9.1 General principles
9.1.1 In central government, approval is required for all capital projects, financial assistance and other expenditures, but the "approving authority" will vary depending on the nature and scale of the project and the level of delegation. The approving authority could, for example, be a finance division, a departmental minister or the Department of Finance (DoF).
9.1.2 In approving any capital project, financial assistance or other expenditure, the following principles should be applied by the approving authority:
- there should be an early opportunity for the approving authorities to consider and influence the choices made. This could take the form of the formal submission of a strategic outline case for approval or, on some occasions, of informal contacts between the project sponsor and the approving authority
- the economic appraisal is an important factor in the consideration of any spending proposal, and departments are responsible for ensuring that this is carried out and that the proper methodology is used. Points to note in this regard include:
- Approvals in principle should not be granted, nor should any commitment to funding be given (for example, through a letter of offer) prior to the completion of a suitable business case, including an appropriate economic appraisal. Only when needs, objectives, options, costs, benefits, risks, funding and other relevant factors have been thoroughly investigated according to the relevant appraisal methodology can approving authorities be assured that a particular proposal is likely to represent VFM and satisfy accountability requirements.
- Departments should be aware that appraisal techniques should be used for all proposals, not only for those above the limit at which they need to seek DoF approval. The principles of appraisal should be applied with appropriate and proportionate effort to all expenditures, including those at policy, programme and project level. DoF Supply will request sight of appraisals of expenditures below delegation limits from time to time.
- In some cases, it may be appropriate to grant approval in stages. For example, PFI projects generally require DoF approval at both outline business case (OBC) and full business case (FBC) stages. For some other types of proposal, it may be appropriate to grant approval to proceed to detailed planning and design work on the basis of a preliminary option appraisal; and to grant final approval based on a more detailed analysis of the options. Where approval is given in stages, each stage should have a clear statement from the project manager (or project sponsor for construction projects) of the status and progress of the project (for example, percentage of design completed) and the accuracy of the estimates of cost and time, highlighting main risks and how they can be managed
- Before firm commitment, the approving authority should receive an up-to-date business case and economic appraisal of the project, covering the following:
- scope of the project
- capital costs
- annual costs/savings/benefits and their phasing
- statement of accuracy of estimates and main areas of remaining uncertainty and their possible effects on the project
- recalculated net present values (NPVs)
- a project initiation document, including definition of roles (project board, senior responsible owner and project manager), risk management proposals, value management proposals, project timetable (including level and amount of project management resources)
- proposed monitoring and evaluation arrangements
- No firm commitment should be made by the approving authority until the costs and the timetable for the project are well established. The probability of project cost or time being more than 10 per cent above the estimated figure should be no more than 10 per cent; for straightforward or repetitive projects, the margin of error should be no more than 5 per cent. The stage of firm commitment will vary. For many projects it may be after final sketch plan, but in some cases earlier commitment may be possible. For particularly risky projects, firm commitment might not be given until tenders are received
- For particularly risky or contentious projects, approval at strategic outline case (SOC) stage might be given only for development work to refine the estimates further by better project definition, with no commitment to the project itself
- At initial approval of each subsequent approval stage, the approving authority should specify parameters or conditions under which the project must be resubmitted for approval. Re-submissions might be required where:
- a specified time elapses before the commencement of the next stage of the project
- estimated capital costs rise by more than a given amount or percentage of original estimate
- the estimated time for completion slips by a specified period
- the NPV of the project alters to a negative figure
- Re-submission should generally be required in any case for which a satisfactory economic appraisal has not been completed. Depending upon the case, this may mean complete revision of an appraisal, or re-submission of certain unsatisfactory elements of it. It should be the project sponsor's responsibility to monitor progress of the project and to resubmit it as soon as it appears likely that a triggering condition will be met
- When re-appraisal is considered necessary in financial assistance cases, it should include re-assessment of the appropriateness of the proposed eligible grants or other financial assistance
9.1.3 Departments are asked to ensure that the above principles are adhered to as a minimum in all cases. Where a department is at present applying more rigorous guidelines it should continue to do so. Where appropriate, departments should have regard, in consultation with their supply divisions, to relevant practice in GB departments.
9.1.4 DoF Supply will occasionally request information to satisfy itself that proper procedures are in place regarding expenditure below delegation limits, including, for example, random samples of appraisal documentation.
9.2 DoF approval of projects in excess of delegated limits
9.2.1 General guidance about DoF approval and delegation is given in Managing Public Money Northern Ireland (MPMNI) and is not repeated here. This section concentrates on approval and delegation specifically in relation to economic appraisals and business cases.
9.2.2 Arrangements on the level of delegation from DoF are subject to agreement between departments and DoF. The level of delegation will take account of past history of project management, and the current expertise in project management, as evidenced by documented client project management procedures and client training.
9.2.3 DAO(DFP)06/12, issued to departments on 7th June 2012, most recently revised 28 July 2016, lists the current delegations and sets out the requirements for departments to obtain prior DoF approval before making commitments to or incurring expenditure. Supply officers can advise on the current delegations. They are generally expressed in terms of total central government cost, but there are some differences in detail depending on the type of expenditure, for example, some delegations are expressed solely in terms of capital costs, while others include both capital and resource costs.
