Memorandum from NCVO
1. INTRODUCTION
1.1 NCVO is the largest general membership
body for charities and voluntary organisations in England. NCVO
has sister councils in Wales, Scotland and Northern Ireland. Established
in 1919, NCVO gives voice to over 5,000 organisations. Nearly
3,000 of our members are local organisations, and over 3,600 of
our members have an income of less than £500,000. NCVO champions
voluntary action, our vision is of a society in which people are
inspired to make a positive difference to their communities. A
vibrant voluntary and community sector deserves a strong voice
and the best support. NCVO works to provide that support and voice.
1.2 NCVO welcomes the opportunity to submit
written evidence to the Public Administration Select Committee's
inquiry into commissioning public services from the third sector.
NCVO has been at the heart of the debate about the role of the
third sector in public service reform in recent years. In particular,
we worked with the National Audit Office in 2004-05 assessing
implementation of better funding practices in line with HM Treasury's
2002 cross-cutting review. This culminated in the Shared Aspirations
report, enclosed with this submission.[60]
1.3 In June 2006 we published How voluntary
and community organisations can help transform public services,
a position paper outlining the steps that are needed to achieve
a genuine, lasting and positive transformation in public services.
There is a real danger that the current debates about public services
are not addressing the real issue: namely why it is that government
wants the sector to take on public service delivery and, equally
important, why it is that many third sector organisations do want
to take on public service contracts. Simply transferring existing
services out of the public sector to another provider will not
achieve transformation in itself. A wider review of how service
needs are defined, and how services to meet those needs are designed
and commissioned, is the only way to achieve a real transformation
of services. This submission explores the issues raised in the
paper in more detail, a copy of which is enclosed.[61]
1.4 While the focus of the committee's inquiry
is clearly on commissioning services and service delivery, it
is worth noting that the third sector has the potential to play
three different, and equally important, roles in the reform of
public services:
— identifying service need, as a result
of gaps in service provision, or poorly designed or delivered
services;
— helping to design solutions to meet
a need; and
Individually, some organisations will want to
contribute to all three roles, others to only one or two of them,
but it is this combination of roles that means the sector as a
whole can help to truly transform public services.
1.5 Many of the questions in the inquiry
are concerned with sustainable procurement and good commissioning.
While there are some issues that apply specifically to the contracting
process, many of the principles of good funding practice are the
same for all funding mechanisms and all activities. It is also
worth noting that the public and third sectors work in partnership
in a range of areas, including empowering citizens and strengthening
communities, which are outside the scope of this inquiry.
1.6 If you require further information or
clarification on any of the points raised in this submission please
contact Mubeen Bhutta in our Policy Team on 020 7520 2475 or email
mubeen.bhutta@ncvo-vol.org.uk
2. What are the benefits of contestability
to the users of public services?
2.1 Contestability in itself has limited
capacity to bring genuine improvements for the users of public
services. If the public sector continues to design and commission
services in the same ways that it always has done, and simply
asks third sector providers to replicate existing models, nothing
will really change for users. To achieve a real transformation
there needs to be a wider review of how service needs are defined,
and how services to meet those needs are designed and commissioned.
Have services which have been transferred to third
sector organisations shown improvements in quality?
2.2 If services are simply transferred to
third sector organisations, there is limited scope to bring improvements
in quality. Many third sector organisations have been willing
to take contracts on a transferred basis because they believe
that even within the constraints of a standard public sector contract
they can still provide better services to users. While this may
bring some marginal benefits, the only way to bring genuine improvements
in quality is to build such changes into commissioning and procurement
processes. For example, commissioners could ensure that service
users are involved in designing services as well as providing
opportunities for feedback on the services that they currently
receive.
Is loss of accountability a threat of commissioning
services? If so, how best can this be managed?
2.3 Accountability for commissioned services
resides with the public sector, and should be appropriately built
into commissioning and procurement processes. Such requirements
will vary depending on whether services are statutory obligations
or not. There should be no difference in the degree of accountability
irrespective of who is delivering in the service.
