Proactive Procurement V2

Proactive ProcurementAchieving quality services and implementing policyobjectives by procurement from social enterprises

Guidance note by Mark Cook and David Alcock of Anthony Collins SolicitorsOctober 2004

Further copies of this document are available from the Provide project.

Either email your details to [email protected]

or write to Provide project, Co-operativesUK, Holyoake House, Hanover Street, Manchester M60 0AS

or go to www.cooperatives-uk.coop/provide

EXECUTIVE SUMMARY 3

1 INTRODUCTION 5

2 WHAT IS SOCIAL ENTERPRISE? 6

3 LOCAL AUTHORITY PROCUREMENT REQUIREMENTS - THE FRAMEWORK 10

4 EUROPEAN PROCUREMENT RULES 15

5 STAGES OF PROCUREMENT 16

6 ALTERNATIVES TO COMPETITIVE PROCUREMENT 20

APPENDIX 1 Legal Structures used by Social Enterprises 22

APPENDIX 2 EU Directives - Part B 24

APPENDIX 3 Detailed Case Studies 25

APPENDIX 4 Support Organisations 28

APPENDIX 5 Resources 35

Proactive Procurement 1

Contents

1 From the foreword to Think Smart ... Think Voluntary Sector, Home Office and OGC, 2004, page 22 Social Enterprise: a strategy for success, DTI, 2002, page 493 Stephen Timms MP, in Public Procurement, March 2003 on the launch of Community Interest Companies

“The assumption in procuring public services that the choice is just between public and private sector providersmust be challenged.”1

Fiona Mactaggart MP Parliamentary Under Secretary for Race Equality,Community Policy, and Civil Renewal, Home Office

“Social enterprises are close to their customers and are not concentrated on maximising profits for theirshareholders. They are often well placed to be able to deliver good quality, cost effective public services.”2

Government Strategy for Social Enterprise, July 2002

“We need to enable purchasers to rethink the impact of contracts on the community and on their social inclusionobjectives, and allow them to move beyond narrow interpretations of service delivery isolated from all otherstrategic objectives. For local authorities, I believe Best Value - used well and supported by the development ofcorporate procurement strategies - offers a tremendous opportunity to release the diverse range of skills andservices social enterprises have to offer.”3

Stephen Timms MP – Minister of State for Energy, e-Commerce and Postal Services-DTI

Acknowledgements

We would like to thank Sipi Hämeenaho of the Provide project for commissioning the work and managing thepublication and Provide and Social Enterprise East of England for funding it, Mick Taylor of mutualadvantage forhis contribution to Section 2, and Nicky Stevenson of The Guild, Chrissie Pearce of the Care Working Group andJohn Goodman of Co-operativesUK for reading and commenting on the drafts.

Author’s note

While every effort has been made to ensure that accuracy of the report content at the time of completionOctober 2004, advice should be taken before action is taken or refrained from in specific cases.

Abbreviations used

ALMO Arms Length Management Organisation

EU European Union

NAPP New Approaches to Public Procurement Network

BME Black and Minority Ethnic

CDA Co-operative Development Agency

CIC Community Interest Company

CITB Construction Industry Training Board

DTA Development Trusts Association

DTI Department of Trade and Industry

FSA Financial Services Authority

IPS Industrial and Provident Society

LLP Limited Liability Partnership

ODPM Office of the Deputy Prime Minister

OGC The Office of Government Commerce

SME Small or Medium size Enterprise

TUPE Transfer of Undertakings (Protection of Employment)


This guidance has been commissioned by the Provide Project of Co-operativesUK and the Social Enterprise East ofEngland network, through the EQUAL programme. It explores how it is possible for local authorities to meettheir policy objectives and to achieve service improvements by procurement from social enterprises.

Social enterprises are trading organisations with social objectives. They often have accountability mechanismsto customers, service users, staff or communities. They include co-operatives, social firms and developmenttrusts, and they are now frequently involved in working with public bodies to provide services, including leisure,housing, recycling, education and social care.

Their closeness to communities and service users, their entrepreneurial nature and their commitment to socialvalues bring a range of advantages, particularly in the achievement of wider policy objectives or communitybenefits, including regeneration, community planning, equalities, sustainability, active citizenship, lifelonglearning and social inclusion.

Current guidance from a variety of government sources, particularly the National Procurement Strategy forLocal Government, confirms the commitment at a national level to procurement from social enterprises.

Under both UK and EU rules, community benefits can be incorporated into the procurement process. Inprinciple, councils are free to determine what they wish to purchase, as opposed to how:

• the ‘well-being’ power enables authorities to take a holistic approach to procurement including thepromotion of community benefits;

• even where a procurement is subject to the EU procurement regime, community benefits can form part ofthe core requirements of the contract, as long as they are relevant to the subject matter of the contract,comply with equal opportunities, are able to be evaluated, add to the achievement of value for money,and do not disadvantage non-local firms;

• the inclusion of such benefits will be strengthened by reference to the Community Strategy, Best ValuePerformance Plan or other strategic policies of the council, as long as those strategies mention thebenefits in question;

• by 2005 local authorities will have to include a request for priced proposals to deliver community benefitsrelevant to the contract that add value to the Community Plan; and

• the new EU consolidated procurement directive, to be implemented in the UK by January 2006, clarifieshow and when they are relevant to a contract, social and environmental considerations can be included.

Whilst authorities cannot give unfair advantage to social enterprises during the procurement process, they cando much to ensure that they have the capacity and opportunity to take part, including:

• initiatives to develop the supply base through general support to the social enterprise sector, as long as noindividual enterprise gains advantage for a specific contract;

• developing procurement strategies that make a direct link between the Community Plan and otherstrategic objects and contract specifications, ensuring that community benefits can be fully integratedinto the procurement process;

• consulting with the sector on its capacity, the benefits it can bring, the packaging of contracts and itsability to take part in the process;

• developing appropriate procurement processes, specifications, thresholds, pre-tender questionnaires andother requirements, which are not excessively onerous, given the size, nature and scale of socialenterprises;

• promoting tender opportunities widely, including through social enterprise sector networks, for exampleNearbuyou, ensuring compliance with EU requirements; and

• developing opportunities for social enterprises to be sub-contractors in the supply chain.

To obtain some of the benefits of social enterprise provision councils may also consider alternatives toprocurement, which may in particular instances be a better route to best value, including:


Executive Summary

• providing grant aid rather than procuring through a service contract;

• establishing in-house provision with independence and accountability, perhaps as a development route forgenuine social enterprise; and

• establishing a local authority company, using the ‘well-being powers’, or clause 96 of the LocalGovernment Act 2003, with key stakeholders on the board of directors.

All these routes would appear to avoid the requirements of both the UK and the EU procurement regulations,but may have other disadvantages.

This guidance concludes that in the correct circumstances, authorities can do much to support socialenterprises, and that procurement can be used to gain for the public sector the community benefits that manysocial enterprises are able to deliver.


Executive Summary

1.1 This guidance has been commissioned by the Provide Project of Co-operativesUK and the Social EnterpriseEast of England network, through the EQUAL programme.

1.2 It aims to consider the opportunities that exist for local authorities to meet their policy objectives andachieve service improvement goals by procurement from social enterprises, and to explain how this can bedone in practice within the requirements of the UK and European procurement frameworks. The guidancetakes a broad definition of procurement, one that includes the whole process of obtaining a particularproduct, works, service, community benefit or other benefit, from the identification of needs, through toexpiry of contracts.

1.3 It has long been the aim of many public bodies to achieve social aims and maximise the benefits for localcommunities in the way they buy goods and services. The growth of the social enterprise movementprovides the public sector with an excellent opportunity to combine the achievement of quality servicesand significant benefits for communities. As this guidance shows, this is reinforced by a newacknowledgement at both UK and European levels of the legality of achieving community benefitsthrough procurement.

1.4 Local authorities have, within current legislation, considerable scope for taking proactive action topromote and encourage social enterprise involvement throughout the procurement process. However,local authorities cannot guarantee social enterprises their business. Social enterprises cannot expect localauthorities to favour them where there is no clear value for money benefit.

1.5 The guidance examines the possibilities open to local authorities in relation to social enterprise at eachstage of the wider procurement process including:

• developing a supply base;

• policy and strategy development;

• contract opportunities;

• pre-qualification;

• drawing up tender specification; and

• awards of contracts and contract management.

1.6 The guidance also shows how procurement can be at the heart of delivering the authority’s wider policyobjectives including regeneration, economic development and provider diversity. It has emerged fromwork carried out by the New Approaches to Public Procurement (NAPP) Network and associated workwith local authorities and social enterprises. The guidance also builds on the research work carried out byRichard MacFarlane and Mark Cook for the Joseph Rowntree Foundation and published in Achievingcommunity benefits through contracts: Law, policy and practice.4


4 Published by the Policy Press, November 2002

1 Introduction

THIS SECTION

• defines social enterprises; and

• shows how they can assist in meeting policy objectives and deliver community benefits.

2.1 Like other successful businesses, social enterprises have the potential to deliver excellent quality costeffective goods and services to the public sector. However, they can do more than that. Along with otherorganisations within the voluntary and community sectors, they are part of the social economy, in thatthey have social objectives, are socially owned, often accountable and frequently do not distribute profits.Along side these principles they have many of the characteristics of the private sector, in that they areentrepreneurial, user or customer focused, and earn their income from trading. They may create a surplus,but this can only be used to further their social objectives.

