This page is part of our successful commissioning toolkit.

The rules on when you can use grant and when you can use procurement mean there are many situations when a public body could use either. You need to decide which one is more suitable for your programme, service or intended outcome and is likely to provide the better value for money. There may be scope and good reasons to use both. There is no hard and fast rule for this. You need to weigh up four different but linked factors:

Practical example 1: Grant or procurement?

You work for a Primary Care Trust (PCT). You wish to purchase an exercise service for residents in your area with a certain, rare health condition. You want to know whether you should use grant or procurement. You have examined the situation and it satisfies both the preconditions for grant and those for procurement. You now look at the situation in the light of the factors to consider, and come to a judgement.

First you look at the current state of the market. It is clear that, due to the nature of the health condition in question, there is only one organisation – a third sector organisation (TSO) – in your area with the expertise required for this service.  It is small and has limited ability to manage the delivery of its services. You establish that the position is similar in neighbouring PCTs. According to your link officer at the Strategic Health Authority (SHA), there is a national shortage of this particular expertise.

On the face of it, this situation will lead you to make an uncompetitive grant to a single organisation with known capacity issues. However, this is not in line with your wishes for the future market. You want to be able to choose between a number of potential providers in order to get the best value for money for the PCT and the patients.

You therefore decide to award a one-year grant to the TSO. But, at the same time, you fund the local Council for Voluntary Service (CVS) to build the TSO’s capacity during this year. You do this by ‘piggy-backing’ on an existing contract that your local council has with the CVS for capacity building in the third sector in your area.

At the end of the first year, the management of the TSO has been much strengthened. And you know there have been similar developments in the other TSOs for this health condition across the SHA. For the second year, therefore, you and the other PCTS in the SHA run a competitive grants process. Some, but not all, of the existing TSOs win a grant. You and the other PCTs continue to give these TSOs capacity building support.

During the year, there is a health and safety case in the same service in another part of the country. This shows that, although the service is provided by the TSO (under a grant – not by the PCT), a large part of the health and safety risk (and hence financial risk) still rests with the PCT.  Enforceability becomes a key issue for the PCT and the mechanisms available currently are weak.

In response, you step up capacity building support and ‘intelligent monitoring’. But, in the third year, you hold an open procurement exercise for the service. This is partly because the capacity building investment you have made has increased the quantity and quality of providers in the market. It also allows you to agree a contract with the provider. This will allow you to enforce conditions associated with the risks in the service to a level that is fair and agreeable to the PCT.

Practical example 2: Combining grant & procurement

Within a local area, there is recognition that substance misuse treatment for young people needs to change: performance targets are not being met; demand is increasing; and funding is likely to remain static at best. The public partnership responsible has money that it can use to make grants and money for procurement.

There are a number of potential providers of substance misuse treatment from different sectors that can cover the whole of the local area. The state of the market means that putting the provision of treatment out to tender should deliver good value for money from the point of view of cost and quality.

The treatment that can be provided has a good short-term success rate among young people but it is known that providing family support around this treatment increases its effectiveness: more young people complete their course of treatment and fewer succumb to further substance misuse over time. However, none of the treatment providers currently delivers such ‘wrap-around’ support and they do not have the staff, skills or experience to do so. An existing TSO provides such family support services but not across the whole of the local area.

Following consultation with service providers, service users and other stakeholders, it is decided to:

  • Put the substance misuse treatment service for the whole area out to tender; and
  • Give grant funding to the local TSO to provide wrap-around support for the young people receiving treatment and their families. The grant includes an element for capacity building so that the TSO can match the geographic scope of delivery by the treatment service provider.

The treatment service contract and the support grant agreement requires the contractor and the TSO to work together to provide treatment and support across the local area. This approach brings together elements from different sectors, using grant and procurement. Most importantly, it provides better outcomes by creating a more stable life for the young people with increased chance of long term success of their treatment.

Table of contents

Successful commissioning toolkit: Table of contents

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When can I use procurement?

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State of the market