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BuildingBettera

Future?Report of the President’s Commission on Public Procurement in Scotland

Royal Incorporation of Architects in Scotland December 2011

Public Procurement in Scotland:

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The Royal Incorporation of Architects in Scotland

The Royal Incorporation of Architects in Scotland (RIAS) was founded in 1916 as the professional body for all chartered architects in Scotland and is the foremost institute in the country dealing with architecture and the built environment. The current President (2011-13) of RIAS is Sholto Humphries PRIAS.

The President’s Commission on Procurement

In 2010 the then President of the Royal Incorporation of Architects in Scotland, David Dunbar, appointed a President’s Commission on Procurement, composed of non-architects, who would work with him to research public procurement issues and present their findings to the Scottish and UK Governments.

Membership

Roy Martin QC (Chair)David Dunbar PPRIASLinda Fabiani MSPProfessor Malcolm HornerDame Barbara KellyLord Maclennan of RogartBrian Stewart

Committee Support

Neil Baxter, Secretary and Treasurer, RIASWillie Watt FRIAS, Chair of RIAS PracticeCarol-Ann Hildersley, RIAS

Correspondence

All correspondence should be sent to The Secretary and Treasurer, The Royal Incorporation of Architects in Scotland, 15 Rutland Square, Edinburgh, EH1 2BE. Tel: 0131 229 7545. Fax: 0131 228 2188. nbaxter@rias.org.uk.

First Published December 2011 by

The Royal Incorporation of Architects in Scotland, Edinburgh

Text: The Royal Incorporation of Architects in Scotland

Design: Jon Jardine (mail@jonjardine.com)

Copyright © The Royal Incorporation of Architects in Scotland 2011.

All rights reserved.

ISBN: 978-1-873190-65-4

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Section 1: Executive Summary and Recommendations

1.1 Executive Summary

1.2 Recommendations

Section 2: Commission Review and Analysis

2.1 Background

2.2 Context

2.3 Barriers to Entry for Micro-organisations and Small and Medium Sized Enterprises in Scotland

2.4 The Availability of Expertise Within Public Procurement

2.5 The Design Quality of New Buildings and Their Fitness for Purpose

2.6 The Pricing and Reliability of Services in Public Procurement

Contents

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S E C t I o n 1

…the concerns identifiedin this report present

significant challenges forScotland’s public sector

procurement improvementprogramme…

”

“

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1.1 Executive Summary

1.1.1 In these challenging economic times the public sector has a key part to play in meeting the Scottish Government’s objectives relating to sustainable economic development. This comes through the public sector’s role in constructing new buildings and other infrastructure, ranging from transport and health facilities through to schools, colleges and social housing developments and through its roles in managing and refurbishing existing buildings.

1.1.2 Recent research indicates that construction is the most expensive procurement sector across Europe and that the United Kingdom has amongst the slowest procurement procedures and highest costs. This is of significant concern given the levels of public expenditure in this area. There have been a range of recent initiatives within Scotland to help improve the public sector procurement process.

1.1.3 The Royal Incorporation of Architects in Scotland recognises the need for improvement in this area in order to ensure effective use of resources, to deliver value-for-money and high quality outcomes, and to reduce waste. The Incorporation has therefore worked with the Scottish Government, the Scottish Futures Trust and a broad range of other organisations across the development sector to achieve this.

1.1.4 However, the Royal Incorporation is aware that there are increasing levels of concern about public sector procurement in Scotland being expressed by the Incorporation’s own members, by fellow professionals in the construction sector and also by senior public sector employees. In the summer of 2010, therefore, it appointed a President’s Commission to study these concerns which can be grouped under four main headings:

• the increasingbarriers toentry formicro-organisationsand for small and

medium sized enterprises (SMEs) in Scotland,

• theavailabilityofexpertisewithinthepublicsectorprocurementprocess,

• thedesignqualityofnewbuildingsandtheirfitnessforpurpose,

• thepricing,reliabilityandvalueformoneyofservicesprovidedthroughthe

public sector procurement process.

