The voluntary sector's reliance on contracts has grown rapidly in recent years. More than 80 per cent of its funding from central and local government in 2011/12 came from delivering public services, compared with just under 50 per cent a decade ago, according to the UK Civil Society Almanac 2014, published recently by the National Council for Voluntary Organisations.
Winning contracts has proved challenging for some organisations, not least because they have struggled to secure money through the rapidly developing social investment market. Two years ago, the Office for Civil Society launched the Investment and Contract Readiness Fund to help charities and social enterprises secure investment or win public sector contracts.
The £10m fund awards grants of between £50,000 and £150,000 to help social ventures buy professional support in areas such as bid writing or investment advice. Up to 40 per cent of grants can be used for internal costs; 25 per cent of the grant is refundable if it is more than £75,000 and used to secure investment; contract readiness grants are not repayable, but are limited to £75,000.
The fund opened for applications a year ago and an interim evaluation, published in March, found that with less than half the £10m awarded, charities and social ventures had accessed £21.4m in investments and won contracts worth £13.5m.
Jonathan Jenkins, chief executive of the Social Investment Business Group, which manages the fund on behalf of the government, says early indications suggest that the fund is succeeding. "It's been a successful start, but over the next six to nine months we'll learn a lot more and find out if the momentum continues," he says.
The interim evaluation, conducted by the Boston Consulting Group, a business strategy adviser, made a number of recommendations. These included improving the feedback applicants received and bringing more people with experience of public sector contracts onto the investor panel. It also recommended removing or reducing the direct grant to social ventures to help them move from a grant mindset to a market mindset. The report argued that if organisations purchased professional services with their own money, they would be more motivated to win contracts or attract social investment.
Asheem Singh, head of public policy at the charity chief executives body Acevo, says the fund has been a "sleeper hit" - a film industry term for a release that achieves success without publicity or fanfare. "The voluntary sector was sceptical at first about the ICRF, because it was a tiny amount of money relative to what had come before," he says. "But it has worked."
He adds, however, that it needs to be scaled up dramatically, and points out that the fund is far smaller than previous, similar initiatives such as Futurebuilders, which invested about £150.4m in the sector under Labour before it was closed by the current government. He argues that there is a huge appetite for this kind of funding among charities and social enterprises and that the ICRF only skims the surface of that need.
Jenkins agrees that more money will be needed in the future, but says that the results so far show this kind of support is effective. The fund has proved it works, he says, but in future might not offer only grant support. "Should we be looking purely at a subsidy model or should the subsidy make up only a proportion of the cost of the professional services that a social venture is seeking?" he asks.
There has been some criticism that the fund favours larger social ventures. Rachel Rhodes, policy officer at Navca, which represents local sector support and development organisations, says bigger social ventures are more likely to win grants than smaller ones. "This gives the unfortunate impression that social investment is just for the big boys - when it clearly should not be," she says.
Jenkins disputes this. For smaller sums, he says, there is a new fund, Big Potential, launched by the Big Lottery Fund, which offers grants of between £25,000 and £75,000 and is aimed at smaller organisations seeking social investment.
"The ICRF panel was actually more challenging to big social ventures than to smaller ones when it came to deciding who should receive grants," he says. It questioned bigger organisations on why they could not pay for professional help from their own funds, he says, while it was clear that many smaller applicants had much tighter finances.
Part of the aim of the fund is to demonstrate the effectiveness of buying in professional support and to encourage charities to become more entrepreneurial. Jenkins says: "A lot of charities don't see the value in purchasing professional services in order to become investment-ready, so I hope this fund will show that it makes sense."
Case study: Foresight (North East Lincolnshire)
Grant awarded: £96,000
Foresight is a charity supporting people with a range of disabilities in north-east Lincolnshire. It won a grant to help it refinance the mortgages on several of its properties and to expand its public sector contracts in the region.
Paul Silvester, chief officer of Foresight, says the organisation has five properties on different mortgages, at relatively high interest rates. The grant helped to pay for advice on consolidating those mortgages and the charity is now paying £27,000 a year less than it was, he says: "We didn't have the financial expertise to do this sort of thing ourselves."
The money was also used to secure professional bidding advice to help the charity secure contracts in Yorkshire and to expand the charity's personal budget programme in north Lincolnshire.
It paid for support from Cogent Ventures, one of the approved ICRF providers. "We contacted four of the providers on the list and three of them were willing to visit us and give us some ideas about how they could help," says Silvester. "We then chose the one we thought was the best fit."
He says the charity is now looking at different trading models because it has become harder to get grants. "It looks like the future for us is in public contracts and income-generating property," he says.
Case study: StreetVibes Youth
Grant awarded: £75,000
StreetVibes is a social enterprise based in south-east London that works with young people excluded from school or at risk of exclusion. It was awarded a grant of £75,000, which has helped it to win a total of £1.12m of contracts from the Skills Funding Agency, Bromley Council and the Education Funding Agency.
Sonia Ramanah, managing director, says: "We applied for the money because we knew we needed help with writing bids." She says that because contracts have become bigger and more complex, this skill is increasingly important.
StreetVibes bought in support from the ICRF-accredited provider Bidright when applying for the contract tenders.
Ramanah says it is important for applicants to be able to hit the ground running after receiving a grant. "We needed to be ready to grow quickly and deliver on the promises we made to the fund," she says.
She believes the enterprise's experience of delivering services has helped it to secure further contracts: "We already had a track record in providing services under contract and were looking to make a leap into bigger tenders, so we knew what we wanted and the kind of help we needed."
Case study: Pure Innovations
Grant awarded: £52,000
The disabilities charity Pure Innovations was formed in 2005 by a spin-out from Stockport Council in Cheshire. It has used its ICRF grant to help it win a five-year contract with the Royal Borough of Kingston upon Thames to run its learning disability services.
The contract will be run by Balance, a social enterprise that is 50 per cent owned by Pure. Doug Cresswell, chief executive of the Pure Group, says: "We are a relatively small organisation and we wanted to provide services to more people, but lacked the business expertise to do so - that's why we applied to the ICRF."
Cresswell knew about the consultancy Stepping Out, which was on the fund's provider list, before applying for the grant. "I knew that, if we won a grant, I wanted to work with Stepping Out," he says.
The bid-writing support that Pure received from the consultancy helped it to win the Kingston contract. Cresswell was confident Pure was well placed for the role but believes it would not have won the tender without the help it received: "We know we can deliver this kind of tender, but it was a complicated process and we needed the extra help."
He says he can understand why many charities and social enterprises are reluctant to pay for professional services in connection with securing contracts: "Often it's because the organisation just doesn't have that kind of money available, but it's a real shame because the support is so valuable."