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Appendix 6

Assembly Research

Research and Library Services

submission

24 November 2008

Public Procurement and SMEs

Dr Robert Barry

This briefing paper provides a general overview of SME performance in securing public procurement contracts. It also looks at some of the barriers encountered by SMEs in relation to the public procurement process, including the particular problems faced by the social economy sector.

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Public Procurement and SMEs

Introduction

Public procurement covers a wide range of supplies, services and works required by governments, local authorities and public organisations, utilities and agencies. The size of such contracts varies hugely. Whilst some are beyond the capabilities of SMEs[1] to fulfil, a significant proportion of the public procurement opportunities in Europe are well within the scope of SMEs. With a market in the EU estimated at around 16% of GDP, or about €1,800 billion in 2006, public procurement contracts represent a major opportunity for very many enterprises.[2]

The public sector in Northern Ireland spends approximately £1.7bn out of a total budget of £7bn each year on public procurement. While it is impossible to detail the full range of works, goods and services that these public bodies purchase, the most common procurement are: Accountancy/Audit; Banking; Bottled Water; Catering Equipment; Catering Services; Cleaning Services; Clothing and Footwear; Construction/ Maintenance Services; Facilities Management; Food Products and Beverages; Furniture and Fittings; ICT Equipment; Information and Computer Technology Services; Laundry Services; Legal Services; Medical and Laboratory Devices; Medical Surgical Equipment and Supplies; Office Machinery; Pharmaceuticals; Plant and Machinery; Post Office Counters; Protective Wear; Repair, Maintenance and Installation Services; Tools, Equipment and Building Materials; Training Services; and Uniforms.[3]

The Experiences of SMEs in Public Procurement

SMEs’ access to public procurement varies from one Member States to another. In 2005, SMEs secured 42% of the value and 64% of the number of contracts above the thresholds fixed by the EU directives on public procurement.[4] The directives cover roughly 16% of the EU public procurement market. SMEs tend to perform better in bidding for central government contracts and less well in the old Member States compared with the new. It is also interesting to note that medium sized companies perform much better than small and micro companies.[5]

In 2004, the EU Council and Parliament adopted a package of directives on public procurement designed to reduce the administrative burden and costs related to tendering, make procurement systems more transparent and easier for SMEs (in particular) to access, and encourage the use of information technology systems (e-procurement) to simplify the process. These directives were due to be transposed into national law in all Member States by January 2006.

To facilitate this ongoing process, within the framework of the European Small Business Act (introduced by the Commission on 25 June 2008)[6] the European Commission proposed a Code of Best Practices to assist SMEs in the public procurement process. The Code encourages Member States to learn from each other as they implement the new rules under the public procurement directives. The Small Business Act also includes 10 principles to guide the conception and implementation of policies at EU and Member State level. These policies include granting a second chance for business failure, facilitating access to finance and enabling SMEs to turn environmental challenges into opportunities.[7]

Despite actions taken at both EU and national level, there are still many barriers which discourage SMEs from responding to these EU-wide tenders. These include basic difficulties in finding information about tenders, or about the procedures for bidding, or there are problems in understanding jargon; too short a deadline for responding and/or the costs of responding are too high; the administrative procedures are too complex, or particular certification is required; a high financial guarantee is required to bid; or companies may face discrimination on the basis that they are located in a different country from the contracting authority.[8]

A recent report on the experience of European SMEs, entitled “Evaluation of Small and Medium-Sized Enterprises’ (SMEs’) Access to Public Procurement Markets", highlighted the problems faced by SMEs. The study was undertaken by GHK and Technopolis between April and September 2007 on behalf of Directorate-General Enterprise and Industry.[9]

The study found that the most frequent problem faced by European SMEs in bidding for public procurement tenders is the over-emphasis placed on price by awarding authorities (52% of the companies encountered this either ‘regularly’ or ‘often’). Onerous paperwork requirements were also mentioned as a common problem (46%).

The use of e-mails as a preferred channel of communication, improving tender specifications and documentation, as well as improving information on tenders in general were seen as the three most helpful actions that awarding authorities could do. Training for companies, the use of framework agreements and contracts, and more time to draw up tenders were less frequently emphasised.

Overall the study findings suggest that there is still scope for improvement in the performance of SMEs in public procurement. The report therefore recommended that steps should be taken to: reduce differentials in access between SMEs, and in particular small and micro-enterprises, and larger companies; exchange experience and encourage peer learning activity amongst Member States and awarding authorities; and, improve the information and research base.

Within the UK, there has been a decline in recent years in the number of contracts being awarded to SMEs following an initial leap in 2002/03 in reaction to the work carried out by the Office of Government Commerce (OGC) and government reviews (Figure 1). Whilst the number of contracts awarded to SMEs has been relatively high, the total value has consistently remained around the 20% mark (Figure 2).[10]

Figure 1. Share of number of UK public sector contracts awarded by company size

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Table 2. Share of value of UK public sector contracts awarded by company size

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In 2003, the Better Regulation Task Force (BRTF), in collaboration with the Small Business Council (SBC), set out with the aim to “counter the excessive burdens on small businesses". Their report “Government: Supporter or Customer?" was produced in reaction to the fact that whilst SMEs are very important to the UK economy (99% of all businesses) they are underrepresented in public procurement contracts. The report aimed to consider the barriers that face SMEs when doing business with the public sector and the wider benefits to the economy when procuring from SMEs. Eleven recommendations were put forward in the report to be carried out by procurement offices both at the national and local government levels.[11]

Recommendation 1

Recommendation 2

Recommendation 3

Recommendation 4

Recommendation 5

Recommendation 6

Recommendation 7

Recommendation 8

Recommendation 9

Recommendation 10

Recommendation 11

Most of these recommendations have now been acted upon by local and national bodies. Guidance has also been published by the OGC and by the respective regional procurement bodies with the aim of overcoming the barriers faced by SMEs and to help realise the benefits of involving them in public procurement contracts.

Recent research, however, by a company called Freshminds, suggests that more still needs to be done to address the problems faced by SMEs in relation to public procurement. Their findings included the following:[12]

In addition to recommending a number of practical steps for SMEs to take (in terms of identifying opportunities, preparing for bids, and meeting customer needs), the researchers recommended a number of ways in which Government could continue to work to improve the procurement process for SMEs:

The Social Economy Sector

The social economy includes co-operatives, mutual societies, non-profit associations, foundations and social enterprises. From the village farmers who set up a co-operative to market their produce more effectively to the group of savers who set up a mutual to ensure they each receive a decent pension, by way of charities and organisations offering services of general interest, the social economy touches a huge range of individuals across Europe. There are around 10 million jobs in the social economy across Europe, but membership of social economy enterprises is much wider, with estimates ranging as high as 150 million.[13]

Different Member States have different traditions, so the forms of enterprise and the fields in which they are active vary across Europe, but there are few areas where the social economy has no interest. Co-operatives are prominent in fields such as banking, craft industries, agricultural production and retail. Mutual societies are found in the insurance and mortgage sectors, whilst associations and foundations are active in health and welfare services, sports and recreation, culture, environmental regeneration, humanitarian rights, development aid, consumer rights, education, training and research.

Whilst some social economy enterprises provide services on behalf of or instead of the public sector, for example healthcare and social services, others produce products or services sold on the open market in competition with investor-driven companies. In such circumstances, the social economy is an important player in ensuring effective competition and it is therefore vital that regulation takes full account of the specific characteristics of such enterprises.

The social economy sector is big business in the U.K. with at least 15,000 social enterprises contributing some £18 billion to the economy. While Northern Ireland has some baseline data for nearly 400 SEEs with a turnover of just over £355 million (DETI Survey 2007), information on the actual size of the sector is limited.[14]

The social economy sector in Northern Ireland includes a range of organisations such as credit unions, housing associations, local enterprise agencies, community businesses, co-operatives, employee-owned businesses, community development finance initiatives, social entrepreneurs and social firms. Given its relatively low visibility to date and diversity, no firm figures are available to quantify the overall size and scale of the sector. A rough estimate of employment was carried out in June 2000 which indicated a range of between 30,000 and 48,000 jobs (5 - 8% of total employment). However, this was based on different definitions. It is now recognised that this is a relatively limited way of measuring the sector and work is now underway to develop a robust set of baseline figures for the size and scale of the sector as a way of benchmarking against the social economy in the UK and in other regions and to measure growth.[15]

According to the Social Economy Network (SEN), the sector is not as well developed in Northern Ireland as in England and Scotland.[16] They believe that one of the most significant problems facing the development of Social Economy Enterprises (SEEs) in Northern Ireland is the lack of progress on the inclusion of social clauses into the procurement process.

SEN also argue that there is evidence that social enterprises, particularly smaller ones, are at a disadvantage compared with private sector businesses in this arena. There is a limited knowledge of the social economy sector and its potential as a provider of goods and services among public sector procurement personnel. A programme of awareness raising and training is required to ensure that social economy enterprises are equally considered with the private sector in procurement considerations.

Social enterprises with little or no experience of doing business with the public sector also need practical advice and training on procurement procedures and writing tenders so that they can acquire the necessary skills to enable them to take advantage of the opportunities presented.

SEN welcomes the actions proposed by the Central Procurement Directorate to provide information and advice sessions on the tendering process and to organise “Meet the Buyer" events to increase opportunities for SEEs to do business with the public sector.

However, it is their view that SEEs operate their businesses in a market place which does not recognise or take account of the added value they create and this puts them at a disadvantage when competing for public sector business.

The social economy sector is further disadvantaged by the emphasis in consideration of tenders, on financial capacity demonstrated by a build up of reserves in assessing the financial health of companies. This particularly affects those companies in the early stages of development who were prohibited from building up reserves while in receipt of grants. SEN argues that if there is to be equality of opportunity in accessing tenders then it must be acknowledged that existing means and criteria are exclusionary to SEEs and that amendments to criteria must be introduced to create a level playing field.

Some additional problems faced by SEEs who have successfully secured tenders for the delivery of services include the length of time the process takes; and the fact that the level of finance available for service delivery this year, in the health and social care field, is set at 3% less than the cost of delivering the same service last year. Departmental efficiency savings were not intended to affect front line services but it appears that in such instances they will. It is also argued that pressure on public bodies to secure efficiencies by aggregating contracts will discriminate against small businesses, including many social enterprises.

The Social Economy Network (SEN), in its recent presentation to the Enterprise, Trade and Investment Committee, proposed the following actions to help SEEs:

[1] Companies classified as small and medium-sized enterprises (SMEs) are defined officially by the EU as those with fewer than 250 employees and which are independent from larger companies. Furthermore, their annual turnover may not exceed €50 million, or their annual balance sheet total exceed €43 million. This definition is critical in establishing which companies may benefit from EU programmes aimed at SMEs, and from certain policies such as SME-specific competition rules.

[2] “Opening public procurement to SMEs", European Commission Enterprise and Industry DG - http://ec.europa.eu/enterprise/entrepreneurship/public_procurement.htm

[3] “Public Procurement – a guide for social economy enterprises", Central Procurement Directorate, Department of Finance & Personnel - http://www.cpdni.gov.uk/social-economy-enterprises-guidance-pdf.pdf

[4] See OGC website for information on latest EU procurement thresholds - http://www.ogc.gov.uk/procurement_policy_and_application_of_eu_rules_eu_procurement_thresholds_.asp

[5] “Opening public procurement to SMEs", European Commission Enterprise and Industry DG - http://ec.europa.eu/enterprise/entrepreneurship/public_procurement.htm

[6] See http://ec.europa.eu/enterprise/entrepreneurship/sba_en.htm

[7] See European Commission Press Release IP/08/1003 -http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1003&type=HTML&aged=0&language=EN&guiLanguage=en

[8] “Opening public procurement to SMEs", European Commission Enterprise and Industry DG - http://ec.europa.eu/enterprise/entrepreneurship/public_procurement.htm

[9] “Evaluation of SMEs access to public procurement" Final Report produced by GHK and Technopolis on behalf of European Commission Directorate General Enterprise and Industry http://ec.europa.eu/enterprise/entrepreneurship/docs/SME_public_procurement_Summary.pdf

[10] Annex to Final Report “Evaluation of SMEs access to public procurement" produced by GHK and Technopolis on behalf of European Commission Enterprise and Industry DG, Section on United Kingdom - http://ec.europa.eu/enterprise/entrepreneurship/docs/SME_public_procurement_Annex.pdf

[11] Annex to Final Report “Evaluation of SMEs access to public procurement" produced by GHK and Technopolis, Section on United Kingdom - http://ec.europa.eu/enterprise/entrepreneurship/docs/SME_public_procurement_Annex.pdf

[12] “Evaluating SME experiences of Government procurement", Report by Freshminds for the Scorecard Working Party – a joint initiative between the British Private Equity and Venture Capital Association (BVCA), Federation of Small Businesses (FSB), and Confederation of British Industry (CBI), October 2008.

[13] “Europe’s social economy", European Commission Enterprise and Industry DG - http://ec.europa.eu/enterprise/entrepreneurship/public_procurement.htm

[14] Social Economy Network briefing to Enterprise, Trade & Industry Committee, 13 November 2008.

[15] “Public Procurement – a guide for social economy enterprises", Central Procurement Directorate, Department of Finance & Personnel - http://www.cpdni.gov.uk/social-economy-enterprises-guidance-pdf.pdf

[16] Social Economy Network briefing to Enterprise, Trade & Industry Committee, 13 November 2008.

[17] Social Economy Network briefing to Enterprise, Trade & Industry Committee, 13 November 2008.

Research and Library Services

submission

24 February 2009

Public Procurement and the Social Economy

Dr Robert Barry & Aidan Stennett

This briefing paper looks at some of the barriers encountered by Social Economy Enterprises (SEEs) in securing public procurement contracts. It also draws some lessons on the use of social clauses from experiences in Scotland and the Cabinet Office’s Social Clauses Project

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Contents

Summary of Key Points xx

Social Economy Sector xx

Introduction xx

The Northern Ireland Social Economy xx

Problems Facing SEEs in Securing Public Procurement Contracts xx

The EU Legal framework xx

The Use of Social Clauses xx

The Use of Social Clauses in Scotland xx

Community Benefits in Public Procurement in Scotland xx

Cabinet Office Social Clauses Project xx

Conclusion xx

ANNEX A: Public Procurement Expenditure by Category xx

ANNEX B: Scottish Government’s Model Community Benefit Clauses xx

Summary of Key Points

Social Economy Sector

Problems faced by Social Economy Enterprises in Public Procurement

Lessons from Scottish Experience

Lessons from Cabinet Office Project

Introduction

Public procurement policy in Northern Ireland is the responsiblility of the Procurement Board chaired by the Minister of Finance and Personnel. Membership of the Board comprises the Permanent Secretaries of the 11 Government Departments, the second Permanent Secretary in OFMDFM, the Treasury Officer of Accounts, 2 external experts without a specific sectoral interest, the Director of the Central Procurement Directorate and a representative of the Comptroller and Auditor General as an observer.[1]

The Central Procurement Directorate, within the Department of Finance and Personnel, is the core professional procurement body. It is responsible for developing policy and supporting the Procurement Board’s role in all aspects of public procurement policy. The Directorate will where appropriate directly procure strategic requirements, provide expertise, advice and a coordinating role.

In addition to the Directorate there are a number of centres with specialist procurement expertise across the public sector (including the Education and Library Boards and a number of public bodies and agencies).[2] The Executive is of the view that considerable added value can be derived from these Centres of Procurement Expertise (CoPEs), both in developing operable policies and providing a more integrated procurement service to public bodies in general.

Departments, their Agencies, NDPBs and public corporations are expected to carry out their procurement activities by means of documented Service Level Agreements with the Central Procurement Directorate or a relevant Centre of Expertise.

The public sector in Northern Ireland spends around £2 billion each year on public procurement. Most of this, however, is spent on road maintenance, major construction work, medical/surgical equipment and supplies, consultancy services, energy and other areas where Social Economy Enterprises (SEEs) would not normally be involved or in a position to compete (see Annex A for a breakdown of procurement expenditure by Departments, their Agencies and Non-Departmental Public Bodies by category and by Department over the last three years).[3]

The Northern Ireland Social Economy

A Social Economy Enterprise is defined by the Department of Enterprise, Trade and Investment (DETI) as ‘a business that has a social, community or ethical purpose, operates using a commercial business model and has a legal form appropriate to a not-for-personal profit status’.[4] Based on this definition, only 396 organisations in Northern Ireland identified themselves as SEEs in response to a DETI survey carried out in 2006/07. An earlier UK-wide survey, however, estimated a total of around 600 SEEs in Northern Ireland.[5] Given the 61% response rate to the DETI survey, the figures are in fact consistent and an estimate somewhere around 600 for the total number of SEEs in Northern Ireland seems reasonable. Based on the DETI survey figures, the total number of paid employees in these enterprises is likely to be somewhere around 10,000.[6]

The DETI survey also provided some useful information on the nature of these enterprises (see Figure 1 below for a breakdown by type). On average, two-thirds of the income of SEEs was earned from trading activities, while 28% was received from grants and donations and 4% came from other sources. Most of them (73%) reported an annual turnover of less than £500k.

submission

Source: DETI

Problems Facing SEEs in Securing Public Procurement Contracts

Many SEEs are simply not in a position to compete for public procurement contracts because of their size or because they simply do not provide the type of services that Government Departments are looking for e.g. Credit Unions, Housing Associations, or organisations offering local training/education or child care. Those who are in a position to compete for some Government work face similar problems to those faced by all small to medium sized enterprises (SMEs):[7]

Some additional problems faced by SEEs who have successfully secured tenders for the delivery of services include the length of time the process takes, and the potential impact of Departmental efficiency savings, which although not intended to affect front line services may do so in some cases. It is also argued that pressure on public bodies to secure efficiencies by aggregating contracts and using Framework Agreements (similar to call-off lists) will discriminate against small businesses, including many social enterprises.

