New legislation has been introduced relating to how public sector organisations must structure procurement tenders, with mandatory points now being awarded for Social Value. In addition, companies are increasingly being required to devise a Carbon Reduction Plan (CRP) and to record and report their carbon emissions. Financial standing and business continuity are also becoming areas of greater focus.
The addition of the requirement to demonstrate social value in all new procurement activity became mandatory in Northern Ireland in June 2022 (following adoption of the approach by the UK Cabinet Office some months earlier). The new policy outlined that most public sector organisations must award a minimum of 10% of tender scoring to social value for contracts valued above £123,000 and construction contracts valued above £4.7million. According to the Department of Finance, this equates to approximately 97% of total government procurement spend, therefore, almost all public sector contracts are affected.
The minimum weighting applied to social value is expected to rise to 20% in Northern Ireland from June 2023 (subject to approval by the Executive).
At the time of making the announcement, Finance Minister, Conor Murphy, said:
“This new policy represents a significant step-change for both government and tendering organisations. It sees social value placed at the very heart of public procurement, setting new standards that rewards companies for doing the right thing while ensuring the Executive uses its spending power for the common good.”
Essentially, companies are being ‘forced’ into spending some of their time and money on doing “good”.
There are four social value themes to be considered:
- Increasing secure employment and skills
- Building ethical and resilient supply chains
- Delivering zero carbon
- Promoting wellbeing
The focus is on being an ethical business which supports its employees and wider community and protects the environment. There are formulas for calculating social value and your Social Value Plan will be scored by the contracting authority, alongside your quality and commercial submissions.
Contracting authorities are taking different approaches to this and are putting emphasis on different elements of social value that they feel are most important to their organisation, but there is a requirement by suppliers to commit to a social value plan of action and to be contracted to delivering on the plan. The Social Value Plan must be contract specific. This means you will have to make different commitments per contract; not just have a general social value plan for your business.
Carbon Reduction Plans
In 2019, the UK became the first major economy to adopt a legal commitment to achieve ‘Net Zero’ carbon emissions by 2050. In response to this, a Procurement Policy Notice (PPN) was announced that applies to all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies (there’s more on which contracting authorities this includes below).
The PPN requires bidders for Government contracts to submit a Carbon Reduction Plan (CRP) as part of their tender. This applies to contracts exceeding a value of £5 million per annum. The carbon reduction plan is now part of the assessment of a supplier’s “technical and professional ability” for relevant contracts. Note, however, that this is a pass/fail criteria. It will not be scored or compared with other suppliers. Unlike the Social Value Plan, the contracting authority will not assess or verify the emissions data provided in the CRP.
As part of the Carbon Reduction Plan the supplier must express its commitment to achieving Net Zero by 2050 in the UK. It must also outline its baseline/current emissions, commit to emissions reduction targets and set out environmental management measures and projects that will be implemented in order to achieve the targets. The Government has provided a CRP template and has outlined three areas of focus, called ‘Scopes’.
Scope 1 covers company facilities and vehicles, scope 2 covers energy (mainly electricity and heating/cooling) and scope 3, although covering 15 categories in total, only five key areas are currently mandatory for inclusion – waste, business travel, employee commuting and ‘upstream’ and ‘downstream’ transport and distribution.
For customers that we deal with who have been affected, we are recommending that 2022 is the ‘baseline’ reporting year, with firm plans put in place for 2023 onwards to improve data capture (and therefore reporting) as well as plans for carbon reduction initiatives.
Again, businesses are not being trusted to move towards net zero themselves; the Government is enforcing it. The PPN applies to all Government departments but does not currently include local councils. It also does not currently include Northern Ireland Government, however, it is likely that both will follow suit in the near future.
Whilst not all companies are included in the mandatory reporting yet, it will not be long before this cascades further down to SMEs and micro businesses, and in any case the larger companies that are already being asked to report on carbon emissions will be pushing this down their supply chains anyway.
The advice is to create a CRP now and get into the way of reporting on emissions, even if you don’t need to do it imminently, because you will likely be required to do it sometime in the near future. Many large private sector organisations already require suppliers to have a sustainability plan and the Government required CRP template would be more than sufficient to satisfy these private companies.
As well as creating Carbon Reduction Plans and Social Value Plans, companies will need to be able to monitor social value and calculate emissions for future reporting purposes. Not only does this require effort at the outset and in each year subsequently, but companies will also need leadership buy-in to achieve targets, and there will need to be focus on staff education and behaviour change.
Assessment of Economic & Financial Standing
One final area of public sector tendering that is worth mentioning is the issue of financial standing and business continuity.
In May 2021, the Government Commercial Function published a guidance note in relation to assessing and monitoring the economic and financial standing of suppliers, which it states is “about understanding the financial capacity of suppliers to perform a contract in order to safeguard the delivery of public services”.
This guidance note seeks to further assist contracting authorities to appropriately assess a supplier’s financial capability to handle the size of contract it is bidding for.
Although this is not new, there has definitely been more focus on financial standing in recent times, partly due to the current economic instability being faced but also as a result of the covid-19 pandemic.
Coupled with this, is the issue of business continuity (and sometimes disaster recovery where this is relevant, e.g. software supply). More and more, contracting authorities are asking for evidence of suppliers’ business continuity plans.
Basically, the contracting authority wants to know that a contract won’t be at risk because either the supplier will go out of business part way through the contract delivery or that it will encounter some adversity that it cannot overcome that would prevent it from being able to fulfil its contractual obligations.
If you would like any assistance with social value or carbon reduction plans, either for a live tender or just to be prepared for any potential contracts that may come around, Genie Insights can help. Please contact us to discuss your requirements. Find out more about our tendering support services here.