Chapter 4: The NHS as a purchaser and commissioner for social value

Why this matters

The NHS has significant purchasing power, spending £27bn each year on goods and services in England alone. Decisions about what the NHS decides to buy, and how, have ramifications on local population health and wellbeing. Procuring and commissioning more goods and services from local small and medium-sized enterprises (SMEs) and voluntary and community sector organisations can have an important economic impact, as resources spent locally have a multiplier effect and are reinvested in the local community at a faster rate than resources spent with national corporations., There is limited conclusive evidence on the size of local multipliers and the extent to which local procurement stimulates local economic growth. This will depend in large part on the nature of local economies, but some studies have shown an effect ranging between 1.7 and 2.1 (for example, investing £1 in a local economy generates between £1.70 and £2.10 worth of growth).,,,

An analysis of procurement data of 10 anchor organisations in Leeds (four local authorities, two colleges, a university, a hospital, a CCG and a housing association) found that they collectively spend £1.4bn a year on goods and services, nearly half of which (£665m) left the local economy. The analysis concluded that by shifting 5%–10% of their spend locally, these anchors could generate between £168m and £196m a year of additional economic activity in the local economy when multipliers are factored in. By spending more resources within the community, anchor organisations may help local businesses to grow, employ more people and pay higher wages, thereby stimulating local economic development.

The NHS could also derive greater social benefit from the money it spends by introducing principles of social value into its contracts and procurement processes. There is no standard definition of ‘social value’, but it broadly refers to the wider societal benefits that can be gained from purchasing decisions (over and above those to the contracting organisation) – for example, by specifying that jobs are created locally with living wages and fair working conditions. By choosing to work with suppliers that advance social, environmental and economic outcomes in their local populations, the NHS can secure even greater value from its investments and support broader community health and wellbeing. By changing its procurement and commissioning processes, the NHS can also lead by example and influence other organisations in its supply chain, thereby having a wider community impact.

What do anchor procurement strategies look like in practice?

Shifting more spend locally

  1. Building local capacity and supporting local supply chains

Embedding social value into purchasing decisions

  1. Prioritising and monitoring social value
  2. Building organisational capability and capacity for social value

Policy context

Applying anchor strategies to NHS procurement is not without challenge, as this is an area where NHS organisations have less local flexibility, particularly in England. This is especially true following the introduction of the Future Operating Model (FOM), which aims to improve efficiency and effectiveness of NHS purchasing by introducing greater standardisation and price transparency.

It is expected that once the FOM is fully implemented, 80% of the NHS’s spend in England on everyday hospital goods, consumables and capital equipment will be purchased through centralised procedures. The FOM was developed in response to recommendations in Lord Carter’s review into operational productivity in English hospitals, which determined that the NHS could do more to leverage its collective buying power to reduce unwarranted variation in prices and procurement approaches and help release savings. The FOM covers 11 ‘category towers’ or areas of spend, including medical consumables, capital equipment and common goods, but there are still areas where the NHS has more flexibility to procure locally, including catering and hotel services.

Even with these changes, procurement and commissioning can still be used to improve health outcomes for local communities. In England and Wales, the 2012 Social Value Act requires public sector commissioners to consider how the services they buy support wider social, environmental and economic wellbeing when they procure services above OJEU (Official Journal of the European Union) thresholds., Scotland has a similar policy, where the government requires contracting authorities to consider how procurement can help reduce inequalities and shift more spend towards SMEs in contracts of £4m or above. In Wales, the government also requires public sector organisations to apply a community benefits policy to all procurement, regardless of the value of the contract (though outcomes need only be reported on contracts worth over £2m). The UK government also committed to spending £1 in every £3 with SMEs by 2020, and there are separate requirements in England that food and catering services procured by central government or the NHS must meet specified social and environmental aims.

The legislation should, in theory, promote anchor practices, but there are significant differences in how NHS organisations have applied its principles. In England, a 2017 analysis of CCG Freedom of Information Act requests revealed that only 13% of clinical commissioners actively considered social value as part of decision making, and 43% had no policy in place.

Although this variation suggests room for improvement, some NHS organisations are already using social value and purchasing decisions to benefit the local community.

Learning from practice

Shifting more spend locally

  1. Building local capacity and supporting local supply chains

An important first step in shifting more spend locally is to understand current purchasing practices. NHS organisations can conduct internal audits of procurement spend to identify the percentage of purchasing that stays within the local region, and then work out how to reallocate more of the purchasing budget towards local organisations. The Centre for Local Economic Strategies (CLES) benchmarked spend at two NHS provider trusts by examining procurement data on goods and services from their top 300 suppliers for 2017/18 (see Table 2).

Table 2: Procurement spend of East Lancashire Hospitals NHS Trust and Leeds Teaching Hospitals NHS Trust, 2017/18

Procurement spend

Percentage spend in local authority

Percentage spend in wider region

Percentage ‘leakage’ outside wider region

Leeds Teaching Hospitals NHS Trust


28% (Leeds City)

31% (West Yorkshire including Leeds)


East Lancashire Hospitals NHS Trust


19% (Burnley and Blackburn-with-Darwin)

23% (Lancashire)


This shows that significant spend at each trust is ‘leaking’ out of the local economy, and there is potential to work with local suppliers and get more value from procurement. How local economic boundaries are defined will vary by area, but benchmark analysis can help organisations set reasonable targets for retaining more spend within communities.

Once an organisation understands its purchasing practices, it needs to find ways to prioritise local suppliers. Stakeholders reported pushback from staff who fear that requiring suppliers to be local is anti-competitive and violates existing regulations. While regulatory frameworks do prevent NHS organisations from requiring suppliers to be only local or use only local labour, procurement experts we spoke to said that it can be specified that potential suppliers must help advance local community development. More can be done to provide training and clarity to purchasing teams on what is legally possible and how to enforce social value.

Some efforts by anchors to procure more goods and services locally have been criticised as protectionist or inefficient., It is important to fully evaluate and understand the impact of these strategies; anchor strategies should aim to boost the competitiveness of local suppliers, not shield them from competition. Any effort to shift more spend locally must be in line with existing regulations that require services to be competitively procured. Audit functions can be bolstered to help ensure these potential risks are mitigated and that local suppliers compete credibly on costs and quality.

Shifting more spend locally will also depend on the capacity and capability of the local supplier market, and may not be possible in all areas of spend. Anchor organisations have a role in supporting local supply chains and ensuring that local businesses, social enterprises and SMEs can compete for and secure NHS contracts. Existing tools and guidance make clear that building local capacity starts in the pre-procurement phase, identifying which resources and services can be secured by organisations working in and with people from the community., This may involve conducting audits and outreach with the local economy to identify opportunities and build new relationships, particularly with SMEs and voluntary sector organisations. Local NHS charities are often well placed to know voluntary sector organisations or SMEs in the area with whom to engage.

Interviewees noted how this engagement can help build awareness and encourage smaller organisations to bid for and win contracts. Engagement also helped contracting organisations understand the barriers that local organisations face in working with the NHS. Experts we spoke to thought that STP and ICS leadership could be helpful in coordinating this engagement across a larger area, but that individual organisations still need to conduct their own engagement and outreach, particularly in the lead-up to large projects and contracts being advertised. Procurement leads described how it can be difficult to reach smaller organisations that may not always have the capacity or staff to engage in outreach. This is why NHS organisations should also consider taking other measures alongside engagement, like ensuring prompt payment terms or unbundling contracts into smaller parts so that SMEs are more able to compete, and are not required to deliver all aspects of a service to be successful. Interviewees warned, however, that enacting these strategies can be administratively time-consuming, and not all NHS teams have capacity and expertise to do this.

Some anchor organisations have also developed toolkits and guidance for suppliers to help organisations understand the required criteria and improve the quality of applications. For example, the Greater Manchester Combined Authority developed a toolkit for suppliers that lists clear examples of what provider organisations can offer as part of their bids against core social value criteria, alongside a list of resources to help organisations implement these practices. And in Wales, the Co-operative Centre (a community development agency that supports social enterprises and co-operatives) has developed modules and guidance for suppliers demonstrating ways they can contribute to broader social value, as well as tools and techniques for reporting against criteria.

More can be done at the national and regional level to help NHS organisations spend more locally. For example, in England, stakeholders noted how the FOM towers (see page 25) could incorporate at least one regional provider (where possible) in categories to give NHS organisations an opportunity to retain resources within the health economy where appropriate.

Case study 3: North Bristol local food procurement

North Bristol NHS Trust changed its approach to procurement of catering services to purchase more food locally. In 2018, 54% of its food spend went towards local produce. It has been awarded Food for Life certification by the Soil Association, recognising excellence in catering that provides environmentally sustainable and ethical food.

To make this change, the catering team conducted a large audit to identify what produce was available locally and the financial implications of switching suppliers. They removed certain menu options (lamb) that could not be sourced within a 50-mile radius. This increased costs slightly: for example, beef cost 1p more per meal when sourcing from a local and organic provider. The director of facilities, who was supportive of the change from the start, looked for savings from elsewhere to offset the increase. Existing regulations helped gain senior backing for the approach, as trusts are already required by the Department of Health and Social Care to have a food and drink strategy that supports procuring more food from local, sustainable sources.

Embedding social value into purchasing decisions

  1. Prioritising and monitoring social value

    There are promising examples of NHS organisations that have embedded social value into procurement processes, either by introducing explicit weightings or designing core contract specifications so that suppliers must meet specific conditions – for example, creating local jobs and training opportunities, paying a living wage and adopting environmentally sustainable practices.

    To aid this process, some NHS organisations have established frameworks and action plans with specified outcomes and definitions for social value to assess bids and help measure performance against social objectives. Doing so often requires sophisticated cross-department working to write contract specifications and agree common aims and procedures. Stakeholders we interviewed noted that senior leaders play an important role in developing a clear vision and strategy for social value to underpin these efforts and ensure they are consistently applied.

    STPs/ICSs also have an important role in strengthening the application of social value across a health economy. At present, very few STP plans (13%) refer explicitly to social value, though some do include related objectives around narrowing inequalities, improving access to housing and reducing poverty. STP and ICS leads could work with partners across a place to agree shared objectives and define common metrics for social value, which in turn could help reduce local variation in how the concept of social value is adopted in a local health economy and could help mainstream it in practice.

    Even where frameworks exist, the NHS could take a broader approach to have an even greater impact on community health and wellbeing. For example, when NHS organisations consider social value it tends to be primarily as part of competitive tender processes, which are limited to large contracts. Applying these principles more systematically across areas where the NHS has greater flexibility (such as hotel and catering services), even though they may be of lower value, can help maximise spend for community benefit. Stakeholders noted that the overall weighting NHS organisations give to social value when scoring contracts tends to be low (between 5% and 10%), with most value placed on cost and quality. This is lower than local government, where social value weightings can be as high as 30%.

    Applying more weighting to social value increases the likelihood of selecting suppliers who provide greater community benefit, but even so, there are trade-offs. For example, requiring that all suppliers pay their staff a living wage can make a service more expensive to deliver:

    ‘Often we have no flexibility to increase the cost of running a service, so requiring suppliers to pay a living wage means we can’t deliver the whole service to the same level. This is made harder by the fact that we face pressure to achieve cost savings on contracts year on year… This is why we’ve started with a weighting of 10%, with the goal of increasing it slowly over time. This felt more manageable to our purchasing team.’

    Head of partnership

    Clinical commissioning group

    There are still limited accountability mechanisms for enforcing the use of social value, which interviewees believed may contribute to inconsistencies in how it is applied. To be compliant with the Social Value Act, public sector commissioners are only required ‘to consider’ social value in purchasing decisions, yet they are rarely scrutinised to show what ‘consideration’ means. Even with the incorporation of social value into the NHS Standard Contract in England, CCGs and trusts reported not being required to provide evidence for how they meet the requirements.

    Strengthening the legislation so that public bodies are required to formally incorporate social value into purchasing decisions could help mainstream it in practice. In 2018, the government announced plans to do just that – making social value an explicit requirement of central government contracts. Legislative proposals intended to ease the implementation of the NHS Long Term Plan also aim to introduce a ‘best value test’. Although more detail is needed on how the test will operate, this has the potential to support system leaders to incorporate wider considerations of public and social value when commissioning services. But legislative changes notwithstanding, there is more that can be done to build greater accountability for social value across the sector. Interviewees said that NHS England and NHS Improvement could help introduce stronger incentives for social value, either by encouraging use of weightings or helping to define minimum key performance indicators (KPIs) through existing levers, including CCG assurance frameworks and STP/ICS guidance. They could also set minimum social value standards for the NHS nationally, establish common metrics and showcase promising practices that can be adapted locally. The Scottish government, for instance, has issued guidance for contracting authorities on how to define community benefit requirements as part of procurement, with suggestions for how public sector organisations can develop metrics to monitor performance against national and local outcomes.

    However, even where national standards and resources exist to support more progressive procurement, they have not always become embedded in practice. For example, the Government Buying Standards for Food and Catering Services (GBSF) requires all central government departments and the NHS in England to meet basic minimum standards for sustainability and socioeconomic value, and to use a balanced score-card when evaluating bids to ensure that more complex criteria, like how companies source from SMEs, are factored into procurement. A 2017 government review found that while significant progress had been made to adopt GBSF standards, almost half of NHS trusts were not fully compliant. According to stakeholders we interviewed, the scorecard has been difficult to mandate centrally, given that these services are procured so differently across organisations and often involve sub-contractors that can be harder to monitor.

    Many NHS organisations also lack the means to ensure that their suppliers follow through on social value commitments. Establishing monitoring frameworks so that NHS organisations can systematically collect evidence and track progress against social value indicators could help build accountability and increase the benefit of anchor procurement strategies. However, stakeholders noted that contract management can be time-consuming, and should be proportionate to the size of the contract to avoid being overly burdensome.

    Case study 4: Wales community benefits measurement tool

    Wales provides an example of how to monitor and build accountability for social value at national and local levels. The government requires public sector organisations to report on the broader community benefit of contracts over £1m (though organisations are encouraged to consider social value as part of all procurement decisions, irrespective of value).

    To aid this, the Welsh government has established a community benefits measurement tool to help organisations capture the full range of outcomes, including worksheets and guidance for purchasing managers to report on a number of defined measures. These include whether procurement budgets have: supported businesses based in Wales and SMEs; helped local unemployed people to find work; diverted waste from landfills; and created new apprenticeships and training opportunities. Organisations report to the government, which can then track the broader social value and multiplier effect of public spend.

    While designed primarily as a reporting tool, this resource has also provided a consistent way for organisations to measure outcomes. It is used locally by organisations as part of their ongoing contract management process to ensure that suppliers meet agreed standards for social value.

    Case study 5: Social value in Salford

    Salford provides one of the more advanced examples of what a collective approach to social value and progressive procurement can look like. In 2016, organisations across the public, private, voluntary and community sectors formed the Salford Social Value Alliance, which supports all partner organisations to deliver services and contracts with social value in mind. In 2017, it launched a campaign to make a 10% improvement across 11 social and environmental outcomes by 2021. This included increasing the number of residents from vulnerable groups accessing jobs and training; supporting more people to cycle when commuting; and directing more spend towards local organisations.

    The alliance includes local NHS organisations, which took part in early engagement activities to help establish shared principles for how to embed social value priorities in health and care commissioning and procurement. Salford CCG has since developed an action plan for social value, which acknowledges its role as an anchor and builds on the metrics set in the 10% campaign. It is also expected that this strategy will help underpin developments through the ICS and joint working with the local council as part of integrated commissioning arrangements.

    The alliance has also created toolkits and resources to help partner organisations embed community benefit into commissioning and procurement decisions, and to measure impact. The city council has taken the lead in producing annual reports on social impact. In 2018, 59% of local government’s direct procurement spend was with Salford-based suppliers, nearly half of their wage bill goes towards residents and 18 council suppliers are accredited Living Wage Foundation employers (up threefold on the previous year).

  2. Building organisational capability and capacity for social value

It is essential that any effort by system leaders to embed social value comes with capability building for those in charge of procurement. Interviews revealed how purchasing managers – even those who understand the importance and concept of social value – often have limited capacity and capability to incorporate principles in their daily work:

‘The expertise of our patient meals contract manager, for example, is to make sure that our patients are satisfied with the quality of their meal, and that they get what they need to support their recovery. It’s not usually in their skill set to write contracts to drive social value and provide evidence for how they are increasing local employment and reducing gender pay gaps across employees… Even when they understand why the principles of social value are a priority, it is not something they have been trained to do.’

Sustainability lead

Acute trust

Purchasing teams must also be given the time and space to build skills and knowledge on social value and explicit permission to integrate these outcomes into contracting decisions. System and organisational leaders can help signal more clearly that social value is a priority, and take steps to ensure that local teams see it as part of their role. They also have a role in facilitating sharing of learning evidence and good practice. Numerous tools and resources exist to help support staff training on social value and progressive purchasing practices. For example, the NHS Sustainable Development Unit (SDU) has developed a range of resources, including a learning module, case studies and social value calculator, to help NHS organisations apply the Social Value Act. Social Enterprise UK has developed a Social Value Guide to help procurement managers and commissioners apply social value in practice. Some of our interviewees from CCGs also mentioned developing training packages on social value for use by procurement teams across their health economy. (Further resources to support staff capability and knowledge on social value are available in the box on page 35.)

