Official Report 545KB pdf
Procurement (Scotland) Regulations 2016 [Draft]
I welcome everyone to the seventh meeting in 2016 of the Infrastructure and Capital Investment Committee. I remind everyone to turn off mobile phones, because they affect the broadcasting system. As meeting papers are provided in digital format, you may see tablets being used during the meeting. We have received apologies from Siobhan McMahon.
The first item on the agenda is evidence on the draft Procurement (Scotland) Regulations 2016. I welcome the Cabinet Secretary for Infrastructure, Investment and Cities, Keith Brown; Alasdair Hamilton, policy manager for the Scottish procurement and commercial directorate; Susan Duncan, policy manager for the Scottish procurement and commercial directorate; and Mark Richards, solicitor at the Scottish Government.
The instrument has been laid under affirmative procedure, which means that the Parliament must approve it before the provisions can come into force. Following this evidence session, the committee will be invited under agenda item 2 to consider a motion to approve the instrument. Alongside consideration of the instrument, the committee will have an opportunity to hear from the cabinet secretary about the full package of subordinate legislation associated with procurement reform.
I invite the cabinet secretary to make an opening statement, introducing the instrument and other measures associated with public procurement reform.
Thank you for the opportunity to discuss with the committee the changes that are being implemented. There is a substantial raft of changes to public procurement legislation in Scotland. Today, we will look mainly at the Procurement (Scotland) Regulations, but it is difficult to talk about those regulations without touching on the other regulations that we have recently introduced—the Public Contracts (Scotland) Regulations 2015, which the committee recently wrote to me about; the Utilities Contracts (Scotland) Regulations 2016; and the Concession Contracts (Scotland) Regulations 2016, which transpose new European Union procurement directives—and, to add to that, the new statutory guidance that is provided for in the Procurement Reform (Scotland) Act 2014.
Between February and April last year, we consulted about our plans on how best to transpose the directives and implement the provisions of the 2014 act. When I appeared before the committee last June, I stated that our intention was to ensure that changes would be as simple and as easy to follow as we could make them, and that we were seeking to avoid, where possible, one set of rules applying to larger-value contracts and a different set of rules applying to lower-value contracts. I also said that respondents to our consultation seemed, for the most part, to have agreed with our proposed way forward. The regulations that we have now laid have been drafted on that basis, following feedback from that consultation exercise.
Those responses also helped to shape the statutory guidance that arises from the 2014 act. Throughout 2015 we engaged with a wide range of stakeholders to help develop the content of the statutory guidance. I gave a commitment to fast track the publication of statutory guidance that covered fair work practices in procurement, including the living wage. On 6 October, I published that guidance, with the changes coming into effect on 1 November. I aim to publish the remainder of the suite of guidance by the end of February.
The Procurement (Scotland) Regulations 2016, which the committee is considering, implement the remaining provisions of the 2014 act. The regulations should help to ensure that the procurement processes and procedures that are found in public contract regulations—and those that are found under the act—will be broadly similar. They will allow for consistency and clarity.
We received a number of requests to allow a reasonable period of time for the procurement community to make necessary changes to its internal processes and procedures. For that reason, although I am laying the regulations now, they will for the most part enter into force on 18 April—two years being the period in which they had to be done. That is the same date on which the regulations that transpose the European Union directives will enter into force. The gap between the regulations being laid and their coming into force will allow time for changes, and it will provide time for the roll-out of training for purchasers on the changes to procurement rules.
As part of that transitional arrangement, I have delayed until 1 June the date on which public bodies need to comply with both the sustainable procurement duty and the community benefits obligation. I have done that in recognition of the fact that those factors will normally be considered as part of a purchaser’s procurement strategy, and that strategies may be devised some months in advance of the procurement starting. I have also delayed the date by which public bodies must publish their procurement strategies, and no body will be required to produce a strategy before 31 December 2016.
