On 10 July, the devolved Scottish government announced the Public Sector Heat Decarbonization Fund, allowing government authorities such as local councils, universities and NHS integrated care boards to apply for grants to support decarbonization efforts. The funding opportunity is the most recent stage of a larger plan to release £200 million over the next five years to increase decarbonization, energy efficiency and renewable energy sources in Scotland’s 23,000 public sector buildings. Grants can be used to support the following activities:
- Installation of heat pumps as the primary source of energy within public buildings, such as libraries, hospitals and government offices
- Using district heating networks where appropriate to deliver reductions in housing management costs and tackle fuel poverty
- Retrofitting older buildings with insulation to increase energy efficiency and decrease overall energy consumption
- Developing new low-carbon technologies to deliver innovative solutions that move away from carbon-intensive energy sources, such as wind turbines and solar panels.
The Fund is notable for being the first time Scotland has moved from a loan-based scheme to direct grant awards which will support decarbonisation projects – meaning authorities will be able to deliver increased energy efficiency outside their budgets.
Where the Fund fits in the bigger picture
According to Zero Carbon Buildings Minister Patrick Harvie, Scotland’s buildings account for nearly 20% of all emissions. Buildings occupied by public sector organisations account for more than half of this total – making them a priority for the devolved government to produce improvements. In supporting the central government’s efforts to become a ‘world leader’ in green energy, the Fund joins a host of other UK public sector initiatives, including:
- Social Housing Decarbonisation Fund: a UK-wide initiative to aid local authorities and housing associations in retrofitting their housing stock and increasing energy efficiency. In March 2023, £778 million was released to various councils and housing trusts, supplementing an initial £160 million worth of funding in 2021.
- Home Upgrade Grant: To be delivered from April 2023 to March 2025, a total of £630 million has been awarded to 45 local authorities, social housing providers and charities located in England.
- Public Sector Decarbonisation Scheme: Through three separate phases of the scheme, a total of £613 million has been allocated to 170 public sector organisations, including councils, NHS Trusts and education institutions.
Despite receiving less direct funding than England – the Scottish government’s policy for reducing emissions and achieving net zero is more ambitious than the UK as a whole. For example, the Public Sector Decarbonisation Scheme allocated a miniscule £500,000 to recipients in Scotland, from a total of more than £600 million. Funding specific to Scotland – such as the Low Carbon Challenge Fund, with a budget of just £2.8 million – is scarce and insufficient, even when adjusting for population.
Nevertheless, the Scottish government’s target date for reaching net zero for all greenhouse gases is 2045, with a Climate Change Plan published in December 2020 outlining measures through 2032. The Scottish government’s Net Zero Nation website is also available as a resource for individuals, businesses and other organisations looking to take measures to reduce their own emissions and reliance on carbon-based fuels, in addition to Scotland’s progress against targets.
What does the Fund mean for public sector bidders?
For organisations offering heating, construction or retrofit services in Scotland, the Fund is a valuable opportunity to add to existing public sector business or break into the market for the first time. Although many councils and housing associations have directly employed resources, they are likely to contract works out, advertising them through the central government’s Find a Tender service and Public Contracts Scotland.
With a regional office in Scotland and hundreds of SQ and ITT submissions completed on behalf of our clients, Executive Compass is ideally positioned to offer advice on preparations to ensure a competitive tender submission, also offering bid and tender writing services. We recommend focusing on the following areas:
Contract resourcing, qualifications and experience
As part of the quality section of a tender, buyers will require specific and concrete details about your resourcing plans, how this will ensure quality and mitigate slippage to the programme of works, and relevant experience. To get ahead of the curve, conduct a resource mapping exercise on the following:
- Competency, capability and experience: Delivering decarbonisation works of a similar size and scope. For example, if a Scottish council is using funding to deliver loft and wall insulation to tenanted properties, it would be beneficial to provisionally assign operatives with experience interacting with council/housing association tenants. It may also be worth considering additional training – for example, additional safeguarding training for staff entering households, enhancing resident safety.
- Proximity of supply chain partners: Conduct a mapping exercise of suppliers providing plant, materials and equipment to the contract site and any subcontractors you expect to use. If current supply chain partners are a considerable distance from site (e.g. more than one hour), it may be worth expanding existing stock levels, revisiting service level agreements to guarantee same-day collection or creating agreements with new suppliers.
- Potential upskilling: Many decarbonisation and retrofit works require specialist certification, such as air source heat pump training and City & Guilds qualifications for retrofit works. Ensuring your workforce has the necessary certifications will be useful not only for tenders stemming from the Scottish decarbonisation Fund, but also for future opportunities.
Assess your environmental credentials
Due to the nature of the anticipated contracts and Scotland’s ambitious targets, the environmental processes of prospective tenderers may be at the forefront of buyers’ minds. The pre-tender period is an ideal time to review your energy consumption, waste management procedures and carbon emissions and approve any actions to drive improvement.
Evaluators are appreciative that bidders, and SMEs in particular, are limited in their scope to deliver impactful environmental change. Achievable targets, such as a 25% increase in energy efficiency by 2025 or increased waste diverted from landfill through new supplier agreements will go a long way towards building your environmental credentials. Organisations such as SME Climate Hub and SSE offer a free carbon footprint calculator, enabling you to provide quantitative measurements and evidence for any environmental- or sustainability-based tender responses.
Begin identifying potential community benefits opportunities
Originating within Procurement Reform (Scotland) Act 2014, Scottish public procurement regulations require purchasing authorities to consider any potential benefits ‘to improve the economic, social or environmental wellbeing’ of the authority area. Although the threshold for the inclusion of community benefits is £4 million, many buyers choose to include quality questions around community benefits for contracts with a lower value. The typical weighting for community benefits is around 10% of the evaluation criteria, which could be the difference between a contract award and failed submission.
Occasionally, categories are prescriptive or mandated by the buyer – however, they are typically ordered around the following categories:
- Creating employment opportunities: Offering stable, long-term employment will add significant value outside the contractual scope.
- Offering apprenticeships or work placements: Developing local talents and providing experience and qualifications to support a long-term career.
- Supply chain spend with local businesses: Committing a percentage of your contractual spend with local businesses, with preference usually given to SMEs.
- Monetary donations or in-kind contributions: Financial or in-kind contribution (e.g. labour or materials) to support community projects, such as performing works at a local community centre.
- Volunteering with local charities or other third sector organisations: Making contract-specific staff available for a certain number of volunteer hours each year, such as a food bank or crisis shelter.
As with environmental improvements, authorities are interested in community benefits proposals which are quantified, specific and proportionate to the contract value. Ensuring your commitments are feasible and will deliver maximum impact is crucial to gain full marks from the authorities.
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Concluding thoughts
Decarbonisation, energy efficiency and retrofit programmes are likely to become more frequent within public procurement over the next decade, as reducing emissions and transitioning to green energy is at the forefront of buyer priorities. Funding streams such as the Scottish Public Sector Decarbonisation Fund afford bidder organisations the opportunity to identify potential improvements to their business model, rendering them more competitive during the tender process. Alternatively, failing to adapt with a changing procurement market and buyer preferences could result in a lower success rate when bidding for contracts.