Official Report 486KB pdf
Good morning, everyone. I welcome you to the 21st meeting in 2013 of the Infrastructure and Capital Investment Committee. I remind everyone to switch off their mobile devices, as they affect the broadcasting system. That said, some members will be looking at their iPads because we provide the papers in digital format. We have received apologies from Gordon MacDonald, and Gil Paterson is here in his place.
I will do so. I extend our thanks to the committee for agreeing to reschedule the evidence session to this week because a number of our party were ill last week.
Thank you. Adam Ingram will start the questioning.
How was the list of bodies to which the bill will apply drawn up? In particular, why were bodies in the utilities sector, such as Scottish Water, excluded from the bill?
The approach that was taken was to mirror the application of the Public Contracts (Scotland) Regulations 2012 while limiting the application to Scottish public bodies.
Utilities companies such as Scottish Water are subject to a separate European procurement regime under the utilities directive. Because we need to frame the bill so that it will dovetail with European law, if we brought utilities within the scope of the bill we would have another directive to think about. The utilities regime is very different on key issues such as pre-qualification, and if we brought Scottish Water within the scope of the bill we would add a layer of complexity around how we frame the provisions of the bill with European legislation.
Is there not a danger of having two separate procurement regimes running and sending mixed messages to the marketplace?
We already have two different procurement regimes. At the European level, there is one that is specific to the public sector, and we have tried to replicate that coverage in the bill. A separate regime applies specifically to public and private sector bodies that operate utility functions, such as water, rail, port and harbour authorities and airports. There are already two regimes in place.
Okay. How were the thresholds for regulated contracts under the bill arrived at and why were the new lower thresholds introduced?
It was in the pursuit of simplicity and in line with good practice and business requests. We took the 2012 regulations as the starting point for the thresholds because they are familiar to public sector purchasers. The rule of thumb was to apply about 50 per cent of the European Union thresholds to the thresholds in the bill. We felt that a round number such as £50,000 would be easier to communicate and understand than a figure that does not end with a zero. Under the existing public procurement reform programme, the public procurement reform board encourages all public bodies to use a full procurement process above the £50,000 threshold, so the lower threshold is in line with that. We also took roughly half the EU threshold as the starting point for works and services.
Other jurisdictions use different rules from the 50 per cent rule of thumb. In France, for example, the threshold is set at something like €15,000 as opposed to the £50,000 that you propose. What is the rationale for your figure?
It is a balance of what is going to be business friendly while we introduce the new requirements around the duty of sustainability. We have used £50,000 as the threshold until now although it is at the upper end of the figures in other European jurisdictions. Countries such as France and the United Kingdom propose a lower threshold, but the bill contains provisions to allow the threshold to be adjusted upward or downward in the light of experience. Paul McNulty might like to comment further.
We were trying to strike an appropriate balance and not impose unnecessary burdens on the public sector and business. Our discussions with business over the years suggested that around 50 per cent of the European threshold is the level at which it would like to see contracts advertised more widely.
What will be the impact on businesses of introducing those thresholds? What feedback have you had from business?
We hope to get much greater visibility and transparency of contract opportunities in the lower price bracket, which will be of particular interest to small and medium-sized enterprises. Below the £50,000 mark, the cost of running the process starts to make it impractical to advertise.
It is not entirely clear that you consulted business on your proposals. What consultation did you undertake with stakeholders in setting the thresholds, and what feedback have you got from business?
We covered that in a number of different ways over the years, including in discussions at the public procurement reform board, which covers the wider public sector, in discussions at the public procurement advisory group, which is part of the reform programme governance landscape, and in separate discussions with individual stakeholders.
Can you tell me which bodies or businesses you consulted?
That has been covered in a number of different ways. It might be best if we review the papers and write to you.
We can provide a note on the exact detail of the consultation. The issue has been the subject of considerable discussion with bodies such as the Scottish Chambers of Commerce and the Federation of Small Businesses through the public procurement advisory group as well as through a body called the supplier engagement working group, which is a partnership between public sector, business and third sector representatives that aims to develop practical proposals to address the challenges that they face. We can provide a more detailed note on the consultation on thresholds.
A note would be helpful. Thank you.
The bill will operate in a number of ways. As you will have seen from the Scottish Parliament information centre briefing, not all the provisions apply above and below the threshold, which has been one of the complexities of the bill. We have worked very hard to make sure that the bill dovetails with Europe and we are confident that it does.
On the social and economic development objectives of the bill, is the intention that the Scottish ministers will have powers and the contracting authorities will have duties to implement the guidance that the Scottish ministers might introduce?
We expect the bill to give us the flexibility to adapt our approach in the light of any further flexibility that Europe grants us.
I can give an example of the way in which everything fits together.
That is interesting. Thank you.
You have touched on sustainable procurement. Why was the sustainable procurement duty included in the bill? Will you explain a bit more about the changes that the provision will make to the current process?
The sustainable procurement duty was introduced to send a signal to public sector purchasers that they need to think about what they want to achieve from the money that they are spending. It aims to maximise the contribution that procurement can make to economic recovery by, at the very beginning of the process, looking at how money can be used not just to buy goods at the cheapest price but to deliver the broadest benefits to the Scottish economy.
How will the sustainable procurement duty work in practice?
In practice, it will apply to contracts above the threshold. It will require purchasers to consider the local, social, environmental and economic aspects of what they are buying and to look at the possibility of building those aspects into their specifications. If they do not consider that it is appropriate to include that information in the invitation to tender, the duty will require them to make a statement of why it is not included.
So sustainability will be almost at the core of the process.
Yes.
How will contracting authorities ensure that actions that are taken under the sustainable procurement duty do not conflict with the general duties in section 8?
That depends on how a purchaser structures their invitation to tender. We have been using community benefit clauses since 2008, especially to deliver training and employment opportunities. There is extensive guidance and case studies on how such clauses can be built in successfully in a way that is entirely consistent with the section 8 duties.
