The sector has already witnessed its share of sudden closures of large service delivery charities. Last May, the Manchester-based drug and alcohol treatment charity the Lifeline Project imploded almost overnight, leaving in its wake, as we reported earlier this week, debts of £6.2m.
In 2016, the children’s charity 4Children unexpectedly folded after experiencing financial difficulties because of the loss of key contracts. Over more than a decade, it had developed an enviable reputation for running children’s centres and services for families, and few would have predicted its demise.
In both cases, thankfully, services were successfully transferred to other charities swiftly and relatively smoothly and the majority of jobs were saved.
But in this climate of public sector cuts and the need to drive down costs, charities reliant on government contracts find themselves highly vulnerable: one contract loss and it can be curtains.
Last year, the disability charity Scope announced that it was selling its care home and residential services to a private provider, preferring to bow out gracefully from service delivery rather than face ever-tighter margins.
But thus far Scope appears to be the exception, rather than the rule.
Indeed, some charities appear to continue to thrive in this new age of contracting. Income at Turning Point, the drug and alcohol charity, rose to £131m in 2017, a staggering 64 per cent increase from £80m in just four years.
The substance misuse charity change, grow, live has thrived too. Its income has grown by 58 per cent, from £99m in 2013 to £156m in 2017, driven partly by mergers, partly by its apparent Midas touch when bidding for contracts.
But now even the biggest players are alert to the dangers. In its recently published annual report for 2017, Turning Point concedes that public sector cuts to health and social care budgets have affected the bottom line and it will continue to face "squeezed" margins well into the future. Cutting central costs and one-off investments in areas such as digital were required in 2017 to balance the books and position it for the future.
On Monday, the Smith Institute will publish Out of Contract: Time To Move On From the ‘Love In’ With Outsourcing And PFI. Written by Third Sector columnist John Tizard, formerly a senior executive at Capita, and David Walker, a journalist and former director of the Audit Commission, it will argue the case for a review of outsourcing that spans the NHS, Whitehall, local government and the devolved administrations.
Some would no doubt rejoice if charities moved away from service delivery, arguing that service delivery charities, especially the largest ones, are little more than agents of the state that threaten the very notion of charity independence. But that would ignore one crucial factor: charities have a strong track record of delivering high-quality services. In Turning Point’s case, satisfaction scores from service users are above 85 per cent in all key areas, according to its latest annual report.
Whatever results from the fallout of the Carillion failure and the various reviews of public sector contracting that will no doubt follow, they must recognise that charities deliver high-quality services and it’s not simply better for government and local authorities to move services back in-house. What is needed is a more stable and fair contracting environment: one that is open to both larger and smaller charities and which covers the full costs of the services they deliver. If that doesn’t happen, it feels inevitable that we’ll see a Carillion-style collapse in the charity sector in the near future.
Andy Hillier is the editor of Third Sector