CAN DO the. toolkit 2. RESOURCE 2: Can Do Toolkit 2. Funded by. MerthyrValleys. Quality Living Striving for Excellence Working Together

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1 SMEfriendly procurement CAN DO the toolkit 2 Funded by MerthyrValleys H O M E S Quality Living Striving for Excellence Working Together RESOURCE 2: Can Do Toolkit 2

2 IMPORTANT: All three resources that make up the toolkit provide advice in general terms only. Readers should seek legal advice before use. This document is based on original work undertaken by Richard Macfarlane with legal research and material provided by Mark Cook ) and Gayle Monk of Anthony Collins Solicitors LLP. Survey work was undertaken by Community Consultants (

3 Contents Section 1 Introduction p The Toolkit p How to use Resource 2 p Rationales for SME-Friendly Procurement p A Typology of SME-Friendly Procurement options, priorities and choices p A Step by Step Approach p The Route to SME-Friendly Procurement p.12 Section 2 The Legal and policy Basis for SME-Friendly Procurement p Policy and Legal Frameworks for UK Public Bodies p Sustainable Development p The Welsh Assembly Government p Policy on SME Opportunities p Value for Money (VfM) Best Value and Affordability p Local Authorities p The EU Policy and Legal Framework p UK and EU Case law p.18 Section 3 A Typology of SME-Friendly procurement Options p What to Buy Options p Market Dialogue and Community Engagement p Manage Local Business Expectations p Supply Chain Management p Including Supply Chain requirements in the Specification p Labour-only and Supply-only contracts 3.2 How to Buy Activities p Design Contracts so SMEs can Bid p Reserving contracts to Supported Businesses p Set-Aside Contracts:20% Lots p Lots p Framework Agreements p Changing the Pre-Qualification Questionnaire p Providing Information to Potential Bidders p Early Recognition p A Procurement or How to Contract Guide p Local Advertising p Meet the Buyer Events p Sell2Wales p Databases p Supplier Development p The Supplier Development Service p Construct Wales p Consortium Formation p.31 Resource 2: SME-friendly procurement 3

4 Section 1: Introduction 1.1 The Can Do Toolkit 2 SME Friendly Procurement The toolkit follows on directly from the Can Do Toolkit: Targeted recruitment and Training for social landlords, and should be used in partnership with the original document. Where there are strong links, readers will be signposted directly to the first toolkit, which has been updated to include any new policy and legal developments in this area. This Toolkit includes 3 linked resources: Resource 1 This introductory guide provides key information on how organisations can ensure that their procurement is SME friendly, and how opportunities for SMEs can be maximised. Resource 2 a comprehensive guide containing detailed information on legal and policy matters, as well as information for buyers on what and how to buy, and how to support SMEs. This resource is linked directly to the first Can Do Toolkit and is available for downloading on the i2i and Value Wales websites in a PDF format. Resource 3 a series of model materials and practical guidance on how to buy to be downloaded and adapted from the i2i and Value Wales websites in a PDF format. How to use the Can Do Toolkit 2 This toolkit has been produced jointly by i2i and Value Wales as the next step in offering practical and clear guidance to public sector buyers and social landlords in Wales on maximising supply-chain opportunities through their contracts. It aims to help users by providing information and guidance on: useful actions they can take; legal and policy requirements and appropriate processes; sources of support and examples of relevant practice; and model clauses that may be adopted for use on a case-by-case basis. 1.2 How to use resource 2 The tools and options laid out in this document, as well as resource 3, will enable users to understand and effectively include SME friendly procurement processes within their organisation s business. This will not only maximise the procurement opportunities for SMEs, but will contribute to the sustainable development of the organisation. The tools are flexible and can be used in ways that are; capable of being adapted to suit specific circumstances and the preferences of the officers involved; compatible with competitive tendering processes and the market allocation of resources; compatible with the legal framework governing the procurement activities of the users, and with best procurement practice. 4 Resource 2: SME-friendly procurement

