For 18 years, the Cardiff-based charity Inroads received grant funding to deliver drug and alcohol services across Cardiff and the Vale of Glamorgan. But two years ago the charity was told these services would be contracted out instead. Inroads was asked to write the specification for the contracts and was even persuaded to form a consortium to bid to deliver the services.
Although Inroads has a solid track record of delivering services for 21 years, the contracts were awarded to the national drug and alcohol charity Change, Grow, Live.
Inroads' service was transferred to Change, Grow, Live along with 75 per cent of its staff. The charity was left with a specialist facility, paid through a Welsh government grant, but without the contracted services that ran from it.
Since the charity lost the contracts, its income has plummeted from more than £1m in the year to 31 March 2014 to £183,040 in the year to 31 March 2016.
Aelwyn Williams, the chair of Inroads, says the decision has had a massive impact on the charity's future. "We were essentially down to two or three sources of income, and they weren't massive, so we had to fight," he says. "The last year has been extremely tough and our reserves have just dwindled.
"We felt it was particularly unfair at the time because, no matter what we did, we knew that what happens with larger organisations is that they spend a lot of money on their marketing and their bid writing. There was no way we could compete with their economies of scale."
It is a picture seen across the charity sector. According to the Lloyds Bank Foundation's report Commissioning in Crisis, the demise of grants and rise of contracts has resulted in government funding shifting from smaller, local charities to bigger ones. The report says that the preference for larger contracts has seen small and medium-sized charities lose up to 44 per cent of their income from the public sector.
It also describes a number of problems in the way that commissioning works. These include: unrealistic payment structures; inaccurate information provided by commissioners; absurd and irrelevant demands; penalties for quality and success; bidders being pushed out by backroom deals; funding shortfalls; contracts that fail to represent the local area; and a breakdown in relationships.
The report notes that in many cases commissioners are also facing a tough financial climate, with smaller teams and tightening resources. But it argues that reforming commissioning to focus on smaller charities will ensure that services are tailored to local needs and make better use of public money.
Paul Streets, chief executive of the Lloyds Bank Foundation, which funds small and medium-sized organisations, says: "The processes used by authorities are bureaucratic, time-consuming and disproportionate to the services being tendered. Contract sizes are getting ever larger, but without any relationship to the service that is required.
"Small charities also find themselves up against the unfair advantage and sometimes sharp practices of larger providers, including some large charities that use their size to undercut local providers and offer commissioners standardised services without any particular knowledge or experience of the community or clients that need support."
One example where charities have closed as a result of the decisions taken by local commissioners is in Lancashire. In 2015, the county's police and crime commissioner took the decision to include domestic and sexual abuse services in a tender for general victims' services across Lancashire.
The Safer Together consortium, which included 22 local charities, lost out to Victim Support despite representing many specialist charities that had considerable experience working in local areas. As a result, at least three domestic abuse charities, including one that had run for almost 20 years, closed.
Debbie Fawcett, chief executive of the Hyndburn and Ribble Valley Domestic Violence Team, which led the Safer Together consortium, says that though the smaller charities pooled their resources and expertise, the consortium was unable to match Victim Support's offer.
"It has been devastating for the sector and small organisations," she says. "One of the massive concerns we have is that under data-protection law we hold data on all our service users, but clearly that data wouldn't be transferred to a new service. The new service has none of that data and is starting from scratch.
"There's an expectation that we will take referrals from the new service, but no understanding that we might need some money to do that."
The charity's most recent accounts show an income of £677,049 for the year to 31 March 2016, but those accounts do not reflect the more recent loss of contracts to Victim Support, which Fawcett says will affect its finances. She also criticises the lack of information required from bidders during the commissioning process, which she says means there is a risk that tenders that look cheap on paper are not actually cheaper in practice.
Third Sector approached Change, Grow, Live and Victim Support for their responses. In a statement, Change, Grow, Live says it has expanded the service previously run by Inroads to include alcohol, and the three members of staff who originally worked for Inroads now work for it and have "lead roles for their desired interests within their field".
The statement adds: "We bid for services where we know we can make a positive impact on local communities and service users' lives. We use our long-standing experience as a large provider to tailor bespoke solutions and run an effective and efficient service to meet local needs.
"We work with local organisations, staff and volunteers to bring together local knowledge and expertise."
It says that its bids are constructed within the published guidelines from commissioners, usually reflecting a balance between quality, price and social value.
Claire Powell, Lancashire manager at Victim Support, says it has been supporting victims of crime in Lancashire for more than 40 years and has a wealth of local knowledge and experience.
"Victim Support has a very strong track record of providing specialist support for domestic abuse victims and has a large number of independent domestic violence advisers who are able to support high-risk victims based across England and Wales, including in Lancashire. These work within our national framework and support structure, which drives a consistent quality approach."
In December, the government announced that it was creating a range of measures to help smaller charities compete for public sector contracts. These included commissioning a report on the issue, which is expected to be published shortly.
But concerns remain that urgent action is needed to help smaller charities compete for local contracts.