Public Procurement and the Civil Society Strategy

Lord Shipley Excerpts

Thursday 23rd May 2019 Lords Chamber

[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.

--- Later in debate ---

[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.