Grant aid is on the way out as councils throughout the UK opt for competitive tendering.
Earlier this year, Hull City Council informed local voluntary organisations that its philosophy of funding the sector was changing. Grant aid and service-level agreements were to be superseded by a "commissioning approach to service delivery". Charities could still apply for grants of up to £5,000, but the rest of the council's £11m voluntary sector funding stream would be put out to tender.
Although the council agreed, under pressure, to raise the maximum grant level to £10,000, the trend was clear - the giving of grants was on the way out. And it is a trend being replicated in town halls up and down the country.
According to an NACVS survey of its members, there has been a 60 per cent increase in the use of competitive tendering by local authorities in the past 12 months, with local voluntary organisations forced to sing for their supper alongside national charities, private companies and local councils' own in-house providers. Two-thirds of local authorities still offer some form of grant aid to the voluntary sector, but in 10 per cent of cases this will end after the current round of grants.
NACVS is worried that the inappropriate use of competitive tendering is placing small local organisations at a distinct disadvantage. Contracts tend to favour large organisations, capable of achieving economies of scale, rather than specialists. In nearly a quarter of local authority areas, local voluntary groups have lost funding because of tenders from national charities, according to the NACVS survey. Seventeen per cent say they have lost out to the private sector and 38 per cent to the local authority itself.
According to the manager of one local charity, which lost out in a bid for a £1m contract to a large national children's charity, "the council adopted a crude approach to contracting and there was no dialogue with the local sector. Eighteen years' experience of effective preventive work was ignored in the procurement process."
In Derby the local CVS has provided the voluntary sector option for the young unemployed under the New Deal for the past eight years, but is losing the contract because it is unable to deliver the service across Derbyshire as well as in the city itself. It must now subcontract from a private company and will lose 10 per cent of the contract's value. According to the manager of the programme, the prime reason for the loss of the contract was that it was not a national organisation and did not have sufficient staff.
But the replacement of grants with competitive tendering could have wider effects, inhibiting the very qualities that make voluntary organisations attractive options for local authorities looking to outsource services.
According to Dave Rogers, chief officer of Hull CVS, grants enable voluntary organisations to experiment and propose new kinds of service to public sector purchasers. Commissioning tends to be much more prescriptive, setting down in detail what the service provider should and should not do. "That's one of the big differences," says Rogers. "When you move to a commissioning scenario, the ideas have to come from the body that's doing the commissioning, the holder of public funds."
Rogers also warns that, whereas under a grant aid regime charities feel free to approach the local council with a new idea, under competitive tendering this source of innovation will dry up for fear the idea will be put out to tender and another organisation will win the contract to put it into practice.
But with the Government behind the move to competitive tendering - Alun Michael, minister at the Department of Trade and Industry, said it could be good news for the sector - there are arguments that it should be seen as an opportunity, not a threat.
Matthew Pike, executive director of the Scarman Trust, says he understands charities' concerns, but "the genie can't be put back in the bottle".
He goes on: "There are good reasons for competitive tendering. People in the poorest communities get the worst services and there should be pressure to ensure the quality of service is the best available. The question is what is the best and who decides?"
Pike agrees there is a bias towards large organisations, but says community groups can counter this by forming consortia to bid for funding. In Liverpool, the Scarman Trust has helped local groups negotiate a 'community service agreement' with the primary care trust to enable them to bid successfully for health funding. NACVS advocates partnerships between national and local charities as a way out of the struggle for contracts.
"Accessing mainstream funds extends the potential base of funding," says Pike. "There is potential here, but it's conditional upon the right support and the right model."