The financial viability of charities involved in early years services has been put in jeopardy by a system based
on under-funded contracts. Mary Evans investigates
Some charities operating across the early years sector are effectively subsidising the Government, which is unfair, unlawful and immoral, according to Steve Alexander, chief executive of the Pre-school Learning Alliance.
His comments come in response to a survey which says that charities are putting their financial viability and independence at risk through their growing reliance on under-funded contracts to provide public services.
Only one in eight charities delivering public services is obtaining full-cost recovery in all cases, while just one in four feels free to make decisions without pressure to conform to the wishes of funders, according to the survey, Stand and Deliver: The future for charities providing public services.
Dame Suzi Leather, who chairs the Charity Commission, says, Charities can only lose so much of what makes them distinct before they cease to be charities. USP must continue to mean Unique Selling Point, not Undersold On Price.
Its the middle-income charities which are most likely to lose out on full-cost recovery. Caught between the supercharities and the small, specialist ones, these middle charities appear to be feeling the squeeze on all fronts when it comes to public service delivery.
The survey says that 60 per cent of charities with an income above 500,000 deliver public services, while one-third of charities providing public services derive 80 per cent of their funding from this source.
The provision of health and social care accounts for almost a third of the public service provision delivered by charities. The second largest category, at 15 per cent, is education, followed by childrens services at 14 per cent.
Added value
Charities, not least in the early years field, are set to take on even more public service contracts over the coming years. But Dame Suzi says that if charities expand their public service role, the terms on which this happens must be clear, consistent and constant.
To back up this message, the Charity Commission has issued new guidance on public service delivery and committed itself to working with charities and Government to promote good practice.
Pam Hibbert, principal policy officer Barnardos, says, While we always strive for full-cost recovery for statutory services, it is true to say that we do not get this in all cases. In addition, we will input voluntary funds to some statutory services in order to give an added value service, over and above the basic statutory requirements or for innovative ways of working.
Free market
The National Day Nurseries Association is undertaking several projects, including a three-year strategic contract with the DfES to encourage partnership working between local authorities and existing PVI provision, the delivery of Early Years Professional Status nationally and a Train to Gain project to develop the skills of the childcare workforce.
As a charity, NDNA understands it is essential to properly cost out any project, says chief executive Purnima Tanuku. However, there are occasions when charities take on under-resourced projects because they meet the needs of members.
Many of the projects we undertake have arisen in direct response to member issues and we believe undertaking these is actually a valuable way for NDNA to help support the sector to deliver high-quality childcare while meeting the aims of the Governments childcare strategy.
Steve Alexander says it is the Pre-school Learning Alliances experience that among the public services it bids and wins contracts for, it sometimes fails to gain full-cost recovery on research projects.
He says, I think it is frightening to see in the survey that 88 per cent of charities say they fail to get full cost recovery in all cases. It is not tenable.
In our very specific situation, we have assessed that local authority services make a contribution of less than 2 per cent to our overheads, which is derisory.
We are subsidising Government services. It is unfair. It is also unlawful as well as being immoral.
We have to ask at the macro level whether market forces are the best model to deliver childcare services. What we have at the moment is a long way from a free market. We have Government intervention where it suits and Government failure to intervene where there is a need. The consequence is that we have sustainability issues.
Our major element of work is delivering childrens centres as a hub of community services. We have been fairly outspoken about their lack of viability and we are still struggling with that. We are finding that central Government is failing to admit that there is a problem.
The length of contracts and the myriad of funding agreements pose further problems. The survey says that two-thirds of charity funding agreements are for one year. According to Dame Suzi, charities are working to a patchwork of grants, contracts and service level agreements.
We would like to see a move away from short termism in funding for services, says Ms Hibbert at Barnardos. Many of our service managers have complex funding streams. In total we have over 700 different funding partners, and spend significant amounts of time having to re-bid or chase funding where funding is for one, two or three years.
NDNA believes long-term funding is needed, says Ms Tanuku, and it is vital for such projects to provide full cost recovery. Charities delivering projects provide a valuable public service and it is essential that they continue to do this without a detrimental effect upon their sustainability.
The spokeswoman for one charitable childcare organisation, who declined to speak publicly, says, We used to be grant-funded to be what we are. Now we are having to chase contracts for projects to do extra things because we are not getting that core funding.
Many of our contracts are on an annual basis, says Mr Alexander. In some areas, the negotiations on their continuation can be left so late in the year as to make budget planning almost impossible. With some authorities we have experienced delays in payments, with the consequence that we have had real cash-flow problems and we have had to seek overdraft arrangements to cover the gap.
Early Education has had its grant cut by three-quarters for no apparent reason under a new scheme to aid budgetary planning by putting grants on a three-year cycle.
Early Education chief executive Anne Nelson says, We have had reassurance that our work is really valued by the department and that the quality is well respected. However, there is no feedback on the dramatic decline.
Staying independent
The National Council for Voluntary Organisations is campaigning for three-year rolling contracts. Mr Alexander says that as long as there are adequate performance measures in place, this would give charities the certainty to plan.
Finding out the truth about full cost recovery was an important aim of our survey, and the results are even worse than we imagined, says Dame Suzi. But there is something that threatens sustainability even more the risk to charities independence.
In our survey, almost 50 per cent of charities delivering public services cant agree wholeheartedly that their activities are determined by the charitys mission, rather than by funding priorities.
Charities are clearly concerned about biting the hand that feeds them, as shown by the spokeswoman of one childcare charity who said, No one here would want to comment on a survey like this.
Giles Pegram, director of fundraising at the NSPCC, adds, One of the reasons we have always kept the majority of our income coming in from voluntary sources is so that we can maintain our independence, speak out and lobby Government.
He says that while the charity works in partnership with its major donors, they trust us to be the experts in preventing cruelty to children. They dont tell us how to do our job. We work in partnership, but we are not beholden to them.
Ms Nelson says when Early Education bids for a project, it ensures the content and purpose does not conflict with our core values and objectives. We, therefore, feel that we remain independent of Government.
We continue to give advice to the Government on their strategies and policies and, where necessary, that advice involves criticism. This happened recently over the forthcoming Early Years Foundation Stage and our advice was listened to, resulting in significant changes.
From our experience, as long as you are on sure ground and you speak in a straightforward way, there is not a difficulty in expressing our viewpoint, says Mr Alexander. We have had extremely positive communication links with the DfES and the Childrens Minister. And we have been able to have differences of opinion and exchanges of views and not accord sometimes with the party line.
- Further information: The survey Stand and Deliver: The future for charities providing public services and the guidance Charities and Public service delivery: An introduction and overview are available on the Charity Commission website at www.charity
commission.gov.uk
