Examination of Witnesses (Questions 620-639)
BERR, OGC
22 JANUARY 2008
Q620 Mr Clapham: Minister, just looking
at the 1996 Act, it was introduced to deal with payments but there
are still some weaknesses in it. Some of the evidence that we
have had, particularly from the Specialist Engineering Contractors'
Group, suggests that there are still problems there. The Act was
introduced in 1996. We are talking about 12 years ago. Why is
it that we have still got problems with the Act in its current
form? What are you doing to reform it in order to address some
of the problems, for example, that the Specialist Engineering
Contractors' Group have put forward?
Mr Timms: I think by and large
the Construction Act has done a good job for us and I think that
is the general view across the industry. What we have been looking
at, and we have looked at this very carefully and over a period
of time we have talked to lots of people about it, is whether
there are changes that we can make in order to ensure that it
does a better job still, and we think there are. We have identified
a number of changes that we think can helpfully be made but I
do not want to give the impression from that that I therefore
think the Construction Act has done a bad job because all the
evidence I have seen is that it has done a good job, but we do
want to make some changes to enable better cash flow management
by improving transparency and clarity in the exchange of payments
information in construction contracts and to encourage resolution
of disputes by adjudication, where that is possible, in order
to reduce costly and time-consuming litigation, and we have got
some proposals for how we can do that. I am at the moment in discussion
with the Leader of the House about finding a legislative opportunity
to take those changes forward.
Q621 Mr Clapham: Can I just read
you what the Specialist Engineering Contractors' Group have said?
They say, "If we are honest with ourselves, then it is the
specialist group, lobbying for fair payment against the contractors'
group, that wants to keep the thing muddy—which is what
it is now". They are saying on the one hand that the contractors
want to keep it muddy. The Act came in specifically to bring that
kind of transparency that you have referred to, so do you feel
that transparency can be introduced by virtue of some reforms?
By the way, I am not saying that the Act did not improve matters.
Mr Timms: I think there are some
things that we can do to improve transparency. I think we can
improve clarity and transparency in the statutory payment framework
and we are also looking at prohibiting the use of pay-when-certified
clauses, but, of course, we have to do this on the basis of a
consensus across the industry. I do not think it would make sense
for us to say, if there is a disagreement between the two groups
within the industry that you have mentioned, that we are going
to back one against the other. We really have to find a consensual
way forward. That is what we are working on. I think we have made
good progress on that and it has taken us a bit of time but I
think it is the right approach to take.
Q622 Mr Clapham: I was going to ask
you about that, because it has taken some time. You have been
looking at it for four years. I understand there is currently
another consultation going ahead. When do you expect that to be
completed?
Mr Timms: I hold my hands up:
it has taken some time. It is not quite four years yet but it
is certainly getting on for four years. Originally it was hoped
that we could introduce the changes using the legislative reform
order route and, as you will recall, the way the legislation to
enable that ended up made that procedure a bit more constrained
than originally intended, so it turned out that we were not able
to do it in that way. We are going to need primary legislation.
We have just completed the second consultation. We are looking
now at the responses we have received to that and, as I mentioned
earlier, I am in discussion with the Leader of the House about
when a suitable legislative opportunity might occur, but I am
very keen now that we get a move on and make these changes.
Q623 Chairman: Minister, you are
that most dangerous of ministers, an honest minister, and it is
always beguiling for a committee like ours, so let us deal with
an issue where there is a real problem, which is the failure of
the public sector, and indeed many parts of the private sector,
to properly focus on whole life value rather than short term costs.
We have had some very worrying evidence from the Commission for
Architecture and the Built Environment about 52 new secondary
schools. They rated them on whole life costs, and 52% of them
came in as mediocre or poor, only 4% of them as excellent, only
15% as good, so there is a real failure to look at whole life
costs in many areas of the public sector, and also in the private
sector. There is a massive housebuilding programme planned by
the Government at present, and yet they also said that 82% of
new housing built over the last five years failed to measure up
on design quality, 29% of developments so poor that they should
not even have been given planning permission; that is CABE's view.
I think there are some real issues here about whole life value.
What we can actually do to make the public sector focus genuinely
on whole life value?
Mr Timms: I agree that we have
some way still to go on this. A very clear direction and commitment
has now been set. The Treasury Green Book makes clear that whole
life value should be taken properly into account in making investment
decisions. One of the things the Public Sector Construction Clients'
Forum have done is draft guidance to supplement the Green Book
about whole life value in construction specifically, and I know
in the Treasury Angela Eagle is looking at the moment at that
and considering it for inclusion in the Green Book. I think it
is also an area where procurement skills need to be improved.
