bdo social supply guide

8/22/2019 BDO Social Supply Guide

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Sil Spply

A guide to improving social value through better purchasing


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Contents

Executive Summary

Section 1 - Introduction to this report

Section 2 - Why ocus on collaborative relationshipsto achieve social value?

Section 3 - What are the benets o improved supplierengagement?

Section 4 - How do you harness the potential o yoursuppliers?

Section 5 - Conclusion


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Social supply: a guide to improving social value through better purchasing 3

exeive Smmry

The recent Public Services (Social Value) Act 2012 requires all public bodiesto consider how they can improve the economic, social and environmentalwell-being o their local area through services they procure. This emphasison using procurement to deliver social value is not entirely new. Under theLocal Government Act 1999, local authorities are required to achieve bestvalue, dened as to secure continuous improvement in the exercise o

all unctions undertaken by the authority, having regard to a combinationo economy, eciency and eectiveness.i The recent Best ValueStatutory Guidance issued by the Department o Communities and LocalGovernment in 2011ii reminds local authorities that Best Value decisionsshould include consideration o social value. Furthermore, the new Act isnot prescriptive on how authorities must consider social value.

However, given the new prominence that the Act has given to theconcept o social value, it is an opportune time to explore some o thebarriers (both real and perceived) that still exist or local authorities,and to seek a better understanding o how they can maximise the socialvalue achieved through every procurement exercise. Our report examineshow local authorities can go beyond compliance by using the legislationas a catalyst to improve economic, social and environmental wellbeing

and is inormed by a survey o 95 local authority ocers we haveundertaken with the Municipal Journal (MJ). It is supported by the BDOLocal Government teams experience o working with local authorities toaddress these very issues, and benets rom the contribution o BDOsin-house experts in Sustainability and Corporate Social Responsibility.

Over 40% o local authorities expenditure is on third party contractsiii.This gure may well increase i current trends towards commissioningcontinue in local government, away rom direct delivery o services. Thestrategic objectives which local authorities aim to deliver (and whichtheir customers expect o them), such as increasing local employmentopportunities and reducing their environmental impact, should beexemplied throughout the supply chain, and as such, local authorities

need to start viewing their supply chains as an extension o themselves.For example, it is probable that a 5% reduction o energy consumptionwithin council properties would have a lesser impact on a localauthoritys carbon ootprint than securing a 5% reduction in energyconsumption rom all o its suppliers. This approach is common practicein the private sector, where many companies demand carbon reductionsrom their suppliers.

The key nding emerging rom our research is that there is a realopportunity or local authorities to build strong collaborative, mutuallybenecial relationships with their suppliers to deliver social value goals.75% o those responding to the BDO/MJ survey are already engagingwith suppliers in order to increase social value. Our experiencealso suggests that there is willingness and enthusiasm on the part o

suppliers to engage meaningully in this process. The challenge or local

authorities is to take this eort and goodwill on both sides and translatethem into urther delivery o social value. To do this, local authoritieshave to understand and take the practical steps needed to developcollaborative relationships. This can take time and eort, but as we explorein this report, the social, economic and environmental benets can besubstantial.

One o the key challenges to making this happen is the diculty o measuringthe economic, social and environmental impact o the supply chain.

76% o respondentsto the BDO/MJ surveyindicated that they hadnot established an activeprogramme o assessingthe impact o their supplychain.

A higher 83% said thatthey did not measurethe benets o anysocial value initiatives inprocurement.

By contrast, this insight is well developed in certain parts o the privatesector, and thereore there is an opportunity to learn rom what is alreadybeing done elsewhere. Without a real understanding o the perormanceand operation o the supply chain, it becomes substantially harder toimplement change and quantiy improvements. In addition, how canlocal authorities make a case or incorporating and evaluating economic,social and environmental well-being considerations in contracts withoutmeasuring the impact that they can have?

This report explains why a more strategic approach to supplierrelationships can benet an authority and its customers, and draws onbest practice in the private and public sectors to explain how this canbe achieved. We hope that Chie Executives and local authority ocersinvolved in procurement can use this report as a guide to reshaping theirapproach to working with suppliers to achieve greater social value.

iLocal Government Act 1999, section 3

iiBest Value Statutory Guidance, Communities and Local Government, September 2011

[http://www.communities.gov.uk/documents/localgovernment/pd/1976926.pd]

iiiCurrent expenditure gures 2009/10 on Procurement as a proportion o total expenditure,

Local Government Financial Statistics England, No.21 2011


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In preparing this report we have drawn upon a survey o 95 localauthorities conducted in association with the MJ, supported by

21 interviews with local government ocers and other public andprivate sector procurement experts. We have also drawn upon BDOsexperience o supporting procurement in local government, and inparticular the perspectives o many local government clients withwhom we have worked.

