Annual report on procurement activity in Scotland: 2019

5. Embedding sustainability in public procurement

We are committed to maximising the broader socio-economic and environmental benefits of public procurement by ensuring that procurement activity is conducted effectively and efficiently, and that those awarded public contracts support skills and training, responsible business processes and Fair Work practices for employees.

Our approach to sustainable public procurement in Scotland is encapsulated in the 2014 Act. A public body is now required by law to consider how its procurement activity can be used to improve the economic, social and environmental wellbeing of its area, how it will facilitate the involvement of SMEs, third sector and supported businesses and promote innovation.

This is because we think that spending money in a way which considers social, environmental and economic issues can make big improvements to communities. It is why, having consulted with our stakeholders, we took a decision in 2015 that higher value contracts should not be awarded on the basis of price or cost alone. And it is why we set out that this approach should also be applied to any award criteria for contracts regulated by the 2014 Act.

We know that Scotland is leading the way having taken these steps as the European Commission noted in 2017^[19] "strategic procurement possibilities are not sufficiently used" as "55% of procurement procedures still use the lowest price as the only award criterion".

There are a number of measures that a public body may take to ensure that its public contracts deliver wider socio-economic and environmental benefits. Around three quarters of annual procurement reports published included examples of how public bodies embed sustainability in all that they do.

Many of the measures taken will differ from contract to contract and sustainability has been illustrated in a number of ways by different public bodies – several demonstrated a commitment to sustainability through Fair Work practices and payment of the real Living Wage, while others focused on sustainability from a skills and training or an environmental perspective, addressing innovation in procurement, and prompt supplier payment.

The 2014 Act requires Scottish public bodies to set out their prompt payment policy in their procurement strategies. While a number of public bodies included information on payment performance within their reports, we know there is more to do so that all public bodies routinely include information on payment performance within their annual procurement reports.

Building in community benefit requirements and addressing Fair Work practices, where they are appropriate, are two examples of how a public body can harness its public procurement spend to promote equality of opportunity, reduce inequality, drive productivity and deliver maximum value for taxpayers, local communities and wider society. Scotland has been recognised as a leader in promoting social and economic benefits to communities through its public procurements.

Community benefit requirements in public procurement

The Scottish public sector spends a significant sum each year buying goods, services and works, and it is right that people expect it to be spent in a way that aims to deliver the most benefits possible to society. A number of procurement policies, like our community benefits policy, have wider socio-economic and environmental benefits. The 2014 Act describes a community benefit as: "a contractual requirement imposed by a contracting authority – (a) relating to – (i) training and recruitment, or (ii) the availability of sub-contracting opportunities, or (b) which is otherwise intended to improve the economic, social or environmental wellbeing of the authority's area in a way additional to the main purpose of the contract in which the requirement is included".

Community benefits help to deliver targeted employment and training opportunities for businesses, including SMEs, the third sector and supported businesses.

Community benefits contribute to a number of national outcomes including being well educated, skilled and able to contribute to society and tackling poverty by sharing opportunities.

Since 2008, community benefits have been used increasingly in public contracts across the Scottish public sector. These have delivered thousands of targeted training and recruitment opportunities and opened up opportunities for local organisations (including the supported employment sector and other social and community enterprises) in the supply chain.

As a result of our procurement legislation, all Scottish public bodies must consider the use of community benefit requirements for regulated procurements where the estimated value of the contract is £4 million or more. They must also include in the contract notice a summary of the community benefit requirements to be included in the contract or reasons why community benefits have not been included in any contracts valued at £4 million or more. They must produce annual procurement reports and include a summary in those of any community benefits delivered that year through their procurements.

Research on the impact and value of community benefit requirements published in 2015^[20] recommended more systematic monitoring of community benefit requirements and their impacts in future contracts so that the use of community benefit requirements could be fully justified.

The statutory guidance on community benefit requirements, developed under the Act (and the Best Practice guidance on annual procurement reports) built on the findings of the 2015 research and included indicative measures for systematic monitoring to demonstrate the impact of community benefits.

Over the past three years, significant improvements have occurred. Figures from the Public Contracts Scotland advertising portal show large increases in contracts with community benefit requirements. These also show a significant shift in the types of contracts that include a community benefit requirement. A summary of the information available from Public Contracts Scotland is shown in figure 9 below:

Figure 9: Number of contract notices with community benefit requirements

Type of contract	2015-16	2016-17	2017-18
Goods	0	57	99
Services	2	294	370
Works	79	228	374
Total	81	579	843

As a direct result of procurement activity reported by public bodies:

• Six hundred and thirty five contracts were awarded in the reporting period with community benefit requirements, these contracts had a total value of over £588 million, although this is likely to be an underestimate
• Seventy-four contracts valued at or above £4 million included community benefit requirements, with a total value of £342 million

This information contained within annual procurement reports also shows that the progress reported in the 2015 research has continued.

