Public Audit Committee

Meeting date: Thursday, June 30, 2022

Official Report 676KB pdf

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Major Capital Projects

The next item on our agenda is consideration of evidence and witness information on major capital projects in Scotland, which the committee has taken a long-standing interest in. I am delighted to welcome Helen Carter, deputy director, infrastructure and investment, Scottish Government; Lawrence Shackman, director of major projects, Scottish Government; and Bill Reeve, director of rail, Transport Scotland. We have a fairly limited amount of time this morning but we will try to maximise the best use of it.

I have a couple of opening issues that I want to explore. My first question is partly for my benefit. We have received a briefing that suggests that, as far as the capital budget allocations that you have are concerned, there has been a higher than expected financial transactions budget allocation but a lower than expected capital budgets allocation over the next few years. What do the financial transactions budget allocations derive from and where do the capital budget allocations come from? Helen Carter, could you answer that?

Yes, I am happy to do that. The capital budget allocation comprises capital grant funding from HM Treasury and also the utilisation of our capital borrowing powers. Financial transactions funding also comes from the Treasury, but it is a specific type of funding that can be used only to make loans or equity investments, so it cannot be used to build things in the traditional sense; it has to be repaid, so it has much more limited use. Where we have deployed that is, for example, in the Scottish National Investment Bank, which can use financial transactions funding to make loans and invest in businesses and investment propositions. We have also deployed it primarily within housing, in relation to some of the shared equity schemes and so on. It is just a different type of capital funding, but it is all part of the overall capital package of investment.

This morning we are primarily concentrating on transport projects, especially road and rail. Again for my information, could you explain a bit more about the targeted review of the capital spending review, which sounds to me like a review of a review? What is that comprised of? How are priorities are set and allocations awarded at the end of that?

In 2021, we published the CSR, which was a multiyear plan for capital investment up to 2025-26. That coincided with the publication of the infrastructure investment plan covering the same period. The infrastructure investment plan set out our priorities and, essentially, the CSR allocated the funding over the same five-year period, so there was a clear link between finance, the strategy and the priorities. However, we published that in advance of the UK Government spending review, which took place in October 2021. As a result of the UK spending review, the capital grant that we had was less than the one that we had modelled in the CSR, so we had to undertake a review to work out what to do about the shortfall. At the same time, since February 2021, when the CSR was published, there has been a significant change to market conditions: supply chain issues following Covid, issues in Ukraine and high inflation have had an impact on our capital programme. I think that that is evident from the major capital projects update that you have also received. However, we wanted to take that into consideration with the targeted review of the CSR.

The final factor that impacted and gave rise to that review was the fact that the new Government formed after the CSR had been published, and, although net zero and climate change were a feature previously, there was an increased commitment in that regard from the new Government, so there was a realignment of some priorities to invest more in those low-carbon initiatives.

Those three factors were the rationale for doing an updated review just over a year after we had published the plan, but the principles that were set out within the infrastructure investment plan and the initial CSR were, by and large, kept the same. The strategy is the same but it has meant that portfolios have had to re-evaluate the plans based on the latest projections in terms of time and budget for those particular projects and also to accommodate some increased areas of priority spend, for example, in low-carbon initiatives, including increasing active travel.

Some other priorities have been slowed down, so they will stretch out longer than the original CSR period, but the Government remains committed to those projects and programmes that were set out. There has not been any deviation from what we have set out initially, but it is absolutely a balancing act between managing the pressures, the volatile market conditions, which will change again, and the projections that are set out. I am sure that, with the best will in the world, those will ultimately change because of the uncertainty that exists within the delivery environment just now.

Do you do any work to disentangle the relative weight and impact of Covid, the Russian invasion of Ukraine, Brexit and so on and the effect that they are having on your supply chain costs and availability?

There is quite a lot of work going on in that regard, primarily led by our procurement department. The Minister for Business, Trade, Tourism and Enterprise has been involved in those discussions with the construction industry. There is certainly a lot of work being done to consider the impact and what can be done to help. It is not an issue that just relates to Scotland, though; it is a worldwide issue, so we are not alone in experiencing these issues.

