Finance Committee

Meeting date: Wednesday, November 20, 2013

Official Report 551KB pdf

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Procurement Reform (Scotland) Bill: Financial Memorandum

Our final item of business is to take evidence from the Scottish Government bill team as part of our scrutiny of the Procurement Reform (Scotland) Bill’s financial memorandum. I therefore welcome to the meeting Paul McNulty, Bill Watt and Neil Ramage. I believe that a member of the team would like to make a brief opening statement.

Thank you, convener. I would like to say a few words just to set the financial memorandum in context and to correct a few misunderstandings in some of the written submissions that the committee has received.

In developing the content of the bill we consulted very widely. It was always likely to be the case that different stakeholder groups’ views on the bill would be very different in many respects. The majority of the written submissions that you have received appear to be from the procurement community, which is of course a very important stakeholder group. I note, however, that some other groups have a very different view. For example, the Infrastructure and Capital Investment Committee has heard from Jim and Margaret Cuthbert, who described the bill as extremely weak and who clearly felt that it did not go far enough. Some civil society groups are lobbying us also on the basis that the bill does not go far enough.

It has been quite a challenge to steer a way through those opposing views during the process. We have been very conscious of the need to avoid imposing unnecessary burdens on public bodies. We believe that the bill that we have introduced strikes an appropriate balance. It is also important that for the big amount of money that we spend—the financial memorandum says that it is more than £9 billion per annum, but we think that it could be as high as £11 billion—the bill is effective in responding to business concerns about procurement and, in particular, that the bill promotes a change in culture towards sustainability in its broadest sense and helps us deliver value from the spending.

The risk of imposing unnecessary burdens is one of the reasons why the bill is very flexible in terms of allowing public bodies to determine their own approach. A good example of that would be community benefits. We are not saying that public bodies have to do something; we are asking that they consider community benefit clauses in higher-value contracts. If they do not think that it is appropriate to include such a clause, all that they must do is say so in the contract.

On the thresholds for advertising, we looked internationally at what other European countries do. What we are proposing at £50,000 for advertising contract opportunities is relatively high in comparison with other countries. In fact, UK ministers are out to consultation on a similar piece of legislation that proposes contract adverts at a value of £10,000. We have worked hard in Scotland to strike an appropriate balance and ensure that we pitch the thresholds at a sensible level.

A good example of the differing views is provided by the University of Dundee. One of the submissions that you have received questions our approach to the pre-qualification questionnaire process, which is understandable. However, in January this year, Dundee university’s construction management research unit shared with us a paper that it had prepared, which suggests that the costs of the pre-qualification process to Scotland could be as high as £1 billion for the construction sector alone. We are not convinced that the problem is quite that bad, but it is clear that there is a problem, and our discussions with business suggest that the PQQ process is widely inefficient. It is hugely important to get a degree of consistency in how public bodies evaluate bidders in order to reduce costs.

Some of the written submissions seem to have assumed things that we are not intending to do under the bill. For example, there is a suggestion that we are promoting a one-size-fits-all approach for PQQs. We know that that will not work, because of the different types of things that are being bought. However, we are proposing that, for the sorts of questions that are typically asked for various categories of contract, public bodies should use the core set of questions that we have been trying to promote for a number of years. As part of the evidence base for the bill, we have considered what public bodies are doing, and we have found that the vast majority of them are not currently complying with the core questions that we have agreed with purchasers and businesses. Tackling that issue is hugely important.

There has also been a suggestion that we are going to make higher education and further education institutions uncompetitive. In fact, we have been in discussion with APUC Ltd and the University of Edinburgh about an exemption in the bill for contracts in pursuit of research and teaching commissions. We have given APUC a written commitment that we will introduce such an exemption. That is not in the bill, as we would intend to implement that in the regulations that the bill provides for.

There has been a further suggestion that the rules might apply to call-offs under framework contracts that have already been competed for. In fact, the bill provides for a specific exclusion for that category of contract.

