The Cabinet Office and DCMS have initiated a consultation on how government should take account of social value in the award of central government contracts.
The government welcomes responses to the proposals in this consultation from suppliers to government, their representatives, public bodies and those otherwise involved in public procurement. The responses are due back by 10th June 2019.
The Civil Society Strategy committed the government to use its buying power to drive social change. Central government will, in future, take better account of social benefits in the award of its contracts. This will have the effect of levelling the playing field for all types of businesses including small businesses, voluntary and community sector organisations and social enterprises, encouraging employment opportunities, developing skills and improving environmental sustainability.
The overarching objective for the government’s commercial activities will remain achieving the best commercial outcome but it is right that government applies its commissioning to supporting key social outcomes. The public sector must maximise social value effectively and comprehensively through its procurement. It cannot afford not to; a missed opportunity to deliver social value is a cost that has to be absorbed elsewhere in public services.
The approach will apply tests that all bidders, irrespective of their size and type, should be capable of meeting. Our proposed approach will further level the playing field for the UK’s small businesses, voluntary and community sector organisations and social enterprises – they are closest to our communities and will often be well placed to deliver social value through the contract.
“We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised. That means government doing more to create and nurture vibrant, healthy, innovative, competitive and diverse marketplaces of suppliers that include and encourage small businesses, mutuals, charities, co-operatives and social enterprises – and therefore harness the finest talent from across the public, private and voluntary sectors.”
David Lidington, Chancellor of the Duchy of Lancaster, June 2018
The Public Services (Social Value) Act 2012 already places a requirement on relevant contracting authorities to consider, in respect of procurement for services (a) how the economic, environmental and social well-being of the relevant area may be improved by what is being procured and (b) how, in conducting the procurement, they might act with a view to securing that improvement. Contracting authorities must also consider whether to consult the market on these issues before the procurement process starts.
The approach proposed in this consultation paper will go further in requiring central government departments to take account of social impact as part of the award criteria, where the social impact is linked to the subject-matter of the contract and proportionate to what is being procured.
This reflects the government’s approach to public service delivery: that public services should be delivered with values at their heart.
Procuring authorities will have the freedom to choose which themes and policy outcomes they apply in each procurement. They should only be chosen where they are relevant to the subject matter of the contract and it is proportionate to do so. Procuring authorities are not required to use any of the themes and policy outcomes and it is for them to determine whether or not to do so.
Case Study: RAF Marham powered by green energy
The Ministry of Defence recently contracted with Future Biogas and energy company EDF to develop an electricity supply for RAF Marham in Norfolk. The base is to get 95% of its electricity from biogas generated by fermenting crops grown locally. This will directly save £300,000 per annum on electricity costs and provide increased power resilience at RAF Marham.
Social value benefits that will be delivered through the contract include:
The fuel is a green and sustainable solution, helping to tackle climate change.
Locally grown crops will power the plant, supporting the local rural economy and ensuring continued business and employment in the local area.
Building, running and maintaining the anaerobic digestion plant supports skilled, long-term employment opportunities in the Norfolk area.
Future Biogas employs five highly-skilled engineers on-site and an apprentice who started a 4 year apprenticeship at the end of 2018.
An agricultural contracting business supporting the plant has increased its full-time employees by 5 and seasonal staff by a further 10.
As part of an improved crop rotation regime, soil quality is boosted and the weed and pest burden lessened.
The digestate output from the plant is a sought-after organic fertiliser, improving yields of food crops and locking up carbon in the soil.
Taking account of social value in public procurement
UK public procurement policy as set out in HM Treasury’s Managing Public Money is to secure value for money in awarding public contracts, which means awarding on the basis of the optimum combination of cost and quality over the lifetime of the project. Public sector procurers are required under the Public Contracts Regulations 2015 to award public contracts on the basis of the “most economically advantageous tender” from the perspective of the contracting authority, using award criteria linked to the subject matter of the contract, including compliance with the published specification.
Social value refers to the wider financial and non-financial impacts of projects and programmes including the wellbeing of individuals and communities, social capital and the environment.
