Is there a problem with charities bidding for government grants and contracts?

I read an interesting interview with Charlie Elphicke Conservative MP for Dover and Deal, in Third Sector earlier this week. As I’d just been looking through our latest National Survey of Charities and Social Enterprises (NSCSE) data at the time I was particularly interested in his comment that,

"Too many charities are too dependent on government money, and on delivering contracts for the state... Charities need to be independent and get their funding from philanthropists and donors rather than the taxpayer."

In the first instance, the survey data certainly highlights that organisations that rely on state funding suffer greater income insufficiencies, and higher levels of dissatisfaction than those that are more reliant on other sources such as donations and fundraising. For example, the table below shows organisations’ views on whether they’ve had sufficient income over the past year (data collected autumn 2010). This highlights that although around half of organisations have had sufficient income, a notable proportion (36%) have suffered insufficiencies.

It’s particularly enlightening to break this down by the organisation’s most important source of income. While the proportion of organisations with sufficient income remains around the 50% mark (rising to 58% of organisations that rely most strongly on membership fees / subscriptions), organisations that rely on grants or core funding or earned income from contracts are significantly more likely to have suffered income insufficiencies compared to those relying on membership fees / subscriptions or donations and fundraising activities.

Q. Thinking back over the past twelve months has your organisation had sufficient or insufficient overall income from all sources to meet its main objectives?
	Insufficient	Sufficient
All organisations	36%	52%
Most important income source
Membership fees / subscriptions	31%	58%
Donations and fundraising activities	37%	53%
Grants or core funding	48%	49%
Earned income from contracts	47%	48%

Source: Ipsos / Cabinet Office NSCSE 2010

Throughout the survey it is clear that the funding environment is a key area of concern, particularly amongst charities, voluntary organisations and social enterprises that rely on grants and contracts as a funding source.

However, I do think it’s worth looking at the profile of organisations that we spoke to during the survey. In the 2010 survey 78% of the 44,109 organisations were registered charities. The remainder were:

• Community Interest Companies (CIC) (408) - This is a limited company set up to benefit the community. A CIC cannot be formed to support political interests and if a charity wishes to register as a CIC it must give up its charitable status.
• Companies Limited by Guarantee (CLG) (3863) – This is a legal entity where members act as guarantors, but in the non-profit sector, profits are not distributed to members (for example clubs or memberships, so as you might expect, these organisations are most likely to rely on memberships as their main income source – 28%)
• Industrial and Provident Societies (IPS) (2164) – These register with the FSA as an organisation that conducts an industry, business or trade either as a co-operative or for the benefit of the community. Their most important income source is most likely to be earned income from trade, including retail (32%)

Donations and fundraising activities remains the most prevalent income source in the sector (69% of all organisations receive this, which is consistent with 68% in 2008), with 75% of registered charities having this as an income source, and 36% of charities stating this is their most important income source. The other most important income sources amongst registeredcharities are: membership fees/subscriptions (35%); income from investments (31%) and grants from non-statutory bodies (27%).

Just 16% of registered charities receive grants or core funding (including service level agreements) and 12% earn income from contracts. In terms of their most important source of income,less than a tenth (9%) of registered charities rely most strongly on grants or core funding and just 5%, earned income from contracts.

In fact, income from grants, trading and contracts are particularly important to Community Interest Companies (CICs). Looking at income source, 39% of CICs earn income from contracts (compared to 12% of registered charities) and it is the most important income source for 21% of CICs (compared to 5% of registered charities).

Therefore while it is true that organisations that rely on government funding face greater income difficulties than those that rely on fundraising and donations, it is useful to note that this tends not to be registered charities, but business with charitable interests such as Community Interest Companies that have quite possibly been specifically created to tender for such income sources.

Taken at face value, the NSCSE data certainly indicates that competing for government contracts and grants is a much riskier strategy for charitable organisations than a focus on donations, fundraising and memberships. However, I would want to look at this in the context of what service the charitable organisation is providing; the reasons why the organisation has been set up and its objectives; the kinds of contracts and grants it is competing for; identifying exactly what the current barriers to success are; etcetera...

The NSCSE data goes some way to exploring some of these aspects (and keep your eyes open for the series of fact sheets being published later this year). But before suggesting a move away from charities competing for government funding, I think we need a more sophisticated understanding of the diverse needs of different organisations within the sector.

Exactly what isn’t working well at the moment and how can greater support be given to charitable organisations, particularly Community Interest Companies, when competing for and delivering government contracts?

Comments on my blog post are welcome below.