DEFINING SOCIAL ENTERPRISE2.2 The Department for Trade and Industry defines social enterprise as:

“...a business with primarily social objectives whose surpluses are principally reinvested for thatpurpose in the business or in the community, rather than being driven by the need to maximiseprofits for shareholders and owners.”

An argument can be made for a narrower definition, including only those organisations that havedemocratic ownership. These democratic structures deliver accountability to customers, service users,purchasers, staff, employees or communities.

2.3 Social enterprises cannot be defined by their legal form. They may be unincorporated, a company limitedby shares or guarantee, or an industrial and provident society. Details of legal structures are provided inAppendix 1.

2.4 Social enterprises therefore have three defining characteristics:

• social ownership - independent, neither privately owned, nor owned by public sector bodies;

• trading as their primary means of income whether from individual transactions, or by contractdelivery; and

• social objectives - a clear purpose that directs their activities and defines how surpluses areinvested.

In addition they may have a membership or accountability structure based on users, staff or communitiesor a combination of the three.

THE RANGE OF SOCIAL ENTERPRISE2.5 Within this definition, the range and diversity of social enterprise

is extensive. They are diverse in legal structure, size and function,reflecting the needs of communities, members and public policydevelopments. This diversity reflects their ability to respond tolocal needs and is a major strength. There are many examples ofsuccessful social enterprises, at one end of the scale acommunity café based within a council facility, a credit union, anursery, a community recycling scheme, or an employee-ownedhomecare service could all be social enterprises. In contrast,social enterprises can also be substantial businesses or large-scaleservice providers, for example a major national provider of not-for-profit leisure services, or one of the largest specialist kerbsidecollection and recycling organisation in the UK.


2 What is Social Enterprise?

Somerset Care is a non profitdistribution, independent companyestablished by Somerset CountyCouncil to take on themanagement of their residentialcare, nursing homes and in-housedomiciliary care. As a socialenterprise it manages 25 carehomes throughout Somerset andthrough a subsidiary has expandedto take responsibility for 19 homesfor the elderly and people withlearning disabilities on the Isle ofWight.

www.somersetcare.co.uk

2.6 The main forms of social enterprise in the UK from which public authorities may procure goods or servicesare:

• co-operatives;

• social firms;

• development trusts;

• community businesses;

• community or other types of trusts; and

• subsidiaries of charities and voluntary organisations.

THE BENEFITS OF PROCUREMENT FROM SOCIAL ENTERPRISES 2.7 The benefits that social enterprise may bring to any specific procurement will only be formally recognised

at the point of evaluation. However, the essential nature of social enterprise, trading with socialobjectives, provides the potential to deliver a range of benefits, both for individual services orprocurements and for the achievement of broader public goals. Many of these benefits are recognised bygovernment in:

• Social Enterprise: a strategy for success;

• The National Procurement Strategy for Local Government, ODPM (2003); and

• Think Smart Think Voluntary Sector - Good Practice Guidance on the Procurement of Services from theVoluntary and Community Sector, OGC and Home Office.

2.8 There is general recognition that widening the supply market to include social enterprise, along withvoluntary and community organisations, black and ethnic minority business and other SMEs can increaseprocurement effectiveness and the achievement of value for money.

2.9 There are a number of specific benefits that social enterprises may bring to an individual procurement,and these stem from the combination of the entrepreneurialism of the commercial sector, a public sectorethos and close relationships with key stakeholders, staff, service users and communities, which are listedbelow.

Community and users

Social enterprises are often organisations that have grownout of communities and retain close links to them. They areoften deeply embeded in their communities and can drawon resources, knowledge and sensitivity to communityneeds and aspirations. They have the potential to draw intoactive citizenship people from disadvantaged or excludedcommunities.

Independence

The structure of social enterprises gives them operationalindependence. They provide a practical accountabilitystructure in which management can get on with the task ofensuring day-to-day high quality service delivery andinnovation.

Specialist knowledge and expertise

Social enterprises frequently have high levels of specialistknowledge and expertise in specific service areas or nichemarkets, sometimes developed from a long track record.They may recruit from groups of service users, draw on highlevel voluntary expertise from committed individuals orhave developed from groups of enthusiasts. Some are



Oxford, Swindon & GloucesterCo-operative Society is a wellestablished retail consumerco-operative. It has recentlydiversified by working with thelocal Neighbourhood NurseriesInitiative to set up a network ofchild care and education nurseriescalled Imagine Co-operativeChildcare.

With both urban and rurallocations across its trading area,the co-operative is based on apartnership between parents andchildren, its employees and localcommunities, and employers.

www.osg.coop/live

highly effective at validating the skills and experience offront line staff, and using this practical knowledge toenhance services.

Profitability

Social enterprises can often operate at the margins ofprofitability, in a way that would be unsustainable for theprivate sector, drawing on the commitment of communitiesand stakeholders. They are predominantly non-profitdistributional, all surpluses being reinvested in the servicesor their social objectives.

Innovation and efficiency

With their independence, sensitivity to communities andcustomers’ needs, and high levels of expertise socialenterprises are often innovative in delivering new workingpractices or delivery methods. They may have access tocommercial capital to finance improvements. As staff areoften stakeholders, they can negotiate flexibilities andchanges to working practices outside the scope of otherorganisations.

Sensitivity to customers

Social enterprises are close to their customers and oftenhave service users as members, contributing to theirstrategic development and performance management. Theyare an excellent vehicle for developing user-led services, andcan be highly sensitive and responsive to the changingneeds of service users.

Stakeholder engagement

By engaging stakeholders in the delivery and developmentof services, social enterprises can fundamentally change therelationship between commissioners and stakeholders andbetween different groups of stakeholders.

Labour market

As staff are often members with an ownership stake, socialenterprises can have a significant impact on labour marketissues. In-house staff may be more likely to acceptexternalisation, pay rates likely to match those in the publicsector, investment made in training and development,recruitment issues addressed, flexible working practicesnegotiated, quality of work life increased, family friendlyemployment practices introduced, and staff turnoverreduced.

Economic impact

Because of their location and recruitment strategies, socialenterprises tend to keep economic benefits within acommunity. They train and recruit local staff, they bringindividuals disadvantaged in the labour market back intoemployment who spend wages locally, and they investsurpluses into local communities.

Creation of social capital

Social enterprises and their members can contribute to



ECT Recycling, part of the ECTGroup, is a not-for-profit IPS(society for the benefit of thecommunity). It has high levels ofexpertise in recycling domesticwaste. With the largest facility ofits type in the UK at Greenford,ECT has contracts to undertakekerbside, or doorstep recycling fora range of councils includingHounslow, Brent, Vale of the WhiteHorse, Lambeth and Avon.

Having grown from a localcommunity transport scheme, ECThas developed the capacity toenter the competitiveprocurement processes, and is ableto convince councils of the valuefor money of its services, and winstenders against commercialproviders in the open market.

www.ectgroup.co.uk/group

Greenwich Leisure Limited is anot-for-profit IPS (society for thebenefit of the community), whichfor past 10 years has managedleisure centres in the LondonBorough of Greenwich for the localauthority. It has been highlyinnovative in programming andservice development and hassignificantly increased capitalinvestment whilst reducing thecouncil’s costs by more than 50%.It also runs leisure services for sixother London boroughs.

GLL delivers a range of communitybenefits over and above itsmanagement contract, working tothe authority’s wider agendas ofeducation, community safety andhealth.

www.gll.org/index.asp

creating and sustaining social capital, by their proactive participation in local community activityand networks, creating and sustaining neighbourhood connections, friendship and work relationships,building trust and tolerance of diversity.

Wider policy objectivesBecause of their social objectives, commitment to communities and sensitivity to stakeholders,social enterprises can often contribute to the achievement of wider social goals providing a practicaljoined-up contribution. These can include:• active citizenship;• environmental sustainability;• regeneration;• anti-poverty;• social inclusion;• community cohesion;• health; and• community safety.

2.10 If public authorities are to have the opportunity to consider these benefits in a procurement process, andthe supply market genuinely widened, then the legal framework must be clearly understood, appropriateprocurement strategies adopted (working within government guidance and the EU rules) and appropriatesupport offered. These issues are addressed in Sections 3 and 4.

2.11 Social enterprises themselves must develop the capacity to take part effectively in procurement process.Guidance is available in Public Procurement: a Toolkit for Social Enterprises, DTI October 2003.

KEY POINTS

• Social enterprises are organisations that are in social ownership, trade as their primarymeans of income, and have social objectives. In addition many may have amembership or accountability structure.

• They may be co-operatives social firms, development trusts, community businesses,community or other types of trusts, and subsidiaries of charities and voluntaryorganisations.

• They may provide a series of benefits to procuring bodies, including:• close links to communities and users;• independence;• specialist knowledge and expertise;• profitability, innovation and efficiency;• sensitivity to customers;• stakeholder engagement;• labour market;• economic impact;• creation of social capital; and• the achievement of wider policy objectives.



THIS SECTION

describes the impact on local government procurement of:

• the UK government procurement framework;

• local government powers;

• the Race Relations Act 1976;

• EU treaties and directives;

• ‘state aid’ rules; and

• the Competition Act 1998.

THE POLICY FRAMEWORK FOR PROCUREMENT 3.1 Under the UK procurement guidelines a public body is free to determine what it wishes to purchase as

opposed to how, provided that:

• the purpose is within its statutory powers, its constitution and its agreed policy framework, forexample the community strategy; and

• the requirements are needed, are cost-effective and are affordable.

