social procurement represented by 5 hands grabbing wrists and making a circle of support

Pundits opine that procurement’s passion for pandering to pruning prices is at the end of this path. The shift to ensuring social and economic value is the better fork in the road.

How do we define social procurement?

Social procurement is utilizing procurement policies and practices to affect social impact.

Social impact results in measurable improvements in the living standards of individuals, groups and communities. This is the noteworthy aspect of social procurement – building the social capital within the community. By removing the stigma attached to charity or conventional social services, and by providing meaningful work to many individuals who are typically under-employed, procurement can contribute in an important way.

Why should procurement take this step outside of its usual spending mandate and engage in social development? If a municipality is able to create meaningful employment for individuals through contracting with social enterprises, the municipality reduces its financial burden by reducing the need for conventional social services. By creating employment opportunities, procurement can contract for its requisite goods and/or services through social enterprises at very competitive rates meeting two important functions: providing value for money and building social capital.

What is a social enterprise?

Social enterprises operate as non-profit organizations and act as the bridge between people facing employment barriers and the public workplace. The under-employed usually have one or more barriers to employment, but also have the desire and often valuable capabilities to bring to the workplace. They simply need the opportunity. In addition to municipalities, many other arms of government, as well as private sector companies, are engaging with social enterprises and realizing the many benefits.

Social enterprises complement the private sector. They play a vital role in economic as well as social development. Social enterprises have a targeted employee focus such as new immigrants who learn sewing and production skills to make banners or tote bags; or people with mental illness who learn how to assemble and package safety kits or oil sampling kits. While some social enterprises are started with grants, few rely on those grants to continue operating. Social enterprises must be financially sustainable, and this is where public sector procurement can help.

Can the benefits of social procurement be quantified?

The 2017 study by Ernst & Young¹ for Vancouver-based Altira Property Management provides objective insight into the business case for social procurement. This report indicates that for every dollar spent with a target employee group, the social return on investment is ~$4.31.

Community benefit agreements have proven to be effective. EllisDon Construction has partnered with the social enterprise Embers to hire workers with employment barriers creating jobs adding millions of dollars as a social return on investment. EllisDon has found their social procurement strategy is addressing the labour shortage in the construction industry and contributes to building social capital. The redistribution of revenues locally therefore, is worth multi-millions of dollars due to this economic multiplier effect.

The EllisDon example indicates how we have moved from studies to business practice in a relatively short time. Communities see reductions in traditional social costs borne by its taxpayers such as crime, medical services, housing and shelter, food banks, social assistance, and job training. The considerable benefits of improved mental and physical health for people facing employment barriers cannot be over stated.

Universal income programs

There are now many examples such as in California, Kenya and Finland, where governments are providing annual incomes to all people living within specific locales. The purpose is to give people funds to do whatever they choose to do with them. The studies find people are sending more children to school, maintaining their health, and creating businesses. In Kenya, as an example, the universal income program is being funded for twelve years. Those receiving the assurance of an income are being removed from taxpayer funded social programs. Most studies to date see very positive outcomes.

The supply chains in these communities are where the wealth is being redistributed. For individuals that do not directly receive an annualized income, they benefit from selling more goods and services to those who do. Prices are competitive as more businesses open and employment increases as these businesses expand.

With reference to the Canadian examples we have seen with social enterprises and the social return on investment, public sector procurement staff may see a continued shift in priorities from price reductions to value-based decisions to accelerate social and economic development.

Sources

¹ http://atira.ca/news/apmi-social-return-investment-report

Larry Berglund | SCMP | MBA | FSCMA

Instructor

Larry has been in the supply chain management field as an author, manager, business trainer, academic, and consultant for many years.

Larry has worked in both the private and public sectors. Recently he has been co-facilitating NECI eSeminars, classroom sessions, and online modules.

His new book, Good Planets are Hard to Buy, was released in the fall of 2015.

Larry is also a guest author featured in our newsletter “The Legal Edge“. Click here to read a few of the articles he’s written.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.