APPENDIX 5
Memorandum from the Audit Commission (RPS
10)
1. This submission sets out:
(i) the implications for the Audit Commission's
inspection of LEAs;
(ii) good practice in the procurement of educational
services by LEAs;
(iii) audit and governance considerations in
relation to the contracting out of local education authority services
under the School Standards and Framework Act 1998 and the management
of schools by private sector companies.
IMPLICATIONS FOR
THE AUDIT
COMMISSION'S
INSPECTION OF
LEAS
Background
2. LEA inspections in England are carried
out by Ofsted, with the assistance of the Audit Commission, under
section 38 of the Education Act 1997. The inspection focuses on
how well LEAs are discharging their statutory responsibilities
in relation to schools. The Commission contributes one quarter
of the inspection effort, focusing on non-curricular aspects of
LEA services such as resource management, planning, transport
and admissions.
3. The inspection cycle is determined by
the Secretary of State in consultation with Her Majesty's Chief
Inspector. Just over 40 per cent of LEAs in England have so far
been subject to inspection, with a further 50 scheduled for the
coming year.
4. In the course of an LEA inspection, inspectors
consider:
— outcomes for schools and pupils,
using a schools survey, school visits and interviews of other
stakeholders; and
— the strategy and management arrangements
of the LEA, by interviewing officers and reviewing policy documents,
budgets and plans on a service-by-service basis.
The scope of the inspection would be the same,
regardless of whether the educational services were provided by
the LEA itself or by a private contractor.
Inspection of outsource educational services
5. Although the contracting out of educational
services following an intervention by the Secretary of State is
a new development, there is already experience of evaluating outsourced
services during an LEA inspection. As well as services contracted
out under compulsory competitive tendering, many new unitary LEAs
have recognised that they are too small to provide all services
directly. This has not had significant implications for the inspection
process because inspections are conducted by examining outcomes
for schools and the budgets and plans for the service, which apply
equally to outsourced as to in-house educational services.
6. Inspection evidence would suggest that
well-run procured arrangements are as capable of delivering a
high quality service as direct provision by an LEA.
Inspection of LEAs subject to an intervention
by the Secretary of State
7. No LEAs that have been subject to an
intervention by the Secretary of State under the School Standards
and Framework Act 1998 have yet been re-inspected. Re-inspection
would take place at the request of the Secretary of State, and
normally after not less than six months. When such an inspection
is requested, we would expect to apply broadly the same inspection
process as that outlined in paragraphs 4 and 5 above.
8. Ofsted and the Audit Commission have
therefore not yet had an opportunity to evaluate services provided
through intervention contracts. When such an inspection does take
place, we will be able to evaluate the economy, efficiency and
effectiveness of such services.
9. The new Framework for the Inspection
of Local Education Authorities[1],
effective from 1 September 1999, provides for the inspection of
services contracted out following an intervention by the Secretary
of State. Paragraph 12 of the Framework states:
"Different patterns of LEA organisation
and activity have evolved in recent years. The inspection programme
will take account of the LEA's particular circumstances, its vision,
priorities and relationships with its schools, as set out in the
EDP and other plans. The Framework does not prescribe the way
in which LEAs should go about their work".
"The review will also cover services that
the LEA has contracted out. This Framework should not be seen
to delimit the way in which the Secretary of State and HMCI may
exercise their powers under Section 38 in future".
Good practice in the procurement of educational
services by LEAs
10. There is no specific model for tendering
for the management of state-funded education services. This is
a critical area for LEAs to consider and the annual financial
contract value, which may be modest, may not adequately convey
the overall significance of the services to be provided—which
may affect the life chances of local children.
11. The paragraphs below set out points
that LEAs should bear in mind in the procurement of educational
services. These are based on relatively limited experience of
the outsourcing of educational services to date, and on recent
Private Finance Initiative deals (also limited in number).
