The art of the possible in public procurement Frank Villeneuve-Smith and Julian Blake 3

About the authors Acknowledgements Frank Villeneuve-Smith is the Director Bates Wells Braithwaite, HCT Group of Communications at HCT Group – and E3M would like to thank Geetha a transport social enterprise. In addition to Rabindrakumar and her colleagues over 20 years’ senior marketing experience, at Big Society Capital, Adam Kybird at he specialises in bringing complex topics Bridges Ventures and Adam Swersky to life for a wide range of audiences. at Social Finance for their ideas and He is the author or co-author of a score introductions for case studies – as well of publications on subjects ranging from as all the colleagues at commissioning transport procurement to employability authorities and providers who gave Introduction skills, from CPD strategy in Further so generously of their time, providing Education colleges to the biennial State of feedback on content, telling their stories An end to pushing on Social Enterprise survey for SEUK. and contributing cases. The authors would also like to thank David Hunter, Dai Powell a piece of string Julian Blake is co-head of Social Enterprise and Jonathan Bland for their advice and and Charity at Bates Wells Braithwaite support during the project. public benefit lawyers. He has engaged with public service commissioning for 25 years, through: the ‘contract culture’; ‘fair contract’ and ‘full cost recovery’ campaigns; and the development of Social Enterprise, Social Finance and spin-out mutuals. He promotes the European Commission Social Business Initiative perspective on Public Procurement and State Aid, challenging misconceptions. He is on a Cabinet Office expert panel on Social Value, focussing particularly on Social Impact Measurement. 4 The art of the possible 5

After a half-decade and more of austerity, ‘If essential public Our focus is on commissioning ‘We believe that the basic efficiencies available through services are to be things innovatively, rather than on innovation in tendered competition have already been maintained or improved, commissioning innovative things. We believe procurement practice secured. That particular well is empty. that innovation in procurement practice If essential public services are to be we’re going to have is the most likely path to innovation in is the most likely maintained or improved, we’re going to to look at doing things service delivery. Even without seeking novel path to innovation in have to look at doing things another way. another way’ approaches, good commissioning that service delivery’ This is the message we hear every day makes use of the range of flexibilities in when we speak with the Commissioners the procurement rules would go a long way of public services. to resolving most issues. For all of this desire amongst We strongly believe that this is a matter Our focus is not the pure cost-saving The publication is in two parts. The first Commissioners to think afresh, there can of custom and practice and need not be imperative – most authorities are pretty discusses some of the implications of be a countervailing force – a barrier to the case. The Public Contracts Regulations good at that sort of thing anyway. Rather, the new Regulations and the options they change. That barrier is often perceived 2015 provide Commissioners with a this publication focuses on the role of provide for Commissioners. The second is to be procurement – with regulations and great deal of flexibility to achieve the commissioning in addressing complex a set of scenarios that seek to demonstrate iron-bound processes acting to stifle reform, outcomes they seek for their communities. social issues – and on how we can achieve the scope of what the Regulations allow hamper innovation and maintain the The purpose of this publication is to both genuine best value and broader you to do. status quo. Change often seems like highlight some of those flexibilities, how social benefits for our communities. This is This booklet does not claim to be pushing on a piece of string. to unlock them and some of the practical all possible when procurement is applied a definitive guide to the Regulations, things that can be achieved within the as a constructive tool in the service of that or to commissioning, or claim expertise scope of the law – the art of the possible commissioning, rather than a means of in the different conditions in which in public procurement. undermining it. Commissioners work. Rather its aim is to This publication is aimed at Commissioners challenge – to provoke debate, discussion and other change-makers in public and new thinking from its audience about authorities in England and Wales. the relationship between commissioning It is not intended to be one more guide to and procurement. If the reader can find procurement regulation (of which there are one new idea out of those presented that already plenty) and we assume that this will help them achieve their goals, then landscape will be at least broadly familiar – it will have succeeded in its objective. with the basic vocabulary of procurement known to you. It is intended to be a part of a Commissioner’s toolkit, providing supporting argument as you seek to drive change in your organisations. 6 The art of the possible 7

The ‘what’ and the ‘how’ The Public Contracts Regulations 2015 can help with this restoration. They enable Too many procurement guides and textbooks Commissioners to shape a procurement will tell you that the first step in the process that can actually deliver on strategy – procurement process is the OJEU Notice. reconnecting the procurement task with This is wildly unhelpful. The first step in the commissioning. The new Regulations: procurement process is to take any such guide or textbook out into the car park ■■ explicitly allow for market consultation and set it on fire. with suppliers, service users and other stakeholders prior to tender – not just on Whilst such an incendiary reaction may the specification but on the process as well Part 1 seem over the top,1 the message itself could Issues in procurement not be clearer. Most of the opportunities ■■ provide a much wider choice of process to ensure innovation and change are only so procurement can deliver on strategy – available at the commissioning stage and in the case of Light Touch procurement, beforehand – the stage where you the development of entirely bespoke make strategic choices around what you processes (subject to general Treaty are trying to achieve, the outcomes Principles2) so that Commissioners can you are trying to secure. It is vital that be confident of procuring something which the commissioning process has begun really meets communities’ needs a long time before the advertisement ■■ enable commissioning in situations where and that commissioning has also directly the answer is not yet known using the new informed the procurement process itself. Innovation Partnership This will come as no surprise to many ■■ engage with the social sector through Commissioners – it is hardly a new idea. Reserved Contracts Yet Commissioners have told us that procurement has, through excessive caution ■■ go beyond the Social Value Act to invite and lack of imagination, too often become social value considerations in all relevant the tail wagging the commissioning dog – procurements often in an unholy alliance with equally ■■ encourage the use of social impact cautious legal advice. Process has taken measurement methods. over purpose. We believe that the primary focus on purpose needs to be restored to commissioning.

1 2 Particularly as it is, technically speaking, true that Or just slightly tweaked versions of existing processes the OJEU Notice starts the procurement process. if that’s what’s appropriate. The Light Touch Regime’s flexibility is a feature in line with the underemphasised general Treaty Principle of ‘proportionality’ giving Commissioners the ability to design a process that is proportionate. 8 The art of the possible 9

As a consequence, it has never been more Justifiably, the principle of transparency As a consequence, we see changes to: A light touch important to articulate what you are trying (contract procedures must be transparent ■■ the application of the Most Economically The most startling freedoms in the new to achieve – the ‘what’. This then leads and contract opportunities should Advantageous Tender criteria4 to reflect this Regulations are in the areas that arguably naturally to designing a procurement generally be publicised) and the principles have the greatest potential for social change process for its delivery using the new of equal treatment/non-discrimination ■■ a clarifying of the limited requirements and innovation – social, health and flexibilities – the ‘how’. Each should be (potential suppliers must be treated applicable in the commissioning of education services.5 These are governed a complement to the other – and both are equally) are always likely to be at the social, health and education services by the new Light Touch Regime. worth spending time on to achieve the heart of regulation, but the regulators with a view to fostering social innovation outcomes needed for our communities. feel that everybody gets this now (the Light Touch Regime) ‘Regime’ is probably a poor choice of words to describe these arrangements. to a greater or lesser degree. As a ■■ the introduction of Innovation Partnerships As long as the principles of transparency consequence, the areas of interest have to allow Commissioners to develop solutions A change in intent and equal treatment are adhered to, you changed and broadened over time – with the market where they do not yet exist. We’re often asked whether the flexibilities explicitly focussing on the wider social can design pretty much any procurement 3 process you like. in the Regulations are mere loopholes – and benefits of procurement. Put simply, the intent of the new regulation whether Commissioners would be better off The 2015 Regulations reflect this is to make your freedoms clear, promoting If you think elements of competitive sticking with tried and tested ways rather significant change in intent. There is a good commissioning and encouraging dialogue will give you a better outcome – than risk being ‘a bit cute’. This is profoundly definite recognition that public authorities innovation. The regulators want you to include them. If you want a pre-qualification not the case. Instead, what we have seen are major economic actors who have a use these freedoms – you are in no way stage with a bespoke selection process over time is a genuine and deliberate change big impact through their spending – being ‘a bit cute’. and criteria – go right ahead. If you want in intent with the Regulations. and by consciously directing that spending bits of the competitive procedure with The firstEU procurement Regulations were differently they can drive positive social negotiation – it’s up to you. If you want mostly about ensuring equal treatment change and social innovation. tender presentations in the medium of suppliers within the single market, of interpretive dance – well, maybe not,6 achieved by establishing a mandatory level but you get the idea. There are vanishingly of objectivity through clear procedure. few restrictions.7 By addressing loose procedure and a lack of rigour they could improve the level of competition and stamp out subjective and improper arrangements. 3 4 5 This change in intent is in fact formal policy: Described more fully on page 22. Plus a variety of other sectors – see The Public Contracts the preamble to the draft EU Directive published on Regulations 2015, Guidance on the New Light Touch 2 October 2012 stated that, having largely achieved Regime for Health, Social, Education and Certain the Commission’s aim of creating a EU marketplace Other Service Contracts, Crown Commercial Service, within which rigorous pro-competitive principles for a full list presented at Annex A. applied, the Commission considered it appropriate 6 to turn its attention to other objectives, including As it happens, in the wildly unlikely scenario where this making ‘better use of public procurement in support is actually relevant to the subject matter of the contract, of common societal goals’. arguably it could be used, in part at least. 7 Perhaps obviously, other legislation still applies – for example, you still have to respect suppliers’ intellectual property in dialogue-based processes. 10 The art of the possible 11

