Social procurement in construction – a massive opportunity but also a challenge

SPECIAL REPORT Part 1: Australia plans to invest a massive $230 billion in infrastructure over the next five years. Amidst that huge stake in our future, there’s been a growing and now established determination that a fraction of that amount be directed to outcomes that benefit not just the economic wellbeing of the nation, but the social fabric that this investment is designed, in the end, to serve.

This special feature tells the story in two parts – the first, below, covers an overview of the issues at stake and the work of University of Technology Sydney academics Distinguished Professor Martin Loosemore and Dr Suhair Alkilani to measure progress so far, with a special focus on the social procurement work of Sydney Metro.

Part 2 covers an in-depth conversation or case study to unpack how Sydney Metro managed its social procurement program, which it claims has been highly successful.

Governments across Australia are increasingly mandating that construction contractors who win lucrative tenders to deliver publicly funded projects embed social dividends into their project programs focused on creating employment and generating more local and diverse business opportunities for small business. This focus is not aimed as a handout but as opportunity for disadvantaged groups to develop employable and valued skills.

Part of the proviso is that local small-to-medium businesses are also included in the opportunities.

The thinking is that the benefits accrue not only to the participants in these programs but to their families, communities, the construction industry itself and the entire economy.

It’s a great idea. 

The problem is that it hasn’t been working as well as might be hoped. Like any new radically different program without a template to follow, there have been hits and misses.

But thanks to the persistence from governments to stick to their principles and the interest from leading industry contractors who are increasingly realising and embracing the benefits of a fully formed ESG framework to their business – big strides are being made, the industry claims.

At the forefront of trying to understand and measure the nascent progress are University of Technology Sydney academics Distinguished Professor Martin Loosemore and Dr Suhair Alkilani.

Loosemore and Alkilani have for the past 10 years placed an interrogatory evidence-based lens on the intentions of social procurement policies and programs developed so far to deliver the desired social outcomes.

They’ve tried to define the patterns and identify the principles that define success, as well as the barriers that still need to be overcome in order to scale up the immense opportunities on offer.

The opportunity is to better leverage government construction and infrastructure spending so that people who normally never or rarely “get a break” have a chance to work in construction.

Think: long term unemployed people, Aboriginal people, refugees and migrants, people with a disability and new entrants coming back to the community after periods in prison.

There is also a need to get more women into the construction industry.

But the construction industry is notoriously competitive. Contractors work on margins that can vary from reasonable to razor thin; something evidenced by the scores of bankruptcies that occur in every development cycle.

Contractors can compete on price for big ticket jobs but increasingly, the way a contractor and their supply chains respond to social procurement policies can make the difference between winning and losing a government contract.

Understandably, then, this is an industry that notoriously keeps its cards close to its chest.

The backdrop is a construction industry that, nationally and globally, faces a severe skills shortage that has forced up construction prices compounding the post pandemic impact of a spike in building activity, supply chain blockages and overall labour shortages.

Loosemore and Alkilani’s work to tease out the nuggets of gold that distinguish the leaders from the followers, turns out to be the first of its kind in the world. 

In addition to their research work, they have managed to create a “community of practice” comprising thought-leaders from across the construction and infrastructure industry to share their learnings with others.

Loosemore explains how he got started:

“About two years ago, we finished a major federally funded research project on how social procurement can help to alleviate Australia’s youth unemployment problems. This was sponsored by Multiplex Construction, Heyday Group, Blacktown City Council and yourtown.

“And out of that project, we conducted a whole range of interviews with some champions of social procurement in the industry. And we then decided to keep in touch and establish a community of practice, which has now grown to over 75 people.”

Everyone in the growing community of practice, he says, is connected by a collective commitment to create something bigger and more important than the sum of the whole.

As part of that work The Fifth Estate recently sat in as observer in a “conversation” between segments of the group who work with Sydney Metro, the New South Wales government agency rolling out new metro lines and stations throughout Sydney.

The Sydney Metro program is now credited as best practice by state and federal government and used as a model in other industries and jurisdictions.

Why did it work well?

Loosemore says that the success of the Sydney Metro program relied on a strong focus on collaboration and consultation with contractors and stakeholders alike.

There was also a commitment to flexibility so that programs could be amended to accommodate participants’ needs and desired outcomes not envisaged at the program design stage.

Another success factor was the focus on supporting the industry as a whole through skills development programs, support for the development of Aboriginal businesses and pre-employment programs to smooth the transition into work for people from vulnerable or disadvantaged backgrounds.

On the structural/commercial side of the program was the ability for contractors to leverage mandatory and optional bid backs which allow tenderers to propose higher target measures as well as programs they think could support outcomes in priority areas.

The model also linked closely to the NSW Government Action Plan: A 10 point commitment to the construction sector that is aimed at increasing skills and diversity and making the government a best practice construction client.

Success metrics for the Sydney Metro social impact program

According to Sydney Metro, as at January 2024, around 48 per cent of jobs across its three projects currently under construction have been allocated to people from Greater Western Sydney, an area traditionally considered disadvantaged in terms of jobs, economic opportunities and amenities.

The Aboriginal Procurement policy has generated an investment of $321 million in Aboriginal participation.

The program engaged:

• 4163 people who were previously long term unemployed
• 2852 Australian and New Zealand small to medium enterprises.

Long term unemployed and under-represented groups benefitted through the Sydney Metro Pre-Employment program since 2014 with:

• 27 programs delivered
• 305 participants
• 94 per cent of participants completing the program
• 84 per cent employed
• 31 per cent Aboriginal participants
• 30 per cent female participants

The program identified the following imperatives as key to the success of the program

• Start early and plan well ahead
• Project leadership commitment with support, resourcing and championing key initiatives
• Government and client-side subject matter experts to support and drive consistent delivery of Workforce Development and industry participation
• Collaboration is key both internally across an organisation and externally across the supply chain, with clients and with third sector organisations
• The active inclusion of Sydney Metro Skills and Employment Advisory Group and sub groups
• Robust and defined contractual requirements which are developed collaboratively so that they are realistic and achievable
• Address both community and industry challenges to make programs relevant and to garner support.
• Tailor initiatives and targets to reflect the project scope of works and skills shortage areas
• Enable client led programs and initiatives to support the delivery of targets
• Enable Workforce Australia to act as a lead contact with Sydney Metro and contractors, to support people with barriers to employment
• Target skills development and skill shortages rather than a blanket approach
• Contractor incentives and abatements – use robust, clear and consistent reporting requirements but avoid financial penalties
• Be prepared to acknowledge failure and learn as you go: “You won’t get it right first time”
• Evolution rather than revolution is most likely to work.
• Make sure contractors submit plans and targets in advance for how they will meet requirements. Keep them to these plans. Don’t allow them to make it up along the way and wait until the last minute
• Peer-to-peer support is important – talk to people who have gone through the same experiences and learn from them as well as your own team

Scale matters

The size of Sydney Metro is an indicator of the impact a social procurement can have:

• A workforce of more than 90,000 people
• More than 21,500 of these considered “learning workers”
• 1997 apprentices
• 4610 women in non-traditional trades or occupations.
• 2564 Aboriginal people employed
• 14,632 employees under 25

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