A Race to the Bottom? – Exploring Variations in Employment
Conditions in the Voluntary Sector
INTRODUCTION
This paper explores how variations in state – voluntary sector inter-organizational
relations influence the employment relationship in the latter, and the capacity of thirdsector organizations to exercise autonomy over employment matters in this
relationship. The focus is drawn from an observation that this relationship has grown
in recent years as most Western industrialized economies have partly contracted out
social services to voluntary organizations (Kendall, 2003). Yet, despite this growth, in
contrast to other inter-organizational relations such as public private partnerships, we
have limited knowledge regarding its employment outcomes. The UK voluntary
sector, normally defined under the ‘Narrow’ definition of the sector (See Kendall and
Knapp, 1996), specifically the area of social care, is of particular interest in this
regard given the recent dramatic shift in its resource dependence on the state, which is
greater than other industrialized countries (Kendall, 2003: McClimont and Grove,
2004: Wilding, Collins, Jochum, and Wainright, 2004).
Moreover, in employment terms, the workforce has increased to over six hundred
thousand employees who are responsible for caring for some of the most vulnerable in
society. In 2004, for example, those employed in social work accounted for over half
of the UK voluntary sector workforce (51.6 per cent or 313,000 employees)
(Wainwright, Clark, Griffith, Jochum, and Wilding, 2006). Further, the few studies
that have explored the implications of this change on employment conditions suggest
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that management in voluntary organizations largely succumb to external cost
pressures from the state, leading to ‘a race to the bottom’ on pay (Cunningham, 2001:
Barnard, Broach and Wakefield, 2004). This is of concern given that continued
pressure on terms and conditions can only have a detrimental effect on employee
morale in the sector and lead to recruitment and turnover problems (Wilding, Collis,
Lacey and McCullough, 2003:Alatrista and Arrowsmith, 2004: Scottish Centre for
Employment Research, 2005), leading to concerns over the quality of care.
However, questions also arise over whether such outcomes are inevitable as an image
of complete passivity by the voluntary sector in its relations with the state contradicts
work exploring the employment outcomes from other forms of inter-organizational
relationships. Here, studies in the private sector reveal the exploitative and
detrimental nature of supply chain relationships over the labour process, with
subsequent work intensification (Turnbull, Delbridge, Oliver and Wilkinson,
1993:Roper, Prabhu, Zwanenberg, 1997), but also highlight how inter-firm relations
are not homogenous and include ‘partnerships’, or the exercise of autonomy and/or
the attainment of an advantageous position by suppliers so protecting employment
conditions (Hunter, Beaumont and Sinclair, 1996: Truss, 2004: Marchington,
Grimshaw, Rubery and Willmott, 2005). This raises questions regarding whether the
voluntary sector’s relationship with the state is so dependent as to mitigate against the
possibility of autonomy. Or, alternatively, have the aforementioned studies of the
sector largely omitted in-depth analysis of the incidence of and conditions
determining the exercise of autonomy by voluntary sector employers.
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In the light of these observations, this paper reports findings from a qualitative study
of inter-organizational relations between twenty-four Scottish-based voluntary
organizations, and seven local authorities. It begins with an overview of what we
know about employment conditions in the sector in the era of contracting, followed by
an outline of recent literature on inter-organizational relations and their impact on
employment. The purpose of this last section is to provide a framework in which to
evaluate prospects for the exercise of autonomy by voluntary sector employers in their
relations with the state. This is followed by an outline of the methodology, a report of
findings and a concluding discussion.
The Changing Context of UK State - Voluntary Sector Relations
Studies exploring the impact of the high level of income dependency of voluntary
organizations on state funding sources present a mixed picture regarding the outcomes
of this relationship. Commentators argue how as with other forms of interorganizational relations, the rhetoric of partnership is utilized when describing
relations between government contractors and voluntary organizations (Newman,
2001). However, others raise concerns over the consequences for continued voluntary
sector autonomy in the face of coercive influences from the state; greater regulation of
the sector; and financial uncertainty (Russell, Scott and Wilding, 1996: Perri 6 &
Kendal, 1997: Tonkiss and Passey, 1999: Harris, 2001).
Mixed opinion also emerges in the area of employment, where from the 1980s
continuous pressure on employment costs in voluntary organisations has led to a drift
away from reliance on public sector pay scales to determine rewards (Cunningham,
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2001: Knapp, Hardy and Forder, 2001: Barnard et al, 2004: Shah, 2004). At the same
time, the aforementioned insights do not suggest complete subordination by voluntary
organizations in contractual relations. For example, one of the above studies reveals a
move away from public sector pay comparability for some organizations in the sector,
but not for others (Cunningham, 2001), while another reveals that only twenty per
cent of voluntary organizations still use public sector pay scales (Remuneration
Economics, 2002). In social care, studies indicate how the majority of voluntary
organizations undertaking social services work contracted out by local authorities
initially paid their staff according to National Joint Committee (NJC) scales: i.e. pay
rates that are comparable to local authority sector workers. However, this approach to
rewarding staff declined because of cost pressures leading to organizations
increasingly setting pay to reflect local labour market conditions: suggesting a
mixture of reward strategies involving public sector comparability and market rates in
the sub-sector (Jas, Wilding, Wainwright, Passey and Hems, 2002).
However, scrutiny of pay does not give us a complete picture of the impact of costs
pressures on working conditions in the sector. A more complete understanding of
management strategies to reduce employment costs in a labour intensive area of
activity such as the provision of social services also comes from scrutiny of the labour
process. This is because the labour process offers an immediate and accessible means
to innovate and reduce employment costs (Warhurst, 1997). This can be achieved
through intensifying work or diluting skills. The former can manifest through, for
example, attempts by local authorities to pressure providers into lowering staff –
service user ratios. Skills dilution can occur through funders encouraging the steady
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routinization of tasks provided to service users, such as funding the provision of
domestic chores to the detriment of more social – emotional support to the client.
There remain then significant gaps in our knowledge. Specifically, we do not know
whether the retention of public sector pay comparability or the protection of other
working conditions is a consequence of ‘partnership’ relations, or resistance from
providers to pressure from purchasers. Further, we do not have understanding of the
factors that determine these outcomes, nor whether they are sustainable or merely
delaying the inevitable and that all voluntary organizations will join the ‘race to the
bottom’ on pay and conditions.
