 Good morning and welcome to the 14th meeting of 2021 of the Economy and Fair Work Committee. Our first item of business is a decision to take item 4 in private. Are members content to do that? Thank you. The main item of business this morning is our fifth evidence session for an inquiry into Scotland's supply chain. This inquiry is looking at the short and medium term structural challenges facing Scotland's supply chain and how challenges and shifts in supply chains are impacting on Scotland's economy. We want to consider future resilience and whether there are opportunities to develop domestic supply chains. This week, we are looking particularly at the construction sector. I thank the panel for joining us this morning and welcome Gordon Banks, who is managing director of Cartmore building supplies, Bill Ireland, who is chief executive of Logan Energy and Stephen Kent, board member of the Scottish building federation. We have received apologies from Stephen Goode, who is chief executive of construction Scotland innovation centre, who cannot attend duty illness. We sent him our best wishes and wish him a speedy recovery. As usual, I ask members to keep questions concise and same for witnesses, and if members could direct questions to the witness that they wish to respond, that would be helpful. I will start with an introductory question, which I will ask Gordon Banks, Stephen Kent and Bill Ireland to respond to. The supply chain challenges within the construction sector have been quite high profile. I think that people are aware of the challenges that have been in labour shortages and in supply of goods and materials. Can you give us an overview of the challenges that have faced the sector over the past? We will give us an idea of when the challenges have started and what the reasons are for them. If you could refer what the economic impact of that has been for Scotland, if you would like to go first, Gordon? The real challenge has started post the Covid lockdown. When businesses started to go back into operation, businesses like mine were obviously working off our own stock, our own supply that we already had, because many other businesses and manufacturers weren't back working when we went back. As the supply chain freed up a little bit and manufacturers and distributors came back on stream and got people back to work, people in my position were able to feed from our suppliers supply chain, which is normal. The problem then came with the manufacturers and distributors trying to replenish their stock, which then caused the knock-on problem to us being able to replenish our stock, which then created a knock-on shortage in the marketplace. Over the last 18 to 20 months, the situation is absolutely dire. I can't stress how difficult the last 20 months have been in the construction industry. One of the major commodities that we need in the construction industry is cement. We have all the environmental impacts of cement, but if we want to have a construction industry at this point in time in the 21st century, we have to have cement, and we have to have lots of it. Scotland has a problem. It doesn't produce enough cement in Scotland, so a lot of imported material comes from south of Borda, England and overseas. Over the last 10 months, cement has been so scarce, and I mean so scarce. We have been getting something like 30 to 40 per cent of our needs. Commodities like ready mix concrete, which would normally be available in two to three days, call-off, sometimes are now 46 weeks as people are planning cement use or cement availability. Prices are rising dramatically. I am using cement just as an example because cement is such a commodity that is in so many products that we use in the construction industry. However, I could say the same about steel and timber. Manufacturers, distributors—probably about five or six years ago I started to introduce this wonderful phrase called allocation, which is really rationing. I hate the name allocation, and what it allows manufacturers and distributors to do is to basically ration the supply into the marketplace. A manufacturer might turn around and say, well, last year, you obviously took 100 per cent volume that you took last year. This year, we are going to give you 60 per cent of that volume. When that happens across the whole industry, massive shortages occur. When massive shortages occur, prices rise. When prices rise, development of every nature from DIY through to big projects will be reduced. The construction industry, which I have always believed could be the coal industry of the last century because we need skills of all natures, low-skills and high-skills. It could be such a massive employer and a massive driver for the UK economy. We really have serious supply and pricing problems that are going to feed into—unless something is done about it—reducing economic activity. I am going to come to Steven. Gordon, if that has had an impact on the employment of workers within your sector, have you as a business—if people had to go—? Not directly in my business as of yet, but in other businesses, yes. There has been a fair degree of rationalisation in the industry. What is it? Is it chicken and egg? If a manufacturing plant closes down, there are jobs lost, but there is also supply into the marketplace, output lost. We have seen that happening post-Covid quite significantly. There are also people with multi-skills. An HGV driver does not have to drive in the construction industry, but he can drive for test scores. We are seeing people moving out of the construction industry into other sectors where, quite frankly, the pay is better. Maybe the working conditions are better as well. However, there are definitely jobs that have not started and will not start, and all of those would have been a positive impact on the industry. It is difficult to evaluate if a series of jobs do not start what impact that has actually had. You might not lose jobs, you might not create jobs, but if the supply chain is not resolved and we cannot return to competitive pricing and decent competition in the market, it will definitely affect jobs. Stephen Kemp, do you have a similar understanding of the situation to Mr Banks? Yes, I think that I could provide a little more detail on Mr Banks in relation to specifics, just to give you some context. For example, we are a housebuilder predominantly up here in Orkney, and I focus very much on affordable homes delivery. Having up-to-date used mechanisms like the Scottish Government to help the buy scheme and supporting the local housing association and local authority with their capital housebuild programmes, we predominantly, or entirely, are timber-frame closed-panel construction now and have been for about a decade in order to get the quality and the new values that we now see demanded and that are quite appropriate through the Scottish building standards. That has resulted in a huge use of sterlingbord. We have seen sterlingbord go from £7 to £17 a sheet and there is a face on every house and there is a face on every roof of every house. I have just been notified that one major manufacturer is probably going to go up 19 per cent on 1 January. Rockwell type is the trade name for the fibre and blown fibre type installations that are used 9 per cent in January. One plaster board manufacturer is telling us that there is a 12 per cent to 18 per cent increase in January. I think that even in Orkney, where we have a low-wage economy and we have subdued house prices in comparison to the rest of the country, we are going to see over 18 months at 20 per cent rise in the sale price of a new-build affordable house, which is going to take these new homes to a stage where they are just unaffordable, but there is nowhere to go. Labour, I agree. I work very closely with the local skills development team here and the local schools, and it is incredibly difficult to attract the number of suitable applicants, young entrants to the industry. As Mr Vance explained, I agree entirely that the construction industries should be seen as entirely underpinning the economy. We have a huge breadth of skills demand from basic skills right through to your highly skilled technical people, and we cannot get the applicants and the entrants. As was touched on by Mr Vance, the labour pay rates in the construction industry are, in fact, fairly subdued when you consider them against other sectors. Certainly, we are seeing a lot of competitions in Orkney. We are a bit of a hotbed of activity because of the geography and the size, but we are very good at microeconomy to use as an illustration. We have really successful and competing sectors such as aquaculture and the renewable energy industry, supply chains, the workboats, etc., who are flourishing. They are paying higher rates because they are seeking higher revenues for what they do, but they are obtaining higher revenues. The result is that it is becoming harder and harder to recruit into construction and to retain the colour of people that we need. Looking at the three main resources in construction, we have labour, plant and materials. We have articulated in fairly detail about the constraints that they are and the price constraints. Labour is on-going and it seems to be becoming more constricted. Plant, for example, I just got the last 14-ton excavator that one major manufacturer will be delivering into the UK in the next year. That is terrifying because it is the 14-ton excavator that is the mainstay of the construction sector in terms of house building and things. It is an everyday machine in this manufacturer. I am not going to name them, but they will not have another one to deliver for a year to the UK. That is the level of constraint that we are seeing. I have just agreed to purchase a small 8-ton excavator. I cannot get that till September 2022 from a different major manufacturer. All of our key resources in the industry, labour, plant and materials are seeing constraints and delays. It is the employer and it is the contractor and business owners who are having to really fight through this and fight for survival, to be quite frank in many cases right now. Mr Kemp, Mr Eiland, do you want to reflect on the previous two speakers? The very acutely described the pressures that are on the sector. Is this mainly a result of the pandemic in a global economic slowdown, or is there something particular to the arrangements that we have in Scotland to support the sector? Thank you. Logan Energy is more around the energy side in the building sector, but more widely. As far as what has been said so far, yes. It is the pandemic. It is also customs changes. We import an awful lot of equipment from abroad and then we use it and export it again so that we combine it into equipment. We have had one of our units stuck in customs for 10 days in the Netherlands purely because of customs changes. We have had major delays on raw materials for not necessarily what we are using directly but for our suppliers, so they have not been able to get steel to make the frames that we put our equipment into. We are using local suppliers for fabrication, but Europe has not ran out of steel for that particular thing, so we were delayed three weeks. We have guys standing around, not necessarily doing nothing, but it is disruptive to productivity. Things are taking longer to be delivered. They are rising. We have had products go up, base material, sheet steel go up 300 per cent in the past few months. It is a relatively small element of what we are doing, but that is an extreme area of it. However, it is to do with the pandemic, probably more so. The customs changes are probably delaying, but you just have a longer leading period or you bring stock in earlier if you can get it. That is pretty much where we are. Wages-wise, we are increasing our wages because we have to compete with other sectors. The oil and gas sector is very volatile. We have people coming in from, whether it be a forklift driver or a fitter or whatever. If something kicks off in the oil and gas sector, their wages are much better. People will move into where they are living and working and we lose people that way. It is very destabilising for business. We have problems in retention, but we are also recruiting because of that as well. One of the other things is that the rate at which the world is asking the world to change is very fast. Climate change is the focus on that. Concrete has been around for millennia. Steel has as well, but now we are looking at alternative skills on what we are doing. We have to reskill. We may not have all the right skills in existing workforces, but they may not be