If we get this right, the net costs should be insignificant, because there is an opportunity here to make the procurement process substantially more efficient.

Thank you for that opening statement.

It has been interesting to have received a number of submissions from local authorities and health boards, many of which said that they did not expect any cost implications upon them, which is very unusual for the committee—as I am sure the bill team from the previous item would agree.

As is normal practice, I will ask some opening questions, and I will then open up the session to colleagues around the table. The first question is about staffing costs in relation to secondary legislation and guidance. The financial memorandum states:

“It is currently not clear whether these costs will continue beyond 2016/17,”

so no costs are therefore provided. Surely there should be some contingency in that regard.

One reason why we have suggested that there might not be a requirement beyond 2017 is that we have a procurement policy team already. We have a team of lawyers who work on procurement. There is existing capability to support the current legislation and policy in this area.

The bill proposes new statutory guidance and regulations on various aspects of procurement. There will be a need for additional staff resource to support the development of those regulations and that guidance. It is possible that there will be a need for additional central policy support but, at this point, we are not clear whether the existing policy team will be able to manage once the new pieces of legislation and guidance have been developed and published.

So, in effect, you are keeping that under review.

Yes.

You will be aware of the position of the Scottish Federation of Housing Associations and its concerns about procurement capability assessments, which it has said are “not useful for associations”.

The SFHA points out that it has 170 member organisations, and it estimates that, overall, the cost of implementing the bill could amount to £50,000 a year per association, as specialist staff will obviously be required to deal with the assessments, and a further £8.5 million in other costs. That comes at a time when a number of other burdens have recently been imposed on housing associations through welfare reform and so on. Can you tell us why housing associations should be included?

The approach that we have taken in the bill is to mirror the application of European public procurement directives to Scottish bodies. Registered social landlords are covered by those directives by virtue of a European Court of Justice case dating back to 2004. For procurement purposes, RSLs are regarded as part of the public sector.

On the additional costs, although there can be exemptions or derogations where competition is not appropriate—if there is only one potential provider, you do not need to compete—in our experience, if the procurement is conducted properly, the net savings should outweigh the costs. I suppose that, if housing associations are claiming that they will face a substantial additional cost, I would question whether they have the resources in place to manage their existing procurement activity.

We note from the SFHA submission that, typically, the annual turnover of SFHA members is only around £5.5 million. That means that some of the more advanced elements of the bill, such as publication of procurement strategies, are unlikely to apply to a typical registered social landlord. Only the larger RSLs, such as Glasgow Housing Association, will be covered by that provision in the bill.

So basically you are saying: first, the bill mirrors the impact of European law; secondly, many RSLs should experience a net gain; and, thirdly, many RSLs do not have sufficient volume of procurement to merit some of the concerns that they have expressed and they should perhaps be sharing staff and expertise across housing associations.

That would be one consideration. Clearly, RSLs are already subject to European public procurement law for contracts of a value of around £150,000 and above, although there is a higher threshold for construction. All that we are doing is introducing some new requirements that have various thresholds attached: £50,000 for service contracts and £2 million for construction contracts.

Those are relatively large amounts of public spending that we suggest probably ought to have some process attached to them. I suppose that RSLs would argue that they are not public bodies, but they are regarded as such for the purposes of procurement law.

Regardless of what I said initially, some local authorities have concerns about the financial memorandum, some of which I want to tease out just now.

For example, Aberdeen City Council’s written submission states that

“additional administrative responsibilities ... are not reflected in the FM... the impacts of lower thresholds on Local Authorities are ... greater than that upon the Scottish Government... the Bill will require ... additional processes ... and will require training to be provided ... and ... additional staffing time”.

Can you talk us through that a wee bit?

On a bill like this, we were probably never going to get universal agreement on what the right approach should be. We worked hard to engage with stakeholders, including a range of local authority representatives. We engaged extensively with COSLA, which we believe is relatively comfortable with the bill as introduced, albeit that it has made some specific requests in its written submission about keeping the arrangements under review.