3. Is the third sector more likely to provide
better public services than the state or the private sector?
3.1 Historically, there has been an apparent
belief that simply transferring existing services out of the public
sector to another provider will achieve more efficient and effective
services through the market mechanisms of competition and choice.
The real issue is whether those services are the right ones. It
is only if service needs are specified and met properly, that
any sector—including the third sector—can genuinely
provide better public services.
3.2 Those commissioning and procuring services
need to better understand and value the range of strengths that
different partners can bring to public services. In particular,
the third sector could be funded to play a representative or consultative
role in relation to the development of specific services, or to
empower service users to make their views known. Once needs have
been identified, commissioners should also draw on the expertise
of the third sector in helping to design and purchase solutions
that meet those needs effectively.
3.3 There has been much focus in recent
years on the "added value" that the third sector can
bring to public service delivery, but the real point is that commissioners
need to be clear what value it is that they are seeking for a
particular service, and which potential providers are best able
to provide that value. This needs to be properly specified in
the commissioning process. For example, if commissioners would
like to see user engagement, then this should be built into the
contract, rather than rest on an assumption that the third sector
will bring this as "a free extra".
3.4 When services are properly designed
and purchased, the third sector can bring a number of benefits
to provision. Many organisations have a greater ability to engage
with and understand the needs of users and communities than statutory
agencies are able to do. There are a number of reasons why this
may be the case, including:
— the way a particular organisation
is set up—for example many VCOs are founded by people with
direct experience of the issue they are seeking to address;
— the way they operate—such as
having users on their board, or amongst their staff;
— because the organisation is based
in the local community;
— because the organisation specialises
in a particular issue; or
— higher levels of trust, confidence
and credibility than the statutory sector, in some cases simply
because a VCO is independent and not part of the state.
But these benefits can only be realised if the
right service is being commissioned in the right way.
Is there any evidence that contracting to the
third sector leads to greater scope for innovation in public service
delivery?
3.5 Third sector organisations have pioneered
a number of social innovations. Indeed, the nature of the sector
means it is often finding solutions to gaps in existing provision.
However, the current nature of public service contract funding
means that there is limited scope for this work to be undertaken
in relation to service delivery. Consideration should be given
to how greater flexibility can be introduced within the funding
regime to enable this to happen, without losing accountability.
For example, procurement staff could measure outcomes and the
quality of service provision rather than financial data, or larger
service contracts could be designed to include scope for innovation
or testing out new ways of working.
3.6 The wider engagement of third sector
organisations in designing, commissioning and delivering services
may mean that the solutions developed and piloted by the sector
become part of mainstream service provision. If this results in
a better service for a larger number of people, then it is still
a successful outcome both for the organisation and those with
whom it works. However, there is a need to consider how such a
process of mainstreaming is managed, including consideration of
the impact on existing users and service delivery.
4. Does commissioning benefit the third sector?
4.1 Involvement in public services is undoubtedly
a way for some third sector organisations to meet their mission,
and can bring real benefits to the individuals and communities
they work with. Those working in both the public and third sectors
have a shared aspiration: to achieve better public services, with
improved outcomes for users and beneficiaries. This should be
the benefit that commissioners and providers alike are seeking
to achieve.
Will contractual relationships with the state
improve stability within the third sector?
4.2 Almost all forms of finance flowing
into the third sector—whether they are donations, loans,
contracts or trading income—can bring both stability and
uncertainty for organisations. Where the statutory sector is commissioning
services from the third sector under contract, there is widespread
agreement on the elements that are needed to bring sustainability
to the funding mix of the third sector. HM Treasury's 2002 cross-cutting
review of the role of the voluntary sector in public service delivery
identified reforms needed to improve procurement, which have been
subsequently reiterated by the National Audit Office and the Public
Accounts Committee.[62]
These elements are:
— length of funding tied to length
of objective;
— proportionate application and monitoring
requirements;
— appropriate balance of risk.
