A commissioning environment that’s skewed against smaller charities

Following the publication of the House of Lords select committee on charities’ report Stronger Charities for a Stronger Society (PDF, 1.7MB), we are publishing a series of posts covering the take-away issues and what charities can do in response, highlighting what we think are the best available resources to help you if you want to take action. Look out for further posts on:

• governance 
• funding and finance
• regulation
• campaigning and advocacy
• impact
• digital
• public trust and confidence
• volunteering
• next steps for infrastructure: An action plan for implementing the report.

Among the issues covered by the Lords’ select committee in its report, the commissioning landscape for charities features strongly and peers have made a number of recommendations to improve the way public services are commissioned. This blog analyses the recommendations in detail, and highlights some of the initiatives that are already underway to address the problems, and resources that are already available to help turn the recommendations into reality.

Small charities are being side-lined

The committee rightly points out that the current commissioning landscape is skewed against smaller charities. This echoes our recommendation that public bodies should make better use of the recent public procurement reforms to give charities greater access to contracting opportunities, such as splitting contracts into smaller lots, and the consideration of wider social and environmental objectives when tenders are evaluated.

As part of the government’s ongoing work to help small charities get commissioned more, the committee recommends it also provide support for the development of voluntary sector consortia to help smaller organisations bid for larger contracts. NCVO has produced comprehensive guidance on forming consortia which could provide a useful starting point for the development of this programme of support.

The committee also recommends that government guidance on commissioning highlights the risks of larger organisations exploiting smaller charities through the commissioning and subcontracting process. We have commented extensively on the challenges associated with the prime/sub-contractor model of service delivery, first with the Work Programme and more recently with the government’s Transforming Rehabilitation scheme. We are therefore encouraged to see that the Committee has voiced similar concerns.

Commissioner oversight of supply chains is vital to ensure subcontractors are not treated as ‘bid candy’ and receive agreed referral volumes. We will continue to work with DWP’s Merlin Advisory Board on promoting supply chain excellence through the Merlin Standard and with Clinks on monitoring the voluntary sector’s involvement in the Transforming Rehabilitation programme.

Payment-by-results is harming the sector

The problems associated with using payment-by-results (PbR) in public service delivery, particularly for small and medium-sized charities who often lack upfront capital or capacity for risk, were noted by several witnesses who submitted evidence to the committee, including NCVO.

In response, the committee recommends that commissioners give greater consideration to the sustainability of organisations that are commissioned to deliver PbR contracts, and that government should examine whether existing guidance needs to be amended to ensure that this happens. Importantly, the committee also suggests that charities themselves need to ensure they have sufficient cash flow before they engage in PbR delivery.

The committee’s recognition that PbR is harming some charities is welcome, and its acknowledgement of the National Audit Office’s findings on the limitations of PbR and underestimation of the risks involved is significant. In our written evidence we went further in calling for the systematic collection of data on the use of PbR in public service contracts, which would move us closer to ensuring that government policy in this area is informed by evidence. This is something we’ll continue pursuing in our engagement with government and commissioners.

A revitalised role for grants

The committee correctly highlights the important role that grant funding plays for the sustainability of charities and their capacity to innovate in service delivery. They call for a greater understanding in the public sector of the advantages of grant funding for charities, and recommend that local government consider this when planning their finances.

The transition from grants to contracts has proved problematic for many charities in recent years (see Karl’s blog post and our submission to the VCS health review on why grants are important for the sector). The committee’s recommendations will therefore be music to many people’s ears. We would like to see government produce guidance for commissioners highlighting the benefits of using grants, perhaps similar to NHS England’s Bite Sized Guide to Grants for the Voluntary Sector.

On the subject of sustainability, the committee also suggests that commissioners consider covering ‘realistic and justifiable’ core costs and use longer-term contracts wherever possible. Again, all positive stuff (see Michael’s funding and finance blog post for more on this and what the Committee recommends).

A need for more partnership working

The committee points out that meaningful relationships between commissioners and their voluntary sector counterparts are all too rare, and as a result, commissioners are missing out on important information about local needs that would ensure better and more efficient services. Reflecting the recommendations of the VCSE Health Review, the committee asks local commissioners to do more to embed partnership working in their processes and cultures to ensure communities get the best outcomes possible.

The potential of devolution to help develop stronger cross-sector relationships and co-designed services was also noted by the committee. Echoing recommendations made in our recent report, the committee says there needs to be meaningful dialogue between charities and local government when devolution proposals are developed and delivered. Specifically, they recommend that the Office for Civil Society works closely with the Department for Communities and Local Government, and infrastructure bodies to ensure that this happens.

In terms of providing a framework for building cross-sector partnerships, the committee stresses the importance of the Compact as a ‘valuable statement of principle’. They recommend that both national and local government review their Compacts – in collaboration with the voluntary sector – to ensure they remain fit for purpose and reflect the changing role of charities.

Knowhow Nonprofit has a series of practical guides on partnership working between the voluntary sector and key public bodies. While primarily aimed at charities, these guides would provide valuable food-for-thought for many of the commissioners in the committee’s sights.

A Social Value Act with teeth

Possibly one of the clearest recommendations made by the committee in terms of implementation relates to the strengthening of the Social Vale Act. While recognising government efforts to promote and review the Act, the committee think – rightly so – that more can be done to maximise its potential.

Echoing a key recommendation of NCVO, the committee calls on Government to require public sector commissioners to ‘account for’ rather than merely ‘consider’ social value when they commission public services. We believe this would be a significant step forward in terms of encouraging better outcomes for communities – hopefully the government will agree when it concludes its forthcoming second review of the Act.

A positive vision for reforming commissioning

The committee’s report provides a positive vision for reforming commissioning and procurement. Given the many challenges charities have been confronted with of late, this is a significant and welcome boost for the sector.

There is now a responsibility for us and the rest of the sector to ensure the committee’s recommendations will lead to real change. For our part, we’ll continue our work around increasing the role of charities in health care and the devolution agenda, while working with government to make contracting more transparent and procurement fairer. We will also be looking to work closely with the new voluntary, community and social enterprise crown representative on all these issues and more when they are appointed in the coming months.