Supporting collaboration between the third and public sectors: evidence review

5. Public sector procurement and the third sector

Public sector procurement was the third major area where barriers to successfully working together were identified in the literature and stakeholder interviews. Since procurement of services forms the basis of many partnerships between local government or other public sector bodies and the third sector, it is unsurprising that this emerges as a space where stakeholders identified opportunities to strengthen collaboration. For many third sector organisations, public contracts are a key source of income^[79], therefore it is important to make sure that third sector organisations can successfully participate in public sector procurement. However, evidence from the literature and the stakeholder interviews suggest that there are barriers for third sector organisations to participate within public procurements on an equal footing with other types of organisation.

This chapter will use the terms public sector procurement and commissioning. The definitions of the terms are outlined below:

Public sector procurement - the process of procuring goods and services on behalf of a public sector organisation.

Commissioning - the process of assessing and identifying the needs, allocating resources and developing the service required to meet these needs effectively. Procurement is one part of the commissioning process.

Approaches to public procurement

As part of the Procurement Reform (Scotland) Act 2014 Sustainable Procurement Duty, public bodies undertaking regulated procurement are required to consider how they can facilitate the involvement of third sector organisations in their regulated procurements, as well as considering how in conducting the procurement process they can improve economic, social, and environmental wellbeing in the area and promote innovation^[80]. Public bodies host supplier events, provide business support activities and hold workshops with third sector organisations to facilitate their involvement in public sector procurement^[81].

However, a number of interviewed stakeholders said that more flexible and collaborative procurement approaches could increase successful cross-sector collaboration further. At the moment, third sector organisations frequently find themselves in competition for the same procurement contracts rather than working collaboratively with each other to achieve common goals^[82,83]. Whilst consortium bids will not be the right approach for every contract, more opportunities for collaborative procurement, where third sector organisations are given enough time to prepare bids together and apply for contracts as part of a consortium bid, could alleviate this issue. Local government having more time to prepare tenders could also help, as current one-year funding arrangements for local government mean that there is a risk of unspent funds being lost if they are not used by the end of the financial year. This can create pressures for local authorities to spend funds quickly, without allowing as much time for tenders as third sector organisations require. This was acknowledged by a public sector interviewee saying:

"I think probably people need to be better in building in more time in their [procurement] exercise to truly collaborate."

Example of a procurement process undermining collaborative working

A third sector interface interviewee talked about an example of third sector organisations working with the local authority, to review and design family services in the area. Third sector organisations were funded by a grant to deliver the service, however, once the grant finished, the services went to procurement and procurement was done at a scale and level that meant it was not possible for those third sector organisations to participate because they were not large enough. The timeline also made it difficult for organisations to collaborate and put in a collaborative bid. Therefore, the third sector organisations that were previously delivering the service ended up not getting the contract to deliver that service, despite the fact that the Health and Social Care Partnership had never expressed any concerns about the quality of service being delivered. This also meant that the continuity of support for the service users was disrupted.

The research found that the complexity of bidding for public contracts can favour the private sector or large third sector organisations over smaller organisations. Larger third sector organisations tend to have more resources to prepare more complex bids for contracts, while smaller organisations may lack the same level of capacity^[84]. In order to collaborate more effectively with smaller third sector organisations, interviewees suggested that different models of partnership between third and public sectors are needed. For example, a wider use of "lotting" of contracts, where a contract is split up into a series of smaller parts, enabling smaller third sector organisations to bid for and deliver one or more lot of the contract could allow more smaller third sector organisations to bid for contracts. However, it is important to recognise that for low value contracts lotting may not always be appropriate. Changes to procurement processes, such as making application forms and tendering processes simpler and more accessible could also make a difference^[85].

A 'sliding scale' proportionate approach, where bidders would have to provide more or less information, based on the size of the contract was also suggested. Currently, procurement contracts that are below the threshold of £50,000 (for goods and services) are unregulated and are not subject to the requirements of the Procurement Reform (Scotland) Act 2014. However, this threshold was seen as too low by some interviewees and can sometimes lead to the public sector procuring smaller contracts from third sector organisations, in order to avoid going over the threshold. Interviewees also said that some third sector organisations may avoid bidding for a contract if they know the contract value will exceed the £50,000 threshold, because of the higher demands of the procurement process.

