Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, November 24, 2016

Official Report 599KB pdf

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“Maintaining Scotland’s roads: A follow-up report”

We move to item 5, which is our evidence session on “Maintaining Scotland’s Roads: A follow-up report”. I welcome to the meeting Fraser McKinlay, the director of performance audit and best value; Angela Cullen, the assistant director; Graeme Greenhill, senior manager; and Shelagh Stewart, audit manager, all from Audit Scotland. I invite Fraser McKinlay to make an opening statement before I open up the discussion to questions.

Thank you, convener. Good morning, members.

This report on maintaining Scotland’s roads is a joint report by the Auditor General and the Accounts Commission, so it covers both the Scottish Government’s responsibilities for maintaining the trunk road network and councils’ responsibilities for maintaining local roads. We have, over the years, reported quite regularly on Scotland’s roads. That partly reflects the important investment and the amount of money that is spent, but it also reflects the importance that local communities and the people of Scotland attach to the condition of roads. It is our fourth report since 2005, and it looks at three main issues. I will briefly summarise the key points.

The first part of the report looks at the condition of roads and the expenditure on them. It is fair to say that our previous reports on roads maintenance have painted a picture of roads authorities both locally and nationally having to work hard to maintain the condition of roads in the face of declining budgets. This report is exactly the same in that regard. We have found that the condition of trunk roads declined from 90 per cent being in acceptable condition in 2011-12 to 87 per cent being in acceptable condition in 2014-15. Most of that decline is associated with the condition of motorways. Over the same period, Transport Scotland’s expenditure on trunk roads maintenance fell from £168 million to £162 million. By its own assessment, it spent £24 million—that is 38 per cent—less on structural maintenance in 2014-15 than it considers necessary to maintain the trunk road condition at the current levels.

The condition of local roads remained stable, with around 63 per cent being in acceptable condition from 2011-12 to 2014-15, although there is significant variation among councils within the national picture. Total council expenditure on roads maintenance continued to decrease overall, from £302 million to £259 million—that is 14 per cent—over the same period. The Society of Chief Officers of Transportation in Scotland has calculated that, overall, councils spent £33 million—that is 13 per cent—less on planned and routine maintenance in 2014-15 than was necessary to maintain the current condition of local roads.

In terms of the management of roads maintenance, previous audit reports highlighted the need for all authorities to develop road asset management plans. We are pleased that all councils and Transport Scotland now have those in place, although we think they still lack detail in some places.

Although councils have now adopted a common set of performance indicators, the focus to date has mainly been on ensuring that that data is consistent. Transport Scotland has its own set of performance measures, because, owing to the different levels of service between trunk and local roads, it considers that many of the aspects of performance that it measures are not directly comparable with councils’ performance indicators. It is quite a complex picture when you try to compare the local and national pictures.

The third part of the report talks about the developments in improving collaborative working. Our previous audit reports stressed the importance of developing a more collaborative approach to roads maintenance, and that was also an important recommendation from the national roads maintenance review, which was published back in 2012. The Auditor General and the Accounts Commission feel that progress in developing that more collaborative approach has been disappointingly slow. Although regional arrangements are now being established and facilitated through the roads collaboration programme, there is no clear plan or timetable for determining the extent of shared services at an operational level. There are examples out there that are mentioned in the report. The Ayrshire roads alliance and Tayside contracts have been around for quite a long time, and it is important that we learn the lessons from those. In relation to the trunk road network, we think that there is an opportunity for Transport Scotland to maximise the opportunities for more collaboration with councils through conditions in the trunk road operational contracts.

As always, my colleagues and I are very happy to answer the committee’s questions.

Thank you very much, Mr McKinlay.

Am I right in saying that the reduction in budget and the reduction in the percentage of roads in satisfactory condition are broadly the same? If so, that would suggest that there have been no efficiency gains in terms of how we apply the money. Is that a fair proposition?

I will check with the team, Mr Neil, but I think the picture is slightly different depending on whether you are looking at local or national roads. The condition of the local roads has remained pretty stable over the past few years, although councils are spending about 14 per cent less over the period that we report on. In that sense, you could argue that they are managing to maintain the quality of the roads for less money. The picture is slightly different in the trunk road network. Graeme Greenhill will pick up on that.

I think that you are broadly correct in percentage terms. The condition of trunk roads declined from 90 per cent being in acceptable condition in 2011-12 to 87 per cent being in acceptable condition in 2014-15. Over the same period, expenditure on trunk roads maintenance fell by 4 per cent. In broad terms, those percentages are very similar.