The Social Economy Network (SEN), in its recent presentation to the Enterprise, Trade and Investment Committee, proposed the following actions to help SEEs:

The EU Legal framework

The EC Treaty applies to all public procurement activity regardless of value, including contracts below the thresholds at which advertising in the Official Journal of the European Union is required and including contracts which are exempt from application of the EC Procurement Directives.

Fundamental principles arising from the Treaty include:[9]

EC Procurement Directives 2004/17/EC and 2004/18/EC set out detailed procedural rules which are based on the principles outlined in the EC Treaty and which are intended to support the single market by harmonising procedures for higher value contracts, ensuring that they are advertised in the Official Journal of the European Union in standard format.

The EU Public Procurement Directive (2004/18/EC) and the Utilities Procurement Directive (2004/17/EC) were implemented in England, Wales and Northern Ireland by the Public Contracts Regulations 2006 and the Utilities Contracts Regulations 2006, which came into force on 31 January 2006.

The Use of Social Clauses[10]

Social clauses have been defined by the Cabinet Office as:

“...requirements within contracts or the procurement process which allow the contract to provide added social value through fulfilling a particular social aim. For example, a social clause in a public contract could prioritise the need to train or give jobs to the long-term unemployed in the community as part of the contracting workforce."[11]

Social clauses need to be carefully considered to ensure that they meet the requirements of EU procurement rules and general EU law. Such clauses should not give rise to direct or indirect discrimination. Contracting authorities must have a legal and policy basis for incorporating social benefit requirements into their procurement processes.

The Office of Government Commerce (OGC) has produced guidance on how to address social issues in public procurement. The guidance points out that “all public procurement is required to achieve value-for-money and is subject to the principles of the EC Treaty, around a level playing field for suppliers from the UK and other member states, and the UK regulations implementing the EC Public Procurement Directives." In addition, OGC recommend that:[12]

The Use of Social Clauses in Scotland

The Scottish Executive’s Public Procurement Handbook addresses social inclusion by making it mandatory for public bodies to:

“…pro-actively manage and develop the supplier base, including small and medium-sized enterprises (SMEs) and third sector and voluntary sector organisations, identifying and managing any supply risks or value added opportunities".[13]

The clause forms part of the Executive’s drive to ensure “social issues" are taken into consideration during public procurement processes. The term social issue in this context is broadly defined as:

“Issues which impact on society or parts of society and cover a range of issues including equality issues (i.e. age, disability, gender, race, religion and sexual orientation), training issues, minimum labour standards and the promotion of small and medium-sized enterprises (SMEs), including black and minority ethnic enterprises and the third sector including social enterprises." [14]

Overriding this social issues imperative is the prioritisation of Value for Money (VFM). VFM is considered to go beyond cost implications and is more broadly interpreted to include: “the best possible balance between price and quality in meeting the customer’s requirements". Such requirements must include the promotion of sustainable development and corporate social responsibility, which includes social, economic and environmental objectives, including:

An example of where the consideration of social issues during the procurement process is likely to be appropriate is where a public authority has obligations of a social nature in relation to a particular function, the performance of which it is contracting out. For example the “duty to promote" under discrimination legislation can legitimately be passed on to a contractor where the contractor is carrying out a service which would have been subject to the duty were it being performed in-house.[18]

In addition to the above, there may be occasions where the procurement process might consider “wider social benefits". An example of such a consideration is the awarding of grants for an urban regeneration project and evaluating how those contracts might aid the regeneration project itself, by providing training opportunities for the unemployed.[19]

The Scottish Government recommends that social issues should be considered during the following stages of the procurement process:

Community Benefits in Public Procurement in Scotland

In the context of public sector procurement community benefits are “contractual requirements which deliver a wider social benefit in addition to the core purpose of the contract". Community benefit requirements often have particular focus on training and employment outcomes. Since 2003 the Scottish Government has operated a pilot programme to examine the operation of community benefit issues in a practical context. The pilot scheme operated across five authorities; Glasgow Housing Association; Ralpoch Urban Regeneration Company; Inverclyde Council; Dundee City Council; and Falkirk Council. The findings of the pilot scheme where recently published in the Community Benefits in Public Procurement report (2008).

The report outlines a number of model clauses which may act as a guide to public bodies. The clauses, which cover procurement policy statements, procurement strategies, pre-qualification questionnaires and specifications, are outlined in Annex B.

The pilot projects outlined in the report serve as case studies for the wider community benefit programme. A brief synopsis of each programme is provided followed by an overview of the pilot’s findings.

Glasgow Housing Association (GHA) - GHA’s medium-term procurement strategy, which was utilised during a large-scale regeneration programme, established the following principles:

Raploch Urban Regeneration Company – Raploch is an area of Sterling noted for below average incomes, low levels of qualifications and high unemployment. The area is also home to poor quality public sector buildings and environment (including housing and health) due to proximity to the city’s road network. Raploch Urban Regeneration Company was established to address these problems. The group’s vision, outlined in their 2004 corporate plan is to “build a community where people want to live, work and visit… within an economically sustainable environment". The vision outlined in the corporate plan (which includes ambitious education, employment and average income targets for the period 2004 – 2012), has resulted in the inclusion of targeted recruitment and training requirements in the group’s procurement processes and documentation.

Inverclyde Council – The Scottish Index of Multiple Deprivation (2004) notes that Inverclyde has the second highest concentration of deprivation, next to Glasgow. The key factors which have resulted in this deprivation where identified as health, unemployment, education and income. The regions problems led to it being selected amongst the Scottish Executive’s “Closing the Opportunity Gap" areas. The aim of the initiative is to reduce the number of people on benefits from 12,100 (2004) to 3,000 (2010). The strategic framework for achieving this target was set out in the Inverclyde Alliance’s Regeneration Outcome Agreement and the Councils Economic Development Strategy. Amongst the strategies stated aims is the following:

“For Inverclyde to achieve sustainable economic progress, it is vital that residents and communities are connected to economic opportunities and feel able to contribute to and benefit from them".

This led the council to target the recruitment and training opportunities arising from its development and investment activities towards social development for the first time.

Dundee City Council – Dundee Council’s application of community benefit principles is based upon powers conferred on it through the Local Government in Scotland Act 2003. Prior to implementing its community benefit pilots the council established the “Community Benefits in Procurement Group". The group, made up of numerous local actors in the social sector, agreed to run pilots in the construction and social care sectors.

Falkirk Council – Falkirk Council’s strategic aim is to mainstream community benefits across all its policy mechanisms. The initial step of this process was the appointment of consultants who began by examining the council’s procurement expenditure, with the ultimate result of outlining a set of “Organisational Strategic Objectives" designed to expand community benefits. These included:

The relative success or failure of the above projects was measured across a number of factors: the organisation’s culture and resources; their ability to clearly demarcate roles and responsibilities; the clarity of requirement specification; developing a systematic approach, particularly in incorporating targeted recruitment and development; developing an appropriate supply-chain; and preventing training and funding mismatches. The report noted that the length of the contract may also indirectly determine its success, particularly when the timetable is uncertain.

Based on this analysis, the report sets out a number of key findings across specific areas.

Cabinet Office Social Clauses Project

The Partnership in Public Services Action Plan was launched in 2006 by the Cabinet Office to enable an increase in public service delivery by the third sector.[21] The action plan identified four different elements of the government’s engagement with the third sector: commissioning; procurement; learning from the third sector; and accountability.[22]

The action plan required the Office of the Third Sector to examine the use of social clauses, barriers to their use, and the potential for template clauses. The social clauses project was consequently established in conjunction with the North East Centre of Excellence.

The aims of the project were to: consolidate knowledge on the existing use and best practice of social clauses; provide clarity on the merits of using social clauses; and support good commissioning and procurement by producing user friendly materials to help decision makers.

The main barriers to the use of social clauses were identified as confusion about when they can be legally used, concern about the processes needed to include them in any contract specification and how to evaluate them.

Survey results confirmed that legal uncertainties on the status of social clauses and EU procurement rules, as well as lack of information and understanding, were barriers to their use. Additionally, stakeholders reported difficulties in formulating social clauses as a core contractual requirement, and difficulty in measurement at the evaluation stage.

Some survey recipients suggested that further guidance on the use of social clauses was needed from central government in order to clarify their use and the legal issues under European and UK procurement policies.

Feedback was also obtained from comments received from individuals, phone interviews with local authorities and discussions which were held with a wide range of agencies. Based on this feedback, it was decided that the creation of template clauses should not be considered, as it seemed clear to the project team that any contract terms need to be tailored to the particular procurement, must relate to the performance of the specific contract and be assessed on whether their inclusion represents value for money.

The project therefore moved from the original aim in the action plan of creating template contract conditions to exploring how and when social issues could be addressed in the procurement process and what package of support should be created for commissioners looking to address social issues through procurement activities.[23]

Conclusion

Problems faced in public procurement by SEEs are similar to those faced by SMEs. Whilst the use of social clauses would certainly help their position, there appear to be some uncertainties on the status of social clauses and the potential conflict with EU procurement rules. Contractors have also reported difficulties in formulating social clauses as a core contractual requirement and difficulties when it comes to measuring social value.

Some useful lessons can perhaps be learned from the Scottish experience. It has been shown, for example, that targeted recruitment and training can be achieved without negatively affecting value for money requirements. The Scottish Government have also set out a number of ‘model’ social clauses to act as a guide to public bodies.

The Cabinet Office Social Clauses Project identified some confusion about when social clauses can be legally used, and also concern about the processes needed to include them in any contract specification and how to evaluate them. This suggests, as was felt by some participants in the project, a need for further guidance on the use of social clauses in order to clarify the processes and the legal issues under European and UK procurement policies.

Annex A: Public Procurement Expenditure by Category

Procurement Expenditure incurred by Departments, Agencies and NDPBs

 Category

2005/06
£m

2006/07
£m

2007/08
£m

Construction/Maintenance Services

794

711

897

Medical/Surgical Equipment and Supplies

187

186

235

Consultancy Services

121

102

115

Energy

100

125

140

Public Utilities

77

71

 

Transport and Travel Services

53

63

72

Repair/Maintenance Services

53

60

67

Plant and Machinery (including tools and equipment)

45

43

59

Facilities Management

44

52

63

Rental, Leasing or Hire Services

42

24

54

Office Machines and Supplies

41

72

99

Transportation Equipment

30

61

78

Postal and Telecoms Equipment and Supplies

29

35

36

Food Stuffs

27

27

37

Chemicals/Reagents

23

21

21

Financial Services

22

17

21

Furniture and Fittings

13

17

19

Printing/Reprographic Services

13

14

14

Environmental Services

11

10

14

Publications

10

14

24

Clothing and Accessories

7

7

8

Land

 

 

19

Advertising

 

 

16

Recruitment and Personnel Services

 

 

15

Research and Development

 

 

8

Public Relations (including events/conferences)

 

 

6

Other Expenditure

70

162

65

Totals

1812

1895

2202

Source: Central Procurement Directorate Annual Reports to Procurement Board

Annex B: Scottish Government’s Model Community Benefit Clauses

The following model clauses are recommended for use as a starting position for procurements.[24] They are drafted on the basis that the contractor will have supplied a service delivery plan/method statement satisfactory to the Authority, concerning how they will generate training and employment opportunities. Alternative clauses may be drafted depending on the requirements that have been included in the specification.

[1] DFP Public Procurement Policy Summary Statement - http://www.cpdni.gov.uk/pdf-public_procurement_policy_summary.pdf

[2] See http://www.cpdni.gov.uk/index/current-opportunities.asp/centres-of-procurement-expertise.htm

[3] Based on information provided by DFP Central Procurement Directorate Annual Reports.

[4] “Findings from DETI’s First Survey of Social Economy Enterprises in Northern Ireland", DETI, July 2007 - http://www.detini.gov.uk/cgi-bin/downutildoc?id=1967

[5] “A Survey of Social Enterprises Across the UK", Research Report prepared for the Small Business Service by IFF Research Ltd, July 2005 - http://www.socialeconomynetwork.org/PDFs/Publications/SurveySEAcrossUK.pdf

[6] The total number of paid employees in the 396 SEEs surveyed was 6,683.

[7] See Assembly Research Paper 119/08 “Public Procurement and SMEs" - http://archive.niassembly.gov.uk/io/research/2008/11908.pdf

[8] Social Economy Network briefing to Enterprise, Trade & Industry Committee, 13 November 2008.

[9] Source: Scottish Government Public Procurement Handbook - http://www.scotland.gov.uk/Resource/Doc/256155/0076031.pdf

[10] See also NI Assembly Research Paper 03/09 “Social Clauses in Public Contracts", February 2009 –
http://archive.niassembly.gov.uk/io/research/2009/0309.pdf

[11] Cabinet Office - http://www.cabinetoffice.gov.uk/third_sector/public_services/social_clauses.aspx

[12] Office of Government Commerce, “Buy and make a Difference: How to Address Social Issues in Public Procurement" -
http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[13] Scottish Government Public Procurement Handbook - http://www.scotland.gov.uk/Resource/Doc/256155/0076031.pdf p8

[14] The Scottish Government Social Issues in Public Procurement: A guidance note by the Scottish Procurement Directorate - http://www.scotland.gov.uk/Resource/Doc/116601/0053331.pdf

[15] Businesses with more than 50% of the workforce being disabled, who, by reason of their disability, are unable to take up work on the open labour market

[16] The Scottish Government Sustainable Procurement summary note
http://www.scotland.gov.uk/Topics/Government/Procurement/policy/corporate-responsibility/susdevsummarynote (accessed 03/02/09)

[17] The Scottish Government Public procurement and sustainable development http://www.scotland.gov.uk/Topics/Government/Procurement/policy/corporate-responsibility/13744#a4 (accessed 03/02/09)

[18] Scottish Government Broad Summary Note on Sustainable Procurement -
http://www.scotland.gov.uk/Topics/Government/Procurement/policy/corporate-responsibility/susdevsummarynote

[19] The Scottish Government Social Issues in Public Procurement 0 A guidance note by the Scottish Procurement Directorate
http://www.scotland.gov.uk/Resource/Doc/116601/0053331.pdf (accessed 02/02/09)

[20] The Scottish Government Social Issues in Public Procurement 0 A guidance note by the Scottish Procurement Directorate
http://www.scotland.gov.uk/Resource/Doc/116601/0053331.pdf (accessed 02/02/09)

[21] Cabinet Office, Office of the Third Sector -http://www.cabinetoffice.gov.uk/third_sector/public_services/public_service_delivery.aspx

[22] Cabinet Office, Office of the Third Sector, Report of the Social Clauses Project 2008 -
http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf

[23] Cabinet Office, Office of the Third Sector, Report of the Social Clauses Project 2008 -
http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf

[24] Scottish Government “Community Benefits in Public Procurement", February 2008 -
http://www.scotland.gov.uk/Resource/Doc/212427/0056513.pdf

Research and Library Services

submission

Research Paper

01 May 2009

The Integration of
Social Issues in
Public Procurement

Colin Pidgeon
Research Officer
Research and Library Service

The integration of social issues into public procurement has been an issue of interest in Northern Ireland for some years. This paper seeks to provide relevant information for the Committee for Finance and Personnel’s inquiry into public procurement by setting out the legal framework and drawing on experience from other parts of Europe.

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Key Issues

Contents

1. Introduction xx

2. The European Legal Framework For Procurement xx

2.1. Directive 2004/18/Ec on the Coordination of Procedures for the
Award PF Public Works Contracts, Public Supply Contracts and Public Service Contracts xx

2.2. The Stages of Procurement and the Integration of Social Considerations xx

3. Experiences From Other EU Member States xx

3.1. Denmark xx

3.2. Germany xx

3.3. France xx

3.4 Italy xx

3.5 Public Private Partnerships: A Case Study from the Netherlands xx

4. Northern Ireland xx

4.1 Legal Issues in Northern Ireland xx

4.2 Case Studies in Northern Ireland xx

5. The Uk Cabinet Office Social Clauses Project xx

5.1 Pilot Projects xx

5.2 Social Return on Investment xx

1. Introduction

The integration of social considerations into public procurement has been on the European agenda for quite some time. The Commission issued an Interpretative Communication on the topic as far back as autumn 2001. This was intended to clarify the range of possibilities for integrating social considerations under the Community legal framework that was in operation at that time.