One reason why we have opted for enabling powers is that we are very conscious that we need to ensure that we do not do something on procurement that has negative rather than positive effects. Our intention to keep the arrangements under review is in line with COSLA’s request. If what we have delivered has the negative impact that Aberdeen City Council has described, ministers will have the flexibility to adapt their approach quite quickly either by changing the substance of what public bodies are asked to do or by varying the thresholds at which the requirements apply.

In its written submission, Aberdeen City Council acknowledges that requirements are already competed, so there will already be an element of process sitting behind that. Essentially, we are looking to enshrine good practice in legislation. The bill is about standardising the processes within individual organisations where appropriate to make it simpler to do business with the public sector.

I have a final point before I open out the session to colleagues. In paragraph 41 of its submission, APUC—advanced procurement for universities and colleges—says that the bill

“has the potential to require highly bureaucratic activities and wide consultation, for areas of annual expenditure that could be circa £13-15k, to undertake resource intensive impact assessments which will be costly and could delay and compromise delivery of the actual need.”

Will any of you comment on that?

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There is a particular concern in that sector. Changes in the approach to funding universities in England mean that they are likely—in fact, almost certain—to come out of the scope of procurement legislation completely. The area has long been contentious. A bit like RSLs, such bodies do not tend to regard themselves as typical public sector bodies.

We cannot do anything to help the sector in relation to application of European public procurement law, because that was the subject of a European Court of Justice ruling on the University of Cambridge some years ago. However, we have undertaken to help the sector by working with it, and I confirmed to APUC in September that we will work to introduce an exemption that will cover research and teaching commissions.

APUC is particularly concerned that, if it has to go through a degree of process before it can reward a contract whereas English institutions do not because of the changes to the funding model, that might place it in an uncompetitive position when chasing commercial research and teaching commissions. We have given an undertaking that we will tackle the issue.

Thank you very much for that response.

I want to turn our attention to table 1 in the financial memorandum, which is a summary of Scottish Government expenditure. Across the three years that the table sets out, system costs will be £560,000 each year. There is a helpful explanation that that money is already being spent and can be soaked up into the existing budgets; it is not a new or additional cost. I do not know whether you watched our last exchange, but we spoke about an “opportunity cost”. Perhaps that is what you can call it.

That phrase is banned in this session.

I will bear that in mind.

I suppose that the question is: what are the system costs? Paragraph 12 says that contracting authorities will have to

“publicise their intention to seek offers (contract notice) and the award of a contract or framework agreement (award notice) on the Public Contracts website”.

Are there any other system costs, or is that it?

The systems costs that are referred to relate principally to two things. The first is public contracts Scotland, which is the contract advertising portal that will be the vehicle for advertising contract notices. It is provided for us by a third party: an Aberdeen-based small to medium-sized enterprise called Millstream Associates, which I am pleased to note now has the contract to provide the Welsh Assembly Government’s portal as well, which is a positive development.

The second is a thing called PCS tender, which is our e-sourcing software that allows bidders to respond electronically to tenders that are advertised on the portal. It is provided by a multinational company called BravoSolution and will be the vehicle for delivering the database for PQQs. We will ask public bodies to utilise that, to make it easier for bidders to complete their bid information when they are asked to submit the PQQ.

There are other system costs that are not directly associated with the bill. They are far more substantial and support an e-transactional system that is a shared service system that is used by just more than 100 public bodies in Scotland. This year it will process more than £5.5 billion-worth of transactions. It is not included in the financial memorandum because it is not relevant to the bill’s provisions.

I suppose the essential point is that it is an existing budget—

It is an existing budget; that is right.

—and there will be no additional demand.

We do not think so. There is quite a competitive market for this type of system. BravoSolution is contracted for a period. We will need to recomplete the contract that Millstream has because it has expired, but we do not expect the cost to vary substantially, because it is a competitive market.

