It may have slipped under the radar, but the Government’s recently unveiled Public Procurement Bill could be one of its most consequential acts. At around £300bn, procurement is the largest single area of public expenditure and represents a third of all public spending. The choices public sector buyers make have massive knock-on effects across the economy.
It is tempting, then, for civil servants and ministers to use procurement not just to secure the best possible deal for the taxpayer, but to try to influence almost every aspect of the economy. A new trend in procurement known as ‘social value’ assesses bids on a range of factors such as environmental impact, job creation, and diversity.
In some cases, social value has been a force for good. Take, for example, the perennial problem of late payment. Since bringing in a measure to exclude large suppliers who fail to pay at least 95% of their invoices within 60 days or less, compliance has increased substantially, meaning fewer SMEs are waiting ages to get paid.
But, there’s a risk, too. Social value can backfire. It is not enough to have a product that is greener or a plan to create jobs, you have to be able to prove it too. In practice, this often means paying for expensive certifications and filling out long forms. For the largest businesses such as Serco or KPMG, this is easy. They have dedicated ESG teams who can produce an application that will tick all of the right boxes.
Startups and SMEs lose out under this system. They often lack the resources to track impact and sometimes struggle to understand what the buyer is actually looking for. In some cases, SMEs are forced to report their ‘social value’ through platforms which require expensive licensing fees. The rise of specialist ‘social value’ consultancies shows how complex the system is for smaller firms.
Overweighting social value can also bias procurement against innovative solutions. At a time when productivity growth is low but employment is high, is it really wise to put automation-based solutions at a disadvantage? I would say no, but that’s exactly what judging bids on job creation does.
This is why ahead of the Public Procurement Bill’s announcement, Government Efficiency Minister Jacob Rees-Mogg hinted he wanted to reweight the system away from social value and back to value-for-money. Sadly, his bill still includes a requirement that public buyers take account of national strategic priorities such as jobs, climate, and supplier resilience. In practice, this represents more unnecessary hurdles for SMEs.
If Rees-Mogg really wants to deliver social value, while protecting taxpayers from having their money wasted, he should double down on cutting red tape and levelling the playing field for smaller businesses.
One good idea in Rees-Mogg’s bill is to create a digital platform so suppliers only have to register their details once, rather than for each individual bid. Another is to make procurement much more transparent by using data better.
But he could and should go even further. A report from The Entrepreneurs Network, which has been endorsed by Rees-Mogg and Conservative backbencher John Penrose, outlines numerous ways to level the playing field for SMEs and startups.
One idea is to force public bodies to publish their procurement pipelines and advertise tenders well in advance, so SMEs have a chance against the outsourcing giants’ eagle-eyed procurement teams. Another is to invest more in pre-market engagement so buyers have a much better idea of what’s possible and don’t try to build a solution from scratch when one is available off-the-shelf.
But there are limits to legislation. Most importantly, public buyers need to change their approach to risk. As the old saying goes ‘no one got fired for buying IBM’. It is easy to rake an official over the coals when a contract goes wrong, but nobody is blamed when the public misses out on a cheaper, more innovative offering from a startup because of risk-averse rules and regulations.
This mindset needs to change. As Rees-Mogg puts it: ‘the public sector must not be frightened of start-ups and innovation.’
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