Type of community benefit requirements

The figure below illustrates the types of community benefits delivered by public bodies.

Figure 10: What types of community benefits were delivered during the timeframe covered by the reports

Training and employment continue to be the most common type of community benefit requirements. These focus, for example, on employability outcomes such as the provision of training and qualifications, work placements, and/or the creation of employment opportunities. Some other community benefits linked to enhancing the employability of school, college and university students, and people looking for work were also described. These activities included site visits and careers talks.

One example of how a public body presented details of community benefit requirements imposed, is described below:

The public body's report includes a summary of community benefit requirements in the main body of its report. The summary lists the five regulated procurements that included community benefit requirements and provides a high-level summary of benefits achieved during the reporting period. This states that these contracts "included the provision of more than 260 apprenticeships, 54 work placements, 140 graduate places and over £570 million of work sub-contracted through Public Contracts Scotland (including over £183 million subcontracted to SMEs)".

The report also contains an appendix with a number of examples of contracts which were live during the reporting period and the community benefit requirements imposed, including quantitative details of benefits achieved, such as the number of people employed, apprenticeships created, training places created, and contracts awarded to SMEs. The examples also contain brief details of some of the activities undertaken to deliver community benefits.

For instance, the M8/M73/M74 Motorways Improvement Project created jobs for 31 long-term unemployed people and involved 218 sub-contracts worth £117 million awarded to SMEs. The Clyde and Hebrides Ferry Service involved the creation of 53 vocational training places, including 20 full time places targeted at priority groups such as young people and unemployed people, and involved £7,515 worth of spend with third sector bodies and supported businesses.

Subcontracting opportunities are also a type of community benefit requirement. Many suppliers that are awarded contracts by Scottish public bodies will sub-contract some of their work. As a result, opportunities are being created for SMEs, the third sector and supported businesses to participate in the supply chain.

This printing sector case study provides a recent example of a medium sized firm (50 to 249 employees) that was awarded a framework agreement that can be used by the wider public sector in Scotland.

The business is based in Edinburgh and employs 117 staff, 27 of whom were additional recruits for the purpose of delivering the Scottish Government's Baby Box initiative.

The business recently had success in winning the Publishing, Print, Design and Associated Services Framework following a regulated competitive procurement process. This printing company continue to support

Scotland and Scottish jobs by recruiting locally and utilising an extensive supply chain including 114 SMEs, 105 of whom are Scottish, including 47 print suppliers across Scotland in 2017-18.

Figure 11 shows the money spent with these sub-contractors and helps understand the business's contribution to the Scottish print industry and Scotland's economic growth.

Figure 11: The business supply chain

	2015-16		2016-17		2017-18
	Companies	Spend	Companies	Spend	Companies	Spend
SME Grand total	89	£2,143,450	101	£7,236,188	114	£7,715,091
Scottish SME total	65	£1,940,630	76	£6,460,390	105	£5,805,053
Scottish SME total print	33	£1,184,465	44	£1,650,235	43	£2,400,000[21]

Next steps

While the statutory guidance suggested indicators that demonstrate the impact of community benefits, there was significant variation in the level and type of information provided in individual annual procurement reports. We will, therefore, consider how we can improve management information and data on use of community benefit requirements, to achieve greater consistency of reporting and to demonstrate the difference they make to citizens and communities.

More generally we will consider other ways to improve the management information and data relating to the sustainable procurement duty including community benefit requirements.

The variety of reasons given for not including community benefit requirements suggests that more needs to be done to reiterate the relevant and proportionate use of community benefits. Much of this can be achieved by promoting the approach being taken by the wide range of public bodies that are successfully including community benefit requirements in their contracts and collaborative agreements.

In the context of the sustainable procurement duty, we will continue to work with public bodies to drive the ongoing use of community benefit requirements

While it is our intention to review the £4 million threshold at which specific community benefit provisions apply, evidence to date suggests that the threshold is not acting as a barrier to use of community benefit requirements in contracts of all values. The threshold review will form part of a wider review of the value and impact of the sustainable procurement duty.

Fair work and public procurement

Fair Work is central to our economic strategy; it is good for employees, good for business and good for Scotland.

Fair Work practices can drive productivity, release untapped potential and inspire innovation, all of which add value to jobs and to business and in turn create stronger, more sustainable and inclusive growth. The Scottish Government wants Scotland to be a world-leading Fair Work Nation by 2025. Our commitment to promoting Fair Work is set out in Scotland's Economic Strategy, National Performance Framework, Economic Action Plan and our Labour Market Strategy. The Fair Work Action Plan sets out the approach the Scottish Government will take to help embed and mainstream Fair Work within workplaces and achieve the 2025 vision of a Fair Work Nation.

