Social procurement: purchasing social value too

A better way of doing business

unemployed boySocial procurement involves additional social value being purchased alongside goods or services, such as the employment of long-term unemployed people. The concept of social procurement has been around in Australia for a few years, but it’s really gathered momentum in recent months and is fast becoming the standard, rather than alternative, way of purchasing. The September 2013 launch of Social Procurement Australasia marks a significant milestone, creating an umbrella-body over several organisations working in this area and provides support and resources to the wider community.

Three examples of social procurement are below:

Western Sydney Parklands

  1. When the Western Sydney Parklands Trust tendered for a contractor to help control the spread of weeds, they included a selection criterion for social program.  This was worth 20% of the total score. The Trust didn’t specify what the social program had to be, offering providers flexibility and ingenuity in what they suggested. The successful contractor was an indigenous employment social enterprise. The Trust understood and accepted that including social benefits may cost them more than a standard contract and had budgeted for this possibility. In a presentation to local procurement officers, they stated that they were pleasantly surprised by the final result and estimated that they were within 10% of a standard contract price. They’ve made a great video about this contract – watch it here.human services
  2. The Department of Human Service (DHS) uses social procurement to drive change. In one tender to clean the common areas of a social housing estate, the Department of Human Services included a specific clause in the tender, requiring the respondent employ 35% of the contract workforce from unemployed social housing tenants living on the estate. This, along with other contracts including security services for the estate, makes a significant difference to the proportion of people that are employed in the estate, increasing confidence, skill and employability of residents and providing more role models for children in the estate. Tendering this way does not preclude commercial organisations, but does influence them to enhance the social benefit of what they do.City of Sydney
  3. Another way social procurement can be achieved is by purchasing from social enterprises (businesses that trade for a social and/or environmental purpose). For example, City of Sydney purchases catering from Yaama Dhiyaan [highly recommended – delicious and generous!] which offers hospitality training to Indigenous and non-Indigenous unemployed people. While this is an example of direct tendering, selective tenders can also be let to a range of social enterprises and not-for-profit providers. The Social Enterprise Finder from Social Traders will help find social enterprises in Australia, in a similar way to the directory for the Buy Social campaign by Social Enterprise UK. Buying fairtrade will ensure a fair price is paid to overseas suppliers, as the National Australia Bank demonstrated with its nationwide switch to fairtrade coffee, tea, sugar and hot chocolate.

Promoting social value through legislation

“There is nothing in any of the Local, State or Federal laws, or the common law, which prevents or limits the ability of either Local or State Government to consider the social outcomes / benefits which might be gained from a particular tender as part of Government’s procurement processes. In fact, in a very real sense both Local and State procurement regulations require these types of outcomes / benefits to be considered in order to achieve the best value for money when assessing tenders.” (Social Procurement in NSW, p.24)

European procurement law is similarly open to the consideration of social outcomes in the assessment of value for money, however in practice non-financial outcomes were overlooked. In an effort to encourage commissioners to more consistently value social value, the Social Value Act has been introduced in the UK.

Social Value Act

The Social Value Act

In 2012, the UK Government passed the Public Services (Social Value) Act 2012 which directs public authorities procuring goods or services to consider how their decision “might improve the economic, social and environmental well-being of the relevant area”.

The Social Value Act has been widely supported by the social sector and has empowered and encouraged social sector organisations to demonstrate their social and environmental impact when responding to tenders. It encourages the inclusion of social value in cost-benefit analyses, an area of confusion previously. Part of the implementation of this Act has been through social enterprises clearly articulating their social value in tender responses, thus educating procurement officers as to the type of evidence they could be considering.

What’s better? Both together!

The Social Value Act relies on respondents including and demonstrating social value, and leaves it to procurement officers to decide how to value this as they assess bids. Social procurement is more proactive and prescriptive in pursuing social outcomes. There is, however, a greater benefit to be realised by having both the legislation and the practice working together.

*For the purpose of this article, no distinction is drawn between procurement and commissioning, with both assumed to describe the entire purchasing process

*For anyone interested in what we can learn from the US, check out AbilityOne

Public trust and confidence in charities only 6.6%?

The UK Charity Commission is one of the models feeding into the nearly-established Australian Charities and Not-for-profits Commission, so we learn from the triumphs and failures that have come before us. Here’s a lesson: always check your units!

