Publication - Advice and guidance

Procurement Reform (Scotland) Act 2014: statutory guidance

Published: 17 Mar 2016
Directorate:
Scottish Procurement and Commercial Directorate
Part of:
Public sector
ISBN:
9781786520272

Guidance on procurement strategies and annual reports, the sustainable procurement duty, community benefit, tenders and award of contracts.

104 page PDF

4.5 MB

104 page PDF

4.5 MB

Contents
Procurement Reform (Scotland) Act 2014: statutory guidance
Chapter 3

104 page PDF

4.5 MB

Chapter 3

3.1. INTRODUCTION

Sustainable public procurement aims to make the best use of public money, helping the government achieve its overarching purpose and strategic objectives. The Scottish Government’s purpose is to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish through increasing sustainable economic growth.

The Scottish Government is also a signatory to the United Nations Sustainable Development Goals, an international action plan to tackle poverty and inequality and promote sustainable development across the globe. These goals align with the National Outcomes.

The sustainable procurement duty requires that before a contracting authority buys anything, it must think about how it can improve the social, environmental and economic wellbeing of the area in which it operates, with a particular focus on reducing inequality. It also requires a contracting authority to consider how its procurement processes can facilitate the involvement of SMEs, third sector bodies and supported business and how public procurement can be used to promote innovation.

It will require a contracting authority to be aware of how its procurement activity can be used to contribute to national and local priorities and to act in a way to secure this. To achieve this, procurement spend should be thought of in this context by all those involved including: external stakeholders, budget holders, commissioners and policy leads, in advance of the start of the formal procurement process. See section 2.5.7 of Chapter 2 on consulting and engaging with stakeholders.

3.2. PURPOSE OF THIS CHAPTER

This Chapter describes what is required of a contracting authority, to comply with the sustainable procurement duty. It must be read alongside sections 8, 9 and
37 of the Act.

3.3. LEGAL BASIS OF THIS CHAPTER

A contracting authority must have regard to this Chapter when complying with the sustainable procurement duty under section 8(2) of the Act in respect of regulated procurements which commence on or after 1 June 2016 [29] .

The sustainable procurement duty should be applied to all regulated procurements in a proportionate way. A contracting authority must set out how it intends to ensure that regulated procurements will be carried out in compliance with the sustainable procurement duty. It should have a robust, achievable approach to sustainable procurement that is relevant and proportionate to its scope and area; with details on how it will be applied in the organisation.

The duty is defined in section 9 of the Act:

“(1) For the purposes of this Act, the sustainable procurement duty is the duty of a contracting authority

(a) before carrying out a regulated procurement, to consider how in conducting the procurement process it can

(i) improve the economic, social, and environmental wellbeing of the authority’s area,

(ii) facilitate the involvement of small and medium enterprises, third
sector bodies and supported businesses in the process, and

(iii) promote innovation, and

(b) in carrying out the procurement, to act with a view to securing such improvements identified as a result of paragraph (a)(i).

(2) The contracting authority must consider under subsection (1) only matters that are relevant to what is proposed to be procured and, in doing so, consider the extent to which it is proportionate in all the circumstances to take those matters into account.

(3) In this section —

“small and medium enterprises” means businesses with not more than 250 employees,

“third sector bodies” means organisations (other than bodies established under an enactment) that exist wholly or mainly to provide benefits for society or the environment.

(4) In this section, references to the wellbeing of the authority’s area include, in particular, reducing inequality in the area.”

Wellbeing is explained in The Local Government in Scotland Act 2003 – Guidance on the Power to Advance Wellbeing and includes:

  • economic factors such as the availability of suitable and high quality jobs, measures to encourage local small businesses, efficient and effective transport links, lifelong learning, training and skills development, the provision of infrastructure and new information and communication technologies, etc.;
  • social factors such as the promotion of good quality and affordable housing, safe communities, the encouragement of the voluntary sector, looking after the needs of children and young people (particularly the most vulnerable), access to the arts or leisure opportunities, access to education, etc.;
  • health-related factors such as the promotion of good physical, social and mental health and developing and promoting policies which have a positive impact on health outcomes, especially on health inequalities; and
  • environmental factors such as the availability of clean air, clean water, clean streets, the quality of the built environment, the removal of objects considered hazardous to health, removal of disfiguring or offensive graffiti from buildings, protecting communities against the threat of climate change, freedom from a high risk of flooding, improving and promoting biodiversity and accessibility to nature.

Compliance with the sustainable procurement duty may aid compliance with other legislation that places specific requirements on a contracting authority with respect to its procurement activities. In particular the Equality Act 2010, The Equality Act 2010 (Specific Duties) (Scotland) Regulations 2012, the Climate Change (Scotland) Act 2009 and The Climate Change (Duties of Public Bodies: Reporting Requirements) (Scotland) Order 2015.

A number of regulations in The Public Contracts (Scotland) Regulations 2015 are particularly relevant to sustainable procurement. Principles of procurement are set out in regulation 19 and reflected in a range of other regulations, including those relating to exclusion ( regulation 58(8)(a) [30] ) and abnormally low tenders ( regulation 69). The Public Contracts (Scotland) Regulations 2015 also encourage use of lots ( regulation 47), allow for reserved contracts ( regulation 21), life cycle costing ( regulation 68) and introduce a new innovation partnership procedure ( regulation 32). Price or cost may not be used as the sole award criterion ( regulation 67(1)(b)).

Community benefits may be viewed as a subset of the sustainable procurement duty. While the Act has a specific threshold at which community benefits must be considered, application of the sustainable procurement duty means that community benefits may be achieved below this threshold.

3.4. IMPROVING THE ECONOMIC, SOCIAL AND ENVIRONMENTAL WELLBEING OF THE AUTHORITY’S AREA

The United Nations Environment Programme devised an approach to achieving sustainable procurement. Since 2011 this approach has been tailored to reflect Scottish priorities and to reflect the requirements of the Act. It has been adopted across the public sector in Scotland through the Public Procurement Reform Programme. Scotland’s approach to sustainability in public procurement now provides a methodology by which a contracting authority can identify and address how it can optimise social, environmental and economic outcomes through its procurement activity. This has been agreed by the Public Procurement Reform governance structure as the means by which a contracting authority may comply with the sustainable procurement duty.

The approach advocates that a contracting authority ensures that its organisational objectives and wider policy drivers are reflected in tender specifications. It has two concepts: life cycle impact mapping; and a risk and opportunity-based approach to considering all components of public procurement.

This Chapter describes the principles of the approach and how they may aid compliance with the sustainable procurement duty. Access to standard tools is available from the Scottish Government website.

3.4.1. Sustainable Procurement Processes

For the purposes of this section there are four key processes or tools:

Prioritisation

The Sustainable Public Procurement Prioritisation Tool ( SPPPT) is designed to be a standard structured approach to the assessment of spend categories for use across the whole of the Scottish public sector. This risk and opportunity based approach enables resources to be focused on areas with the greatest potential to generate benefits such as financial savings, reduced carbon emissions and waste, and community benefits, whilst driving innovation and, in turn, how national [31] and local outcomes may be influenced through the procurement process.

This tool is designed to:

  • help a contracting authority prioritise categories/sub-categories according to sustainability risks and opportunities and highlight subsequent actions;
  • highlight those categories where particular risks and opportunities are relevant;
  • highlight how category strategies may seek to mitigate relevant risks or capture opportunities;
  • highlight a relevant focus on market engagement;
  • act as a reference for the subsequent development of contracts and frameworks, through the sustainability test; and
  • provide an evidence base for category strategies and eventual contract requirements.

As such, the SPPPT may be used to prioritise categories/sub-categories/commodities to inform both an organisation’s procurement strategy and individual commodity strategies.

It may also be used to:

  • prioritise a forward plan to help inform subsequent strategies;
  • assess relevant options – for example when considering varying options for future procurements; and
  • highlight single issue priorities – i.e. identifying within which particular categories/commodities specific environmental and socio-economic risks and opportunities are relevant so that market engagement and procurement strategies may be focused, (for example labour standards within the supply chain), so that a contracting authority can progressively focus on commodity spend areas where it can pursue the optimum outcomes.

The tool will assist a contracting authority to identify a relevant and proportionate approach to improving sustainable outcomes in procurement. A contracting authority can use the tool to take account of local priorities.

To identify the best opportunity for sustainable procurement and so a contracting authority can outline its proposed approach to sustainable procurement in its procurement strategy, a contracting authority should undertake the prioritisation test for its anticipated procurement spend annually. The SPPPT enables audit of the decision-making process.

The Sustainability Test

A sustainability test has also been developed. The sustainability test is for use in individual procurements at a contract level. It is a quick test and may be used as a standalone product or in conjunction with the SPPPT. Information derived from the prioritisation methodology can be carried across to the sustainability test and used to cross-check opportunities in individual contracts or frameworks. The sustainability test provides a ‘sense check’ of anticipated outcomes for individual procurements when used in conjunction with the prioritisation methodology. When used as a standalone tool, it provides a lighter touch check on the risks and opportunities that individual procurements may allow.

