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Wider outcomes from public procurement

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Blog co-authored by Policy Officer Anamaria Tibocha-Nino

Last Wednesday we held the first in a series of events for our new project on ‘wider interventions and outcomes’. This project aims to understand the evidence on the local economic impacts of interventions not primarily thought of as ‘economic’ and provide resources to help places assess the likely impacts for themselves. In addition to events, we’ll be publishing a series of briefing papers based on reviews of the evidence.

Wednesday’s event looked at local public procurement. You can watch a recording here:

Local public procurement delivers public services and infrastructure for people and businesses, but places are increasingly interested in whether they can use procurement to deliver additional social, environmental, or economic benefits on top of the core goods or services being bought.

Assessing the local economic impacts

Using local data and evidence from past procurement exercises can help develop rough estimates of the likely impacts and scale of changes that procurement may bring. These estimates should account for factors that can offset the benefits, such as additionality, displacement, scalability and location. Our forthcoming briefing will explain how to assess these impacts in more detail.

And what does the evidence say on wider benefits?

For some specialised contracts, public procurement can increase innovative activity like R&D spend, or patent applications. This can include innovation in green activities including new production processes or new products. In practice it’s unclear how much local procurement will fit in this space. Perhaps more relevant is the limited evidence that procurement contracts can be used to encourage adoption of green practises.

What about wider benefits for local firms? One study on business productivity finds short-term benefits related to winning procurement contracts but a decrease in the longer term. Evidence on business survival is mixed, with one study concluding that winning public contracts can lead to survival of inefficient SMEs that otherwise might have folded.

It will also be important to pay attention to costs

Using procurement to deliver wider objectives has costs as well as benefits. The available evidence suggests an increase in the costs of procurement of between 1% and 4%.

The evidence indicates some ways to reduce costs in procurement. Auctions in particular can reduce the cost by 8% to 25%, and training for bidders can result in more competitive offers, reducing the final cost by 2%.

What other issues do we need to think about?

Our speakers highlighted a number of issues for places to consider.

First, it is important to define the specific objective to be achieved through public procurement – whether that is more local jobs, better local employment practises, innovation in businesses, or adoption of green standards. Being clear about this is key, because it is unlikely that procurement can deliver against all objectives simultaneously – there is a job to be done in narrowing down what to target.

Our speakers agreed that the benefits and wider outcomes of local procurement practices can vary with geographic scale – the right approach for a rural local authority will be different than for an MCA. And contracts of larger value are more cost-efficient, so sometimes collaboration with other nearby local authorities at a higher regional level can help to achieve larger impacts at lower costs.

As with any other policy intervention, monitoring the process, collecting data on key inputs and outcomes, and having a clear objective from the beginning facilitates the evaluation of whether the initiative has produced the desired effects. This is vital, because only then will you be able to know if your efforts are working, or if you need to adjust the approach.

Thanks to Dr. Bryonny Goodwin-Hawkins, Senior Research Fellow at the National Innovation Centre for Rural Enterprise, and Valentine Quinio, Senior Analyst at the Centre for Cities, who spoke at the event.

You can view the event presentation below, and look out for the the full briefing on public procurement later this month in our monthly newsletter.

Event presentation: Assessing the local economic impacts of local procurement
You can also sign up to our next event on public spaces, on Wednesday 22nd March.