Procurement

Introduction

As part of a wider procurement strategy, cities can help develop the low carbon economy, and in turn deliver green jobs locally.51 Procurement by local authorities accounts for £62 billion each year; equivalent to 4 per cent of UK GDP.52 But there is widespread agreement that it is not currently used to its full potential in supporting the local economy.53

The European Commission54 laid out three types of benefits to councils of adopting green public procurement (GPP).54

Politically, it’s an effective way of demonstrating commitment to the low carbon agenda;

Economically, it saves authorities money (often over the life cycle), can promote markets and products, and provides incentives as a test bed for innovation;

Environmentally, it enables authorities to meet targets and raises awareness.

GPP strategies can be implemented in two ways. The criteria may be mandatory (obliging the contracted firm to demonstrate its ability to satisfy them in order to be considered as a qualified bidder) or recommended.56 Whilst mandatory GPP criteria can produce stronger green investments they can also reduce competition compromising price and quality.

OJEU (Official Journal of European Union) restrictions57 are often cited as a hurdle to procurement innovation, as businesses are put off by a complicated and lengthy procedure. However councils can still use these guidelines to procure green goods and services. Whilst EU regulations state public procurement must go for the Most Economically Advantageous Tender (MEAT), this can still include environmental considerations such as sustainability and life cycle costs. Moreover EU guidelines increasingly recognise the potential of procurement as both a driver for innovation and a source of savings for local authorities.58

To make the most of procurement in meeting low carbon goals, cities must:

  • Set specific goals based on local emissions;
  • Set targeted procurement criteria without unnecessarily restricting competition;
  • Include flexibility in any framework so they are relevant to a range of partners and uses;
  • Encourage public and private partners to collaborate to ensure ‘ownership of the model’.

Some critics argue that GPP can restrict competition and reduce value for money. To avoid this, only strictly relevant conditions should be included. And it is important for local authorities to set appropriate targets that make commercial as well as environmental sense and can be met by businesses at a competitive price.

Pooling procurement

Some cities are using procurement frameworks to simplify the purchasing of low carbon infrastructure as well as to create and develop long term markets or opportunities for local businesses. The benefits of pooled green public procurement contracts include:

  • Allowing better terms for local authorities and larger orders for suppliers;
  • Creating jobs and training opportunities in local communities;
  • Increasing demand for low carbon technology through simplification and cost reduction;
  • Stimulating innovation through a long term commitment;
  • Creating funding streams that can then be invested in the local supply chain.

If implemented appropriately pooled procurement initiatives offer benefits to local authorities, private businesses and third sector organisations. But the procurement criteria and process needs minimise the burden on businesses and safeguard competition. And local authorities need to ensure they are not merely ‘propping up’ unsustainable businesses.

Case study 10: Birmingham – Buy for Good Community Interest Company

Buy for Good (BFG) is a Birmingham based Community Interest Company that aims to simplify procurement and cut the costs for public bodies. BFG develops, sources, and delivers locality-based contract frameworks for public, private and third sector organisations to invest in low carbon measures. A standardised contract means that each user of the framework avoids the lengthy and expensive procurement process (estimated at up to £40,000).59

Motivated by potential savings, Birmingham City Council were a founding member of BFG. This helped provide both the credibility of an established institution, and the scale of purchasing needed to make the model viable.60 Despite this, selling the concept and raising start-up funding were cited as issues to begin with.60 The Council made substantial savings, estimating it saved £300,000 from just one framework for Photo Voltaic panels60 and the risks were minimised as running costs were recovered by a 2 per cent charge in the contracts.

The City Council maximises the benefits for the local economy by working closely with BFG and local suppliers. Local suppliers are actively engaged through BFG, either mandatorily in the framework agreement or recommended through promoting local contractors (through local workshops and a website created to share procurement information).63 Around 80 per cent of BFG’s income is from West Midlands based contracts.60

Birmingham City Council in collaboration with BFG partners is also developing new skills in the local workforce through the contracts. The City and CIC develop local businesses’ capacity to win business through targeted training, sharing information and running workshops that ensure they can exploit the opportunities. The Council’s employment access team liaise with local colleges to ensure coordinated training requirements. This, in combination with the West Midlands ‘Green Bridge’65 supply chain programme, means that local SMEs can benefit from the contracts.

By building capacity and networks with the local business community, BFG is ensuring that local contractors are best placed to benefit from the procurement opportunities and improve their capacity and skills in delivering green infrastructure at competitive prices.

Key questions for cities

  • How could green public procurement (GPP) support businesses in your city?
  • What training and support systems need to be implemented along with a GPP to ensure local businesses benefit?

Case study 11: Hamburg, Germany – Using the city as a test-bed

Cities can use their procurement to drive innovation. In Hamburg, the city authority did this by making use of recycled materials mandatory in road construction. The City encouraged a group of local businesses to experiment with using 100 per cent recycled road material on the city’s road network. The City also set up a ‘rubble exchange’ auction website for local businesses to source and sell material and benefit from networking.

By building links with businesses and creating feedback loops, both the city and local businesses can benefit. The city gets a tailored product and local businesses gain a competitive advantage through testing new products and services in the city.

The UK has committed to reducing the amount of construction, demolition and excavation waste materials by 70 per cent from 2008 levels by 2020. This gives councils the impetus to maximise the use of recycled material in road building (over 60 per cent already do)66 and could be a catalyst for councils to follow the Hamburg example. Indeed Hampshire has attempted a similar approach engaging local businesses in recycling aggregate road surfacing through their Material Resources Strategy. Within the first three years, Hampshire reduced the tonnage of material sent to landfill by in excess of 40,000 tonnes per annum.67 Both these examples highlight the advantages gained if cities are willing to use the procurement process as a means for encouraging innovation.

Key questions for cities

  • Who are the green innovators in the city? How could their products’ benefits be used and demonstrated by the council?
  • What changes in procurement can encourage early adopters to take up green technologies?

Case study 12: One to watch | Leeds, UK – Stimulating consumer demand through GPP

The Low Carbon Vehicle Public Procurement Programme (LCVPPP) aims to stimulate the market for low-carbon vehicles in the UK. LCVPP’s principal aim is to test whether there is a sustainable long-term market for such vehicles and provide evidence of the potential for this technology to reduce CO2 emissions. Leeds City Council is one of the largest investors, trialing a 24 vehicle fleet.

The city aims to reduce the risk for ‘first movers’ by improving the local infrastructure from first hand feedback gained from the trial. The collection of ‘real-world’ data about the vehicles’ performance and usage helps the suppliers with technological development and improvements in the product. For example installing short-cycle charge points at strategic docking sites meant the electric vehicles could top up their charge when in use off-loading or being stacked. The trial also helped the council demonstrate the existing capabilities of these vehicles to partners in a visible way.

Whilst it is too early to evaluate the results of the pilot (as the bidding framework process ended only in June 2013), the policy remains one to watch for the near future.

Footnotes