I think it would be unfair to suggest that there were no efficiency savings over that period. One of the things that Transport Scotland does, as part of the efficient government initiative, is try to calculate efficiency savings through its renewal of its trunk road maintenance contracts. It has five trunk roads maintenance contracts, including the relatively new one for the Forth road bridge, but the four geographical ones are renewed on a rolling basis. Those contracts stipulate a series of unit costs associated with different types of road maintenance activities, and each contract contains hundreds—if not over a thousand—unit costs. As each contract is renewed, Transport Scotland looks at those unit costs and how they have changed over time, and it applies those unit costs to actual volumes of activity. On that basis, it calculates that efficiencies are being driven out from those contract renewal processes, which are resulting in lower unit costs over the piece.

You draw attention to the increasing use of fairly temporary measures, particularly materials. Are we cutting off our nose to spite our face? You say in paragraph 4 of your summary and further on in your report, that much more regular maintenance activity is going to be needed. If you are using cheap materials and cutting corners, the road will not last as long and we might be cutting off our nose to spite our face.

There are certainly times when surface dressing, as it is called—basically just replacing the surface—represents value for money. However, there is a risk that, if that is done instead of more wholesale reconstruction, it is potentially storing problems for the future, and there might well be a higher bill in the longer term as a result.

It is fair to say that all the roads authorities recognise that as an issue and a risk, but there is clearly a difference between recognising a risk and doing something about it. A good example of that might be found in paragraph 70 on page 33 of the report, where we talk about Aberdeen City Council. Aberdeen City Council has been able to increase the proportion of roads in acceptable condition at lower cost through increased efficiencies and innovation, which we would be 100 per cent behind. Equally, it has taken a conscious decision to concentrate on surface dressing and not do more involved and more detailed reconstruction work. It is interesting that exhibit 10 on page 24 says that Aberdeen City Council has recognised that, if it wants to maintain its roads in the current condition, it will have to increase how much money it spends on roads maintenance.

For us, that emphasises the importance of having good-quality information to allow elected members and ministers to make informed decisions as to how much they want to spend on roads maintenance. That good-quality information would identify options; how much acceptable road condition might be expected from certain levels of spend; what might be the benefits of spending more than that level of spend; and what might be the consequences of spending less than that level of spend. Councils also need good-quality information on community engagement and user views, because all the surveyed work that councils and Transport Scotland carry out indicates that road condition is of vital importance to the general public.

10:15  

Not just in this period but previously, the overall performance of the local authority sector has been substantially below what has been expected. Sixty-three per cent of local authority-maintained roads are in acceptable condition compared to 87 per cent of Transport Scotland’s trunk road network. I accept that there are challenges in the national network, but 63 per cent is a pretty pathetic figure for local authorities.

You suggest in your report that the lack of progress in collaborative work and shared services is concerning—I presume that is because of the economies of scale that you get through shared service provision. However, we have just had an experience in Ayr whereby the total lack of consultation has led to a massive waste of public money. They laid down a new cycle track and then had to lift it up again because, apart from anything else, it was dangerous. They did not consult anybody and they have now spent over £100,000 in laying the track and then lifting it, which is hardly a recommendation for collaboration. The total lack of consultation has cost the budget dear. Maybe that is a one-off, but it is certainly not a good advert for shared services.

Indeed, Mr Neil, and we are aware of that experience in Ayrshire. I guess that it is a good wee example of the point I was going to start with. Although we are absolutely clear that a more collaborative approach is the way to go, it is not a silver bullet—it is not going to fix the problem on its own. We would absolutely hope and expect that it would drive out some economies of scale, as you would expect. Whether it will actually release enough cash savings to do what we think needs to be done not just to maintain condition but to improve it, is a separate point.

What we are hearing—we agree with this—is that the real gain from more collaborative working is to do with skills and experience and sharing innovation and good practice. That is what a lot of the activity that the different alliances that are developing are now concentrating on. Yes, of course we should be pooling resources and making better use of depots and everything else. However, given that we think there is a risk of a skills and experience shortage in some of these areas, it seems to make absolute sense not to do that 32 times but to do that on a more regional level, sharing good practice and learning nationally and locally.

Have you done any collaborative analysis of those areas where there is already established collaborative working and the rest, where there is not, to see whether there is any evidence that, where it has happened, collaborative working or sharing of services has made a material difference to the percentages?

