Competitive tendering: does forcing charities to compete drive down quality?

The debate in brief

Across the UK, charities deliver billions of pounds' worth of public services, from drug and alcohol treatment to employment support, from social care to refugee resettlement. Much of this work is secured through competitive tendering: a process in which commissioners, typically local authorities or central government departments, invite bids from multiple providers and award contracts to the bidder offering the best combination of quality and cost.

The theory is that competition improves efficiency and innovation. The reality, as experienced by much of the charity sector, is more complicated. Competitive tendering often means a race to the bottom on price, with charities cutting wages, reducing service quality, and cross-subsidising contracts from reserves or charitable income in order to win. It pits organisations that should be collaborating against each other, fragments service provision across multiple providers, and gives commissioners enormous power over organisations that are supposed to be independent.

The debate is not about whether public money should be spent wisely. It is about whether the competitive tendering model, imported from commercial procurement, is the right mechanism for commissioning services that depend on trust, relationships, and long-term engagement with vulnerable people.

Quick takeaways

The arguments

Competition drives efficiency and accountability

The case for competitive tendering rests on two propositions: that competition forces providers to improve, and that public money requires a transparent allocation mechanism. Commissioners are spending taxpayer funds, and they have a duty to demonstrate that they have obtained value for money. Competitive tendering provides an auditable process that can withstand legal challenge, demonstrate fairness, and ensure that incumbents do not retain contracts through inertia rather than performance.

From the commissioner's perspective, the alternative to competition is often a closed, relationship-based system in which contracts are renewed with existing providers without meaningful scrutiny. This can lead to complacency, lack of innovation, and services that serve the provider's interests rather than the beneficiary's. The New Public Management reforms of the 1990s and 2000s were premised on the idea that introducing market mechanisms into public service delivery would break up provider monopolies and empower service users.

Defenders of competitive tendering also argue that the model has driven genuine innovation, particularly when commissioners use outcome-based specifications that give providers flexibility in how they deliver results. Some of the most effective charity-led service models in areas such as employment support, mental health, and family services were developed in response to competitive commissioning processes that rewarded creative approaches.

The race to the bottom

The charity sector's experience of competitive tendering has been, on balance, deeply negative. The fundamental problem is that in a system where multiple providers bid for the same contract, and where commissioners face their own budget pressures, cost tends to dominate the evaluation. Quality is harder to measure, easier to fudge, and less visible to the politicians and finance directors who ultimately approve spending decisions.

The consequences for charities are tangible. NCVO's annual Civil Society Almanac has documented a long-term pattern of contracts being awarded at below the full cost of delivery, forcing charities to cross-subsidise from reserves or voluntary income. A 2019 survey by Locality found that 77% of community organisations delivering public services said they were doing so at a loss or at best breaking even. The Lloyds Bank Foundation's 2021 research on small and medium-sized charities found that competitive tendering was the single most frequently cited threat to organisational sustainability.

Wage suppression is a direct consequence. When charities bid down on cost, staffing budgets bear the brunt. Frontline workers in charity-delivered public services, care workers, support workers, advice workers, are frequently paid at or near the minimum wage, with limited progression, poor terms, and high turnover. The irony is that the same commissioners who lament workforce instability in the services they commission have created the economic conditions that cause it.

The competitive model also undermines collaboration. Charities that might naturally refer service users to each other, share expertise, or co-design services are instead competing for the same contracts. Winning a tender can mean that a neighbouring organisation, with years of experience and community relationships, loses its funding entirely. The sector has repeatedly described a commissioning environment that rewards organisational self-interest over collective impact.

The structural mismatch

A deeper critique is that the competitive tendering model is structurally unsuited to the services charities deliver. Commercial procurement works tolerably well for standardised goods and services where specifications can be precisely defined, quality can be objectively measured, and providers are genuinely interchangeable. Most charity-delivered services have none of these characteristics.

Drug and alcohol treatment, domestic abuse support, youth work, community development, and refugee resettlement all depend on relationships built over time between workers and service users. They are context-specific: a service that works in one community may not work in another. They are difficult to specify in advance because the needs of beneficiaries are complex, overlapping, and unpredictable. And they are extremely difficult to evaluate through the metrics that commissioning frameworks typically require.

The result is that contracts often specify outputs (number of sessions delivered, number of clients seen) rather than outcomes (recovery, safety, wellbeing), because outputs are easier to count. Providers then optimise for what is measured rather than what matters, creating a system that is auditable but not necessarily effective.