Since that time European law on public procurement has been updated. The Directives that are most relevant are what is known as the “classic" or “public sector" Directive[1], and the “utilities" Directive of 2004.[2] Above and beyond the specific provisions of the Directives, there are fundamental principles with which all procurement exercises must comply.

Fundamental principles deriving from Treaty provisions:

One means of integrating social considerations into public procurement is through the use of ‘social clauses’. The terms of reference for the Committee for Finance and Personnel’s inquiry into public procurement practice in Northern Ireland include consideration of ‘the nature, extent and application of social clauses within public contracts’.

There is some policy commitment to such integration both within the devolved government of Northern Ireland and at the UK level. The Office of the Third Sector (within the Cabinet Office) has undertaken a study examining the use of social clauses, barriers to their use, and the potential for template clauses.[3]

The Cabinet Office has defined social clauses as:

…requirements within contracts or the procurement process which allow the contract to provide added social value through fulfilling a particular social aim. For example, a social clause in a public contract could prioritise the need to train or give jobs to the long-term unemployed in the community as part of the contracting workforce.[4]

The Northern Ireland Executive’s Programme for Government (PfG) for 2008-11 contains commitments that indicate support for the use of social clauses in appropriate circumstances. In relation to the Executive’s reform programmes, for example, the PfG states that:

We are committed to taking forward key reform programmes in areas such as health, education, water and planning and will shortly announce our plans for the reform of local government. These will result in significant changes to both the structure and the delivery of public services, reducing bureaucracy and enabling us to focus our energy and resources on frontline services. We will ensure that the reforms and restructuring will be compliant with recognised best practice in social procurement guidelines.[5]

The Central Procurement Directorate (CPD) of DFP has included the need to consider the social aspect of procurement in its twelve guiding principles for purchasers. The seventh principle states:

Integration: in line with the Executive’s policy on joined-up government, procurement policy should play due regard to the Executive’s other economic and social policies, rather than cut across them.[6]

Across Europe there are different levels of emphasis on the integration of social considerations into public procurement. In some instances (notably in Germany) there is some interest in pursuing not just the domestic social agenda but also wider social issues such as Fair Trade and the prevention of child labour.

This paper considers the European legal framework and issues that relate to the use of social clauses. It also details some case studies from across the EU and concludes with some case studies from Northern Ireland and elsewhere in the UK.

2. The European Legal Framework for Procurement

Procurement represents about 16% of EU gross domestic product (GDP) and in 2007 the value was estimated at €2,000 billion (including procurements both above and below EU thresholds) and in 2006 nearly 32,000 contracting authorities published public contracts worth €380 billion.[7] It is perhaps not surprising then that the EU has legislated significantly in the field of public procurement for a number of years. It is seen as an important single market issue.

At around 3% of total procurement, direct cross-border procurement is relatively low. (Direct cross-border procurement is where a company based in Germany, for example, wins a contract in the Netherlands.) When indirect cross-border procurement is also considered (this includes, for example, a French national company with a subsidiary in Spain wins a contract in Spain) it accounts for around 10%.[8] With free movement of goods being a fundamental purpose of the European Union, this is perhaps surprisingly low.

There are three aspects of EU law that apply to procurement. Primary law is essentially the Treaty; secondary law is the various relevant Directives, and; case law of the European courts. The European Court of Justice (ECJ) often places importance on free movement because there is a clear legal basis to do so in the EC Treaty.

The establishment of a single market is the key factor in relation to procurement: all other objectives (such as sustainability) are secondary. As a result, there remains a tension between the single market and the social policy arenas. The EU has limited competence in the social area which has caused problems of legal uncertainty for procurement practitioners.[9] It is notable that this is less the case in the environmental area and there have been direct interventions by the European Commission – for example the Energy Labelling Directive and the Energy Performance in Buildings Directive.

The ‘fundamental principles’ are important because it is possible that social or ethical considerations could operate as a disguised barrier to the free movement of goods, and therefore become a form of protectionism. For example, a technical specification of goods to be provided which refers only to a national standard (for example, a British Standard in construction) would be discriminatory unless it allows equivalent standard from other Member States. It is therefore essential that contracting authorities pay attention to these principles in their procurements or they run the risk of legal challenge.

2.1 Directive 2004/18/EC on the Coordination of Procedures for the Award of Public Works Contracts, Public Supply Contracts and Public Service Contracts

This is the so-called “classic" or “public service" directive. Amongst other things, it deals with the scope of application (thresholds, specific situations and exclusions, and special arrangements), arrangements for public service contracts, technical specifications, procedures (open, restricted, negotiated or competitive dialogue) framework agreements, advertising and transparency, selection of contractors and the award of contracts.

Whether all or only some of the provisions of the Directive apply to a particular contract depends upon the objects of the contract. ‘Part A’ contracts are subject to the full procurement regime. ‘Part B’ contracts are subject to only some of the provisions. Health and social services are classified as ‘Part B’[10] so it is the more limited procurement regime that generally applies to the inclusion of social considerations if they are the subject of the contract. If, however, social considerations are included in a contract which itself is a ‘Part A’ contract, then the full regime applies.

Under the “classic" Directive it is possible for contracting authorities to state in a contract notice that a particular contract or element of the contract is to be reserved specifically for sheltered workshops or sheltered employment programmes. Such workshops or programmes are defined as those where “most of the employees concerned are handicapped persons who, by reason of the nature or the seriousness of their disabilities, cannot carry on occupations under normal conditions."[11] The Directive explains that “such workshops might not be able to obtain contracts under normal conditions of competition" and special provision is made because “sheltered workshops and sheltered employment programmes contribute efficiently to the integration or reintegration of people with disabilities in the labour market."[12]

It must be noted that the requirement for competition is not removed by this process of reserving contracts. A contract can’t be reserved for a particular sheltered workshop but for sheltered workshops in general, thereby allowing a number of such workshops to compete for the tender.

For contracts that the contracting authority does not choose to reserve, there is varying scope to address social issues (which are relevant to but not the direct purpose of the procurement) depending on the stage of the public procurement process. The UK Office of Government Commerce (OGC) sets out those stages as follows:

1. pre-procurement – when identifying the need, approaches and considering the market;

2. when deciding the requirement – the specification stage;

3. when selecting suppliers to invite to tender – the selection stage;

4. when awarding the contract – the award stage; and

5. in the performance of the contract – contract conditions and relationship management.[13]

2.2 The Stages of Procurement and the Integration of Social Considerations

The following section is set out in the order of the procurement processes set out by OGC.

A) the pre-procurement stage

This stage is when a contracting authority is considering what needs it wishes to fulfil and what benefits it wishes to define from the works, services or goods it is to purchase. Social issues may be addressed both through what is bought (for example, a service catering specifically for a particular group with specific social needs such as Irish travellers or young people with a history of offending) and less directly through how it is bought (for example, by making the requirement easily accessible to Small and Medium-sized Enterprises (SMEs) in particular communities).

OGC guidance specifies that in developing a business case, contracting authorities “should take account of wider benefits including social ones, in accordance with the Treasury Green Book."[14] (The ‘Green Book’ is the guidance that must be followed by departments in conducting economic appraisals and constructing business cases.) This is the stage when contracting authorities are able to consult widely with stakeholders to help them understand fully what is needed and consider which social issues or obligations are relevant to what they plan to buy. Additionally, this is the stage when consultation with potential suppliers will help contracting authorities to understand what the market can readily provide.

B) the specification stage

At this stage, the contracting authority sets out exactly what it is it wishes to buy. The specifications must be set out in all the relevant documentation – notices, contract documents, etc. Definitions of certain technical specifications are provided in the “classic" Directive. Specifications define the characteristics of a material, product or supply and “shall include levels of environmental performance, design for all requirements (including accessibility for disabled persons) and conformity assessment, performance, safety"[15] and other information such as dimensions, test methods, packaging, production methods and so on.

The specification should allow equal access for tenderers (due to the fundamental principles) and may contain references to technical characteristics or equivalents and/or output specifications. These outputs may concern environmental characteristics such as maximum levels of emissions, for example. But they may not specify a particular make, source, process, trade mark, patent or label. However, CPD guidance states that “Public bodies should not impose unnecessary burdens or constraints on suppliers or potential suppliers."[16]

Specifications must be relevant to the subject matter of the contract. OGC guidance states that “a social issue can be a core requirement and reflected in the specifications provided it is central to the subject of the procurement."[17] It gives an example of where the specification may require helpdesk staff to have fluency in languages other than English.

Also, an authority wishing to buy furniture made from fair trade wood could specify that wood should be sourced in accordance with specific environmental, social or employment standards. But it could not refer to a specific ‘fair trade’ label.

Variant tenders

The “classic" Directive also allows variant tenders to be submitted.[18] This technique could be used in conjunction with social criteria to allow for a kind of parallel bidding. For example, a specification could specify a minimum level of environmental or social protection and then allow second bids which meet a higher level than the minimum. In the event that the parallel bids do not meet the criteria of being most economically advantageous, the contracting authority may then fall back to the regular tender which meets the minimum requirement. This process can allow for market-led innovation.[19]

Again, it must be stated in the contract documentation from this early stage that this approach is to be used.

Sub-contracting

A final permutation allows the contracting authority to ask tenderers to indicate a percentage of the work to be sub-contracted to SMEs and/or Social Economic Enterprises (SEEs).[20] It should be noted, however, that generally it is not permitted for a contracting authority to limit a tender specifically to non-profit service providers (and SEEs would fall into this category). In relation to the “classic" Directive the Commission has stated:

Individual contracting authorities can not decide themselves to limit a tender procedure to non-profit service providers. The Directive is based on the principle that all economic operators are treated equally and non-discriminatorily. It is therefore not possible under the Directive to reserve tenders to specific categories of undertakings, such as non-profit organisations. The provisions mentioned in this paragraph apply to all services, including those only partially covered by the Directive, such as social services.[21]

C) the selection stage

This is the point at which suppliers are selected for the next stage of the procurement process e.g. invitation to tender.

Potential suppliers can be required to demonstrate technical capability in relation to the contract in question.

OGC guidance states that “if a contract requires specific know-how in the ‘social’ field, specific experience may be used as a criterion to prove the suitability of potential suppliers in regard to technical or professional ability."[22] A possibility might be to ask for evidence of, for example, language skills or cultural awareness or sufficient research capacity to meet a social criteria.

At this stage it is also possible for the contracting authority to consider a potential supplier’s track record with similar contracts. It is permissible to exclude tenderers on the basis of ‘grave professional misconduct’.[23] This allows contracting authorities to pursue wider social objectives. For instance, a potential supplier could be excluded on the grounds of a breach of health and safety or equality legislation.

It is for Member States to determine what behaviour constitutes grave professional misconduct and this may be proven by any means – there is no specific standard set by the Directive. A Member State could determine that the use of child labour, for example, constituted such behaviour.

The OGC guidance provides an example that a contracting authority could require potential suppliers to demonstrate the adequacy of their recruitment and training as these may be relevant to the ability to deliver the contract in question. Such assessment may only be done, however, on a case-by-case basis: criteria requiring firms to identify and address imbalances in job applicants or employees on a gender or community background basis may be relevant to an individual contract but they are unlikely to be relevant to all contracts. Imposing such criteria in a blanket fashion would run the risk of legal challenge.[24]

D) the award stage

At this stage the contractor is selected on the basis of the award criteria. It is for the contracting authority to decide the method. It may choose to award on lowest price only or it may choose to award on the most economically advantageous tender (MEAT). Using the lowest price only method leaves no scope for any consideration other than price. Using MEAT opens up small possibilities for the integration of social considerations.

The “classic" Directive presents a non-exhaustive list of criteria that may be used. These include price, quality, technical merit, aesthetic and functional characteristics, and environmental characteristics among other things.[25] Social considerations are not explicitly mentioned in the articles. But, Recital 1 states:

…This Directive is based on Court of Justice case-law, in particular case-law on award criteria, which clarifies the possibilities for the contracting authorities to meet the needs of the public concerned, including in the environmental and/or social area, provided that such criteria are linked to the subject-matter of the contract…[26]

Which tender is most economically advantageous and therefore presents best value for money is interpreted from the point of view of the contracting authority.[27] This suggests a wider public interest interpretation is not applicable.

OGC guidance confirms that social considerations may be given a weighting at the award stage “where they provide an economic advantage for the contracting authority which is linked to the product or service which is the subject matter of the contract."[28] Similar to other considerations, any weighting that is to be applied to social criteria at this stage must be stated in the contract documentation, must not confer unrestricted freedom of choice on the contracting authority and must comply with the fundamental principles.

It is recommended by the European Commission that contracting authorities are very cautious about using giving high weightings to social criteria because best value is the main consideration. If social considerations are given a high weighting, a contracting authority may end up with economically disadvantageous tenders. It is considered less risky to put social considerations into the contract-performance criteria.[29]

E) contract conditions and relationship management

This stage of the procurement process offers considerable scope for the integration of social considerations. Contracting authorities may lay down special conditions relating to the performance of a contract, as long as they are not incompatible with EC law and have been indicated in the contract notice or specifications. The “classic" Directive says explicitly “the conditions governing the performance of a contract may, in particular, concern social and environmental considerations."[30]

The Directive also provides further clarification:

Contract performance conditions are compatible with this Directive provided that they are not directly or indirectly discriminatory and are indicated in the contract notice or in the contract documents. They may, in particular, be intended to favour on-site vocational training, the employment of people experiencing particular difficulty in achieving integration, the fight against unemployment or the protection of the environment. For instance, mention may be made, amongst other things, of the requirements – applicable during the performance of the contract – to recruit long-term job-seekers or to implement training measures for the unemployed or young persons, to comply in substance with the provisions of the basic International Labour Organisation (ILO) Conventions, assuming that such provisions have not been implemented in national law, and to recruit more handicapped persons than are required under national legislation.[31]

It is important to note that social conditions may only refer to the contract in question. They may not, for example, require a contractor to hire the long-term unemployed for all other works that they undertake. OGC guidance states that “care should be taken to avoid the imposition of blanket clauses on suppliers, which could be regarded as burdensome and might deter suppliers from competing for government work."[32] Value for money is maintained as a central consideration.

Almost all kinds of consideration (such as measures for equality between men and women or ILO standards) could be included at this stage, as the strict requirement to relate the social conditions to the subject of the contract is not applied as it is, for example, in the specification stage. This is not about what is bought, or about the process of procurement but about the performance of the contract in a way that the contracting authority is happy with.[33]

Finally, OGC guidance suggests that “there may be opportunities post-award for contracting authorities to work outside the formal procurement process, on a voluntary basis, to promote the importance of social issues…to their suppliers and supply chain"[34]. For example, a contracting authority may let its facilities management company’s staff attend in-house equality training.

3. Experiences from other EU Member States

The Directorate General for Employment, Social Affairs and Equal Opportunities commissioned a study on the incorporation of Social Considerations in Public procurement in the EU which was finalised in the summer of 2008. This study was to inform the development of practical Guide to taking account of social considerations in public procurement. The Guide is currently in preparation and is likely to issue in the autumn of 2009.[35]

The study resulted in the publication of four reports:

1. Legal and Policy Review of Socially Responsible Public procurement (SRPP) frameworks in selected EU Member States.[36]

2. Overview of typical applications of SRPP Practices in the EU Member States as collected through the survey questionnaire.[37]

3. Six studies on SRPP Practices in the EU Member States.[38]

4. Study on the incorporation of Social Considerations in Public Procurement in the EU.[39]

These reports contain some useful information about the practice of incorporating social considerations into public procurement. A summary of these European experiences in presented below.

3.1 Denmark

In June 2008 unemployment in Denmark was below 2%. More than 38% of the total workforce is employed in the public sector and, on average, a Danish municipality employs about 10% of its population. Taxation is the highest in the world.[40]

Promotion of employment opportunities

Works and services contracts that require a local presence of at least parts of the workforce involved in the execution of the contract may include as contract conditions requirements to promote employment opportunities for the unemployed. Across Denmark the usual level is 5% (the City or Aarhus requires 10%) of the workforce to be recruited for a certain minimum period of time from the unemployed.

Between 50 and 75% of the salary is paid by the tenderer. The state pays the remainder of the salary which creates an incentive for the tenderer. The policy is not directly prescribed by law although each municipality must produce a four-year strategy on the policy. There is provision for administrative enforcement of this requirement but Local Government Denmark reports that no action has ever been taken.

