For a public body, widening the geographic scope, or adding to the range, of services to be delivered, and thus the financial value of a grant or contract, can deliver economies of scale. However, this can deter many third sector organisations (TSOs), which may be small organisations, from taking part in the commissioning process.
This is a dilemma for commissioners and potential providers. One response being worked through at present involves the public body:
- Having a small number of ‘prime providers’; and
- Requiring those prime providers to treat subsidiary providers, notably TSOs, in certain, ethical ways. [Note]
Another is to allow enough time in the process for TSO providers to form into consortia capable of delivering the service.
TSOs are very diverse. Within that diversity, it is helpful to remember that some TSOs may not be able or willing to be a prime contractor or prime grant recipient of your programme. They may nevertheless be capable of providing some supporting services (whether as a formal subcontractor or otherwise). While such organisations are often small, they are close to users and have a good understanding of them, their circumstances and their locality. Their importance to the service can be much greater than their size suggests.
When seeking economies of scale, you should be clear how better value for money overall is achieved. Letting fewer but larger contracts may reduce your procurement and contract management costs (although you need to be sure that this is the case). And there may be economies and efficiencies of scale in the delivery of services that reduce the price of the service. However, if such economies are at the expense of outcomes (i.e. the service is less effective) then value for money may be poorer.
Such commissioning of fewer providers can inevitably lead to an end of funding or contracting of some or all existing providers. Guidance on such ‘decommissioning’, while maintaining value for money, is available on this website.
Practical example: Scale of financing
A county council faces a major task to deliver certain outcomes on time and on budget. Until now, in this area of its business, it has provided the service through a large range of organisations from the public and private sectors and TSOs. But it becomes clear that the scale of the task is such that the council will need to work through a small number of providers (maybe even one) with the required capacity.
At the same time, however, the council is concerned about the impact on the smaller providers it has previously used. This is because many of those organisations have built up expertise in reaching particular groups of users of the service and in solving specialised problems.
The council decides to press ahead with a main provider approach. But it takes certain steps to protect the benefits it gets from the involvement of good, smaller providers and ensure that users will not suffer:
- The council designs the outcomes it will set for the single provider so that smaller groups of people, and particularly those that are harder to reach, will continue to be served;
- It structures the service required so that there is scope for smaller providers to work with or for the main provider. For example, if the service required the physical presence of service users, it might set a maximum public transport journey time to reach the centres where the service is delivered. This would better meet the needs of users, prompt more local delivery in smaller units, and increase opportunities for small providers to be involved in running centres; and
- It gives plenty of notice of the changes so that smaller providers have time to form consortia to bid to be the main provider or to enter arrangements to be a sub-provider to the main provider. It also allows sufficient time to ‘decommission’ any existing providers that may not be involved in the new service.
This approach leaves the council to decide whether it will fund the service through a grant or enter into a contract.
The large number and range of organisations already involved means that there is a competitive market involving all three sectors. The council decides that the procurement approach is appropriate and likely to deliver good value for money.
The council takes steps to reduce the risk of any adverse impact from the new arrangements by:
- Requiring the main provider to behave in certain ethical ways towards its subcontractors. This includes reference to the Compact for TSO providers, to a home-grown ‘charter for small businesses’, and there is a route for any subcontractor to complain to the council; and
- Timing its competitive procurement and the start of the new contract to allow existing providers to:
- take advantage of the opportunities the new contract may offer them; and
- manage the impact of it on their own funding and services, especially where any provider is ‘decommissioned’.
Note: The most high-profile version of this at present is the Department of Work and Pensions’ ‘prime contractor’ arrangement.