House of Commons - Public Administration

Select Committee on Public Administration Eleventh Report

7 INTELLIGENT COMMISSIONING

149. We have seen that there are a number of improvements that could be made to procurement processes which would enable third sector organisations to take part more effectively in the delivery of public services. These range from longer time periods for submitting tenders, as requested by Cambridge House, to the elimination of difficult jargon, which Sylvia Sham told us could have a particularly off-putting effect on BME organisations.[175] These are practical problems which could be and ought to be ironed out. The major complaints we heard, however—including those we have just discussed around the length and scale of contracts—speak of a more fundamental problem before the procurement exercises begin, in the earlier processes of commissioning. Whether contract specifications are too big to draw in desired providers, too short-term to get the best out of those providers or otherwise too prescriptive to provide necessary flexibility of action, there is a general failing behind all of these complaints—a failure in designing the service specification.

Commissioning for distinctiveness

150. We have seen that the Government acknowledges there are competing pressures on commissioners, to utilise third sector strengths and at the same time to achieve efficiencies. Although one of the problems this can cause is a drive towards contracts on too large a scale for third sector organisations to get involved, this is not the only danger caused by the pressures of efficiency. Even if the scale of a contract is judged sensibly, there is a danger in competitive processes that a decision will be based too simply on price. Martin Narey told us that the scope for commissioners to choose anything but the cheapest provider was very limited:

When on one occasion I did not give a contract for a private prison to the lowest bidder I had quite a hard time in front of the Public Accounts Committee because that had to be disclosed, so there is relatively limited scope to give contracts from the public sector to other than the bidder who is meeting all the requirements of the tender and at the lowest possible price.[

176

151. Dave Prentis of Unison told us that competition militates against consideration of service quality, noting his experience that "the whole emphasis on markets and competition is it is a bidding process, and usually under that process the lowest tender wins."[177] He told us that the experience of compulsory competitive tendering (CCT) was a warning from history that cost trumped all.[178] Perhaps surprisingly, Neil Bentley of the CBI agreed, telling us that "we may have said at the time that that was the right thing to do but we have learned and we are no longer saying that CCT was good".[179] The CBI's new emphasis was on quality of services, with a particular stress that quality needs to be funded:

180

152. If in practice commissioners are likely to remain under considerable pressure to select the bidder meeting the tender requirements at the lowest price, and yet quality of services is to be a factor, this must be guaranteed in the tender requirements. This makes the key to successful commissioning ensuring that the service specification itself is right. Fairbridge explained in their submission to us that services can go wrong at this very early stage of the process:

Too often programmes targeting our client group fail because providers are chasing formal qualifications inappropriate to the real needs of young people. This means that those commissioning services need an informed understanding of user needs in order to set appropriate outcomes.

181

153. Rainer refer to this process as "intelligent commissioning".[182] It might equally be referred to as service design. The Wales Council for Voluntary Action told us that the Office of Government Commerce (OGC) had issued guidance which highlights the need for engagement with third sector organisations when policy is first being formulated, when outcomes and outputs are being shaped, and to ensure appropriate procurement strategies.[183] The Local Government Association also endorse this approach stating 'the best local authorities involve the third sector in identifying service need and service specification.'[184]

154. The extent to which this is translating into practice remains unclear, however. Martin Narey from Barnardo's told us:

185

Lord Adebowale suggested that there was still some confusion among commissioners over what they were and were not allowed to do under EU procurement rules:

186

155. Joyce Moseley, though, felt there was nothing in EU rules which precluded this kind of intelligent commissioning, referring to complaints of such problems as a 'smokescreen.'[187] Fairbridge also believed it was possible to involve third sector organisations in the design of service outcomes without conflict of interest.[188] The OGC backed this up when they told us that "while this must not give any provider a competitive advantage, third sector organisations may have specialist knowledge and links to the community that are useful in helping to understand how best to meet the needs of certain user groups".[189] Commissioners need external input when designing service specifications, and this is recognised in EU procurement rules. If some commissioners still believe that the rules prevent them engaging with organisations who are potential bidders, the onus is on the Government to disseminate the real position.