1.1.5 These are significant issues and have implications not only on individual project procurement, delivery and value-for-money considerations, but also on Scotland’s infrastructure more fundamentally. There is a pressing need to tackle these four issues and in particular to:

• removeunnecessaryandunintendedbarrierstomarketbeingexperienced

by micro-organisations and SMEs in Scotland,

• ensureproportionalityintheprocurementprocess,

• encouragetheuseofsuitablyqualifiedin-houseadvisorsandassessors,

Executive Summary and RecommendationsS E C t I o n 1

…the concerns identifiedin this report present

significant challenges forScotland’s public sector

procurement improvementprogramme…

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• review and amend the use of Pre-Qualification Questionnaires (PQQ)

generally and the Government’s proposed standard PQQ specifically (and to

ensure that appropriate training is made available) to ensure that experience

and quality considerations are not swamped by governance issues,

• changethefocusofattentionawayfromthequalityofprocurementprocesses

towards the quality of outcomes,

• increase the focusonqualityandwhole life,value-for-moneyoutcomes in

the procurement and post-delivery evaluation process,

• exploremechanismstoreducethenumberofbidderswhilststilldelivering

fair competition,

• review the procurement process to identify opportunities to reduce the

likelihood of legal challenge.

1.2 Recommendations

1.2.1 The importance of public sector procurement to Scotland has meant that Scottish Ministers have maintained a close interest and involvement in the improvement programme. We welcome strong leadership and support for construction in Scotland and believe that Scottish Ministers have a key role to play in ensuring that the issues highlighted in this report are tackled. We recommend that Scottish Ministers prepare and issue new guidance to public authorities regarding the handling of public procurement for projects falling below the European and the Scottish Futures Trust thresholds in order to encourage a simpler and far more proportionate process than is in use at present.

1.2.2 We recommend that steps are taken to remove artificial barriers to entry for smaller businesses in the construction sector and that strong encouragement is given to ensure that appropriate expertise exists and is retained within our public bodies, that design quality and user-centred outcomes are given significant weighting in decision making and that pricing, reliability and value-for-money are improved.

1.2.3 We recommend that Scottish Ministers urgently call into being an independent and objective expert panel to advise them on these issues and how they can be resolved. Membership should comprise key professionals from the construction and public sectors, nominated by the participating organisations, together with representatives from the Scottish Government and the Scottish Futures Trust. The panel should be charged with gathering further data, analysing the issues we have highlighted and should identify solutions. This will result in the preparation of a detailed report and recommendations for Ministers to implement1.

1.2.4 The President’s Commission believes that the concerns identified in this report present significant challenges for Scotland’s public sector procurement improvement programme and the ability of Scotland’s construction industry to deliver public sector projects effectively, both now and in the future. It has published this report to draw wider attention to the issues and to help tackle them.

1.2.5 The Royal Incorporation of Architects in Scotland is committed to working jointly with Scottish Ministers and key bodies across the construction and public sectors to tackle the issues highlighted in this report. The President’s Commission and the Royal Incorporation’s Council will continue to bring forward initiatives to help improve public sector procurement.

1 We recommend that this is a short, sharp exercise and that the Panel reports three months after commencement of their work.

S E C t I o n 2

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2.1 Background

2.1.1 Sustainable economic development is the overarching objective for the Scottish Government. The public sector has a crucial role to play in meeting this. From transport and health projects through to schools, colleges and social housing developments, the public sector is a key player. It also provides significant support for the broader Scottish economy through its expenditure on construction, refurbishment and asset management. The challenging economic climate reinforces the significance of public sector projects to the wider Scottish economy and the importance of achieving efficiency, effectiveness and value-for-money.

2.1.2 Construction is however the most competitive and costly procurement sector in Europe. Recent studies, focusing on Scotland and beyond, have emphasised the need for significant improvements relating to cost-effectiveness, delivery, risk management and quality outcomes for publicly-procured development projects2. The 2006 report, Review of Public Procurement in Scotland (the McClelland Report)3, has been highly influential for construction procurement in Scotland, although the construction sector was only a minor focus for attention in the report and its recommendations4.

2.1.3 There have been a number of initiatives in Scotland in response to these studies. These range from the development of good-practice guidance5 through to major changes in the organisational infrastructure for the procurement and delivery of publicly-funded development projects. Of particular significance has been the creation of the Scottish Futures Trust (SFT) in 2008. The SFT has been specifically charged to improve the efficiency and effectiveness of infrastructure investment in Scotland6.