Another suggested change in the procurement was cultural, with a third sector contributor saying that public bodies tend to not talk about anything they're going to procure, in order to avoid biasing results. However, this is not something that is specified in legislation, with public sector organisations encouraged to issue Prior Information Notices on Public Contracts Scotland, to notify potential suppliers about upcoming procurement activity. This secrecy can sometimes mean that community groups or third sector organisations do not get a chance to influence what is being procured, further damaging collaborative relationships.

Moreover, participation in the procurement process can currently be very difficult for small third sector organisations, due to the resources and knowledge needed to complete all the required paperwork. As one third sector interviewee said:

"[Procurement] is often done at a scale that makes it easy for the public body to manage, rather than right for the community to receive. I think it undermines the relationship between the people who receive services and the connections that they engage with."

Public sector stakeholders talked about the importance of engaging these smaller organisations and the need to pro-actively make changes to procurement processes^[86] and timelines, allowing more time for smaller organisations to apply for contracts, to enable that. One suggestion by a local authority interviewee was to have engagement officers in local councils, reaching out to local third sector organisations and providing support to them, so they could respond to the tenders put out by the local council. This role is fulfilled to varying degrees by TSIs in some areas.

Competitive tendering

The overarching aim of public sector procurement activity in Scotland continues to be the achievement of value for money for the taxpayer^[87]. The Scottish Model of Procurement defines value for money as the best balance of cost, quality and sustainability^[88,89]. Moreover, public sector procurement aims to contribute positively to businesses, society and places and communities, as outlined in the Scottish Government Outcomes for Procurement^[90]. One local government interviewee noted that procurement principles of fairness and transparency are also an important part of meaningful collaboration. However, some third and local government stakeholders expressed frustrations with the current procurement approach, saying that it could be improved to facilitate more collaborative working. They were critical of situations where competitive tendering processes were viewed to have adopted a disproportionate focus on price in comparison to other value considerations. Audit Scotland noted that for example, current procurement procedures in social care that are focused more heavily on price have led to competition between providers at the expense of collaboration and quality.^[91] This can also lead to the public sector viewing third sector as providers of services rather than equal partners^[92]. One third sector contributor said:

"What I'd like to see: more public social partnerships^[93], I'd like to see more community commissioning, more alliance commissioning^[94]. I'd like to see more confidence around just using grants and direct payments where it's appropriate, because legislation does actually allow for that."

A number of third sector interviewees said that tendered services should focus exclusively on quality and not cost. They agreed that the tendering process works well for some things, such as acquiring buildings or buying goods, however they argued that services provided by the third sector were different and that focusing on who can provide the cheapest service was not the right approach. Some interviewees said that as long as tenders continue to be assessed at least partly on the basis of cost, this will remain an issue, even if cost is meant to represent a small proportion of the overall cost/quality ratio used in the assessment process. In other words, they did not feel that the implementation of 'best value' was always successful in achieving the right balance of price, quality and sustainability considerations. According to one third sector interviewee:

"The problem with competitive tendering is, <…> in my experience, even when it's 80% or 90% quality and 10% cost, cost will always be the final thing."

However, a local government interviewee pointed out that constraints on local government budgets mean that even when a local authority would like to tender a service with 100% focus on quality, they are not always able to do that. They said:

"I don't think [third sector organisations] think we're bad people trying to keep the money down, but they're probably unaware that the budget pressures are vast and that the implications of having significantly increased costs are really problematic for what you can deliver."

Moreover, interviewees said that the public sector should give more consideration to the ways in which procuring services from third sector organisations can bring in additional benefits, contribute to the local economy or help the public sector achieve social policy goals. This suggests that public sector organisations could make more use of community benefits requirements^[95] as part of their procurement processes. This was expressed by a local government stakeholder:

"So okay, it might be more expensive <…> [but] I think we need to look at what we think we're buying and describe that a bit better, so that we can then enable the third sector to get more of a foothold in some of those contract areas."

