Commonwealth Local Government Conference

1. Commonwealth Local Government Conference Local Government Procurement Policies for LED

2. Agenda

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

4. 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

5. 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

6. 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

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

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

9. 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

10. 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

11. 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

12. 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

13. 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

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

15. 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.

16. 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) • Glover (2008) • Ringwald & Cahill et al (2009) £25,000 • WLGA (Nov 2010). £50,000 • Construction contracts excluded from these thresholds

17. Advertising • Evidence in Wales 2005-2009, very limited increase in advertising. SMEs reported very little change. • Buyers reported concerns over unwanted responses to advertised opportunities. • 2009-2011 (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

18. 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

19. 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

20. 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

21. Tiering • Collaboration, aggregation and consortium procurements leads to economies of scale, but large ‘lots’ which can exclude small suppliers • Contracts with 1st tier suppliers can require the 1st tier to advertise 2nd and 3rd 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.

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

23. Pre-Qualification and Community Benefits Dr Sue Hurrell Value Wales

24. 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.

25. 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!”

26. 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…

27. SQuID

28. 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 www.sell2wales.co.uk

29. 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!

30. 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

31. “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”

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

33. 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

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

35. Thank you for listeningQuestions and Answers Sessionkringwal@glam.ac.uksparfitt@glam.ac.uk