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Explaining what social value in procurement means

By 26th January 2017 No Comments
Social Value
Social value in procurement: a complex concept founded in good intentions

Recently, the Irish book industry expressed dismay at the outcome of a national public tender on the supply of library books, saying it poses “a real threat” to Irish booksellers and suppliers. Bookselling Ireland and Words Ireland claim 60 per cent of the €6 million annual contract was awarded last month to suppliers that are based outside Ireland, resulting in the loss of €14 million to the Irish industry over the four-year life of the contract. Amid fears that this will lead to the closure of SMEs, the two bodies expressed disappointment at what they see as a national tender process that has impacted significantly on their sector and placed their viability in doubt. They are quoted in coverage of this story as saying “it is likely that no local entrants will ever be able to compete for tenders in the future because of the minimum turnover requirements”. Minimum turnover requirements are a reference to the level of revenue a company must earn to be deemed eligible to enter a state-run procurement contest.

A quid pro quo of Irish businesses having access to EU markets is that international companies have the right to compete for contracts like this one in the Irish Market. Public buyers are explicitly tasked with striving to maximise value for money for the State. Value for money does not always mean the lowest price however – even when viewing a transaction in purely monetary terms. The robustness of a company, its reputation, its capacity to service a contract and the professionalism of their bid documentation all matter in helping a buyer develop a sense of what they can get from the market. No company is entitled to a contract because they happen to Irish (or American for that matter).

So far, so familiar, so what you may ask. Well there is another angle to this affair. The macro-economic one. Some countries take a broader view of the macro-economic effects of the State’s spend and go so far as to use state expenditure as a strategic development instrument. We have written elsewhere on this site about the town of Güssing in Austria and their inspiring example in the clean tech sector. We have written about Scotland, Estonia, Germany, Canada and cities like Sheffield, Birmingham, Barcelona and London (most have executive Mayors) that have taken this broader approach.

In the case of a contract like library book supplies, this broader perspective would ask, what is the cost to the exchequer of several Irish SMEs going to the wall versus the savings in this contract? Some of these companies may well be placed in marginal areas of social disadvantage where jobs are not easily replaced. This approach would ask how much will the left pocket save from switching to international suppliers and what impact will that have on the right pocket to the taxpaying citizens. If these companies go to the wall, how much will the loss of payroll taxes, VAT and welfare supports for the newly unemployed cost society? Is this a net gain or a net loss to Irish society?

This is a concept called ‘social value’.  There is a link between social value and procurement. What’s more, the 2014 EU Procurement Directives ask public buyers to take these kinds of factors into consideration. How each member state interprets the Directives’ social, economic and environmental clauses varies and how one measures social value has not been clearly mapped out for buyers. We have sympathy for them in this regard as clarity on this point is needed – they are operating without clear guidelines.

It is our view that in niche markets like this one, a greater emphasis on social value, especially during the pre-tender phase so that the market is appropriately mapped out and understood by the buyer, would be a welcome development. This would mean looking at the impact of the procurement spend outside of the buying organisation, often in areas outside of their focus or remit – and their operational budget. This requires a significant paradigm shift for procurement teams and industry should understand that this is not something that can be switched on overnight. Given the impact of decisions like this on local communities and the wider economy, we would like to see a further evolution of government policy in this area. If government rises to the challenge, industry must be supportive and engage in any consultation with a progressive sense of commitment rather than a sense of entitlement which can sometimes come through in complaints from industry (this latter comment is a general one not aimed at this specific case).

Post script: Fianna Fáil (the main Irish opposition party) has published a bill this week that is heaping more unnecessary law into this area to make social value a requirement. It already is a requirement that public buyers are meant to take into account. While well intentioned, and we always welcome engagement by Public Representatives in this area, guiding principles on how and when social value should be taken into account is likely to have a greater impact than more legislation.