Agenda item

This report presents early sight of both the Finance and the Procurement and Contract sections of the new Constitution for East Surrey and invites comments on the draft and principles, ahead of finalising and bringing back to this Committee for final consideration.

Section 9P of the Local Government Act 2000 requires every local authority to prepare, maintain, and keep up to date a formal constitution. This document controls how the local council operates, makes decisions, and handles its governance. The sections relating to Finance and to Procurement and Contracts set out:

·         How the Council governs the manner in which the financial activity is conducted and ensures its financial interests are safeguarded; and

·         How the Council authorises and manages expenditure and resulting commercial contracts with other organisations.

It is therefore essential that East Surrey Council has an agreed Constitution in place in time for vesting day on 1st April 2027, and that the detail of the finance and the procurement and contract elements of that Constitution are agreed in time to establish required process and controls ahead of vesting day.

The Committee received a report presenting early sight of both the Finance and the Procurement and Contract sections of the new Constitution for East Surrey and inviting comments on the draft and principles ahead of finalising and bringing back to the Committee for final consideration.

The Interim Chief Finance Officer introduced the draft Finance Procedure Rules, seen at Annex 1 to the report, as the framework through which East Surrey Council would manage public money, establish financial responsibilities and accountability, maintain compliance with legislation, protect against fraud and error, and ensure best value for money. She explained that the draft procedure rules had been prepared following a review of the financial procedures used across the current 12 Surrey authorities, with further work underway to compare the draft to the rules used by existing Unitary Authorities. She explained that financial thresholds and references to the future East Surrey committee and staff structure would be updated as the information became available.

The Interim Chief Finance Officer explained that Annex 2 provided a draft structure for the East Surrey Procurement and Contract Procedure Rules. The full document would set the full contract and procurement lifecycle, from identification of a requirement and initial business case through to procurement and contract award, contract management, performance monitoring, expiry and renewal. She stated that Annex 3 set out proposed thresholds, routes to market and delegations of authority for contract award, informed by an ongoing benchmarking exercise against comparable unitary councils.

Members were reminded that they were not being asked to approve the documents at this stage – final versions would be brought back to the Committee in November before being recommended through the Constitution Committee to the Shadow Authority.

The following matters were considered:

a)            Annex 1: Draft Financial Procedure Rules. The Committee generally welcomed the draft and acknowledged the work undertaken to bring together procedures from multiple authorities. However, Members identified a number of areas where they believed further detail would strengthen the document.

a.    Reporting of Financial Non-Compliance. Members queried whether instances of financial non-compliance would automatically be reported to the Audit and Governance Committee. Concerns were expressed that reliance on officer judgement regarding where reports were directed could potentially limit Audit & Governance Committee oversight. Officers agreed to include provision for all breaches to be reported to the Audit & Governance Committee, whilst also clarifying reporting arrangements to other relevant committees where required.

b.    Definition of “Substantial” Non-Compliance. Members noted that the draft referred to substantial non-compliance but did not define what constituted a substantial breach. It was suggested that clear criteria and thresholds would be required to ensure consistency and transparency. Officers agreed that such definitions would be incorporated into the draft procedure rules alongside the future work on financial decision thresholds.

c.    Inter-Authority and Hosted Services Arrangements. Members highlighted that, post vesting day, a number of services were expected initially to be hosted by East or West Surrey Councils, covered by an inter-authority agreement. Concern was raised that the draft procedure rules did not currently reference the governance, financial accountability or management arrangements of hosted services. Officers agreed that provisions for the financial responsibilities associated with hosted services would be incorporated into the draft procedure rules.

b)            Annex 2: Procurement and Contract Procedure Rules Structure. Discussion focused on ensuring that the future procurement framework would provide robust oversight of contract performance and adequately address the complexities arising from local government reorganisation.

a.    Contract Management and Performance Monitoring. Members emphasised the importance of actively managing contracts after award. Particular concern was expressed about ensuring there were effective mechanisms to monitor contractor performance, intervene where services were underperforming, and terminate contracts where necessary or apply penalties.

b.    Tripartite Contract Arrangements. Members discussed existing contracts that, following vesting day, would be duplicated across East Surrey and West Surrey through tripartite arrangements. Concern was raised that these arrangements would create unique procurement and contract management challenges not usually encountered by local authorities. Members suggested that the procedure rules should acknowledge and provide guidance on such arrangements.

c.    Placement of Exemptions within the Framework. Members questioned whether exemptions should appear earlier within the procurement process, suggesting that potential exemptions are often considered before procurement activity begins. Officers explained that the current structure followed the lifecycle of a contract but agreed to review the sequencing.

d.    Grants Versus Contracts. Members raised concerns that some arrangements involving charities or external organisations may be genuine grant funding rather than contractual arrangements. They stressed the importance of distinguishing between grants and contracts so that inappropriate procurement requirements were not applied. Officers agreed that this distinction was important and suggested it may be more appropriately addressed within the Financial Procedure Rules.

e.    Social Value Requirements. Members stressed the importance of embedding social value considerations into procurement decision-making and sought assurance that this would be developed fully in future drafts. Officers highlighted that social value was addressed at section 7 of Annex 2, and that it would form a significant element of the final Procurement and Contract Procedure Rules.

c)            Annex 3: Procurement Thresholds and Delegations. The Committee discussed the governance implications of procurement thresholds and the need to balance effective controls with efficient decision-making.

a.    Balance between Control and Bureaucracy. Members recognised that setting thresholds too low could create excessive administrative burden, while thresholds that were too high might reduce oversight. Officers explained that benchmarking was underway and that the final proposals would seek an appropriate balance between operational efficiency and financial control. Officers confirmed that the rationale for proposed thresholds would be presented alongside the final recommendations.

b.    Differing Procurement Approaches. Discussion took place regarding the varying approaches to procurement adopted by different authorities. Members noted that Surrey County Council uses procurement specialists for relatively low-value thresholds, whereas other authorities use procurement specialists only for larger procurements. It was requested that the advantages, disadvantages and resource implications of both approaches be clearly set out before decisions were made.

c.    Legal Oversight of Contracts. Members with legal experience highlighted the importance of establishing clear rules governing when legal services must be involved in contract preparation, review and approval. Concerns were expressed that lower-value contracts could potentially proceed without legal scrutiny unless this was clearly addressed. Officers confirmed that different levels of legal involvement would apply depending on value and complexity and that these arrangements would be incorporated within the final rules.

Following consideration, the Committee unanimously resolved to:

(1)          Agree the proposed approach and details provided in respect of the Finance Procedure Rules;

(2)          Comment on the draft Finance Procedure Rules in Annex 1: Draft Finance Procedure Rules for East Surrey Council;

(3)          Agree the proposed approach and details provided in respect of the Procurement and Contract Procedure Rules;

(4)          Comment on the proposed heads of terms set out in Annex 2: Proposed Procurement and Contract Procedure Rules Structure and Content Framework;

(5)          Comment on the required key governance thresholds and related detail set out in ANNEX 3: Proposed Thresholds, routes to market, delegation of authority for contract award etc; and

(6)          Note that a further report will be brought to the November meeting of the Committee with final versions of all documents for recommendation to the Shadow Authority via the Constitution Committee.