The Charity Commission Annual Report includes “Our performance this year“, which reports against a range of inputs and outputs. And I congratulate them for leading by example and doing this. It’s very clear and accessible. There is one outcome for 2011-12:And the results are (final two column headers are 2010-11, 2011-12):Does that look a little low to you? They’re obviously improving, but 6.6% ain’t a whole lot of trust! Let’s check out the source…

Here is the extract from Ipsos MORI’s 2012 report for the Charity Commission – note the question at the top. (The Annual Report above looks like it used the 2010 data.)Ok, that’s enough of the point and laugh. I would absolutely recommend reading the full Ipsos MORI report – there are further questions on what respondents trusted charities to do, why they trusted them more or less and how much this was affected by their own engagement with the charity sector.

I’m so glad they gave charities 6.7 out of 10, not 100 – that’s a little more optimistic!

NPC on payment by results and unneccessary complexity in charity contracts

Two fantastic new blog posts – I feel a bit like an NPC groupie, but I can’t help it when they produce such great work!

David Pritchard’s post is about the sector response to the Ministry of Justice payment-by-results proposals with a link to the report out of their workshop. The report lays out the stakeholder perspectives and the ‘key principles’ really nicely – clear and concise. Most of the issues are similar to what we’ve come across in Social Benefit Bond developments, but they organise it well and it’s always good to get perspective on the same issues being from elsewhere.

Iona Joy posts on the complexity of contracts and how developing tendering departments may not be something we want charities to do! She compares her experience with long, arduous contracts as a banker to the simpler ones of venture capital.

Paul Zak’s “moral molecule” helps us understand why giving is it’s own reward

ImagePaul Zak began studying oxytocin as a measure of trust. When oxytocin is present in our brains and blood streams, we are happier, more generous and more trusting. Great! So how do we increase oxytocin to get people to be more generous and trusting? It’s got a half-life of three minutes, but you can bring it on by hugging, dancing, sex, massage, praying… or for a more professional environment, people will produce oxytocin if they feel you trust them. Economies with a higher level of trust are more prosperous (although I wouldn’t jump to conclusions about cause and effect here).

I’m interested in what other people think the implications for this are in terms of giving and social investment. I wonder if models of funding that involve collaboration and connectedness are more likely to work because they’re boosted by this biological reaction to trust. Some risk sharing and risk management strategies may be more successful if they include a display of trust in other parties. This recognises that the way we behave with money isn’t driven exclusively by financial return, but by how much we value sharing and connecting with others.

Paul Zak is Professor of Economics and the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University. His new book is called “The Moral Molecule“. This Sydney Morning Herald article is a good summary of his work in the area and his 17 minute TED talk Trust, morality — and oxytocin is worth a watch.

My favourite bit, quoted here from the article, was the description of this experiment – flies in the face of Game Theory!

The starting point was a persistent mystery in Zak’s original field, economics: time and again, in experiments, people behave more generously than traditional economic models predict that they should. A classic demonstration of this is known as the Trust Game, in which pairs of participants communicate with each other via computer terminals: they never meet, and have no idea who the other person is. Person A is given GBP10 ($15.20), then invited to send a portion of it, electronically, to person B. Person A has a motive for doing so: according to the rules, which both players know about, any money that A sends to B will triple in value, whereupon B will have the option of sending some of it back as a thank-you. According to conventional notions of rational behaviour, the game should break down before it has begun. Person B, acting selfishly, has no reason to give any money back – and, knowing this, person A shouldn’t send any over in the first place.

Yet, in trials of the game, 90 per cent of A-people send money, while 95 per cent of B-people send some back. Analysis of the oxytocin in their bloodstreams reveals what is going on: by sending money to person B, person A is giving a sign of trust – and being on the receiving end of a sign of trust, it emerges, causes oxytocin to increase, motivating more generous behaviour in return. And it is not just receiving free money that causes people to feel oxytocin’s “warm glow”: in other studies Zak has conducted, random windfalls don’t cause nearly so much of it to be released. What counts is being trusted: trust in one person triggers oxytocin in the other, which triggers more trustworthy behaviour, and so on, in a virtuous circle. “Well, that’s except for the 5 per cent of people who are ‘unconditional non-reciprocators’,” says Zak, referring to the consistent minority of people who seem immune to this cycle. “What we call them in my lab is ‘bastards’.”

Growing the Social Investment Market: Progress Update (UK Cabinet Office)

The Cabinet Office report summarises recent developments in the UK and sets out immediate priorities. Thumbs up for doing this in only 18 pages!


1. Growing the Social Investment Market: A vision and strategy

2. What we have delivered (Increasing the supply of finance for social investment; Increasing the number of credible social investment opportunities; removing barriers to social investment)

3. Our priorities now (Increasing he number of credible social investment opportunities; Removing barriers to social investment)

Annex A: Market developments (a good and up-to-date summary of what’s going on in the sector, including a page on Big Society Capital investments)