Good morning. It is fair to say that this committee has been keenly focused on the capital projects report from year to year. Our approach has probably changed over the years with regard to how we ask questions in relation to that, but what has probably been a constant is a focus on projects that are delayed, overrunning and over budget. That is the first thing that jumps out at committee members, so that is still there. From my perspective, I am always interested in how we apply standards to the construction of anything, whether it is roads, bridges, schools or even ferries. In broad terms, in the suite of projects that are under way, are recognised quality management construction standards being applied across the board? Are we able to see that in a simple form that would assure the committee that that is taking place?

Lawrence Shackman might want to answer that from a transport perspective.

In terms of roads—rail is similar—there is a suite of design standards that specify how a designer and ultimately a contractor should go about designing and building a project. For roads, it is the “Design Manual for Roads and Bridges”, which is a well-known, well-recognised document, and alongside that is a specification for highway works or roadworks in Scotland, which specifies what concrete you should use in certain locations, the quality of kerbing and all the sorts of parts of the infrastructure you would expect. That document is always under review and it is shared generally across the UK. Scotland contributes to that in terms of many aspects that are local to Scotland, so it has Scotland-specific parts to it. That is the general backbone of what we do when we are designing and building a road. For rail, there are similar standards. Bill Reeve could probably comment on that.

Once we take the process forward, there is a system of quality checks through the design process. Certainly, when we get to site, our projects have a certification requirement from the contractor to make sure that the works are not only constructed correctly but designed correctly. An independent checker is employed to ensure that the design is competent and complies with the standards and that the works have been progressed on site into what was envisaged at the outset. There is a series of checks and balances from the point of view of the contractor and the designer. Over the top of that, Transport Scotland will have a consultant, or the employer for a contract, who undertakes monitoring of all the works and does audits on site and has eyes and ears on the ground to ensure that there is a further additional check on what is produced.

10:45  

Sitting outside of that, we have the gateway review process to make sure that a project is competent at various key stages and we will also have audits by the likes of Audit Scotland to ensure that we have sense checks on what we are doing. Of course, the governance that we have in place for all our projects is very comprehensive. It depends on the scale of the project, but it could be that we have a project board for the bigger projects and a team for smaller-scale projects—there is a range of governance. I will not go into all the details but that gives you a flavour of how we make sure that projects are built to the necessary quality, to time and on budget and that they are built safely.

Colleagues will no doubt pick some examples from the portfolio, but with all those standards in place at the outset, why do projects sometimes go over budget and over time? You are applying the standards and construction and design techniques are being followed to the letter. Why do they overrun?

There are a number of reasons why. In the design and development phase for roads—that is, the early stage of a road project—the project needs to go through a statutory process to give people a chance to air their views on a variety of routes. At a later stage, the process involves the specifics of the chosen route. As we go through the statutory process, some people might have objections to the chosen route, and that could lead to a public inquiry, as you are probably well aware, which can take a lot of time. It can be difficult to determine how long that process will take—how long is a piece of string?

I was talking about issues during the construction phase, not from the approval. Why does a project become late or over budget if everything is agreed up front and the specifications, designs, budget and so on are in place?

There are a number of variables on site. For example, the weather conditions can vary greatly from what was envisaged. Normally, at the start of a contract, weather data is provided to the contractor and the contractor can reach its own conclusion about how long it will take to do that particular project. Sometimes, the weather can be worse than normal and can cause delays that have knock-on effects to the programme that mean that the phase of the project that involves surfacing being laid will now coincide with a time of year when the temperatures are very low and are not conducive to laying surfacing. You can try to mitigate that by getting in extra resources and that sort of thing, but unforeseen conditions can mean that it is quite a challenge for a contractor to meet a programme.

If and when a project begins to slip in the delivery schedule or budget, how soon does that get spotted and who gets told about it? Where does the chain of information flow go? It will eventually come back here at some point and we will see it through Audit Scotland’s reporting, but how soon is it captured that there may be an issue with delivery, timescale and budget?

