Doing more for less – why do community businesses take on public service contracts?

Professor Tony Chapman of University of Durham, co-author of new Power to Change Research Institute open call funded report ‘Striking a balance: a study of how community businesses in Bradford, Hartlepool and Middlesbrough build working relationships with the public, private and third sector’, delves into some of his new report’s important findings.

The research, which was published this week, shows that community businesses often sign up to deliver public service contracts in the knowledge that they will make a financial loss. But we find that these are neither acts of financial desperation, nor that community businesses are complicit in a ‘race to the bottom’ in contract pricing. Instead, community business leaders, rightly, weigh up both social and financial factors when they make judgments about the value of contracts.

In this in-depth study of 24 community businesses in Bradford, Hartlepool and Middlesbrough, most had taken on formal contracts with local public sector bodies. But the productivity of these relationships was framed by fiscal pressures imposed by national government austerity policies over the last decade.

Councils in poorer areas have been particularly hard hit by austerity and community business leaders were sympathetic about the challenges they faced. But worries about the consequences for their own organisations surfaced when contract values were lower than the cost of delivering services.

If community businesses agree to work at a specified price – then there’s little justification for complaint (providing that contract variations were not imposed later on). And in this study, it is crystal clear that when community businesses submitted below-cost tenders, they did so with their eyes open. In other words – they were prepared to subsidise the work to ensure that good quality services continued to be provided to their own community.

As one CEO 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.’

It may make sense in social value terms for some community business leaders to subsidise contracts. But there are consequences for the voluntary sector as a whole – not least because public authorities welcome downward pressure on costs. It was a matter of concern that some public sector procurement officers appeared to adopt a ‘take it or leave it’ approach with low value contracts. As one community business CEO told us:

‘We just had a conversation with the contract manager and she was really positive about the contract continuing but they are not putting the contract value up – but we are expected to meet their living wage commitments. And so we are further in the red – and the response was “well it’s better than nothing”.’

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 Round that ‘austerity is over’, what this really means is that, at best, things will get no worse.

There’s little to be gained by pointing at the vague and toothless 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 assuming that they’ll continually be willing and able to do ‘more for less’.

Striking a balance: a study of how community businesses in Bradford, Hartlepool and Middlesbrough build effective working relationships with public, private and third sector organisations, by Tony Chapman and Tanya Gray. Published 18th September 2019.


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