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SINGLE PROGRAMME

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SINGLE PROGRAMME

    SINGLE PROGRAMME

    APPRAISAL GUIDANCE

    DEPARTMENT OF TRADE AND INDUSTRY

July 2003

    Version 7f

Contents

     Page Section 1

    Purpose and Scope ……………………………………………..3 Section 2

    Key Principles ………………………………………………….4 Section 3

     Key Stages …………………………………………………..…6

    Stage 1 Project Development and Appraisal ……..……………6

    Stage 2 Investment Decision ………………………………….9

    Stage 3 Contract ………………………………….………10

    Stage 4 Delivery ………………………………………….11

    Stage 5 Closure ………………………………………….12

    Stage 6 Evaluation ………………………………………….13

    Annex A: Appraisal Requirements ..…………….……………………..15 Annex B: Central Projects Review Group ..……………………………19 Annex C: Further Guidance ………………………………………….22

    2

1 Purpose and Scope of the Guidance

    1.1 In April 2002, a cross-Departmental Single Programme was introduced for

    1England‟s Regional Development Agencies (RDAs). This gave them new

    flexibilities in how they invest and manage their resources. This Guidance is

    concerned with setting the principles and key stages for project development,

    appraisal, delivery, monitoring and evaluation and sets out the framework for

    the development by RDAs of the most appropriate systems for their particular

    circumstances.

    1.2 In revising the Guidance the opportunity has been taken to incorporate the

    requirements from various government sources that are either binding on

    RDAs or provide best practice guidance to the public sector, in particular the

    Treasury‟s “The Green Book - Appraisal and Evaluation in Central

    Government”, the Office of Government Commerce‟s (OGC) Gateway

    Reviews, ODPM Guidance “Assessing the Impacts of Spatial Interventions -

    2Regeneration Renewal and Regional Development”, other mandatory

    guidance and best practice advice. It has also taken into account the lessons

    learnt during the first year of operation of the Guidance through feedback from

    the Appraisal Practitioners Group. In adopting this Guidance as the basis for

    their own appraisal processes, each RDA will automatically comply with these

    mandatory requirements.

    1.3 Where RDAs choose to delegate projects to partners, the requirements of this

    framework must be passed on to those undertaking the work.

    1.4 This Guidance applies to Single Programme project expenditure in all cases

    except:

    i) RSA Projects - these projects will continue to operate to national

    guidelines to ensure there is consistency and equity of treatment of

    projects above and below the RSA delegation threshold.

    ii) Research and feasibility work a full appraisal is not mandatory, but an

    assessment of the strategic fit with the Regional Economic

    Strategy/Corporate Plans should be undertaken and recorded.

    iii) RDA management and administration the costs of running RDAs

    (premises, staff, and related administration costs). RDA costs directly

    attributable to the delivery of projects should, where practicable, be

    included in the project costs for appraisal purposes.

    1. The London Development Agency is accountable to the Mayor of London, and therefore this guidance will not directly apply to the LDA, although it can apply the guidance if it so wishes. All references to the ‘RDAs’ therefore only relate to England’s other eight Agencies.

    2. Also referred to as 3Rs it replaces EGRUP.

    3

2 Key Principles

    2.1 Within this Single Programme framework RDAs are responsible for designing

    their own project development, appraisal, delivery, and evaluation systems to

    suit their own regional requirements. In designing their systems, RDAs

    3should ensure that they use recognised project management methodologies

    and must ensure that their systems are underpinned by the principles set out

    below.

    2.2 The whole project system must be universally applied, rigorous, decision

    oriented, open and transparent, and continuously improved. RDAs should

    ensure that there is clear accountability for projects at every stage and assign

    the equivalent of a Senior Responsible Owner (SRO) role at a level

    commensurate with the scale and importance of the project.

    2.3 Projects must be appraised before any expenditure is committed (other than

    preliminary expenditure for preparatory work towards developing the project

    concept, approved as part of an initial assessment). Appraisals add value by

    crystallising the project, identifying how it relates to the RDA‟s objectives,

    considering the alternative options for meeting these, identifying the risks,

    demonstrating the project‟s value for money and sustainability, and leading to

    a clearly documented decision.