All the projects are formally monitored monthly by Transport Scotland’s site representatives. Transport Scotland itself will attend those site meetings together with the contractor and its consultant and it will address the programme—where the contractor said it would be and where it is—and flag up early warnings. It will look at the risk register and see how that is moving forward with regard to all the key risks on a particular project. That is monitored, too, as well as the spend profile. Issues such as the contractor not realising some of the milestones that are required for certain payments and them slipping from one year to the next will always be flagged up by the site team and recorded formally at a monthly progress meeting and then escalated up accordingly to a project board, if it is a big project, and then on to the infrastructure investment board and all the various other parts of the reporting structure.

Good morning. Could you expand on the present governance arrangements for roads and rail projects, including possibly a little bit of an illustration on the interactions between the Scottish Government and Transport Scotland?

Transport Scotland receives the budget for the capital programme across all modes. All major capital investments are authorised through our investment decision-making process, at which all the directors of Transport Scotland come together to advise the chief executive in his accountable officer role on the best approach to any particular investments.

For each of the modes, there is then a set of separate project delivery and governance arrangements. For example, we have a rail portfolio board—I would have to defer to Lawrence Shackman for his equivalent. The portfolio is reviewed and then we would have project-specific review meetings with Transport Scotland project sponsors—in our case, dealing with our delivery partners in Network Rail and ScotRail—to review progress on individual projects and items needing escalation or items that have a portfolio impact. On Mr Coffey’s point about what we can do to improve standards to drive through efficiency, those things would be considered at a portfolio level as well. That is very much an outline.

In terms of the governance and the budget, as Bill Reeve has said, those issues are discussed within the project and then they go up to portfolio level. If an underspend—or an overspend, for that matter—is emerging, that is reported through the monthly budget monitoring to the Scottish Government. For Transport Scotland, that would be through the net zero portfolio return each month to the budget monitoring report.

Centrally, we would look at the overall capital position. That is where decisions would be taken on what to do if there is an overspend or an underspend and whether there are projects in other portfolios—if not within transport, we could look at health or another portfolio—where an underspend could be utilised. That can sometimes be very difficult depending on when the underspend emerges, because it is harder to turn the taps on in a capital project, but that is the next step.

On governance, the IIB receives six-monthly reporting as well. We would send key themes that have emerged to the IIB; it might want to explore them further and look across portfolios.

Do you have any examples, particularly in the roads area, where any reprofiling or cost overruns or any other issues are impeding progress?

I can give an example from the Queensferry crossing, to go back just a few years. It was such a huge project and it was quite an art to manage the spend profile between the different years of construction depending on the contractor’s progress. Trying to flag and monitor the programme and being able to hit the milestones and meet the in-year budgets was a constant issue all the way through the project. Early warnings of not meeting that budget or not spending all the budget or needing further budget were flagged up appropriately at the monthly progress meetings that I mentioned before.

That project also had a project board, which was chaired by the chief executive of Transport Scotland and various other representatives of Scottish Government—finance and legal and a wide range of interested parties attended the six-weekly project board. In relation to all those issues surrounding budgeting profiling and whether we would meet the huge amount of money that was spent on the project each year and managing that process, it was very well scrutinised and managed.

With major infrastructure projects, there are the finances, there is the planning system, and then there is the broader policy dimension. In the past 12 months, we have seen the Green Party come into Government and there is an attitude within the party—I am looking at a headline from a few years ago, which reads:

“Greens launch campaign to stop Sheriffhall spaghetti junction”.

There is a particular quote that stands out, which says:

“Since the 1960s we’ve known that if you build more roads, they fill up with cars. That’s why the proposal to turn Sheriffhall roundabout into a spaghetti junction isn’t an upgrade”.

Is there now a change in policy focus that you think will impede some of these major infrastructure projects, particularly in relation to roads?

Times have changed—we have the climate crisis, we have difficulties with the economy and we have a number of other factors. The impact of Covid on transport and how people are travelling is another key issue. With Sheriffhall, the key thing is that although it will help to smooth the flow of general traffic—which ultimately will become electric traffic, if I can use that phrase—it also frees up the connectivity across the junction, which is stifled at the moment. In that scheme, a huge amount of active travel infrastructure is proposed, as well as priority measures for bus traffic. It is not just about moving the cars out of the way and trying to help solve the problem in terms of car movements. That is not really what the aim is. The project will help with active travel and that is one of the key factors on a lot of the road schemes.