I turn to the issue that the convener raised about the perspective of the Scottish Federation of Housing Associations that it should not be included in the bodies that are subject to the bill. It was interesting to hear you say that, in essence, European directives dictate its inclusion. I seek absolute clarity. If the SFHA was not included, would the bill fall foul of EU law? Would it be a breach of the law?

No, the SFHA could be included or excluded. The Government decided that the simplest path was to mirror the existing public procurement legislation. That is proving relatively controversial, not least for RSLs, although we are also being lobbied about utility bodies such as Scottish Water.

The reason why we took the approach is that it is readily understood because we have had regulations implementing EU directives in Scotland since 2006 and at a UK level since the early 1990s. We do not have to include or exclude anyone by virtue of EU law; it was simply the policy choice that we exercised on the simplest approach for the bill.

That is a helpful clarification. You had an exchange about the matter with the convener, but I will explore it again. You disagree with—I was about to say “you dismiss”, but that would be to put it too strongly—the SFHA’s perspective that the bill will be overly burdensome for its members. Is that correct?

We are not close to the sector, but the bill should be burdensome only if there is currently limited process around the award of contracts. We talked about local authorities. All 32 of them have procurement strategies and standing orders that govern the award of contracts. If the bill represents a significant burden, it is likely to apply in areas where there is not currently a procurement strategy or a significant degree of process around the award of contracts.

You talked about the requirements of housing associations being changed slightly as a consequence of the bill. Will you talk a little more about that and how it might impact on them financially?

There are various thresholds. We gave a lot of thought to the issue precisely because we wanted to do what was appropriate and to determine whether there might be an additional burden.

For the publication of procurement strategies, an authority would have to have regulated procurements of a value of more than £5 million in the relevant financial year. That means that it would have to award and place new contracts at that value over the course of that financial year. If a typical RSL’s total turnover in any financial year is £5.5 million or thereabouts and that includes staff costs or other costs that would not come into the procurement category, it suggests that only a relatively small number of RSLs would be subject to that provision in the bill.

Likewise, the provision on community benefit clauses has been pitched at the level of contracts of a value of £4 million and above. Some of the local authority representatives who gave evidence at the Local Government and Regeneration Committee last week suggested that we might have pitched that figure too high. However, if the RSL sector typically has low-value contracts, the provisions will not apply to it.

I hear what you say about the fact that you do not know the sector well. I presume that dialogue continues and you are listening to concerns.

The Scottish Federation of Housing Associations was on our sounding board for the bill.

That is reassuring.

I will change tack slightly. It was interesting to hear you say that you have given a commitment to APUC about—if I picked it up correctly—an absolute exemption for research-related procurement.

One of the key concerns that the universities have is that much of their income derives from commercial commissions. In other words, if a private sector company wants a piece of research to be conducted, universities will compete for it.

Clearly, if English institutions are taken out of scope completely for any process relating to procurement, there is a risk that they might be fleeter of foot in pursuing the research commissions. Our proposal is to have a blanket exemption associated with the bill that will say that, if a body is awarding a contract that is in pursuit of a research or teaching commission, the bill’s provisions will not apply to that contract.

That is interesting. The University of Edinburgh’s concern was that, with the provision as was, it would have to meet compliance obligations at a lower-value threshold than would apply to institutions elsewhere in the UK. I am not sure what the threshold is elsewhere in the UK, but I heard you say that there is consultation on whether it should be a £10,000 threshold.

The UK Government is out to consultation on the £10,000 figure.

Presumably the position now is totally the other way round and they have a comparative advantage.

What is different is that if the English institutions are taken out of scope completely for public sector procurement rules, which is possible because of changes in funding, the UK Government's consultation on a £10,000 threshold might not apply to English institutions.

Obviously, that is up to the UK Government.

Yes.

My final questions are on part 4 of the bill, which is on remedies. The financial memorandum sets out that,

“where a public body is found to be in breach of its duties”,

the courts can impose penalties. However, you stated that such cases are rare, so no additional costs are expected. Can you quantify that? What does “rare” mean in that context?

