Value for money

Introduction

Purpose

The purpose of this section is to provide a view on whether current governance arrangements and project operational controls across the Tripartite as a whole facilitate value for money delivery of the ferry services to island communities.

Approach

Due to the unique structure of the Tripartite, there are no “ready made” frameworks for assessment of VfM which are an exact fit for its nature and ways of working. As such, we worked with Transport Scotland to design and tailor an appropriate assessment methodology. We reviewed recognised definitions of best value for public sector entities, and identified key considerations (the National Audit Office “four E’s” of economy, efficiency, effectiveness and equality). We also took into account the contents of the ‘Value of Ferries’ scoping note, which outlined a range of options for measuring the value of ferries to the Scottish economy. We then aligned our considerations to four of the seven key themes which, per the Accountable Officer’s guidance linked in the SPFM “will support the development of an effective organisational context from which public services can deliver key outcomes and ultimately achieve best value”:

Vision and Leadership
Governance and Accountability
Partnership and Collaborative Working / Performance Management
Use of Resources

For each of these themes we compared relevant best value indicators per the guidance linked in SPFM to the current status, based on our assessment of governance arrangements and key controls across the Tripartite.

The remaining three themes (working with communities; sustainability; fairness and equality) are cross cutting and have been considered holistically in our findings and recommendations. Not all indicators listed in the SPFM are relevant for the Tripartite as it is not a single entity operating with its own assets and employees, and in line with our scope we have not provided an assessment of absolute values capable of being achieved through changes to processes or overall Tripartite structures.

We have assessed each indicator as being:

Fully in place – all elements of the indicator are in place for the Tripartite as a whole and can be clearly evidenced.
Partially in place – some elements of the indicator are in place and can be evidenced, and / or are in place within individual entities but not the Tripartite as a whole.
Not in place – few or no elements suggested by the indicator are in place.
Not evidenced – insufficient evidence to assess whether the Tripartite meets this indicator.

It is important to note that the absence of an indicator does not equate to a high risk finding as per the Governance and Key Controls sections; this simply denotes a gap against SPFM expectations for organisations set up for success in terms of delivering best value. As such, based on the proportion of indicators in place across each theme, and the extent to which each one is in place, we have assessed the maturity of each area on a five point scale, as follows:

Absent

No best value indicators against this theme are in place, either wholly or in part.

Basic

A few of the indicators of best value against this theme are at least partially in place, though significant gaps may also be present.

Developing

Many of the indicators of best value are at least partially in place, with few outright gaps noted.

Embedded

The majority of the indicators of best value are in place, with only minimal gaps noted.

Leading

All indicators of best value are in place, with at least some comparing favourably to sector leading practice.

Value for Money Assessment

Overall Assessment – Developing

Summary of Current State

Delivery of VfM in the public sector requires a focus on improvement to deliver the best possible outcomes for the public. This in turn requires those outcomes to be clearly defined, and that they are understood by all parties responsible for delivering them.

As has been highlighted in the Governance section of our report, the individual entities within the Tripartite have clear internal governance structures, and objectives/ KPIs which they measure against. This means that many of the selected indicators can be demonstrated at least in part.

However, the lack of shared governance structures across the Tripartite and the absence of shared objectives means that it is difficult to assess whether the Tripartite as a whole is delivering best value, and we noted a number of areas where efficiency could be improved. As such, we have assessed the current overall status as ‘Developing.’

We have summarised below some of the key gaps noted against the themes set out in the Scottish Public Finance Manual. On p. 37-38, we provide our overarching recommendations, many of which are aligned to our review of governance arrangements and/ or key controls. A detailed analysis of the current status against selected indicators within each theme is outlined in Appendix G.

Vision and Leadership

Assessment – Developing

Individual entities have clearly defined corporate plans which are regularly updated. However, the lack of shared strategic planning across the Tripartite means that the sense of a clear, consistent vision is absent – this can be seen in the differing mission statements of the organisations, as highlighted in section 3. As such, a shared vision cannot be communicated by leadership to staff and stakeholders, which in turn creates a risk of misalignment in several areas key to delivering best value. This will require all parties to commit resources to creating and embodying the shared vision

Governance and Accountability

Assessment – Basic

There is no shared Tripartite governance framework to facilitate shared decision making (where appropriate) and to monitor performance against agreed roles and responsibilities, objectives, and outcomes. This specifically contradicts Scottish Government guidance for Accountable Officers on the duty of best value, which calls for a robust framework of corporate governance where delivery is through others.

Furthermore, our review of project controls highlighted that budget monitoring, milestone reviews and triggers for escalation (e.g. where projects are forecast to exceed agreed spend) are not consistently and clearly defined, nor are they appropriately monitored, presenting a risk that costs could significantly exceed acceptable levels and negatively impact on the provision of VfM.

