PROCUREMENT

GUIDANCE
H M Treasury

Procurement Group
No 2:

Value for Money “Treasury and senior managers in departments, in liaison with
the National Audit Office (NAO), should find more effective
in Construction ways of making the government’s policies on value for money
(VFM) in construction procurement and the NAO’s policies
Procurement and priorities in auditing works projects more clearly
understood by procurement, finance and internal audit staffs in
(Supersedes CUP guidance
departments so that the need to ensure proper accountability for
Nos 33 (Revised) and 41)
public funds is not used as an excuse for missing opportunities
to deliver better VFM.”

Recommendation 2, Construction Procurement by Government -

An Efficiency Unit Scrutiny

KEY POINTS FOR SENIOR MANAGEMENT

Government procurement policy is to achieve best VFM.

Accountability for public funds must not be used as an excuse for missing
opportunities to deliver this.

Key features of achieving VFM in construction procurement are:

• integrating value management and risk management techniques within

normal project management;

• defining the project carefully to meet user needs;

• taking account of whole life costing;

• adopting change control procedures;

• avoiding waste and conflict through teamworking and partnering

arrangements; and

• not appointing consultants and contractors on the basis of lowest initial price
alone.

A VFM framework should be established for each project which ensures a

structured approach to planning and managing a project from inception to
completion.
PROCUREMENT GUIDANCE

CONTENTS
1. INTRODUCTION

2. SCOPE

3. VALUE FOR MONEY

4. ROLE OF NAO

5. ACHIEVING VFM IN CONSTRUCTION

Approval gateways
Conclusions

ANNEX A - VFM FRAMEWORK

A.1 Introduction

A.2 Terms Of Appointment For Project Sponsor

A.3 Value Management

A.4 Risk Management

A.5 Project Execution Plan

A.6 Control Proceedures

A.7 Project Reports

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1. INTRODUCTION
1.1 This guidance explains the concepts of accountability, VFM, lowest
price and judgement. Opportunities for achieving VFM must not be lost
through rigid adherence to procedures and financial estimates (although
important in themselves) as they are not exclusive criteria by which
performance is judged. It supersedes CUP guidance No. 33 (Revised)
“Project Sponsorship” and No. 41 “Managing Risk and Contingency
for Works Projects” copies of which should be destroyed.

1.2 It describes a framework listing key activities essential for

achieving VFM. Every opportunity should be evaluated properly and
informed decisions taken. In this way, management can have confidence
in answering any subsequent questions on the entire decision making
process and provide full justification for the decisions taken.

1.3 Figure 1 shows the inter-connection of works projects guidances

and illustrates how this one fits within the structure.

Figure 1: Structure of works projects guidances

Essential
Value for money Appointment of Teamworking,
requirements for
in construction consultants and partnering and
construction
procurement contractors incentives
procurement

PG GUIDANCE
1. Essential requirements for construction procurement Procurement (CUP) 1, 19, 30, 48,
strategies 50, 51, 56, 57, 58
2. Value for money in construction procurement
3. Appointment of consultants and contractors
4. Teamworking, partnering and incentives
5. Procurement strategies
6. Financial aspects of projects
Financial aspects
7. Whole life costs Whole life costs
of projects
8. Project evaluation and feedback
9. Benchmarking

CUP GUIDANCE
1. Post tender negotiation (PTN) Project evaluation
and feedback
17. Quality assurance in building and construction
19. PTN update
30. Specification writing
38. Approval of works projects
48. Bonds and guarantees
50. Disputes resolution Benchmarking
51. Introduction to the EC procurement rules
52. Programming and progress monitoring for works projects
54. Value management
56. Debriefing
57. Strategic partnering in government (CUP) 17, 38,
58. Incentivisation 52, 54

1.4 These guidances build on the following codes of practice and

other guidance published by the Construction Industry Board (CIB):

Briefing the team (ISBN 0 7277 2540 8);

Constructing success (ISBN 0 7277 2541 6);

Selecting consultants for the team (ISBN 0 7277 2543 2);

Code of practice for the selection of main contractors

(ISBN 0 7277 2618 8);

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PROCUREMENT GUIDANCE

Towards a 30% productivity improvement in construction

(ISBN 0 7277 2550 5);

Partnering in the team (ISBN 0 7277 2551 3).

2.1 This guidance applies to all works projects. It should be read by 2. SCOPE
investment decision makers, project owners, project sponsors, project
managers as well as procurement, finance and internal audit staff in
departments who are involved in works projects.
3. VALUE
3.1 The prime objective of the government’s procurement policy is to
FOR MONEY
achieve best VFM.

“Best VFM is the optimum combination of whole life cost and quality
to meet the customer’s requirement.”

(“Setting New Standards - A Strategy for Government Procurement”

Cm 2480).

