If the Government and the wider public sector genuinely want more public services to be delivered through contracts by newly formed social enterprises, charities, employee co-operatives spun out from the public sector and SMEs, they need to get the message through to their procurement teams.
All too often, procurement processes and requirements make it either impossible or extremely difficult for smaller organisations to bid.
This is a classic case of one hand of government not being connected to the other.
Contracts and frameworks which require bidders or potential bidders to demonstrate a proven track record immediately disqualify the new market entrant or “start-up”. Processes that require many forms to be completed and specialist knowledge of complex (often overly complex) public procurement requirements have similarly negative effects.
Major prime contracts such as those in the Work Programme are usually only attractive to and feasible for major corporates, and as the Work Programme has shown, being a junior supply chain provider is rarely a good place to be for SMEs or third sector organisations.
Similarly, procurement conditions that require evidence of substantial turnover and/or strong balance sheets are hardly friendly to the Government’s stated target providers. And of course, when consortia bidders have to demonstrate that they have worked together before and/or have a legal formal relationship, many third sector bodies which otherwise might be prepared to form collaborative bids are frequently discouraged from proceeding. Rather, they are more likely going to be willing to formalise their consortium relationships only once contracts have been won, instead of on an expensive, speculative basis.
I could continue with the litany of challenges and barriers, including the conditions that are placed on successful bidders post-contract, but I won’t do so because the core messages are clear.
However, I must comment on the impact of an overzealous application of payment by results (PBR) contracts. These can often require significant balance sheets for the provider/bidder, either to fund their cash flow and/or to provide collateral against which to borrow the necessary capital. Few third sector organisations or SMEs can bear the risks associated with complex services and outcomes being procured with PBR contracts. They may not have the required risk management and commercial skills, let alone the financial risk appetite to take on such risks. In addition, a charity trustee has to be very careful about putting charitable assets and resources at commercial risk to support a public sector contract.
Social investment opportunities can and do assist some organisations to secure the necessary capital, but they do not eliminate the risks.
If the Government and the wider public sector wants more contracts to be awarded to the groups listed above, then a number of actions must take place, including:
- changing procurement processes to make them bidder-friendly for third sector and SME providers
- investing in the development of the capacity of third sector, social enterprises and co-operatives (while avoiding falling into any State Aid traps) and stopping the current funding cuts to such support
- providing transition arrangements that allow specified providers to have running services before they become subject to open competitive tendering and ensuring that these providers have the opportunity and resources to create the necessary capital and commercial skills for when they have to bid in open markets
- building on the Merlin principles adopted for the Work Programme, to require that large business sector providers treat their SME and third sector suppliers fairly
- instilling a new culture into the public procurement profession so that these measures are more than words on paper
The public sector will itself continue to deliver public services directly – and rightly so. It will also collaborate with others and contract for many public services. The ambition of Government, as expressed in the Open Public Services White Paper and in repeated ministerial statements about increasing roles for SMEs, social enterprises, co-operatives and charities in collaborating and contracting will only happen if there is a major change in both processes and behaviour across the public sector.
These changes must themselves be created and implemented through collaboration between the public sector and SMEs, social enterprises, co-operatives and charities.
Failure to do this will inevitably lead to great disappointment, the non-achievement of the Government’s commitments, and poorer choice and opportunity for service users – the citizens of the UK.