House of Commons - Public Accounts

Select Committee on Public Accounts Fortieth Report

PROJECT IMPLEMENTATION

16. Although the levels of delegated authority for project management staff should be clearly set out if institutions are to ensure that control over decision making is not lost, the National Audit Office found that, for two of the ten projects they examined, no formal level of delegated authority had been set.[14] We therefore asked the Funding Council whether they thought that institutions could operate without such delegated authority. They told us that they agreed that formal delegation was necessary, and that this would be part of any advice they gave to institutions.[15]

17. Good practice indicates that buildings should be designed with whole-life costs in mind, that is, with the objective of minimising the costs of the building over its whole life, rather than simply minimising the costs of construction. This approach was adopted to varying degrees for the projects examined by the National Audit Office, but was not an integral part of the design process in most cases.[16] When asked about the failure by institutions to give appropriate consideration to whole-life costing, the Funding Council said that they agreed that whole-life costs should be taken into account. They had examined energy management in institutions, resulting in the publication of advice in 1996 which promoted that particular aspect of whole-life costing, and were currently conducting a study on whole-life costing which would result in advice to institutions on the generic nature of the technique.[17]

18. A further technique for improving value for money is value engineering. This involves subjecting the design proposals to systematic review at each stage of the design process to ensure that the final design meets user requirements, without over-specification, at the lowest possible cost. Only four of the ten projects examined by the National Audit Office had incorporated a form of value engineering.[18] The Committee asked the Funding Council what steps were being taken to encourage the use of such techniques, so that the full scope for savings in this area could be realised. The Funding Council said that value engineering was a relatively recent technique and that, for a number of the projects examined by the National Audit Office, the formative stage had been four or five years ago. They thought that since then there had probably been an increase in the use of more formal methods of assessment. The method through which they could encourage the use of such techniques was to make sure that advice was available to institutions, and they intended to do that in the coming year. This could include advice from the Treasury, the National Audit Office and other external sources, from the sector itself, and from the Funding Council.[19]

19. The National Audit Office identified weaknesses in procurement procedures for the projects examined. This included a failure in two of the ten projects to meet the requirement of European Community competition directives.[20] We asked the Funding Council what action they were taking to ensure that all institutions were aware of the requirements of such directives, and to monitor institutions' compliance with such legislation and with accepted best practice. They responded that they would expect all institutions to follow European practice. They said that in one of the instances of failure, the project had started before the European practice was confirmed, and in the other, the first part of the project met European rules but unfortunately the second part did not.[21]

20. We also asked the Funding Council what they were doing to bring about the spread of good practice in procurement procedures given that the National Audit Office had identified the absence of formal tendering procedures to control the opening and recording of tenders at two of the ten institutions visited. The Funding Council told the Committee that they had carried out a survey and believed that 98 per cent of institutions did have formal tendering procedures, the exceptions being two very small colleges.[22] The Funding Council subsequently told us that the current position was that 130 of the 139 English higher education institutions had now responded to their survey, and that only the two aforementioned institutions did not have formal tendering procedures. These institutions were not the same as the two identified by the National Audit Office, which had now put in place formal tendering procedures. The Funding Council said that they intended to continue to seek replies to their survey from the remaining institutions, and would follow up the survey by using the information when conducting its cyclical visits. In addition, the Funding Council's Estates Service planned to conduct cyclical reviews of all institutions' estates departments, which would incorporate the dissemination of good practice and encouragement to adopt appropriate procedures.[23]

21. The National Audit Office found that, on average, consultants' fees for building projects within the higher education sector represented eight per cent of total project costs, but that they could amount to 15 per cent of the total cost. Fixed fees were to be preferred where this was possible as this allowed institutions to control their costs.[24] The Committee asked the Funding Council whether there should be a requirement for institutions to employ consultants on fixed fees. The Funding Council replied that a manager would normally try to get fixed costs, but that it would depend on the circumstances. In some cases they may not quite know what was required of a consultant, and there would therefore have to be some degree of variability.[25]

22. Some of the examples in the National Audit Office's report suggest that good practice drawn from some institutions in the sector and more widely is not being shared with other institutions. We therefore asked the Funding Council what they were doing to ensure that such experience is shared more widely in future, and to encourage institutions to have some form of standardisation in their requirements. The Funding Council told us that a lot of advice had been given to the sector since the projects examined by the National Audit Office had been started, and that they had followed this up by a series of seminars. They also said that they planned to make such advice available to institutions on a web site because they wanted to spread advice quite widely. They felt that standardisation, and the savings that come from that, would probably be more applicable to larger institutions, and that the promotion of the National Audit Office report and its case histories would help to draw attention to that.[26]

