The value of social value

The line from Oscar Wilde’s Lady Windermere’s Fan, when Cecil Graham asks Lord Darlington what a cynic meant, is well known: “a cynic is a man who knows the price of everything, and the value of nothing.”

Less well known is Cecil Graham’s response that “a sentimentalist … is a man who sees an absurd value in everything and doesn’t know the market value of any single thing”.

Reform UK’s plan to scrap social value requirements for government procurement contracts and removing DEI hiring targets is a broadside against the sentimentalists who champion alleged “social value”, seeking to restore a fundamental principle at the heart of contracts. That is, a contract should primarily be awarded to the individual/organisation that can provide the best quality good or service for the least amount of money.

How did we get here? Reform is right to lay this at the feet of the Conservative Party in government. Their Public Services (Social Value) Act 2012 initially only required commissioners to “consider” wider social benefit of contractual activity (e.g. whether building a school could widen participation of people in underrepresented groups in higher education down the line). By January 2021, this modest stipulation was broadened in the Procurement Policy Note 06/20 when every central government tender was mandated to show “a minimum weighting of 10 per cent of the total score for social value should be applied in the procurement to ensure that it carries a heavy enough score to be a differentiating factor in bid evaluation”. In a crafty sleight of hand, the Procurement Act 2023 demoted “economy” from the standard lexicon in British procurement when it replaced “most economically advantageous tender” (MEAT) with “most advantageous tender” (MAT). In reality, social value weighing of 20 per cent is commonplace, with councils such as Manchester requiring social value scores of 30 per cent. What began as a consideration has now become a strict mandate recorded via scorecard.

You may ask how “value” is measured. I gave a hint in the previous paragraph with the school analogy, but that only scratches the surface. It is a smorgasbord of proxies that ascribes a notional pound value to countless possible activities that are tangential to a primary contract. This ranges from volunteering hours to pledged apprenticeships, from “community gathering points” to “thoughtful spaces”. There now exists a whole sub-sector of firms whose primary objective is to create this value. Even money spent on local suppliers is deemed a benefit: a circular arrangement that photocopies a cost on one side of the ledger to a benefit on the other. Essentially, these are unsubstantiated claims dressed up with pound signs to signal actual worth and presented as achievable outcomes. The results are never tested against the counterfactual: the local supplier that would have been transacted with on merit or the apprentice that would be hired regardless of social value impact. A bidder just has to state that they would deliver social value and that would suffice.

One example of its impact can be illustrated in construction tenders. A 1.5 per cent difference in a £40 million schools’ framework with a 25 per cent social value weight is worth approximately £1 million. Basically, the taxpayer is forced to pay a million pounds more for the exact same building simply because one bidder can spin their project as being more in line with current “social value” trends (as if providing a building for education didn’t provide enough already). Those who suffer the most are small firms who cannot afford to hire “social value managers” or consultancies to write their bids and so lose to rivals (often bigger firms) who can. The Adam Smith Institute’s paper “The Price of Everything, the Social Value of Nothing” points out that the 30-page criteria for business compliance is tantamount to micromanagement.

Reform UK is right to call for scrapping social value requirements — unlike Andy Burnham who wishes to further strengthen social value requirements. As the ASI recommended, the Public Services (Social Value) Act 2012 should be repealed with successor policy notes revoked. MEAT, with its emphasis on economic advantage, should be restored to the statute books, so that the only focus on contract bids should be whole life costs, price, and quality.

Reform’s focus on value for money should be welcomed by taxpayers. However, Reform needs to flesh out the other half of their criteria for public procurement: backing British producers. A critic would rightfully observe that the preference for British producers would only bite when the British bid is not the best one. Thus, when the British bid is not the best bid, every pound given to the British producer on preference grounds, is a pound taken from a bid that will offer better value for money. They must also find a way to avert concerns that favouring British producers collides with Britain’s WTO Government Procurement obligations — that is, suppliers from all parties to the Agreement should not be subject to less favourable treatment than domestic businesses on any contract above prescribed thresholds.

Averting these concerns will rest on proving that British producers should be given preferred status in contract bidding due to national security interests (e.g. steel and energy) and horizontal policy objectives (e.g. boosting domestic job creation and maximising SME utilisation through improved procurement frameworks).