Analysis of the impact and value of community benefit clauses in procurement

Executive Summary

Background and Brief

1. Community Benefit (CB) clauses have been a key strand of procurement policy and practice in Scotland since 2008^[1]. The Procurement Reform (Scotland) Act 2014 gives the expectation that CB clauses will be used wherever there is an appropriate legal basis. Where a procuring organisation is to let a contract valued at £4 million or above, it must consider during the design of the tender whether to impose CB requirements. This should lead to greater use of CB clauses going forward.

2. The impetus behind the use of CB clauses has mainly come from public sector organisations, but increasingly many contractors are also keen to commit to CB clauses as they align with and demonstrate contractors' wider commitment to society and enable them to deliver on their Corporate Social Responsibility (CSR) agenda^[2].

3. Much of the existing evidence base around CB clauses consists of descriptive case studies with insufficient material on outcomes and impacts. The overarching purpose of this research is to assess the usage of CB clauses and the impact these have on employment and skills development - with a particular focus on the benefits to more disadvantaged groups. This includes exploring how to monitor CB clauses effectively.

4. This research draws on data from a large scale e-survey of public organisations and in-depth analysis of 24 individual contracts.

Use of Community Benefit Clauses

5. Two thirds of the public organisations surveyed have used CB clauses in procurement in the period 2009 to 2014. Of the 62 organisations that reported they had used CB clauses, 26% have used CB clauses routinely.

6. The main reasons given for using CB clauses were the contribution they can make towards achieving local and/or organisational outcomes (74% of organisations) and towards achieving Scottish Government National Outcomes (55% of organisations).

7. The main reasons given by organisations not currently using CB clauses was that they are not seen as relevant to the types of contract they let, practical concerns in terms of the management of CB clauses, not having heard of CB clauses, and not understanding the legal position on their use. This suggests additional support is required around raising awareness and understanding of CB clauses.

8. Amongst the organisations surveyed that had used CB clauses, 85% had at least one policy, process or structure in place to support the use of CB clauses. For example, 59% had a procurement officer or champion responsible for CBs.

Outcomes and Impacts of CB Clauses

9. 24 contracts were analysed in depth. However, data in relation to the additionality and sustainability of CB outcomes was limited and this was a significant constraint in assessing the impact of CB clauses. Notwithstanding this caveat, the research was able to draw out a series of key findings as follows.

10. Just over 1,000 individuals from priority groups were recruited as a result of the contracts. Each procuring organisation sets its own priority groups but these were commonly unemployed people or young people not in employment, education or training.

• 38% would not have been recruited without the CB clause.
• 75% were still in employment at the time of the research.

11. Just over 200 apprentices from priority groups were recruited.

• 73% of the apprentices from priority groups would not have been recruited without the CB clause
• 100% were still in employment at the time of the research.

12. Just over 650 individuals from priority groups accessed a work placement.

• 72% would not have accessed a work placement without the CB clause.
• Only 3% of those undertaking a work placement were subsequently recruited by the employer. This reflects the large proportion of work placements offered to school, college and university students.

13. Over 6,700 individuals from priority groups received training.

• 31% would not have received training without the CB clause.
• A further 34% of training places would have been offered - but the CB clause led to the training being accredited.

14. Some contracts yielded much higher benefits than others. If all contracts had performed to the standard of the best 50% the volume of benefits would have increased significantly.

15. Three of the 24 contracts included CB clauses related to developing the supply chain - with a focus on supporting local businesses and social enterprises.

16. In terms of contributing to the Scottish Government's National Outcomes, the CB clauses primarily contribute to four National Outcomes:

• National Outcome 2: We realise our full economic potential with more and better employment opportunities for our people.
• National Outcome 3: We are better educated, more skilled and more successful, renowned for our research and innovation.
• National Outcome 4: Our young people are successful learners, confident individuals, effective contributors and responsible citizens.
• National Outcome 7: We have tackled the significant inequalities in Scottish society.

17. It is important to recognise the impact that CBs clauses are having on contractors. For example, many contractors are increasingly viewing CBs as 'business as usual' and adopting CB practices into their business as standard.

Maximising the Impact of Community Benefit Clauses

18. Building on the existing literature and, in particular, the interviews undertaken with procuring organisations and contractors, a four stage Community Benefits cycle has been developed. The four stages are: Pre-Tender; Invitation to Tender - Setting CB Clauses; Evaluation of Tenders; and Delivery, Monitoring and Evaluation of CB Clauses. At each stage there are challenges that need to be addressed.

