Third Sector and SME Involvement in the Commissioning and Procurement Process

Third Sector and SME Involvement in the Commissioning and Procurement Process Why work with TSOs and SMEs The value of these organisations, in the context of bulky waste collections, is based on the benefits of providing second life materials to people who need them. This in turn creates jobs, training, volunteering and community development opportunities. As a result: more people will have access to the benefits of resource recovery services; services can capture and divert from disposal a higher proportion of available materials; there is an increase in `social benefits per tonne ; and the environmental impact of resource use and disposal is reduced. In addition, these organisations can provide services that represent value for money. See section Rationale for more details on benefits. Encouraging SMEs and TSOs may mean finding ways of undergoing procurement processes in a different way, and embarking upon processes that are more engaging, communicative and welcoming to bidders of all shapes and sizes. This guidance provides information on what can be done within current rules and regulations, but as circumstances vary local authorities need to take the appropriate legal advice. Current Situation Over the past five years, TSOs have been encouraged to contract to deliver public services rather than rely on diminishing levels of grant funding. Yet on the ground, many resource recovery TSOs are still finding it difficult to develop secure medium-term contract arrangements, largely because: the procurement of local authority waste services through large integrated multi-service contracts has made it difficult for smaller, more specialised TSOs to gain access to contracts in which they could deliver services; and TSOs are also being encouraged to use debt finance rather than grant funding to develop their capacity, but it is difficult to achieve significant sustainable cash flows without secure medium-term contracts. Other reasons that limit contractual working between local authorities and TSOs include: TSOs can be discouraged by what is perceived as a lengthy, costly and complicated purchasing process; a lack of awareness of the spending power of the public sector by the TSO, or the value of the TSO s product or service to the public sector; a TSOs lack of understanding of the public sector procurement procedures or how to tailor bids to meet public sector requirements; and TSOs lack of knowledge of how to find out about public sector tender opportunities. 1

Options for Local Authorities A more systematic and proactive approach to securing these social/environmental/local economic benefits is needed to deliver appropriate services. This includes: reviewing how service contracts are currently specified and packaged; identifying materials potentially available in the area from both household and commercial sources; identifying social benefits such as the need to alleviate material poverty for low income households; identifying training and volunteering opportunities, for different groups (e.g. clients with learning disability, young offenders) and geographies (e.g. local regeneration area or the presence of a residential population in hospital or prison) and the priorities identified in the local area agreement; and identifying and consulting with all the groups currently undertaking resource recovery activities with the aim of learning from their expertise in operations, and approaches to the delivery of environmental and social benefits. Subcontracting Efforts to help TSOs secure subcontracts from third parties are considered to be exercises in regeneration, not in procurement. It is therefore lawful for authorities to require main contractors to open a given percentage of the contract sum to subcontractors, and to package it in such a way that small businesses and TSOs can compete for it. If this requirement for subcontracting is combined with a stipulation for strong community benefit, it creates a clear incentive for subcontracting to TSOs that have specific local expertise. Key issues in successful TSO subcontracting are: 1 the clarity of local authority objectives for subcontracting the service; requiring contractors to deliver services, and additional social and environmental benefits, in ways that recognise the crucial contribution of smaller partners to achieving all the contract requirements. This is important as it alters the nature of the large contractor/smaller TSO relationship; using the legitimate opportunity to subcontract as regeneration not procurement. This offers significant benefits if linked to outcome-based commissioning focused on local priorities; the need to address `risk perceptions around TSO service delivery through quality assurance, including waste services-specific health and safety accreditation; and recognising the need to establish a strong, clear 3-way relationship between local authority, private contractor and TSO. Involvement in the commissioning process Local authorities will often feel that they wish to actively encourage contracting with SMEs and TSOs but will need to justify why they wish to do so, taking into account the need to achieve value for money. In doing so, it is important to ensure that procurement processes (and commissioning more broadly) remain fair and transparent, and that the local authority does not inadvertently discriminate in favour of some bidders and against others. 1 `Investment for Growth report, WRAP/Realliance, 2009 2

