We talked in part 1 about the risk that selecting suppliers based to a large extent on their “social value” offer might lead to less-then-competent firms winning public sector work. That is true even without considering the spectre of fraud and corruption, which is my second area of concern.
Avoiding Corruption
“Social value” might both be open to fraud and could also become a smokescreen for corruption in public procurement. In terms of fraud, I’m thinking about deliberately false claims from suppliers that may are hard to disprove (“half our staff are from diverse groups” or “we have reduced our carbon emissions by 50% over the last 3 years and we commit to a further reduction during this contract”). In my book, Bad Buying, there are also a number of stories where business owners have been prosecuted in the US and elsewhere for pretending that a disadvantaged person owns their firm so they can get special treatment and win contracts.
Corruption worries me even more. When you move away from objectivity in selecting suppliers, there are always potential issues. Now I acknowledge that even incorporating basic “quality” factors into assessment of suppliers proposals and bids brings some subjectivity into play. And anyone who has marked a weighty tender document against multiple criteria knows it cannot be 100% objective.
But social value, if we don’t manage this well, might open up a new level of subjectivity that gives unscrupulous suppliers and insiders more chance of getting away with corrupt behaviour. Combine that with the proposal in the new UK public procurement Green Paper that evaluation characteristics may not even need to be linked to the specific requirements of the contract, and you can see how there could be concern.
I’ve been told by experts with a pan-European focus that in countries where corruption is perceived as an issue, public procurement is steering clear of social value considerations for this very reason. The processes are not mature enough and perhaps the protagonists not trustworthy enough to be confident that social value wouldn’t be used to justify corrupt decisions. And I’m not convinced that the UK is quite as free of corruption as we like to think it is.
For instance, I could put a huge weighting on “support for staff with disabilities”. Then I tell my friend who runs a construction firm to make sure he can claim that 20% of his staff fall under that definition (a few short term hires, perhaps). When the bids come in, he gets a major head start as I’ve given that factor a 20% weighting in the evaluation process. You could make it even more subjective than that, asking for evidence of “support for equality and diversity actions”, then giving my brother’s firm top marks for a long list of pretty meaningless actions, which may not even have really happened.
The other worrying issue is the focus on “local” suppliers. That again could open the door for corruption. We might see the local supplier that happens to be owned by the council leader’s girlfriend or the police chief’s uncle win the contract because they are the most “local” firm, even if they are basically ill-equipped to deliver the work, and charge an inflated price.
We’re very blasé about corruption in public procurement in many developed countries. It hasn’t been perceived as a huge problem, but we’ve seen actions that could be considered nepotism (at best) and perhaps something worse in various pandemic-related procurements in the UK and more widely. Corruption doesn’t just happen to other countries or organisations.
So we need to be very careful that social value doesn’t increase the probability that it happens to our organisation. That means again (as in the previous article) keeping social value factors proportionate in evaluation and also looking to make what is assessed as objective as possible. It also means doubling down on issues that we should be on top of already, such as conflicts of interest, or not allowing one person to hold too much influence over major spending decisions.
Barriers to entry
The third area of concern around the public procurement for social value movement is that it could have unintended consequences. It might actually increase the barriers to entry for the very firms that it should be helping.
For instance, in the US, provisions to support minority owned businesses through public procurement are much more established than in Europe. But the whole bidding process is often so complex for government tenders, those barriers to entry mean many US firms either focus entirely on public sector work, or won’t even attempt to win government contracts. That can’t be healthy.
Already, the large government suppliers in the UK are on top of this agenda. A quick LinkedIn search brings up a “CSR Manager” for Serco and a whole bunch of people at Capita including “Head of Responsible Business at Capita Customer Management” and “Head of Responsible Business (Government Services)”.
Now of course we want major suppliers to the public sector to take CSR and sustainability seriously. But if you are a small firm bidding against Capita to win a contract, you may well not have a dedicated manager in this area. You may not have an all-encompassing programme, including carbon reduction, diversity and inclusion, a lengthy modern slavery policy, a whole bunch of apprentices, data available about staff with disabilities, and community programmes.
Yes, we want all of this from our large firms. But it must not lead to a situation where small firms are at an immediate disadvantage when they are competing with the giants. If social value is weighted at 20% of total marks, and you score 5/20 whilst Capita scores 20, you are most unlikely to win that contract, however good the rest of your bid might be.
There is no simple answer to this conundrum. Smaller firms might need some education and training – outside of specific bids of course – to help them. We might encourage more creative thinking from smaller firms, so they can come up with novel approaches. They may be able to play the “local” card better than the corporate giants. But this all requires some further thought and effort from public procurement leaders, I suspect, or the big are only going to get bigger.
Summing up
Focusing on “procurement with purpose” in the public sector is sensible and appropriate. The term “social value” is confusing however, given it includes topics that the wider business world puts under the “environmental and economic” headings when it talks about sustainability and purpose. However, our main point here is that there are also risks with social value-focused approaches to procurement, and public bodies and procurement professionals need to understand those risks and take mitigating actions.
None of us wants social value to become discredited through corruption or incompetent firms winning contracts – so we need to take care to manage these new approaches carefully.