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Expectations of Fiscal Prudence and Value-for-Money

Agreed Performance Expectations, Standards and Output Costs

Outputs supplied by agencies must be clearly specified with a description of the goods and services to be produced, including information about quality, quantity, cost, and time and place of delivery. Specifications and costs are agreed with the relevant Minister and included in the Information Supporting the Estimates (for departments) and agencies' output plans or agreements.

These agreements are central to the state sector management system.

Agencies often argue they need to increase the quality (and cost) of goods and services. The best proof that quality did increase is that intermediate outcomes improve notably. When improvement does not occur within a reasonable period, risk exists that money was poorly spent. Time-limited funding allows Ministers to test the quality of output, and for impacts on outcomes, before locking more expensive business models into baselines.

Governments need comparative cost information to know the goods and services it purchases are of reasonable price and quality. Realistic pricing - and assurance of value-for-money - is particularly important when having a dominant supplier limits Ministers' ability to compare products and costs.

Advisors and Monitoring Agents

Advisors support Ministers by helping them understand and tackle complex issues, and putting together the analysis and briefings that give Ministers choices in purchase negotiations. They also advise on value-for-money (ex ante) and help Ministers purchase outputs that are consistent with a government's strategy.

Unless directed otherwise, Departments act as purchase advisors where a Minister is purchasing outputs from a Crown entity or other non-departmental supplier.

Regardless of who provides purchase and monitoring advice, the Minister's agent is expected to provide an independent view on:

  • the fit between the budget proposed by an agency and the Government's outcome objectives and delivery priorities
  • the mix of outputs likely to be most cost-effective, taking into account the extent to which services purchased in the past are aligned to priorities and have been shown to be cost-effective
  • how much specific goods and services should cost.

Costing is relatively simple where a similar good or service is produced in the private sector and a pricing benchmark is available. Costing is more complex for unique or heterogeneous outputs, such as policy advice.

Common approaches used to establish fair prices include:

  • competitive tendering from private and state sector producers
  • competition between, or benchmarking of, state sector providers
  • analysis of historical trends in price, quantity and standards
  • analysis of input costs and overheads (eg, if price rises are sought)
  • more sophisticated analysis of value-for-money (below).

Monitoring agents have a broader role in advising on governance issues and Statements of Intent, tracking progress against output agreements, and advising the Minister on investments, performance and value-for-money.

Output Plans and Agreements for Individual Agencies

Early drafts of output plans and agreements help give Ministers:

  • information on the price, quantity and standards of outputs offered by departmental chief executives and Crown entity boards
  • sufficient information to compare proposed outputs to similar outputs produced in the past and, if feasible, by other providers
  • choice about what is to be delivered, by whom, and at what cost
  • information to assess delivery and value-for-money in retrospect.

After the Budget is agreed, output plans (or output agreements for Crown entities) are signed by chief executives (or boards) and the relevant Ministers. They are cross-referenced in chief executives' job descriptions.

Output plans of departments (or output agreements with selected Crown entities) specify individual outputs in terms that help Ministers assess delivery in retrospect, and manage interactions with the agency. Output plans must be consistent with information presented to Parliament during the Budget process (Chapters Three and Four).

While output plans and agreements are not required under legislation, and are not primarily intended to support the Executive's accountability to Parliament, they can be requested and used by the C&AG to inform the assurance and advice the C&AG gives to the House and by Parliamentary select committees as part of their Estimates examination or their agency financial reviews.

Output plans:

  • provide external stakeholders and internal managers with a clear description of outputs to be delivered, together with applicable performance measures and standards, and resource limits
  • provide a vehicle for discussion and agreement between a department and its Minister about: a) what particular outputs the department should deliver; b) what performance standards the department should meet, and what resources should be provided to support that; c) how these outputs will contribute to desired outcomes; and d) output priorities and trade-offs
  • set out the amount and basis on which the department is to be paid or earn revenue for the delivery of these outputs
  • support the ability to hold the department to account for their output delivery performance.

Output plans generally include the following information:

  • the purpose and scope of the plan
  • monitoring, reporting and assessment arrangements
  • payment and charging arrangements
  • procedures for amendment
  • a comprehensive schedule of outputs and their attendant priority, performance measures and expected costs
  • the signatures of relevant Ministers and the departmental Chief Executive.

Ministers can choose between outputs and providers, and trade-offs can be made between the price, quantity and standards of outputs. Ministers can also specify the content and form of reporting they require against output plans. Regular reporting against output plans allows Ministers to evaluate performance and take corrective action where necessary. As the year progresses and circumstances change, Ministers and chief executives (or boards) may negotiate changes to output plans without recourse to Parliament, unless appropriation changes are needed.

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