3 Delivering strategic objectives
through procurement
40. At around £45 billion, the scale of spend
on procurement of goods and services offers councils a key route
for delivering their strategic objectives, including social, environmental,
and economic aims. The Centre for Local Economic Strategies (CLES)
recognised the significant potential of public procurement to
tackle local economic development and alleviate poverty, and that
current financial constraints meant that it was vital for councils
to use this mechanism to address wider economic, social and environmental
challenges.[74] Indeed
government policies encourage councils to procure according to
criteria other than simply the lowest price. The key legal framework
enshrining this approach is the Public Services (Social Value)
Act 2012 under which councils are required to consider social
value in managing procurement. The Cabinet Office published guidance
on using the Act's provisions setting out expectations that councils
should consider overall value when reviewing service.[75]
However this will need revision following announcement in January
2014 of new EU measures. After we concluded taking evidence, the
EU finalised its new Directive on public procurement which is
likely to increase both opportunities for, as well as obligations
on, local authorities.[76]
One change from previous EU rules is that public contracts must
be assessed on the basis of the 'Most Economically Advantageous
Tender' (MEAT) incorporating wider best value criteria such as
environmental or social issues.[77]
Article 68 of the new EU Directive will facilitate the inclusion
of such aspects in public body procurement exercises.
41. We received evidence on a range of approaches
from councils which had used procurement to pursue strategic aims,
particularly in the social and economic spheres. London Councils
told us that 86% of London Boroughs had changed their procurement
processes in response to the 2012 Act, citing as examples of best
practice the London Borough of Lambeth's checklist for councillors
to identify which social and economic benefits they wished to
generate from specific contracts, and the London Borough of Harrow's
creation of more than 40 apprenticeships in the supply chain since
adopting its Sustainable Procurement Policy.[78]
Halton Borough Council told us that it used a weighted tender
exercise to assess how contractors would add social value in delivering
a contract, such as by engaging with the local workforce,[79]
whilst Cheshire West and Chester Council also used contract specifications
to increase the rate of apprenticeships and local jobs and to
prioritise opportunities for local young people.[80]
Essex County Council's requirement that bidders deliver at least
one apprenticeship per £1 million of spend if they wished
to increase their 'added value' score had secured commitments
for some 270 new apprenticeships across a range of contracts.
Some of the council's suppliers had gone beyond requirements to
promote social employment schemes and further support local SMEs.[81]
42. On the other hand some councils were not maximising
opportunities to embed social value in their procurement approaches.
CIPS considered that nationally the sector's focus remained on
savings and that there was little evidence that social, economic
and environmental considerations were duly regarded in the award
of contracts.[82] Furthermore,
the Chartered Institution of Highways and Transportation told
us that the balance between cost and quality was too often "heavily
skewed in favour towards cost" during bid evaluations.[83]
Solace, the body representing council Chief Executives, told us
that clients and providers frequently expressed frustration that
contracts were too focused on the "mundane" and that
their impact on strategic outcomes was unclear. It criticised
a lack of practical examples where councils had adopted contract
specifications focussed on outcomes.[84]
The National Council for Voluntary Organisations (NCVO) identified
a range of barriers to delivering value for money, including a
"disconnect" between those commissioning services and
procurement/finance teams, a failure to involve all relevant actors
(providers, commissioners, procurement and contract managers)
in the design stages of commissioning, and limited engagement
of procurement and finance teams directly with providers.[85]
43. We also heard evidence on the central role of
procurement in delivering environmental policies such as through
the procurement of green goods and services. We were not able
during this inquiry to examine environmental policies specifically,
but we note the range of initiatives such as the LGA's Sustainable
Procurement Strategy,[86]and
WRAP's sustainable procurement modules that include good practice
guidelines to enable organisations to deliver cost savings, use
fewer resources and send less waste to landfill.[87]
44. There is a judgment to be made by each council,
and for each contract, as to the correct balance for their community
between letting a contract at the lowest price and requiring contractors
to deliver additional economic and social value, sometimes at
an additional cost. We are clear, however, that councils can and
should adopt policies which enable them to maximise their procurement
spend to deliver local priorities by requiring contracts to be
let on the basis of wider best value, not simply lowest price.
Such approaches will best ensure procurement is conducted so as
to support and improve communities' long-term economic, social
and environmental well-being. Many local authorities are already
successfully linking their procurement approaches to delivering
such objectives but all councils should assess the potential of
each procurement exercise, and of their overall procurement policies,
to assist delivery of the council's corporate objectives. Furthermore,
they should raise awareness of the value of this linkage through
more explicit demonstration of successful approaches. All councils
should present an annual report to a full Council meeting setting
out the authority's strategy for incorporating economic, social
and environmental value in its procurement, including employment
terms and conditions, impact on local economies and small businesses,
relationships between contractors and customers, and the role
of councillors.
