Government Functional Standard GovS 008: Commercial
Version: 1.0 Status: Approved for internal government trial Date issued: March 2019 Government Functional Standard
This standard forms part of a suite of operational standards that set expectations for management within government. Standards may include both mandatory and advisory elements. The following conventions are used to denote the intention:
Term Intention shall denotes a requirement: a mandatory element. should denotes a recommendation: an advisory element. may denotes approval. might denotes a possibility. can denotes both capability and possibility. is/are denotes a description.
The meaning of words is as defined in the Shorter Oxford English Dictionary, except where defined in the Glossary in Annex B. It is assumed that legal and regulatory requirements shall always be met.
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2 VERSION 1.0 – MARCH 2019 GovS 008: Commercial
Contents
1 about this government functional standard 5 1.1 Purpose of this government standard 5 1.2 Scope of this government standard 5 1.3 Government standards references 5
2 Principles 6
3 commercial governance and planning 6 3.1 Governance and management framework 6 3.2 Commercial strategy and plan 7 3.3 Commercial pipeline 7 3.4 Approvals 7 3.5 Commercial assurance 8 3.6 Roles and responsibilities 9 3.7 Governance constraints 11
4 commercial life cycle 12 4.1 Define 12 4.2 Procure 14 4.3 Manage 15 4.4 Re-procure 17
5 commercial management practices 18 5.1 Category and market strategies 18 5.2 Supplier relationship management 19 5.3 Commercial risk and issue management 20 5.4 Commercial capability and resourcing 20 5.5 Systems and management information 21 5.6 Continuous improvement 22
Annex A. References 23
Annex B. Glossary 25
Annex C. Example of aligning decisions between commercial work and a project’s life cycle 29
Annex D. Example supplier and contract tiering 31
Annex E. Government Commercial Standards Assessment Framework 34
3 Government Functional Standard
Figure 1 – Areas of commercial practice covered by this standard
C
C C
Category Supplier Define Procure Manage and Relationship market Management strategies Re-procure
Commercial risk Capability and Systems and Continuous management resourcing information improvement
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Note: where applicable this standard should be 1 About this used with reference to other central Government Commercial Guidance, particularly the Government government Outsourcing Playbook (11). functional This standard should also be of interest to suppliers and contractors and it is standard expected that they follow similar principles and approaches in relation to their commercial work. 1.1 Purpose of this government standard 1.2 Scope of this The purpose of this standard is to set government standard expectations and drive consistency in the planning, management and execution of This standard applies to the planning, commercial activities, ensuring contracts delivery and management of government and relationships with suppliers realise value commercial activity in all departments for money and result in delivery of high and arm’s length bodies, regardless of quality public services. commercial approach used. This standard provides direction and This standard excludes: guidance for: • the management of grants, which are • permanent secretaries, accounting covered in General grants Gov S015 officers, directors general, chief and Finance Gov S006 executive officers of arm’s length • activities relating to income bodies, ensuring an environment generation. exists which integrates with their other activities • senior officers accountable for 1.3 Government standards commercial management at references government and organisational levels, ensuring the breadth of The following functional standards should practices required for successful be used in association with this standard: commercial management are • GovS 002, Project delivery planned for and used • GovS 010, Analysis • owners of departmental commercial processes and guidance to ensure • GovS 015, General grants consistency in scope across Note: new functional standards are being created government and trialled during 2018 and early 2019. The above • assurance and audit bodies, for standards will be available for use by April 2019. testing best practice • business owners, including senior responsible owners and those responsible for contracts • commercial specialists and their teams
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2 Principles 3 Commercial At all times, those directing and managing governance commercial activities shall ensure: 1. commercial objectives are and planning aligned to government policy and organisational objectives 3.1 Governance and 2. goods, works and services are management framework procured using legally compliant, fair and open processes, guarding Commercial governance comprises against corruption and fraud authorising, directing, empowering and overseeing management of commercial 3. they act in a way that promotes trust activities. The governance of commercial between government, its suppliers activities should be an integrated part and the public of the organisation’s overall governance 4. governance, management arrangements. frameworks and controls are Each organisation shall have a senior officer proportionate and appropriate to the accountable for its commercial activities. work and the level of prevailing risk Each organisation shall have a defined and 5. accountabilities and responsibilities established commercial governance and are defined, mutually consistent management framework, which: and traceable across all levels of management with appropriate • complies with government and separation of duties organisational policies and directives, and with this standard 6. experience and lessons are captured, shared and used to promote future • defines which commercial activity performance improvement should be included and how it should be managed 7. work is undertaken and is • should be reflected in the respective assigned to people who have the accounting officer system statement[5] required capability and capacity to undertake it • should be periodically reviewed to ensure it is still valid 8. public service codes of conduct and ethics and those of associated The framework should include: organisational professions are upheld commercial policies (if any); the criteria for the tiering and segmentation of commercial agreements and suppliers; authority limits; decision making roles and rules; degree of autonomy; assurance needs; reporting structure; accountabilities and responsibilities – together with management frameworks for undertaking the practices in sections 3, 4 and 5 of this standard. Tiers may be by value, risk and/or business impact.
