29 February 2008
If the third sector is to achieve its potential as a supplier of goods and services, it must change its attitude to procurement in a fundamental way; the public sector must look at its mind-set afresh, too
Public sector contracting continues to be a hot topic in the third sector. Although not popular with everyone, the approach is widely promoted by the government for the benefits it brings to the public and third sectors.
The number of third sector organisations deriving income from contracts is at an all-time high, and numerous initiatives, such as the National Programme for Third Sector Commissioning, are being implemented to try to improve relationships between the sectors.
Yet despite this, a recent survey of public sector commissioners found that almost two-thirds of them still do not feel the third sector can deliver public service contracts successfully.
I would argue this is due in part to basic differences in the way the sectors traditionally operate, and that there needs to be some fundamental changes in culture and behaviour across both sectors.
There is a tendency in the third sector to take the view: 'If only “they” understood us better and were more effective, intelligent commissioners, then all would be well.' This is far too simplistic. There is often a reason why the public sector responds in a particular way to the third sector.
Competing for public service contracts needs a different approach from the well-rehearsed activities which ask the public for donations, or a foundation, or a local authority for a grant. In these situations an organisation will be viewed as a supplicant rather than a potential business partner.
If an organisation wants a commercial relationship with a local authority to provide public services, it needs to go about things in a different way. This doesn't mean losing its independence or behaving like a private business, but it does mean a more business-like approach.
There are five fundamental behavioural changes that I believe potential third sector suppliers need to make to be successful.
The first change involves moving from being reactive, ie, waiting for plans and service specifications and responding when asked, to being proactive. This means seeking out the right people and influencing commissioners. The third sector needs to start making things happen for itself.
The second change is about moving from a 'we bring added value because we're the third sector: we have values and you don't' attitude, to one that backs up these claims with hard evidence.
The third sector needs to show the difference it makes to service users' lives, quantify the savings to the public purse, and demonstrate social return.
The next change means that instead of a 'look how great we are — you should support us' sales pitch, the third sector should be marketing itself in terms of 'our service meets your needs'.
There also needs to be a shift from asking to selling. So questions such as: 'Can we have a grant?' need to be replaced with statements such as: 'We can provide you with this service for this amount of money.'
The final, and perhaps most important, change is a move away from costing to pricing. This means a change in vocabulary, from 'the full cost of our service is £x' to 'this is our price — it is competitive, realistic, and offers value for money'.
This debate around full-cost recovery epitomises the shift. Of course, all third-sector organisations should be seeking to recover their full costs, but when it comes to tendering for a contract, the conversation has to move from an internal language of full cost recovery to an external language of value for money.
Full cost recovery is the right language when seeking a grant. It will naturally lead to the grant-maker wanting to see the details of the budget and questioning where the money will be spent.
However, this is not the kind of relationship you want in a context of procurement. Here the aim is to agree a price that enables you to make a surplus or maybe to enter a new market, albeit on a loss leader, while always demonstrating value for what is, after all, public money.
A change in behaviour in the third sector must be matched by one in public sector commissioners. They need to move away from viewing the third sector as a rival, a supplicant and a grant recipient to considering it more of a partner, a supplier and a contractor.
Importantly, the third sector needs to operate within a context of support. Financial changes such as cuts in public expenditure and the trend towards bigger contracts make it difficult for the third sector to achieve real progress.
However, initiatives are under way to try to address these issues. The National Programme for Third Sector Commissioning is a major opportunity to achieve positive change. Encouragingly, the programme planners have recognised the need for both sectors to be involved from the outset. A more sophisticated approach from both sectors is something we should all encourage, but it remains a challenge for those of us in the field.
Richard Gutch is chief executive of Futurebuilders England
PFfeb2008
