Public Procurement Reform
The next item of business is a debate on motion S4M-06153, in the name of Maureen Watt, on behalf of the Infrastructure and Capital Investment Committee, on public procurement reform.
14:41
It is a pleasure to open this debate on public procurement on behalf of the Infrastructure and Capital Investment Committee. As members know, the Scottish Government intends to introduce its much-anticipated public procurement reform bill in the coming months. However, we do not intend this debate to be about only the forthcoming bill; the debate is an opportunity for members to express more generally their views on how the public procurement process in Scotland operates and, importantly, might be improved.
The ICI committee has an interest in the means by which major transport, broadband and water and sewerage infrastructure projects and services are procured. Other committees have a direct interest in health, education and local government capital projects and services.
If I am to put in context the importance of ensuring that our procurement processes are fit for purpose, it is essential that I highlight the scale of public procurement in Scotland and its huge significance to our economy. Spending by the public sector in Scotland on goods and services comes to more than £9 billion per year. If we add spending on infrastructure investment and other capital projects, the total is more than £11 billion per year, which, if we include our geographical share of North Sea oil, is more than 7.5 per cent of our gross domestic product.
The recently published progress report on the public contracts Scotland portal highlights that Scotland has one of the best records in Europe on procurement from the small and medium-sized enterprise sector, with 82 per cent of contracts advertised on the portal being won by SMEs. The public procurement regime in Scotland operates in a European Union-wide framework, which aims to ensure the free movement of supplies, services and works within the EU and the non-discriminatory treatment of suppliers. The competitiveness of Scottish companies is therefore demonstrated by the fact that, despite European competition, Scottish companies win 68 per cent of contracts in Scotland.
We sometimes hear criticism of the EU, for a variety of reasons. Will the member confirm what I think that he just said, which is that the EU gives Scottish companies the opportunity to compete on a level playing field?
I agree on that point. The EU-wide framework opens up opportunities for Scottish companies, because the scale of procurement by the public sector across the EU is huge. In 2010, public procurement across the EU totalled €2.4 trillion.
I have become very aware that, in almost every piece of work that the ICI committee has carried out recently, we have consistently heard about the importance of getting the procurement process right if we are to ensure the delivery of high-quality, cost-effective and sustainable public infrastructure and services.
I am aware that the forthcoming bill will have sustainability at its heart. The bill will establish a more transparent and streamlined national framework for sustainable public procurement that supports Scotland’s national and local economic growth by ensuring that public procurement delivers economic, social and environmental benefits.
Sustainable procurement can contribute to a reduction in greenhouse gas emissions through the use of more responsibly sourced or locally sourced low-carbon materials. It can also serve to encourage and foster innovation among suppliers, leading to an increase in the availability and effectiveness of sustainable products and services. Importantly, a more sustainable approach to procurement can lead to higher levels of contracting or subcontracting to SMEs, leading to the creation of local jobs.
Contracts should also allow for the improvement and development of skills through professional or vocational apprenticeships, or by offering opportunities to the long-term unemployed. The committee has heard of good practice already being applied in that regard on the Forth replacement crossing and M74 construction projects.
When the ICI committee comes to scrutinise the bill, we will need to consider what might be done to engage with those businesses that currently have difficulties in implementing sustainable procurement. They could be constrained by a lack of resources, appropriate skills or capacity, by perceived costs, or by a lack of senior executive or organisational support.
We will need to consider and understand the whole-life value of a product or service as opposed to the initial up-front cost, as well as other benefits such as a reduction in carbon emissions or in waste generated. Adopting a whole-life-value approach to procurement is fundamental to delivering a sustainable solution.
For example, the construction of a new building accounts for only 15 per cent of its lifetime greenhouse gas emissions, so it is imperative to ensure that new buildings are designed with high energy efficiency standards and that all the equipment, utilities and services that are required throughout its lifetime are procured with sustainability in mind.
Another key objective of the reform agenda is to make the procurement process more streamlined and accessible. The bill is likely to propose the further development of a single portal for bids, building on the existing public contracts Scotland portal. That is essential if we are serious about making it easier for businesses—SMEs, in particular—to access public contract and subcontracting opportunities.
We must also recognise the importance of the third sector and the need to ensure that the proposed improvements provide enhanced opportunities for engagement by social enterprises in the procurement process. The Scottish Government is shortly to produce a report setting out the detail of how that might work, which will certainly be of interest to the ICI committee and to others who wish to provide input to the bill scrutiny process.
Some of the responses to the Scottish Government’s public consultation—mainly from local authorities, executive agencies and quangos—raised the issue of resources and identified the need for shared service agreements to help minimise costs and any burden on resources. That approach is already well advanced among groups of local authorities in Scotland, and the recent establishment of the single police force and the single fire service is another obvious example of how sharing of services can deliver cost savings and other benefits. It would be useful to hear views on what more can be done to help facilitate and further develop that approach.
We cannot ignore the fact that the European Commission is currently conducting a comprehensive review of the EU procurement directives. It is clearly essential that the proposed bill is compliant with the updated EU directives when they emerge.
We must remind ourselves that we have already been making good progress on procurement in the public sector in recent years and that in some areas we have excelled. Last year, for example, Scottish Water became the first Scottish organisation—and the world’s first water utility—to achieve gold certification status from the Chartered Institute of Purchasing and Supply. However, we need to examine how good and innovative procurement practices can best be harnessed and shared with other public bodies so that the wider benefits can be realised. We need to develop skills and training on procurement across the public sector to ensure that good practice and the improvements to be introduced by the reform agenda can be implemented.
I believe that the aims of the public procurement reform bill will be welcomed, as the bill will establish a legal framework for sustainable public procurement that supports Scotland’s economic growth. It will help to ensure that we can get additional value from procurement, especially on major contracts. The additional value could be economic, social or environmental.
The bill will strengthen and improve existing procurement legislation and guidelines, removing inconsistencies. It will make doing business with the public sector simpler, more transparent and more accessible to suppliers—especially SMEs. It will strike the right balance in delivering benefits without adding unnecessary costs or risks. It will further promote the use of community benefit clauses that have already provided more than 3,500 training and employment opportunities.
I look forward to hearing other members’ views on those and other issues during the debate. I am sure that the Cabinet Secretary for Infrastructure, Investment and Cities will pay attention to what is said this afternoon, as the Government refines and finalises its legislative proposals.
I move,
That the Parliament notes that the Infrastructure and Capital Investment Committee, in advance of the introduction of the Scottish Government’s proposed Procurement Reform Bill and in order to inform any future work in this area, would welcome members’ views on the efficacy of current public procurement processes and on the scope and potential for improvements to be made to these processes.
We are extraordinarily tight for time today. I call on Nicola Sturgeon, who has up to 10 minutes.
14:50
As Gordon MacDonald has just said, Scottish public bodies spend more than £9 billion of taxpayers’ money every year, so it stands to reason that the decisions that they make when they spend that money are of enormous consequence to businesses, the public and the economy generally.
I am very pleased that the Infrastructure and Capital Investment Committee has called this debate, and I very much look forward to hearing contributions from members across the chamber today. I am going to talk about progress, but I do not want to leave anybody in any doubt that there is still room for significant improvement in the way that the public sector buys goods, works and services, and I hope that we hear lots of suggestions this afternoon about how we can continue to make those improvements.
The approach to procurement that we have taken in recent years has allowed us to deliver £1.2 billion of savings, more than 3,500 training and employment opportunities through community benefit clauses, a national framework for supported businesses and a situation in which 46 per cent—compared with a United Kingdom Government target of 25 per cent—of our £9 billion procurement spending is with SMEs, nearly half of which goes directly to small firms that employ fewer than 50 people.
We have an e-commerce shared service platform that supports more than 100 public bodies and processes more than £5 billion of transactions every year. As I announced yesterday at the new crime campus at Gartcosh, we now have a situation in which 80 per cent of suppliers that are awarded contracts through the public contracts Scotland portal are based in Scotland and 68 per cent are Scottish-based SMEs, which is an increase of 12 per cent since 2010. The fact is that more Scottish-based businesses than ever before are winning business with the Scottish public sector through the PCS portal, and I think that we should celebrate that.
However, there is much work still to do—the variety of frustrations about procurement processes that I frequently hear from the business community, in particular the small business community, leaves me in no doubt about that. Our package of public procurement reform initiatives is designed to address in a systematic and on-going way, as far as it is reasonably possible, as many of those frustrations as we can.
Before I talk more about particular aspects of the reform programme, it is necessary to mention the EU context. As I am sure that everybody in the chamber knows, public procurement is governed by a very detailed and comprehensive suite of European laws. Those laws are the product of a policy that, at a pan-European level, is intended to promote economic growth by opening markets. We might not agree with every aspect of European law—in fact we do not agree with every aspect of it. My view is that we should always strive to operate with maximum flexibility in those rules, but we are nevertheless bound by them.
We must also remember a point that has already been made in the debate: Scottish businesses benefit from those rules when they win contracts internationally, as they frequently do. However, it is important to seek to influence European law on procurement.
I have been very pleased to see cross-party collaboration among our members of the European Parliament in trying to shape the review of European procurement law that is under way. Last year they tabled an amendment to the new draft European public procurement directive that, if it had been adopted, would have allowed purchasers to take account of economic impact in their purchasing decisions. Ministers have also supported that position directly with the European Commission. So far we have not been successful in securing that change, but that should not, will not and must not deter us from continuing to lobby vigorously at EU level for sensible reform.
On a question of timing, does the minister intend to wait until the EU process of reform is further down the line before introducing a bill here, or does she intend to proceed before we know the outcome of that European process?
We hope to introduce the procurement reform bill before the summer recess. We require to give ourselves comfort that what we propose in that bill will be within the confines of the revised European directive, but I want to be in a position for that bill to be introduced to Parliament for its consideration before the summer recess. I will keep Parliament updated on that timescale.
In pursuing our own reforms, it is vital that we are aware of and frankly recognise the tension that will inevitably be at the heart of any approach to procurement. On one hand, we want the system to help our businesses to grow and become more competitive; on the other hand, we cannot afford to ignore opportunities to save money. We must always strive to strike the right balance and align those two objectives as far as we can. That is what we are seeking to do in our approach to procurement reform.
A central element of the programme is the proposed procurement reform bill. Consultation on the bill closed late last year and we have received 250—more, in fact—responses from a wide range of interests. The analysis was published earlier this year, and the findings are helping to inform the final policy content of the bill. I hope that the bill will help us to accelerate improvements in the system and ensure that, especially with major contracts, we extract additional value—whether that is economic, social or environmental value—from our spending.
The bill will also help to tackle inconsistencies for suppliers and ensure that doing business with the public sector is simpler, more transparent and more accessible to suppliers, especially SMEs. Although EU law does not allow us to discriminate in favour of indigenous businesses, removing the barriers to SME participation in procurement markets can and will contribute to our economic performance.
We do not want to add unnecessary costs or risks but, used appropriately, social and environmental contract clauses can deliver good results and add significant value for communities. Using the bill to promote standardisation and improved procurement procedures will improve value for money and reduce costs.