3.2 Government must comply with the EC procurement rules (see

CUP guidance No51 “Introduction to the EC rules”). They are entirely
consistent with the policy objective of achieving VFM.

4.1 In auditing works projects, the NAO seeks to establish how an 4. ROLE OF NAO
audited body has used its resources, what influenced its decisions at the
time, whether it used the best advice available, managed risks properly
and took an informed judgement.

4.2 The NAO provides feedback to audited bodies to enable them to

improve performance and achieve better VFM. The NAO does not
consider that achieving VFM means accepting the lowest bid - they
have not criticised a project on these grounds when other considerations
were more important. Neither do they wish to stifle innovation through
rigid adherence to mechanistic procedures.

4.3 Each case needs to be considered carefully and justified on VFM

grounds. The NAO recognises the potential benefits of approaches such
as partnering as a means of achieving better VFM. They also endorse the
need to consider quality as well as price in appointing consultants and
contractors.

4.4 NAO reports identify key lessons for achieving better VFM in the
future. These reports provide investment decision makers, project
owners and project sponsors with a good opportunity to learn from
experience.

5.1 The greatest opportunity for achieving VFM in construction 5. ACHIEVING

occurs at project inception. Correct project definition is essential to VFM IN
meet the user needs whilst achieving VFM. Project definition and CONSTRUCTION
subsequent planning should be free from preconceived ideas and
artificial constraints.

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5. Achieving VFM 5.2 The VFM framework (Annex A) incorporates a series of

in construction management tools that provide a model structured approach. This
should be used to plan and manage a project from its inception. The
framework ensures that projects provide VFM, inter alia, by:

• defining the project carefully to meet the user needs;

• integrating value and risk management techniques within

normal project management;

• adopting a change control procedure;

• taking account of whole life costing;

• avoiding waste and conflict through team working and

partnering; and

• appointing consultants and contractors on the basis of VFM

rather than lowest initial price.

The framework may be modified to suit the needs of individual

departments and different procurement strategies.

5.3 The notes accompanying the VFM framework refer to other

guidance which contain more detailed information.

Approval gateways
5.4 The framework introduces the concept of “approval gateways”.
At each gateway, the VFM approach to project delivery can be
confirmed independently of those managing it. Gateways occur at key
planning stages to ensure, inter alia, that risks are being managed and
that the project is affordable. The staged approval process helps to
ensure that VFM is achieved at each stage and that the project overall
provides VFM.

5.5 Prior to each gateway approval there should be:

• a VFM review;

• a financial review; and

• a review of the project delivery management systems.

Approval to proceed to the next stage is given by the investment decision

maker.

5.6 The purpose of the VFM review is to provide the investment

decision maker with independent assurance that the project provides
good VFM for the department’s business as a whole. In particular the
VFM review should ensure that:

• the project objectives and project brief meet the user needs;

• risks have been properly identified, evaluated, allocated and are

being managed actively;

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• all options (whether for design, procurement etc) have been 5. Achieving VFM
evaluated properly and the recommended option justified; and in construction
• the design takes full account of maintenance, operating and
disposal costs to produce the best VFM whole life solution.

5.7 A VFM review is intended to be a brief overview. It is carried out

by an individual or group in an advisory capacity, with an overall
picture of the department’s business. They are independent of project
management. The VFM reviewer should report to the investment
decision maker with their recommendations for approval or for
adjustments to the project. Investment decision makers will need to
decide the best way of providing the necessary independence.

5.8 The financial review should ensure that:

• the latest estimate is compared with the previously approved

budget and does not exceed it without fully reasoned
justification;

• the latest estimate is made up of the base estimate and the risk
allowance;

• the risk allowance is for identified risks only (not an assumed

contingency provision);

• the project is affordable; and

• funds are available for planned expenditure.

5.9 The financial review should normally be carried out by the

departmental finance team. They should report to the investment
decision maker.

5.10 A review of the project delivery management systems should

ensure that:

• an appropriate management structure is in place and named

individuals have been appointed as the project owner and
project sponsor;

• that the investment decision maker, project owner and project

sponsor have received the recommended training and are
suitably competent for their roles on the particular project; and

• appropriate quality, cost, time and change controls are in place.

5.11 This review should normally be carried out by the project

management team who may wish to involve internal audit. Their
involvement at approval gateways will provide senior management with
assurance (independent of project management) of the project’s
progress and where necessary, help identify corrective action. The

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5. Achieving VFM conclusion of the review should be reported to the investment decision
in construction maker.

Conclusions
5.12 This guidance and its annexes introduce a VFM framework with
management tools and key activities to achieve best VFM. However,
adopting the framework in a mechanistic manner is unlikely to produce
optimum results; neither will distorting of the framework to fit existing
construction procurement procedures. Sound judgement, constant
questioning of what is being done, whilst ensuring that nothing is left to
chance are also essential requirements to achieving VFM.

