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Agenda item

Sustainable Procurement and Insourcing Strategy 19:55 - 20:45

Meeting of Skills, Economy and Growth Scrutiny Commission, Monday 20 November 2023 7.00 pm (Item 5.)

Minutes:

5.1 The Chair welcomed to the meeting Cllr Rob Chapman, Cabinet Member for Finance, Insourcing and Customer Service, Rotimi Ajilore, Head of Procurement and Energy and Merle Ferguson, Procurement Strategy and Systems Lead from London Borough of Hackney.

5.2 The Chair introduced the item and explained the Council proposed to merge the current Insourcing Policy and Sustainable Procurement Strategy into a new merged strategy.

5.3 The purpose of this item was to understand the key principles of the new strategy, how the new strategy had changed and how it aligned with the Council’s strategic plans.

5.4 The Chair highlighted that Hackney’s sustainable procurement strategy was a key tool for the Executive to use to achieve the manifesto commitments related to:

· Community wealth building

· Voluntary sector (commissioning and bidding for contracts)

· Promoting local businesses (sustainable procurement by being able to keep delivery of good and services local)

· Sustainability and net zero ambitions

· Inclusive Economy (good employment).

5.5 This session would also give the Commission to opportunity to input into the developed of the new strategy.

5.6 The Cabinet Member for Finance, Insourcing and Customer Service commenced the presentation and made the following main points.

5.6.1 The Council’s insourcing strategy had been in place since 2018. The current strategy helped the council to promote a greener, better, and fairer society in their procurement activities - insourcing approximately 350 jobs.

5.6.2 The strategy was a refresh aimed at bringing insourcing and procurement together to establish a hierarchy.

5.6.3 The main purpose of the presentation tonight was to obtain the Commission’s views and input into the refreshed strategy.

5.6.4 There were plans for further engagement with Councillors and the local community especially the voluntary and co-op organisations.

5.7 The Head of Procurement and Energy and Procurement Strategy and Systems Lead continued the presentation and made the following main points.

5.7.1 The strategy was being drafted and currently Procurement had received input from stakeholder groups within the council.

5.7.2 The officer confirmed that contributions from the Commission would inform the development of the strategy.

5.7.3 Since 2018 under the current strategy some services had returned in house, and they had delivered a wide range of sustainable procurement outcomes. These are outlined in the agenda pack slides (supplementary agenda pack page 11).

5.7.4 It was pointed out that over 330 contracted staff have transferred into the council. Providing them with better terms and conditions for employment being directly employed by the council.

5.7.5 Several contracts have been insourced over the last few years and some of the employees are residents of the borough.

5.7.6 The Council had secured 50 apprenticeship placements for residents in the borough.

5.7.7 Procurement has worked with suppliers to ensure there are employment and skills opportunities available for residents in the borough.

5.7.8 Procurement plan to build on the achievements to date and introduce a new set of commitments that will deliver greater community benefits to residents and businesses in the borough.

5.7.9 The new strategy they are aiming to bring together 2 sets of objectives that are currently within 2 separate policy documents.

5.7.10The new strategy will also establish a hierarchy of considerations with insourcing first then procurement.

5.7.11The new strategy will make clear that insourcing will be a top priority for the council and the preferred option. However, they will continue to make sure they take into consideration the budget pressures facing the council.

5.7.12 The strategy will also highlight the importance of maintaining a mixed economy for services to ensure that they continue to benefit from the specialism and expertise available in the private and third sector. The officer pointed out that a mixed economy is necessary for a thriving community.

5.7.13 The document also references when a service may not be suitable for insourcing because it is not financially viable, practical, or feasible. The strategy’s aim is to ask council services to consider alternative service delivery models like a co-op or to deploy methodologies that allow local suppliers and social enterprises to access the Council’s contracting activities.

5.7.14 Over the last few years, the Council’s spend with local suppliers has ranged between 20-25% of its total commercial spend.

5.7.15 The key principles underpinning the sustainable procurement element of this strategy have been the 3 main themes: a greener, better, and fairer society.

5.7.16 The strategy is proposing some key local initiatives to enhance the delivery of better outcomes for residents. The Council is aiming to introduce a robust local approach that will allow the council to retain a larger proportion of its local spend within borough.

