Can the Victorian Government buy their way out of social and environmental problems?

In an Australians first, the Victorian Government has laid down the gauntlet in a fresh attempt to solve societies most complex social and environmental problems.

My second article in a series, I now take you on a deep dive into the newly released Victoria’s Social Procurement Framework. Don’t know what the framework is, read my previous article here.

With all new policy initiatives, there will be challenges implementing them. It is not my intention to criticise this policy, far from it. I’m offering an opinion piece to share my thoughts on some of the challenges and opportunities that lie ahead for Victorian government agencies, the private sector and social enterprises. I invite you to challenge me where you disagree and share you experiences and thoughts.

Here are some of the challenges that lie ahead.

Defining social value outcomes

There are literally hundreds of ‘social value’ metrics. Choosing a wrong metric for a project by people not working in that field may not serve the best interests of those intended.

The social procurement framework is trying to address complex societal problems. Neither Government, the private sector nor the Not for Profit sectors has yet succeeded. Expecting departments and agencies to become subject matter experts on non-core business functions like family violence, for example, is a big call. Expecting procurement officers and project managers to choose appropriate objectives and targets that will have meaningful long-term social benefits is presenting challenges. Shifting the emphasis away from government to the private sector is also presenting challenges.

This policy, like many others, largely ignores the pivotal role of the Not for Profit sector. These social enterprises, often run by volunteers, are increasingly picking up the ‘forgotten ones’ and addressing social and environmental problems from the grass roots. This sector exists largely because governments and the private sector has not yet addressed these issues adequately. 

I want to stress that I don’t believe that government has failed us. I also don’t want you to think that I believe the private sector can’t be trusted to play a significant part in solving societies most challenging social and environmental problems. It’s just that the guys that know the most about the subject are not being invited to participate in defining social value metrics.

Social enterprises don’t have a say in setting priorities, objectives, programs or determining which value metrics will have the most impact for their communities.

This policy is new and before throwing the baby out with the bathwater, lets acknowledge we will face a challenge in getting the right metrics for a year or two. There are already great examples in this space and let’s focus on those, not the ones we didn’t get quite right the first time.

Be prepared that earnest efforts from both suppliers and buyers might fall short of expectations to begin with.

For policy makers and evaluators, it’s a warning not to judge success too critically in the beginning. A process of continual learning, adaption and persuasion will offer the greatest long-term benefits.

Engaging social enterprises

This framework largely places the responsibility for social and environmental action on the private sector. Asking these suppliers to lock in their social procurement activities before a project has begun will cause problems. Typically bid time frames are very short. This means that with limited time, little or no meaningful engagement will occur with social enterprises until the supplier wins the job.

Social enterprises will be asked to deliver activities they weren’t involved in designing.

Collaboration, engagement and empowerment is now common practice for most government agencies. I’m worried the new social procurement framework falls short on effective engagement. We all know what happens when key stakeholders are not involved in early stages.

Using contract clauses to lock supplier into commitments prior to signing a purchase order or contract is paramount if we are to progress social and sustainable outcomes. Let us not look at this as a compliance obligation. If the social intent is met and there is room to flex and adapt social and environmental outcomes throughout a project.

Continual improvement and adjustments could be achieved through milestone payments linked to effort. It will give more time for meaningful engagement with social enterprises. It can allow opportunities to evolve. It will also allow unworkable activities to be substituted.

The flip side of this argument is that this introduces flexibility to contracts. Government project managers will need to be strong enough to negotiate with suppliers but not too strong that they screw them down too much. Many see contract management as a win-lose game. This has got to stop. What do you think?

Inter-agency coordination

There are 275 government agencies that must nominate their own social justice priorities in their annual plans. It can only be assumed that more than several agencies will be competing for the same pool of social enterprises. With Victoria’s infrastructure boom, a few large projects in the same area, with the same social priorities will drain an unsuspecting and unprepared set of social resources very quickly.

With annual cycles, government agencies will then re-prioritise the following year or for the next project as they discover their competing with other agencies for the same resources. Suppliers then ditch previous commitments in pursuit of the next contract.

Many might argue that this is how it works already, so what’s the point? Priority issues or election promises flood a sector with funding for a short period of time and then it dries up.

One of the challenges I see is that the Victorian Audit-General’s Office is most likely to audit government departments as to how they have performed against DTF’s policy framework in the coming years. What will no doubt arise, having been audited myself on many occasions, is that stated objectives will not have been met by some departments.

The policy places obligations for social procurement on government agencies. The private sector is expected to facilitate it. The social enterprises are expected to deliver it.

