Building the capacity of the Third Sector

Executive Summary

National Audit Office Report

1. This report examines ChangeUp and Futurebuilders, two Cabinet Office programmes designed to build the capacity of the “third” sector (see Box 1 for definitions). They were introduced by the Home Office in 2004 to address the findings of a 2002 Treasury review that the third sector’s ability to contribute to the delivery of public services was constrained by a lack of capacity. We examined the impact of these programmes on frontline third sector organisations, and looked at whether they are likely to meet the Government’s capacity building objectives.
2. ChangeUp is a £231 million programme for improving support services for frontline third sector organisations. Since April 2006, it has been managed by Capacitybuilders, a non-departmental public body established to administer the programme. ChangeUp does not fund frontline organisations directly. Instead, regional and local support providers are given funding to come together in partnerships or “consortia” to work in a strategic and coordinated way and provide new or improved and sustainable services, so that the capacity-building needs of frontline organisations can be met more effectively. At the national level, ChangeUp has created partnerships of national support providers to bring their expertise to bear by providing guidance and advice in priority areas, such as governance, performance management and volunteering.
3. Futurebuilders is a £215 million investment fund managed under contract by Futurebuilders England, a company limited by guarantee. In 2006, responsibility for the fund transferred from the Home Office to the Cabinet Office. The contract was re-tendered and a new fund manager, Adventure Capital Fund Management Limited, was appointed in April 2008.1 The fund is experimental in that it tests the idea that investing directly in third sector organisations that are financially viable, but unable to access commercial sources of finance, enables them to build their capacity to compete for and win public service delivery contracts. The fund also provides help to organisations that have specific development needs to address before they are considered ready to take on an investment.
   

   Box 1 "Definitions of terms used in this report" is unavailable in this version of the executive summary
   
   

4. Our principal findings in this report are as follows:
   

   
   
   On ChangeUp:
   
   

5. ChangeUp has generally been a significant factor in establishing better partnerships between local support providers. In the absence of a programme-wide evaluation by Government of ChangeUp’s impact, we carried out detailed studies in six localities to identify and illustrate the impact of ChangeUp on local support providers and frontline organisations. We found that ChangeUp had led to improved partnership between local support providers, which enabled better assessments of the needs of frontline organisations in each area and the gaps in support to them. These improvements were more significant in those areas where support providers had already been working together and shared a willingness to develop their cooperation; and less so where there were significant weaknesses in existing support or obstacles to joint working.
6. The improvement in partnership working has benefited frontline organisations, although the impact on them has varied. Better support has enabled some frontline organisations to improve their governance arrangements, reduce the time spent on administration, manage staff and volunteers more effectively and focus more on those aims and objectives that provide public benefit (Box 2 provides one such example). Although we did not seek to establish the impact on the users of frontline groups directly, they have also benefited from new, more, or better services.
   
   

   Box 2 "An example of how support can help a frontline organisation" is unavailable in this version of the executive summary
   
   

7. There are no targets for outcomes or a baseline against which achievement of the ChangeUp vision can be measured. Initially, ChangeUp at a local level devolved decision-making to the third sector, which was an untested approach. Decisions on the composition of consortia and the services these consortia prioritised to meet the needs of frontline organisations were made at a local level. We would therefore have expected both government and the sector to have defined outcome measures against which delivery of the ChangeUp vision would be assessed, set a baseline against which progress could be measured, maintained reliable data on its costs, and designed and commissioned a robust programme of evaluation. None of these things were put in place at the outset. A report published by Capacitybuilders in 2007 looked at 49 reviews on parts of the ChangeUp programme but found no effective evaluation of the programme’s impacts. Capacitybuilders has reliable cost information from April 2006, has a delivery plan for 2007 to 2011 and, on the basis of the 2007 report, commissioned the first national evaluation of the impact of ChangeUp in November 2008.
   
8. While ChangeUp has delivered benefits, the way the programme was managed has created problems. Delays in implementing the programme resulted in £80 million needing to be spent within 21 months to March 2006. A 2006 review of the national centres or “hubs” of expertise led to uncertainty about their funding and delays in implementing the new national services meant that extensions to hub contracts had to be negotiated. Consortia members we consulted said that pressures to spend money within short timescales may have led to some funding being wasted. In the first three years of the programme, to 2005-06, there was an underspend of £8 million out of the £80 million planned funding.
9. Significant changes have been made to address problems in the early phase of the programme, such as poor co-ordination between the national hubs of expertise and local consortia. These changes included the creation of Capacitybuilders in 2006 to manage the programme, the re-configuration of the national hubs soon afterwards and the introduction of a new grant programme, ‘Improving Reach’, to make funding available to organisations supporting groups dealing with marginalised communities.
10. A challenge for Capacitybuilders and the sector is to sustain the improvements delivered by ChangeUp by finding new sources of income to fund services. Valued support services in some areas have stopped for lack of continued funding. Some consortia have solved this problem, in line with the original vision, by finding alternative financing including charging fees to the users of their services.
    