We have not yet, partly because the collaborative arrangements are still relatively new, with the possible exception of the Tayside contracts. That is a slightly different model, because it does lots of other things.

The focus of our work recently has gone back to recommendations that we made in previous reports to get some momentum building, and we sense that there is now some momentum building around the regional approach. I am quite sure that the Auditor General and the Accounts Commission will want us to keep an eye on that area, and, in the next few years, that might be exactly the kind of work that we need to get into.

Thank you.

There are one or two random items in the report that I want to get a bit more information on. We have touched on the contracts, and I am looking at paragraphs 27 to 28, in particular. You state that the contracts have actually contributed to the decline in performance, which seems extraordinary. Paragraph 28 says that the contracts

“may have played a part in the decline in performance.”

Yes. In that paragraph, we draw attention to the shift to the 4G contracts. With the introduction of the new contract framework, the expectations around performance were raised. There may be a bit of time for the new operating companies that came in to start delivering at the level of the contract that is expected. Our overall concern is that the trend of performance has been downward. Therefore, we recommend that Transport Scotland should continue to keep an eye on the long-term trend and make sure that there are measures in place to address areas of underperformance.

Okay. One thing that really jumps out at me in the report relates to the performance of councils. Although they have maintained the level of roads in acceptable condition at 63 per cent, the variation between the councils seems quite extraordinary. Argyll and Bute Council is at the lower end of the scale and Orkney and Shetland, I think, are at the other end. Why is there that inconsistency of support? Some councils are clearly managing their resources better. As you highlight, there has been an overall cut of 14 per cent. How do the councils transfer experience, knowledge and best practice? That is not happening.

As you say, one of the striking things about the report is the variation between councils. We have not done a huge amount of in-depth analysis, council by council, to understand why that variation exists. There may be issues to do with things like the amount of road network that a council has—Argyll and Bute Council would be an example of that. However, equally interesting for us is the relationship between the condition of the roads and the amount of money that different councils spend on their roads maintenance. To some extent, that must be a matter of local decision making, but we are interested in the extent to which they need to make those decisions on the basis of good options appraisal and a good understanding of what the impact will be. That is a point that Graeme Greenhill made earlier in terms of the national stuff, but exactly the same point applies locally.

For example, we know that one council took a considered decision, because the condition of its roads was significantly higher than the national average. The council could have spent a bit less on that area, with a subsequent deterioration, but it still decided, given the competing pressures and priorities, that that was an acceptable decision to take. It is not for us as auditors to say whether that was a good or a bad decision, but at least the council made the decision on the basis of good information and an understanding of what the impact would be. There was a thought-through process.

There is no doubt that, given that we know that broadly two thirds of councils’ spend is taken up with social work and education, there is real pressure on the pot for everything else including roads maintenance. As you say, that is why the regional models are so important. We think that that sharing of good practice, experience and skills must be the way forward, and we sense that, albeit slightly belatedly, councils are coming to that view as well.

Exhibit 2 on page 14 gives you that spread of council performance across individual councils. We are not necessarily saying that Argyll and Bute Council, on the left of the exhibit, is bad while Orkney Islands Council, on the right, is good; the exhibit is really designed to allow questions to be asked. Councils are well used to working in family groups and comparing themselves with similar councils, and the figures allow questions to be asked such as what one council is doing that another is not, which gives it better results. There might well be good reasons why some councils are down on the left and some of them are up on the right, as Fraser McKinlay outlined.

Mr Beattie also mentioned the idea of spreading good practice, innovation and views, and that is a strong theme coming out of the roads collaboration programme. Workforce resilience and capacity sharing is a major initiative that is being taking forward, which is all about sharing practice and knowledge and building resilience in the roads maintenance sector.

I see your comments in paragraph 99 on the question of trunk roads being included in the regional groupings. Do you feel that we are close to that, or is it still out there? It would make sense for the trunk roads to be in there.

I think that it is a work in progress. As you will have seen from the letter that Roy Brannen, the chief executive of Transport Scotland, wrote to the committee about the report, the minister has extended two of those trunk road operating contracts by a couple of years. We think that that has created a window of opportunity that will allow councils and Transport Scotland to get together and work closely to see what can be done to make the operating contracts more encompassing. Indeed, as part of the on-going roads collaboration programme, there is now an intention to form a working group comprised of local and trunk road representatives to see what can be done. There are already arrangements as part of the operating of the maintenance of the trunk roads, and you might find that the trunk road operators subcontract some of their work to the councils. We expect those discussions to take place over the next wee while, and we hope that they will result in further developments.

