Building a third construction sector through sustainable procurement

The construction industry is a major focus for this new form of public governance since its resource usage, character, size and multiplier effect into the wider economy means its procurement activities can be leveraged by government construction clients to have a significant positive economic, social and environmental impact in Australia’s urban, regional and remote communities. The private construction sector too is seeing the benefits of social procurement in leveraging spending in their supply chains, at minimal cost, to achieve triple bottom line organisational objectives.

Recently enshrined in the new ISO 20400:2017, sustainable procurement in the context of construction is a strategic approach to purchasing construction products and services which seeks to maximise an organisation’s positive economic, environmental and social impact in the communities in which it builds. This involves the whole construction procurement chain consciously thinking about these impacts over the life cycle of a building project from inception through design, construction, operation, reuse and demolition.

Importantly, sustainable procurement also involves construction companies collaborating in new ways with the growing numbers of third sector organisations emerging in the construction supply chain which specialise in providing environmentally and socially responsible products and services to the construction industry.

Australia’s ‘third economic sector’ is eclectic and includes a wide variety of voluntary and community organizations, social enterprises, not-for-profits and charities, co-operatives, mutual organizations, foundations, Indigenous businesses, disability enterprises and minority owned enterprises, and so on. An increasing number of these organisations operate in the construction sector, offering new and innovative ways for construction companies to leave a positive legacy in the communities in which they build.

One of the fastest growing parts of this sector which offer such opportunities is social enterprises. While there are still relatively few operating in the construction sector, especially in proportion to the industry’s relative size, at last count there were about 20,000 social enterprises operating in Australia, contributing about two to three per cent of GDP – a figure which has been growing at about 37 per cent per year.

Around 34 per cent of social enterprises are ‘work-integrated social enterprises’ set up to create employment and training opportunities for disadvantaged groups such as the disabled, young people, disadvantaged women, Indigenous people and ex-offenders. For example, yourtown social enterprises have provided over 2,500 young people with paid work experience and training over the last 16 years through a blended workforce in which qualified and experienced construction tradespeople provide supervision, training and mentoring for disadvantaged young people, acting as a bridge to open employment and the wider labour market.

An increasing number of environmentally focussed ‘green social enterprises’ are also emerging which can contribute to the construction supply chain, particularly in the areas of waste and recycling, energy efficiency and land management.

Social Traders, a peak body set up to represent this sector, estimated in 2011 that there were over 110 green social enterprises in Victoria alone with the greatest number involved in the waste industry, including recycling, e-waste, and waste collection.

The bonus for construction companies that employ them is that many of these green social enterprises have a dual environmental and social mission, allowing the achievement of broader corporate social responsibility objectives. For example, in Melbourne, a company called Green Connect started by a female social entrepreneur, charges city offices to remove their hard-to-recycle waste and employs socially disadvantaged people such as women in crisis to recycle it into new office products such as notebooks made from old binder folders, magnets made from the keys of keyboards and repackaged stationery and pens and highlighters that still work. These are then re-sold back to the companies that discarded them.

While most social enterprises in Australia are small scale, an indication of how this sector could grow in Australia if supported by the construction industry is the UK’s National Community Wood Recycling Project (NCWRP). The NCWRP is a successful and scaled-up network of 25 franchised wood recycling social enterprises which has succeeded in collecting about 10,175 tons of wood annually from construction sites, reusing 2,720 tons and saving over 2,000 tons of CO2 emissions. In addition to creating many new jobs for unemployed people in its own growing business, the NCWRP network has provided over 667 training and work experience places for local unemployed and disadvantaged people, providing a stepping-stone back into work and equipping them with confidence and life skills to become independent contributors to society.

The innovative power of the third construction sector is currently untapped and under-developed in the Australian construction industry. Most TSOs operating here tend to operate at the end of the constriction supply chain in a high risk low margin environment on small tokenistic contracts. Furthermore, the relatively few TSOs working or seeking work in the construction industry face an intimidating array of barriers to entry, both formal and informal. These include negative perceptions that they deliver higher price and lower quality services than existing subcontractors; an unwillingness by construction firms to unbundle work packages and dislocate established supply chain relationships; complex and bureaucratic procurement/tendering procedures, which place an unfair administrative cost burden on TSOs; lack of experience in dealing with the TSOs; poor understanding and imagination of how the TSOs can add value to the construction industry; the highly regulated nature of construction activity, which makes it difficult for many TSOs to prequalify for construction contracts; dealing with the tail end of the supply chain where there is generally little or no knowledge of TSOs and where low price (rather than broader notions of value) is the over-riding employment criterion.

Recent research at UNSW indicates that the effective integration of TSOs into the construction sector could provide numerous advantages including:

• Competitive advantage (with socially responsible clients)
• Demonstrable corporate citizenship and social responsibility
• Improved employee recruitment, engagement and retention (people want more out of work than work; they want new knowledge, motivation, satisfaction, self-worth, self-confidence, new skills like mentoring, and so on)
• Compliance with growing social procurement requirements
• Improved community engagement and public relations – SE are deeply connected into local communities
• Greater innovation in bids (new leverage,  more diverse supply chains, more  supplier options, new networks and new innovative  ideas brought by social enterprises)
• Widening markets and customer base
• Positive reputation (communities, clients, shareholders, employees and other stakeholders)
• Investment –  financial investment decisions are increasingly being made on non-financial performance.

However, to secure these benefits will require some new thinking around the merging of largely incompatible institutional cultures from the government, private and third sectors and the development of new organisational arrangements, relationships and power structures which are not yet understood. It is those organisations which are able to work effectively across these institutional cultures and industry sectors that will reap the greatest benefits from what is a growing imperative by socially responsible procurers of construction products and services in both public and private sectors to engage with the growing sustainable procurement agenda.