3.2 The government’s procurement policy defines value for money as “the optimum combination of whole lifecosts and quality (or fitness for purpose) to meet the user’s requirements”. There is consistent support ina range of government publications for taking a wide view of what can be achieved in procurement byeffective competition which ensures that the best range of bids are submitted. In setting requirements,departments have considerable scope to decide how they draw up their specifications and can chose toprocure to reflect their social policy aims, their own policies and objectives, or those of the government.

3.3 This report uses the term ‘community benefits’ to mean any social, economic or environmental benefitswhich a local authority might wish to seek. It is an alternative term to ‘social clauses’ and is used in thecontext of procurement to cover a wide range of outcomes. It was originally used in Achieving communitybenefits through contracts: Law, policy and practice5.as anexpression that was accepted by a range of consultees, includingthe OGC.

3.4 The inclusion of community benefits must be justified as part ofthe core purpose of the procurement, rather than them being asecondary element that cannot be formally evaluated.

3.5 In October 2003 the Office of Government Commerce andDepartment for Environment, Food and Rural Affairs published aJoint Note on Environmental Considerations in Purchasing thatincludes a section on social issues in procurement. Its referenceto opportunities for the consideration of social issues seems torecognise that there is nothing in principle wrong with seekingsocial and community benefits through procurement as long asthey are relevant to the product or service being procured andconsideration of these issues is made at the appropriate stages ofthe procurement process.

3.6 In the same month the Office of the Deputy Prime Minister(ODPM) published the National Procurement Strategy for LocalGovernment. Section 6 is entitled Stimulating markets andachieving community benefits, and includes the followingstatement:


5 Published by the Policy Press, November 2002

3 Local Authority ProcurementRequirements - the Framework

Sheffield City Council askstenderers to consider how in thedelivery of their services theycould:

• assist the creation of attractive neighbourhoods;

• support the sustainability of communities;

• strengthen the economy and the supply market;

• provide education or training;

• provide recreation; or

• achieve environmental benefits.

See Appendix 3 for an example ofSheffield City Council’s tenderinformation.

“Under the Local Government Act 2000, councils are required to prepare a community plan … andhave powers to promote economic, social and environmental well-being of their communities.Provided that there is compliance with EC public procurement regulations and Best Value, councilscan work with suppliers to realise ‘community benefits’ of this kind through their procurementactivities.”6

3.7 The National Strategy states that by 2004 all corporate procurement strategies for local governmentshould address:

• the relationship of procurement to the community plan, workforce issues, diversity and equality andsustainability; and

• how the council concerned will encourage a diverse and competitive supply market, including smallfirms, social enterprises, ethnic minority businesses and voluntary and community sector suppliers.

3.8 By 2005 every local authority is required to include in invitations to tender or negotiate for partnershipprojects a requirement to submit optional, priced proposals for “delivery of specified community benefitsthat are relevant to the contract and add value to the community plan”.7

3.9 Further guidance on procurement from the voluntary and community sector was published by the OGCand the Home Office in June 2004, and this emphasises the encouragement now given to public procurersto engage with a variety of providers.8 This guidance seeks to ensure that public bodies recognise andaddress the barriers facing the voluntary and community sector when trying to participate in the publicsector market. It aims to enable them to have the same opportunity to bid for public contracts as othercontractors, recognising the particular benefits and opportunities that working with the voluntary andcommunity sector can bring. The same principles apply to working with social enterprise.

LOCAL AUTHORITY POWERS3.10 There are two new pieces of local authority legislation that can be used to support social enterprise and

the inclusion of related matters in local authority contracts.

Well-being powers

3.11 Section 2 of the Local Government Act 2000, the ‘well-being power’, is extremely useful. This gives localauthorities the power to do anything they consider necessary to achieve the economic, social orenvironmental well being of their area, a part of their area or a group of people within their area. This isan explicit power to take action to promote economic and social inclusion, and could be used to justifysupport for social enterprises where authorities believe this will assist them in achieving these ‘well-being’aims. Under Section 4 of the 2000 Act authorities must prepare a Community Strategy that sets out howthey proposed to meet these aims. This is an importantdocument, particularly as it can be used to support the inclusionof social considerations or community benefits in contracts thatare to be tendered under the full EU procurement regime.However in doing so local authorities must not contravene otherlegislation, including equal opportunities legislation.

3.12 Section 3 of the Local Government Act 1999 names localauthorities as “best value authorities” and requires them to makearrangements to secure continuous improvement in the way inwhich their functions are exercised, having regard to acombination of economy, efficiency and effectiveness. The focusfor the improvement of services is to depend, in part, on theCommunity Strategy and Best Value Performance Plans.

3.13 A local authority could decide to include a wide range of policiesin its Community Strategy, identifying them as the communitybenefits that it intends to seek to achieve through its


6 National Procurement Strategy for Local Government, ODPM, 2003, Section 67 as 6, page 418 Think Smart ... Think Voluntary Sector, Home Office and OGC, 2004


Nottingham City Council istaking part in the SustainableDevelopment Pathfinder Project,which will examine theopportunity to deliver sustainabledevelopment through buildingconstruction.

In principle, the well-being powers,enable the City to achieve bothsustainability and workforceobjectives through its constructionprocurement.

See Appendix 3 for the full casestudy.

procurement. This group can include anything that an authority reasonably thinks will lead to economic,social or environmental benefit for the area. Social enterprises should, because of their character and theirunique position in the marketplace, be ideally placed to offer some of these benefits.

3.14 As well as adopting policies for promoting community benefits, which social enterprises are well placed toprovide, local authorities can promote social enterprises over and above other forms of service provider. Ifa local authority decides to do this, it must set out the justification, ideally in its Community Strategy.Reasons which can be offered include:

• the need to broaden the diversity of potential service providers in the market place;

• community benefits cannot be easily achieved without the promotion of social enterprises; and

• council staff likely to transfer under the TUPE regulations to a new service provider would welcomethe option of being employed by a social enterprise.

This approach can be taken as long as what is done gives social enterprises assistance in order to facilitatea level playing field within the public sector market, but not as part of a specific contracting exercise. If asocial enterprise is better placed in relation to a contract because of its skills or experience then thisshould be revealed in its tender.

Non-commercial considerations

3.15 Under Section 17 of the Local Government Act 1988 a number of factors are to be treated as non-commercial considerations and are prohibited from being considered in local authority procurement. Theyare:

• labour force matters, including the terms and conditions and composition of a contractor’sworkforce;

• whether the terms of any sub-contract with individuals treat them as independent contractors ornot;

• any political affiliations or interests of the contractor, or their involvement in any other areas ofgovernment policy;

• contractors’ sources of financial support;

• the conduct of contractors in industrial disputes;

• contractors’ country of origin; and

• the use (or non-use) by contractors of technical or professional services provided by the authorityunder the Building Act 1984.

3.16 Until 13 March 2001 this extensive list of non-commercial considerations was particularly important forlabour force matters as it specifically constrained the inclusion of labour force clauses. The LocalGovernment Best Value (Exclusion of Non-commercial Considerations) Order means that local authoritiescan now include labour force (e.g. training and recruitment) matters in their contract requirements and intheir procurement procedures, as long as doing so helps themachieve best value. Their inclusion is strengthened where thisapproach is explained in the Community Strategy, the Best ValuePerformance Plan, site development plans, Local StrategicPartnership strategies or other related documents.

3.17 Any non-commercial considerations not listed by Section 17 maybe legitimately included as part of the subject matter of acontract. The position is now, therefore, that a local authority forexample

• could include a contract clause requiring the employmentof long term unemployed persons, as long as it could showthis contributed to best value;

• could not specify that only contractors benefiting from a



Nottingham City Council takesinto account amongst other issuesthe composition and training ofcontractors’ workforce whenestablishing its approvedcontractors list for constructionwork. This can be done as long asthe City Council considers that indoing so it is facilitating theachievement of best value.

See Appendix 3 for the full casestudy.

social enterprise start-up grant could tender for a particular contract, because source of finance as acriterion is listed as a non-commercial consideration under Section 17; but

• could specify that the contractor must be able to meet recycling targets in a waste managementcontract, because this is not covered by Section 17.

OTHER LEGAL SUBJECTS OF POSSIBLE RELEVANCE

Race relations

3.18 Section 71(1) of the Race Relations Act 1976 (as amended by the Race Relations (Amendment) Act 2000)places a general duty on named public bodies to:

• eliminate unlawful racial discrimination; and

• promote equality of opportunity and good relations between persons of different racial groups.

3.19 This applies to a range of public bodies including local authorities. The aim of the general duty is tomainstream the elimination of discrimination and the promotion of equality of opportunity by makingthese an integral part of the way public functions are carried out. This means that listed bodies shouldensure that contractors carrying out functions on their behalf take action to meet the obligations of theirclient under the new Act. Incorporating equal opportunities requirements in the contract conditionswould be one way of achieving this.

State aid

3.20 Article 87 (1) of the Treaty of Rome lays down strict rules on the use of state aid, for which there is nodefinition in the Treaty. Examples of aid might include subsidies, provision of goods or services onpreferential terms or disposal of land at less than best consideration. The Article sets out four elements allof which must be satisfied if a measure is to constitute state aid. These are:

• the aid must be granted by the state or through state resources;

• the aid must favour certain undertakings or the production of certain goods;

• the aid must affect trade between member states; and

• the aid must distort, or have the potential to distort, competition.

