Public Procurement and the Civil Society Strategy
(5 years, 6 months ago)
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Baroness McGregor-Smith
That this House takes note of the case for increasing the social value of public procurement by aligning it with Her Majesty’s Government’s Civil Society Strategy.
Baroness McGregor-Smith (Con)
My Lords, I am delighted to open today’s debate and refer to my interests in the register. I have been really interested and very passionate about public services and public service procurement for the last 27 years, having spent most of my career working in outsourcing, where my clients were from the public and private sectors. I am delighted that the Government have launched a consultation into social value in government procurement; this will enable the public and private sectors to feed back on what does and does not work in public procurement.
Government procurement accounts for around one-third of all public expenditure. However, the way procurement decisions are made has been criticised for either not delivering value for money or not encouraging enough innovation in how services are delivered. Regardless of everyone’s views on outsourced goods and services, ranging from “Should we outsource everything?” to “Should we consider only in-house delivery?”, we know that the public sector will always need goods and services it cannot make or deliver itself. Therefore, an outsourced market for goods and services will continue to exist, as will public procurement.
Successive Governments have looked to change the way government procurement operates. I was delighted when the Public Services (Social Value) Act 2012 was introduced, requiring central and local government officials to consider social value when making procurement decisions around services, and the extension by the Government in 2018 of the existing requirements to consider social value in public procurement, making it apply to central government departments, which would include procurement of goods and works. I was also pleased to see the Government’s Civil Service strategy, which looks at engaging charities, social enterprises and other bodies in the delivery of services. The Government have also sought to increase awareness of social value among civil servants and those bidding for procurement services. So all the principles of what we need to do are in place. However, we now need a clear delivery framework for this ambition. This is where the challenges really begin.
In 2018 the Institute for Government stated that the Government spend £284 billion on buying goods and services from external suppliers, which amounts to one-third of public expenditure. As Gary Sturgess said in his 2017 paper Just Another Paperclip? Rethinking the Market for Complex Public Services:
“The UK public service market is the most sophisticated in the world … the UK has undoubtedly been the world leader in opening the delivery of public services to delivery by external providers”.
However, the House of Commons Public Accounts Committee has argued that the marketplace for procurement in the UK is not diverse enough. It states that the Government are too reliant on a small number of large companies when they look to outsource services. It and so many others point to the collapse of Carillion and the crisis of confidence now felt about public service providers. We should also note that only one of the large public service providers before the collapse of Carillion made a commercial return between 2012 and 2017.
I understand all the views that are out there, but today I want to talk about the diversity of the marketplace and what I believe the Government need to do to ensure diversity of choice in the marketplace. All this starts with the procurement practices we have in place across central and local government and all public sector bodies. The plethora of practices that exists is still far too wide and we still do not have enough skills to run major procurements that we often talk about. We know that procurement rules come from a variety of sources: we have EU treaty obligations, WTO rules, the Treasury, the Public Contracts Regulations 2015 and the Public Services (Social Value) Act and other guidance, including the recently published Cabinet Office outsourcing rulebook. However, we do not have enough commercial teams to really drive anything except lowest cost.
This is not a problem confined to the UK. The European Commission has said that European public authorities spend approximately €1.8 trillion on goods and services, with lowest cost remaining the sole criterion for awarding contracts in 55% of all procurements. Social value in public procurement today is simply not considered enough, with many saying that it is simply an afterthought. I have some recommendations for the Government, and I shall be making these recommendations to the Cabinet Office in response to its consultation on social value in government procurement, which asks how the Government should take account of social value in the awarding of central government contracts. This uses some excellent criteria in its proposed evaluation model. First, the consultation currently in place should apply to all public sector procurement, not just that of central government: it needs to apply to all goods and services as well.
Secondly, social value should not be optional but at the heart of every procurement decision in the public sector. Although the Government have said that there should be a 10% minimum weighting of social value, they have also said that departments should include it only where it is relevant. My experience in business tells me that there is not a single procurement situation that could not be leveraged to make the world a better place.
Thirdly, we are not being ambitious enough. The Government’s approach to social value is still too narrow. The consultation shows that they see social value as a series of parallel issues, such as the environment or digital resilience. Instead, they should recognise that all these areas are absolutely connected. Procurement processes should recognise companies that have a responsible business strategy. I urge the Government to look at Business in the Community’s responsible business tracker, launched in April 2019. This would be an effective way to test whether an applicant is serious about social value. There is also no explicit link to the public sector equality duty. This was highlighted to me by the Equality and Human Rights Commission. It would be good to see an explicit link. I note that Scottish public bodies are already required to consider building equality considerations into the awarding criteria for contracts, and that really makes a difference. It has encouraged action on employment pay gaps experienced by underrepresented groups in Scotland.
A minimum 10% weighting is suggested by the Government’s March consultation. This is really not ambitious enough; the ambition should be up to 50% and this should be a mandatory calculation across all procurements. We should explain to the marketplace what would really drive high scores. There are many examples of this, which could include organisations that give equity or part ownership to employees. Mutuals and social enterprises must be considered here—those that really believe in people on the front line who deliver goods and services, not just in rewarding a small number of people in the organisation. Having managed many different types of business, with different ownership structures, I have always found that the most motivated employees—those I have also seen delivering the highest level of service—are those who feel they really have a great stake or personal investment.
Next are the organisations that support local skills, jobs and apprenticeships; those that want to eliminate single-use plastics; those that want to tackle climate change; those that take safety, cyber-risks and protection of data, including employee data, really seriously; those that put the most disadvantaged into work and help them to develop careers; those that take diversity seriously and have board and senior teams that reflect the communities where they work; and those that have proper plans in place to eliminate the gender pay gap and what I hope will soon become the ethnicity pay gap. The list goes on and on. When I was a chief executive, my team set up a charitable foundation through which we worked with different charities across the UK to support the most disadvantaged into work. Today, all large companies should have charitable foundations that do the same and encourage their employees to work with them.
The Government’s consultation is also silent on the potential of procurement to reduce deprivation. That must also be included. We should absolutely expect the owners of all companies and organisations that work for the public sector to respect and invest in social value. Hedge funds are simply not interested, and most institutional investors need to understand more about what is needed. We need more socially responsible investors, and the Government need to do more with investor groups as they can tell boards and management teams what is expected of them. It is no longer enough for investors to focus only on long-term financial returns. They all need to be socially responsible and hold companies to account.
Fourthly, we must strengthen the Public Services (Social Value) Act 2012 to make social value mandatory, and state that all organisations subject to it should produce a social value policy. I would like to see that on the front page of every website. Enterprise UK has excellent examples that could be used to develop a standard methodology for this.
Fifthly, there should be a mandatory calculation of shared value for all goods and services procured. This needs to be considered not just at the pre-procurement stage but at all stages of the procurement cycle. Different stages of procurement and changes in specification mean that you have to keep considering social value all the way through a procurement. Companies should publish a social value score, and someday soon this language should be as commonplace as “gender pay gap”.
As an example of what could change, I note the recent criticism of Crossrail, which has been significantly delayed. I have to say, I am quite impressed by what those working on it have done on sustainability. They have talked about sustainable consumption and production; they have talked about how they will address climate change and energy challenges; they have talked around how they will protect natural resources; and they have looked at promoting opportunity and social inclusion. They have created over 4,000 jobs for local and previously unemployed people, and have over 1,000 apprenticeships. They have reduced construction-related CO2 by 18.6%. None of that hits the media today.
Sixthly, we should make sure that we have a body overseeing this, sitting in government, to bring together all interested parties. For example, we can expand the role of the Crown Commercial Service to cover this and share best practice, making all this available to commissioning teams. We need more commercial expertise across government departments and local authorities, and we need to share some of the amazing best practice that so many already use. The Government should produce an annual report on how social value is embedded in public procurement to celebrate the excellent work that exists.
Seventhly, we should look at the tax system and at what the Treasury can do, because more benefits can be created for society through using different incentive schemes. An example of one already implemented tax is the apprenticeship levy; despite having been criticised, it is leading more organisations, public and private, to think about how they can support apprenticeships differently today. We also need to look globally at best practice. The Canadian Government sponsor Grand Challenges Canada, a venture capital undertaking that funds early-stage companies with shared innovations. We must focus on shared innovations for government, society and companies. Innovate UK is doing some excellent work here; its funding could also be used to support companies that believe more in and deliver on social value. We should embed all of this in our industrial strategy.