In addressing these gaps in our knowledge, the multi-disciplinary literature on interorganizational relations is useful given its capacity to reveal the range of forces that
shape the diversity of relations within inter-organizational networks, and their
subsequent impact on the employment relationship. The next section, therefore,
highlights some of the key aspects of this literature to provide a framework upon
which the paper seeks to explore the capacity of voluntary organizations to exercise
aspects of autonomy within the context of its close relationship with state agencies.
Factors influencing degrees of subordination and dependency in interorganizational relationships
An overview of the literature on inter-organizational relations begins with early
studies that highlight subordination between one party and another to sophisticated
multi-level analysis that have focused on institutional, organizational and inter-
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personal influences that explain the complexity and variability of outcomes in such
relations. To begin, Rainnie in exploring contracting in supply chains uncovered
different levels of vulnerability and dependency between buyers and suppliers
(Rainnie, 1989 and 1992) leading to a variety of outcomes in employment conditions.
At the same time, the focus of this work was on small firms, and is seen to
overemphasize conditions of subordination in supply chains (Ram, 1994). Subsequent
studies exploring a broader range of sectors and inter-organizational relations have
revealed greater complexity and variations in subordination and control between
organizations, indicating a ‘tiering’ of relationships (Hunter, Beaumont and Sinclair,
1996). Moreover, such studies suggest that suppliers are not passive agents in such
relationships, but actually contribute to their shaping (Turnbull, Oliver, and Wilkinson,
1992). In identifying factors that determine such outcomes, Sako’s (1992) study
highlighted distinctions between organizational relations based on different types of
contracts which were characterized as arms length (ALC) and obligational contracting
(OCL), with each leading to differentiated employment outcomes, where the latter
was more likely to favour employees (Marchington et al, 2005).
However, while recognizing the continuing relevance of these insights recent
contributions have adopted a useful multi-level analysis of the variations and causes
in subordination and dependency. In particular, how institutional, organizational and
interpersonal factors are inter-linked in shaping inter-organizational relations, and
therefore employment outcomes (Marchington and Vincent, 2004: Marchington, et al,
2005: Vincent, 2005). In adopting such an approach this section makes a number of
observations regarding possible causes behind variations in inter-organizational
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relations between state and voluntary sector, and how these may shape employment
outcomes in the latter.
The institutional dimension
To begin with the institutional dimension, the ongoing development of the quasimarket between voluntary sector and the state, is leading to coercive isomorphic
pressures on the former (See Meyer and Rowan, 1977: DiMaggio and Powell, 1983).
For example, the Care Commission has introduced care standards which are
applicable throughout the sector and represent strongly institutionalized practices
common to purchasers and providers so increasing the scope for control and
subordination. In particular, the Commission has powers to introduce and amend
standards of care provided to vulnerable groups across the UK, and also has powers of
accreditation over the care workforce under National Vocational Qualifications
(NVQs or SVQs in Scotland). For voluntary organizations the new care standards
imply a significant degree of influence from external bodies over aspects of the labour
process, especially worker flexibility around working time. This is because the care
standards call for the delivery of more services on a twenty-four hour basis (see
Cunningham, 2006 for summary).
Yet complete subordination to external institutional pressures by voluntary
organizations cannot be automatically assumed. Debates within institutional theory
argue that resistance from voluntary organizations to state-sponsored isomorphic
pressures is not uncommon (see Leiter, 2005 for summary). In particular, where
voluntary organizations detect contradictions in their institutional fields they attempt
to reach compromises and, therefore, complete isomorphism is not inevitable (Oliver,
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1988). Moreover institutional links between organizations can be binding and
encourage interdependence between organizations, rather than complete subordination
of one party to the interests of another (Vincent, 2005).
There is also a need to recognize that management’s decisions, and therefore the
outcomes of organizational structure, policies, and working conditions, are not solely
influenced by external isomorphic pressure, but also internal factors such as the
employment relationship, where the dynamics of co-operation, conflict and resistance
can determine the outcomes of management decisions (Friedman, 1977: Edwards,
1979: Thompson, 1983). Arguably, such resistance may emerge if, in response to
institutional pressure, management in the voluntary sector follows similar strategies
employed in public organizations where efforts to enhance workforce flexibility
around working time run in parallel with attempts to erode the distinctions in
payments between standard and unsocial hours (Beynon, Grimshaw, Rubery and
Ward, 2002). In such cases where effective worker resistance emerges, either
collective or individual, particular patterns of isomorphism around flexible working
may not necessarily emerge.
Organizational influences
The second level in Marchington and Vincent’s (2004) framework, the organizational
level can refer to the degree of (resource) dependency between organizations, which
is shaped by factors including nature of the product, levels of income dependency, as
well as organizational size. This literature highlights how these factors can be
manipulated by supplier organizations to their advantage. For example, suppliers can
be large-scale, powerful organizations in their own right that are less dependent on or
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even have influence over the buyer. Explanations for this lack of dependence relate to
supplier organizations having a monopoly over complex products or services, or
delivering, consistently high quality services and/or innovation (Bresnen, 1996:
Hunter, et al: 1996: Swart and Kinnie, 2003: Truss, 2004:).
This is mirrored in some studies of the state - voluntary sector relationship where in a
rural community there may be only one credible social care supplier or the more
specialist and unique the service, the more likelihood there will be fewer suppliers
who are in a relatively strong bargaining position with purchasers. This is seen as
possible even within competitive markets as organizations build a specialist reputation
in areas of service provision. Larger voluntary organizations are also seen as being
able to manage markets more effectively and negotiate with purchasers on equal terms
steering perhaps to more relational contracts (Johnson, Kendall, Bradshaw and
Blackmore, 1998). In addition, it has also been argued that the position of the
purchaser in the social care market is not as strong once a service is up and running
with a contractor, given the disruption to services involved in changing providers
(Mackintosh, 2000).
Another application of the buyer-supplier literature that may be relevant is one that
recognizes the complexity of contractual relations between parties beyond that
outlined by Sako (1992). Individual organisations are seen as entering into different
types of relationships with a multitude of partners, with suppliers themselves having
relations with a variety of purchasers, characterized by varying degrees of dependency.
Indeed, dependency may be confined to only specific aspects of the supplier’s
operations and they can exhibit a degree of choice over whom to contract with, or
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avoid difficult situations by exiting relationships (Blois, 2002: Bresnan, 1996: Hunter,
et al, 1996: Blois, 2002).