The Scottish Government established the Fair Work Convention in 2015. The Convention, which independently advises the Scottish Government on Fair Work, published its Fair Work Framework in 2016. The Fair Work Convention undertook a themed review of how procurement can support the Fair Work agenda in August 2017. The Convention continues to support procurement as a key enabler of our Fair Work ambitions.

Fair Work practices, including the payment of the real Living Wage continues to be a key aspect of Scottish public bodies' decisions to support sustainable procurement and contribute to wider inclusive economic growth.

Statutory Guidance on Addressing Fair Work Practices, including the Living Wage, was published in October 2015. It requires public bodies to consider, before undertaking a procurement exercise, whether it is relevant and proportionate to include a question on Fair Work practices, to be evaluated along with other relevant criteria. This Statutory Guidance applies to new procurement processes, which were commenced on or after 1 November 2015.

In collaboration with public bodies and stakeholders, including the Fair Work Convention and the trade unions, Best Practice Guidance and a Toolkit was published in July 2018. This offers additional practical guidance to help public bodies and suppliers think about how to develop and adapt their approach to Fair Work practices at the relevant stages of the procurement process.

At the end of this reporting period, implementation of the Statutory Guidance on Addressing Fair Work Practices, was still ongoing.

Public bodies are required to include in their organisational procurement strategy a statement on their general policy on "the payment of a living wage to persons involved in producing, providing or constructing the subject matter of regulated procurements". Annual procurement reports are required to include a review of whether those procurements complied with the body's procurement strategy, including compliance with this general policy statement.

Analysis of the information contained in annual procurement reports does not give us sufficient information to enable us to be conclusive about the approach taken or progress made in promoting payment of the real Living Wage across public bodies. This is an area where we will seek to gather more information in future.

Analysis of annual procurement reports has identified that several public bodies have adopted a policy that supports Fair Work practices, including payment of the real Living Wage as part of their approach to sustainable procurement. Some seek a declaration from suppliers regarding payment of the real Living Wage, while others include Fair Work practices and the real Living Wage in contract documents, or encourage their suppliers to obtain Living Wage Accreditation.

Analysis shows that some public bodies have chosen to include Fair Work practices as a type of community benefit. Of all community benefit types Fair Work practices represented 5% of all types and included a focus on improvements in employment conditions, including payment of the real Living Wage, working towards gender employment targets and the elimination of the inappropriate use of zero hours contracts.

The example below from the Higher Education/Further Education sector, reflects what was included in a number of annual procurement reports and describes how they have embedded Fair Work practices, including the real Living Wage as part of a wider approach to sustainable procurement.

"Procedures are in place to ensure that consideration of environmental, social and economic issues and benefits is made, where appropriate, on a contract-by-contract basis during the planning stage utilising tools including Prioritisation, Flexible Framework, [The Centre of Expertise] Supply Chain Code of Conduct, and Sustain.

Procedures are also in place to ensure that regulated procurements are only awarded to businesses that are capable, reliable and, where relevant, meet high ethical standards and values in the conduct of their business. The institution is committed to contracting only with suppliers that comply with all appropriate and relevant legislation. Where appropriate, and on a contract by contract basis, the institution will assess the legislation applicable to a procurement and take steps to ensure bidders comply with it e.g. Health and Safety, Late Payment legislation. Where relevant and proportionate, the Living Wage and fair work practices of suppliers are promoted in tender documentation. The public body is a Living Wage employer.

The Institution complies with its duties under the Modern Slavery Act."

Paying the real Living Wage on Collaborative Agreements

To help inform progress, and where available, the Centres of Expertise have provided information on the payment of the real Living Wage in collaborative agreements. Collaborative agreements are put in place by the centres of expertise on behalf of the public bodies they represent. Fair Work practices and payment of the real Living Wage are a key consideration in collaborative procurement decisions.

Spend on national and sectoral collaborative agreements put in place by the Scottish Government and Scotland Excel accounted for around 39% of all collaborative spend in 2017‑18.

87% of suppliers awarded onto collaborative agreements for the Scottish public sector and local government sector will pay the real Living Wage, 78% of these suppliers are SMEs.

