Central Guidance 3

Central Guidance 3:

Guidelines for the Reporting Arrangements, Role and Function of a Process Auditor in a Public Private Partnership Project

June 2004

Further details please contact:

Central PPP Unit

Department of Finance

2-4 Merrion Row

Dublin 2

T: +353-1-669 6308

F: +353-1-669 6313

E:

W:

Contents

1Context

2Introduction / Summary

3Scope of these Guidelines

4Role of the Project Manager in relation to the Process Auditor

5Roles of Project Boards in relation to the Process Auditor

6Role of the Process Auditor

7When is a Process Auditor required?

7.1When should a Process Auditor be appointed?

8Who should be a Process Auditor?

9Reporting arrangements for Process Auditor

10Procurement Process Checklist

11Procedures for Process Auditing

11.1Raising a point of concern

11.2Raising urgent issues requiring immediate attention

11.3Submission of Pre-contract Award Report to the Accountable Officer

12Report to the Sanctioning Authority

13Application of these Guidelines

14Queries

15Appendix 1: Procurement Process Checklist

16Appendix 2: Template for the Pre-Contract Award Report

1Context

These guidelines provide elaboration on the role and function of the Process Auditor as identified in the PPP guidelines. The Guidelines for the Reporting Arrangements, Role and Function of a Process Auditor in a Public Private Partnership Project refer to the stage, from the guidelines on PPP, circled in the diagram.

2Introduction / Summary

The Process Auditor function operates against the background of defined procedures for the procurement and project management of a Public Private Partnership procurement project. These procedures should encapsulate the appropriate processes to be followed at each stage of the procurement up to the award of contract in order to ensure compliance with the requirements of E.U. and national regulatory and administrative procedures and the imperative of good project management[1] - including proper control of working papers / documentation and their custody within the Sponsoring Agency.

The Process Auditor supports the Accountable Officer’s[2] responsibility for the project by checking on his/her behalf that the proper procedures and processes, as agreed in the Procurement Process Checklist at the commencement of the process, have been followed.

The procedures recorded by the Process Auditor should include the steps to ensure compliance with: European Union and national regulatory and administrative requirements; sector specific guidance; and with procedures adopted by the Project Manager/Project Board.

3Scope of these Guidelines

The purpose of these guidelines is to define in sufficient detail the role of the Process Auditor and set out the appropriate methodology for compliance with the requirements of the general Public Private Partnership (PPP) Guidelines as they relate to the Process Auditor. The aim is for the Process Auditor to identify any issues of material concern for the Accountable Officer and so to minimise the need for the detailed involvement of the Accountable Officer in the procurement process for each project - unless a material concern arises.

These Guidelines apply to Steps A.1 to A.8 of the Public Private Partnership Procurement Steps, i.e., from the Preliminary Appraisal to Contract Close[3].The Post Project Review stage is outside the remit of the Process Auditor.

The role of the Process Auditor as defined in this guidance does not extend beyond the award of the contract. However, some sectors may require that the individual who undertook the role of the Process Auditor makes available the knowledge s/he gained during the process, for the benefit of a post contract awardproject review function.

4Role of the Project Manager in relation to the Process Auditor

The Project Manager is the person nominated by the Sponsoring Agency as the lead individual who is given responsibility for the monitoring and implementation of a project[4].

At the initiation of the project, the Project Manager may not yet know which procurement mechanism should be followed, traditional or PPP. Notwithstanding that, the Project Manager should ensure that the initial stages of all projects, prior to the determination of the appropriate procurement mechanism, are in accordance with the ‘Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector’.

In order to obtain approval to proceed and procure the project using a Public Private Partnership approach the Project Manager must:

• Compile a ‘PPP Assessment’[5] to be approved by the Sanctioning Authority;
• compile a Procurement Process Checklist;
• following approval of the checklist by the Accountable Officer, supply the approved checklist to the Process Auditor on his/her appointment.

Documentary evidence outlining the consideration of and the basis for decisions taken at each defined stage should be provided by the Project Manager. The Secretary to the Project Board who is responsible for, inter alia, retaining all relevant documentation relating to the project, must make copies of relevant papers available to the Process Auditor on request.

