The City of Toronto has forged an innovative path of social procurement and supplier diversity, giving small and diverse businesses greater economic opportunities. The strategy includes a focus on low dollar value contracts to end exclusion from government procurement. — By Donna Chan

The old saying about doing the same things over and over again gets the same results applies to supplier diversity programs in many cases. Small diverse businesses are often excluded from many Canadian government and large corporate procurement opportunities because they do not have the appropriate capacity and scale to meet typical RFP requirements. Something had to change if they were to be economically included and given opportunities to grow and thrive.

Inspired by this thought, Michael Pacholok, chief purchasing officer at the city of Toronto, became a change agent by instituting a supplier diversity program and social procurement initiative. The focus was placed on inclusion, and to include small businesses meant offering smaller contracts. Today, the city of Toronto has the most advanced and successful supplier diversity program in Canada.

Including All Sizes of Diverse Suppliers
Under the leadership of Michael Pacholok, the city of Toronto procures approximately $2.8 billion annually. The procurement process is formal and transparent, with all the information suppliers need available on the city’s website.

Open market bids are solicited for most contracts, with the exception that some small vendors may be asked to bid on contracts under $100,000 to give small businesses opportunities to land a city contract. To find qualified suppliers and grow the diverse supplier database, the names of certified diverse suppliers are obtained from a variety of diversity organizations including Canadian Aboriginal and Minority Supplier Council (CAMSC), WBE Canada, Canadian Gay and Lesbian Chamber of Commerce, Canadian Council for Aboriginal Business, and others. The goal is to open up smaller contracts to smaller businesses, as well as continue increasing spend with larger suppliers.

Suppliers bidding on contracts more than $100,000 that are issued to the open market are awarded points when diverse-owned. “Suppliers need to understand that governments have a main focus on ensuring best value for taxpayers. We have a very fair and transparent process, and it can look more onerous than dealing with a private sector company. Diverse suppliers should not assume that just because they are diverse owned, they are going to win a contract. They must adhere to the rules," Pacholok explained. The procurement process does not have set asides. The supplier diversity program is about providing access and not giving guarantees.

Target: Spread the Word
The spend with diverse suppliers increased from 2017 to 2018, but specific goals have not been set for the next five years for a good reason.

Michael knows the certified diverse supplier community in Canada has plenty of room for growth. He is focused right now on working with supplier diversity organizations to help them spread the word about the benefits of being certified. In that way, he can expand the list of certified diverse suppliers the city of Toronto can access. The belief is that Toronto needs to help the ecosystem grow before setting specific targets for spend.

One of the ways Michael and his team work with supplier diversity organizations is by partnering with them on events, but he also holds individual events for diverse suppliers interested in working with the city of Toronto. Supplier events give diverse suppliers opportunities to meet the personnel from departments that will use their services. There have been three annual events held to date.

The purchasing team also hosts webinars every month on how to do business with the city. “Often there is a perception that it’s really difficult to do business with the city and a vendor must be on a special list to gain access to RFPs,” says Michael. “Diverse suppliers just need to read through the rules because it’s not as difficult as it seems. RFPs are open to any qualified vendor. We are here to help suppliers succeed.”

In fact, his team includes two social procurement coordinators who are available to help any diverse supplier understand the process and connect them with organizations that certify, if not yet certified.

Challenges to Overcome
The city of Toronto is clearly building a legacy as a benchmark around doing business with women, Aboriginals, and diverse suppliers. In fact, Michael was as instrumental in convincing Canada’s federal government to work in the diverse supplier space.

As a leading organization in supplier diversity, there are challenges to overcome. One is educating the city staff. There are 37,000 city employees who need to understand and support supplier diversity and social procurement.

Another major challenge is closing the information gap with corporate Canada and other municipalities so they, too, drive diverse suppliers to the certification bodies. There are no federal mandates to help grow the programs, so everything is done at a lower level.

“We are trying to show businesses the value of having diverse suppliers in the system. They bring innovation and competition to the procurement process. Diverse suppliers hire from their own communities and are more equity seeking groups that face economic disadvantage,” says Michael. From the city of Toronto’s perspective, social procurement and supplier diversity helps the city address the poverty reduction strategy.

There is a third challenge which is making sure people do not think the City of Toronto is changing bidding and quality requirements to make it easier for diverse suppliers and small businesses to compete for contracts. As mentioned, supplier diversity is not a set aside program. “In breaking down barriers, we are just trying to make sure the diverse businesses have better access than they have historically had,” explains Michael.

Proof of Success
Michael’s perspective is that small diverse suppliers will naturally build capacity when they do business with the City of Toronto. He is looking at finding different ways to engage the suppliers. For example, there are likely new policies coming down the road around procurement, like building circular economy principles into the process. He intends on reaching out to the vendor community for ideas and feedback because diverse suppliers are innovative in different areas and in unique ways.

The current policy on diverse suppliers and social procurement is Michael’s greatest achievement to date, and one he is really proud of. It was adopted in 2016 by the city council and launched in 2017. Since 2017, $46 million was awarded to diverse suppliers. One example is a woman-owned construction company awarded two very large contracts that helped drive the spend. At the lower dollar value of under $100,000, $4 million was awarded to 47 diverse spenders. So, in just two years, there was demonstrated measurable value in the program. The two years of data is now used to evaluate what is happening in the low–value contract range to identify gaps that need closing.

'We can do this together'
The procurement function is about to undergo a transformation. Right now, the purchasing process is mainly completed with paper. Michael and his team are in the process of implementing SAP’s Ariba sourcing module, so the entire system of procurement will be automated. RFPs will be posted online, and all responses will be received online. The new system will improve reporting on diverse suppliers, provide additional SAP tools to assist with increasing diversity spend, and increase visibility to suppliers. Michael is also trying to bring category management into the organization to move procurement from being viewed as a transactional tool to a strategic value-added partnership.

Transforming a government function is never easy. “Government is generally risk adverse,” says Michael, “but it is time to move towards being more innovative and to bring more new ideas to bear. I appreciate new ideas, and leverage our association with universities and colleges, diversity organizations, and corporations.” He also wants it known in Canada that no government agency or municipality, and no business, has to create or try to grow a supplier diversity program from scratch. "We must try to leverage each other’s learnings, share our wisdom, and collaborate. We can do this together.”