Interpersonal relations
The third level of analysis concerns interpersonal relations or the activities of
‘boundary spanners’. For example, the expertise of those responsible for negotiating
and monitoring contracts between organizations can be influential in shaping relations.
In the context of public – private partnerships, it has been found that the latter can be
in an advantageous position because they have personnel in post with extensive
negotiating experience and skills (Marchington, Vincent and Cooke, 2005).
Moreover, close personal, social ties between the parties can be influential in
determining the nature of relations and foster interdependence rather than dependence
and control (Blois, 2002: Williams, 2002: Marchington & Vincent, 2004: Truss,
2004). Interdependence between organizations built on personal relationships was
identified by Osborne (1997) in his study of relationships between some local
authorities and voluntary organizations. Here, relations were reciprocal, ongoing,
interdependent, with parties sharing perspectives on social needs in their communities.
The result of these relationships was that contracts were not decided on a strictly
competitive basis, so leading to better outcomes for voluntary organizations (Osborne,
1997).
The limitations to autonomy
The above literature also suggests limitations to the exercise of autonomy across the
three levels, which, again, may be applicable to the voluntary sector. For example,
studies have found that exchanges between organizations change over time, reflecting
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a range of factors including network composition, external pressures, reputation, costs
and performance (Blois, 2002: Grimshaw and Rubery, 2005). Truss (2004), for
example, observed a ‘negotiated order’ regarding inter-organizational relations within
franchise arrangements which are eventually resolved in favour of the stronger party.
It has also been found that several attributes in an inter-organizational relationship
may be arms length in nature, while others are relational: suggesting relations
between parties are a blend of the two. As a consequence, despite contracts being
characterized as relational or ‘partnerships’, crucial aspects such as price may be
subject to more transactional relations (Blois, 2002: Marchington et al, 2005).
Therefore, terms and conditions of employment within suppliers may still suffer if the
purchaser drives a hard bargain on price.
Further, a reliance on strong interpersonal links to maintain good relations can be
problematic. In particular, staff turnover in key boundary spanning roles can change
relationships leading to a resort to formal terms of contracting as flexible cooperative
practices are not passed onto new managers (Blois 2002: Marchington, Vincent and
Cooke, 2005a). This is of some concern given tighter supervision and monitoring
under such contractual relations has been shown to lead to incidences of deskilling
and work intensification (Grugulis, Vincent and Hebson, 2003).
These limitations to organizational autonomy in employment issues also imply
constraints on the extent to which management can be persuaded or forced by
workforce representatives to resist external pressure on pay etc. The role of unions in
setting and maintaining pay and conditions may be limited in any event due to their
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marginal presence in the voluntary sector, with union density estimated at 15 per cent
(Unison, 2006). However, even where unions have a presence their ability to mobilize
and protect workers’ terms and conditions may also be constrained. This is because it
has been shown in studies from other sectors, that prospects for successful union
campaigns are limited by the reality of power relations between purchaser – provider
relations. Here, irrespective of union strength or management – labour relations, the
capacity of external purchasers to dictate employment conditions to an employer is a
crucial determining factor in union success (Marchington, Rubery and Lee Cooke,
2005b).
Thus far, this paper has highlighted the potential for variation in inter-organizational
relations between the state and voluntary sector and that this may have differential
implications for employment outcomes in the latter. It also highlights factors at the
institutional, organizational and inter-personal levels that may shape and determine
these outcomes, and raised some caveats to these favourable outcomes. The remainder
of the paper explores these issues in relation to their relevance to voluntary
organizations and their ability to sustain public sector pay comparability and
independence over the labour process in the face of cost based pressures exerted from
state funding bodies. The paper now proceeds with an outline of the study’s
methodology.
METHODOLOGY
This study involved an investigation of state – voluntary sector relationships and the
subsequent impact on employment in twenty-four voluntary organisations based in
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Scotland. They employed 13,500 employees, and provided a range of services for
local authorities to vulnerable clients such as people with disabilities (eleven),
children and young people (four), the elderly (three), or a combination of the above
(six). Semi-structured qualitative interviews were conducted with Personnel
respondents from each organisation (twenty-two cases), or operational managers
responsible for personnel issues (two cases). In nine organisations interviews were
also conducted with managers responsible for negotiations with local authorities
(eleven respondents). Supplementary information was gathered from participants
relating to income, levels of dependency on government funding and workforce
statistics.
Table 1 reveals how among the twenty-four respondents there were varying degrees
of dependency on state bodies for the funding of care activities, which have been
placed in three broad bands. It can be seen that seven of the twenty-four were in Band
A and solely dependent on state income for their care activities; eleven of the twentyfour were in Band B and dependent for between 80- 99% on state funding and the
remaining six in Band C had between 50% to 79% of their incomes from this source.
It is also worth noting that four of those that were funded entirely by the state outlined
how local authorities were the exclusive source of state funding.
Insert Table 1 here
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Twelve representatives from seven unitary Scottish local authorities also participated
in semi-structured interviews. These included two Heads of Social Service
Departments, five Heads of Service; and five Contracting Officers. The selection of
these organisations reflects the variety of care markets across Scotland, i.e. urban
conurbations, suburban areas, areas embracing rural and urban constituencies; and a
purely rural authority. The local authorities and voluntary organisations were chosen
on the basis of having some form of contractual relationship with each other. It must
be acknowledged that much of the data from the voluntary organisations and local
authorities related to a wider range of contractual relationships. At the same time, the
researcher also pressed for responses regarding specific issues and linkages between
organisations.
The findings are presented in three sections. The first provides a short context to interorganizational relations between purchasers and providers and in doing so also
highlights differences in outcomes with regard to pay and conditions. It further argues
that there are three Types of organization from among the twenty-four respondents
differentiated by their ability to protect employment conditions in their workplace.
The second, then proceeds to outline the strategies these organizations employ that go
towards explaining these differences. The third proceeds to highlight the limits to the
exercise of autonomy among the respondents.