There is anecdotal evidence that the policy has brought many unemployed into employment. The hope is that after the period of funded employment is over the tenderer will keep the formerly unemployed persons in their employment but “there are no reliable statistics and no test of the efficiency of the policy in practice."[41]

It is often difficult to satisfy the contract clauses precisely because the rate of unemployment is so low. There is concern that the policy artificially raises transaction costs and so there is a reluctance to use social clauses. Contracting officers feel overburdened by the additional requirements – staff time in writing additional clauses into contracts is considerable. Also, as people in the most challenging unemployment categories are difficult to integrate, the employment often lapses after the minimum period.[42]

Promotion of decent work

As above, requirements for ‘decent work’ are integrated only as conditions of the contract not in the technical specifications. Decent work is defined in terms of International labour Organisation standards. However, contracting authorities reported that it was difficult to implement in practice because of a lack of relevant documentation or instruments for evaluating existing documentation. Controlling whether or not contractors adhere to the contract clauses was therefore reported to be impossible.[43]

Promotion of SMEs

In Denmark an SME is a company with fewer than 250 employees. Municipalities use initiatives to encourage their participation in public procurement (such as holding information meetings prior to call for tender) but SMEs are not singled out in the technical specifications.[44] Also, large contracts are sometimes split according to geographical criteria to encourage SME participation.

The perception of this process amongst both procurement practitioners and SMEs is split. Some SMEs regard social and environmental initiatives as a chance to distinguish themselves from their competitors (branding) whereas others see them as a burden.[45]

Fair and ethical trade

There is political desire to use Fair Trade labels but this is obstructed by the legal uncertainty. This is further complicated by the fact that SMEs often can’t meet the costs of accreditation.[46] Also, there is a limited range of Fair Trade products available – it is mostly in the food/coffee sector with some construction items.

There were two political scandals relating to the construction of a new opera house and TV2 studios in Copenhagen. Granite stones that were used in the construction were produced in developing countries using slave and child labour.

Enforcement

Whilst in theory the Danish Competition Authority can inspect whether suppliers adhere to the standards they have agreed to (potentially leading to annulment of the contract or even the closing down of the company) in practice this does not happen.[47]

Secondly, there are no common standards or systems for monitoring compliance. Also, the lack of legal certainty leads to contracting authorities to be very cautious in their approach to integrating social considerations.[48]

Conclusions

Socially responsible procurement is likely to gain in importance as contracting authorities produce information websites, guidelines and brochures to raise awareness. Also they are training procurement officers and there is an internet dispenser for standardised contract specifications.

3.2 Germany

Germany is the largest public and utilities procurement market in the EU. But due to the fragmented nature of structure of public procurement only 7.5% of contracts are advertised in the Official Journal – the lowest of all member States.[49]

Generally speaking both policy makers and contracting authorities are opposed to the integration of social considerations into procurement.[50] (Note that this does not apply to the promotion of SMEs which is not seen as a social issue in Germany. Politically the promotion of SMEs is important.) This is not because the objectives are disputed but because social clauses are feared to compromise value for money and transparency.[51]

Social considerations are considered to be more appropriately enforced through other aspects of German law such as employment law, child law or constitutional law. The use of social clauses is also the subject of much political debate, with the country divided on political lines at federal, state and municipal levels. Reservations are often put forward that procurement officers (especially at the municipal level) are already stretched by a complex procurement process.[52]

Contracts for workshops for the disabled

From 2005 a Federal Decree requires federal procurement authorities to reserve a part of their contract budget for contracts that can be awarded to workshops for the disabled. Note that federal procurement is rather limited to the police, the army and some road construction.[53] This can even apply to large supply and services contracts, although the workshops are required to compete and come up with economically sound tenders.

Prisons, youth work institutions, vocational training or similar institutions

A Procurement Order allows the restricted procedure set out in the “classic" Directive to be used – even for contracts where the Directive does not apply – if the contracting authority intends to award contracts to any of the institutions listed above. The restricted procedure is defined by the Directive as:

Those procedures in which any economic operator may request to participate and whereby only those economic operators invited by the contracting authority may submit a tender.[54]

Promotion of SMEs

Germany has a complex definition of an SME which is on the basis of a combination of turnover and number of employees that varies according to the sector in which the SME operates (i.e. retail, wholesale, professional or crafts or industrial). A Procurement Order requires that, at the federal level, “whenever it is economically feasible, contracts should be divided into lots to facilitate the participation of SMEs."[55] There is also a general SME initiative with the objective of reducing bureaucracy and unnecessary regulations, though this is not legally binding.[56]

At the state level, there are two techniques open to contracting authorities aimed at achieving the same objective. The first is comparable to the federal requirement to split contracts into lots. The second is to include a clause in the main contractor’s contract providing for the participation of SMEs as subcontractors as long as this can be reconciled with the general requirements of the contract in question.[57]

Finally, some states have a general rule to allow SMEs a fair share of public contracts or requiring SMEs to be specifically asked to bid for contracts as part of the restricted and negotiated procedures. There is no data, however, on how these techniques work in practice. There is no overall control of how this fair share works and so it could be legally questionable.[58]

The state of North Rhine Westphalia is currently intending to introduce amendments to its procurement laws that will: introduce a general requirement to consider SMEs; a requirement to split contracts into lots; a requirement for bidders to carry at least 50% of the contract within their own company; simplify pre-qualification; ensure that consortia are not disadvantaged compared to single bidders; specify at least 14 days for the submission of bids; abolish tender securities; require acceptance of electronic tenders; and introduce a new review procedure. These are all aimed at increasing SME participation.[59]

Prevention of exploitative child labour

Some German states have moved to use public procurement as a tool against exploitation in developing countries. The Bavaria and Saarland state parliaments have passed motions asking their state governments not to procure supplies produced through exploitative child labour. However, these are motions, and not laws. The state of Hamburg requires a declaration from contractors that the contract is performed in accordance with ILO standards.

A number of municipalities have also introduced policies in this field however this is often criticised as being a profile-raising exercise by politicians rather than as a serious policy which will be monitored. In any case, it would be difficult to monitor and enforce.[60] But it is thought that they will probably have a positive impact in practice because companies that are known to have supplied goods produced by child labour are likely to find it hard to win contracts. It is unclear, however, whether these regulations and practices comply with EU and German procurement law.[61]

Promotion of the Employment of Women

The state of Brandenburg has a specific law on the promotion of the employment of women which applies below the EC procurement thresholds. If two bids are economically equally competitive and one of the bidders has a high percentage of female employees, that bid will get preference. The law includes provisions to ensure equal treatment and transparency but there is no information on its operation in practice.[62]

Conclusions

The prevention of exploitation has been subject to much press coverage. Workshops for the disabled and long-term unemployed are often at least partly owned by the municipalities which directly award many low value contracts to these establishments. The promotion of SMEs is seen as a separate issue but is embedded in the different levels of public procurement.[63]

3.3 France

French procurement law is about choosing the best combination of efficiency and the meaningful use of public money. The legal Code, however, does contain references to sustainable development although this is balanced by the requirement that public procurements must answer the needs of the contracting authority.

The integration of social issues is politically popular. But administrative case law has determined a strict approach. The most important case considered works in the municipality of Graveline where the local authority attempted to integrate a requirement for job creation into the contract. Bids over the available budget were received, so the municipality began a negotiated procedure which abandoned the overall pricing method for award and used a maximum price with a system of deductions. Neither bidder presented a proposal for job creation.

Following a legal challenge on the basis that the award criteria had been changed, the contract award was quashed. The central concept is that any criterion linked to the bidder cannot also be considered to be linked to the object of the contract. The courts held that long-term unemployment was not related waste clearance, which was the purpose of the contract.[64]

Further, the French courts struck down legislation which reserved a portion of public procurements to social enterprises. The judgement was on the basis that the resulting infringement of the principle of equality was disproportionate to the public interest aims pursued. Essentially, social considerations are not considered to be a strong enough reason to restrict the equality principle.[65]

Despite the legal cases, the French government is pursuing a sustainable procurement strategy that will have some social aspects integrated. For example an objective is that 50% of contracts awarded in relation to parks and other public green spaces will be awarded to social enterprises or those hiring handicapped workers.[66]

Contracts for workshops for the disabled

A statute from 2005 requires public law entities to hire a certain percentage of people with disabilities. This duty can be in part fulfilled by “sub-contracting the duty". In essence, the contracting authority can use the numbers of disabled workers employed by a contractor on their behalf to count against their obligation. This creates a strong incentive for contracting authorities to use the reserved procedure for sheltered workshops under the “classic" Directive.[67]

Promotion of employment opportunities

Social clauses targeted at job formation and offering job opportunities to people with particular social needs (such as the long-term unemployed or young people with low levels of qualifications) are often inserted in many contracts awarded by local contracting authorities. These are typically in building procurements and services contracts such as cleaning and maintenance. If the successful bidder is not itself an organisation aiming to promote social inclusion it may either sub-contract part of the contract or hire a number of disadvantaged workers directly.[68]

An example may be a clause that requires the contractor to hire 20% of the workforce from the long-term unemployed with a history of substance abuse problems. In this instance the contracting authority can be assisted by a ‘facilitator’ who helps the contractor to manage the workforce involved. The successful bidder may have no experience of managing individuals with particular social needs, so the facilitator is paid by social services to help the firm. This can include tailored vocational training which procurement officers may not have the relevant expertise to identify.[69]

Public institutions with responsibility for social inclusion are involved in the procurement process from an early stage. The promotion of social awareness is raised with bidders through meetings facilitated by these agencies and local associations provide training. Such agencies are also involved in monitoring compliance with the social clauses, as it is common that contracting authorities don’t have the capacity or expertise.[70]

Promotion of SMEs

French case law has ruled out the possibility of giving preferential treatment to SMEs. However, this can be, and is, achieved by subdividing procurements into lots. This is not an obligation but is an option available to contracting authorities if the subject of the procurement is suitable to sub-division. Alternatively, the contracting authority may require bidders to state the share of the procurement that they intend to sub-contract.[71]

Further - more rigorous - provisions to set a quota of SMEs that had to be invited to bid were quashed by the courts on the grounds that they would discriminate against some potential bidders.[72]

Prevention of exploitative child labour

There is a specific mandatory social requirement in relation to schools procurement. No child labour products may be used in schools, but this legislation is in relation to schools management and so does not apply generally.[73]

Conclusions

The strong policy direction in France to include social considerations in procurements has been restricted by the judgements of the courts. This has made sure that social considerations do not get in the way of the transparency of the procurement process..[74]

The holistic approach taken by contracting authorities working with those agencies responsible for social inclusion allows for monitoring and support that seems to be absent in many other of the case studies. These agencies can also act to certify social compliance.

3.4 Italy

Italy is a centralised state gradually devolving more competencies to regional and local level. However, legislation and regulation of procurement remains at the central level. The legal and procurement culture of Italy is aimed at preventing corruption more than encouraging SME involvement or the use of social clauses.[75]

For example, the provision of the “classic" Directive in relation to reserved contracts for sheltered workshops has been transposed into Italian law. But it is not used.

There are some provisions that do regulate procurement in relation to social rights. Examples include the exclusion of potential bidders from competition who have breached rules on social security contributions or health and safety requirements (because of the thriving black economy in Italy).[76]

Promotion of employment opportunities

Specific kinds of firms may be classified as social cooperatives and they may benefit from their special status in the procurement process. There are two kinds: those operating in health and education where social objectives are met by providing services to the most needy sections of the public and; cooperatives that aim to help disadvantaged people to gain employment. To qualify at least 30% of the workforce must be disadvantaged. Disadvantage is defined in terms of disability, former mental health patients, substance abusers and young people with difficult family backgrounds, though this may be widened by the regional authorities.[77]

Italian law allows contracting authorities to award contracts below the European thresholds to such cooperatives without the usual procurement rules being applied – including possibly the fundamental principles of EC law. Contracts may also be set aside for cooperatives on regional lists. Again it is questionable whether this is compatible with EC law.[78]

Promotion of SMEs

In the other case studies, procurement rules are designed to encourage SME participation in tendering. In Italy the opposite is the case.

Italian legislation is very strict on sub-contracting. Contracting authorities must specify in the contract documentation whether sub-contracting will be allowed. For works procurements a maximum of 30% of the contract may be sub-contracted. But the contracting authority may allow no sub-contracting at all. If it is allowed the winning bidder must send a copy of the sub-contract to the contracting authority along with evidence to prove that the sub-contractor meets necessary requirements such as health and safety.[79]

Joint participation in consortia is also prevented. This makes things easier for the contracting authority in an environment where prevention of criminality is a prime consideration. It is questionable whether or not this is compatible with EC law

Conclusions

Particular social considerations are specific to certain areas of Italy with the result that procurement law does or policy does not directly encourage the use of social clauses. Efforts to keep criminal organisations from benefiting from public procurement also act as strong barriers to SME participation. The social and legal heritage of Italy is very important: the law is concerned with repressing blatant abuses but at the same time permitting lesser abuses.[80]

3.5 Public Private Partnerships: A Case Study from the Netherlands

Most of the experience of using social clauses from across Europe seems to relate to conventional procurement. However, it is also possible to integrate social considerations into PPP projects.

Development of the A2 in Maastricht

The A2 is a major arterial highway that runs from Amsterdam to Genova in Italy. Over the whole length of the road there are only six sets of traffic lights. These are all situated in Maastricht, where the highway cuts a significant part of the city off from the centre. The lights are pedestrian crossings.

The authorities have identified a need to develop the road in a way that it can pass through Maastricht without cutting off the inhabitants who live to the eastern side. It was also identified that the areas abutting the road are in need of both economic and social redevelopment.

Four individual branches of government have come together to form the contracting authority: the national government, two local authorities and the municipality of Maastricht. They chose to use an innovative approach to getting an integrated solution to the problems posed by the A2 – in terms of reducing traffic congestion; reducing emissions within the city and; reducing the social and economic isolation of part of the city.

The contract sum was fixed before tendering, at a sum of €1.2billion, for what is expected to be a 20-year project. This fixed contract sum is considerably less than the total estimated cost of the construction work, which will involve not re-routing the road but tunnelling beneath its present route.

Because the sum is fixed, bidders could not win extra points for lower costs. The winning bid will be the one that demonstrates the best level of quality and sustainability. The market will provide the remainder of the financing. In exchange, an area of public land will be handed to the winning contractor for the sum of €1, but of course is worth considerable more. The zoning and infrastructure plan allows for around 1000 housing units to be built as well as a commercial area to be developed, which is how the contractor will make its profits.

Six award criteria were set:

The criteria were kept as abstract as possible to allow the market to come up with the best possible integrated solution but giving the state agencies sufficient comfort that appropriate standards will be met. Each consortium had to provide a report on the environmental impacts – emissions, particulates, noise and so on, and were awarded extra points for lower impacts.

Social aspects of the procurement are firstly related to creation of local employment opportunities (stipulated in the contract clauses). Secondly, they come in under the award criteria of synergy of the city. The contracting authorities are focussed on reducing difficulties in people with restricted mobility and children crossing a four-lane highway as well as creating a social amenity for the local population. The current land area taken up by the road will become a city boulevard for cyclists and a green space where once were cars.

Conclusion

The procurement directives give all the scope that is needed for innovative procurement of large capital contracts. The A2 project will transform what is currently an unpleasant social and economic barrier into a liveable and usable green space with the highway passing underneath.

4. Northern Ireland

As noted in the introduction, the Executive’s Programme for Government (PfG) for 2008-11 contains commitments that indicate support for the use of social clauses in appropriate circumstances. This is picked up in the Central Procurement Directorate’s twelve guiding principles for procurement, under the seventh principle. In addition, Public Procurement Policy states:

The concept of “best value for money" is defined as “the optimum combination of whole life cost and quality (or fitness for purpose) to meet customers’ requirements". While “best value for money" will be the primary objective of procurement policy, this definition allows for the inclusion, as appropriate, of social, economic and environmental goals within the procurement process"[81]

This commitment is reflected in the Investment Strategy for Northern Ireland 2008-18 which states:

We will seek opportunities to promote social inclusion and equality of opportunity in the procurement of infrastructure programmes. This will impact through employment plans; building apprenticeships into major delivery contracts – helping those eager to develop key skills valued in the workplace and through a tendering process that prioritises the most economically advantageous option in this context. Through the procurement process, we will seek to maximise the social and employment opportunities for all our people, addressing existing patterns of socio-economic disadvantage and using prosperity to tackle poverty.[82]

These principles have been incorporated into the Code of Practice introduced by the Construction Industry Forum NI.[83]

4.1 Legal Issues in Northern Ireland

Northern Ireland procurement law (like that of the rest of the UK) follows the EC procurement directives closely but there are three pieces of legislation outside procurement law that are seen as being of particular importance regarding social issues. These are the Fair Employment and Treatment Order 1998, section 75 of the Northern Ireland Act 1998 and the sustainable development duty of the Northern Ireland (Miscellaneous Provisions) Act 2006.[84]

Beyond these considerations and the EC Directives, there are also obligations at common law:

The so-called two contract theory provides that where a contractor submits a tender at the request of an employer the employer is then is then obliged to consider that tender reasonably, equally, fairly and objectively.[85]

There have been a number of challenges to public procurement in Northern Ireland – some of which have been successful or were settled by the contracting authority. The level of litigation may in part be due to too much emphasis on quality marks. CPD guidance suggests quality should make up 20-40% of award criteria, but some maintenance contracts are awarded on 70% quality. Another problem may be the size of frameworks (for example the IST and Schools Frameworks) which are very large. Finally, there appear to have been failures on the part of the contracting authority to comply with the regulations. Such failures have included criteria not being set out in advance, unequal treatment and failing to publish correct notices.[86]

4.2 Case Studies in Northern Ireland

Fair and ethical trade

The Procurement Board (which consists of NI Departmental Permanent Secretaries and is chaired by the Minister of Finance) has issued a guidance note on the procurement of fair trade products.[87] This defines fair and ethical trade and details the range of products currently available and recognised. It also provides guidance

When CPD itself is purchasing coffee, it is part of the catering contract requirements that fair trade coffee is used. When CPD is not directly paying, but a contract was being let for a café for staff to purchase coffee, the contract specified that fair trade coffee had to be made available as one of the options for customers.[88]

Promotion of SMEs

The Procurement Board has published guidance for SMEs.[89]This aims to raise awareness amongst SMEs of what contracting authorities might purchase. “Meet the buyer" events are also held.[90] Further guidance has been issued to buyers that specifically addresses the barriers that SMEs may face in tendering and suggesting measures to overcome them.[91] Similar to the approach taken elsewhere in Europe, this guidance suggests breaking contracts into lots to make them more accessible.