We do not have a central database, so the number is difficult to quantify. We think that we know about most of the cases that result in a judgment; typically, the number is a single figure in Scotland.

In what timeframe?

In any given calendar or financial year. A relatively small number of such cases go through the court process and result in a judgment. Occasionally, there are quite difficult cases that are problematic for all concerned. However, part of the issue is that we need to have measures that will be effective in responding to business concerns.

We were lobbied quite hard, particularly by business and third sector representatives, to go much further than we have to create a kind of procurement ombudsman. We have not ruled that out, as we will have to revisit the issue in the context of implementing the new European public procurement directive, which we expect to be adopted early in 2014.

Given what you have said, it would seem a bit much to have a procurement ombudsman.

There is quite a bit of an appetite for that in parts of the business community and the third sector.

Perhaps someone is looking for a job—who knows?

It is obviously difficult to give numbers for how many items or services are being procured. However, the financial memorandum helpfully said that the value is about £9 billion. I note that you said that it could be as high as £11 billion. Can you quantify for any given year the cost value of what has been procured that might have gone to court? I understand that that is quite specific detail, so if you cannot give it to us now, it would be helpful to have it in writing.

We can tell you the value. I think that Scotland was the first European country to create across the public sector a procurement information hub, which is basically an analysis of the outputs of the accounts payable systems of all 32 local authorities; all the health boards; roughly 90 per cent of the central Government family, which is a big corps of Scottish Government departments, agencies and non-departmental public bodies; and about 90 per cent, in terms of value of spending, of the higher education and further education sectors. Others are in there as well. The numbers are not complete yet for 2012-13, but we think that the data will show that procurement spending in that financial year was between £9.7 billion and £10 billion.

I think that we are talking at cross-purposes. My point was about the value of the procurement in the cases that go to court. That is why I said that you could give me the information in writing if you cannot give me it now.

I cannot quantify that. Some of those cases concern contracts that were not awarded, so an estimated rather than actual value might be attached.

Of course.

We could have a look and write to the committee.

11:45

That would be helpful. I am fully aware that I am asking a pretty detailed question that you might not be able to answer here and now.

We will have a look and see what we can find.

The information might demonstrate not only how rare those cases are but what their value is. Thank you.

Jamie Hepburn has covered some of the questions that I wanted to ask in relation to APUC’s submission. APUC points out that, in response to the consultation exercise, it

“commented on the significant financial and resource impacts”

that the bill will have on contracting authorities. It says:

“we do not feel our comments have been fully recognised in the current draft of the Bill.”

Is that after you gave the commitment to the exemption on research and development?

The formal consultation produced 251 responses, and approximately 200 of those were submitted on behalf of organisations. A hugely diverse range of opinions were expressed to us, and it was simply not possible to accommodate everyone’s desires.

Some of the comments that we have received from stakeholders make it clear that they think that the bill does not go far enough. In my opening remarks, I mentioned Jim and Margaret Cuthbert, who said in evidence to the Infrastructure and Capital Investment Committee that the bill is “extremely weak”.

There are extreme ranges of opinion on what the bill should and should not contain. I am sure that Angus Warren and APUC feel the way that has been described, but we have tried hard to steer the right path among the differing views on the bill.

Even if we accept that there are differing views and that not everyone will be satisfied with the outcome once the discussions have taken place, the accuracy of the assumptions in the financial memorandum leaves concerns for APUC. Its submission states:

“the assumptions in the Bill’s latest explanatory notes state that there will be no financial impacts on contracting authorities when in fact there will be significant negative impacts.”

We have had before the committee various financial memoranda in which there have been assumptions that people have challenged, but seldom have I seen someone suggest that the disparity is between zero impact and a huge impact. Can you explain that degree of divergence?