2.1.4 The Royal Incorporation of Architects in Scotland fully supports the improvement of the procurement and delivery of construction and related projects in Scotland. Its members are highly experienced procurement specialists and already play a key role in ensuring the design and delivery of the majority of development projects across the country. Through their work they are particularly well-placed to understand the conception and delivery of development projects and to identify where opportunities for improvement lie. The Royal Incorporation has therefore worked with the Scottish Government, the Scottish Futures Trust and a broad range of other organisations across the construction and development sector to help support the improvement process. It has identified this work as a continuing strategic priority7.

Commission Review and Analysis

2 There is a long tradition of reports on public sector procurement in the UK such as Constructing the Team (the Latham Report) 1994 and Rethinking Construction (the Egan Report) 1998. More recent examples include Public Procurement Reform Programme: Scottish Procurement Policy Handbook. Scottish Government 2008; Appointment of Consultants and Contractors. Procurement Guidance No 3: HM Treasury (not dated).

3 Review of Public Procurement in Scotland. Report and Recommendations. John F McClelland. 2006

4 Chapter 13, pp49-50, discusses Estates, Construction and other Capital Projects. It recommends that:

‘A Public Sector Capital Projects Committee should be formally established to share best practice and monitor market conditions and individual contractors. This should include executives and senior managers from across the sector who should, in a collegiate manner, pursue market place optimisation and the spread of best practice for capital projects.’

5 See for example, A Guide to Selection of Design Teams, Royal Incorporation of Architects in Scotland (not dated). The Scottish Government has published a range of documents on its website including: Construction Works Procurement Guidance: Construction Procurement Manual, Scottish Government, February 2011. See also the Scottish Procurement Policy Notes, Scottish Procurement Action Notes, Procurement Toolkit and Procurement Journey, all on the procurement section of the Scottish Government’s website.

6 See, Business Plan 2011-2012, Scottish Futures Trust, March 2011; Annual Report and Financial Statement for the year ended 31 March 2010, Scottish Futures Trust, November 2010; hub: Building better local services together, Scottish Futures Trust (not dated); Statement of Benefits 2010/11, Scottish Futures Trust, June 2011.

7 In 2010 the President of the Royal Incorporation of Architects in Scotland, David Dunbar, appointed a President’s Select Committee on Procurement, composed of non-architects, who would work with him to research public procurement issues and present their findings to the Scottish Government. It was subsequently retitled as ‘The President’s Commission’.

S E C t I o n 2

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2.1.5 There have been improvements in some areas of the procurement process in Scotland. However, alongside these, problems are becoming apparent which threaten to undermine the gains achieved whilst causing significant change and damage to the organisational infrastructure for development in Scotland as a whole. This view is widely held across the development and construction sectors8. The Incorporation has close and very positive relationships with public sector organisations and through this is aware of increasing frustrations about the procurement process within Scottish public bodies also.

2.1.6 The Royal Incorporation and its membership have a key role to play in ensuring efficient and effective public procurement processes in Scotland. This report has been prepared by the Royal Incorporation’s President’s Commission to bring its concerns to a wider audience and through so doing, to help ensure that they are fully recognised, discussed and resolved. The broader intention of this report is to enable the full benefits of public sector procurement in Scotland to be realised in these challenging financial times.

2.2 Context

2.2.1 A PricewaterhouseCoopers report prepared for the European Commission in March 2011 identified that construction was the most expensive procurement sector across Europe. The study identified that the UK had amongst the slowest procurement procedures in the EU (second only to Greece) and amongst the highest costs9. If we consider a modest architectural commission at say £130k10, the overall bid cost to tenderers from the private sector is likely to total c. £250k or more11. A further c. £70k will be incurred by the commissioning body in assessing the bids and awarding the contract12. In some cases the figures are far higher as they will depend on the number of submissions made, the complexity of the project being tendered, and the nature of the scoring process. Such costs represent huge inefficiency at a time of financial challenge.

