Major Investment

2. A report on conventional procurement options for major investment projects should be prepared unless the PFI/PPP route is being pursued. In the case of mission critical or high risk projects, the evaluation and recommendations should be presented to the responsible Minister for decision.

3. Effective management of major investment projects is essential to ensure that projects are delivered to specification, on schedule and to budget, while meeting all user requirements. The responsibilities and delegated authorities which relate to these functions must be clearly identified and supported by formal statements.

4. Appropriate arrangements should be in place to ensure effective control of the project up to the point of completion and, where appropriate, in the service delivery phase.

5. Accountable Officers should be kept informed of progress on mission critical or high risk projects and should inform Ministers if there are any developments that could undermine the planned budget or viability of the project. This includes issues identified at a Gateway Review or at any other stage during a project's lifetime.

6. All capital projects over £5 million budget (inclusive of professional fees and VAT) must be assessed in terms of their level of risk; if they are assessed as high risk or mission critical, a formal Gateway Review must be undertaken at each key decision stage by a small independent team who will report their findings and recommendations to the project's Senior Responsible Owner (SRO).

7. SROs are responsible for circulating the Gateway Review report to Accountable Officers and other stakeholders, for implementing recommendations (including maintaining an official record of implementation), and for taking remedial action. Accountable Officers should in turn inform Ministers if a review identifies serious deficiencies, difficulties, or probable failure to meet the planned budget.

8. Sponsor Departments / divisions have specific responsibilities in relation to major investment projects which sponsored bodies are required to submit to sponsor Departments for approval.

9. Clear written agreements between co-funders should be agreed and put in place for the management of jointly funded projects. This should be done at an early stage and before significant costs have been incurred.

Background

10. While the guidance in this section is aimed primarily at major capital investment projects (ie those with a total budget exceeding £2.0m inclusive of fees and VAT), the general principles should be applied, as appropriate, to all investment projects including those procured by means of Private Finance Initiative / Public Private Partnerships (PFI/PPP), leasing arrangements and the management of large maintenance programmes. Capital investment is generally taken to mean the creation or purchase of an asset with a lifespan beyond the current accounting period. It includes the construction of buildings, the purchase and/or development of land and/or existing buildings and the purchase of relevant items of equipment (including the installation of computer systems).

11. The guidance in this section forms part of the Construction Procurement Manual, published by the Scottish Executive's Construction Advice and Policy Division. The Construction Procurement Manual provides a policy and procedural framework for construction works projects and should be considered applicable to all bodies which are subject to the requirements of the Scottish Public Finance Manual.

Procurement

12. Choice of the most appropriate procurement route should be one of the first considerations in any major investment. PFI/PPP should be used where it can be demonstrated to provide best value for money. This can be achieved through cost savings from transfer of risk to the private sector when compared with conventional procurement and will be demonstrated through qualitative and quantitative value for money assessment which also takes into account additional benefits from having assets delivered over a reduced timescale through PFI/PPP. Projects which are less suitable for PFI/PPP include smaller projects (due to the high procurement costs) and projects where the service requirements cannot be clearly specified up front eg due to rapid demand changes or untried technologies. For projects of a capital value less than £20 million, the appropriateness of procuring these on a PFI/PPP basis should be discussed immediately with the Financial Partnerships Unit. Detailed guidance on PFI/PPP generally and on specific issues, such as the Staffing Protocol, can be obtained from the Financial Partnership Unit's website. See also the section of this Manual on Private Finance Initiative / Public Private Partnerships.

13. Where a decision is taken not to pursue the PFI/PPP route a report on conventional procurement options should be prepared. The report should be prepared following the initial assessment of need, the preparation of a business case and an option appraisal. Consideration should be given to criteria appropriate to the client and project and the weight to be given to factors identified in scoring options. Factors for building projects may include size, nature and location of project; architectural or policy considerations; timescale; availability of funding (resources and cash) and whole life cost affordability; quality; complexity; flexibility; risk; communication and degree of involvement desired; need for early contractor involvement and so on as deemed appropriate. Consideration should be given to lessons learned from the experience of PFI/PPP in delivering on time and on budget, for example by clearer statements of requirements before setting timescales and budgets.

