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CHAPTER FIVE PUBLIC SECTOR INTERVIEWS
Introduction
5.1 As part of the analysis of FCR, 17 public sector agencies were interviewed, largely on a face-to-face basis, to discuss their views and experience of contracting with the voluntary sector. Of these:-
- Nine were from the Scottish Executive;
- Five from Local Authorities; and
- Three from NDPBs.
The names of the interviewees are given in Appendix 2. Most were suggested by either the Scottish Executive or Advisory Group members as being people who had awareness of FCR and of the issues surrounding it. Others were identified through contacts made in the course of the research.
5.2 The interviews covered a broad series of questions around:-
- Contracting with the voluntary sector;
- What needs to be done to implement FCR;
- How FCR fits with Best Value and efficiency targets; and
- The implications of implementing FCR.
Contracting with the voluntary sector
5.3 The interviews revealed that the public sector contracts with the voluntary sector on a regular basis. However, pinning down the detail of this contracting process was much more complex. This was because the public sector works with the voluntary sector on a number of levels. This ranges from the allocation of grants of less than £100, through complex service level agreements to contracts worth millions of pounds.
5.4 The contracts or grants can be for a number of broad areas, from arts and culture to the provision of financial advice services. The nature of the services was therefore very varied, with as much of a focus on non-statutory services as statutory ones. This complexity was further compounded through the different relationships that the voluntary sector had with different departments in the same organisation. In some cases voluntary organisations would have different procedures and contacts across different departments in the same organisation. Amongst councils Edinburgh is an exception, having a more standardised approach to contracting and grant allocation.
5.5 There is further complexity in that most public agencies (including all local authorities) have accepted the principle of FCR. Despite this, the extent to which the practice of FCR had permeated public bodies was not always clear. As the Chapter 6 case studies show the implementation of FCR is practiced in particular situations, although it may be a long way from being generally implemented. For example, Scottish Executive interviewees were unsure if they paid full costs and felt that it was more an issue for those involved in commissioning than department heads. Those involved in commissioning felt that the issue was much broader and required a lead from all departments to ensure that FCR was embedded into practice and not something just done by those who commissioned work.
5.6 The local authority interviewees tended to have standard commissioning practices. This meant that they would seek to look at the financial status of the voluntary organisations they were negotiating with. This did not apply so readily in the case of very small grants. Anything substantial, though, resulted in the local authority wanting to break down the costs in detail and to assess the wider finances of the organisation. This was seen as essential to ensure that the amount asked for was realistic and that they were not going to get more money than they needed. This approach would seem to be indicative of the very unequal partnership that often exists between the sector and local government. In its turn this implies that there is a need to develop more positive relationships, something that is returned to in Chapter 8 (Action Points 1 and 2).
5.7 The justification for this approach came from the notion that "every penny was a prisoner". The limited funds that the local authorities have for service delivery means they have to scrutinise all the funds they allocate. In many respects this was seen as good practice as it ensured that funding was being used to its maximum benefit, while allowing council staff to develop a good understanding of the financial operation of the organisations with which they worked. A more negative interpretation might be that this serves to reinforce the subservient role of voluntary organisations.
What needs to be done to implement Full Cost Recovery?
5.8 The interviews considered how ready both the public and voluntary sectors were to implement FCR. The general notion was that both were reasonably well prepared but that a series of preparatory actions was needed.
5.9 In terms of the public sector there was a need to:-
- Work on education that would raise awareness of FCR where knowledge was currently limited;
- Introduce training and development for those organisations where there was a degree of understanding of FCR;
- Develop a better understanding of Best Value principles so that commissioning focused on the principles (with a greater understanding of the quality/cost continuum) of Best Value rather than just cost;
- Develop a more consistent approach to commissioning that looks to secure a "win-win" situation for the funder and those being funded; and
- Be given time to develop the concept and apply it in a consistent way
5.10 The key issue in terms of FCR implementation was seen to be education and training. Time was then needed to ensure that the principle could be worked into the practices of public agencies. A key part of this was developing a much greater understanding of Best Value principles and not just equating Best Value with cost: something that the voluntary sector Focus Groups identified as a significant issue.
5.11 In addition to developing a better understanding around Best Value a more fundamental need, to develop the skills of those commissioning services, was recognised. Developing negotiation skills was one component of this: to allow a more balanced approach to buying services that allowed both parties to talk through issues and reach the best outcome for the commissioner and the supplier.
5.12 There was also a need to ensure that minimum standards were met in the process of procuring services. This was seen as a key means of overcoming some of the issues around commissioning social care services which were perceived by some in the voluntary sector as ranging from contract compliant to highly bureaucratic.
5.13 Increased funding was seen as a crucial pre-requisite for FCR implementation, with greater resources available for public agencies to cover the costs involved. However, there was uncertainty about what these costs were likely to be. This uncertainty resulted in the public sector respondents seeing FCR in a very negative light, when it is actually unclear at the moment what the impact would be.
