 Fy lŏn am y troi gwозionionion i ddweudio ar cael ei ddweudio ar gyfer y gweitharae frysgfaith ac y iechyd Llywodraeth a Gweithio y Prifysgfaith. Felly, rwy'n wench i ddweudio ar hynny i ddweudio ar gyfer y gwirach cyffredinol a'r 생각 o ddod oedd, daent ddweudio hynny i ddweudio ar gyfer gweithredu y cwrdd. Gweithredu y cwrdd N1, mor hyn yn iawn i ddweudio ar gyfrifiadau ddweudio Raws Tomson ac i gyddiw, yn derbyn i wrth gwerthu'r m Molio'r llef. I will be here, convener. Heoul is my full character as the current councillor on Aberdeen City Council. Item 2. You are very welcome, by the way, Ross. Item 2. Alison Harris resigned from the committee, and I am sure that members will wish to join me in thanking her for her contribution. As Alison has left, we have a vacancy for the position of deputy convener, which the Parliament has agreed shall be filled by a member of the Conservative Party. I now invite nominations from members of that party for the post of deputy convener. I now invite members to agree that Liam Kerr will be appointed as deputy convener of The committee is invited to agree to take items 7, 8 and 9 in private as set out on our agenda. Do members agree? Yes. Thank you. Item 4. The next item is an evidence session on the Scottish Government's major capital projects progress update. I welcome to the meeting Alison Stafford, director general of finance, Andrew Watson, deputy director for financial strategy and Christine McLaughlin, director of health finance for the Scottish Government. Also, Peter Rieke, deputy chief executive and director of investments, The Scottish Futures Trust and Mike Baxter, director for finance and analytical services, Transport Scotland. I invite Alison Stafford and Peter Rieke to make brief opening comments before I open up to questions from members. Alison. Morning. Thank you very much for inviting me to attend the committee today to answer your questions arising from our latest report, which was to September 2016, on the Scottish Government's major capital projects. As the convener has just introduced, I have a number of colleagues with me today. Just to say a little about where you can expect us to be responding to your inquiries, I will look to Christine to help with any questions you might have in relation to health projects. Andrew, on my left here, also with Peter Rieke on my right, for answering questions relating specifically to how reclassification by ONS has affected projects, but there may be other areas that they can assist with as well. Peter, in particular, will be able to say more about education projects and the overall NPD and hub programme. Mike from Transport Scotland will address issues regarding transport projects. The committee may be interested to know that the current format of our reports was the product of some tripartite consideration to arrive at a consistent tool to track progress. That work was agreed between the former Public Audit Committee, the Scottish Government and Audit Scotland. That has been a tool that stood us in good stead from those reports that we were preparing from March 2014. We were reporting before then, but getting something that both the committee and Audit Scotland felt was setting out the picture in a way that was helpful to all parties was a really good position to have reached. Just to say what these reports provide, they give six-monthly updates each year on projects over £20 million. There's also an annual update on the local economic benefits of each project, and that comes with the spring report. The six-monthly progress updates shows what's changed around cost and time parameters for each project. Those are for those projects that have progressed beyond the outline business stage. There's also inclusion of individual hub model projects over £20 million, which are funded at least in part by the Scottish Government within the proposed update, as well as web links to the Scottish Futures Trust website, where progress information by the hub territories that have been established is also published. I think that it's fair for me to say, to put this in context, that responsibility for individual capital projects and programmes remains with the relevant accountable officers. There's no dilution of that whatsoever. Those accountable officers will sit within Scottish Government portfolios and those procuring authorities. It could be Transport Scotland's chief executive, NHS boards, those individual chief executives, local authority chief executives. You get the point, I'm sure. Our task of gathering relevant information and reporting it to Parliament does not interfere with these underlying accountabilities, but it gives a good, broad overview of infrastructure investment here in Scotland. That said, we are happy to respond to any questions that you may have. If we do not have the answers immediately to hand because there is a level of detail where we need to go back to the accountable officers, we will, of course, seek to do that and respond swiftly and in writing. That's all the areas that I wanted to say by way of introduction, but if I could just pass now to Peter Reakey, he's something that he would like to just update the committee on. Thank you very much, Alison. At the opening of the session, I just wanted to declare a non-financial interest as the public interest director as part of the NPD programme in Aberdeen Rhoads Ltd, which is the company delivering the Aberdeen Westin peripheral route and Balmeneetitivity project. I just wanted to make that clear to committee members. Thank you. Mike, did you have an opening statement as well? No. No, okay, sorry. Okay, we now move to questions then. Question number one is from Alec Neill. Thank you, convener. Given the theme of yesterday's autumn statement and what we're discussing this morning, can I first of all ask if you know yet, and I realise some of these questions may not have yet been answered by the UK Government, but do you know the profile of the additional £800 million of capital spend being promised over the next five years in terms of, is it going to be front-loaded in the first two or three years? Is it £160 million per year? When does it start? Secondly, I notice that Chancellor has created the National Productivity Investment Fund of £23 billion. He's created the £23 billion fund and yet the consequentials are only £800 million because, in normal times, you would expect if he creates a fund with new money of £23 billion, the consequentials should have been more of the order of £2 billion rather than £800 million. In terms of year analysis, is most of that £23 billion just going to reshuffled money? Or, if the consequentials are £800 million, how much of the national fund is new money as opposed to reshuffled money? The third point arising from the autumn statement yesterday is that the Chancellor is promising an increase from 0.8 per cent to over 1 per cent of GDP to be spent on infrastructure projects. Where is the Scottish Government spent in terms of the equivalent or the comparator spent by the Scottish Government in terms of infrastructure spent as a percentage of GDP and, with the additional £800 billion, what impact will that have on that percentage figure for Scotland? OK, thank you. Three really important questions there. You'll appreciate that, particularly with the position that you have previously been in Mr Neil, that there is a lot of information that comes out on the day and there's still really important information that trickles out for several days after. So we can answer some of your questions in very specific terms and others we will need to basically inform the committee as and when the information is known. Just to give you a distinction between the two, so the profile we can answer today and I'll ask Andrew to go through that with you. As far as the National Productivity Fund then that is an area where we are seeking further information. I agree with your initial headline analysis that the proportions that you would normally see coming to Scotland from those sorts of figures doesn't seem in line. The sorts of things we will check as to whether that is a fund that's actually using guarantee-type mechanisms to help infrastructure investment. That one is still too new news to be able to say much more about how that's going to impact on us. If we do the profile first then I'll come back to the GDP question. Thanks. We're still waiting for a formal settlement from Treasury that tends to follow a bit after each fiscal event. The provisional breakdown of the consequentials is £125 million in 2017-18, £197 million in 2018-19, £239 million year after and £257 million year after that. So very much back-loaded. Yes. That helps with the profile. In terms of the exact percentage of our infrastructure investment in the round as a proportion of GDP, that's not a figure I have with me today. What I can say though is that we do know that the contribution from construction to the GDP position in Scotland is really important, particularly in relation to how construction and infrastructure investment supports the growth in GDP. So what I do have with me is that I can say to you that in 2015 total construction output contributed to the equivalent of two thirds of total GDP growth, and that includes both the output of public and private sectors. We also know that the largest proportion in that year was coming from public sector investment. So it's a valid question because it is really important for Scotland and we'll get back to this very specific question that you've asked. I've got two or three other questions about the report itself. I look forward to the additional information because I think it is important for us to look at that. These are related more to the report than to yesterday's statement. Number one, obviously, the implications of the Eurostat reclassification via the ONS on NPD projects has been significant. Again, it might be too early for you to answer this, but in terms of the Brexit negotiations that are on going between the Scottish Government and the UK Government, once Brexit happens, will we be free of Eurostat classifications and reclassifications? Will we have more freedom to do what we want to do with our own money? Question number one. Question number two is, I think it would be helpful in these reports if you were able to add in the amount of private sector investment being leveraged by public sector investment. If I look at housing, the capital grant giving to housing associations for every pound invested by the public sector, by the Scottish Government, generates about another £2 on average for new housing developments in the hubs. Obviously, they leverage in additional money from external sources. In a lot of the work done by SFT, there is a lot of private sector investment leveraged in by the public sector investment. I think we might underestimate or maybe even undervalue the impact of the public sector investment because, when you take in the leverage, there is a substantial impact in terms of the economy. I think that leverage figure, where possible, would be helpful in future reports. My final point is a very specific one, and it is not a constituency interest. It is a national interest. I am a bit mesmerised as to why, in the list of projects, when it comes to the A9, there is only one relatively small, but smallish part of the A9 listed. Obviously, the target, presumably, remains to complete the dualling of the A9 between Perth and Inverness by 2025. Is it possible for us to get a picture of where we are in 2025? How and when will it be funded? I am assuming that commitment still stands. Similarly, the A96 is not mentioned at all. I know that some of the proprietary work has started in terms of design for the A96 dualling between Aberdeen and Inverness, and the target date for that is 2030. It would be helpful to get an update on the A96 and to follow up with a more detailed plan from Mike at a later date. Is there a general view on where we are with the A9 and the A96, because there is such strategic importance to Scotland and such a big part of our long-term capital budget? I will save the last one for Mike, but I am happy to respond to the first two. I noticed Mr Neil, because you have been familiar with the space previously, that there was a degree of smile on your face at the thought of being released from the grips of EuroStats and all that that brings. I have had to moderate people's enthusiasm in this space, and for good reason, in that EuroStat is translating into our local arrangements, and obviously casting a net much broader than Scotland when I say local in that sense. Our local arrangements are classified in relation to statistical national accounts, and that happens at the UK level. That is a product of something that comes from the UN. What has happened with EuroStats is that they are translating into European requirements what comes from a United Nations international rigour around transparency of reporting of debt and deficits. That is replicating what is an international expectation that any Government and its figures can be held up and held as an internationally recognised way of classifying those activities. You will be starting to get a sense from what I am saying that the short answer to your question is no, we will not be released from something like that, because international money markets that rely on these things will expect to see the same sort of rigours for any individual country that wants to be borrowing on the international money market stage. Given what we have seen from the UK figures yesterday, that is obviously something that we will need to continue for a while yet. What we will follow is something that I am in touch with colleagues in Treasury on. It will be something that will feature in a future work programme at some point, but we are already well connected with them and also with the Office of National Statistics so that we can understand what we will need to follow on that. Wherever it is possible to, because there is a lot of interpretation around these things as we have already described to you, wherever it is possible we will seek to influence to get the best possible architecture around these things. That is the year-start question. Secondly, around the request for whether we could show additional information in the report, I would be happy to capture any other requests that the committee as a whole may have and we will take those away and look to see what we can do and then come back and say what is sensible on what timeframe, what information we have available. The point that you make is really, really important. The area that we have moved into, particularly since the financial markets crashed in 2008-9, where we saw our capital budgets then cut by 36 per cent. Some of that has been restored but it is still not back to those heady days in terms of the traditional capital. We have used a whole myriad and we have got a mixed economy way of how we actually enable infrastructure investment to happen here in Scotland. Moving away and not just using traditional grants but, as you said, there is the housing trust, there is a whole range of different models that we have used. You are right, that does give us the means to not just spend taxpayers' money in making