5 Resource 2 offers a comprehensive guide, which follows on from the policy rationales introduced in resource 1, covering the policy and legal background to SME friendly procurement actions that can be undertaken by buyers. It continues by offering and explaining a range of pre procurement and procurement options as well as support activities that can be undertaken to ensure that any procurement process does not create barriers to local SMEs. It is best read in conjunction with resource 3, which offers a range of model materials, and a step by step approach to public sector SME friendly procurement from the policy adoption stage through to the award and monitoring of a contract containing SME friendly protocols. 1.3 Rationales for SME-friendly Procurement The Opening Doors Charter, launched by the Welsh Assembly Government in 2006 clearly sets out principles for both the public sector and SME sector aimed at facilitating engagement. The Charter aims to set a minimum level of good practice for the public sector and the full range of SMEs*; and to help create a level playing field for all suppliers wishing to tender for public sector contracts, thus opening up supply opportunities to SMEs, promoting a healthy and inclusive economy in Wales. All major public sector Organisations from across Wales have signed up to the principles of the Charter. 1 *The Charter was refreshed in May 2008 to include explicit reference to SMEs As a community mutual [housing association] tenants and neighbourhoods are the core of what we do. SMEs are a part of these communities, based in neighbourhoods and employing local people Greg Montgomery. Investment and Regeneration Director. RCT Homes. Despite these acknowledgements, within procurement community literature there may be little or no reference to the importance of SMEs in the local economy. As part of the research for this toolkit, a survey of social housing providers was carried out and indicates the importance given to commissioning works from SMEs in general with a slight bias towards smaller firms and firms that employ local people in particular. Table 1 Importance attached to providing work opportunities for various sizes of business by social landlords in Wales 2 Mean score Micro-enterprises (up to 10 employees) 4.1 Small firms (11-49 employees) 4.1 Medium-sized firms ( employees) 3.8 New Start businesses 3.4 Note: Mean score based on a value of 1 for no importance to 5 for very important. 1 Opening Doors: The Charter for SME friendly Procurement, Welsh Assembly Government Community Consultants. Survey of 22 Welsh social landlords. Unpublished work for i2i/cih Cymru. 200 Resource 2: SME-friendly procurement 5

6 Table 2 Welsh social landlords reasons for supporting SMEs 3 Number Helps to increase competition 8 This size more responsive to our needs 11 Easier to manage this size of firm 7 Helps support local economy and create local jobs 17 SMEs employ local people who understand our tenants needs better 18 None of these 2 Total 22 In addition to the above survey with public sector buyers, research was undertaken with construction companies, in order to gauge their level of support and experience of working with the local supply chain. 11 Construction companies were interviewed, all of which have current contracts with social landlords in Wales. The responses form qualitative data in regards to a number of issues surrounding supply chain issues. Question 1: Views on how to achieve greater involvement of SMEs in contracts Stipulate the requirement for the use of SMEs or local firms in the tender documents Have the use of local firms as a KPI Build up the capacity of local firms to deliver contracts Build up links with the supply chain through schools, colleges, Job Centre Plus, meet the buyer events Question 2: Main problems with using local suppliers The capacity of local firms to deliver in terms of; Health and safety Financial management Quality assurance Skills of the workforce Price/competitiveness South Wales Job Match scheme is not available throughout Wales Question 3: Should the use of local firms be included in the procurement process? 9 respondents thought it should, 2 that it should not. One said, it should be part of the bid documentation, and a KPI 3 Ibid 6 Resource 2: SME-friendly procurement

7 Question 4: Steps taken to identify and engage local SME sub-contractors and suppliers In general firms stated they maintained a database of local sub contractors and suppliers. Holding of seminars and meet the buyer events for local firms for initial contract information, and one to ones, with individual firms after. Question 5: Most effective ways of measuring SME opportunities KPIs Percentage of contract given to SMEs How much the contractor had spend on SMEs Watching how their sub contractors grew and developed, so could be used in future contracts 1.4 A Typology of SME-Friendly Procurement Options, Powers, Priorities and Choices From this Introduction it can be seen that social housing providers in Wales have a significant range of choices about how they implement a SME-friendly approach to their procurement. These choices will be explored in more detail in the remainder of the Can Do Toolkit. So how should social landlords decide what to do and how best to achieve their aims? A range of considerations are required including: Identifying the buyer s aims from existing powers, policies and financial procedures, or perhaps enhancing these to better express the new thinking in the organisation; Selecting targets: which firms is it hoped will benefit and where are they located? What supplier support activity could increase awareness of opportunities and SMEs capacity to compete successfully for these? Explore how the use of external resources like the Supplier Development Programme can support SMEs in winning contracts? How can contracts be designed to ensure that SMEs can bid? Can the specification be extended to include requirements that better reflect the purchasers aims e.g. economic multiplier or supply-chain development requirements? How should the procurement process be changed to reflect any SME-friendly aims for the procurement e.g. at the PQQ, contract notice, specification and award stages? How will any SME-friendly requirements be measured and monitored? Contract Management: who will co-ordinate and progress-chase the SME-friendly agenda and support services? Resource 2: SME-friendly procurement 7

8 Section 1.5 A step by step approach STEP ONE: Adopting clear policies Requirements the commitment to SME-friendly procurements should be included in the Procurement/Corporate/Community Strategy; indicate thresholds values or types of contract where the policy will apply; include any commitment to locality or particular types of firm; but be non-specific so that the policy can outlast short-term changes in priority. STEP TWO: Developing a business case Requirements consider the powers and policies that could allow the inclusion of targeted economic development or supply-chain development as a part of the subject of the contract; decide if these are to be included, and if so consider how the requirements will be defined, measured and monitored; undertake `market consultations` to assess the response to these requirements; consider arrangements for procuring through smaller contracts that are more accessible to SMEs; use Sell2wales as a means of advertising all small contracts; consider how best to use the resources provided by the Supplier development Service and Construct Wales. STEP THREE: Preparing the ojeu contract notice Requirements the use of social considerations including actions to support SMEs must be mentioned in the Contract Notices; the intention to appoint a number of contractors to a Framework must be included in the Notice the intention to award the work through a number of `lots` must be mentioned in the Notice. 8 Resource 2: SME-friendly procurement

9 Model Text Training and Supply-chain Opportunities [...] (enter name) is committed to achieving economic, social and environmental well-being for its residents and implementing the [Community] Strategy so as to ensure a better quality of life for everyone, now and for generations to come. To achieve this it commits to the following actions to the fullest extent possible within the relevant legal and policy frameworks and the available funding: when selecting the strategy for each procurement, to consider what recruitment and training, equal opportunities and SME opportunities could be obtained from each works contract with an estimated value exceeding [...m] and each services contract with an estimated value exceeding [...] ; to include training, equal opportunities and recruitment requirements, and SME opportunities in its service requirements, where it considers this appropriate; to include other social and environmental matters in its service requirements, where it considers this appropriate; and to use these requirements in all stages of the selection and contract award process, and as contract conditions. Model Text In preparing a business case a contracting authority must consider many issues, including: confirming that it has the powers and policies to undertake the procurement, including the desired social issues; ensuring that financial provisions are made for the entire project, including SME-friendly requirements and other social outcomes; ensuring that all of its SME and other social objectives can be quantified and measured, which will help evaluate how far they represent value for money; identifying the weighting to be given to the provision of SME opportunities in the procurement process and what procurement strategy will best achieve this; and identifying what SME opportunities could be provided in the supply-chain and how this is best achieved (e.g. through the specification and contract conditions), including the availability of supply-chain listings and supplier development resources and facilitation and monitoring arrangements. Model Text Under this [procurement / project] the [contractor / developer] is required to participate actively in the economic and social regeneration of the locality of and surrounding the place of delivery for the [procurement / project]. Accordingly contract performance conditions may relate in particular to economic, social and environmental considerations. Resource 2: SME-friendly procurement 9

10 STEP FOUR: Pre-qualification questionnaire Requirements consider using standard PQQ templates for financial matters and past experience in order to reduce the input required from potential bidders; critically examine the need for turnover thresholds and membership of trade organisations as evidence of capability: look for alternative evidence; include a question to check the technical and managerial capability to deliver a SME-friendly approach. STEP FIVE: Producing the specification or invitation to tender Requirements Detailed SME-friendly requirements or local economic impact requirements need to be included at this stage: what are appropriate and deliverable Draft clauses that are unambiguous, outcome-based and provide `a level playing field` for bidders from anywhere in Europe; Refer to Sell2Wales or other local databases as a source of targeted SMEs that is available to any contractor. STEP SIX: Developing an award process Requirements any weighting to be given to the SME-friendly core requirements should be identified early and included in the OJEU Contract Notice; ask bidders to complete a pro-forma method statement relating to their SME-friendly activity: if a core requirement the method statement can be scored and used in the award of the contract; if the SME-friendly activities are not core requirements they should not influence the award of the contract but they can be included as contract conditions. STEP SEVEN: Implementing contract conditions and monitoring outcomes Requirements Specific contract conditions that reflect the requirements of the specification or Invitation To Tender should be developed on a case by case basis. Establish procedures for monitoring and progress-chasing the SME-friendly requirements: these will be most important in the first weeks and months of a contract. 10 Resource 2: SME-friendly procurement

11 Model Text Targeted Supply-chain Opportunities Is your company willing to work with the contracting authority on any or all of the below, and explain how you would do this? Identifying `additional SME suppliers` that you have not utilised before and that are based in and around the localities where you are working; Utilising Sell2Wales and other supply-chain listings and working with Supplier Development Programmes; Nurturing and supporting these additional SME suppliers so that they are better able to meet your needs; Implementing best practice in payment and other terms in relation to your SME supply-chain;. How would you plan to be involved in any of these activities, or do you have any examples of how you have already been involved? Model Text While the details will vary from contract to contract there are a number of common elements that are included in SME-friendly specifications. These include: some reference to the policy or legal underpinning for the requirements; measurable performance indicators either within the specification or in an addendum, relating to the required outputs, and/or a process for identifying `target SMEs` that has to be followed; monitoring and performance review requirements; and a disclaimer to protect the client from claims relating to any SME-friendly interventions they make. Model Text A pro-forma SME-friendly method statement is included in Resource 3. A scoring framework should be developed to ensure a robust and fair evaluation of the SME-friendly method statements. Model Text The model clauses in Resource 3 can be used as a starting position for all procurements, including those covered by EU rules. They are drafted on the basis that the contractor will have supplied a service delivery plan or method statement satisfactory to the client concerning how they will implement SME-friendly activities. Resource 2: SME-friendly procurement 11

