Building Community Wealth in Scotland: consultation analysis

3. Spending pillar

The spending pillar of CWB is focused on maximising tangible community benefits through procurement and commissioning, developing good enterprises, promoting Fair Work and a drive to create and maintain shorter supply chains. It uses the spending power of anchor organisations to better support local and regional economies including by growing local spend with SMEs, the third sector and supported businesses through activity such as:

• understanding where spend is going and increase knowledge of local suppliers;
• supporting local businesses bases and third sector to enhance their capacity to bid for public sector contracts;
• creating local supply chains to re-circulate wealth in the local and regional economy, create local jobs and support net zero and environmental ambitions;
• maximising community benefits to ensure they deliver CWB ambitions and the needs of local communities.

The consultation paper explains that, as part of early engagement on CWB legislation, stakeholders have suggested a focus on the following areas:

• review the national, sectoral, local and regional frameworks and contracts to ensure that the arrangements in place ensure logical groupings that facilitate access to SMEs, the third sector and supported businesses;
• further investment in supplier development capacity and to improve knowledge of local supplier within anchor organisations;
• investment in capacity to support linkages between local procurement teams and economic development;
• explore opportunities for joint procurement between anchor organisations;
• develop the content of annual procurement strategies and reports to demonstrate how the procurement activity of individual public bodies contributes to CWB;
• an improved focus on place-based thinking in the use of community benefits and reporting to reflect how this is being achieved.

Question 3: Are there ways in which the law could be changed to advance the spending pillar of Community Wealth Building?

Responses to Question 3 by respondent type are set out in Table 6 below.

Percentages may not sum to 100% due to rounding

A majority of respondents, 74% of those answering the question, thought that there are ways in which the law could be changed to advance the spending pillar of CWB. This rose to 81% of organisations.

Please provide a reason for your answer. In your response you may wish to consider the stakeholder suggestions outlined above which have arisen from early engagement.

Around 145 respondents provided a comment at Question 3. The analysis presented below considers some of the general issues and themes raised by these respondents, and then moves on to consider views on the stakeholder suggestions set out above and other proposals for change.

Views on the spending pillar

Most of those commenting agreed that legislation should be used to further the spending pillar of CWB, and specifically with an approach to procurement that encourages local spend and maximises community benefits. It was suggested that a focus on community benefits through procurement practices has been shown to be effective in securing additional value for local communities. A number of respondents referred to positive aspects of current procurement strategies and systems, including examples of procurement approaches that give additional weight to CWB and community benefits.

It was also noted that current procurement legislation and regulations already allow for public bodies to support many of the spending pillar actions. This included reference to specific provisions such as the Sustainable Procurement Duty, Community Benefit requirements and Fair Work First guidance. It was suggested that more could be done to make use of these existing provisions to support CWB.

However, many respondents felt that further change is required to ensure that public procurement can fully support the spending pillar. They highlighted a number of challenges and potential barriers to be addressed. However, it was suggested that an assessment of the effectiveness of existing procurement legislation and regulations should be undertaken before further changes are implemented.

Views on stakeholder suggestions from early engagement

Review frameworks and contracts

A substantial number of those commenting saw potential for review of existing frameworks and contracts to identify how these can better facilitate access by SMEs, the third sector and supported businesses.

This most frequently related to changes to current procurement regulations to enable frameworks and contracts that support local procurement. For example, a number of respondents suggested increasing the threshold for regulated procurement of goods and services by public bodies (i.e. from the current £50,000 limit) to enable access by local businesses without a full tendering process. An alternative threshold of £100,000, and for future increases to be linked to inflation, were also suggested.

It was also argued that, even for contracts above the regulated threshold, the Quick Quote option should be permitted where there is a local supply. It was noted that this could use a similar model to current procurement regulations for supported businesses, for example allowing public bodies to reserve contracts for local suppliers. While it was suggested that further consideration would be required to ensure that such a change does not have a disproportionate impact on public sector procurement services, it was also noted that the change would have only a limited impact in some areas where the local supply chain is more limited.