In conclusion, there is a real opportunity to create a wave of positive action by embedding social value in public procurement and moving the debate away from lowest price, which, after nearly 30 years of outsourcing for many contracts, simply no longer works. We need to explain to the marketplace what we want to support the Government’s ambition for society and use every pound of public money to support the ambition of the civil society strategy. I certainly think this is exciting; some of the innovations we could see come forward would excite us all. We still struggle when we talk about innovation. If the UK gets this right, we could continue to innovate and lead on change and transformation in public procurement. This is a really exciting opportunity to do more, and I call on all of us in this House and the other place to support it. I beg to move.
Lord Haskel (Lab)
My Lords, few of us would argue with the objectives of the Government’s civil society strategy. We all want to strengthen and unify the institutions and organisations which make up our civil society. The noble Baroness is quite right; public procurement has an important role to play in this and I congratulate her on moving this debate.
As the noble Baroness told us, the UK public sector spends over £250 billion, about one-third of public expenditure, on the procurement of goods and services from the private sector. This large amount of money means that directing public procurement can make a real difference. Deliberately choosing providers from the local area can make a difference to local communities. This keeps money in the local economy. Managed well, it can lead to more investment in poorer parts of the country and help revitalise local economies.
By deliberately favouring smaller firms, the Government can promote competition and discourage dependency on large monopolistic providers. Public procurement can favour firms which meet certain ethical standards, as the noble Baroness said—for example, living wage employers or sourcing fair trade products. Public procurement can also favour providers with strong community links. For example, a local authority may prefer to fund a homeless shelter provided by a church which has strong local links and is grounded in the community, rather than a large national organisation. As I said, few of us would argue with these social objectives. Indeed, most of us would welcome them.
So what stands in the way? In short: the law, value for money, public sector bureaucracy and standards. By the law I mean our EU membership and free trade agreements. The EU is relatively relaxed about restrictions on public procurement. On the other hand, far less relaxed are the existing free trade agreements and the proposed free trade in services. The agreement aims to provide equal treatment to foreign service providers as well as promoting competition. Indeed, Liam Fox has repeatedly stated that this will be a priority for UK trade policy after Brexit.
These trade deals include heavy restrictions on local and ethical procurement. Put simply, the Government’s prioritisation of these agreements is at odds with their civil society strategy to use public procurement to strengthen civil society. The free trade ambitions of one government department are at odds with the domestic policy objectives of another. It may be above the Minister’s pay grade to sort this out, but somebody will have to do it.
I can be a lot more helpful to the Minister on value for money, bureaucracy and standards. For some time there has been growing concern about failures in procurement. The care homes fiasco is but one recent example; the noble Baroness mentioned Carillion. These failures have undermined the public’s trust in outsourcing. It is estimated that the recent failure of the privatisation of the probation service will cost the taxpayer some £450 million. Yet the Government aim to achieve value for money. Most believe that, with the exception of IT, this is simply a matter of price, as the noble Baroness said. This seems to have led to the evolution of large monopolies delivering public services, and it is difficult to find an alternative when they fail. Measures of market concentration in this and other sectors have risen sharply in recent years. As a result, there is broad concern about the ethics, quality, transparency and value for money in the procurement process.
It was with these concerns in mind that, many months ago, Tomorrow’s Company—here I declare an interest—approached the British Standards Institution to see whether a well-defined set of criteria could be established to define what “good” looks like and what works in the field of public procurement. To some of us, the British Standards Institution means a kitemark—a mark which tells us that a piece of steel is strong enough to do the job. But the world of standards has moved on a long way. Standards are now a tool that enables firms to set and meet best practice. For example, the British Standards Institution now has the task of laying down the standards strategy for connected and autonomous vehicles. A British standard for public procurement would level the playing field so that UK businesses of all sizes can be included in the public sector supply chain. By meeting the standard, an organisation can demonstrate that it meets the generic requirements for an organisation providing products and services to the public. All of this is this in keeping with the Government’s civil society strategy and the requirements listed by the noble Baroness.
Meeting the standard allows small and start-up organisations to prove themselves suitable and capable. This takes the burden off public sector administrators to perform due diligence, as there will be third-party conformity assessment. It reduces bureaucracy because it simplifies the complex process of tendering for government contracts—a process which deters many small firms from tendering. Indeed, standards can be a form of self or lighter-touch regulation, so that the Government are not obliged to enact legislation establishing best-practice benchmarks.
For this purpose, British Standard 95009 will come into effect on 31 May. The Minister may already know about this, because his department has been consulted. This standard was written with input from a broad range of stakeholders, including government departments, large and small firms, industry organisations—reflecting infrastructure and technology—and charities and welfare organisations; everybody was consulted. This standard also sets out good practice in the supply chain. This is the second time I have raised this issue in your Lordships’ House, and I make no apology. We seem to have lost our way on public procurement and services, and this British standard will point us back in the right direction.
My question to the Minister is: will the Government insist that all public procurement bodies and suppliers to the public sector will have to satisfy British Standard 95009? After all, the British Standards Institution is appointed by the Government as the National Standards Body. This will not only help to restore public trust and confidence in public suppliers and contractors and in the Government’s handling of the supply of these goods and services; by adopting this standard, public procurement will be much more aligned with the Government’s civil society strategy—the purpose of this debate—and it will incorporate many of the points made by the noble Baroness.
Lord Maude of Horsham (Con)
My Lords, I draw attention to my entry in the register of interests, and I congratulate my noble friend on securing this important debate. Public procurement is rarely a subject that sets the pulse racing but it is important, accounting for, as we have heard, just about a third of public spending, and the way in which it is done and the success of how it is done make a huge difference to what the public get from the money that we in government spend on their behalf. If the value for money, the quality or the timeliness of delivery are wrong, people in real life suffer as a result.
My noble friend Lord Young knows a great deal about public procurement from the supplier or vendor side; I know quite a bit about it from the client side. I had responsibility in the coalition Government for public procurement and spent a lot of time dealing with the issues around it. I pay tribute to the noble Lord, Lord Wallace of Saltaire, who for virtually all that time was the House of Lords Whip assisting us in the Cabinet Office on these subjects, and who gave enormous support to the reforms that we were seeking to push through.
We found at the outset that public procurement was working in a rather bizarre way. Practices had been put in place, often attributed to the requirements of EU procurement rules but which in fact were being massively gold-plated, both through our regulations but much more through established practices, which almost deliberately seemed to exclude smaller businesses, social enterprises and civil society organisations from bidding for and winning public contracts. We therefore wanted to change that. We found that public procurement, especially in central government but much more widely in the public sector, was driven by a group of people I came to know as “procurocrats”—people for whom process was king and who had far too little commercial awareness. There are three parts of any procurement process: pre-tender market engagement, a formal tender process, and contract management. Overwhelmingly, the time and energy were spent on the middle part of that, which should really be the shortest and kept to a minimum. Typically, public procurement processes in this country took twice as long as they did in Germany, for example, which was quite unnecessary. Procurocrats used to say to me, “But, Minister, we’re not allowed to exercise judgment”, which puzzled me a little, because I thought that was what all of us in the public service were paid to do.
In the way public procurement operated, the sense was that the only thing that mattered was an arithmetic comparison of bids against a hugely detailed specification, which was drawn up to the most intensely detailed and quite unnecessary level of specification, really to replicate what was already being done and then to see whether it could be done more cheaply. That is not a good way to operate. The right way to do it commercially is to spend quality time before you draw up the specification talking to the market to see what is available, and then draw up the specification in response to what the possibilities are. That is how you harvest the gains from innovation and dynamism in the marketplace. We came to know that as injecting commercial DNA into the procurement process. Very few procurement services around the world are good at this, and we needed to make a lot of progress in the UK. We therefore crunched down the formal tender process as much as we could, managing to get it from being twice as long as it typically took in Germany to half that time, and we found that there were ways of doing it much more quickly. We then recruited people into the government service who could bring commercial nous and capability to the pre-tender process and strengthen the contract management. That was typically rather weak and delegated to junior people as a kind of boring process, but it was incredibly important.
We therefore removed the hurdles which had typically excluded smaller and more socially driven entities—civil society organisations—from bidding. There had been immensely complicated prequalification questionnaires. I once discovered one which was 70 pages long for a contract which was worth £80,000. That was ludicrous and meant that only big organisations could bid because they were set up to process prequalification questionnaires. There were performance bonds where bidders were required to put up money in advance before they were allowed to bid. There was a requirement to present three years of audited accounts, which meant that any new business coming on to the market with a new product, service or approach was almost automatically excluded from taking part. There was a requirement to show that you had insurance in place to cover the cost of the delivery of the service at the time when the company was bidding, which again excluded smaller organisations even from getting through the starting gate, let alone having a chance of winning the race. I mention also turnover thresholds.
