Barriers for VCSEs

2.31 Most VCSEs meet the government's definition of an SME and so face many of the barriers discussed above. However, the structure and purpose of these organisations creates unique challenges, particularly for charities (Figure 7). A recent survey by the Lloyds Bank Foundation found that 49% of small and medium-sized charities that bid for public sector contracts described the process as 'difficult' or 'impossible'.18

2.32 As well as the barriers facing SMEs, the VCSE sector has had to adapt to an evolving government funding environment. A decade ago, much of the sector's funding from government was in the form of grants, but this has changed significantly. A recent report found that commissioning contracts for charities have grown by £6.5 billion in over a decade, while grant funding has shrunk by £2.2 billion.19 As a result, VCSEs may find themselves competing with other organisations to win a contract for a service they previously received a direct grant to run. They may lack the skills, capacity or experience to submit a competitive bid.

2.33 Our VCSE focus group expressed frustration at the impact that increased contracting has had on government's approach to commissioning services. They told us commissioners develop contract specifications that do not fully understand or reflect users' needs and may restrict providers' ability to engage the hardest to help. VCSEs were particularly concerned about short-term contracts, which fail to recognise the length of time required to achieve complex outcomes. They also believed the contribution of the voluntary sector in some areas can be taken for granted, with the government assuming that charitable organisations will step in, even if not funded to do so.

Figure 7
Barriers specifically facing VCSEs

Barrier	Impact
Disproportionate loss of funding as government reduces use of grants.	Need to find other sources of funding to preserve service continuity and invest in developing expertise needed to find, bid for and win contracts.
Lack of familiarity with procurement processes.	May mean VCSEs are unable to secure government contracts, even where they have relevant skills and experience.
Poor alignment between government's aims and VCSEs' charitable or social objectives.	VCSEs must comply with objectives set out in their governance documents so may not be able to deliver certain government requirements if these are seen to create a conflict.
Prime providers use VCSEs as 'bid candy' - highlighting their involvement in bid documents but failing to pass on work from the contract.	Difficult for VCSEs to plan and allocate resources if work (and income) is not guaranteed by the prime provider.
Perception from VCSEs that government does not respect intellectual property.	Creates a culture of distrust and uncertainty, reducing opportunities for collaboration between VCSEs and the public sector.

Source: National Audit Office

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18 Lloyds Bank Foundation, Expert Yet Undervalued and on the Front Line, July 2015.

19 New Philanthropy Capital, Times of Change, April 2015.