investment but to leverage in other forms of investment from other places like the private sector. There is already a declaration of benefits that happens through the SFT benefits statement and that is something that is publicly available. I am really thoughtful about what you have suggested and, as I said, we will look at any other suggestions that come from the committee and come back to you and all of them in one go. Without interrupting, but also of importance is the £500 million business guarantee scheme because, obviously, that is all about investment as well. I know that it is not technically a capital project but, again, it is about using the guarantee scheme to incentivise and leverage business investment. Just as a matter of interest, when is that guarantee scheme going to be up and running? The Scottish growth scheme that was announced as part of the programme for government at the beginning of September. You will appreciate that the First Minister was really clear about the number of steps that needed to be gone through, both working with Treasury and consulting those that we want to be most able to access this and also due process that needs to happen with the Scottish Parliament's finance committee. All of that is still being worked through. I do not have a specific date here but, obviously, we can let you know. Helpful, thank you. Good morning. If I can pick up on the A9 and A96 questions. Firstly, in general terms, the aims are still to Julia A9 by 2025 and the A96 by 2030 and we are planning on that basis. In terms of the report itself, that contains the King Craig de Dalaradi section, £35 million contract that is on site, progressing well and due to completing the summer of 2017. We recently saw a switch over on to the new carriageway for the majority of that section and work now under way to upgrade the existing carriageway. In terms of the more general work on the A9 programme, a considerable amount of planning and development work is being undertaken on the remaining seven sections that need to be developed, really focusing on a number of areas. One, identifying appropriate routes, taking into account environmental impact, buildability, cost and there will be statutory and consultation processes undertaken on each of those as we progress through. In a wider sense, there is also considerable effort being put into discussions on how we procure and how we fund the remaining sections and the options that are available to us. Clearly, it is a long-term programme and circumstances can change quite significantly from where we are now to 2025, so we need a cogent strategy to get us from A to B, and that is what we are currently working through. The options that we are considering in terms of whether we use public capital, revenue, finance or a mix of both are being explored at this point. The other aspect of the development work and planning work that is important here is to understand the impact of such a large programme of works on market and engaging with the market around market capacity. On the A96 programme, again, it is a longer-term programme, and at the moment we are focused on statutory process, particularly around the Inverness and Earn section at the western end of the route, but again the same planning and route selection processes are going through. The one thing that I would like to highlight in terms of the A9 and the approach that is being taken there, the headline numbers that are reported on both of those programmes are in the order of £3 billion. We have recently engaged a challenge group, so that is experts from within the industry to challenge our assumptions around the nature of the dualling project, the junction strategies and really trying to challenge the estimates that we have. We will only be able to firm up on those estimates when we have actually got route selection identified across all seven and take the design to a further stage, but that works in hand. I would like to continue on the exploration around O&S and the impact on projects. It seems to me that the O&S reclassification is resulting in the Government being forced into more expensive funding for projects. Is that correct? In terms of whether we are being forced into more expensive funding, it is just the realisation that there are certain projects just because of the change of the esoten arrangements that have came very late in the day and the life of certain projects have had to be recognised as utilising public capacity of infrastructure investment. What the classification change is actually signalling is that those original projects and the original design of them, which was all intended actually to get better value for money for the taxpayer for them to actually still be giving us additionality and to be classified and then as private, which was the original plan, means that actually the Government would have to give up all the value for money aspects that it actually wanted to secure. So I think if you compare it between the sort of before and after, then that would put us into an area that would mean it would be less value for money in terms of what we were looking for. So if you want more very specific things, it would turn to Peter to be able to say a little bit more about how the scheme design has changed to make that the case. I think you said yes though in terms of costing more. In that regard, what is the impact then on the current projects in terms of additional cost and on the future budget, capital budget? Just to be really clear, there's a distinction between what would happen with these individual projects and what they cost and what this means within the whole programme of activity as a whole. Just to be really clear, those individual projects, the actual flows of funds that we were actually committing to, there's not an actual material change in those, but I think that it's just a matter of how we manage the whole programme. In response to Mr Neil, he said that we have a whole mixed economy of how infrastructure investment takes place in Scotland. The NPD programme, in response to the cuts in traditional capital funding, was actually designed to bring something additional, so that Scotland did not feel the full pain of those cuts and alternative was brought in. But actually, with these now being classified as public, then we've had to accommodate those within the capital programme. The period of time in which we are having to accommodate those is actually time limited because once the programme's construction phase has completed, that will be the point at which that encroachment into our capital programme will see. So, there is a time limit on these areas. We have, as you know from the scrutiny of the consolidated accounts only two weeks ago, found the way to actually mitigate the worst impacts on the rest of the programme. So, as we said when we were reviewing the accounts on 2015-16, the accommodation that we had to make for this different classification meant that we did not have to differ other projects at the time because we were able to utilise the release of contingency from the fourth replacement crossing. We were able to reprofile without any loss of investment at all in the Scottish Water infrastructure, but reprofile the loans that came from the Scottish Government because the Scottish Water had cash to utilise instead. There was already a change in policy in regard to prison estate, which actually meant the money that was being set aside for a women's prison was no longer needed. Also, there were certain other areas where the demands that we'd expected to come through just did not materialise. I think that it's fair to say that the Government has taken a pragmatic, managed approach to this without actually seeing any damage to other programmes of activity. I hope that that goes some way to answering your question. Looking at the profile of the projects that are being put in place now with the hub cores and the DBFMs, the structure of the ownership looks incredibly complex. How is it going to work, for example, 20 per cent of a company of the SPV being owned by a private sector charity? How does that work? As you say, the model of those things are complex, and that's why we have experts that help us with that, and they sit within Scottish Future Stress, so I'll ask Peter to respond more to the makeup of the particular mechanism that you've asked about. I would say that there are many companies, and it's quite a normal situation in a company to have a diverse shareholding. In this arrangement that we have moved to in hub, the private sector partners who were procured at the outset of the programme hold 60 per cent of the shares in all of the hub companies, and that has remained static as we've had to evolve the model. That private sector corporate shareholding remains the same, and the board of the company reflects that shareholding. The board of directors that control the day-to-day activities, the majority of those members are from that private partner. We in the public sector retain an interest in those companies and directorship of those companies so that we can bring that transparency that comes through our evolved models of partnership that we have much closer representation on the board, and SFT and the public sector procuring authorities hold that shareholding. The hub community foundation, the privately classified charity, is in place and doesn't have an active role in the governance and the operation of the day-to-day company, but that's there to make sure that those benefits of shareholding, eventual profits, are deployed for the public good in the end because the statutory remit of a charity is to do public good as we all know. Whenever profits in the end flow from that, the charity and therefore the public good will benefit from those funds over time. We have introduced the charity and that was, as we've said in the past, as a direct result of the change in the Eurostat rules which required us to have a privately classified entity holding those shares, but by making that a charitable entity we're making sure that those funds, whilst they're privately classified for statistical purposes, will in the end go to the public good. I can appreciate that that does introduce a bit of complexity. There's a new shareholder there and a new party to consider, but it was very much the best way of changing that structure to remain compliant with the evolving rules but make sure that the public benefit and the public good that delivers over time remains as it was intended to be. Clarify with this charity, the benefits that are acquired locally go back locally. They don't go into a national pot and go off to some other area. As has always been the case, the public sector shareholding, some of that is held by the Scottish Futures Trust which is held centrally and reinvest that money or uses it for funding our own work in infrastructure investment. The change has been that 20% that was owned by the territory participants collectively, so all of the participants in that area is now directed to the charity over the long term and it will be the job of those charity trustees to decide over time how to deploy those funds and they will be very mindful to both the geographic spread of projects overall and where the most good can be delivered for those returns. So it wouldn't necessarily go back into the local community in which this project's been invested? In terms of that equity holding, there's never been a direct link between the profits of the equity investment if and when they come over time and the very local aspect of that community. We know that the hub companies as they're delivering the projects have separately got community benefits obligations that are more directly applied to the local communities in terms of jobs and their supply chain and the training and apprenticeship opportunities that they give, but the long term return on that public investment, if you like, has always been something that's been more diversified and spread across the country. Just a slightly different vein, do we get any support or investment from European Union in terms of our capital projects? You know, when you travel about Europe or even Ireland there, you see the big signs up saying, you know, funded by a European infrastructure fund or whatever, do we get any benefit from that? So what you will find with a lot of the projects that are actually using these different innovative models is that there could be actually a whole mix of different funding contributors. So even for one of our hospital projects that's been using a mix of public and private financing streams, you can end up with nine, ten different funding elements and often within that you will get funding that comes from the European investment bank and that is the European Union's vehicle for being able to put that sort of funding in and certainly there's been examples of road projects as well where that's been the case. So the European investment bank certainly will continue to invest while we are members of the EU. On average, we receive. So there'll be a mix in terms of where that sits in different areas. I think that's probably something that would be better to write to the committee about so that we can capture that across the piece. Do you have that? I can tell you that for the NPD programme as a whole there's been over £650 million pounds worth of EIB investment in that programme. So our major projects, the roads projects and the larger hospital projects, the EIB has been a contributor of good value for money financing for those projects and so of around about £1.8 billion of finance raised to date, just over 30% probably around £650 million, as I've said in all, has come from the European investment bank. Thanks, Peter. Morning. Sticking with the AWPR, has the ONS decision to reclassify it led to any delay in the likely completion time of the AWPR? There's been no impact from the ONS decision with regard to the AWPR that the timing of the decision has not impacted on the delivery of that project. Has the decision had an impact in terms of other capital projects? One would have thought that there would be an attendant impact as you need to go back and look at other projects being delivered and say, we need to look again at this. Can you speak about that? There's been no other impact in terms of roads projects or transport projects, but maybe I'll hand back a more general point. So just in terms of the NPD-based projects, there's been no delay there. There was a pause on the hub programme until it was really clear where that was going, and if we can say a little bit more about that pause, you'd like to follow up on that. There were 13 projects across the hub programme where there was some delay in the construction commencement as we had to rearrange the structures we've just heard about in the hub to retain its private classification. All of those projects, we managed to reach financial close in the first quarter of this financial year, and the cost of that delay in inflationary terms was met well within the programme contingencies. Thank you. That is where I was going, was where is the cost and has it been accounted, so thank you very much for that response. The only other thing that I wanted to explore was that we had some