Demos Daily: Value Added

Throughout this crisis, companies have been under the spotlight. How they’ve supported staff, how quickly they’ve adapted to guidance, the risks they’ve taken to keep their doors open: individual businesses have each had to navigate difficult decisions under intense scrutiny. When this is over, any seen to have acted against the public mood may well face a drop in revenue, with consumers preferring to support businesses seen to have had a positive impact. Consumers have always made decisions to spend money with companies that match their values, and in many ways this is no different. Yet the UK’s biggest spender, the Government, has been slow to follow their lead. Last year, we argued in Value Added that more deeply embedding social value into the procurement process could encourage suppliers to adopt best practices such as reducing carbon emissions, employing people on a real living wage and using more inclusive recruitment strategies.

Read Value Added here, and the introduction below.

Introduction: Procuring a new political economy

Politicians of all stripes regularly decry the unfairness of our economy. This is unsurprising: the last decade has been the worst for pay growth since the Napoleonic Wars. (1) Too many are being denied the right to a stable job and affordable housing, whilst those at the top often appear to operate by an entirely different set of rules. (2)

Large multinational companies, for example, continue to squeeze their tax contributions ever lower: the OECD estimate that US$100–$240 billion is lost globally in revenue each year from base erosion and profit shifting by multinational companies. (3) From Philip Green to Sports Direct, business has been hit by scandal after scandal, with seemingly few consequences for those implicated. (4) This reinforces the sense that we are not all in it together, hence calls across the political spectrum for change.

This report explores what role procurement policy should play in delivering this change. Its contribution should not be underestimated: last year the public sector spent £284bn on procurement, more than it spends on benefits and public sector salaries, and equal to 13.4% of GDP. (5) This spending power represents an opportunity for the government to nurture best practice in the market, raising economic standards without having to rely on state-administered redistribution. This is desirable: for too long progressives have been reliant upon redistribution as a means of delivering change, when this has often been ineffective at addressing structural inequalities.

In response to public procurement being rocked by a number of scandals – from the collapse of public-sector contractor Carillion to “fundamentally flawed” probation contracts being brought back in house (6) – the Cabinet Office earlier this year published the Outsourcing Playbook. This aims to improve and strengthen the way government procures, with the aim of reducing the risk of similar mishaps in the future. (7) But whilst Demos welcomes these steps, they could be just the beginning; properly harnessed, public procurement could play a central role in building a fairer economy.

In the past decade procurement law has been reformed at a domestic and European level to enable the state to procure on ‘social value’ objectives as well as on price. Social value is defined as “the economic, social and environmental well-being of the relevant area”. (8) Demos has a long history of promoting social value and welcomes these developments. (9)

Since their introduction in the Public Services (Social Value) Act 2012, these provisions have been enthusiastically adopted by local authorities in particular, with some – notably Preston City Council in Lancashire – utilising them to develop radically new ‘community wealth building’ growth strategies. (10) Indeed, the government’s recent Civil Society strategy explicitly commits to extending the social value provisions to ensure that public procurement can deliver more social and economic value. (11)

But it is important for other reasons too. Our ability to conduct economic and social analysis is being transformed by new data collection techniques that offer the prospect of real-time data and thus real-time analysis. (12) Procurement data collected by government has an important role to play in this and could eventually lead to us being able to accurately analyse what the government spends and purchases in real-time. (13) It is therefore clear that improving public procurement is central to the task of creating a modern, transparent and efficient government, as well as that of delivering economic justice.

This report examines the role of better procurement in delivering both a fairer economy and a moreefficient state across three chapters:

Chapter One outlines the state of government procurement in 2019, providing both policy background and an analysis of how government currently procures.

Chapter Two introduces some best practice principles of good procurement, examining the opportunities for reform.

Chapter Three sets out our agenda for fairer procurement, which we hope could lead to a fairereconomy and a more efficient state.

Alongside in-depth desk-based research, this report is underpinned by a series of semi- structured qualitative expert interviews and a private roundtable event that took place in March 2019. This event was attended by a number of procurement policy experts, academics and business leaders.

 


1. The Resolution Foundation, Public and family finances squeezes extended well into the 2020s by grim Budget forecasts, Press Release, 2017

2. The Resolution Foundation, A New Generational Contract: The final report of the Intergenerational Commission, 2018

3. The World Bank, The Changing Nature of Work, The World Development Report, 2019, p.43

4. BBC, Sir Philip Green: From ‘king of the High Street’ to ‘unacceptable face of capitalism’, 2018; BBC, Sports Direct staff ‘not treated as humans’, says MPs’ report, 2016

5. Nick Davies, Oliver Chan, Aron Cheung, Gavin Freeguard, Government procurement: The scale and nature of contracting in the UK, The Institute for Government, 2018

6. BBC, Probation services: Part-privatised system ‘flawed’, 2019

7. Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 2018; Cabinet Office, Open Consultation: Social value in government procurement, 2019; HM Government, Civil Society Strategy: Building a Future That Works for Everyone, 2018; Government Commercial Function, The Outsourcing Playbook: Central Government Guidance on Outsourcing Decisions and Contracting, 2019

8. The Department for Digital, Culture, Media and Sports, The Public Services (Social Value) Act 2012: An introductory guide for commissioners and policymakers, 2018

9. Claudia Wood and Daniel Leighton, Measuring Social Value: The gap between policy and practice, Demos, 2010; Claudia Wood and Max Wind-Cowie, Measuring up the social value of sponsorship, Demos, 2012; Claudia Wood, The Social Value of Sheltered Housing, Demos, 2017

10. Alan Lockey and Ben Glover, The Wealth Within, Demos, 2019

11. HM Government, Civil Society Strategy: Building a Future That Works for Everyone, 2018, p.115

12. KPMG, Data-Driven Government, 2017

13. Warren Smith, Improving and Opening up Procurement and Contract Data, Government Digital Service, Webpage, 2015