Review of Scottish Public Sector Procurement in Construction Stakeholder Engagement Update Event Edinburgh 8 th October 2015

Agenda – Arrival & Coffee – Implementation of the Recommendations – Progress Update – An updated Construction Journey – Fairer Payment Terms for Industry HUB Retention Project Bank Accounts – Coffee/Break – 11.4 Embedding Whole Life Costing within Construction – Making the Tender Processes More Efficient Public Contracts Scotland PCS - Tender Standard Pre-Qualification Questionnaire Quick Quote – Q&A – Lunch

Session 1 Implementation of the Recommendations Progress Update Kenneth Fraser Scottish Government

October 2013 Publication of report prepared by Robin Crawford and Ken Lewandowski. May 2014 All bar 1 of the 67 Recommendations are accepted by the then Deputy First Minister Nicola Sturgeon. Exception –No Chief Construction Advisor September 2014 Scottish Government & Scottish Futures Trust establish Core Team to implement the Recommendations November 2014 Governance structure agreed. June 2015 First Outputs Published. Timeline to date

Communication During Implementation Period Periodic Information Update Days; Web page refresh; Stakeholder Workshops & Consultation; Draft publication of Implementation Measures; Feedback from Consultation; Post Implementation Creation of specific Construction Procurement Journey Map; Creation of new web based interactive; Construction Procurement Manual;

Collaborative; Efficient; Sustainable; Outcome Focussed; Recurring Procurement Themes

Implementing The Recommendations Delivery Workstreams SFT Policy Workstreams SG Themes Construction Procurement Review 67 Recommendations Collaborative Procurement 14 Efficient Procurement 54 Sustainable Procurement 32 Outcome Focussed Procurement 11

Implementation Programme PPRB Approval Activity Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Implementation Period Schedule 1 Schedule 2 Schedule 3 Monitor, Review & Report PPRB CRDG

Schedule 1 Programme

Implementation Programme Activity Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Implementation Period Schedule 1

Schedule 1 Implemented to date Workstreams/Recommendations Themes Construction Procurement Review Schedule 1 8 Recommendations Collaborative Procurement (3) Structures Efficient Procurement (1) HUB Programme Sustainable Procurement (5) Community Benefits Outcome Focussed Procurement None

Structures Three of the five recommendations within the Structures workstream have been completed. A structure for the delivery of the recommendations. A mechanism to drive the procurement reform agenda as it relates to construction. Coordination of the input from Industry and Professional Bodies.

Structure & Governance Core Team (SG and SFT) Recommendation Delivery Activity – 66 Recommendations Public Procurement Reform Board PPRB Construction Review Delivery Group CRDG Construction Review Secretariat Scottish Government Delivery Team Construction Scotland Industry Leadership Group Scottish Future Trust Delivery Team Strategic Governance Operational Delivery Co-ordination & Management Implementation of Recommendations

Structures Three of the five recommendations within the Structures workstream have been completed. A structure for the delivery of the recommendations. A mechanism to drive the procurement reform agenda as it relates to construction. Coordination of the input from Industry and Professional Bodies.

Industry Consultation Construction Scotland Procurement Implementation Group (CSPIG) Construction Scotland Procurement Implementation Group (CSPIG) Major Contractors Major Contractors Small Construction Businesses (SMEs) Small Construction Businesses (SMEs) Professional Services Specialist Contractors and Subcontractors Product Suppliers Construction Scotland Industry Leadership Group (CSILG) Construction Scotland Industry Leadership Group (CSILG) Core Team (SG and SFT) Core Team (SG and SFT)

Industry Consultation Construction Scotland Procurement Implementation Group (CSPIG) Construction Scotland Procurement Implementation Group (CSPIG) Alvar Kenwell I&H Brown Willie Watt Nicoll Russell Studios Small Construction Businesses (SMEs) Small Construction Businesses (SMEs) Bruce Dickson BAM Construction Professional Services Paul Lowe FES Specialist Contractors and Subcontractors Ian Waddell Aggregate Industries Product Suppliers Major Contractors Major Contractors

Martin Blencowe Scottish Futures Trust

Hub Programme Overview: Develop guidelines in relation to the hub programme which support improved payment terms, the monitoring of hubCo performance and the exchange of project data. Consideration of a minimum contract threshold. Delivery: New project development fee payment terms – May 2014 Enhanced quarterly performance reporting to the hub National Programme Board A Project Manager’s Handbook for procuring authorities Project data exchange now embedded No minimum contract value thresholds

Community Benefits Overview: Requirement to review and update the Scottish Government 2008 community benefits guidance to support Contractors and the Public Sector to procure, implement, measure and deliver effective community benefits within contracts.