Within this report we look rstly at the challenges to deliveringsocial value, as identied through our research, demonstrating thatmany o the most commonly identied challenges can be overcome,particularly by gaining the support o suppliers who are oten willingto work together with local authorities to deliver social value. We thenset out the case or achieving social value through improved supplierrelationships beore providing a clear set o recommendations or local

authorities to harness the potential o suppliers.

irdi hiS repr

The Public Services (Social Value) Act 2012 becamelaw on 8th March 2012, having been initially presented to

Parliament on 30th June 2010 as a Private Members Billby Chris White MP. The law applies to all public bodies andrequires an authority to consider (a) how what is proposedto be procured might improve the economic, social andenvironmental well-being o the relevant area, and (b) how,in conducting the process o procurement, it might act witha view to securing that improvement. The intention o thebill is to require public bodies to consider when awarding acontract the collective benet gained by a local community.There are some limitations around what can be considered.Specically the matters considered must be relevant towhat is proposed to be procured and proportionate. Thebill attracted cross-party support although provisions or

the Secretary o State to publish a national social enterprisestrategy and to require local authorities to include intheir sustainable community strategies proposals orengaging with social enterprise were not supported by theGovernment and were dropped. The Act has also receivedstrong backing rom many national 3rd sector bodies,including NAVCA (National Association or Voluntary andCommunity Action) and Social Enterprise UK. Public Services(Social Value) Act 2012 [http://www.legislation.gov.uk/ukpga/2012/3/section/1/enacted]


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We have used the ollowing denitions in this report:

Social Value: this is dened in the Public Services (Social Value) Act 2012 as the economic, social and environmental well-being o therelevant area. What social value will mean in practice or a local area will depend on local priorities and the services being procured.

Suppliers: We have used the term suppliers broadly to encompass all third parties rom whom councils procure works, goods or services,although the Act itsel is ocussed solely on services. We have chosen a broader ocus as we believe the same principles apply and opportunitiesarise across all third party contracts.

Commissioning and Procurement: We have dened commissioning as the ull liecycle o identiying the service outcomes that an authority

needs to deliver and the services that will deliver these outcomes, and monitoring the delivery o these outcomes. Procurement is dened assourcing and purchasing the goods, works and services to deliver the required commissioning outcomes as eciently and eectively as possible.

Deinitions


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The Public Services (Social Value) 2012 Act received cross-partybacking and support rom many 3rd sector bodies or its goal oputting social value at the heart o public procurement. However,even prior to the introduction o the Act, Local Government BestValue Guidance already encouraged local authorities to take intoaccount wider value when undertaking procurement.

So why was a new law required? Speaking to Andrew OBrien, aparliamentary researcher rom Chris White MPs oce, it is clear thatthe Bill was borne out o a sense that public bodies were not ullyor consistently embracing the additional value that commissioningcould deliver to communities and the desire to start a debate andspread best practice [about commissioning or social value] toimprove this track record. This impression also corresponds with ourown experience o working with local authorities on procurementassignments. However, what public bodies will need to do to meetthe requirement to consider social value is not prescribed in theAct. There is thereore a risk that unless existing barriers to achievingsocial value are overcome, public bodies, including local authorities,will do the minimum required to comply.

This would be an opportunity lost, particularly because localauthorities would oten be pushing against an open door with

suppliers.Only 7% o authorities we surveyed believe thatresistance rom suppliers is a barrier to delivering social value

through procurement. There was a widespread perception amongthose we interviewed that suppliers were perhaps a step ahead olocal authorities in this area. Mark Robinson, CEO o Scape, statedthat The construction industry is not reluctant on this ront.Contractors are airly cute about what they need to oer to beable to win pieces o work. Most o them are already doing this insome shape or orm. However, some suppliers are more geared upthan others. Our experience suggests that some o the smaller, localorganisations, who can have a substantial impact on local socialvalue, typically have less experience in techniques o measuringand demonstrating their impact. Peter James (CIPS) was o the viewthat local authorities have a responsibility to up-skill their localproviders, particularly the voluntary sector, to ensure that they arenot put at a disadvantage in the development o this agenda. There isa need to transer these skills down the supply chain both to ensurecompliance and encourage a partnership approach.

Why fS llbrive

reliShipS hieve

Sil vle?

Mark Robinson, CEO o Scape, a local authority controlledcompany that osters collaborative working in localgovernment, including through running procurementexercises, stated that The construction industry is notreluctant on this ront. Contractors are airly cute about

what they need to oer to be able to win pieces o work.Most o them are already doing this in some shape or orm.

Mark Robinson, CEO o Scape


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While York is working on developing its own evaluation models toinclude social value as part o its Procurement and Commissioningstrategy, it also recognises that demonstrating social value can be adicult and resource intensive process or providers. As such theyare working with the voluntary sector and SMEs to enable them toarticulate and quantiy their social value without this becoming anonerous burden that avours larger organisations.iv

City o York Council

Suppliers may be willing to support the social aims o contractingauthorities because o the commercial advantage they may gain overcompetitors by meeting an authoritys broader social value requirements.It can also make longer-term economic sense or them to do so. Anexample is working together with the local authority to ensure acontinued supply o skilled workorce. Liz Welton rom Coventry CityCouncil and Solihull Metropolitan Borough Council added This isntjust touchy-eely stu! It can make economic sense or companies, orexample, where they are struggling to nd work-ready people and thecouncil helps to nd people seeking work and gets them work-ready andappropriately skilled. It can be a benecial relationship or both sides.

The best way or local authorities to tap into this potential is to build

collaborative relationships with their suppliers, to seek out social value on anongoing basis and measure the wider impact that these relationships have.

Many authorities are already doing this in some shape or orm.76%

o authorities responding to our survey are already engaging withsuppliers in order to increase social value:v

Have you engaged with your suppliers to increase social value?

80%

60%

40%

20%

0%

NoYes

However, our research suggests that opportunities or social valueare being lost i engagement is supercial rather than genuinelycollaborative, and i social value considerations are not built intoongoing contract management. Only by engaging in this dialogue withsuppliers on a regular basis and ensuring that social value criteria aregiven sucient weight in decision making can you ensure that theseopportunities are identied and innovation is encouraged. The Trucostand Capital Ambition case study below provides a good example o howunderstanding and engaging with the supply chain can help identiyopportunities or increasing social valuev.

