1 Purchasig Professioal Services REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 400 Sessio : 25 April 2001
2 Purchasig Professioal Services REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 400 Sessio : 25 April 2001 LONDON: The Statioery Office 0.00 Ordered by the House of Commos to be prited o 23 April 2001
3 This report has bee prepared uder Sectio 6 of the Natioal Audit Act 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the Act. Joh Bour Natioal Audit Office Comptroller ad Auditor Geeral 20 April 2001 The Comptroller ad Auditor Geeral is the head of the Natioal Audit Office employig some 750 staff. He, ad the Natioal Audit Office, are totally idepedet of Govermet. He certifies the accouts of all Govermet departmets ad a wide rage of other public sector bodies; ad he has statutory authority to report to Parliamet o the ecoomy, efficiecy ad effectiveess with which departmets ad other bodies have used their resources. For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: Website address:
4 Cotets Executive Summary 1 Aex 1 15 Key questios for departmets to cosider to promote value for moey i their expediture o professioal services Part 1 17 What are professioal services? 17 Why do departmets use professioal services? 17 How departmets purchase professioal services 19 Why we carried out the examiatio 22 ad how we set about it Part 2 24 Departmets' expediture o professioal services 25 ad the expertise they purchase Part 3 34 Better idetificatio ad specificatio of 36 departmets' requiremets Usig the most appropriate ad cost effective 38 form of procuremet Better collaboratio 40 More astute ad robust approach to egotiatios 42 Better maagemet iformatio o expediture 44 ad o suppliers' ad departmets' performace Better dissemiatio ad implemetatio 46 of good practice Refereces ad Websites 48 Glossary 49
5 executive summary 1 This report is about how departmets ca get better value for moey from the 600 millio which they sped each year o professioal services from a wide rage of suppliers providig specialist expertise, advice ad assistace. The report sets out how departmets ca improve the way i which they purchase professioal services ad achieve gais of at least 10 per cet ( 60 millio) (Figure 1). These gais could be used to deliver the same service ad provide resources for departmets to sped o other priorities or to obtai a higher quality of service from suppliers. 1 Potetial savigs from opportuities to improve the value for moey from the purchase of professioal services Illustrates the potetial gais for departmets from better procuremet practices idetified i this report Opportuity to improve value for moey Potetial Savigs millio More astute egotiatio with suppliers 45 1 Departmets egotiatig lower prices for cosultacy services by usig iformatio to compare fees ad uderstad suppliers' costs such as travel ad subsistece More collaboratio betwee departmets 3 2 Departmets collaboratig to put combied requiremets for work uder a sigle cotract ad thereby obtai volume discouts Use of the appropriate form of procuremet 12 3 Usig competitive tederig ad appropriate forms of cotract to get better deals ad reduce iteral processig costs Total 60 Note: 1. Based o reducig fee rates by 8 per cet so that all fee rates are closer to the average i our survey. 2. For example based o a 10 per cet savig o 31 millio spet aually o fiacial services. 3. Based o a 2 per cet savig o the 610 millio spet aually by departmets. Source: Natioal Audit Office executive summary 1
6 2 Departmets acquire professioal services i two ways: either from withi govermet (staff they directly employ or from aother departmet), ad exterally from the private sector. 3 Professioal services is oe of the areas of procuremet expediture which the Office of Govermet Commerce have idetified as havig potetial to achieve price ad efficiecy savigs quickly. This is i support of the achievemet of a wider value for moey improvemet target of 1 billio by April 2003 from the estimated 13 billio which departmets sped aually o civil procuremet. Departmets ca obtai advice o purchasig professioal services from the Office of Govermet Commerce. 4 Professioal services cover a vast rage of activities ad specialist disciplies icludig the desig, developmet ad implemetatio of iformatio systems, advertisig for recruitmet of staff, the delivery of cotracted out services such as payroll admiistratio, the provisio of expert advice for istace o legal issues, research ad developmet, ad staff substitutio. I this report we focus o those services which because they are i demad across departmets ad because there are may suppliers have the greatest potetial to secure improvemets i value for moey. These are cosultacy or advisory services i the areas of huma resources, fiacial, legal ad geeral maagemet cosultacy. Expediture o the developmet of iformatio systems ad costructio projects has bee covered by other Natioal Audit Office reports. 1 5 I 1994 a Cabiet Office Efficiecy Scrutiy ito departmets' use of exteral cosultats recommeded how their procuremet ad maagemet could be improved to achieve savigs, maily i cosultacy fees of 65 millio. Our examiatio which icluded a survey of 152 departmets, agecies ad o departmetal public bodies (collectively referred to as departmets throughout this report), discussios with eight departmets foud that while may departmets have implemeted some of the recommedatios, for example by departmets revisig iteral guidace ad procedures, progress i doig so has ot bee uiform or have departmets moitored systematically the extet to which implemetatio has resulted i savigs ad efficiecy gais. 6 We focus o three issues: i) why departmets purchase professioal services; ii) what they sped o them ad how they are purchased; ad iii) how to ulock the potetial to improve value for moey, focusig o ecoomy ad efficiecy i purchasig professioal services. Why departmets purchase professioal services (Part 1) execuitve summary 2 7 The growth i public-private parterships ad commercialisatio, the drive for more electroic service delivery, the itroductio of resource accoutig, ad the Moderisig Govermet programme s commitmet to more joied-up service delivery, are requirig departmets to cosider ew ways of carryig out their busiess ad to draw o a much wider rage of skills. Departmets ofte seek expert exteral advice ad assistace because of the specialist expertise ad idepedece of view which these ca brig to issues. 1 - Committee of Public Accouts First Report Improvig the delivery of Govermet IT projects which set out key factors which departmets ad agecies eed to pay careful attetio to i implemetig ew IT systems. - Cabiet Office Successful IT Moderisig Govermet i Actio which set out measures to improve IT project delivery. - NAO Report Moderisig Costructio HC NAO Report (HC ): Miistry of Defece; The Defece Evaluatio ad Research Agecy Review of Performace which looked at the Agecy's role i providig scietific ad techical services to departmetal customers, its relatioship with idustry ad the reportig of performace.
