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Get ready for that local

authority contract:

Achieving more than just

financial impact and success
February 2008
“A feasibility study on the benefit of introducing relevant national measures of success in
service delivery for frontline third sector and infrastructure organisations, including social
enterprise including how they could help demonstrate achievement of government floor

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“The Government will continue to

work with commissioners
pioneering the work of social
clauses…identify key opportunities
for the third sector to deliver more
and better public services”1

Recently the third sector has been

under pressure from central
government to reduce its dependency
on grant derived income. This push
has seen some community
organisations turn to areas such as
asset base development and public
sector contracting to assist in earning

The sector has sought to sell the

added value of its approach, spurred
on by procurement policy, talk of
double devolution and a history of
working with outcomes and outputs in
combination. This combined
experience will be important as
economics bite and impact analysis
and value for money become stronger
deciding factors in contracting.

Initial research into third sector

organisations, buying public sector
bodies, and organisations competing
for contracts has not uncovered a
great deal of evidence of floor targets
or measures of social return being
included in public sector contracts.

However there is clear potential,

particularly where floor targets could
be used at a commissioning stage to
determine outcomes desired through
the procurement process as
predetermined targets for a given
community. In addition as resources
across the public and third sectors
reduce the need to focus investment
and achieve multiple outcomes will

“The Future role of the Third Sector in social and
economic regeneration” HM Treasury/Cabinet Office

To do this successfully there will need The recent Third Sector Review3
to be an appropriate and agreed considers creating a critical mass for
framework of measurement as well as change by concentrating investment
more links between currently disparate on Key Anchor Organisations using
policies such as those for regeneration them as a prism to separate out policy
and local authority purchasing. Such into individual strands at a
links have already been made in the neighbourhood level.
rapidly expanding world of fair trade
where buying is inextricably connected Subsequently this feasibility study also
to proven social benefit, so there is no considers the connectivity of policy
reason to assume that it cannot and the role impact measurements
happen in the field of public service and floor targets may play in securing
delivery. contracts for the sector.

We should recognise that this will be

harder to achieve in some areas of
work than in others and that the
primary drivers for procurement are
often value for money and efficiency.

“Benefits arising from

environmental and social factors
are not easy to quantify and there is
a perception that these factors cost
money and with the financial
position of the NHS, these factors
are currently not affordable.”2

However meeting multiple priorities

through integrated actions is both an
aim of the Audit Commission and what
the third sector would characterise as
added value. Given the clear
definition of outcomes at the
commissioning stage, added value
could simply just become value for
money. If this is to be achieved then
we will need to crack the difficult nut of
budget silos to allow benefits accruing
to one local authority department to be
recognised within another departments

In writing this paper our intention is to

explore the link between policies which
have traditionally been applied in
isolation and how the needs and
responsibilities of the third sector and
local authorities can best be met in the

Forum for the Future

The Demand Policy Influences

There are numerous public sector “Bringing together the business

bodies that buy in goods and services and the policy arms of government
both locally and nationally. The is what sustainable procurement is
method of buying will vary dependent about. It is about how the
upon the value of the goods and government’s immense buying
services and procurement guidelines. power can be used to make rapid
Influencing factors here are both progress toward its own goals on
regulatory (national and EU) and that sustainable development.”5
different public sector bodies have
different requirements and drivers The Treasury states that the cross
including central government, the cutting reviews of the sector in 2002
electorate and the media which will and 2004 focussed on enabling better
influence spending decisions. public service delivery by the sector.
Achieving and improving ratings on The recently published Third Sector
floor targets is just one of these Review6 “sets out measures to
factors. maintain progress” and “heralds a
much wider interest in working with the
There are oft quoted themes such as sector.”
health and social care where the links
are obvious, but there are also less Some of the key measures presented
obvious areas such as construction in the review are:
where social benefit clauses have
been written as part of Housing Market • At least £10 million of new
Renewal contracts4. investment in community
anchor organisations and
The key to success is to be able to community asset and
define expected areas of benefit enterprise development
relevant to the contract and to agree a building on the £30 million
process of measurement without community assets fund.
losing sight of value. A possible
advantage for the sector here is in • Building capacity of third sector
establishing whole life cost and organisations to improve public
benefits as common practice. services, through the
Futurebuilders fund, training for
Our research suggests the use of floor public sector commissioners
targets in contracts is unusual, but and work to build the evidence
understanding public sector customers on opportunities for the third
and the pressures that are placed on sector.
them which influence spend, will
ensure that contractors can best be • Additional investment to raise
ready to respond to any measure awareness of the social
introduced. Knowing the needs of the enterprise business model and
demand side will also increase tender support for government
readiness. departments to investigate
areas for social enterprise

