Procurement and Social Value – a lesson and warning from Omaha

Programmes that support small, local or minority-owned businesses are increasingly popular it seems the world over. Often they include procurement being used as an element of public policy – so encouraging more public sector spend to go to this sort of supplier for instance. We’ve written regularly about the issues here, and we’re big supporters of the idea that procurement processes need to be open and to avoid the unconscious discrimination we often see against smaller firms (through overly complex tendering processes, for example).

But equally, we’ve worried that going too far might create an environment where corruption or fraud might be made easier. If contracts aren’t being awarded on objective, value grounds, but to support other policy goals, how do we make sure the contract award to the CEO or council leader’s brother-in-law can be identified as dodgy, rather than excused because his firm is local, small and employs disabled staff?

There was a great example of this confusion recently in Iowa. Last week, Omaha.com reported: “Dozens of no-bid state contracts were improperly awarded to a construction company owned by a state purchasing official and her husband, Iowa’s state auditor said in a report released Monday.”

The official, Lois Schmitz, was dismissed, but then incredibly was re-instated in January with $108,000 in back compensation by an arbitrator who found , “that her termination wasn’t justified and noting that her previous bosses determined in 2010 that she didn’t have a conflict because she wasn’t involved in awarding contracts.”

You have to ask how on earth her previous bosses thought that this was OK – even if she wasn’t involved in awarding the contracts, you just can’t have someone in a procurement role receiving money as a supplier too. But what complicated it further was that the firm, BluePrint Homes, was getting business though a scheme to support small and minority-owed business.

"BluePrint Homes could receive contracts up to $10,000 without competition, because it qualified in 2009 for the state’s Targeted Small Business program, which encourages agencies to buy goods and services from disadvantaged businesses. The company cited John Schmitz’s disabilities and Lois Schmitz’s gender."

Ironically, Schmitz even volunteered to handle all supplier questions about contracts for the Targeted Small Business program, and helped to respond to questions submitted by her husband!

But here we have the problem. If we introduce criteria that take objectivity out of the process, and even remove some competitive elements, then we’re open to this sort of thing happening. You might wonder why Omaha couldn't still retain some competition, even if they restricted the process to the targeted businesses.

So all in all, a bit of a mess for the State, and some lessons for anyone looking to support certain types of business through public procurement. There are effective ways of doing that, but be careful.

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