It is best practice for local authorities to aim for a level playing field by encouraging the involvement in the procurement process of SMEs and TSOs, and helping to break down barriers, rather than specifically targeting particular organisations, or types of organisation, when entering into a contract. Local authorities should always be seeking to contract with the candidate that offers the best value for money and the most efficient provision of public services. This needs to be assessed on a case-bycase basis. Simply broadening the marketplace is an end in itself, and one which will often leads to increased competition and therefore a better chance of achieving value for money. Encouraging participation in procurement exercises can lead to benefits for the community served by the local authority. In many cases SMEs and TSOs will look to contract within a particular location or region, and this can mean that the community served by the local authority benefits from increased economic activity. This can mean that there are increased job and training opportunities for the community, even without specific jobs and skills requirements being included in a contract. There are a number of ways to do this which are considered here. Market dialogue and testing or Soft Market Testing Discussing forthcoming needs with potential suppliers before starting a procurement (or commissioning) process can be good practice. It can help the local authority decide what to buy and how best to buy it in order to achieve its objectives. Local authorities should consider discussing their requirements with potential bidders in advance of any tendering exercise. While care must be taken not to discriminate between bidders, so long as any consultation and discussion is open and transparent it can be a useful way of market testing the capabilities of potential bidders, and forming challenging but realistic requirements. Local authorities may find they can learn a great deal about the capabilities and willingness of the available marketplace, and the measurement / monitoring techniques and indicators that are most effective. It can also be helpful to let the marketplace have sight of the intended contractual requirements and measurement / monitoring tools in advance of any formal tendering exercise, where this will assist the local authority in ensuring its specification is achievable and practical, but still challenging. Community engagement In general, there is often a specific policy aim in mind when an authority determines any social requirements included within a contract, unless it relies on more general policy or strategy. As part of the development of any specific policies, or as part of the application of more general policies to specific contracts, a local authority can choose to test the marketplace and also the community that it intends will benefit from the contract. Finding out the actual needs of the intended community and individual beneficiaries of the contract, will help the local authority to focus its requirements and, ultimately, help to ensure the contract is successful and provides value for money. There are a number of ways to engage with the community and obtain their feedback on local issues, services and development plans, such as creating focus groups; consulting with community groups such as the Civic Society; consultation displays and feedback opportunities in local libraries; and surveys. 3

Community engagement in Cheshire West and Chester As an example of an approach to community engagement and an exercise in building knowledge about the capacity of local TSOs, Cheshire West and Chester Council met with the Cheshire Furniture Forum early in 2010, before it designed its new household waste collection service for residents. The Cheshire Furniture Forum is a group of individual, charitable furniture reuse organisations (TSOs) operating in the county. They collect and provide unwanted but reusable furniture and household goods to people and families in need, and possess a good understanding of social deprivation and unemployment in their respective areas. The local authority sought information about each organisation s current capacity, ambition, geographical coverage and opinion about a bulky waste service. This enabled the authority to understand local capacity and interest, and design a service specification that would meet local needs and support the authority s statutory obligations on waste handling. Meet the buyer events Meet the buyer events are an open invitation to attend a meeting where the buyer (the local authority) explains their requirements, and how interested parties can be considered. To the extent that they are not a formal part of the procurement process, they can provide an opportunity for potential suppliers to promote their company and its services, as well as being a useful method of market testing and consultation. Any meet the buyer event that is staged as part of a procurement process must be open to all potential bidders, to ensure fairness and transparency of the process. Before starting a formal procurement process, the contracting authority can consult with the marketplace more freely (as restrictions will apply once the procurement process has begun), as long as this does not prejudice the fairness and transparency of the procurement itself. Consulting the marketplace, however, will not generally be discriminatory if such consultation is genuinely open to all and this will in any case be in the authority s own interest. Potential suppliers may be unwilling to reveal the details of their service and operation in an open format in front of their competitors. Therefore, it is usual for one-to-one meetings between a potential supplier and the local authority to be arranged on the same day, but after the main presentation and open consultation session. For example, Wigan Borough Council (WBC) recently held such an event where TSOs, small and large waste management companies, and local authority officers met to consider services and share views about a possible bulky waste collection contract. WBC aims to maximise community benefits from any possible contract, in the form of local employment and volunteering opportunities. The morning session consisted of three open, round-table discussions with a mixture of third and private sector representatives. Private meetings between potential suppliers and local authority officers were organised for the afternoon. 4