information that the Scottish Government estimates that each additional £100 million of public sector capital spending supports approximately 800 full-time equivalent Scottish jobs, which I find very interesting. How robust is that estimate, do you think? That estimate is calculated by economic and statistical colleagues within the Scottish Government, so they will have applied a robust methodology to come to that figure. I do not have the detailed workings, and as I said, it is other colleagues that do that, but I know that that has its origins within that skillset within the Government. Do you know then—you may not know the answer to this, I appreciate it—how far that breaks down because it is a very general figure? Do you know if that research breaks it down into sector, where we can say that value really is delivered at this level? As you predicted, that is the level of detail that I do not have. In which case? I wanted to pick up on borrowing powers, and I wondered if you could talk me through that. I note from your briefing that the Government has the option of using its borrowing powers to finance capital investment, but that did not happen in this financial year. Borrowing powers have been set out for the first time under the Scotland Act 2012. Under the Scotland Act 2016, those borrowing powers are to be enhanced and will enable us to make a stronger and larger use of them. In this current financial year of 2016-17, the infrastructure investment plans of the Government do work on the basis of being able to use the full borrowing facility. We will not have used it yet for a very good reason, in that we will wait to know exactly how much money we need to borrow. Whilst we have planned to use it all, no-one will want to take on debt and have to start servicing that debt until they know absolutely what they need. Because there is always a degree of variability in delivering capital programmes, people waiting for planning permission, identifying sites and all those sorts of things, it will be much closer to the end of the year before we actually will borrow the balance that is required to fund our programme. You are right in one sense that we have not actually borrowed yet, but we are planning to borrow and the final figure will be something that will be right and proper, taught and realistic according to the actual needs at the point when we need to process that. Do you expect to fully utilise that border wind facility? Our plan is to use it, but we will fine tune the exact number that we will borrow absolutely based on the financial picture at that point, right very close to the end of the financial year. The level that we have is in the order of £300 million, it is just over that, that is the facility that we can use. We are planning to do that, but with the exact amount we will do much nearer the end of the financial year. Is there a risk that you will not be able to identify projects in time to utilise that border wind facility? Sorry, I did not mean to cut across you. The projects are already identified, the plan is already set out for the year, we know the capital programme. Borrowing is just one source of funds, we have our traditional capital and as we have already rehearsed we have a whole range of other innovative financing techniques to support our underlying financing arrangements for our capital programme. We are certainly planning to use borrowing as one of the tools to finance the whole programme. As I say, it is not that we would have to then wait to identify projects, it is just a matter of what to be assessed, the actual expenditure amount will be that we then need to match with both our traditional capital, our other sorts of leverage of investments and finally borrowing. You will not be surprised, we will leave the borrowing as the last place we go to because that has a cost associated in addition to it, so that is part of our methodology around that. I wonder if you can explain why there was an underspend. I was looking at the briefing and the Government announced that it would boost capital spending by £100 million in this financial year and that spending would be funded by the carry forward of an underspend. I wonder if you can say a bit more about that? Yes, certainly. The underspend that was generated at the last financial year, which obviously we talked about when we were looking at the annual accounts two weeks ago, that because it came from a range of different areas, because the Government can never overspend a budget, it has to live within a budget, so on a multi-billion-pound budget we always get a level of underspend that comes out. That underspend came from a mix of different places, from memory it was in the order of about £40 million, it actually came from capital areas and then there was a mix across the different types of funding that the Government has. That underspend, we were then did not lose to Scotland under the budget exchange arrangements that we have between Scotland and the UK Treasury. We were able to bring that money forward and it is that money then that was able to be utilised, £100 million of that is able to be utilised for the capital acceleration package that was actually announced in August this year. That was basically just making good use of that money that was brought forward from the previous year and targeting it to a whole raft of projects, some of which are actually capital and new type things and roughly half of it actually was going into maintenance activity as well. I was interested by the point that Liam Kerr raised about the link between what £100 million can deliver in terms of jobs in the region of 800 jobs. When I see in the papers that there is an underspend of £100 million, that could have had the potential to facilitate and support 800 jobs. I wonder if that is a social frustration with yourself and colleagues when there is that delay in fully utilising available budgets. Obviously, I am not going to be wrong, I am passionate about our infrastructure investment. It is really important that it underpins so much that is important within the economy in Scotland. There is always this very fine balance to be struck of absolutely having to deliver not only a balanced plan for a budget but actually balancing at the end of a financial year and therefore there will always be a modest level of underspend. I know that £100 million is an awful large number and for me to even use the word modest associated with it but relative to our overall aggregate budget our underspend was within 0.5% which is really fine margin and therefore there is a judgement about how much money is absolutely still utilised right to the finishing line not only of the 31st of March but actually our accounts have to stay open for any further liabilities that have to be recognised in that year and that stays open right up until our accounts are signed usually in September so we have to there's a judgement of risk about how much money is actually spent right up to the letter and how much you absolutely then have to fulfil the obligation that's non-negotiable of actually living within the budget. The good thing is that £100 million wasn't lost to Scotland it is there for this current financial year and as soon as the 10th of August it was being deployed on things actually were very responsive to the circumstances that the government and the country found itself in needing to help create a further economic stimulus through the £100 million and where that's been gone to and part of the judgement that ministers exercised in deploying that £100 million was absolutely to know and to get some assurance about the timing when that impact of economic activity would be felt the extent to which it would go to help employment also looked at the supply chain and and how that could be retained within the Scottish economy and the extent to which it would leave ridg in again some additional economic activity in Scotland as well as being sensitive to the things you'd expect any government to be about the geographic distribution and the impact it so importantly needs to have on something that's very hard to measure but business confidence as well. Just one more point that I wanted to explore and I think you've mentioned it yourself you talked about other delays in terms of site constraints identifying sites planning delays you know when I'm at different events and meetings speaking to industry stakeholders quite often infrastructure has been a major barrier to sort of making development happen and there is that tension between if you take house building house builders sort of front loading and paying for roads and drainage up front. I was looking at the terms of reference for the infrastructure investment board and it looks like there's a fair bit of discretion there in terms of you know how you can take an overview across government in different areas. I just wonder to what extent you're looking at a whole range of different projects and some of the barriers are facing more at a local level because I recognise that you're looking at pretty major capital projects but quite often some of the delays that you've mentioned are happening more at a local level and they're not going to be picked up perhaps with the reports or what's in the infrastructure investment plan so I just wonder to what extent government is joined up in looking at this across cutting way. So yes there are a number of tools that we use to try and make this all as streamlined and integrated as possible. I'll ask Peter to come in in a moment as well. Some of those are things that very much at the hand of government, the national planning frameworks, things that give some sense of prioritisation and how the planning regime works in Scotland. Some of it is also then about how through where there can be both efficiencies and something that makes more sense for local communities, how we can actually get that connectedness between different activities happening at the same time and certainly when we're looking at the Highlands and Islands there's been quite a bit that's about mobilising construction teams to work there because actually getting the right availability of people in the right time to work together particularly when there's geographical challenges as well. So those are some of the things we certainly take into consideration but Peter can respond to some of the things that feel more local because I appreciate those are the sorts of things that you get from a constituency perspective. Peter could pick this up but part of that is about I think skills and you know I think we recognise as a shortage of skills in terms of the construction world and is that something that's quite on your radar as well? Part one then. I certainly have exactly the same discussions as you do with people in industry both in the infrastructure industries if you like and in the construction and particularly house building industries and I think part of the answer is it's really tricky because for any one development that a particular developer wants to move ahead with very quickly first of all there'll always be other developers that want to move their development ahead really quickly as well and secondly there is a whole range of different infrastructures from the private sector infrastructure of the electricity connections and the telephone connections through to Scottish Water, the transport infrastructure and also for a larger development, schooling and health and drawing all of those together was a very strong recommendation of the planning review and I know there's a lot of work going on just now in the infrastructure leadership within the planning system to try and better coordinate those different pieces of infrastructure investment that are needed on a very local level to support individual developments. I would say though that it will always be the case that particular developers want to see the particular focus on their development and the planning system and any infrastructure investment needs to see the situation overall and what can be the best use of the public funds particularly in that investment to deliver inclusive economic growth for the country as a whole. So I don't think it'll ever be the case that every developer gets the infrastructure to enable their development exactly when they want it but the planning review and the framework around that will lead to improvements in the coordination of those different infrastructure agencies to lead to a more infrastructure led planning system if that answers the question where we're going. Thank you. Mike, you've got some examples as well. I think that if two points one recognise it's not just about the new infrastructure, it's also about our existing transport networks in my field. So we've done some work recently looking at the economic growth sectors, looking at whisky, looking at food and drink, their reliance on our transport networks and actually start to target where we need to invest in order to improve productivity or reliability. The other thing is a significant amount of investment going in on our transport networks at this point and using the opportunities that those projects and some iconic projects allow us to really promote engineering construction as an industry for young people to go into. So particular success is around the A9 academy work that's been undertaken which you know has been a major success and also around the fourth replacement crossing the education and contact centre there and the work that's been done with local schools and communities. So we're looking at opportunities not just about community engagement more broadly but actually starting to target and to engage with young people about the opportunities that there are. Now that's a long term aspiration but whilst we've got the opportunity for these major projects important we use them. Okay Gail Ross. Thanks convener and good morning thank you for coming along. Actually my question touches on two points that Monica Lennon brought up just now about well one about the underspend particularly and I know that on quite a few projects the fourth replacement crossing is one in particular where we've actually saved money and that's a really good news story but there are also projects for whatever reason a lot out with our control that actually go over and especially with a hub co-model when you come to financial clothes and so that cost is that cost. If a project goes over time scale therefore does it also go over budget and if it does who then pays for that? Are there penalties then put on the construction company or if it's not a hub co-model if it's purely funded by Scottish Government how do we then fund that continuing overspend and how do we fix that? So there's a lot in there. Peter do you want to start with hub co and then Mike maybe around what happens on some of the contractual arrangements on traditional areas? There are a lot of different ways of contracting for construction activity and a lot of therefore different ways that the risks of delay are allocated between the private sector construction company delivering the project and the public sector procurer of the project. In general the finance projects as you say that come through the hub programme if they take longer to build than the