2.2.2 The framework for public sector procurement in Scotland is provided by EU Directive 2004/18/ec13. This requires that contracting authorities shall treat economic operators equally and non-discriminatorily and shall act in a transparent way. Within Scotland, the Public Contracts (Scotland) Regulations 200614 identify three tests relating to probity, economic and financial standing, and technical and professional ability15. The regulations also emphasise proportionality16 – that is, smaller projects should not be unduly burdened by considerations more appropriate for use in relation to major construction projects.

2.2.3 Implementing public sector procurement within the context of the European Directive and the Scottish Regulations should not prove unduly burdensome or introduce major inefficiencies into the system. However, there is increasing evidence suggesting that Scottish procurement policies and the processes which sit under the Directive and Regulations are not fit for purpose, act as a significant drag on Scottish public sector projects, and are having detrimental consequences for the country’s construction sector as a whole.

2.2.4 What then are the main challenges which are preventing professional services from delivering the quality and value that the Scottish economy needs?

8 At the time of writing, the text of an ePetition submitted to the UK Government by Willie Watt FRIAS of Nicoll Russell Studios, Dundee, Chair of RIAS Practice, has 735 signatures. The petition statement states that:

“Public Sector procurement is often overly complex, very expensive, reduces competition, disadvantages SMEs and does not necessarily reach the correct end result nor provide value for money. In these financially difficult times money must be used effectively. Unfortunately though, procurement practices have become bloated, they have an undue focus on a tick box mentality and policies rather than the talent, skills and services offered by the bidders. For a relatively modest commission at the EU threshold (£130k) it can cost the Public Sector £70k to assess bids and the Private Sector £250k in bid costs, that is not an effective use of money, energy and talent. Many current systems are therefore not fit for purpose and should be fundamentally reviewed and streamlined, in partnership with the private sector and representative organisations. We need to create a simple, effective system to build a better Britain.” See http://epetitions.direct.gov.uk/petitions/273

9 Public Procurement in Europe: Cost and Effectiveness. PricewaterhouseCoopers 2011.

10 This figure has been amended from that in the original research to reflect the EU threshold at the time of writing (the threshold figure varies, depending upon exchange rates).

11 Research undertaken by Reading University in 2001-3 identified an average cost to bidding organisations of c. £4,000 per bid and for large projects, £11,000 per bid.

12 We have been told that the increasing complexity of the public sector procurement process has led to tendering bodies using up to five assessors to evaluate bids. Although public sector bodies rarely cost this process, senior sources within the public sector tell us that a cost of £70k or more would not be unusual.

13 EU Directive 2004/18/ec on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, European Union, 31 March 2004.

14 Public Procurement: The Public Contracts (Scotland) Regulations 2006. Scottish Statutory Instruments 2006, 1.

15 The Public Contracts (Scotland) Regulations, s23-25

16 The Public Contracts (Scotland) Regulations, s15(12).

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2.3 Barriers to Entry for Micro-organisations and Small and Medium Sized Enterprises in Scotland

2.3.1 Although the European Directive and Scottish Regulations are intended to ensure a level playing field for bidding organisations, there is increasing evidence to suggest that the current procurement systems are creating barriers to entry for smaller established architectural practices and new practices in Scotland and that local practices are disadvantaged when in competition with larger, non-local, organisations17. A recent piece of research undertaken by one of the RIAS’ Chapters, for example, identified that only 16% of local development had been designed within their chapter area (which covers a 50 mile radius)18.

2.3.2 There is an increasing belief that the current public procurement process in Scotland is removing the bottom rungs of the procurement ladder. The processes being used are making it increasingly difficult for small local practices with proven knowledge and experience of an area, its character and its communities, to bid successfully for work in their area.

2.3.3 There is anecdotal evidence suggesting that micro-organisations and SMEs19 in Scotland are so discouraged by the public procurement process that they are no longer participating. Instead they are either tendering for private work or are seeking to work elsewhere. Thus their skills and experience are being lost to the public sector in Scotland20. What then are the factors which are leading to this problem?

Project Aggregation

2.3.4 The first issue relates to the increasing practice of combining a number of small construction projects into a single large project by a commissioning body. This ‘aggregation’ of separate public sector procurement projects into larger ‘bundles’ or ‘batches’ is undertaken on the basis that it will deliver value-for-money and efficiencies. It is argued that this is achieved through the removal of duplication in the procurement process and by releasing savings in the subsequent operational costs by drawing on the benefits of, for example, co-location. However, two problems arise from this approach. First, project aggregation leads to far fewer small projects, thereby reducing the number of opportunities for smaller organisations, and, secondly, the aggregation of projects is frequently accompanied by lengthy repayment and building management commitments (ten, twenty or twenty-five year periods21).

