Written submission from Joseph Rowntree Foundation (LPG 20)
1.1 The Joseph Rowntree Foundation (JRF) is interested in the contribution that LA procurement can make to supporting local economies and addressing place-based deprivation.
1.2 Recent JRF-funded research has demonstrated:
1.3 To encourage and enable LAs and their procurement teams to better deliver this `social value` CLG should seek to:
2. Introduction to JRF
The Joseph Rowntree Foundation (JRF) is an endowed foundation funding a UK-wide research and development programme focussed on understanding and tackling social problems. Our
research on procurement has focussed on strengthening local economies and tackling place-based poverty and social exclusion.
In relation to public procurement JRF funded and facilitated the research and publication of Achieving Community Benefits through Contracts: law, policy and practice (Richard Macfarlane and Mark Cook. The Policy Press. 2002) which provided the first UK analysis of the legal and policy issues affecting the use of public procurement to deliver `social value`. This was undertaken with active involvement from HM Treasury and formed the foundation for the Scottish Government`s Community Benefits in Public Procurement pilot programme, the results of which were published in 2008. The 2002 and 2008 reports remain key texts in using public procurement to deliver social and community benefits through public procurement.
In 2013 we have funded two further pieces of research which will be published shortly:
This research forms the basis for the current submission.
We are aware that CLES has presented its own submission and we will not replicate their document.
3. The Potential Contribution of LA Procurement to addressing social exclusion
The forthcoming JRF report by CLES summarises the changing patterns of poverty and the
significant changes in the way the public sector – especially at the local level – is resourced to respond to place-based deprivation e.g. the replacement of Regional Development Agencies with less-well-resourced Local Enterprise Partnerships and reductions in LA budgets. This increases the importance of LAs using their spending to support local economies, and gives added weight to the use of techniques that measure the local multiplier effect of local purchasing (e.g. LM3).
In their submission to the CLG Committee CLES have highlighted the degree to which LAs currently procure from local suppliers: 34.8% of procurement spend went to firms based within the LA boundary (based on information from 70% of LAs in England, Wales and Scotland). Their work with Manchester City Council demonstrates that 25pence in every £1 of procurement spend was re-spent in the City through local workers and a local supply-chain. If this impact was achieved across the £172m in LA spend in England, Wales and Scotland this would result in £43m being spent in the local economy of the purchasing authority.
In their forthcoming JRF-funded report CLES argue the case for measuring the local multiplier impact of a LAs expenditure as a basis for protecting and expanding opportunities for local suppliers in LAs procurement processes e.g. by providing better information on opportunities, reducing pre-qualification requirements, encouraging `capacity-building` with local firms.
The forthcoming Macfarlane report uses information in a HM Treasury Report Accelerating the SME economic engine (The Glover Report 2008) which identifies an additional important barrier for many local companies:
Aggregation (combining similar requirements into a larger contract) and `bundling` (putting together different requirements into a larger contract) results in contracts that are beyond the scope of SMEs (and especially micro and small enterprises, including most social enterprises) to deliver e.g. because they don`t have the financial backing or track record.
The report emphasises the importance of introducing `lots` into the procurement of contracts. This allows LAs and joint-purchasing groups to aggregate or `bundle` their demand but potentially disaggregate the supply, while still achieving `best value` through a competitive procurement process. It allows procurement teams to recognize the added value that is obtained by retaining local suppliers, not just through the multiplier effect but also because they can often get a better service: the LA will be a major client of a local SME but only a minor client of a national or international business. The following example from Powys County Council is provided:
To achieve its commitment to support the local economy the Council agreed to procure its £4.6m housing improvement works through a Framework Agreement. This was divided into 8 categories covering the North of the County and the South, for kitchen replacements, bathroom replacements, rewiring and internal decorations. Contracts were issued in these 8 categories over the next 4 years with an annual expenditure of each contract typically under £400000.
Through this process 3 contracts were awarded to larger and non-local suppliers, and 5 were awarded to local SMEs, where `local` is defined as based in Powys or an adjoining authority.
However, the main thrust of the Macfarlane work addresses the interaction between the local multiplier and the local labour market. Positive local multiplier outcomes can be achieved without increasing the opportunities for people that are disadvantaged in the labour market e.g. by recruiting local skilled/experienced workers and using local suppliers that recruit from a wider area. The `disadvantaged` can include long-term unemployed people (many of whom will have poor educational achievement and skills), people leaving full-time education and training, young people leaving the case system, people with a disability and those returning from ill-health or caring responsibilities. Not all of these are residents of areas of deprivation, but many people in deprived areas are affected by one or more of these characteristics. A key question for people that are disadvantaged in the labour market is how they can progress in a context where they have to compete with many experienced/skilled job applicants within a travel-to-work area that can, in some trades, now cover the whole of the EU.
Both the original (2002) and the forthcoming reports highlight the support of the European Union in using procurement to address social issues:
“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. (EC Procurement Directive). Recital 33)
Contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law and are indicated in the contract notice or in the specifications. The conditions governing the performance of a contract may, in particular, concern social and environmental considerations.
(EC Procurement Directive). Article 26.)
