Strategy

The relationship between the business sector and not-for-profit sector is evolving fast – driven in part by new UK procurement legislation – with implications for how organisations across all sectors adapt their business models and social partnerships.

James Edsberg looks at how the need to deliver both profit and social value will impact fundamental aspects of organisational strategy – driven by recent changes to procurement legislation.

The Public Services (Social Value) Act 2013 and The Procurement Act 2023 (which came in to force in February) – along with the regulations and guidance notes published with them – are shaking-up how the private sector bids for publicly-funded contracts.

The numbers involved are vast. The UK public sector spends over £388 billion each year on procurement including the provision of services, materials and equipment.  The top 3 areas of spend being in health, defence and transport.  That’s £1 in every £3 of government spending.  (Source: Institute for Government Report 2024).

Central to the changes in the bidding process is the requirement that suppliers pitching for contacts should demonstrate how any contract ‘maximises public benefit’.  Tenders will now be awarded not just on economic grounds and price criteria, but on a more comprehensive view of value, including social value, sustainability, innovation and community benefit.

Part of the selection process requires bidders to set out a clear, multi-year plan to deliver measurable this value in an integrated way aligned to the government’s missions.

In short, adding a social value and ESG component to every public sector bid and its delivery is no longer a ‘nice to have’ – it’s compulsory and critical to a successful tender.

Importantly, this development is having a ripple effect that goes much wider than the 40 or so companies categorised as ‘strategic suppliers’ for which the government contracts are worth more than £100 million per year.  Here are three emerging impacts among many (and I’ll return to this topic again in future posts…)

First – government-focused businesses also provided services into the private sector – and in parallel, that private sector client base is also assessing their suppliers for the ESG benefits they can contribute.  Public procurement is influencing change in private procurement.

Second – the way large providers create social value, is mostly via the partnerships they have with the VCSE sector (Voluntary, Community and Social Enterprise).  There is now a greater need than ever for that partnership to work – and to be seen to work – in a way that is much more transparent.  This is evidenced by the much increased focus on measurement, KPIs and demonstrable results,  which is driving deeper accountability and improved programme design between businesses and VCSEs.

Third – the length of engagement in large contracts (both private and public) is prompting a shift away from 12-month projects and a ‘charity of the year’ mindset in the corporate world, to a more committed, multi-year collaboration between the business and social value sector.  All for the good – but requiring a significant change in mindset and expectations on all sides.

One of the long-term benefits which many hope for is that the legislation’s focus on social and community impact, will require partnerships between business and VCSEs to address not the symptoms of a social or environmental issue but the preventative steps that prevent or reduce it emerging in the first place.

Together, these and other changes, are already prompting businesses and not-for-profit organisations to review what they do, how they do it, and the challenging issues around accountability and results.

In turn, this is prompting internal questions about strategic direction, partner selection, programme design, organisational structure, skillset, capacity-building, ability to deliver scale, funding models and the nature of collaboration between the commercial sector with the resources to support change – and the VCSE sector with the lived experience and expertise to shape initiatives.