sePtember/october 2011 Summit 5

Sustainable Procurementby LArry bergLund, CPP, MbA

our supply management mates in Australia published an important document in 2010 – Social Procurement: Adding social benefits to public, private

and nonprofit sector purchasing and procurement. The intent of this report is to include social benefits through public, private and nonprofit sector purchasing practices.

The author, Ingrid Burkett, provides a well-researched investigation as to how government, business, and nonprofit sectors can create a greater value proposition. These sectors share the common need to acquire goods, services, equip-ment, and complete development projects. The subject report provides strategic insights and ideas on how these sectors affect social benefits through their specific procurement activ-ities and encourages increased collaboration.

aussie 'rules' achieving social benefits through procurement strategies

For public procurement professionals there are lessons we can apply to Canadian practices. While a lot of interest is being generated on sustainable procurement, there is still a long way to go on this front. The “green” we are getting a better handle on – the socio/economic benefits are not as developed. Procuring for social services such as health care or community services are intentional and directly affect social outcomes. Burkett wants these perfunctory transactional exercises to be leveraged for broader social benefits and com-mon good. How?

One way is to use market intelligence to find opportuni-ties which have a social impact beyond the direct costs of the goods or services. An example from the report suggests that the buyers of waste management services incentivize the contrac-

6 Summit sePtember/october 2011

tor to generate employment in the local community – with a focus on the disadvantaged groups. This moves the equation from social welfare-based models to social procurement-based models. Social outcomes become an inherent part of the busi-ness case and are a part of the assessment process which takes place to maximize benefits for society. This type of strategy, to be successful, requires an assertive role to be played by supply management.

There may not always be an identifiable social opportunity in business proposals but there should always be an analysis taken for just such a possibility. This advances the agenda where social benefits are a shared responsibility between busi-ness, nonprofits, and government. The report provides recog-nition that procurement is an important part of government policy that has been under utilized other than for the acquisi-tion of requisite goods and services.

The report acknowledges that these concepts are not revolutionary but could be characterized as evolutionary. Australian procure-ment professionals are taking the next steps. One of their long-term strategies has been the inclusion of small- to medium-size businesses (SMEs) in government opportunities. A means towards this objective can be the unbundling of large contracts into smaller lots or the requirement of local materials or labour as a percentage of the overall agreement. In Australia they use state-based and regional-based policies to promote SMEs and build capacity to compete for larger con-tracts. They see the mutual benefits of social and economic benefits for the taxpayer in a holistic model.

This shift in strategy is being adopted in the United Kingdom with leadership in local food supply and distribu-tion. This contrasts to the observable North American trend of “big box” operations displacing many SMEs. Large, low cost, multi-national distribution organizations are winning RFPs at the expense of smaller domestic SMEs – office sup-plies are an example of one market sector going through this rationalization of supply. This contributes to the deconstruc-tion of retailing and the demise of SMEs in oligopolistic mar-kets. In South Africa, local SMEs are challenging the entry of large, multi-national distribution companies into their mar-kets. While there can be a degree of protectionism with these protests, the cost of social impact is a more difficult measure with real accuracy. In South Africa, while it may be a politi-cal imperative that decides, as opposed to a business decision, either way it will have a direct impact on supply chains and social values. The issue of local content could play an impor-tant part in the negotiations, which leads to a compromise allowing a foreign entry by a large multi-national in the end.

Corporate concentration is not necessarily a bad thing but the social outcomes are more complex than simply cheaper consumer goods or lower bid prices for government offerings.

The importing of materials from the lowest cost produc-ing locale bears more study. Twice in the past couple of years the City of Vancouver has imported rocks from Asia, albeit through expedited competitive bidding processes. The weighting and consideration of sustainability values may have been short-sighted. The importation of ship loads of rock was being done while concurrently the taxpayers were paying for the removal of mountains of rock to upgrade the Sea-to-Sky Highway for the Olympic venues – one hour up the road. This would be an example of a missed social impact opportunity.

Government procurement is directly affected through the multiple levels of government policies. The recent Australian experiences are leading to discussions on how public pro-curement and nonprofit entities can stimulate social and

economic justice. They are looking at how to remove struc-tural barriers and address the inequities through commerce — not charity or subsidies. With government spending involving billions of dollars, it is incumbent upon public procurement professionals to use their competitive market instruments for increased value which includes social impacts. We often see awards to the largest qualified suppliers at the lowest cost. Maybe that is not the best value.

The potential for public procurement to go beyond the objective of making a tightly scoped, lowest cost contract award and realizing social ben-efits can be difficult. We have imposed limitations on govern-ment procurement policies by way of national, international and regional trade agreements; we insert legalese in our bid documentation which intimidates many SMEs, along with the authors of these officious tomes; our bid laws create a risk averse precondition on practitioners; and a value system which rewards budget savings from one government pocket but does not recognize that it may be offset by a similar expense from another government pocket in the form of an externality cost.

We can take some notes from our colleagues down under to ensure social impacts aren’t being under estimated or under valued and that public sector procurement is not seen to be under performing.

Larry Berglund draws experience from four decades of buying in public health care, municipal government, university operations, the forest industry and his consulting services. larry teaches supply chain management and corporate social responsibility courses, seminars and workshops. He is the author of Food, Finance, and Philosophy: A Role for Supply Management in Corporate Social Responsibility. for more information contact larry at www.prezplus.com.

there may not always be an identifiable social opportunity in business proposals but there should always be an analysis taken for just such a possibility.