Firms will have to prove 'social value' to win public sector contracts under new reforms

PUBLISHED: 08:59 25 June 2018 | UPDATED: 08:59 25 June 2018

After the collapse of Carillion, the government is proposing reforms to the way public sector contracts are awarded. Picture: Joe Giddens/PA Wire

After the collapse of Carillion, the government is proposing reforms to the way public sector contracts are awarded. Picture: Joe Giddens/PA Wire

PA Wire/PA Images

Reforms in how public sector contracts are awarded mean businesses will now have to show how they are tackling issues like the gender pay gap, ethnic minority representation and modern slavery.

Suppliers will have to show the “social value” of their operation, with more opportunities to be made available for mutuals, co-operatives and social enterprises, cabinet office minister David Lidington is due to say in a speech today.

He is expected to announce that the government will toughen up the Social Value Act 2013 to “ensure that contracts are awarded on the basis of more than just value for money”.

It follows the collapse of outsourcing giant Carillion in January, leaving big public sector projects like HS2 in the lurch and many of its own contracts out of pocket.

In his speech to the Reform think tank in London, Mr Lidington is expected to call for “responsible capitalism” and commit the government to using its £200bn purchasing power to put pressure on firms to improve their equality and diversity.

He is also set to announce the government will increase transparency in major contracts by publishing performance indicators, and extra measures to protect contractors from cyber attacks.

“If we are to build a fairer society, in which the public has greater trust in businesses not just to make a profit, but also to play a responsible role in society, then we must use the power of the public sector to lead the way,” he is expected to say.

“We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised.

“That means government doing more to create and nurture vibrant, healthy, innovative, competitive and diverse marketplaces of suppliers that include and encourage small businesses, mutuals, charities, co-operatives and social enterprises – and therefore harness the finest talent from across the public, private and voluntary sectors.”

Earlier this month the National Audit Office (NAO) said Carillion’s collapse would cost taxpayers an estimated £148m and have a significant impact on workers, investors and firms which supplied it with goods.

In a report the NAO said it could take years to establish the final cost of the liquidation, while the £2.6bn pension liabilities will have to be compensated through the Pension Protection Fund.

More than 2,350 people have so far lost their jobs, with almost 12,000 – two thirds of the pre-liquidation workforce – saved and another 215 transferred to new employers.

Matthew Fell, the CBI’s chief UK policy director, said: “The collapse of Carillion was a warning of the dangers of short-termism in public contracts. It’s therefore important industry and government learn the right lessons, putting their partnerships on a more sustainable footing to protect public service delivery and people’s jobs.

“With public services and infrastructure under growing pressure, it’s vital for the government to draw investment and innovation from a healthy, competitive and dynamic marketplace of suppliers of all sizes.

“So businesses will welcome a change of focus to long-term value rather than short-term costs in procurement, and its intention to reduce complexity and cost involved in bidding to allow more SMEs to compete for work.”

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