Cathy Pharoah says the social value act could backfire if charities use unrestricted funds in contract bids

The professor of charity funding at Cass Business School tells the Panel on the Independence of the Voluntary Sector about the pressures the sector faces as a provider of public services

Cathy Pharoah
Cathy Pharoah

The social value act could backfire by encouraging charities to use unrestricted funds to deliver on the promises made in the tendering processes, according to the academic Cathy Pharoah.

Pharoah, who is professor of charity funding at Cass Business School, was giving evidence on Thursday to the Panel on the Independence of the Voluntary Sector.

The panel, a project funded by the Baring Foundation, publishes its fourth and final annual report in January next year.

The Public Services (Social Value) Act 2012 came into force last year, and was designed to make public contracts more accessible to charities, social enterprises and small businesses by making local authorities consider the social as well as economic value offered by potential providers.

"The act, which was meant to help voluntary organisations, might now backfire on them," Pharoah told the panel.

She said the act could lead to charities choosing to "use unrestricted funds to deliver on any commitments made in relation to the added social, economic or environmental value that might enable them to win the contract".

She told the panel: "There is a major drive now, with the opening of the Social Value Portal, to itemise components of social value, and it is only a matter of time until such items are commoditised as part of contracts, monetised by the private sector in the race to win, with the largest organisations in the best position to offer competitive prices because of the economies of scale they can introduce and their capacity to acquire investment in new practices."

Pharoah told the panel that the pressures on the voluntary sector as a provider of public services and contracts were unique. "It is being asked to deliver services more efficiently than the public sector, more cheaply than the private sector and with added social value," she said.

She said the sector should remember that earning money was not its raison d’être: "Unlike profit in the markets, funding in the voluntary sector is never the end in itself – we should always think of it like that."

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