BLOG – Unlocking the Power of Procurement through Community Wealth Building

In the first P4P blog, Neil Young, P4P Coordinator, discusses community wealth building approaches to local economic development and procurement, the current procurement landscape in Scotland, and what a greater focus on community wealth building could mean for Scottish social enterprises and the enterprising third sector.

Neil Young, P4P Coordinator

What is Community Wealth Building?

‘Community Wealth Building’ is a term which refers to a range of initiatives which empower local government or decision makers and enable communities to better create and retain wealth in their local area.

One example of this could be a local authority commitment to spending as much as possible on local businesses rather than businesses or large corporations based outwith the area, which extract rather than generate wealth from communities.

Community wealth building may also involve supporting the development of new businesses to deliver services or products for anchor institutions where there is currently a gap in provision or knowledge locally. An Anchor Institution is an organisation that once established does not tend to move location, such as local authorities, health boards, or further and higher education.

In the U.K., Preston is one of a number of local authorities, primarily in the North of England, which have adopted community wealth building approaches to economic development and procurement. In 2013 the council partnered with the Centre for Local Economic Strategies (CLES) to help identify Preston’s anchor institutions and analyse spend, with the aim of increasing spend with local suppliers.

As a result of the above strategy, in 2016/17 Preston City Council spent 18.2% of its annual budget with Preston-based organisations (up from 5% in 2012/13) and 79.2% with Lanacashire-based organisations (up from 39%). Preston also established a Cooperative Development Network, and recently set up its first cooperative, the Larder, to provide catering services from its community café.

Due to the success of the community wealth building approach in Preston, it is often termed the ‘Preston Model’ in the U.K. There are, however, other strong examples of the implementation of the approach in nearby local authorities, such as Manchester.

Manchester City Council began working with CLES in 2008 to implement procurement practices focusing on ‘social value’. Manchester City Council has undertaken a number of initiatives including implementing an ethical procurement policy; engaging with suppliers in areas of deprivation; and weighting social value up to 40% in the tender process.

CLES’ analysis of the Manchester City Council 2017/18 spend profile found that £307 million out of a total spend of £430.7 million was spent with Manchester-based suppliers, up 20% over 10 years.

In February 2019 P4P organised and took part in a study visit to Preston and Greater Manchester to inform P4P research into social enterprise cluster models, funded through the Community Learning Exchange programme. The purpose of the visit was to find out more about community wealth building initiatives and how this could lead to greater opportunities for individual or clusters of social enterprises. There was a range of representatives from both grassroots social enterprises and intermediary organisations in attendance.

Is the approach used in Scotland?

The Scottish Government’s Programme for Government 2017 to 2018 included a commitment to promote wealth building within local communities by:

  • Working with anchor institutions to consider how procurement activity can be better used to support local economic activity
  • Helping local enterprises to supply goods and services to these anchor institutions – retaining wealth within communities.

In April 2019 Derek Mackay, Cabinet Secretary for Finance, Economy and Fair Work, answered a parliamentary question on the current progress of community wealth building initiatives in Scotland. In addition to the investment in community wealth building as part of the Ayrshire Growth Deal, there is a second pilot initiative in Glasgow. The Glasgow Procurement Collaboration Group, a group of anchor institutions in Glasgow, are using procurement practice and detailed procurement data provided by the Scottish Government to help increase spending on small and medium enterprises in the city.

Many of the approaches to procurement used by local authorities which have fully adopted ‘community wealth building’ policies do, however, take place to some extent already across Scotland. The difference in Scotland is that it is not necessarily referred to as ‘community wealth building’ and procurement practice may still vary across the country. Many of these approaches will have been implemented as a result of the Procurement Reform (Scotland) Act 2014 and the Public Contracts (Scotland) Regulations 2015.

Some of the methods that public bodies in Scotland are adopting to encourage and/or facilitate local SMEs and third sector organisations to bid for and deliver public contracts include:

Fair Work Practices and Community Benefits

Public bodies in Scotland are expected to promote fair work in all relevant procurement processes. This could, for example, include payment of the voluntary Living Wage as defined by the Living Wage Foundation.

Community benefit requirements are defined in the Procurement Reform (Scotland) Act as a contractual requirement imposed by the public body relating primarily to training and recruitment or availability of sub-contracting opportunities.

Inclusion of fair work practice and community benefit requirements could enable third sector organisations to better compete in an open tender process.

Reserving contracts for supported business

‘Supported businesses’ are social enterprises whose main aim is to integrate disabled or disadvantaged people socially and professionally. Their workforce must be at least 30% disabled or disadvantaged according to the EU Directive 2014/24/EU.

Public bodies can choose to reserve contracts for supported business where there are enough suitable suppliers who qualify. This means that they can restrict the tender to local supported businesses only.

Annual Procurement Reports

The Procurement Reform (Scotland) Act 2014 includes a requirement on public buyers to prepare an annual procurement report on its procurement activities following the end of its financial year.

This is an important development for a few different reasons. Firstly, there is a requirement for public buyers to include a summary of procurements that have been completed over the last year. This is relevant to community wealth building as this form of spend analysis could reveal the location of suppliers who have won contracts.

Annual procurement reports also include information on community benefit requirements that have been imposed and should break it down into type of community benefit, such as subcontract opportunities for third sector organisations.

