop a version for further discussion which removes risk whilst delivering the overall intent of such a document.
7.17 It is the Government's intention to launch a code before the end of the financial year with a regularly updated list of signatories on HM Treasury's website.