One useful outcome from this process was that some smaller, local waste management companies were unfamiliar with the terminology and meaning behind `social clauses, which are now appearing more frequently in waste collection contracts. Creating this environment enabled the third and private sectors to understand each other s work, and how they could respond collaboratively to a future contract tender. Also, WBC witnessed and understood the difficulties the smaller private operators would have in responding to a contract heavily laden with social clauses, and which could limit the quality and quantity of competitive responses that it receives once the contract notice is issued. Meet the buyer events can also take place when a main contractor has been appointed, especially where they are willing (or required through contract conditions) to maximise the use of subcontractors. The organisation of such an event could help overcome any lack of knowledge of potential supply chains, and provide an opportunity for potential subcontractors such as TSOs - to explain their organisations, their capacity and the range of social benefits that they provide. For more information see Supply Chain Opportunities which can be accessed through the main Bulky Waste Guidance webpage. Local authorities can issue a prior information notice (or PIN ) in the OJEU in advance of any meet the buyer event (as well as advertising locally and regionally), which alerts the wider marketplace to the event. In these circumstances, the opportunity has been made open to all potential bidders even if, in reality, the event (and even the contract itself) will only be of interest to potential bidders in the region. How to guidance for bidders Local authorities often produce general guides for bidders on how to do business with them. These guides are generally not contract-specific, but instead provide information on the organisation s (or a group of organisations ) arrangements for purchasing, including (for example): general information on procurement, internal policies and processes, and tendering procedures; how the local authority treats contracts of different values; where the local authority generally advertises its contracts; how a potential bidder can get information and be considered for contracts that are less widely advertised (e.g. small-value contracts); and relevant contacts in the organisation, including both central and devolved procurement teams, and the items they are responsible for purchasing. This type of guide can be most relevant for SMEs and TSOs wishing to be considered for lower value opportunities, and those businesses less accustomed to working with their local authority. They can also be important in managing expectations, by explaining the legal and policy constraints on what the local authority can do. Contract size There may be situations where a large contract allows for economies of scale that ensure the best value for money (and others which, by their very subject matter, have to be large). However, a 5

smaller contract, or a range of smaller contracts, can offer the best value for money in other circumstances, especially where specialist skills or knowledge are needed. Local authorities should always consider the size of the contracts it is procuring, and the appropriateness of either aggregating contracts or separating contracts into lots. While acting within the legal framework, local authorities may wish to consider the impact that the size of their contract has on bidders. It is not possible under the EU procurement rules to artificially adjust the size of a contract (for example to avoid the contract falling above the threshold over which the EU procurement rules apply). However, local authorities can use the rules governing the division of contracts into lots, and the small lots rule in particular, to encourage the greatest possible participation by the marketplace in a procurement exercise. In this sense, the use of lots also sits well with the need to achieve value for money. This approach does not guarantee any work for an SME, TSO or for a targeted supply chain. The option to subcontract or segregate the service(s) into `lots (small or otherwise) will be dictated by: the value of the total contract; the cumulative total of the individual small lots; the minimum value of the bulky waste collection service; and/or the local market-place conditions, i.e. the facilities and capacity of organisations in your area to provide different aspects of the total resource recovery service. The Liverpool City Council and Bulky Bob s case study (for full details see the main web page) is an example of this process. Originally, Liverpool City Council intended to tender for a large, integrated waste management contract. The size and value of this contract would have eliminated TSOs, such as Bulky Bob s, from the process. Following consultation both with private waste management companies and TSOs at a meet the buyer event, Liverpool City Council identified that, by separating out the bulky waste collection service from the main waste collection contract, it could maximise local social and environmental outcomes, as well as develop a higher quality customer service for residents. Due to the size and value of the bulky waste collection service, it exceeded the minimum value threshold for EU procurement. It is important to stress that the bulky waste collection service was not subcontracted through the main contractor it is a stand-alone contract that exceeded the small lots value, which currently stands at 64,846 per annum. For contracts that fall below the relevant threshold for the EU procurement rules to apply, it is important to remember that their procurement must still comply with the broader EU law principles of fairness, transparency and non-discrimination. For information on EU procurement and the small lots rule see The Legal Framework for Local Authorities on the main webpage. Consortium bidding Where the local authority does consider that a larger contract offers the best chance of delivering value for money, then it is important to consider the knock-on effect of this decision. Where it is likely 6