Nowhere is that more important than in the construction sector, which faces particular challenges. In October, we launched a fundamental review of construction procurement led by Robin Crawford and Ken Lewandowski. We want the sort of improvements that have been delivered for goods and services procurement over recent years to be replicated for construction. I know that the industry is desperate to see improvements as well.
The review is making good progress, and I can announce today that, following an early recommendation from Robin and Ken, the Government is seeking partners to trial the use of project bank accounts. We will publish guidance promoting their adoption for major infrastructure projects. Project bank accounts will help to ensure that companies all the way down the supply chain are paid promptly and that larger companies that are higher up the chain are not able to withhold payments when work has been performed. That is a good start to the review. I look forward to receiving its report later in the summer and to implementing its recommendations.
One of business’s main complaints is about prequalification procedures. Time and again we hear complaints about entry thresholds being used in prequalification questionnaires in a way that excludes capable smaller local businesses. I am pleased that the e-tendering software public contracts Scotland tender now contains a suite of standard questions that have been developed by a working group. However, those tools will be effective only if they are used. The bill will help us to promote standardisation and good practice by making it a requirement that the standard questions are adopted. Those and other improvements to PCS are designed to deliver a less complex process, reduce inconsistency and increase transparency.
The opening up of subcontracting opportunities in PCS has also helped SMEs to access and bid for major infrastructure projects as well as events such as next year’s Ryder cup. We are also seeing a rapid increase in the use of the quick quote system as a means of delivering low-value procurements, which also facilitates better engagement with local suppliers. We need the system to work for jobs, too, which is why a major priority for the bill will be the acceleration and promotion of the use of community benefit clauses in major contracts.
At the outset of my remarks I mentioned supported businesses, which are an important issue in this context. We know how difficult recent times have been for our supported businesses, with changes in funding for Remploy. That is why the national framework for supported businesses that was announced last year is so important and has the full support of Government.
Last but not least, we also need to expect companies that bid for public contracts to demonstrate high standards of ethical conduct or know that they risk being excluded from the market. The practice of blacklisting, failure to comply with tax obligations and other acts of professional misconduct may—and should—in future result in a company being judged as unsuitable to bid.
The Government regards blacklisting as wholly unacceptable. My officials have invited trade union representatives, including the Scottish Trades Union Congress, to work with us to develop guidelines for purchasers on how to address that issue when awarding contracts.
Although EU law suggests that we cannot make it a specific legal requirement that companies pay their staff the living wage, we are looking at how to further promote and encourage them to do so as a matter of good and, indeed, expected business practice.
As I said in my introduction, we can be proud of progress, but there is much more to do. I look forward to hearing members’ speeches.
15:01
I suspect that procurement as a topic for debate may not have set many members’ pulses racing, but I am encouraged to hear that the debate is tightly subscribed.
As the previous two speakers have said, public procurement in Scotland is extremely important. It is worth £9 billion annually, and half of that expenditure is made by our local authorities. How that significant financial resource is distributed, which businesses benefit from that expenditure and the conditions attached to the awarding of successful contracts are of great importance not only to the national and local economies but in ensuring that small and medium-sized and social enterprises are able to access public contracts and in the provision of social and environmental benefits.
The debate, which comes in advance of the forthcoming bill, gives members the opportunity to contribute their views on what the bill should contain. It also gives us the opportunity to discuss what can be improved. The cabinet secretary has spoken about improvements to procurement that have happened without legislation. Legislation is not necessary for all the improvements—indeed, some respondents to the Government’s pre-legislative consultation expressed the view that legislation is not necessary.
That view was also voiced by some participants in the David Hume Institute seminar on this topic on 29 January. They argued that what is required is a change in the attitudes and approach to public procurement rather than in the legislation that governs it. The arguments surrounding that viewpoint will doubtless form part of the evidence that the committee will take on the bill. I think that the discussion will centre on that sensitive balance on what may be done and what should be made a requirement.
The bill’s progress is slower than originally expected. I listened with interest to the cabinet secretary’s response to Patrick Harvie. I appreciate that the Government is awaiting the detail of the new EU directive in order to ensure compliance.
The cabinet secretary mentioned supported businesses. In that context, I highlight the concerns raised with members over article 17, which will replace article 19 in the EU directive. It is due to be discussed in plenary at the European Parliament this week, and it was the subject of an email from Councillor Paul Carey of Glasgow City Council, who has raised concerns that the protection offered to supported factories and businesses, such as Blindcraft, is being downgraded by the reduction of the threshold of disabled employees from 50 to 30 per cent and the extension of the definition to include disadvantaged people.
I started by commenting that members might not have been excited by the selection of this topic for debate but, judging by the number of briefings that we have received, many stakeholders recognise its importance.
Some stakeholders are disappointed by what appears to be a shift in emphasis in the proposed bill from sustainable procurement to simply procurement reform. They are concerned that that signals a move away from the social and environmental benefits that good procurement practice can achieve to a more technical reform of the system that is beneficial to business and, I hope, smaller businesses and social enterprises but which misses the more widespread and ethical benefits that a more encompassing bill could provide.
Many stakeholders, including the Federation of Small Businesses, the Scottish Catholic International Aid Fund and the Scottish Council for Voluntary Organisations, have reflected on the effect of the focus on achieving cost savings rather than on taking a more holistic view of the overall benefit of the spend to local communities and the maximisation of social benefit.
Jim and Margaret Cuthbert’s report “Using Our Buying Power to Benefit Scotland” illustrates how procurement practice can work against economic and social development when it results in Scottish companies, particularly smaller companies, being locked out of public sector contracts for a period of years. I appreciate that the Cuthberts’ report was published some time ago, but there is still a need to consider carefully some of the points that they made in their research.
I listened to the statistics that Gordon MacDonald and the cabinet secretary quoted about access for small and medium-sized enterprises, but I think that there is an issue with the definition of what constitutes an SME. Defining an SME as an enterprise employing fewer than 250 employees means that SMEs can be pretty big, as there are not many enterprises of that size in my constituency. The definition actually encompasses something like 90 per cent of Scottish businesses, so I am not sure that we have quite the success that has been claimed.
The Federation of Small Businesses report “Local Procurement—Making the most of small businesses” tells us that 70 per cent of SMEs across the UK do not even bid for public sector contracts. Small businesses are deterred not only by onerous time-consuming prequalification questionnaires—although I appreciate that the Government is looking at that issue—but by the relatively high cost of submitting a bid compared with the value of the contract, the aggregation of contracts and joint procuring that puts contracts beyond the reach of small businesses, and the long-term frameworks for major construction contracts.
Some of those deterrents could be removed without additional legislation. Both the reports that I have mentioned contain illustrations of how procurement in other EU countries is managed differently. The problems that are encountered by small businesses in Scotland and the rest of the UK are not due solely to EU directives, as is often suggested.
The procurement reform bill presents us with an opportunity to define what we expect to be delivered in return for the £9 billion of public sector procurement spend. That should be defined not only in terms of the goods and services that are purchased; such a level of spend should be a powerful lever to promote good practice across a whole range of behaviours. For example, we should expect those businesses that receive public money to pay their taxes. Companies that conceal their wealth in tax havens while exploiting some of the poorer countries in the world should not be awarded contracts for the tax-paying public in Scotland.
The public sector should pay its workers a living wage, but it should also persuade its contractors to do the same. We should not subsidise—
Will Elaine Murray give way on that point?
Sorry, I have only 10 seconds.
We should not subsidise low pay in other sectors. I know that my colleague Kezia Dugdale is considering taking forward John Park’s proposed bill on that issue.
You must close, please.
Workers’ rights must be respected. The cabinet secretary also made some good points about the use of community benefit clauses.
I look forward to the introduction of the procurement reform bill and its passage through Parliament.
15:07
The Conservatives, too, welcome today’s debate, which provides an opportunity to bring forward some ideas.
The motion in the name of Maureen Watt states that her committee
“would welcome members’ views on the efficacy of current public procurement processes and on the scope and potential for improvements to be made to these processes.”
I would say, as members might expect from the deputy convener of the Public Audit Committee, that a good place to start looking at the scope and potential for improvements is the Audit Scotland and Accounts Commission reports. Too often, recommendations for improvement in procurement are highlighted and then ignored, or are partially implemented, only to be raised again in the reports that we receive years later.
Before Bob Black retired from the post of Auditor General, he presented the report “Commissioning social care”. He expressed his concerns by saying that
“current ways of delivering services are unlikely to be sustainable. Finally, to be frank, my particular concern, which is shared by colleagues, is that this is the latest of six reports that Audit Scotland has prepared in this general area since devolution, and they have all contained challenging findings about the commissioning and delivery of social and health care services and the efficiency and effectiveness of partnership working.”—[Official Report, Public Audit Committee, 14 March 2012; c 445.]
Given the demographic challenges that we face, the social care sector is surely an area in which effective procurement in order to provide quality services and value for money will be critical.
Does Mary Scanlon accept that one reason why we have limited resources is that we have tied up funds in private finance initiative projects, which have ended up being far too expensive for what we get?
I am not sure that that was a positive contribution, which I am hoping to make.
More recently, we received the report “Improving community planning in Scotland”, which states:
“ten years after community planning was given a statutory basis, CPPs are not able to show that they have had a significant impact in delivering improved outcomes”.
The whole ethos of community planning partnerships, which we all supported, was to ensure that representatives from across communities would sit around the table with a better understanding of the community’s needs and concerns. The aim was to ensure that any decisions that were made, including procurement decisions, would be beneficial to the local community, which Gordon MacDonald highlighted very well in his speech.
Perhaps the main procurement issue that has arisen in recent times was highlighted in the report “Managing ICT contracts”, in which the Auditor General expressed serious concern about procurement of information and communication technology in the public sector, but focused only on three organisations, including Registers of Scotland, which at the time of the report had spent £112 million on such projects against an original cost estimate of £66 million. Two projects were cancelled with a £6.7 million write-off and, as the report points out,
“Individual projects lacked detailed cost, benefits and milestones, and contributed to a lack of ownership for cost and time overruns.”
Obviously there is plenty of scope to make the sort of improvements in procurement that are outlined in the report.
Perhaps the cabinet secretary will also consider the report’s comment that
“The Scottish Government provided limited support”
to the organisations.
As others do, I hope that the public procurement bill will make it easier for new businesses, SMEs, the third sector and social enterprises to access public contract opportunities and subcontracts. The cabinet secretary mentioned the construction industry, so I must point out Michael Levack’s recent comment that
“There is currently too little direct linkage between the award of contracts and the creation of more employment and training opportunities with construction companies with a strong local presence and pedigree.”
That said, I acknowledge the points that the cabinet secretary made in that regard.
I also found the report that was produced by Campbell Christie a few years ago to be very interesting in relation to procurement and commissioning. It says:
“There is a widespread belief that the Scottish Government and local authorities are less diligent about scrutinising and costing inhouse services than those contracted out to external providers.”
Whether or not that is the case, I am sure that more transparency in the process, which I appreciate is an issue that will be covered in the bill, will be widely welcomed.