Capital Ambition wanted to measure and reduce the carbonootprint associated with 8 billion o Londons publicprocurement and ensure that the programme would delivercost savings. Trucost was able to ocus on suppliers withthe most potential to reduce their impacts, providing a pre-populated online data collection portal to help measure thebenecial impact achieved by participating suppliers. The projectencompasses 4,500 high impact suppliers across 29 LondonBorough Councils, the London Development Agency and theLondon Fire and Emergency Planning Authority.vi

Trucost and Capital Ambition

The less understanding authorities have o their supply chain, thegreater the risk that they inadvertently destroy rather than createsocial value through their procurement processes, or example byreducing opportunities or small, local suppliers. In the ollowing sectionswe will explore the benets which local authorities could and ought to beseeking, and give practical guidance on how they should go about doingso through more collaborative relationships with their suppliers.

As ar as the procurement process is concerned, you can o courseput as many clauses as you want in. However, in order to bemost eective in achieving social value, you need to develop therelationship with the company [and] nd out who within thatcompany makes decisions or is in a position to help.

Liz Welton, Coventry City Council/Solihull

Metropolitan Borough Council

ivhttp://democracy.york.gov.uk/(S(aw2b23jooyuejc1asnl055))/mgConvert2PDF.

aspx?ID=55576

vhttp://www.trucost.com/published-research/77/local-authority-supply-chain-carbon-in-the-

east-o-england

vihttp://www.trucost.com/year-one-results


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Wh re he beefiS

f imprved Spplier

eggeme?Local authorities have a key role in improving social outcomeswithin their communities. They have substantial infuence over localemployment and employability, cohesion within local communities,the quality o physical and natural environments, and the wasteand pollution generated within areas. They can contribute directlythrough the services they deliver or commission, as well as through theinfuence they can have on local partners, residents and businesses.

Suppliers to local government also have the potential to be keycontributors to social value, which can be encouraged through thedevelopment o collaborative relationships. In an ideal world, a

local authority would have the resource and time to develop strong,collaborative relationships with organisations throughout their supplychains. The current nancial pressures in local government havemade it more dicult to dedicate resources or supplier managementand development. However, the private sector has made signicantprogress in this area in the last couple o years despite diculteconomic circumstances. In this section we make the case or localauthorities developing collaborative relationships to enhance valueor money, manage risk and, undamentally or this report, deliverwider social value.

Collaborative relationships enable local authorities to encouragesuppliers to contribute to wider social, economic and environmental

outcomes. By ensuring that suppliers are aware o a local authorityssocial priorities, and by agreeing plans or a suppliers contribution,an authority can draw on the potential o their suppliers. The desiredoutcomes must be given strategic priority otherwise authorities riskormalising another box-ticking exercise.

Each local area has its own distinct priorities that are likely to be setout within strategic plans such as Sustainable Community Strategiesand Local Area Plans. In the survey we conducted in conjunction withthe MJ, 48.4% o respondents selected economic outcomes as themost important priority or delivering social value. Supportingsocial outcomes was the second most important considerationwith 15.8%, ollowed by increasing quality (13.7%). Perhapssurprisingly, only 3.2% o respondents selected environmentalconsiderations. It seems probable that this prioritisation is driven bythe act that the raison-dtre or local government is to respond tothe distinct needs o local residents. .

Collaborative relationships are where both parties understandeach others concerns, are open and transparent, agree jointobjectives and have a shared commitment to deliver on thestrategy o the local authority; it does not mean a purelyaccommodating approach to suppliers. Developing andsustaining collaborative relationships takes time and eort,and authorities should identiy priority suppliers to work

closely with.

Collaborative relationships


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EON is looking or its supply chain to deliver 20% o carbonreductions to align with its strategic goals. Since 2007, E.ONhas ollowed group-wide binding principles or responsibleprocurement. These are based on the principles o the UnitedNations Global Compact and are part o the companysStandard Terms and Conditions o Purchase. They require theirsuppliers to ull sustainability criteria and to ensure, amongst

other requirements, appropriate working conditions, ethicalbusiness practices, environmental protection and respect orhuman rights. They are working with their suppliers to achievethe ollowing goals:

Strengthen the Better Coal Initiative to improve sustainabilityin the coal supply chain and expand audits o coal mines until2015

Until 2015, virtually 100 percent o EONs critical supplierswill have been evaluated by EONs Supplier Pre-QualicationProgram

Expansion o procurement activities or sustainable biomass Inclusion o product liecycles in their procurement processes.

Economic outcomes

Supporting social outcomesIncreasing qualityEnvironmental considerations

Suppliers have the potential to make a substantial contribution to localauthorities social value priorities, particularly when considering thecontribution o the ull supply chain. For example, research carried out bythe New Economics Foundation and Northumberland County Council,looking at the economic multiplier or money spent locally, ound thatspending on local suppliers has 400% more impact on the localeconomy than spending on suppliers outside o the area vii. Exampleso good practice, such as the construction ramework set up by Scape onbehal o the East Midlands Property Alliance (empa), demonstrate whatis possible in local government.

A local authority supply chain also typically has a substantial local carbonootprint that can be improved. A report by Trucost into the carbonimpact o local authority supply chains in the East o Englandviii ound thatexpenditure by the local authorities was linked to more than 371 millioncubic metres (m3) o water used by suppliers, equating to almost 44%o annual water use in the region. The same report ound that 347 tonneso CO2 was emitted or every 1m expenditure by East o England localauthorities and that the average carbon ootprint o the regions supply chainwas 3% more carbon intensive than that o local authorities in London.

