Opinion extra: Local funding - Grants or contracts?

Kate Nickson, researcher for the Directory of Social Change, Liverpool

More local councils are cutting grants to voluntary organisations and getting them to bid for service delivery contracts instead. But Kate Nickson argues that the diversity of the sector will suffer without diversity of funding.

The issue of voluntary sector organisations taking on service delivery contracts is being hotly debated at the moment. A key consideration is that of independence versus sustainability: should a charity give up one in order to achieve the other? Housing associations offer a worrying example of how service delivery can change voluntary groups into an apparent extension of the state.

The Government is not proposing a complete handover of all service delivery.

The voluntary sector will have to bid for individual contracts rather than take on responsibility for an entire area, as housing associations did with social housing. Charities will be bidding as individual organisations - they will not all be calling themselves service delivery associations.

They will need, however, to monitor closely the eligibility requirements for the contracts. If these impose procedures that are too heavily standardised, they will have lost their individuality, with or without a name change.

They will also need to consider how to compete with the private sector without stripping away those qualities that make the sector unique - those qualities that put it in a good position to provide these services in the first place.

The worry is that local councils are apparently developing a tendency to view contracts and commissioning as an alternative to the grants that small and vital community organisations rely on. In fact, with the introduction of local area agreements, small grants programmes such as the former Community Chests and Local Network Fund will become discretionary, not compulsory.

This means that in some areas small grant schemes could be consigned to history.

The Government needs to think more carefully about how to make the transition from grants to contracts for service delivery more appropriate for the sector. As the situation stands now, it looks as if many smaller organisations, which do not have the capacity to bid for a contract or do not meet the Government's criteria for service delivery, will find the grants they depend on decreasing or stopping altogether with no accessible alternative.

If voluntary sector service delivery is to work, a balance must be maintained between government funding through grants and through contracts. The Government should be aware that funding appropriate to the activities of an organisation needs to be available. Grants offer flexibility, maintain diversity by following the objectives of the organisation rather than those of the Government, and allow charities the freedom to be innovative.

Contracts, on the other hand, require equality of service across the board and are therefore more standardised, offering less flexibility and freedom. On the plus side, they do offer a more reliable and sustainable source of income.

Such widely differing approaches mean that both types of funding will not be suitable for all organisations. Voluntary groups will need to learn how to tell which funding style will be most appropriate for them. Otherwise, the danger is that they will be tempted by the sustainability of service delivery and will lose the flexibility needed to fulfil their aims and objectives.

The other fear is that a lack of grants will force organisations that have the capacity to bid for a contract to take that option and forgo the flexibility and diversity that was at the root of their effectiveness.

The diversity of the sector needs to be reflected in diversity of funding.

Without this it could end up being as standardised and ineffective as many housing associations.

At a Westminster briefing in April called The Third Way: How Can Local Authorities Make the Most of Voluntary Sector Partnerships?, Shargil Ahmad, a policy analyst at the Active Communities Directorate, was asked what would happen to those smaller organisations facing closure as grants disappear.

His response was "I don't know", which provided some indication of how much government has thought through the implications of service delivery contracts for the sector as a whole.

He then went on to talk about how it was unavoidable that some smaller charities would lose out, despite various government initiatives, such as ChangeUp, that are trying to redress the balance.

Perhaps the end is supposed to justify the means - but who benefits from such an end? Not those hardest-to-reach communities that discover the organisations that once served them have now been pushed out through lack of funding and replaced by larger organisations that lack the specialised knowledge to reach them.

The idea of voluntary sector organisations delivering services under contract is not objectionable in itself, but it has to be done in a way that allows for the diversity of the sector. At the moment that is simply not happening. Asking charities to join together to bid for contracts while taking away any alternative funding will destroy the diversity that nurtures those skills the Government hopes to harness.

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