REVISED
Richard Pengelly
Public Spending Director
Central Finance Group
Room P6
Rathgael House
Balloo Road
BANGOR BT19 7NA
Tel No: 028 91858240 (x 68240)
Fax No: 028 91858175
email: richard.pengelly@dfpni.gov.uk
and
jill.downie@dfpni.gov.uk
FD (DFP) 20/09
28 September 2009
Dear Finance Director
THE NORTHERN IRELAND GUIDE TO EXPENDITURE APPRAISAL AND
EVALUATION (‘NIGEAE’):
NEW DFP GUIDANCE ON THE APPRAISAL, EVALUATION, APPROVAL
AND MANAGEMENT OF POLICIES, PROGRAMMES AND PROJECTS
– Revised May 2011 to reflect FD (DFP) 12/11
– Revised October 2012 to reflect withdrawal of DAO (DFP) 02/07 and
DAO (DFP) 08/06
– Revised December 2012 to update para 28 on DFP monitoring of
PPEs
Purpose
1.
To make Finance Directors aware that the Northern Ireland Practical
Guide to the Green Book (NIPG) is now superseded by a new on-line
guide titled The Northern Ireland Guide to Expenditure Appraisal and
Evaluation (NIGEAE). The new guidance can be accessed at
www.dfpni.gov.uk/eag. This letter explains the key features of the
revised guidance. DAO (DFP) 32/03 is hereby withdrawn.
Background
2.
The NIPG was published in 2003 to provide local appraisal and
evaluation guidance based on the HM Treasury Green Book issued
earlier the same year. It has become out-dated in the six years since its
publication and DFP has taken the opportunity to review and update it.
REVISED
3.
Production of the printed version of the NIPG was accompanied by the
creation of
DFP’s
Economic
Appraisal
Guidance
website,
which
contained an on-line version of the NIPG together with a number of
additional resources. In view of the growing volume of relevant guidance,
DFP has
decided
to
increase
reliance
upon
on-line
guidance.
Accordingly, the printed NIPG is hereby withdrawn, and replaced by a
revised on-line guide titled The Northern Ireland Guide to Expenditure
Appraisal and Evaluation (NIGEAE).
4.
Use of on-line guidance will facilitate future updates and revisions. In
future, relatively minor changes to guidance will be notified on the
What’s New page of the website. Major developments will continue to
be notified by formal letter.
Developments
5.
The basic steps of appraisal and evaluation will remain fundamentally
unchanged, but the guidance has been refreshed to take account of
developments since 2003 with respect to related guidance, links and
organisational changes.
6.
The revised guidance encourages assessment primarily from a
Northern Ireland perspective, but also encourages consideration of
wider effects on the United Kingdom, the Republic of Ireland, and other
parts of the EU and beyond, where these are considered material and
relevant.
7.
Developments elsewhere in the United Kingdom have been reflected in
the growing volume of guidance available at the HM Treasury Green
Book website. For example, a wide range of helpful guidance is now
available at the Green Book guidance page at http://www.hmtreasury.gov.uk/data_greenbook_index.htm. This guidance should be
regarded as supplementary to NIGEAE. NI Departments should keep
abreast of it and use it appropriately.
Infrastructure Procurement: Assessing PPP/PFI and Conventional
Procurement Options (Section updated October 2012)
REVISED
8.
A Green Book-style strategic option appraisal is required prior to any
PPP/PFI VFM assessment, in order that the strategic policy choice and
the procurement choice are both explicitly and separately justified at the
earliest stages.
9.
DFP guidance on the approval of PPP/PFI business cases is set out in
NIGEAE section 5.3; and guidance on the expected content of PPP/PFI
business cases is provided in NIGEAE section 5.4. The latter explains
how the HM Treasury Value for Money Assessment Guidance should
be used and elaborates on the roles of the Shadow Bid Model and the
Conventional Procurement Option.
10.
An important point to note and reflect in business cases is that there are
now numerous alternative forms of both conventional and PPP
procurement available. These alternative forms should be considered in
deciding which best suits the case in hand. It is not just a matter of
comparing conventional procurement with PFI.
11.
