IN next Thursday's Budget statement, the Scottish Government will highlight plans to reform Scotland's procurement system, looking at how the public sector's £9 billion annual spend can "do more to boost jobs and the Scottish economy".
The proposed bill will address small businesses' complaints, chiefly that of having to burn up time and resources on cumbersome form-filling exercises whose outcome they see as pre-weighted against them. It also responds to left-leaning think tanks such the Jimmy Reid Foundation, which has criticised a system where "too much power is being granted to big corporations which face insufficient competition for contracts".
According to Colin Borland, head of external affairs for the Federation of Small Businesses: "The issues for us are the time and effort needed to compete for relatively modest contracts, and the bigger problem of how they are let so that only massive multinationals are able to bid for them. But also there's the lack of monitoring by public-sector paymasters of how well the primary contractor is paying subcontractors."
Last month, the Scottish Government issued its consultation, a 60-page document, seeking to understand business complaints and to update the procedure and language to conform to the latest orthodoxies.
But for some observers, adding "community benefit clauses" and other extra stipulations for applicants does not get to the main problem with procurement: that big public projects rarely deliver benefits cost-effectively for the taxpayer.
Although the new bill consultation proposes temporary bans for companies guilty of "inappropriate behaviour" and suggests temporary bans for companies "exploiting [their] position as an incumbent supplier to make excess profits from a public body", it does not say how
such behaviour would be defined, how
officials would define "excessive profits" or how they would make such charges stick to street-smart multinationals with better lawyers.
A slew of recent disasters suggests
that in procurement matters, the real economic problem is that Scottish officialdom is a field of lambs surrounded by a pack of experienced wolves. The biggest losses to the Scots economy are not from contracts eluding our SMEs, but procurements won by global companies that, largely due to official ineptitude, have gone wildly over-budget.
According to Professor Bent Flyvbjerg of Oxford University's Said Business School, an authority on planning, reform should be at least as much about upskilling and imposing accountability on public-sector project managers as on imposing conditions on private companies.
"The key weapons in fighting deception and waste [in public procurement] are critical questioning, accountability, and better methods. The professional expertise of planners, engineers, architects, economists, and administrators is certainly indispensable [but] claims about costs, benefits, and risks made by these groups usually cannot be trusted and should be carefully examined by independent specialists and organisations. The same holds for claims made by project-promoting politicians and officials. The key principle is that the cost of making a wrong forecast should fall on those making the forecast."
Critics of the proposed new procurement bill see nothing in it to suggest it would have averted the Edinburgh trams disaster (whose costs rose £13,000 per metre to £57,000 per metre, while its scale shrank by two-thirds, and whose timescale slipped by three years); the £7 million write-off on the police records systems; the £70m Highlands and Islands schools supply scandal; or the three multi-million-pound bungled ICT projects excoriated by Audit Scotland last month. Since the Scottish Parliament building affair, failures have been followed by pledges that "lessons have been learned". Meanwhile, responsibility is dissolved, staff move quietly on and the "complexity" of the project is cited to ward off blame.
In none of the above cases did the partner multinationals, BT, Fujitsu, Capgemini, Bilfinger Berger, Siemens et al, act improperly, unethically, or even
unreasonably (despite what the Edinburgh trams company TIE briefed throughout). They did what companies do: used their commercial and legal skills to extract maximum available shareholder benefit from complex public contracts.
In each case these companies have ended up receiving far more financial benefit from the procurement process than originally envisaged, with taxpayers seeing less than promised in terms of benefits.
Audit Scotland has given the ¬Scottish Government credit for improving its "leadership and oversight of the capital investment programme" in recent years, and others highlight positive projects that are clearly improving life in Scotland.
Kenny Valentine, a Scotland-based partner in international law firm Pinsent Masons, points to successful projects such as the M74 completion and M8 upgrade "where we need to learn lessons about what went right". He sees the fault in high-profile procurement as a "combination of poor relationships and ill-advised haste to get started tends to manifest itself further down the line".
But that public-sector/contractor relationship is characterised more starkly by John Carson, a civil engineer with Europe-wide experience on big capital projects and an arch-critic of Scotland's record in project-management: "At present Scotland has a giant sign on its door saying to the international market: "We're mugs, come in and rip us off.
"We are not the only country that routinely pays too much for projects that don't deliver what they promise, but it's not going to change for us because of some change in paper legislation, but because of more skill and accountability from those administering the system."
Carson, who led the team that delivered the Skye Bridge, has highlighted what
he sees as failures in Edinburgh City Council and Transport Scotland's management of the trams, the result of TIE understating the costs and inflating the benefits of
the scheme.
He is also critical of officials' role in what he sees as the "grossly-inflated" costs of Scotland's largest-ever civil ¬engineering project, the new Forth Bridge, which at £1.5 billion is priced at over three times as much as any comparable bridge over any comparable terrain, anywhere in the world, and is benefiting Scottish firms only at its outer fringes.
