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

4. Maximising the Impacts of Community Benefit Clauses

Key Findings

• 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.
• 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.
• 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' .
• 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.
• 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 felt that additionality is greater when CB targets are set by the procuring organisation and are designed to influence and stretch contractor behaviour.

Introduction

The use of CB clauses across Scotland has increased with public sector agencies becoming more experienced and confident in their use. Building on the existing literature (summarised in Appendix 1) and, in particular, the interviews undertaken with procuring organisations and contractors, this chapter begins by setting out a four stage Community Benefits cycle with each stage illustrating some of the good practice elements that contribute to the effective design, implementation and monitoring of CB clauses. The chapter then considers some of the issues identified during the in-depth interviews that reduce the impact that CB clauses have. These have been organised under the four stages set out in Figure 4.1.

Figure 4.1: Community Benefits Cycle

Stage 1: Pre-Tender

The Pre-Tender stage refers to the wider procurement environment, with the impact of CB clauses maximised where the environment is conducive to the use and effective delivery of clauses. Overall, Scotland's procurement environment is increasingly recognising the value of CB clauses and including them within public contracts. This is evidenced by:

• The Royal Assent of the Procurement Reform (Scotland) Act 2014.
• The e-survey finding that 66% of surveyed organisations had used CB clauses since January 2009, with many of these adopting a number of policies and practices to support their use.
• Contractors recognising that public sector organisations are increasingly using CB clauses and therefore changing their own business practices so that they can successfully compete for and deliver future public sector contracts.

However, the research has also identified issues that still need further attention in order to ensure that the CB clauses become business as usual. For example:

• 34% of the organisations responding to the e-survey had not used CB clauses. With various reasons given for not using CB clauses, there is an implied need to continue raising the awareness and understanding of CB clauses and their use - particularly the ability to use these in service contracts.
• Just three of the 24 contracts involved the delivery of goods and/or services and a further three were repair and maintenance contracts. This reflects the wider evidence that, to date, CB clauses have predominantly been applied to construction build contracts. While construction contracts are important, they are by their very nature temporary contracts and may not generate long-term sustainable benefits. More needs to be done to learn from and share examples of CB clauses applied to service contracts to encourage and support procuring organisations to increase their use of CB clauses in these contracts.

Where a procuring organisation decides not to use a CB clause, we recommend that they record at the pre-tender stage the reasons for this. This will enable procuring organisations to report at the end of the year about number of contracts that have not used CB clauses and give an overview of the reasons for this. By recording some simple data on each contract (for example, size, type, etc.) it will be possible to identify any emerging trends or patterns in terms of where CB clauses are not being used.

Stage 2: Invitation to Tender - Setting CB Clauses

When it is decided that a public contract is to include CB clauses, it is important that the CB clauses are well-considered and clearly specified. This includes ensuring that they reflect community needs; are proportionate and relevant without negatively impacting on the delivery of contracts; set out what supports are available to the contractor to deliver the CB clauses; and detail how the CB clauses will be assessed at the tender evaluation stage.

Many of the procuring organisations interviewed are well-versed in using CB clauses and ensure that the CB clauses are fully specified within ITTs as standard. There are, nonetheless, issues identified from the research that ought to be addressed. These are as follows:

