Select Committee on Public Accounts Minutes of Evidence


APPENDIX 1

Memorandum submitted by the Office of Government Commerce (PAC 00-01/122)

Q 72 MODERNISING CONSTRUCTION

  At the PAC's hearing on 14 February you expressed concern that partnering arrangements between Government clients and private sector contractors could lead to too comfortable relationships which are not conducive to securing value for money for the taxpayer. Sir Richard Mottram and I agreed that it would be appropriate for me to respond to your request as I am the Accounting Officer responsible for overall Government procurement policy in this area.

  The NAO and Egan Reports have set out very clearly the significant value for money improvements which can only be gained from the use of partnering. Partnering between the client and the main contractor working together on the execution of a single project has the potential to generate savings between 2 to 10 per cent compared to conventional techniques; partnering between these parties across a series of construction projects promotes longer-term continuous improvement which can yield savings of up to 30 per cent in the cost of construction.

  As the NAO Report sets out on pages 29-32 partnering, if established reliably, should provide public sector clients with greater assurance that value for money is being achieved if the following principles are adopted:

    1.  The basis of appointment of partners is based on competition using any of the three routes recommended by the Office of Government Commerce ie Public-Private Partnerships, Design and Build, or Prime Contracting.

    2.  Clear targets for continuous measurable improvements in quality, delivery times and cost reductions have to be agreed and committed to by the parties.

    3.  Gain/pain share arrangements are established so that efficiency gains can be shared and contractors are incentivised to be innovative and cost effective.

    4.  Open book accounting so that departments have reasonable access to contractors' financial records and cost information to have confidence in reported improvements in efficiency and performance.

  This reinforces some of the advice and guidance set out in the HM Treasury Procurement Guidance Note No 4 (Teamworking, Partnering and Incentives) which was published in June 1999; a copy is attached to this letter.

  This Guidance Note also highlights a number of other important aspects to help ensure that such arrangements deliver enhanced value for money:

    1.  The need for full, visible and continuous support from very senior management of each partner organisation.

    2.  Benchmarking to test that the partnership relationship is delivering value for money eg by comparing performance against other contracts or seeking clear demonstration that value for money has increased since the start of the contract.

    3.  Recompeting the contract after a given interval.

  It is my intention to produce updated advice and guidance later this year aimed at Permanent Secretaries and other very senior management on partnership relationships. My objectives are to encourage more widespread use of partnering as a management technique in view of the substantial value for money benefits that it can offer, while ensuring that such arrangements are established and operated within a taut framework with safeguards to propriety and the interests of the taxpayer. I will give proper consideration to NAO and PAC recommendations arising not only from this report, but also from other reports on projects, particularly in the Construction, Property Management and IT domains, where partnering techniques have been used by Government clients.

  Please don't hesitate to contact me if I can be of any further assistance on this matter.

Peter Gershon CBE
Chief Executive

16 March 2001


 
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