5.7.17 The new strategy will contain some of the commitments that are in the current strategy and referenced as updated commitments. This will also include a fresh set of commitments that will allow the council to deliver greater community benefits in the future.

5.7.18 There is also a focus on how procurement will deliver on cross cutting priorities within the community strategy. These are: the council’s net zero commitments; a fair and just transition to net zero and delivery of the climate action plan.

5.7.19 Although the Procurement has engaged with a few internal stakeholders there where further engagement plans with more stakeholder. A few workshops were planned which included a members’ drop-in session. The feedback collated would inform the new strategy.

5.7.20 About monitoring and reporting on achievements. Procurement had implemented a contract management system. This would report on performance of contracts and help to report their achievements on the sustainable procurement outcomes.

5.8 Question, Answers and Discussion

(i) Members asked why the insourcing policy and sustainable procurement strategy was being combined and the benefit the merger would bring?

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH explained it would give a hierarchy to the business models to consider before contracting a service. The hierarchy was created to allow the organisation to always consider insourcing first. However, this does not diminish the importance of organisations like social enterprises like co-ops, and the voluntary sector. The key consideration is can this service be insourced and is it practical for the council to do this. This is why it was critical to merge the policy and strategy.

The Head of Procurement and Energy from LBH added the merger will help the council and others to see insourcing is a priority for the council. If a service cannot be insourced, then they will consider how they can deliver social procurement outcomes.

(ii) Members referred to the insourcing work listed and noted it ended in 2022. Members asked if more insourcing had been achieved since 2022. If not, why not?

In response the Head of Procurement and Energy from LBH explained when a contract is due for renewal the first phase of the process is to consider insourcing.

The second phase required the procurement officer and the Cabinet Member to review the program of work with Directors and Lead Cabinet Members to consider the insourcing opportunities within services.

In the third phase the Procurement Team engages with Directors and Heads of Service to consider opportunities for insourcing.

The Head of Service cited as an example the DLO service and maintenance contracts. The officer explained as the contract evolves, they want to incrementally bring work back into the DLO service to expand the in-house service. Resulting in insourcing more of the work that is currently contracted out. The second example cited was Streetscene and the current tree maintenance contract. The team is in discussions to bring the service back in house within the next 2 years.

The Head of Service also pointed out that he meets with the Group Directors and Directors to identify opportunities to bring services back in house.

(iii) Members commented that they could understand the intended direction of travel in relation to insourcing. However, they queried if the council had the required level of expertise, ability to innovate, and the impact of new technologies on achieving some of the other goals in the sustainable procurement strategy. Members questioned the presumption towards insourcing particularly the DLO. Members queried if the council had the required level of technical expertise, ability to innovate and the economies of scale to do some of the jobs like net zero and a whole house retrofit.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH informed the Commission that not all contracts or activities are suitable for insourcing. The Cabinet Member wanted to reassure the Commission that the points listed in the question are considered when considering insourcing.

The Cabinet Member pointed out in essence Members wanted to know could operate the service and develop it. The Cabinet Member acknowledged the council has had quite a lot of consultancy contractors recently, but they also have excellent management within the council. For insourcing, it is important they recognised all those issues.

The Cabinet Member acknowledged that there will be some services that they will not be able to insource which may require very high levels of capital investments. Similar services like lift maintenance the engineer sections are quite technical and difficult and its unlikely that the council would be able to develop the skills for these areas. In developing insourcing, the council will need to make sure they develop their plans and have the mechanisms to build in capacity.

(iv) In a follow up question Members referred to having a mixed economy and asked what had informed this narrative “where we can insource, we do where it is more difficult, we do not”.

(v) Members asked if insourcing Is considered on a case-by-case basis and if there was a service previously outsourced that the council has concluded is too difficult to insource because it requires expertise the council does not have.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH confirmed it is considered on a case-by-case basis due to the complexity. In the previous policy and under the new strategy the process will be to ask the question first. This means considering a whole service, part of a service and shared services. In essence they will ask all these questions before contracting for the future.

(vi) Members asked if a service was too complex or too big for the council to manage on its own would it consider forming a co-operative or collective? So that it is was no longer either a council service or private sector service but another option in the middle.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH replied absolutely. But if this approach was enshrined in law, it would make it easier for local authorities like Hackney to take this approach.

