Blog: Procurement reform – what social landlords need to know
Stephen Herriot from PfH Scotland on the reasons behind the Procurement Reform (Scotland) Act and the requirement for social landlords to write a procurement strategy before the impending December 31 deadline.
This year has marked one of the biggest ever shifts in procurement rules for the social housing sector in Scotland.
For landlords, particularly those without a dedicated procurement function, the challenge is significant. The majority of new regulations came into effect in the spring, meaning that compliance is required now – there is no time to waste.
But my impression from conversations with landlords is that while many larger organisations have taken the changes on board, others are finding the task ahead more daunting and they are struggling to comply straightaway.
The Procurement Reform (Scotland) Act applies to all procurement exercises that commenced on or after April 18 this year so it’s vital that housing associations take account of new regulations right now. Failure to comply could leave them open to government supervisory action and additional re-procurement costs.
Yet these changes come at a time when landlords are facing a maelstrom of pressures, from all angles. On the financial side of things, more than a third of social landlords expect cost rises to outstrip turnover over the next year, according to a Housemark Scotland survey. Findings like this underline the importance of renewed efficiency going forward.
Before we look at the new regulatory changes facing the social housing sector, let’s remind ourselves why the Act was introduced. It’s at the centre of the Scottish Government’s procurement reforms, which are designed to strengthen the link between public sector spend and local economic growth. It’s about encouraging socially responsible procurement that looks beyond simple cost considerations and strives for quality and local impact.
The new legislation therefore chimes with the ethos of social landlords while also putting new demands on them. However, these regulations will ultimately help landlords to improve their commercial and procurement performance, which can only be a good thing for such a cash-strapped sector.
One of the biggest changes is the fact that tender thresholds have been lowered. All goods and services contracts of £50,000 and above are now subject to the regulations – a major shift from the previous threshold of £172,514 and one which could catch out smaller organisations that weren’t previously affected. For works it is set at £2 million or more. All contracts above these thresholds must follow a transparent procurement process and be advertised publicly. As well as this requirement around thresholds, Scottish Government are keen to see competitive processes for all spend under threshold.
My team has been working with a number of landlords over the past few months, helping them to comply with new regulations. One issue that comes up again and again is the creation of a procurement strategy. This is an important new requirement and the deadline is looming. By December 31 all housing providers that spend more than £5m must submit their first strategy. The document, which must be reviewed annually, not only sets out the landlord’s overall procurement approach but also specific areas such as delivering value for money and buying fairly and ethically traded goods.
Landlords must also produce an annual procurement report at the end of each financial or calendar year detailing ‘regulated procurements’ – i.e. anything above the thresholds – and essentially reporting on how the organisation performed against its procurement strategy.
In addition, all housing associations must adhere to a sustainable procurement duty, which came into force in June. It requires them to show how their purchasing improves ‘the economic, social, and environmental wellbeing’ of their area and supports SMEs and third sector bodies.
For contracts of over £4m, housing associations must now impose community benefit requirements in order to boost employability, skills or tackle inequalities in their local areas.
Considerations like those above bring us back to the overriding intentions of the Act. Procurement policy should not be based on price alone and any robust strategy will be smarter than that. Progressive supply management looks at the bigger picture, such as how higher quality can be more cost-effective and deliver better outcomes for tenants.
Although it is recognised that these legislative changes will take time to bed in, the onus is on housing associations to take action immediately to ensure they are compliant.