There has been limited progress on putting these
reforms in place across central and local government. The recently
published Cabinet Office action plan on public services[63]
has given a new impetus to more sustainable procurement from the
third sector. If these measures are not put in place, there continues
to be considerable risk not only to the sustainability of third
sector organisations, but also to the sustainability of service
provision.
Will close involvement with service provision
prevent third sector organisations retaining the ability to be
critical of government?
4.3 There is no reason why involvement with
service provision should impede the ability of the third sector
to challenge government policy. Indeed, the freedom to campaign
irrespective of any funding relationship that exists is one of
the hallmarks of the Compact agreement.[64]
However, NCVO's Campaigning Effectiveness Programme, working with
the Sheila McKechnie Foundation, has found that further research
is needed on the sector's perceptions of the relationship between
government funding and freedom to campaign.[65]
4.4 If government wants individuals and
communities to become more engaged as active citizens within public
services, consideration must be given to the role of third sector
organisations in enabling people to make their voice heard. Third
sector organisations can use their direct service delivery experience
to identify shortfalls in provision and campaign for change, but
non-service delivery organisations are also well placed to identify
the needs of citizens and communities. It is important to note
that such engagement and advocacy work, while often at the heart
of the work of the third sector, has resource implications. Commissioners
should therefore provide flexibility within funding for public
service contracts to support responsiveness to users and advocacy
activities.
Is there a risk that service providers will become
increasingly bureaucratic?
4.5 There is no inherent risk that service
providers will become increasingly bureaucratic. The bureaucracy
associated with service delivery is determined by commissioners
and purchasers, not by service provider organisations. However,
concern remains high in the third sector that the processes applied
to service delivery, including application, monitoring and evaluation,
are disproportionate and can be onerous. This can have a number
of implications, including more expensive public service bids
to cover the costs of meeting monitoring requirements.[66]
Purchaser and provider should discuss and agree a monitoring,
reporting and evaluation framework that is proportionate to the
level of funding and size of the organisation, and one that will
deliver meaningful information to both parties. When it is done
effectively, monitoring and evaluation can be a learning mechanism
not just a regulatory or compliance mechanism.
4.6 There can be particular issues for third
sector organisations that have a number of funding streams and
work with a range of commissioners. The 2002 HM Treasury cross-cutting
review recognised the need for streamlining monitoring processes,
and suggested that financial information about third sector service
providers should be "passported" between government
departments. There has been limited progress in this area since
2002.
Is there a risk that third sector organisations
will lose their independence, their identity or their distinctive
ethos?
4.7 There is no inherent risk that third
sector organisations will lose their independence, their identity
or their distinctive ethos by engaging in the design or delivery
of public services. However, commissioning and procurement processes
must operate in ways that enable these particular strengths to
thrive. For example, third sector organisations are mission driven:
their objective is to achieve a social, environmental or economic
impact. This difference is reflected in their governance structure
and the roles and responsibilities of trustees. They do and should
operate differently because they are operating with different
objectives and different stakeholders. This difference must be
respected and reflected in public service reform processes.
Might the third sector become polarised between
large service providing organisations and more radical groups?
If so, would this matter?
4.8 There remains a concern that increasing
demands on the statutory sector to make efficiency gains will
lead to ever larger public service contracts. If commissioners
prize economic savings and throughput over designing services
that are tailored to meet the needs of users, there is a danger
that they could exclude smaller, specialist or locally based organisations.
At best, the most this model has achieved is to provide consistent
services for the majority, but this may well be at the expense
of vulnerable, harder to reach users who need more specialist
or different services. Reaching all citizens requires a different
approach, which draws on the breadth of third sector organisations.
