Month: November 2020

When buying goods and services, equipment for businesses and government, and on any construction and infrastructure projects, a social procurement approach is one that would take into consideration the interests of the community stakeholders. This approach includes: social, ecological, environmental and economic development. Best value is achieved when we balance value-based interests along with pricing concerns.

When tendering a project with social procurement values, whether a domestic or a foreign contractor takes the contract, it creates positive competitive tension in the market. Social procurement values ensure social impact in communities once the project is initiated. Social impact is a measurable change on social issues or outcomes through procurement decisions.  Social procurement is the transition from making goods deals, to making deals that do good.

Social procurement values have been around for a couple of decades but are receiving more attention through their success. Every organization consumes goods and services and these transactions are the everyday means of commerce. Social procurement is a specific strategy to ensure that local economic benefits are realized when contracting for goods or services.

Labour is an important factor in social impact outcomes. Individuals facing barriers, as one example, are often overlooked as a first choice for employment with for-profit organizations. This is understandable where peak efficiency is required to sustain profits. The result is many people facing employment barriers such as individuals having disabilities–rely more on social services paid for by taxpayers.

Would your organization hire an ex-convict? Likely not. However, Purpose Construction out of Winnipeg, does. As a social enterprise, Purpose Construction trains barriered individuals to qualify for construction work, pays them living wage rates, and helps them to return to full time work–often in the private sector. Social enterprises are social purpose businesses which generate value by providing goods and services-generally as a not-for-profit operation. Social enterprises provide meaningful work for people facing barriers to employment. This can include skills development to prepare the individuals for a return to the work force. Social enterprises work with government, private sector companies and with other social enterprises. Social enterprises are operated by business entrepreneurs.

The Purpose Construction example builds social capital in a community. Buy Social Canada defines social capital as the “relationships and networks within and among community members.” With a shortage of skilled trades, Purpose Construction can build a pool of workers to meet the demand in the market without government subsidies.

One of the early and continuing success stories in the social enterprise sector, is CleanStart Hoarding & Junk Removal CCC Inc. In the Vancouver lower mainland, CleanStart, in 2015, paid $233,000 in wages to its barriered employees. This resulted in a social return on investment (SROI) of $1M per year in the local economy. In 2020, CleanStart will contribute $1.4M. The SROI is based on a study by E&Y with Atira Property Management which shows that for every dollar paid to target employees, the return is >$4.00 in social and economic development! When was the last time you got a 4 to 1 return on an investment?

As a synopsis, the empirical study on the SROI demonstrated reduced reliance on social subsidies, reduced shelter costs, reduced criminal activities, taxes being paid back into community, increased local spending, increased employability, increased self-esteem, improved health and general quality of life. This moves these individuals from dependency on social services to independent taxpayers.

Another company which uses social procurement as a business strategy is Chandos Construction. They are the first and largest B Corp certified commercial builder.

Chandos is a Canadian, employee owned construction company operating in several major Canadian cities. Their social procurement strategy embraces: local employment, expanded diversity, poverty reduction, eliminating social isolation, local purchasing, skills training, first source hiring, and fair wages to underrepresented individuals. Chandos successfully responds to tenders for major infrastructure projects-which is a very competitive sector. Their commitment to social procurement values is another example of building social capital. Chandos recently brought on several workers facing barriers as full-time employees and enrolled them in the Red Seal training program for trades.

Purpose Construction, CleanStart and Chandos are great examples of social procurement being applied in Canada. It takes the spending power of buyers to make this happen. It also requires that buyers look beyond the lowest out-of-pocket cost and redefine the value proposition. As we move into the post-COVID era, it is even more important that we ensure that social enterprises and small medium businesses have a good opportunity to participate in government contracts.  Government contracts are taxpayer paid. While we are engaged in a global economy, we concurrently need local economic diversity.

This implies not simply putting the bids on e-bidding platforms but using strategies which will increase the number of bidders. One tool is the unbundling of large contracts. The theory has been to buy the most from least to get the lowest unit cost. This strategy will always favour the multi-national corporations with the deeper pockets. Unbundling could take a percentage of the requirements and ensure local participation for the supply. i.e.  targeting women-owned businesses or Indigenous contractors. The balance of the requirements goes to the lowest bidder.