FINDINGS
A variation in employment outcomes
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All organizations reported a similar operating environment in the quasi-market, which
was characterized by considerable pressure on pay and conditions and the labour
process, e.g. through measures to intensify work and dilute skills in care teams. They
also reported intensifying institutional pressures from the Care Commission and local
authorities to provide twenty-four hour services to clients. Union strength among the
respondents was uneven. Out of the thirteen unionized organizations in the study less
than half (five cases) retained the link with local authority pay and conditions, and
only two organizations reported union density above 50 per cent of the workforce.
Several local authority participants were quite clear that this allowed them to exert
pressure on voluntary sector pay and conditions because of the lack of strong
collective bargaining in the sector. Each organization to varying degrees also
highlighted the existence of contradictory pressures on pay and conditions from the
labour market via wide-scale recruitment and retention problems.
The above labour market and employment conditions occurred within a complex
purchaser – provider environment. Respondents reported a predominantly financially
insecure short-term (1 – 2 year) funding environment, where the move towards three
year funding was slow in emerging and not consistent across purchasers. This resulted
in voluntary organizations to varying degrees undertaking, sometimes multiple
renegotiations of funding in any given year, complicated by individual projects being
funded from different sources and requiring separate negotiations, with implications
for management time and resources. For some, but not all organizations the failure to
secure cost of living increases, or renewed funding, during these renegotiations would
lead to services being cut back, and/or staff redundancies.
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Additional costs on respondents would come from having to comply with contracts
and service level agreements. This could prove to be difficult as negotiations around
funding would sometimes result in cuts in the management and administrative
expertise required to oversee these requirements. All organizations were constantly
pursuing additional funding, which again involved significant management time and
resources. This could involve a mixture of negotiated, fixed price or competitive
scenarios with funders. It was noticeable that all voluntary sector respondents reported
an increase in competitive tendering, although this was not universal across all
purchasers.
Yet, in response to these pressures, the data revealed far from homogenous outcomes
with regard to employment conditions among the twenty-four respondents. For
example, eleven of the twenty-four retained their link with local authority pay and
conditions. There was also some variation in the capacity of voluntary organizations
to resist local authority pressure on the labour process. This leads the paper to identify
three types of voluntary organization among the twenty-four. As will be seen even
within these types, there are degrees of vulnerability, and the potential for movement
within and between them. Moreover, the paper is not claiming that these Types are
applicable throughout the sector, or that others cannot be added, merely that for the
purposes of this analysis they are useful.
Type 1 – On the Inside Track
Type 1 organizations (four respondents) – labeled ‘On the Inside Track’ although not
immune to external pressures, represented the most successful group of respondents in
terms of maintaining public sector pay and conditions. Moreover, although these
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organizations were not immune to pressure on the labour process from local
authorities, particularly the intensification of work within individual projects, there
were more examples of resistance to such pressure. For example, one organization
resisted efforts by local authorities to intensify the work of Support Assistants through
adding some responsibilities that were part of the higher grade Support Worker role.
This usually involved a parallel reduction in the numbers of Support Workers in
projects, which, in turn, led to a dilution of expertise and skill in care teams. Another
organization refused to employ Support Assistants because it was felt there was little
difference between the Support Worker roles and simply represented a cheaper
alternative. Local authorities reportedly encouraged these practices and were
widespread in the sector, so the refusal of these organizations’ to comply was clearly
going against the grain.
Another of these organizations, in response to effective trade union resistance,
withdrew proposals to cut unsocial hour’s payments to employees providing twentyfour hour coverage during Bank holidays despite pressure from the Care Commission
and certain local authorities to significantly increase the numbers of staff working
these flexible shift patterns. Again, other organizations would succumb to pressure to
cut unsocial hours payments, so resistance was rare. There were several
characteristics evident among these Type 1 organizations. In particular, they occupied
Groups B and C income bands, and provided services nationally across the whole of
Scotland, with two organizations also providing extensive services across the rest of
the UK.
Type 2 – Holding their own
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Type 2 organizations (10 respondents), described as ‘Holding their own’ also
contained some relative success stories with seven providing their staff with public
sector pay and conditions, as well as examples of resisting external pressure on the
labour process. In the latter case, again, one organization successfully prevented
efforts to intensify the roles of Support Assistants. At the same time, some of these
organizations did move away from public sector pay comparability, as well as report
pressure on other conditions such as hours, holidays and unsocial hour’s payments.
Among those that retained pay comparability, they were distinguished from Type 1
organizations by the fact that respondents reported how negotiations over the
necessary funding increases were an annual struggle, with significant delays in
implementing cost of living increases in wages due to protracted talks with local
authorities. They were generally situated in Group B income band, and a majority
provided services to most of the thirty-two Scottish local authorities, although four
were providing to specific regions of Scotland.
Type 3 – Struggling to Care
Type 3 organizations – ‘Struggling to Care’ (10 respondents) had no examples of
organizations following public sector pay comparability. These were the most
vulnerable to efforts by external bodies to dilute skills, suffer from work
intensification and continued pressures on pay and other conditions. In the majority of
cases (7) they were situated in Group A income band (100% from state funders), and
generally provided services to, at most, two or three local authorities rather than
across the whole of Scotland.
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In identifying the factors determining the capacity of these types of organization to
resist external pressure on their pay and working conditions, the successful exercise of
autonomy in employment issues was built on three core strategies being employed.
These were:
Taking advantage of product market/type of service and degree of competition;
Developing a multi-customer base; and
Utilizing voluntary sector finance and capital
Moreover, the ability to apply these strategies was influenced by the aforementioned
institutional, organizational and interpersonal level forces. The next section reveals in
more depth the application of these strategies and their limitations.
Taking advantage of product market/type of service and degree of competition
With varying degrees of success, all respondents deployed their reputations as experts
and innovators in delivering care to assist them in exercising autonomy over pay and
working conditions. The deployment of expertise was also undertaken in a variety of
different ways. Some were a reflection of situations where voluntary sector providers
and local authorities recognized a degree of mutuality and interdependence more akin
to OCL relations as outlined by Sako (1992). For example, Type 1 voluntary sector
respondents appeared to have such a reputation and status with the majority of their
local authority contacts that they were ‘On the Inside Track’ for certain funding
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streams. In these circumstances, voluntary sector respondents could be in market
conditions of, if not monopoly supply, then part of a few select potential providers
that had specific expertise in an area of care and were invited to bid because they were
part of an Approved Providers List (APL). These lists were quality checks by local
authorities, which aided scrutiny of different policies among potential and actual
contracting organizations, including some HR matters.
Respondents also cited incidents where their organization, alone, would be
approached to take on specific contracts, because of their reputations in dealing with
the most challenging cases that other providers refused. A provider of adult services
explained:
We have no national competitor…We are seen as being a specialist provider,
with a good track record and a national one. We are good at what we can do
and we can demonstrate it, and we work very closely with local authorities.
With very few exceptions, there have never been any issues with our
credibility.
In such situations, respondents reported how discussions over costs (including
employment) were by negotiated agreement, i.e. a local authority would outline the
type of service it wanted and both parties would have some input into the subsequent
budget and staffing implications.
This favourable status could also be supported by a strong marketing function within
Type 1 organizations, with several actively promoting and aligning their services with
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new funding streams. It was also reportedly supported by close, inter-personal
relationships between ‘boundary spanners’ such as local authority decision-makers
and senior management in voluntary organizations.
This contrasted with experiences within Type 2 and 3 organizations, where relations
between boundary spanners could be much more distant. The practical implications of
this lack of links between ‘boundary spanners’ were highlighted by one respondent in
a Type 2 organization who reported how:
Personalities can have an impact. Some authorities we have very clear and
direct links, we may not always get the answer we want but we know who to
speak to. Some other local authorities, they wouldn’t actually speak to you,
and that is the most frustrating aspect. People hide behind letters and e-mails.
We will try wherever possible to bring people around the table, because it is a
wee bit harder for them to look us straight in the eye and say ‘no we are not
giving you it’.
In addition, other divergences in influence between those ‘On the Inside Track’ and
Type 2 and 3 respondents could be detected at the institutional level where some Type
1 organizations influenced national policy and practice. This was aided by advocacy
and research facilities aimed at lobbying national and local government. Within these
circumstances, respondents indicated how there was a greater acceptance by both
sides of interdependence. Respondents further indicated that under this combination
of circumstances, negotiations over pay were less difficult.
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Again, differences between the three types of organization are worth highlighting. For
example, several of the Type 2 organizations recognized the value in building such
institutional influence, but progress in these organizations was merely in the planning
stage. Partnerships with individual local authorities and Type 2 organizations were
present, especially in the larger respondents, but these would be less common than in
Type 1. For example, a respondent in a children’s services provider reported how her
organization had one ‘true partnership’, with another developing, but the other
relationships were distant with funding always subject to competition.
Several Type 3 organizations illustrated how their relationships were far removed
from such ‘partnerships’. For example, one respondent in describing the relationship
with the organization’s key local authority funder stated:
It is not a good or healthy relationship. It is very much one of control probably
not valuing the organization as one that could contribute to the development of
the community…there is very little partnership work around how to improve
service. There are just lots of demands from the local authority that we need to
look at our cost (Assistant Director of Service and Delivery).
Another noted:
I certainly don’t think we are partners, because you certainly can’t be equal if
the person who has all the money makes all the decisions. This partnership
thing everybody keeps talking about is just a load of toss. I think that we are
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agents, as in ‘you will do this for us won’t you’, and we have the choice to
turn it down, and I think that it is as good as it gets (Business Manager).
It was among such Type 3 organizations that negotiated settlements over funding
would be quite rare, with respondents facing in the vast majority of cases competitive
or fixed price tenders, and during renegotiations of existing funding struggling to
secure cost of living increases.
The deployment of organizational expertise could also be used in more assertive ways
in situations which did not necessarily reflect partnership relations. Local authorities
claimed that larger, national voluntary organizations could be in quite a powerful
position with purchasers, and relations could be far from the ideal of ‘partnership’.
Large Type 1 and 2 organizations could employ this strategy of taking advantage of
almost monopoly supply status. One local authority respondent commented:
When they get the message that they are the only provider that is being asked
to provide a particular type of service…they are smart enough to know that
they have got them over a barrel and they have dictated, and that is where a
big provider can have the upper hand, because they (local authorities) have got
hospital closures and deadlines to meet. Sometimes a council has no choice
(Commissioning Officer, local authority).
Another strategy applied by all three types of voluntary organizations, to varying
degrees of success, came through exerting influence via working together with similar
organizations. The successful application of this strategy distinguished some of the
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Type 2 and 3 organizations, i.e. several of the former reported successful joint
lobbying of local authorities to protect their interests and retain autonomy over
aspects of terms and conditions, while the latter were either unsuccessful or
tentatively developing such links.
The vulnerability of some funders to combined lobbying was confirmed by one local
authority respondent in an area some distance from Scotland’s ‘central belt’ who
noted how providers (one a Type 2 participant from this study) had successfully
confronted her organization over payments for SVQ qualifications and were perceived
to be very powerful, because of the general scarcity of alternative providers. The local
authority respondent described these developments as ‘quite a thorny issue’. In an
angry outburst she commented:
Yes, they are quite a powerful body. They call themselves ‘the Forum’. Have
you met the Forum? It’s a joy!
Indeed, this respondent spoke of efforts within the authority to try and expand the
market of providers to dilute this power. Such cases also illustrate the inter-linking
between organizational factors, in these cases the size, scarcity of services and
geography combined to create conditions where providers can work together as a
counter to the power of the purchaser. It must also be noted that in the above case the
issue itself was key to successful joint efforts to dilute the purchaser’s power, i.e. the
common need for all providers to receive adequate resources to fund SVQ training.
The identification of common ground among providers over such employment issues
also appeared to be essential to contributing to such successful joint lobbying.
24
Developing a multi-customer base
The second strategy, which was closely linked to the above, involved developing a
multi-customer base across many of the thirty-two Scottish local authorities. For
example, although some organizations had high levels of income dependence on
specific contracts, it was not confined to one or two local authorities. As a
consequence, larger organizations, among them Type 1 and some Type 2 respondents
utilized financial surpluses built up from favorable contracts across the country to
make up for shortfalls elsewhere and therefore avoided any detrimental impact on pay
across the organization. For example, one Type 2 organization providing services for
children and adults, utilized the favorable funding environment in the children’s
services budgets to assist in maintaining uniform pay and conditions across the
organization.
