The service, which was born in June from the merger of prison and probation services, aims to develop a competitive market in correctional services.
Martin Narey, chief executive of the service, told more than 500 delegates at the 'Managing offenders, reducing crime' conference in London that voluntary and community organisations will now have more opportunities to provide rehabilitation projects in partnership with correctional services.
They will also be allowed to compete with the public and private sectors to run the services themselves.
But Nacro chief executive Paul Cavadino said he doubted that any charity would want to run prisons. "Nacro provides housing, mentoring support and employment, while other charities have strength in family support.
These are the areas that we are keen to work in," he said.
Cavadino welcomed proposals to increase contract length from one to three years, but said that a number of issues remain to be discussed to enable the voluntary sector to bid for large contracts: "The bidding process should not be too demanding in terms of resources and time, and contracts should include full cost recovery."