Social value: Gearing up for giving back

3 April 2014

Delivering social value to communities is becoming increasingly important in procurement strategies. Some contractors have embraced it, but many remain confused about their obligations. Denise Chevin reports. Illustration by Jamie Cullen.

Recognise this? Eight new apprentices and seven existing ones; 13 work placements for the over 18s; three school placements for 14-to-16-year- olds plus some workshops for students. Then, as part of the £20m social housing scheme you are bidding for you might be asked for a sizeable percentage of spend on materials from within a 20-mile radius. It’s the kind of obligation list that will be familiar to many contractors.

Increasingly, putting up the building on time and to budget is the easy part. Local authorities and other public clients are seeking to ensure that investments in their neighbourhoods don’t just deliver great new facilities, but the process of constructing them provides local jobs and training too. The mechanisms used to extract this obligation are varied: the requirements could be built into procurement strategies, or an employment and skills plan could become a condition of local authorities granting planning approval, a so-called Section 106 agreement.

Such requirements have been growing slowly for some years now, but expect this growth to accelerate. New legislation, changes to benefits, cuts to council budgets, a new zeitgeist among the public as to what they find acceptable in business – all these things are aligning to drive forward the social value agenda.

But while there is a general support for such an approach, especially if it does allow the industry to compete on its sustainability and social credentials rather than price, the clamour to ensure return on investment has left firms feeling confused and a tad sceptical. There is, say many, an urgent need for a more rigorous approach to social value which ensures that the requirements are more than box-ticking exercises and deliver genuine benefits to local communities in a cost-effective way.

Over the next four pages we take stock of what’s driving the social value agenda, what’s working well and where improvements need to be made.

What's behind the social value agenda?

“I think we are seeing a change of heart among local authorities to start making demands for employment and skills training,” says Phil Jones, head of regeneration at Calico Homes in Burnley, Lancashire. “Social landlords have been more willing to do this for the past five to six years, but local authorities have displayed a real nervousness. I think the Social Value Act has given local authorities more confidence to do this.”

“We’re definitely on the cusp of change, and that change of attitude is reflected in other things as well. Business has not just got to be seen to be making money, it’s got to be contributing to society,” says Tim Haywood, Interserve’s financial and sustainability director.

Indeed, a number of things are happening to drive this agenda. Local authorities are under more financial pressure than ever and they can see it makes both political and economic sense to ensure maximum spend and benefit in their boroughs. Housing providers, such as housing associations and in some cases councils, are seeing their tenants’ benefits cut and are stepping up their efforts to get them into work.

The introduction of the Social Value Act in January 2013 has also proved a catalyst for local authorities to enshrine social value principles in their procurement and planning policies. At the moment it covers the procurement of services, but it has generally given local authorities more confidence that they are not breaking EU procurement rules, which has proved a barrier in the past.

What’s more, a new EU Public Procurement Directive – due to be passed into UK law later this year – will extend the scope and principles of the Act to works as well as services, and re-emphasise the ability of clients to incorporate social value considerations into the evaluation criteria or contract performance conditions.

Another factor is that even though the Act was introduced via a private members’ bill by Chris White, the Conservative MP for Warwick and Leamington, it has cross-party support with Hazel Blears in particular championing its take-up. Several reports have recently been published urging local authorities and public bodies to use the levers available to them.

"Chris White, the MP who first proposed the bill, has called the Social Value Act a work of persuasion, a way of trying to change a culture. He is right."

Rachel Rhodes, Navca

No More Lost Generations, published in March following the parliamentary inquiry into youth unemployment, chaired by Nick Raynsford and Lord Richard Best and supported by the CIOB and CITB, urged local authorities to leverage planning obligations by mandating “an appropriate and effective level of training and employment of young people” and then “ensuring the requirements are properly monitored”. It also called for greater leadership from social landlords and public bodies to leverage their investment in construction work for more training and employment opportunities.

Meanwhile, in its March report on local government procurement, the Communities and Local Government Committee called on the Local Government Association to disseminate guidance on how local authorities should use procurement to deliver social, economic and environmental objectives on the basis of “best value not simply lowest price”.