7 What departmets sped o professioal services ad how they purchase them (Part 2) 8 Our survey of 152 departmets i October 2000 foud that: Expediture. Departmets spet i total some 610 millio 2 purchasig professioal services i a seve per cet icrease i real terms compared to Thirty-eight per cet ( 231 millio) was spet o maagemet cosultacy; 11 per cet ( 67millio) o legal services; 5 per cet ( 28 millio) o fiacial; ad 3 per cet ( 21 millio) o huma resource advice ad assistace. Departmets were uable to allocate the remaiig 43 per cet ( 263 millio) to particular categories. Who speds the most. Not surprisigly, the largest departmets - Miistry of Defece, Departmet of Trade ad Idustry, Ilad Reveue, Departmet of Social Security ad Customs ad Excise sped the most o professioal services, accoutig for 56 per cet ( 344 millio) of all departmets' expediture. This is i lie with their share (53 per cet) of all departmets' spedig o goods ad services. Fifty-five percet of all departmets' spedig o professioal services was covered by cotracts worth idividually more tha 149,000 ad oly 6 per cet of expediture was for cotracts less tha 10,000. Twety-five suppliers accouted for 37 per cet of all departmets' expediture. How professioal services are purchased. Out of 468 examples of professioal services cotracts quoted to us by departmets, fifty per cet (234 cotracts) were awarded followig full competitio, 32 per cet (150 cotracts) were o the basis of a sigle teder or iformal 3 price tederig, ad for the remaiig 18 per cet (84 cotracts) the cotracts were either carried out by i-house teams or were part of framework 4 agreemets which were established competitively. As with the purchases of all other goods ad services, the procuremet of professioal services must follow the Treasury's Procuremet Policy Guidelies 5 which require that all public procuremet of goods ad services are based o value for moey. They also make clear the eed to esure that services are acquired through competitio uless there are covicig reasos to the cotrary, for example the cost to the purchaser precludes a competitive teder. I additio public purchases must comply with the Europea Commuities procuremet rules which are cosistet with the Govermet's procuremet policy. Competitio is sought ormally by advertisig the cotract i the Official Joural of the Europea Commuities. Uless the cost of goig out to teder is disproportioate to the value of the cotract, appoitig suppliers through competitio is the best meas of esurig that departmets achieve value for moey ad bechmark the services offered by differet suppliers. It is therefore surprisig, that departmets could ot idetify more tha 50 per cet of cotracts havig bee awarded through full competitive tederig, give that o more tha 12 per cet of the 468 cotracts were uder 10,000. (The 1994 Efficiecy Scrutiy foud that there was too much reliace o sigle tederig by departmets i appoitig cosultats). Our discussios with a umber of departmetal procuremet officers ad the Office of Govermet Commerce suggested that staff requirig professioal services were ofte drive more by pressures of time 2 This icludes some 21 millio for the purchase of maagemet cosultacy provided i-house or by other departmets. 3 A small umber of potetial suppliers are for example, telephoed to obtai a iformal idicatio of the typical price they might charge. 4 A framework agreemet is a cotract awarded competitively which allows departmets to call o oe or more suppliers icluded i the cotract without havig to reteder each (more detail is provided i paragraphs 2.12 ad 2.13). 5 Procuremet Policy Guidelies, published by HM Treasury i November executive summary 3
8 ad a desire to reew existig arragemets i decidig o procuremet methods, rather tha a full cosideratio of value for moey. Our discussios with private sector suppliers ad the results of a survey of its members by the Istitute of Maagemet Cosultacy also suggested that departmets are drive by miimum cost rather tha best value. Fee rates ad the potetial to achieve fiacial savigs. Oe of the keys to gettig a good deal from professioal advisers is for the departmets to have a clear uderstadig of the ecoomic drivers of the supplier's busiess. Some suppliers will be drive by the eed to keep teams occupied, others will wat repeat busiess or to maximise fee rates charged for specialist staff, or be iterested i the total price for the work. Firms will quote prices i differet ways for example a fixed overall price, a fee rate for hours worked, or capped rates based o the amout of work doe. To esure departmets get a good deal they eed up-to-date ad reliable iformatio o prices paid to share this iformatio ad egotiate better deals whe the fees which suppliers quote appear high i relatio to that iformatio. Professioal purchasers i departmets have a key role to play i advisig o egotiatio strategies. The average fee rate (coverig all staff from parter to research assistat) which departmets pay for maagemet cosultacy services is less tha the cosultacy idustry average. 6 But this average coceals a wide rage i the fees which departmets pay. While some of the rage ca be explaied by the variety of services cosultats provide, it suggests departmets eed to have a clear uderstadig of the skills ad experiece of the cosultats they are purchasig. Suppliers iformed us that they could have more room to egotiate ad provide better value for moey if departmets cocetrated less o the grade of the cosultat ad more o matchig the service to the specific skills ad experiece required. Suppliers have stadard rates, but i practice these are always egotiable if a firm wats to work for a particular cliet. If departmets could reduce the extet of the rage, so fees at the top ed of the rage were much closer to the average i our survey this would result i a 8 per cet reductio i overall average fees paid by departmets - a savig of 45 millio. Further savigs could be achieved by developig parterships with key suppliers, ad by developig a better uderstadig of suppliers' costs ad egotiatig to reduce these or get the full beefit of ay discouts the 6 Cosultacy idustry average fee rates as published by the Maagemet Cosultacy Iformatio Service which is a idepedet orgaisatio which coducts surveys o fee rates ad salaries. 4execuitve summary
