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Figure 4 Shaking hands on an agreement.

A contract is an agreement to deliver requested goods or services. Because voluntary organisations have a social purpose, there is often a lot of overlap between what they want to achieve and what the government funds services for, for example helping people into employment or with housing, education or health needs. Voluntary organisations are often well placed to deliver government services because they can be very close to the communities they serve.

Delivering public services through contracts with government is a really important source of funding to the sector, accounting for 32% of all income in 2015/16 according to the UK Civil Society Almanac 2018. But unlike grants and gifts, this type of income has not been evenly spread across the voluntary sector. Larger charities have been growing rapidly through winning contracts. Smaller charities often find the administrative processes around winning contracts too complicated and might not be large enough on their own to deliver the full service required. Some small voluntary organisations have still been able to get involved, but often through supporting larger charities or companies to deliver part of a contract (sub-contracting).

Voluntary organisations have been criticised in the press for becoming too reliant on money from government because this threatens their independence, meaning they might feel they cannot speak up against government policies. Competing for contracts can also push them to reduce the quality of their services as they cut costs to be competitive. Voluntary organisations need to strike a careful balance. Just as with grants, if voluntary organisations can avoid being too dependent on money from one source, then they will be in a stronger position to decide which contracts to bid for and which to walk away from.