Public sector commissioning practices are creating barriers to social investment in the charity sector, according to a new report from Charities Aid Foundation.

The report, Funding good outcomes - using social investment to support payment by results, cites experience from CAF’s own social investment arm, CAF Venturesome, which has been trying to help charities access the finance required to help them win statutory payment-by-results contracts.

Venturesome encourages social investors to invest in charities that want to win these contracts but lack sufficient reserves or capital needed at the outset to get the work off the ground.

However, it is finding that current commissioning practice make it too difficult or risky for social investors to get involved.  They are deterred because officials give them too little time to properly assess contracts.

CAF’s report comes just a day after the NCVO published its own report exposing charities’ experiences of the Work Programme, the government’s flagship welfare-to-work scheme that only pays organisations if they meet certain targets of getting people into work.  Nearly three-quarters of charities involved in the Work Programme says that they think their contract could fail before it ends.

CAF is calling on ministers and public service commissioners to guarantee a proportion of payment up-front to fund start-up costs, and to give social investors more time to assess risks.

John Low, CAF chief executive (pictured), said: “Charities simply cannot afford to take on contracts to tackle social problems without up-front funding because they are not allowed to carry large financial reserves and have limited access to capital compared to for-profit businesses.

“Many social investors are eager to help charities and non-profit organisations  get involved in public service delivery, but more could be done to help them take up publicly-funded contracts.”