During the consultation process, what views were expressed on the sustainable procurement duty?
The views fell broadly into two camps. There was concern that the sustainable procurement duty should not subvert the need for competition and value for money and that it should not introduce a huge amount of additional process. The other camp wanted to encourage broader consideration of sustainability and to maximise the social, economic and environmental benefits beyond the traditional cost quality ratio.
Can you explain a bit more about what the benefits will be of contracting authorities being obliged to produce a procurement strategy and an annual report?
The benefits are transparency and consistency. Most authorities already produce a procurement strategy of one form or another, but those vary greatly in structure, content and quality. Having a more standardised approach to a procurement strategy will send a clear signal to the market about what public bodies are planning to buy and how they are discharging the sustainable procurement duty.
How and by whom will the strategies and reports be scrutinised?
They will be produced by the individual public bodies and will be public documents. I expect them to be scrutinised by both the public and the relevant governance structures of the public bodies that produce the strategies.
I note, from the guidance paper, that if organisations go above the threshold at a particular stage in the year they will be required to produce a strategy. What support will be provided to ensure that those strategies are competent and properly produced? Will there be any penalties if bodies do not produce a strategy?
In terms of the support and guidance that are available, we already have a tool called the procurement capability assessment that is carried out by the existing procurement centres of expertise across all relevant public bodies. The assessment looks at their purchasing potential, their capability and how well they are planning and delivering. It provides support for bodies to develop procurement improvement plans, and that support will continue and be developed further in the strategies and reports. I invite Paul McNulty to comment on the penalties.
We have not provided specific penalties in the bill for failing to produce a strategy but, as Alastair Merrill said, we would expect the governance structures that we have put in place in the procurement reform landscape, including in the Procurement Reform (Scotland) Bill, to have an impact. Each sector has its own governance structures in procurement, and we would expect them to keep a watchful eye on what was happening in terms of the production of a strategy.
What was the stakeholder reaction to the provisions on strategies and annual reports?
Sorry—I did not catch your question. [Interruption.]
I am sorry, but we must halt proceedings. I suspend the meeting for a few minutes until we find out what is wrong with the sound system.
I reopen the meeting and I hope that things will go without a hitch. Mary, please continue your line of questioning.
My final question is: what was the stakeholder reaction to the bill’s provisions on strategies and annual reports?
The majority of stakeholders supported them, although a significant number either disagreed or ticked, “Don’t know” and did not respond. About half of the local authorities disagreed with the publication of strategic procurement plans, but about half agreed with that.
Is further work being done with the half that did not agree? Were there specific reasons for their disagreement that could be responded to by making small changes, in order to bring them on board?
That will be reflected in the guidance on the construction of strategic plans and there will be further discussion between the relevant centre of expertise and individual local authorities.
I will return to the issue of procurement strategies and annual reports. The Project Management Institute submitted evidence to the committee outlining the benefits of proper project and programme management and pointing out that successful procurements are sometimes affected by poor execution. Is there potential to include in the bill a project and programme management job classification and the skills that would be expected for a particular post for the procurement strategies?
The existing procurement capability analysis looks at the professional skills of individuals involved in procurement in individual bodies. I am a big fan of good PPM for exactly the reasons that you outlined. In the central Government sector, the gateway review process is used as a means of assurance and ensuring that particularly large-scale capital and infrastructure projects are properly managed in line with good PPM disciplines. I have reservations about it being appropriate to include a specific reference around skills development in the bill. It would be more appropriate to have skills development as part of the on-going capability development work rather than to introduce a specific legislative requirement for it.
That is a very interesting point. The question of where to go to learn good procurement practice has been brought to my attention. I think that the University of Birmingham offers a postgraduate course. How do people learn about good procurement practice?
The Chartered Institute of Purchasing and Supply is the senior professional body for procurement professionals and it runs a formal membership and accreditation scheme that is taught at a range of centres throughout the United Kingdom, including—Paul McNulty can correct me if I am wrong—at the City of Glasgow College, as well as through distance learning. One of the key performance indicators that the procurement capability assessment looks at is the number of professionally qualified people through the Chartered Institute that individual purchasing bodies have.
Should we encourage bodies to put that in their annual reports?
Yes, very much so.
We move to part 3 of the bill, which is on specific duties.
What are the implications for public bodies of the requirement to publish all contracts on the public contracts Scotland portal?
It will create greater transparency and consistency of process and, therefore, a simpler and more streamlined process, and it will deliver greater value. The public contracts Scotland portal already exists and, since 2008, the procurement reform board has encouraged all public bodies to publish on it all contracts above £50,000.
How will each aspect of the community benefit requirement work in practice? Given that, as you said, guidance has been in place since 2008, will the inclusion of those provisions in the bill change much?
As I said in my opening remarks, much of that is about sending a clear message about the standards that we expect public bodies to follow. There are examples of excellence already out there, in which public bodies are taking very intelligent and innovative approaches to building in community benefits right at the start of the procurement process. However, the landscape is not consistent, and we continue to get feedback from third sector organisations and suppliers that suggests that there is inconsistency.
We spoke earlier about thresholds. How was the community benefit threshold of £4 million arrived at?
I will turn to Paul McNulty for that one.
We had some experience of what works and what scale of project the community benefit clause is typically appropriate for. There is nothing to say that a lower value cannot be considered, but we wanted to pitch it at a level that would not impose unnecessary burdens on the public sector. We thought that a threshold that was about the same as the European works threshold would be the right level.
What issues will be included in the regulations and guidance under the provisions on the exclusion of bidders?
We specifically wanted to include the provision to help us to tackle standards of behaviour by suppliers. The 2012 European regulations and directives included a range of grounds on which a purchaser can exclude a bidder. Some of those grounds relate to criminal offences or to other types of offence, but there is also a provision that states that, if a company has committed an act of grave professional misconduct in the course of its business, it can be excluded from competition.
