How Public Procurement Can Spur the Social Economy

(Illustration by iStock/bakhtiar_zein)

Governments around the world have become increasingly interested in fostering the social economy in order to address pressing social problems. One of the ways to do that is through their procurement of goods and services. The public sector represents a significant market. Approximately 250,000 public authorities spend more than 14 percent of the European Union’s €15 trillion annual GDP on procurement. If governments can use social impact as an important criterion in purchasing decisions it can help grow the social economy.

The good news is that there are more and more social economy enterprises for the government to contract with. Social economy enterprises are now active in a range of industries including construction, cleaning, gardening, banking, and utilities. A large number of them provide employment and livelihoods to people who are excluded from the labor market. Others provide additional benefits to society. Many operate in an environmentally sustainable manner.

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The Department of Vendee, France, for example, has been employing socially responsible public procurement (SRPP) to provide high quality organic food to students in local schools. During the needs analysis the department identified a potential social enterprise, ADAPEI-ARIA 85, that employed 10 people with disabilities and provided services such as the storage, cutting, cleaning, and packaging of organic food. They were awarded the contract in 2011 under French regulation, then in 2015, using the reserved contract instrument, the contract was renewed for six years. This SRPP deal, valued at €105,000 annually, has achieved two impact goals: to support the continued employment of 10 disabled people; and to promote the consumption of local organic food by providing 1.8 million meals per year to students in 34 schools.  

ESTAR, a regional technical and administrative support entity of the government of Tuscany, Italy, used SRPP to achieve two objectives: to promote the participation of small- and medium-size businesses and social cooperatives in public tenders, and to include environmental criteria in awarding contracts for the maintenance of green areas in health care establishments. The tender was divided into 11 lots, of which 8 were reserved for social cooperatives for a total value of €24 million. The winning social cooperatives were members of five federations with which Tuscany had signed a memorandum of understanding for collaboration. By using SRPP instruments the procuring authority succeeded in promoting the work integration of people with disabilities through social cooperatives.

The public sector is not alone in finding ways to use procurement to advance social goals. The private sector is also beginning to embrace this approach, presenting a huge market opportunity to social enterprises. The growing interest by businesses is no longer rooted solely in corporate social responsibility. It reflects a recognition that socially responsible procurement may actually increase a company’s competitiveness in the market, often because of growing consumer demand for such practices.

The COVID-19 pandemic may also offer new business opportunities for the social economy by increasing demand for their offerings from public agencies. During the pandemic, public authorities have relied on social economy and third sector organizations to provide ongoing services to vulnerable populations. In the future, government may even invite these organizations to implement innovative solutions that better respond to changing circumstances.

EU Directives for Public Procurement

SRPP has already gained support from a variety of European governments. In 2014, the European Commission issued directives for public procurement that contained important new provisions for pursuing SRPP. The directives encourage public authorities in EU member states to move away from using price as the most important criterion, and instead use the best price-quality ratio, which takes into account the quality of the product or service, as well as social and environmental considerations.

The directives introduced new ways to implement an SRPP policy. Here are several examples:

• Contracts can now include social clauses that may have accessiblity requirements, for example the training and integration of young people into the labor market, or gender equality, and may be used in different phases of the procurement process.
• Governments can reserve contracts that allow public authorities to reserve tender procedures to sheltered workshops and other enterprises whose main aim is the integration of people with disabilities or other disadvantages into the workforce.
• A simplified and more flexible procurement regime, or “light” regime, may be applied to social, health, educational, and other services, provided that the priciples of transparency are observed. These are considered to be “services to the person” and are more specific to national context, therefore national rules apply rather than strict EU procurement provisions.
• Contracting authorities can use the life-cycle cost methodology to calculate the cost of an asset or service during its entire life-cycle, not just the cost at the time the contract is awarded. This allows governments to include the social and environmental costs of the use, maintenance, and recycling of a product or service, not only the cost of its aquisition.
• Innovation Partnerships can be formed to allow public authorities to design innovative solutions jointly with the tenderer, rather than prescribing a solution, an approach that is similar to outcomes-based commissioning.

Encouraged by these new directives, many local authorities and cities are now requiring public procurement officers to take social considerations into account. This is important because these contracts are usually smaller than those from national governments and so are more feasible for social economy organizations to successfully bid on. Regions and cities are also creating their own social outcomes strategies that include social procurement, and adopting social impact measurement methods.

The Municipality of Valladolid, Spain, for example, created a socially responsible procurement strategy in 2018 to make public procurement more accessible for small- and medium-size businesses. Some of the ways it is doing this are to divide larger contracts into smaller lots, conduct pre-market consultations to better assess the market before publishing a tender, create reserved contracts, and reserve 8 to 10 percent of its total annual procurement to sheltered workshops and work integration social enterprises (WISEs).