The Christie commission report also said:
“There is still much to be done to ensure that when competition takes place between the public and private sector it is on an equal footing”.
I hope that we examine the quality, effectiveness and reliability of services, as well as their value for money, and that we give the public, private and third sectors the same opportunities.
I also totally agree with the Christie commission’s highlighting of the fact that social care and support services are still commissioned and funded on the basis of units of cost and volume, with little attention being paid to the value of the services with regard to the outcomes that are identified by individual service users and families, or by community planning partnerships in single outcome agreements.
I realise that I am running out of time, Presiding Officer, so I will finish on that point.
That is much appreciated. We move to the open debate.
15:13
I am delighted to speak in the debate, and my speech is built on the foundations that were laid by the Christie commission report to which Mary Scanlon has just referred. The report’s clear drivers were as follows: first, that reforms must aim to empower communities and individuals who receive public services and ensure that they are involved in service design and delivery; secondly, that public service providers and demanders must work to integrate service provision; and thirdly, that our whole system of public services—including the public, third and private sectors—must become more efficient by reducing duplication and by sharing services.
Simply put, we have to demolish the current shibboleths of public service procurement and establish sustainable economic growth that is built on a profoundly new buying culture. Gone must be the culture of, “We’ve always done it this way,” and, “We always contract with Joe Blow because he knows us and has never let us down.” Where is the best value or client benefit in those statements?
On Friday last week, I had the delight of meeting one of our more progressive councils, which actively talked about how it would build increased service provision and the buying of services around its communities; how it would seek to engage the local third sector and social enterprises in provision of public services; and how it would review and re-engineer, and recognise that there is a social cost to the community attached to outsourcing of work—just because it has always been done—to commercial companies from well outwith the local or neighbouring authority boundaries. I also dare to suggest that not to examine the effectiveness and efficiency of capable social and third sector enterprises that are close to home impacts on income.
I hope that the bill will place strictures on local authorities that allow commercial companies to retain profits from their contracts, while insisting, in some cases, on clawing back profits from social enterprises and third sector companies that provide services. That applies particularly in the care sector. This is not about protectionism; it is about productivity and social involvement.
In dealing with the bill, I ask the Government to secure at the point of inquiry better and easier standardisation of contracts. Whether or not we agree with 32 councils, it is administrative silliness to have simple and easy standard contracts redrawn and regurgitated across all 32 councils in the country.
I am glad that the cabinet secretary alluded to the living wage. The proposed bill consultation analysis summary says:
“In relation to the Annex regarding the Living Wage ... procurement activity should be used to encourage contractors to pay the living wage to their employees engaged in the delivery of public sector contracts.”
I agree that there should be encouragement, but currently, the European Union legislation and a test case—Dirk Rüffert v Land Niedersachsen—show that we cannot put the living wage into contracts and specify that it must be paid. Would it not be best if we were at the top table in Europe, trying to change that legislation?
Of course, I agree with the latter point. I will come to the former in a minute.
On the living wage and public sector contracts, it is anathema to me that we employ a company in this very establishment whose revenues are over £2 billion—its revenue has grown by 42 per cent over the past five years, its profit after tax has risen by 52 per cent and its dividend per share has risen by 60 per cent over the same period—but which still refuses to pay local public sector employees a living wage. I come to Mr Stewart’s point. European law suggests that we cannot force that condition, but can merely encourage it. However, I have been legally advised that we can and should feature living wage requirements in new contracts. That has happened with some PFI contracts. Why are we, as a significant paying client, allowing that public payment and social policy madness?
The proposed procurement bill affords us many opportunities: sustained growth through greater local participation with the third sector; a reduction in the social cost of related work; a reduction in the costs of climate change through reduced transport needs; productivity increases through a cohesive team effort and a community empowerment effort; encouragement of the young to get involved in developing work skills to improve their community; and, above all, the message to all existing public service purveyors that the world is changing, that the culture and buying behaviour are changing and have to change, and that practice must be more creative and innovative. On that basis, I believe that the proposed procurement bill will deliver much more than just better value and lower cost.
The member’s keeping to time is much appreciated.
15:19
I welcome the opportunity to debate the proposed procurement reform bill and the wider procurement agenda, which is—I am glad to say—at last being given the prominence that it deserves in Parliament.
As has been indicated, annual spending through public procurement stands at £9.2 billion, rising to £11 billion. How we spend that money through public contracts and how those contracts are shaped have a direct impact on the economy. Therefore a new bill, tied to a wider series of reforms, gives Parliament the chance to make a real difference. We have the chance to follow the lead of Labour-led South Lanarkshire Council and others in challenging the injustice of blacklisting. We have the chance to promote decent wages, sustainable growth and a living wage, and to make the procurement framework in this country more business friendly and socially responsible.
I will flesh out that last point. I agree with all those who replied to the Scottish Government’s consultation by saying that public procurement can be an economic lever and a driver of real change. I argue for a responsible pro-growth public procurement framework that supports employment, helps recovery and is fair for Scotland’s workers and small businesses. The Scottish Chambers of Commerce, in its response to the Government’s consultation, was clear that in a stagnant economy the importance of public sector contracts to Scottish businesses cannot be overestimated. That is why public procurement must be sensitive to the immediate needs of Scottish firms as well as to the wider drive to build a stronger, more responsible and sustainable economy.
This might not be entirely evident from the Government’s analysis of its consultation, but there is a consensus about what is wrong with public procurement that unites a range of respondents from left to right. The most significant contracts are bundled into orders that are so large that Scotland-based small and medium-sized enterprises cannot possibly tender for them and have to subcontract. Big firms can win big contracts, cream off the best bits and leave small businesses with the scraps. Our interpretation of EU rules is too narrow and our adherence to that interpretation is too strict. The public sector is being deskilled and hollowed out of specialists who actually understand complex contracts.
If the bill does not address those points comprehensively, it will have failed not only to match the Government’s rhetoric, but to meet the needs of the economy. By procuring better, we can support Scottish firms, but with major contracts in which a significant amount of public money has been invested, we should go further. The £11 billion that we spend through procurement each year is more than a simple transaction; it is public money that could and should deliver wider benefits to Scotland. The bill should therefore do more than require those who are in receipt of major Government contracts to publish training and apprenticeships plans and to consider what might be achieved through community benefit clauses.
The bill should set out clearly how firms that are in receipt of such contracts can bring jobs, training and apprenticeships into communities. That should be backed up by achievable targets and statutory requirements, with a clear system for monitoring progress against those requirements so that suppliers know that there will be consequences if they do not fulfil their community benefit clauses.
I want to deal with contracts in more detail because, although the Government can do more with the new bill, it can also do a lot within the existing rules. The public sector is committed to being a good customer that pays its invoices on time, although perhaps it could do better. Contractors also have responsibilities and the construction sector tells us that late payments can be crippling. The Government’s biggest contractors can expect payment within 28 days, but subcontractors can wait for up to 90 days for the money to work its way down to them. That is why I was pleased to hear the minister mention project bank accounts.
The Government should also consider whether awarding contracts annually is always best. Forward planning is critical to the viability of small businesses, training providers and the third sector, which have all kinds of costs for matters such as staffing, property leases and equipment. We need to take their difficulties into account.
The bill and the procurement reform agenda are not just about businesses in Scotland; they are about how we do business in Scotland. I hope that, with some listening and dialogue and with a bit more ambition, the Scottish Government can move us towards a more business friendly and responsible public procurement framework.
15:24
I thank the Infrastructure and Capital Investment Committee for holding this debate. It is an excellent idea to ask—as the motion states—for
“members’ views on the efficacy of current public procurement processes and on the scope and potential for improvements”.
Procurement is an important issue that warrants much consultation and discussion. The number of submissions that have been forwarded to MSPs since the debate was publicised backs that up, as does the level of discussion across the board whenever the subject is raised.
I do not believe that one bill can—or, indeed, should—be a panacea for all procurement ills, but it can provide a framework and send very strong messages coupled with sensible, innovative and ambitious guidance to those who operate procurement processes.
As I have said before in the chamber, I served as a member of the Royal Incorporation of Architects in Scotland president’s commission on building a better Scotland, and I declare an interest as an honorary fellow of RIAS. The president’s commission focused on the construction industry, and some of its findings very much reflect the need—as I mentioned—to ensure clarity and a degree of uniformity in procurement processes, particularly for services.
Many processes are too time consuming and costly relative to a project’s scale. We have many times in the chamber discussed localism and the idea of keeping work in Scotland wherever possible, but in some cases the costs for the portal are very low, and common sense suggests that we can bring them down further to community level when we are engaging in procurement projects. In my constituency of East Kilbride, we have many companies that could benefit—as could the overall economy—from the ability to make procurement truly local—[Interruption.] It is quite apposite that we are talking about the construction industry. There they are, drilling away outside. It is nice to hear that there is work going on out there.
It is the application of regulations rather than the regulations themselves that can be a problem. The pre-qualification questionnaire is one example: there is sometimes a degree of going completely over the top in relation to questions. If something is already the law, perhaps there can be a presumption of compliance rather than a constant need to restate things.
We also have a risk-averse culture, to which my colleague Chic Brodie referred. Perhaps covering one’s back in our current blame culture would be a more honest way of putting it. There is often a misunderstanding of the regulations, with procurement being run on occasion by people who do not fully understand what is required.
I thank the Deputy First Minister for meeting me and the RIAS recently to discuss some of those issues. The RIAS is a membership organisation for the architectural profession, which has been hard hit by the economic downturn, and which—to my frustration—has over many years not been granted the respect that it is due for the contribution that it makes to our environment, economy and sense of wellbeing. That lack of respect is often manifested in the public procurement process.
In the past 20 to 25 years in particular, there has been a move away from the traditional appointment of architects as heads of design teams, and towards design-and-build initiatives that put large companies in the driving seat, with the potential to drive down quality in the name of cost and returns for shareholders. Very often when a project has been commissioned, the architect has not even met the client, which I find to be a very bizarre state of affairs. I am not convinced that that approach always offers the best value. As I have said before, research has shown that in the construction industry there can be 50 to 60 bidders for a project. Again, that is a waste of money overall.
In addition, there is the competition form of design procurement, of which the most notorious recent example has been the debacle involving Glasgow City Council’s George Square project. There were respected architectural professionals such as David Mackay and Andy MacMillan on the judging panel, and respected practices working up designs for submission, only for the competition to be abandoned. That seemed to me to be a ridiculous state of affairs. It was a waste of time and public money, as well as a waste of time for all the practices that worked so hard.
So, not only do we have bad procurement processes, we have bad pre-procurement. That is not good treatment of a profession that, in the words of Colin Donald in the business section of the Sunday Herald, has the
“potential to lift public spirits while promoting economic growth”
and is an area in which Scotland has shown
“unique, world-class quality over the centuries”.
We should celebrate that more. We should look at our procurement processes in the round and see how we procure all services for the public.
Again, I thank Maureen Watt and her committee for giving me the opportunity to make those points.