3.21 Aid for some social enterprises could fit under the terms of schemes that are exempt under blockexemption sales, including a de minimis9 threshold of up to 100,000 euros (around £65K). The EuropeanCommission has the power, in cases of unlawful state aid, both to halt payments and to order repaymentof aid already paid, with interest. This would clearly be extremely damaging both to the authorityinvolved and, in particular, to any social enterprise it was supporting.

3.22 This is a complex subject, which requires careful planning. There is guidance on the DTI website atwww.dti.gov.uk/europe/stateaid. Help and advice is also available from the State Aid Team Branch at theDTI, who can be contacted by telephone on 020 7215 4472/4452 or by e-mail at [email protected]. Inaddition, each Regional Development Agency and Government Office have local State Aid experts whomay provide an alternative first port of call for advice on State Aid.

Competition Act 1998

3.23 As with all contracts, authorities should also consider whether any proposed contracts between socialenterprises and themselves could breach the Chapter I prohibition contained in the Competition Act 1998,which reflects Article 81 of the EC Treaty, and covers agreements “between undertakings” that “have theobject or effect of distorting competition” in the United Kingdom, or a part of the United Kingdom. Theseterms are not defined further but might cover, for example, an arrangement between an authority and asocial enterprise, which significantly affected the market for a particular service in the authority’s area.

3.24 Detailed guidance can be found on the DTI website at www.dti.gov.uk/ccp/topics2/competition-act.htm.


9 The full expression is ‘de minimis non curat lex’. This is a Latin phrase which means ‘the law does not care about very small matters’. It can be used todescribe a component part of a wider transaction, where it is in itself insignificant or immaterial to the transaction as a whole, and will have no legalrelevance or bearing on the end result.


KEY POINTS

• The well-being power enables local authorities to take a holistic approach toprocurement, including the promotion of community benefits, which social enterprisesare well placed to offer.

• Local authorities may promote social enterprises, but have to provide reasoned policiesfor doing so.

• Especially in single tender processes, local authorities have to consider state aid andcompetition law issues when dealing with social enterprise.



EU TREATIES4.1 The European Union Treaties enshrine the fundamental principle of an open market for public sector

contracts across the EU. A local authority may not, therefore, reserve contracts specifically for a socialenterprise or even for social enterprises generally, as to do so would prevent other organisations frombidding, contrary to the principles of non-discrimination and equal treatment.

EU DIRECTIVES 4.2 There are currently three directives dealing with procurement of works, goods and services by local

authorities. Each directive has been implemented by UK regulations in the form of statutory instrumentsthat provide the UK interpretation of the directives. EU documentation refers to ‘social considerations’rather than ‘community benefits’ but for ease of reference we have used the same term throughout.

4.3 A particular contract may not be caught by the full EU procurement regime; the full rules only apply overa certain value. For 2004 the threshold figures are:

• for contracts for the supply of goods, £153,376;

• for contracts for services, £153,376; and

• for contracts for works £3,834,411.

4.4 Even over these thresholds not all contracts will be subject to the full advertising requirements of theprocurement directives. Contracts for social services, health, recreation, education and recycling are notsubject to the full regime. These are called ‘Part B’ services, and the only requirement is the publication ofa contract award notice. Only ‘Part A’ services are caught by the full requirements. A full list of thoseservices coming under Part B is listed in Appendix 2.

4.5 Even where the full regime does apply, it is becoming clear that community benefits can still be includedas part of the subject matter of procurement contracts. Community benefits do not have to provide amonetary benefit or a specific service to the local authority to be a legitimate part of their corerequirements; it is sufficient for them to achieve a policy objective.

4.6 Five tests can be identified for the use of community benefits:

• the requirements should be linked to the procurement (e.g. training requirements for the specificcontract can be included, but membership of the CITB could not be included);

• the requirements must not contravene, or encourage others to contravene, equal opportunitieslegislation;

• the requirements must not disadvantage non-local firms in the procurement process (a requirementof the EU Treaties and procurement rules);

• the required outputs must be capable of comparative evaluation and measurement; and

• any judgement about ‘value for money’ must be applied to the whole procurement.

4.7 The final version of the new consolidated procurement directive, due to be implemented in the UnitedKingdom by January 2006, expressly provides for inclusion of special conditions relating to theperformance of a contract, including social and environmental considerations.10

KEY POINTS

• Authorities should carefully consider whether a particular procurement falls within theDirectives.

• Community benefits can be incorporated in a procurement process under EU rules.

• To adopt them as a core action of a procurement requires the satisfaction of the fivetests in paragraph 4.6.

• The new consolidated procurement directive provides explicitly for the inclusion ofsocial considerations in a procurement.


10 See recital (33) and Article 26 of Directive 2004/18/EC of the European Parliament and of the Council on the coordination of procedures for the awardof public works contracts, public supply contracts and public service contracts.

4 European Procurement Rules

THIS SECTION

examines permissible interventions at each stage of the procurement process including:

• developing a supply base;

• policy and strategy development;

• contract opportunities;

• pre-qualification;

• drawing up tender specification; and

• awards of contracts and contract management.

5.1 Although this report aims to highlight permissible interventions in relation to social enterprises and publicprocurement, the principles set out below are equally applicable to SMEs, BME businesses and voluntaryand community organisations.

DEVELOPING A SOCIAL ENTERPRISE SUPPLY BASE5.2 Supply side efforts are entirely legitimate as long as no individual enterprise gains any advantage in

relation to any specific contract. This principle is endorsed, for example by the Audit Commissionpublication Competitive Procurement:

“Where the market is weak, authorities are encouraged tosee if they can develop the market and help new entrants.This may be especially necessary if small and mediumenterprises (SMEs), social enterprises and voluntary sectorbodies are to be encouraged to bid for contracts.”11

5.3 Local authorities can provide general support to existing and newenterprises in their area. There are regional social enterpriseorganisations in each of the English regions and Scotland andWales, as well as a range of more local support organisations(Appendix 4). Regional Development Agencies and Business Linkare also charged with developing the social enterprise sector intheir regions. Local authorities should consider working activelywith local social enterprise support organisations to promoteopportunities for partnering and bidding for local authoritycontracts. Authorities can legitimately work with socialenterprises generally to help them improve their ability torespond to contract opportunities, provided this is not linked toany particular contract.

POLICY AND STRATEGY5.4 Authorities should take a strategic approach to their procurement

as outlined in the National Procurement Strategy for LocalGovernment. Authorities should be building sustainability into allof their procurement, and specifically setting out how they willencourage a diverse supply market, including social enterprises.This approach should include, where appropriate, the seeking ofcommunity benefits, within the Best Value Performance Plan andthe Community Plan, and the inclusion of specific benefits to besought within particular contracts.


11 Competitive Procurement - Learning from audit inspection and research, Audit Commission, 2003, page 9

5 Stages of Procurement

North Tyneside Home CareAssociates is a newly establishedhomecare provider. The projectwas initiated by Care and ShareAssociates (CASA), an offshoot ofa well established home careco-operative. Its development hasbeen facilitated by a partnership ofthe local social servicesdepartment, North TynesideChallenge, North East SocialEnterprise Partnership, thecouncil’s employment team andCASA.

The council took a strategic viewthat it wished to increase capacityin the independent sector, increasethe number of providers and hencechoice and competition, andincrease the pool of trained homecare staff. It offered similarsupport to other providers.

The establishment of the newsocial enterprise not only allowedthe council to achieve its socialcare strategy, but also deliveredemployment and regenerationobjectives.

[email protected]

5.5 If authorities are going to seek community benefits as part of the core requirements of a procurementcontract, then it is particularly important that the specific policies and their outcomes are included in theCommunity Strategy. For example, if an authority wishes to promote the employment of people withdisabilities through its procurement, then it should ensure that there is specific mention of this objectivein the Community Strategy.

5.6 Authorities can consult with social enterprises, as they develop their strategy, to discover the possiblebenefits that may come from working with them. Social enterprises should decide how they can deliverthe community benefits sought. Social audits or social accounting could be useful.

CONTRACT OPPORTUNITIES5.7 It is important that social enterprises are enabled to find contracting opportunities with the public sector.

Authorities can use existing social enterprise networks (listed in Appendix 3) and electronic networks(such as Nearbuyou) to publicise such opportunities.

5.8 If contracts are not subject to the EU Directives, authorities can advertise them wherever they wish; evenif they are, they can still be advertised locally provided no extra information is given in the advertisement,and the advertisement is placed no earlier than the notice in the Official Journal of the EU.

5.9 Authorities should also consider whether particular contracts can be constructed so as to minimise theprocurement requirements. The aggregation of contracts is not always necessary and can mitigate againstsocial enterprises bidding; the consolidation of waste management and recycling services is a goodexample, particularly as recycling services do not need full tendering under the EU procurement rules. TheOGC guide Aggregation – is bigger always better?12 contains helpful guidance.

PRE-QUALIFICATION5.10 It is important that standard pre-qualification procedures do not militate against social enterprises by

requiring excessive work to complete, or including requirements that are not necessary for the purpose ofthe contract. The Home Office/OGC guidance on procurement from the voluntary sector emphasisesthat contracting authorities should avoid asking for more than two years’ previous accounts, as thismitigates against new or inexperienced organisations. Where community benefits and their delivery are toform part of the contract requirements, then organisations expressing an interest should be asked todemonstrate their experience or ability to meet these requirements.

