Podcast: Two Cents' Worth
Social procurement: a match made in heaven?
In 2017, two companies started the business equivalent of an “opposite side of the tracks” dating process.
On the one side, New Zealand Post, a 180-year-old, 7000-worker corporate.
On the other side, Fresh Desk, an SME commercial cleaner, which pays the living wage to all its staff and uses only environmentally-friendly products. The company was founded by two former health workers and self-described activists, who used the business to pull themselves - and their staff - out of poverty.
The unlikely romance started with an across-a-crowded-room encounter at the Social Enterprise World Forum in Christchurch in 2017.
In his speech at the conference, NZ Post chief executive David Walsh committed his SOE to forming a supplier relationship with three social enterprises over the following 12 months.
In the audience, Fresh Desk founders Caroline de Castro and Nicole Oxenbridge, decided their company was going to be one of the three.
Social enterprise is still pretty new in New Zealand. But basically it involves using business models as a tool to help solve social, cultural and environmental issues.
“Philanthropy as a trading activity,” as social enterprise expert Sean Barnes from the Ākina Foundation puts it.
Eat My Lunch, the “buy one, donate one” catering firm, is one of the best-known social enterprises in New Zealand, but there are an estimated 3,500 operating here and they contribute about $1 billion to our economy.
Of love and reality
But back to that conference in 2017.
“It was very exciting,” de Castro says. “The next day Ākina Foundation CEO Lou Aitken was like ‘Caroline, Caroline, come down here, you’ve got to meet this person Dawn from New Zealand Post. You guys are going to be working together.”
For the warts-and-all story of the relationship, including that awkward first meeting with the family, and a temporary breakup, listen to the podcast.
But - spoiler alert - the two companies did eventually get together, and Fresh Desk has used its relationship with NZ Post to get other contracts, including a 14-hours-a-day, 7 days-a-week cleaning gig at the Auckland Fish Market.
It now has 12 staff and has started hiring its own social enterprises - Five and Dime for marketing, Social Currency to do the accounts.
The official term for what’s happening with New Zealand Post and Fresh Desk, and with Fresh Desk and its own suppliers is “social procurement”.
That’s when companies and government departments start taking ethical and environmental factors into account when they make purchasing decisions.
Ākina’s Sean Barnes says New Zealand is at a tipping point in terms of social procurement taking hold. Earlier this year the Ākina started New Zealand’s first social procurement buyer network. It already has a dozen or so big members, including Air New Zealand, McConnell Dowell, Auckland Transport and New Zealand Post.
The organisations have a goal of promoting social procurement, and control a combined annual expenditure of $27 billion.
That’s big, but the total New Zealand procurement number is way bigger - a tad under $650 billion, according to Statistics NZ.
That’s the total amount New Zealand companies and government department spend on everything, from wages to toilet rolls, construction to morning tea shouts.
Auckland Council is a founder member of the Ākina buyer network, which is called Fwd:. It has $5 billion of annual spend to put into the procurement pot.
Councillor Penny Hulse says several big local projects already have weightings for social and environmental outcomes included in the tender process.
“In our Healthy Waters projects - streams and stormwater - they are looking for suppliers who will employ some of the people left out of normal employment opportunities, and who are promoting good environmental outcomes. Those companies will get a positive weighting in tenders,” Hulse says..
It’s the same with the City Rail Link, which has targets for training young and Maori unemployed people.
Hulse says it makes sense financially for local governments to use their procurement grunt to foster social objectives.
“The reality is, it’s our job as a council to look after Auckland. That means caring for the environment and for people. If we can use our size and our procurement might in a way that makes our communities better, that’s going to save the taxpayer side of our pocket by not having to fork out for the impacts of deprivation and for failing communities.”
Of course not everyone’s happy with the idea.
“Some of our politicians on the drier side of politics are rolling their eyes and saying ‘How much is this going to cost?’”.
It isn’t just cost putting a spanner in the social procurement works. Big organisations have perfectly good existing procurement strategies they are reluctant to change; they have contracts with existing suppliers doing a great job, they have procurement managers who think social and environmental impact isn’t their responsibility, and finance directors who are worried about the bottom line.
From the other side, there just aren’t remotely enough social enterprises out there, and they don’t cover a wide enough spectrum of products. For example, New Zealand Post needs a lot of fuel for its letter and parcel deliveries, but there’s no social enterprise supplying petrol and diesel.
Taking it mainstream
What is really going to move the dial, Sean Barnes says, is when mainstream suppliers are forced to adopt social or environmental credentials because otherwise they aren’t going to win contracts. That means a whole new way of tendering contracts with a meaningful - and quantifiable - weighting for social and environmental impacts.
And by “meaningful”, he means a relatively significant weighting.
“It’s probably 20 percent or 30 percent. It’s got to make a difference between two organisations bidding for the same contract.”
Government steps up
One step in the right direction is the fact that the latest Ministry of Business Innovation and Employment procurement guidelines, released recently, open the gate for social and sustainable procurement, Barnes says.
Central government spends around $45 billion a year.
“Under the guidelines, government entities can consider what they call ‘broader outcomes’ in their procurement decisions, and there are a series of priority outcomes the government wants to focus on,” Barnes says.
So far it’s left up to individual departments to decide whether they will or will not introduce other parameters than price and quality.And the Government’s priority outcomes aren’t broad.
Still it’s a start, Barnes says
“The thing I’m not disappointed in is the change of rules explicitly allows people to think about broader outcomes, when previously government was silent. And it gives some definition as to what a broader outcome is.”
Somewhat unexpectedly, Inland Revenue is one of the most proactive departments.
“Just this week I was looking at an IRD tender out at the moment, where they are saying ‘What is the social benefit of us working with you?’” Barnes says. “This is related to some staff training they are looking for over the next couple of years and not only are social outcomes part of their consideration, they are a precondition of their tender.”
In Barnes’ most optimistic moments, he sees social and environmental objectives one day being a part of every government and corporate tender.
But he knows that without tight scrutiny, targets and - critically - measurement of the impacts, social procurement could turn out to be another method of greenwashing
“In a worst case scenario it’s just tokenistic. Words but no substance. If you are going to ask the questions around this in procurement, you have to have people fronting up with evidence as well.
“The worst case isn’t that we don’t do this at all, it’s we do this really badly so we end up with a company going ‘Yeh, we’re really good and we are going to employ lots of people and they don’t. And then people will go: ‘See, nothing has changed. What a waste of time.’ And everyone becomes a bit cynical about the whole thing.”
About Two Cents' Worth
Two Cents' Worth has been launched by Newsroom in a co-production with RNZ. It is the country's first weekly business podcast and will be broadcast just after the midday news on Sundays on RNZ National, will be available on both RNZ and Newsroom's websites and can also be found on iTunes and other podcast apps.
Each week we will examine one issue in depth and then convene a panel discussion. Here is this week's version on RNZ as well.
Two Cents' Worth - the business week and the business outlook.