Public Audit Committee

Meeting date: Wednesday, September 21, 2011

Official Report 394KB pdf

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Public Audit Committee Report

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“Major Capital Projects”

The next item concerns the “Major Capital Projects” report. Committee members have before them the latest update report from Sir Peter Housden, the permanent secretary.

One aspect of this worries me a wee bit, and I suspect that we will have to come back to it at some point. We wait to hear what the Cabinet Secretary for Finance, Employment and Sustainable Growth says this afternoon, but everyone expects the picture in terms of revenue and capital to be pretty gloomy. Clearly, there are major projects in the pipeline that will consume huge amounts of money and, if they are not managed properly, there will be horrendous implications for the rest of the public sector in Scotland. The newer members of the committee will not recall this, but others will recall that, when we previously questioned the then permanent secretary about some of these projects, he indicated that he was not routinely informed of items of overexpenditure; he did not necessarily know about them and he left that to his departmental directors. If the head of the civil service does not know when expenditure on major projects is starting to overrun, how can we expect the overall budget to be managed and controlled?

11:30

I would hope that there have been improvements since then, but we do not know. The committee might want to find out what exactly has been done to improve lines of accountability. Although it is not necessarily relevant to this report, this week at a UK level we have seen reports of a project going badly wrong, with ministers alleging that they were not informed of the overexpenditure. I do not know whether that is true, but I would hope that that is not an example of how civil servants routinely work. If the ministers do not know, how can we hold them to account? Worse, if the head of the civil service does not know, how can he control the budget?

There are some pretty fundamental questions that need to be asked so that we can be assured that the budget is being well managed and is under control, not least because the cabinet secretaries responsible deserve to know that that information is available.

Does anyone have any comments or questions about what we have before us?

I endorse the comment that you made about information being made available to senior civil servants and to ministers. Another thought, which kind of follows on from that, is that, if you look at the list of capital projects in the annex, what is striking is the range of costs that are quoted for the schemes. We are talking about hundreds of millions of pounds in variations. For example, the Aberdeen western peripheral route could come in at anywhere between £295 million and £395 million, which means that there is a potential 25 per cent variation in the cost. There are other examples on a similar scale. I understand that, at a planning stage, it can be difficult to be precise about exactly how much a project is going to come in at, because there will be a number of variables, but if we aggregate the potential variations, we are talking about vast sums of money that could make a huge difference to whether and to what timescale all the projects can be completed.

There is some probing to be done into cost estimation. We could ask for greater precision about where the figures are likely to land. This afternoon, we will be discussing a budget statement in which announcements will be made about future capital spend. The variation in the figures that we have before us is so substantial that it could completely throw out what the cabinet secretary says about the projects that he expects to be able to deliver.

We have made quite a journey in the committee in looking at major capital projects. Way back in 2008, we heard recurring comments along the lines that there did not appear to be sufficient effort in the planning stages of major projects to get cost estimates correct and that, at the completion of projects, there did not appear to be any post-project evaluation to look at performance and feed that back into the planning process.

I see the paper from the permanent secretary as very positive. It is a reflection of the committee’s contribution over the past few years in encouraging the public sector to embrace and engage with these issues much more formally. We know that there are excellent management systems in place to enable the public sector and other organisations to get things right and I think that there is evidence that that is happening. The permanent secretary’s comments are a credit to our work in the past few years and bode well for the future. Nevertheless, as ever, our committee has to be vigilant and members are quite right to ask for further details and scrutiny of these projects as they proceed.

Convener, I support your line of thought on the role that the committee should play in teasing the issue out, not least because of Murdo Fraser’s good point about support for cabinet secretaries, whoever they may be and whichever Government they may work for. As someone who had ministerial responsibility for bigger capital projects in the past, I find astonishing the revelation that, at that time, Sir John Elvidge did not know what his budget was for overspends or for other variances for particular capital projects. When I was responsible for transport in the Government, we had a weekly meeting on such issues. If that approach was not supported by the civil service, I most certainly hope that my successors have had more civil service support. The point that you and Willie Coffey have made about scrutinising this to the nth degree is strong.

There are two other areas that need to be looked at. First, the permanent secretary’s letter does not particularly pick up the role of Transport Scotland, which is always worthy of proper and full examination. Secondly, although I acknowledge all the differences that are involved in project procurement in the private sector, project managers are paid hideous amounts of money to get the job done—this is a point about governance and not about politics—and I think that we could get lessons from senior people in oil and gas, for example, about how their project procurement drives efficiencies and delivers projects on time and on budget. Some of those lessons would be applicable, although some would most certainly not be, to the way in which local government and national Government consider capital projects.

On Murdo Fraser’s point about variations, some projects have specific costs associated with them, but others, including those funded through the non-profit distributing model, have ranges of costs. Given that the Auditor General has said that the NPD model is in effect public-private partnership with a slight change at the end of the process, I would have thought that the cost of any NPD project would have been tendered for and it would be known how much it would cost over the life of the project. It might be worth asking why there are still cost variations for NPD contracts. Other than that, we should perhaps ask for an assurance that the permanent secretary is being kept fully informed of any cost overruns anywhere where projects are starting to go wrong and that he or an appropriate official is urgently briefing the relevant minister so that ministers are fully appraised of where problems are.

Having dealt with capital projects at local authority level but not at national level, I think that the key thing in any capital project is to ensure that the tendering and contract process is robust and gives the required protections. Some of the variances referred to will be to do with contracts or tenders allowing for inflationary protections within the budget. That will not be the case for all of them, because some of them are not yet at the tendering stage. For example, the AWPR is being held up in the courts and has not yet reached the tendering stage, which means that it would be difficult to get the kind of cost refinements that Murdo Fraser is looking for. Generally, the key is to ensure that the tenders and contracts are drawn up in a way that avoids the potential for the massive cost overruns that we have seen in capital projects in the past, not least the one for the building in which we sit.

Okay. Should we seek further clarification from the permanent secretary and report back to the committee on that?

Members indicated agreement.

Thank you. We now move into private session.

11:39 Meeting continued in private until 11:46.