Life Cycle Impact Mapping

The assessment of sustainable risks and opportunities is broken down in to four key phases:

  • raw materials;
  • manufacturing and logistics;
  • use; and
  • disposal or end-of-life management.
  • Impacts of obtaining raw materials
  • Impacts of manufacturing & logistics
  • Impacts during use of product/service
  • Impacts at end-of-life/disposal

A contracting authority may use this approach to identify economic, social and environmental impacts at each stage in the product or service and address these in the procurement process. For example, there may be opportunities to drive fair work practices in any of the phases enabling a contracting authority to subsequently build requirements into both its performance clauses for successful contractors and its own internal management procedures.

Life Cycle Impact Mapping may be applied to categories before undergoing the prioritisation methodology and has had an impact when applied to individual projects. For example, it has identified risks to labour standards in the supply chain, risks of skills shortages in servicing and the likelihood of high levels of waste to landfill.

It requires users to consider the impact of the requirement at each stage in its life, for example the economic, social and environmental impact of mineral extraction at the raw material phase or the impact on providers, users and environment during use of the product or service.

Scottish Flexible Framework

The Flexible Framework enables a contracting authority to develop an action plan including responsibilities and target dates for delivery against elements of its procurement activity:

  • people;
  • bjectives, strategy and communication;
  • procurement process;
  • engaging stakeholders; and
  • monitoring and reporting.

This tool can help organisations within the Scottish public sector to determine and implement relevant actions that will embed good procurement practice and so realise intended sustainability outcomes. It is a self-assessment tool. Progression through the levels of the tool is based on providing evidence that a contracting authority meets relevant questions’ requirements. The assessment process will, depending on answers provided, generate an action plan which should help inform a contracting authority’s procurement strategy and help identify relevant actions to enable progression. Explanation, guidance and suggested forms of evidence are included.

3.5. FACILITATING THE INVOLVEMENT OF SMALL AND MEDIUM ENTERPRISES (SMES), THIRD SECTOR BODIES AND SUPPORTED BUSINESSES

This part of the duty is closely related to the duty to consider economic wellbeing, section 9(1)(a)(i) of the Act. In line with TFEU fundamental principles of equal treatment and proportionality and the other general duty in section 8(1) of the Act, policy is that the costs associated with submitting a tender be kept to a minimum, and barriers to participation by small firms, the self-employed and the third sector should be removed.

There are a number of well-documented concerns about public procurement that may arise; primarily transparency, simplicity of processes and size of contracts. The Scottish public sector has been working with the private and third sector over a number of years to address these, resulting in the development of a number of initiatives including:

Placing a requirement on a contracting authority to facilitate access to public contract opportunities by SMEs, third sector bodies and supported businesses is intended to build on what has been achieved to date.

3.5.1. Definitions

Small and Medium-sized Enterprises ( SMEs): Businesses with no more than 250 employees.

Third Sector: The third sector includes community groups, voluntary organisations, charities, social enterprises, co-operatives and individual volunteers that exist wholly or mainly to provide benefits for society or the environment.

Supported Businesses: Competition may be reserved to organisations as defined by regulation 21 of The Public Contracts (Scotland) Regulations 2015; these are commonly referred to as supported businesses.

There are also a number of provisions in the Act that contribute to facilitating the involvement of SMEs, third sector bodies and supported businesses.

The following three sections will outline various aspects of the Act and The Public Contracts (Scotland) Regulations 2015 that encourage a contracting authority to ensure transparency, simplicity and promotion of innovation respectively.

3.5.2. Transparency

A key driver of the sustainable procurement duty is to increase the transparency of procurement activity to economic operators. There are other parts of the legislative framework that complement the sustainable procurement duty’s aims of increased transparency. These include:

  • a procurement strategy ( sections 15 and 16 of the Act), sets out how a contracting authority intends to carry out regulated procurements;
  • an annual procurement report ( section 18 of the Act) allows a contracting authority to report and publicise its performance on regulated procurements carried out in that financial year;
  • providing information on the scale and nature of procurement by a contracting authority through annual procurement reports, ( sections 18 & 21 of the Act), and the Contracts Register, ( section 35 of the Act), enabling the market to identify opportunities;
  • use of PCS to advertise regulated contract and publish award notices ( sections 22 & 23 of the Act); and
  • increased provision of debriefing to advise economic operators on their bids ( sections 32 & 33 of the Act).

