Published on 14 July 2016
- Our Work
- The Reformer Blog
13 July 2016
When the Government announced in 2011 that the voluntary sector was to play a greater role in public service delivery, many saw real opportunities to help improve lives. Third-sector organisations can offer vital expertise in helping the society’s most vulnerable members; they can also benefit from pre-existing local networks, and highly committed workforces willing to ‘go the extra mile’ to secure outcomes for those who most need help.
For these reasons we hoped to see voluntary organisations compete on a truly level playing field for the ‘prime’ contracts offered by government, under which successful bidders take responsibility for a given region, and manage supply chains of local-level providers.
This has, unfortunately, yet to become a reality. In my experience, barriers to competition in previous programmes have largely shut out the voluntary sector. With government in the process of commissioning a new welfare-to-work service, the Work and Health Programme, it must take the opportunity to address these remaining hurdles.
A key issue has been the assessment of bids. Reform’s report makes clear that government has generally prioritised low cost over high quality in bids to provide employment services. As services designed to help people into work – and therefore save taxpayers money in the long run – the Government must commission what works, not what can be bought at the lowest cost. It should therefore pay greater attention to organisations with a proven successful track record in delivery and quality during the bid-assessment stage.
At the same time, government should refine its payment model to ensure that good providers are not deterred from bidding. There is consensus that providers should be judged by their results – after all, these results mean jobs for those previously without work. Payment-by-results models must, however, be proportionate to the market. If they are too harsh, charities will not be able to justify the risk of involvement to their boards, and may struggle with cash-flow issues, preventing them from investing in the services they provide. As Coco Chanel said: “Turnover is vanity, profit is reality and cash flow is sanity”.
Another issue may seem like a technicality, but has been particularly burdensome for charities: insurance for contracts. The Work Programme required prime bidders to have £20 million annual turnover; the Work and Health Programme necessitates a parent-company guarantee, which requires a third party to guarantee a proportion of contract value in the event of failure. Commissioners should be careful not to require levels of such insurance which are too high, or risk shutting out charities without the assets to meet them.
Alternatively, government could unlock the power of social investment in lieu of third-party guarantees. Social-investment bonds, whereby investors pay for delivery upfront, and are repaid with interest once they meet agreed outcomes, provide an opportunity here. In my experience these can be used successfully: in 2015, Think Forward helped over 90 per cent of a 1000-strong cohort of disadvantaged young people into employment, education or training using investment from one. Think Forward’s Managing Director Kevin Munday explains that, without this working capital, they would have been unlikely to bid viably for the contract.
I have argued before that it never does any harm to remember the people we are in business to serve. We have to hold them at the heart of what we do. Can the sector step up to the mark? Of course it can – but with changes. Reform’s research highlights the procurement changes needed to help us all do a much better job.
Baroness Stedman-Scott OBE is a member of the House of Lords Select Committee on Charities