A Handbook on Non-State Social Service Delivery Models - UNDP Bratislava, 2012

A Handbook on Non-State Social ServiceDelivery Models

A guide for policy makers and practitioners in the CIS region

This Handbook is authored by Nilda Bullain and Luben Panov, experts of the European Cen-ter for Not-for-Profit Law (ECNL). Research assistant: Hanna Asipovich, ECNL.

The European Center for Not-for-Profit Law (ECNL) is a public benefit organization based in Hun-gary which promotes an enabling policy and legal environment for civil society in Europe andbeyond. ECNL shares alternative regulatory models, lessons learned, and experiences acrossborders; and provides comparative information to assist local partners in adapting or creatingnew solutions appropriate to their environments. ECNL provides leading expertise to initiativesregarding regulation of civil society, including association and foundation law, public financ-ing, philanthropy, social contracting, public participation and partnerships between the stateand civil society, among others. For more information see http://www.ecnl.org

All rights reserved. No part of this publication may be reproduced, stored in retrieval systemor transmitted in any form or by any means, electronic, mechanical, photocopying, recordingor otherwise, without prior permission.

The views expressed in this publication are those of the authors and do not necessarily rep-resent the views of UNDP.

Publication facilitator: Michaela LednovaExpert review: Pavle GolicinPeer review group (in alphabetical order): Alla Bakunts, Vesna Bosnjak, Vesna Ciprus, Balazs Horvath, Nick Maddock, Vladimir Mikhailev, Clare Romanik, Victoria Sbuelz, Stephan Schmitt-Degenhardt, Albert Soer

Copy editor : Swapnil Edwards

ISBN : 978-92-95092-49-5

Copyright © 2012

By the UNDP Regional Bureau for Europe and the Commonwealth of Independent States

Acknowledgments

We wish to thank the following partners who supported ECNL’s research efforts: Natalia Bour-jaily, ICNL (USA); Nune Pepanyan and Hasmik Madatyan (Armenia); Hrachya Amiryan and Hrip-sime Kirakosyan, Mission Armenia; Arsen Stepanyan, Counterpart Armenia (Armenia); ElizabethWarner and Aygul Kaptaeva, ICNL Central Asia Office (Kazakhstan); Alex Vinnikov and MaximLatsiba (Ukraine), Roland Kovats, PACT (Ukraine); Andrey Kroupnik, Department of Internal Pol-icy of the Odessa City Council (Ukraine); Mikhaylo Zolotuhin, “Fund for Mykolaiv city develop-ment” (Ukraine); Katarzyna Szymielewicz and Piotr Bogdanowicz, Clifford Chance (Poland).

Our thanks also goes to the individuals from UNDP Country Offices for their support and as-sistance, in particular to : Alla Bakunts from UNDP Armenia; Ainur Baimyrza, Maral Sheshem-bekova, Ekaterina Paniklova, Irina Yurchinskaya from UNDP Kazakhstan; Olga Chirkina, ValeriyOliynyk and Victoria Sbuelz from UNDP Ukraine.

Our sincere gratitude extends to Pavle Golicin for conducting a comprehensive review of thepublication and his valuable observations. We would also like to note the involvement of StephanSchmitt-Degenhardt who considerably contributed to the handbook with his expertise on pri-vate sector and public private partnerships. Finally, our appreciations go to : Alla Bakunts, Ves-na Bosnjak, Vesna Ciprus, Balazs Horvath, Nick Maddock, Vladimir Mikhailev, Clare Romanik, Vic-toria Sbuelz, Stephan Schmitt-Degenhardt and Albert Soer who provided useful comments andinputs to the publication.

Nilda Bullain and Luben Panov Michaela LednovaEuropean Center for Not-for-profit Law UNDP Bratislava Regional Centre

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Foreword

Financial and economic crises have affected the levels of public spending on social services to vary-ing degrees in all the countries of the CIS region. The need to achieve greater impact in the face ofdeclining resources have pushed many governments to re-examine the ways being used to deliversocial services to their citizens. Equal access to social services, integrated service delivery, and the ap-propriate coordination of relevant sectors and policies, requires a high degree of cooperation amongvarious actors – both state and non-state. For such a collaborative approach to be successful, newlegal frameworks, and innovative procedures and skills are needed. Importantly, a change in atti-tudes and values is required to strengthen cooperation at different levels of government, and betweenthe government and non-government actors. To that end, well-defined partnerships between thestate and non-state service providers are of key importance.

The notion of what constitutes the appropriate level and the “right mix” of social services is open todebate. The concept of partnerships between state and non-state actors for services provided is in-terpreted differently in different contexts, and sometimes is perceived differently by various actors with-in the same context. One aspect, however, remains undebatable – the governments’ obligation toensure equal access to services for all citizens in need of such services. In order to meet this obliga-tion, governments in the region increasingly seek to forge partnerships with non-state actors, mostoften civil society organizations (CSOs). Notwithstanding the dilemmas and various approaches toservice delivery, a shift from a welfarist to a social development perspective with regards to the pro-vision of social services is gradually gaining ground across the region. One important element of thisshift is the practice of social contracting.

This is the reason why this Handbook focuses on social contracting – financing support to CSOs forthe delivery of social services to the most vulnerable and marginalised which should be provided atthe community level. It is important to note that social contracting is not an entirely new conceptfor the countries of the region. Still, there is a scope for cross-fertilisation of practices and a furtherincrease in the transparency and accountability of the actors involved in social contracting and so-cial service delivery.