5Roles of Project Boards in relation to the Process Auditor

A Project Board[6] is a group of individuals brought together for the purposes of delivering a specific project.

Accountability structures vary in regard to the responsibilities of project boards. A Board may be constituted to provide specialist skills to support the decision making role of a Project Manager. In this regard the role of the Project Board is to support the Project Manager in undertaking all stages as identified in the Procurement Process Checklist.

Alternatively, where the Project Board is constituted in the form of a decision making authority, its members are then collectively responsible to the Sponsoring Agency, through the Project Manager, for the completion of all steps of the Procurement Process Checklist.

Irrespective of the type of structure a complete set of project related documentation is to be retained, in the Sponsoring Agency, by the Project Manager/Project Board.

6Role of the Process Auditor

The Process Auditor’s role is to record that each step / procedure on the approved Procurement Process Checklist has been addressed by the Project Manager / Project Board. In order to record that a step has been completed, the Process Auditor must be satisfied that the step has been given due consideration by the appropriate responsible authority.

On appointment, the Process Auditor should be provided with

• A copy of the approved Procurement Process Checklist; and
• Documentary evidence outlining the consideration of and the basis for decisions made in relation to the project from the Project Manager.

The Process Auditor is not a second layer of project management. It is not part of the Process Auditor’s role to comment on any action / omission / decision taken in relation to the project that is not related to the steps set out in the approved Procurement Process Checklist. Decisions made in relation to the project are not the responsibility of the Process Auditor, nor does s/he have the authority to challenge or second guess decisions or expert advice provided to the Project Manager / Project Board.

The Process Auditor must, however, raise as a point of concern (see Section 11), instances where decisions or advice, relating to the stages as set out in the Procurement Process Checklist,do not appear to have been followed through by the Project Manager / Project Board.

7When is a Process Auditor required?

A Process Auditor must be appointed to all projects or grouped projects where the capital cost exceeds the threshold set out in the National Development Finance Agency Circular - currently €20 million[7].

The Accountable Officer may appoint a Process Auditor with responsibility for projects or grouped projects below this threshold if s/he thinks it prudent to do so.

In cases where the initial cost estimate for a project was lower than the threshold andthe capital cost is likely to exceed the threshold, a Process Auditor must be appointed as soon as this has become apparent.

7.1When should a Process Auditor be appointed?

A Process Auditor must be appointed when the PPP Assessment has been completed and the Sanctioning Authority has given approval to the Sponsoring Agency to proceed with the project as a PPP.

8Who should be a Process Auditor?

The Process Auditor is required to be a person (internal or external to the Sponsoring Agency or Sanctioning Authority) who is considered by the Accountable Officer to have suitable experience and standing to undertake the functions of the Process Auditor, including the requirement, if necessary, to seek clarification about the Project Manager’s / Project Board’s compliance with their obligations per the Procurement Process checklist. The person appointed by the Accountable Officer as the Process Auditor must have direct access to the Accountable Officer.

9Reporting arrangements for Process Auditor

The Process Auditor is appointed by, and reports directly to, the Accountable Officer. In some sectors another party, in addition to the Accountable Officer, may have project accountable responsibilities[8]. In such instances a dual reporting mechanism may be required. Any such requirement will be set out in sector specific guidance issued by the appropriate Government Department / State Authority. The reporting arrangements to the Accountable Officer for the Process Auditor are independent of the reporting arrangements of the Project Manager / Project Board.

10Procurement Process Checklist

On foot of the approval from the Sanctioning Authority that the project is to be procured as a PPP, the Accountable Officer must agree and sign off a checklist of the steps,as set out in the project specific Procurement Process Checklist. These stepsmust be completed during the process. This is a prerequisite of these guidelines.

The checklist must have regard to the need to comply with all requirements arising from relevant European Union and Irish Law; Department of Finance guidelines and circulars; and sector specific guidance. A sample of the steps in a Procurement Process Checklist which should be completed is set out in Appendix 1[9]. The Checklist should also contain any additional project-specific issues that are considered necessary by the Accountable Officer or the Project Manager / Project Board.

