 Mae'n gwybod bwysig. Gwyddoch chi'n gweithio'r ffletiad yn cyfnodd y Cymru ac yn 2015. Rwy'n golygu'n gweithio'r ffletiad yn cael ei wladau rwy'n cymdeithio ychydig a gyda'r Elych yn gwleidio'r ffletiad yn gwahanol yn gwybod, fel ydy'r ysgolwydau'r gweithiol. Mae'r gweithio'r ffletiad yn gweithiol yng Nghymru, ac mae'n gweithio'r ffletiad yn gweithio'r five, six and seven in private, I will agree. Codd is going to move us to agenda item number two, which is major capital projects. Can I welcome the panel that we have before us this morning from the Scottish Government? Can I firstly welcome Alison Stafford, director general of finance, Sharon Fairweather, deputy director of finance programme and management and Andrew Watson. Andrew Watson, deputy director for financial strategy and John Matheson, director of health, finance, e-health and analytics. We have that correct now. I understand that we have a short statement of five minutes from Alison Stafford. Good morning, convener. Thank you for the opportunity to discuss with the committee the Government's six-monthly report on major capital projects. The report is the product of some effective collaboration between the Scottish Government's infrastructure unit, Audit Scotland and this committee. I hope that the committee finds the current format of the report helpful. It's perhaps worth reflecting on the steps that we have taken together to consider how the Government manages, monitors and reports on major capital projects. The most recent report in June 2013, the Auditor General for Scotland, published the Scotland's key transport infrastructure projects, which made three main recommendations relating to improving transport Scotland's control and decision making, developing scrutiny of major projects by the Scottish Government, and improving openness and public accountability by the Scottish Government. Subsequent to the Audit Scotland publication and a meeting with this committee, the Permanent Secretary agreed to review the reporting arrangements for future major capital projects and those updates, and the Scottish Government and Audit Scotland officials should work with the committee clerks on a revised reporting format for future six-monthly updates. The December 2013 major capital projects report provided by the Permanent Secretary included an additional section on actions taken by the Scottish Government in response to the Audit Scotland report, including a revised reporting format for future six-monthly updates and the refinement by the Infrastructure Investment Board, chaired by me, of its framework for scrutinising, challenging and monitoring major investment projects. We have agreed with a former shape of this committee a revised format for that six-monthly major capital projects to now include projects over £20 million, previously it was £50 million that we looked at, an annual update on the local economic benefits of projects, and progress updates against agreed cost and time parameters for projects that have progressed beyond the outline business stage. This has been reflected in the updates provided in March 2014, September 2014 and more recently in March this year, and I am grateful for Audit Scotland's positive feedback on the steps we have taken. I believe that we now have a fit for purpose process and format for our reporting, but I am interested in your views. Turning briefly to the contents of the latest six-monthly report, the report illustrates the progress that is being made across our investment programme with a wide range of significant projects at an advanced stage. Infrastructure Investment remains a key part of the Government's economic strategy, and through the Infrastructure Investment Board and our wider governance assurance and project management arrangements, we are taking steps to ensure that projects are well managed and deliver value for money. Scotland has a strong reputation in terms of both our ability to deliver major projects and as an attractive place in which to invest. It is important that we order we can to maintain and enhance that reputation, and I would welcome the committee's input in that context. Clearly any answers to very detailed points on individual projects may best be addressed by the senior responsible officers of those projects. When we have an inquiry from the committee we always consult the project owners and to make sure that you are getting the most robust and best up-to-date information. We will continue to endeavour to get those responses to the committee. If there is anything today that requires us to go along that route, then obviously we will signal that endeavour to come back to you very timely. That said, I will be happy to address any questions you might have. Together with colleagues with me today, John Matheson, whose title you have already expressed, I won't repeat it again, Sharon Fairweather, who is currently Deputy Director for Finance, Programme Management, but most recently was involved in the operational work of Transport Scotland as the finance director there. He brings live and current experience of managing individual projects there. Andrew Watson, in his role and responsibilities, includes looking at the infrastructure investment strategy. Thank you for listening. Happy to move on. Mr Stafford, I now open it to questions and firstly to Mary Scanlon. Thank you for your opening statement. The transport infrastructure is important throughout Scotland, but as MSP for the highlands and islands it is an absolute lifeline, so it is not a case of five minutes off a journey. You just don't move. I also obviously want the highlands to be an attractive place to invest. I will give you the four projects that I would like some clarity on, seeing as I have got in first. I will remain consistent to the A9. There is nothing more important to the highlands than the A9. After eight years of an SNP Government promise to dual, the complete A9 perth the Inverness 110 miles, it has taken eight years to get 7.5 km from Cincreig to Dhalradi. There are still 67 miles to go. My question is that I notice that Lunkarty to Burnham has now gone to a public inquiry and there are 67 miles to be done by 2025, given that it has taken eight years to plan to start 7 km in July. Is it realistic that we can dual 67 miles by 2025? My second question is that I will pull to Stornoway ferry, absolute lifeline for the Western Isles that I travelled on a couple of weeks ago. I understand that the harbour upgrades were not done completed in time for the ferry, and I understand that during the busiest month of the year in July, no cars will be able to cross on that ferry due to poor planning. My third question is the HMP prison for the Highlands. In 2009, the Government announced 40 million in a new prison for the Highlands. In 2015, the update says that there is a feasibility study on a potential site. People are getting a wee bit impatient about the smallest, most overcrowded prison in Scotland. My final question is on Inverness College. I visited it recently in excellent facility, and it is well done. What I would like clarity about as an ex-lecturer at the college, how does the sale of the two existing sites at mid mills and longman, which are obviously worth a significant amount of money, all we get in the reports are how much it costs? Does the sale of the sites—I would just like clarity about how much money from the sale of the sites—is taken into account to fund the new building? How does that work with the NPD? That is all my questions, convener. I would like to invite Sharon Fairweather to deal with the transport questions first. With regard to the question on the A9, we have a detailed programme for delivery of the A9. It will be delivered in stages, and that programme is still on track for completion by 2025, but stages will come on stream between the completion of the first stage, which you have already mentioned, and 2025. The project, as you will be well aware, is a very complex engineering project, and there are a whole range of processes that need to go through before you can get to the stage of going out to the pavement for any individual section. Just to give you a flavour of that throughout the whole dualling, the bodies that need to be negotiated with in order to take that dualling forward, we have the Fingolms National Park, three national scenic areas, 14 scheduled monuments, one historic battlefield, three historic gardens and designed landscapes, one conservation area, 51 listed buildings, seven special areas of conservation, two special protection areas, 12 sites of special scientific interest, two national nature reserves, 142 sites registered on the ancient woodland inventory and 222 water courses. I am just trying to explain the complexity of the work that needs to be undertaken in order to enable the design work and then the public consultation and the statutory processes to be undertaken, and as you have already mentioned, one section may be going to an inquiry because of the objections that have been received to the scheme. We have an obligation to undertake all of those statutory processes in a professional way, allowing the public and affected landowners, etc., to have the opportunity to object before you can take forward the process of procuring the land to then take forward the process of procurement of taking forward the scheme. So it is a hugely complex scheme to design and take forward, and that is why the timetable is that the overall scheme will take until 2025 to complete, but we will be taking forward sections as soon as we can as soon as we have completed all of those processes. My question was that it has taken eight years to plan to start seven and a half kilometres in July this year. Will the A9 from Perth to Inverness, the full 110 miles, the remaining 67 miles of dual carriageway, be completed by 2025? That is certainly the plan at this point in time, yes. I pursue the other questions that Mary Scanlon raised. With regard to the question on the ferries, if you do not mind, I will ask that we get a more up-to-date position from the ferries team about that. I am aware that there are concerns around the ferry in July not being able to take cars, but I do know that alternative routes have been planned for that car traffic during that period of time, but I would rather get an up-to-date information from you from the ferries team on the exact dates for when things will be moving forward on that. I do not have that information to hand, I am afraid. I will follow that up and make sure we get a response in writing for that. Can we deal with that? In terms of HMP highlights, I would like to ask Andrew Watson to pick this one up, please. As members will be aware, the issue that has been challenging around the prison has been identifying an appropriate site for the developments. Given the size of the area covered by the prison, there is a strong preference to ensure that the site is well connected in terms of the transport infrastructure that supports the site. A number of options have been considered, but, as yet, a site has not been agreed. As you say, there has been good progress made recently with the option of a potential site having appeared and discussions are on-going with the landowner in respect of that. Progress is being made and we would obviously want to talk to the committee as soon as we could on progress with that. It has been made. I said that, after six years, we have got a feasibility study, which is in your—I do not know if that is progress. That is all I have got. So, he was at Inverness College. Inverness College is the last point. The sale of the site. In terms of the sale of the site, the Inverness College itself is an NPD. That will be worked through in terms of how we ensure that it is financed by future revenue payments. For satisfying that contract for the delivery of that particular facility, greater as it is. In terms of the sale of existing sites, we will get the specific information back to you, but we do as part of managing our overall capital programme, where there are assets that are owned by public bodies or by the Scottish Government or its agencies at any particular point. When we do actually look to recycle receipts that come from disposal of unused and required land for particular purposes back into the capital programme, but the very specifics about the sale of the two sites that you have mentioned will make sure that we get the latest information and come back to you on that. Sorry, just finally, convener. When you say you recycle, so if the sale of the sites came to more than the cost of the college, would the sale of the sites go towards the building of the college and the remainder be recycled elsewhere? Is that what you mean by recycle? Capital receipts that come from sites can be used on a one-off basis to invest in capital somewhere in Scotland. The commitments being made around the Inverness College is an NPD, and therefore the financing of that is actually to make sure that in future years the revenue that's required