Best value purchasing for schools
A SHORT GUIDE TO SCHOOL LEADERS AND LOCAL AUTHORITIES (LA’S) ON BEST VALUE; AND ADVICE FOLLOWING THE ‘CONTRACT EXTENSIONS’ COMMUNIQUE BY THE DFE IN DECEMBER 2018
Introduction and background
Why should you care about best value? Best value (and, to a large extent, finance as a whole) is fundamentally about resource allocation. You can only maximise the achievement of your objectives, if you allocate your resources in the most effective way. The basic rule in finance is that we never have enough money to do all the things we want to do, so we need to carefully plan, prioritise and rank activities. And we can only do that if we have a good command of the resources available to us, and if we ensure ‘value for money’ is sought with those resources. It is an incredibly important part of public managers’ jobs and so we should all care!
When managers hear the term value for money (or best value), they often think about the supplier selection process and obtaining multiple quotes. It should not be thought of in this way. The supplier selection process comes at the very end of the value for money process; and selecting the most economically-advantageous supplier can only achieve value for money if there is a solid business case for that particular good or service. For example, getting a good deal on a new laptop is only value for money if you need another laptop in the first place!
Objectives of public finance management
The three main objectives of public financial management are: (1) to maintain a sustainable financial position – making sure the money you have available is sufficient to cover the expenditure you incur; (2) to allocate resources effectively to sections, projects, programmes; and (3) to provide public goods & services efficiently.
So in other words, (1) don’t spend more than you have; (2) spend your money on the right things; and (3) don’t waste resources. This is what value for money is all about.
The recent DFE announcement/communique
I think there are some interesting points in the DFE communique to schools in December 2018 (‘contract extensions’) that schools and LA’s should take notice of:
Re-procuring contracts which come to an end It serves as a reminder that schools should explore the market to get best value. Schools need to have very good oversight of all purchases and all contracts and plan & prepare for re-procurement sufficiently in advance in order to allow enough time to run an effective & beneficial procurement process. Schools and LA’s cannot just allow contracts to ‘roll’ or extend. If this sort of practice is allowed, school leaders and LA public managers cannot be executing their public financial management responsibilities properly. So there should be an immediate review of all supplies to ensure they are all properly procured.
Upgrades to existing purchases
The DFE reminded schools and LA’s that existing contracts cannot continue when a school agrees or requests a ‘sufficiently material’ change. The DFE gave an example of what sort of change constitutes a sufficiently material change – which was schools moving from server-based software systems to cloud-based software systems. This should not be viewed as a simple upgrade to an existing system under an existing contract managed through a simple contract variation. They must go out to test the market and conduct a proper procurement exercise again.
EU thresholds
Whilst the circular mentions EU thresholds more than once, schools and LA’s should not think that the notice is relevant only for major contracts in excess of circa £181k. The messages are relevant to all contracts and at the heart of the message is the enforcement of a school’s buying rules as per their financial procedures policy approved by their governing boards. Even for low value purchases – defined by the DFE as those with a contract value of under £10k – should trigger a process of getting three quotes from three different suppliers.
MIS and finance systems
The reference to server-based and cloud-based software is likely to be a reference to MIS and finance systems, which for many schools are still server-based. For these schools, they cannot just upgrade their existing system with their existing suppliers without running a competitive process. There is an active competitive market for these services and schools should assess the market properly and compliantly as per public procurement regulations and their own local procurement policy.
How schools and LA’s should react to the announcement/communique
Review Look at all supplies of goods & services to review the contractual position. A starting point could be a general ledger download for transactions over the past 12 months, showing payments by (1) expenditure type/activity; and (2) by supplier. For each expenditure type and each supplier, note expenditure in excess of £1k. For each activity area and each supplier where expenditure has been in excess of £1k, schools should note the contractual position and whether or not there is a need for further action. Any need for further action can be determined by a school’s own buying rules.
Sometimes purchases are made through the local authority and schools will need to dig a bit deeper to unpick what they have paid local authorities for.
