Discussion paper: The third sector and Scottish European Structural Funds

The role of the Third Sector in the implementation and delivery of European Structural Funds has been recognised at policy and operational level by Scottish Government and the European Commission. The Commission in its guidance to Member States in preparing for the next programme, and in the context of encouraging an integrated approach to the delivery of the Community Strategic Framework (CSF) funds, has identified two means by which integrated territorial development may be achieved.  These are: Community Led Local Development (CLLD) and Integrated Territorial Investments (ITIs).  According to the Commission, CLLD, based on the experience of LEADER, involves the active participation of civil society organisations in a local partnership of public and private sector actors charged with responding to complex, territorial and local challenges. The Third Sector has a well-established track record in the delivery of projects: responding to challenges in disadvantaged and remote communities; addressing discrimination, removing barriers and promoting equal opportunities; and bringing forward innovative approaches to address the societal impact of structural changes to the economy. Therefore   the Third Sector is in a strong position to contribute to national and local efforts in tackling decreasing labour market opportunities and the increasing risk of social exclusion, one of the three most pressing challenges confronting the UK.

Third sector performance and good practice in addressing social inclusion

The success of the Third Sector in addressing social inclusion is well documented. There are many examples of good practice where Third Sector organisations are transforming people’s lives for the better. Performance across the sector, however, is not uniform. This is not surprising given the many operational challenges and the multiple-barriers (historic, economic, environmental and geographic) faced by those excluded from the labour market and at risk of poverty. The Commission in its assessment of the future priorities for CSF Funds in the UK has indicated that:  “reducing poverty and social exclusion should be a particular priority in some remote rural and coastal areas in Scotland…”. In rural communities, especially remote rural communities, economic activity is often confined to Third Sector organisations.  Also, many vital services aimed at preventing isolation and addressing labour mobility and economic exclusion are being delivered by community-based organisations. In recent years strategic delivery bodies (SDB’s) were created and significantly ESF funded with an expectation of collaboration with the third sector.

Discussion points

• Can good practice be quantified and qualified through case studies?
• What barriers exist in achieving good multi-agency collaboration?
• How can they be overcome?
• Where have collaborations worked particularly well and why?

Policy alignment and prospects for co-financing

The Third Sector has considerable experience and expertise in the fields of employment, vocational training, social inclusion, entrepreneurship, environmental sustainability and equalities – all key policy priorities for Scottish Government and the EU for the next programming period.  Financial support through grant aid has traditionally come from local government, national government (DWP, NHS), Lottery (BIG Scotland) and European Structural Funds. This historic level of support has been a critical investment and has generated a legacy of experience and capacity within the Third Sector. However, in the current and enduring very difficult economic and fiscal conditions, this capacity and ability to tackle the needs of those furthest from the labour market must be maintained. While challenge-funding from the public sector through co-financing or match funding has traditionally been the principal means by which Third Sector organisations have been funded, there are increasing opportunities to secure 100% funding through contracting with local and national government to provide locally based services such as employability initiatives.  This contrasts with grant funding which is often predicated on a considerable degree of justification, evidence base, onerous ongoing performance and compliance monitoring and financial control requirements - all detracting from the resources able to be focused on beneficiaries.

Discussion points

• Co-Finance.  Is this becoming more difficult to secure?
• If the Third Sector has an acknowledged role in implementation of the Structural Funds is full-financing on a contractual basis a suitable way forward?
• Would full-financing necessarily offer a reduction in the administrative burden?
• §Are Third Sector organisations aware of/comfortable with the responsibilities and risks attaching to contractual arrangements?
• §If effective compliance and a much reduced risk of financial recovery is the key objective for the Scottish Government, can any additional costs necessitated by Third Sector organisations in meeting any increased levels of compliance be reimbursed?

Roles, responsibilities and accountability of the third sector in the proposed new governance and strategic delivery Partnership

The Scottish Government in its draft proposals does not detail the composition of the membership of the proposed single Partnership Agreement Monitoring Committee (PAMC) that will oversee all the Funds. However, it is understood that the multi-level governance and partnership approach set out in the Common Provisions regulations by the Commission will be adopted. At the next level of governance under the respective Themed Funds i.e. the Strategic Delivery Partnerships (SDPs), the exercise of genuine partnership and stakeholder engagement means that the Third Sector should fully represent civil society, and particularly Third Sector organisations engaged in employability, job creation, environmental sustainability, social inclusion and community led local development activities.

Discussion points

• The arrangements proposed by Scottish Government potentially present a significant shift in the resource, risk and responsibility burden.  Is the Sector prepared to take this on?
• The implementation of the unit cost methodology will demand significant up-front effort.  Is there a contingent risk that Commission audit services will, notwithstanding the proportional approach to financial control, still look to check financial systems during the life of the Programme?
• Will this all lead to a reduction in the level of participation within the Sector?

Strategic delivery arrangements:  equitable participation of the third sector

Strategic management

In any significant investment decision the funders and investment committee must be satisfied that due diligence has been exercised and that any risks have been fully assessed and arrangements made to mitigate and manage residual risk.  SDPs will therefore assume a considerable level of responsibility and accountability in their funding decisions, ongoing management and stewardship of the SDP. As the Scottish Government proposals state “the members of each SDP must work together and challenge each other to ensure that the programmes provide real and significant contributions to Europe 2020 targets”.  This may also require the SDP to intervene and demand corrective action where operations are under-performing, particularly with regard to outcomes.

Local delivery arrangements

Addressing these concerns and responding through concrete actions on the ground is challenging and resource intensive. Sustainable interventions under previous Programmes have depended largely upon locally led and locally based initiatives. This resource and approach is essential for the next iteration of programmes, to support the many small Third Sector organisations engaged in this critical field, and to ensure that the methodologies and approaches which have delivered successful and sustainable outcomes for individuals and groups who are excluded or at risk of social exclusion are conserved.  Equally, the manner in which these Third Sector organisations are funded to deliver the necessary support services to target beneficiaries is key to their ongoing operational efficiency and effectiveness. Under the current Scottish Structural Funds Programmes, and in particular through the CPP arrangement with the local authorities performing the role of lead partner, Third Sector organisations were, for a limited number of CPPs, treated as a contractor, when their specialist employability services were procured by the local authority.  Other CPPs employed different approaches from commissioning to operating the traditional partnership approach. There have been mixed reviews, and evaluations have pointed to deficiencies and inefficiencies in all three approaches.  It is essential to avoid or minimise any negative impact on working capital and cashflow, as a consequence of inefficient and/or protracted procurement and payment scheduling in respect of Third Sector organisations as delivery agents.

Discussion points

• CPPs are a key component of the Scottish Government’s delivery arrangements. Is this fully justified?  If so, do we need a model that reflects the good practice in the LUPS Programmes?
• Not all sector partners have good experiences with or have knowledge of how CPPs worked. How do we improve practice and extend that level of awareness in future?
• Is it likely that a Lead Partner will want to identify and pursue its own objectives – making the notion of contracting and full financing less attractive?
• How will potential delivery agents be assessed?  Will this be open procurement and will this apply for every action?  Will every action require details of the unit cost methodology?
• Do we need to put in place an agreed code of practice which governs the procurement/commissioning of all delivery agents?
• How are Rural  Affairs and Fisheries being integrated and are decisions on actions within these funds going to be decided by the Strategic Delivery Partnerships?
• Have these Directorates identified actions under the three themed funds?