9 supplier achieves: for example, costs such as the pritig ad bidig of reports ad travel ad subsistece, which are passed o to the customers ad also icur a admiistrative charge. Departmets also eed to egotiate with suppliers the itellectual property rights of ay product used or developed i carryig out the work, takig accout of whether it will be used agai ad its commercial value. 9 Departmets collectively put large amouts of professioal service work out to cotract o-competitively. Awardig work without competitio makes it difficult for departmets to compare suppliers' prices to esure they get the best price. The wide rage of fees paid also suggests that there are opportuities for departmets to get better deals from suppliers. To do this departmets eed to have a better uderstadig of suppliers' costs ad to drive up the amout of work awarded through competitio. Quality of departmets' iformatio ad aalysis of requiremets. The resposes to our survey revealed cosiderable variatio i the quality of departmets' iformatio o their expediture o professioal services. While departmets kow how much they sped i total o professioal services may do ot have sufficietly detailed breakdows of expediture o the differet types of exteral assistace which they purchase. There is also a lack of data o the amout of busiess awarded to differet suppliers ad their fee rates, ad also o the quality of service delivered by suppliers. This detail is eeded to maage the cotract ad the supplier effectively. The lack of cosistet classificatios of departmets' expediture o professioal services also does ot facilitate iformatio sharig withi ad across departmets. Such iformatio would be useful for idetifyig areas of collaboratio i the purchase of commo services. Our discussios with departmets also showed a wide variatio i the extet to which they aalysed their requiremets. There is evidece that departmets ow require busiess cases for proposed expediture o professioal services, but the extet to which these test whether the services have already bee provided to that departmet or aother is limited. The most commo approach is ad hoc cosideratio of each requiremet as it arises rather tha a requiremet based o a soud assessmet of busiess eed. executive summary 5
10 10 Departmets' lack of sufficietly comprehesive aalysis ad iformatio has major cosequeces. Firstly, it is more difficult for them to determie the value they are gettig from their expediture o professioal services for example, by comparig prices ad fees paid ad also by udertakig evaluatios of the performace of suppliers. Secodly, it makes it difficult for them to idetify opportuities to collaborate ad haress their collective purchasig power to get better deals for example, by packagig their requiremets ito oe cotract, or idetifyig the amout of busiess idividual suppliers are receivig from departmets collectively ad egotiatig lower fees ad prices. Thirdly, it reduces the opportuities for departmets to dissemiate lessos leart ad esure good practice is implemeted. Ulockig the potetial to improve value for moey (Part 3) 11 The Natioal Audit Office report Moderisig Procuremet (HC ) emphasised the eed for top-level commitmet, better maagemet iformatio, active maagemet of high-value cotracts, the ivolvemet of more professioal procuremet staff ad collaboratio with suppliers to achieve value for moey. The 1994 Efficiecy Scrutiy recommeded a rage of good practice to improve how departmets purchase ad maage cosultats to achieve sigificat improvemets i value for moey. It also recommeded that each departmet should prepare a actio pla to moitor implemetatio ad produce a report o progress by I some departmets such as the Miistry of Defece, Departmet of Social Security ad the Lord Chacellor's Departmet actio plas were prepared ad procedures chaged, for example the Lord Chacellor's Departmet developed ad issued guidace to purchasers of professioal services ad required a aual report o expediture to be made to seior maagemet. I departmets geerally there is little evidece that the Scrutiy's other recommedatios have bee implemeted such as moutig collaborative projects betwee departmets ad use of performace-liked fees. 6execuitve summary 12 Some departmets such as the Departmet of Social Security ad Miistry of Defece have kept their procuremet approach to professioal services uder costat review sice 1994 ad take actio to improve their approach as appropriate. Departmets geerally have ot moitored progress or questioed why implemetatio has bee slow. Orgaisatioal chages have made it difficult to track expediture o professioal services ad resposibility for the Scrutiy's recommedatios was ofte delegated to lie maagers who lacked the skills or expertise to implemet them. Other powerful icetives to ecourage implemetatio appear to have bee lackig sice the Efficiecy Scrutiy report i Apart from the Treasury issuig a statemet of Best Practice o establishig effective workig relatioships, joitly with the Istitute of Maagemet Cosultacy, ad the Maagemet Cosultacies Associatio i 1999 ad the Office of Govermet Commerce's proposed Code of Good Customer Practice which will be issued later this year ad sets out core values for workig with suppliers such as fairess, hoesty, efficiecy ad professioalism, we foud little evidece of follow-up from cetral departmets to implemet the recommedatios. For istace there are o commuicatio etworks for departmets to share best practices ad iformatio. We held a focus group of departmetal staff who commeted that this was the first opportuity they had had to talk to staff i other departmets ad share experiece ad good practice i purchasig professioal services. Departmets commeted that achievig better value for moey depeded o more guidace o good practice backed up by cocrete examples of what worked well ad what had bee achieved.
