Building a Better Scotland - Infrastructure Investment Plan: Investing in the Future of Scotland

Chapter 3: Delivering the Infrastructure Investment Plan

3.1 We must make sure that we manage effectively the substantial increase in infrastructure investment to deliver benefits to the public procured at the best value, provided on time and within budget and sustainable in the long term. This Infrastructure Investment Plan is part of the co-ordinated process by which the public sector will manage investment plans and projects to promote value for money. This section of the plan considers how the Executive manages its capital programme currently and indicates future developments to improve our management of the programme.

Improvements made over the last five years

3.2 As part of its strategy for public investment, the present UK Government has, over its term in office, introduced reforms to encourage more effective investment. These reforms, as well as specific reforms by the Executive, include:

improving the longer-term outlook of the public sector by introducing firm three year rather than one year budgets. This gives all departments, including the Scottish Executive, greater certainty of funding, and a sounder base for planning beyond that period;
end year flexibility allows the Scottish Executive to manage capital spending sensibly, by allowing underspends in capital budgets, for example due to project slippage, to be carried forward into the portfolio's capital budget in the next financial year;
prudential borrowing regime empowering local authorities in relation to borrowing levels in support of infrastructure investment;
resource budgeting introduced charges for creating and holding onto assets to ensure that all public sector organisations recognised the value in maintaining infrastructure and utilising assets effectively. This therefore encourages the development of Asset Management Plans and disposing of assets that are surplus to requirements;
project review processes and training improved;
distinct capital budgets set specific public sector capital and revenue budgets, to protect longer term investment from short-term, current pressures; and
requiring Pre-Expenditure Assessments for significant new spending proposals.

3.3 These reforms create incentives for more effective use of assets, and an acknowledgement of the need for a full consideration of the long-term costs of maintaining assets. The overall aim is to ensure that assets are used in a way which allows our resources to be linked to results.

3.4 The changes initiated by the UK Government have been matched within the Scottish Executive by a determination to ensure that our capital programme helps us to meet the needs of the Scottish people. The Scottish Public Finance Manual establishes the framework under which financial expenditure in the Scottish Executive is regulated. The manual applies across all areas of Scottish Executive spending with key features including: establishment of a chain of command and project management structure; guidance on appraisal and evaluation of projects; preparation of a Project Execution Plan; and regular project monitoring and review.

3.5 Gateway Review is an approach developed by the Office of Government Commerce and is a short, focused review of a programme or project carried out at key decision points in its lifecycle by a team of experienced practitioners, independent of the programme/project team. Although originally devised for Procurement, IT and Construction projects, the Executive has modified the process to include non-procurement projects, business change initiatives and policy delivery.

3.6 There is a Strategic Gateway for programmes and there are five gateways that a project can go through during its lifecycle, three before contract award, one looking at service implementation and one to confirm the operational benefits. The Scottish Executive recommends the use of Gateway Reviews for all mission critical and high risk projects.

3.7 The Gateway Review process is designed to improve the success of programmes/projects - it is not a form of audit. It is also separate to regular monitoring arrangements that exist for IT and Construction and Property investments. These "approval gateways" take place at key project stages in line with the Scottish Public Finance Manual and the Construction Works Procurement Guidance - the " Client Pack" .

3.8 The Executive has also improved the PPP procurement process through standardisation and the introduction of the Key Stage Review process . The Key Stage Review is a self assessment process backed up by a report by Partnerships UK at defined key stages in the PPP procurement. It has already significantly improved the quality of readiness of schools PPP projects coming to the market, and is now being used in the health, waste, and justice sectors.

3.9 Each public sector organisation has an obligation to ensure it makes effective use of capital assets and funds and as such has set up systems of internal control to ensure these are managed. Third party monitoring and verification of these processes is completed on a routine basis by each organisation's internal auditors, external auditors (as appointed by Audit Scotland) and the Scottish Executive departmental reviews.