Building Information Modelling Overview: BIM should be introduced in Central Government with a view to encouraging adoption across the public sector. The objective should be that, where appropriate, projects across the public sector adopt BIM Level 2 by April 2017.

Schedule 2 Programme

Implementation Programme PPRB Approval Activity Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Implementation Period Schedule 1 Schedule 2 Schedule 3 Monitor, Review & Report PPRB CRDG

Implementation Programme Activity Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Implementation Period Schedule 2

Schedule 2 to be implemented by June 2016 Schedule 2 39 Recommendations Collaborative Procurement (1) Skills & Capabilities (2) Benchmark Databases Efficient Procurement (1) Assurance (12) Tender process (5) PCS (1) Frameworks (5) Contracts & Risk (2) New methods of construction Sustainable Procurement (5) Fair Payment (2) SMEs Outcome Focussed Procurement (2) Best Practice (1) Whole Life Cost Themes Construction Procurement Review Workstreams

Implementation Programme Oct Nov Dec Jan Feb Mar Apr May Jun Collaborative (Skills & Capabilities/Benchmark Database) Efficient Sustainable (Fair Payment/SMEs) Outcome Focussed Contracts & Risk / Frameworks Systems / PCS Tender Process Whole Life Cost Best Practice Consultation Period Output to CRDG Key

Implementation Programme Oct Nov Dec Jan Feb Mar Apr May Jun Collaborative (Skills & Capabilities/Benchmark Database) Efficient Sustainable (Fair Payment/SMEs) Outcome Focussed Contracts & Risk / Frameworks Systems / PCS Tender Process Whole Life Cost Best Practice Consultation Period Output to CRDG Key Rec 16Contract selection Rec 17Risk allocation Rec 18 Amending standard forms Rec 19Painshare /gainshare Rec 23Cash retention Rec 16Contract selection Rec 17Risk allocation Rec 18 Amending standard forms Rec 19Painshare /gainshare Rec 23Cash retention

Implementation Programme Oct Nov Dec Jan Feb Mar Apr May Jun Collaborative (Skills & Capabilities/Benchmark Database) Efficient Sustainable (Fair Payment/SMEs) Outcome Focussed Contracts & Risk / Frameworks Systems / PCS Tender Process Whole Life Cost Best Practice Consultation Period Output to CRDG Key Rec 30 Tender scoring Rec 31Competence of bidders Rec 32Financial Thresholds Rec 33Prior performance Rec 34Abnormally low tenders Rec 35Pre market engagement Rec 36Feedback to bidders Rec 43SPQQ Rec 44Consultancy questions Rec 45Quick Quote Rec 46Quick Quote audit trail Rec 64Suicide bids

Implementation Programme Oct Nov Dec Jan Feb Mar Apr May Jun Collaborative (Skills & Capabilities/Benchmark Database) Efficient Sustainable (Fair Payment/SMEs) Outcome Focussed Contracts & Risk / Frameworks Systems / PCS Tender Process Whole Life Cost Best Practice Consultation Period Output to CRDG Key

The Construction Journey Session 2

Construction Journey A B C E Initial Concept & Business Case Procurement Strategy & Design Development Consultant/Contractor Selection Asset Use Develop Strategy Business Case Contractor Selection Contract Award Construction Commissioning Handover Maintain Replace/ Decommission Zone A Zone C Zone E Consultant Selection Zone B Zone D Contract Selection D Construction/Contract