All this created a huge bias in favour of the big outsource vendors because they looked like they were safe and reliable. I specifically exclude the one that was led by my noble friend at the time, but what actually happened was that their core competence became winning contracts—doing public procurement, not doing the work. Too many of them lost their ability to provide innovative solutions to public needs but they became excellent at winning contracts. If they were public companies, too often they were telling the financial markets that the key thing was top-line growth, so winning more and more contracts was essential to their stock market ratings. It became clear, as time went on, that too often they were tending to bid rather low in effect to buy the contract, but then they expected to make their money through changes to the specification. Those were all too common and we were hearing reports from some vendors that they expected an internal rate of return of 40% on changes to the contract. That is insane but it was because the pre-tender market engagement process had not been done in a sufficiently commercial manner.
These companies would then rely on weak contract management on the procurement side, and that is where the problems have since emerged. It is notable that some of the worst problems have been with what looked like some of the biggest and safest of the established outsource vendors. It did not need to be like that and we changed the way in which this worked to some effect.
A lot of social value was being lost because, certainly in central government, public procurement was not being run in a cross-government way. Things like facilities management—the running of buildings—would tend to be dealt with by a particular ministry on its own which would look to cover all its buildings across the whole country in one contract. Of course, that again would bias heavily in favour of the big national providers, whereas social value can be provided, particularly for activities like building management, where local suppliers are able to operate. It is much better to operate across government in the way we started to do, although we did not get anywhere near as far as we wanted. By doing so you can take a particular locality, look at all of the Government’s property within it, and then by multiplying up you get economies of scale without losing the local focus. Much more can be done.
We discovered that there was simply not enough capability within government so we set up the Commissioning Academy. It would be good to hear from my noble friend when he replies to the debate what progress has been made in developing the academy, which was available to the whole of the public sector. However, a lot of people tended to confuse procurement with commissioning. Commissioning is much wider and is particularly crucial in pre-tender market engagement. It was the noble Lord, Lord Adebowale, who opened my eyes most vividly to the whole essence of this activity and he deserves huge credit for the progress that has been made.
In the rest of my remarks I would like to talk about one programme which would have a huge effect if it were to be revived, regenerated and strongly driven again because some of the momentum has gone out of it in recent years. It is the programme for creating public service mutuals. Between 2010 and 2015 we promoted and supported the creation of more than 100 of them. I should say that it was very much about picking up an idea which had started to be developed by the previous Labour Government, but in their case it was limited to the National Health Service along with some restrictions that made it hard to give it scale and allow it to get traction. However, as I say, more than 100 public service mutuals were created, with tens of thousands of staff choosing to move out of the public sector to form themselves into entities that would continue to deliver the same service on a contractual rather than an in-house basis. We would negotiate contracts with the vendor, whether it was a government department, a council or part of the National Health Service. The largest number of mutuals were in the health and social care sectors. All those chose to be not-for-profit social enterprises, although they did not have to be. In some other cases they became mutual joint ventures while others opted to be simple commercial for-profit entities.
What they all had in common was that they generally reduced the cost and improved the quality of their services through massively increased workforce leadership and engagement. I found visiting these mutuals a most uplifting and inspiring experience. I always asked people whether they would go back and work for the council, the NHS or the ministry that they had spun out of. I never heard anyone reply by saying anything other than an immediate no. When I asked them why, the answer was always a variant on, “Because now we can do things. We can see what needs to be done. We do not have to submit a business case to some committee, which is like dropping a stone down into a deep well. We can see what needs to be done and we can just get on and do it”.
We concluded that a public service mutual brings together four very powerful elements: first, entrepreneurial leadership, of which there is much more in the public sector than we ever realised because such skills inside the sector tend to be used for circumnavigating bureaucratic obstructions; secondly, a liberated and empowered workforce; thirdly, commercial discipline and financial rigour because even the mutuals that became not-for-profit social enterprises would always talk about how they needed to be successful in business terms; and of course the fourth element was the public service ethos. Bringing those four elements together created a kind of alchemy that was very powerful indeed. I hope that the Government will put a much greater emphasis on this programme and revive it for the future. Particularly in the National Health Service, where there is such a need to drive improvements in productivity, there is no better way of doing that than through the promotion of public service mutuals. A great deal of social value is generated, particularly when they become able to operate in a more holistic way. Inclusion Healthcare started as a GP practice serving homeless people in Leicester. It spun itself out and became a very successful mutual and has grown through winning contracts to provide other services to the same group of people. The benefits both financially and in terms of the care that is being given to a demanding and very vulnerable group of people have been huge because the service can be configured around the needs of the individual rather than being delivered through numerous different agencies, which is far too often the case when we deliver public services.
I urge my noble friend on the Front Bench and the Government more generally to look at increasing the social value delivered through procurement, and to pay particular attention to the part that has been played and can be played again through an acceleration of the development of the public service mutual movement.
Lord Shipley (LD)
My Lords, I should remind the House that I am a vice-president of the Local Government Association. I thank the noble Baroness, Lady McGregor-Smith, for enabling us to have this debate. She made a large number of important points in her speech. I was struck by her observation that the government consultation is too narrow and that far more could be achieved, and particularly by her view that up to 50% of a contract could be related to social value. I was going to say one-third, but if we can reach 50% I would be very happy with that figure.
I also thank the noble Lord, Lord Maude of Horsham, for reminding us about public service mutuals, which seem very important, and the three stages of the procurement process: the pre-tender process; the actual procurement assessment; and then contract management. As he rightly said, all the effort—certainly from Whitehall—seems to go into the middle of those three. In response, I observe that it is very difficult to do the first and the third from Whitehall.
In the debate yesterday on 20 years of devolution to Scotland and Wales in particular—but also to Northern Ireland, of course—I was struck that it has enabled a piloting of ideas in those nations. On procurement policy, the noble Baroness, Lady McGregor-Smith, reminded us that they have much greater pre-market engagement, which means that tenders can be talked about, can be more detailed and can avoid confusion between contractor and provider, with an agreed understanding of the specific outcomes that must be delivered.
It is important that we pause for a moment to consider the context of this debate. The context is that a lot of people in many parts of the country feel left behind. They have low pay and insecure contracts, and many have few opportunities to improve their lives—not least in housing and discretionary spending. Applying the principles of social value should help to reduce inequalities for those people, and for that reason the Government’s current consultation is welcome. It will help to encourage charities—particularly smaller ones— and social enterprises in the delivery of services and will reduce the Government’s dependence on a small number of large companies such as Carillion, with its 420 contracts from central government. It is clearly not in the public interest for such a concentration of contracting to occur.
The Government need to include goods and other works, as well as services, in their procurement policies. Social value should cover all public spending, not just central government spending; I will come back to that in a moment. Also, the consultation that is being undertaken is poor on the potential for procurement to reduce deprivation in specific localities. It is about not just consulting with deprived communities but finding ways of working with them to reduce disadvantage.
I wonder if the Minister will look closely at the 10% minimum weighting the Government propose for assessing the social value component of a contract. That low level could mean that contracts are let with poor social value outcomes. I am not clear why the financial value is set at 30%, when the social value is set at 10%. There are three factors in commissioning: the cost; the quality of what happens as a consequence of that commissioning; and the social value generated. I would like to think the proportions would be a third each, but I guess we could look further than that.
There is a problem of centralised decision-making in England. I mentioned a moment ago the 420 contracts awarded to Carillion basically following a value-for-money exercise. The Government’s procurement decisions have been too dominated by narrow value-for-money policies that seek simply to reduce costs. I remind your Lordships that one Whitehall department’s concentration only on value for money can be another Whitehall department’s extra cost, such as through the benefit system. Too often the silo management of Whitehall does not serve the public interest as well as it might.
There is research showing that up to 20% added value can be obtained from maximising social value in a procurement process. I think that the abolition of government offices in the English regions was a major mistake; those government offices could have led the development of social value in procurement policies at a local and regional level and kept a watching eye on them to ensure that commitments on social value were actually delivered. At present that is difficult to do, because contracting is run from Whitehall—often many hundreds of miles from where the contracts are implemented.
I emphasise that what matters with social value procurement is achieving social outcomes. It is not just about cutting costs, dressed up as value for money. Government at all levels should procure outcomes, not just services for services’ sake. This is a fundamental issue that the Government will need to get to grips with. It is vital that those who commission contracts should have the skills and knowledge to do it properly.
I shall ask the Minister a specific question, which I hope he will be able to reply to. Is local government part of this? The Government have said they want local government to support the use of social value criteria, but it is not clear whether it will be compulsory. I think it should, so I hope the Minister may be able to respond to that.
The Government’s civil society strategy is most certainly a start, not least in defining some key principles. The strategy requires government departments to account for, rather than to consider, social value. So far, so good—but it needs to be a local as well as national strategy. It should enable smaller charities to deliver at a very local level. I submit that only local government can achieve that; Whitehall simply cannot.
