Lowest price obsession hasn’t gone away

The Cabinet Office has announced new measures to deliver social value through public procurement in ‘Taking Account of Social Value in the Award of Central Government Contracts’.

From 1 January 2021 ‘social value should be explicitly evaluated in all central government procurement’, says the Cabinet Office in Procurement Policy Note PPN 06/20. The new measures apply to procurements covered by the Public Contracts Regulations 2015, and cover all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies.

Previously, under the Public Services (Social Value) Act 2012, social value only had to be ‘considered’. The new model means government departments have to assess and score suppliers on the social value they would generate if awarded a contract. Benefits delivered might include supporting Covid-19 recovery, tackling economic inequality, combating climate change or driving equal opportunities.

Cabinet Office parliamentary secretary Julia Lopez said value to the taxpayer should lie at the heart of procurement decisions, but too often value has been narrowly defined by price without taking into account other important factors.
Could this be the start of a post Grenfell turning away from chasing lowest price at the expense of all else?

Before we get those hopes too high, the Cabinet Office hasn’t actually said that value for money will no longer be the priority. The idea of a social value score has been around for a while; the UK government first mentioned it in March 2019. The suggestion then was that social value would be given a 10% weighting when assessing bids for public sector contracts. The most recent announcement says a minimum weighting of 10% of the total score for social value should be applied in the procurement; a higher weighting can be applied if justified.

Having to demonstrate social value is part of a wider emphasis on corporate social responsibility and sustainability, reflecting a shift in public opinion about climate change and other environmental and social factors. The new policy also expects suppliers to take on board helping to deliver on a wide range of objectives in line with these factors. For example, they will be expected to show job creation, and provision of retraining for the unemployed, perhaps those left without jobs by the Covid-19 pandemic. They will be expected to help those from disadvantaged or minority groups to develop new skills relevant to the contract, enabling them to move into higher paid work.

Suppliers will have to show how they and their own supply chain partners identify and manage cyber security risks in delivery of contracts. Bidders for government contracts will also have to demonstrate environmental benefits that contribute towards achieving zero greenhouse gas emissions. SMEs should be encouraged.

It sounds like a lot of potentially expensive burdens to be heaped on the shoulders of companies already struggling to earn a sustainable margin, without any firm promise of making that crucial move away from the traditional lowest price obsession. Our Analysis article this month looks at the lessons being learned from the public inquiry into the Grenfell Tower tragedy, where the consequences of chasing lowest price looks like shouldering much of the blame. It is time for the government to make stronger commitments to achieving highest value rather than lowest price from its suppliers than we see in this Policy Note.

Nick Barrett