156. The New Economics Foundation believed that commissioners' behaviours often ran in contradiction to the Government's intention for public service reform:

190

Philip Cullum of the NCC agreed that this was a lost opportunity:

191

157. Mindful of the potential of third sector-designed services to deliver better outcomes to users, we asked Martin Narey whether Barnardo's would consider being involved in service design even if it did preclude them from delivering the resulting service. He told us that though they would probably instinctively prefer delivery because they wanted to work with children directly, he would consider working with commissioners in designing service specifications even if it subsequently meant that Barnardo's could not bid for that work:

192

158. If contracts are almost always going to go to the bidder meeting the tender requirements at the lowest price, it becomes absolutely essential that the service specification is designed to the highest possible standard. If commissioners want services to be provided in a distinctive way, they will need to specify that in their tender requirements, because otherwise there will be little scope for bidding organisations to emphasise their distinctiveness during the procurement process.

159. It follows from this that commissioning bodies will need an extensive knowledge of the services they are looking to buy before they advertise for bidders. If they are to require bidders to provide a service in a particular way, the commissioners need to find out what distinctive ways of providing services are out there. The onus is on commissioners to look at the different potential providers and not be shy to talk to them in designing service specifications.

160. Third sector organisations can play a particularly valuable role in service design, because they can often act as a conduit to service users, and particularly the hardest to reach. Commissioners should talk to potential providers, but their interaction with the third sector should not be limited there. Above all, commissioners need to understand what service users value in a particular service.

Commissioning for added value

161. We established in Chapter 5 that the "added value" often associated with third sector delivery was actually a term covering a range of different outcomes which might be generated by service delivery but which were external to the "core" outcomes of the contract. We noted there that such outcomes are not achieved automatically by employing third sector organisations to deliver services, and that there was no theoretical reason why these outcomes could not be generated by organisations from other sectors. Our tentative suggestion was that achievement of these outcomes might be more a function of the commissioning process than of the identity of the provider.

162. The New Economics Foundation argue strongly and persuasively that "added value" is in fact not only central to the third sector offer, but more importantly central to what government should be looking to achieve in society:

There is evidence to suggest that third sector organisations deliver multiple services and multiple outcomes in excess of those 'contracted' for in their agreements with the public sector … Any consideration of cost should therefore be a benefit-cost assessment across all outcomes achieved rather than restricting it to the outputs described in the contract. If this is taken into consideration then there are greater grounds to argue that their unit cost across the full outcome framework is 'cheaper'.

The commissioning process itself should be revised to enable providers to describe, and then capture the economic, social and environmental outcomes that their delivery approach brings to the sector. That is, to express the full value their organisation can bring to a service and to the wider community.

163. The critique made by the New Economics Foundation raises broader issues than just good commissioning practice. It calls into question the entire direction of public service reform, with an emphasis on easily measurable financial efficiency over harder-to-measure indicators of effectiveness—particularly those of wider social and environmental benefits. Their suggestion of a new model for measuring the effectiveness of services goes well beyond the scope of this inquiry, but certainly warrants consideration at the centre of government and beyond. We may return to it in future inquiries.

164. In the context of third sector delivery, the important issue is that commissioners need to weigh up the relative importance of core contractual outcomes and wider social benefits, and they need to do it at the design stage of commissioning. It is a value judgement whether the benefits offered by pursuing wider social goals will outweigh financial efficiency or service quality in any given situation. There is also a particular difficulty here in that commissioners who are not democratically accountable—for example, commissioners in the National Health Service—may be held responsible for the core contractual outcomes without having any clear organisational incentive to generate wider social benefits. Government's task, at a central and local level, is to specify what it wants to gain from the delivery of a particular service. It should certainly take into account wider benefits; but it may need to do more than that, and actually ask for those benefits to be delivered when commissioning services.

165. The principal mechanism for achieving this is the use of what is known as social clauses. These clauses can be used to ask potential service providers to supply outcomes which might previously have been considered added extras rather than core elements of the contract. Ed Miliband explained the thinking behind the Government's belief in social clauses:

Social clauses are about saying, "We make the value for money and efficiency tests but we can also look at wider benefits that there might be to the community."

To take an example, if you are an organisation engaged in furniture recycling but you are also employing local people, or employing people with learning disabilities, a narrow contract would not take that into account, but a contract (and this is allowed under EU procurement rules) that took into account the wider social benefits would take that into account.[

193

166. This approach appears to contribute to third sector involvement in public service delivery in two key ways. Firstly, it is likely to strengthen the competitive advantage of third sector organisations which are experienced in providing "added value" in this way. Secondly, the move from externality to core contractual requirement also means that these outcomes would have to be paid for. Private and public sector organisations might still be able to out-perform third sector bidders on price, but they would have to factor into their price things which might not come naturally to them, like involving volunteers or aiding access to other providers' services. In some circumstances, insisting on particular types of added value could be a legitimate way of making it likelier in practice that services are run by third sector organisations. Nobody, though, is excluded in principle by social clauses; as Campbell Robb reminded us, there are hundreds of thousands of volunteers in the public sector too.[194]