Based on current practices and detailed case studies in three CIS countries – Armenia, Kazakhstanand Ukraine – this Handbook provides a set of recommendations for decision-makers, taking intoaccount the advantages, as well as the main challenges for transparent social contracting and theprovision of people-centred social services. The diverse policy rationales, legal frameworks, and im-plementation practices prescribed in this Handbook have one thing in common: central governmentsand local authorities perceive CSOs as key partners in social service delivery.

It needs to be emphasised that CSOs, with their various missions, expertise and outreach capacitiescan, and should cover a wide spectrum of roles, and therefore should not be reduced to mere serv-ice providers. It should also be taken into account that, as much as the local governments are opento citizen participation in the monitoring and provision of social services, their ability to act appro-priately may be limited owing to weaknesses in the legal and institutional frameworks, as well as lackof appropriate skills and technical capacities.

Hence, capacity building should underpin the efforts to promote and advance innovative social con-tracting practices. Finally and most importantly, an enabling environment for civil society action rep-resents a key precondition for closer partnerships between the government and CSOs in social serv-ice provision. There is scope for further opening of the space for civil society action in the states ofthe region, as well as for further strengthening of cooperation between governments and the civilsociety sector.

We hope that this Handbook will provide information and data that will help policy makers and prac-titioners to introduce innovative practices for improved and integrated service delivery at the com-munity level. We also hope that it will provide strong incentives for closer working relationships be-tween all the actors working together to achieve the common goal of better access to services andimproved wellbeing for all. This is imperative keeping in mind the fast-approaching Millennium De-velopment Goals deadline in 2015.

Jens WandelDeputy Regional Director & Regional Centre Director

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Table of Contents

Acronyms and Abbreviations............................................................................................................................................7

Executive Summary.................................................................................................................................................................8

I. Introduction......................................................................................................................................................................12I.1. About the Handbook..........................................................................................................................................12I.2. Methodology...........................................................................................................................................................14

II. Including non-state providers in social services delivery: a policy framework.......................16II.1. Human Rights Based Approach..................................................................................................................16II.2. Defining social services....................................................................................................................................18II.3. Policy rationales of social contracting ....................................................................................................23II.4. Models of government-CSO cooperation............................................................................................27II.5. Government financing of non-state service delivery....................................................................30II.6. Key considerations in the regulation of social contracting.......................................................37II.7. Preconditions for effective social contracting ...................................................................................42

III. The role of CSOs in social services provision................................................................................................45III.1. Considerations in including CSOs in the system of providing social services..............45III.2. Advantages of CSOs as service providers............................................................................................49III.3. Impediments to CSO participation in social service provision ..............................................52III.4. Comparative advantages of CSOs and for-profit organizations

in social services provision............................................................................................................................56

IV. Analysis of the policy and legal framework and the practices in Armenia, Kazakhstan and Ukraine ............................................................................................................................................62IV. 1. The concept of social contracting in the CIS region ...................................................................62IV. 2. Armenia...................................................................................................................................................................64IV. 3. Kazakhstan.............................................................................................................................................................72IV.4. Ukraine.....................................................................................................................................................................82

V. Recommendations .......................................................................................................................................................92

Glossary........................................................................................................................................................................................99

Annex 1 – Guidelines for Introducing a Social Contracting Mechanism at the Local Level.........105

Annex 2: Armenia - List of Municipalities............................................................................................................115

Bibliography and references ........................................................................................................................................116

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Acronyms and Abbreviations

AMD Armenian DramCEDAW Convention on All Forms of Discrimination against WomenCIS Commonwealth of Independent StatesCSO Civil Society OrganizationCRPD Convention on the Rights of Persons with DisabilitiesCRS Convention on the Rights of the ChildECIS Europe and the Commonwealth of Independent StatesECNL European Center for Not-for-Profit LawEUR EuroGDP Gross Domestic ProductHRBA Human rights based approachICESCR the International Covenant on Economic, Social and Cultural RightsICNL International Center for Not-for-Profit LawKZT Kazakh TengeNGO Non-governmental organizationSIF Social Innovation FundUK the United KingdomUAH Ukranian HryvniaUNDP United Nations Development ProgramUSAID United States Agency for International DevelopmentUSD United States Dollars

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Executive Summary

This Handbook was prepared by a team of the European Center for Not-for-Profit Law (ECNL)and is based on field research in three countries – Armenia, Kazakhstan and Ukraine. The teamalso drew on a comprehensive review of current research and legislation relating to socialcontracting, with a focus on Europe and the Commonwealth of Independent States (ECIS).

The Handbook focuses on service provision by civil society organizations (CSOs) with pub-lic-funding support, largely due to the fact that CSOs represent the main non-state serviceproviders in the CIS region. Therefore, while the Handbook makes reference to all non-stateproviders in the introduction, it provides case studies and guidance primarily with regard tonon-profit, non-governmental organizations, referenced here as CSOs.

The Handbook asserts the obligation of the state to ensure the provision of social servic-es as stipulated by international legal instruments, and underlines the primacy of the humanrights based approach to service provision. While government responsibility and funding forservices cannot be delegated, the operation of such services can be contracted out to non-state providers. The mixed modalities of such service provision serve to improve access forpeople in need of social services by broadening the choices available to them.

