Select Committee on Public Administration Appendices to the Minutes of Evidence

Memorandum by the Audit Commission (PSR 36)


  1.  The Audit Commission for local authorities and the NHS in England and Wales is an independent body established under the provisions of the Local Government Finance Act 1982 and the NHS and Community Care Act 1990. Its duties are to appoint auditors to all local and health authorities and to help them bring about improvements in economy, efficiency and effectiveness directly through the audit process and through value for money studies. It also has a duty to carry out Best Value inspections of certain local government services and functions.

  2.  The public sector is becoming increasingly complex and the delivery of a growing range of key services requires the involvement of several different agencies. But it is increasingly recognised that waste and ineffectiveness can arise because public service providers operate within "chimney stacks". To help resolve this, the Government is promoting more sophisticated approaches to cross-cutting issues, stressing the importance of partnership, co-ordination and joint working to deliver services that should appear seamless to the recipient.

  3.  The Commission has a wide remit across the public sector and is well placed, though its studies, audit and inspection regimes, to facilitate multi-agency solutions to the delivery of important services. It has a strong track record of undertaking studies that cut across boundaries. The Commission's recent strategic review identified focusing on users as one of its four key priorities over the next few years.

  4.  The Commission's cross-cutting remit allows it to take an overview about the critical factors in achieving successful change in the public sector. The Commission's independent, evidence-based approach also allows it to look in-depth at particular areas of public policy—for instance PFI. The Commission is in the very early stage of researching a study on the impact of PFI across the public sector. The first phase of this research is due to be published in September 2002 and detailed research will begin in the New Year. Given the scope of the Committee's inquiry this paper outlines the direction that the research will take, although it is not possible at this stage to comment on the Committee's detailed areas of interest.

  5.  The Commission also undertakes broad studies that look at some of the key drivers for change in the public sector. Given the Committee's interest in public sector reform this submission will outline the headlines from the Commission's recent report Change Here! that identifies the essential factors for managing change in the public sector.

Achieving change in the public sector

  6.  In July 2001 the Commission published Change Here! a guide to change management for top managers in local government and the NHS, emphasising that change should begin and end with users' experiences and expectations. The research has indicated a series of key lessons for any organisation—public or private—seeking to manage change successfully to deliver improved services.

  7.  Effective leadership is key to delivering real and durable change. Leadership is increasingly a team, as well as an individual, responsibility particularly with the increased emphasis on partnerships, which involve roles extending beyond traditional organisational boundaries. While there is no single successful leadership style for delivering change successfully, a core set of change leadership roles can be defined:

    —  develop and promote a shared vision;

    —  mobilise staff and stakeholder support;

    —  make key decisions and navigate through the change journey; and

    —  support the organisation to deliver.

  8.  Successful leaders spend huge amounts of time communicating and building support for change. While directive change is possible and can deliver impressive short-term results in some circumstances, it tends to be resisted over the longer term and does not prepare an organisation to cope with future changes in its external environment. This means that local ownership is essential to achieve sustainable change and build capacity for ongoing improvement. Leaders need to develop and communicate a shared vision for staff and external stakeholders to buy in to and endorse, giving them a say in how things should change, and involving them in identifying and tailoring solutions to the organisation's own particular circumstances.

  9.  Leaders need persistence, resilience and consistency of purpose to stick to the key priorities through the typical ups and downs of change. More change is achieved through doing fewer things well. Defining and sticking to a small number of key priorities can be a major challenge, given multiple objectives and competing public sector priorities. But organisations with a clear sense of strategic direction and some demonstrable results are better able to resist being deflected and distracted. The leadership team has a key role in translating the overall vision into a manageable programme of projects that can be delegated within the organisation with overall progress and outcomes planned, monitored and measured. This programme must be owned and protected by the top team when difficult decisions arise about where to invest scarce resources and management attention.

  10.  To improve the things that matter, change programmes must be rooted in users' experiences and priorities. Service providers must understand what matters to their customers (users, patients, carers and the community) and how they experience the service. Without actively listening to customers and feeding that information back regularly and quickly to inform staff and management thinking, services can become dangerously out of touch. Change programmes are an opportunity to re-route services in the needs of customers, developing and applying understanding of customer priorities to service improvement initiatives. Users can also be directly involved in improvement programmes, and targets and measures can be set to include the things they value, as well as the technical efficiency and effectiveness indicators that are the basis of a sound service.

  11.  Weak project management is often to blame when change programmes fail. Significant change is complex, with many cross-functional dependencies, making project management key to successful delivery. This requires rigorous planning, a systematic approach and thorough execution balanced with flexibility. Rather than detailed project management, the role of the top team is to provide the freedom and resources for managers to deliver the changes, with accountability for challenging targets and deadlines.