12 Section 1.6 The Route to SME-friendly procurement checklist AIMS TARGETS SUPPLIER SUPPORT COSTS CONTRACT SIZE Check Constitution & `Powers` Micro enterprises Issue a Procurement Guide Identify cost of SMEfriendly approach Supply chain obligations in large contracts Check and enhance social policies Micro and Small firms Meet the buyer events Ensure budget covers the approach Framework contracts with modest or variable call-down volumes Check Sustainable development policy SMEs Advertise Opportunities Make core SMEfriendly actions a part of the VfM or best value decision Advertise a contract to be let in smaller `lots` actions to take Check & revise Standing Orders New suppliers Use an SME database e.g. Sell2Wales Identify external resources to support SME work Avoid aggregating: provide small contracts Check and enhance procurement policy Firms on Sell2Wales or other registers Targeted capacity-building Market-test SME requirements Let a supply-chain management contract Ensure advisers are aware of social/ economic aims New start businesses Encourage SME registration on data-bases Buy labour and materials separately to provide small contracts Consider good procurement practice Social enterprises and supported firms Support consortia formation 12 Resource 2: SME-friendly procurement

13 SPECIFICATION PROCUREMENT PROCESS LEADERSHIP MONTORING Target % for the value of tender price to be provided by target SMEs Procure via contract portal e.g. Buy4Wales / Sell2Wales Consider monitoring issues at specification stage Supply-chain activity must have a champion Target % for the value of works to be provided by target SMEs OJEU Notice with social requirements and given weighting Adopt appropriate measures: few but targeted Identify external resources and expertise e.g. Construct Wales Set target value for the benefit to a target local economy PQQ simplified and includes questions on supply-chain development activity Prefer quantitive to qualitative measures Provide specialist support and information to procurement team Notify supply-chain opportunities to a named register Advertise opportunity + meet the buyer event Specify reporting periods and formats Report outcomes to local business forums Contractor to advertise supply-chain opportunities All bidders get access to a targeted supply-chain Progress-chase and respond to outcomes Share outcomes and lessons learnt Contractor to hold meet the buyer events and mentor new suppliers Get and evaluate Method Statement with the tender Consider how to verify reports Excessive monitoring is poor VfM Resource 2: SME-friendly procurement 13

14 Section 2: The Legal and Policy Basis for SME-Friendly Procurement This section provides a brief overview of the legislation that governs the use of SME friendly policies. If you are interested in reading a comprehensive guide covering the legal and policy basis of SME supply chain development please go to the Can Do Toolkit-Targeted recruitment and training, resource 2. The basis of undertaking any procurement activity to promote SME opportunities rests, as with TR and T heavily on the Well being powers of a Local Authority or the Corporate aims and objectives of an RSL, and therefore can be accessed quickly by following this link and going to sections 2 and 3. This information has been updated within the original toolkit to reflect the policy and legal developments since May In addition, any general procurement advice and guidelines for procurement professions is outside the remit of this document and readers are advised to read the Procurement Route Planner developed by Value Wales which; seeks to promote a structured, step-by-step approach and encourage a consistent, best practice to procurement throughout the Welsh public sector. This procurement aid can be accessed by following this link; It is important to recognise that legal frameworks will have different impacts on what to buy (i.e. what is included as part of the subject of the contract: a core requirement ) and deciding how to buy (e.g. through a series of smaller contracts, or a framework contract, or in lots ). Procurement professionals should consider What to buy activities as part of the pre procurement process, where corporate decisions, strategies will be as a direct result of the ethos of an organisation. This is reflected in the policy section of the toolkits. Procurement professionals should consider How to buy activities and the information and support given to bidders as part of their procurement process, and therefore, the legal implications of these decisions must be considered. Again, the legal basis for the procurement decisions made is available within the original toolkit, but we have included SME specific and new case law and guidance within this section. The policy and legal frameworks will vary between different public bodies, but the key issues of policy which relate to the issue of SME-friendly procurement include: The principles of sustainable development; The guidance and best practice included in the Procurement Route planner. 4 Procurement Route planner, Welsh Assembly Government launched 2nd October Resource 2: SME-friendly procurement

15 2.1 Policy and Legal Frameworks for UK public Bodies Sustainable Development This objective is reflected in the WAG policy One Wales: One Planet (May 2009) that describes sustainable development in Wales as: [a] means of enhancing the economic, social and environmental wellbeing of people and communities, achieving a better quality of life for our own and future generations: In ways which promote social justice and equality of opportunity; and In ways which enhance the natural and cultural environment and respect its limits... 5 The document describes sustainable development including the social justice elements as the central organising principle of the Welsh Assembly Government and the public sector in Wales. 6 The strategy also gives a commitment...that businesses and third sector organisations across Wales will have the opportunity to compete for public sector contracts... 7 Extract from the Powys County Council Sustainable Development Strategy 2008/ The Council can help to support the local economy by giving Small and Medium-sized Enterprises (SMEs) and social enterprises the opportunity to tender for contracts, through the provision of guidance and the appropriate packaging of contracts. We can also encourage our contractors to employ, and train, local people when working for us. These will require small changes in the way we work, but the benefits to the people of Powys could be considerable The Welsh Assembly Government Under section 60 of Government of Wales Act 2006 (GoWA), Welsh Ministers may do anything which they consider appropriate to achieve the promotion or improvement of the economic, social or environmental well-being of Wales. This power can be exercised in relation to or for the benefit of the whole or any part of Wales, or all or any persons in Wales. The Opening Doors Charter, launched by the Welsh Assembly Government in 2006 and updated in 2008, clearly sets out principles for both the public sector and SME sector aimed at facilitating engagement. These include: Not assuming that larger suppliers always offer better value for money; Ensure all our processes create a level playing field for SMEs; Use broad value for money criteria to make decisions; Use sustainable development criteria in determining value for money; Package large contracts into separate elements or make use of regional lots if appropriate, to ensure that SMEs are not excluded from tendering. 9 5 WAG. One Wales : One Planet. May Chapter One. 6 Ibid - Ministerial Forward. 7 Ibid page 57 8 Ibid page 57 Resource 2: SME-friendly procurement 15

