a myth-buster guide

We have produced a mythbuster guide in response to concerns across public service markets at conflicting and sometimes contradictory advice and guidance about how to apply social value. This is understandable: the rules can seem complex and hard to navigate. And the Act has been provided with minimal guidance to allow for flexibility in how it’s implemented by different public bodies. As a consequence, a number of myths have arisen.

Contracting bodies and social enterprises alike should be prepared to challenge these myths which still, too often, form the basis of procurement decisions. We don’t want these to get in the way of the Act fulfilling its enormous potential, or in the way of social enterprises fulfilling theirs. Here are what we think are the most common myths + misperceptions; click on the myth to read more.

 

The Myths

1.    Social value will always be trumped by price

2.    EU Procurement Rules apply to everything

3.    Including social value in procurement may not be legal

4.    Including social value in the procurement process is difficult and expensive

5.    Including social value in the procurement process is anti-competitive

6.    Awarding contracts to the organisation with the most established financial track record is the best way to minimise risk

7.    Engaging bidders, including social enterprises, prior to procurement, is anti-competitive

8.    Full competition is always the way to get the best deal

9.    The Social Value Act is another unnecessary hoop for bidders to jump through

10. The Social Value Act is too weak, so it won't come to anything.

 

Myth #1: Social value will always be trumped by lowest price

An important assumption underlying the Social Value Act is that immediate, cheapest price for any given contract may fail to deliver the best genuine value for public money during the life of a contract. For example, an organisation that has a strong track record on getting young people into work may be able to deliver more overall value for each pound spent than one that lacks this ability in areas of high youth unemployment. This is due to the identifiable knock-on effect that tackling youth unemployment will have on public bodies in a given area, and budget-savings that can be made as a result. The Act also allows commissioners to generate savings through thinking more holistically – with some creative thinking, IT contracts can create community cohesion, facilities management contracts can improve public health.  

And it’s not just about cost-savings. Perhaps a contract can be awarded in a way that generates social value by creating jobs generating new enterprise, or improving the local environment. The Act allows for some creativity on the part of commissioning bodies. Commissioning bodies’ awareness and clear identification of their own social value priorities, either at a strategic organisational level or within the terms of a given contract, is critically important to their successful use of the Social Value Act.

The Social Value Act has enormous potential to enable commissioners to really use their expertise for genuine social progress and value-for-money.

 

Myth #2: EU procurement rules apply to everything

Some commissioners feel safer applying full EU procurement rules to a contract without considering whether this is necessary. But this isn’t necessary, may be wasteful, and can certainly mean that social enterprises lose out against bigger, more-established firms that can afford legal teams and have become expert at procurement rules.

In fact, the EU has just held a major review of this area, as part of the Modernisation of the EU Procurement Rules Programme, and the UK Government is working to implement the new rules. The results are broadly very positive for the social enterprise sector and have been welcomed, although there are a couple of issues that we are working to iron out.      

Currently there are are a number of exceptions to the EU procurement rules, including:

·                “Below threshold” contracts, where the value of a contract falls below the current threshold of £111,676 for central government and £172,514 for other contracting bodies

·                Contracts for “Part B” services”; which include some that are often provided by social enterprises, such as educational, health and social care services, as well as recreational, cultural and sporting services. Following a full EU procurement exercise for these services is NOT necessary, and is also off-putting to inexperienced bidders, meaning it hampers diversity and, in many cases, social productivity in public service markets.

·                Purely land transactions: land transactions are usually exempt from the EU public procurement regime and related tendering obligations. There is a small amount of case law to suggest that this area is evolving, but in the vast majority of cases, the exemption remains.

 

Myth #3: Including social value in procurement isn’t legal

There is much good (and lawful) practice that demonstrates how to incorporate social value into procurement.  And the Social Value Act provides a mandate for contracting authorities to consider the social value they can achieve in all their service procurement.  Toolkits and evidence of expertise are being developed all the time, and the Social Value Hub is a free service to point you in the direction of these.

Including social value in procurement is entirely legal, so long as you bear in mind:

·                EU law supports social and environmental requirements explicitly – balancing the open market with social policy;

·                The direction of case law on social issues is clear:

-           Avoid the word “local”:Don’t specify that a firm has to be “local” as this will almost always be discriminatory. This doesn’t mean a firm shouldn’t be good for your local area – eg. being good at job-creation or tackling the sort of social problems you face in your local area.

-           Have a social value policy: Having or forming some sort of a policy basis for a requirement is often the way to legitimise it

-           Make requirements verifiable: If a requirement can’t be verified by the contracting body, bidders can’t be compared and the success of the contract can’t be monitored;

-           Don’t specify on accreditation: Contracting authorities should not require bidders to hold a particular label (such as an ecolabel) as part of their specification, or their contract award criteria.  Instead, bidders should be asked to demonstrate their ability to comply with a detailed specification.  Holding a particular label can, of course, be evidence of that ability.

·                This case law is being codified in the new EU Directive, which will help to confirm and clarify the rules on social value. 

·                Equal treatment and transparency are paramount across all bidders

·                Social requirements that are relevant to the subject matter of the contract can be taken into account during the tendering process. Otherwise they can be contract conditions, but bidders cannot be evaluated as part of their tenders.

·                “Added value” may be hard to measure – the more specific social requirements are, the more likely it is a bidder can deliver.

 

Myth #4: Including social value in the procurement process is difficult and expensive

Anything done for the first time may present some challenges. But there are things contracting bodies can do that will make it easier to include social value in procurement and to embed the philosophy across their organisation:

·                identify and map key people internally who can help to scope social requirements – this means establishing good lines of communication between departments (operational, legal and procurement teams amongst others), and between key personnel;

·                identify sustainable procurement champions – champions at all levels of an organisation help to drive the agenda forward, ensuring that social issues are not incorporated into just a single procurement process, but are more widely progressed across the board;

·                choose social requirements you can monitor – and don’t bite off more than you can chew. There’s nothing wrong with starting small and growing your social value experience and expertise over time;

·                look to the market for guidance – constant dialogue between the public sector and its partners (actual or potential) helps to create real social value by identifying what the community needs and what the marketplace can deliver.