It is quite clear that there are a number of different models in place for maintaining roads, whether there is subcontracting or whether the councils are doing it themselves, and Transport Scotland is also involved. Is it feasible to bring all that work together effectively?

Do you mean to bring it all together into a single roads maintenance authority that would be responsible for all roads maintenance?

That would be wonderful.

Theoretically, it could be done, although there are obvious challenges associated with that. Paragraph 95 of the report, on page 41, gives an indication of some of the challenges that are being experienced even under the governance first arrangement. Local accountability is an issue, potentially, and there are concerns about the level of benefits that might arise. All of that has to be worked through.

For me, as much as a question of whether it is feasible, it is a question of whether that is who you would want to do the work. I would make some connection with developments more widely—things such as city and region deals. It is very clear now, particularly after some of the announcements this week, that that kind of regional model will be taken forward for a whole host of things to do with how services are delivered and how businesses and communities are engaged. I am sure that those on the collaboration programme will want to consider roads in that context as being a hugely important part of the thing that supports economic growth in those places.

I was quite intrigued by paragraphs 52 and 53, which show that we are probably marginally better than our colleagues south of the border. However, what really stood out is that they are spending two and a half times more per kilometre than Scottish councils on local roads maintenance. That is a huge difference. I know that you are limited in what you investigate, but do you have any feel as to why there is such a stark difference? Are we so much more efficient?

We have not done the work to let me say one way or the other, Mr Beattie. As far as we can tell, a policy choice was made. The Government at Westminster decided to invest pretty heavily in the road network, and you see the results coming through. As you say, there is then a whole separate question—which we have not got into; we have included the figures by way of a comparator or an indicator—about value for money, but we have not gone there for the purposes of this exercise.

Okay.

I refer you to exhibit 5 on page 17, which is about the overall performance of trunk road operating companies. Please correct me if I am wrong, but looking at paragraph 28 and exhibit 5, is it correct that the operating companies are assessed not individually but as a whole? Does exhibit 5 show their performance?

10:30  

Exhibit 5 shows the performance of all four of the regional operating companies, which are assessed individually in the annual PAGplus reports. However, they are not assessed on actual road condition, which is why we have made a recommendation in the report that part of their performance reporting should include condition. There is individual information on the four, but we have aggregated that up to show the trend over time, given that looking at trends over time was our concern.

My copy is in black and white, but am I correct in thinking that each of the different shades—or colours—in the exhibit represents a different operating company?

No.

These are combined figures for all four operating companies.

Okay. Where can you drill down to see the performance of each operating company?

We can supply the committee with that information.

But it is not in the report.

It is not in the report.

What are individual operating companies assessed on, if they are not assessed on the condition of the roads?

There is a range of different criteria to do with winter maintenance including response times to winter maintenance, other preventative measures and so on, and there are also indicators with regard to their structural maintenance programmes. Again, however, our view was that the assessment lacked the key criterion of road condition, and we could not actually get information on how all the work that operating companies were doing was impacting on road condition. That has been our focus and our recommendation in the report, but again, the PAGplus reports, which are publicly available, have information on all the set criteria. We can provide the committee with them.

Are the companies assessed on financial performance?

Yes, there is some assessment of that.

So I would need to refer to a different report to see the financial performance of each of the operating companies.

There are performance measures in that respect. We can provide that information.

Will it have detail on financial performance?

We can double-check that, but we might need a better understanding of what exactly you are looking for when you talk about financial performance.

I will explain why I am going down this road. You might have seen recent press reports of a performance audit group—a consortium of Transport Scotland—finding discrepancies in road-patching works in 54 per cent of the sites that it visited pertaining to BEAR Scotland’s work. It also found clear evidence of BEAR site staff inaccurately recording what had been replaced when surfaces were relaid. Moreover, overcharging of Transport Scotland by BEAR Scotland amounted to £280,000. Does the audit cover that at all?

The audit does not specifically cover that issue, but we were aware of it. To some extent, you could argue that the performance audit group did its job by identifying some of those things in the first place. Transport Scotland has responded to that recommendation in its own response, and we would absolutely agree with you on the scope for more transparent public reporting of all of this. Indeed, that is why we have encouraged Transport Scotland to do some of that work, and it has, to some extent, responded to that in its response to the committee. If you really wanted to get underneath how exactly it manages the contracts and ensures that these matters are addressed in the amount of detail that Shelagh Stewart has already referred to, it will be better placed to provide that information for you.