16 2.1.3 Policy on SME Opportunities The Opening Doors Charter, launched by the Welsh Assembly Government in 2006 clearly sets out principles for both the public sector and SME sector in Wales and aims to facilitate engagement from all parties. The Charter set minimum levels of good practice for the public sector and the full range of SMEs* within Wales. The purpose of this ultimately is to create a level playing field for all suppliers wishing to tender for public sector contracts, thus opening up contract opportunities to SMEs, as well as promoting a healthy and inclusive economy in Wales. All major public sector organisations from across Wales have signed up to the principles of the Charter. In addition, the Charter includes a commitment by contracting authorities to package large contracts into separate elements or make use of regional lots if appropriate to ensure that SMEs are not excluded from tendering. The Charter also commits to cut down on administration needed to tender and to move towards a consistent all Wales approach to pre-qualification and standardised contract documentation. Further to this, the Charter includes commitments to give SME suppliers an opportunity to discuss procurement with Welsh Assembly Government officials in order to understand the legislative requirements, as well as providing feedback on Government processes and procedures in order to work in partnership to create innovative solutions. *The Charter was refreshed in May 2008 to include explicit reference to SMEs in their widest context - for the purposes of the Charter SMEs are considered to be diverse group of businesses, ranging from sole traders to substantial, established firms including start- ups, black and minority ethnic businesses (BMEs), voluntary and community Organisations (VCOs), social enterprises and supported businesses. The refreshed Charter includes an endorsement from Graham Benfield, Chief Executive of the Wales Council for Voluntary Action Value for Money (VfM), Best Value and Affordability Value for money (VfM) is one of the core requirements of good procurement set down by Government. Best value introduces an additional dynamic for local authorities: their procurement is expected to produce continuous improvement. The means of achieving VfM or best value is based on three pre-procurement decisions: what the purchaser is trying to achieve, e.g. is it just WHQS improvements or is it wider physical, economic and social regeneration? how best to procure the requirements (see How to Buy options below)? and then what should be included in the specification (see What to Buy options below)? In essence, procurement professionals and buyers should enure that when they are purchasing goods or services best value is their guiding principle. A principle that goes much further than value for money and extends to areas such as sustainable development, environmental issues and benefitting the local economy. Definition of Value for Money the optimum combination of whole-life costs and quality (or fitness for purpose) to meet the user s requirement. (OGC 1998) Definition of Best Value make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to combination of economy, efficiency and effectiveness (LGA 1999 s.3(1)) 9 Ibid Office of Government Commerce. OGC Policy Principles. Social Issues in Procurement, Available from 16 Resource 2: SME-friendly procurement

17 2.1.5 Local Authorities a) Community Well-being WAG has issued guidance for consultation to Welsh local authorities Power to Promote or Improve Economic, Social or Environmental Well-being. 12 This: lists measures to encourage small business 13 in a list of key factors that contribute to the improvement of well-being; emphasises the role of the power in encouraging innovation and indicates that this can be a power of first resort and may be used for activities for which other bodies are primarily responsible; 14 lists promoting sustainable development, reducing inequalities, and promoting economic development amongst the list of activities that can be undertaken; and makes clear that the power enables a local authority to incur expenditure under the well-being provision. 16 b) Community Strategy All local authorities are expected to work with partners locally and regionally to produce a community strategy. However, they are not usually drafted as a basis for supporting the inclusion of SME-friendly procurement. There is obviously an opportunity to support the SME agenda through a Community Strategy, and should be considered. RSLs and other bodies with purchasing powers are often involved with local authorities in developing the community strategy and the following text could be considered for inclusion in order to provide a policy underpinning for the inclusion of supply-chain and other social issues in their procurement contracts and other agreements: The Partners will continue to use all of their powers, wherever they can, to do anything they consider will promote or improve the well-being of the area. Steps to be taken include: maximising opportunities for small and medium sized enterprises based in or around the area where investment is taking place; securing representation for disadvantaged groups often employed by organisations such as those in the 3rd and supported business sectors; developing a workforce that is highly skilled and well motivated and can truly meet the skill needs of the economy; ensuring that employers maximise their local recruitment, including the provision of training and support to new entrants and those returning to the labour market; and providing residents with the skills to compete for the employment created by new investment in public services and private enterprise, and enabling them take up sustainable employment opportunities. 12 Guidance for consultation is available at: Not convinced that this has been produced in its final form. 13 Ibid section Ibid section Ibid. Section Ibid. Section 2.11 Resource 2: SME-friendly procurement 17

