What must smaller charities do to gain public sector contracts?

Natalie Valios considers the struggle that smaller charities are having in gaining contracts to provide public services
A recent report by the Charity Commission reveals that 38 per cent of the third sector’s income comes from statutory sources, but only 2 per cent of government expenditure on public service delivery is paid to the charitable sector.

This is expected to dramatically increase. The establishment of a third sector commissioning task force and the Treasury’s Charity and Third Sector Finance Unit plus the appointment of a Compact commissioner to oversee the relationship between the voluntary and public sector all point to the road ahead.

And, at a quick glance, it looks as though voluntary organisations are strapped firmly into the driving seat of public sector provision. But the reality is that few organisations have made it onto the starting grid.

The Charity Commission report, published in February, reveals that less than a third of charities asked are delivering public services, but this includes 62 per cent of charities with incomes above £500,000. Only 8 per cent of charities with incomes below £10,000 deliver public services.

The figures confirm anecdotal evidence – and smaller charities’ suspicions – that local authorities, primary care trusts and other public sector commissioning bodies are more often than not plumping for the big names of the third sector when it comes to awarding contracts.

According to Richard Gutch (pictured left), chief executive of Futurebuilders England, this uneven playing field exists because of the tradition of providing services in-house or through contracting with the commercial sector. Futurebuilders England is a government-backed fund offering support and investment through loans and grants to third sector organisations to deliver public services. Since 2004 it has invested in more than 200 small and medium-sized voluntary organisations that want to get involved in providing public health and social care services.

“We invest in them to help them win contracts. We give them a loan and they repay it once the fee from the contract comes in,” says Gutch. “It can be difficult to get commissioners to take voluntary groups seriously to get contracts that respect the full costs of providing the service and to get three-year contracts as opposed to one year. Often, commissioners view the voluntary sector through ‘grants spectacles’, rather than thinking of them as potential providers of services under contract.”

The complex tendering process is also a barrier, he adds. “Sometimes commissioners require levels of public liability insurance that would rule out many voluntary organisations. Sometimes [those tendering] are required to have a minimum financial turnover over the last three years which would also rule them out.”

But he says the third sector needs to step up a gear if it is to impress commissioners. “It needs to be better at marketing itself and putting across the added value it brings to public sector delivery.”

A meeting Gutch recently attended with commissioners from one local authority, a PCT and third sector representatives summed the situation up perfectly. “One person from a voluntary organisation said ‘they don’t know how to buy and we don’t know how to sell’.”

Although some commissioners are keen to use locally based organisations because they can see the value of their local connections and knowledge, they can be put off by concerns about capacity and whether they have the right skills.

Futurebuilders is doing two things to address this. First, it is supporting several consortia of local organisations so they can enter into larger contracts. One example is in Hertfordshire, where a consortium of eight now has a contract with the council and a PCT to provide counselling for young people.

Second, it is talking to larger national charities about going into partnership with local groups, to give a contract the capacity and stability of the national provider with local knowledge and understanding.

London Councils is commissioning local voluntary organisations to provide 59 priority services to meet key areas of need in the capital to the tune of £28m a year. For each service, London Councils will produce a specification to define what it wants achieved through its funding. This grants programme used to be done through open bidding but that changed earlier this year after a review with the third sector. Now London Councils is commissioning the services instead.

“We don’t expect big organisations to parachute services into London where they have no knowledge of the area,” says Ian Redding, its head of overview and scrutiny. “There’s no reason why voluntary organisations can’t compete but we need to get to a situation where they see themselves as partners and feel able to contribute to and shape the agenda.”

ChangeUp is a strategy to help achieve this. Set up between government and the voluntary sector, it aims to strengthen the capacity of the sector to deliver public services. London Councils is working with ChangeUp’s London Regional Consortium to develop contracting skills on both sides.

“There are strong economic and social arguments for investing in local organisations. Money is reinvested locally, to sustain and regenerate the area,” says Redding.

But lack of imagination is preventing this, says Richard Kemp, deputy chair of the Local Government Association. “If I was doing an end of term report for local authorities and PCTs I would be saying ‘must try harder’. There are no legal or structural impediments to doing this. Local authorities need to look at how services can be better provided in their area. If they give a contract across a whole city, for example, smaller voluntary organisations can’t tender for it unless they link together.”

Equally, the third sector must be more professional in the way it approaches councils, he adds. “Too often, they come with a problem not a solution. So they’ll say there needs to be more youth activities – we are a youth charity, give us more money, rather than saying the young people in the area can’t do a, b or c because the council is doing x, y and z.”

But it will take more than imagination to tackle the four areas the Association of Chief Executives of Voluntary Organisations cites as central to the problem of smaller organisations delivering public services: short contracts, too much risk being shifted on to charities, full cost recovery and levels of bureaucracy.

These issues were flagged up in Acevo’s Surer Funding report in 2004. But as the Charity Commission report highlights, three years on they are all still valid.

Acevo has come to the conclusion that campaigning with the government on the issue will only have a limited impact. “These decisions are made locally so we are focusing more on building charities’ skills on the ground so they can negotiate effectively,” says Nick Aldridge, director of strategy. “Commissioners are going to favour organisations with a successful track record that can put in decent bids in time and show professional competence.”

The Charity Commission report suggests that larger, regionally based charities predominate in public service delivery. So for Acevo, the key area is sub-contracting.

“Small organisations can’t do regions so they need to start developing good working relationships with large organisations so they can take part in a regional bid,” says Aldridge. “As National Offender Management Service reforms more commissioning to a regional level, we could push hard for ring-fenced funding for drug rehabilitation, mental health services and employment training for every prison, and for these contracts to be sub-contracted on a small scale where smaller charities would have an good chance of putting bids in.”

As last year’s eponymous Third Sector Commissioning Task Force report states, there really are no excuses.

Quick facts

● An estimated 35,000 voluntary sector organisations provide health and social care in England with a combined income of £12bn. While the vast majority of these are small or medium-sized with annual incomes below £1m, a few large organisations account for the vast bulk of third sector service providers’ income and expenditure.
● 62 per cent are social care providers exclusively and 23 per cent provide both.
● Just over half of the organisations’ funding comes from the public sector.
● 1,600 more voluntary sector providers plan to provide health and/or social care in the next three to five years.
● Councils are positive about services provided by voluntary sector organisations, with overall levels of satisfaction high (over 80 per cent).
● Only 12 per cent of charities are always fully reimbursed for public contract costs.

Sources: Third Sector Market Mapping: Research Report, IFF Research, February 2007, www.dh.gov.uk/en/Publications, Stand and Deliver, www.charitycommission.gov.uk

Further information
Compact

Related articles
Voluntary sector special report

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  Natalie Valios