The Cabinet Member added the council does have some shared services in Adaptations for Social Services. But there are complexities with this area too because it requires negotiating with several other bodies too.

The Cabinet Member pointed out that while the Council has a clear set of principles; the execution of them is on a case-by-case basis.

The Head of Procurement and Energy from LBH added that it relates to the hierarchy of service delivery models as outlined previously.

a) insourcing,

b) then shared services,

c) hybrid services,

d) cooperatives etc.

The reason these have been suggested in the strategy is because the council has some experience of these service delivery models. For example, when the council was considering how to develop energy services, they opted to create a shared service with Haringey. Therefore, where they cannot insource, they ask can they look at partnering with another organisation to share costs, structures etc. to deliver a more efficient service. If they cannot do this then they look at other models like a co-operative.

The Head of Procurement and Energy from LBH highlighted that he is in discussions with the lead Cabinet Member and other cabinet members about developing a cooperative approach to service delivery. The spectrum of service delivery models is being reviewed to consider the best options to provide value for money and a quality service to residents in the borough.

(vii) Members asked where the council cannot insource does it consider local relationships developed in the borough?

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH acknowledged there was good partnership working in the borough particularly in Public Health and Social Care. Supporting these organisations is beneficial to the community. The Cabinet Member pointed out that some residents are in situations whereby they do not feel comfortable approaching the council or their councillor directly. Also, some view the council as the source of their problems. Therefore, at times the help and support provided by partner organisations would be a more suitable service than the council.

(viii) Members referred to their conversations with the VCS and informed Procurement that their request was for more inclusive procurement to tackle issues like structural racism in procurement. The Members pointed out that council may be unintentionally discriminating against several residents because of its procurement processes. In addition, the council could be missing out on the talent, aptitudes, and entrepreneurism of residents due to structural racism. Members pointed out this had been mentioned a couple of time by the VCS organisations and HCVS. Pointing out the commissioning process was excluding some organisations from being able to successfully bid for contracts with the council.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH explained that currently in the strategy development process they are listening. However, he pointed out that there will be some requirements and legislation that the council will need to adhere to. Procurement had planned a series of workshops with social enterprises to explore these issues further and will use this information to inform the new strategy.

In relation to the procurement processes it was important to ensure their processes and procedures were open and accessible. Notwithstanding large sums of public money were at risk and needed stewarding properly. Nevertheless, the council recognises it needs to ensure its systems are simple and to facilitate for organisations that are starting up. The Cabinet Member confirmed the problem had been recognised and that they were exploring other social enterprises like co-operatives with the Economic Development Team.

The Cabinet Member explained the difference between commissioning and procurement. The Cabinet Member pointed out that commissioning relates to designing a service. Procurement is buying the designed service from another organisation. The Cabinet Member pointed out that there is pressure to deliver an efficient and effective service. But this will require some creative thinking. However, this approach will need to perinate the whole organisation and may need to be picked up as part of the wider transformation agenda in the council. It will be about getting services to recognise that there are other possible options in addition to the traditional ways of delivery.

The Chair referred to culturally appropriate services. The Member pointed out that the council will need to make sure they are not hindering the opportunity to procure those services because of barriers. This could be linked to not thinking about innovative ways to make sure the procurement strategy is fair and robust enabling the council to achieve the outcomes it desires such as procuring locally. In addition to making sure the council is a driver for greater equality in the community.

The Procurement Strategy and Systems Lead from LBH added during their consultation they engaged with HCVS and received some detailed feedback from the VCS sector.

In response to the question about engaging with commissioners the discussion includes the System Team now because they have realised that some of the barriers could be system related. This discussion is in progress.

(ix) In a follow up to the above questions Members referred to where the council may have a rule or innovative policy like the one recently agreed by Corporate Committee allowing victims of domestic abuse to take a leave of absence to attend legal proceedings etc. Members asked if the council had scope to ensure innovative and groundbreaking initiatives like these were adopted by the organisations the council choose to commission or procure from.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH explained that the council may be constrained in terms of what it can specify the other issue in the culture of the organisation and the management structure to address these issues.

