Fianna Fáil senators have introduced a Social Value Bill, which would require State-funded bodies to look at the economic, social and cultural effects of giving contracts to different sub-contractors. State-funded bodies would ask: which company will do best for the local economy? Which company will do best for the local workforce? Or, which company will do best for community spirit?
The idea for the Bill is very simple: the State spends €15bn on procurement per year – making it the biggest spender in the country – and so has the greatest ability to influence change through buyer-power.
Under the Bill, departments, semi-states, state-funded charities, and local authorities would be putting more money into Irish firms, would be indirectly increasing employment, and would be reducing pressure on public services (if procurement strengthens demand in the private sector). This seems appealing and logical when your economy is in a slump. It would help kickstart a recovery through spending and looks like a win-win for everybody.
But is it? Or could there be drawbacks? What if the socially valuable provider isn’t the cheapest provider? Clearly there’s a conflict. Maybe the cheapest provider might not be based locally, might outsource internationally, or might expatriate profits. So by attempting to save money through buying at lowest cost, a state might harm its own economy.
Between 2007 and 2010, SME contribution to the economy fell by 5%, SME share of workforce fell by 15%, and SME output fell by 18%.[1] Hence cutting back on local procurement can make these trends worse. A social value law might have helped slow this decline but may have cost the state more money: the deficit may have grown but so too may have domestic locally based firms. This turns on your view of the role of government.
But is this Bill even necessary? Is there a need to legislate for this? Can government not simply direct policy toward local procurement? And would this policy be as positive as it seems?
Similar ideas to the Bill’s were introduced a few years ago. The main change is that contracts are advertised in a staggered way, so that contracts valued at less than €5,000 are available through a verbal quote, contracts valued between €5,000 and €25,000 go to medium-sized SMEs through email, and contracts valued above €25,000 for services and €50,000 for building work go to larger SMEs through an etender process. This is a simple policy that helps local companies of all sizes. As well as this, firms don’t have to show large capital reserves, meaning hard-pressed firms can escape going under if they win the contract.
But as to the Bill’s usefulness, this remains unclear. Firstly, the Bill may be a few years too late. As the recession is over, looking at the social impacts of procurement are less necessary as SME have a healthier economy to benefit from and so are less reliant of public contracts. Secondly, some of the Bill’s aims are covered by existing policy, so it’s not clear whether the Bill would duplicate these or simply put these into legislation. But thirdly, the Bill presents a good question: should the state elect for the cheapest provider or the most socially valuable provider?
This last point is the Bill’s main contribution. It starts a debate about the role of procurement in helping communities and the economy. The recession came and went without that debate being fully engaged with. It is crucial we address it before another economic downturn comes.
[1] European Commission 2011