New EU directives call upon public authorities to seek social value in their procurement activities. Universities, while not being public bodies, should nevertheless strive to achieve the same high societal value via their commissioning, Nick Petford told the Inside Government Conference on 20 June 2013.
“Procurement” refers to the acquisition, via contractual arrangements, of goods or services from another body. The term can refer both to the whole contracting process (from specification to termination of the contract) or to the specification and award of the contract.
European procurement rules stem from the European Community (EC) objective of creating a common market to eliminate barriers to trade and the movement of goods and services between Member States, with the aim of improving economic welfare and growth.
European rules came about because the procurement policies of governments were perceived as a potential barrier to the creation of a common market, as governments were likely:
- to favour national industry and services when allocating contracts;
- to opt for the safe and known domestic provider
- to lack commercial understanding as they do not operate in competitive markets.
In 1988 the Atkins study published by the European Commission identified barriers to trade in public markets and identified potential benefits of more open public procurement, including savings made from purchasing low cost imports, the effect of competition on driving down prices, and improved innovation resulting from a larger market.
Public procurement is governed generally by the internal market provisions of the Community Treaties, which have been deemed to impose both positive as well as negative (not to restrict trade) obligations.
Based on these internal market provisions, during the 1990s the Community also adopted specific directives on procurement to regulate the award of major government contracts, principally through transparency – thus making it more difficult to discriminate. These directives were replaced by the public sector directive (Directive 2004/18/EC) which also updated coverage and procedures, and specific measures on enforcement were also adopted.
“Buying Social” – EU publication
In October 2010, the European Commission produced a publication called “Buying Social: A Guide to Taking Account of the social Considerations in Public Procurement”. This encouraged public authorities to influence the marketplace by using procurement policy to promote: “employment opportunities, decent work, social inclusion, accessibility designed for all, ethical trade and general compliance with social standards”.
Over fifty pages long, the document works in detail through the policy context for this approach, the practical issues involved for an authority in adopting such a strategy, and the legal and contractual issues to be addressed.
Whilst it perhaps did not lead to a fundamental shift in how commissioners approached procurement when it was published, with the advent of the Social Business Initiative and the draft public procurement directive, it begins to look like one piece of a bigger jigsaw and may well become more influential over time.
It is an encouraging improvement on various other pieces of UK and EU guidance which acknowledge, without fanfare, the legitimacy of promoting social value within procurement policy, and miss the opportunity to promote it actively.
Further to the ‘Buying Social’ publication, in 2011, the European Commission published its Social Business Initiative. This recognises the value that businesses with a focus on achieving social and environmental outcomes and with a longer term perspective can make to the overall economic strategy.
Flowing from this, the Commission has published a draft Directive to update the procurement regulations. In so doing it has recognised explicitly that public procurement can be used as an instrument of social policy, rather than merely an instrument of competition law policy.
In summary, the rules relating to public procurement are based on the EC Treaty and resulting principles, namely freedom of movement of goods and services, freedom of establishment, transparency, proportionality, mutual recognition, equal treatment and non-discrimination.
To comply with EU procurement regulations organisations whose purchasing policies and procedures are covered by the regulations can, indeed should, consider how they can achieve social goals (buying social value) as well as getting value for taxpayers money (buying best value) when they buy goods and services.
EU Public Procurement rules and procedures to 2012
Before going onto looking at the new EU Procurement Directive, it is instructive to consider the previous regulations that procurement managers are used to operating under.
The prescribed procurement rules applied fully only to types of contract listed in the 2006 Regulations as “Part A” contracts. They apply only partially to types of contract listed in the Regulations as “Part B” contracts. This is particularly important for the some sectors (including the social enterprise sector and HE), since education, health, social services, culture, recreation, sport and other public service areas were covered by the much less prescriptive Part B regime.
Prescriptive procedures did not apply to any central government contract with a total contract value below £113,057. There was a higher threshold for local government of £173,934 and a significantly higher threshold for works contracts (as opposed to supply and service contracts) of £4,348,350.
Where the prescriptive procedures did not apply, the applicable procedures were those set by the relevant public sector body, in its reasonable discretion. Such procedures may, in practice, have been similar to those contemplated by the prescribed rules, but there was considerable scope for tailoring the applicable procedures to those that suit the actual scale, nature and circumstances of the particular case.
In many cases public sector procurement did not take due account of this and the documentation and procedures are unnecessarily onerous. In short, organisations were often lazy and made things burdensome for themselves and their suppliers.
