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Summary report

Introduction

The growth of commissioning as a means of providing public services has been one of the most significant developments in children’s services in the past decade. It has had a major impact on all organisations involved in procuring and providing services, whether in the public, private or voluntary sector. Some voluntary organizations have embraced it enthusiastically, emphasizing the opportunities it can offer for both growth and influence. Others fear voluntary organisations turning into an ‘annex’ of the public sector, losing their independence and becoming increasingly reliant on contracts for their survival. The sustainability of small voluntary organisations in a commissioning environment is a particular concern, with the combined effect of reduced grant funding and the requirement to commit ever-increasing resources to the process of procurement, tendering, contracting and reporting. This study was commissioned by Children England to provide evidence on the impact of current commissioning and procurement processes on the sector. It was designed to explore the experiences of a sample of voluntary organisations over a two year period. The study involved thirteen voluntary organisations, differentiated by size, geographical location and type of work and selected to be representative of the sector. Interviews were carried out with a key informant from each organisation at two time intervals (in early 2009 and again in early 2010). This report summarises the key findings from the study.

Funding of the sample organisations

Without exception, all the organisations in our sample reported major changes in their funding arrangements over the last three years, in particular the shift away from grants and towards contracts. Irrespective of size, all the organisations involved in our study depend heavily on income from contracted services. The largest estimated that around 90% of its income came from contracts and fees; the smallest (in terms of turnover) estimated that contracts made up 41% of its income. The voluntary funds of the majority of organisations make up less than 30% of their income. In our first round of interviews, some respondents commented on the relatively gradual pace of the shift, and described a mixture of funding arrangements during what appeared to be a transition to commissioning. By the time we interviewed respondents again in 2010, it was clear that commissioning arrangements had become more firmly established, and even where organisations still received some grant funding, the requirements attached to these were similar to contracts.

In 2009, only one interviewee referred to the impact of the economic downturn as having affected funding. By 2010, the effects of the recession were more evident. One smaller organisation in our sample was facing a budget deficit for the second year in a row. Another larger organisation had managed to make a surplus in the previous year but had needed to close some of its services and make significant cost savings. This was partly achieved by putting new staff onto different pay scales. Most respondents expressed concerns about future funding. Almost all organisations have contracts ending in 2011 and are viewing this as a major watershed.

Several organisations have made changes to their structure or staffing in response to the new funding environment. Some have recruited staff specifically to identify and develop contracting opportunities. Others have made changes in order to reduce their costs. Several aspire to diversifying sources of income in order to be less dependent on contracts, to maintain an independent financial cushion and to allow them to develop activities that contracts do not fund. Generating voluntary income, however, is also a major challenge as traditional sources, such as trust funds, are themselves affected by lower interest rates, public donations decline, and there is increasingly stiff competition for the resources they have available.

How commissioning is impacting on the voluntary sector

Financial impacts

For a number of organizations, the impact of the new commissioning environment has been profound. In 2009, most reported that the changes were already having an impact with some losing services to competitors. In some cases the result had been a stark overall reduction in the organisation’s funding and a poorer service to their clients. At the same time, others described new opportunities presented by the commissioning environment which had contributed to the growth of their organisations.

In 2009, interviewees reported that whilst the financial situation was more challenging, their organisations were generally maintaining their levels of service provision. By 2010, there were more examples of service losses and several examples of local authorities making changes in contractual requirements at short notice.

Uncertainty of future funding was described as having a negative impact on the strategic planning of many organisations, with some interviewees commenting that their organisation was being forced into a different shape by the necessity of chasing commissions. One of the challenges faced by voluntary organisations working with several local authorities is the inconsistency of commissioning practice.

In one authority there is £7 million spent on support services and monitoring with £19 million of funding for Children Centre services. In a neighbouring authority, all the funding is spent on Children’s Centres with just four officers monitoring 88 Centres. This means that if you took an equivalent area in that authority there would be one-third more money per child.

In the current climate, interviewees recognized the pressure on Local Authority commissioners to reduce spending while maintaining services in a context of significant public spending cuts. However, the approach being taken by some local authorities was described as having negative consequences for voluntary organizations. For example, one strategy being employed by commissioners is to minimise risk by restricting the length of contracts. One interviewee summed up the impact of this as follows:

One of the outcomes is that services are subject to short-term contracts resulting in uncertainty for users and to staff providing the service. Reliability, consistency and the quality of the service are crucial to our children and families and yet current the contracting system makes this extremely difficult apart possibly for the very large voluntary organisations.

‘Rationalizing’ services by packaging them into single contracts is another increasingly common approach. This clustering of services into larger contracts tends to disadvantage smaller, specialist organisations.