to pay for that contract is made available. So there is a particular funding stream that will ensure that the college has been paid for over the life and time of the contract of the NPD. That has been a commitment that's been made by the Scottish Government. If there are sites that are part of public ownership that will give us one-off receipts when they're made available, that gets factored into the overall capital programme going forward. Come on, beauty. Thank you. I've got just a couple of questions, and the first one relates to schools and I have a particular interest in this, because on page 16 you've got new battle high school. Now you're showing new battle high school that construction starts 23 March. I'm aware, and I'm hoping for a clarification from you, that there have been some delays on schools as a result of the need to comply with some new EU regulations. Perhaps you can give us a bit more information on that and advise what sort of delays we're talking about. Okay, if I pick up the general issue in relation to the EU regulations and the impact that it's having on schools, the information really stands in line with the IPQ that was actually set out to Parliament on 13 February by the Deputy First Minister. So we are still waiting for the process of review by the Office of National Statistics to be completed. That review is based on one particular project, and that's the Aberdeen Western Peripheral route, but it is the first opportunity since the new rules have come in from Europe to actually test the appropriateness of the contract structures that we have in place. So what has happened is that in relation to the schools, we are trying to work through SFT with the individual projects required to be as far as advanced as they can be so that as soon as we actually have the information from the ONS, we're in a position to be able to keep the progress moving on those things. The ONS have said that this process can take several months. Have they had several months? They are still working on it. So it's because they actually have a whole range of inches and inches of detailed documents that are the legal documents around AWPR. They also have the actual ESA 10 position from Europe. But equally so, there is guidance that is continuing to evolve around the interpretation of ESA 10. So it is still a moveable feast. We keep in touch, obviously, as you would expect regularly with ONS. We make sure that if there's any information that they still require to help them with their analysis. But we are still expecting it to take a bit longer and a few more months yet before we actually get a conclusion from them and a resolution on this. So are we correct to say that any work on schools is at a halt at this point in terms of potential startling construction of that, giving contracts, that's all on hold for the moment across the board? What's happening through SFT is that anything that can be done to make sure everything that can be ready so that as soon as the information is clear and the position is clear is being done. So I would actually still be encouraging local projects, local teams to still be looking to see are there other things that they can be addressing so that actually we can be as far advanced as we possibly can for when we have that clear position and are able to move forward. So you can do everything up to the point of completing the contract and actually starting the work? Yes. And we don't actually know when we'll be able to start? That's fair, yes, that's the position we're in. How many schools are affected? All the schools that have not actually started construction? There are eight schools which were identified when the IPQ was put to Parliament. There are eight schools that were actually on that list of ones that were going to be in the next phase of activity that are the ones that are more immediately affected by this. It might be useful to get that list of schools for the interests of the members. Yes, of course, yes. The brief supplementary, then I'll bring it in. Specific point, I'm sorry, I don't understand it and I'm sure you don't really want to explain it because it sounds as though it must be complicated but are we looking into a position where once the ONS has actually given you a view, that's it? Or are we, as I would always suspect, in a position where courts might disagree with somebody and you might actually finish up with a very long process and you're sure what the position is? I think because this actually is one of the first contracts that ONS have actually looked at since ESA 10 has been issued and more importantly the more recent interpretation guidance, then obviously ONS will want to be doing both a thorough job and as quickly as possible but there is every possibility that they may wish to go to Eurostat themselves to get further clarification and as I say, this is because the guidance is very new, it's evolving and also Europe are not only taking into account the analysis that's being done on projects in Scotland but also actually projects and the design of them across the whole of Europe as well so it is, as you said in your first comment, it's a complex landscape with a tremendous amount of detailed paperwork but further interpretation of it as well. Is there a risk that these delays just become interminable simply because you feel you're paralyzed? For understandable legal reasons? Obviously, as I'm sure you can appreciate and as chair of the Infrastructure Investment Board the whole thing has actually been about keeping the momentum around these areas so there are risks there as you identify we're doing absolutely everything we can to mitigate those just to be able to keep the traction and the activity around this but it is this collision of having a long-term programme of investment obviously that has, as we've already rehearsed on a number of cases, long lead times for the necessary reasons to get everything in place and how that actually sits alongside movable parameters that are coming through from Europe who are driven by different things and obviously are also looking at how this plays for countries that use the euro as their currency as well. I just wanted to ask for a reassurance that this delay is not going to affect either public or private funding of these projects and that the funding is earmarked because we wouldn't like to see these projects put at risk simply because we're sitting here waiting for a legal clarification. The role of SFT in relation to all of those projects is actually to be liaising actively between the consortia of funders the design, the builders, the people who are likely to be the contractors in supplying this and equally important the local authorities and the local communities that have a very real interest in seeing these particular projects happen. Just really to restate we are actively managing all the risks we possibly can and we will be continuing to make representations to get speedy resolutions because of all the points that you raise. Comfortable yourself that funding will remain in place? I think we have a good track record of relationships with the different people who come together in these consortia. Obviously we've got the established landscape of hubcos and the architecture around that. I don't see that being at risk but we will continue to actively manage it. We wouldn't want to be complacent around those things. I just continue the same line of questioning. Firstly, on the last question you've just been asked by Colin Beattie the north hubcos private sector partner has changed since this hiatus started. I would be very hesitant to suggest there's no risk to that when already in one hubco there's been a change of private sector partner hasn't there? I think what I was saying to Mr Beattie was actually that there are risks to manage and that's the whole reason why we have SFT that's active in this space. I can bring in if it's helpful John Matheson who's actually on the oversight board for hub and hubco and just to be able to say a little bit more about how we're getting the governance and the assurance around the sorts of things that you raise. The north arrangement, there are five arrangements in Scotland but just to focus on the north one, you're obviously right that the partner has changed but that was unconnected to this ESA 10 issue that was totally unrelated. I think as a result of that change some of the projects that were in the pipeline have now been expedited and Forest has now concluded Tain is now open and I think we've got a good day rich pipeline in terms of the hubco. The governance around it is very important and that's the point you're touching on. So we have the territory partnering board we have all the local authorities within that area health boards within that area, police fire and the ambulance service are all part of that territory partnering board. What I'm interested in is the risk because if a private sector partner changes and this height has already lasted seven months and September of last year is not your fault it's coming out of ONS it's lasted seven months already what's to say is Colin Beattie has alluded that a new private sector partner is going to stay with this programme when there is no certainty on the time scale as to when they'll actually be allowed to get on with these schools that are now being delayed and have been delayed. There is no financial clause on Anderson High School in Lowick as you well know. I do well know and that's absolutely right. In terms of managing the risk I think the one thing I would say is that we are not alone a lot of these private sector partners are involved in these sorts of mixed economy financing arrangements actually not just in this country but actually across Europe. Also we have had partnerships that have involved the European Investment Bank so and we have a very active pipeline where the EIB are involved so I appreciate that but just in terms of the general picture around this because this is something that number one we have been very transparent about secondly it's something that is actually a point of consideration and further clarification and evolution of guidance across Europe. This is something that obviously then is something that is affecting these businesses on a much broader span. We are obviously in the vanguard we're in the vanguard with AWPR and we're in the vanguard with a lot of projects we are still able to offer these investors good well run projects at good sensible rates and assured safeguards of funding as we go forward so I'm not seeing anything that's diminishing that confidence but you're right we should remain vigilant and we absolutely will do to make sure that we keep our communications up with these various parties that we will keep the right amount of pressure on ONS who need the time to do the work but actually to get a timely response so that we can mitigate these risks and actually keep them still in at least in a manageable space. When you say the guidance is evolving do you mean on a weekly basis or a monthly basis so what does evolving mean in practical terms? In practical terms so there was some guidance that was put out about interpretation in the back end of 2013 before ESA 10 was ever implemented in September 2014 between then and actually another set of guidance which came out in August 2014 it had changed so even though ESA 10 and the clue is in the number and it was 2010 when the actual arrangements were defined it took some time between 2010 and the autumn of 2013 to even put any guidance out about how it should be interpreted in the months between then and August 2014 it changed again and because there are more people now actually starting to use this raise questions and actually test it with real life examples and that is now obviously a more active space then that's why I use the phrase evolving the rhythm and the intervals at which we can expect things around that is not defined so it could go on forever I mean I know it's not forever but it feels like it to me it feels like a constituency member is like us trying to go to school building our constituencies so I can only restate what I've said we remain vigilant we obviously all have the same shared endeavour Can I ask you a better question Alison your point which is a very fair one about AWPR have you taken legal advice has the government taken legal advice about whether you judge any ruling on AWPR to genuinely directly affect all the other projects in the pipeline so just in terms of AWPR on the advice that has been taken Sharon you've just asked me not to use documents so the Aberdeen Western Pryfor I followed the old transport it to me is coming at that I apologise we'll both make sure we've taken consider of our advice really on the financial side around our assessment of the classification of Aberdeen Western Pryfor and we have taken some league of life I believe around whether Eurostat and the O&S had the O&S decision fits and where that fits with Winston and other bodies around how we apply apply this I think