Is Best Value Good Value?

Why public sector commissioning isn’t

producing better outcomes

March 2008

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Finance Hub
Charities Aid Foundation
St Andrew’s House
18-20 St Andrew’s Street
London EC4A 3AY
Tel: 020 7832 3016
Email: financehub@cafonline.org
Web: www.financehub.org.uk

B:rap
9th Floor Edgbaston Hse
3 Duchess Place
Hagley Road
Birmingham
B16 9NH

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Content list

1 Context................................................................................................................. 4
2 ‘Shopping’ not ‘investing’ ..................................................................................... 4
3 Commissioning isn’t always producing better outcomes ..................................... 4
4 The need for greater ‘accuracy’ in purchasing decisions..................................... 5
5 Being clearer about impact .................................................................................. 5
6 Public purchasers – safeguarding the supply-chain? .......................................... 6

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1 Context

In 2007 the Finance Hub commissioned research to examine a number of issues in

third sector funding, including the decline of local authority grant funding1 and the
degree to which the funding sources currently available enable third sector
organisations (TSOs) to invest in building capacity.2 This is the third of five briefing
papers based on this work. Together, the papers cover:

1. Talking at Cross Purposes: Why the public and third sectors need to speak a
common funding language

2. Is Best Value Good Value? Why public sector commissioning isn’t producing
better
outcomes

3. Can You Still See the Bigger Picture? Do local authorities still have a third
sector
development role?

4. Fit for Whose Purpose? Conflicting ideas in capacity building

5. Pulling in the Same Direction: Why third sector capacity building needs cross-
sector co-ordination

2 ‘Shopping’ not ‘investing’

The last five years has seen significant changes in the way Local Authorities and
other public agencies fund the third sector. In particular, any growth in Government
funding to the sector has come through contracts rather than grants, with an
increased use of competitive tendering and centralised commissioning to procure
services that used to be funded through grants.3 The Local Government White Paper
encourages local partners to align their resources through Local Area Agreements
(LAAs) and commissioning models are also being used to achieve this. Increasingly,
‘shopping’ is seen as the most appropriate model for funding third sector public
service delivery.4

Yet, despite the adoption of what is seen as a more focused and strategic approach
to allocating funding, the third sector is still hobbled by a lack of dependable long
term funding, excessive monitoring procedures, and a general failure to achieve full
cost recovery.

3 Commissioning isn’t always producing better outcomes

In addition to these basic problems with the funding relationship, there are also other
more fundamental drawbacks in the way commissioning is practiced at a local level.

1
The Decline of Local Authority Grants for the Third Sector: Fact or Fiction? Finance Hub, December
2007. [Project ref: FH16.]
2
Intelligent Funding: From Vision to Reality, Finance Hub, December 2007. [Project ref: FH17.]
3
See Audit Commission, Hearts and Minds: commissioning from the voluntary sector – public services
national report, July 2007.
4
Compared to ‘giving’ to help support a worthy cause, or ‘investing’ to help build the capacity of the
sector. See Unwin, J., The Grant-making Tango: Issues for Funders, The Baring Foundation, 2004.

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Previous studies have noted examples of waste and inefficiency in third sector public
service delivery, due in part to an unequal allocation of risk between purchaser and
provider, and disproportionate monitoring demands placed on providers.5

The Finance Hub research found similar examples of inefficiency in the

commissioning process. TSOs highlighted the difficulties associated with managing
short term funding and the detrimental effect this can have on service delivery,
including high staff turnover and an inability to plan and diversify income. Other
research has also noted that public agencies often treat TSOs inconsistently, with
third sector supplier costs frequently facing much stiffer scrutiny than is the case for
private sector providers.6

The Government’s plans to introduce a two-year national training programme to

improve public purchasers’ third sector commissioning skills should help address
some of these problems, but many in the sector still feel that public agencies should
be producing evidence to demonstrate the advantages of their commissioning
approaches for local service delivery.

4 The need for greater ‘accuracy’ in purchasing decisions

The Finance Hub research found that very few Local Authorities are in a position to
accurately assess either the changes in the nature of the funding relationship they
have with the third sector, or the impact those changes are having on third sector
delivery. Data of sufficient detail and quality to enable a comparative analysis – of
grant support vs. commissioning, and restricted vs. unrestricted funds, for example –
is at present largely non-existent.
There is a need to improve knowledge and evidence in this area if Local Authorities
are to be able to make more informed decisions regarding the appropriateness of
grants or contracts in any given instance.

5 Being clearer about impact

Many TSOs recognise that they need to find new ways to demonstrate the ‘added
value’ of their work if they are to survive in what is increasingly a market-driven
environment. And this need to provide evidence of the outcomes TSOs achieve for
their service users is not going to go away.7 Yet relatively few are able to prioritise
this aspect of their work.

Local Authorities need to play an active role in supporting TSOs to collect and share
information about their service impact and this will require a closer and more
supportive relationship between public and third sectors at all stages of the
commissioning process, including service design, contract negotiation and outcomes
assessment.

5
See Brookes, M., Copps, J., A surer funding framework for improved public services, New
Philanthropy Capital, 2006.
6
National Audit Office, Working with the Third Sector, Home Office, 2005.
7
Phil Hope, Minister for the Third Sector, has said that third sector organisations can't avoid
performance measurement: “What outcomes are we trying to achieve, and how do we measure
success? Everybody should be asking those questions. To those organisations that don’t want to, I say,
‘So why are you here, then?’” The Guardian, Spreading the Glue, 06/02/08.

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6 Public purchasers – safeguarding the supply-chain?
As part of the Finance Hub research, Local Authorities were asked how they thought
they could improve current approaches to funding the sector. Many of the excellent
suggestions offered clearly failed to match what Local Authorities actually do in
practice, or see it as their remit to do.

Local Authorities are interested primarily in buying effective, value-for-money

services and less interested in safeguarding the future of the organisations that could
provide those services. Yet these two things should not be mutually exclusive.

Local Authorities can play a much more active role than they currently do in
supporting the development and sustainability of a third sector marketplace and they
can do this by ensuring that their commissioning processes are applied consistently
and allow TSOs to develop their capacity through full cost recovery and longer term
funding. Similarly, Local Authorities should be able to identify when ‘investment’ is
needed in local TSOs and that commissioning is not always the best route to building
the capacity of the sector. The funding mechanisms that Local Authorities choose
need to match the underlying purpose of that funding. This is one instance when
‘shopping’ and investment must go hand-in-hand.