We are dealing with many oligopolistic markets where the largest suppliers tend to control the pricing and availability. When we reflect on the PPE shortage during COVID, in part, this can be attributed to the bundling of the demand. Great pricing but as it turned out-no supply.

All trade agreements, international and domestic, provide for exceptions, exemptions, and exclusions when dealing with social enterprises by Federal, Provincial or Municipal governments. Further regional trade agreements provide for derogations for economic development strategies!

Community benefit agreements are an extension of the social procurement strategy. A CBA is an agreement between community, government, and developers that ensures development projects enhance local social, environmental and economic opportunities. The Parq Casino in Vancouver is a good example of CBA.

For the past 2-years, through Presentations Plus, I have been the procurement advisor on the Coastal Communities Social Procurement Initiative (CCSPI) on Vancouver Island. Along with Buy Social Canada, Scale Collaborative, and the Vancouver Island Construction Assoc., our role is informing public officials, training public buyers, training small businesses and social enterprises on social procurement strategies. This includes drafting bid document templates with social value language which focuses on increasing local opportunities and drafting policies. CCSPI began with 6 cities/towns and now has 20+ communities participating in this project. It’s very exciting to see the commitment from so many parties to common goals which are being realized.

The following table shows the difference from where procurement has focused its attention and the transition to social procurement values.

Traditional focus	Social focus
Short-term costs	Long-term investment
Inputs	Outcomes
Fiscal interests	Community interests
Consumption of resources	Conservation of resources
Make good deals	Make deals that do good
Follow	Lead
Ethic of Justice	Ethic of Care

It may be early days in social procurement, but I am pleased to say that more and more progressive organizations are adopting this strategy because of the compelling business case it creates. It’s about being vocal when making local the focal!

Procurement Policies in the Public Sector

Most people like to follow the rules. In many organizations, this could mean adhering to policies which lack current relevance to organizational and stakeholder needs.  Playing follow the leader without challenging the status quo. Changing direction requires a procurement policy leadership strategy.

Image by: Mark Duffel 

Procurement policies are often written as edicts under the assumptions that if everyone obeys, all will be well. Many policies are outdated and don’t reflect best practices or current market events such as trade agreement amendments or case law rulings. Informal “work around” processes may prevail. As social procurement is being adopted by progressive public sector entities, procurement policies are often lagging on this important means to affect values and outcomes.

The purpose of a procurement policy is to ensure the organizational values are reflected in business practices. For example, a City wants to adopt a Fair-Trade policy or a Province wants to ensure small and medium businesses have better opportunities to compete for its supply contracts. A Hospital could ensure social enterprises have a stake in providing work on the project for people facing barriers. These strategic outcomes are set by elected officials and or Boards. Therefore, outcomes need to be reconciled to policy and enacted in practice.

One of the best tools to ensure a policy is understood, is to provide staff with the how and why of a policy. The how and why is provided through a policy guide complemented with in-house training. While the guide is important for procurement staff, it is even more valuable for other decision-makers to apply the policy statements to their departmental needs. Suppliers look for consistency as to how policies and practices align. Consistency can create competitive tension.

For example, a department manager receives an unsolicited offer from a supplier, how should that manager respond to it?  An example of a policy statement and how it is addressed in a policy guide are as follows:

Policy statement: Unsolicited proposal – A proposal from a supplier which has not been solicited through a competitive process.

Policy guide:  Unsolicited proposals are typically submitted by a supplier who may also be able to supply similar goods or services as those in current use.  The City should not consider these proposals further where they already have a contract in place.  The City could, however, contemplate unsolicited proposals based on innovative practices or which use more responsible materials than are currently being used. In the short-term, the City may trial or pilot a program to evaluate the ideas further, without conflicting with existing agreements.  In the long-term this could result in a competitive process being initiated to determine best value.

The department manager now has guidance on how an unsolicited proposal could be handled. It is respectful to the supplier, ensures the current contract is honoured, and allows a means to accommodate new ideas in the market under the City’s priority of need.