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ANNEX A - VFM FRAMEWORK

A.1 Introduction
A.1.1 The VFM framework, overleaf, can be modified to suit the needs of individual departments, specific
projects and procurement strategies. The acronyms are explained in the notes that follow the diagram. Sections
A.2 to A.7 of this annex provide more detailed information about particular activities.

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 Figure 2 - VFM framework (see page 12 for key)

appoint Public Private Partnership

VM VM RM prepare estimates set budget (Private Finance Initiative)
PS

appoint appoint appoint

PO CA project evaluation PM

1 3 5
2 4
possible need options to meet user 6
identify user prepare business
for project needs - confirm project project brief
needs case Approval
raised required gateway 1

appoint consultants VM
(design, QS, M&E,
quality/price consider project evaluation revise review by senior appoint consultants project evaluation RM environmental etc)
mechanism partnering estimate management (design, QS, M&E
environmental) estimate cost of RM
selection criteria RM VE each option

13 12 11 10 9 8 7
invite
contract whole life procurement feasability study
expressions of
Approval preparation based design Approval strategy options
interest gateway 3 gateway 2

award whole life partnering review by senior agree final post

criteria assessment workshop management account occupancy
review
VE RM PPE

15
14 16 17 18 19
tender process award contract works contract deliver project feedback
Approval
gateway 4

11
 KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager,
NOTES FOR VFM FRAMEWORK VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation,
D&B=Design & build, PG=Procurement group guidance (see Figure 1), CUP=CUP guidance

NO ACTIVITY DESCRIPTION REFERENCE ACTION

1 Possible need for Possible need for project first brought to attention of the IDM
project raised

Appoint project A senior officer in the business unit that requires the project, appointed by and reporting to IDM PG1 IDM
owner

Appoint project Having background in the culture and business of the client department. Terms of appointment PG1 PO
sponsor agreed (Section A.2).

Appoint client A construction professional, if required, to assist non-technical PS PG1 & 3 PS

adviser

2 Identify user Carry out a VM study (Section A.3) to identify stakeholder needs, both short and long term. CUP54 PS/CA
needs Set objectives and agree priority.

3 Options to meet Carry out a VM study (Section A.3) to identify and evaluate options to meet user needs. Such options may CUP54 PS/CA
user needs - include Public Private Partnerships (Private Finance Initiatives) and other non-project options. RM to identify
confirm project risks with each option (Section A.4). Confirm that a project is required.
required

4 Prepare business Set out user needs. Describe outline of project and alternative options to meet them. For each option set PG6 & 7 PS/CA
case out base estimate, risks and total allowances for identified risks. Identify life cycle costs of each.

Set budget Using base estimate and total risk allowance for the project. PG6 PS/CA

Project evaluation Ensure objectives reflect user needs, risks identified and reflected in estimate. Ensure project affordable. PG8 PS/CA

5 Approval Investment appraisal followed by financial, technical and delivery systems approval for project to proceed. PG6 IDM/PO
gateway 1

Appoint project Assists PS. Prepare project execution plan (Section A.5), including PG3 PS
manager establishment of control procedures (Section A.6) and reporting procedures (Section A.7).

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 KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager,
NOTES FOR VFM FRAMEWORK VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation,
D&B=Design & build, PG=Procurement group guidance (see Figure 1), CUP=CUP guidance

NO ACTIVITY DESCRIPTION REFERENCE ACTION

6 Project brief PS to develop project brief (Section A.5). PM to deliver consultants’ briefs where required. Consider options PG2, 3 & 4 PS/PM
and stages for appointing consultants and specialists. Consider partnering and use of incentives.

Appoint design consultants For feasibility study. PG3 PS/PM

7 Feasibility study Apply VM to identify and evaluate options that satisfy project brief and objectives. Identify risks for each PG6/CUP54 PS/PM
options option, cost of managing them through avoidance, design or transfer. Liaise with statutory authorities. Select
best option. Revise risk allowance.

8 Procurement Identify risks for each (D&B, client design, management contracting). PG5 PS
strategy Assess alternative risk transfer strategies. Assess suitability for partnering. Select best option.

Project evaluation Review of RM, VM and VE approaches to assess contribution to meeting objectives. If necessary, request PG8 PS
additional studies. Review project delivery management systems.

9 Approval Review financial, technical delivery systems, approval for project to proceed. If total estimate greater than PG6 IDM
gateway 2 budget, reconsider the decision to invest or revise scope of project and redesign. Set new budget. Opportunity
for internal audit review. If D&B go to Activity 11.

