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Contracting in crisis: Is there promise in a place-based approach?

28 February 2018

Charities are struggling with the current system of public sector contracting

One of the most striking features of the past decade has been the evolution of public service markets and the role the social sector plays in sustaining and promoting them.

Before 2010, the vast majority of public money that found its way into the sector came in the form of grants, mostly funnelled through local government. Now, public grant-giving has almost disappeared, replaced by the new system of competitive public sector commissioning—itself a consequence of the prolonged squeeze on public finances.

One of the consequences of this shift is an increasingly dysfunctional relationship between many charities and the state—as our State of the Sector research highlights.

36% of all the charities we spoke to said they are involved in public sector contracting of one form of another (including 20% of smaller charities). Of these, 64% said that they used other sources of income to help deliver these contracts.

Meanwhile, 57% of charities told us that they had turned down such contracts—the operational risks of trying to deliver worthwhile services at a knock-down price were too high. Others told us that they had handed contracts back because they felt that they could not deliver the service their beneficiaries needed with the funding available.

Of course, for many charities and commissioners, contracting is working pretty well. But in aggregate it seems to be letting us all down. Meanwhile, a number of recent shocks have brought the way the system has worked in recent years towards breaking point. It’s time for a fundamental rethink of how public services are scoped, planned and delivered.

Carillion shines a light on outsourcing woes

First, the case for outsourcing as one part of the model took a heavy blow when private sector outsourcing-giant Carillion went under. It held 450 government contracts and some of the most high-profile of these were partially responsible for its parlous financial state.

We have seen similar things happen on a smaller scale in the charity sector. Both 4Children and Lifeline collapsed while struggling to deliver government contracts. Much like Carillion, questions were asked about their governance and management of these contracts.

In the aftermath of Carillion, we’ve seen an onslaught of criticism directed at outsourcing from across the political spectrum—and from outsourcers themselves. Rupert Soames, CEO of Serco attacked the punitive nature of many public contracts. In effect, he questioned the extent to which private sector businesses will view large-scale public service delivery projects as favourable investment opportunities in the future.

Haringey highlights resistance to private contracting

Second, the idea of partnerships with the private sector coming to the rescue of cash strapped local councils took a battering with the resignation of Claire Kober as Leader of the London Borough of Haringey. Cllr. Kober resigned following vocal opposition to her plans for a public-private Haringey Development Vehicle (HDV) to provide 6,400 new homes, a school, library, health centre and new town centre in Wood Green.

Cllr. Kober argued that, thanks to eight years of austerity, the only way to redevelop the borough and improve the livelihoods of her residents was to enter into a partnership such as the HDV.

The movement of Haringey locals in opposition to the project was spearheaded by members of her own local Labour Party opposed to the very idea of private sector involvement in the redevelopment of the public realm.

Regeneration of any scale in localities like Haringey will be hard to achieve under the current financial and legal regime without a significant injection of private capital. But Cllr. Kober’s departure throws the future viability of such partnerships into doubt.

Councils at their limit is another death knell for the current system

The third shock was the announcement that Conservative-run Northamptonshire County Council had lost control of its finances. They predicted a £21.1m overspend for the current financial year and raised the spectre of an unbalanced budget for 2018/2019.

Northamptonshire’s effective bankruptcy may only be the tip of the iceberg: research published recently by the MJ and LGiU suggests that 80% of local authorities doubt their financial sustainability, with 10% afraid that they’ll be unable to meet forthcoming statutory requirements.

This is the most sobering of the three shocks. It raises questions over the ability of local government—as it is currently funded and organised—to participate as a fully-fledged and creative partner in the defence and promotion of the public sphere.

Obviously there some crunchy economic and political issues at play here. Chief amongst them is the increasingly existential question of whether public services, and the social fabric of the country, can survive many more rounds of austerity (and that’s before we factor in Brexit).

This is given greater urgency once you realise that local government—by far the most heavily cut branch of public services since 2010—has been given absolutely no idea by government of how it’s going to be funded after 2020.

It’s time for a rethink

Together these events have led me to believe that it’s time for a fundamental rethink of how public services—and public service markets—are scoped, planned and delivered.

Kathy Evans, the Chief Executive of Children England, spoke for many charities last month when she compelled the charity sector to:

‘Stop playing the contracting game as it has been framed; stop competing against each other for scraps of under-priced work that can’t be sustained for our own organisations or for the rising demand from the people we serve. We must assert our collective voice and power to change the game altogether.’

One way for charities to respond is to refuse to play the game contracting game.

But beyond ‘not doing’, Kathy is right: it’s time for charities to take charge, and leverage their strengths to do things in a way that better serves their causes and beneficiaries.

Organising around place can keep us focused on a commonality, despite difference

It’s clear we need a new model: one that goes beyond simply managing decline and juggling a proliferation of individual, out-put led projects; one that demonstrates resilience and imagination in our current times of economic stringency; one that prioritises the livelihoods of people and the communities they live in.

For me, ‘place’ is a brilliant forum for us to hammer out what an alternative system could look like. The places in which we live and operate define what we do; they determine the nature of our relationships with beneficiaries, customers, and the public service organisations that have such an influence on our work.

There are important roles and implications for the third sector here. Up and down the country charities, social enterprises and voluntary organisations have a unique insight into how our communities work. They help create the social capital that is so essential to good and thriving places. It is important that we take a full and active role in protecting and promoting public services in the future.

We need to bring our expertise and many assets to the table, collaborate across the sector, and look to bridge the public and private divide in an attempt to broker a better way of doing things.

The questions that flow from this are manifold, but here are just a few we’ll be thinking about in the coming weeks:

  • How can we help design and produce better services for people in the places where we live?
  • How might we improve the input of beneficiaries and customers into this process?
  • How can we work in genuine cross-sector collaboration to improve the outcomes—and achieve the potential—of people in the places we live and work?

We already think the place-based approach led by The Richmond Group of Charities shows great promise. And we’ll be thinking and writing more about the role of the sector in shaping future place-based approaches over the next while.

Join in the conversation by following us on Twitter @NPCthinks and @NathanThinkNPC or email me.

Better yet, come and debate it at our upcoming free event. You can watch live online if you aren’t able to join in person. Sign up here.