Second Standing Committee on Delegated Legislation


Tuesday 27 February 1996



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The Committee consisted of the following Members:

Chairman: Mr. Frank Cook

Allason, Mr. Rupert(Torbay)

Atkinson, Mr. David (Bournemouth, East)

Bates, Mr. Michael (Lord Commissioner to the Treasury)

Butcher, Mr. John (Coventry, South-West)

Donohoe, Mr. Brian H. (Cunninghame, South)

Douglas-Hamilton, Lord James (Minister of State, Scottish Office)

Evans, Mr. David (Welwyn Hatfield)

Field, Mr. Barry (Isle of Wight)

Gallie, Mr. Phil (Ayr)

Hogg, Mr. Norman (Cumbernauld and Kilsyth)

Home Robertson, Mr. John (East Lothian)

McAvoy, Mr. Thomas (Glasgow, Rutherglen)

Macdonald, Mr. Calum (Western Isles)

McFall, Mr. John (Dumbarton)

Michie, Mrs. Ray (Argyll and Bute)

Monro, Sir Hector (Dumfries)

Ross, Mr. Ernie (Dundee, West)

Walker, Mr. Bill (North Tayside)

Watson, Mr. Mike (Glasgow, Central)

Mr. J. D. W. Rhys, Committee Clerk

3 Second Standing Committee on Delegated Legislation Tuesday 27 February 1996

[MR. FRANK COOK in the Chair]

Draft Secretary of State's Trunk Road Functions (Contracting Out) (Scotland) Order 1996

4.30 pm

The Minister of State, Scottish Office (Lord James Douglas-Hamilton): I beg to move, That the Committee has considered the draft Secretary of State's Trunk Road Functions (Contracting Out) (Scotland) Order 1996. We are today considering a draft order that will enable the Secretary of State for Scotland to contract out certain of his statutory functions as roads authority for the trunk road and motorway network. Hon. Members may be aware that similar provision has already been made for England and Wales under the terms of the Contracting Out (Highways Functions) Order 1995. The powers are needed for two purposes. The first is our intention, under the private finance initiative, to procure a comprehensive construction and road management service to private contractors—commonly known as DBFO or design, build, finance and operate contracts. There are three schemes in the current programme. The second purpose is to introduce the new arrangements for the management and maintenance of the trunk road network, which replace the present agency agreements between the Secretary of State and local roads authorities and which will come into effect in April this year. Most of the design, major construction work and capital maintenance for the trunk road network is already done by private sector consultants and contractors. We wish to widen the scope for competition to ensure value for money in the more day-to-day management activities. That is not privatisation or deregulation, and the Secretary of State remains the roads authority. Design, build, finance and operate schemes form a prominent part of the Government's private finance initiative and will play an increasingly important role in the financing of major road schemes. Essentially, companies or consortiums that are formed for the purpose are being invited to compete for DBFO contracts to deliver a major section of new road construction and then to manage and maintain what they have built. The revenue will depend on the amount of traffic that uses the road, and the DBFO companies will receive the revenue under the contract from the Government. That will provide a major incentive to build in quality and to ensure that necessary repair work is carried out quickly and efficiently. The order will enable DBFO companies to carry out operational functions with which the Secretary of State 4 would otherwise deal. The companies want freedom of access to services such as winter and routine maintenance, which they feel would be best procured from local roads authorities. Likewise, local roads authorities want the opportunity to bid for subcontracts that are let by DBFO companies. That is sensible and the order will enable it. Trunk road management and maintenance is at present carried out by the regional councils under broadly based agency agreements on behalf of the Secretary of State. Local government reorganisation means that new arrangements will have to be in place for April this year. The opportunity was taken, therefore, to review the way in which services are delivered. The main thrust of the new arrangements is to introduce a formal, contractual basis on which trunk roads should be managed and maintained as well as to open competition for the provision of those services. The key objectives are to improve customer service, secure the best value of money and promote the use of the most effective management resources. The first round of term contracts has been tendered for and won by local authority consortiums. A related proposal, which is set out in the consultation paper "Competing for Better Roads", is to establish a new traffic controller organisation. That will act as agent for the Secretary of State and will operate and manage the new traffic control and driver information systems that are currently being installed and developed on the motorway and trunk road network in the central belt. The powers to operate the schemes are currently confined to the Secretary of State and the local roads authorities. That limits our ability to test value by competition. We intend that the appointment of a traffic controller should eventually be subject to competitive tender. The order sets out a series of statutory functions from which the Secretary of State may select those to he contracted out. In short, the power is intended to be permissive and selective according to particular circumstances. The underlying purpose is to widen the range of choice of contracting and management arrangements for the strategically important trunk road and motorway network. The Secretary of State remains the responsible authority. We recognise that a great deal of effort goes into the present management of the network. We now seek to provide a better service to the travelling public through the ability to choose from a wider selection of management arrangements. The draft order will help that process and I commend it to the Committee.