5 Sir Neville Simms, Sustainable Development Task

6 Cabinet Office, Office of the Third Sector. Third
For instance SOARBuild in Sheffield Sector Review

• The expectation that when brief extends beyond the third sector it
government departments and is focussed on benefits to the end user
their agencies receive their i.e. the local community. The SPTF
2008-11 budgets, they will report establishes two key actions that
pass on that three year funding will help measure social impact
to third sector organisations become more relevant in public sector
that they fund, as the norm. contracting:

The Quirk Review of Community “A1.5 All public sector

Ownership and Management of Public organisations must link incentives
Assets7 sets out the Governments to organisational capacity and to
position on asset transfer and includes delivery in priority areas and these
some significant (now adopted) must be cascaded through their
recommendations on the use of performance management
compulsory purchase orders and the systems.“
public right to request a review on
individual instances of asset disposal “A3.6 Government must work with
in the public or private realm where the academic community and
land or buildings are unused. others on how to attribute value to
social aspects of sustainable
There is a continuing drive for Local procurement and to stimulate
Authorities to ensure best value in debate around social issues.”11
managing public assets (Gershon,
Lyons, Comprehensive Performance In it’s response to the SPTF Report
Assesment); and central government the Local Government Association
targets such as Best Value (LGA) highlights the agreement
Performance Indicators8 to reach as between central and local government
well as additional targets within other on the need to reduce significantly the
programmes such as LEGI9 and the number of national performance
upcoming Working Neighbourhoods indicators as established in The Local
Fund10. Government White Paper and states:

The benefit of national measures of “Within this framework councils

success would be greatly increased by can choose to set their own local
a wider understanding of Best Value, targets for sustainable procurement
which will hopefully form part of the and asset management and to
IDeA’s training for public sector agree joint priorities and targets
commissioners as part of the National with LSPs.”
Programme for Third Sector
Commissioning to run alongside the As part of the Comprehensive
Comprehensive Spending Review Spending Review 200712 a new set of
period 2007-11. Understanding Best public service agreements, which
Value is increasingly considered on a reflect the principles of sustainable
basis of whole life costs. development, have been agreed to
help deliver government’s priority
This is a key element of the work of objectives.
The Sustainable Procurement Task
Force (SPTF) which has a brief to The LGA says councils support the
establish long term priorities for weight being given to sustainable
sustainable procurement. Whilst its’ development as a matter of principle,
but that it is important that the social
and economic dimensions are
9 11
10 12 HM Treasury

addressed as well as environmental 1. Construction (building and refit,
impacts. highways and local roads,
operations and maintenance)
“Any targets proposed for
sustainable development will need 2. Health and social work
to be considered in the context of (operating costs of hospitals, care
the new performance management homes, social care provision)
framework for local government,
the CSR07 value for money 3. Food
programme and intensifying budget
pressures.” 4. Uniforms, clothing and other
Practical work is now being
undertaken to create measures to 5. Waste
enable innovation by third sector
organisations and to encourage it in 6. Pulp, paper and printing
the public sector (Comprehensive
Performance Assesment, Safer and 7. Energy
Stronger Communities). These
measures will be captured in 8. Consumable – office machinery
programmes on commissioning and and computers
procurement being undertaken under
Partnership in Public Services (the 9. Furniture
Action Plan for Third Sector
Involvement) in which IDeA and the 10. Transport (business travel,
Regional Centres of Excellence are motor vehicles).
delivery partners and Scaling New
Heights (the Social Enterprise Action

