• Q&A
  • June 4, 2019
  • 19 minutes
  • 0

Procurement can save our planet — if we harness its power

Q&A: Innovative contracting is helping governments solve social problems

When you say the word “procurement“, most people immediately think of corruption, scandal and wasted public funds. But the $8 billion global market can be an indispensable tool in making our planet a more sustainable, equitable place to live.

In this Q&A, Apolitical CEO Robyn Scott discusses why government procurement is “the sleeping giant of sustainability”. Up until recently, she says, governments have mainly spent their procurement budgets — on average, 10-15% of GDP — project-by-project, without realising how contracting can help to solve policy challenges, from climate change to gender inequality.

Now, with the rise of responsible, sustainable and innovative procurement, governments are finally coming to grips with the strategic potential procurement holds for our societies. Read on to learn how.

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Tim: Why are you interested in public sector procurement as a way to solve policy challenges?

Robyn: Sustainability, invaluable in the long term, does not come cheap. Meeting the UN sustainable development goals by 2030, for example, is estimated to cost between $3.3 trillion and $4.5 trillion annually in state spending, investment and aid.

As already cash-strapped governments struggle to find the resources needed to run the public sector today, let alone to avoid apocalyptic tomorrows, they are finally beginning to pay attention to public sector procurement.

“A new banner of procurement trends achieve additional, societally beneficial objectives in the course of acquiring goods and services”

Representing 10-15% of a country’s GDP, government procurement is the sleeping giant of sustainability. Global public procurement is worth around $8 trillion annually. But until recently governments mostly spent their budgets project-by-project, without evaluating how they could use them to achieve broader policy outcomes.

This is starting to change under the banner of several related trends including “responsible procurement”, “sustainable procurement” and “innovation procurement” – all involving using procurement to achieve additional, societally beneficial objectives in the course of acquiring goods and services. Together these trends present some of the most promising opportunities we’re seeing for improving our societies.

Do governments have to pay more for green and socially beneficial outcomes? 

Robyn: Increasingly the answer is no.

In some cases, this is obvious. Take energy, for example, of which government is a significant buyer. In many regions, this is now at parity or below the cost of traditional polluting sources.

Sometimes green and socially beneficial outcomes appear more expensive, but incorrectly. For example, a printer with lower energy usage may be more expensive up front than an energy guzzling model, but cheaper over its lifecycle. However, because much procurement only accounts for upfront costs it looks more expensive.

“Sometimes green and socially beneficial outcomes appear more expensive, but incorrectly”

“Circular procurement”, another emerging trend which factors into decision-making the costs associated with how a product is produced, consumed, disposed and recycled, is beginning to correct this.

Similarly, a procurement initiative that creates jobs in local communities or under-employed groups, might have a more expensive sticker price. But this is only when viewed from the silo of the purchasing department, rather than the whole government’s purse. If those jobs weren’t created, somewhere else in government would be paying to create them or to provide benefits to the unemployed.

Are you seeing scalable and impactful solutions, aligned with the SDGs, which are cost competitive in procurement?

Robyn: The promotion of sustainable public procurement is, in fact, included within the SDGs, under SDG 12 which is to “Ensure sustainable consumption and production patterns”.

But Mark Hidson, Global Director of the Sustainable Procurement Centre at ICLEI, a network of 1,500 cities, towns and regions focused on sustainability, sees the scope of procurement as much bigger than goal 12. He describes procurement as “an essential tool” if we are to achieve the majority of the goals, given the organizations wanting to implement them don’t currently have sufficient resources to do so.

South Africa’s renewable energy initiative is an example of the power of procurement. The government evaluated private sector solar and wind energy bids based not only on lowest price but also on which delivered the best socioeconomic outcomes, with bids required to include plans for the latter. These socioeconomic benefits included job creation, investment in solutions specific to communities near the wind and solar plants, such as education, and community ownership of the plants.

“Procurement is an essential tool if we are to achieve the majority of the SDGs”

William Dachs, a civil servant who worked on the program, describes the results as “quite spectacular”. The blended price for solar and wind is lower than coal, the country’s main source of power, and 7% of the country’s power now comes from renewables.

The socioeconomic criteria also had an unexpected benefit, galvanizing the political will needed to back investment in renewables. When a poor voter goes to the polling booth, says Dachs, they’re not going to care that much if their electricity comes from solar. They will care if that electricity came with jobs or education for their kids.

Dachs goes as far as to say that he thinks South Africa wouldn’t have a renewable program had the procurement not been structured to directly benefit poor communities.

Why do cost-competitive and more sustainable solutions fail during procurements?

Robyn: This is due to connected problems. Some public officials still see sustainability as a signal of poor quality. And often governments are simply unaware of newer, more sustainable solutions available to them. As a result, tenders are not structured to assess market leading solutions. It’s akin to designing a tender for transoceanic transport knowing only about ships. When a company submits an airplane, it will still be judged on ship-specific criteria and probably marked down.

Sustainable solutions are also, increasingly, offered by innovative small and midsize companies, who may lack the resources for complex government contracting. And large corporations, who can afford the byzantine processes, have an incentive to maintain the status quo.

“Government departments often have ‘use it or lose it’ budgets. If they don’t spend their whole budget, it’s lost – and often reduced the following year”

Others argue that incorporating metrics beyond price makes procurement less transparent. The reverse is true, says Mark Hidson. The problem, he explains, is that it takes a little more work to ensure you have good metrics and good data, and the mindset and skills to achieve this are often lacking in procurement departments.