4.34 pm

Mr. John McFall (Dumbarton): I thank the Minister for that explanation. He said that the order will widen selection for management arrangements. Local authority reorganisation was supposed to achieve that very same thing. Lo and behold, Opposition Members are leading delegations to see the Minister this week to try to avoid a crisis in our communities. Certain services 5 were provided before that unwanted reorganisation. Even before day 1, we questioned whether our schools, community centres and other resources would be maintained. That is pertinent to this issue. We must not only maintain but enhance the quality of provision on our trunk roads. Some of my hon. Friends have a great interest in the trunk roads in their areas. Will the Secretary of State's arrangements achieve that quality of provision? The Minister mentioned the PFI arrangements and the design, build, finance and operate schemes. About a month ago, I read in the Business Insider Scotland that contractors and construction companies had criticised the bids for those schemes. Morrison Construction has said that a great deal of money has to be expended before companies know whether their bids have been accepted. If they are not accepted, that is money down the drain. I wonder whether PFI serves the best interests. I hope that the Minister will examine how PFI works, so that he can work in tandem with local authority consortiums and private contractors on the provision of trunk roads. I note that the local authority consortiums have won the bid for the network. The Minister mentioned competitive tendering. I have little against that in principle, but I hope that he will minimise bureaucracy and keep down the expenses that are incurred. Local authorities have done a good job for us up till now. I hope that under these arrangements, they will be allowed to continue that work for the local community. The key is to enable decisions to be made nearer to the community—subsidiarity, in other words. We do not want companies in Naples to win awards for the construction of the A74 and M74 so that elaborate arrangements have to be made. Although we agree with the basic thrust of the Minister's remarks, both on competitive tendering and PFI, perhaps he could re-examine the PFI scheme. People in the industry are making the running, not the Opposition.

4.38 pm

Sir Hector Monro (Dumfries): I support the Minister in his draft order to promote contracting out. He concentrated heavily in his speech on providing a better service to the public. Will he tell us more about the chain of command? Who should the man in the street speak to if things go wrong? At the moment, people can go to the highway authority of the local authority or to the Secretary of State, who is responsible for major contracts. I am not clear how that will work in the future. I take it that the local authority will not be responsible, so how will the man in the street contact the Secretary of State at short notice if his garden is being unnecessarily dug up or some other operation is taking place which he considers to be contrary to his interests? I make these comments because, as my hon. Friend the Minister knows, I have been just about driven mad over one of the contracts on the M74 which should have been completed a very long time ago. We are still having little local arguments about drains and fences and so on. My constituents are thoroughly fed up with not know- 6 ing who will help them out of their problems. They all come to me and I divert them to my hon. Friend the Minister and to the local authority, but we seem to be going round in circles over who is responsible for road-works. Can my hon. Friend tell us where the responsibility for contracting out will lie in future and how the general public will know where to contact whom about the contract if they want to complain about or compliment the contractors on their work?

4.40 pm

Mrs. Ray Michie (Argyll and Bute): The result of the contracting-out exercise is that contracts, as the hon. Member for Dumbarton (Mr. McFall) said, have been awarded to manage the premium trunk road network units. I do not think that the Minister actually mentioned the latest awards for the all-purpose trunk road network, but they have all been won by local authority consortiums or by local councils. I recall that the Scottish Office issued a press release last December which stated: "The local authority consortia won the 'Premium' unit contracts in the face of stiff competition. The successful bids represent very good value for money". Surely that demonstration of successful bidding rather undermines the Government's constant preaching that only the private sector can do anything well and that the public sector is hopeless. In so far as the issue goes, the Government have been sensible to award the contracts to local authorities for they have, without a doubt, the necessary equipment and skills as well as, above all, the local knowledge which is so important when dealing with all sorts of snap conditions that can be found in rural areas—for example, sudden icy road patches or the flooding of lengths of roads after torrential rain. The contract awards pose the question of why the exercise happened in the first place. How much did the entire activity cost? I think that the hon. Member for Dumbarton touched on that. Can the Minister tell us what the competition was like, or where it came from, and what the bids were? We shall, no doubt, hear that that is confidential, but it would be nice to know exactly what the competition was that the local authorities bid against. When the contracts come up again in three years' and then five years' time, surely the Government would do better not to waste time and money going through the same rigmarole all over again, but to return to what went on before agreements with local authorities were entered into. After all, we know that the private sector is far less accountable and that, on the whole, local authorities do a very good job—[Interruption.] I do not want to go into that now. But there is no doubt that the non-trunk road network is under severe pressure throughout Scotland. In my constituency of Argyll and Bute, we expect to have to cut the road maintenance budget by at least £250,000 in the coming year. A recent survey conducted by the Refined Bitumen Association suggested that for Scotland, the shortfall 7 between the budget spent on structural maintenance and the budget required adequately to maintain the roads was £6.28 million per local authority, giving an overall shortfall in Scotland of £56 million. That survey was conducted on regional councils. I want to know how the Scottish Office will make up that shortfall. The figures for the average frequency of road surfacing for Scotland cause considerable concern. The average for Scotland is 64.5 years. I understand that surfacing is recommended every 10 to 20 years, depending on the type of road. As we all know, roads eventually lose their skid resistance; the surface is said to become polished by traffic. I understand that Highland region states that almost 100 per cent. of its budget is now spent on reactive maintenance, that Central region states that it requires an additional £12.4 million—three times its current budget—to catch up on structural maintenance, that the Borders region requires a 52 per cent. increase in its budget and that Dumfries and Galloway requires 25 per cent. It is obvious that adequate resourcing is needed for the planned maintenance of the entire road network—trunk and other roads. Without that, the constant reacting, if that is all that authorities can do, will in the end cost many times more.

