Commonwealth Local Government Conference Local Government Procurement Policies for LED

Agenda Steve Robinson, Operational Manager, Corporate Services - Procurement & Supplies, Cardiff Council Challenges and policy initiatives to support LED in Wales Winile Mntungwa - Business Support Programme Manager, eThekwini Municipality, South Africa eThekwini initiatives to improve the procurement process and use it to support SMME development and LED Dr Kath Ringwald and Scott Parfitt – Glamorgan Business School, University of Glamorgan Thresholds and Advertising / Use of Approved Lists / Consortia and Tier Contractor Opportunities Dr Sue Hurrell – Value Wales Welsh Assembly Government Pre-Qualification / Community and Social Benefits

Challenges and policy initiatives to support LED in Wales Steve Robinson, Operational Manager, Corporate Services - Procurement & Supplies, Cardiff Council

About Wales A population of three million A constituent country of the United Kingdom and part of the European Union Deprivation related ill-health in Wales is the highest in the UK Small, Medium Enterprises account for 99% of Welsh businesses 344,000 employed by public sector (27.5% of all employees) This leaves Wales vulnerable to budget cuts in public sector

Importance of Procurement in support of LED The Welsh public sector spends over £4.3 billion per annum, or around one third of its budget, on external goods and services Multiplier Effect – could result in as many as 2000 jobs being created both directly and indirectly as a result of a 1% increase in public sector spend within Wales. Community Benefits –regeneration of communities through training and employment and community projects

About Cardiff Council Unitary authority since 1996 – serving the City and County of Cardiff Largest employer in Wales – 22,000 employees Deliver a wide and diverse range of public services including: –Social Care –Education –Highway Maintenance –Waste Management –Culture, Leisure and Parks –Housing

What do we buy 2009/10 spend on bought-in goods, services and works - £328 million

How do we buy During 2009/10 we traded directly with 9,800 suppliers and contractors 60-65% with SMEs

The Challenge Public sector facing unprecedented financial pressure and need to reduce overall cost Deliver improved citizen-focused services Need to secure greater efficiency and effectiveness Focus on procurement –Deliver improved value and cashable savings –Reduce overall spend –Process efficiency improvements

Implications for LED Reduction in non-essential spend – buying less Benefit from economies of scale by aggregating spend and increasing collaboration across the public sector – buying bigger Will lead to a consolidation in the number of suppliers Larger value contracts Huge potential implication for Welsh SMEs and local economy

Need to Change Council recognises implication for suppliers and the need to change Source Cardiff study with University of Glamorgan –Improving access to opportunities –Supporting supplier development Delivering the Opening Doors Charter / Barriers to Procurement recommendations Maximise opportunities for Community Benefits

Legislation and Procedures The Council must comply with EU and UK Public Procurement legislation EC Treaty Principles –Non-discrimination and equal treatment, transparency, proportionality and mutual recognition. –Obligation of transparency means that a contracting authority must ensure a degree of advertising - sufficient to allow the services market to be opened up to competition and the impartiality of procedures to be reviewed – you cannot favour local EU Public Procurement Directives –Requires all tenders / contracts with spend in excess of £156k for goods and services and £3.9m for works to be subject to open competition across EU –Principles should be adhered with for lower value contracts –Specific requirements in terms of procedure and timescales

eThekwini initiatives to improve the procurement process and use it to support SMME development and LED Winile Mntungwa - Business Support Programme Manager, eThekwini Municipality, South Africa

Thresholds and Advertising / Consortia and Tier Opportunities Dr Kath Ringwald and Scott Parfitt Glamorgan Business School University of Glamorgan

Thresholds and Advertising SMEs and local businesses want public sector opportunities advertised more widely and at SME- friendly thresholds. Policy on thresholds and advertising varies across the public sector. The paradox –Aggregation – consortia purchasing, category management – increases contract value –Fears that increased advertising will increase transaction costs, no advantage.

Thresholds Each public sector body will have their own thresholds for quotations, tenders and advertising. Upper limits defined by EU Procurement Directives Reports and recommendations –Gershon (2004) –Opening Doors Charter, Value Wales (2005) £25,000 –Glover (2008) –Ringwald & Cahill et al (2009) £25,000 –WLGA (Nov 2010). £50,000 Construction contracts excluded from these thresholds

Advertising Evidence in Wales , very limited increase in advertising. SMEs reported very little change. Buyers reported concerns over unwanted responses to advertised opportunities (following Barriers report) shows a considerable increase in advertising. In the current financial year 772 lower value opportunities have been advertised – an increase of 24% when compared to the corresponding period in the previous financial year. This means that 57% of opportunities advertised were below OJEU level. Currently undertaking research to assess the implications on the workload for procurement staff