The 10 priority spend categories at

national level identified by the Task
Force are:

The Measures deals with the government’s
relationship with the third sector and it
Floor targets are a government identifies a role for the sector across
measure first introduced in 2000 public service delivery areas.
aimed at reducing the gap between
the poorest areas and the rest of the In total the Comprehensive Spending
country, acting as a minimum Review has identified 198 National
standard. Indicators, which will be monitored by
central government to measure
In theory third sector organisations performance for three years from April
and private sector companies could 2008.
help local authorities to meet their floor
target requirements by delivering Although performance will be
public sector contracts. There are two measured in an area against all 198
steps in moving this debate forward, indicators, new LAAs will be the
the first is to understand how and only vehicles for agreeing shared
when social impact and the delivery of targets with central government
floor targets might legitimately be
written into contracts and the second Each LAA will have up to 35
is agree a measure of social impact. national priority targets. Local
partners can agree additional
Therefore to help third sector targets in their LAA to support
organisations “get ready for improved delivery and outcomes,
contracting” there needs to be though these will not be subject to
awareness of what is being measured, performance monitoring by
why and how to best measure impact Government13
and the successful delivery of
contracts both within the boundaries of This presents a clear opportunity to
their customers’ requirements and in introduce a national measure of
terms of added value. success, but it is not clear who would
take on this task.
The Sustainable Development Task
Force has recommended the creation How can we measure performance
of practical tools that address social, and impact?
environmental and economic issues at
each stage of the procurement Floor targets are designed to help
process from identification of business reduce the gap between the poorest
need, risk assessment, tendering and areas and the rest of the country, and
bid evaluation to supplier management are a tool of government to tackle
and end-of-life management. disadvantage. In effect they work like
the minimum wage setting the
Reflecting these requirements in an minimum standard for poor areas and
impact measurement framework will disadvantaged groups.
be of value when tendering for
contracts or describing a track record. Normal targets often hide pockets of
There is currently a changing
environment regarding floor targets Floor targets were first introduced in
following 2007’s Comprehensive 2000 as a part of Public Service
Spending Review and the new Public Agreement targets on neighbourhood
Service Agreements targets (which at renewal and social exclusion. The
the time of writing are waiting to take spending reviews of 2002 and 2004
effect) as contracts cycle round to be
re-tendered. Chapter 6 of the
13 CLG: The Third Sector: The Crucil Role of the
Comprehensive Spending Review new Local Performance Framework

brought new national measures and Could a national measure of
the Comprehensive Spending Review success be introduced to measure
of 2007 has brought new priorities. an organisations impact on floor
Currently there appears to be little
direct application of floor targets in the From research carried out we know
contracting process. From our there is a logical link between Local
research, organisations with public Area Agreements, achieving floor
sector contracts state that floor targets targets, local public service delivery
were rarely directly a part of the and asset transfer.
tendering process, or ongoing contract
management and monitoring Given some thought these areas can
requirements, with the majority citing be combined to create a cohesive and
achieving outputs as most important. 14 long term approach to both successful
neighbourhood strategies and to
It may well be that the layer of local contracting opportunities for individual
government letting contracts is using organisations.
targets derived from, but not formally
stated as floor targets. Public procurement - improve the
impact - NEF's work on local
multipliers has demonstrated the
role that procurement spending, by
spending locally, can play in
stimulating local economies” 15

The New Economics Foundation and

partners such as The Development
Trusts Association, Cooperatives UK,
and the Social Enterprise Coalition,
among others have been working on
methods of proving and improving
impact through their EQUAL funded
Social Enterprise Partnership.16

This work builds on a history of

research development in the area
including the Local Multiplier effect
which demonstrates the additional
value of local contracting within the
immediate economy.