Anecdotally, implementation of the Social Value Act appears to be patchy, and it’s fair to say many authorities are finding their feet. The Cabinet Office, in its The Social Value Act one year on report, published at the end of January, is investigating how well the act is being applied by using a “mystery shopper”-style service.

There are certainly issues to be ironed out, but generally the Act has been welcomed by the industry. Balfour Beatty’s sustainability director Paul Toyne remarks: “I would say it’s galvanised some into action and is therefore a powerful piece of legislation and force for good.”

How does it work in practice?

Enshrining social value has thrown up a range of different approaches and demands from public bodies, which are not always deliverable and practical, according to some contractors. As well as section 106 Agreements and contractual arrangements in which requirements are laid out, more enlightened councils and other public bodies are also tentatively starting to properly embed social value into their tender scoring procedures, such as Knowsley Metropolitan Borough Council (see box below).

The reason for the varied approach is that the Social Value Act itself is non-prescriptive. It is a broadly-worded act placing a duty on public bodies to consider social value ahead of a procurement, and it can be interpreted in different ways. But that’s a good thing, says Rachel Rhodes, commissioning and procurement adviser for the National Association for Voluntary and Community Action (Navca). Writing in The Guardian in January Rhodes said: “It’s a mere two pages. It does not define what social value is, which aspects of it should be measured or how to do so. In fact legal compliance can be achieved with minimum effort and no significant benefits, which has led many to call for it to be strengthened and made more regulatory in nature. This is not the route to go down.”

"You are asked to provide school children with work placements, but you then get people who have no real interest in construction. What is the value of that?"

Anonymous contractor

She explains: “Chris White, the MP who first proposed the bill, has called the Social Value Act a work of persuasion, a way of trying to change a culture. He is right.”

As well as different contractual approaches to employing the principles of the Act, social value takes various guises. Local employment or training is often a requirement. But there may be requirements to meet environmental considerations, or conditions obliging contractors to buy goods locally or commit to using a certain percentage of SMEs in their supply chain.

Paul Gallagher, head of socio-economics at Mace, says: “I would say generally there is more precise information and more standardisation of what people are being asked to deliver. It’s not often embedded all the way through in prequalification questionnaires, there is often a request at the end.”

Councils are clearly still finding their way, but there are excellent guidelines emerging. Croydon Council has produced a Social Value Toolkit, explaining the different approach commissioners can take and has pulled together good examples. Meanwhile, Calico Homes is looking to play an integrator role by writing the skills and employment plans for contractors/developers to comply with demands of the local authority, effectively acting as a broker.

Where social value doesn't deliver

As the No more lost generations report made clear, using levers to promote employment is still patchy and even when they are used, can be little more than going through the motions. At the other end of the scale the most committed public bodies will go through contractors’ quarterly returns and impose substantial fines if they don’t achieve targets.

But as authorities get to grips with using their procurement powers they can often make demands that are unrealistic and don’t understand that the nature of construction has changed, with more work now done off site. Local authorities’ stipulations can range from one apprenticeship per million pounds spent to three apprenticeships per million pounds. Ed Miliband was recently quoted as saying that the new £33bn HS2 should create at least 33,000 apprenticeships and: “As Prime Minister, I would work to make that happen.”

However, guidance put together by the CITB, the UK Contractors Group, the National Apprenticeship Service and the Local Government Association aims to make clear the demands that are deliverable on projects. The guidance is highly regarded, if not yet as widely used as it ought to be.

Calico Homes’ Phil Jones says: “The work CITB has done will stop some building companies trying to pull the wool over people’s eyes. We’ve seen examples, where names of apprentices are provided, but you find out they have double counted and provided the same names to other bodies.”

The work around employment and skills plans will help to ensure opportunities are maximised. 

The need for measurement

One of the biggest issues that all sides are grappling with is cost benefit analysis – and what the Social Return on Investment (SROI) is. “Everyone is very pro the idea of social value, but I think we’re struggling at the moment to know what we’re doing is worthwhile,” says one contractor. “A particular gripe of mine is that you are asked to provide school children with work placements, but you then get people who have no real interest in construction. What is the value of that?”

