Procurement strategy 2022

The procurement strategy

The procurement route

The Public Contract Regulations 2015 (the Contract Regulations), unless superseded, will apply to the procurement and it will be carried out in accordance with those Regulations.

Choice of procurement procedure

PSAA is keen, if possible, to enter into contracts with a larger number of suppliers registered as local public auditors than the current five. This could include a non-registered firm working with a registered firm.

This will give PSAA the ability to manage auditor independence issues, for example, where an audit supplier has a pre-existing relationship with an opted-in body which prevents it from accepting an audit appointment. It will also provide the flexibility to enable PSAA to respond to the significant number of joint or shared working arrangements for which partner eligible bodies often express a preference for the appointment of a common audit supplier. By entering into contracts with a number of suppliers, PSAA will help to support the drive towards a long term competitive and more sustainable market for local public audit services.

Because the nature of the services being procured is highly specialised, PSAA will follow the restricted procedure (rather than the open procedure) in accordance with the Contract Regulations. This will enable PSAA to identify those suppliers with the necessary financial standing, technical capability, skills and experience to provide services and then invite all those shortlisted to tender.

Bids will be accepted from suppliers which are registered as, or that are currently proceeding through the registration process to become, a local public auditor with a supervisory body approved by the Financial Reporting Council, currently the Institute of Chartered Accountants in England and Wales (ICAEW). The registration and ongoing monitoring processes test supplier quality and competence. A potential supplier that is not registered as a local public auditor is encouraged to have an early discussion with one of the Recognised Supervisory Bodies.

Bids from consortia or other forms of joint working arrangements will be permitted where at least one member organisation within the consortium or arrangements is individually registered as (or going through the process of registration to become) a local public auditor with the ICAEW.

PSAA is only able to contract with accredited suppliers. A contract award made to a supplier going through the registration process will be conditional on the ICAEW, as the Recognised Supervisory Body, approving their registration and the procurement will not seek to prejudice ICAEW’s approval process.

Suppliers invited to tender will be asked to quote prices for a contract length of five years, which matches the opt-in period for eligible bodies. The contracts will include the option to extend the contract duration by up to a further two years, by mutual agreement.

Variant bids will not be permitted.

Contract lots

PSAA will structure its procurement and invite bids as set out in the paragraphs below, subject to confirmation once the number of eligible bodies opting into the scheme is known.

There will be a single England-wide contract area, containing between 10 “standard” lots. There will also be a further three lots which will be classed as “development” lots.

The size of the lots will be graduated to enable bidders to match their capacity and risk appetite with their preferred lot size. The “standard” lots will be sized from around 18% to 4% of the portfolio of opted-in bodies.

The three “development” lots will be sized at around 2.25% (two lots) and 0.5% (one lot) of the portfolio of opted-in bodies in order to encourage new entrants.

The number of individual lots and their indicative value will be clearly set out in the invitation to tender. PSAA will reserve the right to award work in excess of the lot size as a mitigation should we be unable to award all lots.

For each individual lot, PSAA will give an indication of the minimum volume of work which the lot will contain.

There will be no requirement for bidders to participate in joint audits.

Except for the “development” lots, each lot in its final form will reflect a sensible balance of geography and a blend of the different authority types, taking account of the guiding principles used when making auditor appointments as set out in para 51 below. Only the six largest lots will include one or more public interest entity (PIE) audits. In addition the three development lots will exclude any audits of Unitary Councils, Metropolitan Borough Councils, London Borough Councils and County Councils.

The indicative value of each lot will be expressed by reference to the ‘audited body notional value’ (ABNV), which comprises the published scale fees for 2021/22 for all opted-in bodies plus actual and estimated recurring fee variations for 2019/20 audits. This will establish a consistent baseline for bidders’ pricing.

Within the invitation to tender we will provide further information that will be helpful to bidders in their consideration of bid prices covering:

• those future regulatory and Code-related changes up to April 2023 that we expect bidders to reflect in their pricing. Correspondingly, we will identify those possible changes where there is insufficient information available to do so and outline how these will be handled; and
• a schedule of opted-in bodies which details for the most recent audit year completed, the scale fee and the nature and value of recurring fee variations that are already baked into the scale fee.

Named audits will not be allocated to a lot until the procurement is complete and the subsequent consultation processes with opted-in bodies and successful bidders have taken place. Having a larger number of lots increases the opportunity for a greater proportion of a lot to be concentrated in specific geographical areas rather than being spread across the country.