transferable. There is a lot of saying that we have skilled workforces in Scotland, but they may not be appropriate for the new industries that we need to see in Scotland, particularly around renewables. Some will be transferable, but we need to act quickly. We need to make decisions, but inform decisions on how we move forward, where we train people and what we train them at. With the pandemic, everyone has become more localised in their views. That is not necessarily a bad thing. That helps everybody, whether that is localised production or localised timber, bricklayers or whatever. I think that that is actually quite healthy. Our reliance on things like CO2 from the production and fertiliser as a by-product and we are relying in the UK, we are relying on two or three companies, our production facilities. That stops because of energy costs going up, which is also affecting us. You then have a complete shortage. You have a crisis on your hands that has to be dealt with. We cannot afford that as a nation. We need to be able to be more self-sufficient. We will always be importing stuff, but we need to export stuff as well. We need to open up those routes and also our self-sufficiency to a degree. We need to be less reliable on global supply chain and to be a little bit more focused on regional, national and local international. That is my view from there. I will move on to Colin Beattie. I would like to explore some more of the issues with the supply chains in a broader basis, but I will start with the housing side and the construction side. Homes of Scotland have advised that the housing statistics show a 35 per cent drop in the number of housing completions in 2020 and starts down 27 per cent. Of course, 2020 is a difficult year and may have a particular issue in that year because of Covid, but is there any indication through 2021 from your experience of picking up, despite the supply chain issues? At the moment, demand appears to be fairly constant. I think that when we are going to see the demand for new homes, that will change with the macroeconomic issues such as the interest rates and inflation, if that adjusts. However, at the moment, people are still seeking new homes, which I think will keep the sale prices buoyant, which will, in turn, continue giving confidence to house builders like me to continue to prospectively start. We have seen issues, and I think that most builders will have seen the same reflected across the country because it is not just the supply chain that is looking at what your purchase is, I do not know what you would call it, the support chain. Those in the local authorities and the other organisations that have to issue planning and construction consents have all been working from home now for a long period of time, so they have all experienced a lot of disruption and delay in certain circumstances. Certainly, what we have seen over the past couple of years is a difficulty in getting to site, and I think that that has been reflected in a lot of places across the country. Our ability to continue to progress new work has, to a degree, been delayed because, for example, we have been negotiating timber frame prices. I have seen a 60 per cent price increase in my timber frame kit over an 18-month period for our standard 3-bed room affordable house type, a semi-detached tennis house, so one negotiating the price and two negotiating the delivery date for those items has had, for the first time, been what has led our programme. Usually, I have just always built place the order and been able to get what I wanted when I wanted, but now we have to work entirely around the supply chain, which really puts, for one or the other, a bit of thermocat amongst the pigeons, because you are having to reorganise your labour, you are having to reorganise everything. Another major constraint has been self-isolations. Every time there is a flare-up, especially as I said, we are islanded, so it is very focused. What you see is a number of families and a number of people testing positive and self-isolating, and there has been a fairly on-going disruption to our workforce in that respect, which has caused constraints on how many units we can start and how fluently we can continue to deliver. Is your impression that we are going to see some reversal in the fall that took place during 2020, which is quite an extreme period? Do you gain the impression that we are starting to come back up in terms of the number of completions and starts? Yes. One major impact that we are going to see in terms of affordable housing delivery is the withdrawal of the help-to-buy scheme. There is not a direct replacement for that, my knowledge, and I am actively looking at it. I alluded to the fact earlier that we are struggling or we are going to struggle to deliver an affordable housing or not. It is affordable to someone in the population here, because of the withdrawal of that scheme. Across the country, there will be a substantial reduction in the number of affordable housing units that commence as a result, and I think that developers will probably be looking towards other markets for their new houses. I see that person as one of the biggest interrupter. The tenures and types of housing are going to be constructed in the speed at which those houses will be started and completed, because it is certainly in my market, the affordable market, that the withdrawal of help-to-buy has been a huge murblow to the confidence for us to commence with 30 or 40 or 50 new affordable houses. We are going to have to look at alternatives, which will be different house types larger, and so we build fewer, but we build to the market who are cash rich rather than for the affordable market. Sadly, that is going to be reflected across the country. Gordon, can I bring you in here? I agree with what Stevens just said, because we are putting the car before the horse now. The problems that Stevens is experiencing first-hand, he can only build the number of houses, not that he wants to build, or that he has plans to build, or that he has demand from prospective buyers to build. He can only build the amount of houses that he can get materials to build the houses for. That is a bizarre situation. We have a construction industry, which is being restricted in what it can construct, because the supply side cannot or might say will not produce the volume of products into the market that is necessary to build the commodities that we all need. We have talked about the difficulties in the supply chain, the constriction on the supplies of essential materials. Why? Is it just Covid? Is it Brexit? Is it suddenly an exponential increase in demand? I have a viewpoint that it is all of those and a little bit more. Anything that you have mentioned there, I do not think that Brexit added anything positive to the situation. Certainly, I do not think that Covid has added anything positive to the situation. We have had reactions to those two major incidents, if you like. It is what the industry does, or what manufacturers, or what businesses do to react to that, which causes me some concern. Without naming names, large manufacturers close down production plants, both in Scotland and in England, which serve the Scottish market. So quickly, after the start of the Covid problem, there were plans in the draw somewhere that were brought out, delivered and, hopefully, were buying the people who were making these decisions, some sympathy because they were sold under the impact of Covid. Some of these plants have now been forced to open up again. Decisions, I believe, have been taken wrongly. You have to understand what has happened in the construction industry over the last time. I have been in the construction industry since I was 18. The ability for Scotland and the UK to domestically produce what it needs does not exist. We are so reliant on international markets and we are so reliant on our manufacturers and sometimes our distributors being internationally owned companies as well. Decisions are taken a long way away from where we sit that impact us. Roles reversed were like an outpost in some people's empires now. Do you believe then, from what you are saying, that there is an element of manipulation in the market? Yes, I do. If you create a shortage in supply, it drives price up. Stephen mentioned an issue with Stirlingboard. Miraculously, as soon as imported Chinese Stirlingboard hit the UK, the UK's domestic price for Stirlingboard dropped. That would imply—I hate to use the word conspiracy—concerted action across a wide number of industries, not just the construction industry. Would that be correct? I have no evidence to suggest that. All I could suggest to you is that businesses look at the best way of getting more pound for their square metre or the ton of product. If they can do that more economically by producing less into the marketplace, I believe that these kinds of decisions are definitely taken. The ability—what I have seen lost in Scotland since I was 18—we have one clear brickworks lift in Scotland. I am saying look out. I do not expect you to have the knowledge or understanding, but the amount of sawmills that have disappeared across central Scotland, you could not move in Grangemouth in the 70s and 80s for sawmills. There are hardly any now. All across the central belt—brickworks, foundries, steel lint and manufacturers—it is all regressed. Lots of the impact of that has been—businesses have been bought up by international or sometimes domestic businesses that are then closing down that facility because they are taking a section out of the marketplace, so the price will go positive. The international businesses believe that it is better to structure their business in that way. If the international supply chains are impaired, as they seem to be, and the pricing is going the way it is, surely there is a stimulus behind local production starting up? Is there any indication of that? There is, but the decisions and the ability to do this are not something that can be taken very, very quickly. For instance, you could not start to get planning permission to produce another cement factory manufacturing plant in Scotland. The UK steel industry has been decimated from what it was decades ago. I have seen reinforcing mesh that is used in foundations, particularly in the type that goes from £38 a sheet to £138 a sheet. Businesses in certain areas of our industry manufacturers are able to sell everything that they can make. There is a lovely position to be in, and that will drive the price up. There is no surplus in the market, there is no spare, there is no slack, as we would call it. Bill, can I ask you maybe to come in on this? If I could ask—sorry, Mr Eiland, just because the question took a while, if you could ask it briefly, then I will move on to the next question. I think that it is uncertainty, basically. Everybody is running a business. They need to make money to pay people to buy the products. As soon as there is a bit of uncertainty, people are cautious to keep themselves afloat. That is mainly around the pandemic. People have shut down around the world, which has affected everybody. People have been more cautious. You have seen people buying fewer properties. More properties need to be on the market for people to live in. On the collusion, that is an age-old marketing strategy. You have house builders with all respect to house builders who have plots of land, and they can speed up or slow down the number of houses that they do within a certain period of time. To maintain the price, if you build all your houses in the first year, then the price house will go right down. You do not do that. It is supply and demand. It is basic economics. That goes on all the time. It is not collusion. It is business. It is economics. To answer that, there is a bit of global decision making, for example, coming back to the CO2 side of things. Again, it is not building-related, but that is more expensive there. There are higher taxes on that particular thing. We will shut that down until it comes up. You see that with oil fields opening up and down, depending on the price per barrel, just seeing that it might hit a 150 per barrel next year. That will open up more oil fields, or they will start pumping more out because the price has gone up. Again, it comes back to that. It is not necessarily malicious manipulation, but it is manipulation. Thank you very much. Good morning to the panel. Can I follow up on Colin's questions and turn to the issue of the policy response to some of the supply issues that you have highlighted? I asked the panel what your views are on the Scottish Government's