Memorandum by the Audit Commission (PSR
36)
INTRODUCTION
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.
INVOLVEMENT OF
THE PRIVATE
SECTOR
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.
CONCLUSION
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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