Variation between supply chains carbon ootprints suggests that reductions

can be made, at least to the level o the best perorming supply chains.

According to the survey, 48% o authorities are reluctant to encouragethe delivery o social value through procurement as they believethat costs are more important. Furthermore, only 9.5% o those wesurveyed said that reducing costs was the primary consideration ordelivering social value.The Social Value Act is coming at a time whenlocal authority ocers are under more pressure than ever to securecontracts at the lowest possible price and it appears that local authoritiesmay be particularly wary o emphasising social value as they believe itwill increase prices. Neil Daynes at Hull City Council emphasised thediculties o reconciling social value with the cost saving agenda. A ocuson cutting costs can sometimes lead local authorities towards pooled

spending and large scale regional contracts, oten at the expense o thesmaller, local providers. Furthermore, requiring suppliers to contributeto social value may well lead to them raising their prices to cover theiradditional costs.

There is a mindset that incorporating social aspects will cost more,and that it will be dicult to reconcile with the cost saving agenda.

Neil Daynes

Hull City Council

Scape has set up a number o construction rameworks on behal othe empa. Projects commissioned through the rameworks worthover 230m have delivered 22m o savings. At the same time anewly established Skills Academy has supported 20 new apprenticestarts, nearly 100 NVQs and 44 work experience placements. 90%o site waste is recycled (compared to a national average o under80%) and a ocus on enabling local SMEs to access every project

has meant that 67% o sub-contractors are local to the area onaverage.

Scape

48.4% o respondents selected economic outcomes as the mostimportant priority or delivering social value. Supporting social outcomeswas the second most important consideration with 15.8%, ollowedby increasing quality(13.7%). Perhaps surprisingly, only 3.2% orespondents selected environmental considerations

vii www.neweconomics.org/sites/neweconomics.org/les/Public_Spending_or_Public_Benet.pd

viii www.trucost.com/published-research/77/local-authority-supply-chain-carbon-in-the-east-o-

england

www.eon.com/en/sustainability/elds-o-action/responsible-procurement.html

EoN


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Social supply: a guide to improving social value through better purchasing10

There may well be cost implications o requiring social, economic and

environmental considerations. However, in some cases it can be possibleto deliver both eciency savings and social value, as the Scape andNorthamptonshire case studies demonstrate. Another example is CardiCouncils move to a more cost ecient agency sta contract whichmaintained the same local supply chain.

Furthermore, value or money should consider the whole lie costso a contract beyond the initial quoted price, or else the authoritymay not be getting the best deal over the lie-time o the contract.This type o calculation typically takes into account the costs o qualitydeects, delivery, periodic maintenance, ongoing support and ad-hocadditional requirements. I local authorities also wish to consider theadditional value commissioning can bring to communities, this set o

actors needs to be expanded to take a broader view o calculations ocost and impact. For example, an authority and its partners may needto also consider the knock-on costs o lost opportunities or the localworkorce and local businesses, such as increased benet uptake, crime,shop closures and community disintegration when evaluating the totalcosts o various bids. I this broader and longer-term view o value ormoney is considered, with or without the involvement o local partners,then including social value may actually improve value or money. Thereis also the potential that inclusion o social procurement criteria will driveinnovation that could lead to cost-saving initiatives.

Northamptonshire County Council set up a wholly ownedcompany or providing school meals, called Flourish, which benetsthe local economy by drawing on a local supply chain and is stillprice competitive.

Northamptonshire County Council

This is particularly true where local authorities develop collaborativerelationships with suppliers in order to deliver greater social value. Thesame collaborative relationships set up to deliver social value can also beused to reduce costs and improve quality. The car industry, or example,has led the way in developing strong supplier relationships in order toimprove quality, largely because it was one o the rst industries to

outsource substantial components o its manuacturing, and is amed orecient supply chain management. The construction industry has alsobeen at the oreront o developing a successul approach to partnerships.

Local authorities, as well as private sector organisations, can support

suppliers to improve their value or money. This support can includeclearly communicating its priorities, providing orecasts o its uturerequirements, or helping manage a suppliers own issues - be it cashfow,inventory costs and capacity, or skill gaps. Activities such as these allowsuppliers to reduce their costs as they can ocus on delivering only whatis required, make investment decisions based on solid evidence o uturedemand, and draw on an authoritys own resources where necessary.

Furthermore, developing collaborative relationships helps to manage risk.Local authorities are responsible or critical services to residents, visitorsand businesses, and external organisations are playing an increasing rolein the direct delivery o many o these services, ranging rom adoptionand residential care, to highways maintenance and building schools.

Many service areas are too important or local authorities to ocusonly on lead contractors when speciying quality, health & saety andinsurance requirements, because problems lower down the supply chaincan have a substantial impact on the services the prime contractordelivers. In critical areas where any ailure will have signicant impact onresidents lives and a local authoritys reputation, it may be necessary tomanage risks by going beyond the prime contractor to develop eectiverelationships with other organisations.

Developing collaborative relationships allows local authorities toimprove value or money, manage risks and deliver social valueoutcomes - the ocus o this report. There are a number o techniques,which can be used to encourage suppliers to add value beyond the coregood or service they deliver beore, during and ollowing procurement

exercises. These are discussed in Section 4.


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14hW d y hreSS

he peil f yrSpplierS?

In the previous section we discussed the substantial benets, and inparticular social value benets, that local authorities can get romdeveloping strong, collaborative relationships throughout theirsupply chains.

