12.11.18

Social value in public procurement

Source: PSE Oct/Nov 2018

Rose Lasko-Skinner, researcher at Reform, is currently working on a paper looking at choice and competition in the public sector and has written on how failure to understand risk makes for poor procurement practices. Here, she discusses the importance of social value.

The “state of crisis” declared in HM Prison Birmingham in August was yet another indication of the challenges government faces when managing procurement contracts. Fortunately, this summer David Lidington MP announced the government would take action to improve the process. This includes extending the Social Value Act (SVA) to ensure all major procurement contracts explicitly evaluate social value, rather than just consider it.

The SVA was created in 2012 to incentivise commissioners to consider social, economic and environmental wellbeing when procuring services. However, thus far it has had little impact. Recent research revealed that in overall outsourcing spend, less than £1 in every £10 is spent on social value.

This is inadequate. Social value is an indispensable part of procuring public services, primarily because it is about ensuring services have a meaningful and positive impact on people’s wellbeing. In practice, it shifts the focus in procurement from processes to outcomes. This enables procurement contracts to go further than inputs and outputs, i.e. how many appointments a job centre provides, by evaluating the goals of services, i.e. long-term employment rates.

Croydon Works’ scheme, the ‘Good Employer Charter’ (GEC), is exemplar. It incentivises employers to pay a London Living Wage, employ people locally, buy local goods, and promote equality and diversity, with one-off business rates and the GEC accreditation – thereby having the potential to boost local productivity and long-term employment rates.

Changing legislation, however, is only one piece of the puzzle. Government should also take practical steps to help commissioners embed social value in procurement.

Clear guidance on how to measure social value is an essential step forward. Measuring outcomes has been a perennial problem for the public sector, but nonetheless is vital to maximising social value. It is often argued that contracts focus on inputs and outputs because they are easier to measure. However, there is a diverse set of methodologies available. For example, patient segmentation in the NHS uses pre-collected data to help evaluate specific populations in more detail and evaluate whether specific diseases, such as diabetes, are being well-treated. 

In some cases, qualitative methods can also be used to measure social value. The London Homelessness Social Impact Bond, for example, conducted 182 interviews with key stakeholders to assess user satisfaction. Specifically, how users felt about their new home, e.g. whether it was furnished to a good quality or if furnishings met their specific needs. Guidance should therefore include diverse methods, from qualitative to quantitative, to evaluate social value.

More long-term change might be necessary. To these ends, Brexit could be an opportunity. Without the Official Journal of the European Union (OJEU), the UK will have to rewrite its procurement guidelines. At local level this could be particularly valuable, as current OJEU rules mean SMEs can be undercut by larger European competitors who provide services at a cheaper price. The ramifications include local authorities being hindered from building good relationships with local vendors, and vendors being less likely to provide services that understand and adequately cater to locally-specific needs.

Nonetheless, it should be noted that the European Procurement Directives have tried to embed social value and legislatively protect SMEs from economies of scale. This, however, has failed to manifest in meaningful change. Leaving the EU could therefore mean the UK is able to effectively devolve the procurement process, and ultimately make more radical changes to procurement policy, mindset and practice.

There is an undeniable need to improve procurement practices. Since 2010, there has been a succession of contracting disasters, Carillion’s collapse being the posterchild. Bottom line, the amendment to the SVA is good news, demonstrating government is committed to reforming procurement practices. However, without clear guidance and further institutional change, putting the legislation into practice will be difficult.

 

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