'I still believe we had the best skills to do it'

This week, Richard Gutch steps down as chief executive of Futurebuilders England. Here he talks about his disbelief at losing the bid to head phase two of the Futurebuilders fund and his disillusion with the tendering process.

Richard Gutch
Richard Gutch

At the end of January, four years after being appointed to lead Futurebuilders England, I heard we had been unsuccessful in our bid to manage phase two of the fund. This news came after 18 months of uncertainty and a complex tendering process, which took no account of our proven track record in doing the job.

Since then, I have gone through a range of emotions - disappointment, disbelief and anger - all feelings which I'm sure many people in the third sector who work with the public sector or government bodies have felt at some time. I have also been encouraged by the supportive comments from sector colleagues, showing similar disbelief at the outcome. Now, two months on, I am looking forward to the opportunities that lie ahead for me in the sector.

Futurebuilders was an experimental investment fund from the outset, and I suppose it was fitting that the Cabinet Office decided to experiment with a new procurement process, competitive dialogue, which is becoming popular in government commissioning. As I said to our investees at a network day, it seemed only fair that we were subject to the same negotiations they faced in delivering public services.

We were warned that a competitive dialogue process could disadvantage the incumbent, but with a wealth of experience in our staff team and board, we were confident that the skills we had developed over the four years would be enough to see us through. We were wrong, obviously, but I can honestly say, even with the benefit of hindsight, that I wouldn't have done anything differently.

Futurebuilders was one of the main recommendations from the 2002 Treasury Cross-Cutting Review. It was set up to address the obstacles that the sector faced in playing a bigger role in delivering public services. Futurebuilders, initially a £125m loan fund, growing to £215m, was created to address the lack of access to suitable finance and to help organisations develop the skills and systems to deliver public service contracts.

In December 2003, Paul Boateng MP, then Chief Secretary to the Treasury, spoke at a No 11 Downing Street event to celebrate a third sector consortium, led by Charity Bank, winning the tender to manage the fund. "Not only has the third sector persuaded me to give them £125m," he joked, "they have even persuaded me to let them decide how to invest it."

Since then, we've been moved through various departments (Treasury to Home Office to Cabinet Office). I have worked with four ministers, four director general equivalents and four contract officers. As a result, there was no institutional memory about Futurebuilders and we constantly had to explain things from scratch. Unfortunately, as the fund has shifted across Whitehall - subtly losing its 'experimental' tag on the way - and as personalities changed, so did its philosophy.

Some changes in phase two have been for the better. Our suggestion to open the fund to all public service areas was agreed by the Chancellor last year, and from this month many more organisations working in sport, leisure, recycling and the environment can apply. However, what will also change is the type of organisation that the fund can support. With the introduction of three new government-set key performance indicators, investees will have to be more ready to win contracts and better placed to draw down funding than in phase one. This is bound to make it harder for small organisations to secure investment, because the commissioning environment is becoming much harder for them in particular. The public expenditure squeeze is leading to fewer, larger contracts, which will be beyond the reach of many third sector organisations. We expressed these concerns in our tender bid, particularly because we had evidence of the difficulties our investees experienced in securing contracts.

The need for a retender was never entirely clear. The official reason was that the lawyers said it had to be retendered. Perhaps officials asked the lawyers the wrong question. If they had asked "This is an experimental programme, which is being evaluated by Sheffield Hallam University up to 2010; do you agree, under the circumstances, that it makes sense to continue with the same fund manager?", they would have got a different answer. In our original agreement, one of the exit options was to ask the fund manager to continue for a second phase - extend the current grant agreement rather than change it into a service contract that had to be tendered. Perhaps the Cabinet Office wanted a change.

The competitive dialogue process allows the bidder and the client to influence each other's thinking. The client can coach or encourage bidders in the direction they want them to go and the bidder can offer solutions or challenges to the client's perceptions. It is time-consuming for both sides.

During dialogue, we presented a number of solutions to earlier criticisms of our management of the fund, but in our feedback from the Cabinet Office we were told we came across as negative and resistant to change. With a strong and independent-minded board and chair we weren't afraid to 'speak truth to power', based on our four years of experience. As the incumbent, it can be difficult to appear radical and innovative when you are speaking from experience and you have commitments to investees and your staff team. Ministers wanted us to get the money out quickly and it seems we gave too many reasons why this traditional grant-making philosophy might not be the best approach for the sector. Boateng's initial vision for the fund was slowly being eradicated.

We also had a good track record, evidenced by the National Audit Office, Sheffield Hallam and the Advisory Panel, which was not taken into account in order to ensure a level playing field. We were told neither bidding organisation was scrutinised on how they ran their existing funds, even though we were subject to enormous scrutiny and audits to ensure we spent public money effectively and achieved best value. We remain puzzled by this approach, given that £215m of public funds is at stake.

Third sector providers who have contracts, or seek them, with government, will never complain publicly about the power (im)balance. One current Cabinet Office contractor told me that the Cabinet Office might as well be running their service itself because the contract was so controlling and prescriptive. This is what the future now looks like for the Futurebuilders Fund. Our board was determined not to lose its independent stance on issues such as disbursement and public sector contracts. I think our board was right. There is no point in simply giving the answers your client wants to hear if you don't believe they are the right answers.

In the third sector, four years is a relatively short headship. Yet it has been a period of great achievement. As a model, Futurebuilders feels more sustainable and our learning has been adopted across the social investment spectrum. It goes without saying that I wanted to be the person taking the lead in phase two, and I still believe that we had the best skills and experience to do it.

Unfortunately, the skills of our board and investment committee have now all been lost (Adventure Capital Fund, the successful bidder, is in the process of recruiting its own non-executive directors) and already five managers are leaving as a direct result of the retender. However, I am proud that I was the person who kick-started a successful programme and brought a large-scale change to the third sector, which I hope continues. I wish Futurebuilders well.

My greatest hits

Selecting the best from more than 250 investments is not easy. I've chosen two, which for me epitomise all that is best about the third sector and Futurebuilders.

Broadreach House in Plymouth provides a range of drug and alcohol-dependence treatment services, often to ex-offenders. It has developed excellent relations with local purchasers, particularly the Drug and Alcohol Action Team. Futurebuilders has provided four different grants and two loans, totalling more than £1m. We have been very flexible in response to constantly changing circumstances and have helped Broadreach House expand into an adjacent building while achieving more than £1m in savings to the public purse.

Total Healthcare Group is a start-up social enterprise in London, led by a nurse, Rita Melifonwu, who used to work for Enfield Primary Care Trust. She saw a need to develop self-management programmes for people with long-term medical conditions, particularly targeted at the local BME community. As well as providing a £90k grant and loan, we have arranged for three consultants to help with the legal, governance and financial management of the organisation. Rita has won local authority and PCT contracts and is now exploring wider partnership working.

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