This Handbook finds that successful social contracting is strongly related to the processesof decentralization. This includes, in particular, the necessity to dedicate adequate revenuesfor social contracting, as well as the authority to make decisions on incomes and expendi-tures at a local level. If the central governments delegate responsibility for the services at themunicipal level without creating an enabling framework for funding of the services, it is notlikely that the services will be delivered in the volume and quality required. In some cases,the services may not be delivered at all, even though the local authorities are obliged by lawto ensure the provision of the services. On the other hand, the central government cannotbe expected to fund all the local needs by itself, which is why options must be explored togenerate funding locally (for example, through property taxes, local taxes, user charges, andmunicipal borrowings).

There are different policy rationales for engaging in social contracting. One main reasonfor the inclusion of private for-profit and non-profit service providers is that the state can-not manage everything by itself. By contracting out services, governments can concentratetheir efforts on policy-making as their core function. Another important advantage of con-tracting out services ensures that non-state providers can offer added value, i.e. additionalbenefits for the same services, and/or price compared to provisions by the governmentsthemselves.

In order for a mixed modality of service provisions to function properly, clear regulation of theprocedure for social contracting is required. Central to the procedures on social contract-ing are the principles of open and fair competition, transparency, and accountability in spend-ing public money. General procurement rules are usually not fully suitable for purchasing so-

cial services – rather, they can serve as a basis for the regulation of social contracting. Themost prominent distinction is that in the case of social contracting, price alone should notbe the key factor in selecting the provider. Quality of service and other factors that deter-mine the best value for money should take precedence; in fact, prices are often set by na-tional or municipal legislation.

This Handbook identifies five key preconditions to effective social contracting, the lack ofwhich may jeopardize its success. These are:

(1) Balance between responsibility and authority: In cases where local governments are man-dated to ensure the delivery of social services, they should be in a position to determine theneeds for these services and raise revenues locally to ensure funding.

(2) Affordability: Sufficient, appropriate and predictable funding should be available to fi-nance services at the local levels in order to make sure that the beneficiaries can enjoy ad-equate access to the services.

(3) Capacity: Both local governments and CSOs need to invest in special skills to engage insocial contracting.

(4) Transparency: Social contracting can be compromised without a transparent and fair processin awarding and managing contracts.

(5) Accountability: Proper accountability mechanisms for both local governments and CSOs– wherein service providers are in place to ensure social contracting works towards its ulti-mate beneficial end – to make social services more accessible and better adapted to the needsof the beneficiaries.

There are a number of important advantages of CSOs as service providers: (1) they are clos-er to the beneficiaries and the problems they experience; (2) they have strong potential for in-novation; and (3) they are more flexible and consequently more responsive to the needs of thebeneficiaries. They can also bring additional resources and multiply the effects of the interventionby matching public funding with philanthropic funds. Often, CSOs have expertise that cannotbe found in the public sector, and they bring new issues to the policy agenda. Keeping all thisin mind, CSOs should be seen as partners and involved in the full process of social contract-ing – from priority-setting to service delivery and monitoring/ evaluation.

When reviewing the concept of social contracting in the CIS region, we need to empha-sise the fact that although there is a term that is commonly used in these countries for so-cial contracting (socialnyi zakaz), the concept itself is not clear and is being interpreted indifferent ways in different countries. Social contracting represents an overlap between thepolicies for delivering social services and those for providing support for CSOs. As in mostcountries in this region, both of these policy areas are still evolving, and sometimes they areseen as identical.

For example, socialnyi zakaz as an instrument typically supports not only CSOs that providesocial services, but also supports activities in education, culture, environment, or even the

A H a n d b o o k o n N o n - S t a t e S o c i a l S e r v i c e D e l i v e r y M o d e l s 9

institutional costs of the organizations. For this reason, it is important to reiterate that theprimary purpose of social contracting, as defined by this Handbook, is to ensure that basicsocial services are delivered to those sections of society that are in need of it.

At the same time, the inclusion of CSOs in service provision can have a vital impact on their de-velopment and sustainability, which is an important benefit that stems from the mixed modalityof service provision in the CIS region. The country assessments and case studies in this Handbookdemonstrate good practices in implementing certain elements of social contracting, as well as thechallenges still faced by the governments, local authorities, and CSOs service providers.

This Handbook provides for a set of key recommendations for decision-makers and all thestakeholders to help address challenges, enhance the effectiveness of social contracting, andimprove access to social services in the region. The recommendations are based on researchin the three countries, and some of them address problems specific to these countries. Atthe same time, given the similarities of the service provision systems in the CIS, whenadapted in context they could be applicable to all the countries in the region. The recom-mendations include:

The responsibility for the provision of social services should remain with the gov-ernments: The governments are obliged to provide the basic social services and needto develop an appropriate policy framework to meet this obligation; the policy frame-work may include social contracting as the main or a complementary mechanism fordelivering social services.Governments should ensure appropriate funding for the services that they have a le-gal obligation to provide: This responsibility entails the provision of sufficient and pre-dictable (long-term/ ongoing) funding for services, whether at the central or the lo-cal level.There is a need to make a difference between grants for CSOs and social contracts:Grants are a more appropriate mechanism to fund innovation, start-ups and capaci-ty building, while contracts should fund ongoing, long-term service delivery.There is a need to create a specific mechanism and develop guidelines on socialcontracting: This is different from the procurement process, and is aimed at ensur-ing appropriate “value for money”. In social service delivery, price should not be theonly determining factor; however, social contracting is similar to the procurementprocess in terms of following the principles of transparency and accountability in pub-lic spending.Beneficiaries’ rights and needs should have a central place throughout the process:They should be involved in needs assessment and service design; they should be giv-en choices in delivery mechanisms, and should be encouraged to participate in themonitoring and subsequent evaluation of the service.States should invest in the capacity development of local authorities and CSOs: Whilethis presents a dilemma in terms of timing and resource constraints, a gradual approachin introducing the social contracting mechanism can help focus the investment. Thisis of utmost importance in the region, where the authorities need to shift from serv-ice provision to policy-making and monitoring of quality standards, while CSOs needto ensure continuity of service provision and standards in order to become efficientservice providers.