Social value should be considered throughout the commissioning cycle from service design through commercial strategy, market engagement, specification, sourcing, contract management and review. This is well-established commercial practice in major construction projects, though less so in common goods and services contracts.
Commercial teams can be confident that there is considerable legal flexibility for contracting authorities to consider social and environmental aspects during the procurement process and during contract performance.
The Public Contracts Regulations 2015 expressly allow contracting authorities to incorporate social and environmental aspects into specifications, award criteria and contract conditions, where these are linked to the subject-matter of the contract, proportionate to what is being procured or provided, and will not result in unequal treatment of bidders. This could include promoting innovation, employment and social inclusion, protection of the environment, energy efficiency, and combating climate change.
In addition, the Public Contracts Regulations 2015 allow contracting authorities to reserve participation in procurement procedures for certain services contracts to public service mutuals and social enterprises. Contracting authorities may also reserve the right to participate in a procurement process to sheltered workshops or suppliers whose main aim is the social and professional integration of disabled or disadvantaged persons, where 30% or more of their employees are disabled or disadvantaged workers.
The Public Contracts Regulations 2015 also allow contracting authorities to lay down special conditions relating to the performance of the contract that are linked to the subject-matter of the contract and indicated in the call for competition or in the procurement documents. These conditions may include environmental, social or employment-related considerations.
Taking account of social value at award stage
The Public Contracts Regulations 2015 require that award criteria must be linked to the subject matter of the contract, i.e. the works, services or supplies being procured. They also require contracting authorities to treat bidders equally and without discrimination and to act in a transparent and proportionate manner. Best price-quality criteria can include environmental and social aspects as long as they meet the specific requirements for award criteria and the general requirements relating to equal treatment, non-discrimination, transparency and proportionality.
Public bodies already frequently do go beyond price to factor in wider social and economic benefits when they consider the design of projects. There are a number of tools available to measure social value in the public sector including balanced scorecards and frameworks such as the Social Value Taskforce’s National TOMs (themes, outcomes, measures).
In central government, departments have for some years focussed on delivering social and economic benefits in major, complex procurements. A balanced scorecard approach is used for the procurement of construction and infrastructure projects over £10 million to drive a focus on supporting economic growth. This helps ensure value for money is fully considered and reflected in the procurement process, where appropriate, contributing to economic growth in the UK. The Balanced Scorecard for Growth guides government procurers in balancing straightforward matters such as cost, against more complex issues such as social and wider economic considerations when designing their procurement.
However, commercial teams in major government departments are often far removed from local delivery, particularly for lower value contracts or common goods and services. The potential for evaluating social value in these contracts is not always obvious to those designing the procurement. They do not have a standard tool to ensure a robust approach to evaluation criteria and a consistent message to the market on what is important.
New evaluation model
A joint team from the Cabinet Office and the Department for Digital, Culture, Media and Sport (DCMS) working with Claire Dove, the government’s Crown Representative for VCSEs, have designed a social value delivery model for central government buyers drawing on examples of best practice in local government. This team has engaged with commercial specialists, policymakers, suppliers of all sizes and representatives from the VCSE sector.
The model defines this government’s commercial objectives for social value, articulating it in terms of strategic policy priorities. This provides a consistent approach for departments and suppliers alike. It will strengthen government’s overall commercial approach on key policies, such as levelling the playing field for SMEs and social enterprises to bid for public contracts, as it provides a clear and systematic way to evaluate these policies in the award of a contract.
We have developed a light touch approach, representing the minimum standard on social value that we expect departments to consider in their procurement activity. The model comprises a set of high level themes, a set of priority policy outcomes grouped under each theme, standard award criteria and a menu of specific metrics for departments to use in contract management and reporting.
