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The importance of procurement to city economies

29 November 2016

This article explores why procurement is increasingly being seen as a way of addressing some of the economic, social and environmental issues facing our cities. It does this through reflecting on: the legislative framework for procurement; the activities of the Procure network; the importance of understanding where procurement spend goes; and how social considerations can be more effectively embedded into procurement processes.

Pluggingtheleaks

Context

The process of purchasing goods and services (procurement) has historically been seen as a bit of a challenge for municipalities and other institutions within our cities, especially when it comes to linking it to the achievement of wider local economic, social and environmental benefits. The process of procurement can and has been seen as bureaucratic, legally complex, isolated from other functions in municipalities, difficult to engage with for Small to Medium Sized Enterprises (SMEs), and extremely competitive.
 
 
However, that perception and culture is in a time of change – procurement is suddenly seen as one of the key levers cities have at their disposal to stimulate local economic development and address social and environmental issues.  I have been talking about the importance of procurement in contributing towards wider outcomes for the last ten years. Indeed Manchester City Council in the UK, with whom I have been working with for the last 8 years, have seen levels of procurement spend with Manchester based business and organisations increase from 51.5% in 2008 to 73.6% in 2016 (see chart below); together with an array of wider benefits delivered by the supply chain. 
 
 
 
Business and organisations increase, Manchester, United Kingdom, 2008 - 2016
 
PROCURE
 
There are also sporadic elements of good practice across Europe. We are now however moving towards procurement being part of mainstream policy around the Urban Agenda for the EU. Indeed procurement is a specific theme of the emerging Urban Innovation Partnerships and a theme which cuts across other aspects including around economic development and poverty. 
 
Part of this mainstreaming of procurement has been driven by legislation and particularly the 2014 European Procurement Directives. Previously and rightly, the Directives were framed by the importance of compliance, competitiveness and price in procurement processes, decisions, and the delivery of goods and services. This remains in the new Directives, but is importantly supplemented by three key considerations:
 
  • First, the Directives seek to encourage more flexibility in procurement – this includes the ability to engage with potential suppliers before a good or service goes to the market;
  • Second, the Directives seek to enhance the engagement of SMEs in the procurement process – making them more aware of opportunities, encouraging them to bid, and ultimately winning contracts;
  • Third, the Directives actively encourage purchasers to consider how procurement can be used to address wider social and environmental goals.
 
Procure logoThe Procure network
 
This mainstreaming of the importance of procurement in part framed the development of the Procure network as part of the URBACT III Programme. Led by Preston City Council from the UK, we felt that there was a real opportunity to think through how the process of procurement could be undertaken differently in cities so that the benefits it brings for local economies, business and residents could be maximised. 
 
Importantly, the Procure network is not just focused upon the procurement processes adopted by municipalities. Instead, the network and particularly the URBACT Local Groups (ULGs) also include institutions which we are defining as ‘anchor institutions’ (this includes universities, health organisations, housing organisations, and large businesses). These are organisations across the public, commercial and social sectors which: will have a large number of jobs; will spend a lot of money purchasing goods and services; and which are unlikely to leave that locality as result of their scale or because of the fact they are embedded there.   
Over the course of the two years of the Procure network we are seeking to encourage our cities to understand:
 
  • How the European Procurement Directives and associated national level law influences the design of goods and services and their procurement;
  • Where their existing spend goes – the extent to which it is in their local economies, with particular sectors of business, and with SMEs;
  • How they can be innovative in procurement and particularly how social and environmental criteria can be embedded in the process;
  • How SMEs can be engaged in the process and supported to bid for opportunities;
  • How the impact of procurement spend and its contribution to wider outcomes can be measured and monitored.
Our network is however not starting from nothing – the baseline study suggested that each of the cities had at least started on the process of progressing how they undertake procurement, the key is maximising that through the transnational meetings, the activities of the ULGs, and the development of the Integrated Action Plans (IAPs).
 
