Social supply

A guide to improving social value through better purchasing

Contents
3 Executive Summary 4 Section 1 - Introduction to this report 6 Section 2 - Why focus on collaborative relationships to achieve social value? 8 Section 3 - What are the benefits of improved supplier engagement? 11 Section 4 - How do you harness the potential of your suppliers? 18 Section 5 - Conclusion

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

executive summary
The recent Public Services (Social Value) Act 2012 requires all public bodies to consider how they can improve the economic, social and environmental well-being of their local area through services they procure. This emphasis on using procurement to deliver social value is not entirely new. Under the Local Government Act 1999, local authorities are required to achieve best value, defined as to secure continuous improvement in the exercise of all functions undertaken by the authority, having regard to a combination of economy, efficiency and effectiveness.i The recent Best Value Statutory Guidance issued by the Department of Communities and Local Government in 2011ii reminds local authorities that Best Value decisions should include consideration of social value. Furthermore, the new Act is not prescriptive on how authorities must consider social value. However, given the new prominence that the Act has given to the concept of social value, it is an opportune time to explore some of the barriers (both real and perceived) that still exist for local authorities, and to seek a better understanding of how they can maximise the social value achieved through every procurement exercise. Our report examines how local authorities can go beyond compliance by using the legislation as a catalyst to improve economic, social and environmental wellbeing and is informed by a survey of 95 local authority officers we have undertaken with the Municipal Journal (MJ). It is supported by the BDO Local Government teams experience of working with local authorities to address these very issues, and benefits from the contribution of BDOs in-house experts in Sustainability and Corporate Social Responsibility. Over 40% of local authorities expenditure is on third party contractsiii. This figure may well increase if current trends towards commissioning continue in local government, away from direct delivery of services. The strategic objectives which local authorities aim to deliver (and which their customers expect of them), such as increasing local employment opportunities and reducing their environmental impact, should be exemplified throughout the supply chain, and as such, local authorities need to start viewing their supply chains as an extension of themselves. For example, it is probable that a 5% reduction of energy consumption within council properties would have a lesser impact on a local authoritys carbon footprint than securing a 5% reduction in energy consumption from all of its suppliers. This approach is common practice in the private sector, where many companies demand carbon reductions from their suppliers. The key finding emerging from our research is that there is a real opportunity for local authorities to build strong collaborative, mutually beneficial relationships with their suppliers to deliver social value goals. 75% of those responding to the BDO/MJ survey are already engaging with suppliers in order to increase social value. Our experience also suggests that there is willingness and enthusiasm on the part of suppliers to engage meaningfully in this process. The challenge for local authorities is to take this effort and goodwill on both sides and translate them into further delivery of social value. To do this, local authorities have to understand and take the practical steps needed to develop collaborative relationships. This can take time and effort, but as we explore in this report, the social, economic and environmental benefits can be substantial. One of the key challenges to making this happen is the difficulty of measuring the economic, social and environmental impact of the supply chain. 76% of respondents to the BDO/MJ survey indicated that they had not established an active programme of assessing the impact of their supply chain.

A higher 83% said that they did not measure the benefits of any social value initiatives in procurement.

By contrast, this insight is well developed in certain parts of the private sector, and therefore there is an opportunity to learn from what is already being done elsewhere. Without a real understanding of the performance and operation of the supply chain, it becomes substantially harder to implement change and quantify improvements. In addition, how can local authorities make a case for incorporating and evaluating economic, social and environmental well-being considerations in contracts without measuring the impact that they can have? This report explains why a more strategic approach to supplier relationships can benefit an authority and its customers, and draws on best practice in the private and public sectors to explain how this can be achieved. We hope that Chief Executives and local authority officers involved in procurement can use this report as a guide to reshaping their approach to working with suppliers to achieve greater social value.
i

Local Government Act 1999, section 3 Best Value Statutory Guidance, Communities and Local Government, September 2011 [http://www.communities.gov.uk/documents/localgovernment/pdf/1976926.pdf] Current expenditure figures 2009/10 on Procurement as a proportion of total expenditure, Local Government Financial Statistics England, No.21 2011

ii

iii

1
Introduction to this report
In preparing this report we have drawn upon a survey of 95 local authorities conducted in association with the MJ, supported by 21 interviews with local government officers and other public and private sector procurement experts. We have also drawn upon BDOs experience of supporting procurement in local government, and in particular the perspectives of many local government clients with whom we have worked. Within this report we look firstly at the challenges to delivering social value, as identified through our research, demonstrating that many of the most commonly identified challenges can be overcome, particularly by gaining the support of suppliers who are often willing to work together with local authorities to deliver social value. We then set out the case for achieving social value through improved supplier relationships before providing a clear set of recommendations for local authorities to harness the potential of suppliers. The Public Services (Social Value) Act 2012 became law on 8th March 2012, having been initially presented to Parliament on 30th June 2010 as a Private Members Bill by Chris White MP. The law applies to all public bodies and requires an authority to consider (a) how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and (b) how, in conducting the process of procurement, it might act with a view to securing that improvement. The intention of the bill is to require public bodies to consider when awarding a contract the collective benefit gained by a local community. There are some limitations around what can be considered. Specifically the matters considered must be relevant to what is proposed to be procured and proportionate. The bill attracted cross-party support although provisions for the Secretary of State to publish a national social enterprise strategy and to require local authorities to include in their sustainable community strategies proposals for engaging with social enterprise were not supported by the Government and were dropped. The Act has also received strong backing from many national 3rd sector bodies, including NAVCA (National Association for Voluntary and Community Action) and Social Enterprise UK. Public Services (Social Value) Act 2012 [http://www.legislation.gov.uk/ ukpga/2012/3/section/1/enacted]