I'm not sure that we're completely clear as the legal basis of Eurostat but it's O&S make the decision as to how the government have to apply the accounting of these projects So would it be a ridiculous suggestion to see and to suggest for the matter that the schools programme could continue what is the potential risk of the government continuing with that reaching financial close on the schools that Colin Beattie and I have been describing or the all eight schools on the basis that you don't know whether the ruling on EWPR is going to directly affect the rest of this programme in other words could you get on with it so the judgment around this is I'm just thinking of also addressing your point around the legal aspects so our account for activity and we have an established method that requires the financial reporting manual to specify how we actually treat these types of contracts that is not in question at all so in terms of our statutory accounts then that is something where we do not need to seek legal advice and because there is another school of thought that's around international financial reporting standards and I'll try and avoid everyone's face glazing over at this point but in terms of those international financial reporting standards there is a clear picture around that so thankfully on the statutory obligations to parliament and how we account that is actually much more straightforward where this particular issue reads across to are the actual administrative arrangements that are determined country by country and in this case it's the UK treasury on how these items are budgeted for and it's that budgeting issue just to be again absolutely clear this does not have any cash impact at all so the flows of cash are not affected at all by this so it is around the nature of how these activities are represented by the UK treasury in the budgeting guidance and actually we are still to see budgeting guidance that takes into account ESA 10 in relation to these particular projects for the reasons that I've already rehearsed that we are in this vanguard of activity. I've just one final question if it's an accounting procedure I think quite a lot of us would think solve it but the final question is just about how you're accounting to this committee and actually on the schools that have already been mentioned this morning there's no note to the account no note to our, to this committee in relation to for example page annex A page 18 which does mention the answer and hide that says all this and I do think this is a very material issue for all of us. There should be a note in this report to us and to this committee about what's going on here and that should be regularly updated since this is starting September I really think it's the onus is on the Scottish Government to keep the committee up to date with that just have an assurance that that will happen in future in these reports if there's any kind of major issue which is slowing down a project we should know about it and it should be in this it should be in this table because actually the way this table structure suggests that the Anzins High School is going to start tomorrow I drove past it yesterday and it's starting tomorrow so this thing isn't accurate so can I ask that you get that right in future? So we obviously want to make sure the information is accurate just in terms of committing to future reports including something on this I'm happy to do that and just to say that as I mentioned the answer to the earlier question the IPQ that was put forward by the Deputy First Minister on the 13th of February is still very much the touchstone reference point on this issue and therefore it is there, Parliament has it but obviously we can make sure that if there's anything like this that we continue to copy that into the Parliamentary audit committee as well Thank you Thank you very much and good morning I have two questions if I could put them both to you now like others I have a constituency interest my question about for for academy is simply that I note that it hasn't reached financial close but you've already started construction on an advanced works agreement and I'm wondering if somebody could explain what that means to me in words of relatively few syllables and not too many sentences of more interest than perhaps the second question would simply be about the VNA in Dundee, just down the road we've heard all sorts of comments from people, most of it via the press I think I'm just wondering whether you'd like to take the opportunity of explaining how that project has moved and cleared the numbers of change significantly I think if you could give us your view on that that would be helpful please Thank you Mr Don I'm a person to deal with the issue of for for academy and also obviously the VNA is a project that's led by others but I know Andrew has had some contact with it so he will seek to address your questions as far as he can In terms of for for so the principle around the advanced works is effectively those involved in the project taking as many steps as they can to get the site ready so that once you reach financial close it's possible so that it can involve things like clearing the site laying down some of the initial bits of structure so that you are basically match fit when you get to the point of financial close In terms of the VNA the dynamic around that project is a bit different from some of the other projects they're in scope of the progress report so Scottish Government is a key funder of the project but isn't the procuring authority or a project partner in that sense As the report notes there has been an increase in the estimated cost for the project the council have put out a fair amount of information in terms of the reasons for that but they've clear the commission John McClelland to do a review of the situation around the project and his remit I think covers three areas and what the main reasons for the increase in estimated cost can further set be taken now on the project to make sure it does stick within time and budget going forward and other lessons to be learnt in terms of the wider governance and monitoring of capital projects in the area so that's a welcome step I think what the I guess a key issue around the project is it's a pretty novel project it's a novel design there have been some changes already to the specification of the project I think that partly explains the fact that there weren't a large number of bidders for the contract so when you get a limited competition in terms of the tender that can have an impact on price and I think that there has been an element of inflation in the cost estimates as well so obviously Scottish Government's engaging closely with the council on the project it's a key part of our priorities within the culture sector through the Scottish Futures Trust we're clearly working with the council on the growth accelerator model dimension of the funding package for the project and that's in the context of a wider look at the Dundee waterfront and indeed the wider Dundee area in relation to the prospects for a gam those discussions are going well SFTO are leading those and we'd expect a business case to come to Scottish Government in due course on that part of the landscape Thank you, it's a part of the world I know quite well as being a resident and indeed a councillor there for quite some time I'm just wondering can you give us some clues as to when that independent report is expected please do we know I don't, I guess the council would be better placed to answer that question I think when they initiated the work they didn't set a fixed deadline on the work to give Mr McLeil the scope to take it where he needed to take it because of the why public interest in the project it would need a bit of process due to a conclusion relatively quickly so a matter of months I guess would be a fair assessment but the council would be better placed to advise on that Thank you Good morning A couple of questions the first one is just regarding the two seamal ferries obviously and the documentation we have in front of us at the through the process in April and potentially into May so I'm just seeking clarification in terms of where we currently are with that particular process So it's Sharon I'm afraid I can't I'm just trying to remember can you give me a few minutes I'll see if I've got information in my briefing pack and I'll come back to you if not we'll follow up Okay, well thank you and the second question is it possible to tell the committee what the genesis of these changes actually has been, please The just to set a little bit about the context of ESA 10 so it is a statistical code that requires those countries that come under the ERAs Act umbrella to have consistency in the way that they report particular information and it's done through the statistical arm ultimately actually nests if you look at the hierarchy of this within the UN is where it all starts and then there are particular geographic people and teams that are then authorised to take the shape and form of consistently derived transparent information that's used at national and international level on the basis of statistics to be taken forward please bear in mind that is a charted accountant giving you that explanation as opposed to the chief statistician of the government but hopefully this is at least a little more accessible to you that's the architecture of it so that's they will have the motivation to make sure as I say that there is information that's prepared that can be used for comparisons across international boundaries so they will look equally at how gross domestic product GDP figures are actually derived and how those are constructed and they will also look to things around what's the level of debt and how that can be measured from a statistical methodology so I think you can see then when you sort of boil that down to where Euro stat will have an interest in this and particularly for countries that are sharing a common currency of the euro then the euro stat will be motivated to make sure that there is a consistent way of actually assessing the various elements that they will take into account in looking at the economic and financial health of individual countries so that's the very mega architecture, very high level architecture of this if you think about what's been happening then globally around strength of currencies exposure to debt what's been happening with banking industries and the extent to which risks have been managed around that then I think you can see why there will be further emphasis that comes through from both the UN and then to euro stat as to how they want to ensure that there is still a consistent and a defined way as to how all these various elements are measured and communicated and I think some of the motivation around therefore within euro stat is to make sure again that there are consistencies of how public measurement of certain parameters and private measurement of parameters are defined and to try and mitigate any criticism of countries across the euro zone of actually putting certain things under different headings so as to either show a different position of the financial health and wealth of those individual countries so that's probably the most accessible way that I could describe to you the motivations are around this the ESA 10 actually has origins with UN defined requirements that actually predate that so there was still a delay between what the UN said they wanted to have happen before it was captured into a 2010 ESA before that's obviously then now being implemented and required to be put in place across Europe from September 2014 so there is a huge long pipeline of activity that's around this the treasury used this particular benchmark to consider how budgeting should take place that's their choice that's a local administrative choice within any country how they choose to budget a particular thing but that's the actual background to all of this that's very helpful because certainly with your comments that you commit with earlier on much of what was very high level as well and I think what you've just said there actually provides that further context in terms of the discussion that you've had this morning particularly regarding the schools that my colleagues touched upon so in terms of what you've said this is a wider it's an EU change EU set of regulations and are you aware of similar events of similar circumstances happening across the EU in terms of potential delays to building projects now I'm not going to ask you for individual projects but I would assume that this may be occurring elsewhere as well we are aware that there's active dialogue with other countries about their particular schemes and where they sit obviously we've had a very active pipeline here in Scotland it's been a the government's choice to respond to some of the recession and the really difficult times that there's been to actually stimulate the economy through infrastructure investment there will be