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01 July 2022

Five reasons why procurement isn’t working for social enterprises and what this means for social investment

Will Thomson

Will Thomson
Policy & Public Affairs Manager

Futurebuilders

Today we published a new report Scoping a new approach to social value through social investment which revisits the role that social investment can play in supporting the social value agenda, using learnings from SIB’s historic funds – like the Futurebuilders – which aimed to support charities and social enterprises to bid for, win and deliver public service contracts.

As part of this research, we interviewed eight organisations – of varying sizes, ages and locations – from across our portfolio to explore their experience of bidding for government contracts, with a view to better understanding how social investment can be deployed to support organisational growth through delivering public services.

We identified five key barriers that charities and social enterprises face in attempting to access government contracts.

01.

The current commissioning landscape doesn’t support organisational growth

For the most part, there simply aren’t the range of contracts available to organisations to help them grow through engaging with public markets. Our analysis of contracting data has shown a U-shaped distribution of available contracts – there are plenty of opportunities available at the very large or very small end, with very little in between. This makes it difficult for smaller organisations to pursue pure growth strategies through winning contracts, as there is little available to help them move from small scale to midsized delivery.

Source: Spend Network

Source: Spend Network

This conclusion was echoed in the interviews. We were told the appetite for commissioning seems to have dropped off since 2015, with successive general elections, the Brexit vote and then Covid disrupting the normal flow of opportunities. 

The organisations delivering smaller contracts found that these would be up for renewal or retendering every 12-18 months, making strategic planning more challenging. Exacerbating these difficulties was the the cost of delivery which made margins are slim. One interviewee told us that their core contract hadn’t had an uplift in 10 years; another said that they used to earn £700k in government contracts but they had lost all of these over the last five years.

02.

The bidding process does not favour smaller charities and social enterprises 

The bidding process was widely felt to be burdensome, bureaucratic and resource intensive – which could be off-putting for smaller charities and social enterprises. It could also be very inconsistent, even within a single local authority or government department. One interviewee shared their varying experiences bidding for similar sized contracts with a central government department: one was light touch bid involving a two-page document and a phone call, whereas a second bid was highly resource intensive, requiring a 50-page bid.

An overarching problem, particularly for smaller organisations, was the lack of capacity and confidence in writing bids and responding to multiple tenders. This is a structural disadvantage that smaller charities and social enterprises face: a resource intensive bid could require several senior staff members to be taken away from day-to-day delivery to concentrate on drafting a bid. Larger organisations, on the other hand, will often have professionalised bid writing teams that understand the system and are able to respond to tenders as they arrive.

03.

Joint ventures or engaging in supply chains can be helpful – but also have drawbacks

Given the paucity of contracting opportunities (at an appropriate size) available, we heard that organisations had explored joint-ventures or been engaged as a subcontractor with a larger prime organisation. This was a way that smaller organisations were able to take part and generate income from larger contracts.

There were some issues with engaging in a bid as part of a supply chain with a larger prime contractor. One interviewee told us that they were wary that their organisation could be used as ‘bid candy’ – where they might be involved in a bid purely based on the optics. This had happened in cases the commissioners were explicitly looking for unique or grassroots organisations to be involved in a supply chain. Another organisation felt that prime contractors often lacked the commitment to maintaining a good relationship with subcontractors.

In these subcontracting relationships, the larger organisations still hold all the influence over service delivery, and there is no guarantee that a smaller organisation will get what they need from the partnership. Some interviewees aspired to become a lead contractor and work in a joint venture with smaller organisations. It was viewed as an area of growth that was achievable in the current commissioning landscape, particularly when being a sub-contractor held several disadvantages. 

04.

A good relationship with councils and commissioners is important – but can be difficult to maintain

The majority of the organisations we spoke to have a close relationship with their local councils or commissioners. This helped them navigate the maze of opportunities that were available. However, the smaller organisations suggested that lacking longevity or a strong ‘track record’ was a barrier to engaging with the local authority.

Relationship building is not always an easy process. Time, resources and connections are needed to ensure the relationship is maintained. Open outreach and relationship building from the local authority was perceived to be limited and, instead, the organisations we interviewed felt they needed to put work into gaining respect and legitimising their value and service quality. The capacity to do this can wear thin, particularly when working across multiple local authorities.

There was a sense that commissioners should be more open to consultation or co-design of services with the local social sector, which would help to bring out the benefits of locally-led, high quality public services. 

05.

Engagement with social value agenda is patchy and inconsistent

Half of the organisations we spoke with were not aware of the Social Value Act, or any recent changes to procurement rules – which could be explained by the varying levels of engagement that local authorities had with the social value agenda. It was clear that some councils simply didn’t engage at all with social value in public procurement – in these cases, the perception was that price is the key determining factor in assessing bids. 

We were told about some councils who had made social value explicit in their commissioning – Wirral, Manchester and Hackney were all mentioned. Where councils did engage, it was perceived as helpful in levelling the playing field for charities and social enterprises. There was also evidence that the new central government social value model was making an impact. One interviewee had noticed that Ministry of Justice tenders were now explicitly looking for more diverse-led providers, which they felt had made their bid more advantageous. 

The new social value agenda was seen as something that would support charities and social enterprises bidding for contracts – but the varying levels of engagement, particularly at local authority level make it a postcode lottery for whether an organisation might benefit from it.

What does this mean for social investment? 

It became clear over the course of these interviews that there are internal and external challenges facing charities and social enterprises that are bidding for and delivering public services. 

Internally, there are issues around confidence, capacity and capability – and this is particularly the case for smaller organisations. These challenges are exacerbated by a procurement process that is complex, onerous, and structurally favours larger organisations with the resources and internal capacity to dedicate to responding to new tenders. 

Externally, the current commissioning landscape simply does not support organisational growth. There are not enough contracts at an appropriate size for an organisation looking to scale up operations – locking them into low value contracts and short-term service delivery or forcing them to engage as subcontractors (which has its own disadvantages). 

Although some of the organisations we spoke to had taken on social investment in the past, none of them saw taking on further investment as a means to unlocking more contracting opportunities in the current circumstances. 

Why? Because the issues highlighted in the interviews could not be solved by finance alone. Social investors could, for example, provide funding to develop organisational capacity, such as business development or bid writing resource; or they could finance a joint venture to take on contracts at a larger scale. However, neither of these are sufficient interventions if substantial policy change is needed elsewhere to support VCSE public service delivery. 

At SIB, we believe there is great potential to transform public service delivery through the social economy, but the commissioning and procurement landscape needs to change significantly in order to achieve this. What’s needed is a combination of targeted policy change that facilitates better access to government contracts and removes the barriers highlighted above; alongside patient and flexible investment to develop capacity and capability in charities and social enterprises. Taken together, this could turbocharge the delivery of high quality, locally-led public services that support strong, integrated communities.

Read the full report Scoping a new approach to social value through social investment

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