The government must do more to ensure charities are not squeezed out of payment-by-results contracts for public services, a new Charities Aid Foundation publication warns.
The discussion paper, Funding Good Outcomes: using social investment to support payment by results, warns that charities may not be able to take up such contracts because they often have limited reserves and need capital up-front to fund their work.
It says that while social investors are often willing to help charities bid for government work, commissioning practices are making it too difficult and risky for them to get involved. It says they are often brought in just before the deadline and therefore only have a small window to do the required due diligence.
According to CAF, ministers and public service commissioners need to make it easier for charities to bid for government contracts by ensuring they are not entirely end-loaded – this could be done by combining up-front payments to fund start-up costs with success payments that are paid in arrears.
It also wants to make it easier for organisations to raise capital by giving social investors more time to assess risks before they fund charities delivering payment-by-results contracts.
The report comes after research from the National Council for Voluntary Organisations revealed that seven out of 10 charity subcontractors believe their Work Programme payment-by-results contracts are "at risk of failure".
John Low, chief executive of CAF, said payment-by-results contracts represented "real opportunities to innovate and to make a difference by getting involved in public service delivery".
He said: "The problem is that most charities simply cannot afford to take on contracts to tackle social problems without up-front funding because they are not allowed to carry large financial reserves and have limited access to capital, compared with for-profit businesses."
"Many social investors are eager to help charities and non-profit organisations get involved in public service delivery, but more could be done to help them take up publicly funded contracts and put their expertise to work.
"It’s good news that government is planning a fund to help charities work with payment-by-results contracts, but ministers need to look closely at the detail of this policy to ensure their vision of charities and social enterprises tackling social problems becomes a reality."