Do you mean Transport Scotland?

Yes.

So it is not really within Audit Scotland’s remit to dig that deep into contracts and look at what has been charged, what has been overcharged and so on.

It would be absolutely within our remit if someone were to raise a concern and we felt that that concern was significant enough for us to look at it. In this case, we as auditors would say that the internal control mechanism—the performance audit group—did its job in unearthing these things. What we are very interested in finding out—and what the committee might want to follow up with Transport Scotland—is how, as well as identifying this specific instance, it is sharing that learning and making sure that this sort of thing is not happening more widely.

Is it correct that the PAG is an internal group of Transport Scotland?

The team will keep me right, but I think that it is a combination of internal and external people. It operates on behalf of Transport Scotland but I think that other external organisations are involved.

PricewaterhouseCoopers, for one.

Even if external people were involved, the fact that the work was commissioned by Transport Scotland itself means that it is effectively asking for scrutiny of its own financial discrepancies—a case of Government scrutinising Government. Given that the group unearthed discrepancies of BEAR Scotland overcharging the Government—the taxpayer—by £280,000, I wonder whether a more independent review of the contractual and financial relationship between Transport Scotland and BEAR Scotland would be merited.

At the moment, I do not think so. First of all, it is a good thing that Transport Scotland has put such a mechanism in place. It is not that it was commissioned specifically for that thing; the mechanism looks at all contracts, and it is something that we would absolutely encourage. A follow-up is important because if there were examples or evidence of a more systematic problem it might well be worth taking a wider look at the issue.

Indeed, because there were allegations with regard to exchange of money and things that were charged for that PAG did not even look into. Would that sort of thing fall under your remit, or would it stay with Transport Scotland?

I am not aware of that bit, but if there are some specific things that you want us to look into, convener, we can of course do that.

I have a more general question about international comparators. How does the 63 per cent figure that a couple of my colleagues have already quoted compare with the rest of the UK and other similarly sized countries?

We have no comparative information beyond England. In that context, as has been previously mentioned, expenditure on roads maintenance is relatively higher than that in Scotland. However, the information that we have from the Department for Transport, which can be found in paragraph 52 on page 27, is that the condition of council-maintained roads in England is not too dissimilar to that in Scotland, although the condition of trunk roads is somewhat better in England than it is in Scotland.

As has been said, comparatively more money is being spent in England than in Scotland on road maintenance. There might well be very good reasons for that. Traffic density is an obvious potential factor, but as we have not audited road maintenance in England, we cannot really go too far beyond that in explaining the reasons for those cost differentials.

So we do not really know how the state of our roads compares with that in other countries.

We have not done that as part of this piece of work. As I have said, if the Auditor General and the Accounts Commission ask us to come back to this issue, we can absolutely look at the international comparator data that is out there as part of that future work.

Paragraph 45 on page 23 of the report indicates that over the past couple of years Transport Scotland has undertaken a study on the long-term vision for maintaining the trunk road network, and one of the options that it considered was to increase the proportion of roads in acceptable condition up to a level comparable with the rest of the UK and further afield. The study indicated that Transport Scotland would need to increase its spending on trunk road structural maintenance to around about £79 million per year, which, as you will see from the following paragraph, was something like twice as much as Transport Scotland actually spent on structural maintenance in 2014-15.

We underspend on our roads to get them to the standard of other countries.

Leaving comparisons with other countries to one side, I think what we have said and what councils and Transport Scotland themselves recognise is that we are not spending enough money every year to keep the roads even in their current state.

The report notes that

“the cost of materials forms the greatest proportion of spending associated with structural maintenance”.

Did the audit consider how such costs could be reduced?

No, we did not look at that. I guess that what we were trying to do was to explain how that cost was made up and the bits that went together in that respect; we have not gone as far as to try to assess what might be different. One of the challenges for us with things such as roads is that the area is very technical and complex. Although we are the audit body that looks at these things, some of the technical stuff is a wee bit beyond our scope.

Materials are often purchased when the market cost is low. In the work that you have done, have you seen any opportunity for materials to be bought at a certain time? Would announcements of road works and road projects or the fact that the trunk roads are managed by four separate companies preclude that sort of thing?

We did not look at the timing of purchases in detail, but the roads authorities are certainly aware of the potential benefits of shared procurement, which would help drive economies of scale efficiencies from purchasing materials and such like.

