Embedding Social Value in Procurements

Introduction

Social value has formally been a part of the UK procurement landscape since the Public Services (Social Value) Act 2012 (the Act) came into force. The Act requires public authorities [and their supply chains] to consider not only cost when commissioning or procuring services but also how the public authority can make a positive economic, social and / or environmental impact through the commissioning / procurement process. Public procurement amounted to approximately £379 billion from 2021-2022 which demonstrates the significant contribution public procurement can make to achieving social value.

The disproportionate impacts of the Covid-19 pandemic on certain sectors of the UK population have sharpened the focus on the need to tackle social and economic inequalities. In the same way, the declaration of climate emergencies in approximately 300 local authorities in the UK has emphasised the need to take urgent action in respect of environmental issues.

What this means in practice is that public sector organisations are empowered to set their own social value targets and to embed these priorities at all stages of their commissioning processes (i.e. from initial shortlisting, right through the procurement process and ultimately into the contract) and includes placing obligations on suppliers to ensure that their subcontractors comply with the relevant social value policies.

Social value is an umbrella term which covers a broad range of objectives. The UK Government’s 2020 Social Value Model (below), offers a snapshot of key themes and policy outcomes captured by the term social value:

Public bodies have discretion to set their own social value targets in line with their own local and strategic priorities.

How is social value incorporated into procurements?

Social value can be considered at multiple stages of a procurement process, most commonly through use of evaluation criteria at tender stage. This typically includes testing bidders’ proposals for delivering: (i) specified wider benefits alongside the core contract deliverables; and (ii) contract objectives in a way that respects and adheres to broader social value commitments. For example, standalone, social value focussed questions on how a bidder proposes to meet sustainability objectives during contract delivery are very common in the procurements we advise on.

Additionally, social value may be woven into the contract specification so that any proposals put forward by bidders are evaluated for compliance with a specification which has delivery of social value as a core objective. If evaluated as standalone questions, typically the maximum weighting afforded to social value objectives is in the region of 10%.

Scoping and embedding social value can also take place at other stages of the procurement lifecycle:

• Pre-procurement – the preparation and planning stage of a procurement process is possibly the most significant stage in respect of embedding social value. This is because it is the stage at which key decisions are made on the procurement process, the award criteria and the contract conditions. The eligibility, selection criteria and suitability criteria are also scoped at this stage. Further, public authorities need to consider whether the contract can be divided into lots to promote SME accessibility. Crucially, at the outset of a procurement, public authorities can engage with potential suppliers on how best to embed identified social value objectives into contract delivery. This can shape the way in which the public authority assesses tenders and eventual contract delivery. The key is to establish a good working relationship with suppliers who buy into the social value vision.
• Selection stage – public authorities can consider exclusion grounds which cover breaches of environmental laws, the Equality Act 2010 and other applicable laws such as the modern slavery act – subject to the principles of non-discrimination, proportionality and relevance to the contract being procured. In procurement procedures which contain shortlisting stages public authorities could consider social and / or environmental track record, inclusion of SMEs in the supply chain and other relevant factors so long as these factors are objective, justifiable, transparent, and non-discriminatory.

We advise public authority clients and bidders alike on the practical implementation of social value regularly, and when implemented correctly, the shared commitment to the achievement of social value goals is unparalleled.

How is social value encouraged in UK legislation?

The achievement of what we now know as social value has been promoted through legislative reform over the past 10-12 years. Shifting the focus of procurement being solely related to cost to encompassing wider objectives. The key Acts being:

• the Equality Act 2010 section 149 – this introduced the public sector equality duty; and 
• the Public Services (Social Value) Act 2012 which represented the largest shift away from purely cost focused procurements. 

Prior to the Social Value Act, public authorities were bound by section 17 of the Local Government Act 1988 which prohibited public bodies from taking into account “non-commercial considerations” in works and supply contracts. However, the Social Value Act provided an exception to the section 17 rule in respect of services contracts whereby social value factors can be assessed so long as they are directly relevant to the services being procured.

The Social Value Act requires public authorities to ‘consider, prior to undertaking the procurement process, how any services procured (whether covered by the Public Contracts Regulations 2006 or otherwise) might improve economic, social and environmental well-being.’

In 2020, the UK Government introduced Procurement Policy Note (PPN) 06/20, which enhanced the focus on social value and required more concrete actions from public authorities. PPN 16/20 required all central government entities to evaluate social value, “where the requirements are related and proportionate to the subject-matter of the contract, rather than just ‘considered’ as currently required under the Public Services (Social Value) Act 2012”.

The PPN obliged central government to introduce ‘social value’ with at least 10% weighting in award criteria, and in line with a Social Value Model. However, procurement teams retained the freedom and flexibility to determine which social outcomes were appropriate in the context of the contract.