Another issue is that government departments often have “use it or lose it” budgets. If they don’t spend their whole budget, it’s lost – and often reduced the following year. Plus, one department rarely gets credit for saving another department money.

Is the failure rate decreasing? If so, where and why?

Robyn: We’re seeing lots of bright spots. An example is San Francisco’s “Startup in Residence” program. The program, which has small companies working closely with public servants and the beneficiaries of government services, is now launching in 31 other locations, including two Canadian cities.

Jay Nath, Co-Executive Director of City Innovate Foundation which runs the program, says traditional procurement is too transactional for the complexity of problems we face today. By bringing startups close to these problems – well before tenders are written – much better solutions are produced.

So far the program has supported the creation of 47 projects for government. Binti, a graduate of the program which streamlines foster care, now services 50 communities. It has increased the capacity of social systems by 300% and produced a 40% increase in the efficiency of government administrators.

“Impact bonds are already used around the world in areas ranging from education to disease control”

But the benefits aren’t just efficiencies, says Nath. When government provides better products and services, which are designed while working closely with beneficiaries, this “rebuilds trust in government”. Economic development is also important. Recently, the program has seen interest from American “rust belt” towns. Desperate to stimulate economic dynamism in their communities, these towns are starting to see their procurement budgets as one of the few levers they have.

London, another leader, has a responsible procurement program governing its £11 billion procurement budget. Social value outcomes are considered in all contracts over £100,000. The city is now establishing a “good work standard” for businesses, addressing fair pay, good working conditions and diversity.

Deputy Mayor for Business, Rajesh Agrawal, says the new standard will “play a key role influencing procurement in all sectors involved in [the city’s] supply chain.” There are also plans, he says, to remove barriers in procurement processes which could hinder minority-led businesses, community organizations and smaller companies.

How can governments better equip themselves to ask the right sector specific questions of different service providers?

Robyn: One promising area is outcomes based funding. Also known as payment-for-results, this method does what it says on the tin: governments pay not for solutions but for the delivery of outcomes.

The most well known examples are social impact bonds, first pioneered in the UK to reduce prisoner recidivism. The focus on results forces a more solution agnostic approach, where the government approaches the tender with no preconceived notion of what the solution is – which narrows the field – but only of what it will achieve. It also makes it easier for governments to swallow the risk of working with smaller and lesser known companies; they only pay if the solution works. And with a government contract in hand, these companies can raise capital from investors to ensure they can deliver results.

One of the challenges outcomes based funding is that it’s best suited to areas where the cost of the problem can be easily measured and the associated payment calculated — governments know exactly how much it costs to incarcerate a prisoner for a year. It’s harder to measure the costs and benefits of mental health for example. Another issue is the complexity of structuring the agreements.

“Procurement should be recast as strategic, rather than administrative”

Despite this, says Toby Eccles, founder of Social Finance which developed the world’s first impact bond, outcomes based funding is spreading steadily. Impact bonds are already used around the world in areas ranging from education to disease control.

More generally, procurement should be recast as strategic rather than administrative. As part of this, governments need to become more solution agnostic and do more pre-tender analysis of the problem and of potential vendors. This requires better market intelligence, more diverse networks, better market dialogue skills, and the early involvement of end users.

Skills and mindset, stresses Hidson, are a key barrier. Legislation is also important, especially for overcoming internal resistance to change.

Examples of sustainable procurement legislation already span Europe to Chile. The US introduced legislation in 2015, but this was recently revoked by the Trump administration. An increasing number of countries and cities also have targets for procurement spend on smaller businesses. In the UK, for example, the target is 33%. These are forcing departments to modify procurement to be more small business friendly.

Where, geographically, does procurement have the most potential for scalable and rapid catalysis of sustainable development?

Robyn: Given its large slice of all countries’ GDPs, procurement can play an important role everywhere. But from a sheer scale perspective, big infrastructure projects in developing countries probably offer some of the greatest opportunities, such as in the South African renewables example.

It’s also interesting to consider the question by sector rather than geography. For example, procurement presents a big opportunity to support women-led businesses and dynamic small companies – priorities for governments almost everywhere. And every local and national government can play a role in cleaning up the pollution and ethics of global supply chains by incorporating these in procurement criteria.

Where are your current growth priorities?

Robyn: Right now our membership is dominated by influential senior government officials and millennial civil servants working in newer areas such as digital, smart cities, user centered design and AI. Both of these groups understand the urgent need for government transformation and are hungry for ways to accelerate good ideas.

We’re now working on reaching government officials who are not early adopters. These public servants don’t get excited about innovative new platforms or frontier policy ideas. But they do care about the risk of losing their job because they didn’t due diligence a policy properly. Shifting behaviour in this group is where some of the greatest potential for impact lies.

As part of serving a larger, more diverse membership, we’re investing a lot in refining our platform’s AI-driven recommendations engine. This helps any public servant anywhere in the world find the most relevant ideas, evidence and experts for the policy problem they’re working on, whatever this problem may be. Our goal is to make this experience as easy as finding the right hotel for your holiday.

We’re also working on a membership for private sector companies, particularly small and midsize companies, with smart solutions to policy problems.

What is your most exciting success story to date?

Robyn: We recently learned that a city in Australasia introduced a more open policy towards migrants and refugees, in part due to Apolitical. The policymaker lobbying for the change told us that one of the key reasons the city made the decision was because of Apolitical’s existence. Previously, city officials had felt that they lacked easy access to good ideas and expertise around how to integrate migrants and refugees in ways that benefited citizens and the economy. —Tim Nixon

This story was originally published on Thomson Reuters.

(Picture credit: Unsplash)

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