Part 6: Putting the principles into practice

Public sector purchases, grants, and gifts: Managing funding arrangements with external parties.

6.1
In this Part, we set out our high level expectations for how public entities will manage funding arrangements at a strategic organisational level and throughout the life cycle of particular funding arrangements.

Our general expectation: having appropriate policies and procedures

6.2
Our general expectation, for all areas of funding arrangements with external parties, is for the public entity to consider the nature of its activity and the types of funding arrangements it uses to achieve its goals, and have in place policies and procedures to guide staff. Subject to any specific legal or other rules applying to the public entity, we expect those policies and procedures to be consistent with the principles and practical considerations set out in this guide, and to reflect as appropriate the types of high level expectations described in this Part.

Generic expectations for all funding arrangements

6.3
There are some matters that are so fundamental to public sector administration that they are generic expectations for all categories of funding arrangements. They are not included in the expectations summarised in Figures 4 and 5, because we expect a public entity's systems to support these aspects as a matter of course.

6.4
Our generic expectations are:

any proposed use of public funds should be for the public purpose or goals of the public entity – that is, it should fit with the entity's overall strategic and business planning;
for government departments, all funding arrangements must be within the scope of the relevant appropriation, which sets the terms on which Parliament has authorised the use of public funds;
individual funding decisions must fit within the budget of the public entity, and must have appropriate justification for the cost of the particular funding arrangement;
delegations of authority should be in place within a public entity, and spending decisions must be taken at the right level in keeping with those delegations;
all funding arrangements should be managed in keeping with a public entity's policies and procedures unless there is a documented decision, at the right level, to do something differently;
all those involved in making decisions or managing funding arrangements must act in keeping with the state sector code of conduct or any equivalent sectoral or organisational documents setting ethical standards;
systems must be in place to ensure that all those involved in making decisions or managing funding arrangements appropriately identify, manage, and record conflicts of interest; and
record-keeping systems should be in place to support effective decision-making, monitoring, and management, and to enable the public entity to be open and accountable.

Some practical considerations

6.5
The principles set out in Part 2 are deliberately at a high level. They are a starting point, and a reminder of the basic obligations on those spending public money. In any particular public entity or situation, they need to be applied flexibly and practically, to achieve the goals of the public entity or of the particular funding arrangement through the most sensible means. We have previously described this as taking a risk-based approach.¹

6.6
For example, the principle of accountability at its simplest means that a public entity has to be able to explain what public money has been used for. For a very minor and simple purchase, this may require no more than a receipt for a bottle of milk or a note on the back of a taxi receipt recording the purpose of the travel. For major contracts, such as for a new information technology system, much more would be needed to reflect the same principle, such as fully developed business cases, formal documented approvals at the appropriate level, detailed contracts, ongoing and systematic monitoring of progress under the contracts, and full documentation of the whole procurement process.

6.7
When deciding how to give effect to these principles in any particular situation, public entities should consider:²

The goal – It is important for the public entity to focus on what it is trying to achieve. Process should not dominate at the expense of the outcome.
Simplicity and proportionality – The requirements put in place for the funding arrangement should be as simple and practical as possible, considering the amounts involved, the complexity, and the level of risk. It is appropriate to consider compliance costs for the parties, and seek to reduce them where possible.
The context – The arrangements need to fit with the overall context of the funding arrangement, including any more general relationship that the external party has with the entity or with other relevant government organisations. For example, a funding arrangement between a department and a non-government organisation may need to take account of any general government policy on relationships with the community and voluntary sector.
The risk – Public entities need to identify risks in or around the funding arrangement and to consider how to manage those risks. This should not be seen as encouragement to be overly risk averse. The key is to get the right balance between risk and expected benefit, and to do so consciously.
The nature of the parties – The needs and standards of public entities – for example, for accountability or transparency – may be quite different from those that the external party usually encounters. Equally, the external party's needs may be quite different from those of the public entity. For example, a non-government organisation may have unique obligations to constituent groups or members. Relationships are likely to proceed more constructively and effectively if each party understands the needs of the other and the consequences of those needs for them.

6.8
Considering these factors carefully should help an entity structure and manage a funding arrangement appropriately. Each different category of arrangements has a standard set of procedural and other expectations, deriving from this guide and other good practice guides and requirements, that reflect the basic principles in Part 2. However, these standard expectations can and should be tailored to suit the needs of the individual public entity and the individual situation.

Managing across the life cycle of a funding arrangement

6.9
At each stage of the life cycle of a funding arrangement, a public entity needs to think about what the principles require for that type of arrangement in that particular context.

6.10
The life cycle of funding arrangements is discussed in our good practice guides on non-government organisations, procurement, and partnership arrangements, as well as in the Treasury non-government organisation guidelines. In summary, a life cycle approach requires the public entity to think about the different stages that the arrangement will go through. We summarise these as:

planning for the funding arrangement;
selecting a provider and agreeing the terms;
managing and monitoring the arrangement; and
reviewing, evaluating, and starting over (where appropriate).

High level expectations for the different arrangements

6.11
At each stage of the life cycle, we have a number of high level expectations for each category of funding arrangement that show how we expect the basic principles in Part 2 to be reflected in practice. Figure 4 sets out those expectations for the four categories of purchasing arrangements. Figure 5 sets out those expectations for the three categories of grants and gifts.

