Written by

Yusuf Erol FCCA

School leaders and local authority officers can take a number of steps to ensure they get the best value for money from their contracts, say Yusuf Erol and Rizwan Khalid

This article was first published in the May 2019 UK edition of Accounting and Business magazine. (Getting value for money in the public sector – ACCA Global website)

In a world of finite resources, it is a challenge for public officers to get the best value from their services, but careful planning and prioritising of activities can help.

When thinking about value for money, public managers tend to think about the supplier selection process, quotations, tenders and so on. But the first step to achieving value for money is to conduct a needs assessment and/or establish the business case. Managers need to question themselves as to whether or not they even need the good or service they are planning on procuring.

Local authority-maintained schools often have a tendency to renew contracts without giving the necessary thought to the open market and commercial competition, particularly with regard to their IT systems.

A circular from the Department for Education (DfE) in December 2018 outlined what is expected from schools when it comes to procuring and re-procuring, including the requirement for competition to achieve value for money.

In particular, the DfE also makes it clear that moving from a server-based management information system and finance system to a cloud-based system constitutes a material change to requirements, so there must be a new procurement exercise. Schools must not upgrade their systems to the cloud with the existing supplier without allowing other suppliers to bid for the contract.

When looking at savings through procurement and re-contracting, it is useful to apply ‘TCO thinking’ (total cost of ownership). Those costs include:

  • buying costs (the buying officer’s time and effort)
  • upfront costs (of goods/services being procured)
  • running costs (staff/depreciation over time)
  • hidden costs (associated indirect costs, eg space, energy, servers, etc)
  • end-of-life costs (decommissioning and remedial costs).

Applying TCO thinking will provide a much clearer picture of a product or service that might look attractive initially but on closer assessment indicates there may be better solutions. For example, replacing software with a like-for-like product without considering the wider ‘technology stack’ and cloud options could mean an organisation missing out on potential infrastructure savings.

A recent case study found there was a degree of ‘fragmentation’ regarding visibility of ‘connected costs’ that are spread across schools and local authorities, which adds to the difficulty of TCO thinking. This includes items such as licensing costs for software, which could be paid centrally by the local authority where other costs are charged directly to the school. Public managers should take a wider public sector view when undertaking TCO thinking.

Another way of looking at this is to build a solid business case for procurement, which must have a return-on-investment matrix or a value-creation argument looking at what is being spent and what value it will create for the school in terms of efficiencies or statutory compliance.

Local authority support

Most local authorities have large procurement departments with appropriately qualified officers that understand the principles above, and from which local authority-maintained schools can seek procurement help.

Local authority finance and procurement officers assigned to education could benefit from learning more about the schools in their local area, their structures, problems and issues regarding budgets, schemes of delegation and procurement rules adopted by the schools’ governing boards. Wherever possible, they should seek to aggregate multiple schools’ resources to get better value through economies of scale. They should also provide education and training to business managers, bursars and other leaders in schools in order to strengthen TCO-thinking. They could also encourage the case for competition, as required by law and stated in various DfE publications.

All school leaders, as public managers, must adhere to the Nolan principles – the seven principles of public life issued by the UK parliament in 1995. They must demonstrate:

  • selflessness – taking decisions solely in the public interest
  • integrity – avoiding getting into situations where other people or organisations might try to inappropriately influence them
  • objectivity – acting and taking decisions impartially
  • accountability – being accountable to the public for their actions or decisions and submitting themselves to the scrutiny necessary to ensure this
  • openness – acting and taking decisions in an open and transparent manner without holding information from the public (unless there is a valid reason for doing so)
  • honesty – being truthful at all times
  • leadership – demonstrating these principles in their own behaviour, actively promoting and supporting the principles, and challenging other public managers if they observe what appears to be poor behaviour.

School leaders and other public managers can sometimes be so preoccupied with service-delivery responsibilities that they struggle to fulfil their financial management responsibilities. But managing public money is an extremely important part of the public manager’s role, 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.

Yusuf Erol FCCA is head of finance at the London Borough of Hackney, and Rizwan Khalid MCIPS is Barnardo’s head of procurement.