Effective Efficiency!

When Carillion plc collapsed in January 2018 with debts of £1.5 billion, it left 420 public sector contracts dangling precariously.  Would school children still be fed? Would hospital lights still stay on?  Importantly, how much would it cost in jobs and to the public purse?

We have a better idea now. About £148 million, according to the National Audit office’s report in June 2018, and around 2,300 people tragically being made redundant. What, you might ask, has this got to do with the charity sector?

The publication of the renewed Compact in 2010 aimed to create the right environment for partnership working between the state and civil society, including charities, not-for profits and social enterprises. It talked about the ‘social value’ that charities can add. The Compact has embedded itself into the heart of local government and over the last decade has been a fundamental reference for supporting local delivery of services.

At the same time, budgets have been slashed and slashed again. Services have closed, shrunk and are constantly under pressure. Despite this, partners work tirelessly to carry on delivery where possible. Indeed, charities often choose to plug funding deficits from their grants with fundraising and their own voluntary income. A May 2017 report (Charities taking charge: Transforming to face a changing world) from New Philanthropy Capital reported that 67% of charities that deliver public sector contracts have to use other sources of income, such as money from fundraising, to do so. 57% stated having to turn down contracts because the operational risk is too high.

Local government spending, where the bulk of commissioned charity-delivered public services takes place, will continue to plummet.  The Local Government Association says there is simply nothing left to cut – and estimates a £5.8 billion funding gap in 2020 even if “councils stopped filling in potholes, maintaining parks and open spaces, closed all children’s centres, libraries, museums, leisure centres, turned off every street light and shut all discretionary bus routes”.

So, what can be done? We wait with baited breath as to how government departments interpret Theresa May’s pronouncement of the end of austerity at last week’s Conservative Party conference. But few policy makers expect a reversal of cuts already made.

Instead, we are beginning to see the phrase ‘efficiency’ creep into ministerial and civil servant vocabulary more and more. The 2014 published NHS five-year plan spoke of making £22 billion ‘efficiency’ savings (though that figure has been called into question by the Kings Fund in 2017).

The Department for Education, in response to the Education Select Committee’s 2017 report, raising the alarm of a £8 billion gap in school funding, focused on the stated opportunity for schools to make £2 billion a year efficiencies in non-frontline teaching spend.

Of course, being efficient in buying goods and services should be a fundamental principle of any well-run organisation, be it private, public or voluntary sector.  But are we in danger of overstating the opportunities? And what are the risks of continuing to procure ever more cheaply?

The public sector, whether a central government department, hospital or school, heaves great sighs whenever starting on a new commissioning or purchasing process. The myriad of rules and regulations, mostly governed by EU law, demands full, transparent, robust (and laborious) processes. Demonstrating cost efficiency is clearly laid out in the guidance from the Crown Commercial Service, the government’s procurement arm.

Buying goods and services based on cost alone is fraught with dangers and there is an important balance to make between cost and quality (and ‘social value’). Was Carillion’s collapse partly due to unrealistic cost expectations on all sides?  Were ‘strike prices’ for individual contracts (the price of providing a school meal for example) set too high, or even too low? Depends who you speak to perhaps.

When charities deliver (or support) public services, they understand the ‘social value’ they can create. NCVO describes ‘social value’ as: “The term used to describe the additional value created in the delivery of a service contract which has a wider community or public benefit. This extends beyond the social value delivered as part of the primary contract activity. For example, a homelessness organisation funded to provide hostel space for the homeless may create additional value by providing routes into employment and training for its service users. This is a move away from awarding contracts based on lowest cost, and is of particular significance given the increasing pressure on public spending.”

In June 2018, David Lidington, Minister of State at Department for Communities and Local Government, laid out future ambitions for public sector procurement of services by saying: “We want to see public services delivered with values at their heart, where the wider social benefits matter and are recognised”. He called for a revamp of the 2012 Public Services (Social Value) Act of 2012, so that all government spending would incorporate ‘social value’, especially where the private sector is involved. An obvious and clear response, post Carillion.

The Charity Finance Group Report published its Six Point plan for charities post-Brexit last month. One point called for: “Greater flexibility on public procurement so that more grants and contracts are awarded on the full social, economic and environmental value that could be created, not just on cost”.

Charities delivering public services face uncertain times ahead. One the one hand, stronger calls by government for public spend to demonstrate and prove procurement efficiencies. On the other, a renewed focus on delivering even more ‘social value’. More for less and all within the context of continuation of tough budgets. Whether it is ideologically right for charities to subsidise public sector delivery, it doesn’t really seem the sector will have much choice for the foreseeable future.