The point isn’t to be inventive for When the value of a contract is over the Navigating the paradox of choice Transparency inventiveness’ sake – at its heart, the threshold, all you have to do in addition is: This principle covers the treatment of The Regulations provide a wide range of Light Touch Regime is an exercise in the information – advertising opportunities so ■■ publish a Contract Notice (CN) or a options, each with significant flexibilities. Treaty Principle of proportionality, allowing suppliers can take part, being clear about Prior Information Notice (PIN) – and Some Commissioners we talk to are you to take out the bits of established, criteria so everyone knows what success a contract award notice when you award concerned that with flexibility and so much well understood procedures that are, looks like, publishing decisions so that they choice comes the risk of error – and that in context, procedure for procedure’s sake. ■■ follow the process that you set out in are accountable – as such, it is an essential it would be better to stick with the tried your CN/PIN component of the first two as well as We have been surprised that more and tested. We believe that the freedoms a necessity in its own right. authorities have not taken advantage ■■ be reasonable and proportionate in provided have such a potential to of these new flexibilities.8 Perhaps after the timeframes set. drive positive change that it would be Proportionality many years of limited freedom, the idea of remiss not to use them. So how can we How you chose to run your procurement: designing a process to meet needs rather As you might have wanted to do these navigate through this concern and protect qualifications requirements, time limits for than having one dictated to Commissioners anyway – they are helpful for ensuring against mistakes? We believe that the response – even the extent of the process – by regulation is just taking a bit of getting transparency and equal treatment9 – they Treaty Principles themselves provide both need to be necessary and appropriate for used to. are no hardship and should not prevent map and compass. what you are trying to do. This principle anyone from getting the most of the is particularly helpful. It can act as your We suspect that the language used to Equal treatment Light Touch Regime. guide to making overly procedure-driven describe the Light Touch Regime in guidance This principle requires that people – approaches more rational. possibly doesn’t help – focussing as it As more Commissioners become or in the case of procurement, qualified does on the threshold level of €750,000 comfortable with the Light Touch Regime, suppliers – must be treated equally. If your use of the new Regulations reflects as a significant feature. The thresholds are we anticipate that we will see more and Everyone has the same access to the same the Treaty Principles in both fact and spirit, something of a red herring, as all the more novel commissioning approaches opportunities, procedures, information it is likely you will be on the right track. flexibility is maintained when over them. and, as a consequence, more innovative and is assessed under the same criteria. They also help to make your procurement fair, service delivery. Making sure that this is the case in any which suits your values. process is an essential prerequisite. Non-discrimination Closely associated with equal treatment, this principle aims to ensure that there is nothing about your procurement which would exclude someone from taking part in the process because of their characteristics.

8 9 Although to be fair, similar levels of flexibility were The reason they are required over the threshold is available under the old Part B services. Many authorities, because over those levels it is more likely that there rather than create their own procedures for Part B could realistically be suppliers in other member states. services often treated them as Part A, because it was simpler and, they felt, safer than being creative. The 2015 Regulations arguably create a similar regime but express it differently – perhaps as an encouragement to Commissioners to change their approach to these services. 12 The art of the possible 13

The role of the social sector In our view, the most significant reason Finally, social sector organisations may Bring it on to be excited about the social sector is the be well-placed to show what they can A feature of the new Regulations – and the Many commissioning authorities are opportunity to build a supply chain that do under the new Regulations, but that’s Social Value Act – is an increased focus on concerned by the prospect of using the actually shares your essential purpose where it ends. The good Commissioner enabling commissioning for social value and new Regulations to their fullest, feeling and values. The social sector wants the should demand high quality standards and wider social impact. The Regulations that they increase the risk of challenges to same things you do: it exists to deliver the good social enterprise will demonstrate are neutral10 on organisation type, in line tender awards. If Commissioners do their public benefit. This makes it possible, in them, in particular through being purpose with the principles of equal treatment and groundwork, we do not think this is likely the words of one Commissioner ‘to procure driven. If the Commissioner demands such non-discrimination. However, the role of to be the case. There will only be grounds for the abstract nouns that matter: trust, standards, all suppliers must deliver them broader social criteria does bring into for a legitimate challenge if the procurement partnerships, shared journeys’. This means to be competitive. The market would then focus the role of the social sector – social falls outside the very wide boundaries set that over time, Commissioners can create work to make all suppliers more purpose enterprises, mutuals, the third sector and by the Regulations, or rules and processes a network of partners to support them as focussed. Arguably, this makes including those things that they are typically good at. are not followed. they tackle challenging social issues in new social criteria even more powerful as So, why the fuss? A lot has been written ways – ways that are developed together. they can move the whole market towards The best way to manage the risk of about the capacity of the social sector to creating positive change. challenge using the new Regulations is The second reason that commissioning innovate, to share a public benefit purpose to focus first on the purpose and then from the social sector is now much easier with Commissioners, to deliver step changes implement a process to deliver that purpose, is the ability to take economic externalities in service delivery – and these are a very documenting your reasoning at each stage: into account, something at which many good reason to engage. However, many of these organisations excel – employing ■■ articulate clearly what you are trying to Commissioners that we speak to are hard-to-reach or disadvantaged groups, achieve, establishing the objectives of less sanguine. For every social enterprise profit reinvestment back into communities, the commissioning exercise with a profoundly new way of looking community-led service design and so on. at things and the ability to create change, ■■ select (or in the case of the Light Touch The Social Value Act and changes to the there is another still shaking off the Regime, design) a process to deliver definitions around Most Economically shackles of grant dependency that just specifically on that objective Advantageous Tender (MEAT) place wants to be told what to do. Strategic ■■ check that there is consistency between ever more emphasis on achieving these commissioning involves creating processes the specification, the tender requirements, externalities – and engaging the social which allow the good social sector the evaluation criteria and the contract sector is an established and effective organisations to demonstrate what they means of doing this. ■■ check that your whole process complies in can offer in competition; not to commit spirit and in fact with the Treaty Principles – Commissioners to using organisations who have I ensured transparency? Have I ensured aren’t equipped to deliver. equal treatment? and so on

■■ ensure any social value elements are objectively relevant to the subject matter of the contract.