It is another strong argument for collaborating, both in terms of the purchasing power that you get and, as you have said, in terms of the ability to phase the purchasing of raw materials for projects that are happening over a wider scale. That seems to me something that should be looked at.

Could Audit Scotland include money-saving measures or ideas in future reports on such matters?

Absolutely, and where we are able to do that in our work, we do it. For example, in our work on core efficiency, we identified about £10 million, I think, that could be saved in the system by doing various things.

However, we need to be careful of two things. First, it is important to make clear recommendations. Secondly, we also need to ensure that, in advising Government or councils about what they should do, we do not go too far. After all, it is their decision—and rightly so. Secondly, issues such as roads are very technical. Given the technical nature of some of this, we are not necessarily the best placed people to be making those kinds of specific recommendations.

Who is best placed?

Well, the people who are in the business. That is why the roads collaboration programme and the various collaboration networks are so important. That is where the learning and expertise are.

Going back to a previous point, I just wonder whether, if we already have evidence that one of those operating companies has already overcharged Transport Scotland and the Government to the tune of £280,000, it is realistic to look to them for cost-saving measures and opportunities to save the taxpayer money.

I think that they have to be the people who identify ways in which they operate more efficiently and effectively. You would expect that, in doing so, they would look beyond, say, the borders of Scotland and get expert advice from other places. As I have said, if we have any opportunity to identify ways in which they can save money, we will take them. However, I do not think that it is Audit Scotland’s primary role to do that on this occasion and on this particular topic.

Did your audit take into account road safety? I noticed in one paragraph that Perth and Kinross Council had projected savings as a result of cutting back on—that is the wrong expression; “reducing” would be better—the amount of grass verges that it cut back. However, as a driver, I know the impact that that has on road safety and visibility. Was there an assessment of the impact of the cuts on road safety?

10:45  

Angela, do you want to take that one?

We did not look at the matter in great detail, but paragraphs 13 and 14 report the number of road traffic accidents that might be attributed to the condition of roads and also consider the issues of cyclists as well as motor vehicles. We considered those two areas, but we did not do so in huge detail. Obviously, users of roads are hugely important. We are suggesting to councils and Transport Scotland that they get more user views when they take into account all the evidence and make decisions around investment in roads.

When you said that you had considered the condition of roads in terms of the impact on road users, are you talking about the condition of the surface or the other things that it is clear that Perth and Kinross Council is cutting back on, such as maintenance relating to signage, trees getting in the way of signage, grass growing higher than people and so on?

I do not think that we considered the issue in that level of detail. Graeme Greenhill might be able to tell you more.

One of the challenges with some of the survey work that councils and Transport Scotland undertake when they want to find out about what the users think of roads is that they tend to have different approaches. They ask different questions about different things, which leads to a lack of consistency in the information. In general, the questions are quite broad—they are about what people think of their roads as opposed to being about the more detailed issues that you mention.

We were looking at the most recent version of the performance management framework that Transport Scotland has produced, which includes some measures around user satisfaction and so on. However, you are absolutely right to suggest that part of the problem is that a lot of the data that is available is focused on the condition of the road surface even though road users—pedestrians, cyclists and drivers—know that there is a lot more to it than that.

I am not at all familiar with the Perth and Kinross Council example, but—

I just pulled it from your report.

Okay, but we do not know enough about the detail of the example. I think that the reason we are mentioning it is that, like the Ayrshire example, it shows that community engagement is enormously important. It is clear that public perception of the conditions of roads is not great and that there is a need for roads authorities locally and nationally to engage with communities about the use of roads and everything that goes with that.

Let me take you back briefly to the point about BEAR Scotland. I am concerned that what has happened here is that £280,000 worth of taxpayers’ money has been overcharged by a private company operating our roads, but that Audit Scotland’s remit does not enable it to pick that up. Can you comment on that? Where should that kind of financial discrepancy be picked up? It is the job of this committee to follow the public pound, and that public pound has gone astray to the tune of £280,000. Whose job is it to pick that up?

To be clear, I do not think that it has gone astray—I think that it was picked up. The mechanism that is in place through the performance audit group spotted the fact that there were overpayments to that amount and my understanding is that that money has now been repaid or was not claimed—

But that happened only after concerns were raised and the matter was looked into.