construction company had promised to do it for then the additional costs of that will fall to that construction contractor who'd promised to do it within a set period of time and the way that that works is that as you know we pay for these buildings as we use them rather than as we build them and we only start paying for them when we actually get to use them so those additional costs fall straight to the construction contractor. It can be the case however that additional cost and time might arise because the public sector procurer changes their requirements briefly and evolves them during the construction phase. If that's the case then part of the thinking on behalf of that body as to whether they actually want to make those changes and whether the changes of value for money to make will be their assessment of how much they're going to cost and whether they really really need to make the change and therefore need to allow the extra time required to deliver them and in some cases they make the assessment that that is worth doing. Overall in hub we're very much delivering projects on time and on budget because the strength of that incentive on the construction contractors is really the head to do so so they deliver on time and actually the costs of making the changes and the really rigorous development process that goes into the hub early development phase means that by the time we sign the contract the public sector procurer is pretty clear exactly what they need and is therefore very unlikely to require to change that during the construction phase although occasionally it does happen and occasionally there will be instances where either the construction contractor overruns and has to take that into their own costs or the public sector decides to make some changes and they have to take that cost but overall the programmes are running pretty much to time and budget within certainly within 2 per cent overall. We're running a little bit shorter time on this item can we keep the questions and answers just a bit more concise thank you. Certainly. Firstly just in terms of the previous discussion around the use of different funding techniques and borrowing actually tight financial control becomes more and more important at an operational level in order to give an overall picture nationally so that tight financial control is a really important point. I think that I would distinguish between the projects for which we have direct control so a lot of the roads projects for example where we are responsible for direct capital funding or indeed enter into the dbfo type structures that we have and contrast that perhaps with the rail projects where the funding arrangements are different through network rail and they have an overall cap on their borrowing level over a over a five-year control period and the levers that we have to control and these projects are different than any to those circumstances and clearly given the report that was issued earlier in the autumn and published at the end of October and the independent EY report we're currently working through a whole series of actions to try and tighten up the control on that. So for some projects within transport there will be a direct financial consequence and for others there'll be an indirect and longer term consequence depending on how much network rail have to borrow at the fund projects. Ross Thomson Thank you convener. I just have three questions following on from Liam Kerr's question about the AWPR. First of all in relation to the ons statement and reclassification. As you know the AWPR project is being done in partnership with Transport Scotland both Aberdeenshire and Aberdeenshire councils. Both councils have a commitment with the Scottish Government around about the 75 million cap or the 9.5% whichever is lowest. What impact would ONS statement have on those contributions potentially? What risk is there around about that? There's no direct impact at all because the way that the project is funded the the NPD element of that project is separate from the council's contribution so there's no direct financial impact at all. Ross Thomson I'm sure the heads of finance will be relieved to hear it. That's good thank you. In relation to the timeline touching on from what Liam Kerr had mentioned you said there was no impact and timeline costs from what the ONS decision was. However in relation to the you know we had Storm Frank last year we've had a safety shutdown recently and even just in October staff on the site were laid off. What are we just now with timeline and cost is it as anticipated? In terms of cost we are where we expect to be. In terms of timeline winter 17 is still achievable. I think the slower rate of development in 2015 was offset by additional works in 2016 to catch up. I think there's 10 million cubic metres of earthworks to be moved on the IWPR project so no small undertaking. So winter 17 for the overall programme is still achievable. Last question is you'll know over to this year we had a city region deal signed off for Aberdeen. Scottish Government above that committed £254 million for capital projects I see in the annex of the paper it says that it should be informational capital projects with a value of more than 20 million. As part of that city deal announcement 24 million was meant to be allocated for the Lawrence Kirk flyover with the cabinet secretary saying that he wanted to see it delivered as soon as possible for the northeast and 200 million to increase capacity between Aberdeen and Montrose. I've gone through the annex I don't see the projects mentioned within the annex I don't know why. Perhaps you might be able to help me with that. It's a timing issue simply. The budget allocated in the current year for Lawrence Kirk's £1.5 million will be 2019 before we go through statutory processes so it's simply a timing issue in terms of reporting I would expect it to be reported going forward. In terms of actually starting on the ground to what do you think that will happen? I know that question was asked to the minister when he appeared in front of the RAC committee and clearly there are statutory processes to go through so I will defer to the earlier answer but we'll progress it as best we can. Point of clarification from me, page 26, there are four primary school projects listed. Three completed, one still planned in preparation and that's the Dundee joint campus and then on page 56 it says south of the city Dundee city council construction has now commenced. Is that the same project? On an individual project like that I'd prefer to get back to you and to answer your question precisely rather than looking through and making a comparison myself on the documents in front of me if that's all right. If you could that would be great. Final question the the V&A at Dundee the progress as at August 2016 is aiming for completion and opening to the public in 2018 is that still the target date or still the expected opening date? Yes obviously the council is the procuring authority for that project but as I understand that's still what they're aiming to deliver yes. Great okay thank you very much I suspend briefly while we change witnesses thank you for your evidence. We now move on to item five which is our evidence session on maintaining Scotland's roads a follow-up report. I welcome to the meeting Fraser McKinley director of performance audit and best value, Angela Cullen assistant director, Graham Greenhill senior manager and Sheila Stewart audit manager all from Audits Scotland. I invite Fraser McKinley to make an opening statement before I open up to questions. Thank you convener good morning members. This report on maintaining Scotland's roads is a joint report by the Auditor General and the Accounts Commission so it covers both the Scottish Government's responsibilities for maintaining trunk road network and also council responsibilities for maintaining local roads. We have over the years reported quite regularly on Scotland's roads that partly reflects the important investment and amount of money that it's spent but it also reflects the importance that local communities and the people of Scotland attach to the condition of roads. It's our fourth report in fact since 2005 and this report looks at three main issues and very briefly convener I'll just summarise those key points. The first part of the report looks at the condition and expenditure in relation to roads and I think it's fair to say that our previous reports on roads maintenance painted a picture of roads authorities both locally and nationally having to work hard to maintain road condition in the face of declining budgets and this report is exactly the same in that regard. In relation to trunk roads we've found that the condition of trunk roads declined from 90 per cent in acceptable condition in 2011-12 to 87 per cent in 2014-15 and most of this decline is associated with the condition of motorways. Over the same period Transport Scotland's expenditure on trunk roads maintenance fell from £168 million to £162 million and by its own assessment it spent £24 million that's 38 per cent less on structural maintenance in 2014-15 than it considers necessary to maintain the trunk road condition at current levels. In relation to councils the conditions of local roads remain stable at around 63 per cent in acceptable condition from 11-12 to 2014-15 although it's fair to say that there is significant variation amongst councils within that national picture. Total council expenditure on roads maintenance continues to decrease overall from £302 million to £259 million that's 14 per cent over the same period and the Society of Chief Officers of Transportation in Scotland has calculated that overall councils spent £33 million that's 13 per cent less on planned and routine maintenance in 2014-15 than was necessary to maintain the current condition of local roads. In terms of the management of roads maintenance, convener, previous audit reports had highlighted the need for all authorities to develop roads asset management plans and we are pleased that all councils in Transport Scotland now have those in place although in some places we think that they still lack some detail. While councils have now adopted a common set of performance indicators, the focus to date has mainly been on ensuring that that data is consistent. Transport Scotland has its own set of performance measures because owing to the different levels of service between trunk and local roads it considers that many of the aspects of performance it measures are not directly comparable with councils performance indicators. It is quite a complex picture when you try to compare local and national picture. Finally, convener, the third part of the report talks about the developments in relation to improving collaborative working. Our previous audit reports stressed the importance of developing a more collaborative approach to roads maintenance and this was also an important recommendation from the national roads maintenance review, which was published back in 2012. It's fair to say that the Order of General and the Accounts Commission feel that progress in developing that more collaborative approach has been disappointingly slow. While regional arrangements are now being established and facilitated through the roads collaboration programme, there is no clear plan or timetable for determining the extent of shared services at an operational level. There are examples out there that we mentioned in the report that Ayrshire roads and lines Tayside contracts haven't been around for quite a long time and it's important that we learn the lessons from those. In relation to the trunk road network, we think that there's an opportunity for Transport Scotland to maximise the opportunities for more collaboration with councils through conditions in the trunk road operational contracts. As always, my colleagues and I are very happy to answer the committee's questions. Thank you very much, Mr McKinlay. Alex Neil. Am I right in saying that the reduction in budget and the reduction in the percentage of satisfactory condition roads is broadly the same? In which case that would suggest that there have been no efficiency gains in terms of how we actually apply this money? Would that be a fair proposition? I'll check with the team, Mr Neil, but the picture is slightly different when you're looking at local or national roads. The condition of the roads is actually remained pretty stable over the past few years, although councils are spending about 14 per cent less over the period that we report in there. In that sense, you could argue that they're managing to maintain the quality of the road for less money. The picture is slightly different in the trunk road network. Graham, do you want to pick up on that? I think that you're broadly correct in percentage terms that the condition of trunk roads declined from 90 per cent in acceptable condition in 2011-12 to 87 per cent in 2014-15, and over the same period expenditure on trunk roads maintenance fell by 4 per cent. In broad terms, those percentages are obviously very similar. I think that it would be unfair to suggest that there was no efficiency savings over that period. One of the things that Transport Scotland does is part of the efficient government initiative, trying to calculate efficiency savings through its renewal of its trunk road maintenance contracts. It has five trunk roads maintenance contracts, including the relatively new one for the Forth Road Bridge, but the four geographical ones are renewed on a rolling basis. One of the things that Transport Scotland does is that those contracts stipulate a series of unit costs associated with different types of road maintenance activities. Each contract contains hundreds, if not more than 1,000 unit costs. One of the things that Transport Scotland does is that it looks at those unit costs and how they have changed over time with each contract as it is renewed, and it applies those unit costs to actual volumes of activity. On that basis, it calculates that there are efficiencies being drawn out from those contract renewal processes that are resulting in lower unit costs over the piece. One of the things that we draw attention to is the increasing use, for example, of what are fairly temporary measures, particularly in terms of the use of materials. Are we cutting our nose despite our face? As you say in paragraph 4 in your summary, and further on in your report, all that is going to do is need much more regular maintenance activity. Clearly, if you are using cheap materials and cutting corners, it will not last as long. Therefore, at the end of the day, we might be cutting our nose despite our face. There are certainly times when surface dressing, as it is called, basically just replacing the surface represents value for money, but there is a risk that if you are doing that instead of more wholesale reconstruction, potentially you are storing up problems for the future, and there might well be a longer-term, higher bill as a result. It is fair to say that all roads authorities recognise that as an issue, as a risk. There is clearly a difference between recognising a risk and doing something about it. A good example of that might be paragraph 70 on page 33 of the report where we talk about Abertyn City Council. Abertyn City Council, as it says, has been able to increase the proportion of roads in acceptable condition at lower cost. It has been able to do that through increased efficiencies and innovation, which would be 100 per cent behind. Equally, it has taken a conscious decision to concentrate on surface dressing and not do that more involved in more detailed reconstruction work. As I said, Abertyn City Council has recognised that. It is quite interesting that, if you go to exhibit 10 on page 24, it says that Abertyn City Council has recognised that, if it wants to maintain its roads in the current level of condition, it will have to increase how much money it spends on roads maintenance. For us, that emphasises the importance of having good quality information to allow elected members and ministers to make informed decisions as to how much they want to spend on roads maintenance. Good quality information in respect of options, identifying how much road condition, acceptable road condition, you might expect out of certain levels of spend, what might be the benefits of spending more than that level of spend, what might be the consequences of spending less than that level of spend. Also, good quality information in respect of community engagement and user views, because all the survey work that councils in Transport Scotland carry out really indicates that road condition is of vital importance to the general public. Obviously, the overall performance of the local authority sector has been not just in terms of this period but previously in the long term substantially below. 