Audit Committee, 19 Dec 2006

Meeting date: Tuesday, December 19, 2006

Official Report 316KB pdf

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“The 2005/06 Audit of the Scottish Fisheries Protection Agency”

Item 3 is a briefing from the Auditor General on the Scottish Fisheries Protection Agency. I believe that Caroline Gardner is to give us that briefing on his behalf.

The Auditor General has prepared a section 22 report to bring to Parliament's attention the decision of the Scottish Fisheries Protection Agency to cancel the procurement of a new fisheries protection vessel. It is worth making clear that the agency's accounts were not qualified.

The agency began a programme to replace its vessels in 2003. In August 2005, it started work to procure a fisheries protection vessel called a Minna-type vessel because its specification was developed from the original FPV Minna, which had been delivered in 2003.

The tender exercise for the new vessel proceeded until a preferred bidder was identified, in February 2006, when the Minister for Environment and Rural Development sought clarification on the procurement procedures that had been used. At that point, a legal firm with substantial experience in European Union procurement law and an independent procurement specialist were appointed to carry out a review of the procurement process. Their report in May 2006 found a series of flaws relating to the pre-qualification questionnaire that was used, the scoring system that was used to shortlist bidders, the requirement to use preferred manufacturers for certain types of machinery, the way in which the agency answered questions that were received during the tender period, and the introduction of a second and final bid stage that was brought about by the preferred propulsion system for the boat being made available earlier than had originally been expected. Overall, the report concluded that those flaws gave rise to concerns about compliance with EU procurement rules, and the agency decided at that stage to halt the procurement process. It also agreed to review its procurement procedures before starting a new procurement process.

There is no evidence to suggest that the agency did not treat the final bidders equally, but the cancellation of the procurement exercise highlights the need to have an agreed procurement strategy that complies fully with EU procurement regulations. The cancellation means that the operating life of the existing vessel will need to be extended. It has slightly higher running costs, is less environmentally friendly and is less operationally capable than the replacement is planned to be. As a result of the cancellation, the agency has incurred costs of £57,000, plus staff salaries, and there is no guarantee that a future tender exercise will not result in higher bids than those that were received in the cancelled exercise.

The appointed auditor will keep the agency's proposals to amend its tendering instructions under review. It will also take a close interest in any future attempts to procure a fisheries protection vessel of that type.

We shall try to answer any questions you may have.

The SFPA is a major Government agency. What guarantees are there that other Government agencies and departments are following best advice and practice in procurement, according to EU directives? How did this happen?

As always with such matters, a long and detailed series of events is involved. There is a central procurement department in the Scottish Executive that advises departments and agencies that undertake significant procurement exercises. There were differences of view on occasion about which would be the quickest route to go down. The agency's view governed the process up to the point at which the review was carried out. It is important to stress that, looking forwards—rather than with hindsight—the best way is not always clear cut, but the agency has agreed to review its procurement procedures to ensure that they comply fully with best practice in future.

I am a bit troubled by a couple of references in the report to the fact that the Scottish procurement directorate failed to apply EU rules properly to the tendering process. Paragraph 9 states:

"The SPD noted to SFPA that various references to ‘build location' and ‘experience of tenderer' as evaluation criteria are not permitted under EU rules."

Subsequently, at paragraph 15, there is reference to the questionnaire being

"contrary to EU procurement rules"

because it asked about

"where the vessel was to be built, company health and safety policy".

I quite understand that EU rules would suggest that you cannot specify where the vessel is to be built, but I am a bit troubled by the fact that a company's health and safety policy is not a legitimate criterion for questioning by our Government. I am also concerned that the tenderer's experience is not a legitimate criterion. We are talking about vessels that have to undertake public services on the open seas. I would have thought that a tenderer's experience of building something would be material. A company's health and safety policy will certainly be material to the cost of a tender.

I have no issue with the question about where the vessel was to be built, but the other questions are of a different order. Can we have some information about why they are considered not to be legitimate?

As a layperson, I share your interest in why EU procurement rules require that. Your questions are probably better put to the procurement directorate than to us, but Graeme Greenhill may be able to give you a little more information.

You need to distinguish between questions that you can ask in the evaluation process and questions that you can reasonably ask for information purposes only. You can ask about company health and safety policy for information only; you cannot ask as part of the evaluation of tenders.

I quite understand the distinction that you are making, Mr Greenhill, but a company's health and safety policy will be a material consideration in evaluating the price that it can offer. If I allow my workers to go up on scaffolding without harnesses, for example, or if I send up only three workers whereas another company would send up 10, that will have a material impact on the cost of the tender. I appreciate that that is not a question for Audit Scotland, but in assessing what has gone on with the SFPA and in Parliament's legitimate pursuit of where a level playing field can be found between companies in this country and companies in other countries when they price for jobs, if health and safety policy is not a material consideration in evaluation I suspect that there will be a barrel load of other criteria that we think are also material to the consideration and should be examined. I suggest that there might be a bigger can of worms to open.

That is just the phrase that I was thinking of. We can discuss how we might pursue that matter under agenda item 7. I cannot imagine that there is much more that Audit Scotland can add.

That was going to be my response.

I do not know whether you will have the answer to my question, or indeed whether you are the right person to ask, but I shall ask it nevertheless. The halt in the process has delayed the new vessel. You mentioned the costs involved—about £57,000 plus staff salaries—in cancelling the tender exercise. Can you give any indication of what the delay is likely to be? Do you perceive further costs arising because of the delay?

We understand that the new procurement process has not yet started, so it is not possible to speculate what the overall delay might be. The procurement process is clearly not something that can happen quickly, and neither is the building of a vessel, so the delay is likely to be significant. The other possible area of costs is claims by unsuccessful tenderers for costs that they have incurred. Based on the judgment of the lawyers and the consultant who were involved in the reviewing process, the agency considers that the risk of challenge is low, given that it had clear reasons for terminating the tender process. However, if any of the unsuccessful tenderers decides to take action, that will be a matter for the courts.

I thank Caroline Gardner for that briefing on the Scottish Fisheries Protection Agency section 22 report.