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

Appendix 1: Review of Literature on Community Benefits

Introduction

This section provides a concise overview of the CB literature. It reviews how CB clauses have been used to date, how the aims of CB clauses can differ, and how CB clauses can be used most effectively.

Use of CB Clauses

CB clauses have predominantly been used by public agencies to create targeted training and recruitment opportunities from the construction of new physical developments. Less common, but potentially more sustainable in the longer term, is the targeting of end-use, service contracts. Furthermore, there is some recognition that CBs should not simply be viewed as something that delivers 'x' jobs or 'y' training places. Instead CBs should be viewed in a more rounded way that encourages greater creativity in the use of CB clauses.

As outlined above, the impetus behind CB clauses has mainly come from public sector organisations but this does not mean that CB clauses are forced on contractors without support for their inclusion. For example, contractors can be keen to commit to CB clauses (provided the clauses are deliverable and reflect local needs) where^[16]:

• They align with and demonstrate contractors' wider commitment to society and enable them to deliver on their CSR agenda.
• They form an extension or formalisation of existing or normal practice.

Aims of CB Clauses

Turning to the aims or intended benefits of CB clauses, the review finds that CB clauses can first vary in relation to the theme of the intended benefit. With the caveat that this study classifies environmental benefits as distinct from community benefits, CB clauses have been found to deliver^{[17], [18],[19]}:

• Economically focused benefits, which include using:
  • 'Local' SMEs and third sector organisations as suppliers.
  • Targeted training and recruitment opportunities to help local unemployed residents towards and into employment.
• Socially focused benefits, which include stipulating the provision of:
  • New social amenities within a development project (e.g. a community centre or sports facilities).
  • A community dial-a-ride service as part of a contract to run a mainstream bus route.

CB clauses can also vary according to the direct and indirect benefits that they aim to achieve^[20].

• Direct benefits relate to defined, stated benefits that are specified within a CB clause, e.g. the number of training places accessed by young people.
• Indirect benefits are typically broader and longer-term in nature. For example, they could relate to:
  • Securing spillover benefits from maximising opportunities for local suppliers, such as increased local employment and retention of income in the local economy^[21].
  • Raising the profile of a social issue and encouraging contractors to consider how they would address the social issue as part of their tender.
  • Encouraging contractors to re-examine and revise their business (e.g. recruitment and training) processes.
  • Encouraging contractors to develop ongoing relationships with public sector agencies to the benefit of both sides. For example, relationships between contractors and employability agencies can support the supplier's recruitment and enable more local people into employment.
  • Providing additional resources and facilities for local communities.

The aim of achieving indirect benefits can therefore tie into the notion that CB clauses should be viewed in a more rounded and creative way.

Maximising the Benefits of CB Clauses

Having established the different intended benefits of CB clauses, this section considers the key lessons from the literature around how to maximise the benefits. These lessons are organised sequentially from the pre-tender stage to the delivery of outcomes and impacts.

Pre-Tender

At the organisational level, procuring organisations need first to have in place a conducive environment in which CB clauses can be delivered. This requires corporate and political support for CB clauses at the highest level as this will help embed the commitment towards CB clauses throughout the organisation^[22],[23].

Once a CB clause is deemed appropriate for a contract, early engagement of key players is then required to understand what needs and priorities the CB clause should respond to within the Invitation to Tender (ITT). For example, a procuring organisation may work with community organisations and consult with the communities itself to tailor the CB clauses to best meet their needs. At the same time, it is important that the contractor/supplier base is understood to help ensure that they have the capability and capacity to deliver any CB clauses^[24]. Where the supplier base is seen to be deficient and unable to deliver, there is an opportunity to build their capacity and skills through procurement seminars and training events prior to the Invitation to Tender stage^[25],[26].

If a key objective of the CB clause is to encourage small and medium enterprise (SMEs) and social enterprises to bid for contracts, then the barriers these enterprises typically face in competitive tendering processes need to be considered. For example, SMEs and social enterprises often encounter difficulties around^[27]:

• Accessing information on forthcoming contract opportunities - and widening the use of e-procurement portals (such as Public Contracts Scotland) is critical to addressing this.
• Too much information being required and too little standardisation across the public sector at Pre-Qualification Questionnaire (PQQ) stage, although Public Contracts Scotland is aiming to increasingly standardise information requirements across contracts^[28].
• 'Aggregation' (combining similar requirements into a larger contract) and 'bundling' (putting together different requirements into a larger contract) that leads to large contracts that are beyond the scope of SMEs to deliver.
• Meeting the technical and financial criteria that are required.

Solutions include breaking down a contract into separate lots or providing some flexibility in the payment schedule to help support smaller contractors^[29]. Once the tender period is closed, it is important to provide contractors with the opportunity for feedback to help them enhance their future tenders^[30].