Our research suggests that many ocers in local authorities arelooking or urther guidance on how to develop these orms orelationships. 27% o authorities surveyed stated that a lack otraining is a barrier to delivering social value. 41% pinpointedlack o experience as a barrier. This view is supported by MarkRobinson, CEO o Scape, including through running procurementexercises. Mark believes that a lack o expertise and experience obuilding social value considerations into procurement processes isthe main challenge acing local authorities. According to other local

government ocers we spoke to, the concept o social value itselhas been conusing or some ocers, both in terms o what it meansand how they would go about measuring it. One ocer observedthat Our authority has an awareness o the Bill but there is not agood understanding within the organisation about what it means inpractice.

In this section we identiy the steps that can be taken to harness thepotential o your suppliers to deliver social value. We argue that ashit in approach is required: to align all procurement processes witha Councils strategic objectives around social value, and to identiythe right actions and the right suppliers with whom to developstrong collaborative relationships. We propose that authorities

ollow our 4-stage Social Supply process illustrated below tomaximise the value they get rom their suppliers.

We do not believe that any o the activities we set out arecompletely new to local authorities. Rather, the real challenge isto ollow a comprehensive, systematic process in order to delivergreatest social value.

1. Identify how your

supply chain can

contribute to social

value objectives

2. Redesign

procurement

processes to deliver

social value

3. Develop

collaborative

relationships with

chosen suppliers

4. Audit and

measure the

impact

bdos social supply process


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1. Identify how your

supply chain can

contribute to social

value objectives

The majority o local authorities and their partners

have already spent time developing localstrategic objectives, typically these are

stated within a sustainable communitystrategy or local area plan. These

will oten correspond very closelywith an areas own priorities

or social value, even thoughconceptualising theseobjectives in terms o socialvalue is a airly recentdevelopment. An authoritymay choose to carry outurther consultation with

residents, businesses andpartners in order to renewhat social value means locally. Ideally this should result in a set omeasurable social value objectives that an authority seeks to delivertogether with its partners. A simple example could be local job seekershave been supported into work.

It is vitally important to ensure that senior ocers and elected membersare involved at this stage in the process. Procurement sta will struggle tomake the case or encouraging social value at later stages, unless seniorocers and politicians set clear and consistent priorities or social value,compared to more narrow value or money considerations. 23% o thoseresponding to our survey said that a lack o senior level buy-in was anissue or delivering social value. In our experience the challenge is rarely

about outright resistance to social value priorities; rather, it is that seniorocers and elected members need to provide a consistent steer on how toconsider social value benets alongside contract price.

Having identied the social value objectives, the next step is to considerhow suppliers can contribute. It is important at this stage to allowsuppliers to unlock opportunities through their own innovation, as theymay be able to help local authorities achieve their goals in ways that thelocal authority is not best placed to predict. Local authorities need to beclear about what they want to achieve, but equally suppliers need to beproactive in communicating what they are able to deliver and/or makingthe necessary changes to be able to deliver against a new set o priorities.

The global wind arm giant Siemens has committed to creatinghundreds o jobs or local people in East Yorkshire through thecompanys plans to develop a wind turbine actory on dockland in Hull. Around 800 people will be directly employed atthe actory, Regional Development Agency Yorkshire Forwardestimated a total o around 10,000 jobs will be created in thelocal supply chain as a result o the actory, transorming theregions economy. Dan McGrail, the Siemens executive leadingthe Hull project, stressed that the company is committed toensuring the local community benets: Part o that process will

also involve sending people rom here elsewhere or training. Wehave a training centre in Newcastle that is something we will belooking to use as part o this process.

Wind Turbine manuacturing in Hull

The precise requirements to be placed on suppliers in relation to a givensocial value objective should depend on the nature o the contract andthe extent to which they can be expected to infuence that outcome.Local authorities need to set achievable perormance targets orsuppliers, which eed into the overarching social value objectives. Theollowing three steps ensure over arching social value objectives aredistilled into measurable and achievable perormance targets:ix

a. Identiy the priority social value objectives, such as theemployment example above, that require support rom your suppliers

b. Develop social value outcomes that suppliers are expected todeliver. This draws out elements o the social value objective whichsuppliers can be expected to deliver. For example it may be to providelocal job seekers with opportunities to access employment and workplacements. Alternatively this could be phrased in a more open wayto permit supplier innovation, or example We are seeking to increaseaccess to employment or long-termed unemployed people in the localarea. How would you support us to deliver that goal?

c. Develop social value perormance targets which can then be setwithin procurement processes and agreed with existing suppliers. For

example, provide work placement schemes or 20 local school-ageresidents each year.

ix http://www.thisishullandeastriding.co.uk/wind-turbine-rm-s-local-jobs-pledge/story-

11975337-detail/story.html


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2. Redesignprocurement

processes to deliver

social value

Both current and

potential suppliers can beencouraged to contribute

to the outcomes that havebeen agreed. To ensure that

all potential new suppliersare chosen partly according to

the social value they can deliver,all procurement processes

must be aligned with the targetsidentied above. Ideally all members

o sta that procure goods andservices will be able to draw guidance and

inormation about delivering social value rom

a single point. This could be part o an authoritysprocurement strategy or it could be a distinct document such as thesustainable procurement policy developed by Solihull MetropolitanBorough Council, or Solihull Metropolitan Borough Councils BusinessCharter (see below).