Governance and Accountability

Assessment – Collaborative Working and Partnership (inc. Performance Management)

All interviewees clearly articulated the importance of delivering the best possible service to the island communities, and our review of key controls highlighted multiple instances of strong engagement with local stakeholders. However, due to the lack of shared objectives and strategic planning within the Tripartite, the link between these engagements and decisions taken / outcomes delivered is not always clear. Furthermore, the lack of shared objectives and governance structures is not aligned to the indicators of best value per SPFM guidance in this area.

Use of Resources

Assessment – Developing

Each entity has clear systems of financial stewardship and risk management, although we note that a shared approach to risk management across the Tripartite would be beneficial.

We acknowledge that the Tripartite as a whole is not collectively responsible for some aspects of “Use of Resources” as defined by the SPFM – for example, IT assets. However, given the absence of Tripartite-specific objectives to track against, and the absence of key monitoring controls against the delivery of some projects, it is not possible to conclude that the Tripartite as a whole is currently using its resources to deliver best value.

Overarching Recommendations

Shared Long term Strategy

As noted in the governance section, a shared long-term strategy would be beneficial, together with agreed objectives and KPIs in order to periodically assess performance. This would provide clarity and accountability for the Tripartite members on the purpose and intended outcomes for the Tripartite, which in turn should enable focus on an agreed and mutually understood definition of best value (see below).

Responsibility for the delivery of KPIs / objectives should be clearly defined, and where objectives / KPIs are not met, lessons learned exercises should be conducted to facilitate continuous improvement. These should be constructive and focused on how to deliver VfM for the island communities in future.

One impact of the current lack of a long-term shared strategic vision is reduced opportunity for savings where multiple similar vessels are required, or where multiple similar projects are run in parallel – for example, bulk discounts, and synergies in project management. Such opportunities should be considered in the development of the strategy and should feed into long-term decision making once the strategy is in place. Additionally, without a long-term strategy, there is a risk that reactive decision making (e.g. the procurement of emergency vessels) will continue and lead to unnecessary expense.

Consideration should also be given to incentivising DML to invest time and resources or provide input into policy consultation where appropriate; the contract award periods do not currently encourage this.

Define and share a vision and definition of best value for the ferries service

As the sole shareholder and sponsor, TS should set out their vision of what constitutes best value for the delivery of services across the Tripartite. (We note that this exercise has begun, with the scoping of the “Value of Ferries” exercise.)

This should not be based purely on delivering the service at the lowest possible costs. Key factors to consider include:

Sustainability, both in terms of living within environmental limits, and building a strong, stable and sustainable economy which provides prosperity and opportunities for all.
The views and needs of the Scottish public, which should be established via continued engagement with stakeholders and the communities served, and aligned to the Scottish Government National Performance Framework.

Clearly defining the desired outcomes will facilitate economy, effectiveness and efficiency, in line with the National Audit Office’s key considerations for achieving VfM. This vision and the related objectives should be communicated to the other Tripartite entities, who should be made aware of the role they play in the delivery of best value.

Identify potential efficiencies/Gaps

Consideration should be given to which processes should be partly or fully managed in common by the Tripartite, to manage the risk of inefficiencies, duplication or gaps. Per our review of Governance and key project controls, we would suggest a focus on:

Risk management. Develop a shared Risk and Assurance framework for the Tripartite which defines areas of shared risk, how these are rated and managed, triggers for escalation, and upwards reporting routes. This would prevent inefficiencies from multiple parties trying to manage the same risks, and minimise the chance of gaps in risk identification and management, which could lead to costly issues and consequently a failure to deliver VfM.
Roles and responsibilities. These should be clearly defined for each project, with careful consideration given to areas for potential overlap, and any areas where responsibilities are unclear.

Project Management and Budgeting

At the outset of all projects, create, agree and gain approval for a detailed budget aligned to the project plan. This should include a budget for immediate project steps, e.g. costs associated with pre-approval activities, to ensure that these do not exceed acceptable levels and maximise the chances of delivering VfM.

Project budgets and milestones should be clearly and transparently monitored against an agreed project plan. A threshold should be set, above which deviations from the budget and timeline require escalation and sign off. This could be done via the Network Strategy Group, with the Tripartite Executive Forum (see below) being sighted on particularly critical variances

Tripartite Board Level Executive Forum

A Tripartite Executive Forum (constituting CEOs and CFOs of DML, CalMac and CMAL with TS representatives, chaired by the TS sponsor) should review and agree collective strategic priorities (aligned to Ministerial objectives), plans, performance and provide an escalation / arbitration point for key decisions.

This should include periodic oversight of assessments as to whether VfM objectives (see above) are being delivered.

This could also provide a forum for differing views and disagreements to be aired and resolved in an open and transparent manner, to prevent any public blame-laying and improve the likelihood of parties working together constructively

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