Greater Manchester Centre for Voluntary Organisation

Opportunities for service delivery or service decommissioning?

The market for the delivery of public services has certainly become more competitive with more expected for less and often contracts being aggregated in order to reduce administrative costs. But there is a fundamental change in addition to this. In many cases the purpose of commissioning has itself altered.

As the market for public services grew over the last decade many voluntary organisations were able to engage in the delivery of services based on their quality and the impact they generated. As new spending emerged, organisations competed more on the basis of outcomes achieved than absolute costs.

This is less the case now. We are seeing fewer instances where contract specifications seek to generate increased quality but more often seek to squeeze costs out of the system or transfer risk. Last year I wrote about “toxic opportunities” and the increasing number of short-term contracts from the public sector that contained high decommissioning costs. In the forthcoming government spending review we are likely to see the biggest squeeze on public spending in the post-war period with both the 2015 and 2020 General Elections likely to be portrayed as austerity elections. Some short term contracts with significant TUPE liabilities might better be described as an outsourcing of redundancy than an outsourcing of delivery as many of those services are unlikely to last. Recent work from NLGN suggests by 2018 public sector bodies will have 50% of the purchasing power they have now.

And then we come to the latest large scale “payment by results” scheme which will really throw sharp definition on this fundamental change – the Transforming Rehabilitation programme which will outsource probation services.

From my own conversations with potential prime contractors and informed reports elsewhere we are likely to see outsourcing of these services linked to cuts of approximately 30% of costs.There may be opportunities for voluntary organisations to play a role in delivering services in this area but this isn’t a contract to drive innovation – it’s a decommissioning contract. Any successful prime will have to strip costs from out of the system and push efficiency. Primes will be paid in arrears and may have a significant up front capital cost as they cover redundancy payments and re-organise the existing estate and delivery systems. They will contract out but will seek competitive prices with a real squeeze on costs and an element of shared risk.

The key barrier to entry to public service delivery is increasingly going to be access to capital rather than bidding skills or business techniques. Prime contractors will invest upfront in the restructuring services on the basis that a more efficient service can provide a return over the full length of the contract. Even on a small, local level, without strong reserves, an organisation taking on a short term contract could face significant costs should the commissioner decide not to recommission the existing service following the public spending review and subsequent general election. This is probably a bad time to discover that 41% of the organisations in the sector have reserves of less than 3 months expenditure with many currently using reserves to cover reductions in income.

The Social Value Act is seen by some as giving socially driven organisations a chance to compete but it’s worth noting that there’s a rather large loophole in the act allowing many cost reduction measures to be potentially considered exempt.

We are coming to a point where many organisations need to fundamentally review their role in public service delivery. There is still a market out there, there will still be opportunities but increasingly the focus of delivery is changing. We can’t assume that a current role, which in many cases organisations have only engaged in for a decade, is a traditional function. There was a voluntary sector before commissioning and some organisations may see a future linked to those older models of direct trading with service users, traditional fundraising and volunteer led action more than the professional, commissioned delivery of services. Those that do wish to remain involved in public service delivery have to become more cost focused and look at how they might deliver on a greater scale. Big isn’t necessarily better as this will require a level of compromise and some hard decisions.

What is increasingly clear though is that for any organisation currently involved in public service delivery the “as is” is unsustainable and even if you are capable of competing for larger contracts it’s worth asking, with the inevitable change in approach, whether that’s what your organisation is there for.