Buying Into the Future: Making the Business Case for Social Procurement

Public sector procurement objectives are quite predictable and intuitive – find savings for other departments to be able to meet their budgets. As procurement professionals know, the need for public sector to deliver value for money as it relates to infrastructure investment and operations requires a team approach. Engineers and operational staff design and develop requirements and procurement collaborates by putting their specifications into commercial documents for the private sector to respond to with competitive tension. We measure the performance of procurement by and large on the difference between the budgeted amount and the final out-of-pocket cost. If favourable, the recognition goes to procurement.

While the public sector means of doing business is based on the consumption of resources to provide maximum expected value for goods and services delivered to the taxpaying stakeholders, a concurrent opportunity is also present – particularly for municipalities. That is, the ability to create additional value for taxpayers through procurement by engaging with social enterprises in their community.

Why should procurement take this step outside of its usual mandate and engage in social development? If a municipality is able to create meaningful employment for individuals through contracting with social enterprises, the municipality reduces its financial burden by reducing the need for conventional social services. By creating employment opportunities, procurement can contract for its requisite goods and/or services through social enterprises at very competitive rates meeting two important functions: providing value for money and building social capital.

What is social procurement?

Social procurement is utilizing procurement policies and practices to affect social impact.

Social impact results in measureable improvements in the living standards of individuals, groups and communities. This is the noteworthy aspect of social procurement – building the social capital within the community. Society acknowledges that there will always be a requirement to provide food, shelter, clothing, and health services to those who are unable to care adequately for themselves. By removing the stigma attached to charity or conventional social services, and by providing meaningful work to many individuals who are typically under-employed, procurement can contribute in an important way.

What is a social enterprise?

Social enterprises operate as non-profit organizations, and act as the bridge between the under-employed and the public workplace. The under-employed usually have one or more barriers to employment, but also have the desire and often valuable capabilities to bring to the workplace. They simply need the opportunity. In addition to municipalities, many other arms of government, as well as private sector companies, are engaging with social enterprises and realizing the many benefits.

It is not a zero sum game of taking away business from the private sector and arbitrarily giving the work to a social enterprise. Social enterprises complement the private sector, and can play a vital role in economic as well as social development. Social enterprises usually have a targeted employee focus such as new immigrants who learn sewing and production skills to make banners or tote bags; or people with mental illness who learn how to assemble and package safety kits or oil sampling kits. While some social enterprises are started with grants, few rely on those grants to continue operating. Social enterprises must be financially sustainable, and this is where public sector procurement can help.

What types of goods or services can they provide?

To name a few real examples – assembly, banners, couriers, cartage, carpentry, catering, custodial, construction, demolition, distribution, drywall, electrical, fencing, graffiti removal, landscaping, packaging, pressure washing, roofing, sewing, snow removal, tile, upholstery, window cleaning, etc.

All of these types of goods and services are required on a daily basis, or a seasonal basis, in all municipalities. These contracts may be awarded through competitive bids, direct awards, or pilot programs as part of a larger economic development strategy.

Can the benefits of social procurement be quantified?

The 2013 study by Ernst & Young for Vancouver-based Altira Property Management provides very good insight into the business case for social procurement. This report indicates that for every dollar spent with a target employee group, the social return on investment is ~$3.50! This study was based on a target group of 105 employees which had the economic multiplier effect of generating over $600,000 in the local economy.

This study also reveals that social procurement initiatives can result in a reduction in crime-related costs, reduced housing and shelter costs, less dependence on food banks and social assistance, and an improvement in health, quality of life, and employability. Because most of the employees’ wages are spent locally in the form of taxes and local purchases, there is a redistribution of the wealth to the community.

Another quantitative example in the lower mainland is Starworks Packaging & Assembly. A recent report shows that, starting with 7 employees 15-years ago, it has paid $1.8M in wages and now employs ~45 employees through a payroll of $250K per year. Using the multiplier effect, this could be extrapolated to represent a social impact of $750K per year!

Starworks’ offers high quality services to both public and private sector organizations, at very competitive rates. Their employees, most of whom face employment barriers, are paid minimum wage rates within a safe working environment, and pay taxes and support the local economy through their living expenses. Perhaps most importantly, they are given the chance to show their worth, and make a meaningful contribution to their community. Their self-esteem improves and this in turn provides them with a healthier and more independent lifestyle. The attention is on the prevention rather than the cure.

Based on such reported outcomes, it is clear that public procurement should at least consider working with social enterprises to expand the opportunities to continue this type of success. While there are many examples of successful social procurement initiatives by public sector, there is so much room for expanding the role of supply chain professionals in this area. This implies that how we measure the performance of procurement may need to include social engagement as a factor.

How do I begin to engage with social enterprises?

Social enterprises operate the same as any small business – they have a need for sales and revenues, and welcome the business opportunities afforded by the various levels of government. Holding forums and reverse trade shows which include social enterprises are great ways to find out who they are and what they can do. Meeting face to face and looking for the mutual benefits is a start.

Buy Social Canada is an organization with a focus on building social and economic development through social enterprises. They have the expertise and contacts to facilitate business partnerships. Buy Social sees the important role which can be played by procurement professionals.

Public procurement should seek input from social service specialists and economists when engaging with social enterprises, particularly when evaluating the competitiveness of their proposals. Social enterprises are helping to reduce operating costs for several branches or levels of government and should be viewed as an asset and not just an expense in terms of fiscal management.

Who are some of these social enterprises?

The Vancouver lower mainland has many including: CleanStart, The Cleaning Solution, Common Thread, Embers, H.A.V.E., Mission-Possible and Starworks Packaging. They offer a wide range of goods and services. If you look, you will find similar social enterprises in your own community.

Does this mean more work for procurement?

We suggest that it is not more work – it is just different work. Social procurement is less focused on cost savings and more on enabling social value. As procurement is the conduit between governmental needs for goods and services and the market, it is a natural move for procurement to adopt a more assertive role. The buyer becomes a broker in these situations. Brokering implies finding the right social enterprise to provide the services at competitive rates and capacity, and matching them to the specific organizational needs. Brokering needn’t be all or nothing – it can also mean having only a portion of the overall contracted goods or services supplied through social enterprises in local community partnerships.

Does this mean higher cost for taxpayers?

Social enterprises that have been in business for a while can be treated and evaluated the same as other established businesses. They can be measured on price, quality, delivery and service performance. The distinguishing characteristics of the social enterprise are its non-profit business model and its purpose-based mission statement. Social enterprises are not impeded by the need to generate profits and therefore can usually offer competitive rates. In summary, social enterprises can be judged on their own merit.

As public procurement is funded directly by taxpayers, for the good of the taxpayers, it makes sense to look at the ways to provide services through social enterprises to optimize the benefits to the taxpayers. That is buying into the future.