Appoint consultants For detailed design (traditional client designed projects) . Consider partnering and use of incentives. PG3 & 4 PS/PM

10 Client detailed Using whole life concept. Carry out VE study to optimise design. Involve contractors PG5 & 6 PO/PS/
design (appointed as consultants) to assess buildability of options. Review by senior management of the parties to CUP54 PM
address major issues. Identify residual risks and continue to manage risks and risk allowance. Ensure users
understand and accept design.

11 Contract preparation For traditional client designed projects provide detailed design and specification. D&B generally requires output PG3 & 5 PS/PM
specifications. Revise estimate. Adopt standard form of contract to transfer risks to party best able to
manage them.

Project evaluation Review of RM. Confirm contract requirements reflect user needs. Compare revised estimate against budget. PG8 PS/PM

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 KEY: IDM=Investment decision maker, PO=Project owner, PS=Project sponsor, CA=Client adviser, PM=Project manager,
NOTES FOR VFM FRAMEWORK VM=Value management, RM=Risk management, VE=Value engineering, PPE=Post project evaluation,
D&B=Design & build, PG=Procurement group guidance (see Figure 1), CUP=CUP guidance

NO ACTIVITY DESCRIPTION REFERENCE ACTION

12 Approval Review financial, technical and delivery systems, approval for project to proceed. Review acceptability of PG6 IDM
gateway 3 retained risks. If estimate exceeds budget, revise design or revise scope of project. Assess affordability of
project. Opportunity for internal audit review. Revise budget.

13 Invite expressions Consider partnering. Set selection and award quality criteria, quality/price ratio, minimum quality thresholds, PG3 PS/PM
of interest quality/price mechanisms. Consider use of incentives. Prepare long list, evaluate bidders on basis of quality,
select short list and agree a tender list.

14 Tender process Invitation to tender/negotiate, evaluate bids on basis of price and quality. Where whole life criteria are set, PG3 & 4 PS/PM
assess price on the basis of whole life costs. Decide on suitability to partner. Decide on award. Tender report.

15 Approval Review financial, technical and delivery systems, approval for project to proceed to construction. Consider PG8 IDM
gateway 4 affordability including provision for spend on specified risks. Commit funds for construction. Opportunity for
internal audit review.

16 Award contract Award contract to tenderer offering best VFM. Agree partnering arrangements. PG3 & 4 PS

Partnering Arrange and facilitate initial workshop. Agree common goals, detailed criteria for sharing of benefits, dispute
workshop resolution ladder, performance criteria, partnering champions and risk managers. PG4 PO

17 Works contract Manage construction. Identify possible long term savings by VE reviews and joint risk management approach. PG4 & 8 PO/PS/
Share savings as agreed. Review by senior management of the parties to address major issues. CUP54 PM

18 Deliver project Review the acceptability of completed project. Carry out PPE - compare with original project objectives. Aim PG8 PO
to agree final account within six months of completion. Set out lessons learnt. Seek supply side comments to
improve procurement.

19 Feedback Assess suitability of project in satisfying user needs. Assess whole life design. Provide feedback PG8 PO/PS
for future improvements.

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A.2 TERMS OF APPOINTMENT FOR PROJECT SPONSOR

A.2.1 This section sets out the broad headings that need to be included in the written terms of appointment for
the project sponsor. The actual content is likely to be considerably more detailed and project specific.

Responsibilities
A.2.2 PG guidance No1 “Essential requirements for construction procurement” identifies the project
sponsor’s responsibilities.

Resources
A.2.3 Personnel:
• technical staff; and • administrative staff.

A.2.4 Office space:

• location (particularly when entering
teamworking or partnering arrangements).

A.2.5 Equipment:
• IT.

Delegated Authority
A.2.6 Financial (Requisition Authority):
• unlimited within the approved budget and • limited to approval of the expenses within
programme for the project as initially approved standard civil service rates for civil service
(plus/minus any officially approved personnel.
increments/decrements reflecting the
cost/programme effects of changes); and

A.2.7 Personnel:
• limited to making recommendations covering • unlimited in respect of the
project sponsor’s department personnel appointment/dismissal of all other contracted
assigned/dismissed from the project; and project personnel.

A.2.8 Publicity:
• limited to making recommendations in respect statements about the project.
of the political aspects and/or publicity

A.2.9 Delegation by project sponsor:

• authority unlimited to delegate financial and ensure smooth project implementation to
other authority to members of the project team programme.
consistent with limiting it to that required to

A.3 VALUE MANAGEMENT

A3.1 VM is a flexible but structured management approach aimed at achieving a solution that meets the user
needs whilst achieving best VFM. It can be used for any or all of the following:
• establishing what value means to a client; Public Private Partnership/Private Finance
• identifying and agreeing user needs; Initiative options) for meeting user needs (a
• identifying and evaluating options (including project is one such option);

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• selecting and agreeing the best option to meet
user needs (ie confirming whether or not a
project is required);
• defining clearly and agreeing the project
objectives;
• identifying and evaluating project options;
• selecting and agreeing the best project option;
• setting and weighting the selection and award
criteria for the appointment of a consultant or
contractor;
• evaluating consultants’ and contractors’ bids
against the selection and award evaluation
criteria; and
• refining the design to maximise value and
eliminate waste and those aspects not directly
related to meeting the project objectives.