There is no “auditor of last resort” in England, unlike other UK public sector procurers of volume public audit services. Given the statutory nature of audit, and its obligation to make an auditor appointment to every opted-in body, PSAA will endeavour to encourage the market to bid in a manner which represents value for money for the public purse, without damaging sustainability.

When making auditor appointments following contract award, PSAA will consider the status of prior years’ audits and will be guided by the following principles:

• ensuring auditor independence;
• ensuring any contractually guaranteed levels of work are met;
• ensuring a blend of authority types for each audit firm;
• taking account of a firm’s principal locations and geographical preferences (as specified in its tender response);
• providing continuity of audit firm, where appropriate; and
• accommodating joint/shared working arrangements between local bodies where possible.

Bidding rules relating to lots

In the interests of market sustainability, and subject to receiving sufficient bids and to the outcome of the evaluation of responses to the invitation to tender, PSAA expects to award no more than 34% of the aggregate value of its total portfolio (and potentially a lesser maximum percentage) to any single supplier. Ideally PSAA wants to enter into long term contracts with a larger number of suppliers than we do currently, reflecting a more balanced distribution of work. Our lot structure and bidding rules will aim to enable this, subject to us receiving sufficient bids. The exact number of lots that any successful bidder could be awarded will be set out in the procurement documents.

Bidders will be required to indicate the maximum amount of work per annum that they are able/would be willing to deliver, as a percentage of PSAA’s total work based on ABNV. Where a bidder submits bids for multiple lots, this information would be used by PSAA to ensure that any bidder is not awarded work in excess of its stated capacity. In the event of PSAA receiving insufficient bids, a supplier may be awarded more than 34% where they indicate they have such capacity.

Bidders will not be required to bid for all lots. However, they will be able to bid for all lots which fall within the range which they have specified as their maximum capacity.

PSAA will award contracts to a number of suppliers, to enable it to:

• manage any independence issues that may arise when making auditor appointments to opted-in audited bodies;
• respond to shared or joint working arrangements between audited bodies;
• make an appropriate auditor appointment to each opted-in audited body after fulfilling its statutory duty to consult such bodies on proposed appointments; and
• support the drive for longer-term market sustainability.

Contract lots will be awarded to the suppliers submitting the most economically advantageous tenders i.e. assessed using a price/quality ratio.

Bidders will be invited to express their bids for each lot as a fixed proportion of the relevant ABNV. Bidders can submit a percentage value that is greater or less than 100%. Bidders will be able to submit different bid rate percentages for each lot.

Bidders will have the option to offer two bid rates for each lot: one representing the bid rate if the Lot is their first win, and one representing the bid rate if the Lot becomes a subsequent win. There is no obligation for a bidder to offer a subsequent bid rate to be used in the price evaluation for subsequent Lots following a Lot win.

PSAA recognises that the location of an audit is an important consideration for bidders. Bidders for all lots, other than the “development lots”, will therefore be able to select up to four geographical areas which would be least attractive/convenient for them to audit (from a pre-defined list of English County and Combined Authority areas^[2]). PSAA would seek to avoid appointing the bidder, if successful, to audits within the selected geographic areas. In the event that it was necessary to appoint the bidder to any audits in those areas, the relevant bid rate would be increased by a premium of 30% in respect of the audits concerned.

It is recognised that bidders for the “development lots” may have the capacity to work in a relatively limited geographical area compared to larger suppliers. They will therefore be able to select up to 4 areas in which they would be able to undertake audits using the same predefined list of English County and Combined Authority areas.

^[2] Counties (including any Councils or Other Relevant Local Bodies within the County area), and Combined Authorities (including any Councils or Other Relevant Local Bodies within the Combined Authority area)

Audit Fees

PSAA strongly believes the national, sector-led, collective scheme offers benefits to both audit services suppliers and eligible bodies. By opting into PSAA’s scheme, individual bodies will avoid the costs of their own procurement and management of contracts and also the requirement to set up an auditor panel with independent members. Audit services suppliers avoid the expense of participating in multiple procurements and, where successful, the challenge of being subject to and managing a range of different contract management regimes.

PSAA’s costs of managing the scheme are covered by audit fees paid by opted-in bodies. Over the current contract term, from 2018 to 2023, our annual operating costs have averaged approximately 4% of total annual contract spend. We plan to continue to manage our own costs appropriately and to ensure that the national scheme offers excellent value for its members.

PSAA will continue to pool scheme costs and charge fees to opted-in bodies in accordance with our published fee scale as amended from time to time following consultations with scheme members and other interested parties.

