Community businesses making a loss on public service contracts

A new study funded by Power to Change, published this week, reveals community businesses often sign up to deliver public service contracts in the knowledge that they will make a financial loss.

The authors of the study, Professor Tony Chapman and Dr Tanya Gray, St Chad’s College, Durham University, said the trend was driven by the community business sector’s commitment to social and financial success when judging contract values.

One CEO interviewed for the research said:

‘We’ve gone for certain contracts that we feel are crucial to our community. We provide services to people who have quite complex needs. We might not be making any money on it, the reality is that we’re contributing about 12 per cent. But we think it is so important, that we’re prepared to do it because nobody else could do it properly at this price.’

Professor Tony Chapman, who co-authored the report, said: “The trend is not down to acts of financial desperation, nor that community businesses are complicit in a ‘race to the bottom’ in contract pricing. But community business leaders we interviewed knew that if profits on contracts were out of the question, then they’d have to make up the difference from other aspects of their trading to sustain vital services.”

“Resolving these pressures is virtually impossible for community businesses. So the onus is on local public sector organisations to be more realistic about contract values. But that is easily said in the current fiscal climate. And even though Chancellor, Sajid Javid, announced in this September’s Spending Review that ‘austerity is over’, what this really means is that, at best, things will get no worse.”

Suzanne Perry, Research Officer at Power to Change, said:

“This research shows how some community businesses are having to sacrifice profitability for social value in order to keep local services open in their neighbourhoods. Additionally, the report reveals what adept business people their leaders are – utilising  income streams pragmatically to keep their businesses open and make the place they live better.

“There’s little to be gained by pointing at Public Services (Social Value) Act of 2012. The reality is that public sector bodies need an enormous boost in funding to bring them anywhere near back to where they were in 2010. In the meantime, local public bodies should be applauding community businesses which keep services going in their communities – rather than to assume that they’ll continually be willing and able to do ‘more for less’.”

Read the whole report Striking a balance: How community businesses build effective working relationships with public, private and third sector organisations, by Professor Tony Chapman and Dr Tanya Gray, published 18th September 2019.

 

 

 

Further information for editors

Contact details: 

Professor Tony Chapman, Durham University

  1. 07949 022 627
  2. tony.chapman@durham.ac.uk

 

Alex Valk

Media Relations Manager, Power to Change
07384 812777

alexv@powertochange.org.uk

 

About the report

Striking a balance: How community businesses build effective working relationships with public, private and third sector organisations was written by Professor Tony Chapman and Dr Tanya Gray, from St Chad’s College, Durham University.

The report is based on an in-depth study of 24 community businesses in Bradford, Hartlepool and Middlesbrough.

The research was funded by the Power to Change Research Institute through their open call for research. 5% of Power to Change’s endowment goes towards commissioning high-quality research, promoting rigorous analysis and stimulating critical scrutiny and debate to shape both policy and practice.

 

About Power to Change:  Power to Change is the independent trust that supports community businesses in England. Community businesses are locally rooted, community-led, trade for community benefit and make life better for local people. The sector is worth £1.05 billion, and comprises 7,800 community businesses across England who employ 33,600 people (Source: Community Business Market 2018).

From pubs to libraries; shops to bakeries; swimming pools to solar farms; community businesses are creating great products and services, providing employment and training and transforming lives. Power to Change received its endowment from the National Lottery Community Fund in 2015.