That is APUC’s view; it is not shared by all the respondents to your call for evidence. Colin Sinclair, who is the director of national procurement for NHS National Services Scotland, is relatively comfortable with what we have proposed. I believe that COSLA, with certain important caveats, is relatively comfortable. It is one view—

Yes, but that view relates to the respondent’s areas of expertise. That has to be a concern, regardless of whether other people are comfortable. As the convener said, the health boards and local authorities do not see the problems that APUC sees. Is there a way of addressing the concerns that the university sector has raised? When we see concerns being raised to the extent that they have been, it is clear that the accuracy of the financial memorandum is in effect being challenged. That should concern us all.

If I may scoot back to your earlier point, it might be worth noting that Aberdeenshire Council and Aberdeen City Council acknowledge in their submissions that

“Many areas which we outlined would prove unnecessarily burdensome or costly if implemented, have been reworked to make these more deliverable.”

The elements of the bill will apply to those councils in a similar way as they will apply to APUC and contracting authorities in the further and higher education sectors, excepting the earlier discussion about the exemption on research and teaching contracts.

Table 1 on page 15 of the financial memorandum was mentioned by Jamie Hepburn. It sets out three broad costs: system, staff and non-staff costs. According to the memorandum, system costs will continue after 2016-17 and non-staff costs will not. However, there is uncertainty about staff costs. Will you expand on that? What is the most likely outcome for staff costs after 2016-17?

A lot will depend on what happens as the bill develops and the extent to which there is an on-going requirement to produce new guidelines or new regulations. Once the bill is enacted, there will be an intensive period during which that material will be developed. We will need to take a view on the staff costs in about 2016-17 on the basis of whether the job is done, whether the systems are rolled out as required and whether the need for new and additional procurement guidance will continue. That is why we have said that the staff costs are relatively uncertain.

We know about system costs, which we expect to continue pretty much as is. The non-staff costs relate to adaptations that we will need to make to existing guidance—we have a range of guidance that is made available for public bodies—and those costs will include the provision of training and the adaptation of existing systems. We envisage that those costs will focus principally on the initial period of activity.

I seek a quick clarification on the system costs. I am not 100 per cent sure from reading the table as a whole and the bits underneath it, but am I right in thinking that the £560,000 a year is a new and additional cost?

No—it is not. We have existing contracts with two companies—a company called Millstream Associates, which provides the public contracts Scotland portal, and a multinational company called BravoSolution, which provides the e-sourcing software that will support the provisions in the bill on pre-qualification processes. The figures are derived from existing costs that are fully budgeted for in the directorate.

Whether or not we have the bill, that cost will exist.

Yes.

You mentioned a piece of work that the construction sector carried out, which estimated that the cost to the industry of the PQQ process is about £1 billion a year. Is that roughly what you said?

In January, the University of Dundee’s construction management research unit published a paper, which we can share with the committee if that would help, that raised the concern that the potential cost—the paper acknowledged that the data was not as reliable as it could have been—to the public and business sectors of the PQQ process could amount to about £1 billion a year in the construction sector alone. We think—I suspect that the research unit also thinks this—that that is probably an overestimate. Nonetheless, all our engagement with businesses tells us that that is their number 1 concern about procurement.

Public bodies typically ask similar questions in different formats, which means that companies face continually churning out and regurgitating the same information in slightly different ways. We want to capture the information on a central database but, to do that, people must use the standard core questions. If those questions are not appropriate in a particular case, something different will need to be done—indeed, some respondents to the committee have said that a one-size-fits-all approach does not work in a particular context. We agree, but people must adopt the core questions as far as possible, to reduce the cost to business.

Let us assume for argument’s sake that the figure is £1 billion—I take all your caveats on board. By what percentage could that £1 billion be cut as a consequence of the bill and any follow-up secondary work? I do not expect you to give me an exact figure—a ballpark figure will do.

It is difficult to have a precise feel for such a figure. I repeat that the £1 billion cost is an upper estimate.