A3.2 Further information on value management:

• CUP guidance No54 - “Value management”; • BRE “Value in construction - getting started in
• CIRIA special publication 129 - “Value value management”; and
management in construction: A client’s guide” • Institute of Value Management - “Value
(ISBN 0 86017 452 2); Magazine”.

A.4 RISK MANAGEMENT

A.4.1 This provides a brief overview of the risk management process. Further information:
• CIRIA special publication 125, “Control of Risk - • the control and expenditure of risk allowance is
A Guide to the Systematic Management of Risk covered in PG guidance No6, “Financial
from Construction” (ISBN 0 86017 441 7); and aspects of projects”.

A.4.2 The aim of risk management is to ensure that risks are identified at project inception, their potential
impacts allowed for and where possible, the risks or their impacts minimised.

A.4.3 Risk management is a planned and systematic process consisting of:

• identification to determine what the risks are; • monitoring and control: to identify options for
• assessment: to determine the likelyhood of the dealing with risks or their impacts and monitor
risks occurring and their potential impacts; and implimentation of the preferred options.

Risk identification
A.4.4 Successful risk management depends on accurate risk identification. Both management practice and
engineering techniques should be applied to determine how things might go wrong. When identifying potential
risks, it is important to distinguish between the origin of a risk and its impact.

Risk assessment
A.4.5 The purpose of risk assessment is to understand and quantify the likelihood of occurrence and the potential
impacts on the project outturn. Various analytical techniques are available, but the key features are:
• qualitative assessment - to describe and • quantitative assessment - to quantify the
understand each risk and gain an early probability of each risk occurring and its potential
indication of the more significant risks; and impact in terms of cost, time and performance.

Qualitative assessment
A.4.6 A descriptive written statement of relevant information about a potential risk should be prepared. Issues to
be considered should include:
• the stages of the project when it could occur; • any relationship or inter-dependency on other
• the elements of the project that could be risks;
affected; • the likelihood of it occurring; and
• the factors that could cause it to occur; • how it could affect the project.

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Quantitative assessment
A.4.7 The likelihood of a risk occurring is given a numerical probability. This is measured on the
following scale:
• 0 = impossible for risk to occur; • 1 = risk will occur.
• 0.5 = even chance of risk occurring; and

A.4.8 Possible consequences of a risk arising are quantified in terms of:

• cost: additional cost, above the base estimate • performance: the extent to which the project
for the project outturn; would fail to meet the user requirements for
• time: additional time, beyond the base estimate standards and performance.
of the completion date for the project; and

Risk monitoring and control

A.4.9 The aim of risk management is to minimise the opportunity for risks to occur and their impacts should
they occur. There are various options available when evaluating the risk response strategy. Care should be taken
when considering the management actions available to ensure that the potential impact of each risk is not
outweighed by the direct costs to the department from:

• the cost of reducing the risk; • all management and administrative time,
• the cost of transferring the risk (or the cost of consultants’ fees and other charges associated
insurance); and with managing and dealing with the risk.

A.4.10 For each project, a risk management plan should be prepared and updated regularly to summarise the risk
management process to date.

Risk response
A.4.11 A risk response should only be decided after its possible causes and effects have been considered and
fully understood. It will take the form of one or more of the following management actions:

• avoidance; • transfer; or
• reduction (including elimination); • retention (including sharing).

As a general rule, risks should be allocated to those best placed to manage them.

Risk avoidance
A.4.12 Where risks have such serious consequences on the project outcome that make them totally unacceptable in the
context of the department’s internal rules or the project objectives, risk avoidance measures might include a review of the
project objectives and a re-appraisal of the project, perhaps leading to the replacement of the project, or its cancellation.

Risk reduction
A.4.13 Typical action to reduce risk can take the form of:
z• re-design: including that arising out of VE
studies;
• more detailed design or further site
investigation: to improve the information on
which estimates and programmes are based;
• different materials or permanent equipment:
to avoid new technology or unproven systems
or long delivery items;
• different methods of construction: to avoid
inherently risky construction techniques;

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• changing the project execution plan: to • changing the contract strategy: to allocate risk
package the work content differently; or between the project participants in a different way.

A.4.14 Risk reduction measures lead to a more certain project outturn. They usually result in a direct increase in
the base estimate, and a correspondingly greater reduction in risk allowance.

Risk transfer
A.4.15 Where accepting a risk would not result in best VFM, it could be transferred to another party, who would
be responsible for the consequences should the risk occur. The object of transferring risk is to pass the
responsibility to another party better able to control it. Risk transfer is usually from:
• the department to a design consultant; • the contractor or the sub-contractor to a bank or
• the department to a contractor; a surety in the form of warranties, bonds and
• the contractor to a sub-contractor; guarantees.
• the department or other parties to an insurer in
the form of insurance cover; or

A.4.16 Whenever a risk is transferred to another party a premium is usually paid. This results in a direct increase
in the base estimate and a reduction in risk allowance. To provide VFM, risk transfer should only be carried out
where the overall potential cost of the risk to the department is reduced by more than the cost of the premium.

A.4.17 Factors that should be considered include:

• who is best able to control the events which
may lead to the risk occurring?
• who can control the risk if it occurs?
• is it preferable for the department to be
involved in the control of the risk?
• who should be responsible for a risk if it cannot
be controlled? and
• if the risk is transferred to a project participant:
- is the total cost to the department likely to
be reduced?
- will the recipient be able to bear the full
consequences if the risk occurs?
- could it lead to different risks being
transferred back to the department? and
- would the transfer be legally secure (will the
transfer be accepted under common law)?

Risk retention
A.4.18 Risks that are not transferred or avoided are retained by the department although they may have been reduced
or shared. These risks must continue to be managed by the department to minimise their potential impact.

Risk and procurement strategies

A.4.19 Risk and procurement strategies are interrelated. The chosen strategy and the forms of contract influence
the allocation of risk, the project management requirements, the design strategy, the employment of consultants
and contractors, and the way in which the client’s project team and the various designers, consultants, contractors
and suppliers work together. For advice on procurement strategy see PG guidance No5 “Procurement strategies”.

A.5 PROJECT EXECUTION PLAN

A.5.1 The project execution plan is the key management document governing the project strategy, organisation,
control procedures, responsibilities and, where appropriate, the relationship between the project sponsor and the
project manager. It is a formal statement of the user needs, project brief and of the strategy agreed with the
project manager for their attainment. The scope of that statement will depend on the size and nature of the
project. It is a live active management document, regularly updated, to be used by all parties both as a means of
communication and as a control and performance measurement tool.

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A.5.2 Preparation of the project execution plan is a key responsibility of the project sponsor. Its content may be
roughly divided into two areas: matters relating to organisation and responsibilities within the department and those
of the project execution team. Broadly, the project sponsor will develop those elements relating to the department
and establish and define the roles and responsibilities of the key personnel involved. Except where preliminary
versions are issued before appointment, the project manager will have the primary role in developing those
elements relating to the project team’s activities and the project execution strategy.

A.5.3 The project sponsor must be satisfied that the project execution plan represents a viable and realistic plan for
implementing the project and achieving its objectives. The sponsor must review it in detail with all parties to the
project to ensure that they understand both the plan as a whole and their own responsibilities under it and that they
have the capability and the resources to discharge their responsibilities.

Project execution plan checklist

A.5.4 A project execution plan checklist is below. Its scope will depend on the size and nature of the project.
CIB Code of Practice “Briefing the team” (ISBN 0 7277 2541 6) provides advice on the project execution plan
and project brief (referred to as the strategic brief prior to being developed fully).

General description
• brief description of the project; • progress to date.
• location; and

Project objectives
• user needs.

Project brief
• purpose/function of the project; • maintenance requirements;
• schedule of accommodation; • environmental needs, both internal and external;
• quality requirements/standards; • disposal criteria; and
• operational requirements; • statutory requirements.
• equipment and special services;

Constraints
• external factors limiting or controlling the • internal constraints, arising from decisions or
design, construction or execution of the project: policies of departments:
- planning conditions; - confidentiality;
- listed buildings; - procurement policies;
- neighbouring buildings; - safety standards; and
- site conditions; and - undertakings made.
- availability of utilities;

Cost controls
• budgetary control; • risk allowance.
• current estimates; and

Programme
• overall timescale; • occupation programme;
• fixed deadlines; • milestone activities; and
• pre-construction programme; • risk allowance.
• construction programme;

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Change control
• proposed changes; and • approved changes.

Prioritisation
• cost v. time; • time v. quality.
• quality v. cost; and

Internal management
• personnel; • authority; and
• responsibilities; • delegations.

Procurement
• procurement route; and • form of contract.

Roles and responsibilities

A detailed statement, related to the procurement route, of the roles and responsibilities of external parties, to be
(or as) incorporated in their contracts, covering:
• project manager; • contractor(s); and
• designers; • supplier(s).
• cost consultant;

Co-ordination

• delegations; • change control;

• communications; • safety procedures;
• cost controls; • commissioning procedures; and
• time controls; • reports.
• quality controls;

Occupation
• facilities management; • staff training;
• maintenance; • programme; and
• commissioning; • costs.
• staff recruitment;

A.6 CONTROL PROCEDURES

Change Control
A.6.1 Changes to design, especially after contract award, are one of the major causes of cost overruns and poor
VFM. Changes arise mainly as a result of unclear or ambiguous project definition, inadequate time spent in project
planning, risk analysis and management or due to changing circumstances. The consequences of changes during the
construction stage can be many times greater than the direct impacts of the changes.

A.6.2 Change is handled most effectively through sound project planning and review. Where there is a
possibility of change for whatever reason, it should be treated as a project risk and addressed in the risk
management plan. A robust change control procedure incorporating VFM criteria should be adopted to evaluate
and manage change when it occurs.

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A.6.3 The need for changes should be minimised by:

• ensuring that the project brief is comprehensive
and has the user’s agreement;
• taking account of proposed legislation;
• having early discussions with outside
authorities to anticipate their requirements;
• undertaking site investigations and condition
surveys;
• ensuring that designs are fully developed and
coordinated before construction contracts are
committed;
• good project management, including forward
planning; and
• identifying and managing risks.

A.6.4 A change control procedure should consider all of the following factors for each proposed change before
approval is given for the change:
• the reasons for the change; • properly evaluated alternatives to the proposed
• its source; change;
• the full cost, time and performance • proposals for avoiding or mitigating time over-
consequences of the change; run; and
• the risks associated with the change and their • source of funding of any cost over-run.
impacts;

A.6.5 Approval for the change should normally be given by the project sponsor when a detailed evaluation of
the change shows that it provides VFM. Where additional funding is required, approval for the change should be
obtained from the investment decision maker.

Cost Control
A.6.6 Details of cost control are covered in PG guidance No6 “Financial aspects of projects”.

Time Control
A.6.7 The programming of the activities necessary to complete a construction project is usually carried out
using standard computer planning software. Such systems are no more than a tool and are effective only if they
are both properly used and fully understood by the people whose activities they control.

A.6.8 The project sponsor should insist that, however sophisticated and comprehensive the networks of activities
and the inter-relationships between them, the final programmes on which decisions are to be made (and against
which performance of the consultants and the contractor(s) are to be monitored) should be simple and
straightforward; certainly no more complicated than can be readily understood by the sponsor. Colour-coded bar
charts take a lot of beating as management control documents.

A.6.9 The project sponsor must be able to identify clearly those tasks which lie on the critical path. Time for the
approval processes must be included as specific activities in the time plan for the project. They invariably lie on
the critical path.

A.6.10 The process of time control is in many ways analogous to that of cost control. Thus a time control system
can embrace:
• time budget - the overall project duration as fixed activities with definable start and finish points;
either by specific constraints or by the contract the overall project programme; and
strategy; the period which, once fixed, becomes a • time checking - monitoring closely actual time
key parameter for management of the project; spent on each activity against the allowance in
• time plan - a division of total time into inter- the time plan; reporting divergence as soon as
linked time allowances for readily identifiable identified

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A.6.11 If the time taken for an activity exceeds its time allowance there are essentially only two forms of
corrective action available:
• the re-sequencing of later activities; or made available for them (this option will
• shortening the time allowance for future normally result in extra costs).
activities by increasing the resources to be

If neither is done, the overall time budget will be exceeded and the project will finish late.

A.6.12 The project sponsor must recognise that time control is as important during the planning stages of the project
as the construction stage. Designers should work to a series of deadlines at which different elements of the design
must be agreed (ie frozen) if costs and the overall programme are to be kept under control.

A.6.13 The project sponsor should ensure that the programme allows for the time impacts of identified risks occurring.

A.6.14 The project sponsor must take account of the relationships between time, quality and cost:
• any extension of the overall timescale for a borne by the department; and
project always generates additional costs; who • making up lost time by re-sequencing later
carries such additional costs depends on the activities may compromise quality and could
detailed contractual arrangements between the result in extra costs.
parties; it is likely that some of them will be

Quality control
A.6.15 The final quality of the project is governed, progressively, by:
• the project brief - a clear statement of the
standards of quality required;
• the design - the adequacy of the components
selected; the interface between related
components and systems; the integration of
mechanical and electrical systems into the
overall design; the completeness of design
before construction starts;
• specification - the conversion of the quality
standard demanded by the project brief into
precise requirements for both the supply and
the installation of materials, components and
systems; the setting out of the criteria against
which the standard of the finished work will be
judged, eg by reference to standards, codes of
practice, or the like; testing requirements to
verify compliance with the specification;
• quality control - setting up control mechanisms
to apply to the execution of the work on site; the
detailed on-going supervision by the contractor;
the programmes for testing; the procedures for
rectifying defective work; and
• inspection and testing - the independent
inspection, testing and verification of the
contractor’s work.

