Scaling social enterprise innovation in public services: the argument for purpose-driven procurement

Scaling social enterprise delivery of public services in the UK offers huge potential at a time when new solutions to some of the big challenges we face are so vital. This applies particularly to people-focused services, ranging from the scandal of profiting by venture capital owned children’s residential homes to poor outcomes for some of the most marginalised groups of people with multiple complex needs, or the challenge of an ageing population that needs ever increasing levels of care and support.

Social enterprises are rooted in place, reinvest their profits for public benefit, are people-focused and provide community-first services that people need. They represent a definitive model for purpose driven business. There are many examples of brilliant social enterprise across the country and E3M brings together a group of their leaders to learn from each other and share good practice.

• Pioneering enterprises and "bold commissioners" in public sector services are recognised in a new Public Sector Pioneer award in this year's SE100 Impact Pioneer Awards. For more information – and details of how to apply – see our SE100 launch story.

Last month we launched a short report with some case studies showcasing different examples of innovation and a set of recommendations to support scaling social enterprise innovation for public service commissioners, government, funders and other key institutions. This is timely, as the Government seeks to harness the power of the impact economy. With a new Office for the Impact Economy established in the Cabinet Office working closely with other government departments, they aim to mobilise a combination of philanthropy, impact investment and responsible business to support economic growth and tackle public services’ challenges.

• Read more: UK’s new Office for the Impact Economy will ‘unlock billions’, promises government

For the first time in many years, we are seeing a commitment to new investment with initiatives such as the DCMS led Better Futures Fund, with £500m from government matched by private investment to create better outcomes for young people. Other government departments are also exploring new funding models, such as blended finance to support new nursery provision and investment into healthier neighbourhoods.

• Read more: UK government announces £500m social outcomes fund to support vulnerable children

However, these financial initiatives can only be successful if there are changes to the way services are commissioned. In so many places the same failed approaches are being repeated. This is particularly true for local authorities. Over 75% of all local authority expenditure in England is on people-focused services. However, the way these services are commissioned is set by public procurement rules based on competition law designed for products. In so many cases this leads to short-term transactional arrangements, based on lowest price rather on actually delivering the best outcomes for people. To make things worse, in recent years the introduction of social value criteria has been done in a way that disadvantages social enterprises that have inherent social value as their purpose. The use of mechanistic scoring frameworks focusing on added value are easily gamed by large extractive providers and fail to capture the real benefit from working with a truly purpose aligned partner, focusing on public benefit.

For the first time in many years, we are seeing a commitment to new investment with initiatives such as the DCMS led Better Futures Fund

The potential of the impact economy to help transform public services will not be reached unless there are changes to the way commissioning is carried out. No investor will invest on the basis of short-term transactional contracts which don’t offer a realistic prospect for repayment, and no sensible purpose driven business will seek to operate in such unstable conditions. What is needed to tackle the big challenges in our public services is a long-term, purpose aligned partnership approach.

An Alliance model

Despite the narrow way the public procurement rules are applied, there are some examples of pioneering public authorities working with social enterprises in long-term purpose aligned partnerships. For example:

Plymouth City Council has developed a systems-based approach to supporting people with complex needs through the use of an Alliance Contract with a 10-year timeframe, with many benefits resulting. Traditionally, contracts had been commissioned in separate silos, often resulting in duplication, inefficiencies and poor outcomes for the person using multiple services. Twenty-five contracts spanning substance misuse and homelessness were aligned under the co-produced Alliance model.

Using an Alliance model, the focus is on creating systemic change to support a new relational way of working that really meets human needs. Partners share responsibility for achieving outcomes and are mutually supportive, making decisions based on the best outcome for the service user.

The use of mechanistic scoring frameworks focusing on added value are easily gamed by large extractive providers and fail to capture the real benefit from working with a truly purpose aligned partner

The Alliance was awarded a single contract by Plymouth City Council for the provision of support for people with needs in relation to homelessness and who may also have support needs around substance misuse, mental health, offending and risk of exploitation. 

In the Lincolnshire town of Gainsborough’s south-west ward many people had been living in poor-quality housing because of high deprivation levels and high dependence on remote private landlords. Tenancy churn and low availability of wraparound support to people housed by private landlords contributed to further instability.

But a ten-year partnership between West Lindsey District Council (WLDC) and the ‘people first’ organisation P3, a charity, social enterprise and registered housing provider, is increasing the provision of affordable, high-quality, sustainable housing for Gainsborough’s communities in the greatest need.

No investor will invest on the basis of short-term transactional contracts which don’t offer a realistic prospect for repayment

The partnership has enabled P3 to lever millions of pounds of social investment to purchase homes, refurbish them and rent them. A new, impact-focused lettings policy has been developed to let them. The initiative has reduced exploitation by private landlords, increased access to homes at affordable rents and will support other community initiatives.

The partnership was catalysed through a grant funding agreement which committed £1 million from WLDC, and the transfer of 11 properties to the charity. P3 also raised £4 million in social investment to purchase homes and refurbish them to a high standard.

Bold commissioners

Currently, E3M’s partner Stone King is working with ‘Bold Commissioners’ in Richmond and Wandsworth, and Greenwich on the development of long-term partnership approaches to tackle issues such as the failing market for accommodation for supported living and ways for supporting older people to stay living in their homes for longer.

The problem is that these examples are the exception to a norm that is limited by narrow interpretation of the existing rules, originally designed for markets for commercial products, by risk averse and culturally constrained procurement and legal departments.

There was some recognition of the potential for a different way of commissioning services for vulnerable people in last year’s Cabinet Office Public Procurement Consultation. The government will publish a response to the consultation in due course.

We believe that that they should legislate for a distinct regime for commissioning people-focused services, removing such commissioning from a commercial procurement framework and creating a mechanism for local public authorities to make direct awards to purpose driven partners.

In the meantime, we would encourage the Cabinet Office to issue clear guidance about the full range of options currently available through law, and to develop and issue models for local public organisations, so they can develop purpose aligned partnerships with social enterprises, other purpose driven businesses and social impact investors.

Header photo: Chris is homeless and has been based in Shaftesbury in England most of his life. Following the death of his father, he ended up sofa surfing and then living on the streets. He would like to get his plastering businesses going again, which is what he used to do with his dad. Photo credit: Centre for Homelessness Impact/Jeff Hubbard