14. The risks and benefits relating to each procurement route should be fully identified, considered and evaluated and, in the case of mission critical or high risk projects, the evaluation and recommendations should be presented to the responsible Minister for decision. In addition, Ministers must be informed of the views of specialist advisers (whether in-house or consultants) where there are differences of opinion between them and the responsible owners/managers of the project.

15. Procurement procedures should aim to achieve value for money. In establishing the specification and award criteria judgement should be made on the appropriate balance between quality and price. Further guidance on this subject is available in the section on Procurement, the Procurement Policy Manual and the Scottish Procurement Directorate Toolkit and in the Construction Procurement Manual.

Management Structure

16. Effective management of major investment projects is essential to ensure that projects are delivered to specification, on schedule and to budget, while meeting all user requirements. These principles apply equally to projects where the procurement option chosen is PFI/PPP or leasing. A clear management structure must be put in place within the client's chain of command (see Annex 1) focusing on the functions to be discharged, namely:

investment decision making;
project ownership;
project sponsorship; and
project management.

17. The responsibilities which relate to these functions must then be clearly identified and supported by formal statements setting out individual responsibilities, areas of personal accountability and specific delegated authorities - see also the section on Delegated Authority. Lines of communication should be kept short. The system for setting and operating project budgets must be clear and unambiguous. It is essential that those performing the key client roles of project ownership, sponsorship and management receive proper training in the relevant management and technical abilities required. Further guidance on this is available in the section of the Construction Procurement Manual which deals with Roles and Responsibilities.

Investment Decision Making

18. The level at which investment decision making takes place will depend on the size and complexity of the project and its political sensitivity. The task may be at Accountable Officer, or senior official level. The Investment Decision Maker is at the top of the hierarchy that forms the client's chain of command. This function represents senior management's commitment to the project. The management structures of relevant projects must therefore include explicit allocation of the following investment decision making responsibilities:

ensuring that the systems of control set out in this and other relevant guidance are put into place and are followed;
the appointment of the Project Owner with sufficient authority to ensure that the necessary resources are in place to execute the project and provide proper support for the Project Sponsor;
the delivery of value for money;
establishing and monitoring a scheme of delegation, clearly defining the extent of individual responsibilities; and
maintaining the visible and sustained commitment from the top of the organisation to deliver.

19. Some projects, particularly those which are mission critical or high risk, will be referred to Ministers. In these cases a senior official, normally the Accountable Officer, should undertake all the responsibilities of the Investment Decision Maker, including that of granting formal official approval. He or she should, of course, only grant such approval with the agreement of Ministers, but in so doing he or she accepts that the Accountable Officer takes full responsibility for the project, including that it conforms with the requirements for regularity and propriety and offers value for money. The Investment Decision Maker must ensure that Ministers are given all relevant facts when they are invited to take a decision.

20. Departmental Finance Teams must be consulted as appropriate from the earliest stages of a project onwards in accordance with the guidance on the Roles and Involvement of Finance.

Project Ownership

21. The role of the Project Owner should normally be fulfilled by a senior officer in the business area with policy responsibility for the project, or by a Project Board for IT projects. The responsibilities of a Project Owner, including the appointment of the Project Sponsor, are set out in Annex 2. The extent of these responsibilities, specific delegated authorities and the circumstances under which reference must be made to the Investment Decision Maker must be set out in writing in the form of a personal letter of appointment from the Investment Decision Maker, a job description, or in the documents giving approval to the project.

22. The Project Owner should be accessible and, in order to reinforce the client's commitment to the project, should also be visible to the top management of the firms working on it. Such contact should provide, on the one hand, an opportunity clearly to promote the project and the benefits that it will bring, and on the other, should enable any misunderstandings or potential disputes to be defused. These activities should not cut across the day-to-day responsibilities of the Project Sponsor.

Project Sponsorship

23. The Project Sponsor should normally be appointed from within the client organisation prior to the appraisal process - see the section on Appraisal and Evaluation - and should (as far as possible) stay with the project throughout its life. The Project Sponsor should take personal responsibility for the overall success of a project, including its delivery on time and within budget. The responsibilities of a Project Sponsor, including the appointment of the Project Manager, are set out in Annex 2. The extent of these responsibilities, specific delegated authorities and the circumstances under which reference must be made to the Project Owner must be set out in writing in the form of a personal letter of appointment from the Project Owner, a job description, or in the documents giving approval to the project.