We included an illustration in paragraph 91 of the financial memorandum, which is based on some of the information that we received about the cost of the PQQ process. We used the most conservative of the figures, which was the £1,000 that the Civil Engineering Contractors Association quoted, and we looked at management information from our systems over a two-year period to see the number of contracts and expressions of interest. For illustrative purposes, that gave an estimate that £75 million could be saved for the business sector.

I will raise some issues that have arisen in my experience of procurement over the past few years. I am pleased to read and hear your explanation of the PQQ process becoming simpler, as that has been an issue.

I will go back to small companies getting into the portal, as there is some frustration about that. You mentioned the company that runs the portal—is it Shoreline?

Sorry?

What company runs the portal?

It is Millstream Associates.

Are you comfortable about the process by which companies can get their names on the portal? Is there any appeals process if companies are rejected? If so, who decides?

There is no limitation on who can sign up, except that we let companies register only if they have a legal right to register because they are based in Scotland, the rest of the UK, Europe or a country that has a trade agreement with the UK and Europe, such as the United States or Japan, that means that its companies have a legal right of access. If a company is not registered in one of those countries, it is not allowed to register on public contracts Scotland.

Aside from that, there is no process whereby we sift out companies and prevent them from registering. Some due diligence is conducted by Millstream Associates whereby, if someone who is registered uses language or terms that might be regarded as inappropriate, a process applies. However, public contracts Scotland is not a mechanism for vetting who can and cannot apply for public contracts—registration is free.

That is a change.

That is what happens in relation to public contracts Scotland. There are various ways in which public bodies sift companies and have done so in the past.

In the bill, we are dealing with some of the issues that business has raised with us. In particular, over the past few years there have been a lot of examples of public bodies setting entry levels that we believe are completely inappropriate. For example, a public body in Scotland said that any company that was bidding for a contract should have an annual turnover that was 20 times the value of the contract. We thought that that was crazy and we intervened. We got the public body to change its process, but we could not persuade it to reduce the turnover threshold to below 12 times the contract value, which is still completely inappropriate and is damaging to SMEs. Elements of the bill are designed to help us to tackle such issues and to ensure that we have a consistent approach across the public sector, to make it easier for SMEs to participate.

Do you feel that the bill, with its present wording, can deal with that?

Yes. There is a specific provision on annual turnover. We are also seeking powers to make regulations and issue statutory guidance on the selection of tenderers, so that we can cover a range of issues that individual businesses and business representatives have brought to us.

My next question is on the same theme. According to the financial memorandum, the bill is intended to

“encourage local action ... maximising public procurement’s contributions to wider socio-economic and environmental policy objectives.”

How will those contributions be measured against what happened before the bill?

12:00

Because of the constraints of European procurement law, the point at which most can be done to help local firms and deliver local benefits is what might be called the pre-procurement phase, when a body is deciding what it wants to buy. We have focused very much on how public bodies address those issues in the context of their overarching strategy for procurement.

As for how we might measure the impact, we expect the bill to give us a lot more visibility about contracts, because there are provisions on contract registers. The more contracts we can get through public contracts Scotland, the better data we will have, because we will be able to interrogate public contracts Scotland to understand who is being awarded contracts and who is receiving notices of contract opportunities. There will be ways in which we can measure the bill’s impact; they will not be perfect but, over time, the bill will generate a body of data that will tell us whether more or fewer of the contracts advertised through public contracts Scotland are going to Scotland-registered companies or SMEs.

Will the bill allow larger contracts or will it encourage those seeking to deliver procurement to break down large contracts into smaller bundles?

We are pretty much asking public bodies to do what you describe in their procurement strategies. We are asking them to think about how to structure their requirements in a way that gives SMEs a better opportunity to compete, so that should encourage people to think carefully about how they structure their requirements.

We take that approach for the contracts that we award; there are always further collaborative contracts, and there is a degree of evaluation of the potential economic impact that looks at the Scottish landscape. We do not always get it right, but we go through that process and we think that the wider public sector should also adopt it, because it is important. We cannot forget the need to pursue savings when they are necessary, but decisions to pursue savings through larger contracts have to be taken in an informed fashion and should be taken only when necessary.