5.11 When contractors are asked to consider subcontracting to social enterprises they can be asked todemonstrate their relevant track record. Home Office guidance suggests that “you can ask prime suppliersduring pre-qualification to demonstrate their track record ofachieving value for money through effective use of the supplychain - including for example through sub-contracts orpartnerships with VCOs or SMEs.”13

DRAWING UP THE SPECIFICATION5.12 This is the key stage in enabling participation by social

enterprises and in ensuring that contracts actually achieve thelocal authority’s full purpose. As in principle a purchasing body isfree to determine what it wishes to buy, it can analyse theadditional benefits it may obtain from provision by a socialenterprise, and choose to make these part of the servicespecification. Examples of the types of benefits are described inSection 2. This may increase opportunities for SMEs and BMEbusinesses as well as social enterprises, but it does not reservethe contract for them. It is quite possible that a commercialcontractor will be able to demonstrate that they can also meet


12 Aggregation - is bigger always better?, OGC 2004, available at www.ogc.gov.uk/sdtkdv/new-content/aggregat520304.pdf13 Think Smart ... Think Voluntary Sector, Home Office and OGC, 2004, page 21


Social enterprise suppliers andlocal authority purchasers inEngland can register withwww.nearbuyou.co.uk. Thewebsite provides a searchableonline directory of socialenterprises and their products andservices, and a facility forpurchasers to advertiseforthcoming tenders. A complexE-Alert system enables suppliers toreceive tenders by email based ontheir type of business andgeographical area.

www.nearbuyou.co.uk

this part of the specification. The contractor must be selected so as to obtain the best service not ontheir origin or legal structure.

5.13 The specification should be drafted to include the core requirements of the goods or services and thelinked community benefits. The community benefits must relate to the main contract and must notdiscriminate against potential non-local bidders. All parts of the specification must also be capable ofbeing tested as part of a robust business case to ensure that they are deliverable, measurable,and can bepaid for and properly managed.

5.14 The procurement process could therefore ask potential contractors to show how they would engageservice users, staff and the community in the operation of the service, and could include this in theevaluation criteria, as long as this aspiration is set out in the Community Strategy or is an approvedobjective for the service.

5.15 Under the National Procurement Strategy tender invitations can, and by 2005 should, include arequirement for bidders to submit optional, priced proposals for the delivery of specified communitybenefits, as long as they are relevant to the contract and deliver the Community Plan.

5.16 In preparing specifications, authorities should focus on outcomes, not on methods, in order to leave roomfor innovation in delivery. They can involve relevant stakeholders in drawing up the contract specification,including appropriate consultation with potential suppliers, as long as this does not favour any particularsupplier.

5.17 Authorities should also avoid assigning risks inappropriately under the specification; asking contractors totake on unnecessary risk could militate against social enterprises being able to bid. They could considerholding a risk identification workshop to increase the likelihood of correctly assessing and assigning risksin the best way.

5.18 An example of a specification, as used by Sheffield City Council, together with tender questions to beadapted in the invitation to tender or negotiate is set out in Appendix 3.

AWARDS OF CONTRACTS AND CONTRACT MANAGEMENT ISSUES5.19 At the stage that contracts are evaluated the community benefits should form part of the evaluation

criteria, including an appropriate weighting. Criteria should be used that can measure the potentialdelivery of these benefits. Authorities should make it clear that they will be choosing the ‘mosteconomically advantageous’ tender and in all cases seeking value for money, rather than simply the lowestprice. Along with other potential contractors, if social enterprises are unsuccessful in their tender, thenfeedback should be given.

5.20 The payment structure under the contract should also takeaccount of the needs of smaller enterprises. Significantly, theOGC/Home Office guidance makes it clear that it is possible incertain circumstances for public sector organisations to makepayments in advance. These should be assessed on a case-by-case basis14. Authorities must ensure that they are even handedin their approach. SMEs may have similar cash flow issues.Finally, authorities should avoid overly onerous reportingrequirements for social enterprises, ensuring that what isrequested is consistent with the size of the contract and thedegree of risk.


14 Think Smart ... Think Voluntary Sector, Home Office and OGC, 2004, page 25


Sheffield City Council askspotential contractors how theymight:

• work in partnership with social enterprises,

• integrate social enterprises into their supply chain,

• support the development of social enterprise,

• integrate social enterprise into their training programme.

See Appendix 3 for an example ofSheffield City Council’s tenderinformation.

KEY POINTS

• Engage with social enterprise support structures in your area.

• Get to know what social enterprises can offer.

• Hold meet the buyer events.

• Provide guidance in how to work with local authorities.

• Be accessible to potential new suppliers.

• Consult a wide range of service providers, including social enterprises, at the early stageof developing policies and strategies for procurement.

• Ensure that the council’s Community Strategy and Best Value Performance Plan set outthe authority’s requirements for a wide range of community benefits and includesupport for engaging with the social enterprise and community/voluntary sector.

• Analyse what you need in terms of pre-qualification criteria to choose your range oftenderers and do not choose criteria which are extraneous, and which could bar socialenterprises from bidding.

• In specification focus on outcomes and defined reasonable community benefits as corerequirements within the procurement.

• Consider stimulating opportunities for social enterprises to be sub-contractors as well asprime contractors in a supply chain.

• Construct a payment mechanism that is realistic in cashflow terms and does notunnecessarily increase costs.



THIS SECTION

briefly considers possible alternatives to competitive tendering including:

• grants;

• provision in-house; and

• local authority companies.

6.1 Although the procurement processes can be organised in a way that achieves the services that socialenterprises provide, they cannot be designed to secure work for social enterprises. If these approaches arenot considered appropriate for the local context, then it may be that an alternative to procurement needsto be considered.

GRANTS6.2 The required service outcomes may be better achieved by grant-aiding a social enterprise rather than

offering a contract. In both central and local government there are still services that are acquired in thisway. For example, Groundwork Trusts are grant-funded for an initial period (of many years) by the ODPM.The decision on what outcomes are best achieved through contracts and what are best achieved throughgrants depends on the long-term achievement of the optimum balance of costs and quality. The case forgrant-giving would need to be argued in these terms. Even if a convincing case can be made for grant-aiding social enterprises the possibility of the impact of the ‘state aid’ regulations will need to beconsidered. The Home Office guidance on procurement from the voluntary and community sector makesthe point that it is not always easy to tell the difference between giving grant aid and contracting, andexpert advice should be sought where there is any doubt.

PROVISION IN-HOUSE6.3 A second option would be to deliver the services in-house, either through a separate but publicly-owned

not-for-profit organisation or by the authority itself through one of its departments. There are well knownexamples of this approach, such as Newco Products in Newham, London. It is not possible for a publicbody to contract with itself, and so any requirements would need to be specified in an internal agreement.This agreement would not be subject to the procurement process. Whilst stakeholders may be included inan advisory group, this type of arrangement does not create a social enterprise, and there are issues abouthow independent or autonomous any in-house provision can be.

LOCAL AUTHORITY COMPANIES6.4 Under clause 96 of the Local Government Act 2003 best value authorities may set up companies to do for

a commercial purpose anything which they are authorised to do for the purpose of carrying on any oftheir ordinary functions. The use of this power is subject to an order by the Secretary of State andcurrently may only be used by councils performing well under their comprehensive performanceassessment. Alternatively a company could be formed relying on the council’s well-being powers underPart I of the Local Government Act 2000.

6.5 The use of either power gives rise to the opportunity to create a structure similar to that of an arm’slength management organisation (ALMO). This is a company limited by guarantee of which the housingauthority is the sole member. The board of directors is made up of one third authority nominees, onethird tenants and one third independents. If this type of company were to be used for a social enterprisethen the council could be either the sole member or take a majority of membership voting rights.Flexibility in the make up of the board of directors, who would manage the enterprise, would give scopefor employee, service user and independent participation alongside representation from the council.


6 Alternatives to Competitive Procurement

6.6 This approach would leave the council free to support the enterprise without open competitive tendering.Under company law, this type of enterprise would be a subsidiary of the council. In the ‘Teckal’ case15 theEuropean Court of Justice held that the procurement rules would not apply to a contract between a localauthority and another legally distinct body that is under the control of that authority where it operates asif it were a department of that authority.

6.7 A major disadvantage is that under Part V of Local Government and Housing Act 1989 the new enterprisewould be a controlled company and therefore regulated for the purposes of that Act. However, under thenew local government finance regime, this is not as significant an issue as it would have been before 1April 2004.


15 Case C - 107/98, Teckal Srl v Comune di Viano and AGAC di Reggio Emilia

6 Alternatives to Competitive Procurement

OPTIONS FOR LEGAL STRUCTURESThe options for any new venture are as follows:

Unincorporated bodies:

• unincorporated association;

• trust; and

• legal partnership.

Incorporated bodies:

• private company limited by guarantee;

• private company limited by shares;

• community interest company;

• industrial and provident society; and

• limited liability partnership.

UNINCORPORATED BODIES

Unincorporated association

An unincorporated association is an organisation of two or more people who are working together for acommon purpose but not intending to make a profit. Many clubs, societies and other informal groups wouldfall into this category. The association can have a constitution, will often have a management committee andcan even be suitable for registering as a charity. But, in this option, no new separate legal body is created andso any property will be held by the members of the association and any contracts will be entered into byindividual members of the association who will therefore be liable under those contracts. Where the neworganisation is proposed to have substantial activities, this is therefore not a suitable form to be used.