10 With the exception of Reserved Contracts, which can be commissioned exclusively from social sector organisations for contracts with a maximum three-year term. 14 The art of the possible 15

With these steps in place, you just need We do anticipate that over next few years Brexit-schmexit The final reason is more prosaic still. to run your process as designed and you’ll there will be an increase in the number of At Brexit, you get the feeling that any Publishing a guide to EU procurement be fine. The prospect of challenge should be ‘type two’ challenges. As commissioning lawyer the government can get their regulation just after we’ve voted to viewed as a secondary matter to do with authorities seek to radically re-imagine hands on will be a bit busy working on leave Europe might seem a bit eccentric. accountability for acting properly. services and apply new freedoms, suppliers trade at the time, so the temptation to Nothing could be further from the truth. who have done quite nicely out of the roll the Regulations over into UK law will There is one further thing to say about At the time of writing (September 2016), status quo will lose out to suppliers capable be almost overwhelming – at least until challenges. In many public bodies, there is as yet no indication of when of disruptive innovation – and those original things settle down. any challenge to a tender decision is met Article 50 might be triggered, so it looks suppliers may object in defence of their with a natural defensiveness. This should like the Regulations will be in force until There has never been a better time to profit margins. This is an entirely logical not always be the case – the balance the end of 2018 at a minimum. In the explore what the new Regulations can step for an out-competed supplier, but it should be reset. In our experience, there meantime, the business of Government help Commissioners achieve and these is an abuse of process. are two types of challenge: goes on. Procurement Regulations are not factors suggest Brexit is unlikely to alter No-one wants the cost in time, money or retrospective, which means that until they that any time soon. Type one: legitimate challenges disruption from a challenge, but for ‘type two’ change, using the ones in force correctly These normally arise from a failure to do challenges, Commissioners may feel more will always be the right answer. what you said you would do. These can bullish if they have stuck to the principles be rectified and you can (and should) take We suspect that the life of the current above. Facing down such challenges the learning to improve your processes. Regulations may well continue for a robustly will, most likely and more quickly, long time after Brexit. The reasons for this Type two: speculative challenges lead to them drying up – as providers suspicion are entirely practical. Although In any tender process, there will be recognise they are throwing money (and repeal of The European Communities winners and losers. This is kind of the point. reputation) away pursuing such claims. Act 1972 – one of the central legal Suppliers can mount speculative challenges consequences of Brexit – will in turn mean if they feel that their economic interest repeal of The Public Contracts Regulations is threatened – they are, in effect, just 2015, there seems to be a widespread chancing their arm. desire to preserve access to the single market. This, almost certainly, will require compliance with the Regulations or very similar rules – as will participation in other major structures of world trade. 16 The art of the possible 17

Can I talk to the market about my tender specification? Yes

The Regulations here are absolutely explicit. Things to remember You can talk to the market about your The first thing to remember about tender specification11 – and even the tender pre-tender consultation is that it’s process itself.12 pre-tender. The second thing to remember Not only can you do this, you should. about pre-tender consultation is that Part 2 Your service users, stakeholders and it’s pre-tender.13 The consultation and the supply chain have a real contribution to bidding are separate, distinct processes – Applying the new rules make in creating the perfect specification. with consultation coming first before the You can discover new ways of achieving the Notice – and should be organised as such. outcomes you’re after, with new methods The consultation also needs to be handled and ways of working. You can identify any with some care. Whilst supplier feedback risks to either process or service so that and ideas should inform the tender, the they can be managed or eliminated. Regulations state that no supplier should Feedback on your process ensures you can gain a preferential advantage for their remove needless barriers to participation eventual bid as consequence of the for your supply chain, improving the eventual consultation.14 In practical terms, you competitive process. It is a genuine can’t change the specification in such a opportunity to improve services. way that it suits a particular future bidder or bidders – even if they came up with something really neat.

11 13 It’s there in black and white – Regulation 40 (1): This bears repeating, as trying to manage vital feedback ‘Before commencing a procurement procedure, contracting from suppliers once a tender is already published is authorities may conduct market consultations with a a common source of process failure. view to preparing the procurement and informing economic 14 operators of their procurement plans and requirements.’ Expressly prohibited in Regulation 41 (1). 12 Regulation 40 (3): ‘Such advice may be used in the planning and conduct of the procurement procedure…’ 18 The art of the possible 19

The Regulations go as far as suggesting The art of the possible Can I involve ser vice users in the award decision? two ways of handling the risk of giving Sometimes consultations can raise as consultation participants an advantage. Yes many questions as they answer, showing The first is to make any information that you multiple possible means of reaching your has shaped the eventual ITT available to It is an uncomfortable truth that, usually, Cabinet Office guidance goes even further, objectives. Alternatively, they can start to all bidders.15 Some of your suppliers public services are done to people, not with suggesting that this type of involvement shed real light on intractable issues that might not want to share their ideas with them. Actively involving service users in for service users ‘is not only allowed you’d like to take further. If either of these their competitors – and you will need to your award decisions can bring people into but actively encouraged under EU l a w ’. 18 is the case when the consultation is respect their intellectual property. This is the heart of service design, dramatically The guidance then goes on to say that concluded, you have the option to pursue best managed by being abundantly clear improving accountability. It can also have inclusion of service users on award panels a more dialogue-based method when it with participants what you will do with practical benefits – service users are more is also an effective means of addressing comes to the actual tender – a competitive the information and, in the interests of both likely to focus on the difficult-to-measure user choice in even more complex situations dialogue process or Innovation Partnership. parties, provide an opportunity for them to soft outcomes that citizens prize and they such as pseudo framework agreements or assert their IP rights before you make any are also blithely unconcerned with the pseudo dynamic purchasing systems. such information public. The second method internal ‘sacred cows’ in commissioning is to make sure adequate time is given for organisations, helping you to drive change. Things to remember the receipt of tenders when the process The main body of the Regulations are quiet begins – allowing suppliers to understand Care does need to be taken to ensure on involving service users in decisions – and adapt to new information.16 that including service users in award meaning that it’s up to you. If you want to, decisions does not compromise the general you can. Where the Regulations do speak requirements around transparency and of this, it is in the context of the Light Touch treating suppliers equally. This can usually Regime – and this is where it gets really be achieved by communicating the award interesting. Under the Light Touch method clearly, including: Regime, Commissioners are explicitly permitted to consider the involvement ■■ that service users will be involved and empowerment of users.17 ■■ their specific role in the process

■■ how that feeds into the scoring and by ensuring that the service users involved are representative and not likely to be inclined to favour certain types of bidder.

15 17 18 Set out in Regulation 41 (2) (a). Regulation 76 (8): ‘…contracting authorities may take The Public Contracts Regulations 2015, 16 into account any relevant considerations, including … Guidance on the New Light Touch Regime for Health, Set out in Regulation 41 (2) (b). the specific needs of different categories of users; Social, Education and Certain Other Service Contracts, [and] the involvement and empowerment of users.’ October 2015, Crown Commercial Service. 20 The art of the possible 21

Involved all the way: service user co-production at NHS Guildford Can I include wider social impact in my specification or and Waverley CCG award criteria?