Here is a tip for government agencies all trying to compete for the same pool of unsuspecting social enterprises. Document your processes and clearly record all your attempts to fulfill your social procurement priorities. This should include emails from the local employment agency that can’t now fulfill their agreement to supply a quota of apprentices because they all now have jobs. 

Document, document and document.

An attitude shift is required

Government purchasing for decades now has focused on ‘lowest dollar price’ purchasing. A shift is required in not only the attitudes of government staff but probably 275 policies and the procedures and systems that support procurement.

Government purchasing systems and workflows are built to ‘red flag’ bids that are not the cheapest. Processes make it harder and longer for procurement officer to justify expenses that don’t cost the least. What’s more, they are shit scared that they might been seen to favour someone or called out for fraud or corruption.

When government staff are afraid to accept a free coffee at a stakeholder meeting, public sector employees are rightly paranoid of every purchase they make.

Project Managers with tight time frames are scrutinised more thoroughly when recommending higher cost projects. Why make it harder for yourself and recommend one with a bit of community benefit and slightly more expensive?

Typical government purchasing practices don’t give a supplier any financial credit for purchases with tangible social and environmental outcomes (even though they most definitely feature heavily in the buyer’s business case for most projects).

We are not yet seeing total life cycle cost bids for a project and are we are still far from including social and environmental externalities in terms of dollars in the overall evaluation of bids.

Unfortunately, dollars will still dominate the buyers and supplier’s mentality. Even with a 20 per cent social weighting for tender bids, unless social criteria are made mandatory like safety standards, bid evaluation still has an 80% weighting for capability and price.

On a $20 million project, price will need to be within at least 5 per cent (that’s about $1 million) of each other to remain competitive. Only when two businesses compare on capability, price and experience might social procurement factor in a buyer’s decision.

What this means for a supplier is that they either place a mediocre social bid to keep costs down, absorb the costs within the business, or start partnering with social enterprises well before the bid process begins.

The big end of the infrastructure is working on the later but I suspect the rest are waiting to see if real change starts happening in government.

Social Enterprises capacity

The framework places no obligation on government to work directly with social enterprises. Social enterprises don’t have to participate. If they do choose to become involved in government purchases, they are not accountable if they fail to deliver. It falls back to the business engaged by the government department.

We don’t know yet how social enterprises will respond to a potential influx of supplier and sub-contractor requests. As stated before, there is great potential for competition for the same resources.

I’ve witnessed it first hand with the recent interest with Indigenous engagement. Commendable but utterly exhausting and frustrating for Traditional Owner groups. They are being asked to get involved in absolutely everything. Unfortunately, there is no support to fund resources and most will not be paid for their early involvement. Pay only comes when or if the supplier wins the work.

The poorest funded and least supported sector has now become an integral component of the multi-billion-dollar infrastructure, health and education sector. The governance, capability and availability of social enterprises is about to be tested by ASX listed companies and government regulators.

Many of these social enterprises run on very small budgets, are governed by volunteers and intentionally managed lightly to spend what precious resources they receive on the things that matter most to them. Many are simply not ready and will miss out on incredible opportunities. The lion’s share of the work will go to the not for profits that look very much like a branch of government agencies and only distinguishable from big business by their tax status.

Even if social enterprises had the capacity and capability, they are now at the mercy of big contracting companies. On their own, they are effectively locked out from bidding outright as most large projects are tendered as a complete package. There is currently no intention to tender the social and environmental elements separately to allow social enterprises and non‐profits to participate and remain competitive in a bidding process. If they want a piece of governments purchasing budgets, most will need to form alliances with bigger companies.

Many social enterprises are currently not capable or ready to respond to the expected demand that will arise from Victoria’s Social Procurement Framework. They will need help from government and the bigger suppliers to develop and respond to the growing desire for their services.

The good news is that the big end of the infrastructure industry is taking proactive steps to address their risk and capitalise on their opportunities. They are partnering outside the bidding phases to secure their social licence and ‘banking’ it for up-coming projects.

What are your thoughts and opinions? I’d love to hear some of the good examples people have worked on or seen to share with you all.

How to make the most of the Social Procurement Framework

Next up is Part 3 which I’ll explore how Government agencies can embrace Victoria’s Social Procurement Framework and deliver greater public value through their procurement practices. 

Part 4 will explore the suppliers guide to winning Victorian Government goods or services contracts.

Part 5 finishes off helping Not for Profits get a piece of the Victorian Governments $16B goods and services budget.

Part 1 offers an overview of the Framework and can be found here. – Buyers and suppliers guide to Victoria’s Social Procurement Framework.

Share your thoughts

I would love to hear your thoughts and experience working on social and environmental procurement so that together we can make Victoria the best place to live.