Respondents identified a number of ways in which the structure of frameworks and contracts could better support access by smaller suppliers and better encourage local spend. Specific suggestions included greater use of contract lotting, ensuring the geographic scale of contracts does not unnecessarily exclude local and smaller suppliers, and encouraging longer-term contracts and investment particularly for local community businesses, social enterprises and third-sector organisations. It was also suggested that the structure of national frameworks should be reconsidered, reflecting specific concerns that local NHS Boards have limited flexibility in their spend within the National Procurement Framework.

Scotland Excel was cited as an example of approaches that can ensure procurement is more accessible to local SMEs, supported businesses and the third sector. However, it was also suggested that there is scope to further strengthen these approaches, including calls for Scotland Excel (and the Scottish Government) to consider how to attract more local suppliers to join national frameworks. This included reference to potential for better advertising of subcontracting opportunities. Scottish Central Purchasing Bodies were also suggested as having a potential role in reviewing existing frameworks and contracts.

Developing supplier capacity

A number of respondents discussed local supply bases as a primary consideration in enabling procurement to better support the spending pillar of CWB. Building capacity within local supply bases was identified as key, with several public bodies referring to examples of procurement exercises being affected by a lack of resilience and capacity amongst local supply chains. It was noted that gaps are evident in many local supply bases, and that new suppliers should be identified or established to fill these. It was suggested that there may be a need for scoping exercises to assess best value in developing local supply bases.

Respondents identified several issues that were seen as limiting scope for local suppliers to secure public contracts. These included limited skills and capacity to engage with full procurement processes (especially framework agreements), particular challenges for sectors with more significant regulatory burdens, and a lack of a strong voice for SMEs in some parts of Scotland. There was also reference to wider infrastructure constraints such as distribution and logistics networks, as limiting scope for public bodies to use local suppliers.

In addition to private sector micro and small businesses, there were calls for a specific emphasis on supporting procurement from the third sector and social enterprises, and community ownership. It was noted that many of these organisations and models already support CWB by redirecting wealth back into local economies. However, there was a perceived need for procurement legislation and regulation to better recognise the potential value of these organisations. Specific suggestions included use of legislation to require a minimum proportion of public procurements to be from the sector, providing more accessible tender application processes, and preventing the use of non-committal frameworks in public procurement contracts. Improving anchor organisations' understanding of what is required to make social enterprises and third sector suppliers 'tender ready' was also suggested.

There was also thought to be a need for dedicated procurement support for third sector and social enterprises, with the Supplier Development Programme suggested as a mechanism to provide this tailored support. Specific financial and other support was suggested to encourage development of co-operatives and similarly collaborative approaches to supplying goods and services.

In terms of delivering the necessary supplier development support, the Supplier Development Programme and local Business Gateways were highlighted as potential vehicles. This included specifically in relation to addressing gaps in current local supply bases. Anchor organisations were also seen as having a key role to play in building relationships with local suppliers and developing capacity, and it was suggested that the Scottish Government needs to provide guidance and resources to support anchor organisations to invest in capacity building, with a particular focus on localities where the local supply chain is less well developed. It was noted that this would require an improved understanding of existing supply chains, and some respondents noted support for sharing of knowledge and business data across public agencies. Improving information on supplier location through the Public Contracts Scotland registration process was also suggested.

Linkages between local procurement and economic development

Respondents commenting on potential for linkages between local procurement and economic development saw a need for better support for these linkages, including more collaborative working.

Effective linkages between local procurement and economic development were seen as crucial in identifying and responding to gaps in local supply chains. Respondents noted that a focus on local spend will require access to local supply bases that can meet the needs of public bodies, and highlighted the role of economic development activities in strengthening supply bases. This included public bodies citing examples of procurement exercises where there is no local supply base available.

Joint procurement between anchor organisations

There was support for the principle of joint procurement between anchor organisations and, specifically, for potential to explore opportunities to increase use of joint procurement. It was suggested that partnerships between anchor organisations can have a greater impact than individual councils in terms of CWB. This included reference to positive examples of existing joint procurement approaches, and calls for additional support and incentives for further development of collaborative procurement arrangements.