I know that the committee has questions on the treatment of tax in the regulations. I have seen comment to the effect that there is no reference to, or substantial actions on, tax dodging in the regulations. That is categorically not the case. The Procurement (Scotland) Regulations 2016, the Public Contracts (Scotland) Regulations 2015, the Utilities Contracts (Scotland) Regulations 2016 and the Concession Contracts (Scotland) Regulations 2016 all contain provision so that businesses that have not paid their taxes can be excluded from the bidding process.
For higher-value contracts, there will be a legal obligation on public bodies to exclude a business where the non-payment has been established by a judicial or administrative decision. Public bodies can go further and exclude a supplier where the non-payment has been established by other appropriate means, although in that instance the body will be able to reach a decision on whether to exclude based on all the relevant facts that are available to it. The Scottish Government or the guidance cannot anticipate in advance what all the facts will be in every case. That provision also applies to lower-value contracts, which are governed by the Procurement (Scotland) Regulations 2016.
I will not go into further detail at this stage, but there are other issues on which we have carefully weighed up the arguments. Those include tackling blacklisting, reserving participation in competitions to mutuals or to supported businesses, as now defined in the new European Union directives, and how to ensure that contract award criteria can take account of social considerations. On those last two points, I have written to the European Commission seeking clarification and we still await a response from it.
I welcome the opportunity to engage with the committee again, and I am happy to try to address any questions or concerns that you may have.
Thank you for that helpful opening statement.
The Scottish Government published its procurement policy note on 18 December 2015. As you have already alluded to, the set of regulations seeks to transpose EU procurement directives into Scots law. Given that Europe seems to be the dominant issue in the news at the moment, do you have any assessment of the impact of what is commonly referred to as Brexit on the process of transposing EU procurement directives into Scots law?
I did not expect that question, although perhaps I should have done.
I did not either, until you started speaking.
It is perfectly topical and relevant. Obviously, at present, those directives and a huge number of other directives bind what public authorities do in many respects. If we suddenly did not have that, we could on the one hand maybe say that we would have all this new freedom to do as we wished without those constraints. However, by and large, my view is that the constraints are there for a good purpose. They ensure that we go through a clean, fair and transparent procurement process and that, as far as we can, we take into account other considerations such as social and socioeconomic impacts.
If we suddenly were not bound by that, that would be a difficult situation. A large amount of training is required and public bodies have made a lot of investment in ensuring that they comply with the regulations, so such a change would undermine all that investment that has been made. I think that we benefit greatly from the directives. If we ensure that our provisions are fair and transparent, that allows our suppliers and contractors in Scotland to properly engage with other parts of the EU. I am not sure that those other parts of the EU would be so keen to allow us to do that if we did not comply with the same rules that they comply with. The change would introduce an element of uncertainty and would perhaps make the playing field on which purchasing takes place much less level. I suggest that we should not do that.
You said that it has been about two years since the Procurement Reform (Scotland) Act 2014 was passed. There has been a consultation exercise and the development of statutory guidance, and we have dates for the roll-out of that. I am sure that there are good reasons for the delay, but will you say a little more about why it has taken that length of time? I presume that one of the issues is to do with training for purchasers, which you mentioned. I am sure that we all want to get it right. It would be helpful if you said a little more about that.
We could have taken the approach to the issue that the UK Government has taken and basically just copied the regulations as they came from the Commission. We have taken a different approach and gone for substantial consultation. As you said, there are also other considerations for allowing bodies to prepare themselves for the coming of the regulations. For example, training on the changes to legislation is a key area. We have worked quite closely on that in partnership with stakeholders and produced a comprehensive training package that covers all the main changes. The material that has been produced as a result of that is available free for anybody to use.
Our activity has been informed by the procurement supplier group, which has representative membership interests. We are working on a range of measures, including updating the advertising tools that are used by suppliers to bid for public contracts. The procurement journey, which is a web-based support tool, is also being updated. Going even further than the web-based materials and other free materials, we are working in partnership with the supplier development programme, which is a third-party organisation, to develop a series of roadshows for suppliers.
