This article is the second in our series on the state of social procurement in Australia. Click here to read our previous blog about the gap between the size of social procurement demand and the capacity of social benefit suppliers as well as the inaccessibility of many of the contracts.
A handful of proactive social benefit suppliers and large construction businesses are exploring innovative ways to scale social benefit suppliers. They see the quickest way to meet the demand for social procurement value is through alternative structures: joint ventures (JVs), acquisitions, alliances, collaborations and aggregators. This is somewhat similar to how Indigenous JVs have helped meet Federal Government targets for Indigenous procurement (tempered and informed by lessons learned about how to do JVs well).
These partnerships can lead to ‘step-change growth’ where the social benefit supplier can more than double capacity within six months.
Joint ventures
A 50/50 joint venture between a non-profit social benefit supplier and for-profit company meets the criteria for a social benefit supplier. This mutually beneficial relationship allows a social benefit supplier to leverage the resources and reach of the JV partner, while building their capacity to deliver social impact. The JV enables the social benefit supplier to access larger contracts than they could on their own, while giving the for-profit partner a competitive advantage on contracts with social procurement criteria.
An example is the joint venture between peak body, the Federation of Victorian Traditional Owner Corporations, and Cockram Construction, the 150-year-old building constructions services contractor and a subsidiary of $20 billion turnover Kajima Corporation. The result is Barpa, a $30 million Indigenous construction company with 12 Indigenous employees. It’s able to leverage the capability and assets of Cockram to compete for, win and service national building contracts.
Acquisitions or ‘take social’
In a ‘take social’ structure, a social benefit supplier acquires (or converts) a for-profit company and installs its social mission into the company’s constitution or articles of association. This can be a relatively fast, but potentially expensive, approach to scaling up. Philanthropy can be important to de-risk the investment to catalyse commercial capital.
For example, Yarra View Nursery, a social enterprise employing people experiencing a disability, acquired Bushland Flora, a for-profit wholesale plant nursery with 30 employees, to keep pace with the increase in social procurement contracts in the infrastructure sector. The acquisition increased Yarra View Nursery’s production capacity by 30%. Critically, this included specialised growing facilities and staff skills to broaden the range offered by Yarra View Nursery. Critically, this included specialised growing facilities and staff skills to broaden the range offered by Yarra View Nursery. The acquisition also led to the creation of six award-wage positions for people living with a disability. Without Covid, this would have been greater. The negotiations between the parties led to a win/win acquisition structure. Bushland employees were included in the deal to ensure continuity of operations. Yarra View Nursery secured favourable long-term leasehold reducing capital requirements and mitigating acquisition risk. After the acquisition, Yarra View Nursery secured a contract to supply plants for the Mordialloc Freeway Project, their largest contract to date. This contract could not have been won without the additional capacity and skill base of Bushland Flora.
Critically, the acquiring social benefit supplier requires strong management and processes in place to integrate the often vastly different cultures and operations.
Aggregators & consortiums
Social benefit suppliers can bid for larger work packages if they aggregate their services. The majority of government procurement contracts are worth north of $100,000 (or $1m for many infrastructure projects). Exceptions occur when proactive buyers unbundle work packages to spend categories where identified social benefit suppliers have the capability to deliver.
Bidding as a consortium enables social benefit suppliers to compete for contracts beyond their own capacity, while maximising the social procurement advantage of the tender. The challenge is finding consortium leads with the required contract management and procurement skills which can also develop the working relationships and trust across multiple businesses. This role is potentially well suited for dedicated secondees from experienced for-profits or purpose-built and co-funded programs resourced by not-for-profit intermediaries.
Alliances & collaborations
Social procurement buyers and for-profit companies can share their assets and upskill the capability of chosen social benefit suppliers in order to deliver on social procurement commitments. This is most often done in the form of asset and capability sharing agreements which give enterprises access to the for-profit companies’ resources. This can include land, facilities, machinery, IT systems, and professional support such as project management, procurement process, estimating or technical design services. As an example, Social Engine, a B2B site services social enterprise with 18 employees established two strategic supply agreements with specialty goods and services providers to access extensive product range (e.g. workwear, PPE and site vending machines) and a drop-ship fulfilment system. These enable co-bids for large B2B joint contracts that would otherwise be beyond their reach. As a result, Social Engine has recently secured service supply of vending machines to multiple sites for the Southern Program Alliance (Lendlease managed) Level Crossing Removal Project.
Alliances can help boost the capacity and capability of social benefit suppliers during the course of the contract, but considerations should also be given to what happens when the contract is over. It’s important to ensure the social benefit supplier does not become overly dependent on such support but instead uses the opportunity to enable it ‘to fly on its own’.
Enablers of alternative structures
Bringing together multiple parties for an alternative structure must be worth the effort. Well-designed social procurement contracts can incentivise parties to pursue an alternative structure. The contracts need multi-year duration with enough lead-time and quantified social procurement evaluation criteria in the tender. This makes the advantages of tendering with a social benefit supplier outweigh the risks and coordination effort of co-bidding. Complex structures may need capacity building services from external advisors to bring the pieces together.
Alternative structures are the fastest way for social benefit suppliers to reach scale. This means more jobs for people who have the largest barriers to employment as many social benefit suppliers in the construction industry employ people experiencing barriers to employment. With the high rates of unemployment we’re currently facing, we need more pathways to employment than ever before.