2.3.5 Many micro-organisations and SMEs in construction and related professional disciplines, by virtue of their size, do not have the resources either to tender for or to deliver large-scale aggregated projects22. The supply chain for aggregated projects tends also to be longer (through the introduction of more organisational layers between the client and delivery). Income and profits at the lowest level are being squeezed and this in turn will reduce quality and value-for-money in the long-run. As a result, an artificial barrier is being created for micro-organisations and SMEs in Scotland, the level of risk for projects is raised and the ability to achieve quality outcomes is becoming more challenging.

17 The October 2011 edition of the Royal Institute of Chartered Surveyors magazine MODUS focused on small organisations (which represent 80% of their membership) and identified that SMEs win only 31-38% of public procurement projects by value – much less than their overall share in the economy (52% of combined turnover). The article also notes that the EU Parliament addressed this issue in its 25 October Report on Modernisation of Public Procurement Rules and prioritised the simplification of procedures to encourage SMEs to apply for tenders.

18 As this research relied on commercially sensitive information, it was not published. It has however been drawn to the attention of Scottish Ministers at two presentations.

19 Although definitions vary across Europe, for the purpose of this report, micro-organisations are companies with up to 10 employees, small companies employ up to 50, and medium-sized enterprises employ up to 250 workers. By way of example, the majority of architectural practices in Scotland are either micro-organisations or small enterprises. This pattern is reflected across most business in the Scottish construction sector.

20 There is a broader concern that when the economy improves this problem will become worse.

21 In November 2011 the Scottish Futures Trust announced the selection of the Amber Blue Consortium to deliver over £0.5bn of public sector infrastructure projects for the East Central Scotland partners over an initial ten year period. Initially identified construction projects for this HubCo include a number of schools, an academy and adolescent mental health facilities. On major projects build and maintain contract periods can extend to 20 or 25 years.

22 Whilst we are aware that partnering between smaller organisations is encouraged in such circumstances, the additional costs, practical and organisational issues mean that, in practice, this is very difficult to achieve.

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2.3.6 There has already been some recognition of this problem in Scotland. By way of example, since 2008, a range of public bodies such as health boards or local authorities are either required or encouraged to use a new procurement mechanism – the hub programme – created by the Scottish Futures Trust (SFT) to deliver infrastructure projects. The intention of the mechanism is to identify and promote opportunities for joint service projects. To deliver these projects, five joint-venture organisations, ‘HubCos’, are being set up to cover Scotland, each including a private sector development partner. This joint venture organisation will then manage a supply chain to deliver public sector projects. The first two HubCos were set up with very low project thresholds of £750k, meaning that public bodies taking forward projects at this level or higher are either required or encouraged to use the HubCo mechanism. This would have had the effect of removing potential opportunities to bid for such projects for a large number of organisations. However, following detailed discussions with RIAS regarding the barriers created by the inclusion of relatively small projects within the new public sector procurement mechanisms, the threshold for SFT public sector projects was raised to £3.5m. We would note nonetheless that the potential aggregation of disparate projects more broadly across the public sector continues to raise concerns regarding the ongoing impact of this practice on micro-organisations and SMEs in Scotland.

2.3.7 Project aggregation may achieve significant benefits where co-location of a variety of public services is the desired outcome. However, project aggregation is also being promoted in other circumstances (such as, for example, the construction of a number of schools in widely differing geographical locations). Whilst this latter approach may appear to offer cost savings, decisions to aggregate projects in such circumstances introduce longer supply chains and create barriers for local micro-organisations and SMEs23. Such an approach is not required by European legislation or Scottish procurement policy.

2.3.8 The impact of project aggregation can also be exacerbated by the increasing use of centralised frameworks in the UK, such as those offered by the Government Procurement Service24 (formerly the Office for Government Commerce). These tend to attract larger consortia which can invest significant sums in the bidding process and which may not be based locally.