There is a separate question about whether a separate and, as you say, more independent review of the system is required, but my understanding is that the system that we have in place around the contracts did its job in that it spotted those overpayments. However, clearly, we do not want such things to happen at all—as you say, we are talking about a lot of public money, and the issue is absolutely of concern to us.

I do not mean to give the impression that the issue is not within our remit, because it is within our remit to audit public money wherever it falls and however it is used. On this specific occasion, the internal control mechanism did its job in spotting the issue. If you want to discuss whether there is something more that we can do around the issue, I am happy to do so.

We should consider the fact that, when the allegations were made, Transport Scotland commissioned its own review. As Fraser McKinlay said, the result of that review was that PAGplus basically did its job and stopped that money being spent. That raises issues about how widespread the issue might have been. We do not know the answer to that, but there is a potential for us to look at how Transport Scotland has responded to that issue with BEAR and what kind of lessons it has learned. We can maybe pick that up through the annual financial audit of Transport Scotland.

Please do that, because I am concerned about the possibility that practice such as this is more widespread.

In response to my first question, I think that Ms Stewart said that, in this audit, financial performance of these companies is not considered. If that is the case, I wonder how these issues can get picked up before allegations are made and Transport Scotland looks into them. However, I will leave the issue there just now.

I have a few questions at a more general level.

Mr Greenhill, you talked about funding and the condition of the roads. I appreciate that the report says that it is difficult to establish a correlation between funding and the state of the roads, but could you comment further on that, given that the evidence seems to imply that there is a correlation between less funding and declining condition and, as we saw in the England and Wales example, increased funding and better condition?

I will start off and perhaps others can come in. From a high-level overview, the kind of conclusion that you have drawn is understandable. The interesting thing is that, when you burrow down underneath the surface and look at individual councils, the picture becomes a lot more complicated. There is an exhibit on page 32 that indicates that some councils appear to have been able to get better road maintenance through spending less but it also shows completely the reverse of that, with other councils having seen the conditions of their roads declining despite spending more over the past four or five years.

We have not looked at the individual circumstances in every council, so I cannot provide definitive answers to explain why one has gone up and another has gone down, but there are interesting questions about how that has come about and we have advanced a series of reasons that might help to explain the situation. However, the issue really comes down to the need for councils to have good information and to be willing to actually talk to one another and explore such apparent differences in performance, so that they can understand what is causing them and perhaps learn from others who are doing things definitely.

Your report talks about the fact that councils are facing a 5 per cent reduction in grant. Is it correct to say that the individual council makes a decision about how to allocate its grant in relation to roads maintenance?

Yes.

In that case, would it be fair to say that a council that is facing a 5 per cent reduction has some difficult decisions to make and that, if there is a correlation between the amount that goes into road maintenance and the outcome, there is a contingent problem?

Yes, there is absolutely no doubt about that. To some extent, the same problem faces Transport Scotland when it makes similar kinds of investment decisions. We hope that the kind of information that we are talking about, particularly in terms of variation, will help councils make those kind of decisions.

As Graeme Greenhill said, there is no doubt that, at the top level, everyone recognises that we are just not spending enough money to maintain road condition nationally. That is one instance in which there is a connection between the funding and the road condition. However, as Graeme Greenhill went on to say, when you get down to the local authority level, the picture is much less clear. That suggests that some councils are doing things that should be shared more widely because they enable the roads to be looked after more efficiently and effectively.

You mentioned Transport Scotland. Presumably, the footprint of the road network is increasing—earlier, we were talking about dualling the A9 and the A96, which increases the footprint and therefore increases the amount that requires to be maintained. Logically, that requires an increase in funding, does it not?

That is one of the reasons why we were keen to push the idea of roads asset management plans, which enable a much longer-term view of the issues to be taken into account. You need to ensure that you are not just maintaining the road network as it sits today but are planning for the road network as it is going to look in five, 10 or 20 years’ time. The Government will absolutely be factoring in the maintenance costs of that new road network as part of its work on capital infrastructure, which you discussed with Government officials earlier.

I appreciate that you might not want to, but I will ask you to speculate for a moment, because I am looking at this report and asking where this all ends up. We have more roads, a bigger footprint and apparently declining funding, and there is no reason to suspect that funding will massively increase any time soon. Are we just facing consistently declining performance?

I would not want to offer a counsel of despair. That is why this report, like earlier ones, focuses strongly on collaboration.

