Sustainable procurement duty - impact and value analysis: main report

Chapter 3: Involving small and medium enterprises, third sector bodies and supported businesses

The Duty requires contracting authorities to consider how its procurement process can facilitate the involvement of small and medium enterprises, third sector bodies and supported businesses, linked closely to the Duty to improve economic wellbeing, discussed in the previous chapter.

In defining each element of this part of the Duty, the Scottish Government’s guidance establishes that:

• SMEs are businesses with no more than 250 employees
• third sector includes community groups, voluntary organisations, charities, social enterprises, co-operatives and individual volunteers that exist wholly or mainly to provide benefits for society or the environment, and
• supported businesses: competition may be limited to only those organisations defined by regulation 21 of the Public Contracts (Scotland) Regulations 2015;^[96] these are commonly referred to as supported businesses.

There are also several provisions in the Act that contribute to enabling the involvement of SMEs, third sector bodies and supported businesses, such as transparency and simplicity.

Transparency

A key aspect of the Duty is to increase the transparency of procurement activity to economic operators.^[97] Within the Act, there are several legislative frameworks that complement this aim. For example, sections 15 details how authorities must detail how they intend to carry out regulated procurements.

Evidence from our analysis of annual procurement reports suggests that public bodies are now providing more information about how they are achieving the principle of transparency than previously. In 2017-18, 63% of public bodies (72) provided evidence of transparency in their annual procurement reports, but this figure increased to 75% (82) in 2018-19. Public bodies described using a range of methods to achieve transparency, including:

• publishing a public contracts register
• advertising via Public Contracts Scotland
• providing expenditure data and segmentation analysis online via the Scottish Procurement Information Hub
• clearly stating the requirements of contracts in all tenders
• updating corporate websites to improve ease of access to information about procurement

During the procurement process, contracting authorities must consider several factors, such as the use of supported businesses, the appropriateness of community benefits requirements and innovation. The Duty emphasises the importance of considering these mechanisms to encourage participation by smaller businesses.^[98]

To inform this chapter, we analysed information on the approaches taken to meet this element of the Duty through annual procurement reports submitted by public bodies and gathered further feedback through our survey of public bodies, and interviews with selected organisations.

Involving small and medium-sized enterprises (SMEs)

The Duty places a requirement on public bodies to take steps to facilitate the involvement of SMEs in regulated procurement activity.

Types of action taken by public bodies

Almost all respondents (32, 97%) to our survey of public bodies agreed or strongly agreed that their public body facilitates the involvement of SMEs through its procurement activities, with only one (3%) disagreeing in relation to regulated procurements.

In order to demonstrate how they are addressing this element of the Duty, many public bodies provided a policy statement or statement of confirmation in their annual reports. In many reports, and in line with many public bodies’ approach to reporting on other aspects of the Duty, this is the only information the public bodies provided and did not provide further detail of how they actioned this element of the Duty.

“Whilst developing contract plans UWS will give consideration to… selecting a procurement route which encourages participation from local businesses, SMEs, third sector organisations, Social Enterprises and supported businesses”^[99] (University of the West of Scotland)

“The Council’s Contract Standing Orders requires officer to consider how in the procurement process for regulated procurements that they can facilitate the involvement of SMEs, third sector bodies and supported businesses in the process”^[100] (Highland Council)

“Improved access to procurement opportunities for local suppliers, SMEs, supported businesses and the third sector”^[101] (Falkirk Council)

“We are committed to making public procurement open and accessible to businesses and especially small and medium sized enterprises (SMEs), the third sector and supported businesses”^[102] (Scottish Social Services Council)

A number of common means of facilitating the access of SMEs emerged from our analysis of the procurement annual reports. These included:

• using PCS and Quick Quotes
• changes being made to tendering processes
• the use of lotting
• attending or hosting events
• the use of community benefits requirements in contracts

Many public bodies referred to using PCS and Quick Quotes in order to increase transparency and promote SME involvement in their tendering processes. Commonly, organisations will advertise contracts on PCS if the procurement is over a certain value. One public body states in its 2017-18 annual procurement report: “We are committed to making public procurement open and accessible to businesses and especially small and medium size enterprises (SMEs). All tender opportunities greater than £25,000 are advertised on the Public Contracts Scotland (PCS) advertising portal and in the Official Journal of the European Union where required”.