63 per cent of local authority maintenance roads are in acceptable condition compared to 87 per cent in Transport Scotland's front road network. I accept the challenges that are in the national network, but 63 per cent is a pretty pathetic figure for local authorities. Obviously, you are suggesting that the lack of progress in collaborative work and shared services is concerning, presumably because of the economies of scale that you get when you do get shared service provision. Although I have to say in terms of issues, we have just had an experience in here where the total lack of consultation has led to a massive waste of public money, where they laid down a new cycle track and then had to lift it up again because, apart from anything else that was dangerous, they did not consult with anybody and have now spent over £100,000 in relaying it and then lifting it, which is hardly a recommendation for collaboration, because the total lack of consultation has cost the budget dear. Maybe that is a one-off, but it is certainly not a good advert for shared services. We are aware of that in Ayrshire. I guess that it is a good example of the point that I was going to start with, which is that although we are absolutely clear that a more collaborative approach is the way to go, nor is it a silver bullet, it is not going to fix it on its own. We would absolutely hope and expect that it would drive out some economies of scale, you would expect that. Whether it will release enough cash savings to do what we think is needing done in terms of not just maintaining condition but improving condition is a separate point. What we are hearing and what we would agree with is that the real win, if you like, the real gain from more collaborative working is to do with skills and experience and sharing innovation and good practice. That is a lot of the activity that the different alliances that are developing are now concentrating on. Of course, we should be pooling resources and making better use of depots and everything else, but given that we think that there is the risk of a bit of a skills and experience shortage in some of those areas, it seems to me that it makes absolute sense not to be trying to do that 32 times but to be trying to do that on a more regional level and, indeed, sharing that kind of good practice and learning nationally and locally. Have you done any comparative analysis between those areas where there is already established collaborative working and the rest where there isn't to see if there is any evidence that actually, where it has actually happened, collaborative working or shared services actually make a material difference to some of those percentages? Get Mr Neil, partly because the collaborative arrangements are still really quite new with the possible exception of Tayside contracts, which is a slightly different model because, obviously, it does lots of other things, but certainly I would imagine and the focus of our work recently has been to, in a sense, go back to recommendations that we made in previous reports to really get that some momentum building. Our sense is that there is now some momentum building around a regional approach. I'm quite sure that the Order of General Commission will want us to keep an eye on this area and it may be in the next few years that that's exactly the kind of work that we need to get into. Colin Beattie Thank you, convener. I just wanted to random items in here that I wanted to pick up on and get a bit more information on. We touched on the contracts and I'm looking at paragraph 28 in particular here, paragraph 27, 28. You make a statement that these contracts have actually contributed to the decline in performance, which seems extraordinary. Paragraff 28 says that it may have played a part in the decline in performance. In that paragraph, what we've drawn attention to is the shift to the 4G contracts. With the introduction of the new contract framework, the expectations around performance were raised, so it may be for the new operating companies that came in that there's a bit of time for them to start delivering at the level of the contract that is expected. That's by some way to explain it, but I think that our overall concern is that the trend of performance has been down and therefore we make the recommendation for Transport Scotland that they should continue to keep an eye on the long-term trend and also to make sure that there's measures in place to be able to address areas of underperformance. One thing that really jumps out at me in this report is in relation to the councils and their performance, because although they've maintained the level at 63 per cent, the variation between the councils seems quite extraordinary. I mean, you've got Argyll and Buton at the lower end, and I think it's ultimately a Shetland at the other end. Why is there this inconsistency of support? Clearly, some councils are managing their resources better, but there has been a cut overall, as you highlighted, of 14 per cent. How do councils transfer the experience, knowledge and best practice? As you say, one of the striking things about that is the variation across councils, Mr Beattie, and we haven't done a huge amount of in-depth analysis, council by council, to understand why that is. I think that what we would observe is that there may be issues to do with, first of all, things like the amount of road network that you have, and Argyll and Buton would be an example of that. Equally interesting for us is both in terms of the condition of the road but also the amount of money that different councils spend on their roads maintenance, and to some extent, of course, that has to be about local decision making. I think that what we're interested in is the extent to which—it was a point that Graham made earlier on—I think in terms of the national stuff. Exactly the same point applies locally, which is that they need to be making those decisions based on good options, appraisal and a good understanding of what the impact is. For example, we know that one council took a considered decision because the condition of their roads were quite significantly higher than national average. They could spend a bit less on that with a subsequent deterioration, but still they decided, given the competing pressures and priorities, that that was an acceptable decision to take. It's not for us as auditors to say that it's a good or a bad decision, but at least they've made a decision on the basis of good information and an understanding of what the impact is. It's a kind of thought through process, and there is no doubt for councils that when, broadly speaking, two thirds of their spend is taken up through social work and education, there is clearly real pressure on the pot for everything else, including roads maintenance. As you say, that's why the regional models are so important, because we think that sharing of good practice and experience and skills has to be the way forward. Our sense is now, albeit slightly belatedly, that councils are coming to that view as well. If I could just kind of add to that, Exhibit 2 on page 14 gives you that spread of council performance across individual councils. I don't think that we're necessarily saying Argyllin but in the left bad Orton Islands on the right good. This kind of exhibit is really to allow questions to be asked. Councils are well used to working in family groups and comparing themselves with similar councils. If it allows questions to be asked, what is it that this council is doing that we're not doing that gives them better results? There might very well be very good reasons as to why some of the councils are down on the left and some of the councils are up on the right as Fraser outlined. Mr Beattie also mentioned the idea of spreading good practice and innovation and views. This is really a strong theme that's coming out from the road's collaboration programme. Workforce resilience and capacity sharing is a major initiative that they are taking forward. That's all about sharing practice and sharing knowledge and building resilience in the road maintenance sector. I see your comments on paragraph 99 about the question of trunk roads being included in the regional groupings. Do you have any feel that we're close to that or is it still out there? It would make sense for the trunk roads to be in there. I think that it's a work in progress. As you will have seen from the letter that Roy Brannan, the chief executive of Transport Scotland wrote to the committee about the report, the minister has extended two of those trunk road operating contracts by a couple of years. That creates a window of opportunity, we think, that will allow councils and Transport Scotland to get together and work closely to see what can be done to make those operating contracts perhaps more encompassing. Indeed, as part of the on-going road's collaboration programme, there is now intention to form a working group comprising local and trunk road representatives to work towards to see what can be done. There are already existing arrangements. As part of the operating of the maintenance of the trunk roads, you might find that there are cases whereby the trunk road operators subcontract to the councils to carry out some of their work. The kind of discussions that we expect to take place over the next wee while and hopefully that will result in further developments. It's very clear that there are a number of different models in place for maintaining roads here, whether they are subcontracting, whether the council is doing it themselves, and of course you've got Transport Scotland involved doing that. Is it feasible to bring all that together effectively? Into a single road maintenance authority responsible for all? That would be wonderful. Theoretically, I suppose, it could be done. There are obvious challenges associated with that. Paragraph 95 of the report on page 41 gives a kind of indication of some of the challenges which are being experienced, even taking forward that governance first arrangement whereby there are a lot of local accountability issues. Potentially, there are concerns about the level of benefits that might arise, and all that has to be worked through. I think that, just briefly, Mr Beattie on that, I think that for me, as much as the question of whether it's feasible is whether that's how you'd want to do it, I think that for me I would make some connections with developments more widely. Things such as city and region deals are very clear now, particularly after some of the announcements this week. That kind of regional model is a model that's going to be taken forward for a whole host of things to do with how services are delivering, how businesses and communities are engaged. I'm sure that those on the collaboration programme will want to consider roads in that context as being a hugely important part of the thing that supports economic growth in those places. Just briefly, one last thing. I was quite intrigued by paragraph 52 and 53 where we're probably marginally better than our colleagues south of the border. What really stood out was that they're spending two and a half times more per kilometre than Scottish councils on local road maintenance. That's a huge difference. I know you're limited in what you'll be investigating here, but do you have any feel as to why it's such a stark difference? Are we so much more efficient? We haven't done the work to let me say that, Mr Beattie, one way or another. As far as we can tell, it was a policy choice that was made. The Government in Westminster decided to invest pretty heavily in the roads network and you see the results coming through. As you say, there's a separate question that we haven't got into. We've really included this in terms by way of a comparator, an indicator. There's a whole different question about value from money, but we haven't gone there for the purposes of this exercise. Can I refer you to page 17 of the report, please, and exhibit 5? This is about the overall performance of trunk road operating companies. Please correct me if I'm wrong here, but regarding paragraph 28 and exhibit 5, is it correct that the operating companies are not assessed individually but assessed as a whole? Is that what exhibit 5 shows, their performance? Exhibit 5 shows the performance of all four of the regional operating companies. They are assessed individually through the annual Pag Plus reports. They are not assessed on condition, so actual road condition. That's why we've made a recommendation in the report that part of their performance reporting should include condition. However, there are individual information on the four, but we've aggregated it up to show the trend over time, because our concern was looking at trends over time. It's black and white on my copy, but each of the different shades or colours on the exhibit represents a different operating company. Is that correct? No. We've added figures for the four operating companies. Okay, so where can you drill down to the performance of each operating company? We get to find the committee with that. But that's not in the report. It's not in the report. Okay, can you tell me what the individual operating companies are assessed on if it's not on condition of the roads? There's a range of different criteria to do with winter maintenance or response times, to winter maintenance and other preventative measures. There's also indicators around their programme of structural maintenance. Our view was that it lacked the key around road condition, so we couldn't actually get information about how the work altogether that operating companies were