24. Project Sponsors should normally be appointed from people who have appropriate experience. Inexperienced Project Sponsors should obtain professional advice, particularly in the early stages of a project before a Project Manager has been appointed. If advice is not available in-house it will be necessary to engage the services of a Client Adviser to guide them through the crucial early stages of a project. Guidance on the appointment of Project Sponsors and Client Advisers is available from Construction Advice and Policy Division. Client Advisers should be totally independent of the management of the project's delivery; the role should not be combined with that of the Project Manager or any delivery role.

Project Management

25. The Project Manager is the Project Sponsor's professional agent in the management of the project, with defined delegated authority to take decisions on his or her behalf. These functions can be carried out by a suitable firm specialising in such services or by others with the necessary professional experience appointed either in-house or externally. The responsibilities of a Project Manager are set out in Annex 2

26. In the case of an internal appointment the extent of these responsibilities, specific delegated authorities and the circumstances under which reference must be made to the Project Sponsor must be set out in writing in the form of a personal letter of appointment from the Project Sponsor or a job description. In the case of an external appointment explicit conditions of engagement and a schedule of services should be included in the tender document used in the selection process and these should be incorporated into the contract. Relevant EC Directives must be followed where the cost of an external appointment is above the current EC threshold for services contracts.

Use of Seconded or Agency Staff

27. Where the role of Project Manager (or any other role in the management structure) is filled by personnel who have been seconded or temporarily engaged under a framework agreement or "agency" contract arrangements, decisions about which other contractors, consultants or service providers should be appointed must be taken by a more senior permanent employee in the client chain of command - usually the Project Sponsor or Project Owner.

Project Sponsorship and Project Management in IT Projects

28. It is essential that relevant IT projects have a Sponsor and a Manager. Depending on the type of project and the contractual arrangements, these roles may be either separate or performed by a single individual, who should either be called the Project Director on major projects, or the Project Manager on smaller projects. Specific guidance on managing the design and development of IT/ITC projects to meet the business needs of the Scottish Executive is available on the Intranet.

Monitoring and Reporting

29. Appropriate arrangements should be in place to ensure effective control of the project up to the point of completion and, where appropriate, in projects involving PFI/PPP or leasing, in the service delivery phase. It is the responsibility of the Project Sponsor to ensure that the progress of the project is monitored and that reports are prepared and submitted as appropriate to those in the client's chain of command. The precise information necessary will depend on the nature and scale of the project and of the intended recipient. Any cost or time overrun or significant variation in content should be reported in writing to the Project Owner as soon as foreseen. Where a budget overrun cannot be contained or the limit of delegated authority is in danger of being breached, an exception report must be submitted at that time to the Investment Decision Maker, who is responsible for exercising overall management control and for deciding when to inform the Accountable Officer.

30. The continuous management of risk should form part of the monitoring process. This should be implemented by putting in place a risk register for each project showing details of risks that threaten the project, their likelihood and impact, and mitigation and contingency plans. See also the section on Risk Management.

31. The project monitoring system should define the frequency of progress reports, which generally should be at the following intervals:

at conclusion of Gateway Reviews / in-project reviews as defined in project control procedures;
at monthly intervals following approval by the Investment Decision Maker up to completion; and
at 6 monthly intervals from completion to final account.

32. In the case of IT projects the frequency of progress reports should be as follows:

at agreed milestones from initial approval to tender stage;
at agreed milestones during construction or development and at least monthly during these phases; and
at agreed milestones during testing and acceptance.

33. Accountable Officers should be kept informed of progress on mission critical or high risk projects and should inform Ministers if there are any developments that could undermine the planned budget or viability of the project. This includes issues which emerge from a Gateway Review or at any other stage of a project when Ministers must be given the opportunity to consider the proposed remedial action or whether the project should be suspended or cancelled.