My final question relates to something that Paul McNulty just mentioned. The policy memorandum states that, as a result of recent events, issues such as
We have been giving a lot of thought to how we can tackle those issues through the procurement process. Having consulted the European Commission, we are clear that it is not open to us to impose additional employment requirements that go beyond the national legislative framework. For example, having consulted the Commission, we are clear that we cannot specifically tackle the living wage in the bill. However, we can produce guidelines on how public bodies select bidders, and we expect those guidelines to cover how a purchaser addresses workforce matters.
I understand the extent of control with regard to the original contract, but can that be implemented when it comes to subcontracting, which is common in the construction industry?
Obviously, the situation gets a lot more complex as we work down the supply chain, particularly in construction, where supply chains can be complex and long. We will give some thought to that, but subcontracting is a lot more challenging because, when the purchaser takes a decision, he will not necessarily have a guarantee that he knows all the subcontractors in any particular supply chain.
Does section 29, on withholding information, need to be there, given that the issue is covered by the Freedom of Information (Scotland) Act 2002? Alternatively, should the wording be changed to align more closely with that act? That is just something that you might want to look at.
We can give it some thought.
We will move on to part 4, on remedies. What is the reason for introducing a remedies regime purely for contracts that are between the bill thresholds and the EU thresholds?
As Mark Richards described when he explained the interaction between the European legislation and the bill, we already have a remedies regime for above-threshold contracts. We want to introduce a remedies regime in the bill so that there is an incentive to comply and some rights of redress for businesses that feel that they have been disadvantaged in the procurement process through a failure to comply with the bill. However, we need to ensure that we do not create unnecessary risks and burdens so we have taken the existing remedies regime from the 2012 regulations and adapted it to make it a lighter-touch regime for the lower-value contracts that will be affected by the bill.
To many who might want to bring proceedings under section 32, the 30-day period would be too short. People might be more likely to put in a challenge anyway because they have only 30 days. Is it possible to extend that period to 60 days, or would that breach EU legislation? The problem is that people might put in a challenge and then find out when they have done all the legal stuff that a challenge is not really necessary, whereas if they were given longer at the start there might be fewer challenges.
The 30 days pretty much replicates what is in the European legislation. You are right that, from time to time, we see challenges coming in because companies are frightened that the time period will expire, but that is the period that is in the European legislation. We could plump for a different period if it was felt to be appropriate but we thought that the simplest approach would be to replicate what is in the existing European framework.
What were the views of contracting authorities and contractors in the consultation?
It would be fair to say that they were mixed. There was majority support for remedies, but some respondents wanted us to go further. For a lot of provisions in the bill, there are many different interest groups at play, so a lot of business representatives probably thought that we were not going to go far enough. For example, some asked us to consider whether we should create a procurement ombudsman in Scotland. Many public sector and professional body respondents were less enthusiastic about a remedies regime that would create a new risk of challenge on procurement issues.
I have a question about the procurement of recyclable and reusable materials, and then, if I may, convener, I would like to ask about small business.
I turn to Stuart Greig for advice on that.
It is fair to say that the markets for what are called green products are still pretty underdeveloped. At the same time, we are facing what are affectionately known as megatrends—that is the most recent term that I have seen—such as the climate change trend, the water scarcity trend and resource scarcity. All those trends will create pinchpoints that will affect the price of commodities.
It is helpful to know that that is the rationale. You have identified that there is a business opportunity and a market for those types of product. Have you identified the companies in Scotland that can deliver?
There are already a number of companies in Scotland in that space. We need to help the expansion of those sectors and help to stimulate new sectors to emerge. The excellent foresight report on the future of manufacturing across the UK, which came out just last week, talks a lot about issues such as the need for an emergence of real hubs around remanufacturing and the need for much more integration between manufacturers and retailers in relation to how products move to market. That will be the trajectory.
You want to stimulate more of that type of innovation, but what specifically will the bill do to stimulate growth in the sector?
We are doing a market analysis. We are talking to the companies and gathering evidence to show the sort of things that the public sector buys at the moment and the companies that are in the marketplace providing that, whether in Scotland or internationally. The question is whether we can move towards a different practice. For example, the public sector purchases lots of uniforms, which are manufactured from scratch. Given that there is a great textiles industry in Scotland, will there be an opportunity in future to move towards stimulating the remanufacture of uniforms from old materials and recycled content? How long would it take for companies to innovate to be able to do that? That is the kind of market analysis that we are beginning to do.
So the answer is that we do not know yet what the impact of the bill will be or what it could specifically do to stimulate growth.
The bill will provide the enabling power for us to consider what the regulations would look like and where the key market opportunities are. Once we have that information, we can have a full business and regulatory impact assessment and understand where the key market opportunities are. The bill gives us a road map to start to move into the area.
I move on to small businesses. On page 3 of the policy memorandum, paragraph 11 states:
Throughout the bill, the aim is to standardise and streamline processes so that businesses, whether they are selling to a local authority, a health board or central Government, experience the same procurement process and do not have to adapt their approaches to the separate procurement processes of every single public body. For example, on the requirement to advertise contracts on a single national portal, the public contracts Scotland portal is free to use and businesses can register on it and receive email alerts on contracts that are of interest to them. Because the portal is linked to our PCS tender tool, once businesses enter information on such contracts, that can automatically be translated into prequalification.
Are you devising a series of metrics that would allow you to measure over time whether you are achieving the substantial improvement that the policy memorandum states requires to be made?
We have a metric that covers the use of PCS tender, which is the electronic tendering system that is built into the portal. That is the only means that we have at the moment of measuring how standard prequalification is being used. One would expect the tenders that win contracts to be at the leading edge of standardising prequalification. However, according to the latest run of figures that the technical guys did yesterday, only 43 per cent of contracts that are let through the PCS tender system used the standard prequalification process. That figure gives a baseline and I expect that metric to be measured over time. I would expect the numbers to increase significantly once the bill is passed. We will then be able to track how that translates into the proportion of business that is won by small businesses.
