Making Spend Matter Toolkit - Kavala basic and advanced spend analysis case studies

The following case studies provide practical examples of how Kavala carried out the following two processes to understand, explore and adapt the Making Spend Matter Good Practice into their city:

Core transfer (basic spend analysis)
Optional transfer (advanced spend analysis, developing a strategic approach to public procurement, SME engagement and using social and environmental criteria)

Basic spend analysis case study

Kavala is based in North East Greece, with Making Spend Matter the first time they have specifically been involved in a project around procurement. Prior to involvement in Making Spend Matter, Kavala already had a strong procurement team which was rightly focused upon being legislatively compliant in the procurement process. However, the Municipality of Kavala saw Making Spend Matter and particularly the process of spend analysis as a tool to further evolve their capability and knowledge, and in turn inform procurement decisions. Kavala understood the good practice of Preston as being about three things:

First, it was seen as a means to collect data around how and where the Municipality spends money, effectively providing an evidence base.
Second, it was seen as a means to enable the Municipality to develop relationships with other partners in the locality, such as Municipal Service Departments, and also with the market and particularly SMEs.
Third, it was seen as a way in which wider outcomes could be achieved through the process of procurement, particularly in terms of facilitating local economic growth, and in addressing social and environmental challenges.

Adapting the methodology

Kavala utilised the tool and guide developed by Making Spend Matter, and largely followed the basic spend analysis in a step-by-step way. They identified:

The total amount of money spent in procuring goods and services in 2018;
The amount of money spent with suppliers based in the Municipality and wider Region;
The amount with both SMEs and larger enterprises.

The spend analysis findings

The analysis explored just under 10 Million Euros of Municipality procurement spend in 2018 and identified in relation to geography that 50% was being spent with enterprises based in Kavala, 40% in the wider Region (outside of Kavala), and 10% elsewhere in Greece and wider Europe. In terms of spend with different types of business, the spend analysis identified that 79.8% of Municipality procurement spend was with very small enterprises, 18.1% with small enterprises, 1.6% with medium enterprises, and 0.5% with large enterprises.

Interpreting the findings

Kavala has used the good practice and the spend analysis to inform a series of changes to the way in which they undertake procurement. They have presented the findings to the Municipality Council (of Politicians) to raise awareness of the importance of procurement to the local economy, and as a way of securing buy-in to change policy and practice around procurement. This presentation was successful as the procurement team was authorised to change the way it operates and to create a Strategic Procurement Plan. This Plan will use the evidence gathered through spend analysis to shape a new approach which, whilst still obeying national legislation, will also seek to enable local economic, social and environmental benefits through the process of procurement.

In addition, the Plan will also focus upon how Kavala can engage with local enterprises and SMEs prior to a procurement exercise, to both make them aware of the opportunity and also enhance their capability to bid. In Kavala, the basic spend analysis has been seen as the starting point for engaging in other aspects of this network, including around advanced spend analysis, business database development and SME engagement, and social and environmental criteria. The process of spend analysis has also been used as part of a much wider objective in Kavala to create more effective relationships with suppliers and local SMEs. They will look to ensure in the future that procurement is as much about relationships as it is about a transaction between the public sector and the commercial sector.

Spend analysis for Kavala is the starting point of a series of activities aimed at redesigning procurement processes and practices in order to benefit and improve our local economy. Supplies will be strategically designed (with political input) and operationally implemented, through extensive consultation with the local stakeholders.
Making Spend Matter gives Kavala the opportunity to develop a strategy for strengthening economic, social and environmental outcomes through public procurement.
Giannis Chatzikonstantinou, Director of Finance, Kavala

Re-using the transfer

Kavala intends to undertake the basic spend analysis again in 2022, as a means of assessing change in levels of spend in the local economy and with SMEs, and as a way of identifying the impact of their Strategic Procurement Plan.

Advanced Spend Analysis (environmental criteria) case study

The City of Kavala is based in Eastern Greece and forms part of the Eastern Macedonia and Thrace region. The population of the municipality area is around 70,000, with 54,000 living within the city itself. The region is the most under-developed in Greece, which assists Kavala when it comes to bidding for national and European infrastructure and social funds. Kavala is well located geographically and is well linked in infrastructure terms through both road and the sea. This makes Kavala attractive for inward investment.

In economic terms, the core and dominant industry of Kavala is tourism, with around 77% of jobs being in the service sector. There are however challenges with the seasonality of this sector and the associated employment. The breakdown of employment in other industries is 10.5% in primary and 12.5% in secondary. Kavala is seeking to diversify its economy through continued focus on tourism, but also the sectors of Agri-food and blue growth.

The Municipality of Kavala is also in a strong position economically. It is a net benefactor when it comes to the raising of revenue when compared to its spend on employee wages and services - it raises around 49 million Euros a year in revenue; compared to a spend of around 39 million Euros. This is enabled by strong fiscal independence, with around 71% of revenue raised through local taxation.

The key anchor institutions in Kavala are the Municipality of Kavala itself, the regional government of Eastern Macedonia and Thrace, the General Hospital of Kavala, and the Eastern Macedonia and Thrace Institute of Technology. The Municipality has also engaged with other organisations during the course of the Network. These include Dimofelia (a Public Benefit Organisation), Pre-School Education Institutions, the Municipal Theatre, the Trade Association of Kavala, and individual major suppliers.