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

Definitions
We have used the following definitions in this report: Social Value: this is defined in the Public Services (Social Value) Act 2012 as the economic, social and environmental well-being of the relevant area. What social value will mean in practice for 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 from whom councils procure works, goods or services, although the Act itself is focussed solely on services. We have chosen a broader focus as we believe the same principles apply and opportunities arise across all third party contracts. Commissioning and Procurement: We have defined commissioning as the full lifecycle of identifying the service outcomes that an authority needs to deliver and the services that will deliver these outcomes, and monitoring the delivery of these outcomes. Procurement is defined as sourcing and purchasing the goods, works and services to deliver the required commissioning outcomes as efficiently and effectively as possible.

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Why focus on collaborative relationships to achieve social value?
The Public Services (Social Value) 2012 Act received cross-party backing and support from many 3rd sector bodies for its goal of putting social value at the heart of public procurement. However, even prior to the introduction of the Act, Local Government Best Value Guidance already encouraged local authorities to take into account wider value when undertaking procurement. So why was a new law required? Speaking to Andrew OBrien, a parliamentary researcher from Chris White MPs office, it is clear that the Bill was borne out of a sense that public bodies were not fully or consistently embracing the additional value that commissioning could deliver to communities and the desire to start a debate and spread best practice [about commissioning for social value] to improve this track record. This impression also corresponds with our own experience of working with local authorities on procurement assignments. However, what public bodies will need to do to meet the requirement to consider social value is not prescribed in the Act. There is therefore a risk that unless existing barriers to achieving social value are overcome, public bodies, including local authorities, will do the minimum required to comply. This would be an opportunity lost, particularly because local authorities would often be pushing against an open door with suppliers. Only 7% of authorities we surveyed believe that resistance from suppliers is a barrier to delivering social value through procurement. There was a widespread perception among those we interviewed that suppliers were perhaps a step ahead of local authorities in this area. Mark Robinson, CEO of Scape, stated that The construction industry is not reluctant on this front. Contractors are fairly cute about what they need to offer to be able to win pieces of work. Most of them are already doing this in some shape or form. However, some suppliers are more geared up than others. Our experience suggests that some of the smaller, local organisations, who can have a substantial impact on local social value, typically have less experience in techniques of measuring and demonstrating their impact. Peter James (CIPS) was of the view that local authorities have a responsibility to up-skill their local providers, particularly the voluntary sector, to ensure that they are not put at a disadvantage in the development of this agenda. There is a need to transfer these skills down the supply chain both to ensure compliance and encourage a partnership approach.

Mark Robinson, CEO of Scape, a local authority controlled company that fosters collaborative working in local government, including through running procurement exercises, stated that The construction industry is not reluctant on this front. Contractors are fairly cute about what they need to offer to be able to win pieces of work. Most of them are already doing this in some shape or form.

Mark Robinson, CEO of Scape

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

City of York Council

While York is working on developing its own evaluation models to include social value as part of its Procurement and Commissioning strategy, it also recognises that demonstrating social value can be a difficult and resource intensive process for providers. As such they are working with the voluntary sector and SMEs to enable them to articulate and quantify their social value without this becoming an onerous burden that favours larger organisations.iv

Many authorities are already doing this in some shape or form. 76% of authorities responding to our survey are already engaging with suppliers in order to increase social value:v Have you engaged with your suppliers to increase social value?
80% 60% 40% 20% 0% Yes No

Suppliers may be willing to support the social aims of contracting authorities because of the commercial advantage they may gain over competitors by meeting an authoritys broader social value requirements. It can also make longer-term economic sense for them to do so. An example is working together with the local authority to ensure a continued supply of skilled workforce. Liz Welton from Coventry City Council and Solihull Metropolitan Borough Council added This isnt just touchy-feely stuff! It can make economic sense for companies, for example, where they are struggling to find work-ready people and the council helps to find people seeking work and gets them work-ready and appropriately skilled. It can be a beneficial relationship for both sides. The best way for local authorities to tap into this potential is to build collaborative relationships with their suppliers, to seek out social value on an ongoing basis and measure the wider impact that these relationships have.

However, our research suggests that opportunities for social value are being lost if engagement is superficial rather than genuinely collaborative, and if social value considerations are not built into ongoing contract management. Only by engaging in this dialogue with suppliers on a regular basis and ensuring that social value criteria are given sufficient weight in decision making can you ensure that these opportunities are identified and innovation is encouraged. The Trucost and Capital Ambition case study below provides a good example of how understanding and engaging with the supply chain can help identify opportunities for increasing social valuev.