initiative so far to tackle those challenges. We have had the working group on construction, supply chain and building materials. We have the supply chain development programme. Are those having any positive impact at all on the problems? What other initiatives would you like to see Government pursue? I cannot say that there has been anything positive in the supply chain in Scotland in the past 20 months. It has all been negative. It has all been problems. You can never tell how bad something would have been if something had not happened. We have the problems that I have expressed. There are ways to resolve them, as I was mentioned earlier. That is a much, much longer-term strategy. You are talking about a governmental strategy. If you want a buoyant construction industry in Scotland and you want to be in control of some or a lot of its ability to produce, you have to have a domestic supply chain. Lots of the things that we have lost over the past 40 and 50 years, we need to get back. Is the manufacturing base here, so we are producing the products, not the line of input? The comment was made from the deputy convener about the opportunities for other people to come into marketplaces. People who are independent within Scotland, independent Scottish-owned businesses, some of them are doing that, but some of the investments that are needed are really significant. You have a problem to get the commodity, the manufactured product correct, so it is acceptable in the marketplace. You have to get it approved by certain regulatory bodies before it can be used. Then you have to sway the market as to why they should use that product instead of the one that they have been using or trying to use for a number of years. We are definitely seeing new players coming into the marketplace producing parts of ranges, so in grey slab and kerb, which is very important for road building and footpaths, etc., any development, we have some new players in the marketplace, but they are not supplying the complex ranges that the industry needs. They are supplying the easy to produce and the quick to get with the dull products, still leaving the other products. To get them to do that, is that about access to Government support to set those pregnant manufacturing bases up? Are you aware of any barriers that businesses that supply you are facing are achieving that? Are they not getting grants from Government to do that, or has it just not been on the radar so far? I cannot comment on that for other businesses. I can give you what I believe to be the case without being grounded in any evidence. Some businesses are doing things out of their own cash reserves. That is obviously a distinctive decision that is being taken because a company wants to go down that particular route and does not want to look at indenting itself in some other way. Having been involved in some degrees with Government grants, etc., the timescale of getting them and the hoops that have to be gone through to comply to get them is often off-putting to some people. It may mean that people delay a decision or they take a negative impact on a decision or they try to fund it themselves. We need Government, I believe, in Scotland to encourage a domestic Scottish supply chain to regenerate itself. If that means the Scottish Government assisting and making its support in many ways more available, that can only be a positive thing. Is it about supporting the manufacturing base to grow, or is there other policy initiatives that the Government should be pursuing? I have said this before, but it is not necessarily money that is needed, it is consistency of policy. There is private money out there that will support business if it makes sense—financial sense. If you have the right policy to encourage that, that may be by saying that it comes down to protectionism and free trade and against free trade and all those sort of things. The stuff that we are importing from abroad does not pay the same for energy. Some people pay more, some people pay less, but we obviously do not necessarily go to the people who have more for primary energy or primary resource to buy your cheapest product. We will compete locally with transport costs and taking it from another region of the world with their particular economic infrastructure. Logistics companies are based in Luxembourg because they save millions in road tax per year and drive around Europe. That is within the European Union, which should be free trade and everything is taxed the same. It is more about policy. It is not necessarily giving grants out. Loans are obviously excellent, guaranteed loans, but the whole thing is down to business. What we need is stable policy. That is what I am saying—uncertainty. No one likes uncertainty. We are going through a massive period of uncertainty from a number of aspects, whether it be the pandemic, whether it be Brexit, whether it be carbon climate change and what we are doing around there. There are loads of uncertainty there, but there are also loads of private money out there. It does not need to come from Government. What needs to come from Government is stable policy that people can say, okay, right, I am going to build a new sawmill because the policy for Scotland is we are going to produce our own timber frames. 80 per cent of it has to come from Scottish business. You might have to import the timber if you have not got the right quality, but I am just an example. There are other examples there. We can produce it from renewable energy because, okay, right, it has to be 50 per cent reduced carbon. That will hit loads of nations. Europe is struggling with energy coming in from abroad, from Russia and all the rest of it, all of that going on. China is opening up coal-fired power stations if we put things like carbon at the front of it. That is quite an easy way to put policy there that drives the economics to say, oh, well, let's do that. That will stimulate local business, whatever sector it is in. That is really helpful. Thanks for that. I suppose that the same question to Stephen. You mentioned earlier, Stephen, the issue of support schemes for buying new homes, and that being discontinued. Obviously, reinstating that is one policy initiative, but are there any other policy initiatives that you think Scottish government should be pursuing? I think that, just like we have just heard, materials production has declined in this country, and it is really sad when you see that primary heavy industries have disappeared. There is a lot of our sector about England. For example, roof tiles, the specific flat black type that is used in awful lotter on the islands and islands just due to the planning policy, I think that I stock more of those in my yard out here than the manufacturer has in Scotland. I have 60,000, and I know that there is not 60,000 in existence, and that is worrying. When I'm small with an army, it's buying the whole capacity, and I have to buy that now. What I just received a month or two ago was ordered in April, May, June. I'm ordering now for what I'm going to get next summer, and I buy lorry loads at a time and leave them in the yard, and I shouldn't have to do that. The yard that comes from down in Stirling is now a storage yard. When I was young, 20 or 30 years ago, when I was going through school in university, there were manufacturing roof tiles in that yard, in that depot. I'm not going to name names, but it's the trade name for roof tiles, and they were through and went down to England and manufactured them all down there. We need to explore what the reason is. What was a manufacturing plant has now become a storage yard and a piggyback delivery depot to the northern regions of Scotland. Do you, Stephen, have any idea why the unnamed roof tile manufacturer in Stirling isn't producing those tiles? Have we just been taken by surprise by all the factors like the pandemic? On my coaster, here are a cement manufacturer who used to own them. I think they didn't do them any favours and centralized a lot of the production, but that's never decentralized. But there's a huge demand in Scotland that could be served from a local production facility. My constraint now is based on the fact that I joined the line down in England for the roof tile that I need that's not really that often produced. I just feel like if there was a Scottish producer of the same product, there would be much more focused on the Scottish market because they would be living and working and operating within the economy here. I think that that goes across the supply chain generally. I mean, irated concrete blocks that I purchased that go in all the foundations. Again, it's a major trade name and everyone knows it. One of the biggest merchants in the UK who's over the fence from me here told me a month ago that they can't supply and it's on allocation, they wouldn't even give me a price. I had to go to another merchant who said, yeah, I'll deliver five attic loads in February. It's all because they're coming from one centralised point. I feel like if we could somehow provide or the Government could provide incentives in terms of policy or other support to get these major manufacturers to once again decentralise back to Scotland and take the manufacturing of these bread and butter products that the whole industry uses back to Scottish control and distribution and serving the local market from central Scotland north rather than from north of England and Midlands north and south, we would see a far lesser constraint and it would make life a lot easier for the whole supply chain if we were. As for exactly what the policy and support mechanism could be from the Scottish Government, I wouldn't profess to know but I think it would be good to see the Government engage with these major brands to try to determine what would be needed to encourage them to once again move manufacturing back here, because some of them, as I said, still have the assets here that they could invest in to take them back to what they once were, but I think the policy stimulus needs to be there to drive that. Thank you. I'm going to take a brief supplementary from Jamie Halcro Johnston. If you could direct it to one of the witnesses, that would be helpful. Good morning, Stephen. I hope that you're doing well. It really is a very quick one and it's a bit of a devil's advocate question. I agree. The more that we can take opportunities for local production, local building etc, the better. What's to stop you as a builder and any company providing supplies when prices from abroad reduce going back to the lowest common denominator but, if there's a 20 or 30 per cent difference between a Scottish produced or a UK produced supply and a supply that you can get in from abroad, surely you and any other business would look at the cheaper option, particularly if you're concerned at the moment about how much things are cost for affordable housing? I think that the challenge you've got is that what we consume in this country in terms of host building, for example, is becoming very specific. There's mention in one or two of the other consultation responses surrounding housing where we're seeing the Scottish building regulations. We're watching the building standards in England just coming towards where we are and we'll probably go up here again. We need a different set of components and they're assembled and built in a different set of ways. For example, windows. We have a very limited number of supply sources for windows. To be honest, I'm tendering for a care home now. I just built one and the windows are likely to be Scandinavian because we don't have a sustainable timber window manufacturing offering from this country that meets the standard, the new values and the quality requirements. It's not that easy to go and cherry pick different products from Europe. I think that we are not importer. I rely on the system of merchants and I have the arguably the largest in the UK, immediately over the fence unit, you know what I'm talking about. For them to turn around and tell me that one of the most commonly consumed products that I've bought from them in volume for almost 15 years is now not available at the price and it's on allocation. That's the challenge that the industry is dealt with. I can't buy that product elsewhere because it's exclusively available through the merchant system. If the merchant system and the supply chain decide to constrain products, essentially that product is now withdrawn to a big portion of the UK market because it's on allocation, there's something wrong. I take on board the fact that everyone is in business and it's supply and demand and basic