5.14 In terms of the voluntary sector there was felt to be a need for it to:-
- Focus on capacity building to allow the sector to be more businesslike and easier to contract with;
- Develop the ability to accurately apportion costs;
- Develop negotiation skills to ensure that they could participate actively in any discussions over contracts or Service Level Agreements, rather than being passive partners as was often the case;
- Look inwards and assess where there was scope for joint working (either with other voluntary organisations or the public sector); and
- Improve the quality of some of the services they delivered in order to meet Best Value criteria.
5.15 As with the public sector, the key issue was seen as the need to educate the sector, in particular in such areas as business operation, management and delivery. These were seen as essential prerequisites for the voluntary sector to demonstrate to public bodies that it was capable of delivering good quality services on a full cost basis.
5.16 This notion of demonstrating success was seen as very important, with voluntary organisations perceived as being weak at costing services (which would make FCR unworkable) and negotiating the amounts or levels of service to be delivered.
5.17 The structure of the sector was also an issue. Organisations were seen as being very diffuse which was felt to be a barrier to economies of scale or efficiencies of operation. It was felt that if the public sector had to demonstrate efficiencies then the voluntary sector should have to do likewise. Essentially the public bodies were arguing for a level playing field in that if they had to make efficiency savings then they felt that the voluntary organisations they funded should have to do likewise. Whether this view is justified is unclear. It is however, a view that the public sector holds and as such needs to be taken account of.
5.18 It was felt that one consequence of FCR's implementation might be a loss of those voluntary organisations that were inefficient. There may also be pressure on some of the small organisations to join with other providers to improve efficiency. This applies as much to shared back office functions as shared service delivery, but would imply a degree of reorganisation within the sector.
5.19 Given that neither the public nor the voluntary sectors were felt to be very prepared to make such changes, this would have cost implications in addition to any cost increases directly associated with FCR implementation. The training and development needs of the public sector would take time to develop and implement, and would have to be paid for out of an increasingly tight financial settlement. In parallel with this the voluntary sector would have to find resources to cover its own development needs, thereby increasing their overhead costs 7. As such any move to FCR could cost over and above any increase in delivery costs.
How FCR fits with best value and efficiency savings
5.20 Best Value and efficiency savings were seen as key issues running alongside FCR. Best Value was seen as being focused on the ability of the voluntary sector to deliver high quality services at a competitive cost. The public sector also needed to be able to recognise high quality and competitive costs. Interviewees from the Executive felt that Best Value should not be a barrier to the adoption of FCR as it should take account of criteria other than cost. As long as the voluntary organisations could demonstrate Best Value then it would not be a problem if services were priced at full cost. Yet, evidence from the voluntary sector focus groups suggests that Best Value is being applied solely on cost criteria (Chapter 4). There therefore seems to be a major difference of views.
5.21 However, local authority interviewees felt that FCR was incompatible with Best Value. Their opinion was that FCR would push up costs as voluntary organisations were given a blank cheque with no requirement to demonstrate efficiencies. It was therefore felt that the Executive needed to determine its priorities. It had to decide what was most important: the roll out of Best Value or the adoption of FCR? These differences would seem to imply that much needs to be done within the public sector if it is to develop a common approach to FCR. In particular there may be a need to stress to all parties that FCR is not an excuse for not looking for efficiency savings and that Best Value is about more than cost.
5.22 The notion of FCR was also seen, by the local government interviewees, as being problematic in relation to the Scottish Executive's efficiency targets. Scottish local government has a target to make efficiency savings of £323 million by 2007/08. The view was that paying more for the same level of service would automatically make them less efficient (by paying more and not getting anything extra in return). As such, this was seen as being another policy focus that did not fit well with the notion of FCR. The Executive seemed to be suggesting that more money should go to the voluntary sector at the same time as it was telling local government to make savings. At the very least this was viewed as increasing the pressure to deliver efficiency targets whilst in more extreme cases it was seen as being a direct threat to achieving them.
5.23 There was also a view, highlighted earlier (Paragraph 5.17) that the voluntary sector should be subject to the same policy of delivering efficiency savings. A move to FCR was perceived as being the opposite, with no pressure on the sector to drive down costs. The local authority interviewees felt that a move to FCR could actually breed complacency and inefficiency in the voluntary sector at a time when local government was under increasing financial pressure.
5.24 The key issue emerging from the public sector interviewees, especially from local government, was that a move to FCR might not fit well with some of the Executive's over-riding policy drivers. Given that they are focused on reducing costs and increasing efficiency, a move that may increase costs was seen as problematic.
