Difficulties Ahead for Large Charities
It is becoming clear that some ;arger providers, particularly in the voluntary and charitable sector are finding it more and more difficult to retain contracts when they are re-tendered. Cultures which are predicated upon the delegation of management responsibility and an overall lack of monitoring of outcome/output on a contract by contract basis at Senior Management and Board level is becoming a distinct barrier to contract award for an increasing number of providers
In 2010 the Charity Commission published a statement in support of its annual economic survey results. In this the Chairman – Dame Suzie Leather predicted that a number of large charities will face a funding precipice by March 2011.The link to the press release is below.
Whilst this point has in most cases not yet been reached in Autmn 2012, nevertheless this comment replicates the observation of TfC resuting from our work with large charities who provide health and social care services. It appears to be the larger charities, those with an annual turnover of more than £45 million, who are continuing to have the greatest difficulties in tendering successfully for public sector contracts. Success rates of below 40% on re-tender of existing contracts are not uncommon. Those who have a significant dependeance on public contracts and are operating at this level and are already on a slippery slope to financial failure. There are a number of reasons for this state of affairs amongst the larger charities;
- a tendency to continue to depend upon their name and "brand" in tendering.To degree this is understandable, many charities have spent considerable sums on "branding". This may well be important in their money raising activities, but has no value whatsoever in public sector tendering. Indeed there are examples of purchasers redacting logos and all references to the name of the charity before sending the tender for detailed appraisal. The general statement holds true "tendering is not marketing";
- contracts are entered into by the purchaser as one party and the Board of Governance of the provider as the other party. Therefore, the tender must show exactly how the Board accepts liability and responsibility for contract management. In larger charities the Board tends to be distant from actual service delivery, linked to the activities by a number of layers of management. In these circumstances it is difficult for the purchaser to see how the Board can concern itself with one small contract.
- some purchasers set limits of contract value in terms of proportion of annual turnover which places larger providers at a disadvantage. Purchasers may typically consider offers which have a monetary value which falls within the range 7 - 25% only of annual turnover, based on the tenderers most recently published accounts. This places a provider with a turnover of £100m at a real disadvantage as there are not many contracts let with a total value of £7. On the other hand a provider which is turning over £20m can be considered for contracts with a value of £1.4m upwards. This is the band within which many health and social care contracts fall thus placing smaller providers at an advantage. Of course, very small providers face the upper end of the limit. A provider with one to two contracts is also at a distinct disadvantage. But a provider turning over £1m will not be excluded, or marked down for this limition unless the total value of the contrac being tendered exceeds £250,000. Once again, there are a number of contracts being let with a total value of less than that figure, particularly under call off from Frameworks. So it would seem that the targetting of SMEs by public purchasers, which is the wish of the current government, is happening structurally through carefully planned limits which are checked during the tender appraisal process.
- contract performance is frequently relegated to the level of service delivery, with no central records of outcome/output measurement, monitoring, reporting or most important of all, action taken when these and other targets are not met. This activity tends to be seen as a task for junior managers and has little impact upon the running of the organisation as a whole. Once again, the Boards of smaller providers are closer to the action and therefore in a better position to oversee these matters and take action as and when needed.
- a very simple error which is observed again as again. A tender question may ask for the name of the organisation's "Directors". The tenderer responds by listing those whose job title includes the word "Director". A check is made on Companies House documents to confirm that the names provided are correct, this turns out not to be the case.
Tendering is not about size or brand, all tenders must be treated equally. Above all else tendering is about three things:
- the governance and management of the provider company or organisation;
- the quality of the provider's management;
- certainty will ensure that the provider will deliver the contract as specified, on time and in budget.
Large providers find it hard to understand that the tender appraisal centres largely on the capacity and capability of the Board to ensure contractual compliance. To a large extent it is the Board and senior management which is being scored. Often this is far too distant from actual contract delivery, with the direct link between the individual contract, senior management and the Baord being unclear. Smaller organisations can therefore win by making these links very clear and distinct. Successful tendering by providers of all sizes requires a focus on these areas both in the PQQ and the method statement.