Figure 12: Payment of the real Living Wage and Living Wage accreditation on collaborative agreements awarded by the Scottish Government and Scotland Excel

	Collaborative agreements concluded in period	Suppliers awarded onto those collaborative agreements	Suppliers who committed to pay the real Living Wage	Supplier size		Nationality		Accredited Living Wage employers[22]
				SME	Large	Scottish	Other
Scottish Government	13	347	333 96%	267 80%	66 20%	182 55%	151 45%	54 16%
Scotland Excel	28	458	374 82%	288 77%	86 23%	237 63%	137 37%	79 17%

Figure 12 includes data regarding the payment of the real Living Wage and Living Wage accreditation on collaborative agreements awarded for these sectors. Other sectors do not have similar data available.

NHS National Procurement is promoting Fair Work practices, including the real Living Wage, in procurement processes, where appropriate. NHS National Procurement will work with suppliers through contracting and relationship management to look for opportunities for suppliers to implement the real Living Wage within their staff structures. Recent reporting enhancements facilitates the data capture for suppliers who are accredited as a Living Wage employer, this is an area National Procurement will be in a position to report on during 2019‑20.

Advanced Procurement for Universities and Colleges (APUC), considers the Fair Work practices, including the payment of the real Living Wage, of suppliers in its procurements, by including standardised wording through its framework agreement tender process. Management information gathered confirms that during this reporting period, the spend with suppliers registered with the UK living wage accreditation website during this reporting period is £24.5 million. APUC will be in a position to report on this more accurately for the next financial year.

Next steps

The Fair Work Action Plan, published on 27 February 2019 sets out the strategic approach the Scottish Government is taking to help achieve the vision for Fair Work. That, by 2025, people in Scotland will have a world-leading working life where Fair Work drives success, wellbeing and prosperity for individuals, businesses, organisations and society. It is the beginning of a long-term strategy, and procurement decisions will have a key role in supporting delivery of that strategy.

We will continue to support public bodies drive forward Fair Work practices, including the payment of the real Living Wage in all relevant procurements. This includes supporting the Economic Action Plan 2018-20 commitment, by the end of this Parliament, to extend the range of Scottish Government and public sector contracts that Fair Work criteria will apply to.

And procurement will contribute to the roll-out of the new Fair Work First default position to government support, which will include a commitment to:

• invest in skills and training
• no inappropriate zero hours contracts
• action to tackle the gender pay gap
• genuine workforce engagement, including trade union recognition
• pay the real Living Wage

We will continue to work with stakeholders to provide updated guidance on how procurement can support the ongoing commitment for adult social care workers to be paid the real Living Wage. We will also support Scotland Excel to develop and publish guidance for local authorities on how procurement can support the roll-out of 1,140 hours of funded Early Learning and Childcare entitlement from 2020.

People and capability

It is widely recognised that the professionalism, skills and expertise of those involved in awarding and managing contracts is vital for ensuring that public procurement is used effectively as a strategic lever and making procurement spending decisions work harder and more effectively.

Across Scotland, we continue to make significant progress in the area of people and capability. Over the past couple of years, great strides have been made to underpin standards of practice, improve access to cross-sector learning and experiences, address skills gaps and create a sustainable legacy for the procurement profession in Scotland.

The examples below show how two bodies have undertaken various activities to develop people and capability:

"Three Chartered Management Institute accredited Leadership & Management courses ran in Inverclyde, Perth and Stirling during 2017-18 with a fourth scheduled to begin in Fife in April 2018. A Chartered Institute of Procurement & Supply accredited course was launched in January 2018. Ten practitioner workshops and two masterclasses also took place during the year." The public body "also worked with Skills Development Scotland to develop a Graduate Level Apprenticeship in business management."

This forms part of the approach to support professional capability and encourage new entrants to public procurement.

"Attracting and retaining qualified and capable procurement professionals remains an ongoing issue. [The public body] is addressing this via a two-pronged approach. Firstly, [the public body] is continuing to follow a 'Grow from within' approach, designed to develop the skills, experience and confidence of existing staff with a view to progression. Secondly, [the public body] has developed a 'Procurement Career Pathway', providing a number of viable entry (and exit) points for new or less experienced staff to join the [body's] Procurement team.

This approach is designed to provide a more flexible and agile approach to resourcing and to promote and encourage new entrants to the procurement profession. [The body] is utilising a blend of undergraduates, graduates and also using development opportunities to enable existing staff in [the body] to learn and develop their procurement skills."

While the European Commission^[23] has noted that the "low level of professionalism of public buyers is a systemic problem in many Member States", Scotland's reputation for striving to be a leader in developing people and capability is recognised internationally. Our unique Scottish approach to developing our talent and capability has been recognised by the Chartered Institute of Procurement & Supply, the European Commission and governments further afield who are actively using it as a benchmark of best practice. Indeed, our Procurement Competency Framework was published as an exemplar by the European Commission.