11 Why the recommedatios of the 1994 Efficiecy Scrutiy of the Govermet's use of exteral cosultats were ot fully implemeted lack of follow-up by departmets to moitor progress ad to questio why implemetatio was slow; greater priority was give to other iitiatives; orgaisatioal chages withi departmets made it difficult to track expediture; ad resposibility for expediture o professioal services was delegated to lie maagers who lacked the expertise or detailed uderstadig to implemet the Scrutiy's recommedatios. Source: NAO iterviews with six departmets Icetives eeded to idetify savigs 13 Icetives ca help departmets to idetify savigs through egotiatig better deals idividually or collectively ad thereby ucap their potetial purchasig power. Private sector firms recogise the eed for icetives to ecourage staff to idetify savigs ad implemet good practice. They also have a clear profit motive for idetifyig savigs through collaboratio or more astute egotiatios ad esurig good procuremet practice is adopted. Although the private sector do ot have to operate uder the same procuremet rules as cetral govermet departmets, their approach ivolves developig a more effective workig relatioship with suppliers - for example by ivolvig them i framig the work ad esurig good procuremet practice is dissemiated to staff ivolved i purchasig exteral assistace such as o a compay's itraet. I the private sector good performace is ofte rewarded by the cotiued use of the supplier without the eed for tederig. That ca be doe i the public sector through the use of paels of advisers who are appoited competitively. Private sector compaies' approach to purchasig professioal services maitaiig a database o recet exteral professioal services ad o the performace of suppliers usig the compay's itraet; omiatig "gurus" or "champios" withi the compay who fully uderstad the market for particular types of professioal service; avoidig duplicatio ad ot payig twice for work; beig aware of the iteral cost of ay kid of professioal service i terms of their ow staff's time i providig iformatio; beig aware of their ow stregths as a cliet ad the beefits which suppliers gai from workig with them; esurig that they use their ow staff for work as appropriate, ad providig the opportuity for their staff to lear from the supplier by creatig mixed teams; maagig relatioships with suppliers o a corporate basis to esure that there is o duplicatio of work; ad coductig regular bechmarkig exercises to establish idicative fees with compaies. Source: GlaxoSmithKlie (previously Glaxo Wellcome) ad Uilever executive summary 7
12 14 Developmets i the public sector provide ew icetives for departmets to apply good procuremet practice ad thereby achieve value for moey. The creatio of the Office of Govermet Commerce provides a cetral focus for drivig forward ad moitorig improvemets i procuremet practices. The Spedig Review has provided departmets with a icetive by allowig them to retai ay value for moey improvemets geerated from their ow or the Office of Govermet Commerce sposored iitiatives related to better purchasig durig the Spedig Review 2000 period. This should have the added beefit of ecouragig effective plaig of the use of all resources icludig exteral professioal services. The Office of Govermet Commerce is well placed to raise departmets' awareess of icetives. It has ivolved departmets' seior maagemet i the developmet of better procuremet practice, egotiated better deals (for example i September 2000, the Office of Govermet Commerce aouced the re-egotatio of a existig arragemet with Vodaphoe which will lead to a estimated 38 millio of value for moey improvemets from departmets ad the wider public sector's use of mobile phoes) ad promoted better traiig of procuremet staff through cofereces ad semiars. 15 There is cosiderable potetial to secure improvemets i the value for moey from the purchase of professioal services. Our discussios with departmets suggest that the full beefits of the Efficiecy Scrutiy's recommedatios have ot bee realised. Icetives for departmets to secure savigs exist but are ot beig used. Staff at all levels i departmets eed advice o how icetives ca be used so that i purchasig professioal services they follow good practice as set out i this report ad so realise the sigificat potetial to improve value for moey. The Office of Govermet Commerce is best placed to work with departmets to help secure the sigificat potetial value for moey gais. Departmets also eed better etworks for sharig good practice ad practical examples of how value for moey ca be improved. 16 I the Aex to this executive summary we have set out some of the questios which departmets eed to cosider to esure that i purchasig professioal services they are gettig value from their expediture. 8execuitve summary 7 :Spedig Review 2000: New Public Spedig Plas Paragraph 2.11 (18 July 2000).
13 Recommedatios PURCHASING PROFESSIONAL SERVICES 17 The recommedatios of the 1994 Efficiecy Scrutiy ito their use of exteral cosultats idetified the potetial to achieve savigs i cosultats' fees of up to 65 millio. This report cofirms that value-for-moey improvemets of at least 60 millio are achievable. To realise this potetial we recommed: For the Office of Govermet Commerce 1 Work with departmets to take advatage of their cosiderable buyig power This report shows that i purchasig professioal services oe of the ways i which departmets ca achieve better value for moey is by coordiatig their purchasig ad exercisig their cosiderable buyig power to egotiate better deals (paragraphs 8, 9 ad 10). There is some evidece of departmets startig to do this iterally but othig to support that it is happeig betwee departmets. The Office of Govermet Commerce are well placed to help make this happe by: a) developig a cetral database which ca be accessed through the Govermet Secure Itraet which holds details of departmets' expediture o professioal services detailig the type ad value of projects, the suppliers ad a cotact poit who ca supply more iformatio; 8 b) usig this database to idetify: i) key suppliers to govermet so that the Office of Govermet Commerce ca take the lead i maagig the relatioships to egotiate better deals for example with those suppliers who get a sigificat amout of busiess from departmets (paragraph 8); ad ii) commo requiremets ad opportuities for departmets to collaborate. c) esurig departmets achieve value-for-moey gais by requirig them to report o savigs achieved for example usig methodologies developed by the Office of Govermet Commerce to do so (paragraph 8); ad d) ecouragig departmets to develop more effective workig relatioships with suppliers by reviewig the Statemet of Best Practice ad the Office of Govermet Commerce's proposed Code of Good Customer Practice which will be issued later this year (paragraph 12) ad cosiderig how both ca be stregtheed through the use of practical examples ad developmet of good practice etworks to chage cliet behaviour so that better value for moey ca be achieved, for example by settig up a group of procuremet professioals from departmets to assess the opportuities for collaborative purchasig. 8 I developig ay database which icludes commets o supplier performace departmets must have due regard to the Freedom of Iformatio Act 2000, the Data Protectio Act 1998, civil tort o egliget misstatemet (House of Lords 1963) ad ay cofidetiality clauses withi idividual cotracts. executive summary 9