What was the Part A and Part B distinction?
Schedule 3 of the Regulations listed 27 different types of services, split into ‘Part A’ and ‘Part B’. The full procurement regime applied to Part A services, whilst Part B services were subject to limited regulation. If a contract was for a mixture of Part A and Part B services, then the rules attaching to the greater part (the one with the higher monetary value) applied.
List of Part A services
- 1. Maintenance and repair of vehicles and equipment.
- 2. Transport by land, including armoured car services and courier services, but not including transport of mail and transport by rail.
- 3. Transport by air but not transport of mail.
- 4. Transport of mail by land, other than by rail, and by air.
- 5. telecommunications services.
- 6. Financial services:
- (a) Insurance services.
- (b) Banking and investment services other than financial services in connection with the issue, sale, purchase or transfer of securities or other financial instruments and central bank services.
- 7. Computer and related services.
- 8. Research and development services where benefits accrue exclusively to the contracting authority for its use in the conduct of its own affairs and the services are to be wholly paid for by the contracting authority.
- 9. Accounting, auditing and book-keeping services.
- 10. Market research and public opinion polling services.
- 11. Management consultancy services and related services, but not arbitration and conciliation services.
- 12. Architectural services: engineering services and integrated engineering services: urban planning and landscape architectural services: related scientific and technical consulting services; technical testing and analysis services.
- 13. Advertising services.
- 14. Building cleaning services and property management services.
- 15. Publishing and printing services on a fee or contract basis.
- 16. Sewerage and refuse disposal service: sanitation and similar services.
Part B services
Certain parts of the Regulations applied where the contract is for Part B services and is above the relevant threshold. This meant that the following applied to each contract:
- (a) the detailed requirements in Regulation 9 as to the technical specifications to be set out in the contract must be adhered to;
- (b) a contract award notice (in the form specified in Commission Regulation (EC) No. 1564/2005) must be published in the OJEU not later than 48 days after the award of the contract (Regulation 31, 42);
- (c) the contracting authority must submit details of any Part B services provided to it in any reports it submits to the Office of Government Commerce (Regulation 40(2) and 41);
- (d) contracting authorities must act in a transparent way, treating all potential providers equally and in a non-discriminatory way;
- (e) a third party may take action against the contracting authority for any failure to comply with the Regulations or other EC Treaty obligations (Regulation 47).
The aim of listing technical specifications in the contract documents is to prevent hidden barriers to cross-border trade as it encourages the use of standards which are recognised across member states.
It should be noted that these obligations apply to the contracting authority and not to the Part B service provider.
List of Part B Services
- 17. Hotel and restaurant services.
- 18. Transport by rail.
- 19. Transport by water.
- 20. Supporting and auxiliary transport services.
- 21. Legal services.
- 22. Personnel placement and supply services.
- 23. Investigation and security services, other than armoured car services.
- 24. Education and vocational health services.
- 25. Health and social services.
- 26. Recreational, cultural and sporting services.
- 27. Other services.
The new situation: EU Directive proposal on ‘social services’
The Commission consulted on the new public procurement directive. The aim was for this to come into effect at a European level by the end of 2012 and for member states to implement in national law within eighteen months following that.
The draft directive contains the proposal to abolish the distinction between Part A and Part B services. The new regulations will apply to all services – other than health and social services and a few others (some educational, cultural and religious services, for example) with a value over EU 500,000. This means that for these services the obligation on commissioners is simply to ensure compliance with the general principles mentioned above.
This ought to avoid commissioners using excessively onerous procedures for what were Part B services. However, experience to date suggests there may yet be a temptation for resource strapped public authorities to adopt one procedure and apply it regardless of the subject matter of what is being procured. Again, for reasons of expediency (which might appear rational) procurement managers could be tempted to make things difficult when they actually don’t have to.
It may also mean that some services which previously qualified as Part B will now fall within the full regime and therefore become subject to a more stringent procurement process on all occasions.
The new procedures have a big negative aspect. The Part B list of services, including most public benefit services, which did not need to go through the full prescribed process, but needed to comply with general treaty principles, has been lost and replaced by an increased £500,000 contract value de minimis threshold for public benefit procurements. So when previously public benefit procurements of any type were not subject to the full prescribed process, now public benefit procurements with a contract value above £500,000. The general de minimis provision is £200,000 contract value over three years.
However, what is not changed by the new directive is that “social value” has always been part of the permitted procurement process alongside price and quality. The Social Value Act in the UK adds the legal obligation to consider social value to the general European law power to be able to do so.
