The role of social value and Environmental, Social and Governance (ESG) factors in public sector procurement has been on an upward trajectory for more than a decade.
Increasingly, social value or the benefits gained by a community from the delivery of public contracts or services has become central in the awarding of contracts.
The introduction of the Social Value Act 2012 sparked this development, making it mandatory for public sector buyers to consider social, economic and environmental benefits when procuring goods and services.
While some social value criteria may benefit people globally, social value mostly refers to those benefits which can be felt directly within the constituency being served.
Within local government in England, the importance of social value increased from 2017 due to the introduction of the TOMs (themes, outcomes, and measures) system. This was put together by the Local Government Association to quantify and review social value considerations.
The TOMs system covers the promotion of skills and employment, supporting responsible business growth, the creation of healthier, safer and more resilient communities, the protection and improvement of the environment, and the promotion of social innovation.
It provided a minimum reporting standard for public sector buyers, allowing them to identify and measure the social value found in procurement contracts – although there is not currently a mandated percentage of social value required within local contracts.
However, some of the metrics currently used have been criticised as being clunky while the inclusion of social values in contracts remains voluntary.
Moving from MEAT to Mat
The Procurement Act 2023, set to become law in February next year, will aim to solve those problems.
It has been heralded as a pivotal piece of legislation designed to streamline and standardise procurement across the board and will bring about major changes in terms of the governance, systems and processes used to procure supplies in the UK.
While the act does not make specific reference to social value, it is set to bring about major changes in the way the public sector thinks about social benefit in procurement.
Current regulations require procurement teams to reward the Most Economically Advantageous Tender (MEAT), but under the act this will be amended to the Most Advantageous Tender (MAT).
While the change from MEAT to MAT may appear to be the simple loss of one letter, it is expected to herald a new dawn in terms of the importance of social value.
The Cabinet Office hopes this shift will add clarity to existing social value considerations, giving reassurance to contracting authorities that they can take a broader approach to what can be included when evaluating tenders.
The act also requires contracting authorities to have regard for maximising public benefit and will formalise existing requirements around key performance indicators (KPIs). As social value commitments regularly form part of KPIs, this will lead to greater monitoring and oversight of social value.
Furthermore, the national procurement policy statement, which accompanies the act, will provide increased guidance.
This statement sets out the strategic priorities for public procurement and how contracting authorities can support their delivery. It states that contracting authorities should have regard to the following outcomes when laying out their procurement activities:
Creating resilient businesses and opportunities for quality employment and skills development.
Improving innovation, supply chain resilience and security of supply.
Tackling climate change and reducing waste.
Measuring social value in procurement contracts
Social value and ESG activities need to be properly tracked, monitored and reported against. This can be done via a series of key metrics, such as:
The local economic impact: Tracking the number of local suppliers used, local jobs created, and the financial value retained within the community.
Social inclusion and equality: Measuring initiatives aimed at reducing inequality, such as employment opportunities for underrepresented groups, diversity in the workforce, or support for small and minority-owned businesses.
Health and wellbeing: Evaluating programmes and initiatives that contribute to public health or well-being, including mental health programmes, fair wages, and employee benefits.
Skills and employment: Monitoring the provision of apprenticeships, training programmes, and initiatives that improve the employability of disadvantaged groups.
Environmental impact: Reducing carbon footprints, waste, and the use of sustainable resources. Examples include emissions reductions or the use of renewable energy sources.
There are further metrics that can be used to monitor ESG outcomes:
Environmental metrics
Carbon emissions: Measurement of Scope 1, 2, and 3 carbon emissions from suppliers.
Energy efficiency: Evaluating suppliers based on their use of renewable energy and energy-saving measures.
Waste management: Assessing the efforts to reduce, reuse, and recycle materials, and the reduction of waste to landfills.
Social metrics
Labour standards: Ensuring suppliers comply with fair labour practices, including safe working conditions, fair wages, and the prohibition of child labour or forced labour.
Human rights: Ensuring procurement adheres to the principles of human rights in the supply chain.
Community engagement: Encouraging suppliers to give back to the community through volunteer programmes, charity donations, or local hiring practices.
Governance metrics
Ethical business practices: Ensuring procurement processes and suppliers adhere to anti-corruption, bribery, and ethical business practices.
Supplier transparency: Requiring suppliers to disclose ESG risks and provide transparent reporting on ESG performance.
Corporate governance: Evaluating suppliers’ governance practices, including diversity in leadership, executive compensation, and board independence.
These various factors are measured via the use of Key Performance Indicators (KPIs) within contracts, and under the TOMS framework. Regular reporting and auditing are also vital to ensure targets are reached.
To measure social value, we need to not only track what we do and what we commit to up front with clients, but also those issues and developments that happen because of the contract.
One example of this would be making an up-front commitment to schools to deliver employability skills. Once a contract like this is live, that pledge can be tracked and monitored during its term. Then, as a result of the contract, you might get that additional benefit of, say, securing a temporary role for someone who has been long-term unemployed.
In that scenario, it wouldn’t have been possible to predict the latter development, but you can still measure it and reflect the social impact that comes because of placing that person in a role.
As you can see such benefits don’t necessarily have a solid financial number set against them and this can complicate the evaluation process as contracts often desire such conclusive measurements.
This is something that the Procurement Act will seek to address by embedding social value and ESG into contracts and encouraging clearer reporting.
Social value and ESG at Reed Talent Solutions
At Reed Talent Solutions, we have a very strong focus on both social values and ESG, to the stage where our employees spend one day a week effectively working for charity.
This is part of the impact of the Reed Foundation, a registered UK charity and the biggest shareholder in the Reed Group. The foundation has given almost £10m to a variety of causes since 1972. Its impact and the amount of money it gives to charity equates to that one day a week of charity work.
In terms of social value, our clients benefit from 18% of all our excess incomes going back into the Reed Foundation.
As an organisation, we have been CarbonNeutral since 2005 and in 2020 we launched our environmental champions internal network, which allows our co-members to help us lead the way when it comes to sustainability.
We believe in meaningful employment as a right everyone should have, with our company purpose being ‘improving lives through work’. These beliefs enshrine our actions as a business, and we are committed to embedding them in the work we do and the contracts we are a part of.
The impact of the Procurement Act
The new act, coupled with the national procurement policy statement, is intended to give contracting authorities the freedom to drive social value through procurement contracts.
The change from MEAT to MAT is likely to see contracts awarded not simply on price but on wider factors, including social value.
The act also requires clearer reporting and transparency, including the publication of procurement decisions and justifications. It will require KPIs to be inserted into contracts to monitor and measure performance across a range of metrics, including social value and ESG ones.
Social value is all about spearheading improvements, boosting the economy and helping disadvantaged groups and individuals. From pursuing net zero strategies, providing learning opportunities in schools or teaching people CV writing and job interview skills to running cycle to work schemes, there are a whole host of ways that social value and ESG can be added into procurement contracts.
The Procurement Act may not refer directly to social value but it represents the next stage in the gathering of momentum around it, with every pound of public money spent representing a person or community that could benefit.
