Committee
Audit Committee, 25 Jun 2008
25 Jun 2008 · S3 · Audit Committee
Item of business
“Review of major capital projects in Scotland—How government works”
Mr Black:
Watch on SPTV
I might ask the team to help answer the question about quality standards. We make the general point that there is insufficient evidence that quality standards are clearly specified and built in at the outset. The point about inflation is interesting. I want to put what we say in our report in context. The team found that there was no explicit allowance for inflation in the early projects. Latterly, the standards have changed, and there is now an explicit allowance for inflation. If we went back a number of years, we would find that the conventional approach in Government was to price everything at constant prices. People took a decision between project A and project B based on an equivalence that simply used current prices. To keep things simple, the built-in assumption was that future inflation would be the same in the construction industry as in the rest of the economy. It was further assumed that Government revenues would rise broadly in line with inflation, if not at a rate greater than inflation.One of our most significant recommendations to Government is to press ahead and ensure that construction cost inflation is factored in as a separate consideration from what might be happening in the general economy. In one of the exhibits towards the end of our report, we have a chart showing a simple trend projection of what will happen with construction inflation. Could someone help me with the page?
In the same item of business
The Convener:
Lab
For item 2, I invite the Auditor General to introduce the Audit Scotland report on major capital projects.
Mr Robert Black (Auditor General for Scotland):
Good morning. Before I start, I ask Barbara Hurst to draw to your attention one or two small textual errors in the report. This is the first time that such e...
Barbara Hurst (Audit Scotland):
We apologise for the errors in the report. They are minor proofing errors; nevertheless, they should not have happened. They are in part 3, which is on proje...
The Convener:
Lab
Sorry—which paragraph is that?
Barbara Hurst:
It is in the second key message on page 19.That should actually read that nine projects had awarded the main construction contract and three have since reach...
George Foulkes (Lothians) (Lab):
Lab
May I ask one question? Are all of the projects that we are talking about directly funded projects under the old system? There are no private finance initiat...
Mr Black:
That is right.
George Foulkes:
Lab
Thank you—I wanted to be clear about that.
Mr Black:
This is the first systematic review of publicly funded major capital projects in Scotland. The scale of capital investment in Scotland's public sector is sub...
The Convener:
Lab
There are clearly some serious issues, with implications for not only the short term but the long term. I am intrigued by your saying, for example, that over...
Mr Black:
Expertise is an important issue. At various points in the report, we highlight the absolute importance of having good project management and good advice for ...
Murdo Fraser (Mid Scotland and Fife) (Con):
Con
The report is interesting and there is a lot of meat in it that we must consider. I will examine some of the conclusions on page 12 in part 2, which examines...
Mr Black:
The advice that I am getting from the team is that the lessons that come out of the report are indeed being taken seriously. In my opening remarks, the messa...
Angela Cullen (Audit Scotland):
We echo the Auditor General's opening remark that the long duration of some of the projects, from the early estimates to where they are now, has not helped. ...
Murdo Fraser:
Con
Thank you; that is helpful. I have another question on a slightly different subject. Mr Black, in your response to George Foulkes's question, you said that a...
Mr Black:
Unfortunately, I regret to say that we cannot really answer that question because an audit of all PFI projects would be a significant task in its own right. ...
Murdo Fraser:
Con
Nevertheless, it would be a very interesting and useful piece of work, particularly given the current political debate.
Mr Black:
There has been a lot of academic and specialist research on the subject over the years. In the interests of helping the committee, I invite Dick Gill, who is...
Dick Gill (Audit Scotland):
As Robert Black has said, a lot of research has been done into the performance of PFI projects in the public sector in the United Kingdom. To use a bit of a ...
Willie Coffey (Kilmarnock and Loudoun) (SNP):
SNP
I would like to ask Mr Black a couple of questions on project planning and the outturn side of projects. In your report, you say that a clear need exists to ...
Mr Black:
Your first point concerned when projects are specified and put together. We make the straightforward recommendation that a well-specified outline business ca...
Angela Cullen:
Part 4 of our report concerns project planning and how to improve early estimates, and it highlights some of the things that the Auditor General has mentione...
Willie Coffey:
SNP
What about the use of quality standards, methods and tools? We have seen a couple of frightening examples—there was no provision for inflation in one project...
Mr Black:
I might ask the team to help answer the question about quality standards. We make the general point that there is insufficient evidence that quality standard...
Angela Cullen:
It is exhibit 13, on page 29.
Mr Black:
Exhibit 13 is not dreadfully scientific, but it essentially shows construction cost inflation compared with general inflation. It highlights the absolute nee...
Dick Gill:
We have not made specific recommendations about public bodies adopting specific quality standards. A number of the bodies that we looked into had formally ad...
The Convener:
Lab
Mr Gill said that with PPP we get what it says on the tin—we know what we are getting. Mr Black referred to concern about inflation in construction costs. Wh...
Mr Black:
That is an extremely important issue. In exhibit 14, we tried to capture in a single table the six major procurement routes and their advantages and disadvan...
Jim Hume (South of Scotland) (LD):
LD
There has been inflation in the construction industry during the past 10 years. Figures A and B in exhibit 5 show the difference between projects' final outc...