economics, but at the same time I am concerned that some of the large corporations are buying up big portions of the supply chain. The company I'm speaking about owns one of the biggest trade names in plasterboard insulation, the merchants themselves. Where do you go? If they start constraining specific products, the other merchants have their allocation that remains and then the price just drifts up and then hay presto, the allocation on the other hand disappears and you can buy the product, 10 per cent, 15 per cent more expensive in three months' time. I have my mistrust of the whole UK supply chain for construction materials. I'm on the receiving end of it and I've had to deal with it now for a long time. I think that we're in a very lucky position as a SME-sized small-house builder on a rural location. We've been very careful over the years and we are enabled as a result to take in lab stocks, six months' worth of the bread and butter materials, insulation, block work, et cetera, roof tiles, but 90 per cent of the employers in the Scottish construction industry cannot go and spend 50, 100, 200,000 and put in a yard or a shed for six or nine months. Everyone is working to a very tight cash flow. I always maintain that. I don't think that there are many sectors in the country where so much risk has to be taken for so little return. If you're looking at three, four, five, six per cent profit for most SME-sized organisations in the industry over the course of a year, it doesn't take much in terms of one resource constraint to push that company into a precarious position. I think that that's why the people producing the goods, the houses, the school extensions and the people who are employing the local labour in this country cannot go and beat this. They are at the bottom of the food chain and they have to take what they get from the supply chain system. There is some sort of systemic problem there. Fiona Hyslop, we fall by Maggie Chapman. Just following on that same theme about whether Scotland has sufficient demand, and I'll come to Gordon first on this, has sufficient demand to sustain, I suppose, a secure and stable construction sector. Being in mind, we're dealing with global forces, global markets, perhaps we've heard people taking advantage of global disruption in terms of a pricing situation. If we get the policies right and it might be heating standards, if we are specific about the procurement of such, it might be on carbon miles, for example, if we're looking at the importation. It might be on some of those energy issues. If you look at the infrastructure investment plans, with an additional £1 billion of infrastructure investment from the Scottish Government anyway, would there be in terms of housing, hospitals, education, etc. sufficient demand in Scotland to enable us to develop that sustainable local supply chain that can give us a bit of stability? I'll ask Gordon that first, and then if Seaman has got anything else on that. My answer to that would be yes. It's all the question of scales. We've seen facilities being centralised into mammoth-sized production facilities that have economies of scale. Obviously, producing something for the Scottish domestic market wouldn't be of that size that may be producing for the UK and international markets. What we've got just now is product being produced elsewhere domestically within the United Kingdom. We can't get it transferred into Scotland because HGV drivers won't come to Scotland because they can make more money supplying things into AHS too. Commodities that I have in the past been able to get a delivered price for are now having to buy an ex-works or an ex-key price or an ex-factory price and then scratch out and see if I can get a haul here, coming back to Scotland with an empty lorry who will go into that factory or that port and pick those materials up and bring them back to Scotland. I think that there's a demand in the Scottish market. I think that what Governments have allowed to happen over the last 30, 40 or 50 years is this centralisation. Centralisation is great if you're the benefit of the centralisation. If you're not the benefactor of the centralisation, then I would say in virtually every instance that the Scottish construction industry is not a bit the benefactor of that. Governments have allowed that to happen. Whether that's through incentive policies or slapping the risk policies, whatever it might be, there's a demand within Scotland that can support a much, much bigger domestic supply chain of products produced in Scotland than are currently produced in Scotland. Stephen, have you got any comments on that? It's also, we used the example of Stirling-Bord earlier where there's a tremendous success story right next to Inverness airport. It's a massive producer and exporter of Stirling-Bord, so while we need to be sustainable and serve the local market, I think that that would be setting ambitions low. We should be looking to serve the market and why can things not be produced here and distributed to the north of England's house building sector. We're only two and a half hours, three hours south of Glasgow, and you're coming into the powerhouse, if you like, and I drove around there for a few hours in summer and was astounded at the density of house-build sites and the volume of house-building taking place. That's a market that's on our doorstep, so there's no reason why we can't be successfully manufacturing in this country and exporting right across the border into that enormous sector. I really think that it's exactly what has just been said. It's been a case of centralisation at the hands of large brands and manufacturers who, for the last two or three decades, have been purchasing more and more of the supply chain to control from the top down. I suppose that when we see the pandemic and Brexit all come together, we've seen how we're seeing now and feeling the consequence of having a very limited supply chain and very limited options. I know that it'll take a generation, but I think that we should be moving in that right direction towards homegrown industry and a complete supply chain, as far as possible, that's assembling and manufacturing here and also exporting. We should need to set our sites higher than just dealing with the domestic market. Thank you. Are inquiries to look at whether there's any short or medium-term solutions, like what you're indicating that's perhaps longer as well, but if there's a sense that the market itself might not resolve the current crisis, so therefore what are the interventions that we need, but if there is anything and I've come to you first Bill and also reflected on your own industry, we've spent a lot of time on construction as well, but if there's anything in the short or medium term that you think would be helpful in terms of that intervention to help mitigate or indeed resolve supply chain issues. There's loads, but I don't think we've got enough time. One of the things is around essential services. If we need houses and we can't get the products, that's essential service to building houses, so we need to be able to support that industry to open up supply chains, multiple supply chains, so it's not a single supplier, to actually fulfil the demand for that. Whether that's sustainable, that's a matter of how many or how much is needed. Again, coming back to the export, we import quite a bit. We also make a lot locally, so we have had supply chain problems locally, UK-wide, Europe worldwide, and we've had one supplier of one particular project, so we've developed our own. Rather than relying on one factory or one manufacturer in one location, we say, okay, right, well we can't do that, we need to have an alternative sources because that affects us directly. We can't get something out the door because we've got one widget missing. It's a bit like cars at the moment. There are 2,000-3,000 chips in every car that goes out. Everybody's working short-time, short shifts in the car sector or lots of the car sector because they haven't got enough chips because they're stocking up and they haven't got the right components. That's not a Brexit, it's the fact that the market has picked up significantly. It's dropped off because they've always been focusing on the pandemic, and then the market has ramped up. We were looking for an agricultural style trailer from a well-known trailer manufacturer in the UK. I said, okay, right, do you have one of these stock? When would it be available? It's bog standard thing. We should have one in 2023. That means I can't produce what I need to sell. That's a small component, a small value item on what I want to shift out the door or move things around, whatever it is. I can't do it, so I've had to look at alternatives. That's what I think we have to do. What is essential to Scotland working, surviving, not surviving but prospering? If we bring that expertise and alternatives, we become an exporter inherently because we've got better things and people aren't doing it. We've actually said, okay, right, well, we're in a second manufacturer of this or the third, but actually we're doing it better or we've got a better supply chain, we can do it quicker, and we sell that around the world. The opportunity is there. That's what we're doing with our products. A lot of our trade is exporting from Scotland, so it's reality. You've got to be careful about policy. You've got things like supporting PV, UK Government putting in the PV side of things, and then realising that went dramatically wrong because suddenly everybody was jumping on the bandwagon about putting PV up, subsidised PV, loads of companies opened up to do it, loads of companies lost money and went bust or just shut down their division on solar. It's a similar thing with the Northern Ireland heat incentive, so you can actually get it dramatically wrong with the wrong policy. It's got to be well thought out and informed and you've got to have your plan and what you actually want to encourage in Scotland and what you say, okay, right. We don't need those because there are actually 15 different countries producing that. We don't need to do that. It's a low value, low criticality item. We want to do the stuff that is critical to us, that we may be restricted on, and we have the skills and we have the resources. Can I ask a word and do you want to reflect on that question? Bill mentioned alternative supplies. Stephen touched on it before. Quite often that's just not available in the construction industry. I know many businesses who are not taking any new orders or they're not taking any new customers. Part of that is driven because of the scarcity of the raw materials to produce the products that they are producing. You can't go somewhere else. That leads back to a comment that was made earlier on about once the price drops move somewhere else, you need guarantee of supply. Sometimes that guarantee of supply only comes through the longevity of dealing with a manufacturer or a distributor. If you are someone who has impacted companies in the construction industry, I've seen it in the last 20 months, people who bounce around buying commodity from here, there and everywhere, maybe sorting out the absolute best deal every day of the week. They show no loyalty to a supply chain, so then the supply chain shows no loyalty to them. So it's a much more complex question and answer than just chasing what happens to be the cheapest product today. We don't live in a command and control society and so much of this is market driven. A lot of the solutions seem to be what we'd like other private sector suppliers to deal with. I suppose the issue we're trying to get to is is there anything that we think the Government can do to help the situation. I'm happy for you to send in anything after this, but maybe if we can give Stephen a chance to answer that and then move on, are you okay for time? Stephen, if you can respond briefly and the issue that Fiona has asked, I'm sure we'll come up from other members, but it'll be Maggie Chapman next. If you want to make a brief comment, Stephen, that's fine. Yeah, I agree with the member that it's incredibly difficult because this is a private sector control that's in place of the supply chain and there is nothing specifically in the short term that can potentially change that. It's an economic circumstance that we've all found ourselves in and, again, I digress on my previous answer to the long term, the strategic term, and I think that that is, unfortunately, probably what we're looking at here. And thank you to the panel members for their contributions so far. From what you've all said and I