18 2.2 The EU Policy and Legal Framework Maximising opportunities for SMEs within the EU procurement framework UK and EU Case Law There have been some important European Court of Justice cases concerning social clauses in public contracts, in particular SME opportunities, which have had a bearing on EU and UK procurement legislation, and continue to develop the shape of the law as it is interpreted by the courts. These are summarised in the table below. For a fuller illustration of the EU and UK case law surrounding the subject of wider community benefits, including Targeted Recruitment and Training, please refer to Resource 2, section 2 of the Can Do Toolkit Targeted Recruitment and Training, which is available on the following link. Not all the cases are easy to reconcile with each other or with current European Commission guidance but they do establish some important principles that are relevant to the inclusion of supply-chain and other social matters in procurement by contracting authorities, including: it is possible to include SME-friendly requirements in public procurement provided that the drafting and the process does not disadvantage non-local bidders, for example by requiring them to have local market knowledge, or a local base, or use local material; environmental (and by implication) local economy requirements that address a policy objective of the purchaser are permissible: they do not need to provide an economic benefit to the purchaser; and all requirements must be capable of measurement and verification. To date, few legal procurement challenges have reached the UK courts, so there is very little domestic case law to guide contracting authorities on the use of social clauses. The cases in the following table (a number of which come from Northern Ireland), however, make some relevant points which should be kept in mind. The table below represents summary of the cases, which should be read and interpreted by each organisation s legal team before taking further procurement activity. However, this summary by Anthony Collins Solicitors provides the legal implications of these cases for UK procurement professionals. From the case material it can be concluded that local authorities, Welsh social housing providers, the Welsh Assembly Government and many other public bodies are likely to have sufficient powers to include SME-friendly measures in their procurement processes and to procure in ways which encourage SME involvement in public contracts. Sustainable development provides a policy umbrella that may be supplemented by social inclusion, regeneration and local economic development policies within individual procuring organisations. Appropriate SME-friendly actions as described in this Resource and in Resource 3 can be compatible with EU policy and legal frameworks and with value for money and continuous improvement policies. 18 Resource 2: SME-friendly procurement

19 Table 1 Brief Guide to Relevant UK and European Procurement Case Law Brent v Risk Management Partners Federal Security Services Henry Brothers McLaughlin & Harvey Letting International Brent London Borough Council (appellant) v Risk Management Partners (respondent) and (1) London Authorities Mutual Limited (2) Harrow London Borough Council (Interested parties) [2009] EWCA Civ 490 Federal Security Services Limited (plaintiff) v Northern Ireland Court Service (defendant) & Resource (NI) Limited (intervening party) [2009] NIQB 15 Henry Brothers (Magherafelt) Limited & Ors v Department of Education for Northern Ireland [2008] NIQB 105 McLaughlin & Harvey Limited v Department of Finance and Personnel [2008] NIQB 91 Letting International Limited v Newham London Borough Council [2008] EWHC 1583 (QB) Participation in a mutual insurance company was not within the powers given to a local authority under section 2 of the Local Government Act 2000 (the well-being powers). This has been seen by some as a signal that local authorities well-being powers will not be considered by the courts to be as wide-ranging as they are drafted. Tendering instructions and award criteria should be certain and unambiguous. At least at the primary consideration stage, it is not possible to omit criteria relating to price. Unless the cost of the relevant goods or services was fixed, it would be very difficult to reach any objective determination of what was the most economically advantageous tender, without an indication of price in relation to which non-price elements can be taken into account. Where sub-criteria are used as part of the assessment of tenders, these must be disclosed to bidders. The duty on a contracting authority to act in a transparent way include the need to sufficiently disclose contract award criteria and weightings in advance, including setting out detailed criteria and sub-criteria where these are used. Resource 2: SME-friendly procurement 19