Thank you. Before I call John Mason, I just want to say that the building work is not supposed to be taking place while Parliament is sitting, so we are having the noise investigated.
15:30
Thank you for that reassurance, Presiding Officer.
I welcome the fact that procurement is on the agenda. Although we all accept that there is definitely room for improvement, we can also accept that progress has been made in recent years. For example, there has been an increase in the number of contracts being won by small businesses: 82 per cent of winning businesses were SMEs, and 68 per cent, which is up 12 per cent from 2010, were Scottish SMEs. I take Elaine Murray’s point that the definition of an SME can be quite wide. That is correct and we need to help some of those microbusinesses as well.
By contrast, the United Kingdom has not been doing so well, and is lagging behind the Netherlands, Germany and France in terms of procurement from the SME sector. Once again, we see that the UK has proved that it is being less than successful.
Of course, as has already been mentioned, the European Union is a factor in all that and we can expect some of the anti-Europe brigade to start complaining. However, we should remember that the EU aims for a level playing field and a small country such as Scotland stands to gain more than we would lose by our companies exporting more and working more overseas.
Again, as already has been mentioned, Jim and Margaret Cuthbert came to the Finance Committee and talked about how other countries are often better at breaking down contracts into smaller and more manageable pieces for social enterprises and SMEs. Perhaps there is scope for us to learn from some of our EU friends.
The concept of best value is good and I suspect that others will mention it. In my experience, best value meant that we were allowed to look at more considerations than just the price than we were when using the previous way, in which we looked only at the price. I note the reservations of Oxfam and the SCVO that there might be a tendency to slip back to looking only at the price; that is not a fair definition of best value and it is not what it is meant to do. As a councillor in Glasgow City Council, on a number of occasions I saw awards being made for contracts that were not at the lowest price. As opposition members, we questioned that, but there was often a good explanation as to why. We really wanted quality and that outweighed any saving, as is absolutely right.
Perhaps Oxfam is slightly naive if it thinks that we can forget about money and price altogether; we need to strike a balance. The SCVO is right to say that £9 billion is not just a honey pot for business. If a construction company that is building for the public sector is different from a construction company that is building for Morrisons or Tesco or any other supermarket, we should expect higher standards in all sorts of ways, and for there to be a benefit to the wider local community.
Of course, we do not want to chase such organisations away. Again, when I was a Glasgow councillor I saw that, in many cases, Glasgow was competing with Lanarkshire and if the city imposed too many onerous conditions, businesses would go to another local authority. As the cabinet secretary said in her speech, balance is needed. It must be advantageous to do business in Scotland, but when we look at the current balance, we sometimes feel that there is too much benefit to the private sector and not enough to the community.
We had a very good briefing from the Scottish Catholic International Aid Fund, which quotes from the Scottish Government’s 2009 sustainable procurement action plan, which says that procurement is
“A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis and generates benefits not only to the organisation, but also to society, the economy and the environment”.
SCIAF also makes the point that ethically traded goods and services need not cost more and might provide better value for money. It referred to the European Court of Justice’s confirmation in 2012 that fair-trade criteria can be used in public procurement requests as long as the request refers to the criteria underlying the label and not to the label itself. It strikes me that there is something fundamentally wrong in our enforcing a minimum wage on producers in this country but not in respect of imports from elsewhere. That is not to say that a minimum wage level should be the same in every country around the world, but it should be appropriate for costs in that particular country. That is fundamentally what fair trade is all about.
Oxfam also referred to inequality in Scotland, the UK and overseas, and the socioeconomic duty, which is one of the characteristics of the Equality Act 2010.
I want to mention one or two examples in which there is room for improvement. A little two-person business in my constituency that made rubber stamps—the kind that are still quite widely used on paper—lost out on its contract to supply the local school because a big national contract came in. Another local business that I visited wrote to me to say:
“We carry out ... work on a regular basis with the NHS, Scottish Prison service, Clydesdale Bank, Mecca Bingo, to name a few but we don’t get an opportunity to cost any ... contracts whatsoever with Glasgow City Council. We have tried tirelessly to get on their Supplier list with no success and no feedback as to why we have been unsuccessful.”
In advice services the other year, Citizens Advice Scotland and others were competing throughout Glasgow, which was a big mistake. Finally, as Patrick Harvie has said in the past, here at Holyrood we are drinking foreign wine when we could be drinking Scottish beer.
We are very tight for time.
15:37
I, too, declare an interest as an honorary fellow of RIAS. I very much agree with Linda Fabiani’s point that the Deputy First Minister’s bill should not be seen as a panacea for all the challenges of a procurement system here in Scotland. No piece of legislation could do that. However, let me rise to the challenge put down by Gordon MacDonald in his opening remarks and offer some thoughts about areas that the Deputy First Minister may wish to consider, either for her bill or just in the form of Government procurement actions.
As the Deputy First Minister knows, the Government and Shetland Islands Council have recently commissioned, through the hub North Scotland Limited—or north hubco—joint venture, a new Anderson high school for Lerwick, which is a very welcome project. I thank her for the answer on the subject that she gave me some weeks ago at question time. The subject raises some fundamental questions about the process of procurement that is now undertaken by these enormous procurement systems in different parts of Scotland.
In the north, which covers my constituency, Miller Construction Services, one of the UK’s largest building companies, is part of the north hubco. It has three directors on the board. We still do not know—and it would be unrealistic and unfair to expect the Deputy First Minister to answer the question today—whether any other company was allowed to tender for the new school. We do not know the price of the school or indeed the other five schools that were procured as part of the same contract. We also do not know whether a number of other small businesses had an opportunity to provide a price and therefore help the value-for-money argument that the Deputy First Minister and other members have rightly made in the debate.
I hope, therefore, that in testing the current systems, never mind introducing new ones, the Government will give some thought to ensuring that there is transparency in the process that it currently operates through its hubco set-up throughout Scotland. I ask no more than that firms should have the chance to price for work.
On the point that many members made—with which I heartily agree—about small businesses merely getting the chance to tender for work, never mind winning it, it is worth pointing out that the north hubco’s architects are a Newcastle-based company called Ryder Architecture. I do not know whether Scottish firms—whether Aberdeen firms or a consortium of Scottish architectural businesses—had an opportunity to win that work or, indeed, even be on the first list. It strikes me that these are areas in which a transparent process would be welcome. That is an important principle, which I commend to the Deputy First Minister in her consideration of the bill.
Elaine Murray rightly raised a number of submissions that we have been given for this debate, a number of which made some important points. The FSB’s briefing points out that only one in six small firms—which it defines as those with a turnover lower than £500,000 a year and typically employing fewer than 10 people, not the 250 people that Elaine Murray rightly drew attention to earlier—had participated in a public tender in the preceding year, and that more than two thirds of small construction firms say that they have opted out of public procurement entirely over the past three years because the costs are prohibitively high. That seems to chime with the remarks of the Deputy First Minister and others about the need to approach the issue from a new angle. Chic Brodie made that point, and I had some sympathy with his observations.
The FSB points out that the overall value of work going to small firms has remained fairly constant for the past six years, which suggests that there is considerable room for improvement and considerable scope for the Government to come forward with some new measures.
The Government’s move towards a single standard PQQ is an important and positive step forward, but there are many other initiatives that could come forward in the procurement bill or by other means that would be welcomed by small businesses. We talk the talk on small businesses, but this bill, and other Government activities, should allow Parliament and the Government to walk the walk as well.
We should not forget the traditional forms of procurement. Dunfermline high school, which was mentioned in the RIAS briefing, has a beautiful new building. It is airy and bright, and the headteacher says that it achieves 98 per cent of what he wanted it to at the design stage. Good things can be done by traditional forms of procurement. That seems to be an important component in the overall argument about value for money.
I welcome the detailed work that the committee, led by Maureen Watt, is doing in this area, but I want to ensure that we do not view the bill as the be-all and end-all, and that the Government brings forward other initiatives that can further the work.
15:45
I thank the Infrastructure and Capital Investment Committee for giving us this opportunity to debate this important issue today. For many, this issue is not particularly sexy, but I am an anorak when it comes to procurement, and the submissions that we have received show that there are many other folk who take a keen interest in what we are about to embark on with regard to the public procurement bill.
As I said, I am an anorak. Where do I begin? In my previous life as a councillor, I was often told that we could not do certain things because of EU procurement rules. That got to me so much that I decided that I would go on some training to see whether those barriers really existed, and I had the council’s procurement system—PECOS—installed on the computer in my office, so that I could track what was going on. I know that that is beyond anorakishness, but I think that it was important, because I found that a lot of the barriers that were said to be there were not there at all. I discovered that the reason why some folk took the view that they did was down to custom and practice and an aversion to risk. We need to challenge some of the custom and practice that exists around procurement.
Beyond that, we must ensure that folk know what best value and value for money are. Giving evidence to the Local Government and Regeneration Committee on 27 March this year, James Thomson of Scott-Moncrieff said:
“On best value principles, there has been confusion in some of the responses from others. It is not about just going for the lowest-cost option; it is about having regard to economy, efficiency and effectiveness, and delivering continuous improvement and sustainable services.”—[Official Report, Local Government and Regeneration Committee, 27 March 2013; c 1971.]
I agree with his definition.
Page 3 of the Scottish Government’s “Community Benefits in Public Procurement Guidance Note” says:
“The priority for all public procurement is to achieve Value for Money … Value for money does not, however, mean ‘lowest price’. It is defined in the Scottish Public Finance Manual as ‘the optimum combination of whole life cost and quality to meet the end user’s requirement’.”
The mention of “whole life cost” and “the end user’s requirement” makes me think of the story about grandma’s 50-year-old broom. It has done a huge amount of work over its 50-year life and it has had only nine new handles and 11 new brushes. Those are the kind of things that we must think of when we make major decisions on procurement.
The proposed bill will not be a panacea, as Linda Fabiani and Tavish Scott said. We must deal with the situation in the bill and other forthcoming bills in which procurement will play a major role, such as the community empowerment and renewal bill and the health and social care integration bill. Procurement will be at the forefront of those bills, and we need to consider carefully what we do in that regard.
A huge number of the difficulties that we have are the result of a lack of common sense—a severe lack of common sense in some cases.
The Local Government and Regeneration Committee visited Ayr on Monday to hear the views of folks from Ayrshire and Dumfries and Galloway. A huge number of community representatives gave their views in the community engagement session and, beyond that, we had folk giving formal evidence at a meeting in the afternoon. However, some of the best conversations are always had during the breaks and at lunch time.
In those communities and throughout the country, a huge number of community organisations are doing everything possible to better the lives of the folks they live alongside. However, bureaucracies that local authorities, health boards and others have put in place are impeding the small-scale procurement that those organisations are doing.
I will give an example, although I have only one minute left in which to give it. A guy talked about his community group wanting a new wheelbarrow. They had to go around the houses to buy a new wheelbarrow. They had to get three written quotations and give them to the council for the council to decide which wheelbarrow the group could get. However, this guy had the gumption—the common sense—to realise what the wheelbarrow requirement was and where he could get it for the lowest cost.