Quick Quotes are regularly used to specifically target SMEs, for example “ensuring Small and Medium-sized Enterprises (SMEs) are provided targeted opportunities as standard within our Quick Quote process (Supplies and Services under £50,000, Works under £500,000)”.^[103]

Some organisations referred to using the process of lotting in order to facilitate the involvement of SMEs. Below are a number of examples included in the 2017-18 annual procurement reports:

“Contracts are lotted appropriately to support SMEs bid for goods, services and works aligned to their business model and to support our local supply chain deliver best value for the council”^[104] (City of Edinburgh Council)

“Where appropriate, we use Geographic Lotting in National Frameworks to increase participation opportunities for SMEs throughout Scotland. Also, we give full consideration in Commodity Strategies to where disaggregation into smaller lots may encourage participation from smaller suppliers”^[105] (NHS National Procurement)

Some public bodies also addressed the Duty through making adjustments to their tendering process, such as using a standardised template to ensure simplicity or through implementing a new system. For example, a public body reported in 2017-18 that it “delivered on this commitment by implementing a Dynamic Purchasing System, the first one of its kind in Scotland. This has been a successful introduction of a new way to market and has allowed us to issue multiple tenders in a very short timescale to a wide range of suppliers". There is perhaps a need, however, for public bodies taking this approach to demonstrate how using a Dynamic Purchasing System facilitates the involvement of SMEs.

Events, such as Meet the Buyer, are commonly held in order to promote understanding and encourage SME involvement. For example, City of Edinburgh Council reported that “Meet the Buyer events attended each year and hosting of contract specific events to ensure potential SMEs and the Council deliver best value through a better understanding of project and procurement process”.^[106] Below are three further examples of ways in which organisations are facilitating the involvement of SMEs through programmes and events:

“Historic Environment Scotland has undertaken supplier engagement activities over the past year to encourage suppliers to get in touch with our business areas to see what opportunities may be available to them. These have focussed on small and medium sized businesses and the feedback has been quite positive with many of the suppliers we talked to were unaware of the wide range of activities that HES is involved in. With our delegated system of purchasing and regional offices acting as discrete operational units it has made sense to retain some of the historical groupings for some requirements e.g. grounds maintenance which is procured as regional clusters of monuments. This can encourage a range of SMEs to bid for business appropriate to their capacity, specialism and location”^[107]. (Historic Environment Scotland)

“The Hillcrest Group is fully committed to supporting SMEs. A number of training opportunities were recently facilitated by Hillcrest and delivered by SFHA and Supplier Development Scotland to SMEs, providing advice and guidance on their engagement with the procurement process. A number of events have been held within head office for contractors to attend, to support a new approved contractor process"^[108] (The Hillcrest Group)

"From a supplier’s perspective, we have become members of the Supplier Development Programme (SDP) which offers free training, advice and information to SME’s and the third sector”^[109] (Highlands and Islands Enterprise)

Twenty-eight public bodies (31%) reported community benefits related to supporting SMEs, social enterprises and/or the third sector in 2018-19 with much of this activity related to events and support designed to enhance the capacity of these organisations. Some examples of activity related to SMEs are listed below:

• a public body reported delivering 90 hours of business support for SMEs through procurement activity in 2017-18
• East Renfrewshire Council provided business mentoring for four SMEs through a primary school construction contract
• another public body’s contractors delivered ten workshops for SMEs in 2017-18
• North Lanarkshire Council reported delivering nine business support events for SMEs^[110]

Sub-contracting through the supply chain is another way in which SMEs can become involved in public contract opportunities. Sixty-two public bodies (56%) provided information about the value of contracts sub-contracted to SMEs as a result of community benefit requirements in 2018-19 (Figure 3.1). This shows that the total value of contracts sub-contracted to SMEs is £104,710,232 with the central government sector accounting for the largest proportion of this (£73,998,000, 71%).

Involving third sector bodies

The Duty also requires public bodies to facilitate the involvement of third sector bodies in procurement activity.

Types of action taken to involve third sector bodies

Fifty-seven public bodies (50%) included some reference to facilitating the involvement of third sector bodies in the 2017-18 annual procurement reports; but many public bodies only included a brief statement of their policy within the annual reports. This was frequently limited to statements about their aspirations to involve third sector bodies more. For example:

"[The public body’s] aim is to ensure that we work with Contractors to facilitate opportunities for supported businesses and third sector organisations where possible" (public body annual procurement report, 2017-18)

“The Council is committed to supporting and improving access to procurement opportunities for local SMEs, third sector bodies and supported businesses and this contributes to the Council`s Procurement Strategy' Implementation”^[111] (South Ayrshire Council)

Similarly, a survey respondent noted that their organisation was “actively looking to grow the involvement of the third sector in the procurement process”.