You are right that a number of things are certain to happen. Certainly, in the short to medium term, the money is going to continue to go down and tough decisions are going to have to be made locally and nationally about where that money is invested. With regard to how that process is managed, we have not really made much progress on collaboration, either in terms of economies of scale or in terms of sharing good practice and innovation. It seems to us that that is the only show in town if we are going to manage the competing pressures around roads maintenance. To be fair, I think that those in the services now understand that.

I have two quick questions. We have heard in answer to questions and seen in the report that councils’ spending on roads must be balanced with competing priorities in education, health and social care, which are really big areas of spend. Some spending is not a matter of choice. Government requires councils to spend money on teacher numbers, nursery provision, free school meals and so on, which leaves little room for flexibility. When the council of which I am a member considers budgets, there are a raft of things that simply cannot be touched, and savings must be made in areas such as grass and roads—the other option being to increase charges on things.

In carrying out your work, was there any reflection on the statutory responsibilities that councils have?

Yes. We absolutely understand the issue. I do a lot of work in the local government sector, as we all do on behalf of the Accounts Commission. In fact, next Tuesday, we will publish a report on the financial position in local government across the piece. There is no doubt that there are areas of spend that are committed. As I said earlier, that reduces the amount of flexibility that councils have.

My only slight challenge in relation to council spend is that, when you look at what is actually statutory, there is still quite a lot of room for manoeuvre in how services are delivered. Education is a classic example. The statutory requirement is to deliver an education service, but there is no stipulation about how that is done. We need to be a wee bit cautious about saying that councils cannot touch social work and education spend, because there is still room for innovation and reform. That said, there is no doubt that a councillor who wants to protect the schools budget and the social care budget has a hard decision to make when they look at spending on roads, economic development, trading standards and so on. That is why the longer-term approach is important, because investment in those areas must be considered over a longer period than just what we can do next year.

Thank you. In relation to the point on innovation and looking again at council spend, did you see any correlation between innovation and the councils that receive the lowest grant, which almost forces them to collaborate more. I know that, in Aberdeen, which you highlighted as an example, there has been very little choice, given that it is the lowest-funded council in the country. Did you see any correlation between the level of grant funding and innovation?

11:00  

The short answer is no. We have not looked at it but, from my wider work in local government, I know that there is very rarely that kind of obvious cause and effect. Some councils will be very good at innovation and reform in some areas, others will be very good at other things and, in my experience, there is not really a direct correlation between that and their level of funding.

Thank you.

Do you audit Transport Scotland?

Yes.

Are you able to take into account in that audit the financial performance of the operating companies?

Yes. As it happens, Graeme Greenhill is going to be the auditor for Transport Scotland from this year on, and he has suggested that we take that into the audit of Transport Scotland work.

When can we expect the next audit of Transport Scotland?

The financial audit of Transport Scotland takes place on an annual basis. That will result in an annual report on that audit that will be published next summer, round about August, I suspect.

And that will include an audit of the operating companies that manage the trunk roads.

We will need to scope that audit. I think that our focus would need to be on what Transport Scotland has done to look at the results of the review of the circumstances that give rise to the allegation that you are speaking about.

I am concerned on a wider basis than just the specific allegation, because the four companies that manage our trunk roads in Scotland receive a significant amount of the public pound. Should it not just be the case that, when you do the audit of Transport Scotland, those companies are audited as well?

Well, we do not audit BEAR and Amey and the people who undertake—

Or should their financial performance come under the scope of that audit of Transport Scotland?

We do not audit them, so their financial performance would not come within the scope of the audit of Transport Scotland. One of the things that we could look at is the performance of the operating companies, which is the subject of exhibit 5, to which we referred earlier. We could look at how Transport Scotland is monitoring the performance of the operating companies and what action it is taking if there are any further declines in the performance of the operating companies in the round.

Okay.

If it is okay with you, convener, I would like to write to you separately on this point because, from our perspective, doing a significant audit of the performance of the operating companies sounds like a significant piece of work. As I am sure you understand, we would need to set that alongside all our other competing priorities and pressures, because there are lots of operating contracts in the public sector that we look after. Apart from anything else, I would need to have a conversation with the Auditor General about how we would go about that. What I have absolutely heard is the committee’s concern about this area. We can look at some elements of that as part of this work. Also, the Auditor General and the Accounts Commission are currently looking at their forward work programme—as you know, we do a rolling five-year programme—so we can feed it into that discussion as well. We can write back to you specifically on where we get to on those occasions.

Thank you very much.

11:03 Meeting suspended.  

11:07 On resuming—