It should be noted that the general requirement to develop a
Conventional Procurement Option (CPO) for assessment at Stage 3 is
hereby reintroduced. This is to help ensure that Departments have the
flexibility to pursue an alternative procurement route without undue
delay if at any stage it emerges that a PPP solution has become
unaffordable or does not offer the best VFM. Retaining the CPO at
stage 3 should also confer greater confidence in the delivery of VFM on
those occasions when PPP options are preferred.
12.
The high level assumptions used for conventional procurement in the
Stage 2 VFM analysis should be developed into a fully detailed CPO
that will provide an output similar to that of the private sector bids. The
CPO should be updated at key points in the procurement process,
taking account of any changes in project scope, to provide a genuine
procurement comparator to the private sector bids and thus help
ensure that the procurement route offering the best VFM is chosen. As
well as having a CPO at OBC and FBC stage, it is particularly
important that the CPO is also updated and compared with bids just
prior to appointment of a preferred bidder, since termination of a PPP
REVISED
becomes more problematic and costly beyond that stage. The
reintroduction of a CPO does not affect the requirement to develop a
Shadow Bid Model, which still stands.
Process for DFP Approval of Major Projects and High Profile Cases –
(Section updated May 2011 to reflect FD (DFP) 12/11)
13.
DFP should be consulted at the earliest stages in the development of
major projects and other potentially high profile cases. DFP approval of
a Strategic Outline Case (SOC) is now required in all such cases
before commencement of the detailed work of developing an Outline
Business Case (OBC). This should help to ensure that fundamental
issues are identified and addressed early in a project’s life, resulting in
a smoother approval process overall.
14.
In this context, major projects and other potentially high profile cases
include:
 All capital projects with a total capital value of £20 million 1 or
more:
 All revenue projects which fall above the department’s delegated
limits and for which total central government costs will be £20
million or more over the project’s life; and
 All projects, irrespective of cost, that set precedents, are novel,
are potentially contentious, could cause repercussions
elsewhere in the public sector, or are potentially politically
sensitive 2 .
15.
It is vital that SOC documents are very short. Accordingly, DFP
recommends that the SOC document should extend to no more than
10 or 12 pages. This brevity reflects the fact that analysis at SOC stage
is necessarily very broad and indicative - much too broad and
1
2
The £20m thresholds stated above should be interpreted as cost figures expressed in real
terms (i.e. in prices held constant at their current level), undiscounted.
Departments will appreciate the difficulty in providing a generic and comprehensive
definition of such circumstances. Accordingly, where there is any prospect of this test being
positive, there should be early dialogue with DFP to determine whether the SOC approval
requirement applies.
REVISED
indicative to determine a preferred option, but sufficient to form a view
as to whether it is worth committing resources to the more substantial
work of an OBC. The SOC is a preliminary think-piece document that
flags up the project and identifies key issues relating to strategic fit,
options, value for money, affordability and achievability. Typically, the
SOC should provide high level coverage of:
 the project concept and rationale for government intervention;
 initial statements of strategic aims, business needs and project
objectives;
 relevant management considerations, including e.g. any
necessary stakeholder consultations and legal issues;
 high level consideration of possible options; and
 very preliminary assessment of costs, benefits, risks, funding
and affordability.
16.
DFP will expect to see SOCs for all major projects and other potentially
high profile cases that commence life from the date of issue of this
letter, and also for all other relevant projects that are in the earliest
stages of development at that date. If in doubt whether a particular case
requires SOC approval, please consult the relevant DFP Supply Officer.
17.
Arrangements for approval of OBCs and FBCs are unaffected by this
new requirement.
Approval of PPP/PFI Projects (Section updated October 2012 to reflect
FD (DFP) 17/11)
18.
It should be noted that all PFI projects now generally require DFP
approval at four key stages:
i. at SOC stage, in the case of major projects and high profile
cases as defined above;
ii. prior to commencement of procurement, based on
submission of an OBC;
REVISED
iii.
prior to appointment of a Preferred Bidder, based on an
Appointment Business Case (ABC) providing an update on
key developments since the OBC and including a detailed
BAFO or final tender evaluation and an updated affordability
assessment; and
iv. prior to financial closure, based on submission of a Full
Business Case (FBC).