Trucost and Capital Ambition

Capital Ambition wanted to measure and reduce the carbon footprint associated with 8 billion of Londons public procurement and ensure that the programme would deliver cost savings. Trucost was able to focus on suppliers with the most potential to reduce their impacts, providing a prepopulated online data collection portal to help measure the beneficial impact achieved by participating suppliers. The project encompasses 4,500 high impact suppliers across 29 London Borough Councils, the London Development Agency and the London Fire and Emergency Planning Authority.vi

As far as the procurement process is concerned, you can of course put as many clauses as you want in. However, in order to be most effective in achieving social value, you need to develop the relationship with the company [and] find out who within that company makes decisions or is in a position to help.
Liz Welton, Coventry City Council/Solihull Metropolitan Borough Council

The less understanding authorities have of their supply chain, the greater the risk that they inadvertently destroy rather than create social value through their procurement processes, for example by reducing opportunities for small, local suppliers. In the following sections we will explore the benefits which local authorities could and ought to be seeking, and give practical guidance on how they should go about doing so through more collaborative relationships with their suppliers.

iv http://democracy.york.gov.uk/(S(aw2b23jofoyuejfc1asnl055))/mgConvert2PDF. aspx?ID=55576 v http://www.trucost.com/published-research/77/local-authority-supply-chain-carbon-in-theeast-of-england vi

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

3
what are the Benefits of improved supplier engagement?
Local authorities have a key role in improving social outcomes within their communities. They have substantial influence over local employment and employability, cohesion within local communities, the quality of physical and natural environments, and the waste and pollution generated within areas. They can contribute directly through the services they deliver or commission, as well as through the influence they can have on local partners, residents and businesses. Suppliers to local government also have the potential to be key contributors to social value, which can be encouraged through the development of collaborative relationships. In an ideal world, a local authority would have the resource and time to develop strong, collaborative relationships with organisations throughout their supply chains. The current financial pressures in local government have made it more difficult to dedicate resources for supplier management and development. However, the private sector has made significant progress in this area in the last couple of years despite difficult economic circumstances. In this section we make the case for local authorities developing collaborative relationships to enhance value for money, manage risk and, fundamentally for this report, deliver wider social value. Collaborative relationships enable local authorities to encourage suppliers to contribute to wider social, economic and environmental outcomes. By ensuring that suppliers are aware of a local authoritys social priorities, and by agreeing plans for a suppliers contribution, an authority can draw on the potential of their suppliers. The desired outcomes must be given strategic priority otherwise authorities risk formalising another box-ticking exercise.

Collaborative relationships
Collaborative relationships are where both parties understand each others concerns, are open and transparent, agree joint objectives and have a shared commitment to deliver on the strategy of the local authority; it does not mean a purely accommodating approach to suppliers. Developing and sustaining collaborative relationships takes time and effort, and authorities should identify priority suppliers to work closely with.

Each local area has its own distinct priorities that are likely to be set out within strategic plans such as Sustainable Community Strategies and Local Area Plans. In the survey we conducted in conjunction with the MJ, 48.4% of respondents selected economic outcomes as the most important priority for delivering social value. Supporting social outcomes was the second most important consideration with 15.8%, followed by increasing quality (13.7%). Perhaps surprisingly, only 3.2% of respondents selected environmental considerations. It seems probable that this prioritisation is driven by the fact that the raison-dtre for local government is to respond to the distinct needs of local residents. .

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

Variation between supply chains carbon footprints suggests that reductions can be made, at least to the level of the best performing supply chains.
Economic outcomes Supporting social outcomes Increasing quality Environmental considerations

48.4% of respondents selected economic outcomes as the most important priority for delivering social value. Supporting social outcomes was the second most important consideration with 15.8%, followed by increasing quality (13.7%). Perhaps surprisingly, only 3.2% of respondents selected environmental considerations Suppliers have the potential to make a substantial contribution to local authorities social value priorities, particularly when considering the contribution of the full supply chain. For example, research carried out by the New Economics Foundation and Northumberland County Council, looking at the economic multiplier for money spent locally, found that spending on local suppliers has 400% more impact on the local economy than spending on suppliers outside of the areavii. Examples of good practice, such as the construction framework set up by Scape on behalf of the East Midlands Property Alliance (empa), demonstrate what is possible in local government.

According to the survey, 48% of authorities are reluctant to encourage the delivery of social value through procurement as they believe that costs are more important. Furthermore, only 9.5% of those we surveyed said that reducing costs was the primary consideration for delivering social value. The Social Value Act is coming at a time when local authority officers are under more pressure than ever to secure contracts at the lowest possible price and it appears that local authorities may be particularly wary of emphasising social value as they believe it will increase prices. Neil Daynes at Hull City Council emphasised the difficulties of reconciling social value with the cost saving agenda. A focus on cutting costs can sometimes lead local authorities towards pooled spending and large scale regional contracts, often at the expense of the smaller, local providers. Furthermore, requiring suppliers to contribute to social value may well lead to them raising their prices to cover their additional costs. There is a mindset that incorporating social aspects will cost more, and that it will be difficult to reconcile with the cost saving agenda.

Neil Daynes Hull City Council

Scape
Scape has set up a number of construction frameworks on behalf of the empa. Projects commissioned through the frameworks worth over 230m have delivered 22m of savings. At the same time a newly established Skills Academy has supported 20 new apprentice starts, nearly 100 NVQs and 44 work experience placements. 90% of site waste is recycled (compared to a national average of under 80%) and a focus on enabling local SMEs to access every project has meant that 67% of sub-contractors are local to the area on average.