That kind of nonsense must be dealt with. Although I welcome the bill, it will not be a panacea. I call for a degree of gumption.
15:48
In these tough economic circumstances, it is right that the Parliament takes time to scrutinise how Scotland uses its buying power to promote social and economic development. Our public sector spends more than £9 billion every year on procurement, and it is increasingly important that that money is used to benefit the communities that are hardest hit by rising levels of unemployment. How the Scottish Government acquires goods and services impacts significantly on small and medium-sized businesses and can support those enterprises that are worst affected by continuing financial pressures. In turn, those businesses play a vital role in sustaining communities and providing employment for workers.
The criteria by which we award public sector contracts dictate the emphasis that companies place on the working conditions of their employees and the commitment that they make to investing in Scottish communities. It is profoundly shortsighted of any Government to award contracts solely on the basis of the lowest tender. That approach fails to recognise the long-term consequences of driving down wages and sending jobs abroad.
I accept that there must be a balance between the pursuit of wider social aims and value for money for the taxpayer. However, I do not believe that those two aspirations are incompatible. If the Scottish Government were to prioritise the working conditions of staff as a key criterion in the procurement process, entire communities would be better off as a result. Although the Scottish Government has ruled out supporting legislation for a living wage, that would have made it easier to avoid situations where the working conditions of employees are compromised in order to achieve the most competitive tender.
In the interests of fairness, will the member acknowledge that it is not that we do not support legislation for a living wage but that EU legislation does not allow it? We have said that we are committed to finding every possible way to encourage and promote the payment of a living wage as best practice by all companies.
I thank the cabinet secretary for that.
The Jimmy Reid Foundation report on procurement in the public sector identified that the Scottish Government too often locks Scottish companies out from being able to bid for public sector contracts. Often, the contracts are so large and incorporate so many distinct elements that many small and medium-sized businesses are unable to compete for them. That results in contracts being awarded to huge multinational companies and in investment that could have supported local industries and small businesses being taken out of Scotland.
The Scottish Government’s proposed procurement reform bill offers the Parliament an opportunity to change that unsustainable practice and to stand up for those businesses that, until now, have been unable to bid for lucrative public sector contracts. The Government should seek to invest in those communities that stand to benefit from providing goods and services to public bodies and which can grow their businesses to employ greater numbers of workers in Scotland. That would provide the dual benefit of investing directly in Scottish communities and tackling the problems of unemployment and slow economic growth across the country.
In the future, our procurement process should seek to exclude those companies that have sought to evade their responsibility as employers and those that have acted illegally to conspire against employees who are active in trade unions—and I welcome trade union members in the public gallery. I also welcome the Deputy First Minister’s commitment to consider the issue. Companies that blacklist workers in the construction sector should serve as an example of private sector employers that are unfit to be awarded public sector contracts. That should be addressed under some of the criteria in the tendering process. Those companies that have taken part in that disgraceful practice should not be able to bid for public sector contracts, and the right of employees to be active in trade unions should never be compromised by private businesses, particularly those that act on behalf of local authorities and national Government.
I encourage the Scottish Government to review the parts of the procurement system that are failing enterprises, communities, trade unions and the taxpayer. I urge the cabinet secretary to ensure that the forthcoming procurement reform bill better addresses the concerns of Scottish business and makes it easier for small companies and SMEs to access what is often a complex bidding process in public sector organisations.
If we can achieve that ambition, we can be sure that benefits will be realised not just by those who bid for government contracts but by families across Scotland who rely on the success of Scottish businesses and their impact on our local economies.
15:54
I am pleased to take part in this important debate and I commend and thank the ICI committee for bringing it forward.
In my role as EU reporter for the Local Government and Regeneration Committee, I will highlight the potential impact on local government of changes to the EU public procurement rules. At this stage, it is not clear exactly what the final EU directives will include and what impact they will have on public procurement reform in Scotland. Although the directives completed their legislative journey through the European Parliament at the end of 2012, they are being negotiated between the Parliament and the Council of the European Union, as we heard.
It cannot be denied that any reform to EU public procurement rules and other EU limitations on the delivery of shared services arrangements will be of significant importance to local government in Scotland, particularly given that more than 40 per cent of all local government expenditure in Scotland goes on procuring goods and services.
Local authorities, other public bodies and partner organisations are continually trying to find innovative ways of working together to deliver the best possible public services. Indeed, in January the Convention of Scottish Local Authorities wrote to all the Parliament’s EU reporters to identify changes to EU public procurement rules and other EU limitations on shared services as key priorities for local government in 2013.
Members will be aware that the Local Government and Regeneration Committee is undertaking the final strand of its three-strand inquiry into public services reform, in which we are looking at shared services and new ways of delivering services. In late February, the committee agreed to my proposal to seek, as part of evidence gathering for our inquiry, further information from COSLA on the potential impact of new EU public procurement rules and shared services limitations on local government. I have written to COSLA to request the evidence and I look forward to receiving it in due course. I will, of course, ensure that the information that I receive is shared with the European and External Relations Committee, the Infrastructure and Capital Investment Committee and the Economy, Energy and Tourism Committee, all of which will scrutinise the important aspect of public services delivery that we are considering.
It has become apparent from the evidence to the Local Government and Regeneration Committee’s inquiry that the EU procurement rules are incredibly complex—Kevin Stewart touched on that. Although the rules provide necessary protections to ensure fairness and provide safeguards in relation to the spending of public money on the supply and purchase of goods and services, they appear to place fairly stringent restrictions on the ability of people who procure public service contracts to maximise contracts’ effectiveness and find local, flexible solutions, which are proportionate to need.
On Monday, the Local Government and Regeneration Committee visited South Ayrshire Council and took evidence as part of its public services reform inquiry. Several witnesses talked about the complexity of procurement rules and guidance and the impact that complex rules and bureaucratic processes can have on communities’ ability to access funding streams and deliver public service contracts.
In recognising that point, does Mr McMillan also recognise that very often in local situations there is gold plating of European procurement rules, perhaps because of a lack of understanding or because we have such a blame culture, in which people are always looking to have a go, that folk are very worried and think that they have to go over the top? Does he think that it would be useful to have a more level playing field across the country, so that people could feel confident that they were operating as they should be operating and as others operate?
Linda Fabiani must have been sitting in on the committee’s evidence sessions, because those points have been made. The point about the need for a level playing field is valid and has been strongly made during our evidence taking.
Community representatives from South Ayrshire pointed out that many of the people and groups who are involved in delivering vital public services to communities in Scotland are volunteers, who simply do not have huge amounts of time or indeed procurement expertise to dedicate to such complex exercises. I am sure that community and voluntary groups all over Scotland would echo that point. We heard examples of how the processes that are involved in procuring services make it difficult for local companies to compete for contracts.
I acknowledge that appropriate protections need to be in place. However, reforms to procurement processes and rules that would make it easier for communities, local companies and the likes of social enterprises to access funding streams to deliver public service contracts, often in partnership, would be hugely welcome.
In the consultation for the forthcoming procurement reform bill, the Scottish Government proposes to align the definition of “major contracts” in the bill with the definitions that are used in the EU procurement directives, which as a principle makes sense. In its response to the European Commission’s consultation, COSLA highlighted that it would welcome higher thresholds being set for all public works contracts, as it is important that procurement processes do not place disproportionate administrative and regulatory burdens on either contracting authorities or suppliers.
The European Commission’s view of shared service arrangements in the proposed EU directive is also a concern that COSLA has raised in its response to the Scottish Government’s procurement reform bill consultation. Again, as the directive is still not finalised, it is not clear exactly what impact that view may have on local authorities’ abilities going forward.
Whatever the final reforms are to procurement legislation and processes, it is crucial that the reforms support the delivery of best value in order to maximise the quality and effectiveness of contracted public service delivery in Scotland.
16:00
I refer to my entry in the register of interests.
I am sure that we all agree that there is always a need for public bodies to spend the public pound wisely. However, that need is even greater in difficult financial times.
As has been said, the public sector in Scotland procures around £9 billion-worth of services and goods from the private, voluntary and independent sectors. That is a huge amount of money—it is nearly the size of the whole of the spend on local authorities or on the health service. That is why it is vital that the Parliament considers the issue. It should seek to consider not only the cost savings to be made but, crucially, how procurement can be used to drive up quality and support some of the key objectives that we as elected representatives want to see—objectives such as supporting and encouraging job creation; promoting a commitment to fair trade; supporting the development of small and medium-sized businesses; and encouraging good employment and family-friendly practices.
A number of public sector bodies now pay their staff the living wage and they should be commended for that. However, it cannot be right that, at the same time, they are happy to award contracts to organisations and companies that do not pay their workers the living wage. Public sector organisations can be accused of operating double standards, applying one set of principles to themselves while permitting others not to meet those standards.
I appreciate that there is a debate about whether European regulations could prohibit the imposition of the living wage as mandatory but, in my view, we should be doing all that we can to promote the living wage through our procurement processes and we should be looking at the use of contract performance clauses. I therefore urge the Government to work creatively to extend the living wage through public sector procurement. If the Government does not act, my Labour colleague Kezia Dugdale is keen to introduce a bill to that effect because, as we understand it from evidence that was given by Thompsons Solicitors to the Local Government and Regeneration Committee, that would be possible.
There has been significant media coverage of the issue of blacklisting and I congratulate Unite the union, GMB and the Union of Construction, Allied Trades and Technicians and their members for being at the forefront of the campaign to expose that shameful practice. I attended a meeting in Parliament over a month ago and I met members of Unite again earlier today. The message from those present was loud and clear. The trade unions and their members want us to do more than simply condemn the practice by words alone; they want us to use the opportunity of procurement to eradicate the immoral and illegal practice of blacklisting.
People who were denied the right to work and earn a living deserve nothing less than that. We know that there are at least 582 men and women in Scotland who have been blacklisted—some of them are in the public gallery today. The map drawn up by the unions shows that people in every part of Scotland have been affected. In my region, people in Paisley, Greenock, Irvine, Clydebank, Johnstone, Erskine, and Renfrew are blacklisted—the list goes on and on. People were driven into poverty, people suffered from depression, and families broke up because people were excluded from work just because they exercised their basic right to join a trade union.
That is why my Labour colleagues and I propose that companies that have been found guilty of grave misconduct such as blacklisting in the course of their business activities should be excluded from providing public sector contracts. Regrettably, public sector contracts have been awarded by the Scottish Government and others to companies involved in blacklisting—we cannot allow that to happen again.
I welcome the Deputy First Minister’s commitment to engage with trade unions and I hope that that will be done on a cross-party basis, so that we can send a message that Scotland is no friend of blacklisters. I advise the chamber that if the Government does not act, Labour will. My colleague Neil Findlay, who cannot be here today, has asked me to put on record that if the Government fails to act, he will lodge amendments to the proposed bill to stop public contracts for blacklisters.
