UK: Public Service Delivery - Third Sector First

Last Updated: 4 December 2007
Article by Frances Woodward

The legal landscape of public service delivery has changed significantly in recent years. We look at the growing involvement of third sector organisations (not private, not public, but charities and other non-governmental organisations or NGOs) in the delivery of public services.

Historically there was a clear demarcation between services provided by government, services delivered by the private sector and the assistance and support offered by charities in the voluntary sector. Now, and increasingly, public services are being delivered by a range of organisations from across all three sectors, and all competing for the contractual right to perform these public service function.

The political impetus


This shared playing field for public sector contracts with the private sector on the one hand and voluntary bodies, community bodies and charities on the other has not come about by accident. The government actively encourages third sector involvement in delivery of public services. The Labour Partys 2005 election manifesto emphasised the significance of the voluntary sector in all aspects of public life, saying:

"The voluntary sector has an important role to play in the provision of local services, from health to education, from leisure to care of the vulnerable. As democratic, not-for-profit organisations, they can help involve local people in shaping the services they want."

Then, in 2006, the government established the Office of the Third Sector (part of the Cabinet Office). Among its responsibilities is Futurebuilders, a programme to help voluntary and community organisations increase their capacity to deliver public services. The government says it will have committed £215 million to the Futurebuilders fund by 2011, strengthening the voluntary and community sectors role in public service delivery by investing in schemes that demonstrate the distinctive approach and added value that the sector can contribute to improving public services.

Eligibility Charity Commission clarification


Increased charity involvement in public sector service delivery has given rise to some legal uncertainties regarding the eligibility of charities to provide public sector services. Two cases decided by the Charity Commission (Wigan and Trafford) have helped to clarify the position, confirming that charities can indeed use charitable funds to provide services on behalf of a public authority even if that authority is itself under a statutory duty to provide those services. Whilst these decisions did not represent a change in the law (charities have always been able to deliver public services), they nevertheless added welcome clarity on the matter, leading to the publication of revised guidance by the Charity Commission (CC37), available from:

www.charitycommission.gov.uk.

Advantages

There are said to be many advantages to the provision of public services by third sector organisations.

For example:

Established links with the community

Charities and voluntary groups are often locally established and thus have a real understanding of the needs of their local community, potentially making them best placed to create solutions which address particular needs.

Understanding particular groups in society (eg the disadvantaged and excluded)
Third sector organisations are more likely to have an understanding of particular communities (which they were quite probably created to serve in the first place) and, again, they may be in a superior position to shape services that best meet particular needs.

Socially motivated (rather than profit driven)

By their very nature third sector organisations are more likely to be motivated by the pursuit of social improvement than the pursuit of profit. This can offer a distinct advantage, delivering local public services which, the government believes, can reach communities in ways that the private sector cannot; this distinction is clear in the way the process is described as a "transformation" of public service delivery by the third sector, whereas public service delivery is usually termed as "transferred" to the private sector.

Innovation

As third sector organisations tend to have different motivations for wishing to deliver public services, they may also be able to take a more innovative, imaginative approach in so doing.

Disadvantages

However, there are challenges for the third sector. The conceptual and practical challenges facing the third sector in taking on this role have prompted the government to consult widely and issue helpful guidance. The key difficulties include:

A compromised voluntary sector

There is quite widespread concern that the unique ethos and public understanding and independence of charitable and voluntary sector organisations could be compromised by the involvement of the third sector in public service contracts. However, in our view, practice does not bear this out. A number of local facilities delivered by charities are operated extremely successfully. Indeed, it is our view that, conversely, local communities will often feel more inclined to support a local facility if it is being delivered by a locally-run charity.

Experience of trustees

There is a perception that charity trustees may not have the necessary business skills to take on larger contracts. Again, this is not necessarily borne out in practice. Clearly every third sector organisation would need to be assessed on its own merits and the robustness of its organisational ability to deliver the services required, but many boards comprise members with significant financial, corporate and business experience.

Complex pre-qualification processes

Tendering can be cumbersome and unfamiliar for some organisations, absorbing significant internal resources.

Proportionate contract terms

Trustees would need to be satisfied that contract terms (including, for example, risk allocation, indemnities and insurances) would be proportionate.

Payment terms

Many tendered contracts make payments in arrears, creating cash-flow difficulties for smaller organisations.

Length of funding

Annual funding makes business planning difficult for smaller organisations. Longer funding terms possibly three or five years are being encouraged.

Accessing finance

In May 2007 a report called Research on Third Sector Access to Finance was published. It explores the barriers faced by third sector organisations in finding funding and finance. Typically these include managing different funders requirements, the need to apply to many funders to secure sufficient financing, the complexity of funding applications and their formats, as well as a nervousness on the part of some funders to provide finance to third sector bodies whose other funding streams are short-term or derived largely from a single source.

Key Government Publications


The government has published good guidance on third sector contracting, available from

www.cabinetoffice.gov.uk/third_sector.

These publications aim to identify the issues that third sector bidders face and to help them participate in public service delivery. Most local authorities have entered into a local compact which sets out the good practice each local authority has agreed to adopt. Third sector organisations would do well to familiarise themselves with their local compact if one exists; they can be a great help when negotiating contractual terms.

One other area of potential uncertainty relates to the use of social clauses in contracts ie the requirement for the contractor to provide certain additional social outcomes, such as training or jobs for the long-term unemployed. The Office of the Third Sector is now reviewing the use of social clauses with a view to developing standard format wordings as well as good practice guidance.

Conclusion

These are exciting and innovative times in this field. The third sector, with its growing presence and voice (and its clear support from government), is likely to become increasingly visible in the delivery of public services. It is our view that this is a positive step. The availability of providers from all sectors is likely only to enhance services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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