One of the tasks, I think, for the transforming of procurement
work that Mark has talked about, and the reinvigoration of the
Government Procurement Service, is to make sure that we have got
the skills in the public sector to enable whole life value to
be taken properly into account in procurement decisions. I think
the direction has now clearly been set and it is right. We are
not yet in a position where I can say it has fully been implemented
everywhere. There is a good deal more to be done.
Q624 Chairman: In some evidence,
I think I am right in saying, there is a degree of cynicism about
some aspects of the procurement process because requirements are
put in for whole life value or for social responsibility issues,
discrimination issues and so on, and yet ultimately, at the end
of the day, it is the bottom line price that really counts for
so many people in the public sector. Can you really change that
culture? Is it really possible?
Mr Timms: I think we can. I do
not think there is going to be one click of the fingers that is
going to bring about a transformation but I think we can move
decisively and steadily in the right direction once the guidance
is in the Green Book. Once the procurement skills issues are being
addressed I think we are going to move a good deal further down
this road and I think it is very important that we should.
Q625 Chairman: I am encouraged again
by your honesty in admitting there is a problem here. I want to
put this question to Mr Pedlingham if I may and ask what the OGC
is doing to look at public sector procurement projects, construction
projects, and see what the users of the buildings actually make
of them. Have they lived up to the promise of whole life costs
and value and things like that?
Mr Pedlingham: As the Minister
has said, we have provided some additional guidance which will
help practically people who are trying to follow the Treasury
Green Book on how to assess whole life value to do that more effectively.
At the end of the day the decisions are made for a number of reasons,
of which the primary driver should be whole life value, but the
other two components are, first, the fact that we are looking
at improving the Government Procurement Service's skills so that
the people who are involved in undertaking those procurement processes
are more able to follow the guidance that is available, and we
have an extensive programme there. The final one, of course, is
to look at what happens after the event, the post-occupancy evaluation,
which, if you like, is a sort of built version of a PPE, and that
is going to be mandated from April. It is about looking at how
we use the Government Estate, and we have a process in place which,
as I say, becomes mandatory from April when we will start to gather
the sort of information we need to understand whether the outcomes
were as predicted within the original business cases.
Q626 Chairman: So that will be for
all public sector clients? It will become mandatory from April?
Mr Pedlingham: I am sorry; I do
not know whether it is for all public sector clients. It will
certainly be for all central government clients.
Q627 Chairman: That is helpful. Can
you just clarify that point in writing?
Mr Pedlingham: I will.
Q628 Chairman: If you asked for a
post-occupancy evaluation of Portcullis House, the House of Commons,
I think you would get some pretty sharp replies. The quality of
the heating and ventilation of that building is a complete scandal,
seeing that it is supposed to be sustainable.
Mr Pedlingham: It is important
to recognise that while you can measure some of the hard and fast
facts and metrics of a building you must also look at those soft,
perception-based opinions and views of those who are inside the
building as well. It is an important component.
Chairman: We are going to move on to
environmental sustainability and some of those issues that Portcullis
House has got wrong, I am afraid.
Q629 Roger Berry: Good morning, Minister.
Could you tell us what proportion of public sector projects currently
meet the required environmental standards, the BREEAM standards?
Mr Timms: The BREEAM standards—I
am sure we have something on that.
Q630 Chairman: Mr Walker, it is your
moment, by the looks of it.
Mr Timms: Perhaps the OGC can
help us.
Mr Pedlingham: I have not come
briefed.
Mr Timms: I am afraid I do not
appear to have a number in front of me but I am sure we can provide
that information for you.
Q631 Roger Berry: As I understand
it, the NAO said in relation to 2005-06 that it was about 9%.
Does that sound about right?
Mr Timms: I am sure if the NAO
said that that is absolutely right.
Q632 Roger Berry: Again, remarkably
honest. It is pretty pathetic though, is it not?
Mr Timms: Yes. This is another
area where there is a great deal still to be done. We are clearly
making progress here but we need to do a good deal more. If I
just very quickly run through what we have done, in June of the
year before last, 2006, we set stretching targets, including to
mandate BREEAM "excellent" for new buildings and "very
good" for refurbishments to cut emissions by 30%, to improve
energy efficiency by 30% by 2020 and so on, and then in responding
subsequently to Sir Neville Simms' report on sustainable procurement
the emphasis was on how to deliver those stretching targets, and
they are stretching; I think they were intended to be and they
are. The Prime Minister's Delivery Unit is looking at this as
well, reflecting its crucial importance for the whole of government.