2.3.9 There is a strong case for suggesting that where individual projects are below the European threshold (or the Scottish Futures Trust’s threshold of £3.5m) and where no co-location is involved, more traditional procurement approaches should be adopted by the public authority and that they seek to ensure that no artificial barriers to local procurement or micro-organisations and SMEs are introduced. For this to be achieved there is an urgent need for Scottish Ministers to set out clear guidance for public bodies to this effect25. This will ensure that there is continuous, competitive benchmarking of price and quality (i.e. whole life value-for-money). One argument for project aggregation is that it facilitates funding. However, the majority of these smaller projects are of such modest scale that they could be funded from existing budget streams as they have been previously. Indeed in the medium to long term this is demonstrably the most cost effective mechanism.

23 The Scottish Futures Trust has sought to address this issue through the use of key performance targets, one of which seeks to require that 80% of work is ‘market tested to local business’. We would support the increased use of such approaches if they are effective in removing unnecessary barriers in the procurement process being felt by micro-organisations and SMEs. However we are not clear how effective this mechanism is in practice.

24 Government Procurement Service (see http://www.buyingsolutions.gov.uk) is an executive agency of the Cabinet Office. Its overall priority is to provide procurement savings for the UK Public Sector as a whole and specifically to deliver centralised procurement for Central Government Departments. It has been suggested that the use of these frameworks can favour major and London-based consortia and can act as a barrier to smaller and local organisations.

25 It is likely that in a number of cases, public bodies’ own standing orders or procurement policies would need to be modified in the light of such guidance.

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Pre-Qualification Questionnaires

2.3.10 The second problem relates to the use in the public sector of Pre-Qualification Questionnaires (PQQs) for the shortlisting of bidding organisations26. While streamlining and standardisation seems a positive development, the nature and usage of these questionnaires has become a major cause for concern. They are becoming far too burdensome in terms of cost of completion for bidding organisations. It is clear that they are also moving attention away from quality and user-focus toward governance and risk-management. There is also a significant risk that, as all construction projects, however small, are perceived as risky (compared with other areas of public procurement such as supplies), the full scale of questionnaires will be used in a ‘one-size-fits-all’ manner rather than being proportionate to the nature and scale of specific projects.

2.3.11 The number of questions being included in PQQs, and the broad range of areas being covered, also has the potential to swamp key considerations. The use of very large numbers of questions frequently leads to tightly grouped scores with little differentiation between tendering organisations. This in turn makes selection by the commissioning body a burdensome and costly process and the likelihood of subsequent legal challenge to any appointment decision is higher. Overall, there is an increasing belief that information about talent, experience and suitability is being swamped by the very systems designed to identify them27.

2.3.12 By way of example here, the Scottish Government has recently undertaken consultation on a Standard Pre-Qualification Questionnaire (sPQQ) which it has been developing. The draft sPQQ runs to some 66 pages with 118 questions for bidders, together with a wide range of supplementary information28. As this has been designed to cover all possible projects and supplies, the sPQQ has been written with large projects and large organisations in mind (for example, there are 12 questions on environmental management, ranging from conformity to iso 14001 through to the regularity of environmental awareness training for staff). Whilst it is made clear that the commissioning body does not need to use all of the questions provided in the sPQQ, the tendency to identify all construction projects as risky, as noted above, means that the option to use a shortened questionnaire is less likely to be chosen.

2.3.13 If long and detailed questionnaires are widely and uncritically adopted, or if they are used by non-specialists or by generalist procurement advisors, they are highly likely to discriminate unfairly against smaller organisations. When multiplied up across the potential number of bidders for individual tender exercises, they also add significant and unnecessary costs and time burdens to the construction industry in Scotland and more broadly.

26 Pre-qualification is a method of pre-selecting organisations who have responded to an initial invitation to bid for projects. Pre-Qualification Questionnaires are standardised questionnaires which cover a range of areas including probity, financial standing, technical and professional capability, but which are tending to expand to include a wide range of other issues from environmental management through to health and safety policies.

27 The use of eProcurement (that is a computer-based system for the on-line submission of tenders) with PQQs will also make the process more impersonal. By increasing visibility it may well also encourage even higher numbers of applications, thereby adding further to the cost of project procurement as a whole.