Public Services (Social Value) Act 2012
Under this Act there is a new legal requirement imposed upon public authorities:
“before starting the process of procurement to consider:
- how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area; and
- how, in conducting the process of procurement, it might act with a view to securing that improvement”.
This is the sort of provision which might be thought unlikely to change general practice, but it is a clear duty, subject to challenge and we are now familiar with the concept of public authorities being meaningfully challenged, in a similar way, for example for not conducting required equality impact assessments.
UK Best Value regime
Every public sector body must act objectively and reasonably towards fulfilment of its public benefit remit. The “best value” criteria for contracts are “economy, efficiency and effectiveness”, which I shall refer to today as the “Best Value Principles”. Each public sector body will have internal procurement policies and procedures designed to ensure fulfilment of these principles.
How best value is to be delivered and measured has changed more than once since its introduction in 2000. Most recently, in September 2011, the government published its best value Statutory Guidance aimed at encouraging public agencies and civil society to collaborate more and to reduce the barriers that prevent voluntary organisations from competing for local authority contracts.
The guidance, comprising a single page, essentially requires Best Value authorities to:
- Consult widely on the commissioning cycle, particularly the decommissioning of services.
- Provide at least three months’ notice of the authority’s intention to reduce or end funding.
- Provide for the organisations, service users, and wider community to put forward options on how to reshape the service or project.
What is Social Value?
As defined by NAVCA (National Association for Voluntary and Community Action): “social value is the recognition that social outcomes such as stronger communities, improved health and improved environments have a value to society”. And we should be concerned with delivering social value, it’s the law!
The Social Value Act requires public authorities ‘to have regard to economic, social and environmental well-being in connection with public service contracts’ (Public Services (Social Value) Act 2012), which will ‘make the recognition of full value part of mainstream commissioning practice, rather than optional good practice’ (Cabinet Office (2010). The European Commission also supports the premise of social value in public services.
As stated in the 2011 Green Paper on modernising EU procurement, ‘Towards a more efficient European Market’, “public authorities can make an important contribution to the Europe 2020 strategic goals by using their purchasing power to procure goods and services with higher societal value in terms of fostering innovation”.
Universities are not public authorities, but in my opinion they should clearly strive to achieve the same high societal value via their commissioning.
What are the implications of the above for Collaborative Procurement and the implementing the Diamond review?
There is nothing in the new EU Procurement Directive that prevents collaborative procurement or the implementation of the Diamond review. As always, organisations are free to act, as long as they act within the law.
The real challenge for procurement – by individual organisations or consortia – is how to design and commission innovative services and procure in imaginative ways that delivers the two goals of best and social value. It would be a crime – in spirit if not in letter – if taxpayers money was used to buy goods and services that were simply cheap and the opportunity to tackle society’s long-standing problems was not taken.
This is not to say that we should all buy from social enterprises and charities, although many of them provide best in class services. However, we should all ensure that when we buy from a ‘normal’ business we consider how the tender can be worded in ways that reduce unemployment, reduce crime, reduce carbon emissions etc.
There are people and programmes out there to help procurement managers comply with EU directives, deal with challenge to decisions, but at the same time to buy social and best value. The Bold Commissioning and Procurement programme designed and delivered by Bates Wells and Braithwaite, the E3M consortium of 25 leading social enterprises, and Inspire2Enterprise are all providing detailed, intensive support for both procurement managers and social entrepreneurs to help the law to be followed and social value to be purchased.
We are talking about taxpayers money, and we should always strive to buy two things for the price of one – the product or service we want, and some social outcome that is clearly good.
So, how can organisations use their purchasing power to deliver best and social value?
Here are six actions that are being piloted by the University of Northampton:
- Identify practical ways in which procurement managers and social enterprises can define and measure social value
- Include in all contracts the requirement to deliver social value, including requiring private sector organisations to help build social enterprise capacity
- Develop a (growing) list of social enterprises that are capable of supplying the university
- Support consortia of social enterprises by helping with the provision of back office services
- Break down large contracts into smaller elements
- Evolve existing university departments into social enterprise organisations (we are doing this in Northampton with our Estates department that has become a social enterprise spin out, operating as 1st Degree Estates)
This presentation ‘The New EU Procurement Directives: Challenges and Opportunities’ was given to the Inside Government conference on 18 June 2013
Nick Petford is Vice-Chancellor of the University of Northampton