Tackling both sides of the procurement equation
The BEST Procurement (‘Benefiting the Economy and Society through Procurement’) development partnership, based in the East Midlands of England, is tackling both the supply and demand sides of the public procurement equation. On the demand side, it is working with public authorities – both decentralised local authorities and more centralised health authorities – to change the way they look at value for money, and to open up the sources of information that will enable social enterprises to bid successfully for contracts. As for the supply, it is encouraging social enterprises to work together and to scale up, by forming consortia capable of taking on big pieces of work. To bring the two sides together, it is to launch an internet database with earlier, higher quality information on contracting opportunities.
Social Enterprise East Midlands (SEEM) was set up in 2002 to promote social enterprises in the East Midlands region of England. In the first round of EQUAL, its main concern was to build a solid presence at the regional level – a tier of government that is becoming increasingly important in England – along with an effective support system delivered through a network of specialist agencies. Its work was hence wide-ranging. Once that first step had been taken, it came to the conclusion that the most important issue to tackle in EQUAL’s second round was public procurement. “Britain’s public sector spends some €200 billion a year excluding wages, and it’s a market where social enterprises can often deliver better quality results,” says Jenni Inglis, programmes manager at SEEM. “There was a lot of talk about improving the access of social enterprises to public contracts – yet there was very little action. For instance the government had published a national procurement strategy for local authorities  which specifically mentions the role of social enterprises – but it was largely a dead letter.” SEEM’s hunch was borne out by a consultation it carried out among public sector agencies and social enterprises, who gave the proposal for BEST Procurement an overwhelming ‘yes’.
Supply and demand
SEEM’s plan is to tackle both the supply and demand sides of the public procurement equation. On one hand it is working with public authorities to test ways of using public spending to achieve labour market equality as well as improve value for money. On the other hand it is building the capacity of social enterprises so that they can bite off a larger slice of the public procurement pie. It is also setting up a clearing house of market intelligence. Its targets are to see €15 million worth of contracts go to social enterprises, to create 30 new social enterprises, and to see a net gain of 100 jobs.
Its first surprise was that demand seems to exceed supply. “We imagined that the toughest nut to crack would be the public authorities, but actually we have found that building the capacity of social enterprises is more challenging. SEEM’s role is to facilitate services to social enterprises rather than to provide them directly. Among those who provide direct support we found pockets of the in-depth knowledge necessary to help social enterprises improve their contracting relationships with the public sector. The challenge has been to help the partners to bring their expertise together and build new expertise in order to offer a coherent service to social enterprises,” Ms Inglis says.
Two contrasting approaches to procurement
By contrast SEEM has made significant progress with the local authorities. “Once we found people who were interested in this work, they’ve been very enthusiastic allies,” Ms Inglis says. The project has two main stands of work – with all-purpose authorities and with the National Health Service (NHS) – and these pose quite different problems. NHS purchasing is already in a process of reform, with spending being concentrated in a new high-level tier of ‘procurement hubs’, of which there is one per region. SEEM has a specialist sub-project working in this field, and already has some promising projects.
However most general local authority spending decision-making is very devolved, though there are some buying consortia for more commoditised purchases. This means that it is very time consuming to make an impact. It is also problematic to make the case for solutions that benefit more than one department or authority, Ms Inglis says: “Contracting grounds maintenance out to a social enterprise can have health benefits, but these will accrue to the NHS and not to the local authority – there is no incentive for joined-up thinking that benefits everyone.”
Apart from this there is the problem of policy conflicts. The government’s encouragement to open up access to public contracts has been totally overshadowed by the so-called ‘Gershon Review’ (more properly Releasing Resources to the Front Line ). This report, published in 2004, is often interpreted to mean that authorities should look for efficiency savings of 2½% a year. In fact, it bears the subtler message that purchasers should try to get better value for money, not just try to cut costs. So two different pieces of government policy – one asking for greater efficiency, and the other explaining how this can be achieved – are in practice acting at cross-purposes. The Office of the Deputy Prime Minister (ODPM), which oversees local government, has established ‘regional centres of excellence’ which have supported many pilot projects to improve procurement, but in the East Midlands these have largely had the purpose of reducing costs in the short term.
Despite these impediments, some local authorities are keen to experiment, and three have joined the BEST Procurement partnership: Nottingham City, Northamptonshire and Northwest Leicestershire District. “We are starting to see some progress on the fundamental issue of redefining what it is that is being bought,” says Ms Inglis. “The key point is to specify what outcomes you want, not a detailed description of how to achieve them. This liberates providers to be creative, and creates a more level playing field for social enterprises. For instance authorities can say that they want to buy services of neighbourhood renewal, and leave it to the bidders to propose how they would encourage participation, create new businesses, and raise the level of prosperity.” Social aspects are thus no longer mere afterthoughts in the contracting process, but at its core.