The Process Auditor is responsible for obtaining and retaining all relevant documentation relating to the Procurement Process Checklist and his/her role as Process Auditor.

In the interest of efficiency, the Accountable Officer may agree to the formulation and approval of a standard Procurement Process Checklist for specific project types. Where it is proposed not to use the standard checklist, the Accountable Officer should approve a Procurement Process Checklist for each of these projects.

11Procedures for Process Auditing

11.1Raising a point of concern

In the event that the Process Auditor is not satisfied that the Project Manager / Project Board is fully compliant with any step outlined in the approved Procurement Process Checklist, then s/he should do the following:

(i) Verbally mention his/her concerns to the Project Manager and supply a written statement setting out the point(s) of concern and the reasons for the concern(s).

(ii)If, in the opinion of the Process Auditor and after a reasonable period of time, the Project Manager has not adequately addressed the Process Auditor’s concern(s), the Project Manager and each member of the Project Board should be advised of the Process Auditor’s concern(s) in writing, enclosing a copy of the written statement originally provided to the Project Manager.

(iii)The Project Manager/Project Board must respond in writing to the Process Auditor setting out the reasons for their proposed approach and/or the action proposed to remedy the concern(s) raised by the Process Auditor. The Process Auditor must then decide if the proposed approach addresses his/her concern(s).

(iv)If, in the opinion of the Process Auditor and within a reasonable period of time, the Project Manager and/or the Project Board fail to adequately address the concern(s) raised in writing by the Process Auditor, then the Process Auditor should raise the same material concern(s) in writing with the Accountable Officer (attaching a copy of the written correspondence to the Project Manager and the Project Board).

Where the function has been assimilated into the project management structure, analogous procedures to the above should be established for the project .

11.2Raising urgent issues requiring immediate attention

The Process Auditor may consider that certain material concerns are urgent and require immediate attention and action from the relevant party i.e. Project Manager/Project Board/Accountable Officer. In such instances the Process Auditor should raise the concern(s) with the relevant party/parties in writing, outlining why this concern is urgent.

11.3Submission of Pre-contract Award Reportto the Accountable Officer

The Process Auditor must submit a project specific pre-contract award report,[10]setting out the level of compliance with the requirements of the approved Procurement Process Checklist and referring to the Accountable Officer for his/her resolution of concerns which remain outstanding. This must occur prior to Contract Award, i.e., before the contract can be signed or any other binding commitment entered into.

This document should be submitted to the Accountable Officer, who must then, before the contract can be signed or any other binding commitment entered into:

1. decide, whether, having regard to the issue(s) raised by the Process Auditor, theproject should proceed to Contract Award;

1. within a reasonable timeframe, advise the Project Manager/Project Board/Sponsoring Agencyand the Process Auditor of his/her decision in regard to above; and,

The contract must not be signed until the Accountable Officer has indicated, in writing,[11]his/her satisfaction that these issues have been adequately addressed.

Where the steps required in the approved Procurement Process Checklist have not been completed, the Process Auditor will already have communicated his/her concerns to the Accounting Officer in writing as they arose during the procurement process. Copies of all of this documentation should also be attached to the audit report.

12Report to the Sanctioning Authority

Where the Process Auditor’s Pre-contract Award Report raises concerns that all the relevant steps on the approved Procurement Process Checklist have not been completed, the Accountable Officer should notify, as a point of information, the Sanctioning Authority of these concerns and what his/her final decision has been on the matter, prior to Contract Close.

13Application of these Guidelines

These guidelines come into force on 1 July 2004 and apply to all PPP projects which have not yet commenced and to all PPP projects which have not yet invited tenders[12] from the private sector.

Where applicable, sector specific guidance will issue from Government Departments and State Authorities.