9.2.4 Where a department is proposing to introduce a new policy or programme of expenditure, prior DoF approval must be obtained before any relevant expenditure is incurred. DoF approval should be sought only after the sponsoring department has considered the proposals thoroughly itself and granted formal approval to them.
9.2.5 Projects must not be split into separate components or phases in order to bring them below delegation limits and avoid submission to DoF. Expenditure incurred in this way will be regarded as irregular. Where expenditures or activities are linked together and the costs or benefits are mutually dependent, the proposal must be appraised as a whole and submitted to DoF accordingly. Examples of bad practice include:
- appraising purchases of capital items such as vehicles or computers separately from other directly related capital expenditures such as ancillary equipment, accommodation, installation or testing
- splitting the roll out of ICT projects into phases to avoid exceeding delegation limits
- appraising building construction costs without taking account of associated spending on land purchase, infrastructure and works services, fitting out with equipment, security, staffing, maintenance and other operational costs
9.2.6 Where expenditure proposals exceed the department's delegated limits, DoF Supply will act as the approving authority. The principles at 9.1 above will generally apply, but DoF would also emphasise the following additional points.
9.2.7 Where DoF approval of expenditure is required, none of the relevant expenditure should be committed, and none of the relevant works should commence, until DoF approval has been granted. When DoF's approval has not been sought, DoF will not generally grant retrospective approval in cases where the relevant expenditure has already been committed or project works have commenced.
MPMNI states that DoF may consider granting retrospective approval if it is satisfied that:
(a) it would have granted approval had it been approached properly in the first place; and
(b) the department is taking steps to ensure that there is no recurrence.
DoF will generally interpret condition (a) to refer to a situation where a department has already completed a business case to support the decision to spend, but has neglected to forward it to DoF for approval. Regarding condition (b), DoF will expect evidence that specific measures have been taken to ensure that the need to seek retrospective approval is not repeated.
9.2.8 Submissions to DoF should be made at a stage early enough to permit dialogue on assumptions and methodology between DoF and the relevant department; and to permit revision of business cases or re-appraisals to be undertaken where necessary. DoF reserves the right to withhold approval when there is inadequate time for the appropriate scrutinies and discussions to be undertaken.
9.2.9 Submissions to DoF should normally be in the form of a suitable business case in accordance with Section 8 above. The general arrangements for DoF approval of business cases (SOCs, OBCs and FBCs) are as set out in Sections 8.5 to 8.7. DoF will continue to monitor the quality of submissions and will expect proposals to comply with the appropriate procedures and to be VFM and affordable.
9.2.10 It is a function of departmental economists to quality assure economic appraisals. Departments should consult their economists in all cases requiring DoF approval, and should take account of their views before submissions are made to DoF.
9.3.1 The following are standard conditions of DoF approval:
- approval is always given on the basis that projects will be implemented as described and costed in the business case upon which the approval is based. If a department wishes to implement a project on a basis other than that approved by DoF, it should consult DoF again to ensure that any proposed changes to the original business case do not alter DoF's view of the project
- tolerance levels on cost are 10 per cent. If it becomes apparent that the total capital expenditure or total revenue expenditure indicated in the business case will be exceeded by more than 10 per cent, supply should be notified as soon as possible and appropriate further action agreed between the department and supply
- the same applies where project implementation is expected to be delayed by more than 24 months by comparison to the timescale indicated in the approved business case
- supply should be informed as soon as possible of any substantial changes to the project which occur at any time after DoF approval is granted. This applies to both proposed substantial changes to the project, and to actual substantial differences in outturns compared to the assumptions in the business case. In this regard, a substantial change may be defined broadly as a variance of 10 per cent or more from the assumption in the approved business case
- in such circumstances, supply will consider the specifics of the case and decide what additional submissions are required, for example, a letter or addendum covering specific issues that require further consideration, or a more substantial revision of the business case
9.3.2 If there is any doubt as to whether any of these conditions has been triggered, Supply should be consulted. In exceptional cases, supply may stipulate or agree to different conditions.
9.3.3 With specific regard to capital works projects, client changes, particularly changes in design or specification after the contract has been awarded, have been shown to be a very significant element in cost overruns on major projects. In order to seek to minimise cost overruns, supply will require projects to be re-submitted if:
- the cumulative cost of client changes exceeds 5 per cent of the approved budget (unless some other limit has been agreed with supply to reflect particular circumstances); or
- the trend of drawing on the contingency margin is more rapid than in the expenditure profile established when the project was approved; or
- more than 50 per cent of the original contingency provision has been used for client changes; or
- a significant new risk has been identified in the risk assessment on which the last approval was based
9.3.4 DoF approval of a particular project relates solely to agreement to proceed with the project. It does not imply approval for expenditure to be incurred beyond existing agreed public expenditure (PE) or budgetary provision.
9.3.5 DoF approval of all projects above delegated limits will still be conditional upon satisfactory arrangements for PPEs in all cases. Where a project which requires DoF approval is part of a continuing programme, DoF may make the submission of a PPE a condition of proceeding with subsequent projects. DoF monitoring of PPEs will be conducted in accordance with section 11.3.