Solihull Metropolitan Borough Council has developed a BusinessCharter that sets out its expectations or businesses, includingin areas such as corporate parenting, social responsibility, and

the use o SMEs. To begin with, the Council has asked 10 o itsmajor providers to sign up to the charter and agree to work in thisway. Solihull ound that suppliers were actually well advancedin this area, and particularly the construction industry aroundlocal employment and apprentices, as they see it as a way omaintaining the industry by developing a skilled workorce.

Solihull Metropolitan Borough Council

Wherever this inormation is gathered it will need to provide guidance onhow those involved in procuring goods and services can apply social valueconsiderations in the ollowing areas:

a. Pre-tender support local authorities can have a major impacton social value prior to procurement exercises. By preparinglocal suppliers and supporting local supply chains to compete oropportunities when they are tendered, local authorities can improvethe likelihood that local suppliers win work both directly rom theCouncil and rom other buyers. Pre-engagement with communitiesand suppliers is perectly legal within EC legislation, and is animportant part o commissioning or social value.

Partnership working is a particular area where small, local suppliers

will require support. Local authorities are increasingly looking orsuppliers to work more closely together and develop joint bids in orderto deliver requirements, particularly in the social care and constructionmarkets. This takes time and resource, and is particularly dicult orsmaller social enterprises and third sector organisations that may lacksucient overhead to plan and manage this process. Local authoritiescan draw on the support o organisations whose role is to support thedevelopment o local supply chains, such as the Welsh GovernmentsSupplier Development Service. Cardi Councils Source Cardiprogramme provides more good examples o pre-tender engagement.

Cardi Councils Procurement team developed Source Cardi toencourage local supply chains and economic benets. The initiativeincludes publishing more below-OJEU threshold opportunities,simpliying and standardising specications, insisting on supplychain clauses such as holding meet the buyer events/localadvertisement, supporting the development o local consortiato make collaborative bids both or opportunities in Cardi andoutside, and requiring bidders to submit unemployment utilisationplans.

Cardi Council

b. Tender packaging a key consideration when starting a tendering

exercise should be how to package requirements in order to deliversocial value. For example, breaking large opportunities into lots canbe an eective way o allowing small, local suppliers to compete oropportunities, as Northamptonshire County Council ( see below) didor a construction ramework.

Advertising smaller opportunities locally, even where they are belowthreshold, is another way o encouraging competition amongstlocal suppliers and is a core policy within Cardis Source Cardiprogramme and or the London Borough o Wandsworth.x

Northamptonshire County Council tendered a constructionramework with lots based on value in order to encourage smallerorganisations to bid or lower value opportunities rom 200kto 500k. The level o overhead was used as a criterion to avoursmaller and local organisations in this lot, and to encourage largermulti-nationals to ocus on the larger lots.

Northamptonshire County Council

x Mark Glaister, Head o Procurement, London Borough o Wandsworth


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c. Evaluation criteria a simple device or encouraging potential

suppliers to deliver social value outside o core requirements is toadd social value evaluation criteria. In practice this means that aproportion o total marks are awarded or the contribution potentialsuppliers can make to social value. Some local authorities, such asNorthamptonshire County Council and Manchester City Council,adopt this approach in some tenders, awarding a proportion o marks(commonly set at 10% or below) or social value considerations, suchas generation o local jobs and environmental sustainability.

Knowing what is legally possible is the barrier most requentlyidentifed by respondents to our survey (70%) to deliveringsocial value through procurement. Some o the authorities weinterviewed mentioned the use o social value criteria in evaluation asbeing particularly troublesome. Some doubted whether social value

criteria could be shown to be core to the contract. However, EU andUK procurement legislation is actually less restrictive than is otenthought, and the Local Partnerships report Buying into Communitiesdoes an excellent job o unpicking some o the prevailing myths,including showing how social value criteria can be used when alsowriting social value considerations into specicationsxi.

Wakeeld Council, in conjunction with the Yorkshire PurchasingOrganisation, awarded 5% o marks or sustainability andcommunity ocused benets when re-letting a resh milkramework contract. Both successul suppliers work with localmilk armers to meet the authoritys requirements.

Wakeield Council

The rules state that authorities can only include criteria oraspects that are deemed to be core to the contract and someauthorities legal advisors have suggested that this cannot includesocial value criteria. Other authorities consider that they are ableto dene social value criteria so as to be core to the contract. Therecent report by Local Partnershipsxii and the LGA titled Buyinginto Local Communities does suggest that relevant social valuecriteria can be included where the requirements have beenwritten into contract specications. The report also gives urtherguidance on how to do this.

Core vs. non-Core

xi http://www.local.gov.uk/c/document_library/get_le?uuid=5bebe9dc-165b-4625-93e2-

c03088229762&groupId=10161

xiihttp://www.localpartnerships.org.uk/userles/le/Publications/Buying_into_Communities.pd

xiii http://hub.westmidlandsiep.gov.uk/uploads/les/whats%20current/enviro_sustain_

procurement_nal.pd

xiv http://www.unilever.com/images/Unilever%20Responsible%20and%20Sustainable%20

sourcing_tcm13-265398.pd

xv http://www.northamptonshireep.co.uk/sites/deault/les/uploads/Binder2.pd


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Many private sector organisations also include social value criteria.

Unileverxiv, or example, uses Sustainability as one o 12 selection criteriain procurement exercises.

d. Contract clauses including social value considerations inspecications mean that providers are contractually obliged to deliverthese wider benets through the proposals they set out in their bids. Forlocal employment, or example, a contract can include provisions orthe number o employment and training opportunities that a contractormust provide, the need to advertise vacancies locally, and the need totarget a specic group, like the long-term unemployed (although notdened by locality). As part o a new initiative to promote employmentor local young people, called Challenge 2016, NorthamptonshireCounty Council is requiring contractors to provide apprenticeships orlocal young people or all projects worth over 2 million.

