Value for money – general good practice for local authorities

Recent reports, such as that published by Middlesbrough Council earlier this year exploring their value for money arrangements, have outlined how some local authorities have struggled to secure economy, efficiency and effectiveness in the use of resources. With several high-profile section 114 notices also being issued by authorities including Birmingham City Council in late 2023, this article explores key areas of good practice for local authorities.

We have looked at the key issues highlighted by reports such as Middlesbrough’s and have outlined five practical steps which local authorities can implement to improve internal governance and financial stability in relation to their value for money procedures.

1: Ensure a process is in place to achieve value for money in contracts at the start of the financial year

Creating an effective process to achieve value for money takes time, especially when these need to be approved by the authorities’ members. Where a process is not already agreed, time for preparing, drafting and gaining approval for such value for money processes should be factored into authorities’ deadlines to ensure these are finalised before the start of the financial year and allow for proper implementation and consistency in contracts. Drafting of these procedures should include mitigations to account for changes to senior leadership positions, such as resignations or to account for annual leave (ensuring always to incorporate government guidance).

2: Clearly outline roles and responsibilities, taking steps to address any gaps in knowledge or positions, to ensure that informed decisions can be undertaken and any potential risks mitigated

Authorities should clearly understand what positions and accompanying responsibilities are required to deliver their priorities for the year, in accordance with relevant legislation and based on examples of best practice. These should be made available to all authority employees, provided in a clear manner to ensure a single interpretation of these occurs and to guarantee accountability where issues arise. Where gaps are identified, work should begin immediately to tackle these, utilising temporary solutions in the interim where necessary.

Additionally, appropriate approval processes should be in place to ensure all relevant employees are notified of changes and aware of situations when approval and/or oversight will be required. Internal performance management should also assess whether employees are working in accordance with internal processes and suitable remedial action should be taken, if not, to ensure the processes are not undermined in their effectiveness.

3: Set up appropriate arrangements to manage financial positions and to stop significant unexpected deterioration in the authorities’ positions over the financial year

Authorities should ensure they identify specific deliverable savings which can be implemented to control expenditure and protect any financial reserves. This may include, for example, identifying the best way to meet specific statutory requirements and how the authority intends to deal with unexpected expenditure. Additional forecasting should be undertaken to understand what significant financial pressures might occur above the annual budget based on previous overspends and mitigations put in place to reflect any lessons learned from these. The consequences of failing to do this can be seen within the Middlesbrough report with budget gaps of £0.858m in the 2022/23 budget and £12,059m in the 2023/24 budget which threatened to cause significant impacts on service delivery.

4: Establish clear procedures to govern how contract modifications are assessed and managed

The modification of contracts during their term is closely governed by procurement legislation and authorities should ensure they comply with legislation with suitable oversight from relevant internal procurement teams is provided. Where required, external legal advice should be sought to understand the legal position of the authority in relation to proposed modifications and mitigate the risk of procurement challenge, particularly given the changing rules on modifications introduced by the Procurement Act 2023 and associated guidance. Authorities should also ensure all relevant employees are provided with procurement training which outlines the legislative constraints on contract modifications, and how these have been incorporated into the authorities’ specific processes for approving contract modifications, for example in their procurement code or standing orders.

5: Understanding potential limitations and relying on external sources where required

It can be expected that authorities will require the support of external sources in some scenarios, for example through inter-council collaboration, or specialist financial advice. Clearly outlining responsibilities (and which are best outsourced) at the outset of any projects or at the start of the financial year during forecasting for the upcoming year, will ensure authorities provide for these eventualities within their procurement and contracting timeframes and budgeting.

Another example of specialist advice which may be required is an external independent audit to understand what areas require improvement and identifying a set of recommendations to address these.

Juli Lau is a Partner, Beth Edwards is a Junior Associate and Shyann Sheehy is a Paralegal at Sharpe Pritchard LLP.

This video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk