In the wake of recession and bank excess a new order is emerging. Large clients are demanding that suppliers give something back to the community such as using local labour or social enterprises.
Denise Chevin reports. Portraits by Ed Tyler
When Luton Borough Council set out to look for a delivery partner for its BSF programme two years ago, it knew what it wanted. And that wasn’t just a suite of new schools, but to extract the maximum bang for its buck for the local economy. While the BSF school building programme has been scaled back, the partnership Luton has formed with Wates — the Luton Learning and Community Partnership — has been extended to cover primary schools, housing, leisure and health projects and is still worth roughly the same at £586m over the next 10 years. So for every £1 that Luton spends on construction, 78p is spent in the locality.
“80% of the materials have to be procured within 15 miles of Luton, 45% of the skilled employees within an hour’s travel of Luton and 80% of unskilled labour within a 15-mile radius of Luton,” explains Fiona McGlone, interim BSF director at Luton Borough Council. Where this looked like being tricky companies such as Wates and the FM firm Mitie have opened up offices in the Luton area, bringing new jobs to the town.
“It comes down to our chief executive and I asking: why aren’t we getting terrific added value from the private sector at the start of the BSF process?” says Robin Porter, assistant chief executive for the council. “This way we get contractual clarity and great value for money and we know we are going to get a whole host of additional benefits out of the system.
More and more local authorities and regional procurement frameworks are following Luton’s lead and aiming to create a halo effect on the local economy by stipulating that their first tier contractors employ local people, train local people, buy materials locally and generally provide educational opportunities. What’s more, according to Paul Miller, partner at consultant Calford Seaden, an increasing number of local authorities are asking for use of local labour as part of section 106 agreements.
With such demands for local suppliers a prerequisite of gaining planning permission, its being predicted that more private sector clients will start to demand more use of local labour and materials as well in the supply chain. At its first eco-store, which was built by Wates in Sheffield, M&S, for example, sourced 60% of labour and materials locally.
According to Paul Drechsler, Wates chairman and chief executive, this trend is being driven by CSR, and the increasing need for corporates to be seen to be offering value for money, growth and giving something back to society.
“For any one client drivers are different, but as contractors we have to respond to it,” says Drechsler. One of the ways Wates is taking community involvement to the next level is endeavouring to ensure that all its projects use at least one social enterprise in their supply chain. Social enterprises — which David Cameron wants to see play a bigger part in his Big Society — are companies that reinvest at least half their profits in the local community, typically providing opportunities for disadvantaged groups.
Meanwhile, the UK Contractors Group has set up a new committee which will aim to quantify the impact that construction has on the wider society and to raise its profile as a highly responsible sector. The first meeting of the group took place last month with representatives from firms including Willmott Dixon, Wates, Shepherd, Costain, Morgan Sindall, Kier, Balfour Beatty, BAM and Galliford Try.
But while the localism strategy works well for Luton, contractors say councils’ specifications can be unworkable. Common complaints include demands for too many apprentices, and employment of local people who simply don’t have the skills to do the job.
They also point out that if the same criteria are specified in London, that could push up prices, as using local labour and materials is often more expensive. Sometimes it is just impossible to source materials locally and councils have to understand that, says Kevin Hewitt, interim general manager for Luton Learning and Community Partnership.
Caroline Cook, CSR manager at BAM says: “We are seeing increasing requirements for public sector to use local labour and training — but sometimes the requirements don’t represent the reality of what’s possible.” BAM has forged successful local initiatives to provide sustainable training through linking up with other contractors in the area.
Like many contractors it runs “meet the buyer days”, where smaller local firms get the opportunity to tie up with larger players in its supply chain.
In Yorkshire & Humber Some £57.7m of subcontractor orders were placed during 2010, of which 76.5% (£44.13m) was retained within Yorkshire-based businesses. BAM spent a further £2.85m on buying materials locally, says Cook.
Leadbitter is also well versed in the localism agenda. At some of its sites 60-70% of the workforce comes from the locality. Where it is building a school it has pioneered a system for teachers to use construction activity to teach all aspects of the school activity. Leadbitter’s experience is now being studied by the Department of Education, says deputy group chief executive Paul Abson. He says that local authority demands for the use of local labour and materials can seem daunting, but they can be met.
According to Jamie White, head of NSAfC and commercial strategy at ConstructionSkills, local authorities can misunderstand just how projects work and the manpower entailed. “As more contractors use offsite manufacturing techniques that means fewer and fewer people will be used on site,” he says.