Policies also act as a means of risk mitigation. When staff are well-informed as to the policies of the organization, they will apply them consistently in their business dealings. A common risk is a misunderstanding of the basic principles of competitive bidding found in Contract A and Contract B obligations. Good intentions do not excuse non-compliance.  A guide should reiterate the importance of Contract A and Contract B compliance along with other related competitive bid and contract management caveats.

Alternatively, when stepping out of the Contract A/B box to conduct a negotiated RFP a guide should ensure that staff are aware of risks and the correct process to use. Conducting evaluations often requires clear guidelines for objective outcomes to be fair and transparent.

Staff turnover compounds the potential for risk in bidding and contracting processes. The procurement policy guide increases the accountability for the designated authority, whether decentralized or in a centralized reporting structure. New staff can refer to a current guide when making procurement decisions. The guide mitigates the risk by having a searchable format readily available and updated annually. This implies, that the procurement policy should be reviewed on an annual basis. Staff training around a revised policy instils a better understanding of individual roles and responsibilities. If a city, as an example, is spending $50M or $500M per year for goods and services, there should not be an excuse of “I wasn’t aware of the legal obligations” when problems occur. It is incumbent upon the city to exercise all reasonable best efforts to ensure decision-makers are informed and as up to date as possible.

The commitment to social procurement has led to new opportunities in public sector strategies. Ensuring value for money is always the objective. Social procurement strategies are applied to increase social values and economic development outcomes while concurrently dealing with budget constraints. Social procurement practices within a policy are perceived as desirable and not mandatory, either-or options. A strategic outcome of social procurement practice is to build market capacity with social enterprises.  A procurement policy which is inclusive of social procurement values encourages suppliers to adopt social procurement values and work with social enterprises. Social procurement is leveraging the existing spend to improve social outcomes. Again, the why and how needs to be provided within a guide for staff to appreciate the shift in the definition of value.  Competitive bids need to have the appropriate criteria and weighting to affect change.

Ethical conduct in procurement requires an extra level of due diligence on the part of an organization to ensure fairness and transparency in its business practices. From declaring conflicts of interest in the procurement policy and how to clearly manage real or apparent conflicts during a bid process is part of the role of the guide. Not only is an individual’s integrity at stake but that of the organization itself.

An issue related to putting policy into practice is doing so in an apolitical manner. Individual beliefs or self-interests should not compete with organizational intentions. For example, the price variance between product choices. In one city, the environmentally responsible policy implied that cleaning products which contained volatile organic compounds (VOCs) should be avoided. However, products which did contain VOCs, at the time, were ~10% less. As the price difference could negatively impact the Facility Manager’s budget, the price-conscious manager went with the traditional cleaning product containing VOCs. His interpretation of the policy was one where the budget was the more important responsibility. After all, it was the taxpayer’s money. Therein, lies the rub. We now have an individual’s personal understanding of value being the proxy for the organization’s values. This is where the policy guide reiterates the need for clarity in setting the evaluation weighting so that the manager can proceed with a higher cost product-responsibly and ethically. The apolitical issue can be more problematic in decentralized organizations where authority is widely dispersed. This can contribute to inconsistency as to how a policy clause may be interpreted by the many decision-makers.  Guides remove the doubt.

How do policies become ineffective? Summarily, out-of-date policies which do not meet the needs of decision-makers or external stakeholders; bureaucratic inertia developed by being overly risk averse; rogue buyers not being reprimanded for ignoring protocols; bid templates and related documents not reflecting best practices; oversight for the policy not being an organizational priority.

Purchasing card policies are part of a procurement strategy. The use of Purchasing cards also requires clear guidelines on best practices to ensure value for money and avoidance of fraud.

As a procurement advisor to the Auditor General for Local Government, on several occasions this author found large and small public sector entities with serious gaps in their procurement policies and practices. Many of these shortcomings led to the inability to assess value for money on multiple contracts and a lack of accountability as to how public funds were spent. Policies are effective where the people that put them into practice find them to be delivering on value.

Is your policy leading lemmings or providing leadership?

The author, Larry Berglund, has extensive experience in drafting and implementing Procurement policies, Procurement policy guides, full suites of competitive bid templates, and staff training to align policy with practice. He has assisted many organizations with the introduction of social procurement into policies and practices.

Lemming image found here.