167. Richard Gutch told us that clever approaches to specification ought to be able at least on some occasions to resolve tensions between the size of contracts and the types of organisation the Government would like to see involved in delivery:

195

The Office of the Third Sector's action plan in 2006 included a commitment that it would tackle barriers to the use of social clauses, in part by creating template social clauses for use in appropriate contracts.[196] One year on, several local authorities, including Medway, Braintree, Leeds and Bury, were preparing to use social clauses in live procurement exercises for waste and recycling services. The Government's intention is to learn from these experiments and think about producing guidance on best practice.[197]

168. We see merit in the targeted development of template social clauses. But this will not be enough. Commissioners should be expected to think about possible added value at the design stage of commissioning, and then to ensure it is taken into account in the procurement stage. For many commissioners, this will be a significant cultural change. A commissioning authority like the National Offender Management Service is not judged on the generation of social capital or of a spirit of voluntarism—it is judged on core outcomes like providing the right standards of prison accommodation, or prevention of re-offending. It is also judged on how much it spends. The challenge for government is to foster a culture where added value is routinely taken into account in addition to costs and core outcomes, and find the right incentives for commissioners to think about specifying wider benefits where these are appropriate.

Commissioning for independence and innovation

169. Social clauses and user-focused design of service specifications have their merits; but they also have their limits. One final frustration we heard from third sector organisations actually pulls in an opposite direction—the extent to which rigid service specifications left little room for innovation and experiment in methods of service delivery. Innovation is of course one of the supposed distinctive characteristics of third sector organisations which the Government wants to harness to service delivery; but we have also seen that it is hard to provide for it through contractual stipulations. Leonard Cheshire typified the thoughts of third sector organisations who commented to us on this subject:

The third sector has always been known and valued for innovation; to some extent this is constrained in public service contracting by the rigid approach of commissioners, including a predominance of input rather than outcome measurement in contract performance assessment, a more flexible and open approach by commissioners would therefore be needed to take advantage of the real scope for innovation that the third sector can clearly bring.[

198

170. The homelessness charity federation Emmaus UK provided us with an example of how such lack of flexibility in reality can discourage some third sector organisations from becoming involved in delivering services on behalf of the public sector at all. Selwyn Image, Vice President of Emmaus UK, explained how some of their member organisations had had to refuse Supporting People money because commissioners put stipulations on their funding that nobody should stay in an Emmaus community for more than a given amount of time, even though this was sometimes wholly inappropriate to the individual concerned.[199]

171. Clearly, if it is independence and innovation you want from an organisation, you do not tell them how to go about running their business. Debra Allcock Tyler told us that social clauses primarily benefited the private sector, "because we [the third sector] don't need social clauses, we are social clauses".[200] Her view on how the Government's position is seen on the ground suggested a fierce cynicism about the sincerity of government's desire to get the best out of the sector:

201

Alex Whinnom gave evidence in a similar vein on attempting to contract for innovation:

202

172. Campbell Robb seemed to acknowledge the force of these points when he talked about the importance of innovation and flexibility, and the "big trick" being to ensure that government "does not squeeze it out in the big bear hug that you have with the State".[203] In fact, though, the Office of the Third Sector's Action Plan is extremely slight on how government can encourage or enable innovation, with much of its two pages on the subject instead concerned with spreading knowledge of existing innovative practice. Campbell Robb explained why this was important:

204

173. We did hear, though, from some witnesses who felt there was a way of allowing innovation in a contractual relationship. The means of achieving this can be characterised most simply as outcome-based commissioning. A distinction is drawn here between outputs, which are measurements of end products, and outcomes, which are measurements of end states. If outputs are less defined, providers have more freedom to find new ways of achieving desired outcomes. The Audit Commission struck a positive note when they told us they had found that "contractual arrangements do not necessarily stifle flexibility and innovative practice".[205] Yet the Baring Foundation told us they knew of only one notable example of innovative practice in a contractual arrangement,[206] and it is notable that none of the examples of innovation we have cited in this report were borne of contracted services. Far more typical is the story we heard from the Children's Trust, who told us that they "find that it is possible for us to use charitable funds to 'pump prime' new services that can then be commissioned once they have proved that they work".[207]

174. Age Concern England noted that outcome-based commissioning was 'the intention, if not yet the reality of government policy'.[208] Martin Narey, though, having experienced both sides of the commissioning relationship, agreed there was room for improvement, but also sounded a note of caution. He noted, in the context of children's services, that commissioners who had a contract that was "very light in terms of child protection" were "likely to face severe criticism when something went wrong".[209] This is a salutary example that there can be valid reasons for making contracts prescriptive on processes to be used.