EoN
EON is looking for its supply chain to deliver 20% of carbon reductions to align with its strategic goals. Since 2007, E.ON has followed group-wide binding principles for responsible procurement. These are based on the principles of the United Nations Global Compact and are part of the companys Standard Terms and Conditions of Purchase. They require their suppliers to fulfil sustainability criteria and to ensure, amongst other requirements, appropriate working conditions, ethical business practices, environmental protection and respect for human rights. They are working with their suppliers to achieve the following goals: Strengthen the Better Coal Initiative to improve sustainability in the coal supply chain and expand audits of coal mines until 2015 Until 2015, virtually 100 percent of EONs critical suppliers will have been evaluated by EONs Supplier Pre-Qualification Program Expansion of procurement activities for sustainable biomass Inclusion of product lifecycles in their procurement processes.

A local authority supply chain also typically has a substantial local carbon footprint that can be improved. A report by Trucost into the carbon impact of local authority supply chains in the East of Englandviii found that expenditure by the local authorities was linked to more than 371 million cubic metres (m3) of water used by suppliers, equating to almost 44% of annual water use in the region. The same report found that 347 tonnes of CO2 was emitted for every 1m expenditure by East of England local authorities and that the average carbon footprint of the regions supply chain was 3% more carbon intensive than that of local authorities in London.
vii viii

www.neweconomics.org/sites/neweconomics.org/files/Public_Spending_for_Public_Benefit.pdf

www.trucost.com/published-research/77/local-authority-supply-chain-carbon-in-the-east-of- england www.eon.com/en/sustainability/fields-of-action/responsible-procurement.html

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

There may well be cost implications of requiring social, economic and environmental considerations. However, in some cases it can be possible to deliver both efficiency savings and social value, as the Scape and Northamptonshire case studies demonstrate. Another example is Cardiff Councils move to a more cost efficient agency staff contract which maintained the same local supply chain. Furthermore, value for money should consider the whole life costs of a contract beyond the initial quoted price, or else the authority may not be getting the best deal over the life-time of the contract. This type of calculation typically takes into account the costs of quality defects, delivery, periodic maintenance, ongoing support and ad-hoc additional requirements. If local authorities also wish to consider the additional value commissioning can bring to communities, this set of factors needs to be expanded to take a broader view of calculations of cost and impact. For example, an authority and its partners may need to also consider the knock-on costs of lost opportunities for the local workforce and local businesses, such as increased benefit uptake, crime, shop closures and community disintegration when evaluating the total costs of various bids. If this broader and longer-term view of value for money is considered, with or without the involvement of local partners, then including social value may actually improve value for money. There is also the potential that inclusion of social procurement criteria will drive innovation that could lead to cost-saving initiatives.

Local authorities, as well as private sector organisations, can support suppliers to improve their value for money. This support can include clearly communicating its priorities, providing forecasts of its future requirements, or helping manage a suppliers own issues - be it cashflow, inventory costs and capacity, or skill gaps. Activities such as these allow suppliers to reduce their costs as they can focus on delivering only what is required, make investment decisions based on solid evidence of future demand, and draw on an authoritys own resources where necessary. Furthermore, developing collaborative relationships helps to manage risk. Local authorities are responsible for critical services to residents, visitors and businesses, and external organisations are playing an increasing role in the direct delivery of many of these services, ranging from adoption and residential care, to highways maintenance and building schools. Many service areas are too important for local authorities to focus only on lead contractors when specifying quality, health & safety and insurance requirements, because problems lower down the supply chain can have a substantial impact on the services the prime contractor delivers. In critical areas where any failure will have significant impact on residents lives and a local authoritys reputation, it may be necessary to manage risks by going beyond the prime contractor to develop effective relationships with other organisations. Developing collaborative relationships allows local authorities to improve value for money, manage risks and deliver social value outcomes - the focus of this report. There are a number of techniques, which can be used to encourage suppliers to add value beyond the core good or service they deliver before, during and following procurement exercises. These are discussed in Section 4.

Northamptonshire County Council

Northamptonshire County Council set up a wholly owned company for providing school meals, called Flourish, which benefits the local economy by drawing on a local supply chain and is still price competitive.

This is particularly true where local authorities develop collaborative relationships with suppliers in order to deliver greater social value. The same collaborative relationships set up to deliver social value can also be used to reduce costs and improve quality. The car industry, for example, has led the way in developing strong supplier relationships in order to improve quality, largely because it was one of the first industries to outsource substantial components of its manufacturing, and is famed for efficient supply chain management. The construction industry has also been at the forefront of developing a successful approach to partnerships.

1 4

How do you harness the potential of your suppliers?

