Charities and corporations may team up to bid for public sector contracts – special report

Community Care columnist Peter Beresford claimed last month that big charities are increasingly acting like big business as they strive to win more major public service contracts.

So it comes as little surprise to him that, under proposals being developed by the Association of Chief Executives of Voluntary Organisations and the Confederation of British Industry, some big charities are considering teaming up with large corporations to bid for public sector contracts (news, page 6, 6 July).

Beresford, also professor of social policy at Brunel University, says these plans are a “logical development” but believes they are “another expression of a blurring of sectors we need to worry about”.

Acevo held an initial meeting to discuss the idea in May and reported interest from both the private companies, such as Capita and Serco (see box), and charities, including Thames Reach Bondway and Rethink, that attended.

However, last week, as the plans were revealed, a report commissioned by the PCS union criticised the close links that already exist between some charities and private companies, and the concentration of major contracts among larger charities.

Nick Aldridge, Acevo’s head of strategy and communications, says there is logic in the idea because, he claims, the strengths of the private sector often complement those of the voluntary sector.

While the voluntary sector is good at user focus and public service, he says it is much weaker at gaining access to capital, contract negotiation and sometimes performance management, areas of private sector expertise.

For instance, he says contracts between government and the voluntary sector tend to be short-term and weak, whereas private firms routinely negotiate five-, seven- or 10-year contracts.

Dianne Leyland, director of development at the National Association for Voluntary and Community Action (formerly the National Association of Councils for Voluntary Service), says it works “very closely” with Acevo on a number of issues but “this is one we tend to differ on”.

She adds: “Most of our members are locally based. Within their membership they tend to have some enterprising organisations that want to bid for contracts but the majority of smaller local organisations are a world away from that.

“We have the same values in the public sector but people tend to see the private sector as more about profit.”

Beresford says it is “not difficult to see” the benefits in the proposals for private companies, especially those from overseas that “might not be used to the values, cultures and practices in the UK”.

But he warns it could create a public backlash against charities that enter such arrangements.

“It’s about the value base that people think they are signing up to when they give money to voluntary organisations,” he says. “This is a very big question mark that should deter voluntary organisations from going into this.

“I don’t think the public has caught on to what actually happens to the money they give. If they do, I think it’s going to create big problems.”

Rethink chief executive Cliff Prior believes the “enthusiasts and critics are both right”.

He says: “We are certainly interested in exploring these partnerships, as we are with statutory bodies and other charities.”

Rethink already has close links with private companies through, for example, the advocacy services it runs at independent hospitals, and says the key to making these arrangements work is ensuring that partners have a good track record and can be trusted.

“The needs out there are too great for any single agency to tackle on their own,” he says.

“The most critical thing is trust about purpose, and the second is good legal and financial advice on the forms of partnership.

“You’ve got to look at who the shareholders are and if they are in it for the short-term profit or longer term.

“We already check these things out [with advocacy contracts]. Are they genuinely interested in independent advocacy or do they want a patsy?”

He points out that charities, as well as private companies, strive to make a profit, the difference being that they seek to redistribute their surplus for the same purpose.

But he says he “does not want to diminish the degree of diligence that needs to go into these checks”.

He also warns that private companies can change ownership at any time, meaning strong relationships with individuals can be severed and different culture introduced.

“That’s where you need appropriate legal forms. We need to make sure we safeguard the future.”

Acevo’s initial thinking:

Potential areas for collaboration are health, social care, education and correctional services.

Under a joint structure, a charity might provide input to the management and strategy of, for example, a prison, while the day-to-day running would be left to a private company.

It is envisaged new partnerships would be set up to bid for specific projects. One option would be a “community interest company”. Profits would be shared and for the charity to use for any charitable purpose.

About…

Capita:

Describes itself as “the UK’s leading business process outsourcing and professional services company.

Operates in local and central government and education, as well as in the private sector.

Made a pre-tax profit of £177 million on turnover of £1.436 billion in 2005.

Chief executive Rod Aldridge received a basic salary of £342,150 and performance-related bonus of £479,010 in 2005.

Public sector contracts include the running of the POVA First disclosure service for people working with vulnerable adults

Its Capita Resourcing arm is a recruitment agency operating in social care and other sectors.

Serco:

Serco’s website claims it is an “international service company which combines commercial know-how with a deep public service ethos”.

Best known in the UK for its contracts to run prisons, including Ashfield Young Offender Institution and Hassockfield Secure Training Centre, plus electronic monitoring of offenders in the community.

Also operates in local government, leisure, transport and aerospace – it boasts that in 1964 it won the government’s first ever outsourced contract, for the operation and maintenance of the UK ballistic missile early warning system.

Made a pre-tax profit of £91.5 million on turnover of £2.26 billion in 2005.

Executive chair executive Kevin Beeston earned £704,814, excluding pensions, in 2005. Chief executive Chris Hyman was not far behind with £702,908.