Gateway Reviews

34. All capital projects with a total budget exceeding £5 million (inclusive of professional fees and VAT) must be assessed in terms of their level of risk; in the case of those which are high risk or mission critical (irrespective of size, value, complexity), a formal Gateway Review must be undertaken at each key decision stage by a small independent team. In the case of PPP projects, the Key Stage Review process is normally applied instead of Gateway Review. In the case of any projects below £5 million in budget (and also non-capital projects) which are determined as high risk or mission critical, consideration should be given to the carrying out of formal Gateway Reviews.

35. Mission critical and high risk projects are defined as follows:

·a mission critical projectis one that (irrespective of size, value or complexity) delivers outputs that directly support the delivery of a major policy outcome (such as those prioritised in a Partnership Agreement) OR that delivers an internal business change that supports the administration of the organisation (Scottish Executive, Agency or funded body);

·a high risk projecttypically displays some or all of the following characteristics:

a novel or untested approach to delivery;
lack of experience of similar project delivery;
a complex matrix of project interdependencies;
a significant impact on the public and other organisations;
business criticality or political sensitivity; or
a significant resource commitment

Note that, for Gateway Review purposes, any project or programme which meets the definition of mission critical is automatically considered as high risk.

36. Further guidance on conducting Gateway Reviews is available from the Centre of Expertise for Programme, Policy and Project Delivery which forms part of SPD Construction Advice and Policy Division. The Centre of Expertise co-ordinates the Executive's review programme and provides a tool for assessing the risk level of projects. The CoE is also developing procedures for Peer Group and Self Assessment Reviews in the case of medium and low risk projects respectively.

37. Gateway Review reports provide assistance to (rather than audit or scrutinise) a project, by comparing it with accepted good practice and standards of project delivery. Reports are provided to the project's Senior Responsible Owner (likely to be at Investment Decision Maker or Project Owner level for a construction project) with whom the responsibility lies for implementing recommendations, taking remedial action and for further circulation of the report. They should however ensure that the outcome of reviews of mission critical or high risk projects are reported to Accountable Officers who should in turn inform Ministers if a review identifies serious deficiencies or difficulties (including probable failure to meet the planned budget), so that decisions can be taken as to whether these are readily capable of resolution or if the project should be suspended or cancelled. Senior Responsible Owners must also maintain an official record of how Gateway Review recommendations have been implemented (or setting out reasons for not implementing any recommendation).

38. Senior Responsible Owners must not however rely on Gateway Reviews to indicate if their project or programme is in difficulty; the Gateway report represents a "snapshot" at a point in time and is only one of a number of sources of information which helps them to evaluate performance e.g. regular monitoring reports from project managers. Responsibility for consulting Ministers if there are serious concerns about the planned budget or viability of a project lies with Accountable Officers and Senior Responsible Owners, not with a Review Team.

In-Project Reviews

39. In-project reviews of all major investment projects should be undertaken at regular intervals as part of the monitoring arrangements regardless of whether the project is subject to the Gateway Review process. At the very least such reviews should be undertaken at the corresponding Gateway Review stages. The purpose of in-project reviews includes re-assessing whether the project's stated objectives are being met; whether the project can be delivered within the approved budget and on schedule; the effectiveness of the chosen procurement strategy; the adequacy of the project control procedures; and the extent to which the project participants are performing satisfactorily. In some cases a fundamental reassessment of the project's objectives and the best means of achieving value for money may be required.

Post-Project Evaluation

40. Major investment projects are subject to the general guidance on Appraisal and Evaluation. However, a specific requirement in respect of all such projects is the preparation of a post-project evaluation (PPE) report by the Project Sponsor / Project Manager, normally within 6 months of completion. The focus of PPE is the evaluation of the procurement process and for the lessons learned to be made available to others. The purpose of the report is to review the success of the project against its original objectives, its performance in terms of time, cost and quality outcomes and whether it has delivered value for money. It also provides information on key performance indicators. Construction Advice and Policy Division has prepared a standard format for construction works projects which should be adopted or adapted as appropriate. The Project Sponsor should ensure that budget provision has been made for the completion of a PPE report and that participation in its completion is covered in consultants' and main contractors' terms of engagement.

Post-Occupancy Evaluation

41. In the case of an accommodation related major investment project it is good practice to carry out a post-occupancy evaluation (POE) 12 months or more after its occupation. The focus of POE, which may be carried out by an independent consultant, is on whether the building is performing satisfactorily and is meeting needs and whether there are any lessons to be learned. Guidance is available from Construction Advice and Policy Division on the conducting of such an exercise.