Trust

A trust is formed where a number of people who are known as ‘trustees’ hold money or property ‘on trust’ for aspecific purpose for the benefit of others. There will generally be some governing instrument or deed which willset out the responsibilities of the trustees and the purpose of the trust. The trustees have a personal duty tomake sure that the money or property is used only for the purposes laid down in the governing instrument.Trusts are subject to a fairly complex legal regime. They can be registered as charities if the purposes of thetrust are recognised by the Charity Commission as being charitable. This is a suitable form for grant makingorganisations but not those carrying out commercial or service delivery activities as again in thosecircumstances the trustees will be personally liable.

Legal partnership

A legal partnership is formed where two or more individuals come together to operate as a business with a viewto making a profit. Each of them will be entitled to a share in that profit. This arrangement is subject to somelegal regulation, but there is no requirement for publishing any information about the partnership. This is theusual form for most law and accountancy firms and also many smaller business undertakings. It is onlysuitable, however, for an organisation which intends to trade for profit-making purposes and where theindividuals involved are prepared to be liable if things go wrong.

INCORPORATED BODIES

Company limited by guarantee

This is the usual vehicle for non-profit making organisations, including charities, which are companies. It is awell known vehicle, which is recognised by funders. Companies limited by guarantee do not normally distribute


Appendix 1

Legal Structures used by Social Enterprises

profits to their members. The members of the company undertake to pay a nominal sum (usually £1) in theevent of the company being wound up and this sum is the limit of their liability. It has a two-tier structurewith members making up those who ‘own the company’ and directors who are responsible for its management.

Being a limited company such a vehicle can hold property, can employ staff and carry out the full range of legalfunctions. It is relatively straightforward to set up, but will of course be regulated by Companies House andsubject to company law. If it is registered as a charity, it will also be subject to regulation by the CharityCommission. It can form part of a group structure.

Many social enterprises throughout the country have chosen this structure. The structure provides a means ofundertaking a full range of initiatives, with a separate legal identity giving a strong focus for the community.

Company limited by shares

This is the usual vehicle for profit-making trading organisations. There is a similar two-tier structure exceptthat, with a share company, the owners of the company are referred to as ‘shareholders’ and their liability willbe limited to the extent of their share in the company. There will then be directors who will manage thecompany. This is not a form which is suitable for charitable registration.

Community interest company

Community interest companies (CICs) are a new variation on the company structure with two key new features:an ‘asset lock’ to prevent conversion to a profit-distributing body, and the ability to raise some equity finance ina non-profit making context. Given that the form is unlikely to be available until 2005, however, it has notbeen considered in detail for the purposes of this report. Further information about CICs is available atwww.dti.gov.uk/cics.

Industrial and provident society

There are two types of industrial and provident society (IPS): the co-operative and a society for the benefit ofthe community.

As with companies limited by guarantee an IPS can be a non-profit making body, particularly those registered associeties for the benefit of the community. It will have a similar two-tier structure with members and acommittee who are responsible for management. An IPS is, however, less flexible than a company limited byguarantee in that it has a less flexible membership structure. Registration can be costly but often model rulescan be used to simplify the process.

Many social enterprises have valued the status of being a mutually owned co-operative. It should also be notedthat recent changes to the law mean that assets owned by a IPS set up for the benefit of the community canbe ‘locked in’ to prevent them ever passing back into private ownership.

Limited liability partnership

Limited liability partnerships (LLPs) are a kind of hybrid between traditional partnerships and limited companies.They offer some of the protection of limited liability in that a new body corporate, the LLP, is created, and it isthis body corporate that enters into contracts with third parties. Like a company, the LLP has to file annualaccounts with Companies House, and company insolvency rules apply to the LLP. However, the LLP also hassome characteristics of a partnership, in that the LLP itself is not liable to tax; the members are liable for tax onthe income that they draw from the LLP. This can be an advantage if those members are not themselves liableto tax. The constitution of the LLP can remain confidential between the members and it is for the members todecide how decisions are taken.

Few social enterprises have yet used this form, which is more likely to be relevant to the professional privatesector, although some use has been made of LLPs in a regeneration context.


Appendix 1

Legal Structures used by Social Enterprises

PART B SERVICESHotel and restaurant services

Transport by rail

Transport by water

Supporting and auxiliary transport services

Legal services

Personnel placement and supply services

Investigation and security services, other than armoured car services

Education and vocational education services

Health and social services

Recreational, cultural and sporting services

Other services


Appendix 2

EU Directives - Part B

1 SHEFFIELD CITY COUNCIL Below is a number of extracts from the housing and neighbourhood investment contracts. Please note that for thisproject, requirements are wider than just social enterprise and also incorporate a wider employment and trainingstrategy, such as 14-19 year olds, employment of hard to reach people etc.

The City Council will look to achieve Best Value through its procurement processes. Tenderers are asked toconsider how their delivery of the service could achieve the following objectives:

• Creation of attractive, successful neighbourhoods where people want to live.

• Contribution to the long-term sustainability of the communities improved by this project.

• Contribution to the City Council’s policy of ‘closing the gap’.

• Creation of a strong economy that encourages a diverse and competitive supply market.

• Reduction of crime/vandalism.

• Provision of education and training opportunities.

• Provision of recreational and cultural opportunities.

• Achievement of environmental benefits.

The City Council’s commitment to local regeneration is reflected in the scoring criteria for this tender andrepresents part of the core subject matter of the Contract.

There is no prescribed method which Tenderers must adopt in trying to deliver the above aims and objectives.The City Council is looking for both novel and tried and tested solutions. The key point is that the outcomes ofsuch an initiative must be realistic and deliverable and link well with the whole project. In other words, the CityCouncil is seeking to achieve Best Value for the project overall and social considerations, whilst a core part ofthe Tendered Service are only part of that package.

Please submit your proposals on how you would approach the following social considerations:

1 How you would contribute towards, or deliver, any or all of the general community regenerationobjectives listed above;

2 How you would deliver the project in partnership with social enterprises active in the area. A socialenterprise is a business/organisation/charity with primarily social objectives whose surpluses are mainlyreinvested for that purpose in the business or in the community. Details of social enterprises active bothSheffield wide and in the local area are attached to Volume 2 as an appendix. Another option may be thecreation of a new social enterprise. Your response should cover:

• How social enterprises could be integrated into your supply chain networks;

• How you could support such enterprises in their business development, including professional andadministrative skills, such that at the end of the investment programme the social enterprises wouldbe sufficiently skilled and experienced to be able to compete for work for long-term viability;

• How social enterprises could benefit from integration into such a construction-training programme.

3 How you would ensure a mixed economy in sub-contracting arrangements. How would you utilise arange of sub-contractors to be integrated into the wider supply chain (i.e. small, medium and largeenterprises) and ensuring that local businesses are not discriminated against when contracts are awarded.

4 The provision of training opportunities (for example by participating in the Construction JOBMatchscheme).

5 How you would accommodate the Council’s initiative regarding the 14 to 19 year old Work ExperienceProgramme, working closely with the Local Education Authority (LEA).

6 How you would demonstrate your commitment to the ‘Respect For People Agenda’ an initiative based onthe Rethinking Construction principles, by considering the opportunities for wider training and furtherdevelopment of employees, engaged directly by yourself, and your supply chain and how these


Appendix 3

Detailed Case Studies

arrangements could interface with other Partnering Contractors.

You are required to submit an outline Employment and Employee Development Plan, which could include, butnot be restricted to, the following:

1 Management Development, for example Contracts and Site Management;

2 Site Supervision training and development;

3 Customer Care Training;

4 Workforce development to suit the needs of the investment programme, for example multi-skillinginitiatives;

5 Health and Safety legislative and technical training, for example dealing with asbestos;

6 ICT development, for example Project Management and European Computer Driving License qualification;

7 Links to Further and Higher Education, for example local Colleges and Universities, and graduatedevelopment;

8 Accreditation of Investors in People (IIP).

You are also required to put forward your ideas on how all the above initiatives could be combined by allPartnering Contractors into a joint comprehensive Investment Programme wide ‘Education, Training andEmployment Plan’.

2 NOTTINGHAM CITY COUNCIL This case study is drawn from a report that deals with the inclusion of jobs and training in that authority’sprocurement process. It relates to contracting for construction.

a) Legal Powers

The Local Government Best Value (Exclusion of Non-commercial Considerations) Order 2001 allowsNottingham City Council to take into account in the formation of its Approved Contractors List, amongst otherissues, the composition and training of the workforce of contractors in respect of its public supply and workscontracts. Prior to the above Order, consideration of these non-commercial issues had been prohibited by theLocal Government Act 1988. This new power can be used if Nottingham City Council considers that, in sodoing, it is facilitating best value.

The Local Government Act 2000 introduced the power of well being. This new power allows Nottingham CityCouncil to do anything that it considers is likely to achieve the promotion or improvement of economic, socialand environmental well-being in its area, unless there are prohibitions, restrictions or limitations contained inany other legislation.