that the size or complexity of a contract may exclude smaller bidders, or bidders from the third sector, the local authority may wish to consider its approach to bids from consortia. These may be capable of offering value for money, while still enabling the smaller or third sector bidders to participate. SMEs and TSOs may be able to successfully bid for contracts where consortium bids are accepted, and can offer great value for money and considerable experience and expertise when able to join forces with each other. The use of pilots In circumstances where the local authority is unclear about the outputs (number of collections per day; quality of service etc.) rather than the outcomes it wishes to achieve, piloting a potential approach may be appropriate, and can be very useful before undertaking the procurement of a larger contract. It can also useful for estimating the potential value of the service which will in turn dictate the commissioning process EU procurement or not. Where a local authority wishes to pilot an approach, it must take into consideration that it may still need to follow the EU procurement rules (depending on the contract value), and the rest of the legal framework it is bound by, when doing so. This is especially important when it is possible that the value of a pilot could be over the financial threshold for the EU procurement rules to apply. However, in all circumstances the need to act in a fair, transparent and non-discriminatory way should be recognised. A pilot should not be used as a way of circumventing the procurement rules it will still be a contract, and should be treated as such. Within the legal framework, however, pilots can prove useful to both the local authority and the marketplace. Pilots can: help the local authority to determine the specification for a subsequent, usually longer, contract; and help to upskill a marketplace inexperienced in working with the local authority. Framework agreements Within the public sector, framework agreements are often used with a view to achieving savings. By their very nature there is an inherent risk that SMEs and TSOs will be excluded from frameworks because they are often designed with economies of scale in mind. However, participating in a multisupplier framework agreement can also be a way for SMEs and TSOs to get involved in delivering public services. A local authority can choose to let individual contracts under the framework to different providers on the basis of contract size for example, by dividing the framework into lots differentiated by size. In this way, SMEs and TSOs can be appointed onto the same framework as larger contractors, and an SME or TSO that has secured a place on the framework can be awarded a contract or contracts of an appropriate size for its business. It can have the added benefit of encouraging contractors, consultants and suppliers to work together and build relationships, which strengthens the industry as a whole. 7