doing led to an impact on road condition. That's what's been our focus and what our recommendation is in the report. The PAG Plus reports that are publicly available have information for all the set criteria, and we can provide the committee with those. Are they assessed on financial performance? There are some in there, yes. Right. Okay, so it's a different report that I would need to refer to to get the financial performance of each of the operating companies. There are performance measures on it, yes, so we can provide that. Okay, and will it have detail on financial performance? So we can double check that, and we might need to better understand, convener, when you say financial performance, what it is exactly looking for. Okay, I'll explain why I'm going down this road. You may have seen in the press recently that a performance audit group, which is the consortium of Transport Scotland, found discrepancies on road patching works in 54 per cent of the sites that they visited pertaining to Bear Scotland's work. They also found clear evidence that Bear site staff have inaccurately recorded what has been replaced when relaying surfaces. Overcharging from Bear Scotland to Transport Scotland amounted to £280,000. Does the audit cover this at all? So this audit doesn't cover those things specifically, although we were aware of it, convener, and to some extent the role of the performance audit group, you could argue, did its job in identifying some of those things in the first place, and the response from Transport Scotland does respond to our recommendation in particular. Our, I think, absolutely where we would agree with you, though, is that there is scope for more transparent public reporting around all of this for sure, and that's why we've encouraged Transport Scotland to do some of that, I think, in terms of the and they've responded to some extent to that and their response to the committee. I think that if you wanted to really get underneath what exactly they do in terms of managing the contracts and ensuring these things in the more detail that Sheila was talking about there, there'd be better place to provide that information for you. Transport Scotland to it? Yeah. Okay. So that's not really in the audit, sorry, in the remit of Audit Scotland to dig that deep into contracts, what's being charged, what's being overcharged? I mean, I think if we, so it's in a remit, if someone were to raise a concern and we felt that there was a concern significant enough for us to look at, convener, then absolutely. I think that on that specific case, in a sense, I think we would say that as auditors the internal control mechanism, in this case the PAG, the performance audit group, kind of did its job and unearthed these things. I think what we'd be very interested in, and the committee may want to fault with Transport Scotland, is how they're ensuring that, as well as identifying the specific instance, they're then sharing that learning and making sure that it isn't happening more widely. Because, I mean, the PAG was an internal group of Transport Scotland, is that correct? The team will keep me right but I think it's a combination of internal and external people, so they operate on behalf of Transport Scotland, but it involves some other external organisations, I think. I mean, it seemed to me that, even if the external people were involved, the fact that the work was commissioned by Transport Scotland itself was effectively asking for scrutiny of their own financial discrepancies. You know, it's government scrutinising government, and I wonder that, because the unearthed discrepancies of overcharging by Bear Scotland to the Government, to the taxpayer of £280,000, if that would merit a more independent review of the contractual and financial relationship between Transport Scotland and Bear Scotland? At the moment, I don't think so. I think that, first of all, it's a good thing that Transport Scotland has put in place a mechanism to do this. It's not that they commissioned it specifically for that thing. This is a mechanism that exists to look at all the contracts, and absolutely we would encourage that. I think if there were—and this is why I think the follow-up is important, convener—if there were examples or evidence of a more systemic problem in that sense, then absolutely it might be worth looking at that more widely. There were allegations that PAG didn't even look into regarding the exchange of money and things that were charged for. Where would that fall? Would that fall under your remit, or does that stay within Transport Scotland? Again, I'm not aware of that, but if there are some specific things that you want us to look into, then of course we can do that. Can I ask a more general question regarding international comparators? The 63 per cent figure has been already quoted by a couple of my colleagues. How does that compare to the rest of the UK and other similar-sized countries? We don't have comparative information beyond England. In the context of England, as has been previously mentioned, there is relatively higher levels of expenditure on roads maintenance than is going on in Scotland, but from the information that we have from the Department of Transport, page 27, paragraph 52, the condition of council maintenance roads in England is not too dissimilar from that in Scotland, although the condition of trunk roads is somewhat better in England than it is in Scotland. As has previously been said, more money is being spent in England than in Scotland on roads maintenance. There may well be very good reasons for that. Traffic density is an obvious potential factor, but of course we haven't audited road maintenance in England, so we couldn't really go too far in explaining the reasons for those cost-differentials much beyond that. We don't really know how we compare to other countries in terms of the state of our roads. We haven't done that work as part of this piece of work. As I said, if the Auditor General and the Commission ask us to come back to this, we can absolutely look at what international comparative data is out there as part of future work. Just to build on that, paragraph 45 on page 23 indicates that Transport Scotland did a study over the last couple of years looking at the long-term vision for maintaining the trunk road network. One of the options that they considered was increasing the proportion of roads up to an unacceptable condition up to a level that was comparative with the rest of the UK and further afield. It indicated that Transport Scotland would need to increase its spending on structural maintenance up to around £79 million per year on trunk roads structural maintenance. As you will see from the paragraph that comes after that, that was something like twice as much that Transport Scotland actually spent on structural maintenance in 2014-15. We underspend on our roads to get them to the standard of other countries. Even if we don't compare with other countries, what we've said and what councils in Transport Scotland recognise themselves is that we're not spending enough money every year to keep the roads even in their current state. The audit notes that the cost of materials forms the greatest proportion of spending associated with structural maintenance. Did the audit consider how those costs could potentially be reduced? We didn't look at that convener and know what we were trying to do, I guess, is just to explain how it's made up and the bits that go together on that. We haven't gone as far as to assess what might be different. One of the challenges for us on things like roads is that it is a very technical and complex area. We are the audit body who can look at those things, but some of the technical stuff is a wee bit beyond our scope. Often materials are purchased at a time when their cost is low in the market. Is there any opportunity in the work that you've done to buy materials at a certain time, or perhaps announcements of project work on roads would preclude that? Would the fact that the trunk roads are managed by four separate companies preclude that? It's not something that we've looked at in detail, the timing of purchases, but the roads authorities are aware of the potential benefits that could come about from shared procurement, which would help to drive out economies of scale efficiencies from purchasing materials and such like. There's no argument for collaboration, convener, both in terms of the purchasing power that you get, but, as you say, the ability to phase the purchasing of the raw materials in relation to projects that are happening over a wider scale seems to me something that they absolutely should be looking at. Could Audit Scotland look to include ideas for money-saving measures in future reports on things such as that? Absolutely, and we're able to do that in our work, convener, and we do. Work that we've done in the past on core efficiency, for example, identified, we thought, about £10 million that could be saved in the system by doing various things. As I say, we need to be careful of two things. One is, while it's important that we make clear recommendations, we also need to ensure that we don't go too far in terms of our role in advising Government or councils in terms of what they should do, because it's their decision rightly. Secondly, on issues like road, it is very technical and we're just not necessarily the best-placed people to be making those specific recommendations given the technical nature of some of this. Who is best-placed? Well, the people who are in the business, and that's why the road collaboration programme, the various collaboration networks is so important, because that's where the learning and the expertise sits. To go back to our previous point, though, is it if we already have evidence that one of those operating companies has overcharged Transport Scotland to the tune of £280,000? Is it realistic to look to them for cost-saving opportunities to save the taxpayer money if they've already been found to be overcharging the Government? I think that they have to be the people who identify ways in which they operate more efficiently and effectively. Absolutely, in doing that, you would expect them to look beyond Scottish borders to get expert advice from other places. As I say, if there are opportunities for us to identify ways in which they can save money, we will do that. On this occasion, I don't think that it's Audit Scotland's primary role to do that on this particular topic. Okay. Did your audit take into account road safety? I noticed in one paragraph that, in savings that Perth and Cairn Ross Council had projected, they were looking to cut back—or cut back is the wrong expression—to reduce the amount of grass verges that they cut back. Being a driver myself, I know the impact that that has on road safety and visibility for drivers. Was there any impact of road safety done on those cuts? We didn't look in great deal, convener, but we do report in paragraphs 13 and 14 around the number of road traffic accidents and those that might be attributed to the condition of roads. We also considered cyclists as well as motor vehicles. There were two areas that we considered. We didn't look at them in huge detail. Obviously, users and users of roads are hugely important. Those are one of the areas that we are suggesting to councils in Transport Scotland that they make more use and get more use of use when they are taking into account all the evidence and making some of the decisions around investing in roads. When you said that you considered the condition of roads in that impact on road users, is that the condition of the surface? Or is it clear from Perth and Cronross what they are saying? It is not the surface of the road that they are cutting back on. It is the surrounding, it is signage, it is trees that get in the way of signage, it is grass that grows higher than people and all that kind of thing. Was that taken into account when you said that we took into account the condition of the roads? One of the challenges with some of the survey work that councils and Transport Scotland undertake when they want to find out about what the users think of roads is that they tend to have different approaches. They tend to ask different questions about different things. There is a lack of consistency about the types of questions. Generally speaking, I think that the questions are quite general along the lines of what you think of your roads, as opposed to the more detailed type of questions that you might be suggesting. We were looking at the most recent version of the performance management framework that Transport Scotland has produced. It includes some measures around user satisfaction and other things, but you are absolutely right that part of the problem is that a lot of the data that is available is very focused on the condition of the road surface. As a road user, whether you are a pedestrian or a cyclist or a driver, there is clearly a lot more to it than that. I am not at all familiar with the Perth and Canos example that you use, but equally, as a— I am sure that that would be important. We do not know enough about the detail. I think that the reason that we are mentioning it is that, similar to the Ayrshire example, community engagement is enormously important. It is very clear that the public perception of the conditions of roads is not great. There is a need for roads authorities locally and nationally to engage with communities about the use of the roads and everything that goes with it. Let me take back briefly to the point about Bear Scotland and this audit. I am really concerned that what has happened here is that £280,000 worth of taxpayers' money has been overcharged by a private company operating our roads, but that is not within Audit Scotland's remit to pick up. Can you comment on that or tell me where that kind of financial discrepancy should be picked up? It is our job in this committee to follow the public pound. That public pound to the tune of £280,000 has gone astray, so whose job is it to pick that up? I think that it has gone astray because I think that it was picked up. The mechanism that is in place through the performance audit group spotted the fact that there were overpayments to that amount. My understanding is that that money has now been repaid or not claimed. But only once concerns were raised and it was looked into. So there is then a separate question about whether there is a separate and, as you say, more independent review required of the system. My understanding of it is that the system that we have in place around the contracts did its job in that it spotted those things. Clearly, you would not want these things to happen at all. As you say, it is a lot of public money and that is absolutely of concern to us. I do not mean to give the impression that it is not within our remit because it is within our remit to audit public money wherever it falls and however it is used. I think that on a specific occasion, the internal control mechanism did its job in spotting it. As I say, if you want to pick up separately whether there is something that more that we can do around that, then I am very happy to do so. I think that one of the things that we might consider is when these allegations