Public Sector Outsourcing Survival Guide: Social value in public procurement

Social value and "ESG" (environmental, social, and governance) have become real buzzwords in recent years, particularly in the public sector. In the fourth insight in our Public Sector Outsourcing Survival Guide series, our public procurement experts take you through the importance of social value in the procurement process and some of the key legal considerations to be aware of.

1. What do you need to know about the basics?

Key law, policy and guidance

First, let us take a quick look at some highlights of the existing legal/policy framework around social value:

• Public Sector Equality Duty ("PSED") within s149, Equality Act 2010 – a public authority must have regard to the need to eliminate discrimination, harassment and victimisation, and advance equality of opportunity;
• Public Services (Social Value) Act 2012 ("PS(SV)A") – commissioners of public services are to consider (pre-procurement) how they can secure wider social, economic and environmental benefits in their area;
• Public Contracts Regulations 2015 ("PCR") – social value is promoted via various regulations in the PCR (e.g. Reg. 67(2) which includes environmental and/or social aspects of a tender as a factor that may be taken into account in the evaluation of tenders);
• Modern Slavery Act 2015, s54 – a commercial organisation must prepare a slavery and human trafficking statement for each financial year;
• PPN 06/20– a procurement policy note published in September 2020 concerning social value in the award of central government contracts; and
• PPN 05/21 – a procurement policy note published in June 2021 introducing the National Procurement Policy Statement ("NPPS").

We will now explore the key policy and legislation in more detail starting with the PS(SV)A, followed by PPN 06/20, then finally PPN 05/21.

2. Public Services (Social Value) Act 2012

The PS(SV)A describes (in s1) what constitutes an in-scope procurement, and s3 requires an Authority to consider:

1. how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area; and
2. how, in conducting the process of procurement, it might act with a view to securing that improvement.

The Authority is only obliged to consider the matters that are relevant to what is proposed to be procured and is to consider the extent to which it is proportionate in all the circumstances to take those matters into account. The Authority is allowed to disregard the social value obligations for a procurement where there is an urgent need to arrange the procurement.

3. Procurement Policy Note 06/20

PPN 06/20, issued in September 2020, mandates a standardised approach for taking account of social value in the award of central Government contracts. The PPN 06/20 now requires social value to be assessed in all such procurement, using the "Social Value Model" (the "Model").

PPN 06/20: Assessment of Social Value

• Any benefit identified as social value in tenders or contracts should be over and above the core deliverable/s of the tender or the contract.
• Social value is to be assessed on the quality of what suppliers can deliver and how they propose to deliver it, rather than the quantity of what they can provide.
• A minimum weighting of 10% of the total score for social value is to be applied in in-scope procurements, so that it is capable of being a differentiating factor in a bid evaluation.

Social Value Model

The Model sets out the Government's social value priorities for procurement. It includes a menu of priority policy outcomes for contracting authorities' commercial teams to review and select, where these are relevant and proportionate to the contract at hand.

Below we have listed the key themes and subsequent policy outcomes:

• COVID-19 recovery
  • Help local communities to manage and recover from COVID-19 impact

• Tackling economic inequality
  1. Create new businesses, jobs, and skills; and
  2. increase supply chain resilience and capacity

• Fighting climate change
  • Effective stewardship of the environment

• Equal opportunity
  1. Reduce the disability employment gap; and
  2. tackle workforce inequality

• Wellbeing
  1. Improve health and well-being; and
  2. improve community integration

For each policy outcome, the Model sets out model evaluation questions; model response guidance for tenderers; model award criteria and sub-criteria; and reporting metrics.

An Authority must consider whether the Model questions, award criteria and reporting metrics associated with each policy outcome:

• are related to the subject matter of the contract;
• are proportionate to the contract; and
• will ensure compliance with the principles of equal treatment and non-discrimination.

It is not adequate to rely on generic statements to satisfy the Model's requirements. Social value must be considered from the outset and incorporated fully into the procurement planning so that it can be dealt with holistically.

Social value at the procurement stage

• Organisations need to review their project pipeline and talk to stakeholders to determine areas of improvement that could be delivered through contracts.
• There should be a clear 'golden thread' from government priorities to the development of strategies and business cases for programmes and projects, through to procurement specifications.
• Assess the market maturity and engage with the market to understand the drivers of cost, quality and efficiency, and include social value in these discussions. Test options with the market.
• Build the chosen model award criteria and sub-criteria, model evaluation questions and reporting metrics into the procurement and contract.