It is also very important in OGC's work on Transforming Government
Procurement, reflecting the fact that the Government's view today
is that value for money complements sustainability and that both
of those need to be taken full account of in making procurement
decisions. I do not know whether Mark wants to add anything to
that on the procurement side.
Mr Pedlingham: I can certainly
confirm the 9% figure. I apologise that I was not more awake at
the time. The question of delivering sustainability and the strong
role that procurement plays in the potential to deliver sustainability,
is well recognised and something that is very seriously treated
within procurement decisions. Quite often you will find sustainable
objectives are effectively supportive of a whole life value-for-money
conclusion anyway, and in those cases achieving sustainability
criteria effectively is totally aligned with the value-for-money
propositions that are being used to make such judgments.
Q633 Roger Berry: So why was the
figure so low in 2005-06, which is not a very long time ago? I
accept where we are today in terms of the ambition and the targets.
I think that is commendable, personally. What went wrong in the
last year for which we have data?
Mr Pedlingham: The BREEAM standards
are one of a number of standards that people are asked to take
account of in the decisions they are making. It would be much
easier to meet some of the higher level BREEAM standards for new
build than it would be for refurbishment. Of course, the issues
are complex in respect of the sorts of decisions that departments
are having to make and local authorities are having to make, and
sustainability is clearly one of a number of decisions they are
making when they are making judgments about these things.
Q634 Roger Berry: I was going to
ask, in terms of the sum total of public sector projects for the
latest year for which we have data, if you simply looked at new
projects rather than refurbishments what would the figure be for
new projects?
Mr Pedlingham: I do not have that
information to hand, I am sorry.
Mr Timms: I am sure we can supply
that.
Q635 Roger Berry: I think it would
be very helpful to the committee because, Minister, as you say,
the target is that all construction projects should be rated "excellent",
according to these standards. It just seems that there is a long
way to go and it would be helpful to understand why it is that
thus far these mandatory standards appear not to be being met.
Mr Timms: There certainly is along
way to go. This highlights the importance of the Sustainable Construction
Strategy that we are working on at the moment. This industry makes
a very big contribution to whether or not the changes that we
need in the economy for sustainability are going to be delivered
over the next few years. There is a lot to be done.
Q636 Roger Berry: In relation to
the appraisal of public sector projects, does the price of carbon
feature in the appraisal?
Mr Timms: You will know what was
said recently about carbon accounting, which I think is going
to be very important. I think we are now starting to see a robust
price for carbon appearing, and so what I hope is that progressively
over the next few years carbon accounting will just be part of
accounting because there will literally be a price corresponding
to the carbon emissions associated with a project. At the moment
we are in very early days for carbon accounting but where we are
going, given the development of the EU Emissions Trading Scheme,
I think is now very clear.
Q637 Roger Berry: Again, I very much
welcome what you are saying, but have we started? Is it as from
today or last week or a month ago that the price of carbon is
deemed to be a necessary factor in the appraisal of public sector
construction projects? Is it just a few projects? Is it 100% of
all new projects? What kind of timescale have you got on this?
I know the ambition is for this to be embedded in project appraisal
but you know where I am coming from. Have we started this? When
did we start it? What proportion of appraisals takes it into account
and, by the way, which particular price of carbon, where does
it come from? How are you dealing with it in practice?
Mr Timms: I do not have that data
with me and I do not think Mark does either, but we can certainly
provide you with a note about that.
Q638 Roger Berry: If the committee
could be advised about that, that would also be very helpful,
because last week's Public Accounts Committee report was somewhat
critical on environmental impact assessments.
Mr Timms: It was indeed.
Q639 Roger Berry: I will not say
any more then. One thing it also pointed out was that there are
at least five government departments that have a policy interest
in construction and they also raise this question about to what
extent an individual department can be accountable. In our case,
obviously, we are interested in BERR and to what extent can your
department, Minister, be held accountable for progress towards
the laudable targets you have repeated in relation to the construction
sector? You are merely one of five, I believe. How do you use
the big stick that was referred to earlier to whip others into
line, mixing metaphors?
Mr Timms: I think we are going
to be accountable on this and demonstrating that is going to be
an important element in the sustainable construction strategy
when that is published later on this year. I mentioned earlier
that has been taken forward by a project board which is chaired
by my Department and one of the things the board has been looking
at is how we are going to measure progress. The intention is to
publish reports on progress at two year intervals and to hold
conferences, very public events, next year and 2011, I think,
and I hope in that way we will be able to demonstrate to people
that we are going to be properly accountable for delivering the
objectives that the strategy contains.
Roger Berry: Thank you.
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