14 How departmets ca exercise their cosiderable buyig power to secure the best service ad price, for example by collaboratio withi ad betwee departmets Illustrated by: Miistry of Defece The Miistry of Defece have recetly reviewed exteral assistace purchased by the whole of the departmet ad its agecies. At preset exteral assistace is purchased locally by 11 budget commads withi the departmet ad i over 40 agecies. The review has cocluded that there is evidece of the same exteral services beig purchased by differet parts of the departmet ad there are opportuities to collaborate o the purchase of exteral services across the departmet ad share the outputs from exteral advice. To address this the departmet is creatig a cetral uit which will moitor expediture ad build up a data-base of the departmet's usage of exteral assistace. All uits purchasig assistace through projects over 100,000 will have to submit copies of their busiess case to the uit ad supply post-project evaluatios. The uit will also cosider how i-house specialists ca work with exteral suppliers to esure skills trasfer takes place ad thus reduce the eed for repeat work. Beefits: The iformatio collected will idetify: who buys exteral services; the types of services purchased; the outputs from these services; the value of cotracts; ad the departmet's key suppliers. This will allow the departmet to ecourage collaboratio betwee ed users i developig solutios to exteral assistace requiremets; take steps to maage the relatioship with key suppliers; aggregate requiremets ad egotiate better deals with suppliers. For departmets 2 Carry out robust ad thorough aalysis ad defiitio of their requiremets for professioal services Ieffective aalysis of requiremets leads to uecessary expediture for example, through differet busiess uits purchasig duplicate work or ot usig available iteral resources (paragraphs 9 ad 10). It also leads to poor specificatio ad briefig which lesses the value that professioal service providers ca add. Departmets must aalyse ad defie their requiremets at: i) departmetal level to esure that log-term ad departmetal-wide requiremets are idetified ad met appropriately; ad ii) idividual project level to esure the eed caot be met iterally or has ot already bee met; the requiremet is clearly defied ad expressed to potetial suppliers; the mechaisms are set up for skills trasfer so that departmets gai maximum value from the suppliers' expertise; ad all parties have a clear uderstadig of the iteded outcomes. How departmets ca aalyse their eeds for professioal services to make the most of the services bought ad to achieve savigs Illustrated by: Departmet of Social Security I 1999 the Departmet of Social Security carried out a study of its requiremets for exteral professioal resources. This eabled the Departmet to idetify its key requiremets, develop a pla for how those requiremets could be met from either iteral ad exteral suppliers, develop a procuremet approach for the purchase of exteral services, ad determie what skills, expertise ad iformatio it eeds to maage cost effective procuremet of professioal services. The Departmet has set up a Exteral Resources Uit to moitor ad co-ordiate its sped o exteral resources ad keep the procuremet approach relevat to operatioal eeds. The Uit's resposibilities iclude workig with ed-users to defie the requiremet, checkig with iteral providers of services ad with Huma Resources whether the requiremet ca be met iterally, ad where exteral services are required esurig that a clear specificatio is draw up ad that staff adequately brief suppliers about the Departmet's eeds. execuitve summary Beefits: By carryig out the review ad developig a procuremet approach to meet its eeds cost effectively, the Departmet estimates that it has made a oe-off savig of 86,000 ad is savig 136,000 each year i iteral costs through ecoomies of scale ad the better use of work. The Departmet believe that further savigs ca be achieved through: ot purchasig uecessary professioal services by checkig whether iteral resources could be used istead before exteral services are sought; ad derivig maximum value from those services that are purchased as the Uit will be able to direct ed-users to existig reports ad users who have similar eeds. 10
15 3 Use the most cost-effective form of procuremet which is appropriate for the types of services they are purchasig Departmets still make too much use of sigle ad iformal tederig, largely because they wat to appoit suppliers quickly or wat to reappoit existig suppliers. The absece of appropriate forms of competitio i appoitig suppliers ca put value for moey at risk (paragraph 8). Departmets should esure that they use the appropriate form of procuremet with decisios o the procuremet method based o: i) improvig value for moey for example by packagig together requiremets ito oe cotract to egotiate a better fee rate; ii) esurig the procuremet processig costs are proportioate to the cost of the cotract; iii) eablig departmets to idetify potetial opportuities to build parterships with key suppliers while esurig through competitio that the price they pay is reasoable compared to market rates ad that propriety is maitaied; ad iv) choosig a cotract which meets operatioal eeds for example for services which are required regularly at short otice a call-off cotract or term cosultacies pael would be more appropriate ad costeffective tha lettig idividual cotracts each time. Such cotracts still require testig with regular competitio. Puttig them out to teder every two to three years helps to esure this. How differet procuremet strategies are used to reduce iteral processig costs ad prices Illustrated by: Eglish Parterships Eglish Parterships require a broad rage of ad hoc professioal advice icludig legal; egieerig; property; ecoomics ad busiess appraisal. To meet these eeds it has set up a series of term cosultacy paels i each professioal area which ru for two to three years. Each pael cosists of a small umber of suppliers selected through competitio, who collectively provide the full rage of services required across all the departmet's regios. Maagers ca draw upo the most appropriate pael member (by specialism or locatio) as required. The rates charged for services are agreed at the start of the cotract. Lead cotacts for each pael withi the departmet moitor the quality of service received ad the amout of work placed with suppliers. Maagers are required to keep the lead cotact iformed of ay work they propose to give to pael members. Beefits: Eglish Parterships has foud that the paels: facilitate access of maagers to required services; reduce processig costs; ad allow better cotrol of costs as suppliers are required to provide iformatio o a mothly basis. executive summary 11
