Review of Scottish public sector procurement in construction

8. Sustainable procurement, innovation and emerging technologies

8.1 Overview

8.1.1 Economic, environmental and social sustainability are interlinked, and we see a future where these three strands are systematically afforded appropriate priority in construction procurement decisions.

8.1.2 The Scottish Government defines sustainable procurement as:

"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 for the organisation but also to society, the economy and the environment." ^[39]

8.1.3 The Scottish public sector is in the process of adopting a consistent approach to sustainable public procurement based on the United Nations Environment Programme "Marrakech Task Force" ^[40] approach to accelerate a shift towards sustainable consumption and production. There is currently a project underway to embed this approach into procurement policy strategy and systems.

8.1.4 The "Marrakech Task Force" approach encourages organisations to review systematically the risks and opportunities related to their procurement spend and then to progress these through the procurement process.

8.1.5 We have highlighted at various points within this report the impacts of both the Scottish public sector construction spend and the Scottish construction sector on the Scottish economy.

8.1.6 Economic and social impacts range from support for local economies through the use of local contractors and consultants; the ancillary economic activity generated by construction spend; training opportunities which lead to permanent work opportunities or further learning; and, of course, the impact that high quality construction projects can have on improving and encouraging economic confidence in communities. Positive impacts can be achieved through the provision of a lasting resource which enables communities to interact and function better and have a sense of place ^[41] . When procured properly construction can also help to deliver against the preventative spend agenda and support social stability.

8.1.7 Although wider than the construction agenda, the UK Government recognises the links between procurement and place, and said in 2010:

"Innovative procurement can support wider economic growth and inclusion objectives in places as well as driving value for money, for example, supporting innovation, sustainability, skills and SME and third sector organisations." ^[42]

8.1.8 Design-led procurement can also help to maximise sustainability through ensuring flexibility and adaptability of use and increasing the durability and longevity of the design solution. Sustainable resourcing of durable materials can contribute to improved performance and reduced environmental impact.

8.1.9 The Egan report set out a vision for innovation and technological change within the construction sector. This report was written around 15 years ago, and yet limited progress appears to have been made towards its objectives.

8.1.10 In order to start addressing this issue, a range of approaches should be better implemented, measured and monitored on a more consistent basis within public sector construction. Industry also has an important part to play as we set out in chapter 10.

8.2 Social benefits

8.2.1 Following on from the publication of the Scottish Government's Community Benefits in Public Procurement Report and accompanying guidance, social benefits are commonly referred to as "community benefits" in the Scottish public sector.

8.2.2 Over the course of our review, the terms "community benefits" and "apprenticeships" have often been used interchangeably. Community benefits, however, can be much broader than just the provision of apprenticeships and jobs, and can range from the provision of training, work experience, educational and engagement opportunities for local communities, through to the physical provision of additional community facilities and environmental improvements.

8.2.3 Authorities vary in how prescriptive they are about their requirements for community benefits, leading to differing practices when it comes to weighting and scoring. In part this stems from varying levels of comfort amongst different bodies with their ability to assess this objectively, as required by law.

8.2.4 Contractual inclusion of community benefit clauses also varies, with some clients leaving them as additional, less formal aspects of delivery. This approach, however, goes against best practice guidance:

"In order to form part of the criteria according to which contracts are awarded, community benefit clauses must be included as a core part of the contract specification. Once a decision has been taken to use Community Benefit clauses, they should be included at all stages of the procurement process from business case to contract implementation and monitoring; Organisations must set firm and realistic expectations in terms of their requirements. These must be precise to facilitate implementation and proportionate monitoring of the clauses." ^[43]

8.2.5 Monitoring and measurement of actual delivery of community benefits and the use of punitive measures for non-delivery - where community benefits elements have been scored and have played a key part in awarding a contract - is crucial. KPIs should be developed and clients must be rigorous in ensuring that promises made at ITT stage are fulfilled and that if they are not, then appropriate consequences follow. This not only protects the client from challenge but ensures realistic target-setting, and a level playing field for those tendering for work.

8.2.6 Stakeholders have raised questions with us as to the reasonableness and deliverability of some community benefits clauses. For example, a twelve month, £2 million construction contract cannot in itself be expected to deliver ten new apprenticeships capable of being sustained over the long term.

8.2.7 We strongly believe that, in relation to apprenticeships, more weight has to be given to the importance of completion of apprenticeships and sustaining existing employment within the industry, as well as the creation of new apprenticeships, where appropriate. Expectations of clients need to be proportionate to the size of the contract.

8.2.8 The Scottish Government has indicated its support for exploring shared apprenticeship models, which may provide a vehicle for promoting the employment of apprentices on smaller contracts. The need for better sharing of apprenticeships whether through client or supplier collaboration is recognised in a University of Glasgow report commissioned by Homes for Scotland ^[44] . This report also sets out some of the difficulties with such models which need to be addressed if their use is to become viable. A variety of other models and practices currently exist, with some local authorities such as Falkirk Council taking a key role in providing and sustaining apprenticeships, while in other areas industry is taking the lead.

8.2.9 Recommendations:

Good, detailed, community benefits guidance exists currently on the Scottish Government website, but it is lengthy and should be reviewed and integrated within a wider Construction Procurement Journey. This guidance should include:

a) The requirement that contracting authorities should have a clear strategic understanding of what they want community benefits to deliver through their public procurement for the sustainability of the Scottish and local economy and the community within which the project is being delivered. The public body should set out its strategic objective and ask the contractor to set out in its tender how it will meet that objective.

b) Guidance to contractors to help them to design and deliver appropriate community benefits.

c) Guidance to contracting authorities to assist an open consideration of community benefit proposals at ITT stage.

d) The promotion of continuity and completion of apprenticeships. One means of doing this may be through encouraging the public sector and industry to work together to develop a shared apprenticeship model that refocuses the emphasis on the completion of apprenticeships and the practicability of such models should be investigated.

e) Monitoring by public sector clients of performance in relation to community benefits delivery, and use of that performance monitoring information as part of overall performance assessment for future contracts whether through frameworks or open processes. This could be done as part of a suite of KPIs.

8.3 Economic benefits

8.3.1 It is difficult to distinguish the individual aspects that make up sustainable procurement. In many cases economic benefits will be derived from the activities and recommendations described earlier in this report, and in particular, the power of public spending to benefit the Scottish economy. Use of social or community benefits clauses can bring economic benefit through training and employment opportunities and through opening up the supply chain; an example would be the use of Forth Replacement Crossing contracts. Economic benefits may also accrue through environmental benefits, for example, the benefits of more energy efficient materials and buildings or the resource efficiency that whole life costing would generate.

8.4 Environmental benefits

8.4.1 Scotland has set itself some of the most challenging carbon reduction targets in Europe. Promotion of environmental sustainability in public construction currently manifests itself in a number of ways. For example: the development of greener homes is being supported through the Scottish Government Greener Homes Innovation Scheme and the production of a Greener Homes Prospectus, whilst the recently published Sustainable Housing Strategy for Scotland ^[45] also reinforces these messages for both the public and private sector; and the five hubCos' performance in sustainability is measured by KPIs monitored by their Territory Partnering Boards. Underpinning other work, there is continuing improvement in energy standards required under building regulations, guided by the recommendations of the Sullivan Report ^[46] . An update on specific topics within that report is due later in 2013.

8.4.2 A range of existing energy standards are currently being used by the public sector when specifying their requirements, such as BREEAM ^[47] , EcoHomes ^[48] , Standard Assessment Procedure ( SAP) ^[49] , and the National Home Energy Rating. It should be noted that the Energy Efficiency Directive provides a range of mandatory and voluntary provisions to drive improved energy efficiency in the public estate.

8.4.3 Sustainability through design can be achieved in number of ways - such as maximising thermal efficiency, reducing carbon emissions, reducing floor area requirements through clever use of space, or considering refurbishment rather than new build. We have already stressed the strong importance of design in section 6.2 and this is reinforced in the Scottish Government's recently published architectural policy statement which states:

"Communities and places benefit from investment decisions that consider all impacts - societal, environmental as well as economic. Decisions should prioritise long-term benefits. The public sector should set an example by ensuring high design standards are adhered to in public procurement. Low carbon design and planning should be a priority. Project clients, commissioners, designers and approvers should encourage design innovation and take advantage of locally sourced materials to facilitate sustainable development. A 're-use not replace' approach should be considered first when dealing with our existing built environment." ^[50]

Case Study - Plot Renewal

The Institute for Sustainable Construction at Edinburgh Napier University has demonstrated an efficient, economic, socially and environmentally sustainable method of bringing old housing stock back into occupation with long term benefits. The university, in collaboration with a local housebuilder, Sharp Homes, and support from Fife Council building standards, has piloted a concept of "plot-renewal".

Plot-renewal fully encompasses urban regeneration by community engagement and local job creation whilst providing energy efficient homes and sustainable community benefits. Plot-renewal is the deconstruction of an existing vacant derelict dwelling back to its foundations, and the construction of a new dwelling, making use of all the existing foundations, services and street infrastructure. Plot-renewal targets streets earmarked for demolition or refurbishment where to refurbish existing dwellings to tolerable housing standards simply does not provide the best long-term solution. In addition, plot renewal can allow alternative sizes of accommodation to be provided, thus delivering more homes within the same footprint to meet the local housing needs.

Five new mid-market rent homes were delivered for Ore Valley Enterprises, a subsidiary of Ore Valley Housing Association in Lochore, Fife, at a development cost of £65,000 per unit, with no government subsidies being used. This compares favourably to the average costs being sustained in many other affordable housing projects. In addition 22 new homes have been leased by Ore Valley Enterprises from the developer on a 20 year lease for onward let to tenants on a mid-market rental basis. The development of these 27 homes was carried out in five months, as no groundworks were required, thereby also reducing costs and improving resource efficiency. Further cost savings were achieved by recycling materials on site and the re-use of the street infrastructure. An independent surveyor valued the 2/3/4 bedroom homes at £80,000/ £99,000/ £135,000 respectively.

The occupied dwellings are now subject to a monitoring project by the Institute for Sustainable Construction, the results of which will be published later in 2013.

Although plot-renewal will only be appropriate in a limited number of scenarios, it is a method which for achievement of best value for money should be considered where housing stock requires to be regenerated.

8.4.4 New, more sustainable materials and components are being developed all the time, as is an awareness of renewable and locally sourced materials and technologies which are economical in both upfront cost and whole life cost analysis. This report will not be promoting any particular technologies but there is a clear need for experience and learning to be better shared and this should be an area of focus. The development and promotion of Scottish timber is one such example where continued sharing of information can help product development.

8.4.5 Waste management is another area where real measurable improvements can be achieved. Industry has a key role to play in improving on-site practices, as have clients in demanding good performance. Good progress is being made through UK wide initiatives such as "Halving Waste to Landfill" which is promoted in Scotland by Zero Waste Scotland. The Scottish Environment Protection Agency reported that construction and demolition waste dropped from 8.03 million tonnes in 2006 to 7.47 million tonnes in 2010. However, construction still accounted for 44 per cent of all controlled waste generated in Scotland in 2010 and it is still the largest source of waste in both Scotland and the UK. ^[51] Continued effort in this area has the potential to save money as well as the environment and contribute to other targets, such as for recycling. We are aware that the Scottish Government is working in partnership with Zero Waste Scotland and other key partners to develop E-learning Sustainable Construction Tools to help disseminate Scottish Government policy and embed best practice in this area. Contracting authorities have a responsibility and opportunity to promote better waste management through their construction contracts and should strive to do so. In paragraph 8.6.4, we comment on the potential of Building Information Modelling to help to reduce waste.

8.4.6 The higher capital cost of some of the greener standards and approaches, such as BREEAM or the voluntary higher levels defined within section 7 (sustainability) of the Scottish Building Standards, is often stated as the major barrier to their wider adoption. At a time of such significant pressure on capital budgets, we can understand such concerns. However, greater linkage of capital and revenue funding considerations in the context of the whole-life cost of a project, whether a house, a hospital or a school, would provide better information on the true overall cost of sustainable approaches by focussing on the subsequent savings in revenue expenditure as well as the upfront capital costs. This was also recognised by the Westminster Sustainable Business Forum. ^[52]

8.4.7 Bringing this together in a single vision for public sector construction procurement is a challenge in view of the spread of Scottish Government departments with an interest in or responsibility for the topic. The enhanced construction procurement policy function should play a key role in promoting a more coherent joined up approach to sustainability for public sector construction.

8.5 Innovation

8.5.1 As set out above, previous reports such as the Egan report and the Latham ^[53] report have promoted innovation in modern methods of construction and partnering approaches to contracts. Public sector clients and industry need to be more open to new products and techniques. The sharing of experiences and outcomes needs to become common practice.

8.5.2 One example is off-site manufacture where there are potentially significant gains for highly replicable products for use in types of build such as social housing. There have been some examples of this being trialled, but to date these have been sporadic and learnings of a less positive nature often not shared openly.

8.5.3 Modern methods of construction are not limited to any given structure and can be employed for housing, health, education, commercial and industrial properties. Perhaps the most appropriate sector for off-site manufacturing is the housing sector, where the volume is such that economies of scale can be realised in the factory environment and better value for money achieved. Sustainable construction is achievable in the factory environment and can consider low carbon technologies and energy saving techniques to produce housing compliant with building standards requirements. There are a limited number of companies who are actively pursuing this agenda but we know of some who can see the value both now and for the future of investing in such factory capacity to feed their construction arms and clients requirements in an efficient, cost-effective and sustainable way.

8.5.4 Standardisation, in any form, however, appears to strike fear into the heart of many who feel that it has been the cause of some of the quality issues they have spent the last 30-40 years resolving. This need not be the case; for example, the use of standard components and off-site manufacturing techniques does not mean that every social house in Scotland has to look the same, nor that quality or specification have to be compromised. Indeed, it can be about optimising the quality and specification.

Case Study - Fife Housing Innovation Showcase

The recent Fife Housing Innovation Showcase in Dunfermline has considerable potential for enabling rapid progress in innovative techniques.

The project was grant funded with £2 million from the Scottish Government, through its Affordable Housing budget, and is a partnership between Kingdom Housing Association & Fife Council, with support from Fife Construction Forum & Green Business Fife and comprises 27 new houses on a site in Dunfermline based on ten different designs and using innovative construction methods, to demonstrate the benefits of these systems being used more widely in mainstream affordable housing.

Comprehensive monitoring is ensuring that the innovative construction methods and products being used will be properly evaluated and then assessed for future wider applicability.

8.5.5 More sharing of hard data and outcomes, and the wider use and promotion of publications such as the Scottish Government's Greener Homes Prospectus will help to promote information exchange and refine practices.

8.5.6 The Scottish Government has a crucial role to play in linking with public sector clients to encourage better sharing of best practice across the public construction sector. This sharing of practice should also draw on crucial lessons learned from approaches which have been less successful.

8.5.7 We understand that a funding application is being made by Construction Scotland to the Scottish Funding Council to establish a Scottish construction innovation centre. In our view such a centre would allow more rapid progress to be made by the construction industry in technology and innovation on a collaborative basis. Scottish companies currently have to go outwith Scotland to carry out product testing. The bid is competing against other projects, but, if successful, will become an important enabler of progress in this critical area for the construction sector in Scotland.

8.5.8 Recommendations:

a) The Scottish Government should build on some good work by RSLs and others by better incentivising greener construction and promoting modern methods of construction and providing better advice and guidance on renewables technologies.

b) Construction guidance should be aligned to the wider sustainable procurement agenda in recognition of the potential for construction to demonstrate the benefits of good procurement and should take account of the findings of the Sullivan panel when they are published.

c) The Scottish Government should promote a more coherent joined up approach to sustainability for public sector construction.

8.6 Building Information Modelling ( BIM)

8.6.1 Building information modelling ( BIM) is defined by different people in different ways. The UK BIM Task Group starts by describing what it isn't before describing what it is:

"It's not just 3D CAD

It's not just a new technology application

It's not next generation, it's here and now!

BIM is essentially value creating collaboration through the entire life-cycle of an asset, underpinned by the creation, collation and exchange of shared 3D models and intelligent, structured data attached to them". ^[54]

8.6.2 BIM offers the opportunity to adopt a new collaborative approach which has the potential to achieve more efficient and effective ways of working through all stages of the construction project life-cycle. It is also considered to be a potential driver for growth as outlined in the Saxon report ^[55] .