The Cabinet Member pointed out the council has the policy, and the Procurement Team can champion it, but it will require a culture change and the whole organisation will need to be on board. The council has made a commitment to do this, but he expects the transformation program to pick this up. In the meantime, the Cabinet Member acknowledged that there is still more work to be done.

(x) Members commented if the council must procure external services because it has limited capacity in house. They wanted assurance that if workers were employed to do the same role but were in different organisations, they would not end up with workers on different employment contracts (terms and conditions) and pay?

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH referred to the council being a London Living Wage authority and the council insists this is applied to its contracts. The Cabinet Member pointed out this was hard to implement initially but it is widely accepted now. However, the council is conscious about other issues like fire and rehire. But under the current legislation it is unclear if councils have the authority to ban it. Nevertheless, the council recognises this is an issue that needs to be addressed. The Council’s strategy remains to work within the current legislation but encourage good employment practices.

(xi) Members pointed out that in the presentation some of the language used showed ambition but not a commitment e.g. “campaigning for better standards and denouncing all employers on fire and rehire”. Members asked why the council was not doing more to address this.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH explained the council does not have the power to do more.

The Procurement Act 2023 is scheduled to come into force, and this has a stronger social value focus. However, employee rights are not a key focus. The Cabinet Member highlighted that the current legislation does not align with their desired approach, but they will keep lobbying.

(xii) Members referred to the previous SEG meeting in July with HCVS where they highlighted that VCS feedback critiqued the council’s procurement and commissioning process. One of the critiques was that the council presented a one size fits all strategy that disadvantaged smaller organisations who were less resourced. So, although they were doing good work or providing a good service to the community. They did not meet the council’s criteria for commissioning. Members acknowledged it was public money and therefore needed robust governance and processes in place. However, Members asked how the council’s strategy will diversify to ensure smaller organisations can get access to the contracts available. Members pointed out that previously these organisations have felt disadvantaged in terms of the current strategy and process in place.

In response the Head of Procurement and Energy from LBH advised they engage with their colleagues in the Economic Development Team to understand the current challenges and consider how they can remove the barriers these organisations are facing in terms of contracting with the council.

The Head of Procurement and Energy pointed out that in the strategy their objective is to retain a certain threshold of the councils within the local community. Procurement is considering how they can engage better with the voluntary sector community so they can bid for those contracts and potentially win.

The Head of Procurement and Energy also pointed out that for the first time the council had set a minimum of 15% for their quality evaluation in relation to social value. It is anticipated that this will help some organisations to come forward and demonstrate that they can deliver the council’s aspirations outlined in the strategy. The officer pointed out there are a range of things they are looking to introduce through this strategy to enable those organisations to work with the council better.

The Procurement Strategy and Systems Lead from LBH added following the feedback Hackney council officers have had conversations about revisiting the old Hackney compact. The key principles of the compact are being reviewed to consider how these can be embedded in the strategy. An example of a principle is early market engagement.

The Procurement Team has engaged with the Economic Development Team and the Employment and Skills Team. There is also an internal forum that meetings regularly to review the pipeline of work to identify suitable contracts and start early engagement. The Economic Development team will support the business engagement workshops. They are also in discussions about co-production and co design workshops. This work will feature in the strategy work plan which will be attached to the strategy document once produced.

(xiii) Members commented in their view the document was aspirational because there are a lot of sustainable procurement challenges in relation to limited availability, range of sustainable supplier options and that the market may be more restricted with suppliers being unwilling or unable to provide sustainable goods and services. Therefore, finding suppliers that are committed to providing sustainable goods and service might be challenging. Members queried if the document was more aspirational than leading people to the market.

(xiv) Members asked if the current sustainable procurement strategy has overcome some of these challenges like price because a lot of sustainable services or products cost more.

In response the Head of Procurement and Energy from LBH pointed out the strategy does indicate that the council will be amenable to paying a little bit more for sustainable products. If the council takes the view that a particular product will last longer than a cheaper product, then they will purchase the sustainable product. The officer gave an example of ICT equipment being purchased where the decision was taken to purchase the slightly more expensive product because it was more energy efficient than the other cheaper product.

