UK (and European Union (EU) ) policy generally favour competitive markets because they are considered to contribute to efficiency [Note 1]. In the last 20 years or so, this has extended to the public services. Competition is now, with contestability [Note 2] and choice, an important part of public service management. Funding Central is one website […]
February 22, 2013
UK (and European Union (EU) ) policy generally favour competitive markets because they are considered to contribute to efficiency [Note 1]. In the last 20 years or so, this has extended to the public services. Competition is now, with contestability [Note 2] and choice, an important part of public service management. Funding Central is one website that may provide a straightforward way of advertising funding and contracting opportunities to third sector organisations (TSOs). Other websites are available to advertise contract opportunities – see here for further details.
Focusing on commissioning (as part of public service management), competition generally drives up value for money [Note 3]. It gives the commissioner a field of candidate providers from which to choose those that give best value for money. Competition can be part of either procurement or grant (see ‘Grant or procurement?’). But the way competition applies differs significantly between the two approaches.
Competition in grant
There is more discretion about the degree of competition in grant than there is in procurement. You may want to target a grant on an organisation that is uniquely placed to deliver your outcomes. However, it is quite common to hold open or limited competitions for grant. Just as in procurement, this will tend to have the effect overall of increasing value for money. The key consideration is to follow your organisation’s rules for grantmaking, which in turn must comply with administrative law and the Compact.
Competition in procurement
Procurement is nearly always competitive. Above specified thresholds, defined by your public body (and ultimately procurement law) there must (except in certain tightly-defined circumstances), be a competition between potential providers. Even for procurement exercises below these thresholds, competition is often desirable.
There should be no preferential treatment, in any competition, for any type of organisation, including TSOs. But, as we explain in ‘Choosing grant or contract’, you are allowed to raise awareness about a procurement process among TSOs and to consult TSOs about the design of the process and the service you are buying. Other factors to think about include:
- Social and environmental benefits. TSOs often market additional benefits that they can add to work they carry out on behalf of public bodies. These may be social, environmental and wider economic benefits, for example, they may provide a sustainable catering service which employs people with mental health issues who might otherwise be claiming benefits or in care. If these kinds of benefits are important to you and your programme, you need to write them into the outcomes earlier in the cycle;
- Contract terms. Make sure the contract terms you plan to use do not inadvertently discriminate against TSOs. For example, a commitment to pay the provider quarterly in arrears may be acceptable to a large company with cash at its disposal. But it may cause a small TSO, with small surpluses, not to take part in the procurement process. Follow the commitments in the Compact. Consider discussing this in principle before you set off down a certain route. If you need guidance on this, approach your legal manager;
- Proportionality. Make sure the scale and complexity of the procurement process is in proportion to the amount of money it involves;
- Value for money. Make sure everyone involved in the procurement process understands that value for money does not mean cheapness. It means the optimum combination of whole-life costs and quality [Note 4];
- Post-tender negotiations. In an existing contract, there may be terms and conditions that, while minor, may inadvertently discriminate against TSOs. Payment terms for example. The solution here is to draw up a list of these potentially-frustrating conditions of contract. Where possible, hold decisions on them back until post-tender negotiations with your chosen provider. That way, you can flex the contract on these relatively minor issues to accommodate the needs of a TSO provider. Two important caveats apply to this approach:
- The issues you can cover in these post-tender negotiations must be minor. They cannot include price or other substantive issues; and
- You must tell all potential bidders, at the start of the procurement process, which issues you are holding back for post-tender negotiations.
In addition, you may help TSOs develop the capacity to compete. This must be done outside the procurement exercise in hand. It will often best be achieved by:
- Giving grants to TSOs specifically for the purpose of capacity building;
- Giving a grant-in-aid (also known as ‘strategic grant’) to an infrastructure TSO with the objective of building the capacity of other, usually smaller TSOs.
Note 2: The threat of competition, which is seen to keep providers ‘on their toes’.
Note 3: Including quality.
Note 4: Treasury Officer of Accounts, Regularity, Propriety and Value for Money, HM Treasury, 2004.