When six CCGs and the local authority in It also had a profound impact on service Yes Surrey decided to jointly procure Child and design, identifying and eliminating gaps. Adolescent Mental Health Services (CAMHS) For example, a gap was identified at the It’s not so much a question of ‘can I’ include Two flavours in Surrey they involved service users and boundary between services for learning wider social value. Unless you’re buying Regulatory support comes in two flavours. parents at every stage of the process. This difficulty and services for other mental health. paper clips, you pretty much have to now. The first is the Social Value Act (2012). The participation secured a prime provider who Research indicated that 40% of young As suggested in the preceding discussion, Act provides the positive duty to consider holds positive user experience as paramount, people with attention deficit hyperactivity the inclusion of social value has been ‘how what is proposed to be procured delivering significant improvements in disorders have anxiety or depression, yet a part of the regulatory direction of travel might improve the economic, social and access to advice and intervention. CAMHS was only triggered when these for some time,19 with the Commission environmental well-being of the relevant issues manifested as serious disruptive turning its attention to ‘better use of The lead commissioner, NHS Guildford area’ in the procurement specification behaviour or self-harm. Commissioners public procurement in support of common and Waverley CCG, started this process by and process. were persuaded to address this gap and a societal goals’. inviting CAMHS Youth Advisors (a network cohort of 5000 young people in Surrey will The second is a change to the definition of young people who have used CAMHS) This focus on social value is a good thing. now receive earlier intervention, effective of MEAT for award criteria – which now and a parents’ organisation to help them Commissioners have enormous economic differential diagnosis and the right support, explicitly references the ‘environmental understand gaps, challenges and agency – enough to shape marketplaces and leading to markedly improved outcomes and social aspects’ of the price/quality opportunities for change ahead of change communities. When commissioning and significant lifetime costs savings. ratio.22 In fact, price alone is no longer a procurement. They included service users authorities include social value, they can proper basis at all for setting award criteria – in persuading commissioners of change As service users were also involved in the target local unemployment, opportunities you’ll need to seek the best balance between and investment needed, co-production award decision, the CCG managed potential for the hardest to reach, the environment, price, quality and social value impact. of service specifications, performance conflicts of interest with care and those working practices and so on – and all indicators and bidder evaluation questions. involved in supporting bidders were not as a part of what they would be buying They supported the market engagement involved in the evaluation of submitted bids. anyway.20 Why would a socially responsible phase, providing potential suppliers with organisation not want this? And now, The CCG ensured the youth advisors direct intelligence about what was needed, the Regulations act in direct support of received sufficient coaching and support informing the market of the role of service this endeavour.21 to play an active role and have their voices users and signalling just how important their heard in this process. voice would be in awarding the contract. This directly stimulated the market and The relationship continues and service bids were innovative and user focused. users continue to let commissioners know whether the benefits wanted are This has led to a direct improvement in 19 21 being achieved and what else could service quality and access – for example, The 2015 Regulations apply the current EU Directive Interestingly, there has never actually been a regulatory improve. The young people themselves on public procurement (2014/24/EU) (‘the EU Directive’), barrier to the inclusion of social value in tendering – through the introduction of a ‘no wrong cited personal benefits of increased which, as part of the European Commission’s Social either at specification or award. All regulation has done door’ policy, changes in opening hours Business Initiative 2010–14, was drafted, in significant is become ever more explicit that Commissioners should confidence with some life changing and cutting waiting times at no extra cost. part, with an express intention of emphasising the pursue this, as it is rarely well or consistently applied. outcomes as a result. But the most benefit importance of social value. Regulation cannot easily convey exasperation, but if is for future service users. 20 it could, it would be here. Even paper clips, if you want to. 22 See Regulation 67 – particularly clauses (1), (2) and (3). 22 The art of the possible 23

Things to remember Creating social value in Halton It’s not a total free-for-all.23 Both the Halton Borough Council’s participation This drive for clarity was supported by Social Value Act and the changes to MEAT in the Department of Health’s Health and a social value policy, a procurement are clear that the social value included Social Value Programme shows what an framework and a charter. This meant that must relate to the subject matter24 Authority can achieve by putting social Halton’s commissioning for social value of the contract and be proportionate. value at the heart of what they do. Their could be truly purposeful – rather than a It will certainly reward Commissioners to approach allows them to enhance the simple act of compliance with the SVA. have a clear idea of the social value they quality of life of local communities and wish to achieve and how it relates to what For each procurement opportunity above support improved social, economic they wish to procure – as this will help them £1000, for all supplies, services and and environmental wellbeing using the set out a clear process and award criteria works, Halton undertake a social value commissioning and procurement process. to achieve it. ‘opportunity assessment’. This is to identify Halton’s methods are intensely practical, output indicators and outcomes appropriate with two, mutually supporting approaches. for inclusion in the procurement process, The first involves working closely with with bidders asked to address these in stakeholders. They identified and brought their proposals. together key officers at senior level across The approach to social value is bespoke the Authority, Clinical Commissioning Group, for each procurement opportunity, but the VCSE sector and wider partners with a outcomes must be relevant, transparent and commitment to doing things differently – all proportionate. If it is appropriate, they will with the aim of developing a joint approach seek provider innovation instead of or to implement the Social Value Act (SVA). specific outputs and outcomes. Social The second is to place everything they do value outcomes also form part of the award within the context of Halton’s Sustainable criteria, with a weighting proportionate to Community Strategy25 and the Marmot what is being procured. Review priorities.26 This meant that their This level of rigour also allows Halton to go commissioning and procurement for further. Social value outcomes and outputs social value could take place within a clear are built into contracts and monitored. strategic framework – output indicators They have also started to apply and explore and desired outcomes are now linked to further financial measurement of the positive these strategies. 23 social impact created as the consequence Regulation 67 (6) makes that abundantly clear: of their procurement decisions. ‘Award criteria shall not have the effect of conferring an unrestricted freedom of choice on the contracting authority.’ 24 This is critical – but even paper clips have issues relating 25 to treatment of staff, sourcing of raw materials and www3.halton.gov.uk/Pages/councildemocracy/pdfs/ costs of externalities which may be relevant. You just Sustainable_Comunity_Strategy.pdf need to think about these issues in advance of the 26 process, communicate your expectations and then Fair Society, Healthy Lives, the Marmot Review: Strategic score for them appropriately. Review of Health Inequalities in England Post-2010, 2010 24 The art of the possible 25

We are committed to supporting social sector suppliers and/or The new world of Reserved Contracts Reading between the lines of the Cabinet Office guidance, it’s pretty clear that local suppliers where possible. Can we achieve this through There does come a point where working Reserved Contracts were originally our procurement practices? with a social sector supplier is so obviously designed as an early-stage ‘competition more beneficial than the alternatives shield’ for public sector spin outs and Yes, but … that there is no point pretending otherwise – mutuals.31 As a consequence, there is a it would be a waste of everyone’s time. three year maximum contract length for It’s probably not the social sector or local What social value does allow you to The Regulations recognise this, enabling a Reserved Contract – and the winning suppliers you’re after – it’s the extra create is a procurement process and Commissioners to pursue a Reserved organisation cannot win the same contract outcomes that they are in a position to award criteria that allow social sector Contract27 – exclusively for social sector again if it is let using the same process. deliver. You’ll need to keep this at the front and local organisations to play to their organisations28 – as long as the contract There is nothing to stop the organisation of your mind, being clear and objective strengths, showcasing the wider impacts is for a specific type of service.29 re-winning the tender if a regular, open about the role of these organisations in that they create in the context of a Commissioners can use these, but it competition process is run. delivering those outcomes. This is the specific contract. This ability to create is essential that there is a clear and best way to avoid a process that might social value is deservedly a source of articulated rationale as to why a social be discriminatory. competitive advantage in a market for sector organisation is objectively the best your custom and the Regulations permit type of service provider. This mind-set is at the heart of the Social this. As with all commissioning, you’ll Value Act and the use of social factors in Cabinet Office guidance 30 tells us that need to ensure that you’ve structured MEAT criteria. They were never intended Reserved Contracts are, essentially, a subset the processes so that they are compliant to be a lock-in for any particular type of of the Light Touch Regime. This means with the Treaty Principles. supplier. Creating a clear specification that explicitly that the Commissioners letting values, for example, evidence of strong Reserved Contracts should operate under local knowledge and connections; or the Light Touch Regime – with all the wider commitments beyond the contract process options that this gives them. to the community is one that is technically open to any potential supplier.

27 31 See Regulation 77 on Reserved Contracts. Whilst this appears to be the motivation for its inclusion, 28 the Regulations make no such context-based restrictions. The Regulations have a very specific definition of this, set out in Regulation 77 (3). It would cover most social enterprises and third sector organisations with missions relevant to the area of the contract’s work. 29 The Regulations present a list of relevant Common Procurement Vocabulary (CPV) codes of which services can use Reserved Contracts (77 (2)). 30 See page 15 para 1 of The Public Contracts Regulations 2015, Guidance on the New Light Touch Regime for Health, Social, Education and Certain Other Service Contracts, October 2015, Crown Commercial Service. 26 The art of the possible 27