As a not-for-profit organisation, PSAA returns to opted-in bodies any surplus funds generated by the scheme after all costs have been met. This obligation is set out clearly in our articles of association. Our most recent distribution of surplus funds, totalling £5.6m was announced in August 2021.

PSAA expects to make a statement on the impact of the procurement outcome on 2023/24 scale fees following contract award in the second half of 2022.

PSAA will consult on the proposed scale of fees for 2023/24 and subsequently expects to publish the fees applicable no later than the end of November 2023, following the amendment to the Appointing Person Regulations which will move the latest date by which audit fees must be set from 31 March to 30 November of the year to which the audit relates.

For each year of the contract (apart from year 1), PSAA intends to increase the remuneration paid to its audit firms by reference to the annual increase in CPI.

Additional fees (fee variations) are part of the legal framework. They only occur if substantially more or less work is required than is envisaged in the scale fee or the auditor is entitled to recover costs or expenses from the audited body under specific provisions in the regulations, for example in relation to public interest reports or objection work.

The regulations require PSAA to consider every fee variation on a case-by-case basis. Over the past nine months we have made improvements to our internal processes to enable the handling of a larger number of claims and we will continue to review and make improvements where possible for the benefit of all parties.

PSAA reviews and robustly assesses each fee variation proposal. We apply our technical knowledge and experience of all audits to assess each submission and can compare with similar submissions for other bodies across all our audit suppliers before reaching a decision. Our process requires that fees for additional work are discussed with and explained to the audited body before they can be proposed to PSAA. The Regulations require that the proposals must be approved by PSAA before they can be invoiced.

PSAA will provide a copy of the current rate card with the invitation to tender. Each winning bidder will be remunerated for additional work for each lot that it wins at a rate equal to the current rate card multiplied by its bid rate for that particular lot.

PSAA will update the rate card through the appointing period in line with changes to scale fees that are not related to the level of work – for example, inflation.

The hourly rates used as part of the determination of the valuation of additional work (fee variations) will continue to be the same for all audited bodies.

Procurement process

The key stages in the procurement process are set out below. In accordance with the Contract Regulations, PSAA will ensure that at each stage the process complies with the requirements of equal treatment, non-discrimination, transparency, and proportionality.

PSAA will use the Delta e-tendering platform to undertake this procurement.

Timetable and key milestones:

The timetable and key milestones for the procurement are summarised in Table 1. The target dates are provisional and may be subject to change.

Table 1 – indicative procurement timetable

Following a statutory consultation process auditor appointment for opted-in bodies will be made by 31 December 2022 for audit years from 2023/24.

This timetable is consistent with the requirement set out in the Local Audit and Accountability Act 2014, for an authority to appoint an auditor to audit its accounts for a financial year by no later than 31 December in the preceding financial year.

Contract Notice

The purpose and scope of the procurement will be set out in the Contract Notice to be published on the Find A Tender Service and Contracts Finder.

Pre-qualification (selection) stage

The pre-qualification (selection) stage will be designed to enable PSAA to assess potential audit suppliers’ ability to meet PSAA’s requirements.

The selection questionnaire evaluation criteria will be:

• compliance with grounds that would otherwise lead to mandatory or discretionary rejection under the Contract Regulations;
• satisfactory organisational, financial and economic standing, insurance and information assurance arrangements;
• capability and capacity;
• technical and professional knowledge and experience; and
• eligibility for appointment under the Act and Regulations, either through being registered with ICAEW or going through the process of registration.

Evaluation at this stage will result in a pass or fail outcome for each potential supplier. All suppliers achieving a pass outcome will be invited to tender.

Tender stage

The tenders for each lot will be evaluated in accordance with the published evaluation criteria to identify the most economically advantageous tenders. The relative weighting of price and quality will be 20:80 with 5 marks of the 80 quality marks being attributed to social value, which equates to 5% of the overall score. PSAA plan to ask bidders to describe the additional social value they will deliver from the contract, which could include the creation of audit apprenticeships and meaningful training opportunities. Bidders will also be asked to describe how their delivery of social value will be measured and evidenced.

The quality of responses at tender stage will be assessed against a range of relevant criteria such as audit approach, quality assurance, client communications and resourcing and capacity & capability including sector knowledge. Aligned with the Government’s proposal that the ARGA become the local audit system leader, we sought the FRC’s input in developing our approach.

Bidders will only be requested to provide one response to the quality section of the tender irrespective of the number of contract lots they bid for, although some questions may require a lot-specific response. The “development lots” will be assessed against the same criteria as the “standard” lots.

The formal tender evaluation criteria and methodology will be described in the invitation to tender documentation, and published on the PSAA website.

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