Total cost of ownership A June 2018 paper by a former DFE Policy AD, highlighted an important issue regarding there being a lack of proper oversight of the ‘total cost of ownership’ (TCO) of MIS-related costs. According to the paper, 80% of schools have an MIS still under historical LA-wide contracts from the 1990s – which are dependent on separate (and somewhat hidden) server costs.
What schools (and LA’s) should be doing during the business case stage is to consider all possible benefits of a purchase. And particularly when considering the re-procurement of their MIS needs, schools should consider if they can make savings on current server costs by procuring a cloud-based MIS system and this should be modelled in the business case.
The paper included some case studies and highlighted examples of savings of £12k-£13k per school over the life of the contract when switching to a cloud-based solution.
MIS systems
Reading between the lines, the DFE appears to be especially concerned with the proper procurement of MIS systems. Schools should pay particular attention to their current contract for these services and plan for when they will need to run a procurement exercise. There are also frameworks for these services which schools can access in a compliant way. If schools are concerned at a lack of local procurement skills & expertise they can ask their local authority who can provide advice on tenders & frameworks and may also be able to centrally procure for the whole LA in a single process.
Spread the word
Ensure that key people involved in school purchasing are aware of the schools buying policies and act in accordance with the regulations approved by the schools’ governing board.
Be aware of the seven principles of public life
In the UK, all school leaders, as public managers, must adhere to the ‘seven principles of public life’ which have been issued by UK parliament. The seven principles mean that public managers must demonstrate:
I. Selflessness – decisions taken must be solely in the public interest;
II. Integrity – public managers must avoid placing themselves in situations where other people/organisations might try to inappropriately influence them;
III. Objectivity – public managers must act and take decisions impartially;
IV. Accountability – public managers are accountable to the public for their actions/decisions and must submit themselves to the scrutiny necessary to ensure this;
V. Openness – public managers should act and take decisions in an open and transparent manner without holding information from the public (unless valid reason for doing so);
VI. Honesty – public managers should be truthful;
VII. Leadership – public managers should exhibit these principles in their own behaviour and actively promote and robustly support the principles – and challenge other public managers if they observe what appears to be poor behaviour;
All actions by school leaders should align to these principles, especially when managing public resources.
Ensure there is always a business case
School leaders should prepare business cases for all significant purchases. Writing a business case will help school leaders to:
• specify what is needed, why it is needed and by when;
• ensure proper approval is sought to make the purchase;
• record the decision-making process;
The business case should include:
• what is being proposed;
• why it is being proposed;
• what are the risks;
• a draft of the specification;
• the estimated cost;
• any opportunities to work with other schools;
• any opportunities to save on associated costs – such as servers;
• evidence of research and consultation;
Authors of business cases should check there is available budget.
Conclusion
Public managers, including school leaders, can sometimes be so pre-occupied with service-delivery responsibilities, that they neglect their financial management responsibilities. Managing public money is an extremely important part of the public managers job, for which they are accountable to several stakeholders (including most importantly the public!), so they need to give that part of their job the attention it deserves.
School leaders/LA’s should review arrangements in place for school MIS systems to ensure that they have, both a valid contract which has been the result of a competitive quotes/tender and considered cloud options with possible server-cost savings.
References
I. DFE email to all schools titled ‘contract extensions’ dated 21st December 2018
II. Open University’s online course – ‘Managing Public Money’ - https://www.futurelearn.com/courses/managing-public-money
III. Paper by Vanessa Pittard – ‘LA-wide MIS switching and Total Costs of Ownership (TCO)’ - https://www.vanessapittard.co.uk/blog
IV. DFE Resources – ‘Buying For Schools’ - https://www.gov.uk/guidance/buying-for-schools
About the author
Yusuf Erol is a Chartered Certified Accountant (FCCA) with over 15 year’s experience in public finance management. He has over 10 years’ experience in various senior local authority financial management and procurement roles. He is former Chair of the Association of Chartered Certified Accountants (ACCA’s) Public Sector Panel. He is former Chair of the Finance Committee at Hoxton Garden School. He is the former Vice-Chair of the Governing Board at Hoxton Garden School. He has delivered several training sessions to public managers on finance and procurement. He has contributed to Open Universities online course – Managing Public Money. He is currently Head of Finance at London Borough of Hackney’s education department.