• Understanding 'Community'. CB clauses by their very nature should benefit the community in which the contract is delivered. This is more straightforward for a place specific contract (e.g. a construction contract) as the target communities can be more easily identified and consulted with to understand their needs and priorities. Clyde Gateway URC, for example, have consulted with each of their communities to develop a 'wish list' of community benefits that Clyde Gateway URC then use to develop the CB clauses within their contracts. National organisations have however found it more difficult to build in their corporate objectives and the needs of the communities they serve into their contracts. For example:
  • NHS Scotland are trying to build their Healthy Living agenda into CB clauses so that contracts can help deliver on their organisational aims and objectives.
  • The Scottish Prison Service is looking at how it can build its Transforming Lives agenda and provide more opportunities for offenders (e.g. work placements and employment opportunities) through its procurement.
  More widely, there are other challenges relating to understanding community needs and priorities and then applying these to contracts.
  • By adopting a national CB monitoring framework, the risk is that local needs and priorities of communities get lost compared to national priorities. Procuring organisations can overcome this by consulting closely with key stakeholders to tailor the CB clauses set.
  • For service contracts in particular, where the place of production is different from the place of delivery, there is the question of where the community benefit should be delivered. For example, if an IT services contract for a Glasgow-based organisation was won and delivered by a Highlands-based IT company, should the community benefit be delivered in Glasgow or Highlands? This scenario could be extended to contracts for Scottish-based organisations being delivered by UK or overseas-located companies.
• Targeting of Specific Disadvantaged Groups. The research has found little evidence of CB clauses being used to target specific disadvantaged groups, such as the long-term unemployed, BME groups and offenders. There are opportunities for procuring organisations here as including CB clauses that are targeted to specific disadvantaged groups^[11]. This:
  • Helps public bodies to deliver on the Equality Act 2010 - i.e. eliminate discrimination, advance equality of opportunity, and foster good relationships.
  • Does not contravene European legislation as there is no discrimination on the basis of locality.
• Clarity in Specifying Target Outcomes. Contractors were not always clear about what outcomes were to be delivered. This has led to outcomes being interpreted in different ways, making aggregating of outcomes across contracts difficult. Examples include:
  • How work placements are defined as these have been interpreted from short school visits up to 4 week structured placements for the unemployed.
  • Some contractors delivering contracts that were monitored using the CITB Construction Skills client-based monitoring framework did not initially appreciate that non-CITB Construction Skills trades (e.g. electrical and mechanical) would not be counted as outcomes.
• Effective Weighting of Proposed Community Benefits. Many of the contractors interviewed believed that too much focus is placed on the quantity of CB outcomes, rather than the quality of outcomes. To counter a potential 'CBs bidding war' at the tender stage, a 'CB method statement' was seen as vital in enabling potential contractors to be scored against their proposed approach to delivering CBs rather than (or in addition to) the quantity of CBs delivered.

The need for clear, fit-for-purpose CB clauses is particularly important when CBs are a mandatory part of the contract rather than included on a best endeavours basis. With Clyde Gateway URC being an example of a procuring organisation including mandatory CB clauses in their contracts, there is a need for:

• The targets to be very carefully set so that the contractor views them as proportionate and commits fully to them, rather than feeling forced to do so and delivering to the bare minimum requirement or not delivering them and accepting a contractual penalty.
• Clear arrangements in place to support delivery and also to take action when CB clauses are not delivered by the contractor.

Contractors, however, appear to favour more collaborative approaches to developing CB activities - e.g. through joint discussions between contractor, procuring organisation and stakeholders to develop an agreed approach to CB - rather than the more prescriptive approach which can inhibit innovation by restricting the opportunities for contractors to think more creatively around CB. The challenge of the innovative, collaborative approach to CB clauses is how to establish a mechanism that delivers measurable benefits. A good example of this is Dundee City Council's Welfare Reform Pilot where no CB clauses have been set out in the contract documentation but the council and contractors have worked closely together to deliver both employment outcomes and put in place processes to feed back critical information from the provision of the service into other council departments (e.g. where additional social needs have been identified by a contractor delivering white goods).

Stage 3: Evaluation of Tenders

Once tenders have been submitted, the CB tender requirements need to be rigorously evaluated against the assessment criteria set out in the ITT. Procuring organisations should therefore ensure that individual(s) with expertise around CB clauses are involved in the assessment process. In particular, their input is necessary to assess whether:

• CB target outcomes set out in the tender submissions are deliverable and not over-ambitious in expectation of a CBs bidding war.
• The method statement that sets out how the CB targets will be delivered is appropriate to the priority groups targeted and the delivery landscape. For example, do the tenderers have robust mechanisms that will enable them to engage with, recruit and support the priority groups.