  12.  Leaders can use external input as a key lever and support for change. "Outsiders" offer a range of skills and can play a wide variety of roles, including professional advice, peer or consultancy support, regulatory scrutiny, and involvement from the community and voluntary sectors. Common benefits can include: objective view of performance; the ability to gather and feedback others' views of the organisation and services; professional experience and judgement coupled with a fresh perspective; and constructive challenge to implicit internal beliefs and assumptions. Outside involvement adds most value when it results in organisations building their own capacity. Organisations with a clear sense of direction are better placed to benefit from external input.

  13.  Change programmes should include building the capacity for continuous improvement as an explicit goal. In a world of continuous, rapid, unpredictable change, organisations need to become change-friendly to survive. This means more than simply sustaining performance gains, though even this is challenging. It means getting better at change through actually doing it. Major change programmes place new demands on core systems such as information technology, human resources and performance management. Modernising these in line with the overall vision provides a platform for ongoing future change. Change programmes can also be a powerful way to extend skills and to develop future leaders. Giving able and committed people a chance to prove their capacity in demanding change roles can be highly motivating and benefit both the individual and the organisation.


  14.  The Commission is in the very early phase of scoping a study looking at the effectiveness of private finance initiatives (PFIs) in the public sector. The study will comprise two separate reports looking at issues on an individual service basis: one major sector will be reviewed next year resulting in an interim report in the latter part of the year on education. A subsequent report in spring 2003 will cover other sectors and draw out cross-cutting points.

  15.  PFI is a major and growing area of public expenditure in its own right:

    —  some £12 billion[14] of capital expenditure has been committed on PFI schemes in local government and the NHS to date, and at least another £3 billion[15] is to be committed by the end of 2003-04; and

    —  over 400 health and local authority schemes have either been approved, signed or are operational in England and Wales.

  16.  The length of PFI contracts, typically 25 years or more and their application to core public services make them high impact initiatives with long term consequences for services and the public.

  17.  PFI also appears to be the major procurement tool for new build in both education and health, the Government's priority services. The current pipeline of schemes will result in over 600 new and refurbished schools[16] and over 63 hospital schemes[17] being managed by PFI contractors. Hospital schemes that are either operational, under construction or close to financial close already account for over 15,000 hospital beds.

  18.  The Commission's early scoping exercise has confirmed the need for more hard evidence in the public domain about the value for money and service outcomes of PFI, particularly in local government. Whilst there have been a number of useful reports, including one on health, it has not been possible to take a detailed look at the impact of PFI schemes. An evidence-based project is now feasible, as a greater number of PFI schemes are becoming "live" in local government and the health service.

  19.  The focus of the Commission's study will be on PFI rather than PPPs, primarily because PFI policy and practice is at a different stage of maturity to PPPs, where there is considerable developmental work being undertaken at present. Unlike PPPs, there is also broad agreement as to what defines a PFI scheme and a common framework for each cohort of schemes, which enables comparisons to be more readily made. It is hoped, however, to be able to draw out wider lessons for PPPs going forward.

  20.  The project aims to inform decision makers in public bodies to help them obtain the services that their communities need, and value for money from assets and services procured through PFI by:

    —  assessing the evidence available about the value for money and service outcomes of a sample of PFI schemes;

    —  examining the effectiveness of partnerships between public and private sectors;

    —  identifying the wider impact of PFI on procuring authorities; and

    —  publishing the Commission's findings and drawing out key lessons and recommendations for the future development of PFI.

  21.  The Audit Commission has access to data on actual schemes that will help it to assist in the PFI debate by providing evidence about the strengths and weaknesses of PFI. It is also clear from the initial scoping work undertaken that the principle PFI stakeholders would welcome a review from an independent body such as the Audit Commission.

  22.  The main focus of the Commission's project is on PFI outcomes; ie the value for money and services being delivered in practice by PFI schemes. The project's starting point, therefore, is not the procurement process but the end product and its impact. The proposed lines of enquiry for the project are as follows:

    —  the value for money and service outcomes of PFI in both health and local government, looking at, for example, comparative costs, risk management, design/ service standards, contractual incentives to deliver best value, innovation and the day-to-day impact on key stakeholders;

    —  how contract management and partnership arrangements are undertaken in practice and the impact of different private sector's structures and approaches on long term value for money; and

    —  the wider impact of PFI on, for example, inter-dependent services, such as budgets, governance arrangements and future investment strategy.


  23.  The Commission is pleased to share with the Committee its work in both these areas and would be happy to give oral evidence around the Commission's focus on service users and the drivers for successful change in public services.

December 2001

14   4Ps, National Assembly for Wales, and NHS data. Local authority data based on PFI credits so ballpark capital figures only. Back

15   Data from the DTLR. Back

16   See footnote 1. Back

17   See footnote 1. Back

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