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CSOs should be allowed to participate in and conduct direct economic activities: Theyare not only an important source of CSO sustainability but also help advance the im-plementation of social contracting.There is a need to effectively monitor how services are provided: The purpose of theevaluation (focus on process, performance, impact) has to be clear, and CSOs and ben-eficiaries should be involved in the monitoring process, alongside with the governmentinstitutions in charge of monitoring and quality assurance.Social contracting works best as a partnership: While all stakeholders work with thecommon aim of providing the best service for beneficiaries, a written expression of theframework for cooperation facilitates trust, as also effective funding arrangements amongmunicipalities, CSOs and the business/ donor community. It also guides expectationsand enhances enforceability of agreements.

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I. Introduction

I.1. About the HandbookMany countries of the Commonwealth of In-dependent States (CIS) are currently in theprocess of redesigning their public and social sys-tems to meet the challenges of deepening eco-nomic and social difficulties. In doing so, they areseeking to strike a balance between central andlocal authorities, both in terms of powers and interms of funding. These developments presentthe possibility and the need for increased part-nerships between non-state providers (CSOs andbusinesses) and the state.

The financial and economic crisis has result-ed in a decrease of GDP and budgeting rev-enues in a number of the CIS countries. Thishas had not only economic, but also social ef-fects – job losses are not compensated withthe creation of new jobs, and governmentshave to do more, with fewer resources avail-able to finance social services. The decreasedopportunities for employment exacerbatefurther the situation of the most vulnerablegroups of the population – long-term unem-ployed, migrants, refugees and internally dis-placed people, people with disabilities, mi-norities, and others in disadvantaged situations.

The exacerbating of social problems creates theneed for unifying the efforts of all the stake-holders – the central and local authorities,

CSOs, businesses and society as a whole – in re-designing the social systems in these countriesand addressing social problems through inno-vative and more effective modalities of serviceprovision. The purpose of this handbook is to ex-plore one approach to the reform of socialsystems in Eastern Europe and primarily theCIS – that of “social contracting”, by outliningthe ways in which the state (both at the centraland local level) can cooperate with non-stateproviders in order to deliver social services to thepopulation – the so-called mixed modalities1.

“Social services” and “social contracting” are notinternationally agreed terms, with a single ob-jective definition that could be relevant for allthe countries in the region. Although, there arecertain commonalities, every country has itsown approach and learning points emergefrom these differences. Therefore, when dis-cussing the possibility of contracting non-stateproviders for the purpose of social service de-livery, there needs to be clarity as to what arethe services covered and who are the poten-tial providers. The research team has focusedon social services in the narrow definition ofthis term – the services in the area of socialassistance aimed at vulnerable groups,which excludes cash transfers for the poor andvulnerable. (A more detailed definition of socialservices and further explanation of the terms usedin this Handbook can be found in the Glossary.)

1 Mixed modality of social services provision refers to cooperation between government and non-state providers in financing anddelivering social services. For a more detailed definition please see Glossary.

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In addition, having completed the desktop re-search and field trips2, it became clear that themain focus of this Handbook will be serviceprovision by the CSOs with support frompublic funding sources, as they are themain non-state service providers in the CIS re-gion. Therefore, while this Handbook makes ref-erences to all non-state providers in some ofits sections, it provides case studies and guid-ance primarily with regards to non-profit,non-governmental organizations, referencedhere as CSOs.

This Handbook aims to raise awareness aboutthe opportunities and challenges related tocontracting of social services, as well as to pres-ent the basic issues associated with the rele-vant legislation and its practical implemen-tation. It may serve as a basis for open dialogueamong the different stakeholders, as to howsocial contracting can be further developedin their own countries to ensure that it servesits primary purpose – to increase the access ofpeople in need of social services. While thecountry and case study examples are fo-cused on the CIS, the analytical framework,findings and recommendations will also be rel-evant for countries in the Western Balkans andother countries in transition.

The structure of the Handbook was designedto lead policy makers, development practi-tioners and other stakeholders from boththe public and non-state sectors through theprocess of answering the above questions. TheHandbook contains:

A discussion of the broader policy andregulatory framework related to socialcontracting;A description of the basic policy ratio-nales and conditions for central and lo-cal level governments to engage in so-cial contracting;A brief differentiation between con-tracting of social services and otherforms of government funding for CSOs;An analysis of the role of CSOs in socialservice delivery;A description of the situation with regardto social contracting in three selected CIScountries – Armenia, Kazakhstan andUkraine3;Presentation of the three case studieswith learning points – one fromeach country;Recommendations for countries onhow to improve their systems of socialservice delivery by including CSOs in the

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2 During the field trips to Armenia, Kazakhstan and Ukraine, the research team interviewed representatives of the ministries and lo-cal authorities that apply the practice of social contracting, as well as CSOs and beneficiaries. Focus groups were held in each ofthe three countries with participation of the local stakeholders involved in social contracting.