At this juncture, it is useful to highlight the relative success or failure of union efforts
to protect their member’s working conditions. For example, the aforementioned Type
1 organization that succumbed to a successful union campaign to protect unsocial
hours payments did so not only in the context of rising union membership and
activism, but management having the financial resources generated through surpluses
built over eighty projects across Scotland to maintain current levels of pay. In
contrast, within a Type 3 organization, a union’s efforts to protect its membership
from pay cuts were thwarted despite an initial upsurge in members and activism. This
was largely because the organization had no other choice, given it was solely
dependent on one or two funders and therefore held insufficient financial surpluses to
protect pay.
25
In addition, respondents reported that the stability gained from large-scale service
provision gave them the ability to turn down contracts or close services if they felt
their standards of care or terms and conditions of employment were being
compromised. For example, two voluntary sector respondents had closed services in
protest at successive cuts in local authority funding. In addition, several others
reported how they would threaten to withdraw services if local authority negotiators
persisted in attempting to push down employment costs. The success of such
strategies also partly depended on whether particular local authorities were able to run
the services, or if there were alternative voluntary or private sector organizations to
take them over: again illustrating the inter-play with other causal factors such as
competition. For several of these Type 2 organizations this strategy was central to
their ability to maintain autonomy. One stated:
The ultimate threat is calling off the service. So for us as an organization we
turn around to a local authority and say ‘what are you going to do with twentyseven severely disabled people? So that is sanction and power, that is the
biggest power we have as a negotiating tool (Care Services Director).
Indeed, several voluntary respondents in Type 2 organizations were training their
managers to be more assertive in negotiations with local authorities, with one
reporting how managers were instructed to threaten the withdrawal of services when
there was no intention of doing so: the aim being to get the local authority negotiators
to ‘blink first’. This latter point suggests that some providers were paying increasing
26
attention to the potential influence from organizational, ‘boundary spanning’ agents as
a tool in defending their interests.
Similarly, several Type 1 and 2 organizations were also refusing to be part of
purchasers’ plans by not applying for new contracts. This was a deliberate strategy
where providers were asked to deliver a service on the basis of a fixed price. Their
decision not to bid was based on several factors. The first being the rejection of an
unrealistic fixed price that would not adequately cover staffing costs or provide a
sustainable quality of provision to service users. In addition, the respondents wanted
to send signals to funders that their organizations had independence, with one head of
services stating:
‘I want local authorities to get the message that it’s harder. You do not just
snap your fingers and we will jump..we don’t need the business.’
A key factor in underpinning this ability was the fact that voluntary sector providers
had built up significant resources from other contracts so the closure of a service or a
refusal to take on business would not threaten the survival of the organization, and
staff could be redeployed elsewhere. One Type 2 respondent reported how, in order to
facilitate this, it was increasingly becoming essential for his service managers to
network with a variety of local authority contacts in order to promote the organization
for future contracts.
This contrasts with other organizations, predominantly in Type 3, that provided
services to only a few purchasers and within a relatively narrowly defined geographic
27
area, with a number of other suppliers available as competitors. Here, respondents
spoke of the ongoing vulnerability of their organizations to the cost pressures on pay
and conditions from one or two key purchasers, where negotiations were distant and
mainly on the basis of either fixed price or competitive. Indeed, some of these were
actively seeking other sources of income to offset this vulnerability. Moreover, they
were not all exclusively small to medium sized. For example, one employed over
seven hundred staff, while another, three hundred, but management respondents
revealed how each organization’s location and reliance on only a few funders made
them vulnerable.
Utilizing Voluntary Finance and Capital
A more controversial resource was the use of voluntary income as a contribution to
build ‘partnerships’ around particular care packages: with some organizations making
financial contributions of between 10% - 25%. This income was sourced from
financial reserves held by organizations, fundraising activities, or the provision of a
purpose-built or renovated building. Three Type 1 (all children’s services) and one
Type 2 (children and adult services) respondent(s) saw advantages in this approach,
through the belief that part funding, or contributing added value would offset any
reservations the funder had about expensive bids. It was also felt that it gave
respondents a better chance of a voice in decisions about the shape of specific services,
and some freedom of manoeuvre regarding issues such as pay and conditions.
The ability of organizations to raise extra capital was, in some, but not in all cases,
also inter-linked with another of these causal factors – i.e. the type of services that
28
were being delivered. In particular, respondents caring for children and young adults
were more successful at raising extra finance compared to organizations that were in
the field of adult care. Respondents from local authorities and the voluntary sector
suggested that other funding bodies, such as the Scottish Executive and the general
public were more susceptible to support causes in the field of children and young
people than in services for vulnerable adults.
The limits to autonomy
Despite, the above, it was clear that respondents’ ability to resist local authority
interference in employment issues was constrained by several factors outlined below.
Service closure and its associated problems
Although a useful strategy, there were clearly limits to voluntary organization efforts
to encourage boundary spanners to be tougher in negotiations with local authorities
over the price of contracts. This relates to voluntary organizations being associated
with the closure of services in the face of consistent cuts in funding that effected
quality of care and pay and conditions. The two respondents who engaged in closing
services did acknowledge that these decisions were followed by extremely bad
publicity, so this would arguably be a decision of the last resort.
Others revealed problems and complexity associated with subsequent transfers of
employment after closure once organizations withdrew from service provision and
another provider took over. These concerns were associated with meeting the
requirements of the Transfer of Undertakings (Protection of Employment)
29
Regulations, 1981 (TUPE). These regulations (subsequently amended through the
Transfer of Undertakings (Protection of Employment) Regulations, 2006) originate
from European Union requirements and are in place to preserve employees’ terms and
conditions when a business or part of one, is transferred to a new employer (DTI,
2007). In addition, they revealed potential problems with morale among remaining
employees when services were closed and colleagues left the organization through
redundancy, turnover or TUPE.
Uneven partnership arrangements
The rhetoric of ‘partnership’ was used during interviews by both sides to describe
their relationship, yet even where such circumstances reportedly existed there were
imbalances. For example, the strongest advocate of contributing internal resources to
projects was from a large children’s voluntary organization that provided funding for
all its projects (Also in Type 1 category). Yet, the respondent revealed that all this
contribution gave the organization was a ‘junior partnership’, and that local
authorities remained dominant. In addition, several respondents pointed out how
relations with authorities contained different attributes so that the rhetoric and practice
of partnership was present in some aspects, but on financial issues relations were
more transactional. A local authority confirmed this by stating:
The bottom line is that it’s an uneven partnership. The negotiation is uneven.