All our interviewees referred to the amount of time consumed by the tendering process with much more time spent on development and management than before, with costs going up accordingly. Interviewees described the ‘hidden costs’ associated with fulfilling demands for monitoring information which were sometimes disproportionate or inappropriate to the service being delivered. Again, the variability of practice between local authorities was highlighted.

Related to the cost of tendering is the issue of financial risk inherent in contracts. Some local authorities, for example, issue contracts containing penalty clauses for ‘failure to deliver’ which in effect transfers all the risk of something going wrong onto the voluntary organization. In some cases, these clauses are entirely disproportionate to the size of the contract, and have the potential to bankrupt a small organisation. The cost of substantial indemnity insurance cover can also be considerable.

Attention was drawn by two interviewees to the mismatch between the priorities of grant making bodies, who often want to fund new projects and local authority commissioners who generally only want to fund in their core priority areas. This means that innovative projects set up with short-term grant funding will often struggle to get continuation funding, unless a local authority recognises the service as meeting a priority need it has already identified. Some services are particularly hard to get funding for as they don’t fit anyone’s priorities, or fall between the responsibilities of different commissioning bodies.

Workforce

There were three major implications for the VCS workforce described by interviewees as having arisen from the new commissioning environment. The first was the impact on the senior staff team, who spend much more time preparing tenders and managing the application processes. Some organisations have had to create designated posts to manage these very time consuming duties, instead of employing senior practice focused managers. In addition, and somewhat paradoxically, the time taken to develop, submit and manage tenders reduces the time available to apply for other sources of charitable funding or earned income.

The second was the knock-on effect of cutting costs. In order to be competitive, organisations said they have had to reduce costs, and that meant paying staff less, employing fewer staff or using staff with lower levels of qualification. Interviewees pointed to the lack of any funding for staff development built into contracts being particularly problematic at a time when investment in workforce development is needed to ensure that staff are equipped to meet changing demands. As one interviewee put it:

We’re driven to reduce costs with little recognition of the investment needed in the staff to provide high quality frontline services to vulnerable children or the resources consumed by the tendering and contracting systems. Organisations are repeatedly tendering in competition with each other every few years. It is a process that has become over-bureaucratized, detracting time and resources away from the delivery of services to children.

Several organisations were concerned about the impact on staff retention. Despite steps taken to avoid making staff redundant, there have been job losses. Small organisations found managing uncertainty particularly challenging, though in some instances interviewees were grateful for the longer contracts commissioning had brought – three years rather than year on year funding. Short term contracts create instability for staff, who have no long-term security. In larger organisations there may be other jobs to transfer to at the end of a contract; smaller organisations are often left with no option but to make redundancies when funding ends. Well qualified and experienced staff will quite reasonably begin to search for their next job in advance of the contract ending, with the obvious difficulties for delivery if they are successful. This in turn has very considerable costs for the voluntary organisation.

The third important issue has been the effect of TUPE (The Transfer of Undertakings (Protection of Employment) Regulations 2006). These regulations are not well understood by some commissioners who can give misleading or no information at all to guide applicants. If there is an existing service the new provider has to take on the current staff on their existing terms and conditions and this can be problematic on a number of counts: 

• The revised budget within the tender may be inadequate for the previous staff structure
• The previous staff structure may be seen as inappropriate for the revised service
• The cost of any staff consultation, restructuring or redundancy falls on the new provider
• When tendering it is very difficult to understand the full implications of TUPE and it often presents a high level of risk for smaller voluntary organisations
• Organisations are obliged to take on staff they had no part in recruiting from a service provider who may not have been offering a good enough service. The staff morale and training implications are far-reaching.

Furthermore, when a voluntary organisation loses a tender for a service it has been running, TUPE also applies – i.e. existing staff have the right to transfer across to the organisation which has won the tender. This can have a host of implications. For some small organisations the loss of key staff through TUPE means their work becomes untenable – they’ve lost both the funding and the staff skills, which may well have played a vital part in the other services they provide.

In addition, pensions can be a particularly significant challenge for charities required to honour the local authority scheme or schemes operated by other voluntary or private providers with substantial historic liabilities. This is unmanageable for small charities without the substantial reserves/assets required to meet the long term financial and legal obligations this entails.

Relationships

The ways in which the commissioner/provider relationship has evolved clearly varies from one local authority to another. Some organisations felt that commissioning had put more power into local authority hands and reduced opportunities for involvement in planning, or for developing innovative services unless they had access to unrestricted funds. In many cases, it was felt that relationships had become more distant and formal. Some interviewees pointed out an inherent contradiction in a relationship which involved both lobbying the local authority about its shortcomings and asking for money from the same source. While these tensions had been present under the grants system, the commissioning regime has, in some cases, made it feel harder to openly challenge the local authority.

A few interviewees commented on a more suspicious and secretive culture with relationships becoming more difficult in the current financial climate because local authorities want to retain funding and keep or bring services in house.