The new power of well-being will allow Nottingham City Council, as a major employer in the City, to extend thefunction of any construction related operation to include the improvement of local employment and training.The manner in which Nottingham City Council determines the composition of its Approved Contractors List willbe an essential element of that extended function. Best value will be facilitated by the continuousimprovement in the delivery of the extended function and the above Order will allow Nottingham City Councilto take account of the composition and training of contractor workforces when determining who may or maynot be on the Approved Tender List.

b) Observations of Quality and Business Services

The use of Social Clauses (access to employment) in construction procurement supports the principles of BestValue, which must have regard to economy, efficiency and effectiveness, and also equity and environment. Inconsidering Best Value, a relevant factor listed is that Social Clauses give effect to the principles of sustainabledevelopment, including building in commitments to Local Agenda 21 strategies as well as reflecting thegovernment’s own sustainability development principles.


Appendix 3


The government recognises that good public services rely on a well trained and motivated workforce in theprovision of services delivered either in-house or through the private sector. In line with this, the governmenthas amended Part II of the Local Government Act 1988, to enable local authorities to take workforce mattersinto account.

In seeking this approval to apply the new power of well-being to construction procurement, this report alsosupports the Sustainable Development and Best Value Pathfinder Project, and Nottingham City Council is one ofthe authorities selected to participate in this project. In particular, the Pathfinder Project will examine theopportunity to delivery sustainable development through the City Council’s Best Value Procurement Strategyand to focus on the Building Construction service and its potential impact on sustainable development.

This report is the first stage in the development of a model for social clauses in the procurement process andconsideration should be given to extending these into future contracts for other works and services.


Appendix 3


Co-operativesUK

Holyoake HouseHanover StreetManchesterM60 0AS0161 246 [email protected] www.cooperatives-uk.coop

Social Enterprise Partnership GB9 Red Lion CourtLondonEC4A 3EF020 7583 [email protected]

Social Enterprise Coalition54 HaymarketLondonSW1Y 4RP020 7968 [email protected] www.socialenterprise.org.uk

Social Firms UKAspect House2-4 Monson RoadRed HillRH1 2ET01737 [email protected]

Development Trusts Association 1st Floor, Red Lion CourtLondonEC4A 3EF0845 458 8336 [email protected] www.dta.org.uk/index2.html

DTI - Social Enterprise UnitSmall Business ServiceDepartment of Trade and IndustryKingsgate House66-74 Victoria StreetLondonSW1E 6SW0845 001 [email protected]/socialenterprise

Co-operation & Mutuality Scotland c/o Scotmid Society92 FountainbridgeEdinburghEH3 9QE0131 229 [email protected]

Employee Ownership ScotlandRobert Owen House87 Bath StreetGlasgowScotlandG2 2EE0141 304 [email protected]

Scottish Social Enterprise CoalitionPrinces House5 Shandwick PlaceEdinburghEH2 4RG0131 229 [email protected]

Social Economy Agency Northern Irelandand Social Economy Network15-16, Rath Mor CentreBligh’s LaneCregganDerryBT48 0LZ028 7137 1733info@socialeconomyagency.orgwww.socialeconomyagency.orgwww.socialeconomynetwork.org

Wales Co-operative Centre Canolfan Cydweithredol Cymru and Social Economy NetworkLlandaff CourtFairwater RoadCardiffCF5 2XP 029 2055 [email protected]


Appendix 4

Support Organisations

The following information has been compiled from several sources and the publishers cannot guarantee that iscomprehensive or accurate.

1 NATIONAL ORGANISATIONS

Social Enterprise East MidlandsFoxhall Business CentreFoxhall RoadNottinghamNG7 6LH0115 845 [email protected]

Social Enterprise East of England45 Grosvenor RoadSt AlbansHertsAL1 3AW01727 813 [email protected]

Social Enterprise Network (Merseyside)2-3 Atlantic WayBrunswick Business ParkLiverpool L3 4BE 0151 707 [email protected]

North East Social Enterprise Partnership14 Manchester StreetMorpethNE61 [email protected]

RISEUnit 1, Cranmere CourtLustleigh CloseMatford Business ParkExeterEX2 8PW01392 473 [email protected]

South East Social Enterprise Partnershipc/o Social Firms South EastAspect House2-4 Monson RoadRed HillRH1 2ET01227 709 727

Social Enterprise Yorkshire and Humbersidec/o IMBY Ltd53 Mowbray StreetNeepsendSheffieldS3 8EN0114 249 3282


Appendix 4


2 REGIONAL SOCIAL ENTERPRISE NETWORKS

3SELee House90 Great Bridgewater StreetManchester M1 5JW.0161 237 [email protected]

Avon CDABRAVE LtdThe Coach House2 Upper York StreetBristolBS2 8QN0117 989 [email protected]

Cambridge CDAAlex Wood HallNorfolk StreetCambridgeCB1 2LD 01223 [email protected]/cambridge/ccda/

CDA South East Hants and Wight44 High StreetFarehamPO16 7BN01329 223043www.cda-info.org.uk

Cleveland Co-operative Agency140 Park RoadHartlepoolTS26 9HY 01429 861303www.ccda.org.uk

Co-active25 Wolseley ClosePlymouthPL2 3BY 01752 [email protected]

Co-Enterprise BirminghamUnits 121-122The Custard FactoryGibb StreetDigbethBirminghamB9 4AA0121 687 [email protected]

Co-operative and Mutual Solutions (CMS)48 Sudell RoadDarwenLancashireBB3 3HW01253 [email protected]

Co-operative Assistance Network Ltd12 Bellevue RoadSouthamptonSO15 2AY 02380 [email protected]

Co-operative Futures City WorksAlfred StreetGloucesterGL1 4DF 01452 [email protected]

Co-operative Solutions LtdThe Latton Bush Business CentreSouthern WayHarlowEssexCM18 7BH01279 838213office@co-operativesolutions.coopwww.co-operativesolutions.coop

Community Enterprise Unit69A Sidwell StreetExeterDevonEX4 6PH 01392 [email protected]


Appendix 4


3 REGIONAL, SUB-REGIONAL AND LOCAL SOCIAL ENTERPRISE DEVELOPMENT BODIES

Community First 141 Church StreetMalvernWR14 2ANTelephone:01684 [email protected] www.communityfirst.co.uk

Coventry & Warwickshire CDA Doe Bank BuildingDoe Bank LaneCoventryWest MidlandsCV1 3AR024 7663 [email protected]

Economic Partnerships14 Manchester StreetMorpethNorthumberlandNE61 1BH01670 [email protected]

Greenwich CDA 2nd FloorThe Forum@GreenwichTrafalgar RoadGreenwichLondonSE10 9EQ0208 269 [email protected]

Hackney Co-operative Developments (HCD)62 Beechwood RoadLondonE8 3DY0207 690 [email protected]

Harlow CDA Third Floor4 Mitre BuildingsWest SquareHarlowCM20 1DR01279 [email protected] www.harlow.gov.uk/business/cda/cda.htm

Kent CDAc/o Technology Enterprise KentJames HouseCastle StreetCanterburyKentCT1 2QD 01227 470234

Lancashire CDAPark House17 Moor Park AvenuePrestonLancashirePR1 6AS01772 [email protected]

Leicester and County CDA94 New WalkLeicesterLE1 7EA0116 222 [email protected]

Lincolnshire CDAc/o Business LinkWelton HouseLime Kiln WayLincolnLN2 4WH01522 574244 [email protected]

Northamptonshire CDA214a Kettering RoadNorthamptonNN1 4BN01604 [email protected] www.enterprise-solutions.org.uk

Promo-Cymru LtdBaltic HouseMount Stewart SquareCardiffCF10 5EH02920 [email protected]

Rochdale Social Enterprise Initiative (ROFTRA)14/16 NewgateRochdaleOL16 1BA 01706 [email protected]


Appendix 4


Sheffield Co-op Development Group Ltd Aizlewoods MillNursery StreetSheffieldS3 8GG0114 282 3100www.scdg.org

Social Enterprise London1A Aberdeen Studios22-24 Highbury GroveLondonN5 2EA0207 704 [email protected]

Social Enterprise Sunderland Hendon Co-operative Centre44 Mowbray RoadSunderlandSR2 8EL0191 545 [email protected]

Suffolk Acre LtdSuffolk House2 Wharfedale RoadIpswichIP1 4LG01473 [email protected]

Tamil Co-operative Development Agency92A Forest RoadWalthamstowLondonE17 6JQ020 8509 8484

The Guild (Norwich) Ltd Burlington Buildings11 Orford PlaceNorwichNR1 3RU01603 [email protected]

Tower Hamlets CDABusiness Development Centre7-15 Greatorex StreetTower HamletsLondonE1 5NF0207 247 [email protected]

London Region DTA1st Floor, Red Lion CourtLondonEC4A 3EF0845 458 8138 [email protected]

Eastern Region DTA1st Floor, Red Lion CourtLondonEC4A 3EF0845 458 [email protected]

East Midlands Region DTARASEN Hub 20, Union Street Market RasenLN8 3AA07793 [email protected]

North West Region DTARoyal Standard House334 New Chester RoadBirkenheadCH42 2AS0151 644 [email protected]

South West Region DTAMeridian House Retail Park CloseMarsh Barton Exeter EX2 8LG01392 [email protected]

Wales DTA35b Albert RoadPenarthGlamorganCF64 1BY029 2019 0260 / [email protected]

North East Region DTAOffice 1Duncurin House Enterprise Centre74 Medomsley RoadConsettCounty Durham DH8 5HP01207 [email protected]

South East Region DTAc/o 9 Red Lion CourtLondon EC4A 3EF01303 [email protected]


Appendix 4


West Midlands Region DTAc/o All Saints Action NetworkAll Saints Community CentreAll Saints RoadWolverhampton WV2 1EH01902 [email protected]

