Could the money that public bodies spend for goods and services be better spent to support local firms and social enterprises?
This was the question posed by Hazel Blears MP, a guest speaker last Thursday evening at the North West Sustainable Business Quarterly meeting, a pro bono initiative by M4C with support from Bruntwood.
She explained her interest in the voluntary and community sector, and her 25 years as an elected representative, always with a focus on places like Ordsall in Salford, UK. Her recent example was working with the senior management of Morrisons so that 82% of the jobs in their new store in Ordsall were gained by residents nearby. The other guest speaker was Norman Pickavance, previously the Morrisons Group HR Director, who also spoke about the Create social enterprise group he is involved with.
Hazel Blears stated that the public sector could use public procurement to match such private sector initiatives in boosting local employment and tackling disadvantage.
Public procurement in the UK is governed by EU law. This law is intended to protect the single market by ensuring that public bodies do not discriminate by favouring local firms at the expense of firms in other EU countries. There are very strict requirements and large penalties. Some commentators have claimed that this legal background has made public authorities very nervous about specifying local benefits when awarding contracts.
To be fair, the textbook example in procurement and local benefits is to remind the officials that, while it is illegal to say that the winning company must have a local office, it is perfectly legal to say that the winning company must open a local office to deliver the contracted service.
Therefore local benefits can be specified, provided that it is possible for competent firms in that field to equally comply regardless of which country they come from.
The UK government has also looked to improve public procurement, but mostly to benefit for-profit small and medium enterprises (SMEs) rather than not-for-profit social enterprises. Examples include Lord Young’s recommendations in May 2013 to favour SMEs more in Growing Your Business, and the recent recommendations in NHS procurement (but mostly to save money).
I suspect the more mundane factor is that officials worry that specifying local benefits will push up the cost of the contract, maybe beyond the budget available, because bidders tend to cost local benefits as an added extra.
There is some interesting work around Whole Place Community Budgets, following on from other initiatives such as Total Place, where the aim is to look at all the public money in a community and ask, in the round, could this be spent better? For example, if the school did these extra classes would it save money for the police? If the library did this extra course would it save money for the hospital? Greater Manchester has a pilot programme for working with complex families.
The difficulty is that some agencies will happily let others spend their money to the greater local good, but when it is their turn to ‘buy a round in’, all of a sudden their wallet or purse cannot be found. Cracking that nut will see local benefits figure more strongly in public procurement, because of the wider savings overall, as well as the greater good.
This is a very thoughtful piece but fundamentally misunderstands the Procurement Regulations and their purpose. It’s more about pursuing fair competition than discriminating against local business, and SME’s generally don’t get preference over the third sector. Much of the need for Procurement Reform, particularly at Local Authority level, was to counteract levels of corruption that existed in contract award. Practices have improved immensely in recent years.
Favouring local business, or at least making it easier for them to compete, relies on buyers writing a better specification that fully encompasses the right kind of local needs And investing the right resource when scoring tenders.
Two instances in the NHS prove the point.
A Wales fresh meat contract specified that meat supplied should never have been frozen. This was a clear safety requirement, but it helped shorten the realistic journeys within the supply chain and favoured locally based suppliers.
At the other end of the scale, a northern Scottish hospital having laundry done in Newcastle clearly did not properly score the quality aspects of their Tenders. Otherwise it’s impossible to see how that provider could represent best value for money with such a high proportion of contract spend being eaten up with transport costs. This was also an area where the Carbon Footprint of the contract must have detracted from the buyers tablets for reduction.
Rather than politicians or suppliers trying to get the rules changed to favour their current hobby horse, we need to look to more innovative purchasing specifications. While they help spenders budgets by delivering low prices, amalgamated contacts open only to the big boys do lots of harm to local business and the local economy, and should be abandoned. Greater use of the Small Lots provisions would encourage more SME bidders, and by default would favour local economies.
More comments and contributions also welcome. For example, people’s experience of trying to use Small Lots without breaching the “no disaggregation” rule?