Setting up a consortium – is it worth the bother?

Consortium expert Neil Coulson and NCVO public services senior officer Lev Pedro outline why front-line charities need to keep their eyes open for opportunities for consortium working, whilst remaining vigilant to the risks and challenges.

The problem – bigger contracts

A major driving force behind the trend towards aggregation of contracts is – understandably – the need to reduce the ‘transaction costs’ of commissioning. With ongoing public sector austerity, many local authorities and other public sector organisations see the shift away from holding multiple contracts with a plurality of independent providers as an economic necessity (though research by Locality suggests that there may be in fact be ‘diseconomies of scale’).

The recent EU procurement directives gave national governments the option of requiring contracting authorities to break large contracts down into smaller lots where possible. Although the UK government chose not to do this, commissioners must still ‘provide an indication of the main reasons for their decision not to subdivide into lots’.

What are the solutions?

(1)  Work with a commercial ‘prime contractor’

Opportunities exist for voluntary organisations to work in subcontracting arrangements with private-sector ‘prime contactors’, as we’ve seen with the Work Programme and the recent restructuring of probation services. While this has been beneficial for some organisations, the difficulties, particularly for small providers, have been well documented.

(2)  Walk away

Alternatively, you could walk away from contracting altogether and seek instead to secure money either through grants or income generation such as charging for services. But this can mean staying dependent on multiple short-term funding streams, or potentially drifting away from your core mission.

(3)  Create our own solution

A more compelling idea has come from the sector itself. We can create the scale needed to bid for contracts, reduce the cost of contract management to the commissioner, and at the same time deliver more efficient, better coordinated services to our beneficiaries. This can avoid service users falling through the cracks that typically open up in referral pathways from one service provider to another. Providers, instead, work together to achieve ‘whole system outcomes’. And, rather than having to work within the culture and working models of commercial organisations, we can set the values and ways of working ourselves.

‘Herding cats’ – the challenges

(1)  Culture shift

Voluntary organisations all have different ways of working and divergent operating cultures. We are also used to competing against each other for finite, and increasingly diminishing resources.

(2)  Loss of independence

Independence and autonomy is part of the sector’s DNA and we rightfully do not want our well tested ways of working to be diluted.

(3)  Lack of track record and financial capability

Commissioners can be inflexible in how they view track record, failing to acknowledge the combined track record of consortium members. Also, a new business with no assets and no existing revenue often cannot qualify in a tendering process.

(4)  Cost of building and maintaining the infrastructure

Substantial funding is needed to seed-fund setting up the operating infrastructure of a consortium, and once set up there is an ongoing revenue liability. It is unlikely that consortium members can fund this development, and many of the funding sources that supported this have dried up. The new Local Sustainability Fund might offer support here.

Conclusion

The process of building a consortium will take a lot of time and money, and it will certainly feel like herding cats. There will be successes and disappointments. However, with the continued trend towards larger contracts, as long as the model is right, a consortium can provide a structure that can support smaller frontline organisations to win contracts and deliver services that they otherwise would not have access to.