were made, Transport Scotland commissioned its own review. As Fraser has said, the results of that review is that Pag Plus basically did their job and stopped that money being being spent. It does raise issues as to how more widespread that might have been going on. We do not know the answer to that, but there is the potential perhaps for us to look at how Transport Scotland has responded to that issue with bear and what kind of lessons it has learned and we can pick that up through the annual financial audit of Transport Scotland. It is also one of my concerns, Mr Greenehill, that practice such as this is more widespread, but in my first questioning I think that Mr Stewart answered that in this audit financial performance of these companies is not considered. Where does this get picked up before allegations are made and Transport Scotland looks into it? I will leave it there just now, but thank you for that. Liam Kerr Just a few questions on this then at a more general level. Mr Greenehill, you talked about funding and the condition of the roads. I appreciate the reports that it is difficult to establish a correlation between funding in this state of the roads, but would you care to comment further on that, given that the evidence seems to imply a correlation between less funding and declining condition and, as we saw in the England and Wales example, increased funding and better condition? I will start off and perhaps others can come in. From a high-level overview, the kind of conclusion that you are drawn to is understandable. The interesting thing is that when you burrow down underneath the surface and look at individual councils, the picture becomes a lot more complicated. There is an exhibit on page 32, which indicates for individual councils how some councils appear to have been able to get better road maintenance through spending less, but, equally, on the completely reverse side, other councils have seen their road condition declining despite spending more over the past four or five years. I think that, largely, we have not looked at the individual circumstances behind every council, so I cannot provide definitive answers for each and every council to explain why one has gone up in one direction and has gone down in the other direction or what have you. However, it does raise interesting questions as to how that has come about. We have advanced a series of reasons that might help to explain why some of that has come about, but it is really back to that kind of issue of councils having good information and a willingness to actually talk to one another and explore those kind of differenties, apparent differences in performance, so that they can understand and perhaps learn from others who are doing things differently. In your report, you talked about that councils are facing a 5 per cent reduction in grant, and that would tend to imply that the individual council makes a decision about how to allocate its grant in relation to road maintenance. Is that correct? In which case, it would be fair to say that a council facing a 5 per cent reduction has some very difficult decisions to make, and if there is a correlation between the amount that goes into road maintenance and the outcome, then there is a contingent problem, is not there? You are absolutely right, and to some extent the same applies to Transport Scotland, facing similar kinds of investment decisions. Mr Kerr, that is absolutely no doubt about that. I think that that is why we hope that this kind of information, particularly in terms of variation, should help councils to make those kinds of decisions. I think that there is no doubt at the top level, as Graham said, that where everyone seems to recognise that we are just not spending enough money to maintain road condition nationally, so in that sense, that is one answer where the money and the condition is connected for sure. As Graham said, when you get particularly down to the 32 local authority areas, the picture is much less clear, which suggests that there must be some things that some councils are doing that should be shared more widely because it is a more efficient and effective way to look after the roads. Mr McKinlay talked about Transport Scotland. Presumably—I am making an assumption here, but you will know the answer to that—presumably the footprint of the road network is increasing. We were talking earlier on about the A9 and dualling the A96. Even if you dual a pre-existing road, you are increasing the footprint and therefore increasing the amount that requires to be maintained, so that logically requires an increase in funding in the future, does not it? One of the reasons that we were very keen to push the whole idea of the roads asset management plans taking a much longer-term view of all that is exactly that kind of thing. You need to make sure that you are not just maintaining the road network as it sits today, but that you are planning for the road network as it is going to look in five, ten, twenty years' time. Absolutely, as part of the capital infrastructure discussion that you had earlier on with Government, they will be factoring in the maintenance costs and expectation for that new road network. I will ask you to speculate, and I appreciate that you may not wish to. I am looking at this report and I am asking where does this end up? We have more roads, a bigger footprint and apparently declining funding. There is no reason to suspect that funding will massively increase anytime soon. Where does this end up? Are we just facing consistently declining performance? I do not think that I would want to suggest that we are in a council of despair around this. That is why we have focused on this report. As indeed earlier reports very strongly on the collaboration point, I think that we have said that. It seems to me that you are right that there are a number of things that are certain to happen. The money, certainly in the short medium term, is going to continue to go down. Tough decisions are going to have to be made locally and nationally in terms of where you invest that money. The one thing that we have not really made much progress on to try and manage some of that is around collaboration, both in terms of economies of scale and sharing good practice and innovation. It seems to us—and to be fair, I think that those in the services now understand this—that that has to be the only show in town if we are going to manage the competing pressures that there are around roads maintenance. Ross Thomson I have just had two quick questions. We have obviously heard in answers to questions, as well as seeing in the report that, in relation to the council's spending on roads, it is also in relation to competing priorities in education and health social care. As you said, those are really big areas of spend. In carrying out your work, was there any reflection on the statutory requirements on councils in those areas, as well? It is not a matter of choice. For example, whether it is teacher numbers, nursery provision or free school meals, a lot of it is required by Government and Parliament, so leaving very little room for flexibility. I know myself as we look at budgets. You have a whole raft of things that you simply cannot touch. The things that you can touch, if they are savings, tend to be grass and roads. The other option is to increase charges on things. In relation to carrying those out in priorities, was there any reflection on the statutory responsibilities that councils have? We absolutely understand that. I do a lot of work in the local government sector, as we all do on behalf of the commission. In fact, we have a report coming out next week on the financial position in local government across the piece coming out on Tuesday of next week. There is no doubt that there are areas of spend that are committed and that, as I said earlier on, reduces the amount of flexibility that councils have. My only slight challenge to that in relation to council spend is that when you look at what is actually statutory, there is still quite a lot of room for manoeuvre in how services are delivered. Education is a classic example. The statutory requirement is to deliver an education service. It does not stipulate how that is done. I think that we equally need to be a wee bit cautious of saying that you cannot touch social work and education spend in its entirety because we still think that there is room there for innovation, reform and other things. However, there is no doubt that if you are a councillor trying to make a decision about whether you are trying to protect your school's budget, your social care budget and then you are looking at roads, economic development, trading standards and everything else, then it is a very hard decision to make. That is why the longer-term approach is so important because they have to be looking at this investment over a longer period than just what we can do next year. Thank you very much for that answer. In relation to the point on innovation and looking again at council spend, did you see any correlation between the councils who received the lowest funded grant and, almost in a way, forced them to collaborate more? I know, for example, Aberdeen, which she highlighted as an example, that there would be very little choice given that it is the lowest funded council in the country. Did you see any correlation between grant funding and innovation? The short answer to that is no. A, we have not looked at it, but from our wider work in local government, it is very rarely that obvious that it can have caused an effect. Some councils will be very good at innovation and reform around some areas, others will be very good at other things, and there is no direct correlation between their level of funding in my experience. Thank you. Do you audit Transport Scotland? Yes, I do. Are you able to take into account the financial performance of the operating companies? Yes, convener. As it happens, Graham is going to be the auditor of Transport Scotland from this year onwards, so Graham is suggesting that we take that into the audit of Transport Scotland work. When can we expect the next audit of Transport Scotland? The audit of the financial audit of Transport Scotland takes place on an annual basis. That will result in an annual report on that audit, which will be published next summer, roundaway August, I suspect. That will include an audit of the operating companies that manage the trunk roads. We would need to scope that audit. I think that our focus would need to be on what Transport Scotland has done to look at the results of the review of the particular circumstances that give rise to the allegation that you were speaking about. I am concerned, Mr Greenehill, on a wider basis than just a specific allegation, because the four companies that manage our trunk roads in Scotland receive a significant amount of the public pound, so should it not just go that, when you do the audit of Transport Scotland, those companies are audited as well? We do not audit there, in the amy, and the people who are under it. Or that their financial performance comes under the scope of that audit? We do not audit them. Their financial performance would not come within the scope of the audit of Transport Scotland. One of the things that we could look at is that we previously referred to Exhibit 5 and the performance of the operating companies. We could look at how Transport Scotland is monitoring the performance of those operating companies and how it is taking action if there are any further declines in the performance of those operating companies in the round. I think that what I would like to do, if it is okay with you, is to write to you separately about that point, because, from our perspective, doing a significant audit around the performance of the operating companies would be a significant piece of work. For us, I am sure that you would understand that we would need to set aside all of our other competing priorities and pressures that we have, because there are lots of operating contracts in the public sector that we look after. I would need to, apart from anything else, have a conversation with the Auditor General about how we would go about that. What I have absolutely heard is the committee's concern about this particular area. We can absolutely look at some elements of that as part of this work. The Auditor General and the Commission are currently looking at their forward work programme. As you know, we do a rolling five-year programme, so we can feed it into that discussion as well. We can write back to you specifically on where we get to with those discussions. Thank you very much indeed. I am going to suspend for five minutes for a comfort break. We now move on to item number six, which is our evidence session on the report, Superfast Broadband for Scotland. I welcome back Fraser McKinley and his colleagues from Audit Scotland. I invite Fraser to make an opening statement. Thank you, convener. I will be very brief on this one. We obviously have the report. This is a follow-up, a progress update on the Auditor General's report on broadband roll-out that she did back in February 2015. We have looked at three main areas. The first is the progress that was made in rolling out Superfast Broadband across the two contracts that are managed by the Scottish Government and Highlands and Islands Enterprise. The second area that we touch on is the progress that the Government is making more widely in its ambition to have a world-class digital infrastructure and also the response to the recommendations that we made back in 2015, which, generally speaking, I think have been responded well to. We still make some further recommendations and the committee have had a response from the relevant accountable officer in government about those. We are planning, convener, to come back to this again, probably in around 2018, to see where the final position is on the current contracts, but equally importantly, to do another progress update on where the Government's ambition is in terms of the 2020-21 objectives. Finally, this is a new kind of looking report for us. Separately, if the committee has any feedback about how this works for you, we would be very pleased to take that. It is. It is. I just got more pictures. Gil Ross. Yes, I liked it very much. I thought it was a lot easier to read. Thank you very much. I think that we can all agree that Highlands and Islands Enterprise and the Scottish Government have made great progress with this. Certainly, as a member, we have had regular updates from HIE, so I would like to thank them for that. Some of those answers will probably be covered in the conclusions, but I would like to explore them a wee bit further, if I may. First question, £156 million. Money well spent? That is a very good question. I think that there is no doubt—in particular, the response from Highlands and Islands Enterprise is very strong on that, which is to say that there is every chance that, had this money not been spent by the public sector, remote and rural communities in Scotland just would not have got access to superfast broadband, as the high response points out. As our previous report mentions, there was very limited coverage in some parts of Scotland that was just not