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Procurement and social value

Procurement and social value

Published: 29th June 2019
Area: Corporate & Commercial
Author: Uddalak Datta

Our legal advice to clients who are subject to the procurement rules is based on a necessary degree of caution. As a result, our message to clients is to ensure that their procurement decisions are justifiable and can be defended on an objective basis – or, at least, a sufficiently objective basis.

This means that we tend to recommend a “purist” approach to procurement i.e. one based on purely commercial considerations. This is, not least, because the law has restricted contracting authorities from taking extraneous matters relating to the wider public good, such as employment or the environmental impact, into account in the tender criteria, unless “linked to the subject matter of the contract”. The orthodoxy for this is that firstly, there is a risk that public authorities can apply public or social criteria in order to justify discriminatory buying decisions to favour local contractors; and secondly that the award of public contracts should be based on value for money, justified on hard-headed commercial grounds.

Since 2012, the Public Services (Social Value) Act has required contracting authorities to consider (a) how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and (b) how, in conducting the process of procurement, they might act with a view to securing that improvement. Since 2014, the procurement Directives have introduced an explicit reference to environmental, social and labour considerations as permissible grounds, which does little more than codify the EU case law. The benefit of this is to provide greater legal cover for contracting authorities to consider social value as part of a procurement strategy. As a result, there is both the legal obligation to consider social value as part of a procurement, and there is also plenty of legal cover for taking social value into account as part of a procurement process. This can specifically include the production of supplies or conditions of trading, transport and delivery, through to use, such as energy-efficiency of products and disposal at the end of their economic life.

However, there are still two key problems in developing this strategy:

“Link to the subject-matter of the contract”

The first issue is that there needs to be a link between the social criteria to the subject matter of the contract, and those criteria need to be proportionate.

This does not mean that the authority has complete freedom to impose social criteria. In particular, the social criteria are subject to the requirement that the criteria are proportionate and do not discriminate against other EU suppliers. This means that, among other issues, the procurement rules threaten the lawfulness of applying a social criterion such as the Living Wage. EU Commission officials have privately indicated that a rate of pay which is enough to ensure that those receiving it can have an acceptable standard of living, and applies to all employees, would not be lawful. This is because the Living Wage would be higher than the statutory National Minimum Wage and would be unlawful as it would prevent a kind of wages arbitrage – unlawfully preventing staff employed in and posted from lower-paid home countries from taking advantage of those lower rates. The challenge is that, in truth, the National Minimum Wage is not sufficient, especially in London, to provide an acceptable income and that competitive tendering based on price has created a race to the bottom in service delivery input costs – wages to you and me.

Secondly, the rules mean that there has to be direct link to the subject matter of the contract. But a truly socially responsible procurement decision might need to be based not just on the limited scope of the contract product, but on the social impact of the choice of contractor throughout its entire business, supply chain and working practices. Focusing only on, for instance, whether there is appropriate pay or gender equality for the consultant’s staff providing the service delivery, while completely ignoring the pay and gender imbalance and inequality for the cleaners back at the office, seems frankly to be tinkering at the edges.

Thirdly, and more fundamentally, the connection to the subject matter of the contract is increasingly likely to come under strain. A number of UK cultural and educational institutions, including the Universities of Bristol and Exeter, together with local authorities including my own in Birmingham, have declared a “climate emergency”. The logical consequence of this declaration of climate emergency is that a contracting authority might be under pressure, include from student protests, to make commercial decisions which are based, not just on the limited scope of the contract product, but on, for instance, the contractor’s investments in fracking or its record in cutting down the rainforests.

How to evaluate social value

The next challenge is how to evaluate social value in the context of a procurement. In line with the approach of central government to adopt a “one-size-fits-all” approach under the “Outsourcing Playbook”, the government has recently published its approach to evaluating social value. This provides a decidedly unambitious approach to taking social value into account in procurement decisions.

The proposed model provides for a proposed minimum 10% weighting for social value in a bid. The weakness of this should be readily apparent. With a 10% weighting it is entirely conceivable that a low-wage internationally sourced supplier of uniforms and workwear could still win contracts on price against a local, low pollution, low-carbon supplier with an ethically-sourced product. A supplier could, entirely rationally, make an economic decision to win a tender on price rather than the additional cost of providing social value.

The social value guidance also provides a standardised set of indicative evaluation questions and metrics by which to evaluate social value. This is divided into the following high-level themes and outcomes, together with possible questions and likely metrics in a more detailed annex.

Refer to right table

The consultation on how government should take account of social value is available at the following website; responses are due by September 2019.

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