16 4 Hold up-to-date ad reliable maagemet iformatio o what they sped o professioal services ad dissemiate this iformatio with guidace o best practice to purchasers Departmets eed to esure that they have i place systems for collectig, aalysig ad dissemiatig iformatio to maage all purchasig expediture icludig that o professioal services for example by the itraet. Comprehesive iformatio is eeded by departmets to determie the value they are gettig from their spedig by bechmarkig prices ad fees paid ad evaluatig suppliers' performace ad to assess the amout of busiess suppliers are receivig from departmets collectively. 9 Oce such iformatio is available ad easily accessible departmets ca idetify opportuities to collaborate to secure better prices ad reduce the eed to use exteral assistace where similar advice has already bee supplied ad paid for. Much of the iformatio o prices, suppliers ad services is already held i departmets but it is ot routiely collected ad aalysed or is it readily accessible to purchasers. More effort also eeds to be put ito specifyig ad collectig iformatio o suppliers' performace so that this ca be moitored ad used i future decisios about which suppliers to appoit. This iformatio ca the be used by departmets to report o a regular basis to the Office of Govermet Commerce progress i achievig value-for-moey improvemets (paragraphs 9 ad 10). How robust maagemet iformatio supports purchasig decisios by trackig expediture ad providig purchasers with iformatio o the success of projects takig accout of the performace of both the supplier ad the departmet Illustrated by: GlaxoSmithKlie ad Uilever Both compaies have ivested i developig itraet based iformatio systems to support their purchasig o professioal services. For example, Uilever's itraet based iformatio system cost uder 100,000 to develop ad gives details of projects over 50,000, icludig the suppliers, expediture, resource days used, commetary o the work doe, ad a amed cotact who ca give more iformatio. GlaxoSmithKlie have itroduced a umber of differet mechaisms to evaluate its performace ad that of its suppliers. These are aimed at assessig ot just the quality of the output from the service provider but also how well the project is maaged by both parties. For example o large projects, both cliet ad supplier project leaders give a joit quarterly presetatio o the ruig of the project to seior maagers i the cliet ad supplier orgaisatio. Beefits: At a corporate level the compaies ow have iformatio about what they are buyig, who buys it ad from whom ad the amout of moey spet. This eables them to maage the relatioship with key suppliers, esure that duplicate work is ot carried out ad that proper protocols ad procedures are beig followed. Idividual maagers buyig professioal services have access to more iformatio ad cotacts which ca help them to make better-iformed decisios. GlaxoSmithKlie appraisal of performace has the added beefit of providig iformatio to both the cliet ad suppliers so that they ca improve their performace whilst the project is beig carried out ad so prevet problems afterwards as well as providig lessos which ca be applied to future projects. execuitve summary 12 9 I developig ay database which icludes commets o supplier performace departmets must have due regard to the Freedom of Iformatio Act 2000, the Data Protectio Act 1998, civil tort o egliget misstatemet (House of Lords 1963) ad ay cofidetiality clauses withi idividual cotracts.
17 5 Develop a more effective workig relatioship with key suppliers Departmets developig a better workig relatioship with suppliers ad their skills as itelliget customers would allow both departmets ad suppliers to promote maximum value from the assigmet for example, by idetifyig opportuities to reduce costs ad adopt iovative approaches for mutual beefit. Departmets should idetify their key suppliers ad maage the relatioship so they achieve good value for moey. This could ivolve departmets omiatig seior maagers with resposibility for programmes which regularly eed exteral professioal assistace as "procuremet champios" to deal with key suppliers, ad ecouragig more discussios with suppliers before they put forward proposals. It does ot ecessarily mea icreasig the risk of fiacial impropriety if appropriate oversight mechaisms are i place for example for clear specificatio of requiremets ad proper moitorig of supplier performace (see recommedatio 3 above) ad the ivolvemet of procuremet professioals is sought at a early stage. Departmets should also take opportuities to icetivise suppliers by likig their remueratio to their performace whe appropriate (paragraph 10). How to use icetives to improve suppliers' performace Illustrated by: the Defece Procuremet Agecy 1 The Defece Procuremet Agecy has a cotract with KPMG cosultacy to assist them i developig cliet service plas ad idetify potetial for fiacial savigs through efficiecy improvemets. The Agecy also lacked i-house resources ad skills to implemet the major chage programme they wished to achieve. 2 The Agecy egotiated a variable fee cotract based o risk sharig depedet o KPMG achievig a baselie level of performace such that ay paymet above the baselie fee would require substatially greater savigs i operatioal costs to be achieved. The Agecy's aim was to have a firm price assigmet with o scope for the terms of referece to expad beyod what was agreed at the outset. Beefits: Likig remueratio to carefully moitored performace has achieved: a reduced fee-iitially KPMG offered a fixed fee for the developmet programme. Followig egotiatios it was agreed that a fee withi a set rage (the lower ed beig less tha the origial fixed fee offered) would be applicable, depedig upo results; ad fee was depedet upo results-kpmg receives their "fixed fee" price if the Agecy ca develop plas which show aggregate operatig cost savigs of a certai per cet greater tha the existig budget savigs. If the aggregate savigs idetified are less tha existig budget savigs, KPMG's fee will be reduced. If eve greater savigs are achieved KPMG ears a bous up to the maximum of the rage if savigs are above a set level. executive summary 13