Discussion around the range of anchor organisations referenced in the consultation paper included reference to the important role played by housing providers in their communities. It was suggested that smaller housing associations should also be regarded as anchor organisations, reflecting the potential of these smaller 'grass-roots level' organisations to deliver direct benefits to their communities.

While most of those commenting on the potential for joint procurement saw this as making a positive contribution to the spending pillar, respondents also identified potential for unintended consequences. For example, it was suggested that care will be required to ensure that more joint procurement does not lead to larger-scale contracts that are beyond the scope of local suppliers.

Demonstrating positive impacts

Comments around the importance of demonstrating positive CWB impacts indicated a perceived need for improved understanding around the potential for procurement to influence geographical spending flows, and greater transparency around procurement processes and public investment.

It was suggested that a stronger approach to performance measurement will be required if procurement is to fully support the spending pillar of CWB. This included calls for development of a 'monitoring hub' to support more effective auditing and reporting of impacts across all CWB pillars. It was also suggested that more effective monitoring and reporting mechanisms could help to bolster the commitment to CWB. Respondents referred to improved commitment to CWB across local authorities, but it was suggested that a co-ordinated national approach to sharing impacts and good practice is needed.

Several respondents highlighted the potential complexity of identifying the extent to which contracts contribute to local spend; for example, where local subcontractors are used, where complex supply chains involve local suppliers bringing in goods or services from elsewhere, or where spend levels do not match those captured by existing data. It was also suggested that clarity is required around the distinction between the economics of procurement spending, and the specific community benefits included in contractual agreements.

There was a view that existing data collection is not effective in reflecting these complexities, and a perceived need for improved access to information on local spending. It was proposed that legislation should be used to ensure more consistent and detailed data collection, for example including a proposed requirement for collection of origin information for goods and services. Respondents also wished to see additional research or tools to improve understanding of the positive impacts of a CWB approach to procurement.

There was support for the role of annual procurement strategies and reports as opportunities to demonstrate impacts, and it was suggested that the content of these reports could be further developed. This included reference to setting of realistic local spend targets as a potentially useful approach. However, some also noted that significant reporting requirements already exist around procurement and wished to see efforts to minimise the additional burden of any CWB reporting.

A place-based approach to community benefits

A number of respondents expressed specific support for the role of community benefits, and wished to see legislative and other changes to ensure that all public contracts incorporate transparent, genuine and meaningful community benefits. This included specific support for the role of place-based thinking in relation to community benefits.

The Place Standard was cited as providing relevant guidance to support a place-based approach to community benefits. In terms of specific approaches, respondents expressed support for more effective tracking of community benefits embedded within the contract management process, and for exploring potential mechanisms to facilitate larger, Scotland-wide anchor organisations to support delivery of CWB through local spend. There were also calls for secondary legislation to require that public procurement decisions give greater weighting to community benefits and other factors that can contribute to CWB such as social value, locality and sustainability. A minimum weighting was also proposed, with suggestions ranging from 20% to 33%. Respondents referred to use of community wish lists as having demonstrated positive impacts, and saw scope for this to be developed further.

While there was support for a place-based approach to community benefits, some also raised potential concerns around this approach. In particular, the need for consideration of the balance between ensuring sufficient flexibility in procurement to allow for a place-based approach, and avoiding unnecessary variation that can cause confusion and frustration for suppliers was highlighted.

Other legislative areas where action could be taken

In addition to commenting on the stakeholder suggestions from the consultation paper (as above), respondents proposed a range of specific changes to current legislation to better support the spending pillar of CWB. Suggested amendments to the Public Contracts (Scotland) Regulations 2015 included:

• Revising Regulations 19 and 20, and exclusion/selection criteria to permit 'positive discrimination' for local suppliers. It was suggested legislation should set out a 'local by default' approach to procurement for key sectors.
• Extending use of use of Regulation 21 in relation to reserved contracts to include local suppliers.
• Revising Regulation 33 to allow greater scope for direct award of contracts to local suppliers. It was also suggested that further legislation or guidance would be useful to enable public bodies to ensure direct awards are consistent with the principles of best value.
• Revising Regulation 34 to allow more flexibility for call-offs, and relax timescales, while requiring public bodies to evidence best value.
• Revising Regulation 67 to recognise that price can be the determining factor in some cases, and that extensive qualitative criteria can limit local suppliers' access to procurement exercises.
• Revising Regulation 72 to increase scope for modification of contracts.

