Procurement: a tool for social good
6 August: The City of Vancouver is aiming to have 50% of its service contracts with ethical or diverse suppliers by 2023. Alexander Ralph and Kim Buksa from the city’s Supply Chain Management department tell us how they’re going about it.
Good financial management isn’t just about cost but about outcomes. And the benefits of ethical and diverse sourcing sit nicely in this category.
In terms of the public sector, ethical sourcing definitely appeals to an electorate (and conversely, the negative impact of sourcing scandals and embarrassing headlines can have a huge impact on election prospects). Meanwhile, longer-term unethical sourcing can ultimately lead to onerous regulation that ends up being more costly than doing ‘the right thing’ in the first place.
In one case – the City of Vancouver – good financial management, ethical and diverse sourcing and a positive outcome all came together for the benefit of the local community.
What do we want and what’s realistic?
The team, led by Chief Procurement Officer Alexander Ralph, began by engaging a Big Four firm to conduct a materiality assessment and spend analysis. The materiality assessment helped the city clarify its priorities: they settled on what they meant by ‘social value’ and defined the characteristics of the ‘social/diverse businesses’ it would invest in. The spend analysis established that currently around 10% of the city’s procurement met its definition of diverse or ethical suppliers.
Alongside this work, the team explored the sectors in which it does the most procurement to get a sense of what proportion of businesses were minority-owned, women-owned or third sector. “Comparing what we’re buying with who’s in the marketplace put us in a really good position to decide what was achievable, and where to focus our efforts,” says Kim Buksa, the City’s Sustainable & Ethical Procurement Manager.
With no established way to quantify social benefit, the programme is targeted and tracks progress in terms of spend and number of contracts. The team then enlisted academics and consultancy firms to capture the relationship between those measurables and social benefit. The common finding in the resulting reports (such as this one) was that for every dollar spent on the city’s social value procurement contracts, the social benefit equates to around three dollars.
In 2019, at the end of all the above research, the city settled on a target of 50% social or diverse procurement in identified service categories by 2023: both in terms of number of contracts and dollar amount.
Where are these ethical and diverse businesses?
The next hurdle was to establish, out of the vast number of businesses out there, which of them met the programme’s social value criteria. To do this, the procurement team built a database of vendors’ diversity and ethical credentials, which it has been populating from two sources: a questionnaire it includes in all public tenders, and a survey hosted on its website which it publicises to local businesses. Both invite organisations to self-report as to whether they fall within the City of Vancouver’s definition of social or diverse.
The data gathered through that self-reporting both informs procurement decisions and allows the city to keep track of the proportion of contracts and spend going to ethical or diverse businesses.
The city is, to a degree, reliant on honest reporting on the part of vendors. Vendors are asked whether they have any third-party certifications or accreditations that would testify to their social value, but there’s no formal auditing process at the moment for those that don’t. Vancouver is considering implementing formal auditing mechanisms in future phases of the initiative as the program matures.
Is there a trade-off?
Buksa tells us the programme has a “push-pull” approach. By investing in ethical or diverse companies, the city helps those businesses to grow and incentivises others to follow suit (the ‘pull’). Meanwhile, it also ‘pushes’ existing vendors that aren’t doing so well in the social value stakes to do better.
While this is all very noble, does it mean more expensive contracts? “No,” says Ralph. He explains that the city holds ethical or diverse procurement partners to exactly the same standards as any other partner, both in terms of quality and in terms of price. “The premise of the programme was that we wouldn’t jeopardise our deliverables as a government organisation of providing quality, cost-effective services. We play a part in contributing towards a better, fairer society, but we don’t want to do one at the expense of the other.”
It’s early days for the programme, which is still in its implementation phase. The team has challenges to work through, the chief one being to gain greater buy-in from the city’s ‘internal business units’ (the entities that are serviced by and own the relationships with suppliers). “We’re heading in the right direction, but there’s a long way to go,” Ralph tells us.
That said, the city has already progressed to 20% of service contracts going to social or diverse suppliers. And aside from the very real impact this programme is having on Vancouver, it is also helping to pave the way for government administrations and businesses to follow suit by showing that it’s possible to improve the ethics of a business model without compromising value-for-money.
“As well as helping to do social good through this programme, we also play a leadership role,” says Ralph. “When the City of Vancouver includes a questionnaire like this in its tenders, people take notice. That ripple effect is very important to us.”
Alexander Ralph is the City of Vancouver’s Chief Procurement Officer and Director of Supply Chain Management.
Kim Buksa (email@example.com) is the City of Vancouver’s Sustainable & Ethical Procurement Manager.