In addition, we have had face-to-face training sessions in Glasgow, Edinburgh, Aberdeen and Inverness, and we hope to have events in Shetland and Orkney. All that underlines why it is wise to take some time to ensure that we bring stakeholders with us through consultation and provide as much notice as possible through training to ensure that suppliers and public bodies are as ready as they can be. I think that that vindicates our taking the time that we have done.
What will be the key advantages of the different areas of reform that are being introduced?
There are a number of changes—probably a whole host of them—from what has happened before. In one sense, there is more regulation that is building on previous regulation, but some of it will make things more transparent and easy to understand. In my opening statement, I mentioned the attempts that we have made to get consistency and clarity in regulations. However, a number of different things will apply right the way through. For example, there is the broadening of the definition of “supported businesses”; if we treat that in the right way, it will be an advance on where we were before. I also mentioned the ways in which we can arm public bodies to take decisions when, for example, a supplier has not been paying tax or complying with environmental legislation, or has been involved in blacklisting. That is one of the areas that show marked progress from where we were before.
There are substantial new benefits right through the different provisions. Reform has not come out of the blue—the Commission, whatever it is sometimes accused of, ponders such matters and is approached by the supplier side and public authorities. What the Commission has produced has been reflective of that, and we are just trying to see it through to make things a bit clearer and more consistent.
Good morning, cabinet secretary. I think that you have anticipated the questions that I had in mind to ask. However, you touched briefly on the different approach that the Scottish Government is taking compared with that of the rest of the United Kingdom and possibly other parts of Europe. Can you explain that a wee bit more?
The most substantial difference between the Scottish Government and the UK Government is probably that we did not simply copy out and replicate the regulations as they came to us. We have taken an approach that is based on the Scottish model of procurement, which seeks to balance out cost, quality and sustainability. I think that I am right in saying that contracts down south might very often be awarded on the basis of price alone, whereas we have taken a different approach and made sure that quality is always part of the picture, although the extent to which the balance is drawn in that regard varies. The Procurement Reform (Scotland) Act 2014 introduced a sustainable procurement duty and a requirement to consider community benefits in major contracts. That is something that we have used for some time, but the regulations will take it a stage further.
Other member states have national legislation on lower-value procurement but have tended simply to extend the provisions in the EU directives. We have tried to introduce a more sensitive regime with a stronger focus on sustainability, organisational strategies for higher-spending bodies and performance reporting.
Unlike the UK regulations, our proposed regulations make it a requirement that any company that admits that it has blacklisted workers or has been found to have breached blacklisting legislation will be barred from bidding for public contracts. That is another example of our taking a different approach from that of the UK.
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I am very glad to hear you talk about community benefit being a consideration, and about quality rather than just price. I am sure that many members frequently receive complaints from suppliers and contractors who feel excluded by the current procurement process, and it often strikes me that companies that miss out in that regard tend to be not the worst suppliers or contractors but the ones who are not best at engaging with the procurement process.
I am pleased to hear you talk about training and about going as far afield as Orkney. Procurement is a notoriously complex area. Is there room for a degree of simplification? Will training give more local suppliers and contractors the benefit of a better understanding of the procurement process, so that they no longer feel as excluded as they currently do?
First, I think that we have to consider whether the procurement regulations, of which there is a substantial body, are there for a good purpose, and I think that they are. You are right to say that the area is quite complex and that understanding it can present more of a challenge for a smaller company than it does for a larger company, but that does not mean that we should not have the body of regulation that we have. The only way to remedy that is by giving as much assistance as possible, through training and face-to-face discussions, as I said.
We must also be proportionate. The environment in which people bid must be proportionate to the size of the contract. We try to provide for that, by making a division between higher-value and lower-value contracts.
You are right to suggest that the broader definition of sustainability must include a healthy small and medium-sized enterprise sector. For a long time, under the old private finance initiative regime, as a councillor I was constantly being approached by companies who felt that they had no chance of competing for large PFI contracts, because of all the legal and financial expertise that was required.
