Is measuring social value the key to better public sector commissioning?

The Social Value Act came into force two years ago. The legislation was heralded as transformative because it required public bodies to take into account social and environmental benefits when awarding contracts, rather than focusing solely on cost.

Yet, evidence suggests that not much has actually changed: of approximately 480 English councils surveyed by the Social Value Portal, only 15% said they were applying the act. 

Why hasn’t the act been taken up more widely, especially at a time when it would generate much-needed income for community-based organisations employing disadvantaged people? A government review, published last week, highlighted three main barriers: little awareness of the act, varying understanding of how to apply it within government procurement, and the lack of agreed standards for measuring social value.

Paradoxically, the focus on measurement has got in the way of using the act to innovate in public services and unleash its transformative potential. Lord Young, who led the review, reflects that: “Social value has real potential to act as a value for money tool for commissioners tackling severe cost pressures, but better measurement is essential to help the act to take this form”.

Yet there is a contradiction in government policy. On the one hand, the act encourages public bodies to commission services that bring environmental, social and community benefits, things that cannot always be attributed a value in terms of pounds and pence. This would lead to service providers being commissioned more on the basis of something other than monetary cost. But on the other hand, spending cuts have pushed the public sector award low-cost contracts.

Would a more effective measurement tool for social value help? Yes, we need tools, for example, which assess and put a figure to the mix of tangible results, like new jobs for disadvantaged people, and the intangible, such as the self-esteem and self-reliance that come from those new jobs. Clearly, we need to make the case for social value before we commission services on that basis.

Since 2013, there has certainly been an increase in the number of online measurement tools. But the challenge of calculating social impact goes back to the early 1990s. One measure, called LM3, allows organisations to calculate the local economic impact, while another, called SROI, calculates social return on investment. But both are very complex and are based on lots of assumptions that the people who do the evaluation will have to identify, agree and sign off.

Perhaps we need a simpler tool such as the social earnings ratio, which doesn’t require lots of assumptions and is based on a one-size-fits-all approach.

Equally as important, however, is how we can use the Social Value Act to innovate in public services. The evidence so far suggests the act is being used to get more community-based organisations to bid for government contracts. This is undoubtedly positive but the attempt to create a mixed economy of providers predates the act.

Recently, I spoke to a housing association that rightly celebrated creating £58m of value from an initial investment of £5m, through its delivery of employment, training and apprenticeship schemes for local residents. However, I challenged the association to go a step further and to use its entire procurement spend for community benefit.

Opening up the social value market to third-sector organisations is the tip of the iceberg. How can the act use the open data agenda to improve the quality of local public services? Is there an opportunity to create financial technology products for the public sector through the act? It’s not a huge leap to start thinking about how market forces can be used to increase those benefits.

Social value innovation and measurement are two sides of the same coin. You can’t measure what you don’t have: we need smarter ways of using the public pound to get much-needed resources into our communities.