A barrier SMEs face is also related to obtaining information about tendering opportunities. A web portal has been established through which all public procurement is channelled.[92]

Finally programmes to support SMEs and SEEs have been run, aimed at increasing awareness amongst suppliers in relation to cross-border contracts and develop skills in winning public sector work, amongst other things.[93]

In a recent evidence session to the Committee for Finance and Personnel, CPD officials commented that too much advertising and encouragement of SME involvement can create over-interest – the more pre-qualification questionnaires that are completed, the more resources are required to assess them.[94]

Health and safety

An initiative called Buildsafe NI brought together purchasers, industry, trade unions and the health and Safety Executive in a safety initiative. Unions and construction employers developed a code of practice on health and safety through the Construction Industry Forum as part of the public sector’s commitment to social responsibility as a part of sustainable development.

These negotiated standards are now used as the basis for specifications used in the tender. This is seen as a good example of how government can use its purchasing power to pressurise two sides of an industry to come up with an industry-wide agreement.[95]

Promotion of employment opportunities

Addressing unemployment in Northern Ireland has the potential to be an important means of combating inequalities resulting from the socio-religious divide.

A pilot project was undertaken following the Review of Public Procurement in 2002 and which was managed by CPD. Fifteen contracts (construction, security and cleaning) were awarded to a value of £45.9m.[96] The tender documentation required each bidder to provide an Unemployed Utilisation Plan. This plan had to set out the firm’s social policy and give details of specific proposals for utilising the unemployed on the contract. They also had to detail their experience and their capacity to implement the proposals.

The main aim of the pilot was social: helping the unemployed back to work and improving their career prospects. Additional benefits identified were economic – reducing social welfare payments and making supplier markets more responsive to government objectives.

The evaluation of the pilot scheme found that in relation to social goals, public procurement policy can achieve benefits “economically, efficiently and effectively".[97] The result was 51 formerly unemployed people finding work, at a rate of approximately one person employed for every £900,000 spent. It found that there were not significant increases in costs for suppliers, nor in workload for contracting authorities.

The approach of stimulating apprenticeship provision in this way was commented on by CPD officials in a recent evidence session to the Committee for Finance and Personnel. The number of apprenticeships required is tied to industry forecasts on the number of apprentices needed. It is seen as important not to end up with oversupply, because trainees might then find no work at the end of their period.[98]

Conclusions

The barriers to the integration of social issues in public procurement in Northern Ireland are not thought to lie in budgetary constraints – the evaluation of the Pilot project found no significant increase in costs. The constraints appear to lie in “getting procurement professionals and clients to focus on social issues."[99] There has been much guidance produced both by CPD and the Office of Government Commerce which should overcome any lack of clarity with sufficient investment in training.

5. The UK Cabinet Office Social Clauses Project

The Office of the Third Sector (part of the UK Cabinet Office) published a report on a Social Clauses Project in 2008. The project was set up to:

The project was based on the work of three local authorities in England following a survey that was undertaken over the summer of 2007.

The initial survey highlighted a number of issues in relation to the integration of social considerations:

Survey results confirmed that legal uncertainties on the status of social clauses and EU procurement rules, as well as a lack of information and understanding, were barriers to their use. Additionally, responses from stakeholder frequently identified a further two barriers to the use of social clauses:

Since that time, further guidance has been published by the Office of Government Commerce, as referred in previous sections of this paper. This guidance should have gone some way to addressing the concerns raised and to provide further clarity.

An original aim of the project was to provide template clauses. But as a result of the feedback from the survey, it was decided this aim should be dropped “as it was clear that any contract terms need to be tailored to the particular procurement, must relate to the performance of the contract and be assessed on whether their inclusion represents value for money."[102] Instead the project explored how and when social issues could be addressed and what support procurement officers would need.

5.1 Pilot Projects

Leeds City Council

This pilot initiated by the council’s Environmental Services Directorate looked at using social clauses in the development of a re-use shop in East Leeds. It was planned that the shop would be operated by an organisation – possibly from the community or voluntary sector. The aims were to increase recycling and re-use; increase public awareness of waste issues; provide added social benefits to the community through providing jobs and increasing social inclusion for vulnerable groups, and; supporting Housing/Social Services clients in the provision of good quality household items at low cost.[103]

Cumbria County Council

This pilot looked at the wider use of social issues in procurement. The council introduced a policy-led approach to procurement and wished to use the Social Clauses Project to develop its work and increase awareness in the wider Cumbrian procurement community. It also had a project to develop the third sector’s capacity to respond to procurement opportunities; develop an intelligent procurement process to allow communities to access responsive services, and; to improve the value for money of services delivered through procurement.

Under this project, the council aimed to secure wider community benefits by ensuring that social clauses were used in every appropriate contract and to facilitate the exchange of good practice between procurement teams and develop a deeper understanding of how to monitor and evaluate council contracts.[104]. A time-limited role for an officer was created to further this work.

This Third Sector Officer then engaged with all the procurement teams and worked with the procurement officers on a specific contract (for Integrated Youth Support Services) to support the process of using social clauses as part of the tender evaluation criteria. Stakeholders were involved in the service specification process, allowing community benefit to be embedded at every stage of the procurement.

Finally, the Third Sector Officer examined the contracts register to identify contracts coming up for renewal that would be appropriate for the use of social clauses. This process of familiarisation with the range of forthcoming contractual work enabled early identification of opportunities for social clauses in a strategic manner.[105]

Findings and Outputs

The Project found that an integrated approach improved understanding of social clauses and their role in maximising social value from procurement. Not just procurement officers needed to be involved but also heads of service, service managers and legal advisors. “Support for procurement officers from senior managers was integral to the success of the work"[106] This echoes the view from the German study that procurement officers found the integration of social issues to be an added burden on already stretched staff; by taking an integrated approach it seems that procurement specialists felt supported through the process.

5.2 Social Return On Investment

The Social Clause project identified that a barrier to using social clauses was difficulty in measuring outcomes and the associated costs of their use in procurements. The Office of the Third Sector is addressing this through a programme on measuring social value. The Scottish Government is also running a complementary project.

It is hoped that these projects will result in new guidance to using the tool of Social Return on Investment (SROI), which is a means of understanding and managing the wider impacts of a project, organisation or policy. SROI puts a financial value on impacts identified by stakeholders that do not have market values. This may help with the economic appraisal of social clauses in the future.[107]

[1] 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (as amended) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2004L0018:20080915:EN:PDF

[2] 2004/17/EC coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sector (as amended) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2004L0017:20080915:EN:PDF

[3] http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf

[4] http://www.cabinetoffice.gov.uk/third_sector/public_services/social_clauses.aspx

[5] Programme for Government 2008-11 (page 18) http://www.pfgbudgetni.gov.uk/finalpfg.pdf

[6] http://www.cpdni.gov.uk/index/guidance-for-purchasers/12-procurement-principles.htm

[7] Presentation by Rita Beuter, Senior Expert, EIPA, Maastricht.

[8] Presentation by Rita Beuter, Senior Expert, EIPA, Maastricht.

[9] Presentation by Rita Beuter, Senior Expert, EIPA, Maastricht.

[10] See article 21 of and Annex II B to Directive 2004/18/EC

[11] 2004/18/EC article 19.

[12] 2004/18/EC recital 28

[13] OGC ‘Buy and make a difference’ (2008) page 4 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[14] OGC ‘Buy and Make a Difference"(2008) page 5 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[15] See 2004/18/EC Annex VI 1(a) and (b)

[16] CPD’s 6th Procurement Principle http://www.cpdni.gov.uk/index/guidance-for-purchasers/12-procurement-principles.htm

[17] OGC ‘Buy and Make a Difference"(2008) page 7 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[18] 2004/18/EC article 24

[19] Presentation by Bert Lejeune, Legal Expert, Paulussen Advocaten, Maastricht.

[20] 2004/18/EC article 25

[21] European Commission ‘Frequently asked questions concerning the application of public procurement rules to social services of general interest’ (2007) page 11 http://ec.europa.eu/services_general_interest/docs/sec_2007_1514_en.pdf

[22] OGC ‘Buy and Make a Difference"(2008) page 8 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[23] 2004/18/EC article 45 2.(d)

[24] Presentation by Loredana Puiu, EC Directorate General Internal Market and Services.

[25] 2004/18/EC article 53

[26] 2004/18/EC recital 1

[27] 2004/18/EC article 53 1.(a)

[28] OGC ‘Buy and Make a Difference"(2008) page 9 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[29] Presentation by Loredana Puiu, EC Directorate General Internal Market and Services.

[30] 2004/18/EC article 26

[31] 2004/18/EC recital 33

[32] OGC ‘Buy and Make a Difference"(2008) page 9 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[33] Presentation by Loredana Puiu, EC Directorate General Internal Market and Services

[34] OGC ‘Buy and Make a Difference"(2008) page 11 http://www.ogc.gov.uk/documents/Social_Issues_in_Public_Procurement.pdf

[35] Presentation by Loredana Puiu, EC Directorate General Internal Market and Services

[36] http://ec.europa.eu/social/BlobServlet?docId=693&langId=en

[37] http://ec.europa.eu/social/BlobServlet?docId=694&langId=en

[38] http://ec.europa.eu/social/BlobServlet?docId=695&langId=en

[39] http://ec.europa.eu/social/BlobServlet?docId=1477&langId=en

[40] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en
Denmark case study page 2

[41] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en
Denmark case study page 4

[42] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School.

[43] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Denmark case study page 4

[44] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Denmark case study page 5

[45] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School.

[46] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[47] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Denmark case study page 6

[48] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[49] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Denmark case study page 4

[50] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Denmark case study page 16

[51] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[52] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 2

[53] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[54] 2004/18/EC article 1 11.(b)

[55] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 5

[56] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[57] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 8

[58] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[59] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 8

[60] Presentation by Martin Trybus, Professor of European Law and policy, Birmingham Law School

[61] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 11

[62] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 9

[63] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en German case study page 13

[64] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 3

[65] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 4

[66] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 7

[67] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 7

[68] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 10

[69] Presentation by Dr Robert Caranta, School of Law, University of Turin

[70] Presentation by Dr Robert Caranta, School of Law, University of Turin

[71] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en French case study page 14

[72] Presentation by Dr Robert Caranta, School of Law, University of Turin

[73] Presentation by Dr Robert Caranta, School of Law, University of Turin

[74] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Italian case study page 2

[75] Presentation by Dr Robert Caranta, School of Law, University of Turin

[76] Presentation by Dr Robert Caranta, School of Law, University of Turin

[77] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Italian case study page 11

[78] Presentation by Dr Robert Caranta, School of Law, University of Turin

[79] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Italian case study page 12

[80] Presentation by Dr Robert Caranta, School of Law, University of Turin

[81] CPD Procurement Policy Summary Statement (2002) http://www.cpdni.gov.uk/pdf-public_procurement_policy_summary.pdf page 2

[82] NI Executive ‘Investment Strategy for Northern Ireland (2008) http://www.pfgbudgetni.gov.uk/index/investment-strategy-for-northern-ireland.htm page 5

[83] Interim report of the Procurement Task Group presented to the Committee for Finance and Personnel on 29 April 2009.

[84] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 3

[85] Evidence presented by Quigg Golden to the Committee for Finance and Personnel, page 2

[86] Evidence presented by Quigg Golden to the Committee for Finance and Personnel, page 3

[87] http://www.cpdni.gov.uk/02-06_procurement_of_fair_trade_products-2.pdf

[88] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 10

[89] http://www.cpdni.gov.uk/index/guidance-for-suppliers/sme_guidance.htm

[90] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 10

[91] http://www.cpdni.gov.uk/pdf-sme_purchasers

[92] https://e-sourcingni.bravosolution.co.uk/web/login.shtml

[93] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 11

[94] Evidence presented by CPD to Committee for Finance and Personnel 29 April 2009, unpublished

[95] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 12

[96] CPD ‘Pilot Project on Utilising the Unemployed in Public Contracts’ (2005) http://www.cpdni.gov.uk/pilot_case_study_on_integration-2.doc page 12

[97] CPD ‘Pilot Project on Utilising the Unemployed in Public Contracts’ (2005) http://www.cpdni.gov.uk/pilot_case_study_on_integration-2.doc page 6

[98] Evidence presented by CPD to Committee for Finance and Personnel 29 April 2009, unpublished

[99] European Commission (2008) http://ec.europa.eu/social/BlobServlet?docId=693&langId=en Northern Ireland case study page 22

[100] http://www.cabinetoffice.gov.uk/third_sector/public_services/social_clauses.aspx

[101] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 5

[102] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 5

[103] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 7

[104] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 7

[105] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 8

[106] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 8

[107] Office of the Third Sector ‘Report on the Social Clauses Project’ (2008) http://www.cabinetoffice.gov.uk/media/107238/social_clauses_report_final.pdf page 10

Research Paper: Public Procurement and SMEs – an Update

Background

This paper provides a short update to research paper 119/08. Since that paper was produced there have been two significant developments in the public procurement field which are of relevance to the Committee for Finance and Personnel’s Inquiry into Public Procurement.

Part A) ‘Accelerating the SME economic engine: through transparent, simple and strategic procurement’ was published by the UK Treasury in November 2008.[1] This was the report of the Glover Committee, which was an advisory committee tasked by the Chancellor to provide recommendations on reducing barriers to SMEs competing for public contracts.

Part B) ‘Using Public Procurement to Stimulate Innovation and SME Access to Public Contracts’ was published by the ROI Department of Enterprise, Trade and Employment in July 2009.[2] This was the report of the Procurement Innovation Group, established by DETE with the objectives to:

Part A: Accelerating the SME economic engine

The report contained twelve recommendations for improving SME participation. These are summarised in the box below:

submission

submission

The UK Government accepted all of the recommendations.[3]

How the Recommendations Relate to the CFP Inquiry

It is immediately apparent that a number of the recommendations are designed to address issues that have been raised by witnesses in the course of the Committee’s current inquiry. In the analysis below, references are made to particular stakeholder’s evidence. This is not intended to be an exhaustive analysis but instead to give a flavour of the range of issues raised locally by a variety of witnesses. The full text of the written evidence is/will be available on the Committee’s web pages at: http://archive.niassembly.gov.uk/finance/2007mandate/finhome_07.htm

Recommendations One to Three are all related to the accessibility and timeliness of information in relation to tender documentation. These issues were raised by Lestas Consulting in its written evidence. Among others things it called for “consistency in approach across public bodies when tendering under EU thresholds and […] an open, objective and transparent procurement process".

Similarly, the Royal Institution of Chartered Surveyors called for “consistent application of evaluation and assessment criteria, tender documentation and constructive debriefs" across all Centres of Procurement Expertise.

The Chartered Institute of Purchasing and Supply stated its support for “clear guidance written from the supplier’s viewpoint in plain English."

Recommendation Four is aimed at increasing visibility of contracts that are thought to be especially suitable for SME through a process of flagging. The Independent Consultant Adviser Group argued that contracting authorities should “identify specialised components of projects and consider tendering them separately".

The Chartered Institute of Purchasing and Supply highlighted the CompeteFor website created by the Olympic Delivery team that is intended to match companies to opportunities in the London 2012 supply chain. This was identified by them as an area for immediate action in Northern Ireland.

The NI Construction Industry Group suggested that “ consideration should be given to separate minor works frameworks."

Recommendation Five suggests standardisation of some pre-qualification information to reduce the need for repeated re-submission of the same information. The CBI Northern Ireland reported that its survey of business highlighted this issue in Northern Ireland. It called for “reduced information demands" and noted that “businesses applying for public work across a number of procurement bodies are faced with different requirements and formats, even for submitting the most basic company information".