3 For the selection criteria of the three countries see section 1.2 of this Handbook.

This publication aims to answer the following main questions:

What is social contracting and how can it be applied in the CIS context? Why would a government opt for social contracting?What are the key elements of a regulatory framework for social contracting?How can the provision of social services by a non-state actor be funded?What is the role of CSOs in social services provision? What are the benefits in contracting CSOs for the provision of social services?What are the risks and obstacles involved?What are the necessary steps a government should take if it wants to introduce aneffective system for social contracting?

provision of social services through so-cial contracting mechanisms;A checklist of practical steps for local au-thorities in introducing social contract-ing mechanisms.

The Handbook will be a useful tool for:

National and local authorities, to helpwith reforming their social service de-livery systems, and introducing mech-anisms for contracting non-state entitiesto provide social services;Local authorities, to help with map-ping the needs in their communities andplanning on how to address them;UNDP country offices, to help in un-derstanding the pros and cons of themixed modalities of social services pro-vision and the role of CSOs and othernon-state providers in the social servicedelivery process; and in designing theirprograms to better fit the partnership ap-proach in social service delivery in spe-cific contexts;CSOs and other providers of social serv-ices, to help with a better understand-ing of the overall system of social serv-ice delivery; helping them identify theimprovements needed related to theirown capacities and the improvementsneeded in the overall systems of servicedelivery; and in advocating for theirimprovement.

I.2. Methodology

The Handbook is based on:

(a) A review of the existing research and leg-islation relating to social contracting, pri-marily in Europe; and

(b) The examination of three countries pro-posed by the authors and approved by theUNDP Bratislava Regional Center – Ar-menia, Kazakhstan and Ukraine.

The countries have been selected because theyeach showcase a different model of social con-tracting: they represent the three different re-gions of the CIS, but also differ in terms of size,economy and social systems. Furthermore, thethree countries are at different levels of the de-centralization process of their social welfare sys-tems and involvement of CSOs in social serv-ice delivery. The Republic of Armenia providesan example of how the government startedfinancing CSO service provision in a countrywhere social services are still largely providedby non-state actors. In Kazakhstan, there isa centralized system of state support - over $10million USD was awarded in ’social contracts’in 20094, and the government has repeated-ly stated its commitment to social contracting;meanwhile, there are also good examples ofthis practice at the local level. Ukraine can beregarded as a country where diverse methodsof state-CSO cooperation have taken root, andwhich has been developing a more complexand more sophisticated system for socialcontracting.

This Handbook was prepared based on:

Desk research examining the currentlaws and draft laws in the countries ofArmenia, Kazakhstan and Ukraine, avail-able regulations and other relevantdocuments (e.g. past legislation,data/statistics);An extensive review of relevant inter-national literature, including academ-ic studies, reports of government agen-cies and CSOs, UNDP resources andothers (for a full list please refer to the Bib-liography);


4 Kaptaeva, A., Kazakh Experience of state funding for NGOs through social contracting, the Third Sector Journal, Kyrgyzstan,June 2010

Field visits in the three countries andmeetings with national and local experts,decision-makers, CSO representatives,and other stakeholders from all thethree sectors;Roundtable discussions organized ineach country with experts and stake-holders, discussing the merits, weak-

nesses and gaps in the existing socialservice systems;Researching individual case-studies thatprovide insights into the social con-tracting practices in each country;Discussions with and peer-review byUNDP staff in the field offices and in theBratislava Regional Center.


II. Including non-state providersin social services delivery: A policy framework

II.1. Human RightsBased Approach

First and most important, the Human RightsBased Approach (HRBA) should be consideredin understanding the policy framework for so-cial contracting. (For an explanation of theHRBA see the Glossary.) It should be emphasizedat the outset that social contracting is notabout delegating or transferring the respon-sibility for social services to a non-state actor.Rather, it is about making the provision of so-cial services more effective and/ or more ef-ficient through mixed modalities of socialservice provision and by involving non-stateproviders through clearly defined and trans-parent procedures.

II.1.1. Obligation of the state to provide social services

In relation to division of labor among state andnon-state actors in social services provisioning,

we can distinguish three components thatshould be examined when developing the pol-icy framework for social contracting:

– Responsibility for providing the socialservice;

– Financing the service;– Operating (running) the service.

In accordance with HRBA, the state must al-ways remain the duty-bearer in providing theservices; it may not transfer this responsibilityto the provider.5 The government will also,inevitably, be the main actor in financingthose services, even though non-state fund-ing sources are often included in the provi-sion of social services to complement gov-ernment funding and increase the availabilityof resources. Finally, while the governmentcan also be the main (or even sole) provideroperating the actual services at the local level,this function can be effectively contractedout to non-state actors, which is where socialcontracting plays a role.

5 The main human rights instruments to refer to in this context include the International Covenant on Economic, Social and Cul-tural Rights (ICESCR); Convention on the Rights of the Child (CRC); Convention on All Forms of Discrimination against Women (CEDAW);Convention on the Rights of Persons with Disabilities (CRPD) among others.