Invitation to Tender

At the ITT stage, there needs to be clarity on the CB clauses to be delivered. This means that the CB clauses are^[31],[32]:

• Clearly stated (preferably in terms of output and performance). Target setting can be useful if specified in a clear and measurable way.
• Deliverable, which means tailoring clauses to the characteristics of the development, sector, local labour market, etc.
• Capable of being evaluated against objective criteria.
• Of benefit to the procuring organisation and the communities it serves.

There should also be information on how contractors can deliver CB clauses, as the activity they are required to deliver is unlikely to be in their core area of business. For example, if targeting training and recruitment, there needs to be a local delivery infrastructure that can help contractors to deliver on their obligations and allay any concerns around the cost of delivering the CB clauses^[33]. Typically the procuring organisation should undertake this preparatory work and coordinate a supply chain that can deliver skills and recruitment services^[34].

Evaluation of Tenders

It is vital that tenders are assessed according to the scoring mechanism set out within the ITT, with appropriate weighting given to the CB clauses stipulated in the ITT. However, work undertaken for the Welsh Government^[35] found that some contractors were concerned about how procuring organisations evaluate this element of a tender submission. In particular, some contractors felt that procuring organisations did not always apply the CB requirements as specified, which meant that those who made financial allowances to deliver CB requirements felt disadvantaged by the process. This in turn can lead to accusations of unfair tendering processes. Furthermore, if CB is not an award criterion for a contract, it is then difficult to justify its place as a key performance indicator (KPI) that will be monitored as part of the contract management arrangements.

Delivery of CB Clauses

The signing of the contract is not the end of the process and the procuring organisation needs to not only manage the contract effectively but also support the contractors throughout the duration of the contract^[36].

A key component of effective project management is having a robust monitoring process in place. This needs to be set up early in the process^[37], with an effective system requiring^{[38] [39]}:

• A clear statement of the outputs to be delivered and monitored.
• An appropriate, selective number of outputs that are focused on the most important CBs, rather than an extensive list of outputs.
• Clear and appropriate specification of how the outputs are to be measured.
• Agreement on how and when contractors provide monitoring data throughout the contract period.
• Agreement on who within the procuring organisation is monitoring the CB clauses.
• A means of verifying the output data.

Collecting monitoring information is not an end in itself and to be of value it is important that it is used. Establishing formal progress review arrangements between the procuring organisation and the contractor is critical to this as such arrangements will help identify and then alleviate any difficulties encountered with the implementation of CB clauses. It is also important that the monitoring information is acted on so that, when clauses are not being met, they are enforced^[40]. This is an issue identified by the private sector who see lack of enforcement as an indication that suppliers do not have to deliver on CB clauses to fulfil contracts^[41]. This concern reflects the fact that the approach to enforcement is still under development, with monetary fines and issuing of Poor Performance Certificates being discussed as options. While enforcement is important, the system should be practical and take into account the limitations and challenges contractors may face in implementing the CB clauses^[42].

In terms of supporting contractors, there is value in having a CB 'champion' within the procuring organisation. The champion's role involves^[43],[44]:

• Working with the procurement team to ensure that the CB clause is legally compliant and fulfils its objectives.
• Carefully working through how the CB clause can be delivered in practice.
• Developing a potential 'supply chain' (for example pre-recruitment training provision for a targeted training and recruitment clause) that contractors can engage with to deliver on the CB clause.
• Supporting the contractors at all stages of the procurement process to enable them to deliver and monitor the CB clause.

This is a skilled and demanding position that is best undertaken by someone who also has experience of the contractor base^[45],[46]. For example, construction industry experience is ideally needed when working with construction companies. As part of the skillset, CB champions need to develop strong working relationships with contractors, which includes using language and terminology that they understand and respond to.

Outcomes and Impacts

Realising the full benefits of CB clauses takes time. While it may be relatively straightforward to deliver and monitor the outputs from a CB clause - e.g. the number of 'new entrant' or MA starts - the end outcomes of sustained employment or completed MAs will take time to come through and be evidenced. There therefore needs to be recognition amongst procuring organisations and stakeholders that there may be a significant time lag before the long-term benefits can be seen, with sufficient resources committed for extended monitoring periods.

Private sector feedback reinforces the difficulty of achieving and evidencing longer term outcomes and impacts. They recognise that a contractor could comply with CB clauses but not add much in way of long-term social value^[47],[48]. Questions raised in relation to the sustainability of CB clause outputs include^[49].

• How sustainable is it to invest in training new entrants to fulfil CB clauses when they may simply displace unemployed but skilled construction workers seeking employment?
• Does this increase local employment problems given that there are more trained individuals in the labour market with no long-term job prospects?