When we are holding the budgets and where we are the purchasing authority,
it’s an uneven partnership and that is difficult for them to grasp.
30
This was confirmed by respondents from the sector. For example, a Development
Coordinator in a Type 2 organization stated:
When local authorities tell us to jump, we say ‘how high?’. They try and be
partners and talk of a partnership, but to be honest there are all sorts of power
issues involved.
There was also evidence of coercion on voluntary organizations to make contributions
from internal resources. There were several respondents in the Type 2 organizations
that involuntarily drew from reserves to support pay and conditions and other aspects
of service delivery. HR and non-HR respondents from these organizations reported a
reluctance to draw on their reserves because they felt that, in effect, they were
indirectly subsidizing central and local government initiatives with internal income
that was not specifically earmarked for care. Yet, these same respondents felt they had
little choice if they wished to remain in the care market and pay decent salaries. One
or two were able to avoid this by having a clear policy of not putting ‘partnership’
funds into contracts that involved some statutory responsibility of the local authority,
but again this was limited to those (Type 1 and some Type 2 organizations) that were
able to turn down, or insist on full state funding of such work because they were in a
relatively strong and secure position.
Several of the respondents who were subsidizing particular projects noted how this
was becoming a serious drain on their reserves, and were going into deficit. One of
these, a Hospice, was going into financial deficit because of its need to retain NHS
trained staff, and was undertaking joint lobbying of NHS/local health authority
31
representatives with other Hospices for more funding. This strategy was employed
largely because staff retention problems were too intractable to be coped with on an
individual organizational level so joint sub-sector lobbying was needed.
Some local authority respondents expressed little sympathy with these complaints,
and saw the use of additional capital as a prerequisite of gaining contracts that helped
voluntary organizations fulfill their own internal missions and objectives and was the
price to be paid. One Head of Social Work stated:
If they think there is a solution where local authorities are going to say ‘oh yes
we want every voluntary organization in the country to have massive reserves
and we will be happy to empty our coffers into their’s so that they all sit with
it’ is a bit unrealistic.
A renegotiation of order
Further illustrations of the limits of autonomy came from examples of a renegotiation
of order between voluntary organizations and funding partners. The latter part of the
fieldwork involved undertaking three in-depth case studies. Two of these
organizations were in relatively strong positions in the market in 2002, yet by 2004
were experiencing, to varying degrees, a renegotiation of their relationship. One of
these, a Type 1 organization, given the pseudonym Universal, illustrates this
phenomenon.
Universal delivered children’s services and in 2002 the Personnel Manager outlined
the organization’s position as a provider of choice, making financial contributions to
32
projects where it had partnerships with local authorities in non-statutory services. It
had effective boundary spanning agents who had close links with local authority
contacts and was actively attempting to be more proactive in lobbying government
with regard to future legislation and funding streams.
However, interviews in 2004 revealed a deteriorating position. The Finance Director
reported that, although some authorities still approached them to undertake work,
others were increasingly putting services out to competitive tender. Moreover, recent
turnover in internal staff and within some local authorities meant the links between
various ‘boundary spanners’ had disappeared: a situation Universal had been slow to
recover from. Alongside this, it was felt that its efforts to attract funding in more
competitive circumstances were undermined by the cost of the organization’s bids and
its lack of ‘slickness’ compared to competitors.
Moreover, doubts emerged regarding the benefits of making financial contributions to
‘partnership projects’ and how much additional voice it gave the organization with
purchasers. In 2004, the Finance Director who had some responsibility for overseeing
negotiations in many of the projects stated:
There is a marginal benefit in that we can say that if there is an element of the
service that isn’t doing precisely what the local authority wants us to do then
we can say ‘that is our bit of funding’. But to be honest that is a bit of a
marginal argument…on the whole the voluntary funds we put in aren’t
appreciated as much as the pound value of them.
33
There was also some evidence to suggest that funders were beginning to circumvent
government licensing conditions regarding having certain qualified staff in place to
provide services. Providers reported how for certain services to be delivered, they
were obliged to employ qualified staff such as social workers or teachers, and pay the
necessary salaries that were comparable with the public sector. However, here several
providers reported how during renegotiations of contracts in order to cut costs,
purchasers were reportedly recommending that fewer ‘qualified staff’, should be
employed. Respondents expressed some concern regarding the impact this had on the
quality of care as more unqualified staff provided a lesser service. Other respondents
were concerned that in some services there was the risk that the boundaries between
‘qualified’ and ‘unqualified’ were being blurred and that, as a result, they were
monitoring changes in contract specifications to ascertain whether unqualified
members were being asked to take on the responsibilities of qualified workers.
In addition, more recent evidence gained through the author’s ongoing contacts with
participants after the study suggested local authorities were beginning to counter
efforts by voluntary organizations to exercise autonomy. For example, one
participating Type 2 organization revealed how the strategy of refusing work was
becoming more difficult. The respondent revealed how another agency had withdrew
from a service because of the imposition of a 10 per cent cut in funding by a local
authority. Representatives from the same authority then approached the respondent’s
organization to tender for the contract at this reduced fixed price. Initially, this
organization refused to tender, but in response, the local authority threatened that if it
did not, it would be removed from its APL, resulting in a bid by the respondent to
34
take on the services: albeit other sources have subsequently commentated that this
was not the most rigorous or realistic bid this organization had submitted for scrutiny.
DISCUSSION AND CONCLUSION
This paper has explored the degree of variation in state – voluntary sector interorganizational relations and its outcomes in terms of the employment relationship in
the latter. In doing so, it reveals how the voluntary sector’s relationship with the state
is not so dependent as to mitigate the possibility of exercising autonomy with regard
to the management of the internal employment relationship. Rather, as with broader
studies of inter-organizational relations, state – voluntary sector relations are not
homogenous and lead to differing implications for employment (Hunter, et al, 1996).
Three types of voluntary organizations were identified according to the degree of
control and subordination in their relations with funders. Across the three types, over
and above the impact of unionization, success in protecting pay and conditions
appeared to be dependent on the application of three strategies – i.e. taking advantage
of product market/type of service and degree of competition; developing a multicustomer base; and utilizing voluntary sector finance and capital.