Small to medium-sized enterprises are organisations that have anything from one to 200 employees.
Yes.
How do we know that the spend going to them is increasing?
I do not have the percentage figures with me, but we can break down the spend figures. Roughly half of spend is to organisations that employ fewer than 50 employees and roughly half to organisations that employ between 50 and 250 staff.
We have a baseline that will help us to measure whether we are making progress.
Yes.
That is helpful.
Is there an incentive for contracting authorities to use the portal? Paragraph 78 on page 16 of the policy memorandum states:
We have been encouraging organisations to use the portal since 2008 and there has been significant growth in its use. There are several incentives for public bodies to use the portal. It is free and therefore saves them money, because they do not have to advertise contracts electronically or through paper adverts. It links in to standard processes that have been centrally developed in consultation with all the sectors, with the aim of being the best and simplest in class, which means that they do not have to reinvent processes. It also means that a public body can use its procurement expertise to focus on the things that really matter to it, rather than having to do all the drudge work of the basic procurement processes. When public bodies use public contracts Scotland and the tools that are embedded in it, that is already done for them, so there ought to be considerable incentives for them to use it.
If the portal is used, will that not also provide more openness and transparency in the system?
Yes, very much so. It will create greater transparency and, from the point of view of public reporting, it will mean that a body’s contracts register can be drawn directly from public contracts Scotland. In other words, the publishing of a contracts register, which is a requirement, will be done automatically.
Mary Fee wants to ask about the living wage.
The issue of the living wage was included as part of the consultation. Many of the respondents to the consultation agreed that including a requirement to pay the living wage in the procurement process would be a good way of ensuring that the living wage was paid. At the start of the consultation process, was there an awareness that including the living wage in the bill would not be compatible with EU directives? If you were aware of that, why was the issue included as part of the consultation?
Yes, there was an awareness of that. In 2012, Commissioner Barnier sent a letter that confirmed that a living wage that was set at a higher level than the UK’s minimum wage would be unlikely to meet the requirements of EU legislation. The annex on the living wage was included in the consultation because of the strong interest in living wage issues in Scotland and because of the Government’s policy of actively promoting the living wage and encouraging employers to pay it. We felt that it was appropriate to seek views from respondents that would help to inform our consideration of how such issues could be tackled in a legal way through the bill, to which Paul McNulty referred. That led to the development of the proposals on workforce issues.
Did that lead to the provisions in the bill about guidance? Was that the reasoning for including the living wage in the consultation?
That certainly informed the thinking about guidance.
What are the Government’s proposals? Is it encouraging contractors to pay the living wage? Including guidance on an issue does not mean that a contractor will comply.
The issue goes beyond procurement. It is about sending out a message on standards. The guidance will allow workforce issues to be taken into account in the formal procurement process as part of the terms of letting a contract but, beyond that, the Government has a much broader approach to encouraging contractors to pay the living wage. All Scottish Government employees are paid at least the living wage, and the Government has made numerous statements on the living wage and its commitment to promoting it.
So will contractors be actively encouraged to pay the living wage and will they be disadvantaged—that is perhaps the wrong word—in the procurement process by not getting contracts if they do not commit to paying the living wage?
We encourage contractors, as we encourage all businesses in Scotland, to pay the living wage, because we see that as sending a strong message on the importance of workforce issues. I invite Paul McNulty to address the technical aspects of how that would work in the context of the bill.
In effect, the guidance that we envisage will advise purchasers that a company’s approach to recruiting, engaging with and motivating its workforce is relevant to the quality of service that the company is likely to provide—obviously, it is more likely to be relevant in the case of service contracts—and that the issue should be taken into consideration at the selection stage and at the contract award stage of a procurement process. There would be a real incentive for a company to demonstrate that it has a very good and enlightened approach to managing its workforce.
We are discussing procurement, but a different piece of legislation would be needed to address wages and salaries. We would need another act of Parliament to effectively bring in a living wage, and this Parliament has no powers to do that. Is that correct?
Yes—that is my understanding. Commissioner Barnier’s letter was very clear on that. He stated that
So only member states can set or adjust wages. In other words, if the United Kingdom set a wage at a higher rate than Germany, there would be no problems associated with that.
That is right.
But that cannot be done within a member state.
Yes.
The issue is the reserved/devolved divide and what we can and cannot do on employment law. The minimum wage is set as part of employment law, so it is a question of what can and cannot be done in that regard. There must be a national system.
Okay—thank you.
Jim Eadie has a question on the equality impact assessment.
The equality impact assessment notes that any guidance on the provisions of the bill should refer to the relevant Equality and Human Rights Commission guidance. Why is that necessary?
Procurement policy and legislation is fundamentally non-discriminatory and requires all public bodies to treat bidders equally and without discrimination. The bill will allow public bodies to restrict participation to bidders who meet the definition of a supported business. This opportunity allows us to refresh guidance and draw to purchasers’ attention opportunities such as the use of supported businesses.
It is necessary partly because a range of duties that are relevant to purchasers already exist in the current equalities legislation. We have been working with the Equality and Human Rights Commission in Scotland to produce guidance for purchasers in that regard. If it would help the committee, I would be happy to send you a copy.
That is helpful, as are Mr Merrill’s remarks on supported businesses.
We will investigate that and address it, if we may, in our follow-up correspondence.
Thank you.
What are the Government’s plans for transposition of the new EU directives?
Paul McNulty is the world expert on EU matters.
We are going to have Scottish implementation regulations. As I mentioned earlier, the new directive has not yet been adopted by the European Parliament, but we believe that it may be adopted in January 2014. We understand that it cannot be adopted before then because of some difficulties that have been experienced with translation work.
Can the Government describe the bill’s relationship to the new EU directives?