The process of procurement is increasingly been seen in Kavala as a means of addressing the social challenges facing the city and in diversifying the economy. The function of procurement for goods and services sits within the Economic (Finance) Department of the municipality, alongside revenue collection, accounting, and accounts payable. This means that the process at the moment is largely transactional and focused upon cost. The procurement of works and construction activities sits elsewhere in the Municipality.

The Municipality of Kavala spends around 4 million Euros each year buying goods and services, with a much larger spend on works and construction, at around 15 million Euros. The core types of goods and services purchased relate to environmental services, agricultural services, technical services, and operational services.

Why focus on social and environmental criteria

Considerations of social and environmental criteria is an important goal of the European Commission, as part of its refresh of the 2014 Directives. The inclusion of such criteria are not, as yet, common in Greece. As part of progressing its procurement practices, the Municipality of Kavala wanted to explore how it could incorporate environmental criteria into its procurement opportunities and contracts and how it could help its supplier base to understand more about it and include relevant information in their tenders.

Barriers / challenges

The Municipality, however, has faced a number of barriers and challenges in realising their goals:

The first barrier is that very few, if any, Greek cities have applied environmental criteria in their procurements, primarily due to the constraints of current Greek law and concerns that they would be open to challenge once the tenders had been evaluated and the contract had been awarded. Therefore, there were no examples for Kavala to draw on.
The second barrier, directly related to the first, is that Greek suppliers, particularly Small and Medium-sized Enterprises (SMEs), equally have either little or no experience of including information about social and environmental activities in their tender bids.
The third barrier relates to issues faced by SME suppliers everywhere: a lack of awareness of procurement opportunities; a lack of the required certification to participate in procurement exercises, most notably around VAT registration; the complexity (perceived or real) around bidding for opportunities, particularly in relation to the scale of documentation, and emphasis on price in the decision- making process; and long payment terms, resulting in business cash-flow issues.
The fourth barrier is unique to the current economic situation and concerns the increased competition from larger companies bidding for contracts, particularly those of low value, which normally they would not consider and which has the potential to adversely affect the market and discourage smaller suppliers from bidding for and winning contracts. This is a direct result of the impact of COVID-19 on the economy and individual businesses need to find new markets for their goods and services.

Actions taken / changes made

The Municipality of Kavala decided that it wanted to test the market and introduce some environmental criteria into one of its cleaning materials supplies procurements.
Between April and May, the City of Kavala organized a number of meetings both internally and externally.
Internally, the discussions focused upon the types of criteria to be considered,
- e.g. that the offered materials should be bio-based, carry ISO certificates, respect safe storage conditions, carbon footprints etc and any obstacles that the inclusion of such criteria might bring, e.g. an increase of the procurement budget (in terms of staff time preparing the tender and the cost of the materials proposed), difficulties faced by suppliers in providing the required specifications. The final format and legal framework of the proposed tender were then agreed, and presented to the Municipal bodies and companies under the Municipal's authority for them to adopt and respect as a common procurement strategy.
Externally, the Municipality met with the market to discuss the tender conditions to make sure that the market could meet them.
Suppliers, to the surprise of the Municipality, welcomed the ideas of including such criteria in tenders. During the course of the discussions, they suggested that the criteria focus on recyclable materials and the introduction of quality certificates for the products
The criteria which were identified and preferred the most were:
Carbon Footprint;
The suppliers' obligation to collect recyclable materials at their own expense and deliver them to a recycling company (presenting the respective recycling certificate);
Discount vouchers to vulnerable population groups; as social collateral that the Municipality advantages with extra grading when evaluating the offers;
Social initiatives/ activities that the suppliers are willing to organize and provide;
Mandatory products' quality controls.
Following this feedback, the Municipality reviewed the final tender and opened the call on 19th November 2020.
The criteria included in the Tender include:
- 0% of plastics in the material supplied. Recyclable material preferred
- 1% of the value of the procurement to be contributed to social initiatives / activities
The call will close on 18th December 2020. Only electronic offers will be considered.

What worked well

There were a number of things which contributed to the successful publication of the tender. These included:

The Ministry's change in the law on green procurement under consultation to which Kavala contributed its knowledge and experience gained both through the Making Spend Network and its preparation of the cleaning materials' tender;
Meetings with key stakeholder (trade association, suppliers and municipal institutions) to raise awareness of the opportunity;
The responsiveness of the market;
Staff experience in public procurements;
Emerging interest locally and regionally enabled the sharing of what Kavala was doing and kept the delivery of the tender on time on track;
Support of the Making Matter Transfer Network which demonstrated what was possible in relation to social and environmental criteria.

What worked less well

The lack of a legislative framework to support change;
COVID 19 restricting our working patterns to solely digital ones, working from home and allowing only digital meetings which caused some delays in proceeding with the tender;
Varying degrees of knowledge, skills and experience of other staff members meant there was a greater need for training to support the development of the tender.

Lessons learned

Where there is a will, there's a way: Kavala took the opportunity to put what they had learned about the use of social and environmental criteria into practice by testing the market with a different type of tender for the supply of cleaning materials;
Engaging with suppliers is beneficial: By undertaking pre-market engagement the Municipality of Kavala understood what suppliers were able to deliver and adapted the tender accordingly;
If at first you do not succeed, try, try again: This was the first time the Municipality had attempted such a tender. The Municipality understands the importance of this type of tender in supporting the delivery of their procurement and wider strategic city priorities and will use the new legislative framework to develop further tenders which include social and environmental criteria in the future.