You might not think that building a new road is a good use of money in the current climate, but it provides the ability to go back, and for the relieved part of the town or whatever it might be, such as the Maybole bypass, which was opened earlier this year, there is a whole new lease of life. The town centre can benefit from enhanced air quality and it does not have the congestion of traffic going through. It is a much safer place to live and work and enjoy.

Is there a risk that we could get an anti-roads agenda coming in? You guys could all be out of a job.

We did have a large number of objections for Sheriffhall—I think that there were over 2,700 objections. The best place to resolve the issues around the design of the project and what benefits it will provide is at a public inquiry, and that will take its course through the statutory process. The reporter and Scottish ministers will ultimately determine whether we should go ahead with the project once it has been through a public inquiry and it gets the available funding, which is obviously part of the Edinburgh city deal.

Is there a risk that campaign groups could hijack the planning process in order to slow down what you are saying is an essential infrastructure development?

Everyone needs to have their say, so if people do not like a project for whatever reason—it could be climate related, or it could be because it is near to their property—they need to have their say. It is very hard to say whether the term “hijack” is appropriate or not, but people have to have their say.

I should have said, Mr Shackman—my mistake—I introduced you as being from the Scottish Government. You are in fact employed by Transport Scotland.

I am indeed, yes.

I will follow on from my colleague, Craig Hoy, and be absolutely parochial about this, because I am the constituency MSP for the area in which Sheriffhall falls, so I get a huge amount of correspondence on it. I put on record my support for the Sheriffhall development, but also there is massive support among residents, particularly in the Midlothian area and in the Shawfair development. There is a great deal of anxiety that the development is being delayed. There is always a fear that the longer something is delayed, the more at risk it becomes. How secure is the funding for Sheriffhall? Is it set in stone?

Sheriffhall has the advantage of being one of the city deal projects, so there is committed funding to that mechanism to take projects forward. Therefore, it is slightly different from some of the other projects on the book, where funding may not be quite so guaranteed. We are anticipating that the public inquiry would be later this year. I think that a reporter has just been appointed to the public inquiry and we would be hopeful of a ministerial decision in autumn 2023.

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We would then have to make the road orders and acquire the land and take on the procurement of the project to get a contractor on board, with an anticipated scheme opening of probably 2028, which I think is still within the timeframe of the city deal. It depends on how the public inquiry goes and how long that takes.

On some sections of the A9, we have had inquiries and we have been waiting a very long time for the reporter to publish their report—in excess of a year for some stages. For other stages of the A9, we have not had to have a public inquiry at all because the unanimous view has been that dualling should go ahead on that particular section.

A great number of objections have been lodged—over 2,700, you said. There has obviously been a large campaign orchestrated by one of the political parties, and I understand that the cycling organisations have geared up. I also understand that the vast majority of the objections are outside my constituency and the immediate area of Sheriffhall. Have most of the objections been satisfied?

We have written back to all the objectors, outlining what the scheme will do to mitigate their concerns as far as possible. Obviously, they still have their objections and we need to resolve those. I understand that a number of objections are very similar in nature and concern cycling and the active travel facilities. A review of the junction was undertaken just a few years ago, to see whether the current proposals needed to be changed to provide better facilities for active travel and public transport, and it was determined that the current design is the most appropriate.

As I say, there are extensive footway and cycleway facilities, which means that pedestrians and cyclists will not have to cross the roundabout physically. I think that five underpasses are being constructed, or are proposed to be constructed, as part of the project to enable people to go from north to south without traffic interfering with their path. With the emphasis being on active travel and public transport, the junction will be configured to encourage buses to pass through and will make sure that they can do so as timeously as possible.

There are a lot of good things in the design to make sure that active travel is encouraged as much as possible and that people who are using public transport—obviously, we want to encourage people to use public transport more—can get access between the north and the south, in particular, through the junction as smoothly and effectively as possible.

It appears to me that the design ticks the boxes for most people, which makes it even less understandable that organisations have been getting whipped up about it.

Talking about net zero and environmental sustainability, I do not think that this project has any attachment covering that. Is it intended to develop that later?