Obviously, what we put in place on procurement will have to dovetail with the European directives. We touched on that earlier, and it is a key reason why we are seeking enabling powers. We know from experience that the new directives will not be static even once they are implemented by member states, because of decisions by the courts and the expected publication of guidance by the European Commission on various aspects of the new legislation in Europe over 2014-15.
As there are no more questions, I thank the witnesses and suspend the meeting temporarily to allow them to leave the room.
We will now hear evidence from a panel of expert witnesses on the Procurement Reform (Scotland) Bill. I welcome Dr Jim Cuthbert and Margaret Cuthbert; Duncan Osler, partner at MacRoberts LLP; and Christa Reekie, commercial director, and Barry White, chief executive, from the Scottish Futures Trust.
I will start with general questions and let the witnesses say what they like in response. The policy memorandum states that the bill aims to establish
The bill’s intentions are good, but the sustainable procurement duty in particular is defined in such nebulous terms that it is unlikely to achieve much in itself. To make significant progress, there are two requirements, which might not fall strictly within the bill’s scope but which are important. One requirement is for a fundamental change in attitude on the part of those who organise procurement; the other is for some change in structures and probably the provision of extra resources.
If I, too, could answer the question, I would be pleased. Thank you for having us at the meeting—that is very good of you.
Is that not because the bill, by its nature, has to be fairly high level, whereas some of the detail that you want will be in regulations?
On that you have the advantage, because I am not a politician or a lawyer and I am not quite sure how all these things feed together. However, if clearly stated regulations are to accompany the bill, I would be delighted if sharing some of our research could inform and help with them.
This is a chance for Barry White to come in.
Thank you very much. As Margaret Cuthbert said, it is a pleasure to be here, so thank you for the opportunity.
Are there any other comments?
Thank you for the opportunity to speak to the committee.
I think that we will come on to that later.
Apologies.
We will leave that issue for a moment.
The policy memorandum highlights the need for processes and systems that are
I will amplify a point that I made earlier. There is a question about the extent to which the bill will disrupt the current de facto procurement strategy. To my mind—others disagree—that strategy is characterised by two things. The first is the desire—still—to meet the conditions for getting projects off the books. When the Scottish Futures Trust was set up, it was specifically laid down that projects should be off the books. As soon as that road is gone down, we are talking about large projects that bundle capital and service together, about the long term and about financeability constraints. That element of the strategy pushes bodies down the road of large contracts.
It is extremely important that the bill refers to regulations and guidance. The public contracting authorities will look to the Government to provide that, because it is important. Making things more accessible means standardisation in the form of sample clauses and standard qualification questionnaires—we cannot say “prequalification questionnaires”, because that is EU terminology—so that people become familiar with them and find them easy to use.
I have two points on what Jim Cuthbert said. First, in relation to subcontractors, there is a policy question about whether we wish to require authorities to think about breaking requirements into lots. That might be dealt with in the bill or in regulations.
Just before Margaret Cuthbert replies, Barry White mentioned that contracts have to be of a certain size in order to get finance. Is it not the case that companies in other countries are better at collaborating to form consortia—or have been up to now? Here in Scotland and the rest of the UK, companies tend to think of themselves as competitors rather than seeing that they might, if they get together to form a consortium, do better at securing contracts.
There are a number of points sitting behind that. There are big contracts in which the contractor’s balance sheet becomes very important, which is just a practical reality for a company that is doing a project like the Forth crossing, for example. There are also projects that might combine with two or three other projects in order to get financing. Those bundles are much smaller than they were in the past. Some past PFI and public-private partnership projects—for example, schools projects—were worth about £100 million. The bundles that we are dealing with now are £20 million to £25 million. We bundled three health centres in Forres, Tain and Woodside in Aberdeen; putting those projects together meant that they could be financed.
First, the questions that were asked in the first evidence session today covered quite a lot of the things that I wanted to say. They were very well-placed questions, to which the committee now has the answers. However, I will just add three little points, the first two of which are on transparency.
Can I—
Perhaps you can weave your point into another one later, because we need to move on. Mark Griffin is next with a question.
I will follow up with questions that we asked the previous panel. Does the bill cover the right set of contracting authorities? Are there other bodies or groups of bodies that should be included—bearing in mind the previous panel’s response on utilities being covered by different European Union regulations? Should any of the bodies that have been included not be included?
I will start on that one. I am disappointed that Scottish Water is not covered. I appreciate the technical difficulties in covering utilities, but it would be very desirable if the general duty of sustainable procurement was laid on Scottish Water and it had to produce an annual procurement strategy. It might be possible for the bill to lay that requirement on such bodies without getting caught up in inconsistencies and detailed regulations. The other class of body, which I have already mentioned, is central purchasing bodies. I am not clear whether a sustainable procurement duty and a duty to produce an annual strategy will be laid on those bodies, but I certainly recommend that it should be.
I, too, am very disappointed that Scottish Water is not covered. The answer that was given earlier on that was that it would be difficult—which is understandable—and that it could be covered by another procurement directive. In fact, what was endemic to the answers that the committee was given in the earlier evidence session was that what has been done in the bill has been done in the interests of simplicity and ease. I can see why that would be done when choosing the threshold levels, but there are too many things for which greater consultation was required and which we should address—including Scottish Water. It will be no surprise to anyone around the table that although Scottish Water has only one shareholder—the Scottish Government—it is, in fact, very highly privatised. We are not getting the chances in Scotland of going for jobs, company research and development, and company growth that we could have.
We think that the bill probably covers the main public bodies that do the bulk of procurement.
I invite Mr Osler to offer a legal point of view.
I think that extending the scope of the bill to cover Scottish Water would be possible; I can only assume that the bill team considered that and decided for whatever reason that it is not, on a policy basis, to be preferred.
Is the panel broadly supportive of the introduction of the new regime for below European Union level procurement that is set out in the bill?
Yes.
Yes.
Yes.
Yes.
Yes.
That was straightforward.