The implications of Full Cost Recovery
5.25 The focus of the interviews was on the impact for the public and voluntary sectors that the adoption of FCR might have. Interviewees identified a number of potential negative effects on the ability of public organisations to award contracts to the voluntary sector, subject to other factors such as central and local government policy. The key issues were:-
- Increases in costs could see voluntary organisations lose their funding from the public sector;
- Unless there was some form of funding from the Scottish Executive, an increase in costs associated with FCR would see less voluntary organisations funded;
- The sector could be separated further from the commissioning bodies so that it becomes purely a service provider rather than having involvement in their planning or development;
- The sector would be seen in the same light as private contractors. As a result it would be in direct competition (but with no special status around the voluntary sector ethos within which to frame its strengths); and
- There might be less inclination from public bodies to use the sector to deliver services.
5.26 The implications were generally seen as negative, with the voluntary sector becoming a less attractive option as a service provider. The financial impacts on the public agencies' ability to purchase services from the sector were also explored. The key issues arising here were that:-
- There would be less reason to go to the sector;
- Delivery that did go through the voluntary sector would be tied down by tightly defined contracts, squeezing out room for innovation and creativity, something that many voluntary organisations pride themselves on; and
- The public sector would not be able to afford to deliver certain non-statutory services with the end users losing out (along with the delivery organisations).
5.27 The impact of a move to FCR was therefore seen as being largely negative, with a detrimental impact on public sector finances and, as a consequence, a move towards competitive tendering (which was seen as being a potential problem for the voluntary sector).
5.28 It is important to note that these are assumed changes: the eventual impact could be quite different. The perception though was that FCR might be good for some in the voluntary sector, but it would be problematic for public bodies. The logic was that FCR would push up costs. This would, in turn, put pressure on the public sector to reduce costs by moving to competitive tendering, where they could use the competitive nature of the process to drive down costs. This was felt to disadvantage the voluntary sector through its perceived weaknesses in highlighting its strengths and general lack of knowledge of the contracting process. The end result might therefore be more contracts being won by the private sector mainly on the basis of cost.
5.29 Against this largely negative background some potential benefits were identified. The main one was seen as being a more sustainable sector that could focus energy on service delivery (and not be continually trying to raise income). These improvements were seen as covering both increased quantity and quality of services, although it was felt that they would only come about in the longer term.
5.30 There was also a more fundamental view in that it was felt that the voluntary sector assumed that more money would automatically lead to better quality. This was seen as being a problematic assumption that was very difficult to evidence, but one which lay at the heart of the issue. Without clear evidence that moving to full costs would improve service delivery (both quality and quantity) then it would be very difficult to convince local authorities that it was a worthwhile change.
5.31 Overall then, although the local authorities surveyed could see some advantages of FCR, the focus of most interviewees was on its negative effects. The main downside was felt to be the potential loss of a low cost option for delivering services. It was also felt that choice of providers would be reduced as there would be a move to procedures that would disadvantage the voluntary sector in bidding for competitive contracts. This loss would reduce competition, and in turn innovation, thereby slowing down or halting improvements in service delivery.
5.32 The survey considered the risks of a move to FCR. The main ones were identified as:-
- Contracts would be awarded on the basis of costs (which would gradually lower service quality);
- Commissioning would move to formal contracting processes that would reduce flexibility of delivery (stifling innovation and creativity);
- It would be difficult, if not impossible, to implement without prescriptive legislation;
- The public sector would come to "own" the voluntary sector far more than is currently the case, as full costs would see it take a much more proactive and prescriptive role in service delivery; and
- The voluntary sector could get complacent as the drive to win work would be reduced thereby slowing innovation and breeding complacency.
5.33 The view, generally, was that FCR had the potential to have a significant impact. While benefits to the public sector were identified, the risks and disadvantages were felt to outweigh these.
Conclusions
5.34 The survey of the public sector has captured the views of some key players in the Scottish Executive and local government. On the evidence of the voluntary sector survey they are the two main sources of income for the sector.
5.35 Generally it was felt that FCR was not being implemented in local government, despite the Scottish Executive having accepted the principle. Given this, the voluntary sector was working in an environment where there was little real enthusiasm for FCR.
5.36 There was felt to be a need for significant education and training, across both the public and voluntary sectors. This was essential to allow the public sector to accurately apply Best Value and use fair and effective commissioning arrangements. For the voluntary sector it was seen as important to enable it to develop capacity to deliver services, operate on a more businesslike manner and present strengths in a way that would allow it to stand out from competitors.
5.37 A move to FCR was, however, seen as being a helpful step on the path to developing a more sustainable and vibrant voluntary sector, bringing increased service quality and quantity. However, this could be at the expense of public bodies that would have to commission fewer services, move to more formal contracting arrangements and, most of all, find more money to cover the extra costs that would be associated with FCR.
5.38 The impact of any move was seen as being generally negative over the long term for the voluntary sector as it would get crowded out by private sector competitors and through the withdrawal of public bodies from core service areas due to a lack of funds.
5.39 Overall, the local authority interviewees were largely opposed to any move to FCR, without a substantial settlement to cover any costs incurred. Within the Executive, whilst the acceptance of the principle of FCR was recognised, the extent to which it was being implemented in practice was unclear.
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