23. The National Audit Office found that six of the ten institutions they visited had purchasing officers to co-ordinate the purchase of the institution's goods and services, but that these officers were not usually involved in the procurement of either consultants or construction contractors.[27] A private sector organisation visited by the National Audit Office had demonstrated the value of putting together a mixed team of property and purchasing professionals working together to procure capital projects.[28] One of the institutions visited by the National Audit Office had also secured an additional discount of over ten per cent on the cost of furnishings through the use of its purchasing consultant.[29]

24. The Committee asked the Funding Council whether they accepted the general view of the focus group of estates directors consulted by the National Audit Office that purchasing officers did not have the skills which readily transferred to the procurement of building and related services. The Funding Council said that they accepted the general argument of estates directors that purchasing officers in general have enough to do purchasing goods and services, and that the procurement of buildings and related services was a specialist activity. They hoped, however, that over a period of time purchasing officers might be able to help with buildings.[30] We further asked the Funding Council whether they gave advice to institutions regarding the procurement of consultants or construction contractors. They responded that the Committee of Vice-Chancellors and Principals had issued guidance in January last year, and that for procurement more generally the Funding Council were creating a unit to provide advice at the national level to all those purchasing in universities.[31]

25. Some of the institutions visited by the National Audit Office had procedures for undertaking a post-implementation review of their building projects, but none had yet done so at the time of the visit.[32] We asked the Funding Council how institutions were able to assess the value for money achieved from their building projects if they did not evaluate the extent to which individual projects had met their objectives. They replied that they would expect projects to be evaluated, but that the evaluation against objectives could not be done instantly. These were buildings which had been constructed with a long life, with financial targets, with targets with respect to staff and students, and it would take a while before they were able to be properly evaluated.[33] The Funding Council added that they intended to take the reference to post-implementation review contained in Treasury guidance, and to include this in advice for the sector on how to assess the success of a project, to be issued later in 1998.[34]

Conclusions

26. The Committee are concerned that no formal level of delegated authority had been set for two of the ten projects examined by the National Audit Office. The levels of delegated authority for project management staff need to be clearly set out if control over decision-making by an institution is not to be lost. We look to the Funding Council to ensure that their guidance to institutions includes the need for formal delegation.

27. The application of techniques such as whole-life costing and value engineering can achieve significant savings on building projects. We are therefore concerned that such techniques had not been widely applied by the institutions visited by the National Audit Office, and that opportunities for savings may have been missed. We look to the Funding Council to encourage institutions to make use of these techniques. We acknowledge the Funding Council's previous work on whole-life costing in the context of energy management, and welcome their intention to produce more generic guidance in this area. We also welcome the Funding Council's intention to make guidance available to institutions on the use of value engineering techniques in the coming year.

28. We are concerned about the weaknesses in institutions' procurement procedures for building projects, including failure to meet the requirements of European Community competition directives, and a lack of formal tender procedures. The Committee note that the Funding Council have now undertaken a survey on institutions' tendering procedures, and that they intend to follow this up through cyclical visits to institutions. We stress the importance we attach to institutions complying with relevant European legislation, and adopting appropriate tendering procedures. Consultants' fees can represent a significant proportion of the total cost of a building project. Whilst the Committee accept that institutions may not always know in advance exactly what will be required of a consultant, we would expect fixed fees to be used wherever possible, thus giving institutions greater control over their costs.

29. It is important that higher education institutions learn from the good practice in relation to the management of building projects that is developed within that sector, in other parts of the public sector such as further education colleges, and beyond. We are therefore encouraged that the Funding Council plan to make advice and guidance on estates matters available to institutions on a web site.

30. Institutions' purchasing officers had little involvement in the building projects examined by the National Audit Office. The Committee recognise that building projects require specialist knowledge, but are concerned that institutions are not making the best use of the skills available to them as regards procurement procedures for building projects in order to achieve the full potential for savings. We therefore recommend that the Funding Council encourage institutions to draw on the generic skills of their purchasing officers when undertaking building projects.

31. We are concerned that the institutions visited by the National Audit Office had not yet undertaken post-implementation reviews of their building projects, to establish whether the projects have met their objectives and to learn lessons for the future. Some of these projects were completed as early as 1994 and have been in use for some time. We note the Funding Council's intention to issue guidance later this year on post-implementation reviews and that this will incorporate Treasury guidance on such reviews.

14 C&AG's report (HC 452 of Session 1997-98), para 3.9 Back

15 Q70 Back

16 C&AG's report (HC 452 of Session 1997-98), para 3.15 Back

17 Qs 82-85 Back

18 C&AG's report (HC 452 of Session 1997-98), paras 3.17-3.18 Back

19 Q4 Back

20 C&AG's report (HC 452 of Session 1997-98), paras 3.21, 3.26 Back

21 Q5 Back

22 Q74 Back

23 Evidence, Appendix 1, p16 Back

24 C&AG's report (HC 452 of Session 1997-98), paras 3.22-3.23 Back

25 Q50 Back