3.10 Pre-Expenditure Assessments are now required for significant capital projects (£5m and above). They consider expected impacts and value for money, and are used as the basis for justifying spending proposals. The PEA process involves assessing:

the Aims and Objectives of the proposal;
the Options for addressing these objectives;
the Evidence Base on the likely economic, social, and environmental impacts and value for money of the proposal, including cost-benefit analyses where appropriate;
the Financial and Management Arrangements for the proposal, including an assessment of the key risks to successful delivery;
the plans for Monitoring and Evaluation.

Managing Capital Expenditure - Public Sector Examples

Health - The asset investment strategy, supported with comprehensive guidance and approval mechanisms, improves the ability to develop and deliver capital projects that demonstrate value for money and facilitate the redesign and improvement of modern and efficient health services. The introduction of the "Property Management System" on a mandatory basis provides a foundation for the linking of national and local strategic planning to asset planning/management. This all operates within a framework that is consistent with the sound principles contained within the "Gateway Review Process" for the planning and delivery of capital projects.

Significant capital investment programmes (currently over £1.5m) need to be approved by the Executive's Capital Investment Group, which consists of economists and health specialists. The Group grant approval after each of three stages: concept; outline business case; and final business case. All capital investment is subject to the guidance and principles set down in the Scottish Capital Investment Manual (SCIM).

Transport - The Scottish Transport Appraisal Guidance (STAG) is used for all new transport projects. STAG involves the assessment of projects against five criteria - environment, safety, economy, integration and accessibility. It helps to ensure that any new project proposal is objective and open-minded, assesses all modes of transport and involves a broad range of stakeholders.

Improving our delivery of infrastructure investment

3.11 The improvements already made to our capital investment and asset management systems have already generated significant savings and benefits to the infrastructure in Scotland, and improved co-ordination across the public sector.

3.12 However, the recent report by the Rt Hon Lord Fraser of Carmyllie QC on his Inquiry into the Holyrood Building Project - The Holyrood Inquiry- published in September 2004 confirmed a number of significant faults within the procurement and project management of the new Parliament building. The First Minister has already made a commitment to implement the recommendations of the report within the Scottish Executive as soon as possible. The procurement and project management systems within the Scottish Executive had already been improved post-devolution, such as the implementation of Gateway Reviews, but we recognise that further lessons can be learned from the report and therefore we will further develop our skills through recruiting and training project managers and establishing additional processes to support good project delivery.

3.13 This plan identifies the further improvements envisaged to our infrastructure investment process to ensure it is effective, represents the best possible value for money and is properly co-ordinated across Scotland by the Scottish Executive.

Enabling our partners to input to our plans

3.14 Through the publication of this plan, we have responded to the concerns of the construction industry to be better informed of the likely future projects that they may be asked to participate in. However, the plan is only a start to the level of communication on the timing and level of investment envisaged with further plans to continue liaison to ensure there is capacity in the private sector to deliver this investment growth. Part of this improvement will be to ensure we maintain up to date plans for coordinated improvements to infrastructure. Programme managers are now using techniques such as industry days, websites, and many other formal and informal lines of communication to ensure that industry is well aware of opportunities to invest in or help to build and service the necessary infrastructure improvements.

3.15 We expect the commitments given to be two way and therefore there is a challenge for the private sector to respond with sufficient capacity and skills to achieve our ambitious infrastructure improvements throughout Scotland.

3.16 We will work with local authorities and other parts of the public sector to ensure that the coverage of investment in these forms of communication is comprehensive, and that best practice in all aspects of infrastructure planning and delivery is shared across the public sector.

Improving our capabilities and meeting our planned timescales

3.17 The level of investment planned makes it more important than ever to ensure we have sufficient project management capabilities to complete on budget and by the target date. Effective project initiation and management will improve our management of risk. This will ensure risk is appropriately distributed between the public and private sectors and the costs and benefits of taking risks is properly evaluated and estimated. Our consideration of risk and improved project management will improve the delivery and pace of investment.

