Social procurement refers to the benefits to society that are deliberately encouraged during government procurement processes. Due to the purchasing power of governments in some markets, such as major infrastructure projects, social procurement is an important element of social impact investment.

It has the potential to:

• reward private sector providers who offer measurable social benefit as part of the projects and services being procured
• create a more level playing field for social enterprises, non-government organisations and small and medium enterprises to bid for contracts and develop their business models
• help social sector organisations to grow and attract investors through the awarding of longer term government contracts.

Detailed helpful information about social procurement initiatives can be found on the NSW Department of Premier and Cabinet website – Social Impact Investment Knowledge Hub.

Is social procurement in VGPB Policies?

To start with, there’s a general requirement for social procurement in Victoria outlined in Victorian Government Purchasing Board (VGPB) policies. As there are no prescriptive details, it’s up to each agency how social procurement is built into the market engagement process and the contract. To get started on social procurement:

• consider how to reflect in the specification and the tender response schedules the types of social benefit requirements that align with organisational values and goals
• include social sustainability criteria for evaluating tenders.

The VGPB Guide to Preparing an Offer Template encourages agencies to consider including social procurement as part of the “capability” criterion. The Guide says that offer documents should ask suppliers to demonstrate their capability by answering questions about:

• knowledge and experience they have relevant to the required procurement
• business resources and systems they have in place to support the delivery of the procurement value-adding factors they offer (social benefits, innovation, environmental).

VGPB recommends asking, where appropriate, how a supplier’s business practices contribute to social benefits.

There is a separate Guide about environmental impact but no further Guide specific to social benefits or social procurement.

Invitation to supply templates

The VGPB invitation to supply low-complexity goods or services requires tenderers to “Detail any value adding factors, e.g. environmental or social benefit, innovation.”

The VGPB Invitation to supply high-complexity goods or services, provides the following instruction to prospective tenderers: “It is an objective of the Victorian government to facilitate the employment of disadvantaged community members through government procurement. Invitees are requested to address or demonstrate their commitment to undertaking work to create social benefit for local communities and disadvantaged community members.”

Non-financial aspects of value for money

The VGPB Achieving value for money – procurement guide addresses the non-financial aspects of value for money, which:

can be more difficult to measure. However, these indicators can be used to predict the overall value of the procurement. Non financial factors are best measured on a case by case basis. Variables include stakeholder satisfaction, community/client participation and outcomes outside of the intended procurement objectives.

Examples of benefits that can arise from procurement include:

• enhancing market competition;
• job creation;
• economic and social benefits of procuring from small and medium enterprises (SMEs), local industry and not for profit organisations;
• reducing carbon footprint; and
• encouraging innovation and productivity in a particular industry sector.

The value for money guide also outlines ways of measuring non-financial factors:

including welfare economics, Pareto efficiencies and equity economics, etc. which have particular relevance to procurement of strategic importance or where there is significance/social impact.

However, for the majority of goods and services procurement of a transactional, leveraged and low risk, focused nature, a simple approach using KPIs is recommended.

Capability of suppliers to provide social benefits

The VGPB Developing an offer template – procurement guide, says offer templates for lower complexity purchases should include information on the supplier’s “capability to meet the requirements of the procurement”, particularly “What value-adding factors (social benefits, innovation, environmental) do [suppliers] offer?” This is in the “Capability” assessment criterion.

In the “Social benefits” assessment criterion for offer templates for higher complexity purchases, the following requirements are recommended:

“Depending on the nature of the procurement and the outputs required from the procurement, social benefits may contribute to the assessment of value for money. How do the supplier’s business practices contribute to other social benefits and/or government policy commitments?”

The VGPB Market analysis and review – Procurement guide advises that

All procurement has some level of impact on the environment that needs to be minimised to ensure sustainable procurement practices. Government procurement should lead by example by purchasing of goods and services from suppliers who demonstrate a commitment to better environmental performance.

The VGPB Improving access to government business for SMEs – procurement guide defines “social benefit suppliers” as

organisations and businesses whose mission is centred on a social purpose, and/or owned by groups or people who are considered disadvantaged. By virtue of their ownership structure, social benefit suppliers channel economics and social resources into marginalised communities. Social benefit suppliers may include Indigenous businesses, social enterprises, such as disability firms, social firms and that generates employment and delivers other social impacts.

The VGPB’s glossary refers to a “social enterprise” as

an organisation which has economic, social, cultural or environmental goals focused on public or community benefit. The organisation engages in commercial activities in order to achieve its mission, and invests the proceeds of its commercial activities in fulfilment of its mission. Social enterprises can be structured as being for profit or not-for-profit.

A not-for-profit (NFP) organisation is defined as that which does not

operate for the profit or gain of its individual members, whether these gains would have been direct or indirect. A non-profit organisation can make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.

Social Traders “host events and carry out a range of activities to raise awareness about social enterprises and their benefits. Procurement practitioners could attend these events and investigate opportunities to engage with these suppliers. Visit www.socialtraders.com.au.”

VCOSS, the Victorian Council of Social Services, “helps raise awareness on social disadvantages. They can help government by providing evidence-based research and reports on policy issues. Visit www.vcoss.org.au.”