45. We conclude that the Local Government Association
should work with local authorities to disseminate best practice
case studies on how to maximise the impact of procurement approaches
to deliver local social, economic and environmental objectives,
whilst balancing the need to secure value for money in the procurement
of goods and services. A particular focus for the LGA should be
the promotion of examples of best practice in using procurement
to support the increase in local apprenticeships and trainee opportunities.
Furthermore, the LGA should update guidance on the potential of
new EU public procurement measures to allow procurement to be
used to promote social value, and advise councils on what they
must do to meet new obligations.
Revision of the Public Services
(Social Value) Act 2012
46. CLES supported the use of the law to "shape
and influence" council processes and practices to combat
cultures where cost was the primary consideration.[88]
NCVO considered that a weakness of the Public Services (Social
Value) 2012 Act was that its provisions applied only to contracts
above EU procurement thresholds.[89]
Plans to increase these thresholds would therefore further weaken
the Act's impact. NCVO noted that over a third of the 124 local
authorities which had a contractual relationship with the voluntary
sector spent less than the EU threshold in total on their contracts
with the sector.[90]
It therefore recommended that the Government should amend the
2012 Act to place a clear legal requirement on local government
to consider social value when procuring any public service contract,
irrespective of financial value, and should put in place mechanisms
to support and monitor council implementation of the Act.[91]
The Joseph Rowntree Foundation also recommended extending duties
and powers under the Act to "all services and works procurements".[92]
47. Although we were told that 65% of local authorities
in England and Wales had changed their processes and practices
as a result of the 2012 Act, NCVO said that, since councils were
not obliged to monitor or report implementation, it was difficult
to evaluate the impact of the Act accurately. NCVO recommended
that there be regular publication of an evaluation of wider social
impacts of council procurement.[93]
CLES criticised the lack of a standard method of assessing the
wider social, economic and environmental impacts.[94]
DCLG told us that it did not centrally monitor adherence to social
value objectives, but used the CCS 'Mystery Shopper' scheme to
investigate any complaints about the Act not being applied.[95]
It added that it ran a 'Best councils to do business with' contest,
with the 2013 winners having shown evidence of clear commitment
to link procurement to strategic objectives.[96]
Ministers further told us that their priority was to make the
existing law work and be "something that people are using"
rather than tinkering with the Act.[97]
48. We acknowledge Ministers' wish to ensure that
the Public Services (Social Value) Act 2012 is given sufficient
time to bed in and become fully effective. Nonetheless, it is
clear that there are concerns that the limited range of contracts
to which its provisions apply might be undermining the Act's impact.
We recommend that DCLG undertakes comprehensive post-legislative
analysis of the Act to ensure assessment of its effectivenessbefore
the end of 2015. This assessment should consider whether provisions
should be extended such that local authorities must consider the
potential for a contract of any value to deliver social benefits.Such
assessment must take into account the views of all interested
parties, including local government and business.
Community Right to Challenge
49. The Localism Act 2011 introduced new rights and
powers for communities and individuals including the right to
challenge a council (whether County, District or Unitary) to take
over running of certain of the authority'sservices.[98]This
is known as the Community Right to Challenge (CRC).Authorities
must consider the social value of expressions of interest to run
such services in any procurement exercise triggered by the CRC,as
well as best value, which includes economic, environmental and
social value. Such value could include, for example, creating
local jobs, increasing local volunteering opportunities, or improving
environmental conditions.[99]
Evidence from witnesses indicated that there had been very limited
use made of this right to date. NCVO told us that 22 challenges
had been launched formally, with only two accepted. NCVO said
that it wished to see the voluntary sector taking on more services.[100]
CLES noted that the voluntary sector considered there to be drawbacks
with the CRC because, in highlighting a wish to deliver a local
service, an organisation could open up the service to a full tender
exercise that often involved large private sector organisations.
This did not necessarily lead to the voluntary or community sector
winning contracts. It could be more effective to develop a relationship
directly with local authority commissioners.[101]
Solace told us that account needed to be taken of the process's
impact on the voluntary community as well as the private sector
and that an extended period of dialogue and consultation would
often be required before voluntary sector bodies or social enterprises
would be in a position to be able to compete for a contract.[102]
Nevertheless, NCVO considered that there was some evidence that
the right to challenge allowed organisations to begin a conversation
with a council which would not otherwise have been possible. It
preferred a more informal approach which could be easier for the
voluntary sector than the potentially confrontational formal process.[103]
50. Government policies to encourage communities
to engage in service delivery through mechanisms such as the Community
Right to Challenge do not appear to be being used to any great
extent.We recommend that the Government undertake within six months
a review of the barriers to its uptake, including costs to councils
and would-be suppliers of entering into a full-scale procurement
exercise and how these might disadvantage some sectors, in particular
the voluntary and community sector.