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Under the principle of progressive realizationof economic, social and cultural rights, gov-ernments must undertake necessary steps toachieve the fulfillment of these rights evenwhen they are faced by resource constraints.6

Social contracting is one of the possible waysto address the pressing need for social serv-ices in a situation where governments cannotallocate sufficient resources to cater for basicsocial services on their own (from among thecountries included in this Handbook, Armenia isa case in point). However, the involvement ofnon-state providers in social services should notbe seen as a substitute to a government’s ful-fillment of its obligations in ensuring equal ac-cess to adequate social services for all sectionsof people in need.7

The states’ responsibility in providing socialservices is expressed primarily through legis-lation on social protection that: (1) establishesthe obligatory tasks of the central and localgovernments in social services provision, (2)renders appropriate resources to fulfill thosetasks, and (3) regulates the implementation ofsuch laws. All the countries examined in thisstudy have already taken steps – both at thenational and the local level – to create a fa-vorable legal and fiscal framework for socialcontracting. However, in order to reap the fullrange of the benefits of social contracting –particularly when the positive outcomes forservice beneficiaries are at the centre of pol-icy creation – the government needs to de-velop a complex and sophisticated system oflegislation, financing and supervision that

proves to be an ongoing challenge even forthe most developed economies.8 In SectionII.6, we include a brief overview of the key el-ements of such regulation.

II.1.2. Focus on the beneficiaries in policy development

In contracting for social services, the rights andneeds of the beneficiaries should be at theheart of policy making. This means that theservices, whether provided by public or non-state providers, have to consider beneficiaries’rights to access adequate services and theirneeds for social services in the light of the prin-ciples outlined in international treaties and do-mestic laws. Those rights are not uniformly for-mulated; however, based on the interpretationof the International Convention on the Eco-nomic, Social and Cultural Rights (ICESCR), andthe accompanying Optional Protocol by var-ious UN agencies and other development ac-tors, they can be summarized along the fol-lowing lines9:

Availability: Functioning facilities andservices have to be available in sufficientquantity at the adequate levels of terri-torial administration. The precise natureof the facilities, goods and services willvary depending on numerous factors, in-cluding the country’s level of develop-ment. However, the basic social servicelevels defined in the law (including in-ternational treaties, and national and lo-


6 Article 2 of the ICESCR imposes a duty on all parties to “take steps... to the maximum of its available resources, with a view to achiev-ing progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including partic-ularly the adoption of legislative measures”.

7 Focus on HRBA may also entail that even when the government has the necessary resources, engaging non-state actors couldenhance access and quality of services for the beneficiaries (for example, through more choices, enhanced competition amongproviders, etc.).

8 See e.g. the ongoing debate in the UK on social contracting, accessed November 16, 2010: http://www.serco.com/institutere-source/subjects/UKmkt/thirdsector/index.asp

9 Based on: The right to the highest attainable standard of health: 08/11/2000. E/C.12/2000/4.: General Comment No.14 (2000) ofthe Committee on Economic, Social and Cultural Rights of the Economic and Social Council to article 12 of the International Covenanton Economic, Social and Cultural Rights assessed on February 17, 2011 at: http://www.unhchr.ch/tbs/doc.nsf/%28sym-bol%29/E.C.12.2000.4.En

cal legislation) should be made availableto women and men, girls and boys inneed of social services.Accessibility: Accessibility has four over-lapping dimensions:– Non-discrimination: Facilities and

services must be equally accessibleto all, especially the most vulnerableand/ or marginalized individuals andgroups, under the law, and in fact,without discrimination on any pro-hibited grounds.

– Physical accessibility: Facilities andservices must be within safe physicalreach of all people, especially vul-nerable and/ or marginalized groups,such as the elderly, persons withdisabilities (including those with sen-sory and/ or physical impairments),and ethnic minorities.

– Economic accessibility (or afford-ability): Basic social services must beaffordable for the beneficiaries. Pay-ment for social services has to bebased on the principle of equity,ensuring that they are affordable forall, including the socially disadvan-taged groups.10

– Information accessibility: accessibil-ity includes the right to seek, re-ceive and impart information andideas concerning the social servicesprovided.

Acceptability: Services must be re-spectful of human dignity and culturallyappropriate, i.e. respectful of the cultureof individuals, minorities, peoples andcommunities, sensitive to gender andlife-cycle requirements, as well as being

designed to respect confidentiality andimprove the quality of life of thoseconcerned.Quality: As well as being culturally ac-ceptable, social services must also beprofessionally appropriate and of goodquality. This requires, inter alia, expertmanagement and skilled personnel,and minimum quality managementtools such as soliciting beneficiary feed-back and peer reviews, etc.

II.2. Defining social services

As mentioned in the introduction, there is nouniversally accepted definition of what com-prises social services. (For a definition used inthis Handbook see the Glossary.) At the sametime, under its obligation described in Chap-ter II.1, the state needs to define the statu-tory services (also termed guaranteed orcompulsory services) that are provided tothe population in law. These are most oftendefined in specialized laws (related to edu-cation, health, social assistance), and in lawsconcerning the powers/mandates of localgovernments.11 Financing of such serviceshas to be allocated in the budget laws ona yearly basis.

II.2.1. Typology of social services

Typically, social policy and ensuing laws on so-cial protection define social assistance interms of two components:


10 This principle includes the possibility and, indeed, suggestion that those who can afford it should pay for the services, thereby mak-ing it possible that the services can be offered for free or at a lower price for the poor.

11 While the term ‘social services’ includes a broad range of services, its specific content can be different depending on the legislationof the country. Sometimes, as in Poland, it is equated with the broader realm of “public services” or “welfare services”, such as health-care, culture, education etc. In other cases, as in Bulgaria, social services refer only to the area of social assistance, and as such theyare aimed primarily at the vulnerable or disadvantaged part of the population. “Social services are activities, which support andexpand the opportunities of the persons to lead independent way of life and are implemented at specialised institution and in thecommunity” Bulgarian Social Assistance Act. See also the Glossary.