Stage 4: Delivery, Monitoring and Evaluation of CB Clauses

Chapter 3 shows that CB clauses are largely being delivered to the targets set and, in many cases, exceeded. This is down to the contractors (and their supply chain) committing to the CB clauses and the support provided by procuring organisations and partners on the supply side (e.g. employment and skills agencies) in enabling contractors to deliver CBs. There were, however, reported difficulties with social enterprise targets. Some contracts specify the need to open up sub-contractor opportunities to social enterprises but contractors found it difficult to get good quality, competitive tenders from social enterprises. For example, the tenders submitted were too expensive compared to other tenders received or presented too much risk and uncertainty for the main contractor. If social enterprises are to be targeted, continued support is needed to enable them to be competitive in a tendering process.

A further key factor behind the delivery of CB targets is how the contract is managed and in particular how rigorously the CB clauses are monitored, with contractors placing a higher priority on CB clauses if they are tightly monitored by procuring organisations. The research suggests, however, that monitoring processes are not as rigorous as they could be and often do not include measures of sustainability and additionality. Chapter 5 builds on the views expressed in the interviews with procuring organisations and contractors (and detailed below) to provide guidance on what form the monitoring process could take.

The sustainability of the jobs and MAs created through CB clauses is a key concern. Only one of the procuring organisations interviewed had systems in place to capture this information - although in some other cases, strong relationships with the contractor meant the procuring contractor was informally aware of individuals that were still employed. Many consultees recognised that this was a gap in their systems and expressed a desire to address this. Nevertheless, there were some concerns raised:

• Resourcing. Having the resources available to monitor sustainability was seen as a significant barrier amongst consultees. While tracking existing employees may be relatively straightforward, getting information on individuals who are no longer with the contractor or sub-contractor is difficult and resource intensive. This raises questions of: who is responsible for monitoring sustainability (procuring organisation or contractor); and are sufficient resources available?
• Transferability of CB beneficiaries. Some consultees were unclear on the status of individuals recruited through a CB clause once the contract comes to an end - i.e. are these individuals eligible for other CB contracts? Given the increasing use of CB clauses by different public sector partners, an agreed, joined up approach across the public sector regarding the transferability of CB beneficiaries between contracts would be of value. Organisations such as Glasgow City Council and Clyde Gateway URC have already considered these issues and allow for 25% of new entrants^[12] (their key priority group for recruitment and apprenticeship opportunities) to be transfers from other CB contracts, which supports the sustainability agenda. However, for this arrangement to work in practice, procuring organisations would need to verify that an individual had initially been recruited as a result of a CB clause. A risk with this approach is that individuals will be moved around by contractors from contract to contract, limiting the impact that CB clauses have on increasing the number of opportunities available to those from priority groups. To minimise this, it will be important to set clear eligibility criteria - for example, limiting the number of CB contracts an individual can be counted against or allowing individuals to only be counted towards a CB target if they were recruited by the contractor in (say) the last 12 months.
• Fear of unscrupulous contractor behaviour. While we have no evidence of such behaviour, the extent to which sustainability should be a CB target was questioned by some consultees. If a target was set (e.g. 13 or 26 weeks employment), contractors may deliver to that target and then make those individuals redundant after the 13 or 26 week period has passed, in the knowledge that they could recruit other individuals and achieve the target again.

In relation to additionality, understanding what would have been delivered without the inclusion of CB clauses is a difficult task. This is particularly challenging when contractors are invited to set out the CB targets within the tender process as contractors may simply set out the activities that they would deliver as standard in line with corporate policies and values. The interviews therefore suggested that additionality is greater when CB targets are set by the procuring organisation and are designed to influence contractor behaviour and stretch them. Nonetheless, Chapter 3 found that none of the procuring organisations interviewed had a robust system in place to date to ensure that additionality was captured. Similar to monitoring sustainability, most recognised that this was a gap in their approach they were keen to address - but a lack of knowledge of how to effectively measure additionality and/or a lack of resources to manage this meant that few planned to address this in the immediate future.

Next Chapter

The concluding chapter builds on the issues raised above and the challenges involved in assessing the impact of CB clauses in Chapter 3 to develop recommendations on the more effective monitoring of CB clauses in Scotland.