The Procurement Act 2023, which came into force in February 2025, was intended to address some of these concerns. It gives commissioners more flexibility in how they structure procurement processes and places greater emphasis on social value. The Public Services (Social Value) Act 2012 already required commissioners in England and Wales to consider social value, but its implementation has been patchy. The National Audit Office found in 2020 that only a minority of contracting authorities were systematically applying social value criteria, and that cost remained the dominant factor in most procurement decisions.

The evidence

The financial evidence is clear. The National Council for Voluntary Organisations has tracked the sector's income from government sources over two decades, showing that while the total value of government funding to charities has remained broadly stable in nominal terms, it has declined in real terms since 2010 when adjusted for inflation and rising demand. Within that total, the shift from grants to contracts has been pronounced: grants allow charities flexibility to respond to need, while contracts specify what must be delivered and at what cost.

Research by the Institute for Government found that the outsourcing of public services, both to charities and to private companies, has frequently failed to deliver the promised efficiency gains. High-profile failures by private sector contractors, including the collapse of Carillion in 2018, the problems with Atos and Maximus in delivering Work Capability Assessments, and persistent concerns about the quality of outsourced probation services, have undermined confidence in the model. Charities have been caught in the fallout, either as subcontractors to failing prime contractors or as organisations expected to pick up services when private providers withdraw.

A 2023 study by Sheffield Hallam University examined competitive tendering in the domestic abuse sector and found that the tendering process itself was causing harm. Specialist women's organisations with decades of experience were losing contracts to larger generalist providers who could bid at lower cost but lacked specialist expertise. The researchers documented cases where the quality of domestic abuse services declined significantly following a competitive re-tender, as new providers took time to build relationships and recruit appropriately skilled staff.

The Lloyds Bank Foundation's research programme on commissioning has been particularly influential. Its 2021 report, Commissioning in Crisis, found that 57% of small and medium-sized charities felt that commissioning practices were getting worse rather than better, and that the pandemic had briefly opened the door to more flexible, trust-based funding before commissioners reverted to pre-pandemic procurement norms. The Foundation has called for a fundamental shift from transactional commissioning to relational approaches based on partnership, co-design, and longer-term funding.

Current context

The commissioning landscape in 2026 is shaped by several converging pressures. Local authority budgets remain severely constrained, with the Local Government Association estimating a cumulative funding gap of over 4 billion pounds by 2026/27. This means that cost pressure on commissioned services is unlikely to ease, and charities bidding for contracts will continue to face the choice between pricing realistically and losing, or bidding low and absorbing the deficit.

The Procurement Act 2023, which came into force in February 2025, is still in its early implementation phase. The Act's provisions for greater flexibility, including the ability to use negotiated procedures and to weight social value more heavily, are welcomed by the sector in principle, but their impact depends entirely on how commissioners choose to use them. Early evidence suggests that procurement culture is changing slowly: the rules have shifted, but the behaviours and incentive structures within commissioning organisations have not yet caught up.

There has been growing interest in alternatives to competitive tendering. The concept of "alliance contracting," where multiple providers work collaboratively under a shared contract rather than competing against each other, has been piloted in several areas including drug and alcohol services and homelessness support. Place-based commissioning, where funding is allocated to a geographic area and local partners co-design services, has also gained traction. These models are promising but remain the exception rather than the rule.

The Labour government elected in 2024 has signalled an interest in reforming commissioning. The party's 2024 manifesto committed to strengthening the Social Value Act and to ensuring that community organisations are not disadvantaged in procurement processes. However, specific legislative proposals have yet to materialise, and the fiscal constraints facing government suggest that the cost pressures driving the race to the bottom will persist.

The broader question of whether charities should deliver public services at all, or whether doing so compromises their independence and mission, continues to divide the sector. Some organisations have made a strategic decision to withdraw from statutory contracting, concluding that the financial and operational risks outweigh the benefits. Others argue that walking away from service delivery means abandoning the people who depend on those services.

Last updated: April 2026

What this means for charities

Charities considering whether to bid for public contracts need to approach the decision strategically, not opportunistically. The first question is not "can we win this?" but "can we deliver this at the price the commissioner is willing to pay, without compromising quality or cross-subsidising from charitable income?"

