11.1 The third sector in Scotland plays a key role in delivering public services that are high quality, continually improving, efficient and responsive to local people's needs. The sector has a number of opportunities afforded by the policy context, such as the Enterprising Third Sector Action Plan and competitive tendering. However, it also faces a series of challenges relating to devolved funding, being involved in the policy process, managing in a competitive environment, and, increasingly, budget constraints imposed on public services.
11.2 This research, which forms the first phase of a three year longitudinal study, has explored a wide range of opportunities and challenges based on case studies and focus groups with 20 TSOs in Scotland. The research found that the third sector has a unique and distinctive contribution to make to service delivery. TSOs tend to work with vulnerable, disadvantaged and hard-to-reach groups, engaging in preventative work and filling gaps in statutory services. Their focus is on the client and the provision of 'quality' services and they are characterised as operating in a more flexible, responsive way than the public sector because they are leaner and possibly less bound by regulations. The sector is also very diverse covering many different types of services and clients as well as being different in size, function and geographical spread.
11.3 The policy environment had created a number of challenges and opportunities for TSOs in Scotland. Whilst the principle of the 2007 Concordat was often supported and many felt that it had positive results, the impact on TSOs in practice had been more problematic, particularly for some national organisations working in more than one area who are required to negotiate with individual local authorities and CPPs separately, navigating occasionally unclear and varied policy priorities and seeing the 'bigger picture' when the focus was on local needs.
11.4 New third sector "interfaces" in each Community Planning area across Scotland are being developed and will become the key mechanism by which the third sector interfaces with the government. In the interim many TSOs perceived CPPs to be the main mechanism for the third sector to be involved in community planning. TSOs found challenges to being individually involved in CPPs such as practical issues of being able to participate and perceptions of their usefulness was limited in terms of effectiveness and representation. Some TSOs felt they were able to influence policy more effectively through other means such as through partnerships with the private sector and other forums. Future waves of this study will examine the perceptions and impact of the new third sector interfaces.
11.5 Many TSOs reported that they had experienced real term funding cuts because funding had often not kept pace with inflation. Many TSOs feared future significant spending cuts. While some perceived this to be an opportunity to reduce dependency on public sector funding, many were concerned about the impact on vulnerable client groups and the loss of some third sector organisations and with them skills, knowledge and service capacity.
11.6 Competitive tendering and high levels of public spending had facilitated an expansion of the third sector over the last decade, but it also presented a number of challenges for TSOs. Short-term, one year contracts appeared to be increasingly common and caused problems of increased bureaucracy and long-term planning as well as lack of continuity for clients. Difficulties were also experienced around slow notification of funding decisions and the lack of opportunity for dialogue with funders and there was concern that costs were being emphasised at the expense of quality. The tendering process also had implications for organisations in terms of organisational planning and staffing, security of employment for employees, staff morale and staff skills requirements.
11.7 Many TSOs had responded positively to the challenges faced by the changing policy and funding environments. Many had adapted their services in order to comply with changing policy priorities, in particular, the 'employability' agenda. Others were diversifying (or planning to diversify) their funding base by seeking alternative funding streams, fundraising and developing social enterprise. A number of organisations had taken major action to reduce their cost base and maintain their competitiveness by restructuring their organisations. However, some challenges still remained including concerns that there would be less funding for 'core' organisational running costs in the future and there were already reports that some funders were unwilling to cover these costs. Some third sector respondents perceived that the sector was not able to compete on an equal basis for contacts because of a lack of 'parity of esteem' with other providers.
11.8 TSOs were asked about performance and outcome measures imposed by funders as well as ones used internally. There was considerable variation in approaches to monitoring and evaluation of services by TSOs across local authorities and TSOs felt that funders were often too focused on measuring 'hard' outcomes which did not capture the full range of added value of TSOs. Much of the work carried out by TSOs was often with clients who were hard-to-reach and/or who had complex issues, focused on prevention and had wider social impacts that were less easily measured. Most organisations were keen to evidence the full extent of the work they undertook in order to show the value they added, and although some used other tools to do this, few had engaged with the SROI model.
11.9 Most participants had experience of successful partnership working. However, the extent of partnership within the sector and with other sectors may have the potential to increase in the future. Certain factors such as a shared ethos and clearly defined goals, complementarity and equality between organisations, trust and reciprocity and commitment at different levels were identified as contributing to successful partnership working for service delivery. Partnership working also presented challenges such as having adequate time and resources and some questioned the effectiveness of some formalised partnerships. The tendering process may increase competition between organisations to the detriment of partnership working. However, developing partnership working to a greater extent was perceived to be important in order to meet the financial challenges ahead, in particular more extensive participation in 'joined up' working could also be beneficial for clients.
11.10 There were additional costs associated with providing services in rural areas because of the dispersed geography and additional travel required as well as limited access to public transport. In addition, it was difficult to achieve economies of scale for (usually) relatively small local services.
11.11 Policy makers and government have already identified some of the above challenges for TSOs in Scotland through policy documents such as the Enterprising Third Sector Action Plan and through the Third Sector Task Group and the Joint Statement on the relationship at local level between Government and the third sector. Some of these recommendations and policy objectives have yet to have an impact on the TSOs who participated in the research.
11.12 This research will be followed up in the forthcoming iterations of this longitudinal study. There are a number of important issues which will be tracked over this time, for instance, identifying if policies have had more of an impact over time, and what the impacts of anticipated budget cuts will actually be. The next phase of research will explore if and how organisations are adapting and developing in innovative ways to manage these challenges enabling them to continue to deliver essential services to the same high quality.