Commissioning was also seen to be having a negative impact on the relationships between voluntary organisations, particularly between larger and smaller organisations. This deterioration in relationships across the voluntary sector does not bode well for the development of collaboration and partnership or consortia working.

One interviewee suggested that the impact of commissioning on the whole culture of the sector needed to be acknowledged:

Equally important are the internal culture changes that have come about as a result of commissioning. I’m from the private sector but most people didn’t enter the voluntary sector in order to turn it into a variant on the private sector – but that’s what’s happening. We could lose our Unique Selling Point as a result, but worse we could lose our value base which is why people are willing to accept our help in the first place.

This uncomfortable consequence of increasing competition between voluntary organisations is, of course, partly related to the motivations and histories of bodies which were not set up or managed in ways which enable them to adopt private sector thinking very easily. But equally it is a sign of how young the market is in many of these service areas. Local commissioners face a difficult challenge in effectively nurturing this market to enable excellent VCS organisations to thrive and compete on an equal footing with more ‘market savvy’ competitors.

Experience of the tendering process

In 2009, all 13 organisations had experience of tendering for contracts and most said that they were ‘very’ or ‘extensively’ involved. This held true for both the very large and for those with a turnover of under £1 million. By 2010, most organisations were even more intensively involved in tendering processes.

Respondents reported variable experiences of the tendering process including application requirements, short-listing, interviews and feedback. A recurring point was that these are not consistent from one authority to another. Some organisations praised those tendering processes which were particularly transparent, but usually contrasted them with examples of opaque, secretive, high-handed and poorly designed ones.

Interviewees described some very poor processes, including situations in which bids had been submitted and then the tender withdrawn, or in one case:

We recently tendered for a service: the tender had been completed and budget submitted. The LA then stopped the process and reviewed what they had done. They decided to rewrite the questions for tender in such a way as to require the entire tender to be re-written, for which less than two weeks turnaround was given.

Decisions sometimes seemed arbitrary and the feedback provided on unsuccessful bids was rarely sufficient to be helpful.

In 2009, several interviewees commented that everyone involved in commissioning was at the beginning of a learning curve. There was therefore some optimism that tendering practice would steadily improve, and become more consistent, as local authorities developed their processes. However, our interviews in 2010 suggested that the variability of practice is still a major problem. Some informants commented on the amount of time spent fulfilling different authority’s requirements. Others highlighted fundamental differences between local authorities in what they actually put out to tender. Concerns were also expressed about the lack of understanding among commissioners about the nature of the services they were commissioning and the particular contribution of voluntary sector providers.

In 2009, there were no examples given of regional commissioning. In 2010, collaborative approaches to commissioning were a little more common though were not always seen as bringing advantages.

Few organisations are tendering in partnership with other voluntary agencies, although most have considered this option. Some are deterred by the complexities of different constitutions, policies, structures and organisational ethos. Our interviews suggested a degree of mistrust between smaller and larger organizations. There was concern that when larger organisations won contracts on the basis of a bid which included a commitment to work with smaller organisations, there was rarely any attempt to hold contractors to account in relation to this commitment.

Competition from private sector providers has increased, with some private providers, in fields such as children’s residential care, experiencing major growth and undercutting the voluntary sector with their ability to make economies of scale.

Reflecting on their successful bids, interviewees most commonly put their success down to the following factors:

• Being known to the commissioner
• Demonstrable quality and expertise in the field
• Attractive fees for the services
• Ability to demonstrate success achieved on a similar project
• Using referees who are previous ‘satisfied customers’
• Writing very good bids using the right language
• Sticking to what they are known for and good at

Conversely, failed bids were most frequently attributed to some combination of the following factors:

• Not being known
• Cost
• Unfair competition with existing statutory providers, or from larger voluntary organisations using voluntary funds to subsidize bids
• Lack of openness and transparency within the process e.g. a pre-existing ‘favourite’
• Insufficient time to prepare bids

Cost was mentioned several times as a reason for not winning tenders. In particular, interviewees expressed frustration at local authorities’ interpretation of ‘full cost recovery’. Several interviewees gave examples of service elements they regarded as essential which local authorities were not willing to fund. Others gave examples of organisations submitting widely varying costs for the same kind of service, raising serious questions about the quality of some of the proposed provision. There was concern that for some contracts local authorities expected a significant financial contribution from the voluntary organisation, which precluded smaller organisations from bidding.

It appears that the organisation is increasingly required to demonstrate how it will subsidise the tender- no question of full cost recovery. We may have to learn how to ensure that that costs are met within the bid. LAs tend to restrict core costs to 10%- we believe 20% would be more appropriate.

The planning stage

Although it sounds obvious, the specification put out to tender needs to be appropriate. Before services are put out to tender there should be a transparent assessment of need involving commissioners, service users, voluntary and other organisations currently providing services in the area about the most appropriate service models. It is also necessary to have input from senior/ specialist managers within local authorities, alongside procurement staff.