3.18 Good practice within construction delivery exists in Scotland and is encouraged by the Scottish Construction Industry Group and the Scottish Construction Forum. Good delivery will be further formalised and shared effectively by supporting the sharing of capital planning experience and expertise throughout the public sector. We are committed to learning from previous projects, as well as learning lessons from the private sector through PPPs and commercial practice, to further improve our procurement and ongoing monitoring of capital projects.

The Scottish Executive has three main sources of advice and best practice covering conventional procurement and other financial partnership and PPP procurement methods.

Building Division and Centre of Expertise

Established as a source of leadership and focus for improving conventionally procured capital programmes and project delivery across the Scottish Executive, the Building Division and Centre of Expertise:

seeks ways to add value to our policy and service delivery areas;
provides advice, guidance and support to mission-critical and high-risk delivery areas and helps them understand the process of Gateway Reviews;
develops and publicises guidance on a corporate approach to delivery that aligns with our Policy Cycle;
raises awareness of delivery issues and a guide to a suite of successful delivery tools and processes, examples of best practice and lessons learned from other projects;
maintains a register of people who can offer advice and guidance to those with delivery responsibilities;
offers networking opportunities and support to colleagues with delivery responsibilities; and
contributes to learning and development opportunities that improve our delivery skills.

The Building Division and Centre of Expertise has reviewed over 20 programmes/projects in the last year and is in the process of training an additional 45 managers to perform Gateway Reviews. This will raise the total number of trained staff to 120 and supports the commitments made by the former Minister for Finance in response to the Fraser Report on Holyrood.

Financial Partnerships Unit (FPU)

The FPU:

provides Scottish Ministers with policy support and their response to constructive debates about public service delivery through partnerships;
supports Scottish Executive policy managers on financial partnership options and PPP procurement methodology;
is active in evolving PPP/private finance models for large sectoral programmes, for example education, in ways which offer improved value for money. This also includes liaising with counterparts elsewhere in the UK and overseas;
considers developments in the PPP process, for example standardisation of contracts, and focuses on outreach, training and skill development by actively promoting its " informed client: informed industry" initiative; and
provides practical guidance and support at project level, evaluating partnership proposals and business cases for Scottish Executive funding support or policy approval, and operating the Key Stage Review process.

SEHD : Private Finance and Capital Unit

The PFCU:

provides sector specific advice and guidance to NHSScotland bodies on all aspects of infrastructure investment;
is responsible for distribution and monitoring of the Health and Community Care capital budget and oversees the approval of capital and PPP schemes proposed by NHSScotland bodies;
provides direct project support to NHSScotland PPP projects and the development of a joint venture model to support primary care / joint premises development;
supports training and development activity within NHSScotland to improve capacity to effectively develop and deliver infrastructure projects; and
liaises with UK Health Departments in matters relating to infrastructure investment.

Improving quality and considering the effect of construction on sustainable development

3.19 We will require each significant capital investment to illustrate in a business case that it has considered sustainable design incorporating green procurement strategies, resource efficiency and waste minimisation. Prior to being approved, the business case will be required to illustrate that the investment design and architectural quality will be to a high standard and of a durable quality.

3.20 We have detailed throughout this document the improvements that have already been built in to our standards. These include the requirements of the Building (Scotland) Act 2003 and Sustainable Development policies included within our schools and communities developments. The Scottish Executive in conjunction with the UK Government, Welsh Assembly and Northern Ireland Administration published the consultation paper Taking it on: new UK sustainable development strategy to discuss the setting of a strategic framework for sustainable development until 2020. The consultation ended in July 2004 and responses will inform the UK and Scottish strategies. We are also consulting on a review of our Scottish Climate Change Programme with a view to publishing a new programme in the first half of 2005. We plan to include in that review an assessment of how our plans across this investment programme might contribute to our commitment to reduce carbon emissions.