Through the regulations, and through the portal for applying for public contracts, for example, we have tried to simplify things. I am sure that we are not at the end of that process, and we will constantly attempt to make the process as easy as possible, and as appropriate and proportionate as possible to the contracts that we are offering. By and large, it is right to have the regulations in place, but we should make it as easy as possible for people to comply with them.
Will you share with the committee more details of the proposals for training, meetings and so on, which I am sure will be of particular interest to suppliers across Scotland?
I have talked about what we have done and how we have done it, and I am happy to provide the committee with more detail in writing about the training that we have been doing. I think that the Orkney and Shetland arrangements have not been finalised, but as soon as they are we can share them with the committee and let you know exactly what we have been doing.
Thank you.
Compliance with the new regulations will inevitably have cost implications. Must public bodies and third sector organisations just absorb the extra costs, or can such bodies be provided with support in the transition period and with the on-going costs?
As I said in response to Mike MacKenzie, the training seeks to do that by helping to make things as easy as possible for contractors. The procurement legislation on which the regulations build has been in place for many years. Indeed, the first directive goes back to 1971, and it is 10 years since we have had our own procurement legislation to give effect to the EU directives. The main instrument that we have introduced—the Public Contracts (Scotland) Regulations 2015—replaced public contracts regulations from 2012; the 2016 regulations also replace regulations from 2012.
Under the new regime, the cost implications for buyers and suppliers, who I think are the subject of your question, should not be different from what has gone before. That does not mean that we should not always try to minimise the cost implications.
On the impact of the Procurement Reform (Scotland) Act 2014, the aim has been to embed the use of systems and policies that are already in place. We are not trying to bring in new requirements and make wholesale changes to the current system. A lot of what we are doing builds on the current system.
I think that issues such as cost have been taken into account, and—to be fair—I think that the Commission also takes the issue into account when it comes up with proposals. We seek to build that into what we do.
To return to the previous point, we want to ensure that the contract opportunities that are available to companies are transparent and readily accessible for SMEs and third sector organisations too. Sustainable procurement, in the broadest sense of the term, can be achieved if we do that, which will give us a healthy mix and real competition.
There are costs attached to the proposals—there is no doubt about that—but we can probably continue to reduce those costs. I think that companies themselves will do that as they become more aware and increase their expertise over time, and we can help through the training that we have offered.
Good morning, cabinet secretary. You mentioned time as one of the themes that came out of the Government’s consultation, and you described the adaptations that you have made to the introduction and timing of the regulations. Did any other themes emerge during the consultation?
Yes. A number of themes emerged, some of which I mentioned at a previous meeting of the committee. What surprised us was that our proposals were—in every case bar one, I think—very much supported by the consultees. Between 80 and 90 per cent—in some cases up to 96 per cent—of consultees were in accordance with proposals on, for example, allowing the maximum possible discretion for low-value contracts. A predominant theme that emerged was that public bodies want maximum discretion. In some cases—in the vast majority of cases, in fact—we have agreed with that. In one case—that of blacklisting, as I have mentioned—we have gone further than the consultees wanted us to.
One of the officials might want to come in at this point—in fact, Susan Duncan has never been to a committee before, so she might want to say something about the main themes. [Laughter.]
Cheers, cabinet secretary.
Consistency and proportionality were the key themes. Organisations in various sectors—local authorities, for example—were very keen that we did not add any new bureaucracy or place additional burdens on them. It was therefore important that, through our legislation and in our statutory guidance, we took a proportionate approach that would allow organisations to make decisions that are relevant to them and their areas.
Interestingly, one theme that emerged from national health service bodies was the need for more guidance on procedural rules. We have therefore adapted our procurement journey as a tool to assist buyers and suppliers with regard to how the new rules apply in practice.
Sub-sector organisations and union representatives raised the issue of a living wage, and we have been able to tackle that issue significantly through our legislation and statutory guidance.
We will definitely have to have you back.
That was a comprehensive answer—thank you.
You mentioned blacklisting; the convener opened the door on that issue earlier in the meeting. Do you have concerns, given the UK Government’s direction of travel in terms of anti-trade-union legislation, about the impact of potential Brexit—as it is called—on some of the protections that you have been able to put in place?
