Draft Prospectus for 2023 and beyond

Procurement Strategy

Our primary aim is to secure the delivery of an audit service of the required quality for every opted-in body at a realistic market price and to support the drive towards a long term competitive and more sustainable market for local public audit services.

The objectives of the procurement are to maximise value for local public bodies by:

  • securing the delivery of independent audit services of the required quality;
  • awarding long term contracts to a sufficient number of firms to enable the deployment of an appropriately qualified auditing team to every participating body;
  • encouraging existing suppliers to remain active participants in local audit and creating opportunities for new suppliers to enter the market;
  • encouraging audit suppliers to submit prices which are realistic in the context of the current market;
  • enabling auditor appointments which facilitate the efficient use of audit resources;
  • supporting and contributing to the efforts of audited bodies and auditors to improve the timeliness of audit opinion delivery; and
  • establishing arrangements that are able to evolve in response to changes to the local audit framework.

Aligned to setting the duration of the compulsory appointing period as five years, our current thinking is to set a contract duration of five years with the option to extend for a further one or two years with the supplier’s agreement. We have considered other options which, for completeness, are explained in the annex to this prospectus together with our reasons for rejecting them.

Our initial thinking is to follow the restricted procedure (rather than the open procedure) in accordance with the current Public Contract Regulations given the current requirement that in order to undertake local audit work firms must be registered with an RSB. This could include a non-accredited firm working with an accredited firm we appoint as the auditor.

One of the proposed changes to the Appointing Person Regulations would enable PSAA to exercise greater flexibility in relation to the term of auditor appointments. In this context we are considering whether to establish a dynamic purchasing system (DPS) in parallel to the main procurement. Our thinking is that a DPS could provide the option for some or all subsequent auditor appointments, e.g. to newly established bodies, to be the subject of mini-procurements. It would also mitigate the risk that some audit firms might be “locked out” of the market for the new contract term if they are unsuccessful in the procurement.

Our initial thinking is that there could be between seven and ten contract lots with the aim of entering into contracts with a larger number of registered local public auditors than the current five. We feel this could contribute to longer-term market sustainability as well as helping us to manage any auditor independence issues.

Our current thinking is contract lots should be graduated in size. The largest lot would probably represent around 20-25% of the market compared to the 40% and 30% largest lots offered in 2017. As a consequence there are likely to be an increased number of smaller lots available. The exact number and size of lots will be influenced by the number of bodies that decide to opt into the scheme.

Our initial thinking is that, with the exception of the very smallest lots, each lot, in its final form, would reflect a sensible balance of geography and a blend of the different authority types.

At this stage we envisage that the value of each lot would be expressed in terms of the “audited body notional value” (ABNV), which would comprise the published scale fees for 2021/22. Recognising the potential for scale fees at individual bodies to change between the completion of the procurement process and the contract commencement date, we envisage the inclusion of mechanisms to adjust scale fees transparently (either up or down) to ensure that both opted-in bodies and our contracted suppliers are neither advantaged nor disadvantaged by such changes. Importantly we hope this will avoid contingency provisions being built into firms’ bids to mitigate risk.

We feel it would be beneficial to provide bidders with relevant information on each audit including the recent history of approved fee variations and the nature of any recurring fee variations that have already been incorporated into the scale fee. In this way we aim to establish a consistent and informed basis for the submission of tenders.

We envisage applying an evaluation ratio at tender stage that is significantly weighted towards quality. In 2017 we adopted a 50% quality: 50% price model. However, the market expectation has clearly shifted over recent years in response to the requirement for auditors to deliver higher quality audits. Recent similar public audit procurements indicate that anything less than an 80% weighting for quality would be viewed as being out of touch with the market and risk not attracting a sufficient range of suppliers indicates that anything less than an 80% weighting for quality would be viewed as being out of touch with the market and risk not attracting a sufficient range of suppliers.

Our current thinking is therefore to adopt an 80% quality: 20% price weighting which would align with recent similar public sector audit procurements. However, we recognise that this is an issue on which eligible bodies may also have strong views so are keen to hear hear bodies’ thoughts.