Why has statutory guidance not been published for the 2012 Act? There is some guidance but, as I understand it, no statutory guidance. I wonder whether that is wise, because there would be benefits from statutory guidance. I hope that once the consultation is complete, the Government might be willing to produce a guide for voluntary organisations and charities on how to bid effectively for contracts. Many lack the required expertise to pitch a bid at the right level. Of course, if we had government offices, they would be able to help here.
Might the Minister also explain why large construction contracts are out of the scope of the current consultation? There is huge potential here, not least for local apprenticeships, because building takes place in most areas. Creating a trained local labour force can be done all over the country, but it needs to be done in part through improving the social value element of contracting. Otherwise, labour forces can be brought in and do not derive from that local area.
In conclusion, I want to see the scope and strength of the social value Act expanded. I would like to see it applied to all goods, works and services and oblige all public bodies to account for social value when negotiating contracts. The Minister might want to look at whether the Government can do more to audit social value outcomes. I have read in briefings about the possibility of social value budgeting and about local social value champions. I have also read about social value auditing locally. These ideas merit further consideration by the Government.
It may well be that the Government should produce an annual report to Parliament on what they have achieved in terms of the 2012 Act. It is one thing to have independent reports, as we had in 2015 on the functioning of the Act, but maybe there should be an annual report to Parliament. I hope that the Minister might be willing to give some thought to that, because there is a huge opportunity for social value to be expanded across the country and to make a difference to the lives of many people.
Lord Pickles (Con)
My Lords, I draw the attention of the House to my declaration of interests, particularly relating to Holocaust remembrance and the various bodies that may occasionally bid for contracts from the Government.
I congratulate my noble friend Lady McGregor-Smith. This has been an interesting debate. I particularly commend to the House, at a time when Crossrail is receiving the disapprobation of many people, the technical skills that Crossrail has managed to achieve, which she rightly pointed out; the number of apprentices, including female apprentices; and the college of engineering set up in the East End of London. The problems that have occurred have been mainly with software. That does not in any way diminish these great achievements.
The noble Lord, Lord Haskel, made some telling points, as always, on tendering standards. But it was when the noble Lord, Lord Shipley, spoke that I felt my ears burning and a greater sense of despair. It is time to confess: I am the guy who abolished the Government Offices for the Regions, and I regret their demise not for a moment. They were essentially a procedure; a passing of messages between government and the centre. I passionately believe in devolution. This country has too many levels of government that intercede between themselves and access. I could never imagine those great giants of municipal power, the Chamberlains, wanting to look over their shoulders to see what success looks like—the words that bring despair to any ministerial office when somebody wanders in and asks that most asinine of all questions.
I pay particular tribute to my noble friend Lord Maude. It was a joy to work closely with him in government and to work together at Central Office. Both of us know what pain actually feels like. He remains an enormously creative force in this area. He is absolutely right to say that process is king as far as the Government are concerned. I remember watching in my youth a “Monty Python’s Flying Circus” sketch in which a group of men discuss how to get from Kent to Addis Ababa. To cut a long story short, there is an elaborate description of how to negotiate the various roads of Kent, taking in various roundabouts and bypasses—and then, when you get to Dover, “you turn right towards Africa”. There is always something missing in procedure.
The Public Services (Social Value) Act 2012 was cautious in its approach—I remember the discussions. That is understandable, as it was a new thing. It brought out many of the fears of officials and politicians about those who are accountable to the public purse. Risk-taking does not come easily to those involved in government. Something out of the ordinary is always seen as risky. Far better to stick with the herd and be wrong than to try to do something unusual and be right. The unorthodox unfairly lack reward.
My noble friend Lady McGregor-Smith talked about the European tendering rules. I have some experience of those. I would frequently write to local government to point out the de minimis rule, the threshold at which the European Union did not require a detailed tendering process. It was interesting that very few local authorities took advantage of the de minimis rule. The safest thing for the officials was to go through the whole panoply.
Some would perhaps suggest that what we really need to do is to expel, remove and abolish this herd instinct mentality. That is a great idea until you find yourself in the second hour of being grilled by the Public Accounts Committee, when your boldness might not seem quite so exciting. But we should use that disadvantage and weakness of the herd mentality, turn it into a strength and make social benefit the norm.
I hope that my noble friend the Minister will note that I share the concern that some fear and timidity is still reflected in the strategy. As the NCVO points out, with regard to services, goods and works, the strategy commits all central government departments to account for rather than consider social values for new procurement. It has always advocated widening the remit of social value in all public sector contracts and this commitment is seen to be in the right direction, but we must move forward and offer more reassurance. Guidance is an important point of comfort for making social benefits more mainstream, particularly statutory guidance—an important point made by the noble Lord, Lord Shipley.
Training is also important, and I too join the NCVO in welcoming that the strategy commits all central government commercial buyers to undertake training on how to take account of social value in commissioning and procurement. I hope that this commitment is devolved and understood at a local level. This cannot be a fringe thing—the kind of thing for my old department, now renamed the Ministry of Housing, Communities and Local Government, or for DCMS. It has to be absolutely mainstream to the Government and all departments should account for it.
The question that has been implicit throughout the contributions today is, is this compatible with value for money? We understand that procurement comes out of a murky world developed to ensure value for money, fairness and accountability—blind bidding. There is the great ceremony of opening the tenders, as a councillor. It is a great day. You arrive in the chief executive’s office and lots of people are looking round. It comes out of that murky world best described in David Peace’s Red Riding Quartet.
There is also a problem in the world of political perception and prejudice. Some feel that only the state can legitimately provide or shun outsourcing. The Institute of Directors found that at least £15 billion could have been saved had the last Labour Government taken the decision to do that. But there is another side of the divide. I am an ex-Conservative Party chairman and ex-Secretary of State and often, when I talked to council leaders, they wanted to impress this visiting swivel-eyed Thatcherite, so they would brag about how much they had outsourced, almost as if that were an end in itself. I always asked two questions: how can you improve the service, and what have you been able to do that you have not been able to do before? I must say, seven out of 10 times, I was disappointed by the reply.
As the noble Lord, Lord Haskel, said, outcome is everything. We should use the tendering process to bring about social change. We have all had the benefit of the Equality and Human Rights Commission briefing, which said that experience has shown that pre-market engagement is important and that experience from Scotland suggests that the more specific the tender is in its desired outcomes—for example, setting out the social outcomes for the contract in the pre-market engagement—the more likely it is to achieve its aims.
My noble friend Lord Maude spoke about how such pre-market engagement is important; I cannot match his eloquence. When I was a very new Member of Parliament, I was on the Environment Committee. We audited some contracts. A chap who knew all the words came up in front of us, talking about step change and stakeholder consent. He made me think of a PG Wodehouse character talking about Shakespeare: it all sounded very well but was actually quite meaningless. He was accompanied by a straightforward engineer. Eventually, the chairman asked, “Well, what do you think about sticking to the contract and ensuring that value is provided”? He said that sticking to specifications was a bit like walking on water: it is better if it is frozen. He said that it is better if the specifications are fixed and known and if the outcomes are delineated.
It is the function of government to drive social change. Equality is a key consideration. For example, it is encouraging that we can improve on the high-level outcomes suggested in the consultation: on employability and skills, as talked about by the noble Baroness, Lady McGregor-Smith; on the gender pay gap; and on the increased representation of disabled people, ethnic minorities and people with mental health conditions. A printing firm in my former constituency employs people who have had mental health concerns; it is a very valuable asset to the town. These contracts should be about community cohesion. In looking for value for money, the Government should think about making that difference and increasing the skill set and prosperity of a locality.
Baroness Finn (Con)
My Lords, I begin by drawing attention to my entry in the register of interests and by congratulating my noble friend Lady McGregor-Smith on securing a debate on this important topic, on which she spoke with such authority. It is an honour to follow her and other esteemed colleagues. I pay particular tribute to my noble friend Lord Maude for his tireless devotion to procurement reform during the coalition Government.
Every year, the Government spend a staggering amount of taxpayers’ money—more than £44 billion—buying goods and services. While our priority must always be to get the very best value for money, in both quality and price, it is important to look at the social value of these contracts too; otherwise, we risk missing half the picture. The coalition Government’s Public Services (Social Value) Act was all about ensuring that the Government use their buying power to effect lasting social good. That is the other side of my noble friend Lord Maude’s procurement reforms, which were about opening up the public procurement market to SMEs and new digital providers, growing the supplier market by encouraging more mutuals and co-operatives, and improving commercial skills within government. Despite much progress, this remains unfinished business.