In the previous section we discussed the substantial benefits, and in particular social value benefits, that local authorities can get from developing strong, collaborative relationships throughout their supply chains. Our research suggests that many officers in local authorities are looking for further guidance on how to develop these forms of relationships. 27% of authorities surveyed stated that a lack of training is a barrier to delivering social value. 41% pinpointed lack of experience as a barrier. This view is supported by Mark Robinson, CEO of Scape, including through running procurement exercises. Mark believes that a lack of expertise and experience of building social value considerations into procurement processes is the main challenge facing local authorities. According to other local government officers we spoke to, the concept of social value itself has been confusing for some officers, both in terms of what it means and how they would go about measuring it. One officer observed that Our authority has an awareness of the Bill but there is not a good understanding within the organisation about what it means in practice. In this section we identify the steps that can be taken to harness the potential of your suppliers to deliver social value. We argue that a shift in approach is required: to align all procurement processes with a Councils strategic objectives around social value, and to identify the right actions and the right suppliers with whom to develop strong collaborative relationships. We propose that authorities follow our 4-stage Social Supply process illustrated below to maximise the value they get from their suppliers. We do not believe that any of the activities we set out are completely new to local authorities. Rather, the real challenge is to follow a comprehensive, systematic process in order to deliver greatest social value.

bdos social supply process

4. Audit and 1. Identify how your measure the supply chain can impact contribute to social value objectives 3. Develop collaborative relationships with chosen suppliers 2. Redesign procurement processes to deliver social value

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

and e the pact

elop ative with pliers social value

The majority of local authorities and their partners have already spent time developing local strategic objectives, typically these are stated within a sustainable community strategy or local area plan. These will often correspond very closely with an areas own priorities for social value, even though 1. Identify how your conceptualising these objectives in terms of social supply chain can value is a fairly recent contribute to social development. An authority may choose to carry out value objectives further consultation with residents, businesses and partners in order to refine 2. Redesign what social value means locally. Ideally this should result in a set of procurement measurable social value objectives that an authority seeks to deliver together with its partners. A simple example could be local job seekers processes to deliver have been supported into work. It is vitally important to ensure that senior officers and elected members are involved at this stage in the process. Procurement staff will struggle to make the case for encouraging social value at later stages, unless senior officers and politicians set clear and consistent priorities for social value, compared to more narrow value for money considerations. 23% of those responding to our survey said that a lack of senior level buy-in was an issue for delivering social value. In our experience the challenge is rarely about outright resistance to social value priorities; rather, it is that senior officers and elected members need to provide a consistent steer on how to consider social value benefits alongside contract price. Having identified the social value objectives, the next step is to consider how suppliers can contribute. It is important at this stage to allow suppliers to unlock opportunities through their own innovation, as they may be able to help local authorities achieve their goals in ways that the local authority is not best placed to predict. Local authorities need to be clear about what they want to achieve, but equally suppliers need to be proactive in communicating what they are able to deliver and/or making the necessary changes to be able to deliver against a new set of priorities.

Wind Turbine manufacturing in Hull

The global wind farm giant Siemens has committed to creating hundreds of jobs for local people in East Yorkshire through the companys plans to develop a wind turbine factory on dock land in Hull. Around 800 people will be directly employed at the factory, Regional Development Agency Yorkshire Forward estimated a total of around 10,000 jobs will be created in the local supply chain as a result of the factory, transforming the regions economy. Dan McGrail, the Siemens executive leading the Hull project, stressed that the company is committed to ensuring the local community benefits: Part of that process will also involve sending people from here elsewhere for training. We have a training centre in Newcastle that is something we will be looking to use as part of this process.

The precise requirements to be placed on suppliers in relation to a given social value objective should depend on the nature of the contract and the extent to which they can be expected to influence that outcome. Local authorities need to set achievable performance targets for suppliers, which feed into the overarching social value objectives. The following three steps ensure over arching social value objectives are distilled into measurable and achievable performance targets:ix a. Identify the priority social value objectives, such as the employment example above, that require support from your suppliers b. Develop social value outcomes that suppliers are expected to deliver. This draws out elements of the social value objective which suppliers can be expected to deliver. For example it may be to provide local job seekers with opportunities to access employment and work placements. Alternatively this could be phrased in a more open way to permit supplier innovation, for example We are seeking to increase access to employment for long-termed unemployed people in the local area. How would you support us to deliver that goal? c. Develop social value performance targets which can then be set within procurement processes and agreed with existing suppliers. For example, provide work placement schemes for 20 local school-age residents each year.

http://www.thisishullandeastriding.co.uk/wind-turbine-firm-s-local-jobs-pledge/story11975337-detail/story.html
ix

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

13

and 1. Identify how your e the supply chain can pact contribute to social value objectives
Both current and potential suppliers can be encouraged to contribute to the outcomes that have been agreed. To ensure that all potential new suppliers are chosen partly according to the social value they can deliver, all procurement processes must be aligned with the targets identified above. Ideally all members of staff that procure goods and services will be able to draw guidance and information about delivering social value from a single point. This could be part of an authoritys procurement strategy or it could be a distinct document such as the sustainable procurement policy developed by Solihull Metropolitan Borough Council, or Solihull Metropolitan Borough Councils Business Charter (see below).

elop ative with liers

2. Redesign procurement processes to deliver social value

Partnership working is a particular area where small, local suppliers will require support. Local authorities are increasingly looking for suppliers to work more closely together and develop joint bids in order to deliver requirements, particularly in the social care and construction markets. This takes time and resource, and is particularly difficult for smaller social enterprises and third sector organisations that may lack sufficient overhead to plan and manage this process. Local authorities can draw on the support of organisations whose role is to support the development of local supply chains, such as the Welsh Governments Supplier Development Service. Cardiff Councils Source Cardiff programme provides more good examples of pre-tender engagement.