28 By way of contrast here, the Royal Incorporation has designed its own PQQ which has been in use for over a decade. It comprises 24 questions and has not been legally challenged to date. The RIAS PQQ has been offered to the Scottish Government as a viable, ‘road-tested’ tool. (Pre-Qualification Questionnaire, Royal Incorporation of Architects in Scotland, new edition August 2011).

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2.4 The Availability of Expertise Within Public Procurement

2.4.1 It is clear that public-sector organisations can only achieve successful outcomes by drawing on a suitable level of expertise during the procurement and project delivery process. Indeed there is broad recognition that professional services are crucial to successful development projects and their subsequent usage:

‘The cost of professional services accounts for less than 2 per cent of the whole life cost of a project. Yet the quality of these services has a direct impact on the remaining 98 per cent. Even quite large variations in the cost of professional services can become insignificant in relation to the beneficial effect on the whole life cost.’29

Threats to In-house Construction Expertise

2.4.2 The lack of construction experience within a commissioning body increases the risk that, when selecting suppliers, the emphasis will be placed on the wrong considerations. This in turn reduces the likelihood of successful outcomes and makes the procurement process more susceptible to legal challenge. Lack of expertise also has significant implications for ensuring quality and value-for-money outcomes. We are aware of growing concern across Scotland that the proven in-house expertise available to public bodies is becoming increasingly threatened as a result of changes to public sector procurement (such as the use of the new mechanisms provided by the Scottish Futures Trust) which provide alternative procurement routes and an alternative source of expert advice30. This will weaken the expertise available to public bodies as commissioning organisations. Worryingly this is likely to be the case even where such expertise is in place locally and has been highly successful. We are not convinced that the alternative arrangements will ensure the delivery of quality and value-for-money projects when viewed from a local perspective.

2.4.3 More generally, the reduction in the number of construction professionals writing briefs and scope of services documents, and assessing tender bids, when combined with the use of increasingly impersonal tendering methods such as on-line procurement systems, will raise the financial and time-related risks associated with projects and reduce the likelihood of value-for-money outcomes. Even with the growth of more centralised procurement arrangements, it is clear that the involvement of in-house architects and other professionals within the originating bodies, such as local authorities or health care trusts, can significantly improve a project’s quality and value-for-money by effectively ‘tuning’ the project and the project team to ensure that the desired project outcomes are achieved31. We are concerned that the loss of in-house construction expertise within public bodies has very serious implications both for specific projects and for the robustness of construction infrastructure in Scotland as a whole.

29 Appointment of Consultants and Contractors. HM Treasury, Procurement Guidance No 3. (not dated), s4.2.

31 Expertise and the establishment of relationships are very important in the delivery of value-for-money and other project outcomes. We are aware (though the information is commercial and confidential) of at least one case where a local authority’s in-house advisor was responsible for ensuring that appropriate quality was achieved for projects taken forward under the SFT arrangements. The advisor strongly believes that, without their regular and detailed involvement on behalf of the public body, the project’s quality and value-for-money would have been significantly reduced at a local level. The further the distance that procuring officers are from a project, the less likely they will be able to ‘tune’ the project and project team to ensure the desired outcomes.

30 Where a public authority uses the Scottish Futures Trust and its HubCo mechanism to procure development, it can all too readily be argued that the public authority no longer needs its own in-house construction procurement expertise.

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Availability of Feedback

2.4.4 Where organisations have failed to win tenders, it is important that they receive feedback on their bid and its weaknesses to allow them to improve future bids. However we are told that tendering organisations are reluctant to give realistic and detailed feedback to unsuccessful organisations. This may be due to a lack of expertise in the handling of the feedback process by the tendering organisation, fear of subsequent legal challenge, or to time pressures. However, this will not lead to improvements in procurement systems or encourage learning for the bidding organisations. The lack of feedback also means that a bidding organisation may not recognise where their bidding is unlikely to be successful due to, for example, their lack of particular expertise. This may in turn mean that they will continue to submit bids in similar circumstances, leading to further wasted work for both bidder and tendering organisation.

2.5 The Design Quality of new Buildings and Their Fitness for Purpose

2.5.1 Over recent years there has been an increasing recognition of the benefits of a close working relationship between the project architect and the community of users for public facilities such as schools, colleges or hospitals.

