Value-for-money and procurement considerations for academy trusts and their CEOs

Value-for-money is a daily concern, driven by funding constraints and compliance. So what are the key considerations for academy trusts and CEOs?

Background

Despite the £2.6bn DfE funding increase for the 2020/21 academic year, schools and academy trusts continue to see a downward pressure on finances, aggravated by the additional costs incurred in response to the covid-19 pandemic and DfE guidance for which there is limited additional DFE funding. Meanwhile, academy trusts and CEOs continue to be held accountable for the use of public funds under the Academies Financial Handbook (AFH) with academy trusts also subject to procurement law. So what does this mean for academy trusts and CEOs?

Value for money

Under the AFH, academy trusts must achieve value for money, meaning the best possible educational and wider societal outcomes through:

• economy – obtaining an outcome for the least possible input of resources;
• efficiency – obtaining the best possible outcome for the resources input;
• effectiveness – obtaining the desired outcome;
• the avoidance of waste and extravagance; and
• prudent and economical administration.

The CEO, as accounting officer, must be able to assure Parliament and the public of value for money and must demonstrate how their academy trust has secured value for money in the governance statement included in the audited accounts.

Competitive tendering policy

The AFH also requires academy trusts to implement and apply a competitive tendering policy. This should reflect the academy trust’s legal obligations and how these are to be implemented in practice. Such a policy starts with a simple three quotes, incorporates conflicts of interest and must allow for more complex, and high value, tendering requirements.

Procurement law

As organisations established to provide education which are principally financed by the DfE, academy trusts are “contracting authorities” (as defined under procurement legislation) and so must comply with EU and UK procurement law when awarding contracts. This obligation is also confirmed by the AFH.

Principles

Under procurement law, contracts must be awarded fairly, transparently and without discrimination on the grounds of nationality, with all potential bidders treated equally. Key elements are highlighted below.

Which contracts?

Procurement law applies to contracts in writing for the purchase of goods, works and services, except where:

• the academy trust controls the provider in a similar way to its own internal operations;
• more than 80% of the provider’s activities are performed for the academy trust or for other entities controlled by the academy trust; and
• there is no direct capital participation by the academy trust in the provider.

Depending on the circumstances, the award of a contract to a wholly-owned subsidiary, for example to provide estate management services, will therefore be exempt although the usual checks and balances around best value and conflicts of interest will need to be observed. The award of a contract to a company (or other legal entity) jointly controlled by more than one academy trust, for example through the exercise of voting rights, will also be exempt where the academy trusts are jointly represented on the board and jointly exert decisive influence over its strategic objectives and significant decisions.  This may, for example, include a teaching school alliance and teaching school hubs, depending upon how it has been structured.

The procurement rules also do not apply to contracts between academy trusts where:

• the academy trusts are co-operating with a view to achieving their common objectives;
• the agreement is governed only by considerations relating to the public interest, which will be the case where the provision of education is concerned; and
• the joint activities comprise less than 20% of those activities in the sector as a whole.

With advice and planning, a contract between academy trusts to share back office functions, such as HR, payroll and estates management, could therefore be exempt from procurement rules.

Works contracts, which an academy trust subsidises by up to 50%, are also excluded. For example, it may be that an academy trust will match or part fund a capital project where the capital grant available will be insufficient to cover the costs.

Framework agreements

An academy trust can establish their own procurement framework agreement, set one up in partnership with another academy trust (or anther contracting authority) or join an established procurement framework.

A procurement framework agreement seeks to establish a list of pre-approved providers, covering either specific, or a range of, goods and, with agreed terms of supply and prices.  The academy trust, as a member of the services framework, can then call off what it needs, when it needs it without having to undertake a full procurement compliant tender process each and every time.

Thresholds

Whether an academy trust is looking to award a contract or framework agreement, different rules apply depending on the contract value. Low value contracts are either exempt from procurement rules, or subject to less formality.  Threshold values are calculated net of VAT and include renewals or extensions and aggregate smaller agreements or lots which the contract has been divided into.

The current thresholds are

• £189,330 (goods)
• £4,733,252 (works)
• £189,330 (most services)

For example, a 5 year ICT support contract valued at £38k pa, will have a value of £190k and therefore meet the threshold for procurement rules to apply.

Above threshold

Where the contract value equals or exceeds the relevant threshold, an academy trust will normally need to publish a contract notice in the Supplement to the Official Journal of the European Union (OJEU) in a form available on the EU’s SIMAP website. In some cases, a Prior Information Notice (PIN) may be published, in which case a contract notice is not required.

The different procedures which academy trusts may use are:

• open where anyone can bid and tenders will be easy to evaluate;
• restricted where at least 5 bidders are shortlisted and invited to tender;
• competitive dialogue with at least 3 shortlisted bidders to develop a solution;
• competitive procedure with dialogue where there is negotiation on improved offers; and
• innovative partnership for the development of an innovative product, service or works.

Each procedure comprises the following stages:

• Contract notice;
• Pre-qualification (except open procedure);
• Invitation to tender/dialogue/negotiate;
• Dialogue or negotiation (except open and restricted procedures);
• Tender submission;
• Tender evaluation;
• Contract award;
• Standstill period (10 days) in case unsuccessful bidders wish to challenge the process; and
• Completion of the contract, following which the contract is then performed.

Award criteria used to evaluate the tenders and identify the successful bidder must select the most economically advantageous tender.  This provides the academy trust with some flexibility to establish its own tender parameters and priorities to reflect price, cost-effectiveness, quality and the organisation, qualification and experience of staff. The criteria must be accompanied by a specification, to enable the academy trust to compare and evaluate the tenders, and must be shared with bidders along with any weightings that will be applied to the criteria.

Light touch

Where an academy trust is purchasing education and training services, a light touch regime applies such that a contract notice or PIN must be published in OJEU but the academy trust is otherwise free to determine its procedure provided it complies with the principles of transparency and equal treatment and time limits are reasonable and proportionate.

Below threshold

Where the contract value falls below the relevant threshold, an academy trust must publish a contract notice on OJEU and, in some cases, publish the contract details on Contract Finder. They may use appropriate and proportionate questions to select those invited to participate.

Otherwise, academy trusts may decide the terms on which they wish to purchase the goods, works or services provided the contract is awarded fairly, transparently and without discrimination on the grounds of nationality, with all potential bidders treated equally and the terms are included in the academy trust’s competitive tendering policy.

In broad terms:

• contracts of up to £40,000 tend to be procured by inviting three suppliers to tender against a specification and awarding the contract by evaluating each bid against the same criteria such as price, quality and whether they meet the specification;
• contracts over £40,000 tender to be procured by advert, inviting expressions of interest, issuing the invitation to tender (including the specification, award criteria and contract terms), evaluating each tender against the criteria and awarding the contract to the supplier whose tender best meets the criteria and is most economically advantageous.

In summary

Value-for-money and procurement compliance are key legal obligations of academy trusts and their CEOs.  For trustees and CEOs, these sit among a much wider range of responsibilities and priorities which compete for their time and attention. It’s therefore helpful to have an overview of the key considerations to help navigate the landscape. That said, trustees and CEOs should note that procurement law is inevitably more complex than the summary above and so should ensure they have the necessary procurement expertise and/or seek professional advice.