The Head of Procurement and Energy pointed out in his view the strategy has delivered beyond being aspirational. The officer informed the Commission that the impact of the cyber attack has affected the level of information they can extract to demonstrate their achievements with the sustainable strategy. Notwithstanding the next steps was to scale up and progress beyond their achievements to date. In addition, they are working with their supply chain to see how they can improve.

The Procurement Strategy and Systems Lead from LBH added in relation to the council’s supply chain this was not aspirational. The officer manages 6 contracts and if she asked for information on green spend, they can produce this information. For example, in relation to their spend on cleaning and janitorial materials the supplier can show what they have spent and then highlight how they can improve. It was her view that their suppliers were better prepared in relation to spend information than the council.

(xv) Members referred to this being a refresh and commented that a lot of things have changed inside the council sine the last strategy including the production of the Climate Action Plan (CAP). Members asked the Procurement Team to highlight how they have adapted and adjusted the strategy to meet new ambitions like the Climate Action Plan.

In response the Head of Procurement and Energy from LBH informed the Commission that he manages the energy function too. The head of service pointed out that the CAP and Energy Strategy does not address supplier chain emissions for various reasons.

In terms of scope 1 and scope 2 emissions there are different strands of work and activity that are outlined in the CAP. The idea is to position the procurement function to help procure all these contracts as they are reviewed. This will not only focus on delivery but will also make sure they deliver local jobs, local skills and use the local supply chain. These are the objectives and the focus of their conversations with internal colleagues.

In terms of the changes in the strategy they are highlighting that there will be a need for close working relationships between procurement, commissioning, and service managers. Regarding how the council can secure green jobs at scale this will be reliant on the service redesign. The market will only respond to what the council puts out into the market. So internally the council needs to refocus. For example, the council’s fleet maintenance service is largely focused on repairs and maintenance of combustion engines. The council will need to transition to the maintenance of electric vehicles to develop the local market. This will require securing contractors that can support the council with electric vehicle maintenance. This will help also help the council to secure green jobs and green skills. The council will need to rethink internally how it designs services as this will be key to unlocking green jobs within the procurement function.

(xvi) Members asked for clarification if the council made the decision not to include scope 3 emissions as part of their ambitions for the procurement strategy.

In response the Head of Procurement and Energy from LBH confirmed this is correct. The officer pointed out that the baseline figures are difficult to determine in terms of capturing, monitoring, and reporting on how well emissions are managed. The officer explained if they have a contractor that is working for several different councils it would be difficult to what emissions relate specifically to Hackney. Within the council’s own operations, they can demonstrate what they are doing locally to contribute to the wider national emission targets. However, if the council decided to focus specifically on identifying Hackney emissions from all areas, this would require a lot more resources to extract that information.

(xvii) Members commented that things have changed a lot externally with high inflation, stagflation, sluggish economy, and other difficulties that have arisen in this context. Members also pointed that they were aware the financial resources available for procurement did not go very far and continue to be squeezed. Members asked about the challenges facing procurement ads a result of these external pressures and how the revised strategy will respond to these challenges.

In response the Cabinet Member for Finance, Insourcing and Customer Services from LBH informed the Commission that he has been highlighting the financial pressures on the council for some time. The council has been conscious about obtaining value for money without sacrificing their procurement principles. However, he is confident that they can get both value for money, sustainability, and insourcing. The council has examples of insourcing where they have taken a service back in house which resulted in a better service, happier staff, and cost less to provide. This demonstrates that insourcing is not always the more expensive option.

The Cabinet Member pointed out where the council is unable to provide the service or commission it. They become more focused on incentive and using their softer powers e.g., planning policy and procurement. Therefore, where the council does not have the funding and resources to provide the service it will exercise it softer powers and influence. This is why the sustainable procurement strategy is an important policy.

The Chair thanked the Cabinet Member and officers for attending. The Chair requested for the Commissions’ comments and observations to be used to feed into the development of the new strategy.

The Cabinet Member also offered the Commission Members access to follow up questions after the meeting.

The Chair added that one of her observations was that the revised commitments in the strategy were not (in her opinion) SMART. The Member added that they came across as aspirational and being an ambition instead of being a commitment and pledge with measurable outcomes. As they could demonstrate outcomes from the previous strategy the Chair recommended Procurement ensure they have good measurable processes and metrics for the new strategy.

Supporting documents: