Dan Ebanks – Viability assessments… a cautionary tale

• 30th Jan 2021
• Finance

“Stack ’em, pack ’em & rack ’em” – the industry-standard approach to Social Value is undermining the whole movement – but things are changing…

This issue remains unresolved by our Social Value ‘stewards’ and is fundamental to the success of Social Value as public policy. Here are our chief exec’s thoughts.

 

Social Value in public procurement offers an opportunity to make lasting, tangible and significant improvements to our civic life. Given our current circumstances, this is an opportunity we cannot let pass us by. But right now, there is a real risk of it being squandered. This would be a tremendous shame. Going back a few years, we can learn from a cautionary tale in another part of local government.

From 2012, national planning rules enabled the widespread abuse of viability assessments. Viability assessments are the sizing of the profit a developer can make from a building development. If expected profits are below 20%, the number of affordable homes the developer is required to build under Section 106 agreements can be reduced. As a result, developers can overpay for land to secure sites, and make up the difference by negotiating down community benefits. Land prices go up while communities lose out on affordable homes. The integrity of viability assessments is shot.

There are important parallels with the current situation with regard to Social Value. Dr Adam Richards, Head of Impact at Social Value UK, the national membership body, reflects on:

“…Some of the bad practice in local government social value procurement where an over focus on quantities has arguably led to a race to the bottom in fairly meaningless claims of Social Value. For example; equating Social Value with ‘number of jobs’ or ‘number of apprentices’ is an extremely blunt way to consider Social Value and putting large numbers behind these has led to bold, mostly unverified claims of Social Value.”

In both cases, we see the risks of an over-reliance on financial modelling in the determination of community benefits.

Stack ’em, pack ’em & rack ’em

In a previous life, I was a management consultant. I worked on the large central government transformation programmes of the early 2000s, as New Labour sought to rationalise the public sector. I helped drive out ‘wastes’ identified by the Gershon reviews and co-opted performance management techniques from the manufacturing sector to do so. Interestingly, the mantra ‘if you can’t measure it, you can’t manage it’ was uttered by fewer people in the industry than you might think.

But if you can’t see it, you can’t value it. Financial proxies are very much dependent on what you can feasibly measure. A lot of things that are literally or practically impossible to quantify financially are rendered, for all intents and purposes, invisible.

For instance, the impact of community-led initiatives to improve educational outcomes can be quantified because these have research-based unit costs associated with changes in them. But there are many potential benefits. To local schools generally. To teachers’ and other pupils’ wellbeing and educational outcomes. Most importantly, to the children’s mental and physical health. You could identify myriad direct and indirect effects that would be difficult to quantify in cash terms.

In addition, quantifying financial proxies can permit impacts to be generalised across interventions, though only in terms of what is measured; it is misleading to compare different interventions with such limited measures.

There are deep, methodological issues with this approach to valuing what is important in our civic life.

This is a choice

Social Value is about creating community benefits. Understanding what works at grassroots level is central to delivering these benefits. Right now, Social Value works for procurement folk and suppliers, less so for local communities. Moreover, the ‘bold, mostly unverified claims of Social Value’ that Dr Richards refers to risk creating a ‘credibility gap’ as the distance between rhetoric and reality grows. Millions of pounds worth of community benefits are being committed to in procurement exercises, but how much of these new resources are getting to where they are really needed? In time, this credibility gap will undermine people’s belief in Social Value.

The National TOMs is an auditor’s tool, not the tool of a public servant who wants to effect change for local communities. Yes, pure descriptions of every community initiative – in the form of individual case studies – may be true to the complexity of reality. They would also be highly labour intensive, impractical and, most importantly, difficult to compare and generalise. At the other end of the spectrum, the National TOMs, a set of financial values based on simplifying assumptions, allows comparisons to be made whilst sacrificing some validity of those comparisons. The National TOMs are problematic. In their quieter moments, even their advocates agree.

And yet, the LGA has promoted the National TOMs and set up the National Social Value Taskforce. Worryingly, the Taskforce is riven by a conflict of interest clear to everyone: it is managed by the dominant private sector provider in the Social Value market, whose main product is based on the implementation of the National TOMs. A useful analogy would be if the UK Government announced a task force on the future of the Internet and asked Google to run it, who then precluded its competitors from having a seat at the table. The National Social Value Taskforce is widely seen as a ‘closed shop’.

The National TOMs framework and the supporting tools enable scaling. But by sandblasting away the detail that tells us what’s of genuine value. These tools won’t incorporate a qualitative approach to understanding impact, because this would require engaging with beneficiaries, with people, which in turns increases marginal costs…

And if the use of financial proxies in the determination of social impact outcomes is highly questionable, I would argue their use at the other end of the process – in the procurement exercise – is unnecessary.

Putting a financial value on the Social Value commitments offered by competing suppliers enables procurers to score ‘objectively’. A simple points system could be used, which is an honest acknowledgement that these are all estimates.

Moreover, such a system can enable commissioning and procurement teams to use the value of particular resources to local people as a basis for determining their value in the tender process. Apprenticeships may have a high financial value in the National TOMs, but may not actually be what a particular ward or community need. But to increase the perceived value of a Social Value offer, suppliers will always ‘max out’. It’s gaming, pure and simple.

It’s not the fault of the suppliers. It’s the responsibility of local government.

If methodological parsimony is about getting value for your variables, the National TOMs short change our communities: the very constituency Social Value claims to champion.

Things are beginning to change…

Where poor choices got us into this situation, new ideas are getting us out of it. Static spreadsheets of financial proxies are a 20th century solution. Data and tech; the growing acknowledgment of good service design; user experience and interaction – all these things mean things are changing for the better. Here’s a starter for ten:

– Social Value Brokerage is a ‘thing’ – go find out about how organisations are using ‘sharing economy‘ principles to create win-wins for local communities and businesses

– The VCSE working group emerging within the Social Value community, whose goal it is to ensure the VCSE sector is contributing to the agenda – get in touch with me if you want to contribute

– The Social Procurement Festival curated by Supply Change, which will gather buyers from across the public and private sectors to share best practice in social procurement and network with social enterprise suppliers.

– The Social Value Model, which makes such an important contribution with its focus on quality as well as quantity.

The last 12 months have shown us that community matters. If we want to mobilise locally and if we want to do that effectively, we need our local community organisations in the room from the start. And we need them to be well-resourced.

Many have always understood this: now it’s being acknowledged by decision-makers across government. This is the future. As Jake Ferguson, Hackney CVS CEO and adviser to the Mayor of London, put it in conversation with me:

‘Look, you need us now so put the proper investment in, talk to us as equals, have us round the table, don’t bring us in at the last stage of your planning considerations, have us in from the outset. We appreciate your challenges but we know where the pinch points are, the crunch points, the bits of the system that aren’t working’.

Every year £270bn of government spending can be leveraged to create community benefits. That would make a lasting, tangible and significant difference in our local communities and in our civic life. Let’s plan and deliver Social Value with our local communities in the driving seat, instead of a set of financial proxies.

 

Dan Ebanks

journal.socialvalueexchange.org/

0203 488 6223