Is that the area where the Cuthberts might think that you have not gone far enough?

I think so.

We need to analyse what is best value. Is that being ramped up or insisted on, or are there criteria for identifying best value versus the lowest price?

We are trying through the strategies to encourage people to make a broader definition of best value and to think about the wider economic, environmental and social aspects of what they are doing. That cannot always be built into a procurement process, because of EU law, but that can be done up front, when a body decides what it wants to buy and how to buy it.

Jean, we are focusing on the financial memorandum, not the wider policy aspects of the bill.

I am sorry—that is fine.

It was mentioned that the average size of SFHA members is about 1,800 houses, with a turnover of £5.5 million, and you suggested that they would not be caught much by the procurement rules. However, if a housing association built 50 houses at £100,000 a time, that could easily cost £5 million, even though the rent from the development might be just a couple of hundred thousand. Is it the case that we cannot really say from the turnover whether a housing association would be caught, because it would be the capital project that was caught?

I assume that, in the figures that the SFHA has given us, the turnover includes capital spending.

Paragraph 18 of the SFHA’s submission says:

“The average association ... will procure possibly £ 2-3M of repairs and maintenance work in a year”.

I was thinking more about associations building new houses, which would take them over the limit, because that would not be included in their turnover.

It might.

In paragraph 12 of its submission, the SFHA questioned the savings that associations could make. Figures from a previous study showed that they could save between £26 million and £42 million. Where do you feel that their savings could be made?

Typically, if procurement processes are managed correctly, it is possible to drive savings. That is what the public sector in general has done. I am not close enough to the housing sector to give a specific answer. In relation to the procurement information hub, which I described, we have worked on a couple of pilot projects with RSLs to look at some data, but we do not have a comprehensive picture of the spending in that sector.

So the suggestion is that the sector might be spending too much at the moment.

Our experience is that, by applying commercial disciplines to procurement activity, it is possible to drive substantial savings. That has been our experience with the public procurement reform programme.

Would such savings be achieved mainly through amalgamation—by getting several housing associations or other organisations to work together?

They could be, if those organisations chose to do that. We have just published a review of construction procurement that suggests that some of the smaller public bodies that are engaged in such activity should do precisely that to ensure that they have the right skills and resources in place to manage their procurement activity.

If they joined together and got a bigger contract, would that squeeze out some of the smaller—

It might squeeze them into the scope of some of the bill’s provisions.

I was thinking that it might squeeze out some of the smaller building companies, which those organisations would no longer be able to use.

That would be a decision that they would have to take. As part of the strategy, we are asking people to think about the impacts of what they are doing.

Paul McNulty made the point that most, if not all, bodies already have policies in place. As I mentioned earlier, for the most part, the bill is about embedding good practice and standardising those policies within and across organisations, when that is appropriate, so that it is simpler to do business with the public sector. An example of that is the fact that a private sector body can go to public contracts Scotland and look at opportunities across the public sector rather than having to search in various locations for public sector contract opportunities.

I will go back to what universities and colleges have said. I am not sure whether some of the concerns that they have raised are valid. They are concerned that their ability to short leet would be reduced. Do you agree? They also feel that, as a result of the process for which the bill provides, they might end up with worse terms of payment. Is that a valid concern?

We do not agree with that assessment. We think that some respondents to the committee have misunderstood what we propose on pre-qualification questionnaires and shortlisting. We are not proposing a one-size-fits-all solution—we know that that does not work. We know that some bespoke questions will almost always be needed, but there is a range of issues that it is pretty standard to ask about, such as experience of similar contracts and accounts. Everyone asks those questions, but they do so in different formats.

So universities and colleges will still be able to weed out many of the initial applicants.

Absolutely.

That appears to have exhausted the committee’s questions. Do you or your team have any further points to make?

I do not, thank you.

Thank you very much for your helpful evidence.

Meeting closed at 12:08.