Note: see Annex D for guidance on tiering.
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3.2 Commercial strategy A projection of the organisation’s future commercial opportunities shall be published and plan in the public domain where permissible Each organisation should have an approved in order to allow the market the greatest and maintained overall commercial strategy opportunity to participate. and plan that sets out their vision and Note: the commercial pipeline should be structured objectives that align with the organisation’s in accordance with the commercial pipeline overall strategy and financial plan. The guidance [1]. commercial strategy and plan should include a roadmap for delivery, required resources and targets. 3.4 Approvals Organisations should develop and have approved a commercial blueprint or 3.4.1 Decision making equivalent operational plan, which sets out a Commercial decisions should be made forecast of future commercial activity (derived and approvals given in a timely manner, from the commercial pipeline), required in accordance with the organisation’s resources and operating model, forecast commercial governance and management budget and any transformation or business framework, financial management controls improvement plans. (including delegations of authority), Note: in central government the commercial blueprint government policy and the commercial is updated and approved on a cyclical basis. strategy and plan. Alternative choices should be agreed against defined criteria and in Note: in central government the organisation’s plan consultation with stakeholders and subject is called the single departmental plan. matter experts. Decisions might relate to: • approving commercial strategy 3.3 Commercial pipeline • approval to invite offers from A commercial pipeline provides a forward the market view of commercial activity so that sufficient • approving a contract award time and resources can be allocated to recommendation develop commercial strategies, make recommendations and act upon them in • authorising payments good time. • raising contractual notices Organisations shall prepare and maintain • approving a contract extension a commercial pipeline, including new or contract change commercial activity and changes to existing • claims and dispute resolution contracts. For the most complex contracts, the pipeline should extend three to five years • suspending or terminating a contract ahead of the contract being required. • approving the completion of a contract The pipeline should be utilised to ensure Additionally, for complex outsourcing that contracts are extended only after contracts the approval process shall include undertaking a review of available commercial a Project Validation review as defined in the options (see 4.4). Outsourcing Playbook (11) and GovS 002.
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Decisions may be conditional provided 3.5 Commercial assurance responsibility for fulfilling such conditions is assigned. Decisions should be: Commercial assurance is the systematic set of actions necessary to provide confidence • holistic, taking account of the to senior leaders and stakeholders that external context, broad commercial commercial work is controlled, on track considerations, potential negative and aligned with government policy or impact and the relevant functional the organisation’s strategy. standards Organisations shall include commercial • communicated to the relevant assurance in their organisational approach stakeholders to assurance and be aligned to government Analysis relating to decisions should be assurance guidance and arrangements. For undertaken in accordance with GovS 010, contracts associated with major projects, Analysis. this should be within an integrated assurance strategy (see GovS002, Project delivery). 3.4.2 Commercial justification and Commercial assurance should ensure at business cases least three separate and defined levels of To facilitate governance and scrutiny, assurance are applied that are proportionate commercial activity shall be justified and to the risk and value of the commercial documented throughout the commercial life activity. Typically, these include: cycle (see 4). Such justification should be in • 1st line: carried out by, or on behalf accordance with HM Treasury requirements of, the operational management that (see Green Book [12]). Justification may be own and manage risk documented either in the form of a business case or as a separate commercial strategy • 2nd line: carried out by, or on or other proportionate format, which should behalf of, those who have no first be defined in the organisation’s commercial line responsibilities, but oversee governance and management framework. management of the risk to ensure the first line of defence is properly For contracts required as part of a designed, in place and operating as programme or project, a commercial intended case should be prepared as input to the • 3rd line: carried out by independent project or programme’s overall business audit, or other independent body, to case. This case should be developed in provide senior management with an stages throughout the project life cycle, objective opinion on the effectiveness in accordance with GovS 002, Project of governance, risk management delivery. If required, subsequent approval and internal controls, including the shall be obtained in accordance with HM effectiveness of the second and first Treasury and Cabinet Office policy and lines of defence spend controls [4]. Note: see assurance frameworks for more on three Note: for an example showing the linkage between lines of defence [2]. a contract case and project business case, see Annex C.
