Amidst the social and economic challenges of a post-Brexit, post-COVID landscape, public procurement is gaining increased visibility and legitimacy as a policy tool. Effective 1 January 2021, the UK is positioned to become the first nation in the world to mandate that taxpayer-funded contracts are fully leveraged to maximise social value. A minimum 10% weighting will be required in the evaluation of social value in UK central government contracts. As the UK seeks to negotiate international trade agreements with the EU, USA, Canada, Australia, New Zealand and others, how value is defined in government procurement and the question of whether or not sub-national public procurement should be included in future trade agreements is the subject of increased debate. In this blog, Sandra G. Hamilton, from the Manchester Institute of Innovation Research, outlines recent changes to UK public procurement and argues that to rebuild a more inclusive, socially sustainable post-COVID economy, similar changes now need to be made at a global level.
- As of January 2021, the UK will be the first nation to mandate a minimum 10% social value weighting be applied to taxpayer-funded central government contracts.
- Concern regarding the lack of practical implementation in advancing responsible public procurement at the central government level in OECD countries is rising.
- The WTO-Government Procurement Agreement must also be revised, moving beyond voluntary language to explicitly mandate the inclusion and evaluation of social and environmental criteria in taxpayer-funded contracts.
In practice, public procurement remains overly commoditised, more of a price-taker than a market-shaper. A 2018 survey found that only 55% of OECD central governments had adopted a strategy or policy to leverage public procurement to stimulate responsible business conduct. Today, socially responsible public procurement leadership is found primarily at the city level, and there is valid concern about the lack of practical implementation occurring within the central governments of OECD countries.
In 2015, Manchester City Council mandated a 20% social value weighting in its own procurement, rising to 30% earlier this year. In the UK’s quest to transform public procurement from a transactional low-bid culture into a strategic policy mechanism, many innovative practices and policies of leading sub-national public actors have helped inform the new UK model. This new development builds upon the UK’s 2012 leadership in passing the UK Social Value Act, which required the UK public sector to consider the inclusion of social value. The move from voluntary to the mandatory inclusion of social criteria represents a very positive step forward and marks an important development in the evolution of socially responsible public procurement at the central government level.
How does socially responsible public procurement work?
Socially responsible public procurement (SRPP) involves proactively leveraging taxpayer funded contracts to align and support high priority government policy objectives. Typically, this involves moving beyond an over focus on low bid, to also evaluate proponents on non-financial socially beneficial outcomes, such as the bidders’ level of commitment to addressing a societal problems, by providing employment and skills development opportunities for equity-seeking groups and individuals facing barriers to employment.
The UK has adopted a big tent, very broad approach to advancing social value through procurement, recognising that all vendors, irrespective of size or ownership type, can compete based on their ability to generate incremental social value in core operations and throughout their own supply chains. This helps to advance the dialogue regarding socially responsible public procurement beyond the important, but niche, topics of social enterprise development (such as in Australia and Canada) and supply-chain diversity based upon certification of a firm’s ownership being female, FAIRTRADE, BAME, Indigenous or LGBTQ (as in USA, Canada, New Zealand and Australia).
The UK’s whole of government approach has been designed to better align with today’s societal values; to foster socially responsible competition across the whole supply chain, irrespective of a firm’s ownership. It is a flexible approach, which sets a minimum, but not a maximum social value weighting; a policy approach designed to stimulate and reward rise-to-the-top responsible market actors, over race-to-the-bottom bidders. In addition to employment and skills development, there are other specific policy outcomes, including:
- helping communities to manage and recover from the impact of COVID-19;
- improving supply-chain resiliency;
- improving access for small and medium enterprises (SMEs), the voluntary, community and social enterprise sector , and mutuals;
- reducing greenhouse gas emissions and improving workplace conditions to support social distancing, remote working and sustainable travel solutions.
The five priority themes as defined in the UK Government’s social value procurement policy note are:
- COVID-19 recovery
- Tackling economic inequality
- Fighting climate change
- Equal opportunity
Welcoming the new rules, UK Cabinet Office Minister, Julia Lopez said: “Government has tremendous buying power, spending £49bn each year on contracts for vital public services. Value to the taxpayer should lie at the heart of our procurement decisions. Too often, however, ‘value’ has been narrowly defined by price without taking into account other important factors such as the number of local jobs or apprenticeships a contractor will provide, the care they show the environment in their business practices or the number of SMEs involved in their wider supply chain.”
A new phenomenon?
While socially responsible public procurement is often viewed as a new phenomenon, history tells us otherwise. In fact, leveraging public procurement to improve working conditions and social outcomes dates back to 1840, suggesting that the low bid culture of the last forty years represents the anomaly. In 1840, US President Martin Van Buren issued an executive order establishing the 10-hour working day for all those working under certain government contracts; in 1914, the UK and USA introduced special contract arrangements to provide employment for disabled WWI veterans; and the 1931 Davis Bacon Act (USA) mandated the payment of local prevailing wages on government contracts. By 1949, governments understood the risk of large low-bid government contracts depressing local wages. To mitigate this risk and to promote good governance ILO C94 – the International Labour Organization Convention No. 94 – was adopted. ILO C94 provides an early example of a socially responsible approach to supranational governance, requiring bidders and contractors to align themselves with the locally established prevailing pay and other working conditions as determined by law or collective bargaining. As of September 2008, 58 member states were bound by ILO Convention No. 94.
In the early 1980s, during a period dominated by Anglo-American neoliberal politics, globalisation and laissez faire economics, the focus became small government, increased outsourcing, Free Trade and GDP growth. In 1982, the UK abolished Fair Wage legislation and became the only member state to withdraw and denounce ILO C94. Today, as the UK suffers unprecedented levels of regional inequality, when compared to other advanced economies and West Wales is recognised as one of the poorest regions in Northern Europe, the UK government has launched a ‘levelling up’ regional economic development agenda and recognised that how governments define value in taxpayer-funded contracts matters.
Aligning the supranational policy landscape with UK’s move to mandatory
To address the 21st Century Grand Challenges of poverty, racial and gender inequality and climate change, it is time to revise the text of the WTO Government Procurement Agreement (GPA) to explicitly require the mandatory inclusion of both social and environment criteria. Originally designed in 1994 as a market opening economic mechanism, signatories to the GPA took over ten years to modernise the text to incorporate environmental criteria. As long as the WTO-GPA remains silent on social value criteria and makes its approach to green procurement voluntary, the supranational regulatory landscape risks falling increasingly behind, failing to deliver the public sector leadership needed to shape a more inclusive and socially just economic recovery from COVID-19.
Governments are the largest buyers of goods, services, and public works, accounting an average of 12% GDP in OECD countries, amounting to a spend of some six trillion EUR per year. The WTO-GPA signatories were slow to embed green criteria in the revised 2012 text and have been slower still to explicitly embrace social value considerations. Public sentiment and political will are changing. The ESG (environmental, social and governance) focus has quickly shifted from E to S and the UK has raised the bar. Other OECD governments can and must do more to advance UN Sustainable Development Goal 12.7, sustainable public procurement, which remains an under-utilised policy tool.
Sandra Hamilton recently spoke about the research discussed in this blog at a WTO Public Forum Event ‘Green government procurement in an open trading context’.
Take a look at our other blogs exploring issues relating to the coronavirus outbreak.
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