In a time of limited budgets and struggling economies, local policymakers are looking to make better use of the money they use to buy goods and services. The potential for procurement to make a difference to local places was highlighted in the Levelling Up White Paper, which committed the government to reforming public procurement processes.
But, like many policies, understanding the local economic benefits can be challenging.
Our latest evidence briefing aims to help policymakers think through the potential benefits and costs of using procurement to grow their local economy. It focuses on two approaches – increasing the number and value of contracts secured by local firms and using social value contracts.
Be clear about objectives
This could be creating local jobs, growing particular sectors or clusters, or achieving social or environmental outcomes such as net zero. Having clear objectives helps in choosing the approach that is most likely to achieve these objectives, whether that’s choosing to use social value contracting (and, if so, which outcomes are chosen) or increasing the number and value of contracts secured by local firms.
Understand the baseline
Assess current procurement spend and the supplier base. For example, what proportion of spend currently goes to suppliers who meet objectives—whether that’s local businesses, women-led SMEs, social enterprises, or businesses with a particular accreditation? Knowing how this varies across size of contract and type of services or goods is also helpful. It’s also important to understand the wider business base. If the aim is to increase the number and value of contracts going to local firms, it’s important to understand if there are businesses with the skills and expertise required—whether that’s specialist materials or local food production—in the local economy.
Be realistic about local economic benefits – and costs!
Looking at the existing proportion of spend that goes locally will help give a sense of the scale of benefits that might go to local businesses. But there are many other factors to consider when thinking about the impact to the local economy. These include:
- Not all spend stays local. Firms need to buy things in, pay for capital, and return profits to owners who may live elsewhere.
- The extent to which local suppliers and their employees also spend money locally.
- Whether crowding out might occur, particularly if multiple anchor institutions are engaging in local procurement.
- Costs to local businesses or social enterprises to respond to contracts if unsuccessful or to meet additional requirements.
- Costs to the public sector if local procurement reduces competition and value for money.
There’s lots on these issues and more in the evidence briefing and the accompanying rapid evidence review, which summarises the evaluation evidence on public procurement. You can also watch a recording of our public procurement webinar Thinking through public procurement for local economic growth.
We’ll continue to add new evidence briefings on topics related to Levelling Up over the next few months.