Tag Archive for: Social value

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Too Soon for 30% Weighting for Social Value in Tenders

I spoke recently at the UK Universities Procurement conference and as usual, had some interesting conversations around the margins of my session. In one such discussion, a sustainability person from a major university told me that his organisation was looking to increase the percentage of marks awarded to “social value” in tenders from 20% to 30%.  I must admit this surprised me, and I am certainly not in favour of this at the moment. It feels like we are heading for another new category of Bad Buying stories – where firms win tenders based mainly on their social value proposals rather than on their capability and the real “value” of their offering.

I have been consistently in favour of including social value in public procurement. But we haven’t been doing it for long, and I have not seen much analysis of exactly how successful it has been to date. So it seems too soon to be putting quite so much emphasis on that at the expense of cost, wider quality or service issues, supplier innovation and so on.  I would personally like to see 10-15% of the marks allocated to social value until we have more evidence.

One key concern is that organisations in my experience sometimes don’t really understand their own evaluation processes. My question to anyone thinking of moving to 30% is this. Given the evaluation methodology you are using, how much more are you prepared to pay for a proposal that scores 100% on social value creation as against one that scores 50%? Because that is what your evaluation scheme actually determines.

Some might say “ah, but social value has a real financial benefit too”.  In general, that is simply not true – certainly for the contracting authority itself. Read my article from a year ago here if you want more to support my claim). A quick extract – “In almost all cases, this is not real money. “Wooden dollars” as someone described it to me recently. It does not show up on the buyer’s P&L or balance sheet. You can’t spend these “financial” benefits on more road maintenance, a new operating theatre, or re-opening a drop-in centre for vulnerable people. No cash appears in the CFO’s hands.

The other big problem is that where there are benefits from social value, they often don’t go to the actual buyer. So if a university is accepting something like “employing more apprentices” as a positive social value factor, then how exactly does that benefit the university itself? Maybe it is good for society more generally, although big firms always employ apprentices so whether this is real incremental benefit from this contract is often questionable. We are also building in a barrier for smaller suppliers when we do this.

If we go down the 30% route, I can see some scandals emerging where contracting authorities end up paying way over the odds for goods or services, and their defence is “but the social value was great – look, the supplier painted a scout hut”. Yes, but was that worth the extra million you paid to a supplier who turned out to be not very good at the core work?  Look at the Scottish ferries fiasco if you want an example of what can happen when a basically incompetent supplier wins a contract for non-value for money reasons.

I don’t want to become an “anti-social value” campaigner, but I really don’t like the idea of 30% of evaluation marks going on social value until we understand a lot more about best practice and how we can get the most out of this initiative for the taxpayer. And we’re not there yet.

However, there is one more innovative option. You could specify a fixed price and then evaluate on service, social value and other factors. I have heard of this being done and it has some merits. So you might say “we are prepared to pay £500K for this service – now tell me how you will do it and what social value you will provide”. In that case, I’m open to a 30% weighting.

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Support to Disadvantaged Suppliers Attracts Fraudsters

Programmes to support minority owned businesses, smaller firms, social enterprises and the like via public sector procurement have become increasingly popular over recent years in many countries. The Social Value Act in the UK in 2012 made this sort of action more prevalent in the UK, but the USA is probably where such schemes are longest established.

However, the irony is that the more successful such programmes are in terms of actually directing spend towards such suppliers, the greater the temptation for fraud and corruption to spring up. Genuine firms that need support might lose out to unscrupulous criminals and conmen/women.

One mechanism for that is basically using what we might call “non-value for money” evaluation criteria to award contracts to a supplier that doesn’t really deserve them. That can lead to distortion in the selection of winning bidders. “This firm’s bid wasn’t the cheapest but they are a small firm / owned by a women / promise to employ lots of disabled local people. That gave them lots of marks for “social value” in the bid evaluation”.  What isn’t made public is that the firm is also owned by the budget holder or decision maker’s sister-in-law.

The other quite common fraud is where a firm is apparently owned by a person or people who qualify as a “minority” but in fact, control rests with non-minority owners. We have seen that a lot in the USA and also in countries such as South Africa which have had schemes to give preference to black-owned businesses in public procurement.  I gave several examples of this in the Bad Buying book from both of those countries.

