Review of Scottish public sector procurement in construction

5. Prioritisation and co-ordination of spending

5.1 Overview

5.1.1 This report contains many recommendations designed to address the strengthening of the procurement process. But we believe that it is important also to consider wider strategic aspects of the procurement of infrastructure in Scotland.

5.1.2 There are dangers in a silo approach which looks at demand only from the perspective of the individual authority. There is a need for more co-ordination to ensure that opportunities to achieve synergies are not missed.

5.1.3 Elsewhere in the report, we have commented on the need to start any procurement with a proper plan focussing on the desired outcomes. There is also a need to ensure that spend is prioritised and co-ordinated properly amongst the numerous authorities concerned with infrastructure procurement and in this chapter we bring forward a number of recommendations which are designed to build on the best practice which presently exists.

5.1.4 Our vision is of an improved approach to the prioritisation of spend and greater co-ordination amongst authorities, agencies and directorates.

5.2 Prioritisation of spend

5.2.1 One of the roles of the Scottish Government Infrastructure Investment Board ( IIB) is to provide advice to Ministers about capital investment priorities. Priorities are set using the following four criteria, which are explained in the Scottish Infrastructure Investment Plan 2011 ( IIP), and have much similarity with the aims and vision flowing from this review:

• Delivering sustainable economic growth
• Managing the transition to a low carbon economy
• Supporting delivery of efficient and high quality public services
• Supporting employment and opportunity across Scotland

5.2.2 Individual public bodies have their own models for evaluating and ranking projects. These are mainly based on the Treasury Green Book. ^[7] A good example is Transport Scotland's model. ^[8]

5.2.3 However, we believe that there are opportunities for comparing the different methods used and identifying best practice, while recognising that specialised public bodies will have elements which are particular to their needs and that a pure financial appraisal has its limitations, particularly when dealing with socio-economic and environmental factors. Identifying and promoting common practice in prioritisation should assist the task of prioritisation of limited funds across the public sector in setting capital budgets, although we recognise that ultimately an overview has to be taken which cannot be informed by formulaic methods alone.

5.2.4 Audit Scotland recommended in 2011 that the Scottish Government should develop an overarching investment strategy which would help provide key information for prioritising and planning ^[9] . The IIB and IIP currently address these issues, although we believe there may be some scope to develop further that role.

5.2.5 Recommendation

There should be a review of the methods of strategic prioritisation and co-ordination of construction spending across the public sector in Scotland - to identify best practice and to ensure that investment decisions are informed by the use of appropriate techniques.

5.2.6 We believe that, in implementing this recommendation, the IIB should instruct investigation of the different methods of project prioritisation used by government to identify best practice including the use of economic appraisal tools, such as those which examine Gross Value Added ( GVA), whilst the Convention of Scottish Local Authorities and the Society of Local Authority Chief Executives should determine the scope for introducing equivalent best practice recommendations to councils.

5.3 Construction Pipeline

5.3.1 A consistent message from industry throughout this review process has been that having a firm idea of anticipated workloads is key to business confidence. This allows industry to recruit appropriately, to commit to apprenticeships and training, and to invest in capital resources. It also allows industry to provide a more efficient response to procurement, supporting suppliers to make early business decisions and allowing the development of integrated teams. Indeed, this was also one of the key messages as far back as the Egan Report ^[10] .

5.3.2 One of the ways this can be achieved is by publishing a clear statement, or pipeline, of what the public sector intends to procure over the coming years.

5.3.3 There is currently some published detail on the forward pipeline of work across the public sector. The Scottish Government's Infrastructure Investment Plan ( IIP) was first published in 2008, and set out the infrastructure projects, with a capital value greater than £5 million, which the Scottish Government and its partners were proposing to undertake over the following ten years (though that period varied in some sectors). The IIP was updated in 2011, including additional information on the financing, delivery and strategic links of each project in the pipeline as an annex. That annex is now regularly updated and published on the Scottish Government website. This is to be applauded. The Scottish Government has recognised the issue, and has taken steps to address it. But the coverage offered by this pipeline should be extended to capture projects being led by other public sector bodies and also to provide greater detail and certainty around the status of these pipeline projects.

5.3.4 There is already some sectoral information in the public domain, such as is published by the Scottish Futures Trust ^[11] , and in individual authorities' pipelines. So the first step to improve data collection is a relatively simple job of bringing together existing information into one place and one format. That is not enough on its own, however. For the pipeline to be of real value, the coverage also needs to be deepened to give more detail on projects - where they are in the business planning process, what hurdles are still to be overcome, what the anticipated approach to market is, and so forth.

5.3.5 This suggestion has received mixed responses from participants in our review. Almost everyone agrees that it is a good idea in theory. Some public bodies, however, have maintained that it would be impossible for them to provide this information because of the shorter-term way in which their funding is allocated.

5.3.6 We have some sympathy with the argument that short-term funding is not conducive to effective long-term planning, although that is beyond the terms of reference for our review. However, we do not accept that it follows that such pipeline information cannot be provided. Even if funding is not yet confirmed, it is perfectly reasonable to expect a well‑managed organisation to know what capital works it intends to carry out over the coming years, given a range of funding scenarios, and to be able to articulate this in a manner which sets out the assumptions on which those projects are dependent.

5.3.7 We believe that it is in everyone's best interests to make as much information available as possible, and to be as open as possible about the status of plans for any given project. This will mean that published plans change. This is the crux of public sector concern - a fear of criticism arising from projects that are listed not proceeding. But the industry must play its part, too. Industry is pushing for this information, and if the public sector is to make it available, industry and its representatives must not only accept the risk that it is subject to change, but also recognise the danger that unreasonable criticism of such change would likely reduce that information flow. Some flexibility in the pipeline plan process has to be expected.

5.3.8 Recommendation:

Each public body should publish annually a rolling pipeline plan of anticipated spending on construction, setting out detailed known information on timescales for pre and post-contract award including any planned phasing, the anticipated approach to market, the status of required consents, the funding model being used and whether formally approved by their governing body. These pipeline plans should be collated and held together centrally, and should initially contain all anticipated work above a value of £4 million over the next two years, with a clear plan put in place to extend this to cover at least work worth £2 million or more, and a timeframe of at least three years.

5.4 Co-ordination of projects and programmes

5.4.1 Large-scale infrastructure projects are under the control of different public bodies. It is important, when major ^[12] projects are being contemplated, that sufficient linkages are made amongst these bodies to determine if it might be possible to achieve synergies. An example might be a major road project where water or telecommunications infrastructure opportunities may be identified in co-ordination with the road project thus potentially achieving a more cost effective outcome for the public sector as a whole.

5.4.2 In addition it is important to ensure that major projects are brought to market on a staged basis so as not to flood the market and risk inflating prices or creating artificial skills shortages. Such an approach will help the sustainability of the Scottish construction sector by promoting a more even flow of work. Audit Scotland said in 2008:

"there is a case for additional leadership and more deliberate co-ordination and management of the investment programme across government to ensure that it matches market capacity and capability." ^[13]

5.4.3 And as relates to major projects, the IIB has taken steps to strengthen the governance and oversight of the capital programme

5.4.4 But this principle of co-ordination of spend may also be equally relevant to smaller projects; for example a health centre allied with a new school or a community facility. Other scope for collaboration may be identified. It follows that, at the planning stage of any public sector construction project, consideration should be given to opportunities for synergies with other projects and our recommendations on pipeline will assist in enabling the identification of such opportunities. We recognise that much good work is now being done in this area by the territory partnering boards working with the hubCos (see section 6.4).

5.4.5 Audit Scotland recommended further in 2013 that councils should:

"actively look for opportunities for joint working with other councils, community planning partnerships and public bodies to improve the efficiency of their capital programmes. This should cover joint projects, sharing resources such as facilities and staff, sharing good practice and taking part in joint procurement." ^[14]

5.4.6 Recommendation:

Public sector bodies involved in construction projects should be able to demonstrate that sufficient linkages are made between them. This should include consideration of appropriate opportunities for collaboration and for synergies with other programmes of work in the planning phase of all infrastructure spend.

5.5 Regional strategic co-ordination

5.5.1 Local authorities in Glasgow and the West of Scotland are in talks about pooling funds for major infrastructure projects to enable a more coherent regional prioritisation of spend. This is following a model already established in England and Wales, where around six cities are understood to have established such schemes with surrounding authorities with many further arrangements in the UK (including Glasgow and the West of Scotland) in planning.

5.5.2 The collaboration in Glasgow and the West of Scotland may provide an exemplar for co-operation in infrastructure spend in the other main city areas of Scotland.

5.5.3 Recommendation:

Regional co-ordination of infrastructure spend should be considered by councils across Scotland.

5.5.4 As discussed at 5.4.4, the structure of Territory Partnering Boards and hubCos is providing a further valuable opportunity for collaboration and co‑ordination. The Scottish Cities Alliance is also exploring further options for cities and their regions to develop pooled infrastructure investment funds.

5.6 Social Housing

5.6.1 A specific example of potential sectoral improvement of co-ordination is the social housing sector. There are some 40-50 housing associations in Scotland actively engaged in development work at any given time, as well as 23 local authorities building new council houses. A number of collaborative arrangements are in place and have been entered into in the past to achieve synergies in the procurement of new build with varying degrees of success. We believe that more co-ordination and co-operation within and between the RSL and local authority sectors is needed to help achieve improved prioritisation and cope with the current budget pressures and, along with the Scottish Government Housing Supply Division as the grant provider, that local authorities are well placed to help achieve this due to the strategic role they play in developing Strategic Local Programmes ( SLPs) for affordable housing in their areas.

5.6.2 Recommendation:

Current Scottish Government Affordable Housing Supply programme arrangements provide for an enhanced role for local authorities in programme planning and prioritisation. Alongside Scottish Government, local authorities should therefore play a key role in helping to inform and influence procurement choices and delivery of local authority and RSL affordable housing supply in their areas, as well as looking more widely at potential synergies with neighbouring authorities.

5.6.3 In implementing this recommendation, new, more effective forms of collaboration in procuring affordable housing should be piloted in a small number of areas, to build on existing good practice whilst learning from previous partnerships. Pilots should set realistic expectations of outcomes, and engage local authorities and RSLs effectively.

5.6.4 Supplementary guidance should be developed by Scottish Government Housing Supply Division covering procurement choices and delivery options which local authorities should consider for the affordable housing programmes in their areas and discuss and agree as part of the SLP process.

5.6.5 Local authorities should take an interest in the work that is done to assess procurement capability and capacity and use this information to help inform their procurement choices for their SLPs.