The social procurement mismatch

From Commonwealth to state to local, governments across Australia are establishing ambitious social procurement targets. Industry now needs to rethink their procurement and contracting approach if they are to meet these obligations and achieve traction in social procurement.

Social procurement promises a better future for people in the downward cycle of long-term unemployment. Social procurement policies give incentives to business and government to buy goods and services from social enterprises. These enterprises deliver a quality service alongside a social benefit, such as employing people typically excluded from mainstream employment. They provide a supportive environment that brings out the best in their workers and enables them to take a first step towards an accessible employment market. Furthermore, social procurement encourages more contracts for Indigenous businesses driving the employment of Indigenous people.

In 2018, the Victorian Government took Australia’s first significant step in advancing social procurement with the Social Procurement Framework, creating a $375 million opportunity for social enterprises and Indigenous business[1]. We estimate that social procurement expenditure by the Victorian Government could create up to 5,000 jobs for job seekers experiencing disadvantage.[2]

Social Traders estimates that 1% social procurement target by the Commonwealth Government for infrastructure spending over the next five years would create over 9,000 jobs for the most vulnerable people at risk of long-term unemployment

There are hard and ambitious social procurement targets for the $9.6 billion annual budget for major infrastructure projects such as Level Crossing Removal, Metro Tunnel, Westgate Tunnel, North East Link and Major Road Upgrades[3]. These targets are driving early potential for social procurement demand.

However, the Victorian Government reported only $54 million in social procurement spend in its first report for FY19 – 14% of the potential[4].  A good start, but it is clearly very early days.

So far, most projects are struggling to achieve their social procurement targets. The managing contractors of the infrastructure projects have been slow to adapt their procurement and management processes to make contracts more accessible to the smaller, less sophisticated social enterprise suppliers. Only a few exceptional Tier 1 contractors have realised they can leverage their resources to provide social enterprises a hand-up.

Not many social enterprises have the capacity to take on even the smaller social procurement contracts north of $100,000 (and greater than $1 million for infrastructure projects). The fact of the matter is that Australia’s social enterprise sector is still relatively new. In Melbourne, for example, we estimate there are only around 25 social suppliers that have the scale and operational sophistication to service large government contracts.

Publicly available data from Supply Nation, Buyability, Social Traders, Map for Impact, ACNC and SVA estimates

These 25 are grouped into too few expenditure categories, such as commercial cleaning, landscaping, waste management and printing, meaning that many social procurement tenders are left without bids from social enterprises.

Furthermore, these few ‘at scale’ social enterprises are not growing fast enough to fill the unmet demand. Many of them lack the financial and strategic capacity to grow at the pace required. It would take a decade for them to collectively rise to the challenge.

The bottom line is that organic growth of the limited existing supply is not enough to prime the pump, let alone meet the surging social procurement demand.

This lack of social enterprise supply represents a considerable risk to the momentum of social procurement policy, and the much needed social impact sought by the Social Procurement Framework. Without enough social benefit suppliers ‘at scale’, we may start to see industry push back on social procurement targets, claiming best intentions but falling well short – or worse, accepting financial penalties as a lower cost alternative.

[1] “Victoria’s social procurement framework – Building a fair, inclusive and sustainable Victoria through procurement”, Victoria State Government (April 2018)

[2] “Annual Report 2018-19, Whole of Victorian Government Social Procurement Framework”, Victoria State Government

[3] Based on assumed % of estimated accessible Gov Dept spend for products and services

[4] SVA analysis based on 1% of an estimated Victorian Government expenditure on services and supplies of $5bn+ directed to social procurement