The impact of the UK Government’s new social value measures should not be underestimated, as they prioritise what’s important, according to David Dinsdale.
Sustainable investment had a bumper year in 2020. By December assets under management of European ESG funds topped €1.1tn. This isn’t just a case of purpose over profit: research shows that organisations with good ratings on ESG issues often outperform those with poor ratings and most consumers want brands to help them be more environmentally friendly and ethical in their daily life.
This influx of cash directed at sustainable practices has the power to do great things – and it’s not just a private sector phenomenon. In January, the UK government bolstered the way it measures and incorporates social value into the procurement process in the form of the Procurement Policy Note (PPN) 06/20.
The PPN’s impact should not be underestimated: The new measures make social value a major factor in how almost every taxpayer pound is spent – and last year the UK Government spent £280bn on contracts for public services, so the potential is huge. This article explores the contents of the new measures and outlines steps for ensuring their success.
What is social value, and how does it fit within procurement?
While social value has been a factor in public sector decisions since 2015, it must now be ‘explicitly evaluated’. Scoring of a social value proposal attached to a procurement bid now makes up at least 10% of every procurement decision – often enough to separate a winning and losing bid.
But what is a social value proposal, and how does it fit within the procurement process? The Government’s Green Book policy document offers guidance: social value proposals are activities that ‘improve the economic, social and environmental wellbeing of the relevant area’ that are bundled with a procurement bid.
Put simply, making procurement decisions using market economics ignores important costs and benefits for society. For instance, an IT firm selling software could sell a cheap product but use data centres with a large carbon footprint. The new rules tip the scales in favour of a supplier that is investing in carbon-neutral data centres instead, indirectly encouraging the polluting alternative to up its game.
Determining the exact social value of a proposal can be done through a Social Cost Benefit Analysis (CBA), or a Social Cost Effectiveness Analysis (CEA) – these are detailed processes worthy of their own analysis, but more information is available here.
What kind of activities are classified as social value?
The PPN identifies five specific areas that are considered in the Government's procurement process:
- COVID-19 recovery. These activities help local communities manage and recover from the impact of COVID-19 through employment opportunities, re-training the unemployed, or improving workplace conditions to accommodate social distancing, remote working and sustainable travel solutions.
- Tackling economic inequality. This covers activities that support the creation of new businesses, jobs and new skills, or increase supply chain resilience and capacity. This may involve supporting small business entrepreneurship, creating employment opportunities, or supporting the use of innovative technologies like AI within the supply chain.
- Fighting climate change. Social value can also include activities that show firms leading effective stewardship of the environment. Examples include net-zero carbon emission targets or reducing plastic waste.
- Equal opportunity. Activities that reduce the disability employment gap and tackle workforce inequality are also considered. For instance, a firm could implement better monitoring for modern slavery in production lines and supply chains.
- Finally, firms can also propose activities that improve health, wellbeing, and community integration within the workforce.
Within these five areas, there are several sub-themes and criteria that mean the guidelines cover a massive array of projects and programmes, all geared up to benefit society. Companies must identify one of the umbrella areas for their proposal and build out a project that meets the criteria. Critically, the social value proposal must be relevant and proportionate to the overall tender.
Some examples of recent successful SAP proposals include making our propriety software freely available to thousands of organisations and citizens across the UK to aid with COVID-19 recovery, while another proposal involved reducing the carbon impact of the UK Government’s IT estate by transferring capabilities to SAP data centres that use 100% renewable energy.
All proposals are also subject to rigorous reporting metrics that judge the success of the project over time.
What should public sector decision-makers do to ensure the success of social value programmes across the country?
The new social value measures have the potential to make a tremendously positive impact on society. Forward-thinking private companies are on-board with the new measures and are eager to comply, so success will come down to public-sector decision-makers. What can they do to this end?
Firstly, there should be no one size fits all approach. Public sector decision-makers should be open to creative responses – social value can vary from planting trees to retraining and educating ex- offenders. The current guidelines account for this diversity, but decision-makers should avoid allowing trends to emerge or decisions to be made based on personal or organisational agendas.
Secondly, contracting authorities must provide ready-to-use model questions, promote consistency, and set out clear standards. The Government has rightly placed simplicity and consistency at the heart of its model and continuing to prioritise this, while also providing good guidance, will ensure buy-in from regulation-averse private firms and public onlookers alike.
The public sector should also credit out-of-contract social value efforts made by organisations. It’s right that procurement officials recognise firms with a history of delivering social value before it was a requirement – these companies are more likely to have the experience and know-how to deliver impactful projects in a timely manner, and it may be possible to leverage some of that existing work with new projects.
Lastly, it is important public sector officials prevent discrimination against suppliers based on their size or location. The Government was wise to prioritise quality over quantity when outlining requirements, but every department will need to practice their usual rigour in their procurement process to prevent undue favouritism.
The public sector as a driver of positive change
The new social value measures are a leap forward. The success of the measures will require all stakeholders to contribute – whether in the private sector, the public sector, the not-for-profit sector, or the communities they serve.
When organisations start measuring performance beyond the balance sheet, we can make real progress on our most pressing social issues. The Government's new procurement policy takes us another step closer to achieving these goals and building a better society.
David Dinsdale is industry value advisor at SAP.