Commissioning for social value in action: Liverpool Many of our potential social sector suppliers receive grants from us. Can we still contract with them? Liverpool City Council has a clear aim – To ensure all potential suppliers have an to make Liverpool a strong city built on understanding of the type of purpose-driven Yes fairness. This combines the triple business that can help Liverpool achieve objectives of making the city’s businesses its aims, they have articulated exactly This is a very common question, based on So if someone were to suggest that a purpose-driven, eliminating poverty and what they mean by a purpose-driven the fear of contracts that trip over rules grant gave a ‘cost advantage’ to a supplier – focussing on fairness. business. Their definition covers five about State Aid, rules which most normal but that grant had already been assessed key principles that cover: how customers These overarching principles, that build people find breathtakingly hard to get properly for State Aid as part of the and suppliers are treated, how employees upon the successful use of social value, their heads around. But it’s based on a grant-giving process, then any perceived are treated, corporate citizenship, have been embedded into procurement misunderstanding. The important thing to advantage is immaterial. If it turns out environmental sustainability – and what and commissioning processes using a remember about grants and contracts is retrospectively that a grant has given a guiding purpose of an organisation straightforward framework – the Fair City that they are both governed by different a massive cost advantage with obvious could look like. These principles have Outcomes Framework. The framework sets rules and regulated in different ways. They linkage to a contract, then the issue here is been crafted with care to ensure they are out the city’s priorities along social, economic are separate and distinct from one another. not with the letting of the contract. It is with achievable by any type of organisation – how the grants were assessed for State Aid and environmental lines. If you are letting a contract, then that’s voluntary sector, social enterprise or at that stage. what it is – a contract. The only thing you As Liverpool recognises the contribution traditional business. that can be made to their priorities by need to worry about is following the Public Put simply, if your colleagues responsible The final piece of the jigsaw is 32 both the local third sector and local SMEs, Procurement rules that exist to prevent for grants are on their game, the issue measurement. The Council generates there has been a widespread programme of the unfair, anti-competitive issuing of public never arises. regular management reports on their market engagement and development. This sector contracts. State Aid is not relevant social value statistics and have developed has involved supplier days and debriefs – as it relates to grants – which prevent unfair, a social value KPI portal. They are and outreach to key networks including anti-competitive public sector subsidy. currently extending this to include the Chamber of Commerce, the Federation State Aid, if it was an issue, would have measures relating to their purpose-driven of Small Businesses, Liverpool Vision and come into play when the grant was given in business principles. Professional Liverpool. Each step has been the first place – and anyone issuing grants with the aim of enabling local organisations Measurement also enables Liverpool should be following those separate rules 32 to play to their strengths in the city’s to track its progress – particularly on that relate to State Aid. If those rules were One interesting point about grants comes from a change procurement processes. where their money is going. The council followed, there is no State Aid or prohibited in direction in how many grants are given. As the drive currently spends £449m across its supply State Aid. for accountability in public funding has grown, more chain and its analysis reveals that 51% and more things that were once ‘true grants’ given under Trust Law are now actually contracts – containing is spent directly within Liverpool City and contractually binding terms, enforceable deliverables Liverpool City Region – directly supporting and the suchlike, governed under both Contract Law the city’s priorities. and Public Procurement Regulations. So they are not actually grants at all. They’re just called ‘grants’ from custom and practice and to prevent smaller voluntary sector organisations from panicking and freaking out. So if they are contracts, properly let under the Regulations, State Aid can never apply … though, conversely, Commissioners need to ensure that if what they label ‘grants’ are in effect contracts, that they comply with the procurement regulations to the extent relevant. 28 The art of the possible 29

I’ve been approached by a supplier with a brilliant new proposal. If there is no real way of knowing The art of the possible Can I just commission them? If the proposal you’ve heard is great, Brilliant proactive proposals often need Not exactly, but … but probably not beyond the wit of other work before they can be useful – they may suppliers in the market – or if there really well be somewhere between a great idea is no way of knowing what’s out there, and a finished service specification. It is Even if a proactive proposal from a supplier If you’re absolutely certain then we are into the territory of a regular here that the new Innovation Partnership is brilliant and obviously unique, you If you have clear reasons to believe that procurement approach. procedure could come into its own. can’t just pop over to finance and raise It would allow an innovative supplier to no other potential supplier exists, you can You would then consider the proactive the purchase order. You’ve got a number assist with the design of a service and publish a Voluntary Ex Ante Notice that proposal made by the supplier to be of options here under the Regulations, then openly deliver the service under states your intent to let a contract and then pre-procurement consultation information,36 but there are processes to be followed and a single procurement. observe a standstill period. This informs the giving you an idea of the service you you’ll need to consider your procurement market of your intent to award without going would like to procure. You’ll need to ensure with care to make sure your approach down the OJEU route. The notice itself will that you consult and that any relevant is appropriate. require a solid justification of your decision, information is shared with all players to The Regulations33 permit you to use a so you’ll need to be sure. If no one challenges create fair competition – balanced with negotiated procedure to let a contract if your notice during the standstill period, you the need to respect the intellectual property you think there can be no other suppliers for can move onto a negotiated procedure. of the supplier. This could potentially be either technical reasons,34 or because the For an example of a Commissioner using achieved by using an open specification, proposal relates to proprietary intellectual a Voluntary Ex Ante Notice in this way whose parameters are set by the options property. However, you will need to be please see page 45. your consultation has uncovered. The absolutely certain that ‘no reasonable procurement process may then provide alternative or substitute exists and [that] the scope to refine what is being procured the absence of competition is not the If you are pretty certain, but not 100% with the bidders. result of an artificial narrowing down If you think there are no likely alternative of the parameters of the procurement’. suppliers, but are not comfortable making a bold claim about that, you can issue a PIN, seeking interest from the market. If no-one in the market bites other than the original supplier, a different part of the same regulation applies35 – you are permitted to enter into negotiated procedure. Again, you will have to be sure that the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement.

33 35 36 See Regulation 32 (2) (b). See Regulation 32 (2) (a). And remember, Regulation 40 explicitly permits you 34 to do this before starting a procurement procedure. Such as capability, availability. 30 The art of the possible 31

I only really get savings if I team up with another authorit y/ NHS Trust. Coming together: joint commissioning of a mental health and Can we jointly commission a ser vice? employment Social Impact Bond

Yes The positive link between getting a job Haringey Council and CCG, Tower Hamlets and individual health and wellbeing is well CCG and Staffordshire County Council It’s a common issue. There’s a saving to be understood – and it is particularly true for and CCGs have come together with had, but only if you team up with someone those people with mental health issues. Mental Health and Employment Partnership else. These kinds of economies can be ones Yet currently, only 37% of people with a (MHEP), a new social purpose company of scale: the unit cost of something drops mental health issue are in work, dropping to co-commission an IPS employment when more of it is bought – the logic behind to 7% for people with severe mental health service. The local commissioner pays for many shared services approaches. They issues. This is not only a tragic waste of about 70% of the service cost in their area, can also be based on removing structural human potential, it is also a serious drain with MHEP paying the rest – drawn from barriers – for example, commissioning on the taxpayer. a pool of socially motivated investment statutory special educational needs to finance service provision up front. There are interventions that really work to transport on the same contract as an The social investment is then repaid on a support people with mental health issues NHS patient transport service so you can payment-by-results basis through Cabinet into employment, improving lives and use the same vehicle all day, rather than Office and Big Lottery Fund funding once saving money. One of the leading methods commissioning two under-utilised fleets.37 sustainable job outcomes are achieved. is Individual Placement and Support (IPS). The Regulations explicitly permit you to do Service users are referred directly by their The Social Impact Bond will work with joint commissioning 38 – either together, clinician, with eligibility restricted only by around 2500 people who are unemployed or with one Commissioner managing the the user’s desire to work, rather than their and in contact with secondary mental process for the others. You can even include health condition. Specialists support users health services. It is expected that the elements that are just for one party, not the to conduct a rapid job search, tailored to project will lead to 500–850 job outcomes others. The challenge here, as we are finding their individual aspirations and skills. Once over three years. This is just the beginning. again and again, is less a legal impediment in work, IPS specialists continue to support It is estimated that there are up to 24,000 and more a cultural one. both employee and employer as appropriate people currently out of work with severe for an indefinite period. mental illness who might benefit from this type of support, enabling them to accelerate The challenge with a model like IPS is their recovery and lead more fulfilling lives. funding – it is one of those areas where the people who could commission the service are in a different part of Government to where the savings are made. One answer is joint commissioning and a Social Impact Bond. 37 We are not aware of anyone that has actually done this, which is daft when you consider that both parties would likely cut their contract costs by about a third. 38 Regulation 38 (1): ‘Two or more contracting authorities may agree to perform certain specific procurements jointly.’ 32 The art of the possible 33