suppose this picks up particularly Bill and some of your most recent comments, we're going to see a change, we're going to see diversification and we're going to see the future of your respective sectors looking quite different to what they, certainly what they did pre-pandemic. I'm interested in exploring the connections and the links between resilience and innovation and I know that perhaps in some areas of construction innovation is seen in building information management in design, but what are the key opportunities do you think for innovation in your industries, including in materials innovation, if materials is one of the issues that we're talking about today? And what do you need from us to enable that innovation to happen, to be that catalyst for change? Bill, do you want to start off? Yes, I think, I've just written down, Government is very slow. And that's inherent because actually you want to make the right decisions, they have big impacts, but actually that can hinder massively what we do. I said earlier about the speed of change at the moment, it's unprecedented, everything from reacting to the pandemic, et cetera. And the pandemic reducing and but actually other bits coming in to support dealing with that, but then the kick-off of actually everybody starting going again and everybody sort of having shut down, as we said, shut down particular factories or whatever or for whatever reasons, economic reasons, primary supplies. As far as materials go, in our sector, we're actually quite material light, so it's actually skills heavy and actually doing precision work. In the building sector, it's far more materials heavy and skills heavy, so it has less of a sort of the materials have less of an impact on us, but a lot of primary materials and we don't do, we don't make high grade stainless steel. We've got a great hydro plant in Fort William that we could actually doing loads of loads of smelting with all the rest of it and producing aluminium, whatever, and use that. We've got great natural resources to actually use high energy and tents, but low carbon products. We kind of, we were talking about concrete, that's a massive co2 producer, if you'd do it conventionally. You can actually reduce the carbon content of that and actually people are looking at doing that all over the place again with steel. I'm not sure that economics are ever going to work out on that and we should focus on other things. You said focus on other things like what? I think we have to be realistic about Scotland. Five and a half, six million people. We're relatively small. We can't do everything. We need to focus on those things that we have resources for, natural resources, but also skills and look at those. I don't have the answers, otherwise I wouldn't be here. There are lots of things that we can look at. There are innovations. Universities are brilliant in Scotland. There's loads of research that we can do. We're working with universities around Scotland on developing new systems, AI, all those sort of things. It's not necessarily, and I think we have to get away from the fact that we have to manufacture big things, ships, whatever, get the shipyards back. We have to be realistic about it. Other people are going to do it cheaper. They may not do it as environmentally friendly or community-wise, looking after ESG-wise, but that's reality. We can't control that. We can only control particular things and we need to look at that and not try and harp back to where we've come from, but actually look at the future. Look at what we can do now to actually re-educate, retrain and we need to do it quickly, otherwise we'll lose it. We did the same thing around wind turbines. The UK was leading wind turbines and we didn't back it. All the wind turbines now produced pretty much everywhere else, other than the UK. That's because we didn't back it. We didn't look to the future and say, that's the future. We're doing the same thing now, the UK Government, the Scottish Government to a degree. There's a lot of words. We need action and that action is really, really important because people will and have jumped ahead of Scotland already when we were ahead in my particular sector of hydrogen and energy. Okay, thanks Bill. Gordon, can I come to you, that connection particularly between resilience and innovation? Innovations take time. Then there's approval of the commodities that have been innovated as being suitable for use within the sectors and approval by all the regulatory bodies. So for instance to try to get something approved by Scottish Water to replace an existing product is not easy at all. Where I saw your question going is what can we do to make ourselves more resilient? If we can reduce the amount of cement and the amount of steel that we use in the construction industry and if we can be the market leaders for developing the reduction of steel and cement in the construction industry, that's humongous. These are the two products which we use in massive quantities in our sector but we're very slow to accept new commodities. I can remember the introduction of recycled aggregates instead of virgin quarried aggregates out of the ground. This still to this day have a reluctance to people using them and often it's unfounded so we sometimes have the situation and this came to light very much during the during the cement crisis which hit earlier on earlier on this year where a particular block manufacturer really took the tumble and the products which were used every day on every housing site in Scotland were actually massively over-spect. Now at a time when we've got situations like Grenfell very fresh in our mind it's difficult to talk about reducing specifications but if we are over specifying something and therefore using twice as much cement in the product than we actually need to do we're not doing anybody any favors the house isn't going to fall down with a three and a half Newton dense block it's not going to fall down with a seven Newton dense block but why do we need a seven Newton dense block there was a difficulty to get manufacturer to get end users to accept that they thought there was a problem in this and if it had been something that had been done willingly somebody trying to change the marketplace while supply was still fresh and buoyant they wouldn't have got anywhere they only got somewhere because it was either take it or leave it this you know and you know we can get engineering your engineers and any species can can accept that this product will work okay but nobody would have looked at it if there hadn't been a real problem in supply nobody at all there was a concrete pour recently i think in Manchester that used and I'm saying concrete it's not really concrete I don't know I can't remember what it's called but it was a cement free concrete pour and I think I think it used graphene as well so you know but that's one there's hundreds and hundreds of concrete pours going on now as we speak thousands probably in the in that kingdom yeah we're talking about one the ham three or four months ago you know things are too slow and too slow for a good maybe for a good a good reason but you know we need to look at ways that we can get things to the front line a lot quicker than we currently do that thanks Gordon and Stephen do you want to come in on this yeah thanks I think I would perhaps like to focus on skills because we can have all the technical systems in the world but without the skills to build them we won't pass go you know labour planting materials being the three main resources and I think we've well covered materials up here in Orkney where we have where the main house builder as I mentioned I think I did a calculation so you know we're handing it to give you context we're handing over a house in the last 10 years on average every eight days or something so we're not a small small builder we've got just under a hundred direct employees and a lot of subcontracted specialists so we've not handed over a house I call a conventional house since 2008 that's a house with a fossil fuel heating system that's not closed panel airtight with mechanical ventilation so innovation is not difficult everything that this industry for the next 10 years needs in terms of house building is there in terms of innovation we just went about things and took the initiative in 2008 to look to how we would entirely electrify that's because we didn't have the luxury of the gas network so we were to a degree forced that way so you know I smock away bit when I see all the news about heat pumps going in new houses across the country at the moment because I've not done we're looking to the future and beyond heat pumps so I think that the the skills is the big thing we need to focus on and one thing that's really upset me since I left university joined the industry 20 years ago is the way that large capital procurement in the country has driven away driven everything away from direct liberal employment you know I spend a good portion of my time you know facilitating work experience placements with the secondary schools we go in right the primary school level on a local level in all the primary schools we offer and we do you know STEM sessions we have 17 apprentices currently employed with us out of a workforce directly employed of just under 90 I think 84 to 90 so we've got a big portion of a print assist they've all come out of local high schools they we need not just people looking to be a tradesperson we need someone every one and five of them needs to be someone who wants to come right through that system and who will develop into a leader and manager over time because people from that trade skill background are the people who are going to lead innovation it's not people like me that came out of university that can't build things and there's not been enough focus on directly employed labour that's not tripped that's cared for by community-based employers and I know that you know when I look across planning policy documents and lots of government policy community is at the heart and it's mentioned a lot but I would like to see the Scottish Government begin to focus more on a move away from what I call the scourge of the industry which is the almost migrating labour market you know I'll give you an example that was really frustrating for our community and our sector up here in Orkney the local authority had a school investment programme 2012 to 14 they spent over 60 million in new schools they did a secondary school which granted it was a big job and I don't think any single employer here would have taken it on but they also built a small halls of residence a primary school and a swimming pool extension at the sports centre the government policy was that the local authority wouldn't get support unless they rolled it into a single design and build contract for 60 odd million and that excluded all local players now there's a number of us that would have competitively tended in for those other 30 40 million pounds worth of work we ended up with a primary school where the slates were falling off and they had to net it and replace the whole roof upon completion you know because cheap shiny slate was used and it was in danger in the challenge and that's the problem that's been occurring with skills in this country that people come in they do the job they get paid they walk away and they have no responsibility and that's been systemic since the Edinburgh schools it's been thoroughly investigated and commented upon I saw I was working in Edinburgh as a site manager at that time and I was throwing brickies off my site that were coming off and on those sites and the problem is it's all subcontracted labour no one has responsibility there's not a there's not a real accountability for those people for their skills for their development and it's really undermined the ability of this whole industry the sector in Scotland to properly respond to big challenges because it all comes down to paying the labour the bottom line and getting rid of them at the end of the day and that's what SME sized direct employers like me we our life's work is developing a core of really good people and continually nurturing that and I think that that's really been lost because on most of these big Scottish government procurement exercises the community benefits is a tick box exercise and there are more community problems created by most of these projects and benefits and that's been illustrated here not any time and again okay thank you thank you and move on to Gordon Macdonald for by Michelle Thompson I've got three quick questions that I want to ask you so the first one is the amount