Examination of Witnesses (Questions 100-119)
SIR
JOHN BOURN
KCB, COMPTROLLER AND
AUDITOR GENERAL,
NATIONAL AUDIT
OFFICE AND
MR BRIAN
GLICKSMAN CB, TREASURY
OFFICER OF
ACCOUNTS, HM TREASURY.
23 NOVEMBER
2005
Q100 Jon Trickett: If I can just follow
the same theme, in the most deprived communities, where there
is a voluntary sector presence—and often there is not—I
notice fairly flashy cars parked in the car parks, and I notice
quite frequently the source or the origin of the car is elsewhere
to the community which is being served. Is it not a fact also
that, rather than getting volunteers out of local communities,
who probably understand better the problems of the areas, what
is happening is that this is a professionalisation which is going
on, people driving into the area from 9-5 and driving away again
without barely changing the community they are meant to be assisting.
Is any work being done on that? That does seem to me to be a fundamental
problem. Half of these people spend all their time on good salaries,
lobbying people like me to secure funding for next year's salary
round, frankly.
Sir John Gieve: I recognise the
syndrome, and not just about the voluntary sector but also the
private sector, but one point I want to make is that in a sense
it is not just for the Home Office taking a view of the voluntary
sector to ensure that it has the impact on particular areas; we
have also got to look at the Department, for example, in this
case which is trying to regenerate or is responsible for regenerating
particular areas, and they are in a better position to say whether
it is working or not, and if it is not working, we should change
the nature of the funding and incentives. For example, in the
Home Office with Victim Support, on the whole, it is easier to
get volunteers for Victim Support in relatively well-to-do areas,
and we have addressed that as the people who are funding Victim
Support, because actually more victims are in the poor areas.
So we have deliberately tried to change the funding to reflect
the need. It is not just a question of looking at the voluntary
sector; you have to look at the substantive programmes as well.
Q101 Sarah McCarthy-Fry: I should declare
an indirect interest to start with, in that my husband works for
a voluntary organisation that receives funding on a long-term
contract from the Home Office. We have been through the fact that
you have a target to increase the use of the voluntary sector.
I would like to ask the question what you think are the benefits
of using the voluntary sector as opposed to the private sector?
Ms Edwards: I think the voluntary
sector is good at doing things in certain circumstances which
neither the private sector or sometimes the public sector are
very good at. I think it can reach groups of people who have particular
needs. Some of the work that is done around disability is an example
of that. They tend to specialise in very small areas, so on the
whole they can become very expert at what they do. They are also
very good, or relatively good in most cases at involving the users
of services in their organisation. So for example organisations
working in the crime field will often involve ex-offenders in
the work that they do. So I think in many instances they can reach
out to groups of people who might not otherwise be very well served
by the public sector, which has to reach everybody, and in some
circumstances where the private sector simply would not feel it
had the expertise or interest.
Q102 Sarah McCarthy-Fry: Do you think
there are any disadvantages to using the voluntary sector?
Ms Edwards: An important thing
in all of this is that the voluntary sector chooses whether to
be a service provider or not, but I think where it does step up
to the table, at the moment there are issues I think probably—and
the voluntary sector would accept this, I think—to do with
the quality and consistency of some of the services that it can
offer. I think this is partly because there has been an under-investment
over the years in certain aspects of service delivery and that
is why we are running two big programmes, Futurebuilders and Capacity
Builders, to try and address that so that we can be confident
that where the voluntary sector organisations and third sector
organisations are potentially the best providers, they actually
have the capacity to deliver the first-class services that they
are capable of.
Q103 Sarah McCarthy-Fry: When we are
talking about value for money, and we have the economy, the efficiency,
the effectiveness, you could say that for the private sector,
particularly a large private sector organisation, who are already
costing their overheads into other things that they do, the contracts
they do for you are an add-on and they can bring it in at a much
cheaper price as well as making a profit on it, but for the voluntary
organisation, that is probably the crucial and only part of their
organisation, so they may be more expensive. How do you balance
the efficiency/economy/effectiveness? Do you try and balance it
or does service delivery always come first?
Sir John Gieve: In general, service
delivery comes first. The private sector seems to me to be pretty
careful to charge us its full costs, but there may be occasions
when they can offer us a better deal than other sectors, and we
should probably take that. There is nothing generically wrong
with the voluntary sector in any of these fields, but you have
to look at the particular offers around the particular services.