Yorkshire & Humber Region DTAc/o 57 Burton StreetSheffield S6 2HH0114 234 [email protected]

Scotland DTA54 Manor PlaceEdinburgh EH3 7EH0131 220 [email protected]

Social Firms Scotland54 Manor PlaceEdinburgh EH3 7EH0131 225 [email protected]

Social Firms WalesInnovate Trust433 Cowbridge Road EastCantonCardiff CF5 1JH02920 391 [email protected]

Social Firms South East Aspect House2-4 Monson RoadRedhillSurrey RH1 2ET01227 [email protected]

Social Firms South West 125 Thingwall ParkFishpondsBristolBS16 2DB0117 902 [email protected]

Social Firms Yorkshire & Humber IMBY53 Mowbray StreetSheffieldS3 8EN0114 2493282

Social Firms North East14 Manchester StreetMorpethNorthumberland NE61 1BH01670 516892

West Midlands Social Firm Partnership Institute for Social EntrepreneursRubicon HouseRavenshurst StreetBirmingham B12 0HD0121 771 [email protected]

Social Firms Eastern Region86 Whiting StreetBury St. EdmundsSuffolkIP33 1NX01473 272 [email protected]

Social Firms London Aspect House2-4 Monson RoadRedhillSurreyRH1 2ET01227 [email protected]

Social Firms East Midlands Unit 37, The Lenton Business CentreLentonNottingham NG7 2BY0115 [email protected]


Appendix 4


2AMASE19 Helford WayUpminsterEssexRM14 1RJ0871 218 [email protected]

AccaliaKCBC180-186 Kings Cross RoadLondonWC1X 9DE0207 689 1616www.accalia.co.uk

Coin Street Community BuildersG2 Oxo Tower WharfBargehouse StreetSouth BankLondonSE1 9PH020 7401 3610www.coinstreet-org

Jericho Community Business196-198 Edward RoadBalsall HeathBirminghamB12 9LX0121 440 7919www.jcp.org.uk

mutualadvantage57 Cowley Rd,Ilford, Essex,1GI 3JJ020 8491 [email protected] www.mutual-advantage.co.uk

New Enterprise Partnership020 8763 [email protected]

Prime Focus Regeneration GroupDaimler HouseParadise CircusBirminghamB1 2BJ0121 687 5000www.focus.co.uk

The FRC GroupAtlantic WayBrunswick Business ParkLiverpoolL3 4BE0151 701 0551www.the-cats-pyjamas.com


Appendix 4


4 OTHER SUPPORT ORGANISATIONS

ORGANISATIONS

Co-operativesUK

As the apex organisation for co-operative enterprise in the UK, it promotes co-operative and mutual solutions, provides legaland governance development services, and has a range of projects to develop the sector including rural and public sectorservice development.www.cooperatives-uk.coop

Social Enterprise Partnership SEPImplements infrastructure and systems development, capacity building, research and development for the social enterprisesector in the UK.www.sepgb.co.uk

Social Enterprise CoalitionThe national body that brings together organisations to promote the social enterprise sector and share knowledge. SECplays a dual role, both influencing the policy agenda and promoting best practice.www.socialenterprise.org.uk

Social Enterprise Unit (SEnU) DTIThe role of the Social Enterprise Unit (SEnU) is to: act as a focal point and co-ordinator for policy making affecting socialenterprise; promote and champion social enterprise; take action needed to address barriers to growth of social enterprises;and identify and spread good practice.www.dti.gov.uk/socialenterprise/about

Office of Government Commerce OGCOGC works with government to improve procurement and project/programme management. Procurement website isintended to provide access to OGC news, publications, services information and content on particular topics or initiatives ofparticular interest to members of the government procurement community.www.ogc.gov.uk

Society of Procurement Officers in Local Government (SOPO) SOPO engages in a range of activities to promote its strategic purchasing, contracting and supplies functions.www.sopo.org

Improvement and Development Agency (IDeA)IDeA works to stimulate and support continual and self-sustaining improvement and development within local government.www.idea.gov.uk/procurement

Local Government AssociationThe LGA exists to promote better local government. The LGA aims to put local councils at the heart of the drive to improvepublic services and to work with government to ensure that the policy, legislative and financial context in which theyoperate, supports that objective.www.lga.gov.uk


Appendix 5

Resources

USEFUL PUBLICATIONS

Social Enterprise: a strategy for success - DTIThis strategy was launched in July 2002. It sets out a programme for the next three years of how the government will workwith key partners to promote and sustain social enterprise activity.www.dti.gov.uk/socialenterprise/strategy

Think smart…Think Voluntary Sector - Home Office & OGCGood Practice Guidance on Procurement of Services from the Voluntary and Community Sector, June 2004.www.homeoffice.gov.uk/docs3/thinksmart_040608.pdf

Smaller Supplier…Better Value? - OGC & SBSPart of the 'Think Small First' drive which urges all parts of government to think about their role in supporting the enterprisesociety. The booklet seeks to raise awareness of the greater competition and better value small and medium-sizedenterprises (SMEs) can bring to the marketplace.www.ogc.gov.uk/embedded_object.asp?docid=2077

Fit to Supply - SBSFit to Supply is a supply chain and procurement initiative supported by the Small Business Service. The project that bringstogether major purchasers of goods and services with the small businesses and enterprises in their local communities formutual benefit.Purchasers - to find out how Fit to Supply can help your organization to benefit from the diverse skills on your doorstep,build links with local communities, meet statutory requirements and deliver best value for your stakeholders, visit:www.fittosupply.org/Clients/FTS/FTSWebsi.nsf/purchaser

National Procurement Strategy for Local Government - ODPMwww.odpm.gov.uk/stellent/groups/odpm_localgov/documents/pdf/odpm_locgov_pdf_029231.pdf

Sustainability and Local Government Procurement - IDeAThis guide draws on the experience of English and Welsh local authorities to provide practical advice on how a commitmentto sustainable development can be turned into an effective procurement policy and strategy and built into processes.www.idea.gov.uk/publications/?id=008

Competitive Procurement - Learning from audit inspection and research - Audit Commissionwww.audit-commission.gov.uk/reports/AC-REPORT.asp?CatID=&ProdID=877F5A21-2999-460e-BABF-3D4A598638E7

Assessing the Impact of Public Sector Procurement on Competition - Office of Fair TradingPreliminary OFT research into public sector procurement, September 2004.www.oft.gov.uk/NR/rdonlyres/5DE3EFD9-88C6-4A6F-9A36-7DBEBB1B20A8/0/oft742a.pdf

Training Module on the New Public Procurement Directives - OGCReleased August 2004, a training module covering significant changes arising from the new Public Procurement Directiveshas been developed for OGC and is available on the website.www.ogc.gov.uk/index.asp?id=1002185

The Social Enterprise Coalition and New Economics Foundation are producing a guide for procurement officers and othersinvolved in the procurement process. It will explain the benefits of procuring from social enterprises with a series ofpractical examples showing what can be achieved. The guide will be available in early 2005.www.socialenterprise.org.uk


Appendix 5

Resources

Founded in 1973, the Birmingham based firm Anthony Collins Solicitors is a law firm withthe large social housing, charities and community regeneration operations, alongsidecommercial and private client teams and has particular expertise in relation toprocurement issues. Mark Cook is co-author author of Achieving community benefitsthrough contracts: Law, policy and practice, research funded by the Joseph RowntreeFoundation. The firm is also increasingly involved in services to social enterprises andthose who support them.

www.anthonycollinssolicitors.com

Provide project is part funded by Co-operative Action and delivered by Co-operativesUK

and a range of partner organisations. It promotes the awareness of co-operative socialenterprise opportunities for the delivery of public services and assists those working onspecific options.

www.cooperatives-uk.coop/provide

Co-operativesUK represents the spectrum of co-operative enterprise throughout the UK,the Channel Islands and the Isle of Man. Its purpose is to develop and extend theco-operative sector. It believes that co-operatives and the wider social enterprise sectormake a substantial contribution to the UK economy, and in all their diverse formsco-operatives provide effective sustainable solutions to many of the social and economicchallenges of modern society whilst encouraging democratic participation.

www.cooperatives-uk.coop

Social Enterprise East of England is the regional network of social enterprises, socialenterprise support organisations and other key stakeholders within the Eastern Region. Itpromotes, develops and shares the success of social enterprise and helps implement bestpractice throughout the region. It works to improve skills and knowledge, encouragesustainability through trading, maximise social impacts, influence policy and voice theviews of its members within the region and at a national level.

Co-operative Action, funded by co-operative societies, provides support and assistance tocommunities throughout the UK to encourage the establishment and support forco-operative, mutual or social enterprise initiatives. It offers grants and loans fordevelopment and research into innovative ideas which provide co-operative, mutual orsocial enterprise solutions.

www.co-operativeaction.coop

The Social Enterprise Partnership implements infrastructure and systems development,capacity building, research and development for the social enterprise sector in the UKand is funded by the EQUAL Community Initiative programme and other funders todeliver a three-year project. SEP aims to address identified barriers restricting thesuccessful growth of the social enterprise sector, notably under-investment, insufficientaccess to training and support, the lack of appropriate quality mechanisms and impactmeasurement tools. SEP involves programme of work to upgrade business developmentand support to the sector, to help social enterprises grow their business operations andto measure, prove and improve their quality and impact.

www.sepgb.co.uk

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