    2.4 Risks must be identified and managed at each stage of the project life cycle

    4(Figure 1). The OGC risk assessment or OffPAT‟s summary of their

    underlying principles in Appraisal Advice Note 3 should be used to assess the

    overall project risk. Projects that are high risk must be notified to the OGC. 2.5 Projects must be delivered through agreed contracts and monitored to ensure

    these deliver the agreed objectives, outputs, outcomes and impact to the agreed

    cost, timescales and quality. Projects must then be brought to a closure and

    evaluated to ensure that lessons learnt are used in future projects. 2.6 The principles underpinning the framework are:

    ; Universal application - the principles of project development, appraisal,

    delivery and evaluation should be the same across all project expenditure

    to which this Guidance applies.

3. Green Book (6.26) recommends PRINCE2. It is widely used in both the public and private sectors and is the UK's

    de facto standard for project management. It is a structured project management method covering the organisation, management and control of projects.

    4. OGC Gateway Review process applies to procurement projects (“any finite activity designed to deliver a public

    sector requirement and involving public expenditure”) and requires the appointment of an SRO to assess the risk of the project. High risk projects must be notified to the OGC. Projects that score a risk factor of 18 or less on the OGC

    PPM do not need to go through the Gateway process as the project risk is deemed to be very low and the process would not be cost effective. Additional requirements have been introduced for projects where there success is dependant on an IT component (DAO GEN 01/03).

    4

    ; Rigorous application appraisal, monitoring and evaluation have a cost

    and so the whole process should be carried out with the appropriate degree

    of rigour proportionate to the project size, complexity and risk. ; Decision oriented appraisal should lead to a clearly defined outcome,

    with a documented decision on whether to accept, reject or re-specify the

    project. Any subsequent changes agreed to the project should be clearly

    recorded so that these can be tracked. There should be a clear audit trail of

    how assessments and decisions are made at each stage.

    ; Open and Transparent appraisals and evaluation should be conducted

    (internally or externally) by appropriately qualified and experienced staff.

    There should be separation of functions and assignment of project roles at

    each stage with a clear distinction between RDA staff appraising and

    approving the project. Appraisals should be informed by the appropriate

    level of consultation. RDAs may wish to include an external element to the

    appraisal, for example, setting up an external Review Panel. Reports and

    records should be kept at each stage of the project to maintain the audit

    trail and provide evidence that the project is being effectively managed. ; Objective-based the appraisal should be based on a set of agreed

    objectives, identified through the Regional Economic Strategy, the RDA‟s

    Corporate Plan, the Tier 2 and 3 targetry framework and other relevant

    regional and sub-regional strategies. It should assess whether the project

    5falls within the Agency‟s powers and remit, is in accordance with relevant

    strategy documents and complies with European Procurement Directives

    and State aid rules.

    ; Sustainability the appraisal should assess the impact of the project on

    economic, social and environmental objectives, both in the short and long-

    term.

    ; Continuous improvement the lessons from completed projects should

    inform the development and appraisal of future projects with similar

    characteristics.

    2.7 An increasing number of good practice sources are available to assist RDAs in establishing effective project systems and procedures. This guidance draws on these, and some of the key sources are highlighted in Annex C.

    5. The remit for the RDAs is set out in the Regional Development Agencies Act 1998 (see section 5(1) “an RDA may

    do anything it considers expedient for its purposes or for purposes incidental thereto” subject to conditions in section

    5(2)) and the RDAs Management Statement and Financial Memorandum.

    5

3 Key Stages

    3.1 There are six key stages in the development and implementation of projects

    under the Single Programme (see Figure 1). This section defines the key

    features of each stage. The six key stages are:

    i Stage One - Project Development and Appraisal

    ii Stage Two - Investment Decision

    iii Stage Three - Contract

    iv Stage Four - Delivery

    v Stage Five - Closure

    vi Stage Six - Evaluation

Stage One Project Development and Appraisal

    Context

    3.2 This Guidance recognises the wide range and scale of projects that RDAs

    support through their Single Programme budget. The key RES areas to be

    addressed, in line with national priorities, are identified in the RDAs‟

    Corporate Plans on a 3 year rolling basis. The Corporate Plan is approved by

    the Secretary of State for Department of Trade and Industry (DTI) on behalf

    6of the Contributing Departments. RDAs have established a range of

    mechanisms for delivering their respective Regional Economic Strategies

    (RES) including action plans, themes and sub-region/area based strategies.