In terms of sustainability and climate change, through this project we will avoid a huge amount of congestion in the short term by removing 48 per cent of the traffic that currently flows around the roundabout, which will go over the top of the roundabout. There will be a lot less congestion, and there will also be measures to minimise the amount of carbon that is generated through the construction. There are a lot of new techniques coming out in the construction industry to make sure that most of the plant is carbon free. It does not use diesel any more; it is battery powered, and there is technology to control the plant to make it more efficient and to avoid double handling of materials. In terms of the design, we are using sustainable drainage systems that have the correct capacity for future water flow through the infrastructure there. A whole host of things are being done to minimise the carbon impact of the project both during construction and after the construction is complete.

I have one final point.

We are really pushed for time, so, if you could make your final point very short, that would be very welcome.

It is a fairly obvious one, and it probably applies to all contracts. There has been an estimate of £90 million to £120 million for this project. Inflation is galloping and we are talking about the project not being finished until perhaps 2028—which, to me, is a long time away from 2008, which is when it was first identified as being desirable. High inflation is probably going to be with us for some time. How are you going to manage that?

As I said earlier, the volatility in the market is impacting on all the projects and all the projections that are being proposed. We have to use the budget that is available. If projects cannot be funded within that available budget, decisions will have to be made about which ones will be progressed, but that will be worked through at the annual budget processes. We will look at the funding that is available at the time and any decisions on borrowing. There is quite a lot to go into the mix.

As Lawrence Shackman said, the profile of the project may change, depending on those other factors, as it develops. At this point, it is not certain what the funding profile might look like, but all those projects will be managed, looking at the range of factors that exist. I am sorry, but there is no more certainty at this point.

I will try to keep my question short. It is specifically about a road that goes through my area, the A77. You mentioned that we have just had the Maybole bypass put in, which is great. It has a couple of passing points, but it is not a dual carriageway. The A77 is a main route from Scotland to Northern Ireland and it is a single carriageway for the majority of the way from Ayr down to Cairnryan, with the exception now of a few passing places on the Maybole bypass. When you are deciding on major capital projects, what consideration is given to spreading the allocation of funding around the country—to south-west Scotland, for example—with environmental targets having an impact on road investment?

You talked about reviewing work that is being carried out. How often are those reviews carried out? At the moment, the A77 at the Carlock wall is not even a single carriageway—it is down to one lane, and there are traffic lights that have been there for nearly three years.

The main means of reviewing the needs of the transport network is the strategic transport projects review, which I am sure you have heard about. That has looked at all the transport needs across the network and is coming up with a development plan, which I believe will be published later this year.

We do not have a scheme on the A77 at the moment, but it has been mentioned as part of the STPR and needs to be considered along with all the other competing priorities. One of those priorities is road safety, which you rightly state is a key aspect, as are the environmental impacts and how a project fits with the climate agenda and a range of other factors. The A77 has been mentioned as part of STPR2, and we are just waiting to see what that means moving forward.

How often do you review the projects? The Carlock wall scheme has now been going on for three years, and a main transport route is down to a single lane.

I am not familiar with that scheme. It is being dealt with by another department in Transport Scotland. However, I can certainly get back to you with some information on that.

That would be helpful.

I am conscious of the fact that Bill Reeve has not had many opportunities to come in, because all these people are asking about bypasses and roundabouts. Let me finish up with a question about the East Kilbride rail enhancement. The briefing that has been given to us describes the project as having been enhanced in size. However, my mailbag tells me that it has gone from being a project that includes dualling of the track to one that retains a single track, so the people of East Kilbride are not very happy about the project as it stands. They see it as being a diminution of the original project. In fact, as recently as yesterday, I saw a letter that was sent by the leader of South Lanarkshire Council to the transport minister, complaining about that very fact. Can you explain why it is seen as an enhancement and where additional scope is involved? The empirical evidence that I get on the ground is that it is the opposite of that.

I am very happy to address that issue. Let us go right back. Several years ago, we considered the need to improve the capacity and the performance of the East Kilbride line, and there were a number of options for doing that. We looked at options that included full doubling of the railway as a diesel railway, electrification of the railway, partial doubling—a whole range of options, as you would imagine.