In Ille et Vilaine, France, the contracting authority, Département of Ille et Vilaine, offered a dedicated online social clauses platform that supported procurers to use social clauses and assisted bidding companies (with toolkits and contact details of support organizations) to include work integration clauses in their bids for the town’s sewage services.

Challenges for Socially Responsible Public Procurement

While progress toward implementing SRPP has been made, challenges remain. Perhaps the biggest challenge to implementing SRPP is that the directives are considered guidelines, and their use is optional. This allows for a considerable level of discretion at the national and local levels, and many governments have not taken steps toward implementing this legislation.

Quite often, the SRPP directives apply only to central government procurement, not regional and local where a great deal of purchasing takes place. And because national governments often purchase large quantities it makes it difficult for social enterprises, which tend to be smaller, to bid on contracts or to win bids when they do try.

Even in countries where SRPP legislation has been adopted, there are strategic and operational challenges to implementing the reforms. Social procurement drivers are often viewed in conflict with economic drivers, such as fair competition, lowest price, and budget constraints. Procurement officers often prefer to keep procurement criteria simple and ignore social considerations for fear of distorting competition. They also tend to be risk averse and reluctant to try new approaches or invite unknown suppliers to bid, especially if they are not sure how to assess them.

On the operational side, procurement officers are often not aware of the social procurement provisions and so they do not use them. The majority of procurement officers still lack the technical skills and knowledge to implement SRPP processes, be it about the selection of the appropriate procurement phase or the scoring system. Social economy entities are often overlooked simply because public authorities are not familiar with them and their activities. And finally, corruption and lack of transparency may distort competition in social procurement or prevent the use of SRPP provisions altogether.

One of the biggest challenges to implementing SRPP is the difficulty of defining and measuring social value in the procurement process. In the UK, for example, where social value considerations have been encouraged in public service commissioning since the 2013 adoption of the Public Services (Social Value) Act, defining and measuring social value is still identified as the biggest challenge to implementation.

In many countries, even if social value policies and strategies exist, the communication gap between policy makers and procurers makes it difficult to translate those strategies into more specific social procurement goals. Procurers often lack beneficiary perspective and focus, and simply buy a service or product using a prescriptive tender, rather than concentrating on desired outcomes. As Sarah Murray wrote in a report on public spending published by The Economist Intelligence Unit: “a government may order a bridge, when what will do the job best is a ferry”.

On the practical side, the main challenge in measuring social value is the lack of practice, capacity, and tools to gather data, evaluate outcomes, and measure impact. Available measurement methods and tools may also be inappropriate, given that social value may be unique in each procurement case depending on the service or product and the stakeholders affected. Even where social goals are set and social impact is measured in the procurement process, contract performance may result in different or unintended social outcomes.

Because it is difficult to define and measure social value, procurement officers risk failure if they cannot properly assess whether the procurement was successful and distill lessons learned for the future. They also risk overlooking social washing by companies, who might present a false picture of their social and human rights record. Literature suggests that there is little analysis available on what social value really is obtained by strategic (social) procurement. Case studies have emphasized implementation- and process-related features or intended social impact instead of the actual outcomes.

The last set of challenges relates to the skills and capacities of social economy enterprises themselves. They often find procurement processes to be too complex and overwhelming and do not have the knowledge, capacity, or time to participate in the process or draw up a bid. While expert support and consultants may be ready to help, social economy enterprises often cannot afford to pay for them. In some cases, social economy enterprises are simply not aware of their rights to participate in procurement tenders or are not aware of their publication.

Social economy enterprises struggle with social impact challenges as well; they often lack the skills, methods, and capacity to measure their social impact, and are unable to clearly communicate it in tenders. Financial and human resource capacity constraints may also prevent social economy enterprises from winning larger public sector contracts.

How to Respond to Challenges and Opportunities

While the list of challenges is great, these will not be solved by additional legislation to promote the adoption of SRPP. The SRPP toolkit is sufficiently varied and comprehensive, containing a wide range of options for inserting social considerations. The way to increase the use of SRPP is to focus on finding ways to improve implementation.