Promoting synergy and ease of access to the public

3.21 Building on our existing obligations for Community Planning we will improve collaboration between Local Government, our NDPBs and Agencies to obtain efficiencies and economies of scale both with Community Planning Partnerships and across boundaries. We will promote and secure sustainable communities through improved spatial co-ordination and linkage of public sector provision including:

joining up the forward investment plans of Scottish Water, Public Utilities, Scottish Enterprise and Local Government - cross referencing with the planning system, building standards and design requirements;
joint use of health or educational facilities;
the integration of new transport links with new infrastructure such as new hospital developments;
shared premises between Local Government and enterprise companies;
requiring cross-boundary planning by local authorities, Local Enterprise Companies and NHS Boards as an explicit condition of funding approvals and of planning consents.

Community Planning in Action

Dalmellington Area Centre provides the residents of Doon Valley with easy access to a comprehensive range of public services all under one roof, such as local authority services, doctors, dentists and police. Funds have been pooled amongst public services in East Ayrshire to provide the facility and the relocation of employees from a range of agencies. This has ensured continued co-operation and seamless access to public services.

The North West Dumfries Communities in Partnership Project aims to create an integrated local facility for the delivery of services including further education, childcare, employment training, local employment opportunities, business start up and advice and community capacity building. A funding package has been confirmed with partners including the South of Scotland European Partnership, Dumfries and Galloway Council, Scottish Enterprise Dumfries and Galloway, Lincluden House Management Committee and Dumfries and Galloway Childcare partnership.

Log-In-Café in Barrhead is a practical example of Community Planning in action and results from a joint initiative by East Renfrewshire Council and NHS Argyll and Clyde to provide additional facilities for teenagers. The café enables teenagers to tap into information and training opportunities using the internet. Through Log-in, the Council and NHS Argyll and Clyde have developed the Doc-online service that offers young people direct and confidential medical and health advice over the internet.

West Lothian Connected is a multi-agency one-stop-shop in Livingston, which serves the West Lothian population. It brings together a wide range of services including West Lothian Council, Jobcentre Plus, Inland Revenue and NHS in West Lothian. It has a shop front site in the Almondvale shopping centre and is open during shopping hours, including Saturdays and Sundays. West Lothian Connected provides an integrated package of services arranged around customer needs.

Encouraging a sustainable and healthy workforce and industry

3.22 We are increasing our requirements for contractors for projects with public sector funding to have effective consideration of:

respect for health and safety;
sustainable building practice;
employment of local labour on accredited training schemes; and
co-ordinated publicity strategies.

3.23 The Executive's "Client Pack (Construction Works Procurement Guidance)" informs and offers procedural guidance to public and private sector organisations.

3.24 Additionally, the Scottish Executive and Scottish Trades Union Congress Staffing Protocol was established in 2002 to ensure fair pay and conditions for people working under contracts on the public service frontline. The protocol applies to all PPP projects and also aims to improve communication and consultation with trade unions in the PPP procurement process.

Using the most effective financial vehicles to achieve our goals

3.25 We will continue to innovate and improve on the methods we use to fund capital projects. The Executive adopts a 'mixed economy' approach to investment, where PPP plays a part in a balanced investment portfolio in which conventional capital investment remains dominant. We will adopt the capital funding method that delivers value for money: it is recognised that not all projects are suitable for PPP any more than some projects are not suitable for the conventional 'client/contractor' approach.

3.26 The Financial Partnerships Unit within the Executive reviews the evolving PPP models, in Scotland and abroad, to establish if more efficient and successful forms of PPP can be developed. For example, we are piloting a Non Profit Distributing Organisation model in one of the schools PPP projects. However, we recognise that new models have yet to be fully tried and tested and therefore a controlled approach to their use will be used to ensure the benefits outweigh the risks of these schemes and market confidence is not eroded. Lessons from PPP methodology are being transferred into conventional procurement processes, for example in the identification and management of risks and in relation to the long-term provision for maintenance.