19. At the Pre-Tender stage, 34% of organisations surveyed had not used CB clauses and, when used, CB clauses are mainly applied to construction contracts. More needs to be done to learn from and share examples of CB clauses, and particularly those applied to service contracts.

20. At the Invitation to Tender stage, there are some difficulties about how best to interpret the term 'community' within a CB clause. Other challenges identified included the limited evidence of CB clauses targeting specific disadvantaged groups; being clear about what was intended within a specific CB clause (especially around work placements and training); and ensuring that CB clauses do not encourage an inflated CB target 'bidding war' .

21. At the Evaluation of Tenders stage, it is vital that the CB elements of tender submissions are rigorously evaluated by individuals with expertise around CB clauses and ensuring the targets and/or method statement included in the tender submissions are deliverable.

22. When it comes to the Delivery, Monitoring and Evaluation of CB Clauses stage, there are issues in relation to targeting social enterprises as part of CB clauses and the monitoring of sustainability of CB outcomes, given the resources required to do so effectively. There is also the question of how to accommodate CB beneficiaries when the initial contract has ended - are they eligible for other CB clauses? Calculating additionality is a difficult task but it was determined that additionality is greater when CB targets are set by the procuring organisation and are designed to influence and stretch contractor behaviour.

Conclusions and Monitoring Framework Recommendations

23. Through the e-survey of procurement organisations across Scotland and the in-depth analysis of 24 contracts, the research has found that CB clauses are increasingly being used in public sector contracts across Scotland.

24. The evidence suggests that there remains scope to continue building awareness and understanding of CB clauses, particularly around the use of CB clauses in service contracts.

25. In terms of the impact of CB clauses, the analysis of the 24 contracts shows that the targets around job opportunities, apprenticeships, work placements and training for priority groups have been exceeded.

26. Capturing the additionality and sustainability of the CB outcomes is harder to calculate given that procuring organisations have not typically required their contractors to monitor the sustainability and additionality of CB outcomes. Best estimates suggest that although apprenticeships and work placements have the greatest additionality, employment sustainability levels are 75% for the priority groups recruited through CB clauses.

27. Across the contracts evaluated in depth, there is a big variation in the numbers recruited from priority groups for each £ of contract value. Bringing all CB contracts up to the standard of the better performing ones would significantly increase their overall impact.

28. The research findings strongly point towards the need for a more comprehensive evidence base to be developed around the longer-term impact of CB clauses. This requires a more systematic monitoring of CB clauses and their impacts in future contracts so that the use of CB clauses can be fully justified. It is in this context that the recommendations focus on how the monitoring and evaluation of CB clauses in public sector procurement can be improved upon.

29. There are four parts to the monitoring and evaluation framework recommendations. The first two parts - Monitoring Information and Outcomes Information - relate to the indicators that should be captured. These will generate a significant amount of data that can help inform (and increase) the future use of CB clauses by procuring organisations across Scotland. The third part provides guidance on the Monitoring System needed to collect the monitoring information. The final part considers the Reporting Arrangements to ensure the CB data collected is used and acted upon.

30. Monitoring information: for each individual contract that uses CB clauses, we recommend that four different types of CB activity indicators are collected:

• Key Contract Information.
• Community Benefits Clause Indicators.
• Short-Term Sustainability Indicators.
• Additionality Indicators.

31. Outcomes information: At the organisational level, we recommend that a series of headline indicators are collected that demonstrate the use and impact of CB clauses:

• Use of Community Benefits Clauses in Contracts.
• Community Benefits Clause Indicators.
• Short-Term Sustainability Indicators.
• Additionality Indicators.

32. Monitoring System: to collect the indicators outlined requires each procuring organisation to have sufficient resources in place to collect, analyse and report on the indicators across all contracts let with CB clauses. Furthermore, where the data collection responsibility lies with the contractor for specific indicators, the procuring organisation must have the skills and expertise to request and indeed encourage contractors to provide the information required in a timely and accurate manner. This task will be made simpler by using a monitoring spreadsheet that can effectively record progress made and outcomes against each indicator.

33. Reporting Arrangements: to be of real value the data needs to be widely reported and then acted upon. We recommend that the data is reported at the organisational level, but also collated by the Scottish Government to form a national picture of the use and impact of CB clauses over time.