Sponsored Bodies

42. The guidance in this section applies to all bodies subject to the requirements of the Scottish Public Finance Manual (SPFM), including sponsored bodies and arrangements governing the control of major investment projects should, where appropriate, be incorporated into a sponsored body's financial memorandum / management statement. Sponsored bodies must submit projects falling outwith their delegated authorities, or which depart from an agreed estates strategy, to the sponsor Department. Departmental approval, following the agreement of Ministers where considered necessary, should make clear the circumstances under which sponsored bodies have to return to the Department for further approval. This might be routinely at specific stages (eg Gateway Reviews / in-project reviews) or in the event of specific circumstances such as changes to costs, specifications or timetable.

43. Sponsor Departments / divisions have specific responsibilities in relation to major investment projects which sponsored bodies are required to submit to sponsor Departments for approval. Although the full management structure for such projects should be put in place within sponsored bodies the ultimate Investment Decision Maker role will be undertaken by the sponsor Department / Minister and the head of the sponsor division should designate a specific individual within the division to share appropriate project sponsorship responsibilities with the sponsored body's Project Sponsor i.e the Non Departmental Project Sponsor. Shared responsibilities, which will depend on the levels of expertise within the body concerned and the nature of the project, should be set out in a formal statement. The remaining responsibilities will rest solely with the sponsored body's Project Sponsor. Shared project sponsorship responsibilities that might be appropriate in relation to such projects are identified in bold italics in Annex 2. Further guidance on shared responsibilities is available from Construction Advice and Policy Division.

44. Sponsor divisions should in addition monitor the progress of relevant projects by careful scrutiny of reports prepared by the Project Sponsor(s) / Project Manager. Sponsor divisions should adopt a pro-active approach to ensuring the effective management of projects and should intervene immediately if there is a perceived deviation from approved plans or if there are any developments that could undermine the viability of the project. Sponsor divisions, in consultation with their departmental Finance Team, should keep departmental Accountable Officers and Ministers informed as appropriate.

Conditions of Grant

45. Conditions of grant towards major investment projects undertaken by bodies which are not subject to the requirements of the SPFM, including the private sector, should incorporate the key principles in this section of guidance including appropriate measures for management and monitoring.

Jointly Funded Projects

46. Major investment projects can involve more than one source of funding. Each funder subject to the requirements of the Scottish Public Finance Manual should ensure that the project is appraised in accordance with the principles of the section on Appraisal and Evaluation, and that all appropriate procurement routes have been considered. This appraisal, which may have to be carried out in conjunction with other funders, should take an overall view of the project, assessing the total costs and the total benefits. Only when an overall assessment is favourable, should individual funders assess their proposed contribution against their own particular policy objectives.

47. Funders subject to the requirements of the SPFM must ensure that there are clear written agreements in place for the management of joint projects. This should be completed at an early stage and before significant costs have been incurred. Legal advice should be sought on the terms of such agreements, which should include:

how the contribution of each funder is to be calculated;
the monitoring information to be given to funders;
what approvals are required from individual funders at particular stages;
change control procedures;
the arrangements for the apportionment of costs in the event of the project being curtailed or abandoned or increasing in cost;
the arrangements in the event of any of the funders (including, where applicable, the recipient body) failing to meet its obligations;
the ownership of the assets and arrangements for: the repayment of funds in the event of the asset not being used for the purpose intended; or the surrender of receipts in the event of subsequent disposal; and
a procedure for the resolution of disputes.

Further Advice

48. In addition to the SPFM section on Procurement further guidance on general procurement policy can be obtained from the Scottish Procurement Directorate. Specific advice on construction procurement and related issues can be obtained from Construction Advice and Policy Division and, for road projects, from Trunk Road Design and Construction Division (Contracts Branch). Early advice should be sought from the Financial Partnerships Unit where PFI/PPP is being considered. All major investment projects are subject to the guidance on Appraisal and Evaluation. Advice on the leasing of land and property assets should be obtained from Property Advice Division. The sections on Acquisition of Property and Disposal of Tangible Fixed Assets will also be applicable in relevant circumstances.

Page Published/ Updated: February 2007

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