3. LOCAL AUTHORITY PROCUREMENT: PRACTICE BEFORE AND AFTER THE ORDER
3.1 General
This section provides background information on local government procurement and the purpose of the Order. It goes on to explain the relevance of workforce matters to best value and to procurement in general. Finally, it discusses the extent to which authorities have been considering workforce arrangements of tenderers before the Order and how this is expected to increase as a result of this change to the legislation.
3.2 Local authorities: organisation and Resources
Authorities were asked which parts of the organisation have traditionally been involved in the evaluation of workforce matters in procurement. Units identified as being involved or strongly involved are shown on Figure 1.
Figure 1 Different departments or individuals might have been involved/consulted in the consideration of workforce matters in procurement prior to the Order. Please indicate the level of involvement that each of the following have had within your authority.
Source: DTLR survey, 2001 (Authorities Q11)
This response indicates that a large number of units may collaborate in dealing with a major aspect of procurement, which is perhaps not surprising given that effective procurement requires a multi-disciplinary approach. However, it also suggests that comparatively few authorities have established a corporate procurement unit.
Recent research[1] by the DTLR found that 39% of local authorities have such a unit – most likely the larger authorities.
More specifically, the survey revealed the extent to which trade unions are currently consulted about workforce issues in the context of procurement - a measure that is apparently welcomed by suppliers. This practice of consulting employee representatives seems more widespread in the North and West than in the South and East.
3.3 Local authorities: value of contracts
Authorities were asked to give the annual value (to the nearest £100,000) of external service contracts. Only 21 respondents answered. They were also asked what percentage increase in these values was planned over the next two years. Only 12 responded. It seems probable that many authorities do not budget in these terms and probably do not plan ahead in terms of a procurement strategy. This bears out the importance of the recommendation in the Byatt report[2] that they should do so.
ORC International (the organisation administering the telephone interviews) regarded this financial information as unreliable as respondents had not all recorded contract values a comparable way. It has accordingly not been used in this report. However, it may be worth mentioning that the authorities that gave full answers to this question included all four of the London Boroughs in the sample.
3.4 Suppliers' relationships with the local government market
The suppliers' questionnaire contained a group of four questions designed to establish the nature and extent of their involvement in the local government market. The results indicate a wide variation in the levels of dependence on the local government market. Just over one third of the sample has more than half of its turnover with local authorities. The responses are illustrated in Figure 2.
Figure 2 What proportion of your turnover comes from business with local authorities?
Source: DTLR survey, 2001 (Suppliers Q1)
In terms of the number of authorities with whom responding suppliers do business, Figure 3 below suggests there is a wide variation in the degree and breadth of experience and familiarity that respondent suppliers had in relation to the local government market.
Figure 3 How many authorities do you currently have contracts with?
Source: DTLR survey, 2001 (Suppliers Q2b)
Suppliers were asked to give the number of local authority contracts they have bid for and the number they have won (in the twelve months preceding this research). The results show that the suppliers responding to this survey are fairly evenly distributed in terms of how many contracts they have bid over the last year.
However, the survey results also show that most of these same suppliers have won up to 9 contracts over the same period.
Figure 4 In the last twelve months, how many local authority contracts have you tendered for? And how many of them have you won?
Source: DTLR survey, 2001 (Suppliers Q2c)
This gives a very general indication of the high volume of sales effort made by many suppliers, and suggests a high degree of competition within this market. This is significant because it was evident at some of the group discussions that some authorities do not recognise the cost of marketing and selling undertaken by the private sector. This, perhaps, points to a lack of understanding between some authorities and suppliers.
The expectations of suppliers in relation to their level of business with local authorities over the next two years is illustrated in Figure 5. Most suppliers are optimistic about future business with authorities, with more than two-thirds of suppliers expecting growth, which suggest relations between authorities and suppliers are improving.
Figure 5 How do you expect our business with local government to develop over the next 2 years? If you expect it to change, by what percentage (approximately) do you expect it to do so?
