Infrastructure secretary Keith Brown said the deal with Anglian Water will save £40m a year which can be invested in public services. The billing and servicing of water for council buildings, hospitals, universities, prisons and the Scottish Parliament is currently carried out by Edinburgh-based Business Stream. This is fully owned by Scottish Water, although a separate company.
The move to Anglian has been criticised by opposition parties at Holyrood who claimed there were options to keep the contract in public hands.
Labour public services spokeswoman Jackie Baillie said: “This decision has effectively privatised water management for our schools and hospitals.
“The SNP government extended this decision beyond the general election because they knew it would be politically embarrassing to hand this contract to a private firm rather than the publicly owned Scottish Water.”
The government was originally scheduled to make a decision on the contract in March but the process was extended.
Scottish Liberal Democrat leader Willie Rennie said the deal will see Scottish taxpayers hand profits to a private sector group. “The real beneficiaries of this deal are the investors in Australia and Canada who own the vast bulk of Anglian Water Business,” Mr Rennie said.
“This is a private sector deal from a government which has told us it is utterly against such a thing.”
Scottish Green Party co-leader Patrick Harvie added: “This was an opportunity to prevent the supply of water services to Scotland’s public sector falling into the hands of a private firm whose profits won’t benefit the Scottish economy, and specifically a company that paid no corporation tax this year yet handed shareholders a £180m dividend.”
The market for business customers in Scotland was opened up due to competition legislation brought in by Tony Blair’s Labour government, Mr Harvie added.
He said: “Scottish ministers must show determination to defend the public sector’s role in Scotland’s economy.”
But Mr Brown insisted that Anglian Water Business (AWB) has emerged as the most competitive bidder for the contract, which will see Scottish Water continue to provide water for 96.5 per cent of Scotland’s population.
He said: “This is the best deal for Scotland under the rules that bind us, and this contract will save public bodies up to £10m annually for the initial three-year period of the contract with the option to extend for a further 12 months.
“Legislation introduced by a previous administration to safeguard the public status of Scottish Water requires us to tender out these services. But we have ensured that Scottish Water remains in public hands, and we have secured the best possible deal to ensure Scotland benefits.”
AWB’s bid offered immediate savings of £5m a year compared to the nearest bid, and water efficiency support to reduce customers’ water consumption.
As well as helping the environment, these “green” measures could reduce bills by a further £5m a year. This means the contract will save public bodies up to £40m over the next four years.
New staff are now being recruited in Scotland to manage the contract and ministers have secured a living wage guarantee from AWB, which will also more than double its Edinburgh workforce, as well as planning for new apprenticeships and trainees.
Mr Brown added: “AWB will also work with public bodies to reduce their impact on the environment and reduce their water consumption. The biggest benefit of all will be the money that can be ploughed back into the services provided by those buildings – the schools, hospitals and public offices – throughout Scotland.”
The existing contract with Business Stream was due to expire on 31 March, but the process was extended amid speculation AWB was the preferred bidder. The current contract will be continued until 31 December to allow for a “seamless transition” to the new management.