Picture this: your business has just found out that it has lost an important public sector contracting opportunity. You didn’t lose because the bid was too expensive or because the quality wasn't the best. You lost because the response to the questions on how your business would deliver on "social value" didn't score the maximum 10% on offer in the evaluation criteria.
From next year, this could be a reality, following a major change announced by the Cabinet Office in Procurement Policy Note (PPN) 06/20 on 24 September 2020. All central government departments (and their executive agencies and non-departmental public bodies, including NHS Trusts) will be required from 1 January 2021 to include in their procurements a social value award criterion weighted at a minimum of 10% of the overall score.
While social value has been a feature of public procurement over the last decade, it has usually carried a relatively low weighting. The ground-breaking policy note demonstrates the marked shift in the public sector's attitude towards the role that social value (environmental, social and governance-related) should play in determining who wins public contracts. Social value is the additional value created in the delivery of a contract through a wider community or public benefit, which extends beyond the monetary value of the contract itself.
While the PPN does not amend existing legislation – so as it stands is not legally enforceable under public procurement law – the Cabinet Office has framed this as a mandatory requirement and will expect all "in-scope" contracting authorities to follow this requirement.
Many local authorities and other contracting authorities are likely to follow the guidance as well, and a number of public sector organisations, notably the NHS, are already starting to evaluate social value in a more meaningful way, in order to meet their own increasingly ambitious social value targets.
This means that businesses that bid for public contracts in all industries and sectors will now be expected to demonstrate more sophisticated and more ambitious social value commitments in order to maximise their social value scores when bidding for public contracts over the coming months and years.
The government is looking to create a system-level change in the delivery of social value. The change that suppliers will see next year is a move away from a tick-box approach: instead of making general references to overarching policies on social value, businesses will need to commit to delivering targeted social value improvements relevant to the contract during its lifetime.
By placing a significant weighting on social value, and following that through with contractual obligations to report and deliver (with powers for the contract to be terminated if a supplier does not meet the social value KPIs), the government is looking for a system-level change to how its supply chain delivers measurable social value improvements.
The Public Services (Social Value) Act 2012 introduced a requirement for contracting authorities to consider at the pre-tender stage how the economic, environmental and social well-being of the relevant area may be improved by what is being procured, and how, in conducting the procurement, they might act with a view to securing that improvement.
However, there was no obligation on contracting authorities to explicitly evaluate the delivery of social value by suppliers. As the PPN 06/20 notes, this legislative obligation to only consider objectives has not yielded meaningful results in delivery of social value by suppliers to the public sector.
The need for reform was announced in June 2018 by Cabinet Office minister, David Lidington, who confirmed the government's intention to extend the requirements of the 2012 Act to ensure that all major central government procurements explicitly evaluate social value, rather than just consider it.
These proposals have manifested in the PPN 06/20 provisions. The government's aim is for social value to have a heavy enough weighting to be a differentiating factor in bid evaluation and to ensure that public sector contracts are drafted to ensure compliance with the social value commitments made by the winning bidder.
The government is also looking for the new approach to create more opportunities for small and medium-sized enterprises and social enterprises to win public contracts by giving a meaningful weighting to the social value they can generate in the evaluation of the "most economically advantageous tender".
Areas of priority
Social evaluation criteria will need to be relevant and proportionate to the contract being procured. The Cabinet Office has set out a list of "areas of priority focus" in the PPN:
- Covid-19 recovery – to help local communities to manage and recover from the impact of Covid-19
- Tackling economic inequality – to create new businesses, new jobs and new skills, and increase supply chain resilience and capacity
- Fighting climate change – to ensure the effective stewardship of the environment
- Equal opportunity – to reduce the disability employment gap, and tackle workforce inequality
- Wellbeing – to improve health and wellbeing, and improve community integration
The Cabinet Office intends to publish guidance and a template evaluation model, including metrics and standard scoring methodology, in November 2020 to assist commercial teams in including social value criteria in procurements. The Cabinet Office has confirmed that commercial teams should evaluate the "qualitative nature of social value responses, rather than evaluating purely on volume or quantity".
The Crown Commercial Service (CCS) recently ran a webinar explaining the changes it has already built into the support it provides public sector buyers through its public sector framework agreements. When CCS procures a new framework agreement, or works with buyers to award a call-off contract from a framework agreement, it plans to work with public sector buyers' commercial teams to identify outcomes from the list of priority areas set out in the PPN that are relevant to the contract being procured.
CCS plans to work with buyers to draft a social value priority statement that will be set out in the specification. The statement will set out the targets to be achieved by suppliers, and the expectations as to how and when targets should be achieved. CCS then intends to support buyers on drafting questions requiring bidders to explain how they will achieve the targets.
Buyers can either outline commitments to be met by bidders, or invite bidders to submit their own proposals as to how they will achieve specific outcomes. The winning bidders' responses, including any specific commitments to achieve targets, should be contractualised and incorporated into the contract KPIs. Consistent failure to meet KPIs on social value could result in the framework agreement and/or call-off contracts being terminated.
Prepare for change
Businesses need to prepare for this change now. As a "starter for 10", all information on current social value initiatives should be gathered together. Businesses should consider how these could be presented in a tender response, including reporting obligations and measurable outputs. Where your social value offering is lacking, put in place the internal governance processes to ensure that the business will be in a position to commit to deliver on social value requirements in the delivery of contracts from the start of 2021.
The second part of this series will look at what some public sector bodies – specifically the NHS – are already doing to increase the role that social value plays in contract award decisions, what some major suppliers are doing to meet these requirements, and steps that businesses should take in light of these developments.