18 6 Sharpe their approach to egotiatios to esure that they get a good deal from suppliers The key to gettig a good deal from suppliers is to egotiate from a positio of stregth while uderstadig the market from which the services are beig purchased. Professioal procuremet staff ca play a key role i this. Departmets should act as itelliget customers by discussig costructively with suppliers all the elemets of the cotract price they are to be charged, icludig the level of service, the timescale for the assigmet, the proposed skills mix of the supplier's team ad the itellectual property rights of ay product of the work which all impact o price ad how associated costs such as travel ad subsistece are to be remuerated. This meas at the post-teder stage clarifyig what the price icludes ad specifyig for suppliers exactly what is expected from them. Departmets would the be i a better positio to egotiate appropriate deals which meet their eeds i the most cost-effective way. Departmets should avoid discussig at the post-teder stage the scope ad ature of the work ad fee rates. (paragraph 8). How purchasers' uderstadig of the market ad suppliers' cost base supports a more astute ad robust approach to egotiatios with suppliers Illustrated by: GlaxoSmithKlie GlaxoSmithKlie has foud that uderstadig the costs ivolved i providig professioal services is essetial for cliets who wat to pay a appropriate price for the services they receive ad to get maximum value from the moey paid. GlaxoSmithKlie egotiate fee rates with its mai suppliers aually ad do ot egotiate further o these whe idividual cotracts are beig agreed. Istead they cocetrate o reducig other costs which suppliers pass oto customers such as travel ad subsistece, admiistrative costs ad pritig of reports. For example they isist that GlaxoSmithKlie make all travel ad hotel bookigs for cosultats usig its ow deals which are cheaper ad have the added advatage of avoidig the fiftee per cet admiistrative charge usually made by cosultats. Beefits: GlaxoSmithKlie aim to save seve per cet o the costs of professioals services through cocetratig o reducig the suppliers' costs. It also seeks to icrease the value gaied from use of such services by isistig that suppliers oly use good quality ad experieced staff o its projects. execuitve summary 14
19 Aex 1 Key questios for departmets to cosider to promote value for moey i their expediture o professioal services 1 Are the departmet's requiremets for exteral professioal services clearly idetified ad specified? has the eed for professioal services bee rigorously assessed ad checked that it caot be properly met iterally? if the eed is justified, has the eed bee clearly defied? have all those ivited to teder bee briefed about what the work will ivolve? are both the departmet ad the appoited supplier clear o the iteded outcomes from the work ad whe the work has to be delivered? is paymet of suppliers based o achievemet of key milestoes? 2 Is the departmet usig the most appropriate ad cost-effective form of procuremet? is the form of procuremet appropriate to the departmet's busiess eeds, takig accout of the iteded outcomes ad the volume, value ad urgecy of the requiremet? have the iteral processig costs bee take ito accout i determiig the appropriate form of procuremet? does the form of procuremet provide sufficiet competitio ad comply with Europea Commuities' regulatios ad rules? 3 Are opportuities for iteral ad exteral collaboratio with other departmets beig take? does the departmet regularly idetify ad review their likely requiremet to purchase professioal services over the comig six moths to a year? is iformatio o what professioal assistace ad advice has bee provided readily available throughout the departmet o its Itraet ad easily accessible? has the departmet emphasised to its staff the advatage of takig opportuities for joit purchasig of similar services with other departmets ad sharig of iformatio with them to get better deals? has the departmet questioed the justificatio for repeat busiess whe the results ad advice arisig from earlier assigmets are available withi the orgaisatio or aother departmet? executive summary 15
20 4 Is the departmet's approach to egotiatios astute ad robust? are discouts egotiated for high-volume work or where there are opportuities to carry out repeat work? does the departmet questio whether ad how much travel ad subsistece costs are to be reimbursed? has the supplier bee cosulted about how the service it is providig might be delivered more cost-effectively (for example, by chagig the mix ad cost of the staff which it allocates to assigmets)? is the trade-off betwee cost, time ad quality reviewed (for example where work is ot time critical takig a little loger to complete ca improve quality)? has the owership of itellectual property rights bee cosidered ad egotiated? are professioal procuremet staff ivolved i egotatios with suppliers? 5 Does the departmet have maagemet iformatio o suppliers' ad departmets' performace? is the iformatio which is eeded to assess suppliers' performace determied at the begiig of the assigmet? are regular evaluatios of the suppliers' ad the departmet's performace udertake oce a assigmet has started? has the departmet cosidered likig suppliers' remueratio to achieved performace where this is cost-effective (while esurig that reliable ad ubiased data will be available to demostrate performace)? are the lessos leared from evaluatios dissemiated withi the departmet ad to other departmets ad implemeted by staff? 6 Is the departmet dissemiatig good practice ad guidace to those resposible for procuremet? are staff aware of good practice ad the tagible beefits it ca achieve? has the departmet cosidered appoitig 'champios' - seior maagers whose resposibilities ivolve usig professioal services-to promote improvemets i procuremet practice ad to liaise with key suppliers? has the departmet established or have access to a electroic database of good practice which icludes practical examples to which staff ca refer? does the departmet moitor its compliace with good practice ad ivestigate whe this does ot happe? does the departmet maximise the opportuities offered by govermet wide arragemets to achieve value for moey from expediture o professioal services? what steps has the departmet take to esure that its agecies ad odepartmetal public bodies are implemetig good practise ad guidace? execuitve summary 16