14Queries

Any queries relating to these guidelines circular should be referred to the Central PPP Unit, Department of Finance, 15 Lower Hatch Street, Dublin2; telephone (01) 639 6227; e-mail:

15Procurement Process Checklist

Project Name: ______

Note: The Project Manager made responsible for the procurement of this project must obtain the Accountable Officer’s approval for their Project Specific Procurement Process Checklist once Sanctioning Authority approval to proceed and procure the project as a PPP has been obtained. If approval is obtained the Checklist is submitted to the Process Auditor upon his/her appointment. Upon completion of the Pre-Contract Award Report, the Process Auditor must submit the Checklist with the Report for approval.

The attached Procurement Process Checklist has been compiled by the Project Manager to reflect the specific needs of the project and approved for use by the Accountable Officer.

To be completed by the Project Manager/Individual responsible for the Project:

Name:______(Block Capitals)

Signature:______

Date:______

To be completed by the Accountable Officer:

Name:______(Block Capitals)

Signature:______

Date:______

The steps outlined below are not in chronological order

Section A – Pre-Procurement
Main Requirement / Further Detail / Completed / Not Required / Not Completed
Preliminary Appraisal – as per the Capital Appraisal Guidelines / Needs Analysis
Options Appraisal
Cost Benefit Analysis
National Development Finance Agency Assistance / Advice of the National Development Finance Agency sought
Detailed Appraisal – as per the Capital Appraisal Guidelines / Appraisal should produce a reasonable estimate of the budget required to procure the project
PPP Procurement Assessment / As per PPP Procurement Assessment Guidelines, including Value for Money Test.
Affordability / Cost of the project can be accommodated by sponsor e.g. capital costs of the project over the construction phase can be accommodated within the relevant Capital Envelope.
All policy issues involved are clear and fully agreed / Possible issues include:
no conflict with public sector numbers, HR policy or any other general policy;
capital costs of the project over the construction phase can be accommodated within the relevant Capital Envelope
Stakeholder consultation / Stakeholder consultation as required by relevant guidelines.
Approval to Proceed / Following appraisal of the project, the Sponsoring Agency should approach the Sanctioning Authority for approval to proceed with the project as a PPP.
The overall budget, which incorporates both PPP and non-PPP elements, is set at this point
Site-related Issues / At this point the following aspects of the site should be decided and arranged:
- Identification
-Acquisition
-Investigations
-Consents
Establishing Project Management Structure / Selection of appropriate management structure for project in accordance with Stage 2 of Capital Appraisal Guidelines.
Agreement of reporting relationships.
Appointment of Process Auditor / When approval to proceed with a project has been secured, a Process Auditor should be appointed in accordance with section 1.10 of the Main PPP Guidelines.
Agree Checklist
Compiling Output Specifications and Public Service Benchmark / Draw up detailed Output Specifications for the project, including approval of the Risk Matrix.
Compile PSB derived from Output Specifications and confirm Value for Money.
Section B1 – Tendering Phase
Main Requirement / Further Detail / Completed / Not Required / Not Completed
Procurement Process / Compliance with EU and national procurement guidelines.
Tender Evaluation / Evaluation of Tenders deemed “suitable in principle”. Reconfirm affordability i.e. within relevant Capital envelope.
Value for Money Comparison Exercise
Considerations if Bid Fails to Equal/Beat Public Service Benchmark / Refer to Sanctioning Authority and the relevant Minister or the Government for a decision.
Contract and Financial Close/Award of Contract / -Financial close
-Final Value for Money Test
-Award of Contract
-Documentation Provided Guidelines
Section B2 – Tendering Phase in Centre of Expertise Model
Main Requirement / Further Detail / Completed / Not Required / Not Completed
Procurement Process / Compliance with EU and national procurement guidelines.
Tender Evaluation / Evaluation of Tenders deemed “suitable in principle”. Reconfirm affordability i.e. within relevant Capital envelope.
Value for Money Comparison Exercise
Considerations if Bid Fails to Equal/Beat Public Service Benchmark / Refer to NDFA Board for examination.
Refer to Minister or Government for decision.
Convey decision to NDFA
Contract and Financial Close/Award of Contract / -Financial close
-Final Value for Money Test
-Award of Contract
-Documentation Provided Guidelines

To be completed by the Process Auditor prior to submission of the checklist to the Accountable Officer as part of the Pre-contract Award Report: