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Public Procurement in Scotland the Case for Scrutiny, Accountability and Transparency

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Public Procurement in Scotland the Case for Scrutiny, Accountability and Transparency Public Procurement in Scotland The case for scrutiny, accountability and transparency Margaret Cuthbert May 2017 COMMON WEAL is a think-and-do tank that advocates policies that put All of Us First. For more information on Common Weal Policy visit allofusfirst.org/policy or email [email protected] Visit allofusfirst.org to get your copy of the Common Weal Book of Ideas 2016/21: 101 big ideas for the next term of the Scottish Parliament. Available to order or as an e-book. Author Margaret Cuthbert is an economist and statistician. She lectured in econometrics at Glasgow, Strathclyde and Heriot Watt Universities. She worked as a consultant in economcs at the OECD and was a member of the World Bank/OECD expert group on Purchasing Power Parities. She set up her own consultancy business and ran it for many years. Her work, along with Jim Cuthbert’s, can be read at jamcuthbert.co.uk Contents Introduction page 1 Background page 2 Issue 1: Why are our public representatives signing up to deals where we, the public, cannot question the terms of the deal? page 2 Issue 2: Given Freedom of Information, why do we rarely receive helpful answers to requests for information? page 3 Issue 3: Why is there an ever-growing role for Non-Departmental Public Bodies (NDPBs) in capital and revenue spending in Scotland? page 4 Issue 4: Why are we not measuring the effect on local business and employment in public procurement? page 7 Issue 5: Why is there no Whole of Government Accounts for Scotland? page 7 Issue 6: Why have we not made the Scottish Government and its NDPBs more accountable to Parliamentary Committees? page 7 Conclusions and Recommendations page 8 References page 10 01 PUBLIC PROCUREMENT IN SCOTLAND — The case for scrutiny, accountability and transparency “I believe that transparency is not an optional add-on but an integral part of policy making.” Nicola Sturgeon, Scottish Parliament, November 2012 “Maintaining transparency is a key objective of good governance.” Audit Scotland, June 2011 Introduction The collapse of school walls in Edinburgh rightly focussed role in Scotland’s public sector build, maintenance and the public’s attention on the way Edinburgh Council had servicing of projects. Its presence in the procurement chosen to upgrade its schools through a public private chain has resulted in the public finding it difficult, if not partnership (PPP) arrangement. The following inquiry ‘into impossible, to scrutinise the decision-making process the Construction of Edinburgh Schools’, February 2017, on the facility being built; the process of handing concentrated on the construction of the schools, and found out contracts; the financial aspects of the contract; the procedures to be lacking. the effect that the project will have on the local community including on jobs, and on local businesses; Construction, however, is not the only public procurement and importantly the long term effect this is having on issues that need to be addressed. For many years, Scotland Scotland’s financial well-being and the ownership of has had systems whereby our representative bodies, the what was once regarded as essential public goods. Scottish Government and Local Authorities have been using financial instruments and contracts to procure public 4. There appears to be no analysis of whether the buildings and their long-term servicing and maintenance. methods now being used for public procurement of major projects are constructed in such a way that The terms of the contracts are such that it is difficult, if not local businesses are missing out on the architectural impossible, for the public sector to release the information work, on the maintenance and services work, and, in the contract to the public - who are, after all, the ones for example, potentially innovative work that could paying for the project and requiring its services. lead to other contracts. Local businesses are involved but are far down the food chain and may not be in as This paper concentrates on six issues. advantageous a position as is desirable for them to grow and develop as they might otherwise have done. 1. Why is it that our public representatives are signing up to contracts where the public cannot see the terms 5. The fifth issue considered concerns the methods of the contract? In the few cases where we have used by the Scottish Government, Health Boards, finally been given access to a contract and its financial Prisons, and Local Authority Councils to raise model, we have found serious problems. finance for public procurement. The lack of Whole of Government Accounts for Scotland means that we 2. Why is it, in the cases concerning public have no idea what the effect on Scotland’s long term procurement, we continually have to resort to Freedom level of debt will be from these projects. of Information requests which is time consuming, rarely frees the information requested on major public 6. The final issue concerns the need for a procurement projects, and of no benefit in regard strengthening of the role which needs to be played by to getting changes made in any existing contract? the relevant Parliamentary Committees in dealing with Helpful answers to requests for information concerning economic and financial issues. contracts and financial models have rarely been forthcoming. This paper is based on what information has been made available through published documents and through 3. The third issue concerns the very powerful role Freedom of Information and other requests on each of that is being played by the Non-Departmental Public the above six areas. It draws on research carried out by Body (NDPB) and the Scottish Futures Trust (SFT) in Jim Cuthbert and I over the past 15 years. But, first, some the public procurement of major projects. The SFT, set background. up in 2008, is a private company. It now has a major 02 PUBLIC PROCUREMENT IN SCOTLAND — The case for scrutiny, accountability and transparency sight of some of the PFI contracts and financial models Background Jim Cuthbert and I were able to show the excessive profits being earned by the private sector consortia. The SNP There was a great need for new public infrastructure in the administration accepted the findings and introduced a new 1990s after years of neglect. But there were two problems: model – the Not for Profit Distribution (NPD) model. This first, where was the money to be found, and second, even is not a “not for profit” model. Contractors and lenders are if the money could be found, how could government keep expected to earn a normal market rate of return. Surplus levels of public debt low enough that they were within the profits are not distributed to the private sector. Apart from financial restrictions of the Maastricht Treaty? Failure to this, NPD is not very different to PFI. The reforms which keep within the rules could lead to severe charges levied by were subsequently introduced did appear to reduce the the EU. rate of return for new projects - but achieved little else. There were three ways for government to meet this This third route of devising financial instruments and challenge: (i) build a highly effective economy, and so earn methods to avoid breaking EU rules on debt is still the the income to pay for the schools etc. out of revenue; favoured path. As the EU tries to catch up with the novel (ii) limit spending within revenue constraints, possibly by methods used by governments to avoid its intentions refurbishing rather than new build; (iii) pay consultants to regarding EU members’ debt, Scotland has introduced come up with highly complex schemes that allow what is increasingly complex ways of avoiding expenditure on in essence capital expenditure on the building of schools, schools, hospitals, roads, prisons etc. being counted under hospitals, etc. to be reclassified as revenue and so avoid the capital expenditure. PFI was first followed by the NPD EU rules. initiative and this has progressed into the many capital programmes of SFT – in all cases in an effort to alter the The need for new infrastructure was immediate and the classification under EU rules of what would previously have third option appeared to offer a solution: the private sector been regarded as capital expenditure by the public sector. would provide and become responsible for the design, build, management and provision of a stream of services in areas traditionally provided by the state: for example, Issue 1: Why are our public schools, prisons, hospitals, rail, roads, and water, for which the private consortium involved would receive an annual representatives signing up to unitary charge for possibly 25 years. The risk of things deals where we, the public, cannot going wrong was expected to be transferred mostly to the private sector. As a result, PFI projects would be regarded question the terms of the deal? as being off the government’s books so that they were not adding to the government capital account, and the UK In following the third route of financing public sector would therefore be able to hold itself within the limits set by procurement of large projects, the public sector is limited Maastricht. in the extent to which it can check on detailed progress during the construction phase of a PFI project. As guidance PFI became the only real option for local authorities. And issued by the Treasury on PFI contracts states, “it will not be importantly, as PFI was regarded as having too large appropriate for the authority to adopt the type of overseeing up-front costs, such as working on preparing bids, it was role it might traditionally expect to have when procuring promoted by the UK Treasury as a method suitable only for stand-alone construction or development services.”1 large projects.
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