Need to achieve local and competitive supply?

I have long been an advocate of local procurement. It makes sense on a lot of levels, primarily supporting the local economy, jobs and skills but also reducing carbon emissions and improving workforce welfare for people providing services to travel less and spend more time with their friends and family.

I started my first local procurement initiative around Heathrow Airport in 1995 with Ian Heptonstall, who would become my co-director in Action Sustainability 10 years later. Together we have continued to pioneer ways of supporting local communities and economies through procurement ever since.

The construction sector has an additional benefit in improving relationships with the communities in which the build takes place. This is a great opportunity to improve the image of the industry and the contractors. Fewer delays due to complaints also lead to improved productivity.

I was pleased to read about the success of the Welsh government in procuring more locally. Wales has unique social and economic challenges and re-cycling infrastructure investment to the local business community is welcome. This model of joined up collaborative procurement and promotion of opportunities for local business is one that merits replication elsewhere.

As the industry picks up after a long recession, main contractors may prioritise areas where they have more competition among subcontractors

However, I need to sound a cautionary note for anybody considering replicating the excellent Welsh model. If you draw from a relatively small pool of subcontractors, there is a danger that non-local businesses become disillusioned and refuse to bid.

This can have a positive impact on the local economy. However, it can also have a negative impact in that these local businesses can become less competitive if they believe they are in a strong position. In the construction sector, complacency and uncompetitive pricing from subcontractors can squeeze the margins of main contractors (who may be national or international businesses) to the extent that they lose interest in the region.

As the industry picks up after a long recession, main contractors may prioritise areas where they have more competition among subcontractors. Careful development of the supply chain is necessary to ensure long term economic stability and the necessary competence to support the ambitions of the region.

Procurers have the challenge to achieve local and competitive. While the technique of breaking contracts into smaller lots makes sense to encourage small businesses to win new work and grow, there is also an opportunity to look to larger contracts to be big enough to encourage inward investment by businesses prepared to set up in the local area, establish competitive supply options and employ more people.

Small businesses are important but it is important also to attract businesses with larger balance sheets and working capital to contribute to the economy.

This is not an either/or situation, it is an “and” issue. To use purchasing power effectively in a local economy it is necessary to promote competitive business through small local businesses and encourage investment by larger ones.

Shaun McCarthy is an independent adviser, author and speaker in the field of sustainable business policy and practice