A number of authorities are already looking to act in a similar way, and they are finding that useful and successful in achievement of their aims. It is a corporate matter for other bodies if they find it difficult to do, but the gains over the piece should be attainable across all public bodies if they can strategically identify their procurement aims.
I have nothing to add to that.
There is no doubt that the introduction of new thresholds will involve more work for public authorities, but as I have said, if we put in place standardisation and there are pro formas, that should take the sting out of it.
Mary Fee will move on to ask about part 2 of the bill, “General duties and procurement strategies”.
I want to touch on the sustainable procurement duty, which our previous witnesses commented on; the panel may have something to add. What impact will the introduction of the sustainable procurement duty have on procurement practice?
As drafted, the bill will probably have very little effect on sustainable procurement. However, there are a number of ways in which sustainable procurement is being achieved in other countries in Europe and in which it could be achieved in Scotland. Jim pointed to one that is desirable, which is the breaking up of large projects into lots, which is done in many countries in Europe. In some, that is set down in law—in Germany, for example—which means that SMEs have the chance to be main contractors rather than subcontractors, which is incredibly important.
Part of sustainability should be about value for money. An important opportunity has been lost in not making specific provisions—either in the bill or through regulations—about openness.
That might be something that could be included in strategies and reported on, which I will come on to in a moment. Before I do, does anyone else wish to comment?
Such openness across the piece would have a significant impact. That is a question for review and accountability scrutiny.
I have two quick but important points to make. In the additional investment NPD programme that we manage, we have moved to a presumption of publication. The old-style contracts included a presumption of confidentiality; people had to state what they were willing to publish, but we have turned that around. We ask what it is that is so confidential that it cannot be published; there should be very little, if any, such information. Such knowledge remains a competitive advantage for a small number of years, but after that time the advantage lapses.
That indicates that it can be done and should be incorporated in the bill so that other bodies to do likewise.
That is one change that we have made, and it is a positive one. This issue really is not about PFI versus NPD. Although that is a worthwhile discussion, it is not one that I want to get involved in today.
The matter is tricky because it must be read in the wider context of non-discrimination. That is a good principle to have, so we must discuss matters very carefully so that we do not fall foul of it.
Continuing on the theme of transparency and proportionality, how can contracting authorities ensure that any action that they take under sustainable procurement does not conflict with the general duties under section 8?
That comes back to the point that I just made. It is really important that we discuss the issue, because the resulting guidance will be important for authorities.
Should the bill contain further guidance?
It definitely should. As you have quite rightly identified, a discrepancy could arise and we must ensure that none of what is done falls foul of the general procurement tenet.
Do the rest of the panel agree?
Yes—I think so. I should point out that the bill’s financial memorandum says that there will be no extra cost to the public sector in implementing the bill. However, if it is to be done properly, there will be a need for extra guidance, and more monitoring of annual strategies and so on, which means that extra costs that are perhaps not reflected in the financial memorandum are likely to be incurred.
It is difficult but important to balance the conflicting measures. A discriminatory regime will have a significant cost to Scotland because contractors will be put off engaging. We must not discriminate overtly.
That last comment is very important. I believe that in the first evidence session the convener raised the question of training and how to get a good person in procurement. For our last study, we went round quite a number of European countries to find out how they procure. It was very obvious that they do not allow the tail to wag the dog; in other words, procurement departments do not determine much in the way of the conditions on the product that is being procured. Instead, the department that needs the item spends a lot of time defining what it wants, and it is those definitions that determine the competition at the end of the day.
Robin Crawford’s “Review of Scottish public sector procurement in construction”, which was recently published, specifically mentions the importance of design-led procurement and early thinking. The cost of good design thinking relative to outturn construction spend is relatively small, and the earlier the client body thinks about what it wants to procure, the social approach and the various other impacts, the more procuring officers will be helped in achieving a clean procurement. Such an approach would also comply with the provision in section 9(2) of the bill that the contracting authority should consider only “matters that are relevant” to what is being procured. That is obviously essential and a matter of good governance.
But are the two of you not directly contradicting each other? I thought that we were supposed to be moving towards outcomes. Surely the procurer needs to engage with bidders to find out how the product in question can best be procured; after all, the procurer does not have all the answers but, if some of the bidders are involved in looking at the outcome that people want from a particular tender, savings can be made and better goods, services, designs or whatever can be procured. Are the two of you not expressing two different views on the matter?
I did not think that I was being contradicted at all. In fact, what has happened in the past—
But you suggested that the contract should be very detailed at the beginning of the process.
It should be very detailed about what the people actually want. After that, you will be open to the supplier’s views on how best he or she can meet what you want. We do not want projects to be determined mostly by the availability of finance or by large multinationals coming in and determining on the basis of the supply side what they can deliver. With that kind of approach, you end up with the Edinburgh royal infirmary rather than something that matches the needs of the people in Lothian.
I do not think that anything Margaret was saying was inconsistent with the possibility of having pre-competitive dialogue with potential tenderers, in which you can bring on board the industry’s ideas in working out the specification that will eventually go out.
It is about clarity not detail and about being clear at the outset about what is required strategically. Indeed, that might require an alarmingly small paragraph. Engaging with contractors to find a better, market-led solution might be appropriate in certain circumstances and not in others; it is a case of horses for courses, but the authority needs to think about what it wants to achieve at the outset of the process.
First of all, I absolutely agree with Margaret Cuthbert that the cheapest price and value for money are very different things.
Do the witnesses agree that the provisions regarding the production of procurement strategies and annual reports will be beneficial? Is there anything else that you would like to see in there?
I am very positive. The production and publication of a procurement strategy makes clear what people are trying to achieve. It is always good to pause and think, and that is what such a strategy would do. It would make people think, and that ties in quite well with the recommendation in the construction procurement review about the publication of pipelines and making clear not just what the strategy is but what the future workload is. Those two separate bits of work marry up together very well.
As I tried to say earlier, strategies are important, but the better ones will also refer to the wider strategic aims of the bodies and will inform their overall purpose. To some extent, they will also refer to the measurement of the social and environmental impact and the delivery on some basis or other.
