Public Procurement and the Civil Society Strategy

Baroness McGregor-Smith Excerpts

Thursday 23rd May 2019 Lords Chamber

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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.

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[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.

Motion agreed.