There are lots of dif ferent ways of approaching a par ticular Innovation, innovation, innovation The art of the possible social problem. Can I commission for that? The most exciting opportunity for Taken together, these three methods Yes commissioning in a complex environment is provide Commissioners with a wide degree the new Innovation Partnership. Sometimes, of latitude to address complex social issues the solution just doesn’t exist yet, or doesn’t through unlocking the innovation of their Many Commissioners are seeking to It’s worth stressing that you’ll need to exist yet in an appropriate form, leaving supply chain – particularly when combined address complex social issues where there work out the role of variants in advance – the specification in need of supplier input – with the freedoms to consult with the is no single right answer. This is why all the because unless you’ve given permission, and previously uncommissionable as a market pre-tender. The burden of finding best commissioning focusses on achieving you can’t consider them, no matter consequence. Innovation Partnerships the right answer is now shared. outcomes, not inputs and outputs. The how interesting. change all that, providing a process that Regulations recognise this, providing a will lead to previously unavailable products, veritable armoury of increasingly flexible services or works.45 Negotiation, negotiation, negotiation methods and approaches. As you cannot know the final specification If managing a range of different potential before you begin, what you are procuring is, approaches is likely to be at the heart Variation, variation, variation in essence, the process that leads to the of your commissioning, then established, specification and its subsequent delivery – If you know that there is likely to be more familiar processes such as competitive and the partner or partners you’ll want to than one way of addressing a particular negotiation or dialogue44 could be very go on that journey with. The Regulations need, the Regulations provide explicit effective. As discussed previously, if the require you to set out a clear structure permission to accept variant bids.39 Light Touch Regime applies, you can of phases as steps in the research and There are, however, some rules to follow: adapt these processes to make them innovation process.46 The Regulations are more proportionate and easier to use. ■■ you have to say whether they are allowed also clear that eventual delivery can be or required40 (or even if a compliant bid included – this is helpful because it permits is necessary41) in the procurement a blurred line between design and delivery, documents the ‘learning by doing’ that is at the heart ■■ you have to specify any specific of real world innovation. requirements for variants including their presentation42 – which makes sense as you’ll need to be able to compare these variants with compliant bids using your 39 45 published award criteria (also insisted upon Regulation 45 (1): ‘Contracting authorities may The full process is governed by Regulation 31. in regulation43). authorise or require tenderers to submit variants.’ 46 40 See Regulation 31 (10). Regulation 45 (2). 41 Regulation 45 (4). 42 Regulation 45 (4). 43 Regulation 45 (5). 44 Governed by Regulations 29 and 30. 34 The art of the possible 35

Innovation Partnership – the BWB perspective: The Innovation Partnership method looks useful, how innovative great works in progress do things really need to be to use it? Don’t panic Innovation Partnerships have been ■■ effective pre-procurement consultation and available to Commissioners since 2015, engagement are vital parts of the process, but have been slow to find uptake – allowing Commissioners to create the We believe that the Innovation Partnership through caution, through fear of novelty conditions for success method is useful. The term itself can or through simple inertia. unintentionally mislead. It brings to mind ■■ significant care needs to be taken science labs full of bright young things Yet this is changing. We are now seeing a with suppliers’ wishes to protect their with difficult hair, all writing the code diverse range of projects underway where intellectual property, particularly when for self-driving cars – rather than a way it looks like an Innovation Partnership is moving from the pre-procurement phase of rethinking waste collection in Stoke. going to be the right answer to deliver to formal procurement genuine public benefit. Nothing could be further from the truth. ■■ the provision of all information relevant to Innovation Partnerships are simply about At BWB, we are very excited about the the procurement process on an equal basis creating innovative products, service or opportunities that the Innovation Partnership to all bidders requires active management works that aren’t currently available to you provides for our partners. Time and again, ■■ most importantly, we are really starting to in the market. we have seen that long familiar situation see substantial public benefit value in being where a public authority wishes to work The formal definition of innovation here able to procure design and subsequent with a supplier to develop new ways of is helpfully and appropriately broad47 – service delivery through one process. delivering of public services, but then anything from changes to business has to procure separately for service processes to new construction methods – It’s still too early to say much about the provision – building an active disincentive even new marketing methods get a look in. most advanced project we’re currently for innovation. The definition of innovation is even more involved in. What we can say is that it helpful for the day-to-day work of many In the past, this has meant that projects involves the creation of a new service to Commissioners as it specifically includes just didn’t happen, were squeezed into be delivered across a number of public ‘helping to solve societal challenges’. a procurement procedure that was not authorities who have come together So don’t panic, Innovation Partnerships designed for the purpose, or required to commission under a collaboration are there to be used. complex formal joint venture/co-investment arrangement. The Innovation Partnership structures. Now there is a process designed will cover the service design phase and the with this exact situation in mind. subsequent delivery of the service, which will be delivered through a framework. As we’ve worked on the planning for a Encouragingly, lawyers acting on behalf 47 number of these forthcoming projects, there According to the Regulations (definitions section), of the public authorities have recognised have been some important elements to innovation ‘means the implementation of a new or that the Innovation Partnership is the significantly improved product, service or process, focus on with Commissioners: appropriate procedure in this case. including but not limited to production, building or So watch this space… construction processes, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations, including with the purpose of helping to solve societal challenges or to support the Europe 2012 strategy for smart, sustainable and inclusive growth’. 36 The art of the possible 37

I’ve heard that an Innovation Par tnership can only be for three years – I like the idea of competitive dialogue, but the formal process not long enough for me to address a big issue. What can I do? is long and clumsy – any way around that? It’s not true Probably

As we speak to Commissioners about Things to remember Competitive dialogue is great for when Not a heavy hand Innovation Partnerships, we keep hearing you want to be able to assess a range There are some things to think about when There are also ways to reduce the burden that they can only be for a maximum of of different potential approaches to your it comes to timeframes and Innovation outside of Light Touch Regime. It is still three years. This is simply not the case. commissioning question. However, the Partnerships. If they include elements from possible to structure a procurement so It’s a canard. A tentacled rumour. process, enshrined as it is in regulation, other parts of the regulatory framework – that the dialogue is limited to certain An urban legend.48 can be burdensome – and not just for you, any time limits in those would apply. elements of the tender only, rather than for your supply chain also. Fortunately, there The Regulations on Innovation Partnerships So if an Innovation Partnership was also applying the whole thing. In this case, are indeed a few ways around this in certain give no specific timeframes – and nor a Reserved Contract, the three year limit the Commissioner specifies that certain circumstances – helping you secure the does Cabinet Office guidance. What the would apply;50 if an Innovation Partnership aspects of the specification and/or contract benefits without all of the grind. Regulations do say is that Innovation used a framework agreement for strands of are not up for discussion, the bidders have Partnerships (and the individual phases work, the limitation of four years (with some Thinking about ways to make dialogue less to confirm that they accept these elements. within them) should be as long as they need flexibility) would apply.51 However, these burdensome is also a reasonable thing to do. Other elements may be discussed with to be. Long enough to deliver on their goals – are time limits that you as Commissioner ‘Proportionality’ is one of the general Treaty bidders as per a standard competitive and no longer.49 would be introducing to the process Principles that underlie public procurement, dialogue, allowing the Commissioner yourself, voluntarily, not ones imposed so seeking out the flexibility within the to select the best value bid for their by the Innovation Partnership approach. process is expressly permitted. overall purpose.