Supporting local businesses and
small and micro-businesses
51. Councils have the potential to use their procurement
practices in order to support small and micro-businesses. A survey
in 2013 by the Federation of Small Businesses (FSB) concluded
that there was "much good practice" aimed at increasing
SME access to public sector contract opportunities. More than
90% of responding authorities had initiatives in place to support
SMEs in tendering, and 75% had introduced new initiatives in the
last twelve months.[104]
Intellect, a trade association for the digital technology and
services sector, stated that councils were "ahead of the
curve" and that local government had already readily embraced
the SME agenda "at a rate much higher than that of central
government" when sourcing new technology.[105]
Witnesses also highlighted the potential for support for local
businesses to improve local economies. The FSB survey concluded
that for every £1 spent by local authorities on procuring
goods and services from local firms, additional benefits
of 51 pence were generated for local economies. The research found
that local authorities spent on average around a third of their
total procurement budget within their own boundaries, and that
nearly half of the total spend was with SMEs. It further found
that spend via small local firms generated more benefits than
spend via large local businesses. FSB calculated that increasing
spend with local firms by 5%, and with SMEs by 3%, would increase
investment in local SMEs by over £964 million nationally.[106]
52. Other witnesses gave us a range of examples where
local councils were working to support local businesses. The LGA
identified a number which were spending high proportions of their
procurement budgets with SMEs.[107]
Halton Borough Council spent 89% of its procurement budget with
SMEs nationally.[108]
The council told us that it had increased supplier numbers by
over 160% in two and a half years by using mechanisms such as
advertising all contracts through an e-portal ('The Chest') and
engagement exercises with local businesses.[109]
The Chair of the South and East Yorkshire Region Federation of
Small Businesses told us that Sheffield City Council had adopted
the right approach to supporting local suppliers and had increased
the number of apprentices to some 300.[110]
53. Nonetheless, some witnesses considered that concerns
over compliance with EU non-discrimination requirements could
undermine the delivery of local economic objectives. FSB said
that:
anecdotal evidence suggests that, while local
authorities are comfortable with supporting environmental issues
and apprenticeships through procurement, they may be less confident
on what is permissible in support of local businesses. As such,
procurement teamsuncertain of what can and cannot be done to support
small local businesses through procurement should seek advice
and guidance, particularly from the LGA.[111]
The Chartered Institute for Public Finance (Cipfa)
noted that, although EU rules prohibited discrimination against
service providers on the grounds of nationality, nonetheless there
was scope for discretion. It stated that it was not for example
lawful to:
specify that food is locally produced, but it
is standard practice to specify that it is fresh or seasonal;
and to take into account the level of harmful emissions caused
by its transportation. To this extent local government procurement
has a lawful purpose unconnected with stimulating the local economy.
Indiscriminate local procurement to stimulate the local economy
would however be unlawful.[112]
The Joseph Rowntree Foundation agreed, noting that,
provided contracts were not directly or indirectly discriminatory,
EU processes allowed procurement to address social issues for
example by favouring "on-site vocational training, the employment
of people experiencing particular difficulty in achieving integration,
the fight against unemployment or the protection of the environment".[113]
The Foundation noted, however, that the contractor would be required
to deliver the social benefits without discriminating against
non-local suppliers.[114]
The revised EU procurement rules will increase the scope for supporting
local economic growth, for example through the use of training
opportunities, employment of job-seekers and apprentices.[115]
The new draft Directive includes a range of articles which will
support SMEs through, for example, requiring use of simplified
procedures, meeting a number of criticisms from witnesses concerned
at the impact of current onerous procedures.[116]
54. Some businesses expressed reservations. For example,
Alan Rogers, representing housing construction company KeepMoat,
considered that local economic benefits were to be had by using
local community contractors, but he cautioned that there were
practical difficulties in using this approach such as securing
contractors with the right specialist knowledge for the contract.[117]
Academics also warned of potential negative impacts on wider geographical
areas of approaches which favoured local communities. Dr Pedro
Telles from Bangor University considered that public procurement
should not be used as a "development or social engineering
tool" since there was a risk that social considerations could
be used as a "protectionist tool under the guise of stimulating
the local economy".[118]
Cipfa considered that it would be ineffective to use local procurement
indiscriminately to stimulate local economies because "all
authorities would start doing it, so that what any local economy
gained from its own local procurement it would lose from the loss
of cross-border procurement by other authorities".[119]
Dr Telles endorsed this view noting that:
when the first authority raises its barriers
to external suppliers all others will be expected to do the same
to protect their local supplier base. [...] one [organisation]
saving is great, everyone saving leaves the economy in deep trouble.
