Features: March 7th, 2008

By Andrew Hind

This article was first published in Public Management and Policy and is reproduced by permission of the Association. http://www.cipfa.org.uk/pmpa/index.cfm

Government has ambitious plans to increase the involvement of charities in delivering public services. The Charity Watchdog discovered from a survey that bureaucracy and cost cutting is hurting charities. Managing large numbers of short term public service delivery contracts has become an administrative burden eating into charity funds. Recovering the costs of service delivery is proving difficult. Charities need to improve pricing and costing skills, but commissioning authorities need to recognise that adding value does not mean free extras.

The publication of the results of The Charity Commission survey into charities delivering public services, Stand and deliver, has provided a valuable evidence base which charities and commissioning authorities alike need to seriously consider. It demonstrates huge contrasts between the charities in terms of size, location and funding.

The most common funding arrangement for charities delivering public services is a mixture of grants, contracts and service level agreements. And while the majority of charities had between one and five funding agreements, some reported significantly higher numbers, particularly where separate agreements exist for each beneficiary – one charity reported 4,000 individual one-year contracts. This raises questions about the effort needed to manage these agreements and whether the resulting bureaucracy is always an effective use of charitable resources.

The length of funding arrangements reported fell far below the aspirations of the local government white paper. Over two thirds of all funding agreements for public service delivery are for only one year, with only 13% lasting for longer than 3 years. The white paper’s aim of creating a commissioning framework with the norm of three-year funding appears far from being achieved at this point.

Re-covering costs

The key issue for many has, of course, been that of charities recovering the full costs of delivering these services. Only 12% of charities delivering public services told us they achieve full cost recovery all of the time. 43% said they were not achieving it at all, and a further 38% told us they only achieved it some of the time. This has serious implications – both for the financial sustainability of the services charities provide and for these charities’ survival.

Different public authorities seem to have different opinions on when, and how, full cost recovery should occur, depending on whether funding comes via grants or contracts, leading to a lack of consistency. Our view is that no matter what type of funding agreement is used, full cost recovery should be a charity’s ‘bottom line’ in negotiating a price for any service that a public authority is purchasing. The only exception to this should be when the charity decides that it is in its beneficiaries’ interests to subsidise a service – a decision over which the charity’s trustees should have final say.

Charities should take account of the level of statutory responsibility that the commissioning authority has to provide the service. In some cases, charities may choose to ‘top-up’ the service to what they feel is an appropriate standard. But charities should expect an authority to fully fund the cost of delivering a service it has a legal duty to provide, and they should only subsidise that service if it’s clearly in the best interests of their beneficiaries to do so. Commissioning authorities also need to understand that, whilst charities may be able to bring unique or distinctive qualities to some services, higher levels of service may well cost more to provide, not less.

The public sector isn’t solely to blame for underfunding of services delivered by charities. Charities need to get better at costing and pricing their services.

Maintaining independence

Stand and Deliver also raises questions about an issue that could be an even greater threat; the risk to charities’ independence.

Our survey offered respondents three statements, asking how far they agreed with each. These related to:
? Charitable activities being determined by mission, rather than funding opportunities;
? The freedom of the charity to make decisions without pressure to conform to funders’ wishes;
? Charity trustees being involved in decisions about what activities or projects the charity will undertake.

Charities that don’t deliver public services agreed with all three of these statements more often than those delivering such services. Only 26% of respondent charities delivering public services fully agreed they are free to make decisions without pressure to conform to their funders’ wishes. Only slightly over half agreed that their activities are determined by the charity’s mission, rather than by funding opportunities.

Whilst this doesn’t mean that charities delivering public services are less independent than those which don’t, these results highlight challenges to their independence, mission and governance. Charity trustees must be the ones making the high-level decisions about activities and projects, making them solely in the interests of their beneficiaries.

Looking to the future

Government has set out ambitious plans to increase the involvement of charities in delivering public services. For this to happen funding needs to be sustainable; capacity and skills at building partnerships, pricing services and negotiating funding agreements needs further developing; and our charities’ independence and distinctiveness has to be respected. It’s in the interests of all parties involved to make sure this happens.

Stand and deliver: the future for charities providing public services and Charities and public service delivery – an introduction and overview are available from the Charity Commission’s website at www.charitycommission.gov.uk under ‘Publications’

Andrew Hind is Chief Executive of the Charity Commission