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John Tizard: As part of COVID recovery, public procurement should support local SMEs to support the local economy

Wednesday September 2nd, 2020

Prospects for our national and local economies are more dire than for centuries.

John Tizard

John Tizard

The country was already heading for a depression greater than any since the beginning of the eighteenth century because of the COVID-19 pandemic, and this will be made significantly worse by the disruption caused by an increasing likelihood of a ‘no-deal’ Brexit. Unless the Government enacts another spectacular ‘U-turn’ and extends the current job retention scheme (furloughing), then we face a steep surge in unemployment from the end of October – decimating local economies.

Poverty is increasing and the impact of Universal Credit and other recent changes to the social security system is further depressing local spending power.

Many companies, especially small and medium size companies (SMEs), have been hit by the economic downturn, with the impact ranging far beyond the retail, leisure, travel, and hospitality sectors. Many companies are hanging on by their almost depleted bank accounts – their owners and staff genuinely fearing for their future.

And inevitably, whilst this economic crisis is universal across the country, it is more pronounced in regions, city and towns that have historically been economically disadvantaged over many years. So, what to do?

At the macro level, this situation requires bold radical action by the Government, on a par with or even more interventionist and expansionist than FD Roosevelt’s ‘New Deal’. It requires Government to address structural economic, social, and environmental inequalities and the barriers to improving well-being. It should consider taking equity in companies it is supporting financially and, in partnership with local government, set up regional and sub-regional public sector holding companies to control such equity stakes and use them for public benefit; and empower local authorities and combined authorities to do likewise. However, support for local SMEs and social enterprise is vital and can be more immediate.

Local consumers are supporting local businesses – for example using local high streets and local shopping centres rather than travelling into big city centres. Can the public sector do the same?

It is vital that local authorities deploy the power of their local procurement spend, and encourage other local public sector anchor organisations such as the NHS, universities and colleges to do the same. It is also important for them to encourage the major private sector organisations in their areas to align their procurement of supplies and services with that of the public sector. ‘Spend locally. Support the local economy, local businesses and local jobs’ must be the unrelenting message and objective. And this means local authorities and public procurement thinking laterally rather than narrowly – and acting decisively.

Local consumers are supporting local businesses – for example, using local high streets and local shopping centres rather than travelling into big city centres. Can and will the public sector do the same? The public will expect this.

As to the ‘how’, those authorities already committed to a Community Wealth Building approach – – will (hopefully) have begun to evolve their approach to local procurement but many others of all political persuasions have yet to begin a journey that is now all the more urgent if local economies are going to have any chance of weathering the crisis.

This journey starts from a political decision to secure public value based on a holistic assessment of value and social, economic, environmental, and democratic impact, which includes maximising place-based outcomes. It means taking into account the costs of unemployment and poverty if local jobs are not secured, which in turn includes considering the impact on social security payments, the NHS, education, public safety, the police, and the wider public economy. And it means local government leaders focusing on place, community well-being and the long term – not the immediate and more obvious bottom line.

I know that this is challenging at a time when there is no sign of an end to austerity, plus pressures to reduce expenditure and address budgets blown apart by the impact of COVID-19. Nonetheless, community well-being means politically driving action to overcome these challenges and put the public interest and local economies first.

So, buying local and putting money back into local economies, if at all possible, needs to be the priority – right now. In practice, however, it also means being more pragmatic and ceasing lazy and inappropriate ‘one size fits all’ procurement models.

If, as part of such an approach, local authorities and other public bodies are going to swiftly support the local economy in a more impactful manner by procuring from local SMEs and social enterprises, they must also make it easier for such enterprises to do business with the public sector – because for the most part, it currently isn’t! I have written about this for Government Opportunities previously in May – re the changes needed – Sadly, the message is even more urgent now.

In this article, I called (amongst other things) for an end to:

  • overly complex and time-consuming pre-procurement and procurement processes and procedures – utterly disproportionate to the financial value of the potential contract and the risks involved
  • procurement documents and moribund tender templates running to hundreds of pages, containing many irrelevant questions and unnecessary calls for evidence
  • requirements for bidders to produce at least three years of audited accounts and/or track records of delivery, which blatantly discriminates against recent start-up businesses, social enterprise charities and/or VCS groups
  • contractual terms which are totally disproportionate to the value of the contracts and the risks involved, and well beyond the capacity and tolerance of these target suppliers – including:

o   requirements for massive bonds that may be many times greater than suppliers’ individual turnovers

o   the need to take out costly insurances and indemnities far in excess of any sane, rational and realistic assessment

o   payment schedules requiring suppliers to have substantial existing and assured cash flows

o   requirements to have balance sheets significant enough to bear delayed payments and/or substantial up front investment

I also called for using procurement to extend the Real Living Wage and push for an end to precarious employment practices. Such measures add to the sustainability of local economies and are very much in the public interest.

With local economies and businesses struggling to avoid bankruptcy/closure as a result of COVID-19 and other pressures, surely it is right to use the power and spend of public procurement to help secure short- and long-term employment and economic activity?

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