In a similar vein, the Federation of Small Businesses NI called for the introduction of a “universal pre-qualification questionnaire that […] would only have to be filled in once and then logged for future bids."

Recommendation Six suggests that all relevant experience should be taken into account when assessing a bid, not just public sector experience. This issue was raised by The Independent Consultant Adviser Group in its written evidence. It was argued that “relevant and demonstrably applicable transferrable experience" should have equal value in the assessment process.

Similarly, the Law Society of Northern Ireland suggested that when assessing relevant expertise contracting authorities placed “an overemphasis […] on experience of having provided legal services relating to large scale Government projects in other jurisdictions" and that “expertise gathered on a smaller scale Government projects and even large scale private client projects in this jurisdiction often is underestimated."

Recommendation Seven requires contracting authorities to take a flexible approach to accreditation schemes or standards in the bidding process. Bryson House highlighted a lack of independent accreditation as a particular barrier to social enterprises. It recommended “lower thresholds or greater flexibility […] to encourage social enterprises to participate."

Recommendation Eight relates to Innovation Procurement Plans which each UK Government department is required to produce. There appears to be no equivalent requirement in Northern Ireland.

Recommendation Nine encourages use of outcome-based rather than process-based specifications. The NI Council for Voluntary Action stated that the public sector “is not good at focussing on outcomes" and that after a contract is signed and being delivered “they demand information on many process issues and may audit the same project up to four times per year."

Recommendations Ten and Eleven relate to the accessibility of sub-contracting opportunities and the terms of sub-contracts. The Federation of Small Businesses NI argued that “if large contractors are used, they should in turn be required to advertise for their subcontractors, and to select from them on a Value-for-Money basis."

Similarly, the Chartered Institute of Purchasing and Supply suggested that “making awarded contracts more publicly available could allow SMEs access at the second tier supplier level."

Recommendation Twelve advised that all central government departments should report annually on the value of contracts with SMEs. Lestas consulting argued central government in Northern Ireland “needs to provide statistics on how successful small companies are on getting onto the framework but more importantly, how successful small companies are at securing contracts from the framework."

Implementation of the Recommendations

Recommendation One was implemented through the removal of the registration fee on www.supply2.gov.uk which carries notices in relation to below-threshold tenders.[4]

The Office of Government Commerce (OGC) has taken forward implementation of Recommendation Seven. It produced ‘procurement policy notes’ on accreditation[5] and standards[6] in August 2009. It is clearly too soon to assess whether the policy intention of implementing the recommendation will be effective and what improvements might result for potential suppliers.

A number of other draft documents were published for consultation in relation to Recommendations Two to Seven under the following titles: contract award notification; electronic tendering guidance; contract flagging and supplier selection guidance, and; below threshold pre-qualification questionnaire guidance.[7] These consultations closed on 18 September 2009, so these items remain works-in-progress.

The remaining Recommendations (Eight to Twelve) relate more to strategic than to technical issues. Responsibility for implementation is spread across government and over a longer timeframe.

Part B: Using Public Procurement to Stimulate Innovation and SME Access to Public Contracts

This report contained a number of key findings:

1. Public sector officials are very often risk averse.

2. Obstacles such as risk aversion arise from lack of practical experience and expertise on the part of procurers rather than from any legal considerations.

3. There is little hard empirical evidence to assess the precise effects of current public procurement practices regarding stimulating innovation.

4. It is frequently the supplier who identifies and initiates the innovation, rather than the procuring organisation.

5. Engagement with the market prior to tender is an essential component of SMART procurement as it enables the procurer to understand and identify what is available and whether alternative solutions exist.

6. Current trends in public sector procurement towards larger and longer contracts, and rationalizing the number of suppliers, means that smaller businesses often find the resulting contracts too large for them.

7. Laying down overly restrictive selection criteria could exclude young, innovative enterprises

The conclusions and recommendations based on these findings are contained in the box below:

1. A key to successful procurement for innovation is the “intelligent customer" who is able to demand, source and identify potential new solutions, and can specify and manage contracts of this kind throughout their lifecycle.

2. Professionalise the procurement function within the public sector and thereby raise the role and profile of the function.

3. Each public sector organisation with a substantial procurement budget should embed the “Buying Innovation - 10 Step Guide" into its procurement procedures.

4. Measures to improve the quality of procurement information available would reduce perceived disadvantages experienced by, in particular, small and micro enterprises.

5. Sub-dividing contracts into lots and thereby further opening the way for SMEs to participate will broaden competition.

6. Subcontracting opportunities should be encouraged and made more visible.

7. The eTenders website should include a highly visible section to advertise low value contracts.

8. Contracting authorities should avoid disproportionate qualification and financial requirements in their tender documents.

Also published in July 2009 was a ten-step guide to procuring innovative products – mentioned above in recommendation three.[8] This guide sets out how contracting authorities in the Republic of Ireland should approach their procurements.

In relation to SMEs there are a number of identified key steps, such as being open to consortia bids from SMEs; splitting tenders into lots; making sub-contracting opportunities more available and so on, which echo the recommendations contained in the box above.

How the Recommendations Relate to the CFP Inquiry

Examination of the key findings and recommendations shows that many are aimed at addressing similar issues as the Glover recommendations considered above. A number of the key findings are also similar to the issues raised by witnesses in the course of the Committee’s Inquiry, although the focus of this work was somewhat different: there is a focus in the terms of reference on innovation, rather than the Committee’s focus on improving wider social outcomes.

Implementation

The report and its findings were only published a short time ago, so any assessment of its impact is not yet possible.

A number of specific aims has been identified in relation to the report. These are to:

1. redesign the e-tenders website and facilitate more detailed reporting of statistics. The new website will also be more SME friendly;

2. draft new policy guidance in relation to issues such as financial criteria and other qualification requirements;

3. organise networks of procurement professionals;

4. develop targeted and accredited procurement training and education measures, and;

5. streamline tender and contract documentation across the public sector.

Responsibility for implementation rests with the National Public Procurement Operations Unit (NPPOU) in the Office of Public Works. No overall timeline for implementation has yet been established but the Procurement Innovation Group will continue to meet every six months to monitor implementation and will report on progress to the Tánaiste.[9]

October 2009

[1] The document can be downloaded from the Treasury website at: http://www.hm-treasury.gov.uk/glover_review_index.htm

[2] The document can be downloaded from the DETE website at: http://www.entemp.ie/publications/trade/2009/procurementinnovationgroup.pdf

[3] Source: HM Treasury

[4] http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=405668&SubjectId=2

[5] http://www.ogc.gov.uk/documents/commodities_database/PPN_09_09_Third_Party_Accreditors.pdf

[6] http://www.ogc.gov.uk/documents/commodities_database/PPN_10_09_Policy_on_Standards_and_References.pdf

[7] http://www.ogc.gov.uk/creating_opportunities_for_smes_and_third_sector_organisations_access_for_all_-_documentation_for_consultation.asp

[8] http://www.entemp.ie/publications/trade/2009/buyinginnovation.pdf

[9] Source: communication from DETE

Research and Library Services

submission

Research Paper

20 November 2009

Collaborative Procurement in Local Government

Colin Pidgeon

Research Officer
Research and Library Service

This paper considers the evidence of the benefits of collaboration in local government procurement. Structural developments in England, Scotland and Wales are presented to provide a comparative background. Proposals for future policy on collaboration between Northern Ireland’s councils are then considered in the light of a theoretical framework before the implications for the Committee for Finance and Personnel’s Inquiry into Public Procurement in the light of the Review of Public Administration are considered.

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Key Points

Contents

Page No.

1. Introduction xx

2. The Committee for Finance and Personnel’s Inquiry into Public Procurement xx

3. Case studies: does collaboration deliver efficiency savings? xx

3.1. Procurement Lincolnshire xx

3.2. East Midland Centre of Excellence: joint procurement xx

3.3. East Midland Centre of Excellence: collaborative working and shared services xx

3.4. Hampshire and Isle of Wight procurement partnership xx

3.5. Eastern Shires purchasing organisation xx

3.6. The potential for savings in Northern Ireland xx

4. Different ways of collaborating xx

5. Local government procurement structures in England xx

6. Local government procurement structures in Scotland xx

7. Local government procurement structures in Wales xx

8. Collaboration between district councils in Northern Ireland xx

9. Future procurement policy for local government in Northern Ireland xx

10. Questions for the future development of policy regarding local
government collaboration xx

1. Introduction

During the Committee for Finance and Personnel’s recent Stakeholder Conference on Maximising the Economic and Social Benefits from Public Procurement[1] the Committee heard some evidence in relation to collaborative procurement between district councils.

Concern was expressed by some participants that following the 2011 reorganisation of local government in Northern Ireland, there may be a push towards councils procuring supplies, services and works jointly, possibly through a shared service. It was assumed at the time that logic behind such a move would be to attempt to increase value for money (VfM) by letting larger, more centralised contracts. An argument was presented that larger contracts may not always deliver more efficiency, although this is sometimes assumed to be the case.

The purpose of this paper is to explore evidence of efficiency gains through collaborative procurement; this is achieved through consideration of a number of case studies from England and other published sources. Consideration is also given to the effect on small businesses of local authorities procuring collaboratively and other issues in relation to local government reorganisation resulting from the Review of Public Administration.

2. The Committee for Finance and Personnel’s Inquiry into Public Procurment in Northern Ireland

The Terms of Reference for the Committee’s Inquiry are to:

Consideration of collaboration in local government procurement is particularly relevant to the final bullet point of the Terms of Reference which refers specifically to public procurement policies. It was apparent from contributions at the Stakeholder Conference that many participants did not distinguish a difference between local and central government procurement: it is all public procurement.

Further, a recent survey by the Federation of Small Businesses Northern Ireland found that the majority of SMEs “bid for contracts below £50,000 with most of the work being provided to Local Authorities."[2] It is perhaps unsurprising, therefore, that the issue of centralisation of local government procurement after reorganisation in 2011 was a topic of interest to participants at the Stakeholder Conference. Also, the survey found that:

tendering to the public sector in Northern Ireland is becoming increasingly important to SMEs for income generation. Over 50 of those responding stated that they expect the proportion of their business from the public sector to significantly increase in the next two years.[3]

The total value of local government purchasing per year is estimated to be around £220m. This figure must be treated with some caution as it was based on returns from only 17 of the 26 district councils. Consultants then extrapolated this figure. Officials in DoE’s Local Government Policy Division advised that, if anything, the figure is likely to be a little higher. A previous estimate by different consultants a year earlier had estimated total spend at in the region of £300m.[4]

3. Case Studies: Does Collaboration Deliver Efficiency Savings?

There has been considerable work in England on collaborative local authority procurement. The fundamental argument for collaboration is that it can realise benefits to contracting authorities in terms of getting better deals from the market and reducing internal transaction costs.

The policy and structural framework for collaboration in England is presented in detail in section 5 below. Before considering those issues, however, it is helpful to look at the potential within the local government sector for delivering efficiencies in this area.

Regional Improvement and Efficiency Partnerships (RIEPs) were established in April 2008 (building on the work of regional centres of excellence) with a three-year funding package from the Department of Communities and Local Government worth £185m. According to the Improvement and Development Agency (IDEA) they “harness the expertise of councils to add new capacity to local government in order to accelerate the drive for greater improvement and efficiency."[5]

The IDEA website has a host of materials and case studies relating to good practice in collaborative procurement. A number of the case studies are presented below to illustrate the potential for efficiency savings. The case studies cover a range of procurement exercises, from purchase of capital goods such as vehicles to services such as insurance and temporary staffing.

It should be borne in mind when considering these case studies that they are published by an agency that is involved in promoting good practice in local authority management. It is in the interests of the authorities involved to sell their achievements as good practice and they submit them to the IDEA for publication. It is not clear exactly how much quality assurance of case studies there is beyond compliance with the style guidelines.

That said, given that local authorities have to report on efficiency savings as part of their Comprehensive Area Assessment, it is only possible to assume that the reported savings are accurate.

3.1 Procurement Lincolnshire

Procurement Lincolnshire[6] is a partnership between eight local authorities and part of the Lincolnshire Shared Services Partnership.

Engagement with local communities

The partnership engages with local suppliers and the third sector through supplier engagement days which allow local businesses to meet procurement officers and learn about the tendering process. Also workshops are held to educate the local community and involve it in planning.

A joined-up approach

The governance of Procurement Lincolnshire ensures each partner authority is equal. Each district can get specific and professional procurement advice, rather than have to rely on consultants which they previously would have done.

One-stop services

A one-stop interactive website for all internal and external customers and a dedicated procurement helpline provide advice and support throughout the tender process. Internal customers (form the partner contracting authorities) have a defined liaison person to contact.

Rationalised processes

Procurement policies and procedures are harmonised across partner authorities; e—tendering and a procurement card have been developed. A common set of Contract and Procurement Rules has been implemented to ensure uniformity. A single sustainable procurement strategy has been adopted across all partner authorities. Previously each had its own; this reduces replication of work and increases commonality of approach.

Efficiency savings

In its first year of operation Procurement Lincolnshire delivered cashable savings[7] of over £1m in its first year. Forecasts in the business case predicted that gross savings of just over £9m will be generated over the first 5 years of operation but this is now thought to have been a conservative estimate.

Non-cashable process savings in the first year exceeded £400k; a single tender is now undertaken instead of eight individual tenders that would have been carried out previously.

3.2 The East Midlands Centre of Excellence: joint procurement

This case study[8] relates to a partnership of eight local authorities in the Nottingham area of England.

Joint procurement of refuse collection vehicles

The eight partners initiated a single tender process, in recognition that maximum efficiency would be achieved through development of a single common specification. The objectives were to:

Efficiency savings

Under the contract 27 vehicles were purchased at a saving of £4,125 per vehicle. This delivered total cashable savings of £114k.

Also, the suppliers undertook to provide a technical fitter, operator and training programme at a central location at no additional cost – a benefit worth around £13k. Additional technical support is provided through a dedicated service engineer who is available to carry out diagnostic and minor repair work – a benefit estimated at around £35k.

Other benefits were identified in relation to the objectives although the value of these is more difficult to estimate. In total, one-off cashable savings of £114k are added to non-cashable efficiency gains of up to £143k during the first year of the contract.

3.3 The East Midlands Centre of Excellence: collaborative working and shared services

This case study[9] centres on a partnership of Chesterfield Borough Council, North East Derbyshire Borough Council and Bolsover District Council. The councils were grant aided by the East Midlands Centre of Excellence to develop shared working in four areas: internal audit; building control; procurement, and; corporate services.

Collaborative procurement

District councils who have set up collaborative procurement units typically claim savings of approximately 2% of spending. It was estimated that the introduction of fully integrated e-procurement solution resulted in transactional savings of up to £40k per authority.

The shared procurement unit was established in May 2007 as was expected to deliver £200k cashable savings across the three authorities.

3.4 The Hampshire and Isle of Wight Procurement Partnership

This is a partnership[10] of all the county, borough and district councils in the Hampshire and Isle of Wight region which reports to the region’s Strategic Procurement Board.

Collaborative procurement of insurance

The councils created a framework arrangement for insurance services, led by a procurement officer of a participating council. Fareham Council and Gosport Council were looking to re-tender for insurance services as they had a requirement to renew existing arrangements. The opportunity was taken to broaden the scope and include other councils with expectation of getting better VfM.

The framework

The Framework Agreement does not guarantee any value of expenditure to the supplier. It serves instead as a vehicle to source services from the supplier as and when the need arises. Councils can approach the supplier for a quotation but are not obliged to use the framework provider. This is seen as having the advantage of stimulating a competitive offer from the provider on the grounds that the purchaser could still go elsewhere. The supplier is required to quote:

a) best market rate premiums; and

b) a collaborative discount matrix

Efficiency savings

Fareham council achieved overall premium savings of 26% and Gosport 45% when compared with their previous contracts. The collaborative discount element achieved by both councils under the framework will realise cashable savings of around £300k over the contract term.

A non-cashable benefit is that all parties of the framework are no longer required to tender individually for insurance services. This results in saving staff time and reducing duplicated effort. It should also be noted that from a global perspective it also benefits the supply market in terms of reduced tendering costs as they do not have to respond to a number of tenders.

3.5 The Eastern Shires Purchasing Organisation

This case study[11] is a collaboration of 14 local authorities which formed a partnership to procure temporary staffing in a way that reduced the time and effort involved, whilst maximising the potential service-delivery options and cutting costs.

The Vendor Neutral Service Model

A managed service provider sits between the partner councils and the agencies used to source temporary workers. This provider is the single point of contact for communicating and handling requirements and also for reporting back on agency performance. It is thought that this encourages participation by the local supply base, including SMEs.

Efficiency savings

In the first year of the contract, eight authorities ordered over 200,000 hours of work by temporary staff. They saved, on average, 6% of their temporary staffing spend. By the end of 2008, 15 authorities had from contract delivery savings of nearly £695k, based on just over £9.6m worth of orders (a saving of over 6.4%).