parallels in Europe and equally there is this challenge of what's happening with the euro stat changes and they have their own particular line of sight and activity and how that sits and sometimes feels quite contradictory with all that Younger is saying about the pipeline and the drive for further investment and therefore there will be lots of motivation as to why people want to get these issues resolved we have them here in Scotland but they will be that across Europe and Younger himself will have a keen interest in making sure that happens OK, thank you an entry from Nigel Don I'm just trying to put this together I'm just wondering am I right in hearing that simple absolutely down at rock bottom this is about not how much money you spend but how much of it you put in the capital column and how much of it you put in the revenue column and we're actually delaying projects on the basis that we're not sure where we write the numbers in the cash book afterwards Can you just say my stuff I appreciate trying to be helpful but can we try and keep the answers as focused as we can and if there's any additional information you can provide to the committee you can follow that up and rain Yes the I think we should follow up in writing but the key thing actually that's happening around ESA 10 is actually whether the projects and how they are being run is whether that is being run by an arrangement that is very very much within the public sector or an arrangement that's very much in the private sector so you get into what the actual governance arrangements are what's the sharing of risk so it's getting into those sorts of detailed analyses and that's the particular thing that all this is looking at Can I just ask finally in terms of sorry sorry sorry, sorry The tenders were due and at the end of March I haven't heard anything to indicate that that hasn't happened and that the process isn't on track and it also takes some time to evaluate those tenders but we can follow up with a more up-to-date position for you on how that tendering process is going if that was the question that you were asking Yes please, thank you Can I just ask finally in terms of from the report that clarifies that private finance remains a significant part of the programme like those 30 capital projects where private finance continues Can you explain to us what the difference is between that model and the models we mentioned private finance we think of PFI, we think of PPPE or different models so what would the difference be in that respect? Private finance PPPs and MPDs are all variants on the same sort of model which is actually about having consortia that can both finance and design build and often maintain an asset when it's built so these variants that you have just described are all part of that same arrangement Can I ask if I said to you then PPP model compared to the models that have been proposed here can you confirm that the companies who are involved in the PP model compared to this model are still involved and is there a significant difference and I'm not asking if there's not a political question I'm just asking for in your experience what the difference is between these projects We have found that there has been active engagement with the new models some of that will be a factor of the nature of the models and the time where that's happened through a recession so people who have wanted to invest have actually found it very attractive to invest in government progress activity I'm probably not asking a question who is engaging with it all I'm looking at is we have PPP models that have existed for some time or previously existed pre 2007 and the model that we have here what is the difference between both models So the main elements is actually to do with the level of profit and the extent to which previously there was no constraints on that that the contracts were competed for under the NPD model there is a more upfront part of the competition and part of the procurement exercise an explicit cap that's there around certain elements of profits just so to actually make sure that the programme is still delivered but actually at a better value for money for the public purse so those are the main defining factors With the companies who were involved in the PFI PPP models are they involved in these models as well so there's no effectively the same companies that were involved have continued in this model as well They haven't been deterred by others have actually come in to the market as well in Scotland as well so as I say we have seen in the vast majority of cases active competitions and people are actually seeing it's been still a good place to invest in Scotland with this particular model as well as the ones before Companies have enjoyed profits prior to this model and for example PFI and PPP continue to make the same profits as a result of this model Yes, there will be examples where some may have gone through a refinancing exercise and that's an opportunity to renegotiate wherever possible but certainly the more constrained profit environment under the newer models has not deterred those investors that used to do business in Scotland and it has attracted new ones in What would be the advantage to the Government for the current model compared to the previous model Just in terms of value for money Can you give me one example The basis is that within the contracts and I think we need to separate out the two parties that are involved so that the finances, the banks the bond providers they will receive their return as they always have done and the consortium of companies is delivering the project so the construction companies the maintenance companies and the SPVs that run the projects they within their bids both previously and now are bidding with an expectation of a certain degree of profit built into those bids and that's transparent within the bid process but previously within PFI if there were excess savings made on that contract or any other circumstances that meant that they could make more money then those companies kept that excess profit at the SPV level particularly in the form of dividends towards the end of the project and what the NPD model does is that it diverts those dividends towards the end of the project into the public sector and back into the public purse Can I just ask a pretty much a Leamans question are these private companies still making money they still make a profit on the contracts that they are delivering within the company so they've not actually whilst there might be something written into the contract that means that some money is paid back to the government which is all very well but these companies have not walked away and says well there's no money in this and somebody else is making money out of it no they're still making a market return on their contracts but they aren't able to make excess profit out of the contracts Can I just ask Mr Stafford mentioned the explicit cap Can you see what that explicit cap is? Well that will be around the specifics of the contract so again Sharon if you could come in because obviously you've been dealing with these contracts So as I say the contracts now there is no equity funding within the contracts so there is no dividend funding coming out on the basis of exit so the funding that goes in is on the basis of sub debt, bank debt, bond debt which goes with a return rate that doesn't change throughout the life of the contract irrespective of how the contract does so that effectively is a form of cap because they will get the return based on the coupon of the investment It's really helpful you've given this evidence it's very helpful indeed so the explicit cap isn't actually a cap at the beginning it's your very fair point about the end of the contract where they can't just make as it were excess profits by literally walking away from the contract and not doing any maintenance and things like that there are substantial clauses within the contract to ensure that they deliver the services that they're required to deliver at the level that they're required to deliver them and they take significant risk on delivering that and they're penalised if they don't but depending on the shape of the contracts and they do all vary between projects there are opportunities for them to make some additional savings additional money within the shape of the contract so for example the Aberdeen contract that those excess as we would call them at this point in time come back to the public sector in the form of a reduced unitary charge good thank you it's very helpful I mentioned this earlier I don't think you get a chance to answer it in terms of clarifying an example of where both models there's been a contrast between PPP and the current model is there any specific project that you could point to there were the early stage PFI PPP projects in Scotland were not under the not-for-profit distribution model so some of the early ones like for example the Edinburgh Royal Infirmary would be a PFI PPP model as opposed to the not-for-profit distribution model I think it might be helpful convener if we just use that as an example and gave some figures back to the committee on that because the interesting point about that is the Royal Infirmary site to the south of Edinburgh it was a PFI project but there's a new development site now which is going to be an NPD project which is the replacement of the Royal Hospital for Sick Children and in fact identified a successful bidder for that NPD project is actually the company who has just completed the South Glasgow development which is a traditional public sector model so your point about companies expressing an interest in various types of models is very much a live issue as an example of that but we can give some richness back to the committee out with this meeting in terms of just comparing that to Royal Infirmary sick children's example just to be clear what my question is we have a PPFI PPP model versus the current model just give us one example where there's been a massive success when we are not basically the new model I take it we're not approaching this unless it is to save the public purse the substantial sums of money that's the point I'm making so if there's some proof of that I think it would be good evidence for the committee to build on Just a very quick supplementary point on that convener just to reassure the committee we're not being complacent around existing PFI projects we are looking where possible if refinancing of the project is an option and we're also looking to get efficiency gain out of the current contractual position and through a working with Scottish Futures Trust we're looking at delivering efficiencies from the existing PFI projects Can I just clarify that in the terms of these projects that you referred to there has there been additional contracts attached to these current contracts so have we signed an addition to a current PFI PPP contract We haven't signed an addition but for example if you take the two major PFI projects here in Mars and Wishall we have just extended the FM services there and part of that extension was a reduction in cost which was several hundred thousand pounds plus an extension in the range of services that were being provided within that contract that have been signed extensions to current PFI PPP contract and I know of one in my constituency so I can speak for that The last example that I'm giving was a seven year review as part of the contract of the soft FM services so it wasn't an extension the tenure of the contract is still the same but this was an opportunity to look at delivering an increased value for money from the soft FM services but happy to provide further detail Okay Can I thank the witnesses for that they saw a very brief supplementary from Colin Keon Sorry it was a great pleasure indeed for taking that convener it was really just heading back to the Royal Infirmary new contract if you like what's the anticipated savings on the old PFI contract simply because I know it's coming for some serious criticisms over the year The refinancing which took place 80 years ago now that released 31 million pounds back into the public purse over the duration of the contract that was the savings that were realised from that particular Okay, mango I thank the witnesses for their time and hopefully we can look forward to falling up in the correspondence exchange that we've committed to, thank you Just have a very brief five minute interval I can reconvene to agenda item number three which will take evidence from the Auditor General on the EGS report entitled Scotland's Colleges 2015 I'd like to welcome Colin Gardner the Auditor General for Scotland Fraser McKinley director of performance audit and best value Susan Lovett audit manager and Martin McLaughlin the senior auditor of Audit Scotland I understand the Auditor General as a brief opening statement Thank you convener Scotland's colleges as you know are the main providers of further education and have an important role in helping to