The main concern relates to the fact that, in recent years, European regulations have allowed us to focus increasingly on issues such as blacklisting and—as Susan Duncan mentioned—the living wage, although we cannot quite go further. When I previously appeared before the committee, we discussed at some length whether we could impose a living wage. The conclusion—certainly mine and perhaps the committee’s—was that the existence of national minimum wage legislation in the UK actually prevents us from imposing living-wage regulations. It is interesting that if there was no national minimum wage—which is set too low to be a living wage, in our view—we could impose a living wage.
In recent years we have seen the EU trying to come to terms with those issues. Some people think that the EU should not be involved in such things and that its being involved is not right and places a constraint—
I would like clarification. I believe that the situation that you have outlined with the living wage would be the case regardless of whether the minimum wage was devolved or reserved. Is that right?
In my understanding of the European legislation, if a body—either regional or national, as the EU specifies—stipulates a minimum wage, that means that the Government is not allowed to set another separate constraint in the form of a living wage. A recent German ruling that highlights the situation. I return to the point that Brexit would mean lack of certainty that the move towards a living wage would continue.
I probably share Clare Adamson’s view. We do not have the same view as the United Kingdom Government on anti-trade-union legislation, and it would be extremely worrying if we were at its mercy alone in relation to that.
Thank you.
We have heard about the consultation, but can you tell us a bit about how buyers and suppliers have reacted to the new rules? Are they content?
As I said, the consultation process allowed us to talk to suppliers—I have mentioned the forums in which we engaged with them throughout the process, including networked events, meetings of the existing strategic forum and individual meetings. As Susan Duncan said, suppliers consistently mentioned the need for flexibility, consistency and proportionality; we can agree with them on that and I can see the logic. We also have regular discussions with suppliers outwith that process, and they want to know that what is in place will be there consistently, and that what is asked of them will be proportionate to what they are undertaking. They also want maximum flexibility, which I understand.
Training is important, so we have put in place measures to meet demand for it. We are also in discussions with the supplier development programme to see what support we might be able to offer in respect of further training for suppliers. We have been going with the grain of what suppliers have said. That is how we approached drafting of the regulations and preparation of the statutory guidance. There are bound to be things on which we disagree, but we have worked with the grain of what suppliers have asked for, in this case.
Thank you.
Good morning, cabinet secretary. I am particularly interested in supported businesses, which you mentioned in your opening remarks. I recall that, when we scrutinised the legislation two or three years ago, there were a number of discussions about how best we can support such businesses, given that a lot of public bodies have not gone out of their way to do that.
I was interested to hear that you had experienced some resistance to what you were proposing. Will you flesh that out for us and say why you believe you are taking a step forward in support for supported businesses?
Sometimes, one person’s opportunity is perceived by another as a threat—for example, some people have viewed the potential ambiguity in the definition of “disadvantaged person” as a threat. In my experience, the bigger issue—even outwith this process—is about awareness.
Some companies would not like a situation in which a process is ring fenced for supported businesses. That is bound to be the case, for example where companies have a commercial interest and see a missed commercial opportunity. We have seen some traffic in relation to that. A bigger point, however, is that I have the impression that many businesses—this is sometimes true of public authorities as well—are unaware of the opportunities that they can access through supported businesses. Also, the supported-business sector has a job of work to do to ensure that what it offers is much more widely known.
The biggest issue was perhaps the perceived ambiguity in the need for 30 per cent of the workforce to be disabled or disadvantaged people. The term “disabled” can be ambiguous, but people have a broad understanding of it. “Disadvantaged” provides more ambiguity, so we have sought to address that in the regulations. That is probably the main gripe—if there has been one—in respect of supported businesses and disadvantaged groups.
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Will you be able to evaluate the legislation in terms of the number of contracts that are awarded to supported business and the like? Can that be monitored?