Some organisations provide details about more specific actions being taken to facilitate the involvement of third sector bodies into their procurement processes, including the following:

• events and workshops: some public bodies have delivered training to encourage the involvement of third sector bodies in contracts. For example, a public body “offers supplier workshops and engages with third sector interface to help improve knowledge of [the public body’s] procurement processes” (public body annual procurement report, 2018-19). Other public bodies have held or attended events to encourage involvement – for example “Commercial and Procurement Shared Services arranged for a jointly hosted event ‘Supplying to the Public Sector’ in Inverness. The event was hosted by the Council and Partnership for Procurement (P4P)) and was aimed at third sector organisations. Representatives from 16 organisations heard about the impact of the Sustainable Procurement Duty and the practicalities of bidding for public sector contracts”^[112]
• supplier development programme (SDP): some public bodies reported that they became a member of the SDP in order to involve third sector bodies (as well as SMEs and supported businesses) in the procurement process. For example, National Records of Scotland “became a member of the Supplier Development Programme (SDP) in 2017 which provides a range of specialist business support activities including the provision of advice, information and training support with the aim of assisting businesses to become more capable of accessing and competing for public sector contracts”^[113] and another public body reported engaging with the SPD to help support third sector bodies (and SMEs) “to win contracts”.
• market research: West Dunbartonshire Council conducts market research, seeking out third sector bodies as market participants.^[114]

Some public bodies, even those that have already taken steps to engage third sector bodies, acknowledge that more could be done to increase their involvement. For example, Transport Scotland is “investigating ways to further increase community engagement, provide improved community benefits, and further develop its engagement with the third sector and supported businesses”.^[115]

Involving supported businesses

The main aim of supported businesses  is to integrate disabled or disadvantaged people socially and professionally. Their workforce must be at least 30% disabled or disadvantaged, as specified in regulation 21 of The Public Contracts (Scotland) Regulations 2015.^[116]

The Scottish Government urges public bodies to have at least one contract with a supported business. Competitions for public contracts can be limited to supported businesses where there are enough suitable suppliers. The Scottish Government also encourages private sector companies to buy goods and services from supported businesses by engaging with their own contractors and asking them to consider opportunities to involve supported businesses further down the supply chain. Scottish Government staff also attend events for procurement professionals to raise awareness of opportunities to engage supported businesses, and they encourage public bodies and private companies to consult the Ready for Business directory to identify supported businesses that they could potentially work with.

The Scottish Government developed a supported business framework to make it easier for public bodies to contract with supported businesses. The current framework includes the following goods and services:^[117]

• textiles and personal protective equipment
• furniture
• signage
• document management

Types of action taken to involve supported businesses

As was the case in relation to reporting on the involvement of SMEs and third sector bodies, some public bodies only provided a policy statement to address this element of the Duty. For example, North Lanarkshire Council states that its internal procurement practice is that “consideration be given to inclusion of supported businesses in all Regulated Procurements”^[118] and similarly Maryhill Housing Association’s “Procurement Toolkit and Contract Strategy Document requires staff to consider the involvement of supported businesses”.^[119] Further examples are given below:

“The involvement of supported businesses is considered in the Council's sourcing strategy for new tenders. Although the Council has not reserved any open or restricted tenders to supported businesses, it has in place a number of contracts with organisations defined as supported by the Ready for Business website and the British Association of Supported Employment”^[120] (South Lanarkshire Council)

“Before carrying out a regulated procurement, Fife Council includes consideration of how the procurement process can facilitate the involvement of supported businesses.  The involvement of supported businesses is considered at strategy stage”^[121] (Fife Council)

“SFRS recognises that the inclusion of supported business in SFRS procurement activity is a key aspect in delivering its Sustainable Procurement Duty and have a clear commitment to this contained within its Procurement Strategy”^[122] (Scottish Fire and Rescue Service)

Universities and colleges all provided similar statements on how they facilitated the involvement of supported businesses. Two examples of these are given below:

“For all Procurements, regardless of value, City of Glasgow College’s Procurement Service consider whether the goods or services could be fulfilled by a supported business whilst remaining complaint with EU, Scottish Procurement Legislation and internal Procurement Procedures, and ensuring value for money for the College”^[123] (City of Glasgow College)

“The institution reviews each procurement to determine whether it could be fulfilled by a supported business, whilst remaining compliant with EU and Scottish Procurement Legislation and ensuring value for money for the institution (using the only supported business register currently available and published by Ready for Business)”^[124] (Abertay University)

Some public bodies detailed in their annual procurement reports that they use the Scottish Government’s Supported Business Framework in order to address this element of the Duty.