But this is still going on – a recent report in the Chicago Tribune highlighted a current case. It is not clear yet which of those two mechanisms is suspected here; is it disguised ownership or the use of minority programmes to favour a firm for improper reasons?  But federal prosecutors are “investigating possible minority-contracting fraud involving a series of Chicago government contracts worth hundreds of millions of dollars, including many with ties to a clout-heavy trucking and recycling company owner, according to sources and documents obtained by the Tribune”.

James Bracken and his wide Kelly own several companies engaged in construction, waste management and transportation. Investigators have asked city agencies for copies of bid documents and more relating to several contracts and for information relating to the city’s women and minority owned “set aside” programmes.

The programmes started in 1990 with the aim of awarding at least 25% of the total value of all city contracts to minority businesses and 5% to women-owned operations. But there have been accusations of fraud from the beginning. Company owners, chasing multimillion-dollar contracts, have put up phony “frontpeople” to get certified as minority or women-owned. Another route is to claim that a high percentage of work will got to minority subcontractors. In my experience, that is the sort of claim that rarely gets checked once a contract is operational!

A lot of this comes down to procurement carrying out the appropriate due diligence and checking out firms at the bidding stage, managing contracts well once they are operational, and of course keeping an eye out for conflicts of interest and other potential drivers of corruption. It is a constant battle between the forces of good (procurement, usually) and evil (certain dodgy potential suppliers and general low-life scum!)

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Be Careful with Social Value!

Bad buying takes many forms, and there is a risk we might see a new driver for poor procurement emerging in the coming months and years. The problems are avoidable, but we need to be aware of the risks.

Social value has become a very hot topic in the public sector in many countries. Recently, I wrote two articles (here and here) on the topic for our Procurement with Purpose website.  That is my other major interest at the moment, alongside “Bad Buying”, and we might consider those aspects two sides of the procurement coin. Procurement with purpose is all about how (if we are smart) the money organisations spend with suppliers can contribute to environmental, social and economic improvements that go beyond the specific contract. That is exactly the same as “social value” in the public sector.

So we are now seeing public contracting authorities incorporating social value factors with quite significant weightings in the evaluation process. Indeed, this is not just relevant to the public sector. Vodafone announced recently that they were going to use similar factors in their supplier selection models. Choosing a supplier is then not just about price, service and quality, but can also incorporate a range of other factors, from emissions, to employment of disadvantaged people, to support for local sub-contractors.

That’s fine, and we applaud the concept. But one fear is that we could see firms being selected based more on their social value offering than on their actual ability to do the job.

Scotland has led the way in many senses in terms of applying social value, and we interviewed one of the key leaders in that effort, Julie Welsh, for the Procurement with Purpose website a while back. But there is another side to the story. The Ferguson Shipyards case is an example of a firm that was supported with public contracts, in part with a view to supporting Scottish business and employment. Unfortunately, it appears that the shipyard may have been incapable of building the two ferries for which the government contracted, and costs to the taxpayer will run to over £100 million more than planned.

Reports suggested that the bid “was the highest quality bid received, in other words the highest specification, but also the highest price” of all the six yards competing for the job.  It seems likely that a high mark for social value contributed to the shipyard being the top score on “quality” and winning the bid – yet in fact, it failed to actually do the work, as well as being the most expensive bid. Without knowing the full story here, it does illustrate the need to maintain proper procurement processes and a commercially sensible approach. Suppliers must not win work on social value alone. 

That means social value weightings must be proportionate, and not outweigh what is the core goal in all public (and indeed private) sector procurement – finding the best supplier to meet our needs and provide the best overall value. Incorporating social factors in that “value” is fine, but it should not  come before the supplier’s capability to do the work properly and cost effectively.

Another key issue is how we can ensure that the social value offered is meaningful.  It should not become skewed by politics, or relate to factors that are immaterial to the contract or the needs of the buying organisation. It should also be capable of some sort of tracking and measurement to ensure the supplier does deliver on their promises; a focus on social value makes the need for effective contract management stronger than ever.   

There is also a risk that fraud and corruption could emerge as social value becomes more important in terms of winning contracts. I won’t go into that here, but it is discussed in my articles on the Procurement with Purpose website.

So all in all, incorporating social value or procurement with purpose factors into supplier selection  has the potential to be good news. On the other hand, if it isn’t handled with care, it could actually drive more “bad buying”. Our advice therefore is to implement with care and thought.

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