If it is right to exclude companies and organisations that blacklist from public sector contracts, it is surely wrong not to do the same for companies that are guilty of tax evasion. That is an issue that must be dealt with. I understand that many MPs have signed an early day motion in the House of Commons, including members of the Scottish National Party, Labour, the Liberal Democrat Party and the Green Party, and I therefore anticipate that the SNP Government will address the issue in the proposed procurement bill.
Through Scotland Excel and NHS procurement, the Scottish public sector already saves millions of pounds through procurement. The question is what the next steps are. Once cost has been driven down, the savings on second and third-generation contracts are often harder to make. As I said at the start, making things more cost effective is only one of the benefits. We need to consider how procurement can and should be used for social and community benefits. Renfrewshire Council, for example, already asks those who wish to provide services on its behalf whether they pay the living wage. It is also looking to expand its procurement activities to address the issue of blacklisting and tax evasion, and ask questions about whether companies and organisations have family-friendly employment policies and practise job creation and retention.
I understand that Scotland Excel will conduct a round-table discussion on Friday, which Scottish Government officials will attend. I hope that the Scottish Government will follow the good leads that we are seeing in Renfrewshire Council and others.
16:07
The debate is fascinating and colleagues have raised many issues. I propose for the next six minutes to wear the hat of the convener of the cross-party group on construction, and I will address issues that relate to construction and to that alone, probably.
I have already had the Government’s answer to my first point. I think that the Deputy First Minister has been looking at my notes, because the very first thing in them is “project bank accounts”. It is more likely, of course, that she has been listening to the construction industry, which has spoken pretty loudly with one voice on project bank accounts and retentions, to which I will come shortly.
The project bank accounts issue is simply the issue of delay in paying down the chain of supply. The industry assures me that one very large contractor, which I will not name and which probably does more work south of the border than up here, has now told companies in its supply chain that they will be paid in 120 days. That is almost never, in the context of companies trying to put cash through their tills. By the time that payments get to the lowest rungs, the period could well be 150 days—five months.
The longer a business has to wait for its payments, the bigger the risk of insolvency. The same industry contacts tell me that there are some 10 insolvencies in the construction industry per week across the UK. Once upon a time, we could have said that that was something to do with incompetence in the business but, this far into the downturn, we can say that incompetence will have gone. The businesses that are now becoming insolvent are simply being forced into it by being squeezed between the banks and the larger contractors, which are not paying their money.
That is an urgent issue that we need to address, so I am absolutely delighted that the Government is reflecting on project bank accounts. That really is the right direction to go in for major contracts, and I encourage the Government to do that. Of course, the approach is not new—it is already happening in Northern Ireland. Indeed, the Welsh Government has just suggested that it will go in that direction.
The subject of retentions is an issue not only of delay in money getting down the contractor supply chain but of protection from insolvency. The Deputy First Minister knows that fine well. A number that she might not know is that something like £500 million is currently retained in Scotland. That money really should be in the bank accounts of those at the bottom of the food chain, rather than being held at the top, presumably to keep some of the larger contractors solvent. If that is their model, perhaps they need to change it.
The Deputy First Minister will also know that appropriate amendments to the bill have been drafted by appropriate legal people and have been put in her department’s hands by me. On behalf of the cross-party group on construction and all that it represents, I urge the Government to consider seriously how it will be able to address the issue. I am told that, to some extent, even the legislation will be too late.
The Government really needs to find ways in public contracts to ensure that the money is pushed down the chain. It is not enough to pay the major contractor in 30 days, as the Government does. It is also essential that that money goes down through the chain and is not held on to on the spurious ground that something has not been done; otherwise, we will lose the life-blood of our industry.
I wish to be helpful. Have any of the companies that have discussed the matter with Nigel Don looked at finance discounting or invoice discounting to alleviate the cash-flow problem, at least in the short term?
I am absolutely sure that they will have done that. However, when a company is pricing competitively in the first place, it should not need to do that in order to be paid money that it is due anyway. I am sure that Chic Brodie accepts that.
The last idea that I will bring briefly to the Parliament’s attention is integrated project insurance, which I do not think that any member has mentioned yet. Innovation is much easier when dealing with really big contracts, as there are probably more professional advisers involved and there is an opportunity to get things right the first time round.
The idea of integrated project insurance is that all those who are involved in a project—starting with the architects, the major contractors and the major suppliers—put together a project that they insure as a single entity, with the costs of it insured as a single entity. That provides a significant reduction in the cost of the insurance. I am told that 80 per cent of the cost of insurance finishes up being paid to lawyers to sort out where the mistake was made rather than doing anything useful for a project.
Apart from reducing the insurance cost—which is not insignificant in the construction industry—integrated project insurance forces those who are involved in a major contract to get the details sorted out beforehand and to have a contract specification that they can sensibly put their names to and insure as an entity. That tends to encourage folk not to have variations as they go along but to ensure that the design is finalised before they enter into the contract. As everyone in the construction industry knows, that is a good way forward.
16:12
I thank the Infrastructure and Capital Investment Committee for bringing the debate to the chamber to give members an opportunity to feed into the discussions about reform of our public procurement processes.
The high level of responses to the consultation document on the proposed procurement reform bill indicates the breadth and complexity of the subject. One of the great opportunities that the bill presents is to create a public procurement system that is fairer and more sustainable.
In 2009, the Scottish Government’s action plan recognised sustainable procurement as providing benefits
“not only to the organisation, but also to society, the economy and the environment.”
Those are laudable aims. Unfortunately, over the course of the bill’s progress, complexity has shifted to concern, as a number of charities have expressed their fears about the loss of the word “sustainable” from the bill’s title. As we know, the consultation document contained a section on
“Social and Environmental Sustainability Issues”.
As the bill proceeds, it will be reassuring if the potential for procurement to impact positively on the environment and wider society is not lost in a mass of technical reform amendments to existing legislation.
Over the past few years, under existing procurement rules, we have seen positive examples of how public money can usefully be spent. Community benefit clauses and contracts that focus on targeted training and recruitment can, if used correctly, enable public bodies to ensure that public spend is used to include skills and employment opportunities for local people.
However, sadly, that is not always the case. A high-profile public construction project—just a few miles down the road from where I live—in which the opportunities for local people have been a subject of some controversy is the new Forth crossing.
We know that, in 1959, 90 per cent of the steel used to build the Forth road bridge was Scottish. However, in 2012, the Scottish Government announced that the Forth replacement crossing would use steel sourced from China, Poland and Spain and that, out of the £800 million project, only £20 million of subcontracts was awarded to Scottish firms. As well as illustrating the sad decline over many years in Scotland’s industrial and manufacturing capacity, those figures indicate that we need a new way of utilising procurement for major public sector infrastructure projects.
The member has barely recognised that a huge amount of the manufacturing base of this country has been destroyed by Westminster Governments over decades. It is now beyond the capacity of firms in this country to produce the amount of steel—or the right steel—for the job that she talks about. That is a great shame, but she supports the union and the Governments that have led to the decline in those industries.
As I said, my example illustrated that there has been a sad decline over many years, so I thank the member for his comments.
Too often, public bodies revert to a rigid view of what EU procurement law can and cannot do. The complexity of procurement legislation and member states’ adherence to EU rules was picked up by respondents to the consultation. A number of those who submitted their views highlighted the work in the European Parliament on the modernisation of procurement rules and the need to ensure that there is no conflict between Scottish legislative proposals and those coming from Europe.
Given the on-going debate over the interpretation of European procurement rules, as highlighted by the case of the Forth crossing, as well as the arguments over the implementation of the living wage through contract performance clauses in procurement processes, there is clearly merit in the points that have been made in consultation responses. As the European legislation work is still on-going, clarification on how both sets of frameworks—European and Scottish—will be implemented and on the timing of each would be welcome.
From the on-going work in the European Parliament, I was pleased to read the European Commission’s proposals for the introduction of a criterion on the
“most economically advantageous tender”,
rather than simply the lowest cost. That is positive news for small businesses and voluntary sector organisations that might not, although they provide a great community good with regard to employment and service delivery, be able to compete on the same cost terms as a larger bidder.
It may seem common sense to award a contract on the basis of wider sustainable benefits rather than just cost but, unfortunately, that sometimes does not happen. We saw an example of that in Fife in 2009, when the council’s contract to deliver mental health services was awarded to a national company, which consequently meant that several established local mental health groups lost out.
The MSP for Kirkcaldy, David Torrance, was vice-chair of Fife Council’s social work and health committee at the time. He is not in the chamber, but he will be well aware of the impact of the loss of Fife Advocacy on the community and service users. I hope that he would agree that any steps to avoid future losses of similar long-established voluntary organisations as a consequence of procurement decisions should be welcomed.
Given the impact that the lowest-cost tender had on mental health service users in Fife and the disruption that they experienced during the transition to a non-local service provider, I welcome the proposed concept and I would welcome the Scottish Government exploring further the implementation of value for people in any proposed legislation.
16:09
I commend the Infrastructure and Capital Investment Committee on securing the debate. I am glad to have the opportunity to share some of my thoughts, which spring from more than 30 years’ experience of running a small business in the construction sector.
I remember receiving about 25 years ago the renewal documents for a contract for services that my company then provided to Argyll and Bute District Council. The original contract was three pages long; the renewal documentation five years later was the size of a thick telephone directory, and three copies had to be signed and witnessed. The contract was worth less than £5,000 per annum.
I was reluctant—my lawyer friends would approve of this—to sign the document without first reading and fully understanding it. Three pages into the document, I realised that I would need to engage the services of a whole team of lawyers for at least a month before I could safely sign it.
In the end, I solved the problem by the simple expedient of not signing the contract. That seemed like a good solution. We continued to provide the service and get paid for the next 15 years, despite three further tendering exercises and three sets of unsigned contract documents over that period. Nobody ever noticed that we did not sign the contract.
That example epitomises much of what is still wrong with Scotland’s public sector procurement, which is often overly bureaucratic in a way that is disproportionate to the contract size. I am happy to acknowledge that we have made much progress in Scotland and that our record compares well with the rest of the UK and with many countries in Europe. However, it is absolutely right that we should strive for continual improvement, and there is no question but that improvement is required.
Much of the problem seems to stem from risk aversion. I know of two fairly recent significant projects in the Highlands and Islands where the main contractor went into liquidation shortly after beginning the work. In each case, the subcontractors and the supply chain of smaller local firms were significantly out of pocket. In each case, the contracts cost much more to complete. We need the procurement process to be much less risk averse and much more risk aware. We also need a process that properly manages risk—all the risks.
One good way of managing risk is the unbundling or disaggregation of larger contracts. That not only spreads the risk but gives smaller local companies a better chance of winning contracts. Smaller contracts are often less attractive to predatory firms, which may be very good at dealing with the bureaucracy but much less good at actually carrying out the work.
By helping smaller businesses, smaller contracts help Scotland to achieve what the economists refer to as churn—the process by which the big, fat, lazy cats are replaced by lean, mean, hungry cats. That is also the process that drives innovation. Both of those are necessary ingredients in any successful economy.
Rural areas such as the Highlands and Islands present particular challenges for project delivery, particularly in the islands. Almost always, the smaller local firms are best at negotiating and dealing with those challenges. For aftercare and warranty work, I have often found that firms from far afield are—understandably—reluctant to send operatives out to far-flung places.