Full cost recovery should be a non-negotiable principle. If a contract does not cover the full cost of delivery, including management overheads, premises, training, and a reasonable contingency margin, the charity is effectively donating to the commissioner. This may occasionally be a deliberate strategic choice, but it should never be the default. Trustees have a duty to ensure that charitable funds are used in furtherance of the charity's objects, and routinely subsidising government contracts may not meet that test.

Collaboration is both harder and more important in a competitive tendering environment. Charities that can demonstrate track records of partnership, referral pathways, and complementary service delivery are increasingly valued by more sophisticated commissioners. Joint bids, consortium models, and subcontracting arrangements can allow smaller specialist organisations to participate in larger contracts without taking on unsustainable risk.

Charities should also invest in their commissioning relationships outside of tender cycles. Understanding what commissioners are trying to achieve, sharing data and insights on service user needs, and contributing to service design before specifications are written can all influence the terms on which contracts are let. The charities that fare best in competitive environments are typically those that have shaped the conversation before the tender is published.

Common questions

Why can charities not just refuse to bid at unrealistic prices?

In theory they can, and some do. In practice, many charities feel that if they do not bid, the contract will go to a less qualified provider, and the people they serve will receive a worse service. There is also the institutional pressure of having staff whose jobs depend on securing the next contract. The result is a collective action problem: individual charities bid low because they fear the consequences of not bidding, even though the sector as a whole would benefit from a collective refusal to accept inadequate funding.

Does the Social Value Act make a difference?

The Public Services (Social Value) Act 2012 requires commissioners to consider social value when procuring services, but it is a "have regard to" duty rather than a binding requirement, and its impact has been inconsistent. Some commissioners have embedded social value deeply into their procurement criteria, weighting it at 20-30% of the evaluation score. Others treat it as a tick-box exercise. The Procurement Act 2023 strengthens the framework, but cultural change in commissioning organisations takes time.

Are private companies taking over charity services?

In some areas, yes. Large outsourcing firms have won contracts in employment support, criminal justice, health, and social care that were previously delivered by charities. The argument is usually that they can deliver at scale and at lower unit cost. The counter-argument is that they lack the specialist expertise, community relationships, and mission-driven culture that charities bring. The evidence on outcomes is mixed, with high-profile private sector failures alongside examples of effective delivery.

What is alliance contracting?

Alliance contracting is a model in which multiple providers work collaboratively under a shared contract, with pooled budgets and shared accountability for outcomes. Instead of competing against each other, providers agree to work together, with any savings reinvested in services. The model has been used in New Zealand's health system and has been piloted in several UK contexts, including drug and alcohol services. It addresses many of the problems of competitive tendering but requires a fundamentally different approach from commissioners.

Can charities challenge unfair procurement decisions?

Yes. Public procurement decisions can be challenged through the courts on grounds including failure to follow proper procedure, discrimination, and manifest error. The Procurement Act 2023 includes provisions for challenging decisions and requires commissioners to provide feedback to unsuccessful bidders. In practice, legal challenges are expensive and time-consuming, and most charities lack the resources to pursue them. The risk of damaging the relationship with the commissioner is also a significant deterrent.

Key sources and further reading

• Commissioning in Crisis -- Lloyds Bank Foundation, 2021. Research on the impact of commissioning practices on small and medium-sized charities, with recommendations for reform.

• Civil Society Almanac -- NCVO, published annually. Data on the charity sector's income from government sources, including the shift from grants to contracts.

• The Procurement Act 2023 -- UK Parliament. The legislation reforming public procurement in England, Wales, and Northern Ireland, with provisions for social value and greater commissioner flexibility.

• Public Services (Social Value) Act 2012 -- UK Parliament. The legislation requiring commissioners to consider social, economic, and environmental value in procurement decisions.

• Competitive Tendering in the Domestic Abuse Sector -- Sheffield Hallam University, 2023. Research on the impact of tendering on specialist domestic abuse services.

• Government Outsourcing: What Has Worked and What Needs Reform -- Institute for Government, 2020. Analysis of the outsourcing model and its failures, including implications for the charity sector.

• Community Organisations and Public Service Delivery -- Locality, 2019. Survey data on the financial sustainability of community organisations delivering public services.

• National Audit Office Review of Social Value in Government Procurement -- NAO, 2020. Assessment of how effectively government departments and local authorities have implemented the Social Value Act.