of imports the construction industry uses is about 16 billion pounds worth imported into the country nearly 10 million of that is from the EU is the construction sector ready for the changes that are going to take place to the custom declarations from January and what impact do you think that's going to have on the supply chain I see my mics come on so it's obviously me I would suggest that probably no and it'll have a negative effect we depends you know you have very large importers and you have some quite small importers depending on on on the product on the product ranges that are being being imported they will approach these situations very very different very very differently so the big importer may have dedicated staff dedicated officers who are able to apply themselves to to as best as possible complying so and not having a negative impact on on their business the smaller importer isn't able to do that the smaller importer somebody else is juggling that job amongst the other 10 jobs that they're they're also doing so these people are going to be the ones who are who are more negatively impacted but I can't see anything that adds extra burdens being a benefit Stephen do you get any views for most of the products we are buying as I said of building materials and it's quite worrying that we're struggling often to get British made relatively locally sourced products as for how certain products are you know are going to be dealt with it it's exactly as it's just been explained it very much depends I think on the the company for example I mentioned Scandinavian windows earlier the Scotland Britain's a big market for one or two of these manufacturers and they have their Scottish based sales agents and importer so I'm fairly sure they'll have done an awful lot of background work and they'll be prepared however others who are relying on their parties and agents I could see falling by the wayside degree are finding it much more difficult but I think on the whole for the most of the SME sized organisations across the industry again we are tied to the merchant system so we are entirely reliant upon the ability or readiness of the merchants and their response so I'm not entirely confident in the in that system right now okay the other question I had was we've talked about innovation this morning and obviously part of any new product is safety checks when the process are moving away from the european CE safety mark to the UK conformity assessed mark do we have sufficient numbers of product testing houses in the UK in order to speed up that process if we are going to look at alternative products bill have you got a view on that I think it's very unclear on what people have to have and don't what products have to have and don't we see mark stuff and we UKCA market for the UK market but actually talking to the notified bodies who are regulating all of this and have to approve various bits they don't know what the answers are so if they don't know how are we going to be able to either get our products certified to the right standards so as far as the testing houses go I think we are generally using the same standards that we've always used so I don't think that's necessarily an issue I think it's more to a degree of paperwork exercise and it's understanding the new paperwork I was actually going to come back on the import side of things one of the things I wrote down earlier was around practical help when we were looking to import or export you have guidance to various sort of government websites on import and export what you actually need is is is much more specific information packs actually say okay right you need to follow this diagram and go through here and you need to fill out this form that form in to get this here and actually and then have a helpline that you can phone up and say actually well this doesn't sit on your on your flowchart what do we do and people that are knowledgeable in government I mean sort of go to basically enable that both imports and exports because we've found that yes some of the stuff we buy from suppliers in the UK that have imported it fine not a problem not our problem unless they don't do it they're also SMEs they also will come up against problems that will affect us directly and we're not directly in control of that so I have concerns about that and that's partly why we've brought a lot of the things that are essential to us in-house to much of manufacture we don't do the the sort of the the actual manufacturing of the steel of the stainless steel or whatever we'll get there done in the UK but it's to our design so we're not relying on external sort of foreign imports from that or supply chain so number of test facilities I don't think the regulations are changing that much and will not change very quickly I think we will be aligned for a long time I think it would be an error not to align I think we've lost the ability to influence but actually I think we are respected in the in the standards side of things and so we're valid sort of and welcome members to all these sort of standards agencies because we input into those so I think we may have a different certification process in name but in practice I think and hope it will remain very similar to CE marking okay and the last point I wanted to ask and now we go to Stephen on this we talked about the centralisation that's happened in a lot in the manufacturing plants whether it's brickworks whether it's sawmills or whether it's production or roof tiles if there was to be a new supplier set up in Scotland that would fill some of these gaps how do we protect it from being taken over again in the future and becoming centralised again and somebody creating a monopoly that as I said is the earliest the challenge that you know egg in a mix will always always play out I do think however so that if there was support for new entrance to the industry you know we're not just looking at one we're looking at a number for example you see one of my the same large corporation that bought our merchant across the fence bought my timber frame supplier so almost my eggs were in one basket but then what you see as a result is changes in the way they operate and then opportunities for new entrants to that same marketplace because obviously the big vision the corporate vision of these bigger organisations tends to sway away and they forget about their core local markets and you know I remember years ago for example we wanted to start producing windows here rather than importing the goods and producing rather than driving them up by lorry and pre-made pre-glaze windows from the Midlands of England every week about 20 years ago we were taking about 800 million pounds a year in and at that time you know HIE had said well are you going to export and we said no we want to serve the local market and employ two or three people fabricating here rather than in England and they said sorry we can't support you if you're not exporting because you're a service industry you're construction so perhaps policy that would cheat you know that would look towards supporting local businesses to support local supply chains as needed because we're not all going to go and look to export we are going to you know look to serve a local market originally in Scotland if we do anything but at the moment I don't think I would see much support from the enterprise agencies because they'd be looking for you know evidence in terms of yes local employment I'd produce but also evidence that you know we'd be I guess input you know seeking revenue from outside the country and exporting as a benefit so I think I've got a closer look at the policy and how it could support local manufacturing that sells the local sectors and markets would be really helpful because I mean I've got another half where I'm involved in a local food and drink company that we developed and it's been tremendously well supported by HIE etc and Scottish Government initiatives but I don't think the construction sector is quite so well supported in the same vein because it's seen as a service industry and the mechanisms just are not there. With Stephen's answer to your question and trying to answer your very very loaded question how do you stop that happening in a free market you can't it's not possible but if the right people are motivated to deliver the product into the marketplace not everybody you know not everybody is waiting out for a knock on the door for somebody to come and stick a check through it to take the business lots of people have got lots of pride and comfort in what they do in supplying you know starting businesses from scratch as I did in 1986 creating jobs people who have been with me since 1986 you know that that makes me feel quite good you know I've seen these people grow up I've seen now some of that family actually being employed by me as well so not everybody you know is is is sitting waiting for the for the check to come through the door but you'll never ever stop that happening in the kind of marketplace that we live in but if you if you encourage the right kind of people they won't always be driven by the the thought of a check at the end of the day. Interestingly you said we're not a control commander control we are just it's quite a lightish touch there are essential services that we we basically stop things being sold to various people monopolies commission etc all that sort of thing taxation all of that is control it's just how we use it and it's a light touch and nobody really notices it unless you unless you're stuck by it and then you go oh my god so there are ways of controlling that so if we want to do that you can actually have tines I mean we have a sort of joint ownership between local authority or government and somebody who wants to buy a house and that 50 percent is owned by or 51 percent whatever it is owned by local authorities to enable people to afford to have a house that sort of thing is possible you can do the same sort of thing with companies you can have and it's comes back to whether it's state owned or not but actually you can have independent sort of regulations on that sort of thing you can then restrict it it may it may inhibit investment but actually 50 percent of something that's doing really well is better than zero percent of something that's doing brilliantly or 100 percent of doing nothing so there's a balance to be had basically okay thanks so much thank you michelle tomsom followed by alexander bernett good morning i wanted to touch on an area that i'm amazed that we've not come up against so far and that is around funding and financing i mean you've given a very articulate descriptor of where you are but i wanted to explore a wee bit more both in terms of your own individual businesses and the sector in which you're operating how the constraints and resources are affecting your margins where many small businesses are already highly debt leading whether it's sea bills or bounce backs or so on and then i wanted to go on and ask you that in terms of innovation and the financing of innovation often it's SMEs it will drive innovation but it's inherently perceived to be more risky because it doesn't have that kind of long term record and therefore your your thoughts about how financing i'm talking about all types of financing not just kind of public sector is a general sense of where we're at so it's the two questions where are we now what you're going to see with small businesses coming through how many of them have you seen going to the wall and what about innovation in the sector and financing for that and i saw you looked at me there bill see may as well go first we've never been able to get a bank loan we have survived off making money off projects we're doing and grown organically until recently um we um originally had some investment from um the Scottish Government and SSE originally which helped us move forward since then we had nothing until two years ago and so we survived on that but that has restricted our growth um we're very fortunate in the fact that we're on the hydrogen up at the moment i've been in the industry well this particular company for 13 years um and we've turned over um sort of a small amount and now we're increasing and increasing we're currently going through a fundraising round that will allow us to expand beyond organic growth um but we have had private private from banks when you have money they say you don't need it and when you don't have it they say you can't have it because you haven't got any money or any assets private equity then yes it is um we do have as Scottish Investment Bank are a shareholder in this from the 2008 