Tendering for Public Sector Contracts: Social Value
Tendering for public sector contracts does not just involve following specific procurement guidelines, it also involves being aware of and mindful of current Government policy.
Social Value Concept
The concept of ‘best value’ has been replaced by ‘social value’ as a result of the Public Services Social Value Act 2012 which came into force in January 2013 (https://www.gov.uk). The concept recognises that resources are scarce. This is due in part to limits on council tax increases due to the Coalition and subsequent Tory Party’s squeeze on the public sector, put in place due to the UK National debt which in 2013 was 90.6% of GDP and UK net borrowing in 2015-16 of 74.9 billion (http://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/). There was an intended bias by the proposer of the Act (http://www.socialvaluehub.org.uk) towards voluntary organisations, social enterprises and community groups, yet a company may not wish to change its structure in order to bid, although some organisations such as councils have become co-operatives (http://www.councils.coop/) reflecting some of the ideas in the term.
Why Social Value?
The concept of social value implies a greater value to society than just the price charged in a contract and the fact that that price represents money to be paid for someone somewhere to work, which enables them to live. Rather than focusing on the quality of a service provider, or the price to be paid for a service, the idea is to consider the collective benefit to a community. The question then becomes how does the company or organisation tendering for work use the revenue it gets? Revenue clearly represents an income to cover fixed and variable costs plus an element of profit. The costs are in the supply chain involved in delivering a contract and these suppliers can include social value in terms of how they operate. The triple bottom line includes the concept of sustainability into the accounting framework, the three elements of which are social, environmental and financial all of which companies should consider when evaluating their performance (Elkington, 2004). This highlighted the importance of not just profits but also people and planet. The Social Value Act (2012) brings the triple bottom line concept into all organisations applying for public sector work and in particular incorporates the concepts of social and environmental value (Elkington, 2004) into embedding sustainability in the mixed economy.
The social value hub (www.socialvaluehub.org.uk) details the push to improve economic, social and environmental wellbeing of the area. This by inference implies a local approach as a business in Cumbria will be likely to have employees in Cumbria. Delivering a contract to an organisation outside Cumbria would therefore pass some economic benefit to the employee, but not necessarily to the area where the contract was based say Manchester as an example. Where travel is involved there will be more greenhouse emissions if staff delivering contracts need to travel from outside an area.
Social Value Definition
Social value is defined as “the benefit to the community from a commissioning/procurement process over and above the direct purchasing of goods, services and outcomes” (http://www.socialvaluehub.org.uk/about). The focus is on economic, social and environmental wellbeing. In order to consider economic, social and environmental wellbeing the context of the Local Government Act 2000 and the later Localism Act 2011 are relevant. The impact of the supply chain should be considered. This extends and develops the concept of societal marketing, the philosophy that decisions should be made not just on the basis of what the buyer wants and their requirements, but also society’s long term interests into a Government to business application.
Not only is there debate about what the concepts mean as they are social constructs and subjective, but also different commissioning bodies may have different principles for assessing social value. The lack of understanding of the social construct makes for difficulties in transparency and evaluation on the extent to which the promise of social value in a contract bid would be delivered. CLES us a social return on investment calculation which seeks to put a cash value amount on the social value by calculating costs to the public purse saved as a result of social benefits given and tools for this are available (www.thesorinetwork.org).
Economic value assumes consumers rather than Governments are in the best position to decide what they want (http://www.ecosystemvaluation.org/1-01.htm). This is underpinned by the concept of opportunity cost. The willingness to pay by a public sector body is influenced by their perception of the economic, social and environmental well being. Present within many contracts is the option of a rebate of around 2% for prompt payment, automatically suggesting to a bidder that the price paid for a service will be up to 2% less than what the bidding company wants. This might help the finances of the commissioning body but will not help the profit margins of the bidder, so the economic well being is dependent on which side of the contract the organisation sits.
ONS Wellbeing Measurement
The ONS measure wellbeing using the following variables:
- education and skills
- natural environment
- personal finance
- where we live
- what we do
- our relationships
- personal well being
Employee Well Being
Clearly employment of staff enables the employee’s well being to be improved. Economic wellbeing is a subset of national wellbeing measured by the ONS (http://www.ons.gov.uk). The economic measures used by the ONS are inflation, measured by referring to the CPI and net debt, as a percentage of GDP, and income per head from national income. Economic wellbeing at the individual level is about a person’s standard of living and this is measured by income. Different countries though use different measures (https://www.reference.com/business-finance/economic-well-being-909c020bab9e11b1).
The natural environment deals with environmental quality: greenhouse gas emissions, renewable energy consumption, household recycling and sustainability issues (ONS, 2016). The challenge of environmental well being is how to improve quality of life by living within our environmental means (Shah, 2005). The idea is for everyone’s footprint to be globally equitable (http://b.3cdn.net/nefoundation/88cb2c4314731314d0_gxm6bq37b.pdf).
Personal well being is measured by the variables of life satisfaction, happiness, anxiety, mental well being and activity worthwhileness (ONS, 2016). However, different models of well being exist, the NEF having only two dimensions of satisfaction with life and personal development. The NEF explains that a successful society is one where the economic activity delivers benefits for all of society: “high levels of sustainable wellbeing” (http://www.neweconomics.org/issues/entry/well-being). Clearly where organisations exist for the good of a section of society such as a social enterprise, or community group, some sections of society which find life more challenging can be helped through trading relationships.
Frameworks and Policies
Some organisations have developed social value policies and frameworks e.g. AGMA Procurement Hub (www.manchester.gov.uk/download/…/id/…/presentation_on_agma_procurement_hub). This helps to provide detail on how many social value outcomes should be looked for in one procurement bid and some typical outcomes. However the likelihood of micro-businesses wanting to determine the carbon footprint of all their suppliers and having an environmental strategy could be seen as more red tape where they do not have the financial resources to fulfil these requirements. It is likely that if this is not detailed in the bidding documentation that only 1 outcome is necessary for a small bid. The questions area in a bidding portal enables questions to be raised.
Public Sector Balanced Scorecard
The concept of social value also links into how public sector organisations should evaluate their strategy using the public sector balanced score card (http://www.publicsectorscorecard.co.uk/). The scorecard maps service improvement and performance management into a framework. Stellarleadership confirms how the use of the scorecard can be used to create value (http://stellarleadership.com/docs/Leadership%20Blog/Introduction%20to%20the%20Balanced%20Scorecard%20for%20the%20Public%20Sector%20V8.pdf). Clearly the vision, strategy development and action created needs to ensure that social value is integrated into the model.
The traditional four perspectives of finance, customers, learning and growth and internal processes suggested by Kaplan and Norton can embed social value into what public sector organisations can ask of both stakeholders and themselves in order to achieve sustainability. The scorecard incorporates both qualitative and quantitative measures. Whilst the formula for calculating social, economic and environmental value appears simple: SROI = net present value of benefits/net present value of investments (http://www.i-r-e.org/docs/a008_social-return-on-investment-_sroi_.pdf) and there is a clear four stage process of conducting an analysis of boundary setting and impact mapping, collecting data, modelling and calculating and reporting and embedding the stages involved (http://www.i-r-e.org/docs/a008_social-return-on-investment-_sroi_.pdf) suggests an onerous activity for a sole trader hoping to be able to bid for a contract worth perhaps less than £10,000. Where organisations confirm the indicators they are looking for such as social value indicators of to raise the living standards of all residents, this can be helpful.