User-centred Design

2.5.2 Recent research undertaken on two newly constructed mental health in-patient units in Scotland32 provides compelling evidence that design quality arising from adopting a user-centred design approach can have very significant operational and financial benefits.

2.5.3 In this case study, the use of ‘traditional’ procurement methods combined with a user-centred design, led not only to effective project delivery but the nature of the new buildings led to significant reductions in recorded challenging behaviour incidents. There is a clear link here between architect, building design, staff/patient well-being, and financial outcome33. However, the long-supply chains which result from project aggregation and exclusion of locally-based practices threatens to break this relationship. There is strong anecdotal evidence of ‘successful’ projects where the potential for improved outcomes resulting from a focus on design quality has been missed and where poor design has been ‘rewarded’ by increased maintenance payments and the need for post-occupation alteration.

Evaluation of Quality

2.5.4 Whilst large effort has been put into calculating the financial value/benefit of project aggregation, far less emphasis appears to be being placed on the analysis and presentation of quality outcomes arising from the public sector procurement process. We have heard a wide range of anecdotal evidence suggesting that post-occupancy evaluations are not obtaining full feedback relating to the quality of outcome for the end-users – arguably the single most significant determinant of success.

2.5.5 Despite the broad recognition that value-for-money assessments should include measures such as user-satisfaction, functionality, build-quality, design aesthetics, environmental impact, etc., there are increasing concerns across the sector that the evaluation of the public sector procurement processes in Scotland is placing far too much emphasis on financial considerations alone.

32 The study undertaken by Dennis O’Keeffe, Projects Director for NHS Fife, focused on two new-build mental health in-patient units at Stratheden Hospital, carried out prior to the introduction of the SFT procurement process. See also NHS Fife, Stratheden Hospital, Elmview Ward, Post Project Evaluation, June/July 2010. The Commission would like to thank Dennis O’Keeffe for making the results of his ongoing research at Stratheden Hospital available.

33 Whilst recognising that the results are very much preliminary and will be updated in due course, the author concludes that using the Treasury Green Book discount rate over a 30 year period, the reduction in incidents in each Unit would equate to capital savings of £340k and £2.2m respectively, whilst adding no additional cost to the project.

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2.6 The Pricing and Reliability of Services in Public Procurement

2.6.1 Financial considerations are important in any development project. There is a recognised tension between the efficient use of funds, project risk and quality. Many of the problems already highlighted in this report have the potential to contribute to the overall cost of public sector procurement and to raise the risk levels associated with individual projects. This problem is exacerbated both by lengthening supply chains which squeeze profit margins at lower levels and by poorly scoped bid and scope of service documents. The latter can lead to significant problems during project implementation, such as fee escalation or reductions in quality as project budgets become squeezed during the delivery phase.

Artificially Low Tenders

2.6.2 In the current financial climate, there is a raised risk that artificially low tenders will be submitted. This raises the likelihood of later fee escalation, legal challenges and higher project risk. However despite recognition of the dangers, low fee bids are still given too much favourable weighting in scoring and selection systems. There is a clear need to review the weight given respectively to quality and price in favour of the former, as this should significantly reduce the ultimate whole life cost and enhance the sustainability of many projects.

Numbers of Bidding Organisations

2.6.3 Whilst much of this report has focused on public sector bodies and weaknesses in the procurement process, it is important to stress that bidders also have a responsibility to ensure that public sector procurement is effective. Architectural projects have an average of 60-70 bidders and this figure can be as high as 150. This imposes very real problems in handling bids effectively and transparently and adds significant costs for the nation as a whole. The sense in Scotland is that, as a result of the use of project aggregation techniques and centralised arrangements for procurement, the remaining projects are attracting even larger numbers of bids, adding to the problems and costs for the commissioning organisation.

2.6.4 There is therefore a need for bidding organisations to assess realistically and critically whether their bid is likely to be successful, before committing significant resources to its preparation. There is also a concomitant responsibility to seek to reduce the number of legal challenges which are both a financial drain on the system and which lead to ever-more complex and risk-averse procurement processes. However current national financial challenges and new procurement procedures are likely to encourage more challenges as organisations recognise that the number of opportunities are reducing.

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