Since 2010, UK local public services have experienced significant spending cuts. Services have been redesigned and decommissioned across the country. At the same time, urban areas are undergoing demographic changes and absorbing population growth, placing huge strain on public services. The adult social care system is reportedly on the verge of collapse, while other services also feel the pinch.

In this context, the public sector is naturally looking at all the tools available to it in order to squeeze additional value from every pound it spends. An obvious place to start is the money spent procuring goods and services, which is seen variously as an opportunity for driving innovation, making savings, and producing better outcomes.

In fact, the use of government procurement for these ends is something of a holy grail. With an estimated £240bn spent by the public sector every year, even a small amount of additional innovation and value is a big prize. But the consensus is that traditional approaches to procurement have tended to place too much onus on inputs and outputs, and not enough emphasis on outcomes, resulting in providers constrained by over-specified contracts and limited innovation. Using procurement to drive innovation is harder than it seems.

Recently we’ve been interested in how innovations in procurement can change that relationship, in turn allowing greater innovation in the delivery of services. Reports such as Plan I, Buying Power, and some shorter articles (see here, here and here) have looked at how the government can be both more innovative with the way it spends its money, to produce better outcomes, and how this spending power could be used to drive more innovation.

The Social Value Act

In this context, the Social Value Act (SVA) has been an interesting test bed for new innovations in procurement. Its introduction in 2013 was a positive development, enabling government - councils, clinical commissioning groups, the emergency services, Whitehall - to leverage purchasing power to extract community benefits from its contracts. The introduction of the SVA was deliberately non-prescriptive and designed in part to open the procurement process to more innovative ways of purchasing, so that commissioning organisations could find the best ways of maximising social value.

However, the Act met a divided reception, heralded by some as genuinely transformative, by others merely a sop to the public sector. Certainly, as a policy idea, social value does seem to be a revision of the 'Best Value' and 'Value for Money' regimes: how do commissioners get the optimal mix of tangible and intangible benefits from our public services for local communities, whether those benefits be economic, social or environmental? While there is a qualitative break with those past policies - the legal basis compels government suppliers to create additional community benefits above and beyond the specified service or goods - the SVA has not yet delivered on its initial promise.

A 2015 review of the SVA by the Cabinet Office drew three main conclusions about the first two years of the Act, finding there was little awareness of it, varying understanding about how to use it, and a lack of agreed standards for measuring social value. It was also recognised that while there had been some innovation in procurement as a result of the SVA, more attention was needed on the question of how it can be used to drive innovation. Most councils would admit that where the Act promised to be ‘genuinely transformative’, it has underwhelmed on the ground.

So how can we make the Social Value Act work better for communities?

That’s the challenge that a number of councils, social entrepreneurs and government suppliers have set themselves, and the organisation Firesouls has hit upon an innovation which might have the answer. In Firesouls' analysis, it is the measurement question that has provided the greatest barrier to innovation. How much social value can we create from this contract? How do we measure it?

A number of well known metrics have developed over the years, part of a wider heritage of social impact measurement: 'social return on investment' and 'local multiplier 3' offer a calculus-based approach to the challenge. On the other hand, 'theory of change' models offer a far more deliberative approach to the problem. The lack of a standard measurement tool and the lack of in-house government capability to run these metrics for each procurement is the main reason why the Social Value Act has underwhelmed.

A new approach - Firesouls’ Social Value Exchange

Firesouls is a 'tech for good' business startup. In summer 2015, it received investment and backing from Bethnal Green Ventures. Its approach takes on the measurement question from a different angle.

On the one hand are a group of organisations - suppliers - that need to create community benefits as part of procurement. How well they do this can be evaluated in the public procurement process and count towards the evaluation and award of tenders.  

On the other hand, there are groups of community-based organisations - voluntary sector, social enterprises, residents associations - that are already creating community benefits. These organisations already have roots in their local area; they are part of the networks, they know the local history. They are perfectly positioned to create community benefits. But they lack resource.

If the Social Value Act could bring these organisations together through public procurement, it would be a clear win-win. To do this, Firesouls has built the Social Value Exchange, a platform that helps government suppliers win tenders by making a contribution to the community projects that are solving the most pressing local problems. So far, the Social Value Exchange has leveraged £21m in government contracts to create £470k of resources for local community-based organisations, including with the housing association Genesis.

So how does it work?

Firesouls have applied market design to build the Social Value Exchange - a combination of game mechanics and auction design. Social Value Credits are the unit of exchange that enables the transfer of resources from supplier to community project. Each contract that is let is allocated a certain number of ‘Social Value Credits’, and each contract has a list of ‘accredited’ local community projects, all of which deliver community benefits linked to the outcomes of the contracting authority - for example, a council, or a clinical commissioning group. Suppliers bidding for the contract use the exchange to trade resources for credits during an e-auction, which can be used to boost the score for the social value component of their tender proposal.  

Resources provided by the credits include primarily non-cashable items broadly characterised as time and materials, and are selected for their capacity-building value. For example, time could be a day of a member of the supplier’s bid-writing team's time to give advice to a community-based organisation on how to improve its grant applications. Materials could be office space, or a number of laptops. All of these things can help a community-based organisation or project create and track the benefits for its local communities.

Community-based organisations and projects are accredited on the Social Value Exchange, and authorised by the contracting authority, to ensure those organisations and projects most effective in helping the contracting authority deliver its commissioning, community and regeneration objectives receive resources.

This way, the Social Value Exchange doesn’t just get more from supplier contracts for the community. It can also help the commissioning organisation target particular outcomes, thereby reducing pressure on centralised and statutory services by reducing medium and long-term demand.

So it can be a win-win-win. Suppliers can use the platform as a business development tool. Commissioning organisations can channel resources towards accredited community projects that can help manage or reduce demand for services. And, most importantly, community-based organisations and projects get extra resource at no cost (barring the time - about half an hour - to sign up to the Social Value Exchange).

Sandip Shergill, procurement manager at Genesis, said: "In the past, we've asked suppliers to put forward their social value initiatives during the procurement process. It's been a challenge to compare them in the procurement. The Social Value Exchange completely took that problem away. We think it's a really innovative approach."  

The team has also been working with Surrey County Council, who said: "The Social Value Exchange is unique in that while it does provide us with a clear way of measuring community benefits, its underlying goal is to maximise those benefits by leveraging the value of the contract through an auction."

They’re also working with a major, private sector energy business, which is interested in pricing social value into its supply chain.

Firesouls is also looking at other tools that can help grow and support a network of local community-based organisations and generate revenue for these organisations. They are exploring the potential for Social Value Credits to become a local virtual currency. And through running the exchange, it is producing new data about the value social outcomes and is keen to explore how this can be used by other innovators in the tech for good space.

The Social Value Exchange is just one example of how the SVA is being used to test out innovative procurement approaches. In an area which has proved consistently tough terrain for new innovation, it’s welcome to see and worth profiling. It also raises the question that, if we can use platforms such as this to better match up resources between big suppliers and community organisations, might there be other places we could use the same principles and technology? In theory wherever there are scarce resources, there is a chance for this kind of technology to help. Matching housing applicants with available housing, or matching students with school places, for instance​.

Wherever there is a set of preferences on both sides, we can use technology to find the optimal pairing. So as public resources become scarcer and scarcer, we might see more and more need for innovations like these.