Non-cashable benefits are reported as including: improved compliance with legislative and policy requirements; improved accuracy in the provision of management information and a reduction/elimination of unapproved/off-contract spend by hiring managers through the application of tighter controls and improved communication.

Additionally, less officer time was spent in sourcing agencies and in handling cold calls from agencies. Use of paper timesheets was reduced and a single consolidated weekly invoice for the participating authority was introduced.

3.6 The Potential for Savings in Northern Ireland

From the case studies presented above, it does appear that the evidence supports the assertion that Northern Ireland’s district councils could achieve savings by pursuing a more collaborative approach to procurement. The extent to which there is already collaboration (and in the area of waste collection and disposal there is a lot) is considered in more detail in sections 8 to 10 below. It would be possible to present a large number of further case studies: it is my view, however, that this would simply repeat the lessons from those shown above and that the case for some level of collaboration is sufficiently well made.

It is also important to note that even after reorganisation in 2011, Northern Ireland’s district councils will have a much narrower range of responsibilities than many of their counterparts in England. Their level of spend is lower, and consequently the potential for large savings is likely to be correspondingly lower.

4. Different Ways of Collaborating in Procurement

There is not a large body of academic work on procurement as a shared service between local authorities. Nevertheless it is possible to identify three structural options for the organisation of procurement:[12]

1. Traditional models:

a) centralisation

b) decentralisation

c) hard core/soft core

2. Consortia

3. Shared services

Table 1 below summarises some of the features of these models with analysis of some of the pros and cons of each approach.

An important note of caution is raised by academic research on collaboration between local authorities - albeit in relation to corporate services rather than service delivery. Huxham and Vangen noted a number of rationales for collaboration: access to resources; shared risk; efficiency; co-ordination and seamlessness; shared learning and moral imperative – there is no other way. (This ‘no other way’ compulsion seems to have been at least an element in the formation of the waste management partnerships in Northern Ireland – at least in part because of the large scale of infrastructure and capital investment required.)

Despite this, the authors arrived at the following conclusion:

[T] he overwhelming conclusion from our research is that seeking collaborative advantage is a seriously resource-consuming activity so is only to be considered when stakes are really worth pursuing. Our message to practitioners and policy makers alike is don’t do it unless you have to.[13] (emphasis added)

In other words, the process of collaborating itself takes a lot of inter-organisational effort and therefore is not always the best approach. This evidence suggests a need to take an incremental approach to collaboration – starting small and building on successes. As authorities are sharing risk and resources when they collaborate, there is also a need to build trust between those authorities.

Table 1: Models of Collaboration

Collaborative Model

Description of structure

Advantages

Disadvantages

Centralisation of procurement within an authority

All procurement handled by a specialised procurement service or office. This unit develops and implements procurement strategy and organises tenders and lets the contracts.

Concentration of expertise in one place.

Maximisation of ‘leverage’ and ability to extract best deals from the market.

Recruitment and retention of relevant expertise requires business case justification that may not be sustainable at council level.

Assumes there will be sufficient internal demand.

Centralisation of procurement between authorities

As above, except the centralised unit serves a number of authorities.

Ability to aggregate larger volumes of demand.

Single point of contact for suppliers.

Expense of expertise more likely to be justified

Potential for disagreement on strategic political and socio-economic priorities between councils and the centralised unit.

Decentralisation within an authority

The opposite of centralisation. Procurement is handled by individual functional areas.

Localised control – better understanding of business areas’ needs.

Buying power and expertise sacrificed.

Officers distracted from specialised work by need to organise procurement.

Hard core/soft core within an authority

A blend of centralisation and decentralisation. Strategy is centralised in the ‘hard core’. The actual buying practice of operational procurement is devolved to the ‘soft core’ of business areas.

Economies of scale

Expertise can be built up in the hard core which can move from project to project.

Soft core staff are able to remain specialists in their own disciplines but can also draw on the experience of the hard core through project specific teams that deliver business-specific procurements when required

Recruitment and retention of relevant expertise for the hard core requires business case justification that may not be sustainable at council level.

Assumes there will be sufficient internal demand.

Hard core/soft core between authorities

Rather like central government procurement structure in Northern Ireland with CPD as the hard core and the CoPEs as the soft core

Economies of scale

Expertise can be built up in the hard core which can move from project to project.

Soft core staff are able to remain specialists in their own disciplines but can also draw on the experience of the hard core through project specific teams that deliver business-specific procurements when required

Potential for disagreement on strategic political and socio-economic priorities between councils and the centralised unit.

Consortia

Various possible forms of consortium. They could be buying organisations that have a catalogue of framework contracts from which member organisations can choose. Or they can be formed for very specific one-off purposes – either formally or informally

Aggregation of demand and economies of scale

Reduced transactional costs.

Could be more flexible than formalised models.

Relies on good information exchange – authorities need to know what the others are buying and when for one-off procurements.

Small authorities may not have sufficient expertise to make an informed judgement about when it makes sense to use a consortium and when it does not.

Shared service

A number of authorities jointly employ dedicated procurement resources which handle both strategic and tactical procurement.

Unlike tactical consortia, provides access to expertise which can also handle strategic issues on a shared cost basis.

Shared risk, potential for efficiency and strategic coordination

Time may be required to build trust in the organisation.

Strong justification required of benefits over risks.

5. Local Government Procurement Structures in England

The National Procurement Strategy for Local Government 2003-2006 was produced jointly by the Office of the Deputy Prime Minister and the Local Government Association. It set out a programme to improve local government procurement – at that time there were more than 400 councils in England, spending over £40bn per year.

Regional Centres of Excellence

The objectives of the strategy[14] were that, by 2006, councils would be:

There was a two-pronged approach to meeting these objectives. Firstly, Regional Centres of Excellence were established. Secondly, a national programme of training and development was initiated for members and senior managers.

The Regional Centres of Excellence had the remit to:

This strategy was developed against a backdrop where many authorities did not have a systematic approach to procurement. For example in 2003, only 20% of authorities had a procurement strategy in place that was being implemented:

submission[16]

The strategy put in place a number of objectives in relation to partnering and collaboration, with the overall aim of the “delivery of better services to citizens through the creation of sustainable partnerships between councils and suppliers."[17]

Collaboration was defined as “the various ways in which councils and other public bodies come together to combine their buying power, to procure or commission goods, works or services jointly or to create shared services."[18]

Evaluation of the National Procurement Strategy (NPS)

A report by the Department of Communities of Local Government (that replaced ODPM) and the Local Government Association assessed the NPS.[19] Headline findings included:

Analysis of the specific time-bound milestones found that only three of the 23 set in 2003 were “not being actively implemented across the sector".[21] So from the perspective of the Government and the LGA, the strategy was judged to have been positive and that there had been “a high level of officer and member-level buy-in on procurement."[22] Further, a strategic approach to procurement had become “firmly embedded with the support of the national programmes and the Regional Centres of Excellence."[23]

Regional Improvement and Efficiency Partnerships (RIEPs)

Nine RIEPs were established in April 2008 to assist local authorities in meeting the targets for efficiency savings set our in the Comprehensive Spending Review 2007. Essentially, the RIEPs merged the Regional Centres of Excellence and the former Regional Improvement Partnerships.

RIEPs are led by councilors and advised by groups drawn from council chief executives. Each also has a small team of dedicated staff to support the work of the partnership.[24] RIEPs are local councils’ “first port of call" for support on the efficiency agenda.[25] As well as guidance, they are able to fund projects designed to secure efficiencies.

The LGA published a summary of the RIEPs’ key achievements in the 2008-2009 year. It reported over £100m of efficiency gains in the first year on an initial funding investment of just under £50m.[26] Further efficiency gains through collaborative procurement are projected by 2011.[27]

It should be noted that this is not an independent report – the Local Government Association and the Department of Communities and Local Government established the RIEPs through the National Improvement and Efficiency Strategy of December 2007.

Nevertheless, it is useful to consider the findings of the report in the context of this paper. Key messages are:

6. Local Government Procurement Structures in Scotland

Collaborative procurement has been happening also in Scotland over a relatively lengthy period. But there has not been, until fairly recently, a co-ordinated approach. In total, the public sector spends approximately £8bn on goods and services per year; a “significant part of this is spent by local government."[28]

In 2005, the Scottish Executive commissioned a review of public procurement in Scotland. This review (the McClelland Review) found that:

there is […] poor utilisation of fragmented yet substantial effort, with the same or similar commodities being procured by multiple public-sector organisations and often through separate contracts with the same supplier. As well as being a poor utilisation of scarce procurement skills this situation does not capture the other advantages listed above including in particular delivery of cost savings from aggregated spend.

An unparalleled effort is therefore required to improve the infrastructure to support collaboration and in defining, once established, how support and utilisation can be guaranteed.[29]

It recommended that Centres of Expertise should be established, not on a geographical basis, but on a commodity-by-commodity basis.[30]

The Centres of Expertise would operate a system of categorised commodities and services:

Category A – national contracts

A small number of high-value commodities and services which should be provided by a call-off national contract. These national contracts should be established centrally by the Scottish Executive’s Procurement Directorate and used on a mandatory basis by all public sector authorities.

Category B – sector-specific contracts

These commodities and services should be provided by call off from common ‘sector-specific’ contracts which should be centrally established within each sector. This recommendation aimed to prevent individual sectoral organisations performing the same function multiple times without the advantage of procurement volumes or value consolidation. Examples suggested were the Scottish Health Service; Local Authorities, Tertiary education and the wider Scottish Executive (including NDPBs).

Category C – general contracts

All contracts not categorised as A or B would fall into category C and conducted within the remit of a single organisation. The report states this would give rise to “a substantial opportunity for local economic benefits as local suppliers are developed and encouraged to compete to win business in the C category."[31]

Category C1 – local/regional contracts

The final category provides an opportunity for items that are not consolidated as category A or B to be “consolidated in a region to the benefit of purchasing power and optimisation of resources."[32] Essentially this is a recommendation that authorities form regional consortia or collaborate in other ways.

The remit of Improvement Scotland seems to be rather similar to the IDEA in England, and similarly its client bodies are local authorities. It is not specifically a procurement-oriented body.

Scotland Excel

Scotland Excel was established as a Centre of Procurement Expertise following the McClelland Report. Its purpose is to:

raise procurement standards in Scotland in collaboration with local authorities and suppliers to secure best value for our customers and in doing so, will build a reputation for being the Centre of Expertise for Procurement for Local Authorities offering a comprehensive, professional and customer-focused approach to working.[33]

It has a strategic procurement team that is responsible for creating and delivering a procurement strategy for category B commodities and for managing contracts for all member councils (currently 28 of Scotland’s 32 local authorities are paid-up members for an initial period of three years).

The organisation sets up rationalised frameworks and provides training and development. Prior to embarking on this, a process of detailed analysis was undertaken. This used IT to examine the spend profiles of local authorities which enabled the prioritisation of which areas of procurement the effort needed to be focused. There was also a marketing process required to convince authorities of the benefits.[34]

Evaluation of progress

In July 2009, Audit Scotland produced a report on the reform of public procurement[35] that began in response to the McClelland Report. The report examined progress over the period 2006/7 to 2008/9.

The key messages found by the review were:

Overall, this seems to be a pretty positive assessment of the improvements despite the criticisms of data collection and reporting and the speed of benefit realisation compared with the initial targets.

Efficiency Savings

Audit Scotland assessed the level of cumulative efficiency savings from the programme over £327m over the first two years. This is about 4% of the total public-sector spend of £8bn. While this did not meet the ambitious target, it is clearly significant progress.

Of this figure, for 2006/07 reported savings for local government were £30m. For 2007/08 reported savings were £59m. Over the two years that’s over a quarter (27.2%) of the total savings being delivered by local government.[37]

By April 2009, Scotland Excel had introduced 12 new collaborative contracts. These ranged from catering supplies to specialist audio equipment, from cars to light commercial vehicles. These contracts have an estimated annual value of £55m, and Scotland Excel’s estimate was an annual saving of £2.7m to councils.[38] It was reported that the set-up and running costs for Scotland Excel were £5.5m over 2007/08 to 2008/09.[39] £4.5m of this was provided from by Scottish Executive, but over time the body is required to be self-financing.

Wider benefits

The Audit Scotland report notes a number of benefits of the reform programme including:

It also identified some weaknesses:

Importantly in the context of this paper, it also found that the impact of the programme on supporting the Scottish economy is unclear. [40]

7. Local Government Procurement Structures in Wales

The Welsh Assembly Government has taken a slightly different approach to collaborative procurement. Instead of introducing new structures the approach is more about enhancing collaboration within and between existing structures.

A review of public services in 2004 identified the potential for £120m VfM savings by 2007/8 from smarter procurement – on an estimated annual public sector procurement spend of £4bn.[41]

In 2006, a consultation was launched on the Welsh Public Sector Sourcing Plan 2006-2009[42]. In the Executive Summary, the difficulties of collaborative working are noted:

Collaboration is not an easy option. It requires much greater communication across sectors, greater clarity on business needs and the willingness to take the ‘leap of faith’ to allow decisions to be taken outside individual organizations and often sectors. However research has indicated that the production of a Welsh Public Sector Sourcing Plan which clearly states the planned approach to each expenditure area, will overcome some of the practical issues.

Collaboration is not suitable for all expenditure areas. Some areas will deliver better results from an all-Wales cross sector approach, others from a single sector or regional approach, while others are best approached locally.[43]

UK-wide agreements are established by the Office of Government Commerce (OGC). All-Wales national contracts are agreed by Value Wales[44] and are available to all public or publicly-funded bodies.

Sectoral Contracts are established by consortia (such as Welsh Health Supplies and the Higher Education Purchasing Consortium Wales, for example) acting on behalf of their members.

Regional contracts are developed and managed by regional entities such as the North Wales Forum or sector-based shared services – such as the Gwent Joint Procurement Unit.

The approach is underpinned by a Document of Understanding whereby the procurement groups and consortia are guided by certain principles:

In turn, these principles result in a Collaborative Procurement Protocol.[46] The protocol requires signatory bodies to:

8. Collaboration between District Councils in Northern Ireland.

There have been in place for some time formal collaborative procurement structures in Northern Ireland. All 26 district councils are members of one of three sub-regional Waste Management Partnerships (WMPs) : arc21 (the eastern region), SWaMP 2008 (the southern region) and the North West Regional Waste Management Partnership. Each is a joint committee of the participant councils and the first two of these are formally established as bodies corporate under legislation.

There is an element of moral imperative that brought the WMPs together: the scale of infrastructure investment required to meet EC Landfill Directive targets for reducing waste sent to landfill seems to have played a large part in the impetus for their formation. The Department of the Environment also encouraged the formation of the WMPs and for some time distributed a Waste Management Grant to help with the implementation of the WMPs’ waste plans.

The DoE has acknowledged the achievements of the WMPs, although no published evaluation of their effectiveness or efficiencies seems to be available:

The Department recognises that the 3 existing Waste Management Groups are making good progress towards the provision of major new waste treatment facilities in line with this timetable [to meet EC landfill directive targets]. Accordingly, the Department is fully committed to supporting local government in delivering the necessary infrastructure.[47]

There are also informal collaborations under the auspices of a Local Government Procurement Group (LGPG). The LGPG came together to consider ways of collaborative working and also with a learning and development remit where best practice is shared between officers.

While there is no published analysis of this process available, the experience has been that opportunities to form consortia have arisen and consequently savings have been made.[48]

9. Future Procurement Policy for Local Government in Northern Ireland

DFP’s Central Procurement Directorate (CPD) is responsible for supporting the Executive’s Procurement Board[49] in developing and reviewing procurement policy. It also aims “to develop and promote best practice in procurement within the Northern Ireland Public Sector."[50]

On the strength of this statement, there is a valid role for the Committee for Finance and Personnel considering issues that relate to local government procurement. A policy of collaboration between district councils would fall under the umbrella of the wider public sector.

Nevertheless, it should noted that CPD’s Northern Ireland Public Procurement Policy does not apply to district councils. On this issue, the policy states:

As regards District Councils, the Executive accepts that their different and separate framework of accountability must be recognised and, under existing legislation, compliance can only be on a voluntary basis.[51]

All of Northern Ireland’s district councils are able to access CPD’s contracts and framework agreements but it is their choice to do so, not a requirement.

Policy relating to local government falls within the remit of the Department of the Environment. It has undertaken a considerable amount of work on local government reform. In particular, it has recently published for consultation an economic appraisal of options for local government service delivery.[52]

In his statement to the Assembly on 20 October 2009, Minister Poots stated that:

A regional business services organisation will be formed that is wholly owned, operated and run by local government, which will enable collaborative solutions across local government. A single waste disposal authority wholly owned and operated by local government will be created, aimed at delivering efficiencies in future procurement and contract-management activities.[53]

There are two separate strands to this in relation to procurement:

1) Business Services Organisation

The ‘preferred option’ presented in the economic appraisal is that the Business Services Organisation (BSO) “will initially focus on procurement, support services (such as ICT) and transactional services (within areas such as Payroll, Finance and Human Resources)."[54] It is suggested by the consultants who prepared the report that the BSO should be established as a mandatory joint committee of all the eleven new councils.