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Note: for highest risk contracts and commercial 3.6.1 Accounting officer activity a 4th line of defence may be adopted to provide an additional layer of assurance. This may The Accounting Officer is the senior executive be carried out by the National Audit Office or other in a central government organisation, third party. accountable to Parliament and the public For eligible contracts, commercial assurance for the stewardship of public resources, reviews and audits should be scheduled ensuring they are used effectively and to prior to significant decisions, including, as high standards of probity. The Accounting a minimum, commencing procurement Officer has ultimate accountability for or before awarding a contract, to provide commercial activities in their organisation decision makers with an assessment of the and is responsible for ensuring commercial status and outlook for the work. resources set out in the blueprint are made available. Assurance reviews should continue to take place after contract award, to monitor Note: the Accounting Officer is generally the contract delivery, and be planned to Permanent Secretary. The permanent head of a government department is its Principle minimise impact on the work by combining Accounting Officer, who generally appoints the them, where applicable, with programme, most senior executive in organisations under the project or other related assurance reviews. department’s ambit as an Accounting Officer. See Managing Public Money [3], Cabinet Office Commercial contracts should be designed controls [4], Assurance framework [2], accounting and implemented to promote proactive officer system statements [5] and accounting commercial assurance through the inclusion officer assessments [6]. of terms and conditions that may include: 3.6.2 Senior officer accountable for the • open book arrangements Government Commercial Function • right to audit clauses activity • obligations to provide management The senior officer accountable for the information government commercial function (currently • contingency and/or resolution plans referred to as the Government Chief Commercial Officer) is accountable to the Where commercial spending controls are Chief Executive of the Civil Service for the applicable, the relevant Cabinet Office and development and implementation of the HM Treasury stakeholders shall be consulted cross-government commercial vision and in a timely manner, to facilitate commercial strategy, and should: assurance activity and ministerial approvals [4]. • provide leadership and direction for improving commercial practice across 3.6 Roles and responsibilities government Roles and responsibilities contributing to • develop commercial policy operational or strategic commercial activities • improve the management of shall be defined in the organisation’s contracts across government governance and management framework. • strengthen commercial capability This includes, but is not limited to, reporting across government lines and the activities, outputs or outcomes they are responsible for. • ensure that government acts as a responsible and intelligent client
9 Government Functional Standard
3.6.3 Senior officer accountable for an 3.6.4 Senior business owner organisation’s commercial activity The senior business owner is accountable to The senior officer accountable for an a defined higher authority in the organisation organisation’s commercial activity is for their assigned contracts (or group of accountable to a defined higher authority related contracts) and/or their assigned for the direction and governance of an supplier relationship and associated organisation’s commercial activity, and should: commercial activity, and should: • provide leadership and direction • own the justification for the contract(s) for all commercial activity within • be accountable for all aspects the organisation of contract governance and • ensure the implementation of management commercial policy and compliance • ensure commercial and other to this standard specialists are involved throughout • own the organisation’s commercial the commercial life cycle strategy and plan • evidence the effectiveness of contract • ensure the required benefits from management plans commercial activities are realised, • if applicable, be accountable for at an acceptable level of risk effective management of a strategic and cost supplier relationship • engage, at senior level, with those accountable for all commercial Note: in a programme or project context this role might be undertaken by a Senior Responsible activity in the organisation’s Owner or other person assigned by them. In commercial pipeline other contexts it might be a senior manager in • provide commercial advice, guidance the organisation. and assurance to senior business owners and their teams 3.6.5 Contract manager • allocate appropriate commercial In the context of this standard a contract resources to commercial activity manager is an individual who has been assigned responsibility for managing the Note: the senior officer accountable for commercial day-to-day delivery of a contract. activity is a specialist commercial role, often called a Commercial Director or Organisation Chief The contract manager is accountable to Commercial Officer. the senior business owner and should work Note: the higher authority depends on the context with and be supported by others, including and might be the accounting officer, a departmental, commercial specialists, to ensure the best Arms Length Body or executive board or a possible outcome from the commercial life portfolio board. cycle activities (see 4).
Note: in a programme or project context this role might be undertaken by a programme manager, project manager or team manager. In other contexts, it might be a line manager.
Note: the Contract Management Professional Standards (7) provides further guidance on required competencies and scope of the role.
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3.6.6 Commercial specialists 3.7.3 Procurement regulations Other specialist commercial roles should Public sector procurement is restricted by be defined to suit the needs of the regulation which must be complied with. commercial activity being undertaken. This Such regulations apply to the majority can be for managing a variety of aspects of of procurements with a total value over commercial practice in accordance with this a specified threshold. They stipulate the standard and the organisation’s commercial procedures to be followed in the commercial governance and management framework. lifecycle, especially relating to time limits, Such roles may be either advisory as part of specifications, advertising, tendering and a team, or taking a leadership or executive contract award. Organisations should select role with accountability assigned. the most appropriate procedure on a case- by-case basis. Note: Government Commercial Function, People Standards for the Profession [8] includes the Note: public sector procurement is governed by professional standards for a range of commercial the regulations that implement the EU Procurement management and specialist roles. Directives, the PCRs 2015, the UCRs 2016, and CCRs 2016 [10]. 3.6.7 Use of third parties Employment of private sector agents to undertake commercial activity on behalf of the organisation should be subject to approval in accordance with the commercial governance framework. Such agents should be skilled and competent to carry out their tasks. Clear allocation of responsibilities and, where appropriate, indemnity against costs should be established.
3.7 Governance constraints
3.7.1 Managing public money Commercial activity shall be undertaken in accordance with Managing Public Money [3].
3.7.2 Procurement policy notes Commercial activity shall be undertaken with due regard to cross government and organisational procurement policies.
Note: cross government commercial policy is published as Procurement policy notes [9].
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4 Commercial life cycle The commercial life cycle (figure 2) provides of contracts in support of organisational a framework for defining commercial and governmental needs. strategies and the delivery and management