Just to be clear, at no stage was the decision taken that we would proceed with a double-track railway throughout. I think that that has been misreported in some places. At no stage have we—with our colleagues in Network Rail and, indeed, in ScotRail—ever firmly decided that that is the project that we will proceed with. What we have done, as we have gone through a proper analysis of the complex system, is work out the best value-for-money investment on that route. We have also—and I think this is important—taken the opportunity to extend the project to cover electrification of the line as far as Barrhead.

Three key factors took us to the conclusion about the best value-for-money option on the route. The first was, inescapably, the cost of the different options. One thing that we learned in working with the Network Rail project teams on the East Kilbride route was that doubling the full length of that railway would be extremely expensive. The physical constraints and the nature of the geology meant that that turned out to be more expensive than had been hoped when we first started to look at the line. That was just the physical reality on the ground.

The second thing that we did—bear in mind that, when we started, it was not necessarily committed to being an electrification project—mindful of the decarbonisation agenda but also of the superior performance and the lower operating costs of electric trains, was conclude that the railway would benefit from the superior performance, lower costs and improved emissions of electrification. One of the advantages of electric trains is, bluntly, that they go faster, so an electric train occupies a section of track for less time than a diesel train does. One of the problems with the East Kilbride line was that, given that there are some severe gradients on it, at certain times of the year, with heavy loads, the diesels were struggling to keep to time. When we looked at the performance of the electric trains and the cost of the diesel trains, that pointed us in one direction.

The final issue that we had to take into account was the change in travel patterns as a result of the pandemic, which has become manifestly clear, and the use of digital meetings rather than physical meetings. We are seeing a very welcome return of business to the railway as we are emerging from the pandemic, but the nature and the timing of the travel patterns is quite different, so we are not seeing the Monday-to-Friday commuter peak that we used to see. The busiest time that we are seeing now, for example, is on a Saturday rather than on Monday to Friday. Friday afternoons and evenings are also very busy. Therefore, schemes that might have been focused on dealing with the Monday-to-Friday peak-hour traffic for one or two hours now do not look like the priority, because we are not seeing that level of peak traffic, but schemes that help us to address the environmentally sustainable movement of people in a more cost-effective manner through electrification come much higher up the agenda. That is true, by the way, across the entire rail investment portfolio.

After that analysis, the decision was taken to electrify the railway all the way through to Barrhead and to East Kilbride and to invest significantly in the upgrade of Hairmyres as a public transport interchange with stronger bus and active travel links as a park-and-ride site. The last bit of scope to be determined is the extent of the loop that we will put in at Hairmyres. I expect that we will reach a sensible conclusion on that shortly, which will get us the same outcomes for a usefully lower cost.

11:15  

Thank you very much indeed, Bill. I should have declared my interest as the National Union of Rail, Maritime and Transport Workers parliamentary convener. In that capacity, I might dispute some of your views about the settled patterns as they will be in the future compared to coming out of the pandemic.

Willie Coffey is trying his best to get in, and I am going to give him the last word before I conclude the meeting.

Thank you, convener. I just want to get in my parochial question. Bill, when can we expect the electrification to extend from Barrhead to Kilmarnock, in my constituency?

It was very nice to see you at the opening of the Brodie Engineering plant in Kilmarnock. It is good to see the railway industry in Kilmarnock flourishing at the moment.

It is clearly more than a gleam in our eye that extending the electrification to Barrhead is the first step of what we call the Glasgow and Southwestern main line through Kilmarnock and Dumfries to Carlisle. It is a really important strategic route, not least in terms of freight capacity. As we look to the growing use of both passenger and freight trains across the border, we know that, in the future, we will need to enhance the capacity of that route, and electrification will help us to do that.

The hard answer is that I do not have a date—there are no firm plans. However, if you read the Scottish Government’s decarbonisation action plan for railways, you will see that we envisage the electrification of that route as a sensible part of the decarbonisation programme. The rate at which we can do that will depend on the availability of funding, but I would not take frightfully much persuading of the fact that it is a good idea.

Excellent. On that positive note for public transport, I will draw this session to a close. Bill Reeve, Helen Carter and Lawrence Shackman, thank you very much indeed for your time this morning. I think that there are one or two points that we want to follow up, and we will do that. Thank you very much indeed.

I now draw this public session of the committee’s deliberations to a close, and we will move into private session.

11:17 Meeting continued in private until 11:44.