investment in us um that's where we are at the minute it's that's reality um and sort of we've had to live with that we could have done much better if we had potential um funding um more funding um but again it comes down to government funding only comes in if it's financially viable and you can't until you've actually you've actually got revenue um you won't you won't get government um funding agencies to give you money um at any i suppose potentially a lower a sort of higher risk low return but it still has to sort of stack up um and we've made it stack up over the years from our input into it so we've used our profit to to grow the business and now it's proving that the policies are coming out around zero carbon hydrogen economy etc and everybody wants to throw money at you which is quite nice but it's got to be the right money and it's got to be on the right terms um to be honest um we wouldn't be where we are without um actually doing a project up in leaving mouth which is a leaving mouth community energy project um which was Scottish Government funded uh without that we wouldn't be around now doing what we're doing so that was funding a particular project which was which was shoehorned in to the wrong sort of funding uh to actually get the funding to actually do what was actually needed to be done to actually sort of develop that sector so it was it was and this is what you do in when you're doing innovation comes on to your next question is you if it's not commercially viable it's an innovation project or a demonstration project you have to look for the right funding call and then tag something on maybe to make it suit that call um and you then got to go through the process and you don't know whether you got it or not um with an innovate uk project where we were looking at taking um euro five or lower trucks uh diesel engines ripping out the engine the gearbox putting electric motor batteries hydrogen fuel cell hydrogen on there innovate uk it's been like being back at school we got 76 percent which wasn't good enough we had to get 80 percent to get the funding germany had three companies doing it two years later we would have already had it on the road and running and now actually a lot of people are doing combustion combustion engine and fuel cell trucks we can't get enough of them to actually decarbonise the industry so you come up against all these hurdles for funding it takes a long time a lot of effort and for an SME that's a killer it really is it needs to and it and it i think um the funding agencies government funding agencies shouldn't be afraid of failing and they are um and everybody's afraid i think of losing their job because they made the wrong decision or getting something wrong or not getting reelected or whatever it is set the target for 10 years time 20 years time because actually people the public will have forgotten about voting you in or out um and something when it actually it fails or it's actually brilliant yeah make a decision now go for it uh you may get it wrong and actually spread your bets to a degree but actually don't fund at 30 percent don't fund at 50 percent so okay right we'll put 80 percent in there and actually put a sort of a big chunks of money into things that you are you want to happen you want to drive and that's for scotland for local communities whatever it is be confident about it because actually failing you learn shedlades more out of failing than you do out of out of succeeding i think you're really saying patient capital yeah yeah absolutely yeah it is yeah yeah so gordon back to my original question your sort of funding operations at the moment or indeed businesses that if which you know a general sense and my question about innovation funding in finance let's take them separately funding maybe tend to think of government's funding during now during the covid crisis the funding that was put into certainly my industry was absolutely necessary from both governments absolutely superb unfortunately we can't see us having the resource to be able to do that again very anytime anytime soon um so but applying for for government funding is a very torturous process and if it's an SME comes back to the to the issue about about imports SMEs don't have dedicated people dedicated departments doing this they're fitting this in along many many other jobs as well as maybe looking at how they're developing the product or the service that they're talking about developing so i don't think there's there's a there's an awful lot of understanding of how businesses in the construction industry work from funding bodies okay no i'm going to go on to finance now okay so going on to finance construction industry so uh bank lending construction industry isn't seen as a good risk generally it's not seen as a good risk um some of that's maybe well founded i know of a number of businesses who are solvent as long as the next job comes in okay unfortunately that's the way the construction industry's been for for decades um if that next job doesn't come in there's a problem um we are seeing uh private equity moving into even my side of of the construction industry so we have private equity equity companies so i'm now buying up builders merchants and creating massive massive big chains of builders merchants previously as steven has alluded to you know the multi multinational companies who have manufacturing plants distribution facilities and merchants that's fairly common in the industry now but what's happening now is these big multinational companies are not tending to buy builders merchants what's happening private equity is buying builders merchants now there are at least two actively actively doing so and impacting on scotland at this point in time um so so there must be something worthwhile in the industry if private equity is prepared to put its money there but what i mentioned earlier when i talked about uh some of the gray flag and curb issues lots of these lots of sms are traditional businesses and they'll do it out of their own resources if they've got the ability to do so they wouldn't much prefer to do that you're talking about some companies who you know have been going 50 60 70 80 90 100 years and they don't want to get involved in any of that we'll do it ourselves that's the way we'll do it i don't want to be indebt to anybody now that obviously is good if if there's a good range of businesses able to do so if not it slows down the innovation process and causes problems but that business is in total control of what they do and they don't have to keep coming back to another lender of or or a funder of some degree and that is certainly with some traditional manufacturers that's in scotland that's certainly uh uh a more preferred route than than going and trying to attract external money um and i just think you know inherently we're not a we're not seen as a good risk industry okay steven yeah well i mean we're in a a similar position to much of the geographic operators or people around the geography of scotland in ortony here where we have a very low median household income i think we actually have the lowest in the country in ortony we have the second highest build costs other than shetland so for us going and building affordable houses the margins are too fine to be able to afford to borrow money to do that so that means that we can only build at a rate that we can finance ourselves from our cash balance and it constrains the level of supply and i think that goes for huge tranches of scotland geographically like i said and the construction sector isn't seen as a safe bet for lenders especially for SME sized companies and the big challenge you have as well is that when operating on public sector contracts generally you're asked for a bond so if i do a 10 million pound contract for a local authority or for the housing association or another public sector agency they're generally asked for a 10 bond which is a million pounds i need to have standard security with the bank for something that's about 1.3 times that in value so we already have a standard security over most of our premises for a bond how can i go and borrow 1 or 2 or 3 million there and offer more security to the bank so lending is very very difficult for any SME sized organisation and that constrains the level of output of SME sized organisations and that that's just an economic factor in terms of funding innovation i think especially now the speed of change of the market you know i've never seen it change so much so you know from the demand profile and the level of demand in certain profiles as it has in the last two or three years i mean we also a huge spike in demand when we came out of the lockdown and no one expected people to be queuing up to buy new houses when we went into lockdown but that's what happened when we came out and that's where a lot of this material supply constraints come from because i think every sector almost experienced the same huge level of demand but the tricky part for me is a developer is looking to the future i can't if i was to rely on some sort of innovation funding to do something really novel in new housing or new affordable housing that's not just driven by building standards i what i would do anyway pull that together and to seek any meaningful level of funding that was the right fit we take so long that we probably have missed the market anyway so i wouldn't bother and that's the problem it's the the funding generally comes along in tranches it comes along with a certain set of requirements from a certain agency and it's very hard to to make a project fit what's available you know i can speak from experience in the food and drink sector and you know what we heard and and actually we did a project a project with Logan and we were very close to being successful but it was the same old story three or four percent out and sorry you're not getting through so it didn't happen and so the bigger players inevitably succeed and they've got the big team behind them and the SME sized industry which is the engine room are left behind and i think that's what's happening in the innovation sector to be honest it's very difficult for companies our size who are equipped in terms of being nimble equipped in terms of having the ability to resource projects with really high level of skills we are the least equipped not by our own making to attract innovation funding to projects not food for thought and all of that thank you thank you very much thank you before i bring in alexander can i just ask bill you mentioned the scottish national investment bank were they just said we're original there's stakeholder but it's not a place you can is it not a place you can go to for additional support so is sib sorry sib not sib yeah so the scottish national investment bank is that an option you've thought before is that not appropriate for you yeah no we've discussed it with them they're interested but they're busy and doing other things and we need to move quickly against comes back to speed i mean the what we're doing at the moment is ridiculously fast change and we need to move quickly otherwise we'll lose out and so i think they're interested may come in on another round if we do another round but but that's yeah that's where we are at the moment okay that's helpful thank you thank you convener and can i know my register interests in construction house building and timber kit frame manufacture thank you very much for everything this morning hugely valuable contributions my question coming into this morning was what are the opportunities for scotland to grow the domestic supply chain which i think you've covered very extensively throughout the whole morning so i think so if i could just narrow it down a bit a couple of you have touched on some of the impediments gordon around building regulations gordon you mentioned the negative aspect on blocks and the strength needed and maybe have another appropriate for different or different types of build build and steven you mentioned home the timber the home grown timber aspect no my interest in forestry as well we've just had storm arwyn which has seen millions of tonnes flattened across scotland very little will now make it into the Scottish construction industry because of the building regulations and standards this was corrected in in ireland whether standards were changed to promote that so could i just ask you if you have any other examples of of changes in building regulations and maybe for the to put on the record maybe have some of those small changes to give an idea of the scale those changes could have and benefits they could have to the to the mark