THE profit-making business arm of Scottish Water lost the contract to supply more than 100 public bodies despite being rated best for quality of service in the tendering process.

The Scottish Government faced fresh criticism over its decision to hand the £350 million public sector water supply contract to Anglian Water Business after details of the competition emerged.

Business Stream, the Scottish Water subsidiary which has been supplying schools, hospitals and other public buildings until now, said it lost out by "the narrowest of margins" to the Hertfordshire-based firm.

A spokeswoman added: "We also know that Business Stream scored highest on the quality of service offered."

AWB beat off five rivals in all, it emerged, including two other Scottish water companies.

The other bidders included Severn Trent and United Utilities, both based south of the Border, and two smaller companies which supply water to businesses, Castle Water, based in Blairgowrie, and Clear Business Water, in Hamilton.

Public sector union Unison and opposition parties at Holyrood have reacted angrily to the news that 15,000 separate public buildings will no longer be supplied by Business Stream from next year.

Commenting on the firm's claims about the tendering process, Dave Watson, of Unison, said: "It's no surprise that Business Stream scored highest on quality of service.

"They have the knowledge, experience and expertise in Scotland for what is a hugely diverse contract.

"Anglian, in contrast, are having to start almost from scratch."

Labour's public services spokeswoman Jackie Baillie said: "Why has the SNP Government in Edinburgh chosen to effectively privatise this service when it is suggested that their own grading system rated the publicly owned Scottish Water top.

"It's not fair that our schools and hospitals could suffer from poorer services because the SNP Government bungled the deal.

"The tender itself could have been broken down on a regional basis rather than on a nationwide basis to deliver a better deal for the taxpayer and keep water management in public hands."

Willie Rennie, the Scottish Lib Dem leader, said: "This whole process is mired in confusion.

"The SNP previously said that they want our water services to be a public sector success story.

"They need to come clean over why they are so relaxed about handing hundreds of millions of pounds to a private company owned by investors in Australia and Canada when there was a quality, public sector alternative."

The contract is worth around £350m over four years.

AWB's bid offered immediate savings of £5m per year.

As part of the deal the company will introduce water efficiency measures that could save a further £5m per year.

An announcement was due in February, ahead of the new contract starting in April, but it was delayed to give the companies more time to consider "initial feedback".

AWB will now begin managing water supplies and waste water for around 130 public bodies.

Their clients include health boards, local authorities, quangos, universities, colleges and the emergency services.

The Scottish Government said the contract was split in two, covering local authorities and the other public bodies, and AWS came out on top in the competition for both lots.

"The bids were measured on a balance of 50/50 quality and price and Anglian’s offered the overall best value for money," a spokeswoman said.

Non-domestic water services were opened up to competition in 2008 under the Water Services Act, which was passed with the support of the SNP in 2005.

It was designed to meet a requirement for competition laid down by the UK-wide Competition Act, brought in by Tony Blair's government in 1998, while ensuring publicly-owned Scottish Water continued to supply households.