Approved Lists of Suppliers Once a common feature of public sector procurement. Companies would be required to ‘qualify’ for the list, then expect to be invited to quote / tender for business Approved lists, when run badly, could be open to legal challenge Some public sector bodies claim they have no lists. Some are operating a phased withdrawal In reality there will always be exceptions due to specialist qualification eg: contracts for care

Key to effective use of thresholds and advertising Choose contracts which lend themselves to SME friendly approaches eg: lotting strategies Prepare thoroughly. SMEs will de-select themselves if they can see they do not meet the criteria. Use appropriate pre-qualification processes Fair and transparent processes, with feedback

Consortia Bidding Encouraging groups of SMEs to collaborate to submit a more attractive bid. The Supplier Development Service report that this is unpopular with SMEs –Difficult to find SMEs willing to exchange commercially sensitive data. –Problems with legal entity as a basis for the contract –Suspicious of motives for collaboration These views supported by research –‘Barriers’ Report (2009) –Scottish Government ‘Opportunities and Barriers to Consortia Bidding for Public Sector Contracts (2009) Limited success found where complementary offerings exist

Tiering Collaboration, aggregation and consortium procurements leads to economies of scale, but large ‘lots’ which can exclude small suppliers Contracts with 1 st tier suppliers can require the 1 st tier to advertise 2 nd and 3 rd tier opportunities to local SMEs. Used for London 2012 Olympics procurement. Sell2Wales facilitates this. SMEs argue that this limits their opportunities –No guarantee of winning work –Margins reduced –Public Sector does not ‘police’ this requirement with sufficient rigor.

Tiering Public sector argue –Cannot ‘impose’ a local quota on 1 st tier suppliers –Can impose social clauses eg. Employing local labour, advertising contracts in SME friendly ways. Public sector has no legal influence beyond 1 st tier. Where is SCM? Lotting strategies, Framework Agreements Possibilities for Supplier Networks linked to Category Management.

Pre-Qualification and Community Benefits Dr Sue Hurrell Value Wales

Pre-qualification Which bidders are capable? = pre-qualification Which bidder demonstrate the best quality and price? = tender stage Often done in two distinct “stages” under EU law Suppliers say pre-qual is bureaucratic, opaque and biased towards big business. More than £20m spent by suppliers in pre-qualifying each year in Wales 90% of questions (and answers) the same each time, but data is rarely re-used.

SQuID Suppliers want more standardisation, AND more tailoring to each project = contradiction? Solution – a set of standard, common, core questions Answers stored for re-use Risk-based methodology for buyers to choose questions – not value-based Flexible process – questions added/deleted, project- specific “If you don’t know why you’re asking a question, or what you’re going to do with the answer, don’t ask it!”

Risk assessment What costs are incurred if the supplier fails to deliver? –Penalties –Reputational –Cost of temporary alternative –Re-procurement costs E.g. staff uniforms vs. software for social care workers with at-risk children…

SQuID

Consultation and Training Paper version developed at workshops with practitioners 8 month period of testing on live projects 450 procurement staff from all sectors trained On-line version being built on

Will it help SMEs? Yes – reduces bid costs and encourages newcomers But – reduces bid costs for bigger suppliers too Wider advertising attracts more competition – more “losers” Yes – greater clarity allows self-deselection (reduces wasted effort) Maybe – will acceptance thresholds be set too high? Maybe – will scoring favour bigger bidders It all depends on how it is used!

Community Benefits ‘Public procurement can make an enormous difference to the social, economic and environmental well being of Wales and I would urge all those involved in spending public money to use this guide to ensure they get maximum value for every pound we spend.’ Jane Hutt – Minister for Business and Budget

“ One Wales” – coalition plan “we will ensure that all projects seeking to benefit from public funding, including all structural funds, seek to meet sustainability criteria” “we will encourage procurement which incentivises training opportunities for the unemployed” “we will, by working within the European legal framework, make it easier for small local firms in all parts of Wales to win government contracts” “we will improve targets for recycling with legislation and support for better and more coordinated waste management”

Main aims: Specifying and including in contracts: –Recruiting and training economically inactive people –Supply chain initiatives

Other aims  Retaining existing workforce  Training existing workforce  Promoting Third Sector and Supported Businesses & Factories  Equal opportunities  Contributions to education  Resources for community initiatives  Community consultation and engagement  ‘Considerate Contractor' schemes  Environmental benefits

Outcomes Reseach into 3 recent Welsh construction projects: Including community benefits clauses in the contract helped deliver 30% more value for the Welsh economy

Thank you for listening Questions and Answers Session