    These define the rationale for activities to be undertaken to address the

    identified regional problems or opportunities and provide the basis for

    intervention by the RDA.

    Project Development

    3.3 A project may be developed in a number of ways:

    i by the RDA itself, for direct delivery or for delivery in partnership; or

    ii by a partnership, which includes the RDA; or

    iii by an external body or partnership which then looks for RDA support.

    3.4 Irrespective of its origins the proposed project should be submitted as a

    candidate for funding from the RDA‟s Single Programme budget. The RDA

    should subject the proposal to a comprehensive but proportionate appraisal to

6. ODPM, DEFRA, DfES, BTI, DCMS

    6

    assure itself that it can justify public sector funding against two basic tests:

    ; Are there better ways to achieve the project objective(s)?

    ; Are there better uses for these resources?

    3.5 On receipt of a project proposal the RDA (the Senior Responsible Owner in

    Gateway terms) should assign a project sponsor (the day-to-day champion)

    and identify the appraiser who will appraise the project; these should be

    separate individuals. The project sponsor should assist the development of the

    project using the appraisal criteria to guide the process. The time spent

    upfront on planning and preparing the project should reduce the risk of project

    failure. Appraisals should inform project development and may be iterative

    with an initial assessment being undertaken where appropriate. 3.6 No project expenditure should be committed on the project before it has been

    appraised and approved. Where it is necessary and appropriate to undertake

    preparatory work, e.g. surveys or feasibility studies etc (see 2.3), approval for

    this expenditure should be sought within an initial assessment. Approval of

    such preliminary expenditure must not imply any further commitment on the

    Agency‟s behalf.

    Initial Assessment

    3.7 RDAs may choose to undertake an initial assessment of a proposed project at

    an early stage in its development to assess its strategic fit with the RDA‟s

    priorities. For projects developed as set out in 3.3 i and ii above, this strategic

    fit will already have been established and an initial assessment is unlikely to

    be necessary. For projects that fall under 3.3 iii, those where preliminary

    expenditure is required to develop the project and for large value and high risk

    projects, an initial assessment is recommended as good practice. 3.8 An initial assessment may also be used to assess the project‟s relationship with

    other relevant local strategies, the availability of funding, and to identify links

    that should be made with other public sector activity in the region, whether

    undertaken by the Agency or another organisation. It provides the RDA with

    an opportunity for the constructive development of emerging projects or to

    filter out inappropriate projects at an early stage before these absorb too much

    time and resources in their further development.

    Appraisal

    3.9 The purpose of the appraisal is to provide a rigorous and thorough assessment

    of a project. It provides a cost benefit based assessment of whether a proposal

    is feasible and worthwhile (better than the alternatives), what the impact is

    likely to be and it identifies the beneficiaries of the project. It should clearly

    communicate its conclusions and recommendations.

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    3.10 All projects should be properly appraised in accordance with this guidance and the results of that appraisal recorded. The appraisal should address all the issues listed in Annex A. The extent and depth of analysis should be proportionate to the scale, complexity and risk of the project and should avoid spurious accuracy in presenting the results. An appraisal complying with this guidance will meet the requirements of the Central Projects Review Group (CPRG). It will also be in compliance with the Green Book and other higher level guidance.

    3.11 The appraisal requirements in Annex A are set out on the basis that, as part of the process of developing the project, a range of alternatives will have been looked at, and that the main appraisal is now to focus on a short list of practicable options, including the do minimum option. It is recognised that at the time the appraisal is written up the preferred option has already been identified and the focus is now on the decision. Sections 1 to 3 therefore summarise the characteristics (section 1), strategic fit (section 2), and rationale (section 3) of that preferred option. In particular, the appraisal must identify the market failures or equity objectives that it will address and the baseline against which the preferred option‟s eventual impact is to be evaluated.

    3.12 Sections 4 to 8 focus on the short-listed options (section 4) carried forward into the main appraisal. For each of these the appraisal addresses three questions:

    ; how much will it cost the RDA (financial appraisal section 5)?

    ; what will it deliver (section 6)? and

    ; does it offer value for money (economic appraisal section7)?

