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New guidance on Social Value - does it grasp the nettle?
Trowers Public Insight

New guidance on Social Value - does it grasp the nettle?

The Cabinet Office has published updated guidance on the Public Services (Social Value) Act 2012 which takes account of the lessons learnt from the Cabinet Office report "The Public Services (Social Value) Act 2012: One Year On" dated late January this year.  The report summarises the impact the Social Value Act has had on public service work commissioners and providers during the first year of the Act's life.

Background to the Public Services (Social Value) Act 2012

The Public Services (Social Value) Act 2012 came into force on 31 January last year and requires public authorities to before commencing with the procurement process to consider:

  • How what is being procured might improve the economic, social and environmental well-being of its area (section 1(3)(a)).
  • How the procurement process can be structured to secure that improvement (section 1(3)(b)).
  • Whether to undertake any consultation on the potential improvements or how to secure them (section 1(7)).

The Act applies to all services contracts and framework agreements that have to be publicly procured under the Public Contracts Regulations 2006 but it does not apply to call-off contracts awarded under a framework agreement.

Report

The report contains a number of case study examples whereby public authorities through more innovative ways of complying with the Act have added greater social value to the services they are procuring.

Private sector service providers are also responding positively to this agenda and are themselves coming up with creative service outcomes focused on adding extra social value.

Specific positive examples listed in the report include - public authorities creating toolkits to help incorporate social value into their procurement processes (e.g. the 'Croydon Social Value Toolkit') and appointing individuals with a special role to embed social value into procurement (e.g. all major West Midlands councils have nominated 'Social Value Champions').

Lessons learnt

A year on from the Act's commencement, commissioners are thinking more innovatively about how social value can be produced whilst delivering maximum value on the money spent on public services (given funding is being cut but demand for public services continues to rise).

This trend of growing innovation is creating a synergy in the market place as providers are also responding with enthusiasm.
In order to maintain this momentum, a clear and comprehensive guidance to the law is required as identifying a targeted and more creative service delivery model requires this.

In fact, some commissioners hold back from exploring different models due to the uncertainty as to what they are able to do and cannot do under the law.

The updated guidance will be widely welcomed by commissioners as well as providers.  It is expected that more innovative service delivery models with greater emphasis on adding social value will emerge in the second year as the uncertainty around the Act decreases.

But...

What the updated guidance has not addressed is the much debated issues surrounding using local labour or supplies or paying a hiring wage.  This means that the government still has not addressed the controversy over where public authorities' priority should lie between achieving saving money versus policy objectives.  There is also an additional issue the government needs to address – compatibility of the Social Value Act with EU law, as promoting local supplies and labour and generating jobs locally may be incompatible with EU law compliance.

This has remained a very thorny issue in politics for some time.

Money vs Policy objectives

In the 1970s the US first introduced the concept of 'contract compliance' which for example required public authorities to hire x% of workforce from underprivileged communities – thereby achieving 'equality' policy objective through procurement.

The UK adopted this approach soon after but at a cost of causing political conflict and controversy.  It was argued that there should be no political agenda in procurement processes and public authorities should simply opt for the most economically advantageous offer (i.e. the lowest bid).  At the same time, contractors felt that public contractual terms containing numerous restrictions were too complex.

The 'money' argument prevailed.  For example, section 17 of the Local Government Act 1988 which came into force by a Conservative administration under Margaret Thatcher (and subsequently amended) requires local authorities to disregard non-commercial matters, which in a nutshell is opposite to what the Social Value Act aims to achieve.  Section 17 is still in force – how should local authorities comply with contrasting law?  The government needs to address this issue.

Also in the 1980s the EU procurement regime introduced legal concepts such as non-discrimination, freedom of movement (of people and services) and equality of treatment.  As a result, a series of case law emerged including Storebaelt (Case C-243/89) and Nord-Pas-de-Calais (C-224/98), which all dealt with these concepts.

We are now in the era where the Social Value Act and the new EU procurement regime co-exist and this brings up many questions to consider, for example – Is it legal to say 'use local labour' and 'supply locally'?  Or is it discriminatory under EU law?  Some public authorities such as Southwark Council require a living wage to be paid - Is it legal to say 'hire at living wage'?  Or again is it discriminatory

Bearing in mind these challenges it feels too early to celebrate the success of the Social Value Act.  Commissioners should be careful when considering local supply and labour not to cause any discrimination under EU law.

The Cabinet Office guidance can be found at: https://www.gov.uk/government/publications/social-value-act-information-and-resources/social-value-act-information-and-resources