We do that. Given that we do, there is then the question what we do if the legislation is not having the desired effect. As I have said, however, I have a feeling that that will rest outwith regulations and that it will be much more about proselytising to organisations.
Susan Duncan might wish to say something more about that.
The Procurement Reform (Scotland) Act 2014 contains two provisions in that respect, the first of which is the requirement on buying organisations to think about the sustainable procurement duty. Part of that requirement—it is a genuine requirement—is about facilitating access not only for small to medium-sized enterprises and the third sector, but for supported businesses.
Secondly, there is a requirement on organisations to report annually on their procurement strategy commitments and how they have met their obligations in that respect. That will provide an ideal opportunity for us to monitor compliance and whether we are increasing use of supported businesses.
Incidentally, it is also true that much of what we are proposing in the regulations relates to things—blacklisting and tax avoidance, for example—that we want to look at in due course, so we will have opportunities to come back and revise policy in the light of experience. We will seek to monitor all the different aspects, including the one that you mentioned.
Thank you.
In your opening remarks, you touched on tax avoidance. Obviously you read the Official Report, because I raised the point last time round. Are you able to give the committee an estimate of the amount of money that is lost every year in Scotland to tax avoidance?
No, I am not. After all, we do not have the responsibility for collecting corporation tax. I am not aware of any such figure, and I do not think that the officials would have that information.
The excellent campaign that is being run by organisations including Christian Aid, the Scottish Trades Union Congress and Unite Scotland with which you will, of course, be familiar, has come up with a figure of £25 billion for the amount that is lost per year in the UK. A rough estimate for the amount that is lost in Scotland, therefore, would be around £2.5 billion, which is an immense sum of money. Given the new tax powers that it will have, is the Scottish Government trying to estimate the amount that is lost to tax avoidance? It will be very difficult to work out how much you are not getting, but clearly you will be able to do some estimates. Is that something that you can look at in the future—in particular with regard to large organisations that have global reach, such as Amazon, that do an excellent job in Scotland but about which there have been criticisms with regard to tax avoidance and the amount of tax that they pay?
That would be John Swinney’s responsibility, not mine. I agree with David Stewart about huge companies that seem to manage their own tax rates and by so doing offend public perception. It is certainly a very serious issue, but I say again that corporation tax is not going to be one of this Parliament’s responsibilities any time soon. However, to come back to the regulations for a second, we are trying to give public bodies that are aware of, and that have evidence of, illegal activities the opportunity to take action to preclude such companies from competition. That is an important step forward.
Are you able to identify the number of companies that have, in the past 12 months, been excluded from public procurement because of tax avoidance?
No. We do not keep records of every contract that is done by every public authority, so we do not have that information. We provide the basis in terms of regulations and the environment, but we do not have details of every public authority’s contracts with companies.
You will, however, know about the companies that the Scottish Government procures from; after all, you have the responsibility in the Scottish Government in that respect. In how many Scottish Government contracts did you exclude companies for tax avoidance?
I have no knowledge of that. I ask my officials to respond to your question.
I am not aware that we routinely measure that information, but we can certainly take your question away and get back to you on it.
Would zero be close to the mark, as a wild guess?
I would not like to speculate.
Can you provide that information to the committee? If the information is not being kept, cabinet secretary, I suggest that it be kept, because you cannot monitor things that you do not know anything about. Obviously this is a huge issue—
Are you aware of any such companies?
Well, as has been said, we are asking the questions. It is important to identify what is going on. Obviously the campaign that I mentioned has given us some information, but I am really interested to find out from you whether the Scottish Government has excluded companies for tax avoidance. After all, you said at the start—rightly so—that you have a strong philosophical opposition to such activity. I appreciate that comment, but at the end of the day it is actions that count, and it is clearly important that we try to look at the issue. I would certainly appreciate it if you could supply the committee with that information.