Some examples include:
 
 
  • Preston (UK) has measured where the procurement spend of their anchor institutions goes in geographical and sectoral terms;
  • Albacete (Spain) has started to link procurement to job creation through including clauses in contracts around creating employment opportunities;
  • Almelo (Netherlands) are working with business networks to develop the skills and capabilities of SMEs to enable them to bid for procurement opportunities;
  • Koszalin (Poland) have linked what they want to achieve through procurement to the priorities of their Development Strategy;
  • Lublin (Poland) has a dedicated procurement office and procurement plan which gives potential suppliers notice of upcoming opportunities;
  • Candelaria (Spain) look to co-design goods and services with residents of the city through community panels and prior to any procurement process being undertaken;
  • The Metropolitan City of Bologna (Italy) has been innovative in procurement through actively considering green issues, social responsibility and the role of SMEs in contracting;
  • Koprivnica (Croatia) is seeking to encourage SMEs to bid for opportunities by reducing the number of quotes required for tenders below 20,000 Euros;
  • Nagykallo (Hungary) have engaged with businesses prior to procurement to make them aware of opportunities;
  • District 9, Prague (Czech Republic) advertises all procurement opportunities on the municipality website;
  • Satu Mare (Romania) are undertaking some lotting of procurement opportunities to encourage smaller businesses to bid. 
 
The importance of spend analysis
 

Central to the activities of the Procure network to date has been setting the context for the Integrated Action Plans. Prior to cities doing any work around maximising the impact of procurement through social and environmental criteria and through the engagement of SMEs, they need to understand three contextual factors. First, they need to understand the legislative framework in which the action plan is being developed – this encompasses European and National level law and local level policy. Second, they need to understand the ways in which they can be innovative in procurement and what they can do around local economic, social and environmental issues. And third, they need to understand their existing position in terms of where their spend goes.

 
As emphasised in the URBACT method for action planning evidence is crucial to the development of any strategy.  If cities are serious about progressing the way in which they undertake procurement and they want it to reap more benefits in local economic, social and environmental terms then they need to understand the existing nature of their spend and where it goes. Spend analysis is best undertaken at the end of a financial year and existing data can be used and added to in order to identify the following:
 
 
  • The geography of spend – in this, they might be interested in the proportion of their suppliers and the proportion of their spend which is with businesses and organisations based in their municipality boundary; in their wider city-region or region; or/and in their country. They might also be interested in the proportion of spend which is leaking out of their municipality boundary or city-region.
  • The sectors of spend – in this, they might be interested in the proportion of spend which is with organisations in the construction or communications sector, for example or with consultants. This can in turn be linked to the geographical analysis to identify the sectors where there is lots of spend in their municipality or city-region; and in turn the sectors where there is leakage out of the local economy and gaps (sectors where there is very little local spend).  
  • The nature of spend - In this they might be interested in the proportion of their spend which is with SMEs or Non-Governmental Organisations (NGOs), for example. This can in turn be linked to the geographical analysis to identify the extent to which suppliers based in the municipality or city-region are SMEs or NGOs.
  • Sharing this data with local stakeholders in accessible ways, for instance with infographics, helps to increase understanding of the impact of public expenditure, and generate better awareness of procurement as a tool to achieve policy goals. 
Maximising benefit through procurement
 
All of our partner cities are currently in the process of undertaking their spend analysis and setting the wider context for their Integrated Action Plans. Once done on this we will start to scope how they can embed social criteria into procurement processes and really start to maximise benefit through procurement. There are a number of ways of doing this including:
 
 
  • Commissioning – in the design of goods and services, anchor institutions can ask potential suppliers to develop products which address particular outcomes such as reducing crime;
  • Tender process – in the tender process, anchor institutions can set percentages of the selection decision which will be assigned to social considerations, for example 10% and then ask potential suppliers questions around these criteria;
  • Tender decision – in the decision, anchor institutions can score against social considerations;
  • Monitoring – anchor institutions can monitor the extent to which suppliers are delivering against social considerations. 
The Procure network partner cities are not the only ones undertaking work around promoting the importance of procurement to city economies, but it does need to be scaled up. In fact, we believe progressive procurement activity should be at the forefront of all policy activities where economic, social and environmental factors are of key importance. This includes the delivery of infrastructure projects, the spend of anchor institutions, and the delivery of projects including the URBACT Implementation Networks. It is potentially one of the most powerful, but perhaps under used tools to achieve an integrated approach.  
 
Over the course of the two years of the network, we will look to change practice around the process of procurement in our 11 cities, and to contribute to examples and proof of concept to share with other cities. It must be noted however that behaviour change across Europe will take much longer to ensure that the importance of procurement to city economies is realised. 
 
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