DFP approval is also required for all non-PFI PPP cases at SOC
and OBC stages, but these cases do not generally require DFP
approval at ABC and FBC stages. However, DFP reserves the
right to require approval at ABC and FBC stages for individual
cases. This may occur, for example, where the PPP is
considered novel, contentious, repercussive or in some other
sense significant.
General Approval Principles
19.
Approvals in principle should not be granted, nor should commitments
to funding be given (e.g. through a Letter of Offer) prior to the
completion of a satisfactory business case, including an appropriate
economic appraisal. Only when needs, objectives, options, costs,
benefits, risks, funding, affordability and other relevant factors have
been thoroughly investigated can approving authorities be assured that
a proposal is likely to represent value for money, be affordable and
satisfy accountability requirements.
20.
In cases where DFP Supply approval is required, it remains a general
condition of approval that Supply must be notified if at any time costs or
any other key assumptions vary by more than 10% from the estimates
given in the business case upon which DFP approval was based, or if
implementation is delayed by more than 24 months.
21.
The reference to tolerance limits on cost within the standard conditions
of DFP approval has been reworded to refer to total revenue costs
instead of net present costs as the former is considered easier to
monitor. DFP Supply must now be notified “if it becomes apparent that
REVISED
either the total capital expenditure or the total revenue expenditure
indicated in the approved business case will be exceeded by more than
10%”.
22.
If a Department wishes to make any significant change to the
substance of a project, or to its proposed procurement, after approval
has been granted, DFP Supply must be provided with full details of the
proposed change and its agreement must be obtained formally before
any expenditure is committed and before procurement is commenced.
23.
Expenditure that is incurred without the necessary approvals is irregular.
Departments are
reminded
that
DFP
will
not
generally
grant
retrospective approval. It may be prepared to consider granting
retrospective approval in exceptional circumstances under specific
conditions as defined in Managing Public Money Northern Ireland,
namely:
(a)
where it would have granted approval had it been
approached properly in the first place. DFP may consider
this condition as
satisfied
where a department had
completed a suitable business case prior to committing the
expenditure, but neglected to forward it to DFP for approval;
and
(b)
the department is taking steps to ensure there is no
recurrence. Evidence of specific remedial actions will be
required to satisfy this condition.
Expert Advice and Use of Consultants
24.
It is generally the responsibility of policy and executive divisions to
ensure that appraisals and evaluations are carried out, drawing on
relevant expert advice where appropriate.
25.
Economists in your Department can advise on the principles of
appraisal and evaluation given in NIGEAE, and how they should be
applied to your specific areas of spending. Departments should consult
REVISED
their economists in all cases requiring DFP approval, and should take
account of their views before submissions are made to DFP.
26.
External consultants should be employed only when it is necessary and
offers value for money. Project sponsors should first consider using
internal resources to complete appraisals and evaluations. If the
necessary skills are not available within the Department or Agency,
internal consultancy
services
including
Departmental
economics
branches should be approached before considering the use of external
consultants. If, having investigated all possibilities, the Project Sponsor
is satisfied that internal resources and consultancy services cannot
complete the appraisal or evaluation to the necessary level of technical
quality and/or within an acceptable timescale, the use of external
resources such as economic consultancy firms may be considered.
The overriding objective in deciding whether to use internal or external
consultancy services must always be to secure value for money.
27.
All external consultancy assignments must be justified by a business
case completed in accordance with the latest relevant guidance,
currently found in FD (DFP) 04/09 [October 2012 update: This was
replaced by FD (DFP) 07/12 and the associated detailed guidance in
April 2012. See also FD (DFP) 13/12 concerning the assessment of
large scale, complex or innovative external consultancy assignments].
DFP Monitoring of PPEs (Para 28 updated December 2012)
28.
Ex post evaluation is integral to the process of implementing a
policy, programme or project. DFP expects all projects to be subject to
proper monitoring and control measures including PPEs for all projects,
both above and below de minimis levels. Such measures can help
ensure good VFM by identifying difficulties, preventing the repetition of
mistakes, revealing positive points and generally learning lessons
which may be of use in other projects and/or other Departments.
However, proportionate effort should always be applied. For example,
where a programme consists of a large number of small scale projects
or activities, instead it may be more appropriate to select a
representative sample in evaluating the programme. Where a
REVISED
Department proposes to adopt such an approach, it should present the
details of its proposals for sampling in advance of the exercise to the
relevant Supply Division for consideration.