Labour provisions are particularly common in construction whereSection 106 (S106) planning obligations have been used by authoritiesto ensure construction rms employ and train local people. S106local employment and training obligations negotiated by theLondon Borough o Islington, or example, ensured that developersprovided jobs, apprenticeships and work placements to 69local residents in 2008/09, 42% o whom went on to gain paidemployment.CLASP (Climate Change Local Area Support Programme)have written a useul report on delivering environmental sustainabilitythrough procurement which provides examples o clauses that can beincluded within contracts to deliver environmental wellbeing or servicesincluding cleaning and landscapingxv.

Developers provided jobs,apprenticeships and workplacements to 69 localresidents in 2008/09,42% o whom went on togain paid employment .

Section 106 agreements o the Town and Country Planning Act1990 are either private agreements made between local authoritiesand developers or proposals submitted voluntarily by the developerthat render a planning application acceptable when it wouldotherwise have been rejected. These agreements can includeemployment and skills obligations that can be used to ensure thatdevelopments benet the local labour market and economy. Thenew Community Inrastructure Levy (CIL) is likely to sit alongsideS106 agreements and will allow local authorities to add a chargeor most developments to contribute to local inrastructure needs.

Section 106 agreements

The addition o social value clauses is an area where many authoritiesappear to be particularly concerned about the impact on prices. Onecounty councils strategic procurement manager stated that there is acost implication to adding all these criteria, so we need to take a view onwhether it is worthwhile. However, in some instances, both social valueand eciency savings can be achieved, as demonstrated by some othe examples in section 3 above. Furthermore, as also discussed above,any increase in prices may be oset by broader community benets oravoided costs. The right approach will depend on the circumstances butit is unlikely to be an automatic no or all cases.

e. Non-bindingagreements rather than add social value contractclauses, some councils preer to pose specic questions to bidderson social value within tenders, such as or saeguarding local jobs orusing local suppliers, which are not marked but become non-bindingagreements with suppliers. Wakeeld Council asked bidders or a newstationery contract specic questions about how they would managerisks identied in a sustainability risk log, such as Please detail thesteps your company has taken in terms o reducing the packaging ostationery items and provide evidence o how successully this hasworked. The benets o this approach are that it avoids any risk olegal challenge and is likely to reduce the costs that bidders add in tocover mandatory requirements. The drawback is that a Council has lesscontrol, although suppliers may still deliver on their statements in orderto maintain a good relationship and win repeat business.


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Setting clear social value

expectations to new suppliersis critical. However, theseare likely to remain as justthat expectations unlessdialogue and challenge throughcollaborative relationships occursater arrangements have been set up.Collaborative relationships take eortand thereore should be establishedonly where justied by the level o benetthey will bring. So how do you decide whichsuppliers to ocus on?

a. Pick the right supply markets within the rst stageo the Social Supply process, an authority will have identied theexpected contribution o suppliers to its strategic outcomes. Thisshould include a consideration o which objectives require the greatestcontribution rom suppliers, and thereore which are the priority supplymarkets. For example construction, highways, street cleaning, otherenvironmental services, and social care are going to be critical supplymarkets or local employment considerations.

b. Pick the right suppliers not all suppliers will respond to a buyerseorts to shape how they perorm, even within priority markets. Somewill eel that the business oered by an authority does not merit thetime, eort and potential cost. In addition, developing collaborativerelationships may not be worthwhile where the amount an authority

spends is low or where past perormance has been poor.

Spend analysis and supplier positioning models such as Kraljics matrixxvi

(below) are useul tools to quickly identiy the most strategic suppliersto work with, ocusing particularly on suppliers and supply chains that arehigh spend and where there are ew alternatives.

Kraljics matrix

Bottlenecks

H fH

L

Routine

L L fL

Strategic

H H fH

Leverage

M L f

H

Value o spend per contract

Ri

skofsupply

No

ofsuppl

iers

c. Decide how ar down the supply chain you need to go a practicegradually spreading through the private sector, and particularly in theautomotive and other manuacturing industries, is to look beyond rsttier suppliers when developing collaborative relationships to delivervalue the attributes which matter to customers. Where the relianceon external suppliers to deliver value or where the risk o quality issues is

suciently high, buyers need to go beyond their primary contractors.At a minimum, councils should be working with their rst tiersuppliers in critical areas to ensure that they have the requiredquality processes in place with their suppliers an approach knownas the ripple eect. For example, authorities may insist thatprime contractors also ensure all lower tier suppliers advertise jobopportunities via local channels. However, this approach may beinsucient, either where the rst tier supplier is not able to cascadedown requirements or where the Council is better placed to supportthe lower tier suppliers to meet its requirements.

d. Meet suppliers to discuss each others objectives, develop jointsolutions and agree set objectives. The right suppliers have nowbeen identied. However, these suppliers need to understand whatis expected o them, be supported to deliver these contributions, andundamentally, to believe that supporting the Council to deliver socialvalue is worthwhile or their business or organisation.

xviThe Kraljic Portolio Purchasing Model was created by Peter Kraljic and rst appeared in the

Harvard Business Review in 1983

3. Developcollaborative

relationships with

chosen suppliers


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At this stage, both authorities and suppliers should now

be on the same page when it comes to deliveringsocial value. Clear targets have been agreedand plans developed or delivering thesetargets. But this is not the end othe story. To ensure that plans aredelivered and adapted whererequired, authorities need to auditand measure the social valuethat suppliers have contributed,and meet requently withsuppliers to discuss progress.This will also develop anevidence base to support

urther social supply activitiesin the uture. Scape, or example, reviews whether successul biddersemployment and training claims have been delivered by monitoringeveryone who works on projects by postcode to check how many localpeople are employed and the number o local businesses used.