Cardiff Council
Cardiff Councils Procurement team developed Source Cardiff to encourage local supply chains and economic benefits. The initiative includes publishing more below-OJEU threshold opportunities, simplifying and standardising specifications, insisting on supply chain clauses such as holding meet the buyer events/local advertisement, supporting the development of local consortia to make collaborative bids both for opportunities in Cardiff and outside, and requiring bidders to submit unemployment utilisation plans. b. Tender packaging a key consideration when starting a tendering exercise should be how to package requirements in order to deliver social value. For example, breaking large opportunities into lots can be an effective way of allowing small, local suppliers to compete for opportunities, as Northamptonshire County Council ( see below) did for a construction framework. Advertising smaller opportunities locally, even where they are below threshold, is another way of encouraging competition amongst local suppliers and is a core policy within Cardiffs Source Cardiff programme and for the London Borough of Wandsworth.x

Solihull Metropolitan Borough Council

Solihull Metropolitan Borough Council has developed a Business Charter that sets out its expectations for businesses, including in areas such as corporate parenting, social responsibility, and the use of SMEs. To begin with, the Council has asked 10 of its major providers to sign up to the charter and agree to work in this way. Solihull found that suppliers were actually well advanced in this area, and particularly the construction industry around local employment and apprentices, as they see it as a way of maintaining the industry by developing a skilled workforce.

Wherever this information is gathered it will need to provide guidance on how those involved in procuring goods and services can apply social value considerations in the following areas: a. Pre-tender support local authorities can have a major impact on social value prior to procurement exercises. By preparing local suppliers and supporting local supply chains to compete for opportunities when they are tendered, local authorities can improve the likelihood that local suppliers win work both directly from the Council and from other buyers. Pre-engagement with communities and suppliers is perfectly legal within EC legislation, and is an important part of commissioning for social value.

Northamptonshire County Council

Northamptonshire County Council tendered a construction framework with lots based on value in order to encourage smaller organisations to bid for lower value opportunities from 200k to 500k. The level of overhead was used as a criterion to favour smaller and local organisations in this lot, and to encourage larger multi-nationals to focus on the larger lots.

Mark Glaister, Head of Procurement, London Borough of Wandsworth

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

c. Evaluation criteria a simple device for encouraging potential suppliers to deliver social value outside of core requirements is to add social value evaluation criteria. In practice this means that a proportion of total marks are awarded for the contribution potential suppliers can make to social value. Some local authorities, such as Northamptonshire County Council and Manchester City Council, adopt this approach in some tenders, awarding a proportion of marks (commonly set at 10% or below) for social value considerations, such as generation of local jobs and environmental sustainability. Knowing what is legally possible is the barrier most frequently identified by respondents to our survey (70%) to delivering social value through procurement. Some of the authorities we interviewed mentioned the use of social value criteria in evaluation as being particularly troublesome. Some doubted whether social value criteria could be shown to be core to the contract. However, EU and UK procurement legislation is actually less restrictive than is often thought, and the Local Partnerships report Buying into Communities does an excellent job of unpicking some of the prevailing myths, including showing how social value criteria can be used when also writing social value considerations into specificationsxi.

Wakefield Council
Wakefield Council, in conjunction with the Yorkshire Purchasing Organisation, awarded 5% of marks for sustainability and community focused benefits when re-letting a fresh milk framework contract. Both successful suppliers work with local milk farmers to meet the authoritys requirements.

Core vs. non-Core

The rules state that authorities can only include criteria for aspects that are deemed to be core to the contract and some authorities legal advisors have suggested that this cannot include social value criteria. Other authorities consider that they are able to define social value criteria so as to be core to the contract. The recent report by Local Partnershipsxii and the LGA titled Buying into Local Communities does suggest that relevant social value criteria can be included where the requirements have been written into contract specifications. The report also gives further guidance on how to do this.

http://www.local.gov.uk/c/document_library/get_file?uuid=5bebe9dc-165b-4625-93e2c03088229762&groupId=10161
xi xii

http://www.localpartnerships.org.uk/userfiles/file/Publications/Buying_into_Communities.pdf

xiii

http://hub.westmidlandsiep.gov.uk/uploads/files/whats%20current/enviro_sustain_ procurement_final.pdf

xiv http://www.unilever.com/images/Unilever%20Responsible%20and%20Sustainable%20 sourcing_tcm13-265398.pdf xv

http://www.northamptonshireep.co.uk/sites/default/files/uploads/Binder2.pdf

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

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Many private sector organisations also include social value criteria. Unileverxiv, for example, uses Sustainability as one of 12 selection criteria in procurement exercises. d. Contract clauses including social value considerations in specifications mean that providers are contractually obliged to deliver these wider benefits through the proposals they set out in their bids. For local employment, for example, a contract can include provisions for the number of employment and training opportunities that a contractor must provide, the need to advertise vacancies locally, and the need to target a specific group, like the long-term unemployed (although not defined by locality). As part of a new initiative to promote employment for local young people, called Challenge 2016, Northamptonshire County Council is requiring contractors to provide apprenticeships for local young people for all projects worth over 2 million. Labour provisions are particularly common in construction where Section 106 (S106) planning obligations have been used by authorities to ensure construction firms employ and train local people. S106 local employment and training obligations negotiated by the London Borough of Islington, for example, ensured that developers provided jobs, apprenticeships and work placements to 69 local residents in 2008/09, 42% of whom went on to gain paid employment. CLASP (Climate Change Local Area Support Programme) have written a useful report on delivering environmental sustainability through procurement which provides examples of clauses that can be included within contracts to deliver environmental wellbeing for services including cleaning and landscapingxv. Developers provided jobs, apprenticeships and work placements to 69 local residents in 2008/09, 42% of whom went on to gain paid employment .