The upcoming reform to Procurement law via the Procurement Bill provides powers to Ministers to disapply section 17 of the Local Government Act 1988 with secondary legislation. This power extends to a complete disapplication to all types of contracts which fall under section 17. This disapplication would allow ‘social value’ to be introduced in the award criteria for a far wider range of contract procurements including supply and works contracts, so long as the criteria relates to the subject-matter of the contract.

What problems are associated with using procurement to deliver social value?

One potential issue we have encountered when advising on implementing social value is that it needs to be balanced against broader procurement principles such as equal treatment and non-discrimination.  This means that unless directly applicable to the subject matter of the contract, it is unlikely to be lawful to require use of local labour or suppliers in an above threshold contract. This is because the public authorities are bound by the ‘principles of procurement’ under Regulation 18 of the Public Contracts Regulations 2015 (as amended) (PCR). However, Procurement Policy Note - Reserving Below Threshold Procurements, PPN 11/20 December 2020 provides an exception where a public contract is below threshold. In such circumstances public authorities have discretion to reserve below threshold contracts by location i.e. within the UK or within a specified metropolitan or non-metropolitan county (within the county of Surrey, for example). The purpose behind the reservation of contracts by location is to:

• bolster domestic supply chains and promote resilience and capacity (UK wide reservation); and/or 
• tackle economic inequality and support local recruitment, training, skills and investment (county reservation). 

We have been advising clients on the application of the supplier location reservation since publication of PPN 11/20.

The enhancement of social value no doubt needs to be balanced against other priorities such as achieving value for money and ensuring that the contract delivers the best possible solution for the public authority. Getting this balance right takes time and detailed preparation.

Another issue we have been asked to advise on is monitoring performance of social value once embedded into a contract. This is why we advise our clients to be specific about their requirements in respect of social value and to ask for tangible and measurable conditions of the contract which can be monitored throughout contract delivery.

Changes to social value in UK procurement

Following Brexit, the UK Government stated its intention to reform procurement law. The Procurement Bill was published in July 2022, and for the first time included reference to the Government’s National Procurement Policy Statement (NPPS). The NPPS is a relatively short document, but contains a long list of outcomes which should be considered by contracting authorities, as well as three national outcomes:

1. Create new businesses, skills and jobs
2. Tackle climate change and reduce waste
3. Improve supplier diversity, innovation and resilience

Under the proposed Procurement Bill, contracting authorities will be required to “have regard” to the NPPS. The "have regard" duty is a public law term which ultimately requires authorities to do two things:

• consider the NPPS properly; and
• identify valid reasons for departing from the NPPS.

The duty to have regard to the NPPS will ensure that social value permeates early discussions when public authorities are laying the foundations for launching a public procurement. All public authorities, not just central government, will need to actively consider incorporating social value and have good reason for not doing so. 

How to successfully incorporate social value into procurements

By including social value in a procurement, a public authority can set the tone for delivery of a long-term project and lock in social value initiatives which will provide crucial benefits such as progress towards climate change objectives or facilitation of employment opportunities. Achieving this requires careful design of the procurement and drafting of the contract.

1. Choose a procurement process which facilitates high-quality bids. By using a procurement route such as the negotiated procedure, authorities can provide a platform on which to engage with bidders and explore the social value objectives which are most appropriate in that context. Additionally, a pre-market engagement exercise could be used to open discussion on this topic and gain insight from the market.
2. Consider which social value outcomes are appropriate. Every public project is unique and the approach to social value should be bespoke. It may not be appropriate in certain projects, to include reference to apprenticeships or to delivering benefits for a particular community. Equally, there may be contracts (for example, those which are particularly urgent) in which social value cannot be appropriately incorporated into the contract. 
3. Design the questions and award criteria carefully. Award criteria must be linked to the subject matter of the contract; this is a requirement under procurement law. Therefore, if a public authority intends to include questions and award criteria weighting for social value, these must be carefully drafted in order to be compliant.
4. Draft the contract in a way that ensures social value promises are delivered upon. Once bidders have offered proposals in relation to social value via the procurement, it is crucial that these are locked in and referred to within the contract. Typically, the contents of the bidder’s tender will be included in the contract. However, social value obligations should be included expressly and ideally be quantifiable. This should be supported by specified mechanisms for monitoring and testing the performance of those obligations. 

Conclusion 

Procurement processes provide public authorities with opportunities to design social value objectives which are relevant to their specific local or strategic priorities and to implement these objectives into contracts in ways which are tangible and measurable. The forthcoming Procurement Act appears to support the social value agenda and provides further incentive to incorporate social value into procurements. As many of our clients in both the public and private sector know, the key to getting social value right is through careful preparation.