For too long, we have been operating under the false assumption that only government can create social value. Businesses pursue profit and generate externalities that either the Government have to mitigate with tax and regulation, or the company itself effectively apologises for with a corporate and social responsibility programme, but businesses can and should have social value at their core—not as an afterthought but in their DNA and not as an offset but through day-to-day activity. Businesses that get ahead of the curve in their social and environmental responsibilities tend also to be the most successful in building long-term shareholder value. The Government can do more than tax and spend to create social value: they can enable businesses to do it themselves and hold them to account for doing so.
In 2013, the Government implemented the social value Act. By 2017, around £25 billion of annual public sector procurement spend was shaped by that Act. That is a significant achievement but still represents less than 10% of the total public sector outlay. The truth is that, since the Act was passed, insufficient progress has been made. Businesses are enabled but not yet accountable. We need better to hold businesses to account on social value and continue to drive improvement in contract management and procurement in government, where skills and capacity remain lacking. Crucially, my noble friend Lord Young’s 2015 review of the Act concluded that there is a lack of consideration of social value as part of procurement. In fact, social value for both buyer and seller was positioned as an afterthought, not as part of the procurement itself. This will always reduce the potential to create genuine and lasting social value.
The Government can enable but businesses, especially large ones, must take more responsibility and procurement teams must hold them to account. We have been talking about late payments to SMEs for too long, yet the problem is still endemic. We now have 30-day payment terms right down the supply chain, but are they being honoured? We can mandate the inclusion of SMEs and break up large contracts into smaller ones, but if SMEs are not paid on time, they will likely be dissuaded from bidding in the first place. Large companies, which often win large contracts on price, might well agree to tack on some apprentices or BAME targets, but unless they have fully considered the cost and training at the outset to enable the full benefit of those they take on, an opportunity is missed.
How can we go further and improve the Act’s effectiveness? We need to move beyond social value as a mere consideration for buyers. I therefore applaud the Cabinet Office Minister, the right honourable Member for Aylesbury, whose amendment assigns a strong 10% of public procurement buying power to social value. More needs to be done. We need to engage earlier in the buying process, at a more fundamental and strategic level. Social value needs to be part of pre-market engagement wherein buyers engage with the entire supply chain.
Following this, social value needs to be written into the tender. If contracts were awarded with social value properly weighted, it would be priced into the contract itself and the chance of delivery would be maximised. When apprentices are taken on, they must be given meaningful work with the strongest focus on real training and supervision. If they are recruited as an afterthought, as a retrofit to a contract, it is unlikely that genuine social value will be created.
There remains an overall lack of transparency about how companies will act, when they will pay and where they will embed social value in delivery, but good practice is out there. In 2012, London Underground launched its station stabilisation programme using its Stake delivery model, which was designed to create greater efficiency by engaging directly with SMEs to employ the craftspeople to work on-site. Craft academies were established to provide skills training and front-line leadership for those delivering the programme. The benefits of the approach were that those who undertook the work were those who planned it. The early involvement developed clear accountabilities, increased planning and programme ownership, and gave a long-term commitment to suppliers, thus ensuring competent and capable resources. The Stake programme was designed in collaboration with Infrastructure UK and takes its origins from a 2011 keynote speech by the then Cabinet Office Minister, now my noble friend Lord Maude, who said:
“We are looking for more innovative ways to structure services. We know that employees who have a stake in their business, or take ownership of it completely, have much more power and motivation to improve the service they run”.
He eloquently made that case again today.
Cross-cutting all of this, however, means improving the commercial capability of public sector buyers. We need to combine value for money training with social value training so that the one is not seen as being in conflict with the other. Only if we improve the commercial skills in Whitehall will it be able to cut through this lack of transparency and hold businesses to account, as well as driving value for money for the taxpayer. As the noble Lord, Lord Young, found in his review, evaluation criteria are vital to align social value with value for money and offer greater clarity to providers on how it would like to see it measured.
We have long discussed how to improve procurement to bring in more SMEs, get value for money and drive efficiencies across government, but now we are talking about something far more profound: the scope for government not to punish business for doing harm, but to enable it to create social value. That is surely the ultimate public-private partnership and one we should aim to improve by properly implementing not only the letter but the spirit of the Public Services (Social Value) Act.
Lord Wallace of Saltaire (LD)
My Lords, if I may return the compliment to the noble Lord, Lord Maude, I learned a lot while working with him. One thing I particularly learned was how difficult it is to work across Whitehall. The entrenched traditions of departments—not only Permanent Secretaries but also Secretaries of State—make it very difficult to innovate or provide new means of dealing with digital, waste disposal or whatever it may be. I regret that some of the initiatives which we—the noble Lord, Lord Maude, in particular—took in government were not entirely successful because they ran into these structural difficulties.
I want to focus my speech on three things. First, unless we have a much stronger emphasis on local commissioning and much less on central commissioning, we will not achieve the sort of social value we are talking about. Secondly, part of our problem is that the focus on value for money makes it very difficult to bring social value back in. Thirdly—I pick up the theme of the noble Lord, Lord Maude—we have to rediscover the importance of the public service ethos as a motivation in outsourcing and in dealing with, in particular, the non-profit sector. That is part of the reason why we need to strengthen the non- profit sector.
The final chapter of the Civil Society Strategy recognises the structural problems of the model of outsourcing which successive Governments—Labour, coalition and now Conservative—have developed over the last 20 to 30 years:
“The reforms have led to a greater focus on outcomes and costs. However, they have also spurred the development of a transactional model of service delivery, with an often rigid focus on quantifiable costs, volumes, and timescales rather than on the relationships, flexibility, and patience which the reality of life for many people and communities demands”.
I spoke to a number of officials while preparing this speech, and many of them said that it is all very well to try to put in social value, but when you are arguing with the Treasury, value for money, which you can quantify, wins the day. The problems with quantifying social value are very considerable. There is an important distinction between public value—social value is part of that—and private value and between public motivation and private motivation. We all recognise that timescales of public investment are longer than the usual timescales for private investment.
I disagree with the noble Baroness, Lady Finn, that externalities are a matter for the private sector. The externalities that the DWP imposes on the National Health Service by some of the ways it treats universal credit benefit recipients are very clear. The externalities that the for-profit care sector imposes on the NHS by the way in which it does not provide sufficient health support for its members are also extremely clear. There is a range of ways in which the interconnectedness of particular contracts is not recognised in our current outsourcing, as we have seen with probation and in the extent to which cuts to youth services lead to more school exclusions and higher youth crime. The motivation for workers in the public sector are clearly not accepted as relevant in the economics of public choice theory which drives much of the value-for-money analysis which we still have. This is an issue I began to argue about with economists at the LSE when I was a teacher there. I used to be quite critical of the sort of economics taught in the next-door department when teaching my students.
The Young review of the social value Act in 2015—by a Lord Young with no particular connection with Cookham, so far as I am aware—said:
“the incorporation of social value in actual procurements appears to be relatively low”,
after three years of operation. It also said:
“the current state of social value measurement can make it difficult for public bodies to differentiate the additional social value offered by one bidder over another”.
Many commissioners used it as another way of defining value for money or negotiating down the cost of contracts.
The opening statement of the Social Value in Government Procurement consultation paper promises that:
“Central government will, in future, take better account of social benefits in the award of its contracts”.
That was several years after the 2012 Act had come in. The paper quotes David Lidington, who has said:
“We want to see public services delivered with values at their heart”.
That was what the Act six years earlier was beginning to talk about.
What we all should be concerned with is how to strike the right balance between traditional Labour municipalism, which assumed that only trained and paid professionals employed by the state could be trusted to work at the interface between the state and civil society, and libertarian Conservatives who want to shrink the state and leave most social welfare to volunteers and charities. A fundamental part of my party’s priorities is that far too much public spending in England is controlled by central government rather than by local government and that attempts at devolution in England have so far been limited, hesitant and undermined by continuing cuts in financial resources for local authorities.
I waded through the Civil Society Strategy White Paper. My strongest criticism is that there is no recognition of the negative impact of continuing cuts in local authority budgets or of the importance of accountable local government in linking citizens, civil society and government. In 120 pages there are two paragraphs on democratic government. One admits:
“Many people feel disenfranchised and disempowered, and the government is keen to find new ways to give people back a sense of control over their communities’ future”.
There is no mention of greater financial autonomy and revenue-raising powers. We are offered only citizen’s juries and “trusted local messengers” who will not, I assume, be locally elected councillors. The 300-word section on the role of local government states that,
“local authorities continue to play an active role in communities”.
It is very kind of the central government to allow them to do so. I was left with the suspicion that some of the enthusiasm for volunteers comes from the hope that unpaid people will do the work previously done by professionals whose jobs have been axed. There are examples of volunteers in the police force and in teaching English as a foreign language now that cuts have been made in paid people.
