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Social value not yet fully embedded in procurement practices

Social value procurement rules are designed to diversify the public sector’s supplier base while providing society with wider collective benefits, but are yet to be fully introduced

Technology companies are coming under increased scrutiny for the impact they have on the world, with government policy-makers, lobbyists and IT buyers globally pushing them to be more sustainable, develop technology ethically and to create better workplace practices.

In line with this trend, the UK government has pushed through changes in the public sector procurement process geared towards ensuring that IT suppliers are not only delivering from a technology standpoint, but from a social value perspective as well.

While value is traditionally associated with and measured by various financial market metrics, social value is instead about the collective benefit that can be created to local communities and the wider society.

Although the idea of “social value” in UK public procurement is nothing new, having been practised at the local government level since the Social Value Act came into force in January 2013, new rules mandated at the start of 2021 means it must now be applied by all central government bodies for the first time.

Under these new social value procurement rules, businesses seeking to win public sector contracts must set out how they will deliver on the government’s social value priorities, which are divided into five core themes: contributing towards the Covid-19 recovery; tackling economic inequality; fighting climate change; driving equal opportunity; and improving the health and wellbeing of their own employees.

Announcing the new procurement rules in September 2020, then Cabinet Office minister Julia Lopez said value has often been narrowly defined by price alone without taking into account a variety of other important factors, such as the number of local jobs a contractor will provide or the environmental impact of their business practices.

“We want to see a greater variety of companies deliver government contracts, from every corner of our country – not just because that benefits local economies and communities, but because it helps diversify our risk, create a more resilient supplier base and deliver some of our critical priorities,” she said.

However, a year on from the announcement, and 10 months after the rules came into effect, technology businesses and the public sector bodies contracting their services are still grappling with how to implement social value in a way that is fair, transparent and that ultimately delivers on the intended outcomes, with a number of major issues persisting.

Computer Weekly has been told by public sector analysts, suppliers and trade bodies, for example, that both the public and private sector organisations involved are still struggling with how to measure the social value being delivered and that, in spite of the policies focus on diversifying the supplier base, it may be inadvertently benefiting larger technology firms with more resources at their disposal.

On the other hand, despite any apparent disconnect between policy and practice, most of the people Computer Weekly spoke with say the new procurement rules were a step in the right direction, and were hopeful that it would eventually lead to a much greater diversification of technology suppliers away from giant incumbents.

Overall, the consensus was that it is too early to tell whether the new social value procurement rules have been effective. A number of potential changes to the rules are also on the horizon, which could signal a further shift in how the procurement rules are applied.

A mixed bag: responding to the new rules

In terms of how the public sector specifically is responding to the social value procurement rules, principal analyst for government at Global Data Rob Anderson says that, as is often the case, many departments still act independently of the centre, even when certain rules are mandated.

“When it comes down to it they, to a large extent, pay lip service to it,” he says, adding that while he is seeing social value considerations being included in more and more technology contracts, “I don’t necessarily think that the people issuing the procurement quite understand it.

“They may have read the initial public procurement notice, but actually getting under the bonnet of that and understanding how they can suggest to suppliers what they want in terms of social value is being missed at the moment.”

He adds that while many tenders do place a minimum 10% weighting on social value as part of the evaluation criteria (as mandated by the rules), they tend to be very generalised and do not make explicit reference to any of the five core themes. “It’s a byline, it’s something they’re being told to do, so they’ll include it in the evaluation, but they’re not going to measure it,” he says.

Conversely, Anderson adds that “technology companies are taking it very seriously” because they see it as a point of differentiation.

A lot of people see [social value] as a crucial point of difference, and most of our members will say that when they lose a bid, it will be by two or three points, so a 10% social value measurement is make or break
Henry Rex, TechUK

Henry Rex, government and health lead at TechUK, also says that industry “are very keen to use it as a point of difference” because the margins are so fine elsewhere, particularly where quality and price are concerned.

“A lot of people see it as a crucial point of difference, and most of our members will say that when they lose a bid, it will be by two or three points here or there. These things are generally very close and very competitive, so a 10% social value measurement is make or break,” says Rex.

This sentiment was also echoed by others, including Chris Farthing, the chief executive of public sector procurement consultancy Advice Cloud, who says social value can also be a point of differentiation internally.