achieve sustainable economic growth colleges have gone through significant reforms over the last few years and my report comments on these various reforms and how well they've been managed and delivered it also provides an update on the financial position of the college sector our overall message is that colleges have coped well with the significant demands placed on them as they've managed this complex programme of reform however many of the changes are still taking place and colleges will need to continue to manage them carefully we also identified gaps in how the Scottish Government and the Scottish Funding Council are monitoring and reporting progress with the reforms the reform programme reduced the number of incorporated colleges from 37 to 20 since 2011-12 planning for college mergers was generally good and all of the merged colleges were established on time the mergers have contributed to efficiency savings but the Scottish Government and the Scottish Funding Council have not specified how they all measure some of the expected wider benefits of the reforms and they have not gathered reliable information on the overall costs of mergers the Office of National Statistics reclassified colleges as public bodies in 2010 this took effect from the 1st of April 2014 and has led to greater accountability for the use of public money with colleges now required to submit more regular reports to the Scottish Funding Council on their finances and to seek approval for some items of expenditure it's also led to the formation of arms length foundations intended to protect colleges financial reserves and colleges transferred £99 million to these independent foundations in 2013-14 we found that changes to the college sector so far have had minimal negative impact on students in those colleges the colleges continue to meet their targets for learning and delivered around 76 million hours of learning in 2013-14 and Education Scotland has not identified any significant issues with the quality of learning and teaching in the merged colleges it has reviewed to date however since aspects of the changes are still under way it will be important for colleges, the Government and the Funding Council to continue to monitor learning and teaching quality together with learning provision and students' satisfaction the number of individual students attending college decreased by around 7% between 2011-12 and 2013-14 the Government continues to prioritise younger students and has reduced funding for short courses and for courses that do not lead to a recognised qualification as a result there's been a reduction of 48% in the number of part-time students and a reduction of 41% in the number of students aged 25 or older since 2008-9 moving on to colleges finances these continue to be generally sound adjusting for the transfers to arms length foundations colleges reported a small overall surplus of £3.8 million in 2013-14 Scottish Government funding fell by 12.3% in real terms between 2011-12 and 2013-14 and college spending also reduced over the same period mainly through reductions in recurring staff costs most of the staff reductions were delivered through voluntary severance and while most severance was managed in line with good practice auditors did find significant weaknesses in how two colleges managed and approved senior staff severance arrangements and shortcomings and a further four my report also draws attention to colleges relatively short-term financial planning while recent changes have made it more challenging for colleges to prepare longer-term plans it's increasingly important that they now do so to ensure they effectively consider plan for and meet the needs of their regions we make a number of recommendations in the report for Scottish Government for the funding council, regional bodies colleges and their boards in particular the Scottish Government and the funding council should specify how they will measure and publicly report progress in delivering all of the benefits expected from the reform programme it's also important that the Scottish Government and the funding council work with colleges and plan improvements in how severance is managed in future given the scale of change in the FE sector and the complexity of the new arrangements we will continue to monitor colleges through the annual audit process and report back to this committee on the regular cycle convener, my colleagues and I are happy to answer questions from the committee as always thank you and I open to questions and I ask Colin Beattie to come in the first question thank you convener, good morning I used at the comments in the report that despite the magnitude of the changes that the colleges met their targets for learning and that there's no significant effect on pupils, that really is good I have a wee bit of a concern on page 23 starting with paragraph 44 it's about the transfer of the 99 million to arms length foundations and I know we've talked about this before one has to assume that part of that money at least is public funds there are going to third parties and however the constitution bind them to a certain purpose there are no guarantees there's a fundamental principle about following the public pound how do we do that in this case can we what has to change to enable that to happen right Mr Beattie this is a complex issue that we have discussed before with the committee the reserves that colleges had built up over time do come from a combination of sources including significant public funds as well as income from other commercial activities that they undertake and the reclassification of colleges as public bodies meant that a solution needed to be found for how those reserves could be carried forward and not reduce the overall spending available to the government under the Scottish block I'll ask Fraser to pick up some of the questions about the impact and about the future oversight of that money if I may thank you or to general as the committee knows we've been looking at arms length external organisations for a good long number of years now not so much in the college sector but in particular local government we've had the conversation with you we've had conversations with local government committee so the arms length foundations are effectively one of those and the following the public pound thing is absolutely key I think what we can do in this case on behalf of the order general and local governments case on behalf of the council commission is ensure that the controls are in place to make sure that the flow of money between the two organisations is well controlled we audit obviously in this case the colleges so we'll be able to keep track of what money they are taking out of the arms length foundations and what that's being used for and the controls around that it's kind of early days but anecdotally there have been a couple of instances we had a meeting with the FE sector auditors only last week and there is some evidence coming through of the arms length foundations providing money to organisations that aren't colleges but they are schools so we don't have any evidence yet that we've picked up of money for example going outside the education sector and I think that's where the articles of association are really important they're actually quite tightly defined so we can use the funding for but rest assured that we will as these things develop and mature we'll be keeping a very close eye on it just finally very briefly convener there is an interesting tension in the system here between I think our interest and your interest in ensuring that that public money is well spent and well monitored and controlled with recognising the fact that these arms length foundations are independent charities with independent trustees and therefore need to operate independently and regulated by the office for the Scottish Charity Regulator whose interest is ensuring that the alfs to call them that are operating independently of colleges and anyone else so there is an interesting tension in the system there that we have experience of working through in the council sector in particular and we'll continue to keep a very close eye on it satisfied that the measures that you're taking in terms of auditing the flow of this money will satisfactorily ensure that you capture all the transactions and that you will be able to follow the public pound Yes I am satisfied with that that's not to say that we can absolutely give you a cast iron guarantee 100 per cent of the time that it will always be perfect because that's not what we do as auditors but we are very alert to this very new development in this landscape that we are as I say being a very close eye on this year Okay In paragraph 7 there's mention that four colleges fell short of good practice in terms of their sevens payments How serious was that? The reference I think takes us back to pages 38 and 39 where we're talking in more detail about the severance arrangements that took place I think our finding overall was that two of the colleges had some quite significant shortcomings and indeed there's another section 22 report waiting to be laid in parliament that I would expect to brief this committee on relatively soon The other instances that auditors identified were less serious but still fell short of good practice Again, as with your previous question about arms and legs foundations this is clearly an issue that we've dealt with a number of times with this committee in the college sector and in other settings and it is disappointing that an issue that's of such significant public concern is still causing problems The bright point in the report that I'm able to bring to you today is that the funding council have now worked hard to strengthen their guidance on the oversight of this so we hope that these are the tale of poor practice in the past but I share the committee's concern about these instances The most particular issue leads back into paragraph 21 The SFC provided £52 million 2011-12 and 2013-14 to support the mergers and another £6 million 2014-15 and the indication seems to be that most of that went in severance Was it well spent? Has the benefits of that been properly measured? Basically it seems an awful lot of money to provide to pay people off I'll ask colleagues to come in in a moment with more detail How many of these people that were given severance payments were senior staff and principals and so forth in the colleges? I'll ask colleagues to come in with a bit more detail in a moment I think it's worth saying initially that because one of the objectives of the reform programme we weren't at all surprised to see that there were significant numbers of severance packages agreed and that there was money required to support that It's one of the examples we've seen right across the public sector in responding to reducing finances One of the key ways of doing that is to make short-term payments that release you from long-term employment obligations so we're not surprised by that and it's clearly very important that it's well-governed and that there's transparency in the way that it's managed and the payments that are made I'll ask colleagues to pick up a bit more about the detail of the split between senior and more junior staff and the things that we've seen working well and less well Who wants to come in? Do we have that team? We don't count the numbers of senior staff in front of us I'm sure we'd be able to provide something and obviously from the audited accounts I think, as the Auditor General pointed out due to the duplication within the sector if you're going through a merger process and the fact that around 60% of college expenditure is on staffing then in order to make long-term savings and recurring savings then that's the most obvious way to do it which is why it's financed that way Is it? Sorry, something else Sorry, I was just going to say we will come back with more detail on your specific point about the principles and the senior members of staff That's good, because one of the points that's come out already is that the SFC doesn't really have any powers to enforce the good practice of sevens and sevens payments and everything that's around that All they can do is recover funds from or penalise the college by recovering funds from them which of course penalises the students not the people who benefited from whatever process was in fact misused You looked at this very closely as part of this report because of the concerns that have been aired and raised by the committee before I think the Scottish funding council's revised guidance is now clearer about what's required and links back to our own guidance on managing severance well but you're absolutely right unless there's illegality concerned and in most cases there isn't the sanctions that are available are limited it's made more complicated in the case of this reform programme because the colleges that made the arrangements in most instances no longer exist as legal entities they've been merged into new organisations with