Some of the third sector views about competitive tendering were challenged by a local government stakeholder who highlighted that competitive tendering can provide a fair and transparent opportunity for all organisations to access public sector contracts. Some literature sources corroborate this, saying that open and transparent competitive tendering leads to gains in efficiency and cost-savings^[96]. Whilst the local government stakeholder agreed that competitive tendering processes that place a disproportionate focus on price in relation to other value considerations can cause problems by driving down prices, they also questioned the idea that there is a prevalence of contracts that are overly focused on price, saying that it was not something they encountered in their day-to-day work. They did however acknowledge that it might be an issue in other parts of the sector. They also felt that competition in respect to quality is something to be encouraged and that competitive tendering allows the public sector to demonstrate how they have met their legal obligations around procurement:

"The reality is that tendering is one of the mechanisms by which you can ensure that you've met your legal principles, the fairness, the transparency, the proportionality. And when people are saying you don't have to re-tender this, or you don't have to procure that, <…> it's how then commissioners demonstrate that they've met their legal obligations to be fair and proportionate and transparent. And I'm not sure there's a really good appreciation of that. We just get told, or you're just being bureaucratic for the sake of it, but actually a lot of it is about being fair to everybody. So there's a bit about balancing your legal obligations with the expectations of the market without straining into big silly competitive tendering stuff."

Competitive tendering processes can be long, complex and require a lot of resources on the part of both the procuring and the tendering organisations. As one third sector interviewee said, if a public body such as local authority wishes to procure a service from a local third sector organisation, and if the service is complex, it can sometimes take up to six months to complete the process. Annual local authority funding cycles mean that after tendering is complete, the local authority may only be able to provide funds for the selected third sector organisation for six more months. However, it is important to note that local authorities can procure services for multiple years and/or build extension options in contracts to avoid long procurement processes curtailing collaborative working when possible.

Example of procurement impeding collaboration

A third sector interviewee talked about an example of how procurement requirements can make it difficult for the third and public sectors work together efficiently, even when the public sector wants to work together with third sector organisations. The interviewee referred to a specific funding stream that Scottish Government had agreed with local government. The local authority that interviewee engaged with, agreed that part of the funding would go to the third sector: "That money [is still not distributed to the third sector 16 months after funding stream was agreed] because [it has not been worked out how to] commission that from the third sector in a way that's not going to a full procurement, which we say is not the right way to do what we want to do."

Another issue raised by the stakeholders focused on the fact that while competitive tendering is viewed as the best way to ensure that public money is used to achieve value for money for the taxpayer, it can also hide the fact that both third sector and public sector organisations spend a lot of time on the tendering process, and that in itself this costs a lot of money. They considered that competitive tendering may not always be the best way to make sure that public money is spent responsibly. This was summarised by a third sector contributor :

"If you have ten [third sector organisations] applying for a tender, they all put in three or four days [of work], which is an underestimate to begin with, [overall] you have 30-40 working days put into [applying for a tender] that somebody somewhere is funding, but only one of them is potentially going to get the contract. It's just shifting the cost, it's not better value. <…> It means that [funds are taken out] of direct service delivery or <…> public donations or fundraising efforts [are used] to fund [applications for a tender]. There's never been any acknowledgement that I have seen that that's what happens, so I think <…> public sector procurement, doesn't actually save the public purse any money, just shifts where the costs of that are felt."

Finally, third sector organisations said that they sometimes choose not to bid on public sector contracts, because they cannot cut costs sufficiently to compete with large private sector organisations. Public sector suppliers are asked to commit to Fair Work First principles, that include no inappropriate use of zero-hour contracts and payment of Real Living Wage^[97], however some third sector organisations are not able to do this while also keeping costs low enough to be able to compete with large multi-national private sector companies. Stakeholders drew attention to this and said that if the public sector wants to work with the third sector organisations, they had to take this into account.

COVID-19 and procurement

Both third sector and local government interviewees said that while the changes to public sector procurement processes during COVID-19, such as using accelerated timescales to award contracts, use of direct awards or light touch regimes to enable procurement of goods and services with extreme urgency^[98] were necessary at the time, these flexibilities could not be continued indefinitely. Instead, as outlined above, they were keen to explore how procurement approaches could be improved to support more effective collaboration in future.