A stronger supply side
But SEEM does not wish to see local authorities become too interventionist on the supply side, for instance by setting up social enterprises to take over service provision themselves. Start-up support is already available from both public and social economy sources. SEEM is working with existing social enterprises and will, where there is an appropriate gap in the market, start to create new ones with the support of partners working on the supply side. “The problem is that if you set up a new social enterprise to deliver only one specific contract, it is in effect under the control of the authority, and too dependent on its goodwill,” says Ms Inglis. “We prefer to see businesses working in a stabler market. This builds the sector’s overall capacity, improves financial viability and means we can show how social enterprises can compete.”
Some social enterprises in the East Midlands have already established productive contractual relationships with the public sector, for instance Ground Control (Braunstone) Ltd and Hill Holt Wood, both of which are featured in the Social Enterprise Coalition’s publication More for your Money  as examples of the added value of social enterprises. “Our job is to learn from these examples of good practice to support others, such as the newly established Café Ciao, a social firm set up under the programme within NHS premises.”
There are also some promising market niches that call for business development. “One opportunity we are working on is a waste contract in a hospital,” says Ms Inglis. “The hospital is being supported to think through the impact of its waste contract and is persuaded of the benefits of enabling social enterprises to become suppliers. Therefore the supply side of the partnership is working with a number of social enterprises which work on waste minimisation and recycling to see if they could form a consortium, so that they can bid when such a tender is published. In fact what may happen is that they will bid for part of a framework contract, with private sector companies.” Incidentally this initiative also shows another key operational principle – to act as early as you can. “If you weren’t already working on the delivery plan at the point the tender is published, you are too late.” Another promising avenue is to set up a social enterprise to do administrative work that is currently done by short-term agency staff: “A social enterprise could improve working conditions and equality,” says Ms Inglis. “The practical support on the supply side aims to offer something for every social enterprise – from those with well-established business skills which might benefit from our contract finder service, to organisations set up with grant funding which want to gain contracting skills and might need to change their culture, through to pre-start-ups which need to check whether their ideas are realistic.”
SEEM finds itself on the horns of something of a dilemma when it considers whether it should try to ‘pick winners’ and try to create very visible examples of success. “Of course we need to have some winners, but we have a research objective too, so we need to expose what the barriers are, and that means we need to work with a range of different types of social enterprises,” says Ms Inglis. The research is carried out by the Sustainable Development Research Centre, which is conducting a longitudinal study of social enterprises’ experiences of working with the public sector, researching niches that offer opportunities for social enterprises, and mapping outcomes onto policy drivers.
Measuring the impact
Some of the mainstreaming activities are to be delivered by Forum for the Future, a sustainable development charity, which is building networks to disseminate the project’s results amongst practitioners within local authorities and the health service nationwide. Forum for the Future, SEEM and other partners are also active in the policy arena, and have worked with the government’s Sustainable Procurement Taskforce and with the Home Office to develop a programme of local pilot projects. Called Third Sector Procurement Pathfinders, these will allow local authorities to experiment with new ways of contracting to achieve an inclusive procurement strategy.
As interest in social enterprise increases, so the demand to prove its added value is bound to grow. This issue lies at the heart of the efficiency debate – does it cost the taxpayer more to achieve better outcomes? To answer this question there must be some practice to study, so in the early stages of the BEST Procurement project, SEEM is taking a pragmatic approach and concentrating on helping social enterprises to win contracts in the first place and improve contractual relationships. Interesting examples of practice will then be subjected to scrutiny in the later stages of the project.
Making a market
SEEM’s whole approach is one of intervening in the market but not through legislation – it is essentially brandishing the carrot, not the stick. “Our long-term aim is not to avoid competition but to shift the nature of the competition to achieve better outcomes,” says Ms Inglis.
In the meantime access to the market depends on good information, so SEEM wants to improve on the existing online tender databases, which are useful only to larger private sector companies that can gear up to tender quickly and go for larger contracts. Taking as a base the existing Nearbuyou social trading network4 set up during the first round of EQUAL, it plans to create a more proactive information service which will get wind of developments before they get to the tender stage. As Ms Inglis comments: “The lack of information really is the biggest problem – everything is so opaque.”
The partnership’s work serves the cause of local development first of all by increasing equality within the region’s public sector marketplace, by supporting the livelihoods of those otherwise excluded from the labour market. The crucial point here is not necessarily that the money recirculates within the region, but that it is directed to economic entities based in, run by or with access to disadvantaged groups. They are thus part of building the region's social capital and enhancing its sustainability.
The DP is also strengthening local social enterprises economically, by supporting a range of their development needs – as well as stimulating creative thinking in the search for better solutions to public policy problems.
It takes two to tango, but it is the public sector that retains the whip hand in the process of public procurement reform. The key steps for public authorities to take if they want to open up their markets to social enterprises and achieve a related improvement in their procurement outcomes are: to move to outcome-based specifications, to more carefully evaluate the impact of aggregating contracts, to engage in dialogue at an early stage about the possible shape of service provision, to adopt accounting models that support the consideration of wider costs and benefits, and to establish a culture of welcoming and testing social innovation in the supply chain.
The project's results have been packaged in the form of the Sustainable procurement tool.
DP name: BEST Procurement
DP ID: UKgb-110
Contact: Jennifer Inglis
Foxhall Business Centre
Nottingham NG7 6LH
Tel: +44 115 871 4763