We need to focus much more on outcomes and the quality of outcomes and far less on process. That is especially the case in tendering architectural work, because even our most successful architects tend to work in small companies. If we cannot capture quality at the design stage of a project, we will not achieve it further on in the delivery process.
The great thing about a small country such as Scotland is that we can drive forward the process of reform and continual improvement faster than larger countries can. The Parliament has already delivered procurement processes better than many other countries—think what we could do with all the levers of innovation and reform at our disposal.
16:24
Like others, I thank the committee for bringing the debate to the chamber.
The Deputy First Minister referred to the tension that can exist between different priorities in procurement, and several examples of that have arisen in the debate. As Mike MacKenzie hinted, there is the tension between legal compliance and risk aversion, which can be the two ends of a spectrum. There is also a tension with regard to the interests in which procurement and competition law operates. Does such law operate in the public interest and the interests of the common good or does it simply serve private sector competitors’ interests? Can it genuinely benefit the wider common good?
There is a tension between legislation and culture change. Do we need one to drive the other? Can they be self or mutually reinforcing? Moreover, there is the tension that the Deputy First Minister highlighted between giving small businesses in Scotland opportunities through procurement legislation or the approach to procurement and the value-for-money priority. As several members have argued, value for money must not—indeed, it cannot—simply be seen in terms of direct financial transactions. That kind of reductive approach, which sees only the part of the economy that shows up in money terms, is at the heart of a great number of our current economic problems. If such procurement decisions create unintended consequences that undermine public policy or the common good, we cannot really call cheapness value for money.
All those tensions were highlighted back in 2007 when the Green Party lodged a motion on green procurement for debate in the chamber. We asked the then Executive to produce guidance that had not previously existed on what were new EU rules; although the directive had come into force a year before, no guidance had yet been issued. If I remember rightly, the Government added that guidance to its website the evening before the debate, so progress was made even before we got to the chamber. However, we also called for a mandatory requirement for sustainable procurement criteria to be added to public contracts. Again, the tension between a mandatory or legislative requirement and culture change arose, and we argued that one can drive the other.
Members have mentioned a wide range of criteria that they would like to be included, and I agree with the comments from Labour members about wanting as many of them as possible to be specified in the bill. Those criteria might include environmental performance, which can be measured in a range of ways, from waste production to CO2 efficiency per unit of output, and ethical aspects such as trade justice and issues that I have discussed with the Minister for External Affairs and International Development, Humza Yousaf, about whether it is appropriate for public bodies to bring in wider international matters and, say, boycott particular products as a result of the situation between Israel and Palestine. I note that many local councils have on ethical grounds begun to move away from Eden Springs for the provision of water in their buildings.
In addition to greater specificity in environmental and ethical matters, we need to consider economic justice arguments, which do not stop at the living wage and include blacklisting, which has been mentioned, and wider positive engagement with the trade union movement, which I hope that we would all like responsible employers to support. We should also address zero-hours contracts and the very exploitative employment model that they represent.
How much more radical do we want to get? Perhaps we should look beyond the living wage by exploring maximum wage ratios and seeking to ensure that not just the public sector but the private sector reduces the gap between the richest and the poorest in our society. All that, and a range of opportunities for employee participation, could be specified in legislation.
The Deputy First Minister might well say that it would not be possible to do that, even in a future iteration of the EU legislation, but I will make a suggestion that I hope that she will respond to in her closing speech. If we cannot specify all the things that I have mentioned, can we ensure that there is a mandatory requirement for generic criteria under which a company that is bidding for a public contract would have to demonstrate economic justice and which would allow the Government to have regard to the living wage, zero-hours contracts, union recognition and worker participation?
I have looked at the correspondence between the European Commission and the Government on the living wage, and it appears to me that the question has been about that issue specifically rather than something more generic. The Government should respond to that.
I call for strategic intention to be specified in the bill so that, as the EU rules change not just this year but in the future, local procurement decisions are made with the greatest possible duty to make the most allowable use of sustainable, ethical and economic justice requirements in all future contracts.
I remind members that when they intend to contribute to a debate it is courteous to be present for all the opening speeches. That is not only courteous; if members are not present for the opening speeches, they are in danger of being dropped from the speakers list.
16:31
The Infrastructure and Capital Investment Committee’s decision to bring the matter that we are discussing forward for debate means that we are starting the process of dealing with the procurement reform bill rather earlier than we might normally expect. The approach is not unprecedented, and it has certainly been an advantage in this case. That is ably demonstrated by the range of interesting angles that have been taken during the debate.
I share the cabinet secretary’s view: the current process has its qualities but could be better. In fact, if anything characterises the procurement process, it is that there has been more than one attempt in the past to make it as good as it can be and each attempt has thrown up difficulties, some of which were largely unforeseen. The process needs to be properly applied and appropriately worked through, but we have a challenge to ensure that that happens.
My position is slightly different from that of some members, in that I would like to see more public services put out for tender. That means that we need a robust system in place as local authorities start to deal with the problems of reduced budgets. We have to admit that there are recruitment problems in some parts of Scotland as a result of labour shortages, and it is difficult to find people to do work in-house. The result is that we must have in place a process that will become more important as time goes on.
EU procurement rules and the framework that surrounds them have been widely discussed in the debate. We have a serious problem to address in that, as others have said, we have a habit of gold plating European regulation in this country and have tended to take the view that something might be outside EU procurement rules when it is not. There is quite often evidence from other countries—sometimes competitor countries—of how they apply the rules in a wholly different way. The challenge for us is to ensure that we have a fair process in place that allows Scottish companies appropriate and adequate access to available contracts, but also ensures that we do not put at risk our access to other countries’ contracts by being too severe in how we treat their companies.
I talked previously about the difficulties around custom and practice. Does Mr Johnstone think that some of the gold plating that goes on is a result of previous custom and practice around the daft compulsory competitive tendering rules that we used to have to follow?
I have already made it clear that I believe that there are certainly problems with how we have dealt with the matter in the past. However, we have an on-going problem. A number of members have already mentioned our tendency to be risk averse in how we handle these things.
There is a genuine problem of risk aversion in the award of public sector contracts, which is epitomised by the way in which, when bids take place, private sector bidders will go right to the line to achieve an advantage and win a contract, whereas those who are negotiating the contracts on the public sector side are risk averse and will give the line a wide berth. There is a different understanding of where they need to be.
We must also consider the award of contracts in a slightly different way. Despite what some members who have spoken in the debate might think of my views, my concern is not only about getting public services into the private sector. I am also concerned to ensure that voluntary or third sector organisations have the opportunity to provide the quality services that they can provide and to bid to provide those services within the structure that we create. We have to get that right, because I have heard too many stories from the private sector and particularly the voluntary sector, where organisations are very small, that the difficulty is in trying to fit through the portal and get into the system.
This is anecdotal, but it has been said that, for a company that is big enough to have a full-time individual or perhaps a whole department dealing with procurement issues, that job will be done but, for a one-man company or an organisation that is run by a small group of volunteers, it is more difficult to engage with the process, because the people who are involved cannot devote themselves to that full time.
We are entering a vital process and there is a great deal to be gained. I take confidence from the fact that, apart from a few members who have perhaps flown off at a tangent, we are all singing from the same hymn sheet on the issue, not least Nigel Don. Scotland’s construction industry is in a difficult position, but it has the potential to create a great many jobs and training opportunities for our young people. If we get procurement right, particularly in construction, we can achieve a great deal. Therefore, the Government will have my support in principle. I look forward to proceeding with the process and to producing legislation that will deliver an effective procurement system for Scotland’s companies.
16:37
There has been a fair degree of consensus during the debate. Several members have commented that the bill cannot be a panacea for all procurement ills, but that there is a big opportunity to use public sector procurement to produce social and economic benefit and benefit for business. Many members have commented that best value is about far more than just achieving the lowest cost; that a cheap price is not necessarily value for money; and that the level of spend can have a major impact on society and the environment.
Many members spoke about the advantages of enabling smaller businesses to access public sector contracts more easily. A number of examples were given, many of which seemed to reinforce points that Jim and Margaret Cuthbert have made. For example, Margaret McCulloch described how smaller businesses can be squeezed out and reduced to trying to get the less lucrative subcontracts rather than have access to the more lucrative parts. Tavish Scott gave us a concrete example from his constituency, where the tendering process for a new school through hub north Scotland has lacked transparency. There seems to be little information on whether local businesses were even involved, never mind getting contracts.
Anne McTaggart described the importance of enabling small businesses, given the local employment opportunities that they can offer. Access to public sector contracts can allow small businesses to grow and to increase local employment opportunities. Nigel Don drew our attention to project bank accounts and retentions, the problems of late payments to smaller subcontractors by major contractors and the delays in money getting down the food chain to the smaller contractors that really need it.
Jayne Baxter gave an example about the loss of the Fife advocacy service because of procurement decisions, which meant that people with mental health issues could no longer access the services that they needed.
As many members have said, the bureaucracy of the procurement process is an issue. Linda Fabiani and others mentioned the pre-qualification process, which can be onerous and repetitive. We all welcome the fact that the Government intends to take action on that.
Nigel Don mentioned integrated project insurance, which chimes with some of the issues that were raised in the FSB report, which noted that insurance requirements are often disproportionate for smaller businesses.
The bill consultation favoured the prohibition of charges for the issue of tender documents, as such charges can deter smaller businesses. One of the larger companies—Morrison Construction—that attended the seminar that I mentioned in my opening speech says that, at as much as £1 million for a £40 million contract, the cost of bidding can be disproportionately high. A number of issues can be problematic for small businesses.
Many members talked about the ethical obligations that can be included in procurement legislation. Several members referred to the need to take action against companies that are involved in the insidious practice of blacklisting. There has also been reference to the opportunity that the legislation offers to encourage the payment of a living wage. There seemed to be some dispute between members as to how that could be achieved. I was interested to hear from Chic Brodie that he had some legal advice that indicated that including a living wage requirement in the legislation would be possible, and Neil Bibby referred to advice from Thompsons Solicitors, so the question of how far we are able to go on that might bear additional scrutiny.
There is a consensus—certainly between Labour and the SNP—that we need to look at how we can use legislation to counter the heinous practice of blacklisting, and I welcome the commitment to work with the trade unions on that. Patrick Harvie raised an interesting additional issue relating to the possibility of excluding zero-hour contracts. The use of such contracts is an insidious practice that is often perpetrated on young workers, and I hope that there might be an opportunity to address that in the legislation.
Does the member appreciate that, as employment law is a reserved matter, it would be the UK Government’s place to do that, and not ours?
We are looking not at excluding zero-hour contracts, as we cannot do that, but at whether there is a possibility to exclude from the procurement process companies that operate such practices. That is what I am talking about.
There has been much discussion around the EU directive. I agree that there is often a rigid view—perhaps a gold-plated view—about what one is allowed to do within the terms of EU directives. As Kevin Stewart said, the barriers that are perceived to exist are sometimes not there.
