Charity leaders have welcomed a new government procurement policy statement that looks to “champion innovation” by giving VCSEs a fair chance at winning public contracts as current sector contracts are “critically underfunded”.

The government last week published its National Procurement Policy Statement encouraging contracting authorities to “drive economic growth and strengthen supply chains” by maximising procurement spend with small and medium enterprises and VCSEs.

The government said public procurement is a “key lever” in its mission by sourcing goods and services that deliver value for money. The guidance will come into effect on 24 February. 

Sarah Elliott, chief executive of the National Council for Voluntary Organisations, welcomed the statement but acknowledged current sector contracts were “critically underfunded”.

Elliot said: “It’s encouraging to see the government set targets to partner with more VCSE organisations to deliver public services in the years ahead.

“Charities have the expertise and deep community connections needed to deliver essential public services, which is why the sector already delivers over £14bn-worth of public services on behalf of the government.

“However, current contracts are often critically underfunded, and the cost of delivering them continues to rise.”

Elliott said organisations were often forced to subsidise the true cost of delivery using cash reserves and public donations, or hand back contracts all together without the “vital uplift” needed to meet increased costs.

“It is essential that authorities commit to commissioning charities with the fair and sustainable funding needed to deliver public service delivery ambitions,” Elliot said.

The local infrastructure body Navca welcomed the “explicit priority” given in the policy statement to maximising procurement from social enterprises and SMEs, with partnership as a route to better outcomes.

Maddy Desforges, chief executive of Navca, said: “To realise the full potential of the not-for-profit sector, the commissioning culture and practice needs to change. 

“We encourage all commissioners to see investment in the round, rather than through the narrow lens of each contract, to fully recognise the wider contributions made by the VCS socially and economically.”

Tony Armstrong, chief executive of the community organisation membership body Locality, said this new approach needed to turn the tide for VCSEs that were shut out of big outsourced contracts.

“This is a positive step – our ‘Keep it Local’ campaign has long argued that services should be provided by the local charities, social enterprises and community businesses that know local people best.

“For too long, we’ve seen communities shut out of services because they can’t compete for big outsourcing contracts.

“This just leads to poor-quality services, and it damages our economy because precious public sector investment leaks out of our communities.”

Armstrong said local organisations can deliver better services for local people.

“This new approach needs to turn the tide,” Armstrong said.

“Local community organisations can deliver better services for local people, and keep the income and opportunities flowing round their neighbourhoods.

“This is a first step towards that, and we look forward to working with the government to unlock the power of communities across the country.”