– The provision of cash transfers and oth-er material assistance (food, medicine,wheelchairs or other products to help bet-ter the situation of disadvantaged people,depending on their needs); and

– The provision of services that help dis-advantaged people lead a normal life.

While this Handbook is not focused on cash-transfers, it should be noted that they arewithin the realm of the non-transferable stateresponsibilities that also apply to a number ofsocial services. In many countries of the re-gion, state provision of social services is stillthe dominant approach. However, the ten-dency to include non-state providers in serv-ice provision is getting stronger. Services canbe subject to contracting out by the centraland local governments. Some types of serv-ices cannot be contracted out, such as serv-ices and procedures for child adoption orother highly sensitive and specialised child-care services. In addition, even when the serv-ice is contracted out, certain functions mayremain in the competence of the govern-ment acting as an authority, e.g. the deter-mination of eligibility for the service. There isno blue-print as to which particular servicesor functions should continue to be providedby the government, and this depends toa large extent on the overall policy frame-work in each country.

With regard to social services, there are also twomain distinctions:

1. Social services provided in residential in-stitutions (also referred to as institutionalservices)12, and

2. Social services provided at the com-munity level (also referred to as non-in-stitutional services).13

It is the second type of services that CSOs andother non-state providers are best at, althoughin the more developed welfare states, it is alsocommon for non-state providers to maintainor manage social institutions. The trend acrossEurope over the past two decades has been de-institutionalization: a move towards servicesin the community, and to place people into in-stitutions only when community services can-not be provided. For example, children with-out parental care are placed in foster care, whileelderly people and people with disabilities mayreceive a combination of day-care and homeassistance services. Furthermore, in order to pro-vide services to the needy close to their placeof origin where possible, institutions have be-come smaller and more community-based,such as homes for assisted-living for peoplewith disabilities.

Another way of categorizing social services isto make a distinction between basic (alsotermed primary or generic) and specializedservices.14 In this typology, basic services areessentially community-based services thatprovide a more generic service (such as fam-ily help centers or counseling services), whilespecialized services focus on a certain targetgroup (such as child protection or assistanceto the elderly). Furthermore, institutional serv-ices may be defined as highly specialized serv-ices, as in Moldova (see Box). Finally, some lawsinclude the term “integrated social services”which aim to address the various needs ofa client through harmonizing the services fromdifferent fields (for example, an after-school careservice for children with disabilities may includeelements of family assistance, medical reha-bilitation and educational development, whilea home visiting service for an elderly personmay offer personal assistance, as well ashealth services).


12 Although there are still many residential institutions in the countries of the region, it should be noted that both the Convention onthe Rights of a Child and the Convention on the Rights of People with Disabilities emphasize the need to ensure community-basedforms of care, and residential institutions should be used only as a temporary and last-resort measure.

13 For an explanation of institutional and community social services also see the Glossary.14 For more details on the definition of basic, specialized and integrated services, also see the Glossary.

Within the CIS region, the predominant poli-cy had been to institutionalize people duringthe socialist period; therefore, alternative so-cial services have started to develop only re-cently, and are still only rarely found within thestate structures. The more a country aims at de-institutionalization and at providing servicesin addition to cash transfers, the more there willbe opportunities for social contracting. Giventhat the provision of social services to the vul-nerable populations is rarely a profitable busi-ness, the role of CSOs as complementary, al-ternative providers of social services is po-tentially very significant.

II.2.2. Responsibilityfor service provision

When the responsibility for social services isdevolved to the regional and local self-gov-ernments, it should be clear which statutory(compulsory) services the regional and localgovernments should undertake. Some of theservices may belong to the municipalities

and others to the higher territorial units (suchas the rayons or oblasts in Ukraine). The obli-gation to undertake certain services can alsobe determined by the number of people liv-ing in the territory of the municipality (i.e.a small municipality would be obliged to pro-vide only two-three basic services, whilea larger one could be required to providea greater number and variety of social serv-ices). Highly specialized social services that areprovided in residential institutions (such as in-stitutions for people with mental disabilities)are usually assigned to a higher territorial unitor to larger municipalities.

Besides statutory services, there is also the pos-sibility of providing non-statutory services. Insuch cases, the municipalities have the optionof providing the social service if there isa need for such a service in the territory with-in their jurisdiction. The law cannot foresee allpossible needs and services that may emergein the community (in many cases, social serv-ices were actually developed and provided firstby CSOs), but the government has the re-


Moldova: Law on Social Services

The Law on Social Services was adopted in Moldova in June 2010. Article 6 of the Law onSocial Services defines three types of services: primary social services, specialized socialservices, and very high need [i.e. highly specialized] social services. The following definitionsare included in the Law:

(1) Primary social services are provided at the community level to all beneficiaries andaim at preventing or limiting situations of difficulty that can cause marginalization orsocial exclusion.

(2) Specialized social services are services that imply the intervention of specialists andaim at maintaining, rehabilitating and developing individual capacities to overcomea situation of difficulty for the beneficiary or his/her family.

(3) Very high need social services are services provided in a residential or specializedtemporary placement institution, and imply a series of complex interventions that caninclude any combination of specialized social services for beneficiaries with increaseddependency and who require continuous supervision (24 hours).

sponsibility to ensure that when certain serv-ices are provided, they remain accessible andof a minimum quality. Hence both the statu-tory and optional services enlisted in the law(in most of the countries, the law dealing withthis area is the law on social protection) are usu-ally complemented with the prescribed stan-dards of social care and envisage financingmechanisms.

