The new Social Value Act will ensure that only companies that create social value will win public service contracts. It also levels the playing field for social enterprises.

The new legislation requires councils and other commissioners, including housing associations, to consider the social impact of their public service contracts before they start the procurement process.

Contracts will be awarded to organisations that create ‘social value’ in communities when delivering contracts. The effect will be that commissioners will be required to use their purchasing power to achieve social and environmental benefits alongside financial efficiency. There is a big challenge for commissioners. They need to work out how they will define and take account of social value when making procurement decisions. The question they must ask themselves is whether they have the knowledge, insight, tools and experience to judge whether one tender is likely to offer greater social value than another.

The Act will also create more level playing field for social enterprises and charities which are often squeezed out by larger private providers. The Act becomes law weeks after comments were made by senior leaders in the social sector, heralding the death of Big Society and highlighting the number of charities and social sector organisations being pushed out of public service markets. The Social Value Act should open the door for social sector organisations – providers that are adept at delivering quality services and that reinvest their profits for good.

Commenting on the Social Value Act, Alan Downey, KPMG’s Head of Public Sector, said: “The Act has the potential to be a real force for good. For that to happen, both suppliers to the public sector and purchasers within the public sector must step up to the plate. Suppliers must start to think about social value not just as a CSR activity that runs alongside their core business, but as something that is integral to the way they do business and delivered through their normal business activities. Adding social value must become as important as making a profit. Many commentators on the Act assume that it is aimed exclusively at not-for-profit organisation, but it is perfectly possible for commercial organisations, big and small, to demonstrate social value in the way they operate and in the way they deliver services to public sector clients.”