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Economy & Infrastructure Committee

Procurement in the Foundational Economy (pdf)

Published: 5th February 2020

“The barriers to driving social value through public procurement are well known – they include a lack of skills and capacity, difficulty in measuring outcomes and sharing best practice, and a lack of leadership to raise the status of procurement and mainstream the drive for social value within procuring bodies. Some of these problems appear intractable: a 2012 report on procurement policy from the Fourth Assembly’s Enterprise and Business Committee highlighted these very same issues.”

– Committee Chair, Russell George AM (Con, Montgomery)

“The Foundational Economy” is the new line of thinking within the Welsh Government on how to support and sustain the economies of post-industrial areas in particular, by making the most of locally-rooted industries “which are there because people are there” – including health, care, retail, basic services (i.e. mechanics, hairdressers), transport, education and light manufacturing.

The Welsh Government recently set up a challenge fund to trial different ways of supporting the foundational economy.

1. The Welsh Government should clarify what “local procurement” means

One of the inspirations’ for the Welsh Government’s approach is the “Preston Model” – where Preston Council and many of the other large public institutions in and around the city have used their procurement muscle to spend around £200million within Lancashire.

There has, however, been some scepticism about the very term “local procurement” as it’s measured using invoice addresses, which meant a chain company based in Wales would be counted as local even if the money went to a headquarters based elsewhere.

It was also pointed out that there were some instances where local procurement was either impossible or undesirable – high-end technology, for example – as opposed to a local supply chain that would be genuinely local and beneficial, such as food, construction and social care.

2. Some sectors find public procurement easier to work with than others

While the Committee was told there were few barriers to local authorities “looking after local contractors” – including EU rules, which may or may change significantly from 2021 – the involvement of different sectors was often hit and miss.

Social housing/housing associations were cited as an example of fully embracing the foundational economy and local procurement, but some public contracts were said to be too big for smaller, local firms to handle – particularly construction and engineering.

There were calls for procurement policies to change to reduce reliance on lowest-price and open tendering, reduce bureaucracy (only half of social enterprises were said to understand public procurement processes) and adopt a mature approach to risk management.

From the other direction, the WLGA warned that cuts had resulted in a loss of knowledge and expertise of public procurement within local government and had led the public sector to become more risk-averse.

3. All in all, some good things are happening in Wales but best practice isn’t been shared properly

While there were plenty of examples in Europe and around the world that Wales could learn from, the Committee was told that a lot was happening in Wales which wasn’t being properly shared. A failure to learn from each other was described by Prof. Kevin Morgan as one of the failures of the first 20 years of devolution:

“We’ve often said from our work on food procurement, for example, that good practice is a bad traveller, and we need to understand why that is, because unwarranted variability in the public sector is a key challenge for us, and we’ve never really got to grips with it.”

– Prof. Kevin Morgan

While the Future Generations Act 2015 was picked out as a major step forward in ensuring the public sector were singing from the same hymn sheet on procurement, some witnesses think it’s a work in progress – including the Future Generations Commissioner herself who said: “the extent to which the Act is informing the procurement process and procurement decisions in public bodies is not clear.”