High level themes and policy outcomes
Theme – Diverse Supply Chains
- Ensuring supply chains are accessible to all types of businesses, including Small and Medium-sized Enterprises (SMEs) and Voluntary, Community and Social Enterprises (VCSEs)
- Ensuring supply chains are accessible to all types of businesses, including for business owned or led by under-represented groups including women, BAMEs and people with disabilities
Theme – Skills and Employment
- Improved employability and skills
Theme – Inclusion, Mental Health and Well-Being
- Ensuring businesses in the supply chain encourage improved gender pay balance
- Ensuring businesses in the supply chain encourage increased representation of disabled people in the workforce
- Ensuring businesses in the supply chain encourage increased representation of ethnic minorities in the workforce
- Ensuring businesses in the supply chain encourage inclusion and improved staff mental health and wellbeing
- Ensuring businesses in the supply chain encourage improved community cohesion
Theme – Environmental Sustainability
- Environmental impacts are reduced
Theme – Safe Supply Chains
- Modern slavery risks are reduced
- Cyber Security risks are reduced
From this menu of options, departments will be able to select those policy outcomes that are relevant and proportionate to the subject-matter of the contract if they choose. They will not be required to (and should not) select any if none are relevant.
Each policy outcome will have standard award criteria and a suggested set of evaluation questions for departments to consider. Bidders’ responses will be scored against the qualitative aspects, using a standard scoring methodology, in the same way that other ‘quality’ questions are treated in a tender.
Each policy outcome will have a corresponding set of proposed metrics that should be used by departments to performance manage the delivery of the contract. Bidders will need to submit quantitative information based on these metrics where they have been selected.
This overall policy approach would be mandated for central government departments, their executive agencies and non-departmental public bodies for procurements subject to Part 2 of the Public Contracts Regulations 2015, except where they are already covered by the Balanced Scorecard for Growth (i.e. procurements for infrastructure, construction and capital investment contracts over £10m).
Detailed guidance and training on this approach will be developed for implementation. We are keen to hear from contracting authorities with further examples of how they have successfully evaluated social value in public procurement to include in this guidance. We expect the model to evolve and develop over time.
Do you agree with the proposed policy metrics in the model in the attached annex? Do you have examples of such metrics being successfully used in public procurement?
In order for the social impact to be a differentiator between bids we are proposing that, where there is the potential for social value, departments must apply a minimum of a 10% weighting to social value in the evaluation. Departments would be free to apply a higher weighting if they deemed it appropriate but they should not apply less than 10%.
Do you agree that the proposed minimum 10% weighting for evaluating social value in the bid is appropriate?
As this will be a standard framework in use across government, the market can be more confident in responding and be able to understand, in more simplified terms, the social value departments want to see delivered.
This approach is distinctly different from other policy interventions that are focussed on process changes and are generally not included in specifications or evaluated as part of the procurement. If applied correctly, all bidders should benefit from the new approach since they will be able to demonstrate their added social value when bidding, which will level the playing field for SMEs and VCSEs in particular. This should provide a mechanism for suppliers to differentiate their offer when bidding.
However, we recognise there is a risk that a formulaic approach to social value may disadvantage certain types of bidder, which could result in hindering those bidders participating in government procurement. Our view is that, by providing commercial teams with a structure for their evaluation criteria, and focusing on a qualitative assessment of the social impact, the approach should remove barriers rather than create them. To support this we will train all 4000 commercial buyers in government in how to design procurement to deliver social value effectively and efficiently.
Does the proposed approach risk creating any barriers to particular sizes or types of bidders, including SMEs or VCSEs? How might these risks be mitigated?
The new model will not preclude individual departments from including additional areas of policy interest to them. The model provides a minimum expected standard across government but those departments that are more mature in their capability are free to apply social value more deeply in their commissioning. However if a standard metric is included in the model and deemed relevant by the department then they will need to stick to it to ensure consistency for the market.
Giving departments the flexibility to determine which of the policy outcomes and metrics are appropriate allows them to deploy their commercial expertise in determining whether particular criteria are relevant and proportionate to the contract. However, any existing procurement policy mandates by government (as set in instructions in government’s Procurement Policy Notes published on GOV.UK) must take precedence. We do not want other measures being taken into account at their expense.
How can we ensure government’s existing procurement policy mandates (for example on levelling the playing field for SMEs) take precedence in designing the procurement?