This initial phase should undertake some realistic costing of the proposed service so the level of resource is transparent and expectations about quality and quantity are clear to service users, commissioners and potential providers.

The tender process

• A clear system for advertising tenders with an accepted standard about where notices should be placed and for how long, including establishing a single source of information as to where tenders are to be found. Ideally, this standard should be agreed nationally so that voluntary organisations working across several local authorities do not need to waste resources adapting to inconsistent processes
• Giving longer timescales for submitting tenders – at least 3 months would help. Some are very short and if they come together, particularly at certain times of the year (e.g. December/August), it places un-manageable pressures on organisations, especially those where there are no dedicated staff for tendering/fundraising
• More streamlining of the process both within local authorities and across local authorities for similar services – it should be possible to provide the same core information for every tender to address financial probity and other issues covered in the pre-qualification questionnaire
• The amount of form filling and volume of information required should be linked to the value of the contract. Even very modest tenders can have as many as 30 attachments
• Published criteria for choosing the provider with an open weighting system. The weighting should not be dominated by cost but give due weight to quality and a focus on outcomes for service users. The weighting of these criteria should give due regard to the added benefits offered by voluntary organisations: factors such as grassroots involvement, engagement of local communities and volunteers are not always sufficiently taken into account
• Better organized briefings and mandatory feedback
• Greater guarantees for the protection of the material provided to support a submission to tender – some organisations are aware that their ideas and material have been used even when they haven’t been successful in winning the contract
• An independent element, such as a provider with no conflict of interest on the assessment panel
• Learning from efficient, effective processes

The contracts

The most important change needed which would benefit service users, greatly reduce transactional and other process costs, improve staff retention and investment in workforce development is longer term contracts. A norm of 5 years with a 5 year option for renewability without re-tendering is suggested as a much better model than the current 12 to 36 month time-frames.

Contracts could also be improved by:

• Reducing bureaucracy – there’s a huge amount of documentation – contracts are often the size of a thick book
• Sharing the risk – many contracts attempt to place all the risk of something going wrong on the provider organisation – this could potentially bankrupt an organisation and is hardly fair or realistic, given the level of interdependence between services serving vulnerable children. The burden of risk also entails major additional insurance costs
• More clarity and honesty about what constitutes the true cost of the service and how these need to be apportioned within the contract
• A better shared understanding of what is “good enough” quality: some commissioners have a limited understanding of the services they are commissioning – if they make judgments based largely on cost, they may be procuring very low quality services, which in some cases may be dangerous for children and young people, and in many more do not produce the desired outcomes, leading to further cost to the taxpayer down the line.

Reporting and monitoring

The reporting and monitoring required needs to be appropriate for the level of service and reasonable within the time frame being paid for by the commissioner with a focus on outcomes expected. While some simple counting measures may be appropriate the reporting should reflect the quality of service offered and use feedback from children, young people and families.

Recommendations for Commissioners:

1. Greater adoption of place based budgeting and strategic cross agency commissioning

2. Consensus on the tools used to gather evidence of outcomes for similar services

3. Reduce costs through longer contracts, with appropriate review points. Five year contracts as standard (possibly with three year review)

4. Retain grant funding as part of the commissioning mix, and use other funding tools, not just competitive tendering.

5. Valuing soft outcomes and working proactively with providers to agree and measure these

6. Increased two way accountability through the development of mutual understanding and a focus on service user experiences.

7. Develop a greater understanding of the cost, benefit and impact of ceasing to provide services due to cuts, both on service users and other services

8. De-politicisation of commissioning and challenge the macho culture which has grown up around commissioning.

9. Reduce procurement bureaucracy

10. Honesty about the costs of the whole commissioning system, where these costs fall and how risk is apportioned.

Recommendations for VCS providers:

11. The VCS needs to further its understanding of local democracy and the political pressures on commissioners

12. The VCS should be more willing to challenge commissioners and offer solutions

13. Work to increase awareness amongst commissioners of the capacity of the VCS

14. VCS groups should be more willing to work with each other in meeting needs more efficiently.

Recommendations for both:

15. Increase constructive dialogue between commissioners and VCS to challenge each other and build joint solutions

16.Challenge universal services to deliver better value as well as commissioned services.

17. Remember the user; they should be involved at every stage.

18. Accurately assess the costs of commissioning for both local authorities and VCS

19. Investigation of what enables relationships to work

20. Focus on priorities. The VCS needs to be more vocal in trying to set these and commissioners to use VCS evidence as a key part of decision making.

21. Develop lighter evidence requirements, which meet the needs of commissioners, providers and recipients of services. Trust and verify is much more cost effective and transparent than complicated monitoring systems.

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