4.9 There has also been a focus in recent
years on increasing collaboration amongst third sector organisations,
including collaboration for public service delivery. For example
the national charity Scope has set up a programme to sub-contract
the government tenders that they have won to smaller, locally
based VCOs where appropriate. The recent Cabinet Office action
plan on public services also indicated that government will be
reviewing sub-contracting arrangements and will be developing
models for establishing third sector consortia. This could help
to ensure that different size third sector organisations are able
to play their full part in public service reform. There is a need
to ensure that there are genuine reasons for such consortia, otherwise
there is a risk that this could be seen as for its own sake or,
at worst, be seen as coercion.
4.10 It is unhelpful to suggest that those
third sector organisations who do not deliver public services
are "more radical". This suggests that only non-service
delivery organisations undertake campaigning work, and directly
challenge government policy. In fact, all third sector organisations
exist for a purpose: to further a cause or to meet particular
needs. They will seek to raise awareness of their cause and give
voice to the needs and concerns of their members and beneficiaries
in order to further their mission (see paragraphs 4.3 and 4.4).
5. Does commissioning services from the third
sector have any benefits for the state?
5.1 As already noted, commissioning services
from the third sector can bring a number of benefits for the state
such as more responsive provision, holistic services and greater
flexibility. However, these benefits will only accrue if the statutory
sector puts appropriate measures in place to capture these benefits
Does the state risk losing control of service delivery
in a way which might be damaging?
5.2 There is no reason to suppose that commissioning
services will in itself erode statutory control of service delivery.
Those in the public sector managing contracts must ensure that
they have appropriate accountability measures in place for both
statutory and non-statutory service provision.
What capacity will the state need to ensure that
it can be an intelligent customer of services?
5.3 Increasing focus on the role of the
third sector in shaping and delivering public services has thrown
up a new set of challenges for those working in organisations
in both sectors. NCVO and Futurebuilders England launched the
Public Service Delivery Network on 23 January [67],
to develop the capacity of those in the VCS with responsibility
for negotiating and managing public service contracts. The network
has attracted significant interest from both the VCS and the statutory
sectors, and feedback from events to date indicates that there
is need to provide greater support to individuals as well as fora
for people to share experiences and expertise and enable them
to develop mutual understanding of the framework that each other
is operating within.
5.4 The Cabinet Office action plan on public
services[68]
includes a commitment to training the two thousand most significant
commissioners for the third sector. This should help to improve
the skills of those who are designing and purchasing services
to better understand what value the third sector can bring and
how to harness that value.
How is duplication of effort in order to monitor
and manage contracts best avoided?
5.5 As the work of the Performance Hub demonstrates,[69]
both sides of the funding relationship should focus on the outcomes
they want to achieve and agree realistic and relevant outcomes
for the funding or project to work towards. Focusing on the change
they are able to deliver will help concentrate both purchasers
and providers in avoiding unnecessarily duplication and unhealthy
or perverse targets and incentives.
5.6 Purchasers should also seek to make
better use of the monitoring and management processes that are
already in place. Some third sector organisations have developed
their own monitoring and evaluation processes to better assess
progress on their desired outcomes. For example, Magpie Dance
in Bromley developed their own monitoring framework that involved
client self-assessment. This was subsequently accepted by some
of their funders in preference to their standard monitoring and
evaluation processes.
How good is the state at managing bidding processes
and defining contractual obligations when commissioning services?
5.7 The third sector's experience of bidding
processes and contractual management is mixed, and can vary from
provider to provider and from service to service. The lack of
consistency in current practices is well illustrated by the 2005
NAO review,[70]
which found that funding methods are highly variable across government.
In particular, there was confusion in government departments about
when to use grants and when to use contracts, poor understanding
and implementation of full cost recovery, resistance to long-term
funding arrangements and late confirmation of funding.
6. What are the financial implications of
providing services through the third sector compared with directly
provided state services?
Are services cheaper to provide?