Other suggestions included:

• Strengthening Section 9 of the Procurement Reform (Scotland) Act 2014 to require public bodies to demonstrate why sustainable procurement duties are not applicable to a specific contract.
• Reducing the current threshold for mandatory community benefits, from the current £4 million. It was noted that some public bodies have already chosen to operate a lower threshold. It was also suggested that consideration should be given to options for community benefit legislation to provide public bodies with actions to take in response to non-delivery of benefits.
• Revision of aggregation rules for contracts to make it easier for SMEs to become suppliers for a portion of a larger contract.
• Amending the Sustainable Procurement Duty to include facilitating the involvement of co-operatives and employee-owned businesses (alongside SMEs and third sector suppliers).
• Strengthening the Scottish specific duty on procurement in the Public Sector Equality Duty through legislation and statutory guidance, ensuring procurement approaches integrate equality considerations – including a particular focus on gender equality within the workforce.
• Embedding the principles of a circular economy into procurement legislation, including assessment of whole-life value and longer-term economic and social impacts.
• Incorporating Fair Work principles and the Fair Tax Mark into procurement legislation.
• Revising the Forestry and Land Management (Scotland) Act 2018 to make reference to CWB.

Other issues to be addressed or suggested changes

Respondents also made several non-legislative suggestions to advance the spending pillar of CWB. A number of respondents wished to see a stronger role for communities and community organisations in supporting the spending pillar. This included a specific focus on the role of communities in identifying potential community and other benefits, and shaping local or regional procurement strategies. There were calls for longer procurement lead-in times to enable more effective engagement.

There was also reference to some of the general themes identified at Question 2(a), especially in relation to resourcing and capacity (including skills development), although respondents also referred to other issues such as funding and the need for culture change. For example, it was suggested that any changes to procurement legislation and strategy will require the support of action plans and associated resourcing, and potentially significant changes to current structures and culture around procurement.

The fit between the spending pillar of CWB and with other policy and legislation was also a key issue raised by respondents. This was highlighted primarily in relation to existing procurement legislation, but it was suggested that the approach to the spending pillar must be consistent with net zero targets, circular economy, Fair Work principles and a wellbeing economy. In this context, mapping of potential links between CWB and existing policy, guidance and legislation was suggested as a first step in determining the need for any further legislation. There was also a call for a rebalancing of the priorities and criteria used in public procurement, for example to prioritise CWB over cost and other considerations. This is reflected in some of the specific proposals for legislative changes noted earlier in this section.

A number of respondents wished to see additional guidance on how CWB and community benefits are expected to fit within wider procurement legislation. This was most commonly related to how CWB can be balanced with the duty on public bodies to ensure best value. In this context, there were specific calls for guidance around how best value can incorporate CWB principles to ensure that procurement decisions continue to demonstrate best value while supporting CWB. For some, this reflected a wider view that the Scottish Government should acknowledge that more local procurement could increase costs for the public sector, and there were calls for additional resourcing to take account of this.

The potential for any prioritisation of local suppliers to conflict with current procurement regulations and other duties on public bodies around equality and non-discrimination was also raised. This included a concern that any changes to support CWB should incorporate public sector equalities duties.

Respondents also raised potential concerns around what should be considered 'local' for procurement purposes, and the scale at which CWB and community benefits should be considered. It was noted that 'local' can be a complex concept for procurement with reference to examples of locally-based suppliers having operations in other parts of Scotland, of suppliers headquartered elsewhere but with local offices or operations, and the complexity of some supply chains. It was suggested that the definition of 'local' should not be limited only to suppliers in the same local authority area.