Environmental, social, governance (ESG) Governance, legal and compliance

Public service delivery is risky business

The end of the year saw government announcing a series of master classes to aid charities bidding for contracts to better understand the new public service delivery environment.  Due in ...

The end of the year saw government announcing a series of master classes to aid charities bidding for contracts to better understand the new public service delivery environment.  Due in Spring 2013, this complements the Commissioning Academy which aims to improve the relationship from the other side, helping commissioners understand how to interact with civil society. Both are welcome, much needed, and should help to improve understanding of the challenges and priorities for both parties – in particular informing their risk profiles. Although it’s a sweeping generalisation, it is fair to say that both charities and local authorities can be risk averse.  For local authorities this is most clearly evident in an almost myopic focus on financial risk.  However, given the nature of the services local authorities are commissioning, an understanding of social value and influences on it should also input into the risk profiling process.  Unfortunately, short term financial risks are prioritised over this more complex area; but it will be difficult to achieve ambitions for public service delivery without addressing approaches to risk. Some of the emerging trends and consistent risk areas for voluntary sector involvement in public services can be summarised as follows:
  • Uncertainty and control
‘Full cost recovery’ has somewhat fallen off the radar in the past two years where a ‘get what you’re given’ attitude has prevailed.  However, it still stands that the higher the level of uncertainty in this area, the higher the risk that charity is taking on.  Cash flow, payment times, length of contract, application of TUPE, and referral rates are all common areas of uncertainty, and hence risk,  for charities working directly with the public sector or being sub-contracted by private providers. Being ‘kept in the dark’ leads to a significant loss of control.  This is not then balanced with the cutting back of control mechanisms used by contracting authorities during the course of the contract.  Ideally, greater levels of certainty for a delivery partner should be combined with proportionate reporting and monitoring requirements.
  • Competition and scale
We only have to look to the Work Programme to see the impact that competition and scale can have on service delivery relationships at a community level.  Lower-tier providers are forced to deliver below-cost, or are pushed out of involvement in services altogether.  This effect is also seen at a local authority level where larger VCS organisations and private entities are in a stronger position to negotiate contracts and provide upfront capital, significantly skewing competition but not necessarily always resulting in the best services for beneficiaries.
  • Sub-contracting and spot purchasing
Working with more than one contractor, or different types of contractor, is always going to have the potential to expose a charity to more risk and to new risk.  This is especially the case when referral rates are not guaranteed and payments are delayed. Finding the upfront cash to set up and run services to be purchased on a ‘spot-purchase’ basis, such as through personal budgets, is a significant risk for many, defeating the object of the approach by potentially reducing the choice actually available to those purchasing the services. Shifting the risk Improving collaboration in public service delivery requires thought to how service structure affects stakeholders and outcomes.  It perhaps goes without saying when discussing risk with a voluntary sector audience, that as the funder and ultimate custodian of the service, the contractor holds significant power in the service delivery relationship.  How this power can be better used to tap into the quality and expertise of voluntary sector  providers in their communities, and to actually achieve lasting social change, is determined to a degree by approach to risk. Social investment is often mooted as the solution to all of this, providing the upfront capital and therefore enabling more organisations to enter into the delivery market.  However, shouldn’t we look at other ways we can improve the market before trying to pull investment in?  Supporting the development of a fair, competitive market, with a healthy balance of risks between organisations will make it a more attractive place to invest, and will also result in better public services.  Sometimes charities are accused of complaining about our lot, but in reality these are issues that transpire beyond our sector and are impacting on the quality of our public services.   Taking a chance on the voluntary sector and shifting the approach to risk might just be what is needed. To read our joint report on Open Public Services: Experiences of the Voluntary Sector published in early 2013, see here. « Back to all blog posts