As for the cost of social value, it is a case of balancing affordability with value for money, for “the optimum combination of whole life costs and quality to meet the service user requirement”. Value for money is about getting more from your money, which is more important than ever when affordability is a concern. Just remember social value is part of the value for money equation and social value saves costs to all kinds of public services in the long run. Furthermore, social value can create change within commissioning bodies. Early adopters have pointed to greater political buy-in, improved image with the general public and greater employee engagement as commissioners see the transformative power their spending can have on their communities.

There is a need for more joined up thinking and working between different parts of the public sector, to help organisations to account for the social value they can generate, regardless of which part of the public purse feels the financial benefit. 

 Myth #5: Including social value in the procurement process is anti-competitive

Not if you make a contract open to everybody. In reality, competition on social value can be strong – many different types of organisation are geared up to providing social value – they don’t have to be social enterprises or charities: from large contractors that often expect social requirements and are ready and waiting to comply, to small businesses, social enterprises and other civil society organisations that often know their audiences well and can offer tailored solutions that really work.

There are also many opportunities for social enterprises to undertake subcontracts working with a lead contractor. Increasingly there also opportunities for consortia and collaborative working between social enterprises, other third sector organisations, and the private sector too. These are all ways of ensuring that social value can be achieved through procurement while ensuring healthy competition. 

Myth #6: Awarding contracts to the organisation with the most established financial track record is the best way to minimise risk

Knowing that a bidder has a strong financial track record is certainly one way to minimise financial risk. But this is no guide to the added social value a firm may provide under the terms of a contract, so it should not be used as a disproportionate consideration in a contract where the Act applies.

An organisation’s financial history is not a promise of its financial future; and a public body may stifle the start-ups and social ventures that can really help bring value and prosperity to its local or sector economy by over-emphasising financial track-record. As social value takes hold and progresses, the ‘triple-bottom-line’ is expected to become ever-more present for all organisations. Procurement teams that emphasise a long and strong financial track-record at the expense of looking at the social impact record a business has present a common challenge for social enterprises. There are many organisation that cannot demonstrate a long, strong financial track record but are in good health and have a bright future. When a public body decides who to invite to tender, it can accept alternative sources of information from a bidder that is unable (for a valid reason) to provide the financial information as requested. Public bodies should be encouraged to do this as a way of opening up competition without taking on substantial extra risk.

A procuring body should also think about what information is actually relevant to the contract being put to tender. Bidders should be expected to have the necessary – but not a disproportionate – financial strength. 

 

Myth #7: Engaging with bidders including social enterprises prior to procurement is anti-competitive

The earlier a contracting body starts considering what it wants from a service, the more transparent and fair it can be, and the more likely it is to achieve the right results. Procurers can discuss their needs with potential bidders AND service users before beginning a procurement process. This can help them select what to buy and how best to buy it in a way that provides social value on the terms of service-users, providers and other stakeholders. In doing so, contracting bodies may find they learn a great deal about the capabilities and willingness of the marketplace.

Before formally starting procurement, the public body can consult with the marketplace quite freely, being careful not to prejudice the fairness and transparency of the procurement. Public bodies must be careful not to discriminate when engaging (so could not, for example, choose only to engage with social enterprises). But consulting the whole marketplace will not generally be discriminatory if that consultation is genuinely open to all. And contracting bodies should be encouraged to flag the opportunities for engagement to those groups who might otherwise not find out about them – including social enterprises, the rest of the civil society sector, and small businesses.

 

Myth #8: Full competition is the always the way to get the best deal

Public bodies should always make informed decisions about how they purchase services, given the range of options they have in addition to formal competitive tendering – from in house delivery to grant funding, joint ventures, and “Teckal” companies (see Myth #11).  If proper market and user engagement has happened (see Myth #7) then the purchasing public body may have formed a view on what the market can offer, which can inform its decision about how it commissions its services – for example by highlighting that there are numerous organisations to which it could offer grant funding and achieve excellent results. 

The important point about competition is that it ought to be appropriate and proportionate. Disproportionately complicated tendering processes (such as, for example, following the EU procurement rules even when they don’t apply) will not achieve value for money – if only because the tendering process itself has been needlessly expensive and time consuming.

 

Myth #9:  The Social Value Act is another unnecessary hoop for bidders to jump through

Many organisations, including Social Enterprise UK, believe that there is no limit to the positive potential of the Act, if it’s used well. It could help tackle some of the most entrenched and difficult problems we face at a national and local level.  The Act requires contracting authorities to consider – before they procure – the social, environmental and/or economic wellbeing of the communities they serve, and how this wellbeing can be improved through their procurement.  So it is entirely designed to avoid social value being a tick-box exercise, to which public services may pay only pay lip-service. Instead the contracting body must give genuine consideration to social value, and make an active decision about what to procure.  Bidders should be confident, therefore, that the contracting authority is asking questions that are relevant, pertinent and, most importantly, of genuine policy importance to that contracting authority.  And the Act can be used to challenge decisions that are believed not to have taken social value into account.

Myth #10:  The Social Value Act is too weak, so it won't come to anything.

Like all enabling legislation, ultimately the Act is what people make of it on the ground. But we are already seeing it be used as a catalyst for action, as a means of transforming public services, as a means to achieve integrated healthcare, as a way of encouraging better measurement of social value, and as a route to building partnerships across sectors.

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