These activities should assist businesses to assess current spend areas, organisational priorities and potential future contract opportunities. Debriefing is an important part of procurement activity because it helps economic operators to understand the relative strengths and weaknesses of their bids and provides a focus for developing their business. Requirements for debriefing are contained in sections 32 and 33 of the Act and regulation 56 of the Public Contracts (Scotland) Regulations 2015.

3.5.3. Simplicity

In order to help facilitate access to public contracts, simplicity is key. This can be supported in a number of ways, including:

  • see Chapter 5 on the selection of tenderers and award of contracts for guidance on the assessment of the suitability of economic operators and addressing proportionality in the selection process ( sections 27 & 28 of the Act);
  • including a provision to reserve participation in procurement exercises to supported businesses at Act thresholds ( section 11 of the Act) may greatly increase opportunities where a market exists;
  • providing for use of dynamic purchasing systems ( section 7 of the Act); and
  • prohibiting of charges for participation in the procurement process ( section 31 of the Act).

The Act and The Public Contracts (Scotland) Regulations 2015 also outline possible approaches to facilitate access. In the list below, ‘sections’ relate to the Procurement Reform (Scotland) Act 2014 and ‘regulations’ relate to the Public Contracts (Scotland) Regulations 2015:

  • preliminary market consultation ( regulation 41) – so that the market is aware of procurement plans and requirements;
  • use of lots ( regulation 47) – a contracting authority must explain its decision not to sub-divide procurements subject to The Public Contracts (Scotland) Regulations 2015 into lots. This provision has not been drawn down to Act thresholds because of the relatively low thresholds at which the Act applies. Regulation 5(3) makes some provision for direct award of small lots, the thresholds that apply are available from the Scottish Government website;
  • use of community benefit clauses – the Act defines availability of sub-contracting opportunities as a community benefit ( section 24). Chapter 4 on community benefits requirements provides more detail on this;
  • use of innovation partnership ( regulation 32);
  • use of dynamic purchasing systems ( regulation 35 & section 7);
  • use of the scope to reserve contracts for supported businesses and the wider definition of supported businesses ( regulation 21); and
  • pportunities under the new Health and Social Care regime ( regulations 74-76). See also Chapter 6 on the procurement for health or social care services.

It is important to consider these mechanisms to encourage participation by smaller businesses, including micro-businesses which constitute the majority of businesses in Scotland.

3.6. PROMOTING INNOVATION

Innovation in public procurement gives a contracting authority the opportunity to influence the market towards innovative solutions. This may involve innovation in the design and delivery of public services, the procurement of innovative goods and services and/or innovative procurement processes and models. Section 9(1)(a)(iii) of the Act requires a contracting authority to consider promoting innovation in all regulated contracts.

Some ways in which a contracting authority can promote innovation are listed below:

  • for routine requirements there may be scope to innovate in the tendering process. This has happened through the development of e-procurement with use of e-catalogues and e-invoicing;
  • where public procurement is required to achieve wider policy goals, the public sector can drive demand for the creation of new technologies, standards and services. The Public Contracts (Scotland) Regulations 2015 specifically provide for this through clarifying provisions for preliminary market consultation ( regulation 41) and through a new procedure – the Innovation Partnership ( regulation 32) – as well as replacing the Negotiation Procedure with a Competitive Procedure with Negotiation ( regulation 30) to make it more like the Competitive Dialogue ( regulation 31) and the ability to allow for variant bids ( regulation 46);
  • the public sector may also directly procure research and development. In many instances research and development is exempt from procurement rules ( regulation 15 & section 4(1)(c) of the Act); and
  • the public sector can also demand innovations with a view to increasing availability of a range of goods, works or services that may also be of interest to the private market. For example, the Lead Market Initiative ( LMI) for Europe aims to foster the emergence of markets with potentially high economic and societal value. Six markets were identified as part of the LMI: eHealth; protective textiles; sustainable construction; recycling; bio-based products and renewable energies.

A full list of the drivers in the Public Contracts (Scotland) Regulations 2015 are available in the EU Commission’s publication on Public Procurement as a Driver of Innovation in SMEs and Public Services.

All of these approaches involve risk management to strike a balance between innovation strategies and the need for competition, transparency and accountability in public procurement to avoid monopolies, discrimination against SMEs and protectionism. They also require early stakeholder consultation to ensure that needs are identified. This will commonly include policy priorities such as employment and training (community benefits) as well as fair work practices and resource efficiency (zero waste).


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