One of the ways to meet the challenges is for governments to support procurement officers as they seek to find the best set of tools and approaches to implement SRPP. This requires that public authorities consider social procurement as an investment in social services rather than a mere procedure to purchase them; an investment in people, knowledge, and long-term thinking. Some of the ways that governments can do that are:

• Alignment of interests among key actors is important. This can be achieved by continuous dialogue in permanent groups or thematic task forces. Socially responsible procurement strategies should be harmonized with social enterprise development strategies and other government programs that target social issues.
• Lifecycle-cost assessment can help overcome the short-term thinking of obtaining the lowest price today. This method could help relieve the tension between the seemingly contradictory goals of economic efficiency and social value. It could help create the right incentives for commissioners and reduce the perceived risks of using social considerations.
• Commissioners should be supported with training and capacity building to develop their understanding of socially responsible procurement rules and laws, and their implications. This can be provided through procurement portals or knowledge centers, which would also house guides, case studies, and other training materials. These tools and guides are more effective if they are accompanied by training and incentives.
• Central and local procurement bodies should be encouraged to collaborate with industry bodies, organizations of procurement professionals, and chambers of commerce, all of whom could provide professional support and training, and play the role of an intermediary with suppliers. Pre-market consultation allows commissioners to better understand what the needs are, as well as what suppliers can offer, before they draw up a tender document.
• The use of intermediaries should be encouraged. They offer a number of services and capacities that commissioners lack and can also assist social economy enterprises. Intermediaries can be actual organizations or digital systems capable of mediating government-vendor relationships.
• Advocates of SRPP should pay more attention to local and regional bodies. Cities and regional public authorities have been the pioneers in introducing SRPP and creating workable solutions. Central governments could collaborate with local public authorities to test new models and disseminate success stories. Regional and European organizations of local authorities and financing facilities could strengthen and fund such collaborative efforts.
• Piloting and experimentation should be encouraged in the socially responsible procurement field. Public authorities could launch small size tenders in social impact areas they would like to learn more about. Pilot procurement would allow them to use a number of SRPP provisions in a flexible manner to learn more about needs, available suppliers, possible models, measurement of results, and final outcomes. Successful pilots could be proposed to be scaled up through public procurement. Such pilots need not burden procurement budgets; they could be creatively funded from more flexible sources, such as the European Social Fund or other social innovation related mechanisms.
• Social procurement should be mainstreamed across all contracting. Collaboration and coordination should be strengthened between government departments and procurement bodies at different levels, so that strategies could be harmonized and the fragmentation of procurement and service provision could be avoided.

It is also important to improve the ability of governments and public procurement practitioners to define and measure social value, and to strengthen their commitment to outcomes-based strategies. Here are some examples:

• Central and regional governments can use their social objectives and correspoding strategies to provide leadership and examples for the public procurement process. One of the ways to do that is to use the Sustainable Development Goals to create a common ground and offer a comprehensive framework for local and central governments to collaborate.
• Central and regional governments should support local authorities with guidance, capacity building, and tools so that they can operationalize social impact goals and set up systems to monitor and measure outcomes. The possibility of creating an SDG Action Manager type tool for the public sector should be examined, with the purpose of encouraging governments and public authorities to embrace the framework.
• Where appropriate, public authorities could pilot outcome-based procurement and involve payments by third-party funders. One example of this are social impact bonds, which demand that all players jointly formulate and agree on outcomes and social impact goals.

There are also steps that can be taken to create a stronger ecosystem for the social economy as a whole that will help spur SRPP, such as these:

• Creating a label or certification system has the potential to directly influence success in public procurement, as it helps establish eligibility and verify quality requirements. The Social Enterprise Mark (UK), and the quality “label” for social services based on the European Voluntary Quality Framework (Estonia), were developed with that purpose in mind. Certification can be a successful measure as long as it is based on market demand and recognition.
• Training courses and university degree programs on social economy can contribute to better awareness of social economy enterprises by commissioners, and reduce their reluctance to invite social economy providers to tenders.
• Programs that provide financial support and capacity building can help develop social enterprises and increase their competitiveness. In addition to providing such support directly, public authorities can also incentivize other stakeholders to offer the missing skills or financial resources to social econmy enterprises.
• Fostering collaboration among ecosystem players should become a public policy objective, with the longer term goal to improve social economy’s chances to successfully participate in public procurement.

The Way Forward

Socially responsible public procurement can spur social problem solving and has the potential to deliver on social goals when it is implemented and when those social goals are clearly set and social value measured. In the future, more support is necessary in the form of training, skill building, and sharing of good and bad practices, not only in the technical area, but also regarding social value.

Socially responsible procurement also has the potential to benefit social economy enterprises by providing them with access to public sector markets and thus strengthen their sustainability and further their social mission. For SRPP to succeed, however, it needs to be implemented in the context of, and together with, other policy measures that support the social economy.

Ecosystem development is important to build a culture where social economy enterprises are recognized and have a level playing field to compete or collaborate with other actors. When implemented in harmony with each other, public policies for the development of social economy and socially responsible public procurement can reinforce each other.

Read more stories by Eva Varga.