3.27 We will also share best practice from the implementation of the new prudential borrowing regime in Scotland and other developments in methods of capital funding. We are also reviewing best practice in the UK and internationally to ensure Scotland benefits from emerging successful practices. This includes maintaining our co-ordinated approach with UK Treasury to improve or simplify current funding techniques to obtain best value.

Asset management

3.28 The fixed assets of the Scottish Executive and its consolidated entities are quantified in its consolidated annual accounts. The 2003-04 consolidated accounts have recently been published and illustrate tangible fixed assets (for example, buildings) of £15.7 billion and intangible fixed assets (for example, computer licences) of £59.6m. £12.3 billion of these assets is derived from our network of trunk roads.

3.29 This value includes the assets of the Executive's Core Departments, Executive Agencies, Health Bodies and the Crown Office and Procurator Fiscal Service. However, it excludes the assets of Non-Departmental Public Bodies in Scotland (eg Scottish Enterprise); subsidised industries (eg Caledonian MacBrayne), NHS Trusts in existence at 31 March 2004 and the 32 local authorities. Information on the assets of these specific bodies is incorporated in their individual annual accounts.

3.30 Effective use of these assets requires consideration of whether they are still required, and if so, how they should be maintained and their contribution maximised. The move to Resource Accounting and Budgeting (RAB) encourages the public sector to manage its assets efficiently as it imposes costs on holding on to assets in the same way as other costs are managed. RAB imposes two charges on the assets managed by the Scottish Executive:

a charge for the depreciation of assets used by the department measuring the cost of capital consumed in each year - that is, the extent the value of the asset has declined with use;
a notional cost of capital charge which measures the opportunity cost of retaining assets. This is currently calculated at a rate of 3.5% reflecting the fact that there is a cost to tying up resources in an asset. This cost can be measured by the return that might be expected if these resources were invested elsewhere.

3.31 These provide a specific measure of the annual cost of holding assets. The total charges in the Scottish Executive consolidated accounts for 2003-04, based on assets costing or valued at £15.7 billion were £540.4m for cost of capital, and £159.4m for depreciation (£153.3m for tangible assets and £7.6m for intangible assets less depreciation relating to donated assets of £1.5m).

3.32 A full description of the Scottish Executive's specific assets as at 31st March 2000 can be found in the National Asset Register. The National Asset Register is a vital part of the UK Government and the Scottish Executive's drive to improve efficiency in the public sector, enabling more informed decisions about the holding, acquisition and disposal of assets. The Register helps departments to make the best use of everything they own, and to judge whether assets are still needed. Each department has provided details of their plans to dispose of any assets that are surplus to requirements. Thus the Register helps ensure that resources are allocated to where they can be used most productively. The assets of other UK Government Departments operating in Scotland can also be found in the Register.

Asset Disposal

3.33 The disposal strategy applying to public bodies funded by the Scottish Executive is set out in the Scottish Public Finance Manual. This notes that holdings of assets should be kept under constant review, with a view to disposing of surplus assets as quickly as possible. Surplus land and buildings should be disposed of within 3 years of being identified as surplus, and surplus residential properties should usually be sold within six months of becoming empty. Assets should normally be disposed of at market value. However, in some areas special arrangements apply, for example assets used in commercial ventures or partnership structures where greater value for money is achieved through investing in the future.

3.34 Public sector bodies in Scotland already have an active policy of using assets effectively and disposing of surplus assets. Examples of this have been noted in this plan through the estates rationalisation policies of the Scottish Executive and the Crown Office and Procurator Fiscal Services. However, we recognise that value for money should always be attained for public sector investment and as part of the Efficient Government initiative we are reviewing further possible asset disposals made possible through more effective ways of working.

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