going to be commercially viable. Given that we say that access to broadband is pretty much essential these days for everybody, in particular if he is running a business, in that sense it seems to me that it was important that the Government stepped in to deliver broadband and that the contract is being delivered well and on time. Indeed, it is a bit ahead of where they are expected to be. If I could just check in there. As Fraser said, this is a follow-up report. If you go back to our original report, there is a paragraph in there that says that the Government used consultants in 2012 to calculate the impact of the investment in superfast broadband on the Scottish economy. That work, which consultants carried out, identified that public sector investment in broadband across Scotland would benefit the economy by £1 billion, with a further £2 billion economic benefit by 2028. In the key messages, we see in point 2 the £23 million more. I think that that is the gain share from the higher-than-expected take-up, but I have looked through the report several times on paragraph 3. The additional £42 million is that Scottish Government extra funding? Split 50 per cent from UK Government to 50 per cent Scottish Government. Outside of the current contracts, Scottish Government still decides how it is going to be used in the future. To follow on to the take-up rate, it says within the report that the take-up rate of 30 per cent is good, but if you would ask me if I thought that 30 per cent take-up was good, I am afraid I would have said that maybe we could do a little bit better. What do you think the reasons are for that 30 per cent? Is it a lack of knowledge? I know that people have come to me in the constituency saying that they were not aware that they had to change their package, that they thought that they would be automatically connected to it once the fibre went in. Is it a lack of need? Do people not need the speeds that we are providing for them, or do you think that the packages are too expensive? You raise an important point about that, at the end of the day, this is only going to make the difference if people have it and use it. The take-up rate is important. That level of take-up is pretty much what people were expecting to have at this point. I think that Sarah Davidson's response to the committee talks about some of the promotional work that Government and High and others are doing in BT to encourage that kind of take-up. I will ask the team to say a wee bit more about the details of what some of the issues in there might be. I am really sure that I could add an awful lot. We have not looked specifically at why not everybody is buying into broadband. I think that some of the ideas that you suggested are some perfectly reasonable explanations as to why that is not happening. It is certainly an area of work that Highlands and Islands Enterprise, in particular working with BT, is trying to push. They are making a concerted effort to market the benefits of broadband and to try to increase that take-up rate. On page 7, we are all aware that the areas that remain are certainly more remote and likely to need more complicated and costly engineering. Does the Scottish Government know exactly what that entails yet? In the paragraph following that, it says that there is a £1,700 cap on each premise. Obviously, if the more costly engineering is going to come in for us to roll out to 100 per cent of premises, we will have to seriously think about whether that cap appears in the next contract. A couple of things on that, and I will ask them to come in on the specifics. One of the key things that the Government needs to do and is to do is look at what happens beyond the end of the contract. As the report says, it will be moving into procurement early in 2017. It is really important to consider exactly those kinds of issues, given that we know that the final 5 per cent across the UK—in fact, this is not just a Scottish thing—was always going to be the most difficult 5 per cent to reach. It is almost certainly going to need a different kind of approach, so we would expect them to consider things like the cap. Although it is fair to say that, although there has been a cap, the vast majority of premises have still been connected. In fact, there has been very few where the project has said that we are not doing it because they have decided to invest in making sure that people are connected. However, all that stuff is absolutely wrapped up in a recommendation for the Government to consider how they reach full roll-out in achieving their 2020 vision. The only thing that I would add to that is that community broadband Scotland is really there to try to nudge things along into areas whereby BT is not going to go as part of those contracts. They tend to be at the very much remote rural areas, and there must be a good chance that the cost of getting to those areas is likely to be higher than the £1,700 cap, which currently exists with the BT contract. On page 8, it talks about the information that is given, because a lot of communities, if they do not already have access to the superfast network, they are quite impatient and rightly so to know when that will be coming in, if it will be available, if not through community broadband Scotland, can they get an interim measure such as access to satellite? In the little box on the right-hand side, we have information on the Digital Scotland website, the Scottish Government website and the HIE website. I find that quite ironic considering that a lot of those communities will not have access to the internet and therefore will not be able to access the information on the website. How are we getting that information out to those people in other ways? That is a very good question. One of the reasons that we have made the recommendation last time and repeated it again is that we think that the public reporting bit of this is the bit where more progress needs to be made. Specifically, the information relating to whether BT is going to be rolling out in a particular area is important for everybody to know that as early as possible, so that they can start making alternative arrangements. That is a message that was similarly made by the Culture, Media and Sport Committee at Westminster earlier this year, that in order for the likes of Community Broadband Scotland and other organisations to help plug those gaps, they need to know that there is going to be a gap there. Your point about accessing it is a good one and I think that we would encourage Government and others to always think about different ways of getting those messages out there. On page 9, we see that there is a HIE report and there is a delay in receiving invoices from BT. Does that give HIE any difficulties? It also says that BT is currently reviewing the financial model. Can you maybe explain a little bit more about what that means? I am not aware of it necessarily causing HIE too many difficulties. Clearly, if there is a delay in invoices being submitted, HIE will need to be very careful of how it manages its available cash just in case it spends in other areas and gets hit by an invoice that was not necessarily expecting. The point about BT currently reviewing the financial model is really all about the timing of the work and how it is intending to extend broadband coverage and what the likely cost of that is. There is a need to keep on constantly reviewing where they are with rolling out the project and the financial consequences arising from that roll-out. That is one of the reasons that we are keen to follow up in a couple of years' time, because we want to get a final view of the end of the contract. In that sense, the invoices being submitted and paid is important, because we want to be able to report on the final picture there. I notice in HIE's response to the committee that they are saying that they continue to work with BT to try to improve that process. It is a situation that existed when we reported last time. Partly, there is a backlog that has been worked through, but when we come back to report, we will be very clear about the final position on the contract, by which time all that stuff should be resolved. If I could just pick up Graham on your point about the HIE having to delay spending in other areas, because the money is being kept back, is that a difficulty? I do not want to give that impression that that was what was actually happening. It was more a general point that, if HIE knows that those invoices are expected, it needs to be careful about the budget accordingly, not necessarily spending money, which it might not necessarily have if those invoices arrive. On page 10, you spoke about the better broadband scheme. How is that being promoted? The take-up has been quite low at the moment. Going back to the point about communities' access in satellite, how can we promote that better? The better broadband scheme is being administered by the Department of Culture, Media and Sport, so we have not really looked at it as part of this exercise. We cannot really answer why take-up has been so low so far. If that would be helpful. One of the questions for people is, first of all, their awareness of whether it is available. That is a really important point. Second of all, then there will be a judgment for them about whether it is worth it, whether it is going to be significantly enough better and indeed when they might be getting the faster speeds coming down the road. We were equally interested in that only 500 premises have applied and only 50 taken up the offer does seem very low. It is maybe that we can look at that as we move forward into the next piece of work. Okay, thank you. I have three final questions overall. The R100 programme is a Scottish Government commitment, is it achievable, how does it fit into the commitment from the UK Government and how much do you think it's going to cost? So it's difficult for me to give a concrete answer to any of those questions, unfortunately. One of the reasons that we are very keen indeed we were and making the recommendation again in this report is that we are very keen to see more detailed plans for the 100 per cent rollout and we'll be looking very closely at that as the procurement goes through in 2017 and then the plans are implemented because it is an ambitious vision, there's no doubt about that. The Government have set themselves a big task to do that as to how much it's going to cost, I really wouldn't want to speculate. I think obviously we'll be interested to make sure that there are clear costings in place and there's a clear budget. We've talked about the stuff that we do know about which is the things like the additional £42 million, we're still not clear exactly how that's going to be spent so I think that'll be our first port of call is to better understand the Government's plans for spending that money and then we would expect to see any additional investment being set out that's declared to deliver division further ahead. I'll just fire three questions at you one after another if you could just because of the time constraints. First of all, just following on from that question that just came in, when I'm next out in the Angus Glens, when I'm next out just near Fraserborough in the constituency and someone says to me, will I have superfast broadband by 2021? Do I tell them yes or do I tell them possibly? Are you pausing on that one? I'll pause on that one and let you answer. Because people are watching. I'm going to sound like I'm ducking the question, I hope I'm not. It depends what you mean by superfast broadband is part of the question there because as we say in the report, to be fair to Government and the BT there's lots of things that affect the speed that people actually receive in their homes that isn't within their gift so how far away you are from the cabinet, the state of your wiring in your house, the kind of contract you're on. Far as we can tell, the commitment is pretty clear that there will be access on any device anywhere at any time by those dates and that's the commitment and that's what we'll be measuring and that's why we've already said that we'll want to come back in 2018 because by that point I would hope I'll be in a position to answer your question better than I probably have just now. Number two, what does world class relate to? Is that coverage, so we're talking world class broadband, is that coverage is world class or is that the calibre of the delivery and will it still be world class in 2021? So that's another very good question Mr Kerr and that's one of the things that we've said in this report that the Government itself needs to be clearer on its definition of world class. What does that actually mean for the people in Scotland around accessibility to broadband and also so the coverage and speeds as well and it's not entirely clear to us and that's why we've recommended that the Government make that clearer. Page 14 in the report Mr Kerr tries to set out the breadth of the world class infrastructure so that world class definition isn't just about the broadband fibre but it's about all those other things that we mentioned in that exhibit on page 14 so it's a pretty multifaceted set of things that they think need to be in place all of which I guess will interact with one another. Final thing just to put my mind at ease really on the page 3 you talk about how the funding is put together and it just says Scottish Public sector as a whole contributes £165 million to balances provided by UK Government, the EU and BT. Any impact on that EU funding as a result of recent events? EU money is coming from the European Regional Development Fund. It required to be spent by the end of 2015 so we shouldn't have any impact on the money that we're going to get from ERDF should be spent by now. Thank you very much. My question is very short and it's a related question. We discovered in the consolidated accounts a couple of weeks ago that there was a £14 million shortfall in ERDF in structural funds. On page 10 it says that the Scottish Government has used some of the innovation fund money to make up a shortfall in the ERDF funding. Are those related? I'll pick that one up. Again, I would draw your attention to the previous report that we produced on broadband where this kind of issue is covered. When the Government was originally thinking about extending broadband, it identified potential ERDF funding of £20.5 million. At that time, it expected the European Union to classify the project as revenue generating. The EU decided otherwise and what that meant was that the rate of grant dropped from 40 per cent of eligible expenditure down to 25 per cent of eligible expenditure. Instead of expecting £20.5 million from the ERDF, the Government revised its calculations and ended up with a figure of £13 million in ERDF. That difference between the £20.5 million and the £13 million, the innovation fund, some of that money from the innovation fund, is being directed to make up that shortfall between the ERDF calculations. This is a separate shortfall in ERDF funding than the one that we identified in the consolidated accounts. Thank you very much. Thank you for your evidence today. We're now going to move into private session, as previously agreed.