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Social enterprises, big corporations and the NHS

The devil is in the details.

In reality, the market is skewed against smaller players.
In reality, the market is skewed against smaller players. Photograph: Getty Images

The government has repeatedly stated its commitment to promote social enterprises to deliver public services. But in reality, its commitment is pure lip-service. A failure to recognise the systemic imbalances of a competitive tendering system and existing and emerging regulation means that current conditions are in favour of large corporations, putting social enterprises at a disadvantage. The NHS reforms are an example of where this can be observed in real time – if you look closely. Away from the spotlight that the Health and Social Care Bill was under during its passage into law, the Department of Health (DH) is drawing up guidance and regulation documents necessary to implement the reforms. Hidden away in these technical documents are examples of how the NHS reforms are creating a system that gives big corporations the edge over competitors. This contradicts the stated intention of the Act to support the delivery of health services by locally formed social enterprises – in line with Andrew Lansley's vision that locals know best what types of health services are needed. As the NHS sees the introduction of competitive tendering on a large scale, big players such as Serco and Virgin Care are picking up sizeable contracts, as this (slightly alarmist) map shows.

Why? Two reasons:

Firstly, there is a systemic problem in competitive tendering for NHS contracts: the Act it is pitting small or start-up companies with a social mission against large, profit-oriented existing corporations who have been playing the field for decades. Their experience and their deep pockets allow them to dedicate sufficient resources to participate in often lengthy and complex tendering processes. In addition, they can spend quite a lot of money on lobbying – something that is happening in all sectors of industry, and doctors and commissioners will not be exempt. Supporters of the Act who believe that local commissioners will prefer local enterprises should look towards the delivery of the workfare programme. Despite assurances by government (pdf) that most contracts would go to charities, social enterprises and other third sector organisations, a few big companies have largely outbid smaller competitors. A4E and Working Links for example won several lots – both companies now accused of failing to meet contractual targets and of committing fraud, putting paid to the belief that they would be better at delivering. If the government does not begin to actively favour smaller players, a similar fate will befall the NHS.

Secondly, the government's also fails to express its support for social enterprises in emerging regulation and guidance. In fact, the DH seems to be reversing previous supporting measures. One way the DH used to demonstrate support is through the NHS organisational framework, an annual key document that gives commissioners of health services binding guidance on how to implement the DH's priorities. The framework for 2011/12 (see p19) explicitly encouraged commissioners to "use the introduction of Any Willing Provider to enable greater participation by social enterprises (...) starting with community services."* Compare this to the current framework for 2012/13 which does not even mention social enterprises. Furthermore, it only allows 12 month contracts between commissioners and providers. Previously, social enterprises and voluntary sector organisations were allowed three years' contracts. The longer contract periods helped organisations stabilise long-term income flows, enabling them to focus on service delivery. Reducing standard contract lengths gives large companies an advantage, as they have diversified income streams to cross-subsidies businesses, and greater administrative capacity to snap up contracts as they become available.

Another area of concern is the licensing regime that is currently drawn up by the regulatory body Monitor. Any provider of health services will have to comply with Monitor's rules to ensure delivery of stable and high quality services. Part of these criteria focus on financial stability of a company – a prudent measure. However, Monitor plans to use commercial credit rating agencies such as Standard and Poor's to assess a provider's financial standing. Leaving aside the fact that these agencies have an inherent conflict of interest (they are paid by the companies they are rating), their use will again only give advantages to big companies. Rating agencies have no experience with social enterprises, and it is likely that their structure and finance streams won't fit the criteria established for for-profit companies – so they will fail the rating without being financially unstable.

The examples above expose the fundamental lack of understanding of the social enterprise sector by government, and its failure to recognise the systemic imbalances that occur if there are no clear supportive policies in place to develop a sector with the potential to deliver locally tailored and accountable services. The believe that in a free market, all players have the same starting point, still dominates the thinking. In reality, the market is skewed against small players, and the competition is far from fair. If government really wants so see social enterprise thrive in the NHS, it needs to do far more than to give a bit of cash. It needs to actively engineer regulation and guidance to give social enterprise the edge. However, as the government thinks the playing field is already even, big corporates will continue to be the winners.

*Not that the earlier commitment showed results - in September 2011, one of the first tenders for community services went to Virgin Care rather than the social enterprise Central Surrey Health. Observers speculate that one of the reasons for this decision was the requirement for bidders to post a £10m security bond – a sum that Virgin Care could raise easily, but that most social enterprises struggle with.