How can governments use procurement to create sustainable societies?
By Laurie Macfarlane
This blog is a follow up to the event ‘Buying time: How can government shape markets for sustainable societies?’ The event is part of IIPP’s ‘Walking the talk: Getting serious about the UN Sustainable Development Goals’ series. The recording of the event can be viewed above.
Public procurement represents a significant component of public spending, amounting to between 10% and 20% of total GDP in most countries. As a result, this spending power can play a powerful role shaping markets for inclusive and sustainable outcomes and building more resilient societies.
But how can public procurement be most effectively utilised to address modern challenges such as the UN Sustainable Development Goals (SDGs)? This was the focus of the fifth webinar in IIPP’s ‘Walking the talk: Getting serious about the UN Sustainable Development’ event series.
Elvira Uyarra, Professor of Innovation Studies at Alliance Manchester Business School and co-director of the Manchester Institute of Innovation Research, kicked off the discussion by explaining how using public procurement to support broader policy objectives is not new. Scholars of procurement have identified three distinct phases of procurement policy in recent decades.
Following the Second World War, Western governments used procurement as a tool to support technological innovation in strategic industries, such as defence and space exploration. The role that this kind of procurement played helping NASA win the space race for the US has been well documented.
However, there was subsequently a shift to using procurement as a “horizontal instrument” — a policy for promoting innovation across the whole economy. Under this approach, the aim was not to direct procurement spending power at particular sectors or technologies, but to ensure that innovation considerations were embedded into all public procurement considerations.
More recently however, procurement has returned to being used as a strategic ‘vertical’ instrument, recognising that procurement can affect the direction of growth and innovation, as well as its rate. As Uyarra explained, “Public procurement spending power can influence the size, sophistication and — crucially — the direction of innovation.” This time however, directionality is focusing not on sectors, but grand socio-economic challenges such as the SDGs.
Across the world there has been a progressive shift away from so-called ‘product procurement’ towards ‘functional procurement’. In the former, public authorities describe the specific product they intend to purchase, which is typically something that already exists in its complete form. In the latter however, public authorities describe the function or the outcome they want to achieve, which can be more effective at stimulating innovative bottom-up solutions.
As a result, both public and private sector actors are increasingly recognising how strategic use of procurement can play a key role tackling the SDGs. Jeff Taylor, Director of Procurement Division at the Asian Development Bank (ADB), explained how the ADB has ensured that procurement decisions are now based on a more holistic set of criteria more than just cost and quality. This includes a wide range of economic, environmental, social and institutional considerations, that must be carefully balanced.
Taylor also explained how resilience is becoming an increasingly important consideration in procurement decisions following the Covid-19 pandemic. Even though procuring supplies domestically might be less cost effective than importing them, governments are increasingly recognising the value of developing domestic supply chains in terms of creating a more resilient economy.
Within the public sector, significant amounts of procurement is undertaken by local governments, who are often responsible for delivering some of the most challenging services such as social care. Matthew Cain, Head Of Digital and Data at London Borough of Hackney, explained that for local authorities it is important to firstly consider whether procurement is the best option, or whether goods and services could be more effectively ‘insourced’. In Hackney, the council recently insourced cleaning contracts, which provided good jobs to local people, and is currently considering doing the same with security and vehicle maintenance contracts.
Where procurement is the best option, Cain explained that being fully transparent about procurement projects can help drive innovation. “One of the most powerful things we do in Hackney to shape markets using procurement is working in the open”, he said.
By publishing all of its procurement projects online, market participants know how and when to engage with the council, and understand what challenges they are facing and what solutions might be beneficial. Cain also explained how issuing smaller, shorter contracts can help to promote innovation, by opening up opportunities to smaller local businesses.
But who should decide what assessment criteria are given priority in procurement decisions? Roland Karthaus, Associate Professor University of East London, Director of Matter Architecture and Senior Programme Manager at Design Council, explained that this is inherently linked to the age-old question of how we define ‘value’.
In the UK the SDGs are captured in public spending via a concept known as ‘social value’. The concept was introduced in the Public Services (Social Value) Act 2012, which called for all public commissioning to factor in economic, social and environmental wellbeing in connection with public service contracts.
However, Karthaus explained how ‘social value’ criteria are often only given a small weighting in procurement decisions, with most weighing being allocated to quality and price. In addition, social value is often quantified in monetary terms, using guidance set out by the UK government.
Kathaus explained how this approach of monetising social value and weighting it up against price and quality considerations can be problematic. “There is a strong argument that everything should be viewed as social value, because that is the utltimate purpose of the public sector”, he said.
But how can social value best be measured and quantified? As IIPP Founder and Director Professor Mariana Mazzucato put this problem in her book, ‘The Value of Everything’:
“If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth”
According to Karthaus, trying to impose ‘top down’ definitions of social value will always be inherently difficult, because everyone values different things. An alternative approach that has been pioneered at Karthaus’s architecture, firm, Matter Architecture, is to foster ‘bottom-up’ community-based definitions of social value through engagement with local citizens.
“If social value is socially created, it should also be socially defined”, Karthaus said.