We do a lot of work with the voluntary sector and some of it is
pretty disorganised and poor and some of it is absolutely excellent.
So you have to look at the particulars rather than the generic.
Q104 Sarah McCarthy-Fry: If we are looking
at increasing the voluntary sector input because of the unique
way that they can help service delivery, but you said capacity
building is an increasing part of it, does that move to investment
in the core of their organisation to enable them to do that, you
say that is a key part of it?
Ms Edwards: It is. The Futurebuilders
fund really is a fund that they can bid into to build their capacity
to do service delivery in a particular field. Some of that money
is loans, to allow them to increase the equipment they need, the
training that they need for their staff, and they would have to
repay that over a period of years, so one of the criteria is that
they have to be reasonably confident that there are going to be
contracts that they can bid for, and actually that does focus
the mind in terms of what the opportunities are and whether the
organisation really does want to go in for a fairly competitive
bidding process or not. This is not new for many parts of the
voluntary sector. If you think about it, many of these organisations
predated the welfare state. Many of them have been delivering
services for very many years. What they want to do is to be able
to do it on terms which they think are fair and reasonable compared
to other providers.
Q105 Sarah McCarthy-Fry: Many of them
think they should continue to get funding just because they always
have had funding.
Ms Edwards: There is that too.
Q106 Sarah McCarthy-Fry: Do you think
there is ever a case for funding good causes out of public money
as opposed to procuring services or capacity building?
Ms Edwards: Not all our money
goes into funding organisations to deliver services. We have a
strategic grants programme which puts money into organisations
like NCVO for example, because we think it is a good thing to
have a National Council for Voluntary Organisations. They get
money from elsewhere but we think providing a core of money for
them is important. There are other organisations that we do fund
because we think if you are going to have a healthy voluntary
sector, you do need organisations like that.
Q107 Sarah McCarthy-Fry: How about how
we are going to get new entrants to come in? We are putting a
lot of bureaucracy on people, and quite rightly—not to put
additional bureaucracy, but we are the custodians of public money
and we have to make sure how that is being spent. I understand
there is a balance between the innovation that the voluntary sector
can bring but also making sure they get value for money. How do
we ensure that we are also opening up the new entrants to come
in? Do you have the capacity for pump-priming funds as well?
Ms Edwards: We are trying to do
some of that through Futurebuilders and one of the provisions
is that if an organisation has a good idea or thinks it is very
well placed to deliver something but has not yet worked it up,
the fund can give them some assistance to work that up. So we
hope that in a number of ways we are making it possible for new
organisations to come into this field if they want to, and I think
there actually is quite a growth in new organisations generally.
The voluntary sector is very alive and in many areas it is thriving.
Q108 Sarah McCarthy-Fry: Can I go back
to the NCVO briefing and particularly the one about risk sharing.
I know we have said we want to move towards three-year contracts,
but presumably, from your point of view, if you are going on a
short-term contract, there is much less risk to the Department
because you are not committing money over a wide financial period.
The NCVO are saying that if you want to do that, you should be
costing an element of that risk sharing into it so that the cost
of a short-term contract, they should get more funding for a short-term
contract pro rata than if it was for a longer term because of
that risk sharing. Do you agree with that approach?
Ms Edwards: I think it can be
appropriate. The private sector will do that routinely. If it
thinks it has a short-term contract and there is a high degree
of risk in it, the private sector is actually very skilful at
offsetting risk, and I think the voluntary sector has something
to learn there. I think there are wider issues of risk in the
contract. I know some organisations have found difficulty, particularly
where they are providing specialist services and the level of
use of those services is not necessarily clear, where they have
been left to meet the costs, fairly fixed costs, if in fact those
services have not been used, not brought in the income that was
expected, and I think there is a discussion to be had there between
funders and people who are prepared to provide that service about
what a fair balance of risk is in a particular situation. So I
think it is very difficult to get a general answer again but in
particular situations that risk does need to be balanced.
Q109 Sarah McCarthy-Fry: I suppose that
is the key difference, is it not, between the voluntary sector
and private sector, that very often, as I said, the voluntary
sector are so dependent on these grants and these contracts that
they may not be willing to cost that extra risk in because if
they do not get the grant, if they do not get the contract, that
is their whole organisation gone?