Much of the Civil Society Strategy is Newspeak of the sort that the Daily Mail and the Telegraph would ridicule if it came from a non-Conservative Government. We are told about the #iwill fund, the enabling social action programme, the good help programme, the good work plan, the Purposely tool—I like that one particularly—to enable,
“social entrepreneurs to embed purpose into their business’s DNA”,
the inclusive economy unit, the business against slavery forum, the Government’s democratic engagement plan, their innovation in democracy programme and even a body called OSCA that describes itself as a social impact lab. I am sure the Minister can explain to me precisely what a social impact lab does.
We are told:
“The public funding of … youth services has always been the responsibility of local authorities ... despite the pressures on public sector finances”,
and that the Government will,
“review … the statutory duty on local authorities to provide … youth services”,
with some suggestions that charities or the Big Lottery Fund might usefully fund them instead. The Big Lottery Fund appears a good deal as a source of funding, together with the dormant accounts scheme, which seems to have been spent three times during the course of 120 pages.
On education, the strategy states:
“we are pleased to support the commitment made by the Careers and Enterprise Company to create a toolkit to help embed social action as part of a young person’s career pathway”.
There is no mention of the rising number of school exclusions as cutting across any social integration or engagement for many deprived children, or of the impact of cuts in school funding on broader parts of education. The strategy was published several months after the publication of the report of the Lords Select Committee on Citizenship and Civic Engagement, which bluntly stated:
“The Government has allowed citizenship education in England to degrade to a parlous state. The decline of the subject must be addressed in its totality as a matter of urgency”.
Again, the Civil Society Strategy is dreaming of an alternative world in which such topics are already available, which very clearly they are not.
There is a direct contradiction between calling for greater local community involvement and taking schools—one of the core elements of local communities —out of local control by forcing them into multi-academy trusts, sometimes run by overpaid executives a good distance away from such communities. I should perhaps say to the noble Baroness, Lady Finn, that the ministerial foreword tells us:
“Businesses are rediscovering the original purpose of the corporation: to deliver value to society, not just quarterly returns to shareholders”.
Wonderful stuff—no evidence whatever is provided. The 2017 paper People Power: Findings from the Commission on the Future of Localism was far more persuasive on the broad approach needed to empower people within communities and to link different public services together, but the government paper on democratic engagement Every Voice Matters, which I also read in preparing for this debate, is even more vacuous than the Civil Society Strategy.
Several of those whom I have consulted in preparing this speech have told me that local government is much better than central government at understanding the concept of social value. I recall seven years ago being taken round one of the largest estates in Leeds by the head of the neighbourhood police team, who worked closely with local churches and voluntary groups, as well as with other services in Leeds. Now, of course, police cuts have forced the disbandment of most such teams, with the loss of most police community support officers. When I was taken round a similar estate in Bradford last year by our local council leader, we saw no sign of any police presence or of any other representatives of local or central government: no government support for a depressed, left-behind, politically alienated community, 40% of whose housing has been sold off, with much of it now being in the hands of private landlords without a stake or interest in the local community.
We need to empower local authorities and the non-profit sector much more than we have managed to achieve. Again looking at Bradford, I see that our social housing association is training apprentices and is specifically recruiting women and people from disadvantaged areas. Last year, it had several hundred applications for 10 new places. That shows that the demand is there but others are not required to do it.
I could go on, although I shall not, but I wish to propose that we have to deal with reinstating the concept of public value more than private value. We have to get the Treasury’s concern with value for money defined in conventional economic terms. We have to revive the concept of local accountable government with adequate funds to provide and co-ordinate local services. I suggest that, given that the current situation we are in has evolved over a succession of Governments, we need to rethink a cross-party approach to redefining some of these fundamental issues concerning the way in which the state, the third sector, the citizen and private enterprise interact in providing such an important part of our national community.
Lord Stevenson of Balmacara (Lab)
My Lords, like others, I thank the noble Baroness, Lady McGregor-Smith, for securing this debate and I also thank her for her excellent overview of the case that she made for increasing the social value of public procurement.
There are not many of us here today. I suspect that the timing of the slot has not maximised the attendance. But I hope that lots of people will read this debate, because we have had excellent contributions from around the House, largely in support of the proposition in the Motion and drawing on experiences which, together, have woven a very convincing argument that I am sure will reach out beyond the very small number of people who have been able to attend today.
The general impression is that this issue, having been around for a few years, is now reaching the point where it needs more action and more support. I do not think that there would be very much concern if the Government decided that they wanted to put a motor under it. They should take comfort from the fact that, although there was a bit of a bad smell about this whole area after the big society—which did not really take off and never really seemed to resolve anything in one direction or another—out of it have come other good ideas and good issues that are worthy of consideration.
It is very interesting to read in the wider papers that other people are beginning to talk this up. For instance, there was a piece in the papers this week in which Andy Haldane, the chief economist of the Bank of England, was interviewed. He talked specifically about the need for civil society, which he thinks will be crucial in the technological age, and the need to rebuild it. If that is the level and range of the debate, and if we add in the fact that there is not much party difference on this—I think we can all support it, whichever part of the political spectrum we come from—there is an opportunity to do something.
Having said that, we have to ask ourselves some of the questions that have already been raised. Why has there not been growth in the quantum of activity in the public realm delivered by social enterprise? I remember being involved and interested in this towards the end of the last Labour Government and being very confused about why, with all the public support, political support and, eventually, legal support in terms of an Act, there had not been the lift-off that one would have expected.
Why has the activity been so patchy across the whole country—not just in relation to government involvement but in other areas, particularly the NHS? Some bits are good but others are not doing it. Why is that? In addition, what is the best legal form that will be required to help it to develop? The report produced by the noble Lord, Lord Young of Graffham, talked about vertical and horizontal increases in terms of the bite of this policy, but no answer was given as to how one might do that.
Others have picked up the important question of why we are not seeing linkages between this initiative and, as we mentioned, many of the other areas in which similar activity, thinking and developments are taking place, with particular reference to the public sector enterprise duty, which is something that I want to come back to. Whether or not we leave the EU at the end of the day, or whatever circumstances we find ourselves in, the point made by my noble friend Lord Haskel about the need to make sure that we protect ourselves and do what is right for the UK against external pressures is something that we need to return to.
The current legal framework, found in the Public Services (Social Value) Act 2012, although not implemented until 2013, requires commissioners to consider securing economic, social or environmental benefits when buying services which come in above the OJEU threshold. As was pointed out by most people, that is a rather weak formulation, and it may well be that it is the major issue that needs to be addressed. However, it poses quite a big dilemma for those who want to make policy in this area.
The social value Act is firmly rooted in best-value commissioning, yoked therefore to a requirement best expressed in pure monetary values. However, in truth, as we have heard, it is best considered as a tool to promote a much wider uptake of a particular approach to commissioning for best value—that is, social capital. At its most useful, the Act provides a way to think about public services in a more coherent way that plays into the redesign of those services for the benefit of users—what I think the noble Lord, Lord Shipley, called the outcomes. However, the tension between the two outcomes specified in the Act is at the root of the problem, and I very much hope that the consultation that is going on will, if not resolve it directly, at least recognise the dilemma and bring forward ideas.
I have already mentioned the review of the original Act carried out by the noble Lord, Lord Young of Graffham, and it is important to have that in our mind as we go forward. He found that where the Act had been taken up, it had had a positive effect, encouraging a more holistic approach to commissioning, which he felt was of value. The Act has made commissioners think about securing value through procurement in innovative ways. Some people are concerned that we have lost innovation, but he found it there, as well as significant cost savings and a more responsive way of delivering better services. But he pointed out a number of concerns that are still relevant and part of the debate.
The incorporation of social values into actual procurement appears to be very low compared with the number and value of procurements across the whole public sector; we have heard figures today from many speakers. Many respondents showed a lack of understanding of how to apply the Act, and that had led to inconsistent practice, making it difficult to evaluate this. The noble Lord felt that commissioners needed to be better able to measure and quantify the social outcomes we are seeking to embed in the procurement process. This comes up time and again and I am sure the Minister will want to address it in his response. So the Act is delivering positive benefits where it is operating well, but awareness, understanding and measurement are the main problems.
The consultation was launched in 2018 and we have a chance to see whether this can be brought forward. I understand that it is due to finish in early June 2019. The Minister is an expert at ducking questions of timing on this; I am sure he will say that the results will be out “soon” or “shortly”—I await a variation on that if there is one. We need this. As I have tried to hint, there is a bit of space here which could be filled if the Government were to come forward with some really heavy proposals; a lot more progress could be made.