175. Contracts and innovation are uneasy bedfellows. Although it is not impossible to innovate within the parameters of a contract if it is designed to allow it, it requires something of a leap of faith for commissioners to give the necessary levels of freedom to providers. To do so requires a willingness to fall short of desired outcomes in a certain proportion of cases. It seems inevitable that most innovation will continue to take place outside of contracted services.

176. The challenge is to create enough flexibility of process within contracts to allow providers to pick up on proven innovative practice elsewhere. As the Government has identified, the spreading of innovative practice is the key to improvement on a national scale. The Government should support outcome-based commissioning where possible, in the interests of flexibility and responsiveness; but where providers have truly innovative ideas for public service delivery, these need to be tested on commissioners at the design stage. It is largely unrealistic to expect commissioners to specify outcomes in a contract without an understanding as to how they will be reached.

Intelligent commissioners

177. Ultimately, the way to guarantee intelligent commissioning will be to ensure that commissioners themselves understand their roles fully. Embedding practices such as multi-year contracting, user involvement in service design and consideration of wider benefits requires a class of people who instinctively understand the advantages of such ways of working. The Government has acknowledged this as an area needing work, and the 2006 Action Plan announced plans to establish a two-year National Programme for Third Sector Commissioning that would invest in the skills of the 2,000 commissioners from across the public sector who they considered would have the biggest impact on the third sector. This would include staff in Jobcentre Plus, Primary Care Trusts, the National Offender Management Service and in local councils. The programme was designed to work in conjunction with existing training and support for commissioners.[210]

178. Phil Hope told us that training went hand in hand with guidance. He cited the Department for Communities and Local Government's guidance to local authorities on Local Strategic Partnerships and Local Area Agreements, both of which include specific references to the third sector and the importance of factors such as stability of funding and proper consultation in service design.[211] He also told us that he saw himself as a "champion" for the third sector within government, talking to ministerial colleagues on a case by case basis about ways that they could improve their practice.[212] Beyond these positive incentives, too, there would be assessment of whether local authorities had maintained a "thriving third sector" in their areas, as part of the Audit Commission's new Comprehensive Area Agreements.[213]

179. None of our witnesses disagreed with the analysis that commissioners on the ground were not yet putting into practice the ideals espoused by the Government. Joyce Moseley spoke of the gap between central government's discussions about opening up social markets and local government's actions on the ground.[214] Particular support for the training programme came from acevo's Peter Kyle, who saw it as the major "blockage" preventing the potential of the third sector from having a transformative effect:

215

180. Training 2000 people, however, only goes so far. Martin Narey told us that a more fundamental problem was the calibre of people who were recruited into commissioning roles:

The commissioning talent pool is spread very thinly. Commissioning has taken off so much in health service and local authorities, and indeed where I was, and my regional and national managers would say that they sometimes meet commissioners who are not terribly good customers, they are not very expert in what they are buying.

They are very good about the contractual terms of a contract but they may not know very much about what quality outcomes for children are and they do very cautious things like prescribe the inputs, prescribe how many staff will be on duty rather than prescribing the outcomes for children.

216

Asked why this was not happening now, Mr Narey told us that his experience was that it was difficult to tempt the best public servants to work as commissioners, for reasons he did not know:

I know that when I was recruiting commissioners it was very hard to get very good people to move from the delivery side of an operation to wanting to commission work; I find that difficult to explain.

217

181. Intelligent commissioning depends on able, knowledgeable commissioners. Training is an essential part of developing skills, and the Government's steps to train key commissioners are positive and will benefit more than just third sector providers. Guidance, championing of the sector and external assessment will all play their part in changing organisational behaviour too; but there are no processes which adequately substitute for skills and ability. If commissioning is one of the keys to transforming public services, government needs to work at every level to attract its most talented people into working as commissioners, because commissioners are the people who will shape the services the public receives. At the very least, this will involve key posts being properly advertised and properly rewarded.

175 Q 374 Back

176 Q 219 Back

177 Q 66 Back

178 Q 73 Back

179 Q 92 Back

180 As above Back

181 Ev 225-226 Back

182 Q 31 Back

183 Ev 287 Back

184 Ev 249 Back

185 Q 285 Back

186 Q 32 Back