The government should reform commissioning rules to help charities win and deliver public contracts, according to the think tank NPC.
A paper, published this morning, argues that the Procurement Bill, which is being considered in parliament, could be used to ensure that social value and public savings are a part of commissioning decisions.
It also warns that some charities are making the procurement system harder for the sector by using their funds to subsidise cheap contracts.
NPC research in 2020 found that 59 per cent of public contracts delivered by charities did not cover the full costs of the work.
The report says: “Commissioners underpaying charities has been going on for a long time, but inflation means the arrangement cannot go on.
“Charities that were already subsidising contracts from other sources of income are going to find it increasingly hard to keep doing so.
“This poses a risk to the services they deliver, the bodies who commission them, and the people who depend upon vital support.”
The paper adds: “Charities must recognise that they too are contributing to this problem by agreeing to these [subsidised] contracts. By shifting their behaviour, charities can minimise risks to the whole sector.”
To address these risks, NPC says: “The Procurement Bill’s definition of ‘value for money’ should recognise social value (for example, wellbeing) and cost savings from reducing demand on other services (for example, healthcare or police time).
“Commissioners must be mandated to score contracts against this definition.”
Theo Clay, policy manager at NPC, said: “Charities not being paid for the full cost of a service is a symptom of wider issues with how procurement is designed and implemented.
“The government is not solely at fault – charities are contributing to this problem by agreeing to these contracts and distorting the market – but the government could make important changes to primary and secondary legislation, as well as guidance, to properly recognise social value and promote a better relationship between charities and government.”