new leadership who have a formal accountability but weren't part of the decision making process and the penalties that can be levied as you absolutely rightly say would penalise the new colleges and the students who rely on them for learning support I think it's fair to say that the funding council recognises those difficulties but for us that highlights all the more importantly the premium that should be placed on making sure the guidance is absolutely clear and that the oversight of that part of any merger process is done properly in real time rather than audit coming along afterwards unidentifying through the audit process where things have gone wrong The student reforms have reached up on entry No it's a point of clarification In terms of the Scottish Colleges Foundation and Allios are they actually set up in a similar manner? Just what is my kind of awareness of a famous on the local government committee and you mentioned they show the Allios Allios as well I'm sorry We don't need to say that again it's just for clarity The arms length foundations my understanding is are all charitable organisations so in that sense it's a bit different to the council the government sector where Allios are a whole different range of different kinds of organisations as we say in the section on page 23 the arms length foundations in the college sector are charitable organisations and as you say there is an umbrella one, a national one set up but also there are several that have been set up locally and regionally so in that sense they are very similar and our understanding is that the articles of association are similar in that they are quite tightly defined about what that money should be used for Really on the same point and you'll understand that this committee asked a lot of questions on the arms length foundation particularly the previous convener I felt in the past that I was quite assured about what was happening I was assured about the arms length foundations et cetera and I felt I had an assurance about the articles of association but when I read this report particularly paragraph 47 really began to get quite concerned about this and my concerns would be there is no guarantee that these funds will be returned to the college sector as this would raise concerns about the independence of the foundations and other organisations such as schools which has been mentioned voluntary sector organisations or private sector educational providers can also apply for funding held by these foundations now if we just think at the moment about the wood commission developing Scotland shun workforce some of the modern apprenticeships may be done through colleges may be done through the school sector there is nothing to stop voluntary sector or private sector providers to say we'll train x number of apprentices every year which is fine and you know if the allios decide to give them money to do that then in my opinion the main thing is that people are being trained but the point here is that we actually lose sight of the trail of the public pound because when it goes out to a voluntary sector organisation or a private provider then really after that it's none of our business so the point that Colin Beattie was making about the audit of the public pound it would appear to me that once it's been allocated to volunteer private we don't have an audit am I correct? For the sums that are transferred to the arms length foundations the money can only be used with the articles the objectives of those arms length foundations now I don't audit the foundations they're audited by auditors appointed under the framework set up by the officer of the Scottish charity regulator and they're regulated by the regulator in the same way you're right there is less transparency about it what we can look at is the money that's transferred into the funds by the colleges and the money that's transferred back to the colleges by the trustees one of the Oscar requirements the charity regulator's requirements is that the trustees are independent of anybody who might benefit from it and that is just one of the corollaries that are there as we've discussed in the past it does have implications for that transparency and it's something that we are aware of in sectors other than further education I'm not sure there's an answer to it it's an unavoidable consequence of them being foundations between the college and the alio both ways but it was just in your response to Colin Beattie that you will always have an audit of that public pound the truth is that when it goes from the alio to organisations other than even schools voluntary sector and private providers there is no longer an audit of that public pound is that correct? you're absolutely right they're audited outside and there is less transparency back to this committee my second question was really if you wouldn't mind concerned about measuring the expected wider benefits now I think every parliamentarian he voted and supported the college mergers we thought it was a good idea you have said that there have been some savings but you mentioned the funding reduction of 12% but in your previous report I think it was two years ago there was a funding cut of 24% so we have a 12% on top of a 24% cut which is very serious you also mentioned um well sorry what you didn't mention was the actual number of students in a previous report you mentioned 140,000 fewer students we don't have an update in how many more student places have been cut although we do have a reduction of 48% in part time and 41% over 25% so my question is that in terms of the outcomes that were brought in in the college mergers one of the outcomes was to widen access to people from more deprived backgrounds and to address the inequalities gap so do you have any concerns that it seems that if you're over 25 or if you have other commitments family or something and you want to do a part time course it's actually more difficult and these may be the most needy in terms of getting training and further education would you say to become more difficult to get into further education for over 25 and part time students and it will be more difficult to achieve that outcome there's an awful lot in that question I'll have a first bash and colleagues may want to add some detail first of all you're right about the direction of Government policy for FE colleges it's clearly appropriate for any Government to set its priorities and this Government decided to focus on learners aged 16 to 25 and on courses that lead to a recognised qualification that has led to a reduction in the number of students who are over 25 and to the number of part time students and in relation to the first couple of elements of your question you might be interested in Exhibit 5 which shows the trend in the make up of students attending Scotland's colleges over the last seven years broken down between full time students and part time students and there is a marked drop in part time students there in line with that policy in relation to overall fund £150,000 that's only in part time and I really wanted an update because we used a figure in the Parliament of 130 to 140,000 but I saw that one and it's 150,000 in part time students alone but it was really the over 25s as well because they've had a 41% cut I'll ask colleagues if we can lay our fingers on the number of students broken down by age now if not we can certainly let you have it separately Exhibit 7 shows the trend in funding over a longer period, the eight-year period going back to 2008-9 and as you say we reported previously a significant drop between 1011 and 1112 and overall financial reductions came through I think our bigger point though is that the reform programme was the government's stated response to both its policy objectives and the fact that funding remains tight for public services and while it's clear that the mergers have made a contribution to efficiency savings we don't think the government has set out clearly enough how it will measure the expected benefits of merger in line with our mergers report going back 25 years now and for some areas we think there isn't good baseline information available and that's clearly very important for this committee and for the Parliament as a whole in being able to be satisfied that the objectives of reform are being delivered and that there aren't unintended consequences for other student groups I'll just very briefly in paragraph 54 Mrs Scanlon we talk about the actual number of people in terms of headcount which is a little bit so in 2013-14 we say that about 238,000 people attended college which was just under 20,000 fewer than 1112 and that's 36% lower than 2008-9 so that's trying to give you the overall in terms of the number of actual people attending colleges and then the rest of as Scanlon says the exhibit and the paragraphs following that tried to break it down by age group a little bit point is sort of included in the report but I'm not sure if this is totally appropriate convener I'm sure you'll tell me but it has been covered in this week's times educational supplement and in the local media and it's a concern I have raised before and it is the cost of the regional boards and I think you'll know there's been quite a bit said recently about the Glasgow regional board but my concern is mainly the money allocated to the further education UHI regional board in terms of taking that money from front line education in the colleges but I just wonder convener if the auditor general would wish to give us an update or if I can perhaps ask generally speaking if you have any concerns about the governance of the regional boards and the cost of the regional boards because I am aware that that does take money from front line chalkface if you like I think in the report on page 20 we say very clearly we think the new governance arrangements are complex it's too early in my view for us to be able to say whether they're working whether they're having the intended benefits and whether the concerns that have been expressed by some colleges and by others about the clarity of roles whether they've got substance or not we will audit the regional arrangements as part of the audit of FE in future the Glasgow colleges regional board hasn't yet been required to produce a full set of accounts that we have audited but that will be our way in it will do so and clearly we'll be looking right across Scotland at the way in which these new arrangements are working as part of the wider scope of audit that we do so I think all I can say is to give you the assurance we recognise some of the tensions in there and we will be looking at that as part of our audit work and we'll report it back to this committee if that seems appropriate to ask about a timescale on that will that be done this year it will be done on the back of the latest set of audited accounts I'm afraid I've lost track of what that actually means now there have been so many changes to them but it will be within the next 12 months to keep the cycle going I think you said in your opening remarks that there was no reliable information on the cost of mergers is that so? We don't think there's good enough information on the cost of mergers the Government knows and the funding council know what were made available to colleges for central funding and that set out from the report there will have been other costs that weren't captured well enough and equally the baseline for some of the changes is not available in the way we'd expect it to be When are we going to have that information or are we ever going to have that information? Is it auditable I suppose I should be the better question It's a good question The funding council plans continuing evaluations as we say in here and they expect that some of the information that we've been looking for will come through that process that is welcome and we'll look to see how well it works we're also very conscious so from a range of work we've done that in some cases it can be quite hard to go back and put in place information if it wasn't collected at the time a number of other things do change including the broader funding allocations changes that would have happened in any case and it can be quite hard to go back and sort of set the counter-factual of what the number might have been had everything else not changed An assertion was made about savings to be made and it can't be proved At this stage the funding council and the government weren't able to give us an assertion that we asked for to demonstrate the costs of the merger process And I'll ask the mayor, Scanlon's question do we have any notion of when the committee might be allowed to understand what those numbers might be I'll ask Susan to talk you through more what the plans are for evaluation and what we think we will have and what our concerns are Susan? Yes, the Scottish funding council is part of the merger process agreed to undertake six months and one at two years post-merger and as part of the fuller assessment, the two year post-merger