Market Engagement Summary of Responses - Page 2 of 4

Key Messages

There is a reasonable degree of actual and potential coverage in the provision of audit services across most English regions although understandably not all regions are equally well served.
There are positive signs that it could be possible to attract some additional capacity into the local audit market through a further procurement process under certain conditions, with sufficient lead-in time of around 12-18 months from contracts being awarded.
The well-known challenges currently facing the local audit market were frequently
referenced as constraints to increasing capacity of service provision. These included:
- the local government audit timetable and how it sits alongside others such as the NHS;
- increased regulatory pressure and focus on audit quality;
- the lack of availability of suitably qualified and experienced staff;
- the barriers for new entrants into the market;
- the low status of local audit work in comparison to other audit work; and
- the challenging commercial context and channel choice within the firms.

There was consensus however on the need for the audits within the scope of the
procurement to be predefined and named in advance. Factors such as location and the type of authority would be considerations in the firms’ assessment of whether to bid for the work. This key message was echoed strongly throughout all responses.
Given the likely potential for only a small number of audits to be within the scope of a further procurement, the use of an approach involving mini-competitions for packages of audits did not attract significant levels of concern. However, firms understandably indicated a preference for approaches that would reduce their need to respond to multiple procurement processes.

Firms indicated they were open to a range of pricing approaches. However, there was no clear consensus on the basis for pricing from the given options:
- Retain current approach albeit use 2020/21 fees as the baseline
- Replace the current approach with multiple pricing by type of authority
- Provide for further price competition under a mini competition as part of a framework agreement
- Allow for pricing at the time of a tender for one or more audits as part of a DPS

There was, however, near consensus against use of the pricing approach adopted for the widescale procurement in 2017, which was based on audited body notional value for a basket of audits. The current scale fees are based on the firms’ assessment of the nature, scale and complexity of risk across a portfolio of audits when pricing their tenders in the 2017 audit services procurement. The firms now believe those scale fees do not reflect the nature, scale, complexity and risk of each audit, nor the changes in the audit and accounting requirements that have occurred since 2018. As a result, the contracts are viewed less favourably by the firms in comparison to those for commercial audits.
All firms agreed that the basis for pricing should enable suppliers to reflect the individual audit, taking account as much as possible of an organisation’s risk and complexity, the quality of its systems and data, and the extent of its accounting expertise.
The vast majority of firms were supportive of consideration of an approach which would include a supplementary payment/reimbursement for audits undertaken outside of a radius from a firm’s nearest local audit office, in recognition that some areas are “more difficult to resource”.

All firms agreed that quality should have a greater weighting than price in any tender evaluation. In PSAA’s 2017 audit services procurement, quality and price had equal weighting.
Firms indicated a weighting range for quality from 60% to 100%, with an average of around 75%, and a corresponding weighting range for price of 40% to 0%. A small number of firms advocated a 100% weighting of quality, suggesting that price should be determined outside of the procurement process.
Firms offered several suggestions on ways in which quality could be measured, including the number of Key Audit Partners (KAPs), the outcome of quality reviews, and demonstration of knowledge of the current market issues.
Firms suggested that they would be able to evidence their additional capacity, as part of a procurement process, through sharing details of their KAP development pipeline, staffing investment, and training and development plans.
There was universal acknowledgement that the number of experienced public sector staff has reduced in recent year and significant difficulties are experienced when undertaking recruitment to public sector audit roles.