Develop Strategy Stakeholder Identification Contract Selection Output Specification Statement of Requirement (SOR) Project Control Documents (PID, PEP) Sustainability/ Community Benefits Consultant Selection Strategic Business Case Initial Agreement (IA) Business Case (OBC) Zone A Gateway Review 1 (If Required) Back to Map Define Project aims/scope Governance Structure Pre Gate Gate 1 Initial Concept & Business Case

Contract Selection Finance Consultant Selection Design Relationships Existing Frameworks Standard Forms of Contract Zone B Gateway Review 2 Back to Map Procurement Strategy Gate 2 Procurement Strategy & Design Development

Consultant Selection Publicising the Consultancy Contract Issue Pre- Qualification Questionnaire Existing Frameworks Assessing Responses Zone C (1) Gateway Review 2 Limiting Number of Potential Bidders Issue Invitation to Tender (ITT) Consultant Selection Back to Map

Fair Payment HUB Retention Project Bank Accounts Session 3

Fair Payment HUB Retention Project Bank Accounts Session 3

Hub Designer Payment Terms

Fair Payment HUB Retention Project Bank Accounts Session 3

A potential new approach to contract assurance which eliminates cash retentions

Recent developments Specialist Engineering Contractors Group National Specialist Contractors Council The Construction Supply Chain Charter Project Bank Accounts Trust status for retentions Frameworks with zero retention

Major requirements for Assurance of Main Contractor Performance An insolvency event Default in performance leading to breach of contract Defect rectification

Principles of a new approach (1) No retention in the main contract No retention in the supply chain Adoption of BSRIA soft landings or similar A rigorous Practical Completion Test Formal valuation of snagging or incomplete work at practical completion Neutral in cost to employer

Principles of a new approach (2) 1% Project Specification Performance Payment added to the tender sum o Payable at the end of the defects liability period o Linked to 100% of specified criteria compliance o Employer can use it if 100% not achieved 10% conditional performance bond for the main contract o Guidance on wording to cover insolvency events o Guidance on ensuring bondsman is reputable

Benefits Significant cash flow benefits for Tier 2 and 3 suppliers Opportunity to pass on some of the financial benefit in lower pricing Encourages professional relationships in supply chains with reputable suppliers Retains essential assurance for insolvency PSPP means incentives and protection for defect rectification still exist Encourages defect free handovers Avoids administration of trust accounts for retention

Fair Payment HUB Retention Project Bank Accounts Session 3

Project Bank Accounts Colin Judge FRICS Construction Procurement Policy Unit h ttp:// ProcConst/projectbankaccounts (Or Google - “Scottish Project Bank Accounts” - it works!)

Why is the Scottish Government trialling PBAs? What difference does prompt payment make?

The four trial projects and their current status A96 Inveramsay Bridge (c£10.17m) –Transport Scotland –PBA a condition of tender in amended TS bespoke Design & Build Contract –on site now, completion due Spring PBA payments underway –Initial lessons learned on PBA set up/implementation gathered and being evaluated –Another iteration scheduled early 2016 for PBA operation. Transport Interchange, Galashiels (c£5.2m) –Scottish Borders Council via South East Hubco –PBA retrofitted into bespoke conditions of contract –work on site completed August 2015 –Feedback/lessons on PBA being gathered and evaluated Two separate maintenance projects at Monklands Hospital (total c£1.4m) –NHS Lanarkshire via National Services Scotland –PBA retrofitted into Framework Scotland 2 via NEC ‘Z’ clause –work on site completed September 2014 –Feedback/lessons learned gathered on PBA

How long is the trial period and what happens next? What is Scottish Government doing? Website Lessons Learned Programme FAQs and templates Policy Leads’ Forum Building PBA processes Corporate compliance and effectiveness

What are the principal lessons learned - so far? PBAs result in prompt and protected payments to subcontractors They are a collaborative endeavour requiring purposeful action The banking sector is the critical enabler Our PBA operating model Further development needed - the 6 Cs

Some more detail on lessons learned

How do PBAs effect prompt payment? What else does a PBA achieve? What things can a PBA not achieve, address or change? –“how and when”, not “why and what”

What are the essential elements of a PBA in Scottish Government? The account is set up in joint names of public body and main contractor They are both named as trustees in the trust agreementtrust agreement And they should jointly instruct the bank to make payments from the account to beneficiaries What is “trust status” and how does it work in a PBA?

