Measuring Local Impact: a method for evaluating the LPI (Local Performance Indicator) for projects, programmes and contracts.

Previous discussions here have discussed how EU procurement laws allows for the requirement and measurement of ‘local performance’, subject to safeguards about not discriminating against firms from anywhere in the EU. The example often given is where the successful firm must have or create a local office.
But how can we establish and measure a Local Performance Indicator (LPI), so that we can evaluate just ‘how local is project X’?
There are some existing methods such as Local Multiplier 3 (LM3) which measures how much of the currency spent locally stays in local circulation and how much leaves the area. A difficulty with the LM3 method is that it is necessary to measure the local spending performance details of the workforce and of the contractors’ suppliers as well as the project or contracted activity itself.
Therefore, an alternative method is suggested here which is more self-contained and therefore operationally easier to implement.

Formula 1. LPI(x) = [sum {payroll(x), suppliers(x), taxes(x)} / total expenditure] where x is the distance from the project centre.

Formula 2. Suppliers(x) = [goods, services, leases, interest payments, fees and charges, franchise and IP use charges, head office remittances](x)

The LPI is therefore expressed as a % of total expenditure that is made within distance x of the project centre, based on invoice addresses and staff home addresses, not temporary accommodation.

For ease of making standard comparisons and also for ease of calculations the following six distance bandings are suggested:

Formula 3.
LPI-3 <= 3km
LPI-10 <= 10km
LPI-50 <= 50km
LPI-R <= Region, Province, Nation (NUTS 1)
LPI-S <= State
LPI-U <= Union (USA, EU, etc)
Note 1: LPI-W which would be for World would always be 100% Note 2: NUTS is the Nomenclature of Territorial Units for Statistics

A strength of these formulae is that they can be fully answered by an entity’s payroll and accounting system plus GIS software for distances between two postcodes, zip codes, etc. The use of absolute distances also has the advantage over using administrative boundaries that trans-national comparisons are easily made. For example, the State level comparisson alone could refer to all of Germany or all of Luxembourg, but the two are very different.
A criticism of this formula could be that it does not measure the Keynesian local multiplier, that is how much of that local expenditure (eg <=3km) continues to be retained and re-spent within the locality. However this is resolved by the suppliers to Project X also measuring their LPI. Further, this LPI allows for direct comparisons with other projects, contracts etc because the radius of locality is defined by the bandings rather than ad-hoc.
Thus we might expect a public body in advertising a tender to, for example, ask applicants to state their LPI-3 figures for similar and recent contracts already underway; or to make some performance payments based on results for each year where the contract’s LPI-50 exceeds a stated %.
We may also see private sector clients wanting to include an LPI as part of their supply chain criteria for awarding their contracts, being part of their self-adopted Corporate Social Responsibility (CSR) reporting requirements.

(c) 2013 all rights reserved.
Use by social enterprises allowed pro bono if with prior permission, attribution and this same rights notice.


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