Lack of standard auditable measurement is seen as one Achilles heel. There are a number of measurement frameworks coming through that are almost jostling for position, which tend to set out a general set of principles, such as the framework established by the SROI Network.

Construction is also looking to develop its own measurement frameworks. Rachel Woolliscroft, sustainability director at Wates Group, says it is working with PricewaterhouseCoopers, the Chartered Institute of Housing (CIH) and housing association Orbit on a toolkit and measures to embed social value within procurement. The initial findings will be launched at the CIH conference in Manchester in June.

"The challenge is everyone is creating their own methodologies based on what works for them. No benchmark standard for this exists but that in turn provides an opportunity for the industry to develop something which works for us."

Rachel Woolliscroft, Wates

“Many organisations are unsure of how the Social Value Act can be embedded and currently there is no methodology to show the social value,” says Woolliscroft. “Within Wates we are working on methodology to show the social returns on investment for some of our key community programmes. The challenge is everyone is creating their own methodologies based on what works for them. No benchmark standard for this exists but that in turn provides an opportunity for the industry to develop something which works for us.”

Interserve is also looking to measure SROI (see box). So too is Chrissi McCarthy, director of Constructing Equality, which is working with John Moores University in Liverpool. She says the plan is almost to develop what would amount to BREEAM for social value and there is interest from a number of the main contractors to be on a steering committee. She says, however, that it could take two to three years to develop fully to allow measurements to be carried out and tested in practice.

Meanwhile, the Construction Youth Trust (CYT) is working with researchers at London South Bank University to also develop a construction-specific set of measures for SROI. The work is being partially funded by Willmott Dixon and will provide a toolkit to be able to equate the financial benefit to society of investing in the sort of training and pre-employment programmes the Trust provides. CYT hopes to launch the toolkit in July.

Where to next?

“If I was to sum up where we are I would say: at phase 1, clients setting requirements. Phase two is being able to quantify that. And I think that is the way the Social Value Act is intended to go,” says Woolliscroft.

She also sees that social enterprises will become increasingly part of the supply chain. “Wates has been building up its employment of social enterprises in its supply chain over the last few years and last year awarded £4.4m of contracts to social enterprises. The prize for that is that for every £25,000 we spend, one part-time position is created, according to Social Enterprise UK.”

Wates Group has now established a Social Enterprise Brokerage to enable more social enterprises to access Wates’ spend and that of others in the sector.

In terms of where the social value is going, Mace’s Paul Gallagher says: “I think it will either become very mechanistic with a whole series of very rigid measures and doesn’t take account of local circumstances, alternatively it could be more of a partnership between developers, contractors and local authorities with a basket of measures, I very much hope it’s the second.”

Paul Toyne, Balfour Beatty’s sustainability director, agrees: “I would hope we get to a commonality of metrics, and make sure the expectations being set out are realistic and cost effective and that it takes into consideration the unique location of the site. We need to build that flexibility into any guidance.

“We have to avoid social value demands from becoming too rigid, which then adds costs without benefiting the local area. Or avoid it becoming another Merton Rule, which was well intentioned but had unhelpful and unbeneficial consequences.”

Calico Homes’ Phil Jones concludes: “Getting people into work is important to the local economy and should be as important as getting a project finished on time and to budget. But I think it might be two to three years before we get that kind of commitment. But it also has to be measured and followed through. It’s part of a journey.” 

Social value: the death knell for lowest price wins?

A lowest price wins philosophy has long been the scourge of the sector, rewarding those who don’t train and invest over those that do. But as clients and suppliers get to grips with the principles of embedding social values in their procurement processes, will selection on price become a thing of the past?

There’s a long way to go before we get to that. Social value requirements are increasingly stipulated, but they form part of the requirements set out in the bid, rather than something that is scored on.

But taking into account a firm’s wider capabilities and values is becoming part of the evaluation process for some public bodies. The ODA, when it was procuring for companies to deliver the venues for London 2012, famously used a “balanced scorecard” process.