Strategies are potentially very important as long as they are not just tick-box exercises. Alastair Merrill’s reply on that point was rather weak. The strategies are going to be published, but we cannot really look to the public to do a detailed scrutiny of them that will make sure that they hang together and are meaningful. The public sector will have to put substantial resource into picking up those strategies on some sort of a rolling programme and making sure that they go beyond just being mere tick-box exercises, or they will end up being largely meaningless.
Is that not an issue for the audit committees of the various bodies?
It might be, but the bodies need to have the expertise. We want someone with expertise in best practice to look at a particular strategy and say whether it is best practice. The audit committee in a particular body might well not have that expertise.
We move to part 3 of the bill, on specific duties.
I have a general question to ask first, which builds on what we have just heard. Right at the start, Mrs Cuthbert said that public procurement contracts in Scotland generate a value of £9 billion to £11 billion. Has any of the witnesses done any research on the proportion of those contracts that stay within Scotland and the proportion that go outwith Scotland? I was interested in what Barry White had to say—in the end, does it matter? As he said, contracts that are given to companies outwith Scotland can generate economic activity in, for example, the construction industry in Scotland.
On the last point, the introductory remarks of the European procurement directive that went through the European Parliament many years ago talked about strategic procurement as an aim. You might think that that means something other than just the pure economic competition that is public procurement. Strategic procurement refers to something other than awarding on a level playing field purely on the basis of bid offerings. It is difficult to see how extensively articulated strategic procurements that work towards deliberate aims that are not expressed by reference to the social or economic activities that will be delivered on the ground in Scotland will be lawful. In other words, procurements must always be pegged back to what will happen in Scotland and the impact of that; to the extent that they would look at what bodies will win the contracts, it is difficult to do.
I agree that it is difficult to say how many there are. Our original Jimmy Reid Foundation report, which we published in 2012, looked at some of the difficulties of measuring. We looked at some particular examples of sets of contracts that had been let. We were quite clear that, in a number of cases, the penetration by Scottish firms was fairly small. To give an example of the difficulty of measuring, one of the points that we picked up in the report was on framework agreements that are organised by central purchasing bodies that perhaps originated elsewhere in the UK. There might be a very good reason for that if you are turning to an overall UK body that has some expertise, but a significant number of the framework agreements organised by Advanced Procurement for Universities and Colleges Ltd—APUC—apply in Scotland but originate with regional purchasing bodies elsewhere, such as the south-east of England regional purchasing body.
My point is that it matters where the pound eventually rests. We are very keen to see the money being spent on local workers and local trades. The difference that I am stressing is that what we define as being Scottish is quite important. For example—I do not want to single out one firm—it could be a company headquartered in the Netherlands that also has an English headquarters but which has been in Scotland for an incredibly long time and has a very strong Scottish workforce. In the example that I am thinking of, the company has two headquarters in Scotland; it has its UK property development business—
Is this the same example that you gave earlier?
Yes. The Dutch company BAM Construction is one example, because BAM Properties is a UK-wide part of the company that is headquartered in Glasgow and BAM Facilities Management is also headquartered in Glasgow. They bring a lot of jobs and investment into Scotland. I disagree with Jim and Margaret Cuthbert’s view that they would not count as Scottish firms.
No, we never said that.
You gave the example of Morrison Construction not being a Scottish firm because it is headquartered in the south-east, as is Galliford Try. I used to work for Morrison Construction, so I can tell you that it is very much a Scottish firm. It is important to say that we look at firms that are committed to Scotland. On defining Scottishness, we are very keen to see public sector contracts going to firms that are committed to Scotland, which includes firms that might be headquartered and owned in Sweden or the Netherlands. However, the question is whether they are committed to training and developing people in Scotland, retaining skills in Scotland and developing those skills. That is what we look for.
I have a quick point. On the national frameworks, as I said, the fleshing out of the regulations and the guidance are very important. If a local authority is under threat of being challenged under the bill, which will give the private sector remedies, the natural instinct will be for the local authority to avoid that by just using national frameworks. That is why it is important to flesh out the regulations and make it easy for authorities to know what they are supposed to do and how they should set about it. Otherwise, authorities will just avoid it and go for national frameworks, which might not give us the outcome that we really want.
I will respond to the first question, on how much of the work stays in Scotland. Jim has already pointed out the problem that we have with the framework programmes, but I would also highlight that the public contracts database is inadequate. It is extremely good for the purpose for which it was set up, which is matching demand to supply, but it is not good as a database, because of the things that it does and does not include.
I may incur the wrath of the convener here, but I will move on to community benefit if I can. The provisions in the bill stipulate that the community benefit requirements should apply to all contracts above £4 million. Does the panel think that that is an appropriate threshold? I would also like to hear your views on whether you broadly agree with the bill’s provisions on community benefit, and whether you see any particular strengths or weaknesses. If you see any weaknesses, how could those be strengthened?
If someone wants to get funding for the NPD programme, they already have to have community benefit clauses in their contract. The £4 million threshold is close to the EU procurement threshold, and it is a reasonably sensible level. Below £4 million, a lot of that happens automatically anyway because the degree of travel would be much smaller. The community benefit requirements place a burden on the main contractor to comply, and the necessary administrative and support effort can be sustained more easily on the larger projects.
It is about time, too.
You got that point in, Mr White.
Might that have been due to my intervention?
He may well thank you for it some day.
The strategy that must be provided specifically includes a component on community benefit, but the bill does not say that it must be reported on subsequently. You might wish to link that up. Effectively, the threshold is at a sensible level. It is a burden that would need to be considered, and we do not want to put too many additional requirements on authorities.
Do you think that the provisions in the bill and any associated regulations and guidance are adequate to address the issues of blacklisting and the inappropriate use of zero-hours contracts? I am conscious that we have not yet seen the guidance and regulations.