29.
Departments should prepare a PER (Project Evaluation Review) at
project closure, and a PPR (Post Project Review) 6 to 12 months after
implementation, in accordance with the current programme and project
management guidance at DFP’s Successful Delivery (NI) website and
PRINCE2. The PER should be led by the Project Manager, while the
PPR should be led by someone independent of the Project Team and
Project Board to ensure an unbiased view. DFP will expect both a PER
and a PPR to be prepared for all projects. However, DFP recognises
that the PER is primarily a management tool for the use of the SRO
and Project Board, whereas the PPR is the main substance of the ex
post evaluation or PPE. Accordingly, DFP Supply will only require the
submission of PPRs. DFP will generally use the term PPE to refer to
the PPR, not the PER. The term PPE is used as a synonym for PPR
throughout NIGEAE.
30.
Supply Divisions have regularly monitored Departments' performance
in completing PPEs for many years. To date, DFP has required
Departments to submit PPEs to Supply Divisions for all projects above
delegated limits. DFP now intends to give greater priority to larger
projects and areas where lessons learned can be of most value. From
now on, DFP will request to see PPEs only for larger projects and those
projects which DFP believes to have substantial read across to other
projects. In future, the letter of approval from DFP will stipulate in each
case whether or not a PPE report must be submitted to Supply.
31.
This does not affect the continuing requirement to ensure that suitable
arrangements for PPE are made for all projects, but simply means that
DFP will not require sight of all PPEs as a matter of routine. DFP
approval of all projects above delegated limits will still be conditional
upon satisfactory arrangements for PPEs in all cases. DFP will request
an assurance from Departments on an annual basis that all PPEs that
are due to be carried out have actually been completed.
REVISED
Programme and Project Management including Benefits Management
32.
Applying the principles of NIGEAE is an essential part of good
programme and project management (PPM). Section 10 of NIGEAE
highlights some key PPM issues, but Departments should refer to the
more extensive general PPM guidance in CPD Guidance Note 01/09
and the Successful Delivery (NI) website introduced by DFP’s Central
Procurement Directorate in June 2009.
33.
It should be noted that benefits management and benefits realisation
plans, applied with proportionate effort, are now generally required for
all capital and revenue projects. Business cases should:
Assess/estimate the benefits that the project should deliver to
answer the question – ‘is the project worth doing?’’
Document the process for identifying, monitoring and realising the
benefits
Ensure plans/processes are in place to achieve the benefits
Define the baseline benefits position to allow comparison with
projected benefits
Define the boundaries with other projects to ensure benefits are not
double counted
Include a draft Benefits Realisation Plan (BRP) in OBCs and a final
BRP in FBCs.
Other Points to Note
34.
The principles set out in NIGEAE should be applied, with proportionate
effort, to every decision or proposal - whether a project, a policy or a
programme - that entails spending or saving public money, including
EU funds, or otherwise changes the way in which resources are used.
35.
Retrospective appraisal, that is, going through the motions of appraisal
after decisions have been taken or expenditure committed, is bad
management practice and is unacceptable. Appraisal should not be
used merely as the means to refine the details of a predetermined
REVISED
option. It must not be used to provide post hoc justification for decisions
that have already been taken, expenditure that has already been
committed, or projects that have already commenced.
36.
Consideration will be given to producing a brief introductory printed
document to summarise key elements of the guidance and refer to the
more detailed guidance available on the NIGEAE website. Finance
Directors will be notified when this is produced. [October 2012 update:
The relevant document “NIGEAE: A Brief Introduction” is now available
in pdf format and may be downloaded from the front page of the
NIGEAE website. It is listed under Resources in the right hand column].
Action
37.
Departments should ensure that this guidance is applied within all
business areas including Agencies, NDPBs and other sponsored
bodies with immediate effect.
Enquiries
38.
General queries on this letter and the new guidance should be directed
in the first instance to Ken McConville (telephone 028 9185 8086 or
68086 internally) or Donna Watton (telephone 028 91858082 or 68082
internally) of DFP's Strategic Policy Division, Rathgael House.
Yours sincerely
RICHARD PENGELLY
cc Permanent Secretaries