“Employees want to know what their companies are up to these days. You don’t just want to say, ‘Oh yeah, we make loads of money for shareholders’, they want to know what good you’re doing. Companies that are doing this are going to attract better talent…certainly for the younger generation [of job seekers] this is key,” says Farthing.

However, Rex agrees with Anderson that social value is discussed in markedly broad terms within government procurement documents, because those working in the public sector procurement are still being trained in how to apply the social value rules to tech-related contracts.

“You’ve got the initial Public Procurement Notice, the guidance, and then the further information like model assessment criteria, but it’s just a case of training the commercial workforce as much as possible…so that everyone knows the rules of the game and the scope of the playing field,” he says, adding that commercial teams in government have resorted to talking about social value during early stages of market engagement, so that “they’re not coming to suppliers with surprising or too challenging social value requirements”.

Part of the difficulty with training the commercial teams, however, is imposing a standardised framework on to something that is inherently qualitative and subjective.

“That is a real challenge, but it’s one that will have to be resolved in some way. The principles that underpin public procurement are open, transparent and fair – to tick those three boxes all the time, you do need standardised and consistent scoring on social value, it’s absolutely imperative,” says Rex.

Quantifying social value and its impacts

Accurately tracking and measuring the social value delivered in any given contract repeatedly came up in Computer Weekly’s conversations as a major issue facing both technology companies and public sector bodies.

According to Lloyd Johnson, head of marketing at public sector market intelligence platform Tussell, measuring social value can be particularly difficult from a data perspective due to the limited number of quantitative indicators that are published.

For example, while Tussell’s joint report with Social Value Portal on social value procurement in local government has shown an increase in the number of SME’s and use of suppliers local to some authorities since 2013, Johnson says it is difficult to give any further “data-led insight” beyond which types of organisations public sector bodies are contracting with, due to a lack of transparency.

“Organisations like Social Value Portal are finding ways to quantify what is a notoriously nebulous topic, because carrying out an apples for apples comparison on social value initiatives is so difficult,” he says.

Speaking on how social value can be better quantified, Johnson further adds that transparency is crucial especially around the major key performance indicators (KPIs) of a contract, and would help firms such as Tussell to more easily analyse the impact of social value initiatives.

“Even if it was just a crude, ‘Have they delivered their social value commitments?’, yes or no, [or a] red/amber/green rating, which is published for major contracts, that would help,” he says.

“If we started to see that a particular supplier was consistently not achieving against their commitments, it paints a picture…Until there is more openness and transparency, it’s difficult for people outside of a contracting authority to conduct any meaningful analysis on social value outcomes.”

Rex also says that “consistency of measurement” is key to the success of the social value rules, adding that those in procurement need a more standardised way of measuring “so that people aren’t just making big claims and not fulfilling them” because “it’s critical for the functioning of the market that it is measured and everyone has faith that it is being delivered”.

He adds, however, that despite the difficulties associated with a more subjective criteria, the public sector would need to figure out a way of standardising qualitative metrics, as otherwise bigger companies with lots of resources to dedicate to a contract will win out.

“It’s a challenge, and while I’m sure it isn’t the case, contracting authorities will certainly want to avoid the perception that social value becomes another dial that people can people can twiddle to get to a pre-determined outcome,” he says. “By developing that consistent approach to marking and standardisation, I think you’ll get more confidence that that’s not happening.”

While the government’s social value procurement guidance says organisations involved should establish an effective scoring approach to suit the procurement – as well as monitor, measure and publicly report on social value KPIs throughout the contract lifetime on a quarterly basis – none of those Computer Weekly spoke to were aware of any data that has been published.  

Social value can’t be an add-on

According to Georgina O’Toole, a chief analyst at TechMarketView, while the biggest change in social value procurement will likely be around the measurement and reporting of the social value created by contracts, this needs to be underpinned by an understanding that social value is distinct from a company’s corporate social responsibility (CSR).

“As things stand, government is advocating the use of simple measures and KPIs. The risk is that those KPIs are focused on outputs rather than outcomes,” she said during a TechMarketView webinar on social value procurement, adding that while many tech suppliers have similar aims in terms of Net Zero or diversifying their workforce, “when it comes to bidding for central government contracts, it’s going to be the ability to translate those corporate initiatives into local and contract specific outcomes, that’s going to set some suppliers apart from others”.

