Watchdog criticises Department of Health over social enterprise contract failings

The National Audit Office has called on the Department of Health to reassess its approach to contracting with social enterprises.

In a report the financial watchdog warned that there were risks to value for money associated with the Department’s programme of enabling staff to spin out into health social enterprises.

The NAO acknowledged that it was too early to assess the costs and benefits of the Right to Request Programme. Just 20 social enterprises are operational – most were only launched in April this year and so have no track record.

“What can be said though is that the Department has not set measurable objectives specifically for the Right to Request Programme against which to evaluate its success,” the NAO said.

According to the watchdog, Primary Care Trusts expected social enterprises to deliver more benefits than other providers, but did not generally contract for them to deliver savings or any other additional benefits.

The NAO said the failure to set out explicitly the objectives or to contract for additional benefits would reduce the likelihood of these benefits being delivered. The Department of Health has argued that it did not need to set out the expected benefits of the programme because it contributed to the wider Transforming Community Services programme.

The watchdog nevertheless warned that many risks and liabilities would still remain with PCTs and would need to be managed if value for money was to be achieve.

“In the last resort, the trust or its successors will be responsible for ensuring that essential services continue to operate,” it said. “At least for a time, social enterprises will be highly dependent on work and cash flow from their respective PCTs.”

The NAO also said the social enterprises would be operating in an increasingly competitive market owing to changes in health legislation currently going through Parliament. “PCTs or their successors will need to have a clear idea of how they will react if enterprises run into financial difficult or fail,” it argued.

The NAO recommended that:

• The Department should put in place arrangements that enable it to evaluate whether the Programme is value for money or not, including specifying what it expects the costs and benefits of the Programme to be and what the actual cost and benefits are.
• The Department and PCTs should monitor the extent to which social enterprises are able to deliver cost savings and benefits over and above the services they have contracted for and above those provided by other delivery models. They should also identify to whom these benefits are accruing.
• PCTs should clearly identify all risks and potential liabilities associated with individual approved proposals within the Right to Request Programme, and put in place arrangements to monitor and manage them.
• The PCTs or their successors should have contingency plans on how to react in these circumstances, and should evaluate any action they take carefully to ensure that they do not infringe competition and State Aid rules.
• The Cabinet Office should ensure frameworks are in place so that new and emerging mutuals and public sector commissioners have access to appropriate information and support. This should include access to information and advice on adopting good financial practices such as: having clear objectives; ensuring that the means for evaluating success are established at the outset; and ensuring that cost or service improvements are secured.

Amyas Morse, head of the National Audit Office, said: “There are many risks to be managed if the Department is to get value for money from the £900m contracts awarded to social enterprises. The Department needs to reassess its approach, when contracting with social enterprises, of not requiring efficiencies over and above what would have been achieved if the services had remained within the Department."