Before that, Building Schools for the Future (BSF) was the first consistent approach to delivering social value via public procurement with non-delivery being linked to loss of exclusivity for future projects (BSF was a framework approach).

“It was evaluated as part of the partnership proposals that formed 40% of the evaluation,” explains Mark Howden, head of regeneration for Balfour Beatty Investments. The company built schools in Oldham, Blackburn and Derby, where it maximised local economic benefits with 43% local supply chain spend and using 36% local labour.

"We are now required to respond in bids with a much more evidence-based approach, emphasising where we have delivered previously and how we performed against the targets set, with the focus on our track record and credibility in delivery."

Mark Howden, Balfour Beatty Investments

“We are now required to respond in bids with a much more evidence-based approach, emphasising where we have delivered previously and how we performed against the targets set, with the focus on our track record and credibility in delivery. In addition, we are now seeing financial penalties for underperformance included in the project agreements.

“The evaluation of our proposals has also increased; putting a greater emphasis on social value in the final scoring of our bids, 3-5% of the total is ‘typical’. We are involved in a project in London that has allocated a 6% weighting to social value as part of the evaluation.”

Meanwhile, Knowsley Council worked in partnership to develop its approach to implementing social value in service delivery. It is seen as a leading light in this area. Two years ago, the council invited representatives from voluntary and community sector organisations, the private sector and public sector to take part in a series of workshops, helping them to understand social value as well as demonstrate it when tendering for contracts.

“The results of this partnership working resulted in the introduction of Knowsley’s social value model, which clearly outlines its definition, outcomes and measures,” says a spokesperson.

The council has identified at least 16 contracts which included social value in the tendering process. The council is now seeking 10%-20% of the specification delivering social value when procuring contracts.

Andy Tickner, skills manager – skills, regeneration and partnerships at Southampton City Council, says: “We embedded the need for employment and skills plans into planning permission in 2008. We’ve created 170 apprentices put 600 long-term unemployed through training programme.

“We adhere to the CITB’s guidelines for working out what training requirements are feasible for schemes. They provide a very good benchmark.

“We also employ two people full-time ensuring the obligations are followed through and that the outcome after the contract conditions are fulfilled is that people go into jobs or training. Councils need to support contractors in this and not place an unreasonable burden on them.”

Interserve: 'Businesses need to grasp this broader agenda'

Imagine having this as your title a few years ago: group finance director and head of sustainability. But contractor Interserve’s Tim Haywood’s role encompasses these two functions for a reason. The company has pledged to measure its outcome across the company not just on turnover and profits, but the benefits it brings to society.

Haywood, who spoke at the first Social Value Summit at Dartington Hall in Devon in February, says that developing a social return on investment matrix for the £2bn turnover company, feeds into its SustainAbilities Plan, launched in 2013, which has four key strands and 48 different targets, including using local labour, training and reducing carbon footprint.

"We're definitely on the cusp of change. Business has not just got to be seen to be making money, it's got to be contributing to society."

Tim Haywood, Interserve

“Our view is that the legislation is catching up on what we’re doing. And we see it as differentiator,” says Haywood.

For example, Interserve has been able to evidence that across its projects 79.7% of suppliers are local, the highest of any business monitored by government. Interserve has developed new software incorporating Google Maps, which allows the percentage spend of local suppliers to be calculated.

Haywood says: “We’re comfortable with the idea that the Social Value Act is extended to cover capital works. I think the greater the take up the better the outcomes will be. We want to be able to compete on other things – quality and social value rather than slashing prices – and if that becomes more widespread it will have a huge impact.

“The Social Value Act does have a bit of maturing to do, so people understand how to apply it. I think it’s better for being a framework rather than prescriptive.”

“Typical contracts find that they ask for certain commitments and then on top of that ask about what the company is doing generally.”

“We’re on the cusp of change – and the change of attitude of clients is reflected in society. Businesses need to grasp this broader agenda, that you have to be seen to be contributing to society as well.”

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