While there is overlap between the terms social value and CSR, they are often erroneously used interchangeably within industry, she says: “Both do involve suppliers considering society as a stakeholder [and] ensuring that your business contributes to the welfare of society and of the planet, [and marks a] shift away from considering profit above all else in business.

“But I think the difference is that… [CSR] sits very much at the corporate strategy level at the top of the business, and often therefore only results in one-off initiatives. What we see with social value is that it’s much more of a cultural shift in organisations, and that involves putting consideration of society right at the heart of the business, and creating this thread that runs through every facet of its day-to-day running,” she adds.

Advice Cloud’s Farthing says that while both large and small firms are struggling with implementing social value, due to a lack of cultural alignment and resources respectively, “if they’re a purpose-led organisation then this stuff is there, it’s just taking the time to draw it out. If they’re much more focused around profit, especially if they’ve taken investment, then they’re starting to struggle.”

What we see with social value is that it’s much more of a cultural shift in organisations, and that involves putting consideration of society right at the heart of the business
Georgina O’Toole, TechMarketView

He further recommends that companies, especially on the smaller end of the sale, should undertake a Social Value Quality Mark (SVQM) assessment, which is currently the only independent assessment of social value delivery within the UK.

According to Nicky Stewart, commercial director at UKCloud, the first company in the UK to have achieved Level 2 SVQM accreditation, the firm did not have to dramatically change its behaviour to achieve the assessment criteria: “They were simply assessing how we are today, and I would think that there are a lot of technology companies who are like us and could probably cross those benchmarks relatively easily if they wanted to.”

She adds that the SVQM accreditation gives credence to UKCloud’s claims about what it will deliver “from a very practical perspective”, and it means the company can move faster in responding to tenders because there is already a way of showing what social value is being delivered.

Richard Davies, UK country managing partner at Netcompany, which has achieved a Level 1 SVQM, adds that social value is also key to energising employees at a time when people care more than ever about the kind of enterprise they work for, but again that it has to be a natural extension of the business.

“You can’t create additional structures to solve this, it has to be part of what you do every day. You have to put that in place and it has to be part of your vision and purpose,” he says.

Social value going forward

Although most of the people Computer Weekly spoke with agreed the social value procurement rules were a step in the right direction, it has yet to achieve the diversification of the supplier base intended.

Farthing, for example, says that while more and more contracts are explicitly asking for detail on SMEs involved, this has not necessarily enabled a wider and more diverse supply chain as intended.

The UK government’s push to make it easier for SMEs to compete with large firms for public sector IT contracts has been ongoing for a number of years – for example, with its 2013 aspiration to put half of all new IT spending through small suppliers, and to put 25% of all government spending through SMEs by 2015.

Farthing adds while bigger companies are still winning most of the business, the social value procurement rules means there is now more scrutiny around it, and that the real impacts will not be seen “until the next fiscal year” when monitoring and reporting around social value is more established.

Anderson says that while “the oligopoly of tech suppliers” is still very much present, the social value procurement rules could act as a catalyst for getting more SMEs involved, and that government should find a way to apply the rules in a way that “would help balance the playing field once again.”

According to many of those interviewed, a major change in social value procurement that is likely to occur is widening the scope to look at company behaviour outside of the five current social value themes.

For example, in December 2020, the government published a greenpaper entitled Transforming public procurement, in which it indicates that it could begin looking at implementing “mandatory exclusions” on companies that have engaged in certain behaviour.

It recommends that if a company does not disclose relationships of beneficial ownership, or if it does not pay or it avoids tax, that company could be barred from securing public sector contracts.

“Social value is procurement specific, but is there a wider point around your behaviour as a company and how you operate,” says Rex. “That won’t come into force until, we expect, next year, but it will be worth seeing what it does to market dynamics as well.”

According to Dale Peters, research director at TechMarketView speaking during its webinar on social value procurement, supplier success will “depend on an authentic and considerate approach”.

“Box ticking will only you get so far and for so long, it is maturing. Suppliers will need to carefully consider the additional social value they can bring to the contracting organisation – it won’t be good enough to highlight Net Zero plans or the diversity of parent companies,” he added.

“It will rely on an intelligence-led, place-based that considers the needs of citizens, as well as the customer. Suppliers need a diverse partner ecosystem of SMEs, social enterprises public sector bodies and academia. To differentiate based on social value commitment is going to become increasingly challenging, so it will require creativity and a genuine commitment to continuous improvement.”

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