Sharing risk in youth work
Brendan O’Keefe
Tuesday, March 14, 2017
Youth mutual boss identifies four principles for providers and commissioners to deliver effective services.
Commissioning functions have expanded rapidly in recent times as public bodies get to grips with the growing financial crisis. I believe, however, that commissioners have been landed with an unrealisable proposition - outsource the effects of austerity through the marketisation of public services.
For markets to work efficiently, there has to be a significant number of buyers and sellers engaged in a commercial dialogue.
In the public sector, children's services in particular, no such market dynamic exists and therefore attempts at service transformation funnelled through a purchaser/provider nexus is bound to fail. Huge sums of public money are tied up in the transactional costs of tendering which inflates overheads, but is not evidently delivering transformational change.
Epic CIC - an employee-led social business spun out of the Royal Borough of Kensington and Chelsea in 2014 - is part of a wave of public service mutuals.
We operate high-impact, value for money services through combining a public service ethos with a commercial underpinning.
We operate more efficiently than ever we could as a local authority service. Reducing bureaucracy means we can have a much stronger focus on service users.
Our ambition is to grow through the acquisition of new business. However, our experience is that few tenders for youth and play services have come to the fore and what has emerged has too often been woefully lacking in commercial viability.
Given the existential crisis in our sector, you would expect providers to be queuing around the block to bid for work. Yet incredibly, there are published tenders attracting few, if any bidders. A single buyer and no willing provider does not make a market.
The "market" for public services is not a genuine market at all and simply applying the nomenclature of market economics will not make it so. It is idiosyncratic and driven by financial happenstance - not by the laws of supply and demand.
An alternative approach is needed, underpinned by the following principles.
1. Public bodies should think like investors, not purchasers
To truly achieve system change, public bodies should abandon the rigidity of the purchaser/provider discussion and think much more like active investors. One problem we experience repeatedly is the attempt to transfer significant liabilities to providers via short-term, low margin contracts. Not surprisingly the answer is "no thanks". Thinking like an investor would stop public bodies attempting to shunt risk as they would not want to saddle their investment with unsustainable liabilities. Thinking like an investor would mean public bodies provide capital to underwrite solutions rather than focus on shopping in the bargain basement.
2. Social investment has a role to play but we must join the dots
Government initiatives such as investment readiness funding and Big Society Capital are very welcome. Social investors are sitting on significant capital, but bemoan the absence of investible propositions. Providers are tempted by the potential for capital injection, but are wary of taking on debt - not surprising given existential uncertainty and social investment interest rates often set considerably higher than those of high street banks. The problem is compounded by providers being asset-light and lacking security. The pieces of the transformation jigsaw are present, but the picture on the box remains blurred.
3. Investment and collaboration principles must be established
Public bodies, social investors and providers need to come together in the same space and not be divided by artificial Chinese walls. Beginning with a clear identification of a problem to be solved, a call could go out to providers for innovative, measurable solutions at a fixed price. A funding package mixing public and social investment would be established with the most innovative, cost-effective provider(s) selected to deliver the desired programme. The programme would be framed in a joint venture approach in which all parties share risk and reward. Risks would be apportioned and co-managed between parties rather than passed backwards and forwards as now through wasteful attritional bargaining. Public bodies would be placing funds into an investment package rather than going to a largely illusory market.
4. Evidencing impact is vital
I have been talking to public bodies, social investors and business transformation experts and there is real interest in developing new models of funding for youth support services. The sort of services that will benefit most from such an approach are those for which there is a definable outcome and means of measurement. Our own independently verified social impact study gives a clear indication of what is required. Being able to produce this quality of evidence is an essential factor in developing an investment model of funding.
Next steps
A model based on the principles of investment and collaboration provides an alternative to the sterility of the buyer/seller binary option.
Work needs to be done on the detail of how investment packages would be established, how cash flow would work, and how payment and reward would be apportioned.
I am planning a seminar for like-minded organisations and leaders to come together to develop the detail based on the principles here. If you think you can contribute, get in touch on Brendan.o'keefe@epiccic.org.uk
Brendan O'Keefe is managing director of Epic Community Interest Company