    The requirements for the economic appraisal are taken from the Green Book and include the need to value all costs and benefits (and to take account of their distributional impacts), to allow for risk and optimism bias, and to discount the results of the economic appraisal at 3.5%. This stage ends with the justification for the selection of the preferred option (section 8).

    3.13 The final sections focus on the arrangements to be made to ensure effective delivery of the project - the contract and arrangements for monitoring its performance (section 9), the closure and exit strategy (section 10), and the evaluation (section 11) of its success.

The following information and decisions for each project should be clearly documented, signed

    and dated and kept on file:

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; Project proposal and supporting evidence.

    ; Initial assessment and recommendations, where appropriate.

    ; Record of any approval for preliminary expenditure, with the purpose clearly described, and

    signed by the Investment Decision Maker with the appropriate delegated authority.

    ; Results of any studies, surveys, research, professional and legal advice received.

    ; Appraisal and any recommendations/conditions for inclusion in the contract.

    ; Copy of the project Monitoring and Evaluation Plan(s).

    ; Copy of all correspondence and file notes of meetings on the project.

    Stage Two - Investment Decision

    3.14 Once the appraisal has been completed, it should be submitted for approval to the RDA‟s Investment Decision Maker; this may be an individual or group e.g. Project Board, with the appropriate financial delegated authority for an Investment Decision. This should not be the same person as the project sponsor or the appraiser. RDAs should ensure that the independent nature of the Investment Decision is preserved. The Investment Decision and any conditions attaching to the decision should be clearly documented.

    Central Projects Review Group (CPRG)

    3.15 Where an RDA chooses to consult CPRG at an early stage on project proposals outwith their delegation CPRG will assist by commenting but this is not a mandatory requirement. All projects outwith the RDA‟s financial delegation or that are novel, contentious or repercussive must be submitted to CPRG after appraisal and approval by the RDA, for review and approval by DTI and/or Treasury, as appropriate, before commitments are made. Details on CPRG operation are given in Annex B.

    The following information and decisions for each project should be clearly documented, signed

    and dated and kept on file:

    ; A record of the project appraisal approval by the Investment Decision Maker, with the

    appropriate delegated authority, that commits the RDA to an investment decision, and any

    appropriate conditions or comments attached to the decision.

    The record should distinguish between the RDA‟s commitments to the project itself, in cash and in kind, and the additional costs to the RDA of deciding to commit to that expenditure. These costs should include any preliminary expenditure, any contracted out appraisal costs, the Agency‟s fees for professional, technical or legal advice, and any sunk project costs e.g. land costs.

    Stage Three - Contract

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    3.16 After a project has been approved for expenditure the RDA should ensure that its investment is covered by appropriate contractual arrangements. Contracts set out the arrangements by which goods, services or works are provided by one party to another in return for a consideration. Listed below are examples of different types of contractual arrangements but it is not intended to be an exhaustive list:

    ; procurement contracts (services, supplies or works);

    ; framework agreements (recurring services or goods);

    ; purchase orders

    ; Public Private Partnerships (PPP), joint ventures (partnership);

    ; funding agreements (grants)

    ; exchange of letters (low value).

    3.17 RDAs should identify the most appropriate form of contract for the project. Whatever form of contract is selected RDAs should ensure that the contract terms are clear and specify what is to be done, who is to do it, what the outputs are and the financial arrangements, including redress provisions should there be a default. The contract should include provision for effective monitoring of delivery and evaluation of the results.

    3.18 For works, supplies or services contracts that exceed the European

    Procurement Directives thresholds, the RDA should comply with the EU

    procurement requirements. RDAs should draw on the best practice

    procurement advice provided by OGC as appropriate.

    3.19 The requirements of the contract should be in proportion to the size of the proposed expenditure, although all agreements should include as a minimum:

    ; project objectives and description;

    ; roles of all partners;

    ; project forecast cashflow profile and target outputs/outcomes;

    ; project timescale (start and end dates and key milestone dates);

    ; reporting and visits;

    ; management of risks, issues and contract changes;

    ; audit and inspection provisions;

    ; repayment provisions e.g. protection of capital assets in the event

    of disposal/change of use through clawback;

    ; contractor performance reviews;

    ; monitoring and evaluation data provisions;

    ; dispute resolution arrangements, where appropriate.

    3.20 Construction projects should follow the best practice guidance set out in the

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