My final point is on further reforms to the public procurement regime. I will raise an issue that I know Mark Richards is interested in. When I went to Brussels last year, to the maritime affairs division, officials mentioned that the new procurement regulations that affect all European countries, but particularly Scotland, are what they would call “Teckal friendly”. For those who have not come across that obscure regulation, it basically provides the occasional opportunity for public bodies, for very good reasons—with which I will not bore the committee or witnesses—to avoid the procurement process. The new regulations are seen as Teckal friendly in that they make it easier for the Scottish Government and local authorities in what I appreciate are the very rare opportunities when Teckal exemption is possible. Is the cabinet secretary aware of that? If not, perhaps he could do a note back to the committee on whether the new regulations are more Teckal friendly than the previous regime.
Yes, we will do that note and yes, we are aware of the extent to which the regulations directly change that, although I do not think that they change it substantially.
I come back to my previous point, and I will do so without making it a question, if that helps. I hope that any individual or public body that has information on tax-avoiding companies would pass that information on to the Government or the relevant public authority so that we can take that information on board.
I am happy to write to the committee on the points that were raised in the previous question and in relation to Teckal exemptions. I am not aware of any contracts—obviously I do not have an encyclopaedic knowledge of all contracts—in which that would have a material effect, but it is something that we will bear in mind in the future.
I do not expect the cabinet secretary to have an encyclopaedic knowledge, which is why I asked him whether he could write back to the committee. I do not doubt the cabinet secretary’s principled stance on tax avoidance; I am merely saying that what is needed is action, and the first thing that we need is a system for recording tax-avoidance exclusions. I do not expect the cabinet secretary to know which local authority contracts have been rejected because of tax avoidance, but I would expect the Scottish Government to make a note of tax-avoidance exclusions from its own contracts. That is a fair and reasonable point—perhaps not for the cabinet secretary but, in a corporate way, for other members of the Cabinet. Obviously, I do not have inside information on contract awards, but we are taking evidence from you, so I was merely asking you to respond to that issue.
I welcome your comments on Teckal exemption. My information came from the European Commission, but clearly you have a view on that as well.
On tax avoidance/evasion, a couple of contracts have come up recently in which there was the possibility that a company had been doing something illegal; I will not name the contracts. However, we investigated and found that no illegal activity had taken place. Of course, it is important that we keep an eye on that. We take it into account, and I will write back to the committee with any instances that we can dig up to confirm that.
The campaign group that I mentioned earlier makes the understandable point that companies that wish to benefit from the public purse should pay their fair share of tax. Do you share the campaign’s views?
Absolutely—but I return to the reason why I am here today, which is the regulations. Such campaign groups also say that the best result in such circumstances is to have the tax paid. That underlies the approach that we have taken in relation to some of the provisions.
There is also an obligation under the regulations such that, if an organisation that has transgressed has what is called “self-cleansed” and has taken action to mitigate or make reparation for what it has done or not done previously, we have—whether we like it or not—to take that into account. Obviously the intention has to be to ensure that everybody pays their fair share of tax. I think that the regulations will help us to achieve that.
Finally, I think that we share the same objective, which is behaviour change in large companies that use their global reach to avoid paying tax in individual countries—which hits the public purse in Scotland, as it does in England and the rest of the United Kingdom. If we can get behaviour change by those companies—in other words, if they pay their fair share of tax—they can get their fair share of procurement contracts. If they are not paying their fair share of tax, they should not be getting public contracts from the Scottish Government or local government in Scotland.
Also, if everyone pays their fair share of tax, there are likely to be more contracts and more business for people.
I am not entirely convinced that the questioner and the minister have been truly honest about the distinction between tax avoidance and tax evasion during the past 10 minutes. I am left extremely confused about what we have been talking about.
Mr Johnstone, I do not think that anybody in this committee is deliberately dishonest.
I am not suggesting that that is the case. I am suggesting that perhaps there has over the past 10 minutes been a misunderstanding about the difference between tax avoidance and tax evasion. Therefore, I do not understand what we have been discussing.
Do you want to elaborate on that point?
Tax avoidance is an accounting practice that is entirely legal, while tax evasion is an illegal activity that takes money out of the public purse that should not be taken, and it should be pursued through the courts. We have unhelpfully blurred the distinction quite blatantly over the past 10 minutes.