4.46 pm

Mr. John Home Robertson (East Lothian): I agree with the hon. Member for Argyll and Bute (Mrs. Michie) that restricting expenditure on road maintenance is a serious false economy. Skimping on such work one year leads to infinitely more expensive maintenance work in future years, as surfaces and whole carriageways break up as a result of traffic and weather. The hon. Lady is right and we are saving up major trouble for local authorities—and for the Scottish Office, or a future Scottish Parliament—by skimping on the programme at present. The draft order is not, on the face of it, terribly exciting, dealing as it does with bus shelters, drinking fountains, troughs, and the rest, but I fear a hidden agenda. Perhaps the Minister confirmed that by his remarks about the private finance initiative and the design, build, finance and operate scheme. I am a fellow sufferer with the right hon. Member for Dumfries (Sir H. Monro) of roads construction in my constituency, although I hasten to add that I welcome the fact that the Scottish Office is getting on with the dualling of the Al road. There is no getting away from the fact that that causes disruption for local residents but, unlike Newbury, my constituency overwhelmingly supports the work. Indeed, we wish that the Scottish Office would get on and complete it all, within the programme. If the Department of Transport wants to shift some of the money that it has earmarked for the Newbury bypass to the dualling of the Al, we should be keen for it to get on with the work as quickly as it wanted. The current contract on the AI dualling between Tranent and Haddington is the first design and build contract undertaken by the Scottish Office. There have 8 been problems. I have received representations from neighbouring farmers, whose land is affected by the construction work and who say that they are not happy with the operation of the design and build mechanism, which is unsatisfactory. In addition, the local authority was fed up earlier when it discovered that the contractors had found a way in which to cut their costs by raising the profile of the road at one point, which was a departure from the plan that had been approved. We need to keep a careful eye on the way in which contractors run operations, if such contracts are made in the future. When we talk about the private finance initiative, I think immediately of the Skye bridge, which I would describe as a tarmac tax. The Scottish Office is always going on about another tax beginning with a T. In that case, the people of Skye are having to pay to use part of the public road network. Under the order, we could see more of that. The Minister talked about design, build, finance and operate and that could possibly set the scene for more toll roads in the future. I would be unhappy about that. I would be grateful if the Minister could confirm that in the short term, the order simply confirms the award of maintenance contracts to local authorities and local authority consortiums. They have done well to win those contracts. It is crucial that we retain local authority highway departments with their direct labour organisations to provide the kind of works covered by the order. It is all very well relying on fly-by-night road contractors to build a road, but where are they when the potholes start appearing, when the road needs gritting or when the snow needs clearing? We must maintain local authority, directly employed and equipped highway departments to safeguard the highways network in Scotland. On the understanding that we are talking about the confirmation of the award of contracts to local authorities, I am happy to support the order.

4.51 pm

Mr. Phil Gallie (Ayr): I had not intended to speak, but I feel stung into it because I take exception to the remarks by the hon. Member for East Lothian (Mr. Home Robertson) about fly-by-night contractors. Last week, the west of Scotland civil engineers were down at Westminster. They presented a good case for civil engineering in the local authority and private sectors. Bill Barr, chairman of Barr Construction, was there. He provided services to my right hon. Friend the Member for Dumfries on the M74 and did a marvellous job, building ahead of time and providing a high standard of work. We should not knock private contractors. They have a vital part to play in this procedure. The hon. Lady for Argyll and Bute has forgotten one aspect of competitive tendering—the massive savings that have resulted from local authorities having to consider levels of expenditure. We must consider the advantages of that. I am not knocking the local authority highways departments, which have, in many ways, done a reasonable job. The hon. Member for East Lothian made an expedition up to Aberdeen last week. He came off the 9 road and ended up in a ditch. The local authority was in charge of that highway, and it did not meet his requirements.