However, to draft requirements that achieve local benefits but `are compatible with Community law` requires care. Guidance is provided in the 2002 and 2008 reports referred to above: essentially the contractor is required to deliver the social benefits by working with a named agency that targets its activities at specific areas or communities. So for example, in the Birmingham City Council approach contractors have to notify all vacancies to the Council`s Employment Access Team (EAT) and work with them on the recruitment of employees and trainees. The EAT then works with over 100 local employment agencies to identify suitable candidates and creates a shortlist that maximises opportunities for residents of the Council`s priority areas: those with highest levels of deprivation. This maintains `a level playing field` between local and non-local bidders while still allowing the Council to achieve its objectives as set out in its Procurement Policy for Jobs and Skills.
The case studies demonstrate the benefits of such an approach:
These examples provide evidence that procurement can be used effectively to target opportunities at residents of the most disadvantaged areas. In each of the above cases `targeted recruitment and training` was included in the specification and scored as a part of the award process. This sets up a situation where the contractor is fully aware of the importance attached to this element of the client`s requirements.
The GHA case study demonstrates that contracts including targeted recruitment and training requirements were delivered at costs below national benchmark levels and without impacting on the quality of contractors engaged:
An analysis of the first 13 GHA works packages demonstrates that at both PQQ (344 submissions) and the award (84 tenders) stages the highest scoring contractors in relation to community benefits were also amongst the highest scoring across a range of quality measures.
The case studies suggest that in the construction sector it is feasible to achieve 10% of the works being delivered by apprentices and trainees recruited via a named agency that focuses its job-matching activities at disadvantaged communities. This equates to roughly one year of work for a `target person` per £1m in construction value, but this outcome is likely to rise in services contracts because of the higher labour content.
The case studies suggest that approximately 50% of these local opportunities are likely to be taken by residents of the most disadvantaged local communities and demonstrates that public procurement can be used to provide employment and training opportunities for people in a `priority area` selected by the purchaser. However, a key role is played by training and job-matching agencies that are committed to targeting people in `priority areas`. In each case this has been delivered by a LA-based organisation. These may work with local colleges and training organisations, Job Centres and Work Programme contractors, but in the end they control who is put forward as candidates to the contractor, and through this they can secure additional opportunities for applicants from target areas.
A similar function is needed for the SME and social enterprise sectors: Community Enterprise in Scotland and the Supplier Development Programme has done this in Glasgow, and Find it in Birmingham in that city.
4. Recommendations for Action
In this section we will consider what action is needed to expand the use of procurement to address place-based deprivation, most notably through the provision of `targeted recruitment and training` and local supply-chain opportunities. Key issues are the removal of legal barriers that are perceived by procurement teams as increasing the risks of including social value in LA procurement, and greater use of mechanisms that will maintain a local supply-chain and help people in disadvantaged communities overcome the barriers they face in using the labour market to sustain a life for themselves and their families.
4.1 Simplifying the legal powers
The Macfarlane report identifies the range of powers that LAs need to utilise in order to include social and community benefits across a large part of its procurement. It is not straightforward and the Public Services (Social Value) Act may have made matters more difficult: by providing a duty and power in relation to just a small part of what LAs procure the impression may be given that Government doesn`t consider that social value should be sought from other procurement. This adds to the risk-averse approach already taken by many LA legal advisers and procurement teams.
This can be overcome by extending the duties and powers provided by the Social Value Act 2012 to all services and works procurements. Since the Act only requires LAs to consider whether they could achieve greater social value there is no need for the Government to specify when this consideration must take place. This is better done at a LA level through the adoption of a local policy and methodology.
4.2 Requiring LAs to adopt a Procurement Policy for Social Value
Legal advice suggests that the most comprehensive coverage for the use of social and community benefit requirements in LA procurement will be obtained where the LA adopts explicit policy demonstrating that it intends to use its procurement to achieve specified social/community benefits. This will:
Knowsley`s Social Value Framework, Birmingham City Council Procurement Policy for Jobs and Skills, and Bath and NE Somerset`s draft Social Value Policy provide examples of this approach.
4.3 Abolishing Section 17(5) of the Local Government Act 1988
An additional barrier for LAs in England is that `labour force matters` may not be taken into account in the award of a contract: they are `a non-commercial consideration’. This affects `targeted recruitment and training` which is relevant to tackle place-based deprivation.
This constraint can be set aside where necessary to achieve `best value`, but again this adds complexity and uncertainty in a risk-averse procurement environment.
This part of the 1988 legislation has been set aside in Wales and Scotland and on the basis of the recent JRF-funded research we recommend that it be abolished in England.
4.3 Dividing contracts into `lots`
CLG procurement advice should balance the benefits of `aggregation` and `bundling` with the impact on SMEs that have often been a key supplier to the LA sector and a key employer of local people in the delivery of works and services. It is likely that the new EU Procurement Directive will specifically encourage the use of `lots` to provide opportunities for SMEs within procurement that maximises `value for money`. This may require procurement teams to incur additional costs at the procurement stage and possibly in contract administration, but these short-term costs should be balanced by the wider social value achieved and the longer-term benefits of having a vibrant local supply-chain.
4.4 Supporting LA employability work
The biggest threat to the use of LA procurement to target opportunities at communities with high levels of disadvantage is reducing the employability teams that are the interface between employers with targeted recruitment and training obligations and job-seekers in the most disadvantaged communities that most need the opportunities.
A key characteristic of these LA teams is that they have a policy of targeting the neediest within their area. Other employability organisations – including colleges, training organisations and Work Programme contractors - may not have this place-based commitment.
To better secure the place of employability work in LA, Government should:
September 2013