Sir John Gieve: I think there
may be some of that. I think also many people in the voluntary
sector are quite entrepreneurial and they have a go, and they
meet someone in the public sector who has got some money this
year but is not sure they will have it next year, but they will
give it a go. There are a variety of reasons why you get to this
outcome.
Q110 Sarah McCarthy-Fry: When I spoke
to my constituency's Council of Community Services, certainly
advanced payments was one of the things they brought up, that
they get the money so late that they sometimes they have staff
in place and they have the next contract coming along, but it
does not come quite in time and they think advanced payments would
be a good thing. From your point of view, say you give out an
advance payment and then something happens and the service is
not delivered, do you have the facility to be able to claw that
payment back, or is that payment then gone?
Sir John Gieve: We normally would
in law. The question is whether we can get it back from whoever
we are trying to get it from, as usual with a debt. But in a way,
I do not know that it is advance payment or giving the first payment
first that you are pointing to there. It is more the uncertainty
as you come up to the end of a one-year contract about whether
you are supposed to be keeping your people on or not. I think
that is even more important is. Where you have got the end of
a contract coming up, we need to reach a decision in good time
before the end about what is going to happen afterwards, and we
in the public sector are very bad at that. Very often we reach
a decision after the contract has come to an end and you get interim
arrangements, and naturally that can be quite destructive for
staff and so on in a project. I would see that as, if anything,
more important than the technical question of whether we give
our first payment a month in advance rather than a month in arrears.
Q111 Mr Davidson: I wonder if I could
ask whether this encouragement of the third sector is much more
than simply a process of marketisation.
Sir John Gieve: I think there
is an element of what is best is what works best, and for example,
in the correctional area, we are looking at it that way and we
are saying we want to get the service that best delivers reduced
re-offending and we think that the voluntary sector—
Q112 Mr Davidson: So that is a "no"
then, is it? It is not much more than a process of marketisation.
Sir John Gieve: No. OK. In some
areas there is a connection. In other areas I think the voluntary
sector would be amazed to hear that they were part of marketisation.
Take Victim Support, which is one of our big contracts. That is
not a marketisation.
Q113 Mr Davidson: Who provided that service
before?
Sir John Gieve: No-one.
Q114 Mr Davidson: If that service was
not being provided by Victim Support, who would provide it? If
we wanted it provided and they did not provide it, presumably
you would have to provide it yourselves.
Sir John Gieve: We could either
provide it ourselves or we could contract to other people to provide
it.
Q115 Mr Davidson: That would be marketisation.
Sir John Gieve: All I am saying
is it was not a marketisation process. Victim Support set themselves
up. They said there was a need for a service. They then came to
us and said, "Will you help us?"
Mr Davidson: Can I clarify the difference
between this concept of full cost recovery and what we used to
have from defence suppliers of cost plus?
Q116 Chairman: Add it on to his time,
but just explain to the Committee what full cost recovery means.
Ms Charlesworth: There is the
direct cost of providing the services, the people who are actually
going to be doing it; the materials that they are going to use
in providing the service to the individuals who are going to be
using it; but in essence, an organisation needs an infrastructure.
It needs a building, it needs a chief executive, it needs some
personnel, some payroll, all those services. What we are saying
is that it is appropriate when you are receiving government money
to deliver a service that not only do we pay for the staff and
the consumables that you use to provide the service but we use
an appropriate share of your building, your chief executive, your
payroll, because they are in essence, an essential part of delivering
what you are doing. We do not pay for all of it; we pay for an
appropriate share commensurate with the service. There are issues
about whether or not you use a standard mark-up of 10% or whatever
for that or whether you actually try and cost it out in detail,
and our guidance will go through the different options there.
Q117 Mr Davidson: I was aware of most
of that. What I asked was how does that differ from what the MoD
used to have in terms of cost plus?
Sir John Gieve: In principle,
cost plus was also a way, they would say, of covering their full
costs. You are right.
Q118 Mr Davidson: So it is basically
the same thing.
Sir John Gieve: But cost plus
got a bad name because it allowed them to charge whatever they
chose to spend money on and therefore it was in a sense an open-ended
contract, so they piled on the cost, we piled on the payments.
The full cost recovery contracts we are talking about here will
not be of that variety.
Q119 Mr Davidson: Explain to me the difference
then why full cost recovery will not be cost plus?
Ms Charlesworth: Under what we
are talking about, the price is set at the start of the contract,
so if you are talking in a contractual environment, the organisation
decides what its cost—
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