Short-term contracts limit providers

28 Jul 05
The CBI is warning the government that 'short termism' in its procurement practices is preventing external service providers from bidding for contracts and undermining provision, Public Finance has learned.

29 July 2005

The CBI is warning the government that 'short termism' in its procurement practices is preventing external service providers from bidding for contracts and undermining provision, Public Finance has learned.

The director general of the industry lobby, Sir Digby Jones, has written to Health Secretary Patricia Hewitt to outline his concerns, following discussions between the CBI and Stephen Bubb, the head of the Association of Chief Executives of Voluntary Organisations.

In the letter, obtained by PF, Jones warns Hewitt of the 'joint concerns' felt by the CBI and Acevo that short-term contracts are stifling investment in services and exposing contractors to excessive risks.

Jones, citing as an example the palliative care services provided by Marie Curie Cancer Care, says the charity's one-year contracts mean it cannot afford the investment to ensure that its provision matches demand and delivers value for money to the taxpayer.

'Current procurement practices do not create the right incentives for managing risk. Current contracts shift all the risk caused by demand fluctuations on to the providers,' Jones warns. 'Simply providing more funding security would benefit service users and taxpayers.'

The warning confirms the findings of the National Audit Office last month, which said funding of contracts with the third sector were 'complex and inefficient' and needed 'substantial improvement'.

It will be unwelcome news, as ministers have staked the success of the public services reform programme on greater involvement of the private and voluntary sectors in services provision. The Home Office, the sponsor department for the third sector, has a target to increase its role in public services by 5% next year.

A joint report by Acevo and the Social Market Foundation, published on July 26, stresses that voluntary organisations want 'radical reform' of their current involvement in public services.

It calls for large-scale transfers of assets and budgets to the third sector, rather than merely offering contracts to provide services.

The report, Communities in control, identifies four areas where this approach should be taken: children's services, correctional services, employment services, and independent living aids for disabled people.

The report says transfers should happen within the next 18 months, and that transfers in mental health, drug treatment and social care should follow.

Nick Aldridge, Acevo's director of strategy and report co-author, said: 'The government will fail to meet its manifesto commitments on public service reform unless it makes better use of the third sector's expertise.'

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