Spend Analysis and Procurement Behaviours

Preston have been utilising Spend Analysis as a means of both understanding their procurement spend and shifting procurement processes and practices so that greater benefit is derived for the economy of Preston and in social and environmental terms. They have used Spend Analysis to explore where the spend of the City Council and six other anchor institutions goes in geographic, sectoral, and business type terms.

The meeting was an important opportunity to reflect on the origins of Spend Analysis, which goes back a lot longer than 2013 and the start of the Good Practice in Preston. In 2002, the United Kingdom was a very different place economically and politically. The Government had invested significantly in ‘Area-Based Regeneration Initiatives’; activities that were designed to improve some of the most deprived communities in the country.

At the time and like many regeneration initiatives, there was however no real understanding of the impact such interventions were having upon local economies and local people. A think-tank called the New Economics Foundation, therefore developed a tool called Local Multiplier 3 (LM3). LM3 was designed to understand how investment in a particular regeneration scheme or activity multiplies or ripples through a defined local economy over three rounds of spending.

Round 1 is the total spend on the initiative, exploring spend on suppliers, with employees and upon wider utilities. Round 2 explores the extent to which spend with suppliers and employees is with organisations or individuals based or resident in a defined local economy. Round 3 explores the extent to which suppliers and employees re-spend back in the defined local economy upon their own suppliers and employees and in shops and upon services. The outcome of the analysis is a ratio highlighting how much resource is spent and recirculates in the defined local economy in relation to the initial investment.

In 2007, another think-tank, the Centre for Local Economic Strategies (CLES) took the principles of LM3 further to start to explore the impact of public service spend upon local economies. In this, CLES looked at £70million Euros of spend on Commercial Services in Swindon (refuse collection, grounds maintenance, parks etc) and the impact this had on the local economy over the three rounds of LM3. CLES identified that for every Euro spent, 64 Cents was spent or re-spent in the local Swindon economy.

This work, in turn led to Manchester City Council, with a budget of over 1.5billion Euros wanting to explore the impact of their procurement spend both directly and through their suppliers. This evidence-based analysis and policy-making has been now been produced for over 12 years.

Preston has taken the principles of LM3 and the work undertaken in places like Swindon and Manchester to frame their approach to Spend Analysis which is focused upon the spend and procurement behaviour of anchor institutions. The common point from all the examples above is that Spend Analysis and associated behaviour change takes time and needs cities and departments within them to commit to changing their practice. Preston and the Making Spend Matter Transfer Network is part of a wider movement committed to ensuring that procurement and the decisions made through it is part of wider place-based strategy and integrated urban development.

Matthew Baqueriza-Jackson is the Lead Expert for Making Spend Matter.