The successful application of these strategies was shaped by institutional,
organizational and inter-personal factors. Type 1 organizations - ‘On the Inside Track’
were able to apply the three strategies most successfully through a combination of an
advantageous position in the market associated with type of service, income
dependency, size and geography, underpinned by a capacity to partially influence
their institutional environments through lobbying, marketing and close inter-personal
35
relations. This contrasted with Type 2 and 3 organizations - ‘Holding their Own’ and
‘The Strugglers’ , where although some of the former retained pay and conditions
comparability, weaker influence over their institutional environment, looser links
between boundary spanners and the majority of contracts with funders being subject
to competition, meant greater degrees of vulnerability and subordination in their
relations with local authorities.
Across Type 1 and 2 organizations, size also appeared to offer some advantages.
Specifically, as with other studies (see Hunter et al, 1996), larger Type 1 and 2
organizations were able to successfully forge more equitable relationships, or they
refused to take on specific contracts, and/or exited services early if pressure from
funders became too intense. At the same time, this study revealed other strategies for
survival emerging from the sector such as the larger organizations able to generate
surpluses from OCL relations to subsidize less favourable contracts and training
boundary spanners to be more assertive in negotiations.
The study also confirmed limits to the exercise of autonomy. As with other studies
(Blois, 2002: Marchington, Vincent and Cooke, 2005a), the influence of boundary
spanners, more assertive or not, was insufficient on their own to sustain autonomy, or
could be subject to deterioration. The data also revealed how relations between
purchasers and providers were not always characterized in strict
relational/transactional terms, but could be a blend of each attribute. Here, as with
research by Blois (2002) despite some relations being described as ‘partnership’
issues of price could be a transactional attribute to the contract. In such cases, this
appeared to undermine the efforts of even those ‘On the Inside Track’ to use the
36
rhetoric of ‘partnership’ and additional funding to give them a stronger voice in their
relations with local authorities. Of further concern was the evidence revealed in this
study of how some Type 2 organizations felt coerced into subsidizing services by
drawing from their own reserves, placing doubts over the extent to which they could
‘hold their own’ in the future.
There was also the possibility of movement and deterioration in status within the three
types of voluntary organization. Certainly, evidence from some respondents
confirmed this, largely supporting work by Truss (2004) who argues that the
‘negotiated order’ of inter-organizational relations can sometimes benefit the weaker
‘partner’, but inevitably constant renegotiation of that order resolves relations in
favour of the more powerful party.
While acknowledging the limits of the applicability of this exploratory study
throughout the sector, there are some lessons to be drawn. In terms of theorizing
voluntary sector – state relations it suggests a need to move away from the dichotomy
of ‘partnership’ versus ‘control and subordination’. Rather, it sees the state –
voluntary sector relationship, like other inter-organisational relations as dynamic
where the weaker party can, under certain conditions, manage the relationship and
exercise influence and autonomy. Moreover, it acknowledges the possibility of
movement, albeit partial, across a continuum rather than identifying three set
organizational Types. Further, it is acknowledged that further research would be
welcome to further refine existing and perhaps identify other Types.
37
The above analysis also raises questions regarding the wider applicability of the study.
The first question relates to the study’s wider applicability beyond Scotland to the UK
context. There is continuing debate as to whether there has been a departure from the
rest of the UK and the creation of a distinctive post-Devolution social welfare policy
in Scotland (Mooney and Poole, 2004: Vincent and Harrow, 2005), which is beyond
the scope of this paper. However, with regard to differences in employment issues,
although not specifically focusing on the theme of this paper, a recent study sponsored
by the public sector union Unison, has explored purchaser - provider relations across
the UK. In doing so, it uncovered evidence of similar financial constraints
characterizing such relations, pressure on terms and conditions, and voluntary
organizations responding to this environment by adopting some of the strategies
outlined in this study (Cunningham and James, 2007), suggesting some degree of
wider applicability to these findings in the UK.
Further, there are also similarities with the wider voluntary sector literature. For
example, in the UK, there is a literature which highlights how voluntary organizations
develop competitive advantage from addressing specific niche markets (Billis and
Glennerster, 1998). Moreover, studies from the USA have also attempted to analyze
the diversity of non-profit organizations subject to contractual relations with the state.
In one study, although the Types of organization are not identical to the three outlined
here, there are striking similarities with regard to the strategies adopted by non-profits
in the USA to resist impositions of government. In particular, this study emphasized
the importance of US nonprofits to adopt strategies such as delivering difficult or
niche services, refusing to apply or reapply for specific contracts and lobbying
through umbrella organizations (Lipsky and Smith, 1989).
38
Finally, in terms of answers to the problems faced by the sector in its relations with
the state, this paper offers no easy solutions for the voluntary organizations in the UK
or in other Western industrialized countries where similar inter-organizational
dynamics occur. There are many interests in and around the sector that are proposing
changes to the funding process and cycle between the parties that are worth lobbying
for at sector level (see for example, ACEVO, 2004: Gershon, 2004: Amicus, 2006).
However, most reports suggest that even central government-led reform such as the
move towards ‘full cost recovery’ is at best slow in making progress in favour of the
voluntary sector (National Audit Office, 2005).
A failure by voluntary organizations to not attempt to proactively manage the
relationship with the state in some way that focuses on their roles as innovators, or to
diversify their funding is potentially disastrous. The aforementioned report
(Cunningham and James, 2007) suggested further intensified competitive and cost
pressures in the sector due to the introduction of the Public Contracts Regulations
2006 (Public Contracts (Scotland) Regulations 2006) which have been introduced as a
consequence of the Public Contracts Directive 2004/18/EC. Arguably, this and the
pressures outlined in this paper threaten to move the state – voluntary sector
relationship to something approaching a commissioning model, where the grounds for
funding voluntary organizations are primarily instrumental, i.e. focusing on the cost
effective completion of specific tasks which does not emphasize the flexibility,
innovativeness and client focused aspects of third sector service provision. Arguably,
for the most vulnerable organizations these cost and competitive dynamics may lead
to their long-term position as providers in the quasi-market open to doubt. For those
39
remaining, the findings raise real concerns about the possibility of slipping down the
tiering or continuum of types of voluntary organization populating the market. If this
were to occur there would be long-term consequences for staff morale and therefore
quality of care provided by the sector.
Acknowledgements
The author would like to thank the Carnegie Trust for the Universities of Scotland for
part funding this project, and acknowledges the extremely constructive comments of
the three anonymous referees.
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