Hundreds of millions ‘leaking out’ of Scotland

HUNDREDS of millions of pounds are “leaking out” of the Scottish economy, with contracts for major building and infrastructure projects being handed to firms outside Scotland, a new report has claimed.

Scottish businesses are being “locked out” of the contracts for major projects in the country’s public sector, with the dice “loaded” in favour of big corporations.

The stark warning is made today in the first report from the Jimmy Reid Foundation – a think-tank launched in memory of the former trade union leader.

Sign up to our Politics newsletter

Sign up to our Politics newsletter

The report – Using Our Buying Power to Benefit Scotland – by leading economists Jim and Margaret Cuthbert, said that “too much” of the £9 billion spent each year on procurement projects was allowed to leave the Scottish economy, with a “harmful” effect on jobs and business north of the Border.

Among the examples cited in the report were publicly-owned Scottish Water handing out the work for the bulk of its £500 million annual investment programme to a consortium of French, English and Californian firms.

Scotland’s £50m annual budget for waste containers was also highlighted in the report – just one of the 16 contracts it involved was awarded to a company north of the Border. Another 14 were handed to English companies, while one went to an Irish firm.

A deal worth up to £22m to supply Scotland’s library books saw contracts going to six wholesalers based in either England or Northern Ireland, with just one Scottish firm – a dedicated bookseller – involved in the procurement process.

Jimmy Reid Foundation director Robin McAlpine said the report’s evidence “should come as a bit of a shock”, as he called on the Scottish Government to back the recommendations of the study, such as splitting contracts into small blocks to make it easier for smaller firms to win contracts.

Meanwhile, former Labour First Minister Henry McLeish said the report showed the need to “think again” about the way public money was spent on building projects, while former SNP enterprise minister Jim Mather also welcomed the findings.

The 31-page report said that public- sector contracts “are still being designed in the interests of big business”, mainly located outside Scotland, with the country’s large small and medium-sized business sector largely squeezed out of the bidding process.

It went on to say Scotland had a “much more restricted view” on European Union law over the awarding of contracts than other nations, which meant Scottish firms were more likely to be disadvantaged.

The report comes days after it emerged that a Scottish steelworks may have lost out to China and Europe on a contract for the new Forth bridge.

Scottish Labour leader Johann Lamont seized on the findings to call for a shake-up in the rules over the awarding of contracts for infrastructure projects.

Ms Lamont said: “The current controversy over the Forth road bridge is just one – enormous – illustration of how government has failed steelworkers here in Scotland.

“We need to change whatever rules prevent the public sector using its purchasing power for the public good.”

The report called for the bidding process for contracts to be “designed in a way that gives Scottish businesses the best chance of winning them”

The report said: “Hundreds of millions of pounds currently ‘leaking out’ of the Scottish economy could be retained, a potentially massive sustained investment.

“Contracts are still being designed in the interests of big business, making it hard for Scotland’s small and medium-sized companies.

“Procurement policies have been developed with little or no regard to economic or social development in Scotland.”

The report went on to claim that the current rules over procurement “load the dice in favour of big corporations, often at the expense of small businesses but also regularly at the expense of the wider public interest”.

It said: “The Scottish public sector spends more than £9bn per year on procurement. Too much of this money is allowed to leave the Scottish economy, with the cost to jobs and the business base this implies.

“Meanwhile, the money which does remain in our economy is almost wholly detached from wider economic development policies.”

Mr McAlpine also said Scottish ministers should look for “exemptions” from EU rules to give firms in Scotland an advantage in bidding for contracts.

He said: “We are spending over £9bn of public money, but instead of using it to boost social and economic development, we’re actually doing harm to the Scottish economy.

“We have to break the relationship between big corporations and procurement policy.

“Of course big business is an important supplier to the public sector, but it is using its influence to shut out Scottish businesses and to push aside the wider public interest.

“A narrow-sighted vision of what procurement is for and what it can achieve has set us off down the wrong track.

“We treated vast sums of public money as if we were just buying our messages and all that mattered was the bill. The result is that no-one can even tell us how much of our money stays in the Scottish economy.”

The report was published as Alex Neil, Scotland’s infrastructure and capital investment secretary, promised a review of procurement for public sector projects to look at increasing contract opportunities for firms north of the Border.

He said: “I believe the time is right to commission a root-and-branch review of construction procurement across the public sector, with a view to tackling industry concerns and ensuring that procurement practices deliver best value for Scotland’s economy.

“We have already announced our intention to introduce a Sustainable Procurement Bill during the life of this parliament and that the bill will seek to ensure that major public contracts deliver training and employment opportunities through the inclusion of community benefit clauses.

“Having listened to business concerns about procurement, I can announce that the bill will also seek to ensure that all public bodies in Scotland adopt transparent, streamlined and standardised procurement processes that are friendly to Scottish businesses.

“We will work up detailed proposals for the review and I will make a further announcement on this shortly.”

Former First Minister Mr McLeish praised the report for setting out “practical actions” to benefit Scotland’s economy and create jobs.

He said: “I welcome this first report from the Reid Foundation. When the foundation was launched, I said that we need to have some thinking in Scotland that questions whether the relationship between the public sector and big business was always delivering the best outcomes for the public.

“This report is a great example of how asking questions which don’t always get asked creates clear, practical actions which can benefit Scottish society and the Scottish economy.

“I hope that everyone will look at this serious piece of work and think again about some of the ways in which we are spending public money.”

Mr Mather said that the findings would help “improve outcomes” in the procurement process for Scotland’s public sector.

He said: “Jim and Margaret Cuthbert are to be congratulated on the rigour and clarity that they have brought to the subject of public procurement in Scotland.”

Andy Willox, Scottish Policy Convenor of the Federation of Small Businesses, also praised the report as making a “good contribution” to promoting smaller firms in Scotland.

He said: “The FSB’s right behind any moves to use the Scottish public sector’s buying power to benefit our local economies and we’ve been expressing our dissatisfaction about the aggregation agenda for some time.

“While we may not agree with every element of this report, we believe that it makes a good contribution to a debate Scotland needs to have.”

The report’s authors Jim and Margaret Cuthbert said: “The report is intended to be a constructive and evidence based critique of current procurement practices in Scotland.”