8.6.3 BIM should be employed to improve quality and efficiency to meet the aims of the brief. In this regard, the quality of briefing and monitoring of the design process are of particular importance within BIM projects.

8.6.4 By achieving more certainty in the design before construction starts, BIM brings other advantages in reducing waste and in the realisation of outcomes for environmental sustainability. BIM targets for carbon reduction and building performance in use can be prototyped and appraised with higher levels of certainty using BIM techniques. A number of professional practices and Scottish further and higher education institutions are already understood to be active in this field.

8.6.5 The UK Government is already well down the road of adopting BIM and has set a target that all "in scope" central government procurements (both new build and refurbishment; irrespective of project value; and explicitly with no trigger threshold) should achieve BIM level 2 compliance by 2016. This level of compliance is defined by the BIM Task Group as "a series of domain specific models ( e.g. architectural, structural, services etc.) which provide a common data environment to share data and information defined by PAS1192:2 ^[56] and are deliverable in COBie UK 2012" ^[57] .

8.6.6 Professor David Philp, Head of BIM for the HM Government BIM Task Group comments that "starting with the Ministry of Justice we have over twenty projects using BIM processes and the early projects such as Cookham Wood Young Offenders Institution announced a 20 per cent reduction in capital cost."

8.6.7 Wales and Northern Ireland are already committing to adoption of level two and other European countries such as Finland are at the forefront. On 18th December 2012 the EU voted to table a set of proposals as part of the review of the existing EU Public Procurement Directive which will encourage the progressive use of BIM in public works contracts across member states. The proposed use of BIM in public works largely echoes current UK policy while not imposing strict implementation requirements on national legislation.

8.6.8 We do not deny the challenge that this may offer for both public sector and industry but we believe that the savings being suggested both initially and throughout the life cycle of the structure make a compelling case for its adoption. In view of the development of BIM internationally and in the rest of the UK, the Scottish public sector and Scottish contractors risk being left behind if early adoption is not mandated.

8.6.9 RICS recognises this in its "What is BIM" paper, March 2012, in which Steve Pittard states that:

" BIM is not going to go away, and so we must, therefore, learn to adapt and embrace or risk the threat of losing ground to others."

8.6.10 Through discussions with UK Government BIM leaders, who have shared their experiences of implementation with us, we believe that a realistic timescale for adopting BIM level 2 in Scotland would be from April 2017. Some of the background documents are already in place - PAS1192.2 has already been developed, and the next step, PAS1192.3 is in development - which would help to kickstart implementation in Scotland.

8.6.11 To implement BIM in Scotland successfully, the Scottish Government will need to identify resources to drive forward its introduction across the public sector. Many practical questions around implementation will need to be answered and communities of interest developed, building on existing BIM structures in Scotland, such as the BIM regional hub, as well as learning lessons from the UK BIM Task Group. The possible impact on planning and building control frameworks will also need to be considered. There is already Scottish representation on the Construction Industry Council's BIM4 SMEs group and strategies to help support this part of the industry should be developed collaboratively. We also know of some major Scottish public contracts where BIM is already being used such as the Southern General Hospital in Glasgow and the Western General in Edinburgh and the experiences and lessons learned from these should be built on to help drive forward successful implementation.

8.6.12 We are strongly of the view that resources expended on this approach can result in significant savings and that it is crucial to establish a current baseline and evaluation process in order that these savings can be properly quantified over time.

8.6.13 Recommendation:

The use of Building Information Modelling ( BIM) should be introduced in central government with a view to encouraging its adoption across the entire public sector. The objective should be that, where appropriate, construction projects across the public sector in Scotland adopt a BIM level 2 approach by April 2017.

8.6.14 A programme plan for BIM implementation by 2017 should be developed, along with guidelines and advice on the use of BIM. Suitable trial projects should be identified ahead of the 2017 target date and their management co-ordinated centrally.

8.6.15 When deciding if BIM will add value to a project, public sector clients should undertake an assessment of the likely return on investment from its use. This will not necessarily correlate directly with project value but may relate more to project complexity and longer-term functionality.