Third sector procurement is defined as procurement by non-governmental organizations which are value-driven and which principally re-invest their surpluses to further social, environmental or cultural objectives. It includes voluntary and community organizations, charities, social enterprises, cooperatives etc.
Third sector organizations are very diverse in both size, scope, ranging from small, locally based community groups, social enterprises and large national charities. Some have no income at all and rely on the efforts of volunteers whilst others are run by paid professional staff. Third sector organizations are most commonly linked to health and social care, crime prevention and reduction, community transport, spot and recreation, learning and recreation, housing, welfare, advocacy and campaigning etc
Funding arrangements
Third sector organizations receive funding in two main ways:
1. Grants – funding that can be provided by public bodies as a means of offering financial support to third sector organizations to enable them to undertake work, designed and proposed by them, which it wishes to sponsor. A grant may be ‗general‘ to assist with the expenses of running and developing an organization (often grant-in-aid) for a service that forma part of its own businesses.
2. Procurement is the acquisition of goods and services from third party suppliers under legally binding contractual terms where all conditions necessary to form a legally binding contract have been met. Such acquisitions are for the direct benefit of the contracting authority, necessary for the delivery of its service or for the running of the business.
All third sector procurement must adhere to government policies of the country that has funded that program, procurement or given the grants based on value for money and that country‘s procurement rules which exist to ensure all providers can compete for contracts on equal basis.
Preferential treatment
Third sector procurement practices should not or does not involve procurement of third sector organizations or local businesses, but these organizations must be allowed to compete on a level playing field with all other providers. The issue therefore is how to open up supply opportunities to third sector organizations, build effective relationships with them, and remove some of the
barriers they face in successful delivery of third sector contracts.
Within third sector procurement rules, there is scope to integrate environmental and social requirements into contracts where these are relevant to the subject matter of the contract. There are many examples of contracts that have legitimately included environmental and social requirements, covering issues such as energy efficiency, waste minimization, community benefits (recruitment of long-term employment), fair trade, and the purchase of fresh and seasonal produce.
Advantages of third sector procurement
There are many benefits and advantages that third sector organizations can bring to public sector delivery:
1. A strong focus on the needs of service users
2. Knowledge and expertise to meet complex needs and tackle difficult social issues.
3. An ability to be flexible and other joined up service delivery.
4. The capacity to build users‘ trust.
5. The experience and independence to innovate.
Third sector organizations can deliver services in a different way, for example:
- Involving local people to build community ‗ownership‘ and benefits
- Building the skills and experience of volunteers
- Increasing trust within and across communities, thereby building social capital.
Overview of challenges and barriers faced by third sector procurement
- Lack of early and effective consultation with third sector organizations in the development of policy, programmes and commissioning strategies, leading to poorly packaged and unattractive procurements.
- Failure to properly assess third sector organizations‘ capabilities and to consider them as serious contenders.
- Insufficient recognition given to strengths and skills particularly in key service key service areas.
- Risk-averse procurers who are worried that third sector organizations lack the resources, organization and business skills to deliver.
- Difficulty in finding out about contract opportunities and third sector procurement procedures and who to approach to become a supplier / provider.
- Trend towards using large scale contracts such as national or regional frameworks and rationalization of the supply base which can rule out many third sector organizations, particularly if they have difficulty forging sub-contractor alliances with prime.
- Complex and costly pre-qualification and tendering procedures with unrealistic timescales, prescriptive specifications and excessive contract terms which means invitations to tender may often be consigned to the ‗too difficult‘ pile. Procurers also
sometimes have a tendency to favour known providers. - Inappropriate allocation / balance of risks between third sector organizations and contracting authorities.
- Short term contracts which create too much risk for third sector organizations, in terms of not being able to recoup start –up costs and investments, and in the longer term making it difficult to plan and invest in service developments.
- Excessive monitoring, evaluation and reporting requirements which are disproportionate to the size of the contacts
Suggested actions at each stage of the third sector procurement cycle
1. Understand the market through on-going dialogue. Get to know the third sector organizations within it, their organization and capabilities, their problems in dealing with you.
2. Consult early on viability of policies, programmes and procurement strategies. This should form part of a wider commissioning process.
3. Open contract opportunities with third sector organizations by providing information about how to become suppliers, wide publication of contract in accessible media, training and support.
4. Focus procurement on outputs / outcomes rather than processes to incentivize third sector organizations and capture their expertise and innovation.
5. Keep it simple and proportionate – reducing complexity and bureaucracy in turn reducing costs of procurement to third sector organizations