Section 106 agreements

Section 106 agreements of the Town and Country Planning Act 1990 are either private agreements made between local authorities and developers or proposals submitted voluntarily by the developer that render a planning application acceptable when it would otherwise have been rejected. These agreements can include employment and skills obligations that can be used to ensure that developments benefit the local labour market and economy. The new Community Infrastructure Levy (CIL) is likely to sit alongside S106 agreements and will allow local authorities to add a charge for most developments to contribute to local infrastructure needs. The addition of social value clauses is an area where many authorities appear to be particularly concerned about the impact on prices. One county councils strategic procurement manager stated that there is a cost implication to adding all these criteria, so we need to take a view on whether it is worthwhile. However, in some instances, both social value and efficiency savings can be achieved, as demonstrated by some of the examples in section 3 above. Furthermore, as also discussed above, any increase in prices may be offset by broader community benefits or avoided costs. The right approach will depend on the circumstances but it is unlikely to be an automatic no for all cases. e. Non-binding agreements rather than add social value contract clauses, some councils prefer to pose specific questions to bidders on social value within tenders, such as for safeguarding local jobs or using local suppliers, which are not marked but become non-binding agreements with suppliers. Wakefield Council asked bidders for a new stationery contract specific questions about how they would manage risks identified in a sustainability risk log, such as Please detail the steps your company has taken in terms of reducing the packaging of stationery items and provide evidence of how successfully this has worked. The benefits of this approach are that it avoids any risk of legal challenge and is likely to reduce the costs that bidders add in to cover mandatory requirements. The drawback is that a Council has less control, although suppliers may still deliver on their statements in order to maintain a good relationship and win repeat business.

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

4. Audit and 1. Identify how your measure the supply chain can impact contribute to social value objectives
Setting clear social value expectations to new suppliers is critical. However, these are likely to remain as just that expectations unless dialogue and challenge through collaborative relationships occurs after arrangements have been set up. Collaborative relationships take effort and therefore should be established only where justified by the level of benefit they will bring. So how do you decide which suppliers to focus on?

3. Develop collaborative relationships with processes to deliver Kraljics matrix chosen suppliers social value

Spend analysis and supplier positioning models such as Kraljics matrixxvi (below) are useful tools to quickly identify the most strategic suppliers 2. Redesign to work with, focusing particularly on suppliers and supply chains that are procurement high spend and where there are few alternatives.

Bottlenecks Risk of supply High sourcing difficulty High supply risk Low spend per contract Routine Low level visibility Low sourcing difficulty Low spend per contract

Strategic High visibility High sourcing difficulty High spend per contract Leverage Medium level visibility Low sourcing difficulty High spend per contract No of suppliers

a. Pick the right supply markets within the first stage of the Social Supply process, an authority will have identified the expected contribution of suppliers to its strategic outcomes. This should include a consideration of which objectives require the greatest contribution from suppliers, and therefore which are the priority supply markets. For example construction, highways, street cleaning, other environmental services, and social care are going to be critical supply markets for local employment considerations. b. Pick the right suppliers not all suppliers will respond to a buyers efforts to shape how they perform, even within priority markets. Some will feel that the business offered by an authority does not merit the time, effort and potential cost. In addition, developing collaborative relationships may not be worthwhile where the amount an authority spends is low or where past performance has been poor.

Value of spend per contract c. Decide how far down the supply chain you need to go a practice gradually spreading through the private sector, and particularly in the automotive and other manufacturing industries, is to look beyond first tier suppliers when developing collaborative relationships to deliver value the attributes which matter to customers. Where the reliance on external suppliers to deliver value or where the risk of quality issues is sufficiently high, buyers need to go beyond their primary contractors. At a minimum, councils should be working with their first tier suppliers in critical areas to ensure that they have the required quality processes in place with their suppliers an approach known as the ripple effect. For example, authorities may insist that prime contractors also ensure all lower tier suppliers advertise job opportunities via local channels. However, this approach may be insufficient, either where the first tier supplier is not able to cascade down requirements or where the Council is better placed to support the lower tier suppliers to meet its requirements. d. Meet suppliers to discuss each others objectives, develop joint solutions and agree set objectives. The right suppliers have now been identified. However, these suppliers need to understand what is expected of them, be supported to deliver these contributions, and fundamentally, to believe that supporting the Council to deliver social value is worthwhile for their business or organisation.

xvi The Kraljic Portfolio Purchasing Model was created by Peter Kraljic and first appeared in the Harvard Business Review in 1983

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

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The first stage is relatively simple upfront conversations with chosen suppliers to present the objectives the Council would like them to contribute to, and to develop joint solutions to meeting these objectives. Solihull Metropolitan Borough Council for example has contacted its core suppliers directly to engage with them and develop plans for increasing employment opportunities for local people. Developing joint solutions with suppliers can appear daunting but in fact there are often simple and practical steps that can be taken. For example an authority can collate demand and hold stocks to minimise journey times, standardise and forecast requirements to allow investments in more efficient technologies, or work with suppliers and local employment services to maximise the opportunities for local job-seekers. Collaborative relationships need to be genuinely that collaborative and this may require some concessions from an authority in order to encourage suppliers to contribute. In other situations, however, simply providing greater clarity over expectations may be enough, and particularly within areas that align with a suppliers own objectives. In the case of one Council we spoke to, a supplier contacted them to suggest it could reduce its carbon footprint if the Council made changes to the way stationery was ordered as this was also a core objective for the supplier.