Advertising Local authorities must be careful not to discriminate in favour of or against bidders, but can (and should) ensure that it is possible for all interested bidders to find out about an opportunity and to bid. It is always important to ensure that bidders have appropriate access to contract opportunities, and this is no less the case for larger contracts. Where contracts are advertised through the OJEU, local authorities should always consider where else they can appropriately advertise. This does not disadvantage those bidders who respond to the OJEU contract notice, but ensures the widest possible audience for the contract opportunity. Advertising outside of the OJEU, regardless of whether or not the contract is subject to the full EU procurement rules, enables a larger number of potential bidders to be made aware of the contract opportunity, and therefore increases competition. This is clearly of benefit to the local authority. But there is also a clear benefit for SMEs and TSO s, who are then more likely to bid for contract opportunities that they might otherwise not have been made aware of. For individual contract opportunities regardless of contract value - it may be useful to advertise in local press, relevant trade press and on the purchasing organisation s website. This may be in addition to other required advertisements (in particular OJEU contract notices). This may be especially important for smaller-value opportunities that may be of interest to micro-businesses. Pre-qualification The Pre-Qualification Questionnaire (PQQ) is a set of questions that those who are interested in bidding for the contract need to answer. Pre-qualification is the stage of the procurement process which is most often highlighted for criticism by bidders. It is a fundamental part of the majority of procurements, and yet is not at all standardised across regions, sectors or types of contract. This is partly for valid reasons every procurement should be run in a manner which is appropriate and relevant to the particular contract being procured. The PQQ is generally the first opportunity the local authority has to assess the capabilities of bidders and, in particular, their suitability to performing an individual contract. The PQQ therefore should be tailored to the needs of the contract and, indeed, it would be unreasonable to be asking questions or setting standards in the PQQ which are irrelevant to, or unnecessary for, performance of the contract. While it is important to ensure that the pre-qualification process is tailored to the needs of a particular contract, to enable the local authority to identify bidders most capable of satisfying those needs, it remains the case that a large proportion of each PQQ will remain the same for all local authorities. The content of the PQQ is broadly standard in terms of the information any local authority requires. However, simply taking a PQQ off-the-shelf without adapting it to the needs of the contract or to the authority s objectives will never be appropriate. Such an approach would run the risk that some attractive bidders were automatically excluded from the process, and ultimately the opportunity to achieve greater value for money by the local authority would be reduced. 8

For example, a local authority issued a notice and subsequent PQQ for a bulky waste collection contract. Some consultation had occurred with the market place, but the whole procurement process collapsed at the PQQ stage. There was a stipulation that successful respondents should present three examples of their experience in providing bulky waste collection services. This severely limited the number of respondents who could be invited to tender for the contract, undermined the competitive process and reduced the local authority s ability to assess the value for money potential. Including supply chain requirements (subcontract) in the specification for a contract The business model of many bidders for larger contracts can be based on their using established supply chains of suppliers and service providers, with whom they can subcontract. Their bids will benefit from the long-term relationships they have, such as a proven track record on service quality and delivery, lower prices and added value outcomes (maximising reuse and recycling; volunteering opportunities). Any supply chain requirements should be referred to in contract notices (assuming the contract is above threshold), and an appropriate question can be asked at PQQ stage to check the technical and managerial experience of potential contractors to deliver the requirements. For example, when Doncaster Metropolitan Borough Council issued a PQQ for their waste management contract, it was stipulated that potential contractors had to demonstrate their experience in subcontracting to, and managing the relationship with, a TSO. For the full details of this case study see the main webpage. Specifying social requirements TSOs are able to identify and demonstrate that they are capable of offering what a local authority is requiring. However, the opposite can also be true, especially, for example, when requirements are not set out clearly and are not specific, or are perhaps more onerous than they need to be in the context of the contract in question (for example, seeking the targeted recruitment and training of a disproportionate number of people). It is therefore important to consult with, and understand the capacity, strategy and business mission of the potential market-place (the suppliers) to build a complete picture of what it can actually offer. SMEs and TSOs may be put off from bidding because of their size and the relative impact that the requirements would have on them. It is always worth considering whether the inclusion of requirements relating to social considerations will actively discourage SMEs and TSOs from bidding for a contract (e.g. because the costs involved in providing training to staff, or recruiting new staff, would be prohibitive for a small organisation). Targets set out in tender notices and contracts, which on paper sound positive, may seriously deter prospective suppliers from submitting an expression of interest, if the intended outcomes and outputs are beyond their current and future means. This will limit market-place interest and will impact upon the quality and quantity of competitive responses. Contractual obligations or added value? Contractual obligations that impose social requirements can be very effective when the local authority is seeking to achieve specific social outcomes through its contracts, but are much less likely to 9