6.12
There will usually be various sources of guidance to help public entities apply the principles in line with our expectations. A public entity's policies and procedures may already translate the principles and other legal and administrative requirements into concrete expectations and procedural steps. We and others continue to produce more detailed procedural guides on a wide range of topics. We discuss the range of sources of requirements and guidance in Part 7.

Figure 4
General expectations and sources of guidance for managing purchasing arrangements

Type of funding arrangement
Minor conventional purchase	Major conventional purchase	Minor relational purchase	Major relational purchase
General expectations: planning stage
Any planning, decisions, and approvals follow the entity's policies and procedures.	Formal planning and project systems put in place to manage the contract process. Suitably skilled staff assigned. Legal advice on process and contract as needed.	Any planning, decisions, and approvals follow the entity's policies and procedures. A key person assigned to manage the particular funding arrangement. Early liaison between the key person and any others in the public entity involved in managing the relationship with the external party.	Planning, decisions, and approvals at a level appropriate to the scale of the contract. Suitably skilled staff assigned. Early liaison between the key person and any others in the public entity involved in managing the relationship with the external party. Legal advice on process and contract as needed. Assessment of risks and relationship context.
General expectations: selection stage
Selection process may vary (direct negotiation, quotations, preferred suppliers, closed tenders) but will involve periodic reference to the market. May be standard form contracts, or little negotiation of terms. Documentation of agreement.	Competitive selection process (preferably open tender). Formal processes with procedural safeguards. Negotiation of specific and detailed terms and conditions. Full formal documentation of contract.	Selection process may be limited if no effective market, or if urgent and specialist goods or services needed. May be no negotiation of terms, or use of standard form contracts. Documentation of agreement, possibly through an exchange of letters.	Selection process more likely to involve direct negotiation than competitive systems. If no effective market, may use other approaches to determine price (for example, open book, benchmarking components, or independent peer review). Clear documentation of agreement and what is being funded.
General expectations: monitoring stage
Possibly periodic payments, dependent on performance. Monitoring through normal office systems for processing receipts and invoices.	Systematic oversight. Comprehensive reporting. Payments dependent on performance.	Payments dependent on performance.	Systematic oversight. Reporting requirements tailored to situation. Periodic payments, dependent on performance. For long-term contracts, periodic review to ensure that the rationale for the arrangements continues to apply.
General expectations: review stage
Periodic review of satisfaction with suppliers.	Programmed review well before contract expires.	Periodic review of purchasing experience and satisfaction. Periodic discussion with external party about mutual needs and satisfaction.	Programmed or regular review to check the purpose still relevant, satisfaction of both parties, price, and any other issues.
Sources of guidance
Procurement guidance for public entities Principles to underpin management by public entities of funding to non-government organisations Mandatory Rules for Procurement by Departments.	Procurement guidance for public entities Principles to underpin management by public entities of funding to non-government organisations Achieving public sector outcomes with private sector partners Mandatory Rules for Procurement by Departments.	Procurement guidance for public entities Principles to underpin management by public entities of funding to non-government organisations Mandatory Rules for Procurement by Departments.	Procurement guidance for public entities Principles to underpin management by public entities of funding to non-government organisations Achieving public sector outcomes with private sector partner Mandatory Rules for Procurement by Departments.

Figure 5
General expectations and sources of guidance for managing grants and gift arrangements

Type of funding arrangement
Conditional grant	Grant with limited conditions	Gift or donation
General expectations: planning stage
Process to check that purpose aligns with entity's business or functions. Organisational policy and business planning to develop systems and criteria for considering applications or requests.	Process to check that purpose aligns with entity's business or functions. Organisational policy and business planning to develop systems and criteria for considering applications or requests.	Authorised in accordance with entity's policies.
General expectations: selection stage
Systematic process for considering applications or requests against criteria. Specific assessment of the basis for the amount of the grant sought. Clear documentation of terms of the grant and what is being funded. Clear and appropriate conditions set to manage risk and ensure suitable accountability.	Systematic process for considering applications or requests against criteria. Specific assessment of the basis for the amount of the grant sought. Clear documentation of terms of the grant and what is being funded. Some clear and appropriate conditions set to manage risk and ensure suitable accountability.	No application process. Voluntary. May be a tangible gift, or money, or time.
General expectations: monitoring stage
Regular reporting or other checks (at an appropriate level) to assess progress and whether further funds should be released, to enable funder to assess success. Payment may be in advance of delivery/performance but could be in stages to manage risk.	Payment may be in advance of delivery/performance but could be in stages to manage risk. Possibly some ongoing reporting or monitoring arrangements, depending on risk, scale, and nature of the relationship, to enable funder to assess success.	No reporting by recipient.
General expectations: review stage
Full reporting of achievements against the purpose of the grant.	Some reporting of achievements against the purpose of the grant.	Recording through normal office systems for minor expenditure.
Sources of guidance
Principles to underpin management by public entities of funding to non-government organisations	Principles to underpin management by public entities of funding to non-government organisations	Controlling sensitive expenditure: Guidelines for public entities

1: Office of the Auditor-General (2006) Principles to underpin management by public entities of funding to non-government organisations, Wellington.

2: Based on the National Audit Office's Financial Relationships With Third Sector Organisations – a Decision Support Tool for Public Bodies in England, page 4, available on the National Audit Office's website (www.nao.org.uk).

page top