Co-Design or Crisis: Rethinking procurement in the VCSE sector's perfect storm

One year after their Open Letter to the Local Government Association, the VCSE voice is even more critical.

In October 2024, a coalition of over 150 leaders from the Voluntary, Community, and Social Enterprise (VCSE) sector issued a powerful open letter to the Local Government Association's (LGA) Social Value Conference. Their demand was unequivocal: a fundamental reimagining of public procurement to elevate VCSEs to the role of strategic partners rather than token bidders on the margins.

Twelve months on, as the sector grapples with unprecedented pressures, that call has become a critical imperative for the very survival of local services.

The landscape in 2025 is stark. The UK's VCSE sector is caught in what the National Council for Voluntary Organisations (NCVO) has termed a 'perfect storm'. A comprehensive analysis in their "The Road Ahead 2025" report details a crippling convergence of factors: operational costs are surging, demand for services is escalating at an unsustainable rate, traditional funding streams are contracting, and volunteer numbers are dwindling.

This is not a distant threat. It is a present and escalating crisis. Major charities like Macmillan and Scope have already been forced into financial restructuring and service cuts. The care sector, a cornerstone of community wellbeing, is particularly vulnerable. A recent report from Nottingham Trent University, "Paying the Price," highlights how rising wage and National Insurance contributions are forcing organisations to reduce staff, cut free services, and, in some cases, cease operations entirely. This financial cliff-edge is further compounded by new research from Civil Society, which reveals that councils already facing financial distress are disproportionately cutting grants to the VCSE organisations that communities depend on.

Simultaneously, a seismic shift in the legislative landscape is underway. The Procurement Act 2023, which came into force on 24 February 2025, represents the most significant overhaul of public purchasing in a generation. It moves beyond the previous Social Value Act's requirement to simply "consider" social value, mandating that authorities "have regard to the importance of maximising public benefit." This change, coupled with a new National Procurement Policy Statement (NPPS), signals an end to the era of transactional, cost-obsessed procurement.

Yet procurement in councils and the public sector is still dominated by transactional models. How can we do better?

1. From 'Transactional Buyers to 'Collaborative Co-Designers'

The traditional model of public service commissioning, where a predetermined service is put out to tender, is fundamentally broken. It results in rigid specifications that often fail to reflect the nuanced, ever-changing reality of community needs. When VCSE organisations are only engaged at the Request for Proposal (RFP) stage, their deep local insight is squandered.

The new era demands a shift towards co-design. By involving VCSEs at the earliest possible stage, ideally during needs analysis and service conceptualisation, commissioners can shape procurements that are grounded in reality. This early collaboration prevents the creation of unrealistic targets and key performance indicators (KPIs) that set providers up for failure, leading to costly contract collapses and devastating gaps in community support.

The Greater London Authority's guidance on "Commissioning Co-Design" offers a robust framework for this, emphasising the need for institutional buy-in and genuine power-sharing to unlock truly innovative solutions.

2. Outcome-led contracts rather than prescriptive task lists

The Procurement Act 2023 facilitates a crucial move away from awarding contracts based on the 'Most Economically Advantageous Tender' (MEAT) to the 'Most Advantageous Tender' (MAT). This empowers procurement teams to prioritise long-term value and impact over short-term cost savings.

This legislative change must be mirrored in contract design. Instead of rigid, prescriptive lists of deliverables, contracts should be structured around achieving mutually agreed-upon outcomes. Co-designed with VCSE partners, these outcomes should be the North Star of the contract, measured through a combination of quantitative and qualitative data. This requires a more agile approach to contract management, with regular, perhaps quarterly, reviews of outcome indicators, allowing for course correction and adaptation. The result is a process more akin to stewardship than supplier management.

3. Sustainable funding frameworks that reflect real costs

The "postcode lottery" of underfunded contracts, a long-standing criticism from bodies like the Homecare Association, is a systemic failure that perpetuates low pay and workforce instability. The practice of driving down costs through price-cap games has created a fragile provider market where quality of care is compromised and staff are undervalued. In a recent, hard-hitting report, the Association equated the practice of councils paying below the cost of legal minimum wage as "state-sponsored labour exploitation."

Sustainable procurement requires building fair funding models from the ground up. This means conducting open-book exercises to establish realistic price points that include provisions for fair wages (such as the Real Living Wage), overheads, and investment in staff training and development. The government's own guidance now stresses prompt payment throughout the supply chain, but this must be paired with contract values that don't force VCSEs to subsidise public services from their own limited charitable reserves.