21 Part 1 Why departmets purchase professioal services 1.1 This part of the report explais: what professioal services are ad why departmets use them; how departmets purchase professioal services; ad why we udertook the examiatio ad how we set about it. What are professioal services? 1.2 The term "professioal services" ca cover a wide rage of suppliers who offer professioal ad specialist expertise ot oly through providig advice but also through the delivery of projects ad the maagemet of services such as iteral audit or maiteace ad fillig skills shortages which departmets may ecouter. For the purposes of this study we defie professioal services as ay exteral orgaisatio egaged to provide professioal advice ad assistace for a fiite period coverig: fiacial support ad advice; legal services; huma resource advice ad assistace; ad maagemet cosultacy (Figure 2). We focus o these services because they are i demad across departmets ad there are may suppliers ad so have the greatest potetial to yield price ad efficiecy savigs. suppliers provide detailed plas of how they will deliver a project; makig IT suppliers the top priority for the work o strategic maagemet of suppliers to be coducted by the ew Office of Govermet Commerce; ad establishig systems for collectig ad sharig iformatio across govermet about the progress ad experieces of major projects. Why do departmets use professioal services? 1.4 The work of departmets is ow much more complex (Figure 3) requirig departmets to cosider ew ways of carryig out their busiess ad to draw o a much wider rage of skills. 3 The work of departmets is ow much more complex because of, for example: growth i public private parterships ad commercialisatio; drive for much more electroic service delivery ad electroic procuremet; itroductio of resource accoutig ad the requiremet for better performace maagemet ad reportig; ad The Moderisig Govermet Programme's commitmet to more joied up services delivery. 1.3 The use of professioal services for the developmet of IT systems ad o costructio projects, delivery of cotracted out services ad research is ot icluded as this has bee covered by other Natioal Audit Office reports. For example, the Committee of Public Accouts report Improvig the Delivery of Govermet IT projects (HC 65, 1999/00) highlighted the eed for a high degree of professioalism i the defiitio, egotiatio ad maagemet of IT cotracts, ad for a postimplemetatio review to lear lessos from the projects ad to establish the extet to which orgaisatios have secured the busiess beefits aticipated. I respose the Govermet set up a review team based i the Cabiet Office Cetral IT Uit (CITU) to improve the hadlig of IT projects ad has accepted its recommedatios which iclude requirig that To do so departmets ofte seek expert exteral advice ad assistace because of the specialist expertise, broader perspective ad idepedece of view which they ca brig to issues (Figure 4). Advice ad assistace usually falls ito four categories: Large or log-term assistace i implemetig programmes iteded to brig about major chages i the way i which departmets deliver services or maage their resources. For example, the Child Support Agecy is usig cosultats over a two-year period to esure that the Agecy is properly resourced ad structured to deliver the Child Support Reforms' chage programme. Other examples iclude: udertakig a major marketig campaig such as the Eviromet Agecy's flood warig awareess campaig; or part oe 17
22 2 Professioal services covered by this report Legal For example, the Milleium Commissio has a cotract with a legal firm to provide advice o draftig of grat agreemets ad legal matters. Accoutig For example, the Research Coucil have a cotract with Erst & Youg to provide iteral audit services. What do departmets use professioal services for Maagemet Cosultacy Techical ad project maagemet advice o major projects, such as itroducig ew iformatio techology Assistace with key iitiatives such as Ivestor i People ad Resource Accoutig ad Budgetig Trasfer of skills, staff traiig, developmet ad recruitmet Fiacial, accoutacy ad legal advice Restructurig Strategic ad mapower plaig Quality maagemet Techical advice i public private partership deals Checkig cotracts Huma Resources For example, Ordace Survey have a cotract with a cosultacy firm to provide marketig cosultacy ad services which gives it access to specialist skills ot available i-house. For example, PricewaterhouseCoopers were cotracted by the Court Service to provide search ad selectio services for the appoitmet of the Chair ad members of the Legal Services Commissio which replaced the Legal Aid Board. Source: Natioal Audit Office desigig ad implemetig a ew traiig programme to improve a departmet's skill base, for istace the British Library has egaged exteral assistace with a developmet programme for seior maagers. remueratio systems, assessig the evirometal impact of differet rural developmet schemes, ad evaluatig the likely ecoomic cosequeces of differet optios for supportig idustry. part oe 18 Major projects requirig specific techical ad legal advice ot available i departmets. A example of these are the Miistry of Defece's cotracts with PricewaterhouseCoopers (value 7 millio excludig VAT up to sigature of the Private Fiace Iitiative cotract) ad Herbert Smith (value some 2 millio excludig VAT) to provide Private Fiace Iitiative advice for the redevelopmet of the Miistry of Defece's Mai Buildig. Other examples iclude providig advice o projects such as the British Gas Tradig-Price Cotrol Review o which Arthur Aderse advised OFGEM through a cotract worth 650,000. Feasibility ad project scopig work such as cosiderig optios for itroducig ew staff Small pieces of ad hoc work such as legal advice as to whether a particular departmetal programme is likely to comply with Europea Commuities' regulatios. 1.5 The growth i the maagemet cosultacy idustry meas that there is a much larger ad more diverse market from which departmets ca purchase professioal services. It is estimated that betwee 19,000 to 60,000 cosultats work i the sector, whilst may are employed by the big firms, 1 this meas that there are also a large umber of small ad medium sized cosultacy firms i the market. Departmets are also a sigificat source of busiess for cosultacy firms accoutig for 17 per cet ( 437 millio) of their reveue i The 40 firms represeted by the Maagemet Cosultacies Associatio. 2 Source: Maagemet Cosultacies Associatio 31 December 1999 Aual Report. The figure icludes departmets' expediture o outsourced services ad covers just expediture with the Associatio's members.