Third sector 'could benefit from performance bonds'

Grass-roots organisations could win more public service contracts if they had more help with guarantees against delivery failure, according to Malcolm Hayday, chief executive of Charity Bank.

In an interview with Third Sector, Hayday said he could see a role for both Futurebuilders and Charity Bank offering so-called 'performance bonds' to charities and social enterprises looking to tender services.

Performance bonds, commonly used in construction and engineering services, would involve charities paying fees to third sector investors that would guarantee their contracts with government departments or local authorities. If the charities failed to deliver services in line with their contract specifications, the investors would pay compensation to the contractors.

Hayday suggested that the contracts would help smaller groups to win contracts and would be a step towards making public service tenders less "voluntary sector-unfriendly".

But he also warned that charities would have to offer extra insurance measures to make their services attractive to public service commissioners. "With so many voluntary organisations getting money from government, that brings them under pressure from spending cuts," he said.

Sue Peters, managing director of investments at Futurebuilders, said performance bonds would work well in theory but warned that they might not suit the culture of the sector.

"Performance bonds usually happen in highly regulated industries, not where you are piloting something innovative," she said.

Futurebuilders might look into the scheme for bigger, well-known organisations.

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