The report by Jim and Margaret Cuthbert, to which John Mason referred, gives a number of examples of different EU countries that have been able to use national legislation to break down procurement into smaller lots that are more accessible to small businesses.
We might want to look at a number of other issues, including the importance of offering feedback and debriefing information—particularly for smaller businesses—following an unsuccessful tender so that businesses know why they did not get the contract, and the need to look at opportunities for growing small businesses by anticipating gaps in local provision and seeing what action can be taken to fill those gaps. The bill presents us with many opportunities to investigate some of those issues further and to look at how action can be reinforced through the legislative process.
16:43
Today’s debate has generally been very good, and I have taken something positive from literally every contribution—even from that of Alex Johnstone, which is something in itself. I thank members for their contributions, which will be very useful to us as we finalise and refine the content of the bill.
I apologise for the fact that I will not be able to reference every member in summing up—I simply do not have time to do so. Elaine Murray said at the outset that she was quite surprised at the high level of interest in the debate, but—like Kevin Stewart—I am not surprised. I think that all of us know from our constituency experience just how many frustrations and barriers—perceived or otherwise—businesses feel that they face in the procurement process, and we all have an obligation to respond to that concern.
The fact is that procurement spend is a powerful economic lever—indeed, it is one of the most powerful that we have at our disposal—and we need to use it to support the economy, promote sustainability and help businesses to grow. However, we also have a duty to taxpayers to get the maximum value for money out of that spend. Some of the concerns that we have heard this afternoon arise from that obligation to get value for money.
There has been talk about tensions—I spoke about them, as did John Mason and Patrick Harvie—and there are inevitable tensions at the heart of the procurement agenda. However, I believe that if we do this properly and make some of the changes that are being talked about, we will find a lot of synergy between those apparently conflicting aims and objectives. As has been said by many speakers in the debate, value for money is not just about cutting costs. If we support sustainable growth, that in itself delivers value for money.
I was struck by Kevin Stewart’s contribution. He has a point when he says that perhaps there is not the understanding that there should be of the concept and definition of value for money. That leads me to another point about John McClelland, whose work kicked off progress towards the bill that we will introduce shortly. He often talks about the importance of capability and capacity in those who procure for public authorities, and how we need to make sure that they have the professionalism, knowledge and understanding to give them the confidence to apply the common sense and gumption that Kevin Stewart spoke about.
In an excellent speech, Mike MacKenzie made a good point about the importance of helping SMEs win contracts, which is good for them as businesses and good for the economy. However, it is also the case that some of those contracts will deliver a better quality of work and better aftercare. Those are all important points.
I want to address some of the issues that were raised during the debate. Elaine Murray raised a concern about a perceived shift of emphasis in the bill, and I take the opportunity to assure members that there will be no shift in emphasis away from sustainable procurement. I and others have talked about ethical procurement, which is an important part of a sustainable approach. Good procurement will be sustainable procurement, and sustainability, whether environmental, social or economic, sits at the heart of what I describe as the value for money triangle of cost, quality and sustainability. That is at the heart of our approach to procurement and it should be at the heart of the bill as well.
Mary Scanlon mentioned the commissioning of care and support services. We published guidance on that in September 2010 and the European Commission’s proposals also recognise the specific circumstances pertaining to social care procurement. We acknowledge the need to consider that carefully as we proceed with the bill. I hope that members are reassured to know that the Coalition of Care and Support Providers in Scotland is represented on the bill’s sounding board, and obviously we will take close cognisance of the coalition’s views.
Chic Brodie, other members and I mentioned EU law, and Stuart McMillan gave us a helpful update on his perceptions of European developments. I understand the frustrations about EU law, some of which I share. However, our companies benefit from open markets and we must make sure that we operate maximum flexibility within the rules.
Linda Fabiani, Mike MacKenzie and other members mentioned a risk-averse culture and we need to make sure that we take sensible and proportionate approaches. We must also lobby for change when we think that change is essential. It will not surprise anyone to hear that I agree with Kevin Stewart that if we were represented at Europe’s top tables, we might be more effective in lobbying for some of that sensible change.
Will the cabinet secretary take an intervention?
I am very tight for time, so I ask the member please to be brief.
Will the cabinet secretary respond to my suggestion that a strategic statement of intent will ensure that we have maximum flexibility and do not lock in current practices?
There would have been more chance of my getting to that point if Patrick Harvie had not intervened. Yes, I will give specific consideration to that point.
Margaret McCulloch and Nigel Don mentioned small companies that lie further down the supply chain. They make the outlays but have to wait for lengthy periods before they get paid, while the money sits in the principal contractors’ bank accounts. That is why I was pleased to make my announcement about project bank accounts. Nigel Don made an important point about retentions. He has given me draft amendments to the legislation, which we will consider very carefully.
Linda Fabiani, Tavish Scott, John Mason and others rightly said that, important though the bill is, it is not the be-all and end-all, although it will allow us to accelerate progress, further simplify processes, put sustainability centre stage, and make sure that good practice—standard questions, for example—are not optional but are required of public bodies when they buy goods and services.
I was glad to see that, throughout the debate, there was recognition of the progress that we have made. I will not repeat the statistics that I cited in my opening speech; suffice it to say that when it comes to SMEs getting contracts, we do better than other parts of the UK. We are not good enough, but we do better.
I take the point about the definition of SMEs, which is why in my opening speech I made a point about the proportion of our spend that goes to companies with fewer than 50 employees. However, as Alex Johnstone and others said, there is room for improvement.
I want briefly to say where I want to see improvement as we go through the process. First, I want greater simplification, transparency and standardisation. I also want a level playing field. Many of the complaints that I hear are not from firms that lose out in the tender process but from firms that feel that they are unable to get into it. I think that that was Tavish Scott’s point, and we must deal with it.
Secondly, I want to ensure that procurement spend is a force for good and that we are supporting the economy and its constituent parts, and promoting good practice, sustainability and ethical behaviour. I noted John Mason’s point about social enterprises, and I can say to Neil Bibby that I am more than happy that our approach to blacklisting is being taken forward on a cross-party basis with the trade unions. That is important.
My final point is that we must ensure value for money in the broadest sense of the term. The more value for money that we get, the more we get for our money. The more that we get for our money, the more contracts we can have and the more work there is for companies in the first place.
I thank members again for a very useful debate. I very much look forward to continuing these discussions as we take the bill forward.
16:51
The debate has been extremely useful and I thank members very much for their contributions. I am sure that the committee will take on board members’ comments when the bill comes to it for scrutiny. We will ensure that we have copies of the Official Report, because we might not be able to keep all the points raised in our heads until June or whenever the bill is introduced.
As folk have said, there has been a great deal of interest in the bill. The number of briefings that has been received is one of the highest I have ever known. An extremely broad range of organisations submitted briefings, from charities such as SCIAF and Oxfam to care organisations and construction and other business organisations. Even the British Medical Association sent a briefing, on the ethical procurement of surgical instruments. As Linda Fabiani and Tavish Scott said, there are high expectations of the bill. I am not sure that they will be met but I can reassure members that the committee will try as far as possible to listen to and accommodate all the contributions.
Like Elaine Murray, I attended the David Hume Institute seminar on procurement in January. I was impressed by the amount of interest in and enthusiasm for meaningful change that was shown by the speakers at that event and in the informal discussions afterwards. We heard about the importance of sharing good practice in public procurement and the willingness of a variety of organisations to do that. We heard about concerns about the cost of quality bids from prospective contractors, which can sometimes be in the region of £1 million for a £40 million project. Those costs are ultimately paid for by the public purse as part of the overall contract costs. In some cases, the bid costs are also paid out to unsuccessful bidders, which is not unreasonable. Again, though, that adds significantly to overall costs. Perhaps it would be worth while to identify any steps that could be taken to reduce or streamline the work that is required to formulate and deliver bids and therefore reduce the overall project costs.
As has been mentioned, it is expected that the Infrastructure and Capital Investment Committee will conduct formal scrutiny of the bill at stage 1. We will certainly call on all areas of the public, private and third sectors to engage fully and directly with us in the formal scrutiny of the bill. We will seek to work with the various representative bodies on how we might best encourage that engagement.
In addition, I fully expect that the committee will seek to identify opportunities to hold informal discussions with representatives of all sectors to hear suggestions for improvements that would make a meaningful difference to the ability of all sectors to engage with the procurement process in future.
Could you move your microphone slightly towards you, please? Also, I ask other members to respect the fact that someone is speaking.
We recognise the clear and legitimate interest that other parliamentary committees have in the bill’s provisions, and the committee will be more than happy to discuss with committees ways in which they might contribute to the scrutiny of the bill. It was interesting to hear from members who thought that the committees that will scrutinise other bills that will go through Parliament, such as the health and social care bill and the community empowerment bill, could in doing so take on board some of the points that have been raised today.
A few themes can be identified in this afternoon’s debate. Chic Brodie, Kevin Stewart, Linda Fabiani and others spoke about breaking down the barriers and stopping the inclusion of risk-averse conditions that are there simply to cover people’s backs. We need to ask questions and challenge existing practices to see whether they are delivering the best for the taxpayer, the user and local businesses. I was interested to hear about Mike MacKenzie’s experience and I liked what he said about being not risk averse but risk aware. The financial viability of the businesses and organisations that are tendering for work is vital. I often feel that third sector organisations are subjected to much more scrutiny than private sector organisations are, and I do not think that that is fair.
Members raised the idea that people sometimes hide behind EU procurement rules. It is important that, before contracts are awarded, the bidders are made fully aware of what is required in the contracts. I was interested to hear the Minister for Housing and Welfare say that, when a public meeting was held to discuss the contract for the Aberdeen western peripheral route, a huge number of people turned up to find out what the contract was all about. I take on board Elaine Murray’s comment about the need for feedback, so that organisations feel that, even if they have not won one contract, they can tender for others.
I say to Tavish Scott that I raised at the David Hume Institute seminar, which was mentioned earlier, my concern about hubs and consortia. There is a role for Scottish firms coming together in consortia in order to bid for large contracts, but I have a feeling that a too-cosy situation might develop between companies that have the major contracts and bodies that require work to be done, and that people might just go with the contractors that they know. I will keep that in mind when we scrutinise the bill.
Many members mentioned the living wage, blacklisting and tax avoidance. A lot of hot air was expended on the subjects, as well as some light being shed. The public sector has made significant progress on the living wage and the Scottish Government has led on making it be seen much more as something that should be the norm rather than not, as is the case in some companies. As a former human resources professional, I think that blacklisting is sloppy HR practice. Companies should not have dealings with companies that have a blacklist. Instead, they should do their own recruitment to a much higher level, if that is what is required. On tax avoidance, the public have led by example by boycotting the companies that have been trying to avoid paying tax.
I was pleased to hear what the cabinet secretary said in her closing remarks about the sustainability issue.
This has been an interesting and worthwhile debate. I know that the cabinet secretary has listened closely to the points that have been made across the chamber, as have the members of the committee. I thank all who participated in the debate.