Social value at contract award and in contract management

• Develop social value key performance indicators ("KPIs") from the model award criteria and reporting metrics in the Model, and monitor and record against these throughout the contract term.
• The default is to report on social value KPIs on a three-monthly basis, but it may suit the social value outcome/s better if the in-scope organisation's reporting is six-monthly or annual.
• For government's most important contracts, report the prime contractor's performance against the most important social value KPI on a quarterly basis.
• PPN 06/20 also gives guidance on how to apply social value criteria to frameworks and direct awards.

4. Procurement Policy Note 05/21

The current NPPS, set out in PPN 05/21, requires those exercising procurement functions to have regard to national priorities around social value, in addition to any local ones. However, this obligation is only necessary where there national priorities are relevant to the subject-matter of the contract and proportionate.

National social value priorities

The NPPS (which applies to all public procurement, as opposed merely to central Government procurement) sets out three national social value priority outcomes:

1. Creating new businesses, new jobs and new skills:
   1. increasing entrepreneurship, helping new/small businesses grow and creating more businesses;
   2. increasing employment opportunities for those who face higher barriers or are located in disadvantaged areas;
   3. extending training, particularly for skills shortages and in high-growth sectors.
2. Tackling climate change and reducing waste:
   1. to the Government's target to achieving net zero by 2050;
   2. reducing waste, improving resource efficiency and moving toward circular economy;
   3. identifying opportunities in sustainable procurement to deliver environmental benefits through contract delivery.
3. Improving supplier diversity, innovation and resilience:
   1. creating supply chain diversity with more start-ups, SMEs and VCSEs;
   2. increasing innovation and disruptive technologies to reduce cost and increase quality;
   3. contributing to development of scalable and future-proofed new methods to modernise deliver and increase productivity.

Implementation of the NPPS

• There must be a clear link from the development of strategies and business cases (in which commercial experts should be involved from the start) through to procurement specifications and the assessment of quality when awarding contracts.
• Authorities must not gold-plate contracts with additional requirements which could be more easily met and for better value outside the contract compliance process, particularly where legislation has determined that such provisions do not apply e.g. not imposing PSED" obligations on the private sector.
• It is important to have the right policies/procedures in place to manage key stages of procurement to help deliver social value, e.g. publishing procurement pipelines, market value and capability assessments, delivery model assessments, "should cost" models, pilots, KPIs, risk allocation, payment mechanisms, economic and financial standing assessments and resolution planning.
• Authorities should take measures to identify and mitigate modern slavery risks.
• Collaborative working is encouraged, including shared service models and professional buying organisations.

5. To conclude

Social value is a vital component in the procurement process. Since 2012 there has been a statutory obligation to consider how in-scope procurements can improve economic, social and environmental well-being through the PS(SV)A. In recent years we have seen its prevalence develop through PPN 06/20 and the NPPS, which require authorities to incorporate particular priorities into their procurements. Social value is also a key theme in the latest version of The Sourcing Playbook (published in May 2021) – read the third article in our Public Sector Outsourcing Survival Guide series to find out more about the Playbook.

Currently, a failure to promote the social value priorities as advocated by the PPNs, where relevant and proportionate to do so, is perhaps unlikely to meet with a determined legal challenge – although it might technically be susceptible to judicial review as a relevant consideration in procurement under public law principles. However, there may soon be a specific statutory duty to "have regard to" the NPPS. This will put the NPPS on the same footing as statutory guidance, which means that authorities will need a good reason to depart from it. This duty is likely to come through the new legislation outlined in the "Transforming Public Procurement" Green Paper, which is to be progressed when parliamentary time allows (and possibly in the first half of 2022).

To ensure that their procurements and contracts are future-proofed, contracting authorities should ensure that social value priorities form a well-documented, clear thread in the development of their strategies and business cases, through to procurement specifications and contractual obligations.

With the focus on environmental progress to obtain net zero by 2050, and a desire to build a strong, sustainable economy as we recover from the pandemic, social value is at the forefront of the Government's agenda and an ever-increasing factor in procurement that should be carefully considered in each case.

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You can also read the previous articles in the series:

• ​How to make transition a success when outsourcing public services
• How to successfully disaggregate outsourced public services
• What you need to know about the Sourcing Playbook