A good example of the application of

LM3 is where procurement officers
from NHS Trusts in Cornwall structure
contracts that legally enable local and
SME suppliers to win business by
recognising the value of and potential
savings created by local supply. This
was particularly effective in sourcing
food for the Trusts and led to a
Government Opportunities Excellence

14 See the Finance Hub’s Get Ready for that local 15 New Economics Foundation
authority contract: case studies document 16

in Public Sector Procurement Award in research across supply and demand
2005. sides evidence17 seems to favour the
achievement of outputs and outcomes,
The economic return to the region is and meeting the specifications of the
substantial as well as hospitals contract.
obtaining higher quality products.
Producing a national measure may
Encouraging local suppliers to tender have to be retrospective to capture
for public sector contacts can boost performance against floor targets, or
local economies and increase the be phased into the cycle of contracting
quality of tenders received. to be included in new tenders. Either
way there would need to be a
Procurement can therefore achieve significant buy in by the public sector.
improved service delivery and address Whilst it could be perceived as a
regional business support needs. logical part of double devolution, the
reality is we are some way distant from
So instead of an organisation using a this point.
more traditional method of monitoring
contract/funding performance and Social clauses
evidencing its impact through some
impact measurement process they The North East Centre of Excellence18
could measure against relevant floor is currently examining the use of social
targets. clauses in contracting. The project
delivers an action specified in the
What could benefits could this Office of the Third Sector's Public
achieve? Service Delivery Action Plan and the
• Retrospective analysis of Social Enterprise Action Plan.
organisations wider social
impact. Social requirements provide a
method of including social and
• Collection of data that could economic matters into contracts for
help an organisation win the supply of goods, services or
future work works that do not conventionally
have these requirements as defined
or measured outcomes.19
• Ongoing monitoring of
contract delivery.
The use of social clauses appears to
be a more proactive approach for
• Performance measurement
inclusion at the design stage of what a
against customer’s
programme of work and its contract
requirements which is
will look like. Whilst they may not be
qualitative and quantitative
appropriate for all areas of supply they
with an obvious social and
are likely to increase in profile in due
economic value.
• An effective marketing tool. The BERR report on social clauses in
UK manufacturing shows an example
The implementation of a single where social clauses in contracts have
national measurement would be hard
to achieve as floor targets are evolving
17 73% of respondents answered “existing track
and there appears little current record of delivery” was a critical factor in winning a
appetite within contracting to use them contract. See also the Finance Hub’s Get Ready for
that local authority contract: case studies document.
as a measure of the impact and 18
success of a contract. From our 19

led to third sector provision. However within public sector contracting, but
the report points out that this will not time and investment would be needed
be a magic bullet for the third sector as to succeed.
there will generally always exist
competent private and public sector What will take time is agreeing the
competition. single methodology and implementing
it, perhaps relying on a short term task
SMEs with strong community and finish group to settle on a
connections, including social mechanism and make a
enterprises, may be amongst the recommendation to government.
businesses that have the right
ethos and energy to exploit the new There would need to be a national
niche markets created by champion for the process with regional
the inclusion of social requirements and local counterparts to embed the
in public contracts. mechanism consistently across the
country. This might become a role of
However…some major national and the Local Government Association or a
regional bidders are already able to body such as the Regional Centres of
successfully bid for contracts. Excellence.
They have already developed the
understanding and organisational Scenario
capability to deliver the social
requirements that their clients have Using Local Area Agreements as a
been demanding.20 framework and neighbourhood level
data to identify priorities,
The Potential neighbourhood anchor centres could
be established to deliver public
As we have stated, introducing services and stimulate economic
relevant national measures of success growth across a mixed market with
in service delivery would be a difficult contracts and assets made available
task, but the benefits would be against the delivery of PSA Floor
significant. The potential is to Targets.
establish a consistent, recognised
method for calculating and measuring Proposals for asset transfer could then
added value which could be applied be judged against planned use, local
nationally. demand and capacity to deliver floor
targets, demonstrating the positive
We already have a number of national value of transfer to the public purse.
methodologies such as for VAT and Agreement, possibly through the
tax calculations that are applied in a Compact, would need to establish a
standard framework within a range of framework for measuring social
settings. There are also specific, impact, but there are plenty about to
existing methodologies such as Social choose from.
Return on Investment, Social Auditing
and Social Accounting21 which might This approach could be linked to a
provide the basis of a single national review of public property in a given
system for public sector contracts, area, identifying the level of demand
possibly using floor targets as key for community space with provision
performance indicators. Given these made for growth based on public
facts there is finally no systematic or service delivery. Subsequently
logistical reason why a national surplus property could be disposed of
measurement could not be established at auction and part of the capital
receipt could be invested in the life of
the remaining anchor community
21 See Performance Hub’s Quality Standards