ConstructionSkills has produced new guidance to help clients deliver local employment and skills through procurement by setting out what is sustainable and reasonable (see box right).
“It can’t be all about new apprenticeship places, but cover the whole gamut of training needed in the industry such as work placements, jobs for graduates and places for existing apprentices. The last thing we need is to take on huge numbers of apprentices who can’t finish their training. A sum of 1 apprentice per £1m of capital spend is something contractors can’t sustain,” adds White.
‘It’s not just a way of making money’
The rise of localism and the emphasis on leveraging maximum social impact from capital spend is bringing benefits to so-called social enterprises, companies which invest heavily in the local community, often providing training and placements for the disadvantaged.
There are currently 60,000 social enterprises in the UK, of which Greenworks, set up by former environmental consultant Colin Crooks (left) 11 years ago, is one. His company re-uses and recycles office furniture, taking cast-offs from often blue chip firms, including Carillion, and reselling them. Wates buys the furniture for its site offices. It has depots throughout the UK, including Wembley, Wolverhampton and Bristol.
Greenworks now turns over £2m a year and has provided 800 training placements since it started. Like other social enterprises Crooks sees Greenworks’ raison d’etre as “a way of helping the wider community and not just a way of making money.”
But like others, Crooks finds it tough competing on the open market against companies that don’t have to carry the extra costs that inevitably come from employing a higher number of trainees and having a greater community focus. For partnerships to work well, corporates have to be ready to adapt the way they do business. “It’s a classic large company versus SME clash,” says Crooks. “For example, filling in a pre-qualification questionnaire doesn’t work for us — we end up having to say no to loads of questions. 70-day payment terms are not uncommon, which is just impossible for a small business.”
Wates works with 50 different social enterprises across 62 projects and wants to extend this and scale it up as part of its commitment to supporting the wider community. It’s keen to engage with at least one social enterprise on every project forming long-term strategic partnerships. Rachel Wooliscroft, Wates sustainability manager, says it can be difficult learning to work with social enterprises. ”They aren’t geared up to our pre-qualifications system. And they don’t have the rigour and financial systems in place,” she says.
Companies might soon be forced to follow Wates’ lead. Conservative MP Chris White is sponsoring a private members’ bill that will make it compulsory for local authorities to promote social enterprise in a national social enterprise strategy and in local authority sustainable community strategies.
The Public Services (Social Enterprise and Social Value) Bill would also make particular public authorities take account of wider economic, social and environmental well-being in commissioning goods, works or services. It is currently at committee stage and has cross-party support. Perhaps not surprisingly, as it chimes exactly with David Cameron’s vision of a Big Society.
Wates’ commitment to forming longer term partnerships certainly gets the thumbs up from Peter Smallwood, who runs Jericho Landscapes, one of seven social enterprise businesses set up by the Jericho Foundation, a charity that works with the long-term unemployed, such as people who have left prison, or who are recovering from addiction. Set up three years Jericho Landscapes now employs six full-time staff with another 13 on government programmes. It turns over £330,000 a year.
Smallwood says: “We need to be a sustainable business and are trying to be free of grant aid. Ideally we need to be getting larger contracts and we need to work with companies in a partnering approach. There needs to be a level of understanding from corporates. For example, people who work with us might not necessarily have a fixed address, which makes it difficult to get a CSCS card, so we have to come up with different solutions for them to do health and safety training.”
Smallwood complains about the difficulties of having to win work on the open market, and describes it as akin to being “blindfolded, with your hands tied behind your back”.
Dr John Charles set up Catering2order to provide catering services to construction sites and office buffet lunch delivery in both the public and private sector. Again a social enterprise, he employs people with disabilities and people with disadvantaged backgrounds. Turnover is just over £1m with £8m worth of contracts in the pipeline. Having just won a contract for new canteen facilities at a site in Victoria
for Sir Robert McAlpine staff now total nearly 30. Catering2order’s big break was providing catering on the Olympic site, it also now works with Wates, Skanska, Willmott Dixon and McNicholas.
Charles, who has a PhD in Business Administration, lost his vision whilst an undergraduate and when he left university he couldn’t find employment.
“A lot of good people gave me advice. I wanted to be able to help others by providing work placements for those people also finding it difficult to work,” he says. “I would say, though, that we get contracts because of the service we offer and the quality of the food, not because we’re a social enterprise.”
Social Enterprises already employ some 800,000 and have bucked the economic trend with 56% increasing their turnover in 2010.
As consumers, jaded by the aftermath of the recession and excesses of the banks, scrutinise the practices of companies more and more, this trend looks set to continue.