4.52 pm

Lord James Douglas-Hamilton: I can answer hon. Members briefly but to the point. The hon. Member for East Lothian raised the issue of tolling. I should explain that the design, build, finance and operate schemes involve a shadow toll based on vehicle usage. The motorist does not pay direct tolls. The benefit of those schemes is that the road user will get the new infrastructure in advance of when the public purse could provide it. The quality of operations and the maintenance is inherent in the contracts. Incentives exist in the contract to ensure that the most efficient maintenance practices are adopted. That will be good news for the travelling public. Bidders will judge best long-term value in their construction proposals. DBFOs provide access to another source of finance. The economic benefits of such projects are delivered far earlier than the Exchequer could otherwise afford. The level of funding of the traditional roads budget will vary depending on the competing demands of other public expenditure and the need for road investment. The hon. Member for Argyll and Bute mentioned successful bidding by local authorities. At least eight contracts were awarded to local authority consortiums. The order does not in any way seek to limit those who may tender. The order is designed to allow the private sector to be authorised to carry out functions that local authorities already perform through the medium of agency arrangements with the Secretary of State. The hon. Member for Dumbarton raised the issue of contracts. These will be let. Under the new arrangements, they will define the level of service to be delivered. DBFO companies will be contractually bound to meet the standards and the Secretary of State will ensure that a company's performance is closely monitored. My right hon. Friend the Member for Dumfries referred to the M6 which, despite all the intersections, is going ahead faster than any other motorway project in Britain. He wanted to know which people to contact when the new DBFO companies are set up. The new companies will be required to set up customer service facilities and to provide telephone numbers which the public may use. The order will allow a level playing field and the private sector will have the same degree of control over its operations. That will be more efficient for private sector operators and I expect those efficiencies to be reflected in pricing. My hon. Friend the Member for Ayr (Mr. Gallie) is right in saying that competitive tendering leads to a better deal for consumers. Appropriate standards must be included in contracts and it will be the responsibility of the Secretary of State to ensure that proper standards and safety provisions are implemented. We are continu- 10 ally working to ensure that we are able to meet ever-increasing demands on the trunk road network in ways that will provide value for money and are efficient for road users. The order will allow us to extend the range of options for managing the network. It will allow us to select from a broad spread of functions those functions which are suitable to delegate in particular circumstances. With traffic volumes continuing to increase, we need to he flexible to meet the challenges that lie ahead and to be responsive to changing circumstances. I commend the order to the Committee.

Mr. McFall: I have a couple of points for the Minister. I referred earlier to the DBFO schemes and the penalties on companies when submitting bids. Business Insider Scotland referred to companies spending up to £1 million. That does not seem efficient and perhaps the Minister will examine those schemes again and try to help the industry. The right hon. Member for Dumfries referred to people who come to him with problems with the scheme. That may be because they have nowhere else to go. A feature of local authority schemes is that people may go to their local council or Member of Parliament—there is a local point of contact. The chain of command is important. It should be simplified so that people know where the buck stops, but the Minister has not responded to those matters.

Lord James Douglas-Hamilton: The Secretary of State remains ultimately responsible if anything goes wrong, but the consortium that wins the contract will set up the telephone line and be accountable on the spot. We expect that to be carried out efficiently. We want to ensure that the sort of hiccups that occurred with the Italian company do not occur in future. We intend to safeguard against that happening by tightening up the contractual terms. We expect that bidding costs will fall as the industry becomes accustomed to the new-style contracts and we shall keep bidding costs under review. As the hon. Member for Dumbarton said, costs of £1 million or even several hundred thousand pounds to tender for a massive project are a deterrent. Many bidders would prefer the short list to be shortened so that such penalties are not inflicted. We shall keep the matter under review and we hope to work closely with the construction industry to ensure that problems do not arise.

Question put and agreed to.


That the Committee has considered the draft Secretary of State's Trunk Road Functions (Contracting Out) (Scotland) Order 1996.

Committee rose at one minute to Five o'clock.



Cook, Mr. Frank (Chairman)

Allason, Mr.

Atkinson, Mr. David

Bates, Mr.

Douglas-Hamilton, Lord James

Evans, Mr. David

Field, Mr. Barry

Gallie, Mr.

Home Robertson, Mr.

McFall, Mr.

Michie, Mrs. Ray

Monro, Sir Hector

Walker, Mr. Bill