succeed if they are treated vaguely as added value or optional extras. Considering added value elements can also risk making elements of the local authority s procurement procedure unlawful, in particular: it may prejudice local authority's compliance with the general EU law requirements of transparency and non-discrimination - it is vital for the local authority to be able to accurately, fairly and transparently assess the bids it receives; it may not be clear what is being or has been procured - there is a risk of challenge from external parties who could claim that, had the contract been advertised with more certainty, they would have chosen to bid for it, or from unsuccessful bidders who claim that they would have bid differently had they known what the local authority truly required; it may not be clear what the local authority s policy or strategy rationale is for the chosen requirements, which could undermine the local authority s legal justification for specifying the social or environmental requirements; and unless the appropriate procedure is available under the EU procurement rules (i.e. the negotiated or competitive dialogue procedure), it is not possible to negotiate the substance of a contract with the bidders. To give bidders a menu of options, therefore, risks breaching the EU procurement rules if it means that the contracting authority enters into negotiations or discussions with the bidders over what is being procured. Example A local authority advertises a contract and, at tender stage, asks bidders what added value they can offer by way of jobs, skills and training benefits for different target groups, including the long-term unemployed, school leavers, and people with mental health issues or physical disabilities. The local authority did not specify what it wanted in advance, and did not set any award criteria around jobs and skills requirements. This means that the bidders submit very different jobs and skills proposals some focus on recruitment opportunities, others on skills and training, and each focuses on a different target group. The local authority cannot compare like with like when assessing the bidders. The jobs and training elements of the contract cannot be scored as there is no fair and transparent mechanism to do so. Additionally, a potential bidder, who is a TSO and a specialist at providing jobs and training for one of the local authority s target groups, complains. It had decided not to bid for the contract, but would have reconsidered had it known from the outset that the local authority wanted jobs and training elements of a specific volume and nature, that it could offer, within the contract. What can be done about existing contracts? Local authorities need to be cautious about their approach to contracts that are already in place. In particular it is important not to make any material changes to a contract, as these are likely to mean that it should be treated as a new contract for EU procurement purposes. There would be a very real risk of challenge in these circumstances from bidders that had either been unsuccessful during the initial procurement, or had chosen not to bid. These organisations could successfully argue that they have been disadvantaged, as the result of the initial procurement might have been very different had the contract always included the requirements that the local authority later attempts to include. 10

This does not stop the local authority from discussing the possibility of separate, voluntary arrangements with its contractors that can run alongside an existing contract on a goodwill basis. For example, the local authority may be interested in maximising the reuse potential from the bulky waste collection service. A local TSO has the capacity to collect reuse items only. The local authority may pay the TSO on a per lift basis, but overall, the impact on the main contractor s business and bottom line is negligible at best. Also, there may have been an inclusion in the contract between the local authority and the main contractor that working with the community groups or TSOs was an ambition at a later stage, in order to achieve social outcomes. These can be used to secure commitments to specific outcomes, including maximising the opportunities for SMEs and TSOs, or perhaps desired targeted recruitment and training outcomes. This type of approach can be a useful stepping-stone to future contracts which include the desired outcomes. For example: they can act as a trial-run for social requirements with an existing contractor before eventually using contract clauses when a contract is next re-tendered, acting as a learning exercise for both local authority and contractor; and they can be applied retrospectively to existing contractual arrangements something that may be of particular relevance to longer-term waste management contracts and frameworks. In these cases voluntary arrangements can have a considerable impact, which would otherwise not have been achieved until the contract was next procured. While steps have been taken to ensure its accuracy, WRAP cannot accept responsibility or be held liable to any person for any loss or damage arising out of or in connection with this information being inaccurate, incomplete or misleading. This material is copyrighted. It may be reproduced free of charge subject to the material being accurate and not used in a misleading context. The source of the material must be identified and the copyright status acknowledged. This material must not be used to endorse or used to suggest WRAP's endorsement of a commercial product or service. For more detail, please refer to our Terms & Conditions on our website - www.wrap.org.uk www.wrap.org.uk/la 11