Regime? Change. As we have already seen on page 9, the Light Touch Regime52 – where it applies – gives you a great deal of flexibility to tailor a dialogue process that is going to meet your needs. In fact, as long as you ensure both non-discrimination and transparency,53 you can cherry pick the bits that you like to create a bespoke dialogue-based process. 48 50 52 Procurement has urban legends now … who knew? As set by Regulation 77. Set out in Regulation 76. 49 51 53 Or more fully, Regulation 31 (25): ‘The contracting As set by Regulation 33. And as ever, you follow other applicable Regulations, authority shall ensure that the structure of the partnership the Treaty Principles and relevant law (such as respecting and, in particular, the duration and value of the different supplier intellectual property rights). phases reflect the degree of innovation of the proposed solution and the sequence of the research and innovation activities required for the development of an innovative solution not yet available on the market.’ 38 The art of the possible 39

I want to commission a par tner, not just a supplier. Shared values, shared data Can I commission for shared values? One method of binding Commissioner Yes and supplier together is not a procurement regulation question – but a contractual one – the use of open data and open book. Imagine a world where it was natural to Engage early, engage often This means that the Commissioner sees solve problems with your suppliers, rather The first step always involves early the same information as the supplier at the than deal with problems caused by them. engagement with the market before any same time, enabling joint problem solving, A world where relationships were governed commissioning takes place. This allows reducing management reporting and by trust rather than the protocols of contract you to understand what is possible.54 building trust. management. This is all possible and it pulls That can inform the specification to be together some of the themes we have been adopted, the procurement process to be looking at. There are a number of ways you The clue is in the name used, the evaluation criteria to be applied can do this; some relate to the Regulations, and the contractual terms to be agreed. The Regulations recognise the power some relate to your commissioning practice. It will also help you work out what of working in partnership to tackle the incentives might align your interests challenges Commissioners face. The new with those of your supply chain. In our Innovation Partnership is a specific process experience, shared incentives are a good for procuring a ‘partner’ for commissioning place to start in building shared values. combined design and delivery. However, this arguably makes the need to seek shared values even more important. Be clear what success looks like Thinking about how to procure for those There is nothing in the Regulations or is likely to be a major success factor in Treaty Principles that prevent you from Innovation Partnerships long after the dust articulating the shared values that you of procurement has settled. want. An effective way to do this is to include social value in your specification and social factors in your setting of MEAT criteria.55 If these factors are actively linked to your authority’s vision, any supplier that can address these is likely to be on your side. This is one of the noted advantages of commissioning from the social sector.

54 As governed by Regulation 40. 55 As per Regulations 67 (2), (3) (a). 40 The art of the possible 41

Incentives for par tnership: The States of Jersey bus contract Can I set financial thresholds and manage risk without unintentionally barring large sections of my potential supply chain? When the States of Jersey56 commissioned They also included milestone contract a new public transport network in 2013, extensions based on achieving Yes they were not looking to procure a supplier, performance – incentivising the operator but rather a partner that could work with to maintain their focus throughout the The financial thresholds and financial tests The balancing act them to grow ridership, reduce subsidy life of the contract; a clearly profiled applied in procurement are arguably some The Regulations specifically permit (rather and create a bus network that the island risk-share between the parties; of the most stable features of the tender than insist on) the use of tests for economic could be proud of for both resident transparent accounts and budgets process. In most commissioning authorities, and financial standing61 as a risk management and visitor. Each step they took in the for both operator and commissioner; these features roll on, year after year with measure – ‘ensuring that economic operators procurement process was with creating empowering the operator to design the the purpose of managing financial risk. possess the necessary economic and such a partnership in mind. network and timetables as circumstances However, this tells you that they are amongst financial capacity to perform the contract’. change and the use of States facilities the least actively managed dimensions The commissioning team at the States However, the Regulations also show concern and equipment – each element binding of the whole commissioning process. used extensive pre-tender consultation with these being over-rigorous, setting operator and commissioner in closer with a range of stakeholders and market Outside of the commissioning world, a maximum proportion of turnover that partnership. participants. This was not only to gain an commentary on this issue is moving will apply in all but special circumstances.62 insight into what might be possible, but also To ensure both partners are on the same from concern to alarm. Cabinet Office The concern with going too far comes to ‘set out their stall’ – signalling to the page, the contract specifies open data guidance urges change on arbitrary barriers through very strongly in Cabinet Office market the sort of working relationship that as well as open book. The States have a to participation,58 think tanks are publishing guidance, which explicitly discusses keeping they were looking for. login to the operator’s ticket machine and reports showing the damage that high, turnover thresholds at reasonable levels Real Time Bus Information software, seeing arbitrary thresholds may have on Having selected a range of potential bidders with the direct objective of expanding the the same data as the operator in real time. participation in the Work and Health via a PQQ, the tendering process and supplier base: ‘Contracting Authorities This means there are not two parties Programme,59 questions are being asked eventual contract applied a huge array should not impose arbitrary minimum demanding reports from one another, in the Commons about the impact of of measures that would contribute to a requirements which may have the but a team working on the same data thoughtlessly applied gearing ratios successful partnership. These included unintended effect of barring new business to improve services and increase revenue. on organisations who have received a profit-share scheme where operator from bidding’ and ‘the supplier evaluation social investment.60 For the innovative profits over a certain point are shared with The results have been impressive – process should not rule out a potential Commissioner, it’s time to look at this the States for reinvestment in transport an increase in ridership of 29% since 2013, provider unless there is clear evidence that issue anew. infrastructure. This then leads to greater growing returns both to the operator the supplier’s financial position places public operator profits, leading to a greater profit (HCT Group57), and the States and public money or services at unacceptable risk.’63 share for the States and round it goes – pride in their bus service. a virtuous circle in which operator and commissioner are incentivised to want 58 61 the same things. Procurement Policy Note 01/12: Use of Pre-qualification Regulation 58 (7). Questionnaires, Cabinet Office. 62 59 Regulation 58 (9). Hitchcock, A et al (2016) The Work and Health 63 Programme: Levelling the Playing Field, Reform. Procurement Policy Note 01/12: Use of Pre-qualification 56 57 60 Questionnaires, Cabinet Office. Whilst Jersey does not fall under the Regulations, each HCT Group have published a full account of the See Hansard: https://hansard.parliament.uk/ step taken by the States would be permissible in England procurement process used at www.hctgroup.org/ commons/2016-06-15/debates/16061547000002/ and Wales under the Light Touch Regime. downloads SocialInvestment 42 The art of the possible 43

Clearly, there is a balancing act to perform The crucial point about thresholds is When it doesn’t work: guarantees and Transforming Rehabilitation here. On the one hand, there is the need that they should be based on the Treaty to appropriately protect the interests of the Principle of proportionality. The balance is Transforming Rehabilitation (TR) is the Companies with large balance sheets and commissioning authority. On the other, between reasonable precautions that seek Ministry of Justice’s (MoJ) programme to who directly oversee delivery can, to an there is danger of creating arbitrary barriers reassurance about the viability/capacity outsource probation services for low- and extent, stomach this. But bidders with to competition out of all proportion to the of suppliers and the risk of imposing medium-risk offenders in England and small balance sheets had to either ‘bet the actual risks facing the authority through inappropriate and unfair barriers to Wales with annual contract value of £490m. ranch’ or look to a third-party guarantor. sheer custom and practice. smaller, particularly social sector, best It goes without saying that third parties When preferred bidders were announced, value suppliers. A threshold should be cannot be parent companies by definition, 20 of the 21 lots name charities, social set at the point which some kind of and they lack the information, control or The art of the possible enterprises or mutual organisations in the protection becomes necessary to ensure expertise over service delivery that a parent delivering consortium. On the face of it, this The best way to address this issue is to that the Commissioner can deliver on company has. The insurance market does looked like good news for the social sector. take a proactive approach, based on a their purpose effectively – and absolutely not currently exist for products of this type. Furthermore, around 75% of the realistic assessment of risk. The level of no higher. As a consequence, these guarantees subcontracts were for voluntary sector or financial protection needed to provide the effectively barred the social sector from mutual organisations and some individual Commissioner with reassurance should leading a consortia. organisations, such as 3SC, look to have take into account: done very well. It’s telling that all bar one prime contractor ■■ the specifics of what is being commissioned has at least one multinational member However, if you delve a bit deeper, the with assets in the hundreds of millions, ■■ the sorts of losses that might arise picture becomes markedly less rosy. if not billions. There are practically no Only one out of the 21 lots was won ■■ the protections that may exist organisations in the social sector that by a socially led consortium. This is the (eg through insurance) have assets anywhere near the size the of ARCC consortium in Durham Tees, which the winning TR bidders, unless they have ■■ the impact on the Commissioner of is a relatively small lot accounting for less evolved out of the social housing sector, potentially restricting themselves to a than 3% of the total TR programme value. limited number of bidders that have similar or are a grant-making endowment charity. There was a deep, structural issue with characteristics (both in this procurement Sure enough, many extremely credible TR that was challenging, if not impossible, and the future) social sector service delivery organisations, for charities and social enterprises to such as CGL, were competing in the late ■■ whether suppliers will just pass back overcome – and that was the bias towards stages of TR bidding, and were conspicuous the costs of unnecessary demands – large organisational size. Most problematic by their absence as prime contractors. performance bonds, third-party guarantees was the MoJ’s insistence on a large It remains to be seen yet whether TR is and prescriptive insurance requirements (100% of annual contract value) and successful, or not. But surely plurality and onto the Commissioner. broadly defined Parent Company Guarantee. diversity in UK public service markets means greater scope for innovation and ultimately better outcomes for society. 44 The art of the possible 45