20 Section 3: A typology of SME friendly procurement options A Typology of SME-friendly Procurement Options It is likely that the benefits for SMEs, and especially SMEs from a target area, will increase with the types of action that are taken. The biggest impact may occur through what to buy options, and then how to buy choices, but these will have a much reduced impact if the opportunities available and the support that can be provided are not advertised to suppliers. What to Buy Options Pre-procurement market dialogue: Discuss options with market early Supply-chain management: Consider letting a contract to procure and manage a supply chain Works, and supply-chain development: Include SME-support activities in the subject of the contract Labour-only and supply-only contracts: Procure labour and materials separately to open up SME opportunities How to Buy Options Design contracts so that SMEs can bid Collaborate on large, aggregated contracts Set-aside contracts the option to procure 20% of the value of an overall contract through one or more smaller contracts Division into lots : Requirements into smaller lots, which may attract smaller firms Framework contracts with multiple suppliers Changing the pre-qualification questionnaire: Simplify and standardize the PQQ process Informing Potential Bidders Issuing a Procurement Guide: Follow best practice from the Procurement Route Planner Local advertising for all opportunities: press and website Local-only advertising for smaller contracts Meet the Buyer events: Prior to the procurement process Sell2Wales: the Welsh procurement portal site Local Business Database: Can alert local businesses to contract opportunities Other databases: WCVA, CBI for example Supplier Development Construct Wales: WAG funded business support programme The Supplier Development Service: Support agencies who can support local businesses on How to Tender for work Consortium formation: A number of local suppliers to bid as a single entity for a contract opportunity 20 Resource 2: SME-friendly procurement

21 3.1 What to Buy Options Market dialogue and community engagement Good procurement practice suggests that purchasers discuss their forthcoming needs with potential suppliers before they commence the procurement process. This can help them decide what to buy and how best to buy it in order to achieve their objectives for the procurement. As one form of interaction with the marketplace, contracting authorities can consider discussing their requirements with potential bidders in advance of any tendering exercise. While the contracting authority must be careful not to discriminate between bidders when doing so, so long as any consultation and discussion is open and transparent this can be a useful way of market testing the capabilities of potential bidders and formulating challenging but realistic requirements. It may even be helpful to let the marketplace have sight of the intended contractual requirements and monitoring/management tools in advance of any formal tendering exercise. Tenant Involvement in the Procurement Process Merthyr Valley Homes Tenants are at the heart of the service MVH delivers and a key to the programme`s success has been involving them at all stages. They understand the principles and aims of targeted recruitment and training and regeneration. A panel were specifically trained to understand and appreciate the contracts, their clauses. They decided on the score to be allocated against each PQQ submission and have gone on to score and shortlist contractors. The tenants` Quality Design Forum established a scoring matrix for the supply of kitchen units that included regeneration and employment opportunities. They visited and heard presentations from six kitchen suppliers and selected a company within the travel to work area of Merthyr Tydfil that already employed 5 local residents - as the supplier. The feedback from the tenant panels is that although hard work they felt they provide a valuable contribution to the contractor selection and ultimate regeneration of Merthyr. Contact: Mike Williams. Asset Management Director, Merthyr Valley Homes. Tel michael.williams@mvhomes.org.uk Manage local business expectations It is important to provide realistic messages to local business in relation to: the scale and type of investment; the financial and quality standards that will have to be met by contractors and suppliers, and how these will be assessed in the procurement process; the timetable for procurement and construction. Problems may arise if opportunities to maximise the benefit to the local economy are not discussed early and a route-map agreed. This should then be shared with all parties (including for example local Councillors) that may be approached by local businesses or the media. Resource 2: SME-friendly procurement 21

22 Key Elements in Supporting Local Contractors Client organisations (whether local Authority or the newly formed RSL) should develop a communications strategy for contractors alongside the stock-transfer process and the development of the investment programme. This communication may concentrate on purely housing stock transfer, or as many Local Authorities have successfully done in the past include the stock transfer as one of a number of opportunities arising out of that particular Authority. Whichever principle is used, it is vital that the client organisation takes control of and manages delivery of this strategy. This strategy should be shared with Councilors, officers, the `shadow Board`, tenants` leaders: people who may be approached by businesses or the media for information. Contractors should be made aware about the type, scale and quality standards of work to be delivered, the procurement process and why this has been chosen. Client organisations should get early involvement from Construct Wales. Paul Wintle. Construct Wales Project Manager Paul.wintle@wales.gsi.gov.uk Supply Chain Management The modern approach to construction is often one of supply-chain management, with relatively few staff and supplies being directly provided by the main contractor. The way that this management is provided can have very significant impact on the costs as well as the opportunities that can be taken up by SMEs and local businesses. Approaches being used include: awarding a single large contract to a national company but including a requirement that they maximise opportunities for SMEs or the local supply-chain: this leaves the management to the main contractor; managing a limited number of contractors (perhaps 4-8) that together deliver the works through their individual supply-chains: this shares the supply-chain management functions between the client and the contractors; appointing a larger number of framework contractors, suppliers and consultants that are awarded call-off contracts of relatively modest size: here the client takes on most of the supply-chain management role; splitting the contracts for the supply of materials and components from those for the supply of labour to fit the materials: this places a higher degree of supply-chain management on the client. There are additional client costs in managing the supply-chain in-house but these should be off-set by savings in the contract prices. This is something that has to be considered by the organisation depending on the size and type of contract. Interestingly, one of the issues raised by stakeholders in addition to the increased costs of in-house management has been the lack of in-house resources to manage the works if these are delivered by a larger number of smaller contractors rather than a few large contractors. This is an issue that requires reconciliation prior to a decision to undertake the management of a contract either in-house or via a supply chain management company. Doing more of the supply-chain management in-house can result in a reduction of the funds spent on contractors overheads and profit. Some social landlords are now obtaining rebates from suppliers that were not previously revealed - even in open-book contracts - because they are not linked to individual purchases. These can help pay for in-house management, which may be an opportunity to up skill, or grow supply chain management expertise within the organisation, or additional community benefits. 22 Resource 2: SME-friendly procurement