Consultation
12. Given the considerable significance
of the education service to the local community, LEAs should ensure
that service users and the wider community are fully consulted
over proposals to externalise services. For example, when Dorset
County Council decided to consider seriously a PFI scheme for
provision of a school (Colfox) they consulted:
Governance
13. Authorities have a difficult task in
balancing the need for flexibility and very broad consultation
with potential partners, with the need to demonstrate appropriate
stewardship controls of public money. They should therefore ensure
that all meetings between potential contractors and officers and
members of the authority (and any other interested parties) are
thoroughly minuted, and wherever possible, are attended by at
least two individuals from the authority.
14. Authorities should also review their
governance arrangements (such as contract standing orders and
financial regulations) to ensure that they reflect the new contractual
arrangements. This is dealt with in further detail in paragraphs
18-20 below.
Lessons from PFI exercises
15. Whilst there are important differences,
particularly over the treatment and financing of assets, there
are some similarities between PFI procurement exercises and tendering
for the management of state education services. Some lessons from
recent PFI exercises are pertinent to the procurement of education
services. In particular:
— trust between all parties is essential
to achieve an improvement in standards of educational support;
— services need to be specified in
output and wherever possible outcome terms;
— payments should be linked explicitly
to the provision of the specified service;
— rigorous performance measures and
bench-marks should be developed and used, to secure value for
money and high standards of provision in respect of the contract,
or parts of it;
— contracts are likely to be long term,
but with clear and regularly monitored performance criteria; and
— the LEA should avoid commitment to
a particular partner at too early a stage.
Dissemination of good practice
16. The Audit Commission would recommend
that as experience of procuring educational services grows, consideration
be given to developing standard forms or contracts and to disseminating
good practice guidance in procurement and contract monitoring
procedures, so that LEAs do not have to "reinvent the wheel"
every time one of these contracts is let.
European Public Procurement legislation
17. Noting the comments of Councillor Andrew
Povey, Chair of Education at Surrey County Council in his evidence
to the Sub-committee on 27 October 1999, there would appear to
be some uncertainty over the impact of EC Public Procurement legislation.
Currently educational services are categorised as residual services
in the context of the EC Services Directive. This means that the
Directives impose requirements relating to technical specifications
and the insertion of contract award notices in the Official
Journal of the European Community (OJEC) rather than the full
requirements of the Directive relating to advertisements, tendering
procedures and award criteria. The Sub-committee may wish to consider
whether this may be an appropriate subject for future Treasury
Guidance.
Audit and governance considerations
18. Section 8 of the School Standards and
Framework Act 1998 gives the Secretary of State broad powers "to
secure proper performance of an LEA's functions". These powers
allow for not only the outsourcing of a function of the education
service, but also, if the Secretary of State so directs, for the
delegation of associated decision-making powers.
19. Where decision-making powers are delegated
to a private contractor, auditors would have to be satisfied that
approriate controls are put in place by the authority, clearly
delineating the extent of, and limits to, the contractor's powers.
20. The Audit Commission would recommend
that an LEA ensures that:
— its standing orders and financial
regulations are updated to include the delegation of decision-making
to a private body;
— the contractor's policies and procedures
(for example, relating to equal opportunities) are clearly stated
and consistent with those of the LEA;
— the contractor has a clear understanding
of the statutory framework governing the education service. The
contractual agreement should set out in unambiguous terms where
responsibility would lie should the private company break the
law in the provision of the education service and where the associated
risk would like. For example, if the contractor were to incur
expenditure that was ultra vires, who would be responsible
for the recovery of the unlawful expenditure?
— all contingencies in letting the
contract are considered, so that provision of a high quality education
service is not interrupted. For example, what would happen if
the private company went into liquidation?
— arrangements for monitoring the contract
on a regular basis are clearly stipulated, together with steps
that would be taken should the private company become in breach
of the contract.
Audit Commission
November 1999
1 Published by Ofsted in conjunction with the Audit
Commission. Back
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