The experience of NHS trusts also shows the value of having a designated sustainability or social value lead who can oversee local purchasing initiatives and link up efforts across departments. Interviewees said that the person in this role can also train purchasing managers across the organisation and ensure that strategies are applied systematically (also freeing up capacity among purchasing managers, who are often pressured to meet other efficiency targets).

‘It can be helpful to have someone who sees supporting social value across the organisation as their primary role and has the knowledge to think of the same problem through different lenses. Workforce teams don’t always work with procurement teams, or with estates – it can be really helpful to have someone who can link efforts and help bring these functions together as part of one strategy.’

Sustainability lead

Acute trust

Stakeholders also emphasised the value of designating a board member to lead on social value and sustainability to help join up efforts as part of a more centralised organisational approach.

Summary and implications for practice and policy

Directing more of the NHS’s spend towards community benefit is not without challenge, given that many purchasing decisions are made centrally. However, there are still areas of procurement (particularly within services) where purchasing can be a lever to stimulate local economic development and support broader socioeconomic aims. There is legislation in each country of the UK to support this, but more must be done nationally to help clarify definitions, metrics and opportunities to fully embed social value principles. This means defining minimum standards nationally and putting in place accountability for delivering social value across the system.

While implementation will look different based on local and organisational contexts, there are opportunities nationally to develop templates, standard contract language and measurement tools that can be adapted by local systems to avoid unnecessary duplication of efforts.

Underlying all these efforts will be a need to build greater organisational capability. For NHS organisations, this means giving purchasing managers the time, training and resources they need to develop new expertise and progressive procurement approaches. Local system and organisational leaders should signal promoting social value as a priority and ensure that teams are given the permission to adopt new approaches. NHS organisations should also be encouraged to learn from other local partners (such as councils) with experience in implementing progressive procurement policies. Driving change will require baseline data on current practices so that each organisation can set informed and realistic targets for directing more spend towards community benefit. It also requires organisations to understand their local markets and address barriers that local suppliers face when trying to work with the NHS. And, as with all anchor practices, progressive procurement approaches will have greater impact if included as an explicit organisational aim, with someone leading on coordination and monitoring across the organisation.

Practical resources to support implementation

Creating Social Value – module (Sustainable Development Unit)

Economic and Social Impacts and Benefits of Health Systems (World Health Organization Regional Office for Europe)

Social Value Calculator (Sustainable Development Unit)

Social Value Toolkit. Guidance for Suppliers (Greater Manchester Combined Authority)

Social Values Forums Toolkit (Wales Co-operative Centre)

The Public Services (Social Value) Act 2012. An Introductory Guide for Commissioners and Policy Makers (Department for Digital Culture, Media and Sport)

The Social Value Guide. Implementing the Social Services (Public Value) Act (Social Enterprise UK)

Using the Social Value Act to Reduce Health Inequalities in England Through Action on the Social Determinants of Health (Public Health England and UCL Institute of Health Equity)

§ Procurement and commissioning are both used in reference to social value and mean slightly different things. In this paper, we use the following definitions:

• Commissioning is the process that public sector organisations go through to assess and determine what services are needed for a local area and choose what and how to allocate resources to provide services that meet those needs. Commissioning is a cyclical process involving many steps to meet strategic objectives, including identifying need, scoping the market for potential providers, drawing in expertise, establishing service specifications, deciding how to resource the service, selecting a suitable supplier, and evaluating and monitoring performance against service specifications. Commissioned services can be funded in many ways, including providing the service in-house, grant funding or procurement from external providers.

• Procurement refers to the method of purchasing goods and services by public sector organisations from other external or third-party organisations, resulting in a contract. Source:

Local multipliers are used to estimate the knock-on effects (for example, new employment opportunities or increased incomes locally) of stimulus spending on local economic growth. A multiplier greater than 1 corresponds to a positive growth stimulus (returning more than £1 for each pound invested locally), whereas a multiplier less than 1 indicates a net loss from spending.

** To provide context to these figures, CLES has created an average of the spend of the 26 analyses it has carried out covering procurement in a range of anchor organisations (including local authorities and higher education institutions). It finds that on average, anchors spent 36% of total spend inside the local authority boundary and 63% within a wider regional area.

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