6.1 As with any provider, different services
delivered by the third sector will have different costs attached
to them. There has been much disquiet in recent years that the
motivation behind government's desire to contract with the third
sector is that it will provide "a cheap option". While
third sector provision may cost less than statutory provision
in some cases, third sector organisations have also often developed
services in areas of market failure or niche markets where service
provision may cost more. Public services provide not just a private
benefit to individual consumers, but also a public good. It is
not sufficient to ensure that a service meets the needs of the
majority of the community, it must also be available to citizens
who need an adapted or quite different service, which may have
less scope for economies of scale and therefore be more expensive
to provide. The full costs of public service provision must be
met irrespective of who is providing those services.
6.2 However, the VCS can play two key roles
in efficient use of public funds which have yet to be fully recognised.
Firstly, VCOs often provide preventative services and put interventions
in place, for example running a healthy living initiative, that
may stop some service users from becoming future users of other
state services, for example primary or secondary health care,
thus accruing savings to the public purse. Secondly, VCOs have
a user-focused approach and can often join up provision that may
otherwise come from a number of agencies. For example, many people
who present at Citizens Advice Bureau go for one reason but then
have a number of problems that the organisation then goes on to
support them to solve.
Are there "hidden costs" such as contract
oversight?
6.3 As already noted, scrutiny and monitoring
of public service contracts should be proportionate to the size
and nature both of the organisation and the activity. All such
requirements should also be included as legitimate overhead costs.
Are the benefits of the third sector participation
in public service provision so great that it is appropriate to
have financial rules which encourage this, or should the aim be
to have "competitive neutrality" between public, private
and voluntary sectors?
6.4 The key thing is to ensure that the
service is specified and costed properly. Once this process has
taken place, purchasers can identify what conditions to apply.
There are a number of national and EU procurement rules which
govern when competitive neutrality should apply. However, there
are some instances where such competition is not appropriate,
for example if a third sector organisation is the only possible
provider for a particular service specification.
6.5 In 2005, the Better Regulation Task
Force[71]
argued that third sector providers are being discriminated against
compared to their private sector counterparts in the contracting
process. In particular, funders sought to clawback any surplus
funds, would resist entering into negotiations and sought detailed
information about overhead costs. In a truly competitive situation,
this should not be the case.
6.6 It is also worth noting that there have
been a number of initiatives in recent years, particularly Futurebuilders
and Capacitybuilders, that have sought to build the capacity of
the sector to take on public service contracts. This is not contrary
to the concept of competitive neutrality as it both builds up
a market that government is keen to develop, and fits into a broader
strategy to strengthen the whole third sector which is not merely
restricted to public service reform.
7. Are the costs and benefits to the state
the same when commissioned from the third and private sectors?
7.1 The public sector is able to determine
costs and benefits through the commissioning processes. Different
organisations will bring different things to different services
at different times, and it is for statutory commissioners to be
clear about what they are seeking.
March 2007
60 Not published. Back
61
Not published. Back
62
HM Treasury (2002) The Role of the Voluntary and Community
Sector in Service Delivery, HM Treasury, National Audit Office
(2005) Working with the Third Sector, TSO, House of Commons
Committee of Public Accounts (2006) Working with the voluntary
sector, TSO. Back
63
http://www.cabinetoffice.gov.uk/third_sector/documents/public_service_delivery/psd_action_plan.pdf Back
64
For further information, please see www.thecompact.org.uk Back
65
More information is available at www.ncvo-vol.org.uk/ce Back
66
Further information is available at http://www.ncvo-vol.org.uk/index.asp?id= Back
67
Further information about the network is available at
http://www.ncvo-vol.org.uk/sfp/earning/contracting/index.asp?id= Back
68
http://www.cabinetoffice.gov.uk/third_sector/documents/public_service_delivery/psd_action_plan.pdf Back
69
Please see www.performancehub.org.uk Back
70
National Audit Office (2005) Working with the Third Sector,
TSO. Back
71
http://www.brc.gov.uk/downloads/pdf/betregforcivil.pdf Back
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