23 Where the client elects to procure supply chain management services separately from the main contract or supplies and services contracts, this contract will generally take the form of a professional services contract. The client may choose to use a bespoke services contract. In either case, the specification for the services included in the contract can be drafted specifically to include the services that the client wishes the supply chain manager to provide. This may include: project management; acting as employer s agent; procurement consultancy. Once the supply-chain management function is isolated from the rest of the contracting process it is reasonable to ask how best to do this in order to support SME-friendly procurement. Ie, through direct contract conditions within a supply chain management contract OR through managing the supply chain in house and directly contracting with local SMEs. If the contract goes out to a supply chain management organisation, who will act as the CDM Co-ordinator will have to be considered. In-house Contract Management United Welsh Housing Association is piloting in-house contract management on a 2.5m refurbishment of sheltered housing in Cardiff. To facilitate this it has appointed: a project manager a Construction Design Management (CDM) Coordinator a site-based coordinator a tenant liaison officer. This team most of whom were already employed by the organisation and take on the new responsibilities as just one part of their roles - effectively replaces staff that would normally be employed by the main contractor and charged to the client in the contract price. UWHA expect this approach to produce savings because it will give them much greater control over costs and site activity. One element of cost savings will come by splitting the procurement of materials and components from the procurement of labour. This means that each contract is of modest scale and would be unattractive to bidders from outside the local area. Potential suppliers were identified from in and around the Cardiff, Blaenau Gwent and Caerphilly areas where the organisation operates. Negotiations were undertaken with suppliers and tenders were issued for the labour-only contractors. All of the works and supplies contracts have been awarded to local SMEs. This is a new approach for the organisation and it will be evaluated on the basis of tenant satisfaction, cost and value for money, and relationships with the supply chain. Contact: Richard Mann. Director of Development and Community Investment. United Welsh. Tel R.Mann@UWHA.co.uk It is clear that this approach can not be taken for all contracts and will work best on smaller planned works then large scale WHQS improvement contracts, where the costs will exceed the EU threshold. However, many housing Associations do procure work in a piecemeal way, and successfully engage with SMEs. Resource 2: SME-friendly procurement 23

24 3.1.4 Including supply-chain requirements in the specification Since many otherwise excellent contractors may not have the skills and knowledge to put together a tender response to a general requirement around local economic benefit it may be better that the client specifies what they want to see delivered to achieve this benefit. The supply-chain requirements should be referred to in the contract notices and an appropriate question can be asked at PQQ stage to check the technical and managerial experience of potential main contractors in relation to the client s supply-chain requirements. As with other areas of the specification it is important to abide by the following good practice: set out the supply-chain requirements in an unambiguous way; obtain a Method Statement with the tender on how the requirements will be met: this is especially important where the requirement is to be scored as part of the contract award process; setting out a targeted procurement process may work well e.g. requiring that a meet the buyer event be advertised and organised, or perhaps developing a programme of activity with Construct Wales that will develop links between the contractor and a local supply-chain; consider how the requirements will be monitored so as to ensure and evidence delivery; ensure that the requirements don t disadvantage non-local bidders e.g. by giving a source of information on local suppliers that is equally available to any bidder; ensure that the requirements are capable of delivery: are there sufficient local suppliers with the required expertise and capacity? include a disclaimer to make sure that whatever brokerage activity the client undertakes, the contractor is responsible for the supply-chain they engage. A key issue for buyers that want to include supply-chain requirements as a part of the subject of a contract is whether there are potential suppliers for the main contractor to engage. This is often a balancing act between keeping the benefits local and meeting the specifications, budget, and timescales set out in the contract. There are contextual issues that can affect this: there will be many more SMEs in cities than in rural areas, and local firms may be more competitive in relatively isolated rural areas. Purchasers must weight up these considerations during the internal pre procurement dialogue. A critical issue for supply-chain requirements is when they have an impact. In this context it is important to: include the supply-chain requirements in the contract notices, PQQs and specification and get a method statement on how the requirements will be met with the tender: this may make the contract unattractive to firms that have established supply-chain arrangements; ensure that appropriate messages are given to local SMEs: that the award of work will be dependent on their competitiveness; ensure that the target suppliers have access to business development and mentoring, and tendering support to help them access contracts, especially where the firms are not used to working for larger contractors. To overcome the potential disadvantage that non-local firms could face in bidding for a contract that includes targeted supply-side requirements it is important to be able to provide all bidders with access to Sell2Wales and Local Authority databases. Sell2Wales can be used once the contract is let to advertise all subsequent sub-contractor opportunities on. Therefore all contractors should have access to the site. 24 Resource 2: SME-friendly procurement