Can I stipulate that there will be a profit share /share of savings earned Ways to Wellness: enriching peoples’ lives and sharing the savings element in the specification? Ways to Wellness is an unprecedented To deliver the services themselves, Ways Yes commissioning of large-scale social to Wellness has commissioned four social prescribing. It aims to improve the health sector delivery partners using a blend of Motivated suppliers can be more effective Care is needed to ensure that any and wellbeing of people in the west of up-front payment and payment by results. Newcastle who have long-term health suppliers. There are many scenarios where such specification is drafted in an There is further innovation in how payments conditions. your supply chain can find ways of saving accommodating and specific way. It is are made, which uses two mechanisms money or increasing revenue (depending important to be clear with all bidders what The evidence base for social prescribing to ensure that savings are measured on the type of contract) but won’t if there is intended and how it will be evaluated. is clear – it can help people to better and shared amongst the partners. is nothing in it for them. Profit shares and Otherwise, it’s going to be hard to self-manage their long term health The first is for improvements in wellbeing savings shares that divide up surpluses can differentiate fairly between different ways conditions, improve their quality of life and resulting from the service. Each patient’s create incentives to generate real change – of implementing this type of arrangement – dramatically reduce both GP visits and wellbeing is assessed before and after and can also help you to place a value on other bidders could reasonably challenge secondary healthcare costs. The challenge interventions across eight dimensions – wider benefits such as social value. an award which gave credit for a part is that the financial benefits take some time the Wellbeing Star – with payments made of an offer that was not invited and At one level, this isn’t really a matter for to accrue and can be difficult to measure. for those patients making progress. which they were silent on as a result. The stakeholders behind Ways to procurement as the Regulations are quiet The second method is more long term. Wellness64 realised that this was natural on this. It’s entirely a matter for your It is also likely to mean detailed contractual NHS data for the cohort in the project area territory for a Social Impact Bond (SIB), specification. However, there is some helpful provisions on adopting an open book is benchmarked against NHS data with a combined with a payment-by-outcomes pre-work you can do on this to make this approach and defining what are profits comparable cohort in an area without the process. type of contract a practical possibility. or savings. How, for example, might you service. This allows the CCG to explicitly evaluate a bid from a social enterprise that As with many SIBs, there are quite a identify savings generated by improvement will generate smaller surpluses, but can few moving parts.65 Newcastle West CCG in the self-management of long-term Build it in from the start evidence this is because it is committing (now Newcastle Gateshead CCG) is the conditions on secondary care costs. These The first step is to consider this during surpluses from the contract to supporting Commissioning Authority. They have savings are shared in an agreed proportion a proper pre-procurement consultation. other authority priorities? received funding from both the Big Lottery between the CCG, Ways to Wellness, the Is it a potential option? How could it work in Better Outcomes Fund and the social investor and the service providers. practice to motivate for change? What is the Cabinet Office Social Outcomes Fund This means that all parties share an The art of the possible best balance of risk and reward? This could to pump-prime outcomes payments. incentive to make the service work, and then lead to the ITT specification allowing These kinds of arrangement are practical They have commissioned Ways to Wellness that there are resources freed to continue for it, or even requesting it. and can be very beneficial. So the best as the social prime contractor – importantly, funding the programme sustainably. practice approach is: that Commissioners the approach was considered sufficiently should consult; suppliers should indicate unique to use a Voluntary Ex Ante Notice possibilities; Commissioners should rather than a formal procurement exercise. 64 draft accommodating specifications; and Ways to Wellness has secured further Voluntary Organisations’ Network North East, suppliers should present their propositions supported by Newcastle West CCG and ACEVO social investment from Bridges Ventures (Charity Leaders Network). within the scope of such specifications. to get the project started. 65 A detailed description can be found at www.biglotteryfund.org.uk/global-content/programmes/ england/commissioning-better-outcomes-and- social-outcomes-fund/cboevaluation 46

This all sounds great, but we have no money so what are we First published September 2016 supposed to do? © Bates Wells & Braithwaite London LLP, HCT Group, E3M Go for it! The contents and opinions in this publication are the authors’ only. We strongly believe that it is vital for At a more down-to-earth level, with real Bates Wells Braithwaite is the trading Commissioners to use the fullest range pressure on budgets, you can’t afford name of Bates Wells & Braithwaite of options in pursuit of their objectives – not to deploy the full range of tools London LLP, a limited liability partnership, registered in England and that embedding ideas of social value and at your disposal. It’s the best way of and Wales, number OC325522. social impact can help in meeting those. re-thinking services from the ground up, 10 Queen Street Place, London The reasons for that belief fall into two designing out cost and improving quality. EC4R 1BE. Tel 020 7551 7777. schools – one philosophical, the other www.bwbllp.com. A list of members If you don’t do it this year, you will have is available from the above address. deeply pragmatic. to next, or the year after. Those who get HCT Group is registered in England and At one level, it goes back to basics. The their heads around how to commission Wales as a company limited by guarantee purpose of commissioning is to secure the strategically and use procurement as and as a registered charity. Company best possible service in the public interest. a tool to deliver meaningful change are number 01747483. Charity number 1091318. VAT number 8 0 5 3112 74 . Cost is one fundamental factor. Need is going to have the edge. Doing what has another. The Regulations provide a always been done because that’s how it E3M is an initiative of Social Business International Ltd. Registered in procedure for identifying the right answers has always been done is an approach England. Company number 7007166. and are much more facilitating and flexible parked at the bar of the Last Chance Saloon. Registered office75 Kenton Street, than is often believed. They provide London WC1N 1NN. Whether you look at the issues through the principles to be applied and interpreted, Design: David Shaw lens of better outcomes for communities, while complying with the overarching Print: Blackmore Ltd, Shaftesbury, Dorset or through the lens of day-to-day obligations to treat all bidders equally organisational realpolitik, the tools are all and fairly. They are effective tools to aid there for Commissioners to create change – you in doing the best for your communities. the art of the possible. Social value and social impact can act as an accelerant to the creation of public value. Embracing these concepts – along with impact measurement for quantifying what has been achieved – can introduce factors beyond the simple price of the service and basic quality considerations. They lead to beneficial longer term effects, prized outcomes and an opportunity to create wider economic value. We support the consideration of these factors not simply because it is just, but because it works. The Public Contracts Regulations 2015 provide Commissioners with a great deal of flexibility to achieve the outcomes they seek for their communities. The purpose of this publication is to highlight some of those flexibilities, how to unlock them and some of the practical things that can be achieved within the scope of the law – the art of the possible in public procurement.

About Bates Wells Braithwaite About HCT Group

BWB is a professional services consultancy, HCT Group is a social enterprise in the transport combining a top legal practice with impact, business industry, safely providing over 20 million and compliance advisory services. The firm works passenger trips on our buses every year. with businesses, social enterprises, charities and We deliver a range of transport services – public interest organisations, large and small, from London red buses to social services established and new, across a wide range of sectors. transport, from school transport to whole transport networks, from community transport BWB has a particular specialisation in public service to education and training. We reinvest the design and delivery by purpose-driven, innovative profits from our commercial work into business, incorporating social enterprise, social further transport services or projects in the investment, social value, social impact measurement communities we serve and always aim to be and organisations transferring out of the public sector. at the forefront of social innovation. www.bwbllp.com www.hctgroup.org [email protected] 020 7551 7746/ 7777 About E3M

E3M promotes and supports innovation in the delivery of public services. It facilitates two specialist knowledge communities: the E3M Social Enterprise Leaders Business Club and the E3M Bold Commissioners Club. E3M shares knowledge and learning about the key issues for success in developing supplier led public benefit models for public services and new partnership approaches to public service design and delivery. E3M is catalyst for change, in particular developing thought leadership on key issues for social enterprise growth where there are gaps in current thinking.

www.e3m.org.uk