4. Data with depth: moving beyond the TOMs

For too long, social value has been reduced to a box-ticking exercise, often reliant on crude financial proxy models like the National TOMs (Themes, Outcomes, and Measures). While these frameworks provided an initial language for social value, critiques, such as those highlighted in this letter to the LGA, argue they are "commercially focused, easily gamed and pose a significant risk of non-delivery." They often fail to capture the inherent, holistic value a VCSE delivers simply by existing and operating within a community.

A more sophisticated approach is needed, one that moves beyond abstract calculations and is grounded in the internationally recognised standards for practice. The framework developed by Social Value International (SVI), built on eight core principles, provides this path. The cornerstone of this approach is genuine stakeholder engagement: asking people what has changed in their lives and valuing those outcomes from their perspective. This is the only way to move past assumptions and understand real-world impact.

Tools like the Social Value Engine are specifically designed to facilitate this  process. They provide the structure to manage stakeholder intelligence and conduct credible Social Return on Investment (SROI) analysis using well-calibrated, defensible proxy metrics. Crucially, these proxies are not a replacement for stakeholder engagement; they are a means of translating the rich, qualitative data gathered from stakeholders into a consistent language that commissioners can understand and act upon. For an even more holistic view, this SVI-led approach can be used in combination with complementary methodologies, such as WELLBYs (Wellbeing-Adjusted Life Years), to add further layers of insight into the profound changes happening in people's lives. This is the insight that leads to genuinely effective public services.

5. Capacity building as a core commissioning strategy

The new procurement landscape recognises that a healthy, diverse market of suppliers is essential for resilience. Successful councils are now viewing capacity building as an integral part of their commissioning strategy rather than a separate grant-funding activity.

This means embedding funding for collaboration and partnership within contracts themselves. It requires reserving a portion of budgets for direct delivery alongside what the open letter called "system stewardship": funding the time and resources for VCSEs to participate in strategic planning, share intelligence, and build collaborative networks. The Procurement Act's new "competitive flexible" procedure allows authorities to design procurement processes that actively support consortia of smaller organisations, breaking down the barriers that have historically excluded them from larger contracts.

Roadmap to resilient communities

Stage Action Intended Impact

Needs Analysis & RFI Hold VCSE-led roundtable discussions and co-design workshops to define problems and scope potential solutions. Projects are contextually aware and innovative, directly reflecting verified local need and uncovering key outcomes.

Contract & Tender Design Move to outcome-based specifications. Mandate the use of an open, transparent and consistent SROI framework for reporting social value. Include specific funding for impact measurement. Establishes SROI as the common language for value, allowing for clearer, more comparable bids and data-driven decision-making beyond just cost.

Ongoing Management Establish quarterly, VCSE-led impact reviews grounded in social value principles and data, focusing on verified stakeholder outcomes and the value being created. Creates a shared understanding of performance through the common language of SROI, enabling agile course-correction and building trust.

Commissioning Teams Invest in training for staff in impact thinking, collaborative leadership, and how to interpret and commission for social value. Shifts the commissioning posture from a transactional, cost-focus to a strategic, value-focus.

Strategic Policy Level Embed senior VCSE leaders on strategic boards. Adopt SROI as a core metric for place-based performance management. Enforces a co-design and value-led culture from the top down, aligning departmental goals around the shared language of community impact.

Conclusion: a moment of truth for public services

The convergence of a deepening VCSE crisis and a radical overhaul of procurement law creates a moment of truth for public services. Continuing with business as usual, relying on transactional procurement models that ignore on-the-ground intelligence, will inevitably lead to further provider failure, stripping communities of the very partners best equipped to handle complex social challenges.

Embedding VCSE intelligence is the core strategic function required to build resilient, effective, and sustainable public services. The Social Value Engine is a platform that enables organisations to embed this new way of working. It provides the essential architecture to implement the principles of Social Value International, based on genuine stakeholder engagement, and translate rich, real-world findings into a credible and consistent Social Return on Investment (SROI) calculation.

The call to action for every procurement and commissioning leader is urgent**:** Begin your journey by embedding genuine VCSE co-design workshops into the scoping phase of your next major contract. The return on investment, measured in improved outcomes, reduced contract failure, and enhanced community resilience as well as financial efficiency, will be the most compelling business case of all.