Managing Public Money

Managing Public Money

Managing public money responsibly is a cornerstone of good governance. The Treasury’s "Managing Public Money" guidance (May 2023) sets the standard for how public sector organisations handle resources. It emphasises accountability, value for money (VfM), and compliance with procurement laws.

This article summarises the key implications and practical guidance for public sector bodies, focusing on procurement and contract management. It provides actionable advice to ensure public funds are used efficiently, ethically, and transparently.

An Overview of Public Spending

The UK government allocates public funds across various sectors and departments to ensure the smooth functioning of the country and the well-being of its citizens. The House of Commons Library briefing provides insight into how public spending is planned and distributed.

Public spending is categorised based on several factors, such as the duration of the spending (long-term or demand-driven), the nature of the expenditure (capital or current/resource spending), and the purpose (governmental functions or departmental administration).

Social protection and health receive the lion's share of public spending, with £361 billion and £221 billion allocated respectively in 2023/24. This highlights the government's commitment to ensuring the welfare and well-being of its citizens. Other significant areas of spending include general public services (£158 billion), education (£112 billion), and economic affairs (£92 billion). As the UK's population ages, the proportion of spending related to old age is expected to rise.

The budgets of government departments vary based on their responsibilities. The Department for Work and Pensions, Department of Health and Social Care, and Department for Education together account for more than half of the planned spending in 2024/25. Additionally, public bodies such as NHS England and the Education and Skills Funding Agency receive substantial funding to maintain operational or constitutional separation from the government.

Core Principles of Managing Public Money

The guidance establishes key principles that apply to all public spending:

1. Accountability: Organisations must demonstrate how funds are spent, providing clear audit trails.
2. Regularity and Propriety: Spending must comply with laws, delegated authorities, and ethical standards.
3. Value for Money (VfM): Decisions must balance cost, quality, and long-term benefits.
4. Governance and Risk Management: Strong oversight and controls are essential to minimise risks and ensure compliance.

These principles are critical for procurement, where decisions directly impact public outcomes and budgets.

Practical Implications for Procurement

Value for Money in Procurement

Public sector bodies must assess VfM across the entire lifecycle of goods or services. This means:

• Whole-Life Costs: Focus not just on initial prices but on long-term maintenance, replacement, and disposal costs. For instance, investing in high-quality IT systems may save significant costs over time compared to cheaper, less durable alternatives.
• Collaborative Procurement: Smaller organisations should explore joint procurement arrangements to benefit from economies of scale, unless they can demonstrate better VfM independently.
• Scrutinising Bidders: Evaluate suppliers’ tax arrangements and compliance records to ensure propriety and avoid risks to the Exchequer.

Transparent and Ethical Supplier Relationships

Building fair and professional supplier relationships ensures trust and compliance:

• Open Competitions: Provide equal opportunities for suppliers and communicate decisions clearly. Transparency builds confidence and improves supplier engagement.
• Feedback Mechanisms: Offer detailed feedback to unsuccessful bidders to demonstrate fairness and encourage future participation.
• Avoid Impropriety: Practices such as favouritism, irregular payments, or bypassing approvals undermine trust and legality.

Compliance with Legal Frameworks

Public procurement must align with international and domestic laws, including:

• The Crown Commercial Service standards.
• The Procurement Act.
• The Green Book
• Policies on subsidy control and international trade agreements.

These frameworks ensure consistency, fairness, and legal compliance across all contracting authorities.

Contract Management and Monitoring

Effective contract management is critical for delivering VfM and meeting public expectations:

• Standard Terms and Conditions: Use government-endorsed model contracts with clear clauses for prompt payments and performance monitoring.
• Performance Tracking: Implement robust systems to monitor supplier performance and address underperformance proactively.
• Risk Mitigation: Identify potential risks, such as supplier insolvency or delivery delays, and include contingency measures in contracts.

Practical Examples to Guide Decision-Making

The Treasury guidance offers several examples of best practices:

1. Managing Repayments to Individuals: In cases where the cost of administrative processes outweighs repayments owed to many individuals, a public body may opt for a one-off charitable donation. This approach balances practicality with propriety.
2. Negotiating with Contractors: When a contractor cannot immediately repay owed amounts without risking insolvency, public bodies might negotiate phased repayment terms while safeguarding public funds.
3. Using Private Finance: For infrastructure projects, public-private partnerships (PPP) can be effective if they ensure risk-sharing and VfM. However, these should only be pursued if they demonstrably outperform traditional procurement methods.
4. Social Value in Procurement: Including criteria such as local employment creation or carbon reduction encourages suppliers to align with public priorities while delivering VfM.

Risk Management in Procurement

Risk management must be embedded throughout procurement processes. Key practices include:

• Maintaining Risk Registers: Identify and monitor risks such as supply chain disruptions or cost overruns.
• Sensitivity Analyses: Use these tools to prepare for worst-case scenarios and ensure procurement decisions remain robust under pressure.
• Supplier Reliability: Evaluate financial stability and past performance to avoid potential failures.

Collaborative and Innovative Procurement Models

Public sector organisations are encouraged to explore innovative procurement approaches:

• Joint Ventures and Employee-Led Mutuals: These models can enhance VfM and encourage innovation.
• Shared Services: Collaborating with other public bodies on procurement frameworks can reduce costs and administrative burdens.

Managing Public Money Guidance

"Managing Public Money" provides clear, actionable guidance for public sector organisations to navigate procurement challenges effectively. By adhering to its principles of accountability, VfM, and ethical governance, public bodies can ensure that procurement decisions meet legal standards and deliver long-term benefits for the public.

For public sector buyers, this means adopting best practices in planning, monitoring, and collaboration. For suppliers, understanding and aligning with these expectations can improve competitiveness and foster stronger partnerships with public bodies.

Procurement & Compliance Consultancy

Thornton & Lowe, provides procurement consultancy and works closely with public sector bodies to ensure compliance with managing public money requirements, as well as broader principles such as The Green Book and The Procurement Act. For NHS healthcare services, Thornton & Lowe helps organisations navigate the Provider Selection Regime.

In addition to compliance, we offer supplier engagement, management, development, procurement preparation, market testing, benchmarking, procurement leadership, and strategy. We also provide project delivery, including contract management as an outsourced service, and bespoke training for organisations.

By partnering with Thornton & Lowe, public sector bodies can ensure they are following the main principles for dealing with resources, as outlined in the Managing Public Money document.