The Blog

Public Service Contracts - Opportunities and Challenges for the VCS

The public service landscape is changing and fast - and not always in ways that the voluntary and community sector would wish to see. Some services are simply disappearing and others are being altered beyond recognition.

One thing is certain - the immediate future is far from rosy. We know that the national economy is unlikely to grow significantly for some time (perhaps several years) and that unemployment and austerity are going to be a dominant cloud over our (and every other) sector for the foreseeable future. Public expenditure is going to be cut further and deeper with little prospect of any significant increases for five or more years. Concurrently, however, demographic changes and needs arising from social disadvantage and public expectations will increase pressure on limited public sector, and voluntary and community sector resources. Against that backdrop, charitable giving is unlikely to increase (indeed, there is strong recent evidence that it is decreasing) to compensate for reductions in public sector support.

So, nothing lies ahead but more challenge and hard choices for the voluntary and community sector.

Of course, we don't know exactly how deep the public expenditure cuts will be or where precisely they will fall - though we can guess. And we don't know what will happen to the global or indeed the domestic economy - although again, we can guess. And I don't suppose many of those guess are especially optimistic.

So, we have to learn to live with even greater uncertainty than we have in the past.

And in truth, the voluntary and community sector can no more be protected from this uncertainty than it can expect to be exempted from the public expenditure pressures and cuts. Rather, what matter's in both cases is to ensure proportionality of impact, and to focus on achieving the least-worst outcomes for people and communities.

The public service landscape is changing and fast - and not always in ways that the voluntary and community sector would wish to see. Some services are simply disappearing and others are being altered beyond recognition. And the Government and much of the wider public sector want to use competition to drive down costs and expenditure even when this is at the expense of quality. This is a trend that the sector must resist - and strongly resist.

Some voices in the sector are encouraging the public sector to put more services out to tender. At the same time, more rational voices are questioning the sector's capacity and appetite to take on more and more public service provision, especially with low fees and over-prescriptive specifications. Well, let me declare my position - clearly and definitively: the voluntary and community sector should not and must not become the agent or the prisoner of the public sector commissioner and procurer.

Many in the sector wish to retain the independence that prime contractor-supply chain arrangements can all too easily undermine. And many in the sector wish to have direct relations with the public sector commissioning body and not be held at arm's length by a business sector prime - though of course some do appear to be comfortable with this model.

Whatever the business and operating models adopted, organisations have to be able to be agile and responsive: to meet the needs and aspirations of their beneficiaries; to be true to their missions; to innovate; and to campaign.

When they do take on public sector contracts, they should do so only on terms that are commercially and financially sound. Payment by results is a major challenge to the majority of the sector who have neither the balance sheets or access to sufficient capital to make this work for them or their beneficiaries. Government and the wider public sector must be told this 'loud and clear' as they march onwards with this inherently flawed and biased contractual model.

There may of course be some opportunities for social investment, which has already proved beneficial to many charities, and indeed we do need a new model that enables smaller charities and organisations to have access to loans. However, any loan has to be repayable with manageable risks that have been identified and understood. To that end, it is essential that the sector increase its access to sound commercial acumen to enable these judgements to be made in a considered manner. These decisions can make or break an organisation's balance sheet - and therefore determine its survival.

Charities also have to decide how far they are able and willing to use their charitable income and/or reserves to support services that previously were funded in full by the state. Trustees, advised by chief executives and finance directors, must have regard to their fiduciary duty as well as their long-term commitment to their beneficiaries. These are going to be stressful debates - and difficult board decisions.

One reason these debates and decisions cannot be put off is that Government and others seem firmly wedded to the idea of greater competition in all or most public services. Such a policy is with us for the foreseeable future in England especially under the Coalition Government. And there is, it seems, at times and in some places, an ideological fixation with competition and markets - even where such markets don't actually exist, and sometimes procuring in a manner that undermines any rhetorical commitment to a greater role for the voluntary and community sector and wider social sector.

And yet the frustrating thing is that there are alternatives.

Public procurement can be used, even before the Public Services (Social Value) Act, to enable the social and voluntary sectors to bid and win contracts. Another alternative is to favour collaboration over competition.

I think that we will see more collaboration between the public and voluntary and community sectors; and between the business and voluntary sectors. Collaborative arrangements can and often should involve service users and even staff as key stakeholders. Public bodies can collaborate and find ways of partnering with those voluntary and community organisations, social enterprises and even commercial businesses that can enhance their own provision - or even substitute for it.

Most complex social challenges require collaboration between agencies and between a number of voluntary, public and business sector organisations. In contrast, the wrong application of competition tends to drive fragmentation and encourage behaviours that make such collaboration (and hence better outcomes) more difficult to achieve.

In these tough times for the voluntary and community sector, it must remain true to mission and its values whatever the scenario. And it has to seek to be innovative, flexible and responsive. This clearly requires bold leadership at executive and trustee level and even a curtailing of personal egos and ambitions - which in some cases means that some sector organisations will have to merge or at least form consortia to achieve the required economies of scale. At the very least, they can and should consider sharing services, assets and people.

And to repeat an earlier point, the sector desperately needs more commercial skills - but not at the expense of its values. No doubt finance directors have a major role to play here, but to do so effectively, they will absolutely have to up their collective game - a key role, no doubt, for the Charities Finance Group and others.

My final message is that whilst it won't be easy and there will be some mistakes and failures, this can, never-the-less, be a period of opportunity for those voluntary and community organisations that are crystal clear and resolute about purpose, strategy and tactics; and which know when to say 'no' as much as knowing when to say 'yes'.

I am confident that the traditional, and respected as much as valued role of the sector can survive the coming years of hardship, change, uncertainty and change. Yes, there will be some causalities and the overall sector will likely end up looking rather different. So be it. The sector has to stop being the 'victim' and take control of its own destiny by shaping the new paradigm. We need more resolute 'doing' and less ineffectual 'being done unto'.

I also recognise that this won't be an easy transition for trustees, volunteers, staff or beneficiaries. With that in mind, the national sector membership and support bodies must also rise to the occasion and get their act in order, such that sector organisations - large and small; service provider or not; contracting or charity funded; campaigners or advocates; and national or local - can all make a positive difference and demonstrate once again, as we have over the decades, that 'yes we can'. And more importantly, 'yes we will'. The sector has a voice - it must use it!

This is article is based on John Tizard's presentation to the CharityFinance Group annual conference on 8th May 2013