Review of Scottish public sector procurement in construction

3. Construction in the public sector today

3.1.1 There can be some confusion over what is meant by the term "construction". In this report, we look at the whole life cycle process of an asset. This includes key stages such as inception, feasibility, design, construction, occupation and deconstruction. In addition, as required by our terms of reference, we have looked at the entirety of publicly funded infrastructure and construction spend.

3.1.2 But we recognise that for many parts of the public sector, a large part of their "construction" spending is not currently in putting up new buildings, or in laying new roads, but in the maintenance of existing assets. Whilst some of our recommendations are clearly only applicable to new builds, we believe that most of the recommendations are applicable also to those maintenance contracts which are deemed as works contracts by the Public Contracts (Scotland) Regulations 2012.

3.1.3 The majority of construction is not carried out or led by central government. Each sector is structured and funded differently, and this is reflected in the way in which they approach construction. We believe that most of our recommendations should be applicable across the board, but where there are sector‑specific considerations, we make this clear. Appendix 3 offers an overview of the main spending sectors.

3.1.4 One such sector-specific acknowledgement is that the Scottish Government views Registered Social Landlords ( RSLs) as "contracting authorities" as defined by the EU Procurement Directives and the Public Contracts (Scotland) Regulations 2012. We understand that this view is not shared by some parts of the sector itself. However, we are not able to resolve this question and, for the sake of this report, we have assumed that RSLs are "contracting authorities", to which our recommendations will be relevant. Even if they were not "contracting authorities", however, we suggest that there is merit in adopting many of our good practice recommendations.

3.1.5 Quantifying public sector spending on construction is not easy. We know from the procurement information hub that there was over £2.4 billion of spending on construction across the public sector in 2011-12 ^[4] (including £1.4 billion spent by local authorities).

3.1.6 However, the procurement information hub does not currently capture spending by Scottish Water (whose total capital investment in 2011-12 amounted to £491 million).

3.1.7 Neither does it capture spending by registered social landlords. Grants from the Affordable Housing Supply Programme for purposes other than council house building (which we have assumed to be reflected in the local authority spending figures) amounted to some £303 million in 2011-12 ^[5] .

3.1.8 With these two additions to the data from the procurement information hub, we have been able to identify around £3.2 billion of spending on infrastructure as Figure 1 illustrates.

3.1.9 We suspect, however, that the total figure is actually somewhat higher. The procurement information hub does not capture revenue-based capital expenditure through the non-profit distributing ( NPD) model, for which there was no spend in 2011-12 but in 2013-14 there is an expected NPD spend of £185 million.

3.1.10 There is also a lack of consistency in reported spending from different sources. Capital returns provided to the Scottish Government by each of the 32 local authorities put total gross capital expenditure on new construction, conversions and enhancement to existing buildings by local government alone at £2.1 billion in 2011‑12.

3.1.11 Furthermore, the level of grant funding to registered social landlords provided, on average, 38 per cent of the total cost of construction of new homes - implying that an additional £494 million of funding from other sources was also required. There is no central record of when this additional funding was leveraged, however, so we cannot be sure that this was all spent in 2011-12.

Figure 1 : Identifiable spend in 2011-12 (£ million) - Totalling £3.232 billion ^[6]

3.1.12 Taking all of this into account, we believe the actual level of publicly funded spending on construction to be in the region of £4 billion.

3.1.13 Chapter 9 of our report returns to the theme of the importance of data as an enabler of reform.