Which projects are suitable for PBA application? Do PBAs favour larger rather than smaller main contractors?

What does the bank do? Must the public body authorise payment through the banking system?

How do subcontractors join a PBA? –the trust documents What about implementing the PBA down the supply chain? –aligning payment cycles

Please visit our website wProcConst/projectbankaccounts (Or Google - “Scottish Project Bank Accounts” - it works!) And drop us a line at our mailbox

Coffee Break

Embedding Whole Life Costing within Construction Paul Dodd Scottish Futures Trust Session 4

Embedding Whole Life Costing “From project conception to contract award, there should be a focus on the design quality and whole life cost of an asset.” “Public bodies should build whole-life costs into business cases and subsequent project reporting” Audit Scotland 2008 “This recommendation remains fundamental to achieving best value for money and so we believe it to be worth repeating here, and worth underlining that where this is not already happening, it should, as a matter of priority.” Review of Scottish Public Sector Procurement In Construction

Embedding Whole Life Costing “ In the development of a business case and procurement strategy, Procuring Authorities should ensure a focus is made on service outcomes. To facilitate this approach, further guidance should be developed to embed design and whole life costing early within the development process. ” Review of Scottish Public Sector Procurement In Construction

Response to Recommendation Scottish Government WLC Guidance Guidance which will support and promote effective whole life cost analysis and outcomes within projects. 1.Consistent WLC Definition 2.New WLC Dashboard 3.Support on procuring skills and expertise early in projects. 4.Links to best practice and benchmarks

Whole Life Cost Definition

Whole Life Cost – VFM Dashboard Input Consistent data Whole Life Cost Assessment Compare Various options Input Consistent data Whole Life Cost Assessment Compare Various options Output WLC Scorecard Consistent reporting Support approval process. Support VFM over lifetime not just capital cost. Output WLC Scorecard Consistent reporting Support approval process. Support VFM over lifetime not just capital cost.

Whole Life Costing

Whole Life Cost Analysis Option AnalysisPreferred Option Assessment

Design-Led Procurement Overview: Ensuring the correct skills and expertise are procured early within the projects which are focussed on service outcomes and whole life cost. Guidance on procurement of effective WLC consultancy and design advice (PQQ/ Cost:quality). Case studies of best practice.

Summary Overview: Ongoing development of the WLC guidance through consultations. Draft WLC guidance prepared Developing benchmark information. Test scorecard on live projects. Continue consultation process with industry. Guidance to be published by June 2016.

Making the Tender Process More Efficient Iain Ross Scottish Government Session 5

The Construction Procurement Environment Subject to EU, UK and Scottish Legislation and Guidance Deliver value for money Fair, open and transparent within that ….. Appropriate Proportionate

The Tender Process Process Advert Pre Qualification ITT Award Tools Quick Quote PCS & PCS-T SPQQ Guidance – Construction Procurement Manual Construction Journey

Quick Quote The norm for works contracts under £500k Used where appropriate for construction related contracts under Procurement Reform (Scotland) Act 2014 thresholds: – Services £50k – Works £2m

Public Contract Scotland 39. Practice should be standardised by making the use of Public Contracts Scotland mandatory when advertising publicly-funded construction contracts. (Para a) 40.Contractors on major projects should be encouraged to advertise sub-contracts on PCS where they have not already fully identified their supply chain. (para b)

Public Contract Scotland 41. Product categorisations used on PCS should be reviewed to ensure that they are as accurate as possible for construction projects. (Para c) 42.SPCD should assess the current performance of the PCS systems through user feedback to ensure high standards are being achieved and are capable of being maintained following adoption of wider usage. (Para d)

Standard Pre-Qualification Questionnaire Develop guidance to ensure use of SPQQ is proportionate and relevant to the needs of construction. It should be mandated. Develop consultancy/specialist services suites of standard questions

Summary Deliver guidance that ensures construction procurement is: Appropriate Proportionate Inclusive with The right decisions in a Compliant – open, fair & transparent - environment

Questions