Carillion inquiry submission: The system needs to change

NCVO has submitted evidence to the inquiry investigating the collapse of Carillion. While this inquiry is focused on the provision of public services by large private companies, it is relevant for our sector because of the number of voluntary organisations involved as sub-contractors for large companies and we know that the current system makes it hard for the voluntary sector to compete with the likes of Carillion. Oral and written evidence continues to be published via the inquiry page on the parliament website.

Cross-sector challenges

Kathy Evans, CEO Children England, recently wrote an article to highlight the similarities voluntary sector providers and providers like Carillion. Evans highlights that significant under-pricing is not unique to for-profit providers. It’s estimated the largest 100 delivery charities make an 11% loss on public service contracts. This is not always down to intentionally bidding low to win. Many charities face higher costs than initially planned for, or commissioners do not provide extra funding for things like higher than average wages. Like Carillion, many charities have pensions deficits which have been made worse by matching the public-sector pensions for their staff. Evans also highlights that our sector is keenly exposed to supply chain risk as subcontractors for large ‘prime’ companies or larger charities.

What needs to change

Some have suggested in the wake of the Carillion collapse and warning signs from the likes of Four Seasons, Capita and Interserve that charities or social enterprises should take over some of the work delivered by these large companies. Whilst voluntary organisations may in some cases offer a better service, NCVO believes the fragility of outsourced public service provision will not be solved simply by a change in provider. The conditions need to change, which is why our submission focused on outlining the following key points.

    1. An over-reliance on payment by results contracts excludes voluntary sector organisations from the provider market. Competitive grant making should be considered to encourage a diversity of providers.
    2. Onerous requirements through the bidding and monitoring process are also a barrier, especially for smaller organisations. Requirements should be proportionate to the size and nature of the contract. A lack of communication and coproduction from commissioners is another barrier for organisations to know whether to put resource into bidding.
    3. Place-based commissioning and scarce resources have encouraged commissioners to create larger contracts which exclude all but the largest providers. Voluntary sector organisations often become involved as a subcontracted provider with a larger charity or company exposing them to considerable risk, especially if they do not get the referrals they were promised.
    4. Research shows that the Social Value Act is not consistently or well used by commissioners. Too often providers are awarded contracts purely on price. Local and central government should be required to account for, rather than just consider, social value.
    5. Contracting lacks transparency, especially if we look beyond the efforts of the Crown Commercial Service. There is a need for training and leadership which recognises the importance of good quality data in commissioning.

Private companies have echoed the need for more transparency and risk management. For example, the CEO of Serco, has called for four changes including a requirement for open book accounting, break clauses in contracts, and living wills to support companies who need to hand back contracts. He has also suggested a code of conduct to ensure that that governments don’t transfer unmanageable risk, firms fund pensions properly and pay their suppliers promptly.

Looking forward

Time will tell what the implications of this inquiry will be for the parts of our sector involved in delivering public services, but here are some suggestions for what we could expect. Intensified by the exposure of harassment and abuse in charities receiving public funds, there could be fresh look at how to hold our sector accountable and ensure transparency. There is a widespread view that many private organisations delivering public services are too big and broad to have the specialism or local knowledge to be successful. There is quite rightly an anxiety about large organisations dominating provider markets. This could trigger a renewed focus on SMEs. We hope for and anticipate better commissioning conditions for a diversity of providers.

You can find our submission published on the Parliament website. Please contact us if you would like to discuss the issues raised in this blog. Over the course of the year we will continue to work as a key partner of the Commissioning Academy, helping commissioners to understand perspectives of the voluntary sector. We also plan to do further investigation into the financial sustainability of government contracts in the sector as well as collaborative commissioning.

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Rebecca Young Rebecca Young is a policy officer at NCVO, working primarily on public services and volunteering policy. Before joining NCVO, Rebecca led on mental health, housing and disability policy at the National Union of Students.

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