Source: DTLR survey, 2001 (Suppliers Q2d)
3.5 The Order
Section 17 of the 1988 Act requires local authorities to carry out contractual functions without regard to specified "non-commercial" matters. Before amendment, this could be taken to mean on a strict reading, that local authorities could not take specific workforce matters (i.e. the terms and conditions of employment by contractors of their workforces) into account even when relevant to the value for money of a contract. There are, however, some exceptions:
On race relations, Section 18 of the 1988 Act recognised the duty placed on local authorities under the Race Relations Act 1976 (to eliminate unlawful racial discrimination and promote equality of opportunity) by permitting local authorities to ask approved questions and include terms in contracts.
DOE Circular 8/88. Local Government Act 1988 - Public Supply and Works Contracts: Non-Commercial Matters, made clear that it had never been the Government's intention to prevent authorities taking account of contractors' health and safety records during the contractual process.
DOE Circular 5/96, Guidance on the Conduct of Compulsory Competitive Tendering, set out the Secretary of State's view that authorities might, where it was essential for service delivery have regard to workforce matters such as the transfer of undertakings for the protection of employment.
The Local Government Best Value (Exclusion of Non-commercial Considerations) Order 2001 has modified the prohibition on workforce matters that authorities may consider in contracting.
3.6 The relevance of ‘workforce matters’ in procurement
Many authorities and suppliers agree that workforce matters have an essential bearing on contracts. The research reveals there are three quite distinct contexts in which the consideration of workforce information is important:
during the procurement stage - authorities need to consider the prospective contractors’ current employment and management practices and how they intend to manage workforce matters on their contract;
for the purposes of a TUPE transfer - the client authority needs to make available information about the transferable workforce to all bidders (whether or not it currently employs that workforce);
during the operation of the contract - a client authority needs to monitor any workforce matters agreed in the contract.
The research indicated that information on how a supplier manages and develops its workforce is important for allowing an authority to be confident of the quality and continuity of the service. Authorities might ask for information about how each bidder manages their present workforce as a guide to how they will manage employees on their contract.
The research also revealed that full workforce information is essential during a TUPE transfer, to provide tenderers with enough information to formulate realistic bids - these matters are explored more detail in Chapter 6. It is this sort of information to which access is ostensibly unlocked by the recent Order.
It is deemed appropriate for the authority to monitor any workforce matter that has been incorporated into the contract as a requirement. The authority has a legitimate interest in the long-term development and retention of the workforce, and needs reassurance that the supplier is protecting that interest. That said many suppliers voiced concerns about having their workforce matters monitored and assessed on a long-term basis. The issue of contract monitoring is explored in greater depth in Chapter 9.
Quotations from the group discussions
“If authorities started taking notice of workforce matters, any good contractor would welcome this as step forward” (supplier)
“We need good information from the contractor about how they’ll manage the workforce – but this must be seen as a two-way process – we must take responsibility and recognise we probably have much to learn; risk should be apportioned to reflect who is best placed to manage it” (authority)
3.7 The relevance of workforce matters to Best Value
The Order provides for certain matters specified in the Order to cease to be non-commercial matters for the purposes of section 17 of the 1988 Act only so far as is necessary or expedient to permit or facilitate compliance with the best value requirements; or where there is a transfer of staff to which the Transfer of Undertakings (Protection of Employment) Regulations may apply. During the group discussions, authorities and suppliers were asked how they interpret this condition. In other words, what do they see as the relevance of employment matters to the delivery of best value?
The group discussions revealed general support (by both authority and supplier participants) for there being a link between good employment practice and reliability as a supplier. It was agreed that suppliers who fail tend to be those who have difficulty retaining a competent and motivated workforce. Hence the performance of the required contract will be materially affected by the way in which the supplier employs and manages their workforce. This holds good even if the contract is for supplies, particularly if it includes a service element.
“To meet the needs of the community means having a balanced workforce;………… staff are at the heart of best value – we need good motivation to deliver continuous improvement – this isn’t a matter for debate (authority) A majority of supplier participants acknowledged that good suppliers will welcome a client interest in workforce matters and use it to develop a closer, two-way relationship.