    

    On Futurebuilders
    

11. Futurebuilders funding has brought about positive change. We carried out interviews in a sample of eight organisations to judge the impact of the Futurebuilders programme. Where investments had been used to develop capacity, such as improvements to governance, strategy and premises, these had increased the recipients’ ability to compete for contracts, and in three of the eight organisations had led to just over £600,000 worth of contracts to deliver public services. Third sector organisations were more likely to consider taking a loan as a result of their engagement with Futurebuilders.
12. The first management contract did not focus clearly enough on the objectives of the Futurebuilders fund. Between June 2004 and March 2008, £107 million was committed to frontline third sector organisations, of which 81 per cent by value was in the form of repayable loans. Although the fund manager’s contractual target of 250 investments was met, it was achieved by counting non-repayable development grants within the definition of the term ‘investment’. These contributed almost half the target by number yet only amounted to two per cent of finance awarded. Moreover, less than 50 per cent of all funds awarded were actually drawn down and used by the recipients. This application of the available funding was not a satisfactory means of investing in the capacity of third sector organisations and of testing out a new approach to financing capacity building activities.
13. The second management contract contains targets that are more clearly aligned with the objectives of the programme. To meet its targets the new fund manager has to invest in organisations that will use the funds promptly and will win at least a specified number of public service contracts. The new fund manager has undertaken to streamline and speed up the application process and to increase the rate at which funds, once awarded, are drawn down by recipients.
14. There are barriers to the achievement of Futurebuilders’ objectives. Some organisations we interviewed found the availability of public sector contracts for which they could bid was unpredictable and they were unable to win the contracts that they had expected to when they had applied for investment. There was also some confusion at four of the eight organisations we spoke to about whether or not the loan would ultimately have to be repaid. Other organisations were willing to accept non-repayable development grants but not loans. Without loans, and sufficient clarity around their repayment, the experiment will not be a good test of direct investment in third sector organisations.
15. The Cabinet Office will have a substantial asset on its balance sheet well beyond the end of the current management contract. The long-term nature of the loans made by Futurebuilders (some up to 25 years in length) means that the value of outstanding loans will be considerable for a long time. Our modelling work suggests that, even if no further investments are made after March 2011, the outstanding capital and annual repayments will still be over £32 million 20 years later. The Cabinet Office will need a plan to ensure that this loan book is managed effectively.
    

    Box 3 "An example of how Futurebuilders has helped a frontline organisation win more public service contracts" is unavailable in this version of the executive summary
    
    

    Conclusion on value for money
    
    

16. The Government’s main capacity building programmes have to date resulted in almost £300 million flowing to third sector organisations to address a perceived weakness in their capacity to deliver public services and serve their stakeholders and communities.
17. Our evidence shows that ChangeUp has delivered some benefits to the third sector and has contributed to frontline organisations now receiving better co-ordinated and more effective support services, though the impact is variable in different areas. However, it is not yet possible to establish whether it has provided good value for money. The failure at the outset to establish a clear baseline or criteria for measuring success meant that Government was unable to assess its effectiveness in the early years of the programme. It is therefore not possible to judge the full extent to which ChangeUp is bringing about tangible and sustainable improvements in support services to the frontline. Moreover, weaknesses in programme management have led to wastage and reduced the beneficial impact of the programme to date.
18. Futurebuilders has had a positive impact on those frontline organisations in which funds have been invested and applied, helping them for example to win at least 79 contracts to deliver public services in the six months to September 2008. The fund has started to increase access to different forms of investment for a range of frontline organisations, though it has only recently begun to make the number of investments that will substantially test the effectiveness of loan finance. The measures agreed between the fund manager and the Office of the Third Sector under the new contract should help to indicate whether the fund’s objectives are being met. This change has only occurred recently and, given the long-term nature of the investments, means that it will be some time before value for money can be demonstrated.
    
    

    Recommendations
    
    

19. On the basis of the findings set out above, the National Audit Office makes the following recommendations to improve the management of these capacity building programmes.

On the evidence base for designing, evaluating and changing programmes

1. ChangeUp was designed in the absence of objective data on the state and extent of support services for third sector frontline organisations. It has lacked meaningful targets to measure its impact and insufficient emphasis was given to evaluation of the programme prior to 2007.
   • In designing future policy initiatives, the Office of the Third Sector should build in adequate arrangements to evaluate and measure performance from the outset. Such arrangements are especially important for programmes such as ChangeUp which are untested or risk-taking in nature.
   • Capacitybuilders’ evaluation of ChangeUp should seek to establish objective measures of its impact and, where baseline data is lacking, should establish a ‘line’ against which the future success of the ChangeUp programme will be judged.

   
   On the need for timely decisions
   

2. Government took longer than planned to develop the ChangeUp programme, putting support providers under pressure to spend money quickly once funding decisions were announced and leaving just 21 months in which to spend the first three years of funding.
   • Capacitybuilders should help third sector support providers to plan ahead by providing information on the time they will take to make funding decisions. They should avoid putting pressure on third sector organisations that could lead to money being spent too quickly or unwisely. Should delays to the announcement of funding be unavoidable, they should assess the risk to value for money from a shortened timeframe against those that might arise if it were extended.

   
   On the accuracy and completeness of financial data
   

3. The uncertainty around financial data on the ChangeUp programme, caused by a transfer between old and new financial systems and a transfer of responsibilities from one Government body to another, has impaired assessment of the costs and benefits of the programme.
   • The Cabinet Office and the Treasury should advise departments of the importance of preserving adequate financial information when system and machinery of government changes take place. Departments should ensure that a sufficient level of financial detail is maintained to allow for any future evaluation of value for money of programmes.

   
   On the risk to sustainability and legacy of the programme

   
   
4. Sustainability is an inherent part of Government’s vision for ChangeUp, but some support services funded by or enabled through ChangeUp have already ceased.
   
   • The Office of the Third Sector and Capacitybuilders should identify examples of sustainable services, and how this sustainability was achieved, and support the spread of best practice. They should also consider how organisations within the sector least able to pay for services (such as new and small frontline organisations) can continue to access the services they require.

   On managing the asset created by the Futurebuilders programme
   
   

   • The Cabinet Office should formulate a plan for the long-term management of the asset created by the Futurebuilders fund. This plan should include consideration of how they will manage the risk of non-repayment.