evaluation, they will be focusing quite clearly on the costs and efficiency savings that have been identified by these specific colleges So at this point we don't have that detailed information but the funding council have highlighted that that's a specific theme that they will be addressing in terms of evaluation Your report also says that the Scottish Government identified that mergers would deliver £50 million of efficiency savings each year from 15-16 Where's the evidence for that? At this stage we don't have it That's why we've made the recommendation we have on page 6 of the report that the Scottish Government should be publishing this information They make an assertion about how much it's going to be saved and then here you are and you've been able to find that assertion to be correct We don't have the information at this stage Susan's outlined to you what we told of the plans for collecting it but as you know this goes way back to our original report on managing mergers where we recommended at that stage that clarity about the expected costs and benefits was very important to underpin the rationale for making these changes It would be fair to assume as a parliamentarian that when a Government say they're going to make £30 million or £20 million or £140 million they made a clear statement about £50 million Have you found any evidence in your audit of the Government as to how they came up with that figure of £50 million What we have looked for is evidence of the amount of savings that have been generated by the process and we haven't found that I think it is a question for Government rather than for us Apologise, I'm sure that's entirely true which is this whole area that you've been very fairly describing In that paragraph it describes a change in the I don't know if you'd call it the target or the scale of savings expected There's a couple of sentences there of which says this letter was superseded by revised guidance in March 2013 We were able to understand why the Government changed its guidance which must have been difficult genuinely for everyone involved to individual colleges being asked to make very significant savings It wasn't about the overall quantum it was about the spread of those across colleges but again it's something you may want to explore with Government Did you discover as to when that guidance changed that made a material difference to the potential savings that could be accrued by the whole merger process No it didn't The figure of an expected £50 million savings through the merger process We have reasonable questions to prosecute Thank you Thank you very much I think it was Colin Beattie that started on this here but I take you back to your conclusion that the changes to date have made no significant detrimental effect on students Can you just talk us through how you came to that conclusion what did you look at that allowed you to arrive at that? I'll ask Susan to come in in a moment It's clearly important to put it in context These are changes that are still very much under way and particularly curriculum reviews are still in process and we know that the focus can only be on the students who are in further education not the students who haven't been able to access it because of changing priorities but Susan can talk you through the material in the paragraph from 48 onwards around the evidence that's available and why we drew that conclusion As part of our audit field work colleges information surveys that they had done with students to identify any issues arising through the merger process the Scottish funding council had carried out all of their six month post merger evaluations and as part of that process they met with a range of students to gather views we also reviewed the reports from Education Scotland and again they would be involved with discussing with students their expectations and experience of the merger process and gathering all of that information together and analysing all of that we reached the conclusion that there had been no significant detrimental effects on students and certainly as part of our discussions with the merger colleges significant emphasis was placed on maintaining business as usual for students and that was their ultimate priority was to minimise any negative effect and ensure that learning provision was maintained throughout the process of the merger I think that's helpful because you've presumably seen the comments that Larry Flanagan from EIS made in response to this report where he says that that conclusion is simply wrong is it fair to say in terms of finding some common ground between your Audit Scotland and the EIS that I think actually what I take from what you're saying there is that your assessment was very much about current students at college and that a lot of this debate and commentary around what has actually happened in our colleges actually relates to the figures that Mary Scanlon was asking about which is the thousands of kids who are not at college in places that are not available in courses that are no longer taught as a result of these changes and you don't make any comment in your report about that impact, is that correct? I think that may be part of the difference that's been expressed as Susan's outlined what we have done for the four merger colleges that we looked at in detail is to look at all of the evidence that is available from their own surveys from SFC work from the Education Scotland inspections that have taken place and all of that evidence tells us for the students who are consulted there's been no detriment and that has been an objective of the colleges themselves to maintain we know that there are students who because of the priorities in education in colleges when they previously might have been we haven't looked at their views at this stage but there is a bigger question there and there is also the important caveat that significant things like the curriculum reviews may lead to changes in future about what teaching takes place and where it's delivered it's too soon to know what that might look like or what the effect would be Fraser, is there anything you want to add to that? Just very briefly in terms of the work on how we go about this report and indeed there are other overview reports we do on the NHS and for the Auditor General and local government accounts commission so in a sense it is by definition an overview report of the sector I think given the very substantial issues that are raised in this report we are looking at what else we might do in a bit more detail in the next period and as part of that exercise we would of course be delighted to speak to the EIS and other unions as we do last year for example so we had seen the comments and were more than happy to engage with EIS and others as we take this report forward and think about what issues we might want to take a closer look at in the future I mean clearly the things in some of the comments that EIS have made which support the conclusions in this report and there are areas of common ground between their conclusions about what's happening in the sector and your own conclusions based on this report but do you think given this was an overview could it have done more to engage with them in terms of the production of this report? Absolutely happy to reflect on that for sure I think as I say because of the nature of this we have tended to use the evidence that is generated by others if you know what I mean so our starting point is what evidence is there from colleges and from education Scotland and others but as I say very happy to reflect on how we do that in the future for sure That just takes me to a final point the convener because I suppose at the heart of something beyond the criticisms about what's happened in terms of students who are no longer in colleges but the criticism they make is that the report is driven from a management perspective which is borne out slightly by the fact that the information that you are basing your conclusions on is provided as a result of the administration and management of the college system and I suppose it goes back as well to the earlier point about redundancies I think he said he would give us a bit more information about who has left the sector Do you have a view about what balance you would expect to see because clearly EIS is a professional body and attention would be concerned with head count in terms of its members that's understandable Would you have expected to see the balance that is there in terms of senior managers leaving colleges as a result of mergers presumably that was at the heart of the argument that senior people would be where we would be duplicating and people in lecture rooms and classrooms and workshops teaching isn't duplication that's the purpose of the service so it is what we are seeing what should be happening or do you have the information there or is that something that can be provided when we come back to the earlier point I think just a couple of observations first of all you're right we've used evidence from a range of sources but I wouldn't want the committee to be under any illusion that it's sceptical about that evidence it's our job to look at all the evidence we receive look at what confirms it but also what might counter it and make sure that the picture as a whole is consistent and if it's not to go and look for more evidence so we're not uncritical of what is provided to us by colleges by the funding council by government in any circumstances on the question of who we might expect to be leaving the college sector as a result of the reforms you're right we would expect there to be management teams because if you have three colleges merging you don't need three principles and three times as many assistant principles as you might have had that's why I think some of the focus that we've seen where it's not been managed well is very much at that level of the most senior people but equally as the process of merger goes through as it continues and the new colleges and their boards are looking at what learning is required in their local region and whether to meet the needs of employers and learners you would expect to see some changes quite unevenly distributed among both the teaching staff and the support staff of the colleges and it's that picture that we haven't been able to give you in detail today we'll have a look at what's available and come back but I would expect for people other than the management teams it to be quite variable and it should be properly based on an assessment of the needs there is a bit of detail we can help a little bit I think on exhibit 12 page 37 where we've now what this doesn't say specifically Mr Smith is who's gone in voluntary redundancy schemes of voluntary severance schemes but it does give you some picture of the shift in staffing across groups which shows that the teaching staff reduction variance as a percentage is about 9% the biggest chunks actually are what are around other support services generating activity so there is a mix I think it's difficult for us to say whether that's the right mix or the wrong mix and obviously within each of those groups there will be lots of very interested parties not least the trade unions of the different groups of staff which will be concerned about that I think a big part of our job going forward is to continue to monitor the impact of all of this this is all pretty new and while as Caroline says we're not seeing lots of very strong evidence of detriment we will of course be keeping a close eye on that as the merger process is bed down so as a result of this whole process is the management of Scotland's colleges a flatter structure than it was before we started can you say that based on what you've looked at and is the proportion of the amount of the budget spent on managing our colleges as opposed to teaching people in our colleges has that decreased? There are fewer managers in Scotland's colleges because people are still working through the process of looking at their staffing structures we don't know whether they're flatter across the piece yet and I think as Susan has said the focus has been on continuing to deliver teaching to learners during the early stages it's something we will be keeping under review as we continue our work in this sector and we can certainly bear that interest of yours in mind in pulling it together for the next stage at this stage though it is still in process as we say very clearly in the report and I think we're not in a settled state around what the management structures look like or the proportion spent on senior staff relative to teaching staff Thank you I just follow on from the comment about no detrimental effect on students that I suppose it is a pretty significant statement to make I mean the whole basis of this is to improve the student experience I'm thinking for those who are on part-time courses who are no longer on part-time courses because of the emphasis they wouldn't have been consulted on this so I suppose a few are out of the system