Without seeing the guidance, we cannot be certain.
When we talk about blacklisting, we are talking about people who have been blacklisted for, for example, trade union activity. Can we address that specific point?
Until we see the guidance, we do not know—that is all that we can say at this stage. The intent is there but it really depends on the specific measures in the guidance.
And zero-hours contracts?
Speaking as someone whose wife has a zero-hours contract, which suits her enormously, I will say that it depends on the specific guidance.
On the question about community benefit, I, too, am no expert on this, but I want to comment on the way in which we organise procurement and the way in which the hubs work.
My question relates to EU law. Questions were raised earlier about the minimum wage and the living wage. In Scotland, there is an ambition to do much more on the living wage, but we seem to be prohibited in what we can do. I should say that that is my negative view, but is it wrong? Does anyone have a silver bullet for circumventing what I see as a barrier to the use of procurement rules to implement the living wage for subcontractors? I am asking less about contractors, as I think that there is already maybe some leverage with them, although it may not stand up in law or any kind of tribunal.
I do not think that I have any wisdom to contribute on that, because the area puzzles me. I looked at the Barnier letter and tried to follow up the EU regulations, but I just got lost and could not understand what was going on. What puzzles me is how Boris Johnson seems to be getting away with it in London. I would like to know why there seems to be a difference in approach between London and Scotland. I simply do not know. I have no wisdom to contribute on the matter.
I think that I can answer the Boris Johnson question. It is London weighting: it is written into statute that wages can be increased in the geographical area of greater London—not London—but the approach cannot be used anywhere else in the United Kingdom.
I understand that, in the European Parliament discussions on finalising the European procurement reforms, quite a number of MEPs focused on the issue and that there were many discussions on how cross-border terms and conditions would be dealt with. It is not just a Scottish matter, and I do not have any silver bullets.
In Europe, Scotland is a relatively small country. At least since the end of the 1980s, we have, certainly at the local authority level, gone for central purchasing units in which we have expanded the size of the projects that have gone out for contract, and we have lost out tremendously by doing so.
There is no silver bullet from us, unfortunately.
Okay. Thanks for that.
Are there issues to do with the financial stability of companies—how that is measured, whether companies are capable of taking on contracts, and whether they might go bust halfway through them?
I certainly think that there is a need for public bodies to be proportionate when they are setting any thresholds in considering the right size of company to do the work. That is a general principle that we believe in, and we think that it is important that people in the public sector get that right.
That can specifically exclude social enterprises and assisted employment organisations, for example, can it not? There is nodding all round.
Yes, the regime is necessary. Without the provisions, the regime could be disregarded with relative impunity and contractors would not necessarily have confidence in it.
In the earlier evidence session, I asked whether 30 days is an appropriate length of time in which to bring proceedings. In your experience, is that length of time appropriate for companies that want to question the award of a tender?
Thirty days is a short period. It would be difficult for bidders to bring challenges in that short period.
You need not go into the issue now, but could you perhaps give us a brief paper on why the cost is so much greater in Scotland?
I could follow that up, yes.
I am perhaps making the same point over and over, but it may be worth making it again in this context.
Margaret Cuthbert mentioned that Germany breaks down its contracts. Has any work been done to find out whether breaking down contracts into smaller bundles adds cost? If so, how much does it add to the cost?
Let me answer the second question first. In Scotland, we do not sail close to the wind at all and we are very risk averse. That is quite obvious from what we see in Europe, where other countries are being challenged all the time. That should make us think whether, if procurement has such a huge impact on the Scottish economy—between £9 billion and £11 billion—we are disrupting the Scottish economy by being so risk averse. There is evidence that we are not anything like as challenging as we could be.
I have heard that Wales sails close to the wind in its procurement. Is that correct?
Yes, Wales sails close to the wind.
I asked how much additional cost is involved in breaking down contracts into small bundles, as happens in Germany.
On that issue, we know that research and development projects will have up-front costs, but we should look at the potential that they provide for establishing important building bricks in Scotland for the longer term.
It should not be assumed that small contracts are always dearer. Certainly, some people in publishing, for example, hold strongly to the view that the existing large contracts add costs and that if things were broken down and needs were supplied by specialist small suppliers—who cannot tender for the large contracts—things would be a good deal cheaper.
The public procurement rules do not tell authorities what they should buy. The European rules simply set out means through which things should be procured, depending on what it is that an authority means to buy. The real focus should be on how an authority decides more clearly what it wants to purchase and the social impact of that.
Has the Scottish Government been too risk averse on the living wage? The Scottish Government wrote to the European Commission to ask whether it is possible to implement the living wage, but could it have taken an alternative approach and declared that the public procurement policy of the Government and Parliament is that the living wage should be part of the bill?
Asking for forgiveness rather than permission is sometimes a good strategy, but when dealing with the European Commission it is probably advisable to seek advice, as we do on matters such as state aid. The downside of getting it wrong could be significant and expensive and could cause a lot of delay. If we are going to introduce something as a Scotland-wide policy, it is sensible to take that sounding.
My understanding is that the letter to the Commission asked whether we could do it rather than how we could implement it. What do you think the benefits of both approaches would have been?
The question of how should have been addressed here—we should know that before we ask the question. I suggested one way forward, which is involvement of the public sector in a much greater range of contracts, instead of so many going directly to larger businesses that then subcontract.
You should have the right of reply on that, Barry.
The best thing that I could say in response relates to how we have recently been working with local authorities to complete two schools. We have done an analysis of where the work has gone for that, which we are happy to share with the committee in a written response. We do not measure whether or not we are sailing close to the wind; we measure what the outcomes are on the ground, what percentage of work goes to the local area and what percentage goes to SMEs. Both those projects have extremely good statistics.
Duncan, did you want to come back on the legal aspect of the living wage and the EU?
I think that I covered that in my earlier remarks.
Right. As nobody has any other questions, I thank witnesses for their evidence. It has been extremely useful.
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