CLARITY AND CONSISTENCY NEEDED FOR PUBLIC SECTOR CONSTRUCTION

2 April 2010

During the last decade the public sector has invested billions of pounds in brand new buildings featuring the latest technologies and materials, in particular new schools and education facilities.

But this golden period of extensive investment is at an end. Local Authorities are now facing an era in which they have to challenge every investment decision as never before, and where frugality is the new benchmark for financial management.

Local Authorities are not alone. Central Government and, increasingly, The Scottish Government are all being forced to examine the extent of their activities. Inevitably, there will be spending casualties amidst growing calls for the role and extent of government to contract.

Anyone doubting the arrival of a harsh new spending regime should read the recent report by Audit Scotland, which warns that Government targets of 2% cuts across the public purse will not be enough to deal with falling revenue budgets, and that more will have to be done to balance the books. There is every prospect that the financial belt-tightening could be much worse, with informed commentators suggesting that cuts of up to 6% will be needed.

The report suggests that the axe is likely to fall on jobs, with Lothian Council, for example, proposing that 1,000 full-time posts could go out of a workforce of 8,000. Extrapolate that figure across all of Scotland’s 32 Local Authorities, and it is conceivable that up to 30,000 people from a local government workforce of 250,000 could be made redundant. Glasgow alone is looking to reduce its staffing by around 4,000.
The report forecasts that in the coming financial year, Scotland’s councils are likely to have to make £300 million of cuts, which is likely to affect the delivery of core services such as education, social work, library provision and road repairs, with further and deeper spending constraints likely to impact heavily in 2011.
The rolling programme of capital investment in new public buildings and infrastructure is also likely to be hit as capital budgets are also caught up in this, but the degree and reach of any likely cuts is unclear. In fact, there is a worrying lack of clarity as to the shape and likely investment in public works. Although we now have the Scottish Futures Trust, the organisation has yet to make its mark and demonstrate exactly how it is going to make a difference, and before the next election! Local Authorities are also working to different funding models and have different political agendas, adding further confusion to an already-confused situation.
Everyone involved in the construction business, from building companies to architects, quantity surveyors to electricians, is frustrated by the situation. Since the demise of PPP we have had two years of inertia, and now we have the worst public sector budget crisis for decades. We certainly seek greater clarity and consistency.

In the meantime, Local Authorities will be wondering how to maintain their property portfolios whilst still delivering the services expected of them. Plans will be formulated to potentially reduce the number of buildings with contracts being put on hold. Schools in particular will be a target, with Local Authorities under pressure to make short term cash savings.
One option open to Local Authorities is to invest in refurbishment rather than renewal. Refurbishing, particularly historic school and community buildings, can create minimal disruption, be cost-effective and create inspirational learning environments. There is also scope for smaller-scale, innovative designs and conversions which can have a quick and direct impact on learning.
In Scotland, West Lothian Council is already leading the way, having recently completed a £60m refurbishment programme for three secondary schools. Each of the schools has been transformed, creating modern, efficient and stimulating learning environments. If the Council had opted for new build, the investment would have been well in excess of £100m yet the difference in the quality of the finished environment would have been difficult to measure.
The design and construction principles behind refurbishment do not differ greatly from new build, and the end product will have many years of useful service. What is needed, however, is a willingness to embrace refurbishment at the expense of new build.

The financial savings can be considerable, and Scotland already has the skills and expertise to help Local Authorities bridge the budget chasm, whilst retaining the service levels they are obliged to deliver.

The financial constraints may be painful, but this recession is providing Local Authorities with an exciting opportunity to redefine their roles and to re-engineer the manner in which they procure high quality services. And the real bonus is that refurbishment offers them a real alternative.


David Thomson is Senior Partner in Scotland with Construction and Property Consultancy Robinson Low Francis.