Would you like to comment on that, cabinet secretary?
I will if I may, thank you, convener. I do not think that I have blurred the distinction. I tried to point out—perhaps not very explicitly—that there is a distinction between the two, and I mentioned both the terms. I tried to point out that public authorities can take action where it is found that a company has contravened the law. That goes exactly to the distinction; a company will not be hauled up before the court for tax avoidance, but could be for tax evasion. I tried to draw that distinction—I was not intending to be dishonest.
I have to answer the questions that are asked—as David Stewart has pointed out, I cannot ask my own questions. I understand the distinction that Alex Johnstone made and it is very evident in the regulations. By and large, authorities will not be able to take action on things that are not illegal. That is laid out in the regulations.
Just for clarity, cabinet secretary, I say that the committee welcomes ministers and cabinet secretaries asking questions as part of constructive dialogue, so we will not be too strict on that one.
I commend the Government for introducing procurement reform—in particular, for the desire to drive up standards in companies that are awarded public contracts. You mentioned blacklisting and the living wage. To what extent do employment practices in general come under the scrutiny that is part of the awarding of public contracts? We are all aware that some employers are better than others. There is a range of employment tribunal decisions and other instances with regard to redundancy practices and that type of thing. Do you intend, as part of the process, to raise companies’ standards in respect of how they employ their people and so on? Is that in your minds in introducing the regulations?
That is on our minds. Even before the regulations, it has been very prominent in our thinking. We now have more discretion to capture those concerns in a procurement process. I mentioned the living wage; it tends to be termed in a different way when you go through the procurement process. I think it is fair to be clear and absolutely honest that procurement is not the best tool for dealing with blacklisting and the living wage. Employment law is the best tool for that, but we have no powers in relation to employment law, which is reserved.
However, a great deal can be achieved. The biggest contract that we let is for ScotRail services, which is worth about £8 billion. We managed in that contract to achieve a great deal on redundancies and on the living wage—not just for people who are directly employed under that contract but for subcontractors. We can achieve a great deal, but it would be much easier to achieve those things had we control over employment law. I ask my officials whether there is anything else worth mentioning on that.
I can probably add to that. There are two areas in which the new legislation and supporting statutory guidance assists with employment practice. There is an expectation, naturally, that suppliers are complying with the law, and non-compliance with social, environmental and labour law is now an exclusion ground.
To go further than that, the statutory guidance that was published earlier on fair work practices—including the living wage, which the cabinet secretary fast-tracked—identifies ways in which a supplier’s engagement with its staff can have a genuine impact on the quality of the goods, works or services that are procured. We recognise that there is a correlation between those things. The guidance goes further and sets out exactly how buying organisations can factor in such issues as part of the procurement process. We are seeing that coming through in the contracts that are being awarded, including the one to which the cabinet secretary referred.
10:15
To go back to an overarching sustainable procurement approach, I say that it is true that procurement is not sustainable if a contract is won on the basis of third-world employment conditions. It will not work. I cannot point to a specific part of the procurement regulations that says that we will not award such contracts but—this is true not for all contracts but for the bulk of them—if what is proposed includes terrible conditions for staff, even if it complies with the law, and the conditions are so bad that the contract does not seem to be viable, the parts of the regulations that have been mentioned will allow us to take that into account. Increasingly we are able to do that.
That is coming at the issue from the side, however; the best way to deal with that issue is through employment law.
Thank you and your officials for your very helpful evidence and your commitment to furnish the committee with more information.
Agenda item 2 is formal consideration of motion S4M-15451. The committee is invited to recommend approval of the draft Procurement (Scotland) Regulations 2016.
Motion moved,
That the Infrastructure and Capital Investment Committee recommends that the Procurement (Scotland) Regulations 2016 [draft] be approved.—[Keith Brown.]
Motion agreed to.
That concludes consideration of the affirmative instrument. We will report the outcome of our consideration to Parliament.
10:17 Meeting suspended.Previous
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