In consequence, it will become almost impossible for a supplier
to win business with another local contracting authority.[120]
55. We recognise that council policies which disproportionately
favour localor smaller firms are not in communities'longer-term
interests since these approaches could exclude cost-effective
options offered by non-local or larger businesses, as well as
ultimately weakening rather than strengthening local economies
or regional economies as a whole. However, carefully framed policies
that give local and smaller firms the same opportunities as larger
firms to compete for contracts have had benefits for local economies.We
support targeted council approaches which effectively balance
support for local businesses whilst not precluding value for money
or undermining the effective operation of markets. We conclude
that the Local Government Association should work with local authorities
to disseminate best practice case studies on how to integrate
procurement and support for smaller businesses. The Cabinet
Office, working with the LGA, should produce guidance on how councils
can apply the provisions of the new EU Directive on public procurement
to better support smaller businesses and local economies.We
address in the next chapter the approaches which should underpin
these policies.
74 Centre for Local Economic Strategies (LGP 19) para
4.1 Back
75
Cabinet Office, Procurement Policy Note: The Public Services
(Social Value) Act 2012-advice for commissioners and procurers,
September 2012 Back
76
Directive 04/18/EC will be repealed following adoption of the
new Directive/2014/../EU of the European Parliament and of the
Council on public procurement Back
77
MEAT entails using a cost-effective approach such as life-cycle
costing and may include the best price quality ratio. This ratio
should be assessed on the basis of a range of criteria including
qualitative, environmental and/or social aspects related to the
contract's subject matter. Back
78
London Councils and the London Procurement Strategy Board (LGP
31) paras 22 and23 Back
79
Q36 [Lorraine Cox] Back
80
Q36 [Julie Gill] Back
81
Essex County Council (LGP 18) Back
82
Chartered Institute of Purchasing and Supply (LGP 39) Back
83
Chartered Institution of Highways and Transportation (LGP 64)
para 1.3 Back
84
Solace (LGP 42) Back
85
National Council for Voluntary Organisations (LGP 29) para 2 Back
86
Local Government Association, Sustainable procurement strategy,30
November 2007 Back
87
See WRAP sustainable procurement webpages, www.wrap.org.uk Back
88
Centre for Local Economic Strategies, Responding to the Public
Services (Social Value) Act 2012,p1, 13 February 2013 Back
89
See Chapter 4 on process below for details on EU thresholds. The
Public Services (Social Value) Act 2012 is also referred to as
the Social Value Act for brevity Back
90
The threshold is currently set at £173,934 Back
91
National Council for Voluntary Organisations (LGP 29);Section
1(13) of the Public Services (Social Value) Act 2012 refers Back
92
Joseph Rowntree Foundation (LGP 20) para 4.1 Back
93
Q357 [Oliver Henman] Back
94
Q342 [Matthew Jackson] Back
95
The Mystery Shopper is a web-site operated by the Crown Commercial
Service where suppliers and potential suppliers can complain if
they believe that they are being unfairly treated by a public
body.See Mystery Shopper results Back
96
Department for Communities and Local Government (LGP 63) Back
97
Q455 Back
98
Localism Act 2011 Back
99
Department for Communities and Local Government, MyCommunityRights
webpages www.mycommunityrights.org.uk/ Back
100
Q361 [Oliver Henman] Back
101
Q361 [Matthew Jackson] Back
102
Solace (LGP 42) Back
103
Q361 [Oliver Henman] Back
104
Federation of Small Businesses (LGP 30) Back
105
Intellect (LGP 32) Back
106
Federation of Small Businesses (LGP 30) Back
107
Local Government Association (LGP 17) Back
108
Q2 [Lorraine Cox] Back
109
Qq 26,27 All contracts between £1000 and the EU threshold Back
110
Q282 [Gordon Millward] Back
111
Federation of Small Businesses (LGP 30) Back
112
Chartered Institute of Public Finance and Accountancy Commissioning
Joint Committee (LGP 07) paras 14 and 15 Back
113
Joseph Rowntree Foundation (LGP 20) Back
114
As above Back
115
Directive 04/18/EC will be repealed following adoption of the
new Directive/2014/../EU of the European Parliament and of the
Council on public procurement Back
116
Directive 04/18/EC will be repealed following adoption of the
new Directive/2014/../EU of the European Parliament and of the
Council on public procurement (Articles 22, 51, 34, 36, 56 of
the draft Directive refer) Back
117
Q163 Back
118
Dr Pedro Telles (LGP 23) Back
119
Chartered Institute of Public Finance and Accountancy Commissioning
Joint Committee (LGP 07) para 15 Back
120
Dr Pedro Telles (LGP 23) Back
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