"Through the Scottish Government Supported Business Framework Contract, Scottish Canals has procured a number of items needed for projects" (Scottish Canals)^[125]

“We continue to use the Scottish Government’s Supported Business and Factory Framework where there is a requirement to purchase goods and services covered by this contract. Registers of Scotland increased its spend within this sector by £37,000 by placing a large number of orders with the Haven Sign Factory and have begun to engage with Haven on a number of other projects” (Registers of Scotland)^[126]

“Scottish Enterprise has called off from the Scottish Government Supported Business Framework throughout the 2017-18 financial year and has awarded six contracts through the Framework to various suppliers, and a further six were awarded directly to supported businesses, totalling £156,299. We will continue to promote the use of the framework throughout the organisation and to use supported businesses where appropriate” (Scottish Enterprise)^[127]

Other organisations hold or attend events, such as Meet the Buyer or local organisation visits, to encourage the involvement of supported businesses:

“Supported businesses have been engaged with via Meet the Buyer, Procurex and the P4H conference”^[128] (NHS Lothian)

“HES has also taken part in the Central Government/Supported Business Procurement Engagement days to facilitate the involvement of supported businesses and we have also reserved one Lot under our Corporate Clothing and PPE tender to supported businesses only”^[129] (Historic Environment Scotland)

"We have been raising awareness of supported businesses internally through visits to local area offices and publishing internal guidance documents on the intranet to try and help identify possible supported business within our area. We have also tied in with our Account Managers for them to raise awareness with account managed companies locally. The main aim is to try and encourage consideration of supported businesses before we tender as we have the ability to ring-fence contracts for supported businesses"^[130] (Highlands and Islands Enterprise)

In addition, some organisations provide information on partnerships they have formed to facilitate the involvement of supported businesses.

“SPS works with the British Association for Supported Employment to identify contract opportunities for supported businesses. SPS Procurement, and Enterprise and Employability teams also host a stand at the Procurex National Conference with BASE. They make use of reserved contracts and support use of supported businesses internally. BASE and its members are supportive in providing work placements or employment opportunities for people in or leaving custody”^[131] (Scottish Prison Service)

“The Council works closely with Scottish Borders Social Enterprise Chamber (SBSEC) to encourage supported business and other third sector organisations to access Council contract opportunities. This active role allows us to keep members updated with contract and community benefit opportunities"^[132] (Scottish Borders Council)

Number and value of contracts awarded to supported businesses

Twenty-five public bodies (23%) provided clear information in their 2018-19 reports about the number of regulated contracts awarded to supported businesses. These 25 public bodies reported 50 regulated contracts being awarded to supported businesses. Twenty-three provided information in the reporting period that show a spend of around £8.9 million with supported businesses.

In terms of contracts sub-contracted to supported businesses as a result of community benefit requirements, 62 public bodies (56%) provided data in 2018-19. However, 58 of these reported there were no sub-contracts awarded to supported businesses as a result of community benefit requirements. Data provided by the other four public bodies is provided in Table 3.1.

Table 3.1: Value of contracts sub-contracted to supported businesses as a result of community benefit requirements 

Public Body	Value
Public body 1	£321,669.00
Public body 2	£30,430.00
Public body 3	£10,000.00
Public body 4	£248,000.00
Total	£610,099.00

The percentage of organisations providing information about involving, or considering ways of involving, supported businesses in their procurement processes and opportunities is substantially higher than the percentage doing so in relation to SMEs or third sector bodies. It may be that there is simply a case of under-reporting in relation to SMEs and third sector bodies but, based on survey and interviewee responses, it seems more likely that this is due to a number of factors:

• facilitating the involvement of supported businesses is a minimum requirement within the Procurement Reform (Scotland) Act 2014
• the Supported Business Framework makes it easy for public bodies to contract with supported businesses
• there is clear guidance about the types of contracts to which this applies
• public bodies can limit competition for public contracts to supported businesses
• there has been political drive for more to be done to involve supported businesses