This is an area which our research suggests requires particularattention. 75.8% o those who completed the survey said that theirorganisation has not established an active programme o generalaudit or assessment o its supply chain. More specifc to social value,83.2% said that they do not quantity the benefts o social valueinitiatives in procurement.

There are many good examples o supply chain audit and assurance

in the private sector. There is a growing expectation or transparency,leading to increased exporting o companies environmental and otherimpacts. Many are starting to quantiy their non-nancial impacts andreport these. The rationale or this is that as natural resources becomemore scarce, businesses will have to pay to protect them or, in somecases, replace them and that companies who take action to reduceenvironmental impact and associated costs can gain a competitiveadvantage over their rivals.

Measuring social value is known to be a complex area. It can be dicultto quantiy social value benets which are oten intangible and diuse,and also to combine the impact o multiple benets into a single measure.However, there is a growing body o research and practical advice onusing Social Return on Investment (SROI) tools which can be used toguide these activities. In addition, Local Multiplier 3 (LM3) is a tool thatmeasures local economic impact, which many authorities have used toassess the impact o their procurement activities. Furthermore, authoritiessuch as Northamptonshire County Council, as well as many private sectororganisations, use a triple bottom line or the social, environmental andcommercial impact o proposals when choosing which suppliers to workwith. In Northamptonshire this approach was used when evaluatingtenders or its household waste contract, and considered recycling rates,green house gases, and likely access to local recycling centres.

Whichever approach is taken, rst tier suppliers must also be encouragedto use these tools i the ull impact o supply chains is to be measured.

The rst stage is relatively simple upront conversations with chosen

suppliers to present the objectives the Council would like themto contribute to, and to develop joint solutions to meeting theseobjectives. Solihull Metropolitan Borough Council or example hascontacted its core suppliers directly to engage with them and developplans or increasing employment opportunities or local people.

Developing joint solutions with suppliers can appear daunting but in actthere are oten simple and practical steps that can be taken. For examplean authority can collate demand and hold stocks to minimise journeytimes, standardise and orecast requirements to allow investmentsin more ecient technologies, or work with suppliers and localemployment services to maximise the opportunities or local job-seekers.

Collaborative relationships need to be genuinely that collaborative

and this may require some concessions rom an authority in orderto encourage suppliers to contribute. In other situations, however,simply providing greater clarity over expectations may be enough, andparticularly within areas that align with a suppliers own objectives.In the case o one Council we spoke to, a supplier contacted them tosuggest it could reduce its carbon ootprint i the Council made changesto the way stationery was ordered as this was also a core objective orthe supplier.

B&Q UK currently sets standards or suppliers through its supplier

assessment programme known as QUEST (Quality, Ethics,Environment and Saety). QUEST Principles 6-10 cover socialand environmental impacts. All new suppliers are assessed orcompliance with the Principles, using the QUEST evaluationprocess. Suppliers are asked to complete a pre-assessmentquestionnaire which is ollowed with a ace-to-ace assessmentconducted by the B&Q Quality Assurance team. A grade isawarded (rom A to E) or each o the ten Principles. Suppliers mustmeet certain minimum requirements within agreed timescalesand develop action plans or improving their score. Reassessmentsare carried out to monitor the progress o existing suppliers therequency o reassessment depends on the grade achieved andthe risk to the business. The QUEST Principle 8 on Supply ChainTransparency requires importers and suppliers to demonstrate howthey have assured that the actories that supply them comply withcriteria on actory working conditions.

B&Q, part o the Kingisher Group

The sportswear rm worked with environmental research groupTrucost to develop an environmental Prot and Loss Accountwhich would calculate the impact o its business on nature. Byrepresenting its environmental impacts in nancial terms, PUMAis providing its management teams with a robust ramework to

embed sustainability at the heart o business decision making.PUMA has demonstrated that accounting or the environmentacross the value chain is no longer a holy grail objective, butsimply makes good business sense.

Puma

4. Audit and

measure the

impact


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5

lSi

Across local government, authorities are acing the sizeablechallenge o meeting rising demands with decreasing resources,while expectations rise about their ability to deliver social value.

Councils will need to maximise the social as well as nancial benetstheir suppliers can deliver i they are to meet these expectations.

The Public Services (Social Value) 2012 Act increases the emphasison social value in local government procurement. Our researchsuggests that there is a risk that some local authorities may notbenet rom the catalysing potential o the legislation, unlessthey rethink their relationships with suppliers. There appear to besubstantial opportunities to draw on urther contributions romsuppliers to improve local employment prospects, enhance localcommunities, and improve the local environment or current anduture generations.

Based on this research, we rmly believe that local authoritiesare able to overcome commonly identied challenges that haverestricted them rom drawing on suppliers to deliver social value. A

course can be steered through the risks o legal challenges, shortageso capacity, experience and skills, and tensions with reducing costs.A clear strategic overview or where and how suppliers are expectedto contribute will guide these eorts, and strong, collaborativerelationships with suppliers will provide the engine power. Thesesame relationships are also vital ingredients or improving value ormoney and managing risks. Local authorities can draw on existinggood practice in local government and other sectors, some o whichis identied in this report, to plot their course.


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