Both authorities and suppliers agreed that the client of a long-term service contract will have permanent interest in the way the supplier runs their workforce. It was also recognised that when the contract next comes up for competition - or if the contract fails prematurely - the authority needs a reliable workforce to pass to another supplier or even re-employ.
Authorities, in particular, believe that the more open a bidder is about its workforce management methods, the more likely the two organisations are to be able to work together a partnership. As such, the Order is considered highly relevant to the pursuit of best value. However, it was agreed that authorities must have the skills to interpret and evaluate workforce information – suppliers are particularly concerned that authorities may not currently possess this knowledge or experience. In fact, it was generally agreed that some authorities could become more skilled at procurement and ensure it is linked it to best value approaches and policy development.
3.8 Exchange of workforce information BEFORE the Order
It has always been possible for authorities to consider some aspects of workforce matters, but some authorities have taken the view that to consider a wider range of workforce issues was legitimate, probably in response to the pressure to achieve best value. Suppliers are unlikely to refuse requests for information when they are competing for business. The group discussions revealed that authorities have been more likely to request workforce information are generally common during both prequalification and tendering, rather than as part of contract monitoring.
This is confirmed by the survey responses, which showed that authorities have been requesting workforce information as part of pre-qualification and tender evaluation. Annex 4 provides a detailed summary of the responses to questions about the exchange of information, juxtaposing the responses from authorities with those of suppliers. More suppliers report having been asked by authorities to provide workforce information than authorities report having requested it, and fewer suppliers report having been given workforce information by an authority than authorities report having provided it. When considering these findings, the following should be borne in mind:
suppliers will deal with a different set of authorities than those in the sample;
one authority may deal with several suppliers in the course of a single tender competition;
respondents for authorities may be less likely than those for suppliers to have a total view of what goes on in their organisation;
suppliers may discount workforce information received from authorities if it is in any way unsatisfactory.
As revealed in the group discussions, the survey responses suggest it is uncommon for authorities to continue enquiring about a supplier’s workforce arrangements, as part of contract monitoring procedures. The number of authorities seeking information on workforce matters for monitoring purposes is significantly lower than the number seeking this information during the procurement stages. Likewise the number of suppliers reporting being asked for information on workforce matters for monitoring is lower than the number being asked during the procurement stages. This is consistent across all types of workforce information. However, this may, in part, be a reflection of the fact that respondents were more closely involved in procurement than in contract management. Regardless, it certainly indicates that there is less emphasis on monitoring how suppliers and handling workforce issues once the contract has been let.
Figure 6 gives a good overview of the generally high interest in workforce matters already being displayed during the procurement process. As one might expect, authorities most often request information on suppliers’ health and safety arrangements. Information on TUPE arrangements, skills and qualifications and equal opportunities also feature highly. The task for further research will be to discover more precisely what is being requested and how it is being used as a means of evaluating tenders and discriminating fairly between bidders.
Figure 6 Please indicate, on approximately how many occasions (all/most; some; none) during, say, the last 3 years you have been asked to provide information on terms and conditions of employment, health and safety, etc.
Source: DTLR survey, 2001: Authorities: Q4-10, 12; Suppliers: Q4-10
3.9 Exchange of workforce information AFTER the Order
The group discussions revealed that many authorities and suppliers welcome the legislative changes because they hope these amendments will have a favourable impact on service quality and authority-supplier relationships – these are discussed in more depth in the next Chapter. Consequently, it is expected that requests for workforce information during procurement will increase.
This was borne out by the survey findings, which revealed general agreement that, following the changes brought about by the Order, the authorities will as a matter of general policy consider workforce matters when working with external suppliers. The numbers strongly agreeing/agreeing that they will take account of specific topics are shown in Figure 7. To some extent, this will be a continuation of previous processes. However, in general these figures are rather higher than those reported in relation to past practice.
Figure 7 Following the changes brought about by the Order, how strongly do you agree or disagree that your authority will, as a matter of general policy, consider terms and conditions of employment, health and safety, etc,?
Source: DTLR survey, 2001 (Authorities Q13)
[1] Local authority procurement: a research report, DTLR, 2001.
[2] Delivering Better Services for Citizens: a review of local government procurement in England, June 2001
Published 6 August 2002
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