As we have heard, the framework within which this has been discussed is a cross-governmental framework for social value with common policy themes, outcomes and metrics; that answers the questions raised by the noble Lord, Lord Young, about the difficulty in getting on with this if we do not know what we are trying to measure. I agree with those who have said that the minimum 10% social value weighting should be higher. There is a need for training and development for buyers working across central government procurement teams, and this will be brought out by having champions and those who might lead both centrally and locally.
There are questions arising from the consultation, which I am sure the Minister will respond to. How do we get the law better suited to the aspirations? Suggestions have been made today about extending it so that all public bodies have to do this, and to make sure that it covers all aspects of procurement: goods, services and works. If we add in the comments made on equality, not talking about major construction contracts looks like a strange decision.
Social value is not always a strategic priority; it is sometimes considered as something for procurement teams only, so opportunities are being missed. We have to make sure that those who implement this recognise that social value is about finding ways of using public money to support the well-being of all our citizens. If it is to be successful, measurement and reporting will have to be systematised within a national framework. However, with a national framework would come a concern that we would lose innovation—the chance to do things in a different way. Perhaps the mutuals that the noble Lord, Lord Maude, spoke about would find it difficult to chance their arms on an area that was not in the national framework. We should be careful about national frameworks if they suppress the sorts of things that we want to talk about.
The Government have been quite innovative in some of these areas. We should not forget the work on GDP, or on happiness as a substitute for GDP as a measure of the success of the economy. This work is bringing issues such as social value into the forefront of consultation and debate. So why do we not try to build on that? There is also a suggestion, which has some merit, about a “social value budget” based on social values generated by all departments affected by this, in the same way as for the green budget. That would be a way to get more discussion and debate going across the country.
I conclude by suggesting a number of questions to which the Government should respond. How will they make Whitehall the leading adopter of social value? Many people have spoken of the need to root out the differences between the various departments and the different approaches being taken. Obviously that is an ongoing and much wider debate. But the Cabinet Office is in a good position to do it. What is the trick that will make this work?
Can we come up with a proper definition of social value? In its broadest sense, it is about added value that creates jobs or uses more environmentally sustainable products, but what is the nature of the metric that we are talking about here? How will we ensure that we have a framework that will not prevent people being innovative? That is a point that I have already made. Will the Government lead on this, or will some other body be created that has responsibility? Will some sort of non-departmental body take this on? The system of government that we use will be important. Whatever is in place, it must be rigorous, and lead to comparable and transparent outcomes.
The Government might want to think about the difference between the social value Act and the requirements of the public sector equality duty because of the difference between “consideration” and being made “accountable”. If people have only to consider social value, they will not have the same approach as if they have to account for what they do in social-value terms. That is a very important point.
I was struck by the points made by the noble Baroness, Lady Finn, about the difficulties faced by SMEs. I endorse her view that this would be a great opportunity to try to resolve the bugbear about payment ratios to SMEs. She did not mention, but might want to look at, our argument in recent months for the need to give more powers to the Small Business Commissioner. If that person had more responsibility for making sure that prompt payment codes were implemented, they could also have a role to play on social value. That is a possible way forward. The post already exists and we would like it to take on these extra powers.
During a political hiatus such as that we are currently in, it is often the case that things that have clear political support all around can make progress. As I have hinted before, we would certainly like to get something done on this to make sure it works. I wish the Government well if they want to do so.
Lord Young of Cookham (Con)
My Lords, I begin by thanking my noble friend Lady McGregor-Smith for initiating and introducing this important and timely debate, and thank all noble Lords who have taken part. It is has been a well-informed, consensual and thoughtful debate on a subject that, as many noble Lords have said, is not often discussed. It has been particularly helpful to the Government, since our policy is, as I shall explain, in the process of development.
To sum up the debate, the view is that what we have done is good, but we need to do more, and do it better and faster; that is the message I shall take away. My noble friend Lady McGregor-Smith produced an ambitious menu of reforms, which we take seriously. If I do not address them all, I shall write to her. I know that this subject has been one of her special interests for some time and I very much welcome her input.
My noble friend Lord Maude should be answering this debate as he knows much more about it than almost anyone else. I would like to say how much I welcomed his input when I was working with him. He secured very real changes, reforms and savings in public procurement when he was in office. He reminded me of how things have changed since I was first a Minister some 40 years ago. I remember the narrowly focused, time-consuming, bureaucratic tendering. What a contrast that is with the changes he has introduced: the more flexible, market-oriented approach, which enables the taking account of social value. As he said, he has put this into the DNA and the genes are doing well as they flow around the system. He identified the barriers to entry: the performance bonds, the tender documents and the three-year requirement to produce accounts that have historically stopped some of the SMEs getting involved. I will say a word about that in a moment.
My noble friend mentioned public service mutuals. I remember him championing these in the health service when he was in office. They have an important role to play in delivering high-quality public services. At the moment there are 115 mutuals operating in diverse sectors from health to libraries, delivering approximately £1.6 billion of public services. In January last year, the DCMS launched a package of support worth £1.7 million to help new mutuals to emerge and existing ones to grow and flourish.
My noble friend also asked about the Commissioning Academy, a development programme for senior decision-makers across the public sector. It supports participants to learn from best practice across the country and is a key component in the culture change that many noble Lords have been advocating. We continue to provide leadership through the Commissioning Academy, working with the social enterprise PSTA—the Public Service Transformation Academy. The DDCMS has worked with the PSTA to ensure good commercial practice, promoting early engagement with the market, contract management, and social value.
I was interested in what my noble friend and the noble Lord, Lord Wallace, said about local commissioning and a cross-government approach. Again, perhaps I have been in government too long, but I remember the Property Services Agency, which owned the government estate and the Government Car Service. That was able to look at a town such as Horsham, then look at the totality of the government estate—the DHSS and all the other departments—and engage local contractors. After a time, government departments thought this was a remote, bureaucratic and expensive organisation and demanded autonomy, because we charged them quite a lot to change a lightbulb. It was devolved to local departments, which then discovered that they were all having to replicate particular skills and were losing the ability for local commissioning. We now seem to be moving back towards the PSA model, on which I have an enormous wealth of experience.
My noble friend and one or two other noble Lords mentioned the liquidation of Carillion. That has been used by some, although not in this debate, as a case for stopping the outsourcing of the delivery of public services to the private sector. The Government’s view, and that of previous Governments, is that the private sector has a vital role to play in delivering public services in this country, bringing a range of specialist skills, world-class expertise and deeper knowledge to bear. As we have heard, the public sector is the largest purchaser of goods and services in the UK, spending over £250 billion on procurement. Central government alone accounts for £49 billion of that figure.
As we have heard, there is so much more that the Government could do to create and nurture a vibrant, healthy, innovative, competitive and diverse marketplace of public service suppliers, with values at its heart, where wider social benefits matter and are recognised. This is reflected in the Civil Society Strategy, mentioned by my noble friend, which was published last year. It commits the Government to use their huge buying power to drive social change by championing social value through their commercial activities and levelling the playing field for all types of businesses, including small businesses, voluntary and community-sector organisations and social enterprises—a theme mentioned by many noble Lords in this debate. In turn, that would encourage employment opportunities, develop skills and improve environmental sustainability.
The Public Services (Social Value) Act 2012 already places a requirement on relevant contracting authorities to consider in respect of procurement for services: first, how the economic, environmental and social well-being of the relevant area may be improved by what is being procured; and secondly, how, in conducting the procurement, they might act with a view to securing that improvement. Contracting authorities must also consider whether to consult the market on these issues before the procurement process starts. There have been a number of suggestions during our debate about how that Act might be amended.
I confess to noble Lords something that may already be apparent: that this is a subject with which I was less than familiar before my noble friend tabled the Motion and it fell to me to reply to it. I am a lot wiser after this debate. To get my mind around what was going on, I asked officials for an example of how incorporating social value in the tendering process would lead to a different outcome. They came up with a Ministry of Defence contract with Future Biogas and the energy company EDF to develop an electricity supply for RAF Marham in Norfolk. The MoD could have taken the conventional lowest-price approach, without considering the social, economic and environmental benefits that could flow to the local area, but did not. Instead, it engaged up front with the supply market and developed an ambitious social value plan.
The airbase will now get 95% of its electricity from biogas generated by fermenting crops grown by local farmers, an option which did not exist before the engagement. This will directly save £300,000 a year on electricity costs, but there is more to it than that, which is what struck me. The fuel is a green and sustainable solution, helping to tackle climate change. Locally grown crops will power the plant, supporting the local rural economy and ensuring continued business and employment in the area. Building, running and maintaining the anaerobic digestion plant supports skilled, long-term employment opportunities in Norfolk. Future Biogas employs five highly skilled engineers on site and an apprentice who started a four-year apprenticeship at the end of 2018, and an agricultural contracting business supporting the plant has increased its full-time employees by five and seasonal staff by a further 10. As part of an improved crop-rotation regime, soil quality is boosted and the weed and pest burden lessened, and the digestate output from the plant is a sought-after organic fertiliser, improving yields of food crops and locking up carbon in the soil.
