Public contracts to feature stricter social objectives

Two areas of social benefit are widely perceived as not being delivered by public projects, writes Richard Ward, head of construction at Eversheds.

The first concerns the discrepancy between labour rates payable by the client and the sums actually being received by the workforce well down the supply chain.

The second concerns the failure of public projects to require information on ethnic backgrounds from bidders and hence assist in eradicating employment disparity between races.

The advantages of using public procurement to secure living wages and ethnic integration is self evident. The mechanisms for actually achieving this are perhaps less so. The BSI has issued for consultation some draft international standards which contain helpful material for those concerned to ensure that publicly funded projects not only deliver the built asset but additionally critical social objectives. In an age of reduced public expenditure, the need to combine those objectives is all the more vital.

The draft standards are the ISO 10845 Parts 5 to 8, all focusing on targeted procurement.

Although certainly not unknown in the UK, the use of targeted procurement procedures is undeveloped. The concept is relatively straightforward. In addition to the primary objective of securing the creation of the capital asset, the client will seek to secure secondary objectives either in the construction process or through the performance of the finished product.

These objectives can include the creation of jobs, fair labour conditions, use of local labour and small businesses, prohibition of discrimination, improvement of environmental quality, the encouragement of equality opportunity between men and women and the increased opportunities for the disabled in employment.

A fundamental element of targeted procurement is that it provides a system for setting clearly definable social objectives which are contractually enforceable. The specification is used to set measurable and quantifiable objectives and determine how they can be achieved. This allows the objectives to be monitored and evaluated, and permits them to be verified and audited to satisfy public sector requirements for transparency.

Parts 5 to 8 of the draft standard contain very similar material but oriented towards targeted enterprises, targeted partners and joint ventures, targeted enterprises and targeted labour.

While Parts 5 to 8 will only be applicable if expressly adopted and will not ordinarily form part of the standard, they are extremely useful in identifying clearly measurable and contractually enforceable objectives. The documents use the concept of contract participation goals, ie, the targeting of objectives linked to measurable key performance indicators.

Some interesting features include:

• Alternative targeting strategies either by way of the granting of a preference in the evaluation of tender offers in return for the inclusion in the tender of contract participation goals or the payment during the currency of the contract of a financial incentive to a contractor for the attainment of a contract participation goal.
• A wide scope for satisfying the contract participation goals. For example, the contractor could be a targeted enterprise or enter into joint ventures with targeted partners. It could also engage targeted enterprises at sub or sub-sub-contractor level, or engage with non-targeted enterprises who themselves enter into joint venture agreements with targeted partners.
• A focus on measurable KPIs linked to financial contributions/shares of the particular targeted enterprises.
• Provisions dealing with sanctions for non-compliance.

In addition to the material in Parts 5 to 8 there is additional information contained in Annex F to Part 1 of the standard on the classification of secondary objectives and types of the generic scheme that could be adopted to secure these.

The document represents an ambitious attempt to achieve contractual requirements for the attainment of social objectives. With the emphasis on measurable KPIs, one could see that this should be accommodated relatively easily within, for example, option X20 of the NEC3 (key performance indicators).

However, the source of this material is an unregulated marketplace and not one that is subject to the EU public procurement regime. The sensitivities to constraints of EU membership are reflected in the social targeting procurement policies of public bodies in the UK. While these bodies focus strongly on diversity, environmental issues, workforce welfare, supplier diversity and ethical sourcing, these objectives are either seen as important statements of principle, or when converted into contractual obligations are rarely seen as key performance indicators. Furthermore, there is a nervousness about prioritising the use of local labour and small and medium enterprises.

An area which could be fruitful in this context is emphasis on those social targeting KPIs as inherently linked to the subject of the contract. In essence, the output rather than the delivery.

Additional procurement consultations

In addition to targeted procurement, consultations are underway on formatting of procurement documents, standard conditions of trade and standard conditions for calling for expressions of interest.

All of the consultations can be accessed at www.bsigroup.com/bsiso10845.

The deadline for comments is 31 October 2009 and comments should be submitted in the form of the template contained in the preface to each consultation document.