assets as well as being returned to the Conclusions
local authority.
It would be possible to establish a
relevant national measure of success
in service delivery. There are a
number of enabling factors:

• The push for sustainable

• Double devolution policy.
• The Third Sector Review.
• The principle of 3 year funding
for the sector with attached
• The drive towards performance
management systems in
• Existing methodologies and
comparable frameworks.

There will be occasions when floor

targets are directly and indirectly
applicable. Preventative interventions,
particularly around health, crime and
education are areas where floor
targets may be hit directly. There will
also be contract areas such as
housing, construction and youth work
where methodologies may impact on
floor targets indirectly.

An open and imaginative public and

third sector approach will be vital to
success either way.


• Lack of investment in non

departmental priorities.
• Limitations imposed by Best
Value and The Local
Government Act.
• The absence of an agreed
measurement framework.
• National work on the subject as
yet incomplete.
• Investment and a champion not

Tips for third sector organisations Next Steps

Practically there are two points to There is still some significant distance
consider: to travel in terms of opening out public
sector contracting across a mixed
1 be prepared marketplace. In some local authorities
Find out what is likely to be in the LEGI programmes provide the ideal
tender documentation regarding opportunity to make the necessary
proving your social and environmental journey, but there has to be genuine
impact and ask what weight will be buy in from supply and demand side if
applied to these in the scoring this is to be successful.
process. If at all these may only form
a small section of a tender process. It is widely recognised that there are
some issues in terms of broad quality
But be aware that it will vary with each of supply across the third sector.
tender, each different ‘customer’ (i.e.
different local authorities will expect However there are also real barriers to
different responses), and for different progression for more capable
services and products supplied. suppliers caused by ingrained custom
and practice in the demand side and
Be clear what value your customer pressure to generate income in
places in different quality standards, externalised services.
accreditations, and methodologies.
The broad principles and strategy
2 ongoing marketing of your impact outlined in the body of this proposal
If you choose to use a methodology of will not be realised unless more simple
capturing your social impact and any steps are taken to widen the local
“added value” be sure why you are authority supplier base. There is
doing this. ongoing work in this area and it would
be sensible to revisit this topic at a
It may not be directly useful for filling later point.
out a tender, it may not be asked for,
and your customer may well be The work currently underway in IDeA
unaware of specific methods of and The North East Centre of
capturing added value. Mentioning a Excellence should produce a much
specific accreditation, or process used better understanding of the feasibility
in a tender will be fruitless if your of and timescale for the introduction of
customer is unaware of and does not Floor Targets and other measures into
value that standard. public sector contracting.

Instead of just waiting to be asked

about your social and environmental
impact, define it and make it a central
part of an ongoing marketing process.



Finance Hub impact briefing

Tools to Support Sustainable Development

New Economics Foundation

The Local Government Association

The Sustainable Procurement Task Force