I found that a very helpful illustration of the case for social value and it is that sort of lateral thinking that we want to promote. Other cases were included in the helpful briefings sent to noble Lords for this debate. My noble friend Lady McGregor-Smith mentioned Crossrail, as did my noble friend Lord Pickles. The important thing about RAF Marham is that it is in the Chief Secretary’s constituency. There have been one or two comments about the potential inflexibility of the Treasury in taking social value on board. Perhaps she has now been persuaded by that local example.
In June last year, the Chancellor of the Duchy of Lancaster announced the Government’s intention to extend the application of the 2012 social value Act in central government. While the Act currently requires commissioners to only “consider” social value while awarding contracts, the new proposals will strengthen this further by making it an explicit requirement in central government contracts with the private and third sectors. This work to extend the application of the Act across all central government procurement represents one of the most significant changes in public procurement in recent years. It will ensure that contracts are awarded on the basis of more than just price, looking, as all noble Lords have suggested, at a contract’s social impact too, and giving firms much-deserved recognition for their positive actions in society.
The objective for the Government’s commercial activities will always remain achieving good commercial outcomes for the taxpayer. However, it is right that commissioning and procurement should support social outcomes as well, providing that these outcomes are relevant and proportionate to what is being procured.
A number of noble Lords, including my noble friend Lady McGregor-Smith and the noble Lords, Lord Shipley and Lord Stevenson, wanted the Government to increase the minimum weighting for social value in central government procurement awards from 10% to 20%—or up to 50%, in her case. As mentioned, we launched a consultation paper in March. One of the areas on which we are seeking feedback is whether a minimum 10% weighting is appropriate. The 10% weighting was developed with input from supplier representatives; we are genuinely consulting on this and have an open mind. It is important that we change at a rate that suits each sector. In particular, we want to prevent barriers to entry for SMEs.
The noble Lord, Lord Haskel, and my noble friend Lady McGregor-Smith were worried that public procurement favours large companies. I will say a word about that in a moment. The expanded use of the social value Act is widely recognised as a measure that will encourage greater diversity in public sector supply chains.
The noble Lord, Lord Haskel, warned me that he would raise BSI 95009. The standard is aimed at public and private sector buyers, and proposes a framework for those in procurement to demonstrate or assess trustworthiness, transparency and ethical practice. The Cabinet Office is in discussions with the BSI. We have not yet endorsed the standard, but will consider it most important to ensure that we do not burden suppliers unnecessarily—a point I made earlier—and create barriers to entry for SMEs.
The noble Lord, Lord Shipley, asked if we would show leadership on social value by committing to producing an annual social value budget, showing how much social value has been created by central government procurement each year. On 25 January last year, the Chancellor of the Duchy announced the Government’s intention to extend the application of the social value Act in central government departments. This included a requirement to report on social value.
A number of noble Lords, including the noble Lord, Lord Shipley, asked if we would expand the social value Act to cover goods and works as well as services, so that the value of every penny of public money is maximised. As part of the joint Cabinet Office and DCMS programme of work, central government departments should apply the terms of the social value Act to goods and works, as well as services. There will be markets common to both central government and the wider public sector so it will have a broader impact.
The noble Lord, Lord Shipley, asked whether the social value criteria were compulsory and whether the Government will be using them. The new social value framework will be mandatory for central government departments, their executive agencies and non-departmental bodies for procurements subject to Part 2 of the Public Contracts Regulations.
Lord Shipley
My query specifically related to whether it was simply advisory for local government or whether local government should be required to do what central government departments do.
Lord Young of Cookham
My understanding is that it is advisory, because it was not included in the mandated list I just read out. If I am wrong I will write to the noble Lord.
The noble Lord asked why the strategy guidance has not been issued and whether we will produce a quick guide on it. We actually published guidance on how to work with central government, including social value, working with the VCSE Crown representative Claire Dove. The DCMS and the Cabinet Office are working with the advisory panel to understand the needs of the sectors and to prepare for the changes to social value. We will work with the sector representative bodies to produce the guidance the noble Lord just asked for.
The noble Lord asked for an annual report on social value procurement. Again, in his announcement in June last year the Chancellor of the Duchy of Lancaster included a requirement for central government departments to report on social value.
I was asked why large government contracts are out of scope for social value procurement. The answer is that the balanced scorecard is already in place to cover procurement of over £10 million. That already covers socioeconomic factors. The new social value framework covers everything below £10 million and above the Public Contracts Regulations threshold.
Lord Stevenson of Balmacara
On that point, use of large construction contracts was particularly mentioned. Could the noble Lord take that back and consider it further? The point is not so much the value of the goods and services concerned, but the point made by the Equality and Human Rights Commission—that the impact on employment and the way it is inclusive of a diversity of employees and on apprenticeships and training is so great that the sheer numeric value cut-off was limiting the effect of the social value Act. Would he consider that again?
Lord Young of Cookham
I will reflect on that. I understand exactly the point that the noble Lord makes and that there would be value in extending it upwards. Perhaps I will write to him when I have taken advice on that.
We would be very happy to discuss the network of social value champions with partners in the sector.
One of the main themes emerging from the debate has been the need for the Government to encourage as wide a range of suppliers as possible to deliver the objectives we have been discussing. We remain fully committed to supporting small and medium-sized enterprises and the voluntary, community and social enterprise sector, and indeed helping the mutuals that my noble friend referred to. Our work with sector bodies and individual companies through the Crown representative network will continue, unlocking more opportunities for smaller businesses and those owned by underrepresented groups, as well as mutuals and charities.
Initiatives around prompt payment, simpler bidding processes, better visibility of opportunities in the supply chain and the Public Procurement Review Service have all been established to stimulate SMEs and VCSE organisations as the lifeblood of the economy. Our approach underpins this. I understand the point made by my noble friend Lady Finn and the noble Lord, Lord Stevenson, about prompt payment. I believe prompt payment is a condition of any public sector contract. If a contractor does not promptly pay he runs the risk of being removed from the list of approved contractors. I was interested in the noble Lord’s suggestion that the Small Business Commissioner might have his energies harnessed in this area. I will certainly reflect on that.
With the Crown representative for VCSEs we are producing supporting guidance for smaller organisations bidding as part of consortia, and have helped buyers to better understand how they can level the playing field for SMEs and VCSEs in our introductory guidance on the social value Act. In line with best practice in policy-making, we are piloting the outline framework to see how it will be applied in practice and to help formulate the guidance on evaluating bids fairly and consistently. Two of these pilots are for major national contracts and one is a national framework agreement. Let me be clear that, in doing so, the Government are absolutely committed to ensuring it does not add complexity or cost to the procurement process. We do not want to restrict markets or exclude small businesses and voluntary, community and social enterprise organisations from government contracts.
It is always the misfortune of the Opposition spokesman to have the answers to his questions arrive right at the end of a debate. I am afraid that misfortune has fallen once again on the noble Lord, Lord Stevenson. I will convert the handwritten notes I have in front of me into something legible and typed up and write to the noble Lord to deal with the issues he raised about instilling social value procurement, what steps we are taking to create a standard definition, how this will link to the public sector equality duty, which is an important point that he raised, and how we will make Whitehall a leading partner in social procurement.
We want to see more good practice and to accelerate the opportunities available for the UK’s small businesses and VCSEs. In the words of I think my noble friend Lady Finn, we want to put social values at the heart of service delivery. This new approach is the next step in our journey of transforming how the Government are delivering smarter, more thoughtful and effective public services. We will utilise our huge purchasing power to deliver on our promise of a fairer society that works for everyone.
Baroness McGregor-Smith
My Lords, I thank all noble Lords for their excellent contributions. I am passionate about how we can do more to improve public procurement, and how we can use social value to help us. We all know that lowest price on public procurement does not work any more, and that we need to do more on social value. I particularly welcome the recommendations from the British Standards Institute, including an increased weighting on social value, improving the delivery of contracts, thinking more about local commissioning and partnerships, extending this to all of our public spend and really thinking about front payment. I particularly enjoyed my noble friend Lord Maude’s comments, in which he discussed “liberated and empowered workforces”—which, for someone like me who ran a very large provider, is an incredibly important thing to really bring to life.
So I hope that we can all work together to help improve public procurement and ensure that the ambition of the Civil Service strategy can be achieved.