Local Government Magazine

Favouring local suppliers – What’s your council’s policy?

Favouring local suppliers - LG Local Government June 2017

Should councils support local suppliers or just go for the best deal? And where can they get guidance on this? Clever Buying’s Caroline Boot looks at our government’s position on ‘buy local’, runs her eye over some overseas models, and compares the approaches taken by different New Zealand councils.

The recent outcry in Dunedin following the replacement of a local (and council-owned) landfill operations company with an out-of-town supplier re-opened a can of procurement worms.
Council was adamant that it would not favour local suppliers. It said it had just selected the best company for the job, through a fair tender process. Critics pointed to the wider impacts of that decision, with imminent job losses and loss of council revenue resulting in clear adverse economic and social effects from that decision.
There are two clear sides to this debate, and each has its merits. On the face of it, procurement decisions should be about getting the best value for ratepayer dollars, which we all know are under constant strain.
But the bigger picture reveals that there are wider community impacts that may, in some cases, outweigh the short-term advantages of a cheaper supplier from out of town.
How can councils deal with these conflicting interests, and where can they get guidance on this? The government’s Rules of Sourcing are a little ambiguous in their interpretation of this issue on a national level.
Rule 1 (of the government’s Five Principles of Procurement, which are supposed to be followed by all government organisations including local government) states that agencies should “treat all suppliers equally – we don’t discriminate”. It also requires organisations to “make balanced decisions – consider the social, environmental and economic effects of the deal”.
So, while organisations should treat an out-of-town (or international) supplier the same way as they treat a local (or New Zealand) supplier, they also should be thinking about the potential social and economic impacts if the contract is let to a company outside their area. Tricky.
It’s an interesting debate on an international scale. While the impacts of free trade agreements worldwide are supposed to be binding and far-reaching, in practice, there are many anomalies.
Controversy has raged over the past few years in just about every trade zone, with the WTO rules and other macro-economic trade agreements being tested against initiatives such as ‘Buy British’; the Australian Made Campaign, and of course, closer to home, the ‘Buy New Zealand Made’ initiative.
The Trump administration has clear objectives to protect US business through the ‘Buy American: Hire American’ mantra. In Fiji, it’s mandatory in some sectors to include a scored section in Requests for Tender that asks how suppliers will facilitate skills transfer to local personnel over the course of the contract.
So, there is huge precedent at an international level for protecting commerce within your home region.
So why wouldn’t councils also aim to support their own regional economic zones by favouring local suppliers? And what precedents are out there for councils to use to stress-test their views on this?

Straight-talking Aussies
In Australia, particularly in remote areas, it’s commonplace for councils to favour local suppliers – but the crux is that this is done in a transparent and well-justified manner.
Typically, a discount of anywhere between five to 20 percent is applied to prices from local suppliers to recognise the economic benefits that using a local supplier (or at least one that will support local employment) will bring.

In New Zealand, attitudes to this among councils are varied. Some councils, like Dunedin City Council, are adamant that they are not concerned about the origin of their suppliers. Others within New Zealand have clear policies to discount local suppliers’ prices and / or provide mechanisms that enable those involved within the local community to score higher in the non-price attributes.
Many smaller councils are feeling the squeeze at present with plentiful work available in the contracting sector, resulting in fewer suppliers bidding for projects and therefore less competition. For those councils, attracting new suppliers lessens the opportunity for monopolies to form, helps maintain a healthy competitive market and ensures best value for money in the future.
Protecting and encouraging local industry is a key component of many councils’ economic policies, and is clearly stated in their strategic documentation. But councils can rightfully be criticised if they try to favour local suppliers in a manner that’s not transparent and built into the tender process.
So, what’s the right balance; and how can councils implement that through effective, yet fair procurement practices?
To attract new players into your region, but at the same time protect local industry, you’ll need to make it clear to tenderers that you value any support they can provide for local businesses and communities. You’ll also need to make it clear that this will be directly translated into the scoring of their tenders.
Provided there is clear linkage to council policy, there’s no reason why councils can’t include scored criteria that focus on areas that will provide obvious benefits on the contract for local involvement. For example:

  • What opportunities will your company provide for supporting local suppliers and subcontractors through this contract?
  • How will your resourcing of this contract help to engage unemployed people in our communities?
  • It will be mandatory for the successful supplier to set up an office / depot within five kilometres of the town centre (to meet required response times). Describe your proposed office location.

The most important thing to decide on is first, whether your council policies should or shouldn’t include reference to supporting local industry. Then, if you do decide this is part of your council’s policy, it’s essential this is done in a transparent and objective manner which is built into your procurement plan, the questions asked in your RFT, and your fact-based evaluation criteria.

  • Caroline Boot is a director of Clever Buying, which provides procurement training, NZQA procurement qualification assessments, and support for tender evaluators. caroline.boot@cleverbuying.com

This article was first published in the June 2017 issue of NZ Local Government Magazine.

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