A.6.16 Key aspects of quality control on site are:

• a clear specification of the testing and with the specification; and
verification regime that is required, as a • confidence in the quality control activities
minimum, to provide assurance of compliance carried out by the contractor.

A.6.17 Independent inspection, testing and verification is a means of providing confidence in the contractor’s
quality control system but should not be used to replace it.

A.6.18 Quality assurance systems (CUP guidance No17, “Quality Assurance in Building and Construction”)

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assist in maintaining quality standards. A detailed review of any quality system is necessary before it can be
relied on to provide sufficient assurance about the quality of a specific activity.

A.7 PROJECT REPORTS

A.7.1 These are regular reports issued to the project sponsor; prepared by the project manager on the basis of
personal knowledge, data and reports received from the design team, the quantity surveyor and the contractor(s).

A.7.2 Their purpose is to report formally to the project sponsor the current status of the project, key issues
and/or problems requiring resolution and the steps being taken to resolve them. The project sponsor will normally
forward copies or summaries of them to the project owner for information and will draw the project owner’s
attention formally to any matters of serious concern to the department.

A.7.3 Project reports should have three sections:

• a short (one page) executive summary
confirming the general status of the project and
listing the key issues and/or problems currently
requiring resolution;
• the general text of the report, reporting fully but
concisely on the project status, issues and
problems using graphical presentations where
appropriate; and
• appendices containing detailed information on
which the report has been based.

A.7.4 Reports serve three purposes:

• the process of preparing the report forces the and, it is hoped, comfort to the parties to whom
reporter to undertake a full review of the it is issued; and
project status; • it triggers action on reported problems.
• the issue of the report provides information,

Typical project report format

A.7.5 A typical format is given below. It is provided as an aide memoir of what could be included rather than a
list of everything that should be included.
Executive Summary
Quality
• a statement of how the design and/or construction of
the project relates to the requirements set out in the
project execution plan;
• a listing of potential non-compliance and the steps
being taken to correct it;
• where options exist for correcting non-compliance,
description of and comparison between the options
and recommendations for action; and
• supporting data to be in an appendix to the report.
Time
• a comparison of progress against programmes with
graphical presentations;
• list of non-compliance with programmes, parties in
delay, reasons for delay and steps being taken to
correct it;
• details of agreed extensions of time and revised
completion dates;
• where options exist for correcting non-
compliance, description of and comparison
between the options and recommendations
for action;
• design development and completion and the extent
frozen; and
• supporting programme data in an appendix to the
report.
Cost
• a comparison between total predicted cost and cost
budget with graphical presentations;
• risk analysis;
• a listing of divergence from budget, reasons for it

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and steps being taken to correct it;
• where options exist for correcting divergence,
description of and comparison between options and
recommended action;
• statement of risk allowance expenditure with
graphical presentations;
• comparison between actual cash flow and predicted
cash flow, identification of divergence and the
reasons for it eg project in delay/in advance of
programme, project costs over budget, errors in
original prediction etc;
• statement of contract claims submitted and estimate
of settlement cost; and
• supporting cost data should also be in an appendix
to the report.
Changes:
• description of each change;
• risks associated with each change;
• reasons for change;
• time and cost consequences;
• source of funds for extra costs;
• method of accommodating extra time;
• unavoidable changes required:
- budget; and
- overall programme; and
• supporting details and calculations to be in appendix
to the report.
Project manager’s statement
• subjective overview by the project manger of the
status of the project - may include such matters as:
- success/failure of corrective actions taken under
previous report(s);
- review of performance of consultants and
contractors;
- weaknesses in control procedures and
recommendations for improvements;
- client-side failings eg late decisions, excessive
changes, etc; and
- potential problems and means of avoidance

Appendix
• risk register;
• risk management plan;
• test reports or summaries;
• commissioning reports or summaries;
• design problems met and resolved;
• quality assurance audits carried out;
• programmes;
• progress reports;
• progress photographs;
• activity lists;
• comparative bar charts;
• overall project cost reports;
• construction cost reports;
• cash flow analyses;
• risk allowance spend analysis;
• detailed lists of past and potential client changes; and
• calculations and assumptions made in support of time and cost predictions.

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Further copies of this guidance are obtainable from the

Treasury’s Public Enquiry Unit, Room 89/2, HM Treasury
Parliament St., London SW1P 3AG

Tel: (STD) 0171 (GTN) 270 4558

http: //www.hmt-treasury.gov.uk 12/97