The Economic Appraisal assumes that in relation to procurement a regional Centre of Procurement Excellence will be established in 2011, which each council retaining local procurement. There is no recommendation made on the design of the collaborative model. Instead, “design of the collaborative model(s) to be applied to areas is a matter for the BSO implementation team and in conjunction with the 11 new councils". [55]

A case study in relation to procurement is included in the DoE Economic Appraisal, which is included as Appendix 2 for information. The most pertinent message from that case study could be: “clearly the achievement of these benefits will depend on the way in which procurement is organised within the new authorities."[56]

2) Waste Disposal Authority for Northern Ireland

The DoE recently consulted on a proposed Waste Bill[57] which would, among other things, transfer the statutory responsibility for waste planning and disposal to a Waste Disposal Authority (WDA). Councils would retain responsibility for waste collection.

DoE has proposed that an enabling power should be included in legislation to allow for the establishment of a WDA in the future. An expressed aim of the WDA would be to “help to generate efficiencies through economies of scale, enhancing purchasing power and centralising procurement expertise."[58]

Policy Development

At present the development of policy is ongoing through the DoE/Local Government Strategic Leadership Board.

The DoE’s Economic Appraisal of options for service delivery raises a number of questions and recommendations. These highlight a need for further work on both the BSO and the WDA in terms of the consideration of models, governance arrangements, impact on existing arrangements and the exact specification of the services that should be delivered collaboratively.

In context of procurement alone, these are big issues. In relation to potential savings from the proposed WDA, the economic appraisal states:

The main benefit of this approach would be a centralised disposal function which could potentially generate efficiencies through economies of scale, providing enhanced purchasing power and take responsibility for facilitating integrated waste management planning. Whilst these benefits could be potentially derived, there is insufficient evidence to quantify this benefit at present.[59]

To what extent such developments would lead to increases in contract values (and therefore the potential exclusion of SMEs from the supply market) remains to be seen. From the evidence in the economic appraisal, it is not possible to make much of a judgement on potential savings from the preferred delivery option. But is clear that there is a certain impetus toward increased centralisation in pursuit of efficiencies and economies of scale.

For the purposes of the Committee’s Inquiry, therefore, it is too soon to assess which of the collaborative models presented in table 1 above the proposed structures may fit into – it could be a mixture of a number.

10. Questions for Future Development of Policy Regarding Local Government Collaboration

As noted above, the development of policy for local government procurement is ongoing. For that reason, it is unclear how much work has been done on different models of collaboration and the impact these might have, either in terms of potential savings or the impact on Northern Ireland’s SMEs, SEEs or micro businesses.

1) low-value tenders

Written and oral evidence to the Inquiry has raised the issue of low-value procurement beneath the EU thresholds. The FSB’s survey evidence was raised in section 2 – it is the contracts below £50,000 that local SMEs mostly bid for. In relation to these contacts, Lestas consulting argued “there is a need for the Committee to ensure there is consistency of approach across public bodies when tendering under EU thresholds and to ensure an open, objective and transparent process."[60]

This evidence argued that the information provided in relation to low-value contracts was of poor quality and that award criteria are not published. This results in a lack of clarity in how award decisions are reached.

The Local Government Audit Office confirmed that district councils have different thresholds set through their standing orders.[61] These thresholds determine when the council will go out to tender and when it may chose to invite quotations from three or more potential suppliers. These are not standardised levels, which makes sense with the range in size of the current 26 councils: clearly, a small authority like Moyle District Council will have a different level of spend from Belfast City Council and it is reasonable that thresholds are set with regard to those differences.

After reorganisation, however, the new 11 councils will be more similar in terms of scale. It may make sense, therefore, to pursue a policy of standardisation.

2) aggregation of contracts

The Value for Money argument presents the case that aggregated demand can deliver better prices to purchasers through larger deals. Yet it should be noted, that this does not appear to necessarily be the case and there are possible flexibilities – note, for example, the third principle from the Welsh Document of Understanding:

It follows that opportunities can still exist for smaller suppliers. A counter argument to aggregation of supply is presented by the OGC in its publication Smaller supplier… better value? This states:

It is also argued that SMEs can provide better quality of service (through responsiveness, willingness and ability to tailor services to meet needs and the added importance of a contract to a smaller business in terms of proportion of total revenue) and innovation.

In waste procurement, for example, SWaMP2008 recently tendered for infrastructure (mechanical and biological treatment) with a capital value of £150m. Of the four bidders shortlisted, 100% of these contained a local element – all of them planned to use a local construction contractor for example.[64]

When it comes to ongoing operation and maintenance, the preferred supplier will have to either bring in an entire workforce or recruit one locally – which would probably be a local facilities management company. But in large procurements such as waste infrastructure, the technology is generally provided by large companies on a pan-European basis. Also, because of the PPP procurement route, the initial equity investment is unlikely to be local – but this means the risk also sits outside Northern Ireland.

It was the view of SWaMP2008’s procurement advisor that the dynamics would not be very different in other sectors. Delivery would usually be expected to be locally based and scaling up does not necessarily disbenefit local players.

A smaller scale example was provided by arc21.[65] Provision of training is usually through a local supplier – costs from suppliers in GB tend to be higher because of additional travelling can push costs up. On bigger procurements such as the arc21 organics contract, a local supplier from Keady was successful. Even in the big residual (i.e. non-recyclable) waste contract which is being delivered by an international consortium, there are local firms further down the supply chain.

On the basis of this evidence, of course, it is not possible to generalise about the whole picture of local government procurement in Northern Ireland. The lesson from Scotland Excel’s work is that a process of pursuing formalised collaboration should be underpinned by detailed analysis of spend profiles and the rationalisation of products to increase volumes, but not necessarily the rationalisation (i.e. reduction in number) of suppliers.

It would be interesting to know how much work DFP has done in this area in relation to central government spend and also if DoE progressed detailed work in this area before suggesting the Business Services Organisation.

3) the process of collaboration

Policy aimed at encouraging more collaboration between district councils in Northern Ireland might recall the assertion of Huxham and Vangen (see section 4 above) that collaboration should not be pursued unless essential. Even if it is essential (and the case does not seem totally proven on the basis of the DoE Economic Appraisal), an incremental approach was advocated by the literature.

This suggests not taking a ‘big bang’ approach in 2011 but allowing the proposed structures to develop and build confidence. The DoE economic appraisal seems to suggest that the Business Services Organisation should be established as a mandatory joint committee of the new eleven councils. Nor does it imply that time will be taken to build trust.

Perhaps a lesson can be drawn from the approach of the Welsh Assembly Government to collaborative procurement. Is there really a good case for investing the effort in new collaborative structures, when an alternative would be to develop principles of co-operation and a binding memorandum of understanding?

It is an accepted maxim of change management that too much change should not be attempted at once. There is surely a question about the ability of officers to cope with being part of new organisations with new priorities and working environments as well as new methods of collaborative working.

4) procurement strategy

Whatever model for collaboration is established, it seems from the theoretical framework that there is a clear need for the development of procurement strategy to be concentrated in the hands of those with a high level of expertise. In the socio-political context of Northern Ireland, great care may be needed in generating a strategy that fits the diverse range of social and economic priorities of councils.

It was suggested by one of the commentators at the Stakeholder Conference that a crucial element of public procurement policy was missing at the strategic level in relation to the goal of maximising social and economic benefits, as these goals do not appear to have been clearly articulated, let alone permeating down to practitioners in CPD and the CoPEs. Simply put, if it is unclear what social objectives are being pursued, it will be difficult for procurement specialists to design social clauses or other means to deliver them.

It would be unfortunate if this same mistake was repeated at the local government level. It seems that the best approach to this strategic development would be through NILGA (seeing as it was the LGA in England that developed the National Procurement Strategy) working with DoE, all councils and –importantly – stakeholders from the small business community and the third sector.

Appendix 2 – Extract from Local Government Service delivery – Economic Appraisal

submission

[1] The conference was held on 21 October 2009 at the Dunsilly Hotel, Antrim. At the time of writing, the conference report has not yet been published. The Committee for Finance and Personnel will be considering a draft report at its meeting of 25 November 2009

[2] Federation of Small Businesses NI ‘Evaluating SME experiences of government procurement in Northern Ireland’ (Sep 2009) available at: http://www.fsb.org.uk/policy/rpu/ni/images/final_lestas_report.pdf (accessed 10 Nov 2009) (see page 5)

[3] : http://www.fsb.org.uk/policy/rpu/ni/images/final_lestas_report.pdf (see page 5)

[4] Source: personal communication with Local Government Policy Division

[5] http://www.idea.gov.uk/idk/core/page.do?pageId=8595264

[6] The case study can be found online at: http://www.eastmidlandsiep.gov.uk/documents/case_studies/EMIEP-CS06_Procurement_Lincolnshire_is_saving_money.pdf (accessed 10 November 2009)

[7] ‘Cashable savings’ release financial resources to be deployed elsewhere, whilst maintaining outputs. ‘Non-cashable gains’ relate to productivity or quality increases without releasing financial resources. For more information see http://www.ogc.gov.uk/documents/Measurement_of_SR04_Efficiencies(1).pdf (box 1)

[8] The case study can be found online at: http://www.eastmidlandsiep.gov.uk/documents/news_info/Refuse_Vehicles_FINAL.pdf

[9] The case study can be found online at: http://www.eastmidlandsiep.gov.uk/documents/case_studies/Collaborative_Working_and_Shared_Services_in_Derbyshire_(REDUCED_FINAL).pdf

[10] The case study is available online at: http://www.southeastiep.gov.uk/uploads/files/CollaborativeprocurementofInsuranceProcurement.pdf (accessed 11 November 2009)

[11] The case study is available online at: http://www.southeastiep.gov.uk/uploads/files/EastMidlandsAgencyStaffCaseStudy.pdf (accessed 10 November 2009)

[12] For a helpful treatment of the structural options see Murray et al ‘Procurement as a shared service in English local government’ International Journal of Public Sector Management Vol. 21 No.5 (2008) pp. 540-555 (presented as Appendix 1)

[13] Quoted in Murray et al ‘Procurement as a shared service in English local government’ International Journal of Public Sector Management Vol. 21 No.5 (2008) pp. 540-555 (page 544)

[14] ODPM/LGA ‘National Procurement Strategy for Local Government’ (2003) see page 11

[15] ODPM/LGA ‘National Procurement Strategy for Local Government’ (2003) see page 16

[16] ODPM/LGA ‘National Procurement Strategy for Local Government’ (2003) see page 27

[17] ODPM/LGA ‘National Procurement Strategy for Local Government’ (2003) see page 33

[18] ODPM/LGA ‘National Procurement Strategy for Local Government’ (2003) see page 34

[19] The full report is available at: http://www.communities.gov.uk/documents/localgovernment/pdf/135268.pdf (accessed 16 November 2009)

[20] http://www.communities.gov.uk/documents/localgovernment/pdf/135268.pdf see page 6

[21] http://www.communities.gov.uk/documents/localgovernment/pdf/135268.pdf see pages 7 and 8

[22] http://www.communities.gov.uk/documents/localgovernment/pdf/135268.pdf see page 4

[23] http://www.communities.gov.uk/documents/localgovernment/pdf/135268.pdf see page 45

[24] A guide to the RIEPs is by the LGA (2008) ‘Accelerating the Improvement and Efficiency Drive’ is available at http://www.lga.gov.uk/lga/aio/1105713 (accessed 16 November 2009)

[25] Department of Communities and Local Government ‘Delivering Value for Money in Local Government: Meeting the Challenge of CSR07’: http://www.communities.gov.uk/documents/localgovernment/pdf/value.pdf (see page 29) (accessed 16 November 2009)

[26] LGA ‘RIEPs: One year on’: http://www.lga.gov.uk/lga/aio/1908547 (see page 4) (accessed 16 November 2009)

[27] See for example: http://www.lga.gov.uk/lga/aio/1908547 page 9 (accessed 16 November 2009)

[28] Source: http://www.improvementservice.org.uk/procurement

[29] The McClelland review is available online at: http://www.scotland.gov.uk/Publications/2006/03/14105448/0 (see page 39) (accessed 16 November 2009)

[30] http://www.scotland.gov.uk/Publications/2006/03/14105448/0 (see page 40)

[31] http://www.scotland.gov.uk/Publications/2006/03/14105448/0 (see page 42)

[32] http://www.scotland.gov.uk/Publications/2006/03/14105448/0 (see page 42)

[33] http://www.scotland-excel.org.uk/about/about.asp

[34] Source: personal communication with Owen Patterson, Head of Relationship Management at Scotland Excel

[35] Audit Scotland ‘Improving public sector purchasing’ (2009) available online at: http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (accessed 17 November 2009)

[36] Audit Scotland ‘Improving public sector purchasing’ (2009): http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (see page 4)

[37] Audit Scotland ‘Improving public sector purchasing’ (2009): http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (see Exhibit 10, page 17)

[38] Audit Scotland ‘Improving public sector purchasing’ (2009): http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (see page 18)

[39] Audit Scotland ‘Improving public sector purchasing’ (2009): http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (see Exhibit 14 page 20)

[40] Audit Scotland ‘Improving public sector purchasing’ (2009): http://www.audit-scotland.gov.uk/docs/central/2009/nr_090723_improving_purchasing.pdf (see pages 23 to 29)

[41] Welsh Assembly Government ‘Making the Connections’ (2006) available online at: http://cymru.gov.uk/dpsp/publications/policies/delivering/responsee.pdf?lang=en (accessed 19 November 2009) see page 35

[42] Available online at: http://new.wales.gov.uk/topics/improvingservices/bettervfm/publications/sourceplan/;jsessionid=mvc2K8WL0p2P98NJJQytbNcJmVsddtD109qftYRbTbTcJQLWGXSh!-973892656?cr=7&lang=en&ts=4 (accessed 19 November 2009)

[43] http://new.wales.gov.uk/topics/improvingservices/bettervfm/publications/sourceplan/;jsessionid=mvc2K8WL0p2P98NJJQytbNcJmVsddtD109qftYRbTbTcJQLWGXSh!-973892656?cr=7&lang=en&ts=4 (see page 1)

[44] Value Wales is a division of the Department for Public Services and Procurement established after a review of public services in 2004.

[45] A copy of the document is available at: http://www.buy4wales.co.uk/PRP/10728.file.dld (accessed 19 November 2009) see section 4

[46] http://www.buy4wales.co.uk/PRP/10728.file.dld see section 5

[47] http://www.doeni.gov.uk/draft_consultation_paper_5_.pdf see page 52

[48] Source: personal communication with the Chairperson of the LGPG

[49] Membership of the procurement board comprises the Permanent Secretaries of the 11 Northern Ireland Departments, the Treasury Officer of Accounts, the Director of Central Procurement Directorate, observers from the Northern Ireland Audit Office and the Strategic Investment Board as well as 2 external members.

[50] http://www.cpdni.gov.uk/index/about-cpd.htm

[51] CPD Northern Ireland Public Procurement Policy (2009) http://www.cpdni.gov.uk/pdf-public_procurement_policy.pdf see page 12

[52] The full document is available at http://www.doeni.gov.uk/index/local_government/local_government_service_delivery-2.htm (accessed 10 November 2009)

[53] The full text of the statement is available at: http://www.doeni.gov.uk/ministers_statement_20.10.09.pdf (accessed 10 November 2009)

[54] See Executive Summary http://www.doeni.gov.uk/index/local_government/local_government_service_delivery-2.htm (page 2)

[55] Identification of Options http://www.doeni.gov.uk/lgsd_-_section_4_-_identification_of_options.pdf see page 64

[56] Identification of Options http://www.doeni.gov.uk/lgsd_-_section_4_-_identification_of_options.pdf see page 66

[57] DoE Consultation Document – Proposals for a Waste Bill http://www.doeni.gov.uk/draft_consultation_paper_5_.pdf (accessed 19 November 2009)

[58] http://www.doeni.gov.uk/draft_consultation_paper_5_.pdf see page 52

[59] See under the heading ‘Transformation benefits’ in section 5.50 http://www.doeni.gov.uk/index/local_government/local_government_service_delivery-2.htm (page 132)

[60] Written evidence to CFP 26 February 2009 see paragraphs 1.9 and 1.12.

[61] Personal communication with Denver Lynn, Deputy Chief Local Government Auditor

[62] http://www.buy4wales.co.uk/PRP/10728.file.dld (accessed 19 November 2009) see section 4

[63] Available online at: http://www.ogc.gov.uk/documents/CP0083_Small_supplier_better_value.pdf (see page 6)

[64] Information relating to the SWaMP2008 procurement provided by Martin Bowens, Head of Infrastructure Advisory, Ernst and Young, Ireland.

[65] Information relating to arc21 procurement provided by Ricky Burnett, Policy and Operations Director.

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