At this stage, both authorities and suppliers should now be on the same page when it comes to delivering social value. Clear targets have been agreed and plans developed for delivering these targets. But this is not the end of the story. To ensure that plans are delivered and adapted where required, authorities need to audit 4. Audit and and measure the social value measure the that suppliers have contributed, and meet frequently with impact suppliers to discuss progress. This will also develop an evidence base to support further social supply activities 3. Develop in the future. Scape, for example, reviews whether successful bidders employment and training claims have been delivered by monitoring collaborative everyone who works on projects by postcode to check how many local with people are employed and the number of local relationships businesses used.

1. Ide supp cont value

B&Q, part of the Kingfisher Group

B&Q UK currently sets standards for suppliers through its supplier assessment programme known as QUEST (Quality, Ethics, Environment and Safety). QUEST Principles 6-10 cover social and environmental impacts. All new suppliers are assessed for compliance with the Principles, using the QUEST evaluation process. Suppliers are asked to complete a pre-assessment questionnaire which is followed with a face-to-face assessment conducted by the B&Q Quality Assurance team. A grade is awarded (from A to E) for each of the ten Principles. Suppliers must meet certain minimum requirements within agreed timescales and develop action plans for improving their score. Reassessments are carried out to monitor the progress of existing suppliers the frequency of reassessment depends on the grade achieved and the risk to the business. The QUEST Principle 8 on Supply Chain Transparency requires importers and suppliers to demonstrate how they have assured that the factories that supply them comply with criteria on factory working conditions.

This is an area which our research suggests requires particular attention. 75.8% of those who completed the survey said that their organisation has not established an active programme of general audit or assessment of its supply chain. More specific to social value, 83.2% said that they do not quantity the benefits of social value initiatives in procurement. There are many good examples of supply chain audit and assurance in the private sector. There is a growing expectation for transparency, leading to increased exporting of companies environmental and other impacts. Many are starting to quantify their non-financial impacts and report these. The rationale for this is that as natural resources become more scarce, businesses will have to pay to protect them or, in some cases, replace them and that companies who take action to reduce environmental impact and associated costs can gain a competitive advantage over their rivals. Measuring social value is known to be a complex area. It can be difficult to quantify social value benefits which are often intangible and diffuse, and also to combine the impact of multiple benefits into a single measure. However, there is a growing body of research and practical advice on using Social Return on Investment (SROI) tools which can be used to guide these activities. In addition, Local Multiplier 3 (LM3) is a tool that measures local economic impact, which many authorities have used to assess the impact of their procurement activities. Furthermore, authorities such as Northamptonshire County Council, as well as many private sector organisations, use a triple bottom line for the social, environmental and commercial impact of proposals when choosing which suppliers to work with. In Northamptonshire this approach was used when evaluating tenders for its household waste contract, and considered recycling rates, green house gases, and likely access to local recycling centres. Whichever approach is taken, first tier suppliers must also be encouraged to use these tools if the full impact of supply chains is to be measured.

2. Re proc proc chosen suppliers socia

Puma
The sportswear firm worked with environmental research group Trucost to develop an environmental Profit and Loss Account which would calculate the impact of its business on nature. By representing its environmental impacts in financial terms, PUMA is providing its management teams with a robust framework to embed sustainability at the heart of business decision making. PUMA has demonstrated that accounting for the environment across the value chain is no longer a holy grail objective, but simply makes good business sense.

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Conclusion
Across local government, authorities are facing the sizeable challenge of 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 financial benefits their suppliers can deliver if they are to meet these expectations. The Public Services (Social Value) 2012 Act increases the emphasis on social value in local government procurement. Our research suggests that there is a risk that some local authorities may not benefit from the catalysing potential of the legislation, unless they rethink their relationships with suppliers. There appear to be substantial opportunities to draw on further contributions from suppliers to improve local employment prospects, enhance local communities, and improve the local environment for current and future generations. Based on this research, we firmly believe that local authorities are able to overcome commonly identified challenges that have restricted them from drawing on suppliers to deliver social value. A course can be steered through the risks of legal challenges, shortages of capacity, experience and skills, and tensions with reducing costs. A clear strategic overview for where and how suppliers are expected to contribute will guide these efforts, and strong, collaborative relationships with suppliers will provide the engine power. These same relationships are also vital ingredients for improving value for money and managing risks. Local authorities can draw on existing good practice in local government and other sectors, some of which is identified in this report, to plot their course.

contact us

For more information please contact: ANDY MAHON partner, local government t: +44(0)113 290 6150 m: +44 (0)7854 309853 e: andy.mahon@bdo.co.uk Follow the BDO Local Government Team on Twitter @BDOlocalgov www.bdo.co.uk

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