Our current thinking is to test the following areas to assess the quality of tender responses: audit approach, quality assurance arrangements, resourcing, capacity & capability, management of the transition between audit firms and client relationship management and communication. We propose to underpin our more heavily weighted emphasis on quality with a series of KPIs derived from these areas.

One of the most concerning features of the local audit system since 2018 has been the large number of audit opinions which have been delayed beyond the target timetable set out in the Accounts & Audit Regulations, and the disruption and reputational damage that results for all parties as a result of those delays. The NAO published a report on this matter in March, 2021. The report concludes “The increase in late audit opinions, concerns about audit quality and doubts over audit firms’ willingness to continue to audit local authorities all highlight that the situation needs urgent attention. This will require cooperation and collaboration by all bodies involved in the local audit system, together with clear leadership from government.” We agree and we are working with partners on what actions PSAA and other market participants can take to avoid delayed opinions becoming a feature of the next appointing period. We know that there are no quick fixes, but we are determined to do all we can to bring about improvements, whilst recognising the importance of striking the right balance in relation to audit quality.

To support the drive for market sustainability, we are considering the following possible options:

  1. accepting consortia bids including those that involve firms which are seeking to enter the market by gaining experience working in partnership with an existing registered supplier;
  2. accepting bids from firms that are currently proceeding through the local audit registration process; and
  3. inclusion of one or two lots specifically aimed at seeking to encourage additional capacity into the market, mostly likely through some form of joint working arrangement between more experienced suppliers and new entrants or less experienced suppliers.

Additional costs may arise as an inevitable consequence of striving to bring new suppliers into the market. If additional costs were to occur, they would be borne by the scheme as a whole rather than by an individual audited body or a sub-set of bodies.

Back to top

Social value

The Social Value Act 2012 applies to PSAA, therefore we must consider (a) how the audit services might “improve the social, economic and environmental well-being” of England and (b) how in conducting the process of procurement of those services we might act with a view to securing that improvement.

The collective, national nature of our contracts for audit services, which cover a significant number of diverse bodies do not easily provide scope for such improvement arising solely from procuring audit services.

As such we are considering whether to focus our approach to social value solely on audit apprenticeships which demonstrate a commitment to local audit and are awarded to residents of deprived areas. We feel this focus, whilst narrow, would deliver a tangible, measurable outcome for the long-term benefit of the sector. It would also build on the significant number of apprenticeships (137 to date) created as a result of our 2017 procurement.

Our initial thinking is to attach a 4% evaluation weighting to social value (that equates to 5% of the quality score). However, we recognise that this is an issue on which eligible bodies may have views so are keen to hear bodies’ thoughts.

Back to top

Scope of the procurement

The scope of the procurement will be the delivery of audit services for eligible bodies that decide to accept the invitation to opt into PSAA’s scheme.

An eligible body that does not accept the opt-in invitation but subsequently wishes to join the scheme may apply to opt in during the appointing period only, that is on or after 1 April 2023. In accordance with the regulations, as the appointing person, PSAA must: consider a request to join its scheme; agree to the request unless it has reasonable grounds for refusing it; and notify the eligible body within four weeks of its decision with an explanation if the request is refused.

Where the request is accepted, PSAA may recover its reasonable costs for making arrangements to appoint a local auditor from the opted-in body.

Back to top

Evolution of the procurement strategy

Your feedback will inform our work to finalise the development of the procurement strategy, which we expect to issue with the formal opt-in invitation during September 2021.  In parallel to this consultation, we are also undertaking an engagement exercise to seek to understand the views of the market.

Following the conclusion of the opt-in invitation period (likely to be during January 2022) there may be one further limited revision of the procurement strategy, depending upon the number of bodies that decide to opt-in and the impact of any potential changes to regulations or other environmental factors. We anticipate initiating the procurement for new audit services contracts in February 2022, culminating in contracts being awarded in June 2022.

Back to top