Lastly, annual procurement reports include an estimation of which procurements will take place over the next two financial years.  Details of expected future procurements could mean that suppliers have more notice to adequately prepare to tender and to engage with potential partner organisations.

Appropriate lotting of contracts

According to the 2017 Social Enterprise Census, the majority of social enterprises remain small, operating with an annual income of less than £100,000. This means that even the minimum value of a tender (£50,000) published on Public Contracts Scotland could be too high.

One way of enabling smaller, local organisations to tender for contracts is to break the contract up into smaller lots.

Early market engagement

Procurement officers can test the market by publishing a Prior Information Notice (PIN) on Public Contracts Scotland.  A PIN notice can be published up to 12 months in advance of a Contract Notice, which can give smaller providers advance notice which they can use to better prepare for an upcoming tender opportunity.

Third sector support

In addition to support available from P4P, A range of business support and training to enable third sector providers to tender for contracts is available from Supplier Development Programme, and Just Enterprise.

Encouraging social enterprise supply chain opportunities

In December 2018, Scotland Excel published a new framework for New Build Residential Construction. This framework included a scored question (worth 2%) which requested suppliers to agree to engaging a supported business and/or a social enterprise as part of any work order exceeding £1 million.

This practice is not currently widely adopted by public buyers in Scotland but including a scored question on engaging with third sector suppliers as subcontractors could be another way of increasing their access to public contracts, retaining more wealth locally.

Why should community wealth building matter to Scottish social enterprises and the enterprising third sector?

According to the 2017 Social Enterprise Census, 80% of social enterprises have not bid for public contracts. The Scottish Government has made a commitment to increasing the number and range of social enterprises which deliver public contracts in their 10 Year Social Enterprise Strategy.

Contracting with local social enterprises not only prevents wealth from being extracted from the area, it builds community wealth better than any other type of supplier as the profits made from contract delivery must be reinvested in the organisation or community through an asset lock (according to the requirements set out the Voluntary Code of Practice for Social Enterprise in Scotland).

In order to achieve the Scottish Government’s ambition of a significant increase in the number and range of social enterprises delivering public contracts, however, there are a number of barriers which must be addressed. For example, in the previous section we stated that the low turnover of most social enterprises can act as a barrier to bidding for public contracts.

Other perceived issues faced by third sector organisations can include:

  • Timescales – public buyers must advertise tenders for at least 30-35 days, unless they have previously issued a PIN notice which means this timescale can be shortened to 15 days. If organisations have not prepared in advance, they may struggle to respond to a tender in this timeframe.
  • Lack of advance notice – apart from the occasional use of PIN notices to test the market and details of future procurements in annual procurement reports, advance notice of forthcoming tenders is not generally given to suppliers.
  • Price/quality ratios – a larger emphasis on price by public buyers can act as a further barrier for social enterprises, who may struggle to compete solely on price.

In addition to the above there may be a lack of local suppliers within the third sector to meet demand for particular services or products.

Adopting community wealth building approaches to economic development and procurement can help alleviate many of the above barriers to successful participation in the tender process. It can act as a stimulus to generate a greater number of procurement opportunities which individual or clusters of third sector organisations can compete for. This in turn can help increase the long-term sustainability of the sector.

Conclusions

The Community Learning Exchange to Preston and Greater Manchester increased our understanding in community wealth building, and belief that if more or better coordinated community wealth building approaches are adopted across Scotland this could create the conditions within which clusters or individual social enterprises could more easily bid for and win contracts, retaining wealth in local communities.

For example, according to the annual spend analysis completed by CLES on behalf of Manchester City Council in 2017/18, 61.7% of procurement spend was with SMEs. This represents an increase of 15% since 2014/15 and led to an estimated re-spend of over £119 million to the top 300 suppliers back in the Manchester economy.

In the North of England, however, the focus on social enterprises or wider third sector is fairly limited, with notable exceptions including the Larder catering cooperative in Preston, or the Rochdale Stronger Together Initiative which was established by the Rochdale Social Enterprise and Co-operative Forum. There also appeared to be a lack of dedicated business support for third sector organisations to bid for the new procurement opportunities created.

What also became clear during the Community Learning Exchange was that many of the community wealth building approaches adopted there are already used by public buyers across Scotland to some extent, albeit in a less coordinated manner, and with pockets of good practice. It is also unlikely that many approaches adopted in Scotland would currently be defined as ‘community wealth building’, exceptions including the current work carried out in Ayrshire and the Glasgow Procurement Collaboration Group.

With Scottish social enterprises and the wider third sector benefiting from a range of business support, and through a coordinated campaign to embed community wealth building initiatives as the norm in procurement practice across Scotland, there could now be a unique opportunity for significantly increasing the number and range of third sector organisations successfully bidding for public contracts. This will build on the progress achieved under the Procurement Reform (Scotland) Act 2014, and through utilising already established initiatives including P4P to support organisations to access opportunities.

P4P welcomes further discussion and debate on how community wealth building or progressive procurement practices could be better implemented or coordinated across Scotland. Social enterprises and the wider third sector are best placed to take advantage of these opportunities to better generate community wealth and prevent leakage to large corporations who extract, not generate wealth. P4P hopes to play an active part in any future discussions or initiatives.

neil@p4p.org.uk