to the problems we're facing starting with gordon first maybe there is if you're building a house and steven i'll know this i've worked for a for a major house builder in me past but steven's more up to speed with it today but there are so many regulatory bodies you need to comply with so it's building control it's it's building regs it's nhbc scotish water the artistic companies it's let's sit on connections so it's a difficult situation to turn around and say that we should be reducing regulation at this point in time when in some ways we maybe need better regulation as opposed to less regulation all right so it's better regulation not less or not more but better so that three and a half newton dense concrete blocks as an example perfectly adequate for an outside skin or of a two-story house perfectly adequately to be roughcasted um but getting that compliance through not just the bodies that we've talked about but also you've got the individual companies have all got their own engineers and they won't build anything without their own engineers saying yes we could that that will comply that will meet if i get challenged on this i can argue that this that this is an appropriate product um and there's a bit of misunderstanding in the industry just on that one example for instance um many people believed when they heard three and a half newton them sorry we're getting technical we're in the third three and a half newt in the automotive thought of lightweight blocks so you can't do that you can't do that you know there's a real lack of knowledge i i i still have a reluctant to say of what was being an understanding of what was being what was being promoted Dunedol, cydy간d allibug, I'm going to feel vulnerable and sounding liable to something coming along at some point in time, so all of that's got a massive, you know, social issue, but it's got a potentially massive cost issue. So we need better regulations, not less or more, but better. I agree with the better and more appropriate. Stephen, you want to come in about the timber side of it and have an opportunity to be used in Scottish construction? I was involved in the division last year, which is a bit of context. At working group where we looked at how to drive how government policies might be offered to drive the change e rolling with the change to net zero in social housing in Scotland that is an incredibly big issue for us all and a big thing for industry to step up to. An awful lot of discussion has started this year and that was really interesting. In setting in the group where embodied carbon of materials began to be discussed because we are at a really good stage for the Scottish money building standards now where we are driving energy Felly gwirio'r cyfarfwyfa'r Greifftidol, wrth gwrs, oherwydd mae fyddai hyn sy'n dod â'r poli urethyn i gwybod yn Ùr, ac rydwg wrth ei dyn ni fod yn dda i ddweud eu rungi, ac i ddydd rwy'u negi'r ddefnyddio'r cyfarfwyfa, mawr i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddod, felly mae'r ddweud yn ein rhan ffermau meronid, neu rydwg i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddoch i ddod. nid oeirlo chi'n gwybod, ddim ni'n gwah bod gwahodd yn cael這些 maghau'n gwybod, os gallu'n Llywodraeth dda i gy Ideally. Rwy'n rwy'n cais i ddweud o gyfoedd yn y lleiwyr a'u ochr oherwydd ein byd o'i greu. Rwy'n rwy'n cais i ddweud o'i cangennafio ac a oedd yn cael ei gwael a'u gwael gweithio a gwaith bob beth o'u cangennafio a'i gŵr i, ac rwy'n cael ei cyffredinol oherwydd 200,000 mi. Y tardoch yn тыchydd bach, oedd y carbon content o brarcha, ac mae'n golygu sut yn gwneud allu'r ffordd eu colli ac yn blaff mwy ac yn dweud. Felly, rydw i yn cael eu cyfnod i ac yn gwneud eu llifio eich 300 mi ac yn wneud dweud. Yn hynny, sefais ddych chi'n mynd inni i disrwntio i ni gwaelwch gyflym oherwydd Stathol yn troi gwiaith gydaenol, ac nid yw nid ad 있으니까n a announce on certain elements of the population because the people have to drive things 300 miles, but looking at it more from a macro scale import vs export distance to the Scottish border might be a key way of looking at things for government policy because you're sure you're more expert in forestry than I'm sure. However, if there was an incentive to start now to plant and develop a really big forestry sefydlu i ddechisodd ddylchio'r cyformau hyd yn ynig i ddwylliant. If you can't use what's in your doorstep, I think that people would be directed to the obvious solution that is right at your fingertips. Again, it comes down to economics. It comes down to government driving that policy and looking at the detail and very sensitivity, considering what the impact could be. Fel Ilein Blyth yn gyntafol yn gweithio dylunio hir, Ilein Blyth yn gweithio achos rwyfyrdd o'r sgwrs rydw i ei pari fynd o'ch gallu gweld i sut i ewn i gell. Rydym yn gyntafol i sut i'w lleidol i chi ddim yn fynnig? Rwyf er mwyn i chi i ddim yn gweithio i chi ddim yn gweithi'u gweld i chi'n cyfrifiadau. Rwyf yn gweithio i chi'n cyfrifiadau i chi ddim yn gweithi. Mae'r piwg, ond, yn werth. Mae'n bwrdd gennymau ar hyn yn cael gan 20 ymlaen. Ér ymlaen y bydd hyn sy'n ddigon iawn yn y bydd y cyblain. Felly yn ddigon iawn yn cyfragoedd i'r llai têl hynny, ond yn rwyf yn gyfawr ar y cyfle cydeusio. Mae'n ddigon iawn i ddigon iawn, a mae'n ienflaen i ddweudrach yr huwglu a'r bydd. Mae'n ddigon iawn wedi'r ddweudrach hwn sy'n ddigon iawn. where they're using wind reduction, putting up a wind turbine. We're producing hydrogen and storing it so that actually you can use it. They are field to bottle basically, grain to bottle. That's their philosophy, that's one of their sales pitches. That's a sales pitch, it works for business and we can do that for community and make that happen. That's just an example of where we can do that. Gwмиchau newid yn pergyliannol, rwy'n ddask wych yn siaradau sgolno'r Lliwonegau Fervetaiddol. Felly, mae'r ddweud o gwasanaeth oedd i provide pergyliannol. Mae'n iawn i'n ei ddylen tudiau. Rwy'n ei ddweud o'r gwasanaeth i'r Llywodraeth, a'i ddim iddyn nhw, mae'r ddweud i'n ei ddweud i'r Llywodraeth i'r Llywodraeth. Mae'r gwaith eich bod yn y moddol o'r gwasanaeth yma nifer mae'r eich bod yn ymgylchedd. those that have 1500 homes going around our facility in Walliford. I doubt any of them have got electric charge points. The electrical infrastructure going in there will be, as soon as people put electric charge points in start and by 2030 we will have electric vehicles, the electric infrastructure is obsolete because it hasn't been sized to deal with that. This is what we need to think about going forward. Look at what we're going to be doing. Look at what's within Scottish Government's control at the moment and play with that and make that happen. We'll then become experts in putting electric charging and battery storage or whatever it is within a home. We can then start exporting that knowledge and all products and skills elsewhere. It's looking at that and what we can influence and basically pushing that out there. Thank you very much. Jamie Halcro John. Right, yes, start the stopwatch given time. It was really two questions that I've actually got for Stephen and maybe if we've got time the other panellists can come in. The first was a bit of an odd one. You may or may not have an opinion on this but certainly in places like Courtney there were one or two companies or probably larger groups where it might be one or two individuals who buy a plot, build a house, sell it, move on to the next one. I imagine that they will be particularly impacted by supply chain issues because they haven't got either the space or the resource to buy. I just wonder if you had any brief opinion on how they might be impacted and whether in Orkney or wider of field. I have had one or two of them knock on the door and asked to buy roof tiles because they've been told they can't get the finishing 10 ridge tiles. It has been a very difficult time for the micro builder that you described across the whole country because I have the luxury of buying all the bulk materials that I think I will need for the next six months and putting them in a shed in a yard, which I do. I price protect myself to a degree as far as possible. Those guys are having to rely on a sort of hand-to-mouth. They go to the merchant, they buy two pallets of roof tiles, they go to the merchant, they buy 10 sheets of plasterboard and they have had a struggle. I think that a lot of them have found sympathetic customers who have supported them well and been prepared to invest a certain amount extra in the product. I think that it has been an extraordinarily difficult time for an awful lot of those one and two and three person employers around certainly in Orkney and I think across rural Scotland. Just to move on to the main question that I was going to ask. As you've pointed out and we've covered in this committee before, places like Orkney are right at the end of the supply chain in itself. There are particular issues that you've talked about, getting younger people involved in the sector and the like. Infrastructure, roads, ferries, et cetera, can add to costs and I just wondered if you have any comments on that and what we can do to try and improve the infrastructure part of supply chain and the costs, et cetera. I think that we are very lucky to have good mainland link to ferry services on the whole and the prices remain fairly constant and reasonable over the long term. Where we do struggle and we are having a massive struggle, I guess, is getting out to the outer islands of Orkney right now. The ferries that we have are not really fit for purpose and I struggle to get people out there to even go and work because they've got the chug away in this old boat for two or three hours to get out and back. I know that the island communities and the periphery of Orkney are suffering badly at the hands of the aged ferry fleet now. I think that we need to look at a better system of moving goods, et cetera, out to and from these islands that better serve the islanders, the communities. Just very quickly on that, Stephen. If it's harder to get people out there and get materials out there, does that mean that there's a risk that they may be now or in the future playing a kind of premium for being on the island just at a time as we want to make sure that people can stay in our aisles? In Orkney, the belt cost in Orkney, for example, by comparison, that's mainland Orkney where we are based. If you look at the BCIS price indices, which are based on analysis of actual costs of past jobs, you're looking at between 17 and 20 per cent of an increased cost between Glasgow, Central Scotland and mainland Orkney, Kirkwall. When we go out to the peripheral islands of Orkney, there's another 25 to 35 per cent addition in construction costs for those islands. It's an excruciating position for the local communities out there to be in. I would like to see increased levels of support for providing housing and infrastructure on these islands. For developing skills, I've had three or four apprentices in the past five or six years from Sandy in the Northern Isles. I would much rather have been building out there and employed these young men and left them out there with skills to retain them in the community. I've been consulting on things like the islands bonds and things, and I guess that these aren't going to be applicable to Orkney. It comes down to, once again, availability of resources, skills being one of the biggest. It's really important that we see the Government support skills at a local level, not just ticking the big boxes and upskilling huge numbers of thousands of people. We need real penetration into the communities, and we need direct employment model throughout the whole of Scotland that needs to be made more robust. I'd like to thank all the panellists for their evidence this morning. That has been very helpful to our inquiry, and we will hope to report sometime in the new year. If there's any further information that you'll be able to share with us this morning, please send it to us in writing. I'll now move to agenda item 3, which is consideration of an SSI. The committee has invited to note the public procurement agreement on government procurement thresholds, etc. amendment, Scotland amendment regulations 2021. This amending instrument was considered by the Delegated Powers and Law Reform Committee on 30 November. It noted that the SSI rectifies the errors that were previously identified and said that no new points were raised. I'm inviting members to note the instrument. Thank you. We'll now move into private session for the remaining items on the agenda.