and somebody says we were at the college last week and we carried out a survey then I suppose that this is quite a significant body of people who are should have been around in the college maybe if they were consulted before the left would have said well you know this has had a significant impact on me so it's pretty I mean I suppose this statement is pretty significant to say that given that there's a body of people who are missing from the process and to be fair as well I understand the ways in which we go about assessing this but it's probably not the most objective way to go about collating opinion to ask the government body who have a significant role in this do you think this has been pretty good so you know how do we you know is there not something here to be said for a more objective approach to this I think there are two different questions there convener the question that we've looked at is for the students who are being served by Scotland's colleges how has their experience been affected by the reform programme and we haven't just asked the colleges if they think it's had an impact we've looked at the student satisfaction surveys they've done, we've looked at the SFC evaluations, we've looked at the inspections carried out by Education Scotland and pulled all of that together to make a careful conclusion which we say in here is that to date there's no evidence that there's been a detriment to students experience now that's not as positive as saying it's improved and we'll be looking for that in future it's also not saying there hasn't been a detriment we're saying that there's no evidence of that but you're right there is a bigger question about... we've not said there's all these students who are no longer in the campus who have been affected by the decision of the merger and I'm sure it must have been in terms of the team that carried out this work somebody should have said I can look at it and say straight away and I'm not going to audit but I'm sure most of it could have said why not ask these students who have been affected and that could have been that these students and I've just been fair here and it allowed me then to move on to a full-time course that was available or it might not have but they're not part of this process so how can we be so significantly moving in the direction of this is really not of any detrimental effect I take on both point you're making but it's still a strong statement here saying there's no detrimental effect on students I agree with you that's a separate question and an important one we've looked at the students who are still being served by colleges and that's the conclusion we've come to but I think it's an entirely appropriate question to ask what about the students who may have been in part-time further education before or older students who may have had access to courses I think that's something which the Government you're actually probably pretty happy about because you're still there it's the ones who are not there I genuinely think there are two separate questions I think for the students who are there it is quite possible that there could have been an impact on their experience from all of the things that are involved in reform from college management having their eye off the ball to disgruntled staff all of the things that could have affected them and we're saying from the evidence we've got there's no evidence that's happened equally I entirely agree there's a separate question saying how are the people who might have been in further education previously who would have been part-time students or older students I think that's something that we can look at as auditors I think that it's something that you might want to explore with the Government and with the funding council to see what they know about the impact of that policy decision and how else those people might have their particular learning needs met in the context of the Woodreview and the focus on younger people's skills Nigel Don Ynna, and good morning, Auditor General Can I just take you to section 7981 about pensions clearly there is a general issue about public sector pensions there is the imponderability of future returns and therefore actuaries will keep going on a cyclical basis giving us different numbers as to the values and how underfunded or overfunded we are my question Auditor General really here is just in the context in which this report is written of our colleges is there anything significantly different between what you were looking at here for the colleges and the general problem of public sector pensions which presumably will return to another day I would say not Colleagues may want to come in in a moment I think what we're seeing here is a significant pension liability which needs to be managed over the long term The staff tend to be members either of the teacher superannuation scheme or the local government pension scheme one's unfunded, one's funded so they throw up slightly different questions but both have been through the process of negotiating changes over the last few years which are intended to make those liabilities more manageable and we'll be looking at the effect that they have I guess the difference is that colleges tend to be small bodies so the impact on their balance sheet of changes from one year to another in the assumptions, in discount rates in life expectancies can look like particularly large numbers in that context but I don't think it's a different issue for colleges than it is for public bodies across the piece Do colleagues want to add anything to that? Thank you Can I just ask one final question in the report we mentioned that staff numbers have decreased across the states I think over the last three, four financial years by nearly 10% and it says in the report that through voluntary termination there are voluntary 7th arrangements it says mainly are there a number of them that haven't been managed through voluntary 7th arrangements Martin may be able to add a bit of detail here that in most mergers we would expect to see people also taking the opportunities for example if somebody resigns to go to another job they would not fill that post to help towards the process Martin, do you want to add something to that? No As I've just been outlined there's natural wastage and there'll be people resigning there'll be people retiring who perhaps won't be replaced so that's why you can't say that 100% of it is due to voluntary 7th there'll always be what you call natural turnover of staff Is there any policy redundancies within that? As far as I'm aware No It's just government policy not to it's just clarity on that paragraph I thank the Auditor General for evidence and a very short briefing a short interval to allow for the next item Move to agenda item number 4 which is a section 22 report the 2013-14 audit of the Scottish Government's Consolidated Accounts Now obviously this is an EGS report I wonder if any comments from colleagues Tavish Scott Can I just speak briefly to this I've got three points I'd like to ask about this is obviously an IT system in terms of the new common agricultural policy from this year onwards, designed to make payments to Scotland's farmers, crofters and land users and as the appendix from the Auditor General says the programme continues to carry significant risk up to full implementation and beyond well that's certainly exactly what people trying to work with this programme are finding As the report says the business case costs have increased from £102.5 million to £178 million that's a 74% increase on the IT company because that's what I assume is the paragraph 9 where it says the largest area of spend is on the IT delivery partner I presume that's an IT company the costs there have gone up from 28.8 million to 60.4 million and 111% increase and by any standards those are vast increases and we have been here before on some IT projects so I do believe Covina we need to find out the reasons for that including from the EU I mean it's very comfortable to blame the EU believe me I've done it plenty of times in my life as well so I would hope Covina that we'd be wanting to ask a lot of questions of the accountable officer for this project and to the EU and to stakeholders who know an awful lot about what's going on here the most worrying paragraph for me is paragraph 11 because in that it says at the end there has been less progress in key parts of the process which in effect are those who have to use the process use the IT system and I think that's extremely worrying and that's why we need to ask in my view stakeholders this depends on effectively individual crofters and farmers having broadband because you need to do it online you can also do it by paper and that's why I welcome that fact but most of us who use it are being encouraged to do it online and if you don't have broadband you just can't use it to reports that the Auditor General has brought before us on superfast broadband as well so there's some very significant issues here in a practical sense this is a process that used to take an individual an hour it's now taking at least three hours to do so it's a massive implication for individuals and I would hope that the committee would take this would agree to have a look at this very closely from an audit point of view just because of the sheer increase in costs but also from a human point of view this is affecting people in their day-to-day lives running businesses right across Scotland in every part of Scotland and it's not going well and I would ask that we would give that some consideration thank you I was actually hoping that this update would be very positive in fact raising more concerns and as Tavish Scott said paragraph 16 the programme continues to carry significant risk but my concern would be paragraph 5 at this stage there's 435 single application forms being submitted that compares with 1,914 last year so it seems to be that we are already significantly behind my second main concern is the EC requires payments to be made to farmers by June 2016 but in Scotland payments are normally made in the seeding December in other words December this year and this is the timetable that the Government is working to however if we go further down Government has been considering contingency plans and then that work has shown that the software package would be a viable short-term contingency but would not be capable of meeting the December target for payments so I think that as Tavish Scott mentioned there will be farmers and crofters across this country that will be very seriously concerned about bank loans, cash flow issues that the normal funding that they get in December they may now expect that if it's possible in June the following year but I'm very concerned about the impact on farm payments and I'm afraid to update hasn't brought the assurance that I had hoped for and it seems when the auditor general says there are significant risks I think that's something that farmers and crofters across Scotland should be seriously worried about Colin Beattie Thank you convener I think that the thing that I find most disturbing is that in a single meeting with this committee we've got two issues here from the EU that are adding costs a cost burden to this Government and to the taxpayer because of the delays in this particular one there's all these increased costs in the programme due to the need to deliver IT solutions and compressed timescales as highlighted here and to these changes in EC requirements and I'd like to know whether these EC requirements are now fully described and we fully understand where we are on them because they've been so late and they come out in dribs and drabs are we there? Are we going to be faced with last minute changes again or are we actually in a position that we can say that we've got a proper definition? There's no doubt that it carries risks I think that the Government's absolutely right to be targeting December when it has to be and there are concerns over this and I think that those concerns need to be highlighted from this committee Okay, I can just clarify that we've got two options one is to note the update which I don't think is what colleagues are going to do and the other option is to consider taking all the way of evidence from the Scottish Government on this is that the preferred approach Can I go on the next round if I may agree with Colin Beattie's point the EU regularly qualifies their accounts in respect of agricultural payments it'd be quite nice to have the EU auditor in here to audit him on him or her, I do apologise whoever on their performance as well so I think Colin Beattie's point is very correct about the EU as well We're asking for an EU representative I'll leave that to your good job So we've two witnesses firstly the Scottish Government witness and someone from the EU appropriate representative from the EU and we'll approach that Is that agreed? It's colleagues and as agreed can we now move to item number 5 which is to move into private session Thank you