He has made common cause with the Oxford economist and former Council of Economic Advisers member, Professor John Kay, who cited the cost of the new Forth Bridge when analysing the root causes of UK overspending, in an article last month: "A plethora of consultants is attached to every modern project to ensure more cost-effective management [but] this hope is not fulfilled.
"Only a few global firms are now perceived as capable of running mega-projects and they are hired by often inept public-sector purchasers. These clients change their minds frequently and are prone to insist on idiosyncratic specifications."
Quick to express ministerial outrage when it sees Scotland losing out from Whitehall's actions or omissions, Scottish ministers have appeared more sanguine about the loss of often tens of millions of pounds through homegrown "ineptitude", of the sort spelled out in Audit Scotland's recent ICT report into Registers of Scotland, Disclosure Scotland and the Crown Office and Procurator Fiscal (see box on page 43).
That report, which prompted only a muted response from the Scottish Government, showed bamboozled quango staff as incapable of sticking to an agreed plan or of designing a legal framework, and a monitoring mechanism that would avoid overspends, and secure victory for the taxpayer in subsequent disputes. A tram enquiry might conclude something similar, if and when politicians and officials allowed it.
All of these projects bear out Professor Flyvbjerg's opinion that "planners and project promoters make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs. They involuntarily spin scenarios of success and overlook the potential for mistakes and miscalculations. As a result they pursue initiatives that are unlikely to come in on budget or on time, or to ever deliver the expected returns."
Given that these real-life fiascos argue more forcefully against Scotland's ability to compete than any politician's rhetoric can argue for it, complacency about the culture of failure they highlight is hard to fathom. There is nothing in the "social democratic" Scottish tradition that approves writing off such vast sums due to poor management, but shrugging acceptance appears now to be the Scottish way.
"The essence of procurement is to understand what you are procuring and to distinguish between good investment and vanity projects," according to John Carson.
"The people on the procuring side need to be at least as good as the contractors, or else the process is doomed. Any new law should make it mandatory first to prove a strong economic argument for a new project, and then to have the lead procurer stick with it, get praised and rewarded if it succeeds or be held accountable if it fails."
In other words, the biggest "community benefit" the Scottish Government could deliver is to ensure that the public escapes being flee
'A country of deep pockets rather than hard bargains' - Why is the estimated cost of the new Forth Crossing so high?
Following the Edinburgh trams and the Scottish Parliament, projects that went wrong because prices were set unrealistically low, the procurement policy of the new Forth Crossing took the opposite path, with officials determined to
include inflation and "optimism bias" (a safety cushion against contingencies and cock-ups) in the price.
According to Jerome Stubler of Freyssinet, one of the world's foremost bridge engineers, quoted in the New Civil Engineer in July, the typical global price for a cable stay bridge is £2900- 3200/m2. Scotland's largest-ever itructure, including "VAT and
inflation, employer's costs, risk and optimism bias" is costing three times that amount.
But even if the bridge will cost between £1.45-£1.6 billion, this is much lower than earlier estimates that went as high as £4.2bn (including tram capacity), astronomical figures which might have been avoided if TS had used what Danish expert Bent Flyvbjerg
calls "reference class pricing" (ie surveying to comparable structures in comparable circumstances), and scoped other comparable projects from Denmark to Macao. These first figures, and the revised version without the intended tram capacity, were a clear sign to the small world of elite bridge-builders that Scotland was a country of deep pockets rather than hard bargains where prestige projects were concerned.
Critics believe the official guidance "conditioned the market", giving the few consortia capable of bidding an indication that far higher than average prices were acceptable. The price has at least made overspends unlikely, and so far the bridge, being built by a US-Spanish- German-UK consortium, supported by Irish road-building firms, is on time and on budget.
ICT waste
In a report published last month, Audit Scotland examined three cases from Scottish quangos – Registers of Scotland, Disclosure Scotland, and the Crown Office
and Procurator Fiscal Service – where tens of millions of pounds were wasted in faulty ICT procurements. The case that cost the taxpayer the most was Registers of Scotland (RoS), whose
£112 million contract with BT was 40% more costly than originally designed, and which performed so badly that it was found cheaper to cancel with the loss of £6.7m
The project was found to be too large and complex, the delivery period too long, and the project monitoring mechanisms were either too weak, or disregarded.
Although RoS cancelled its contract with BT 20 months early, it is still contracted to pay £9.4m by April 2014 "in respect of service delivery". And RoS is still being obliged to employ BT staff on TUPE transfer.
Both RoS and BT argue that the "complexity" of the project led to the problems and that they have learned from the experience. BT has declined to say how much it earned during the life of the contract, citing commercial confidentiality.