Over time, depending upon the needs at thecommunity level, some services may be tak-en off the list and new ones added (for ex-ample, in ageing communities the need forkindergartens might decrease, while the needfor social care services for the elderly might in-crease). In addition, local governments shouldbe free to develop any additional social serv-ices for which they see a need, even if thoseare not especially listed in the law (for exam-ple, in communities with an unusually high mi-grant population, specialized counseling serv-ices may be introduced to the migrants evenwhen there is no such need at the national lev-el). However, given that in these cases, the req-uisite regulations have not (yet) been devel-oped, there will be no standards or options forfinancing ensured by law.

II.2.3. Decentralization of social services

Social contracting is strongly related to the de-centralization of social services. The World Bankdefines decentralization as “the transfer of au-thority and responsibility for public functionsfrom the central government to subordinateor quasi-independent government organiza-tions and/or the private sector”.15 It is a com-plex and multifaceted concept, including dif-ferent types such as political, administrative,fiscal, and market decentralization. (See below,as well as the Glossary, for an explanation.) In an

effort to modernize public administrationand achieve sustainable economic develop-ment, most CIS countries have undertakenmeasures for decentralization, including the de-centralization of social services. The transfer ofobligations for the provision of social servic-es to local self-governments raises both the ne-cessity and the opportunity to involve non-state actors, since many of the local self-gov-ernments cannot ensure the appropriate lev-el of social services.

The extent and effectiveness of social con-tracting for the purpose of social services pro-visioning will be determined by the interplayof deregulation and the different types of de-centralization: political, administrative, fiscal,and market decentralization.

Deregulation, as a form of market decen-tralization, is of key importance in social con-tracting. This process reduces the legal con-straints on private participation in service pro-vision or allows competition among privatesuppliers for services that in the past had beenprovided by the government or by regulatedmonopolies. At the same time, deregulationdoes not mean a lack of regulation, but dif-ferent rules and regulations that enable bothpublic and private entities to act as social serv-ice providers. In fact, effective social con-tracting requires the development of effectiveprocurement procedures and other regula-tions that allow for transparent and ac-countable mechanisms for involving privateservice providers.

In terms of political decentralization, local au-thorities that are accountable to their local con-stituencies, rather than the central government,are more likely to appreciate the importanceof addressing the needs of their constituencies,including the appropriate social services pro-vision. As such, they will be more likely to en-


15 World Bank, What is Decentralization? accessed on November 15, 2010 at: http://www.ciesin.org/decentralization/English/Gen-eral/Different_forms.html

gage in partnerships and contracts with non-state actors who are well placed to assist themin meeting community needs.

Fiscal decentralization is extremely relevantfor social contracting. This refers to the neces-sity to dedicate an “adequate level of revenues– either raised locally or transferred from thecentral government – as well as the authorityto make decisions about expenditures”16 thatare appropriate for the functions that arelegally transferred to the local governments. Ifthe central government transfers responsibil-ity for the social service provision to the mu-nicipal level without taking into considerationthe need to secure the adequate funding of thesocial service, it is likely that the services will notbe delivered in the volume and quality need-ed or that they will be delivered at all. On theother hand, the central government cannot beexpected to fund all the local needs, which iswhy there has to be the possibility to gener-ate funding locally (for example, throughproperty taxes, local taxes, user charges, mu-nicipal borrowing etc.). (See also Section II.5.2on the principles of financing mechanisms.)

In terms of administrative decentralization,social contracting becomes a central question,

especially in the case of the so-called devolu-tion, i.e. “the transfer of authority for decision-making, finance, and management”17 of theservices to the local level”. In other cases, in-cluding de-concentration (the transfer of obli-gations to a lower level of the central govern-ment) and delegation (the transfer of obligationsto a quasi-autonomous agent under the con-trol of the central government), social con-tracting may still be relevant, depending on thespecific context and needs for services.

The three main forms of administrative de-centralization can co-exist and function in par-allel in relation to different areas of state poli-cies. For example, while local governments mayhave the full authority to make decisions lo-cally on issues related to elementary education,services in the area of employment could re-main controlled by the central governmentthrough de-concentrated units or delegatedagencies.

It is also important to bear in mind that the lev-els of administrative decentralization dependlargely on the territorial administrative units inthe given country. The various levels (munic-ipal, county, regional etc.) may also have dif-ferent mandates in relation to service provi-


16 Id.17 Id.

The experience gained in Romania is significant in this respect because it shows that thedecentralization of social welfare without having the necessary preconditions in place canundermine the provision of cash benefits and social services. Upon passing the Law onLocal Public Finance in 1998, which significantly increased the responsibility of localgovernments for financing social assistance and child protection cash benefits and services,the total spending on social assistance suddenly dropped. Owing to lack of resources, localgovernments were forced to scale back their provisions for cash benefits and services, orstopped providing them altogether. In the area of social services, some local governmentswere unable to maintain even recurrent expenditures. Following such dramatic erosion inthe safety net, Romania recentralized the financing of social assistance in 2002.

Source: World Bank, 2006, Serbia Social Assistance and Child Protection Note, Report no. 35954-YU, web: http://siteresources.worldbank.org/INTSERBIA/Resources/Serbia_social_assistance.pdf )

sioning and social contracting. For example inUkraine, municipal councils have the author-ity to decide on how to spend income gen-erated by the municipality itself; however,rayons and oblasts (higher level administrativeunits, see the Glossary for definitions) are obligedto spend self-generated income to fund re-sponsibilities that are delegated to them fromthe national level.

II.3. Policy rationalesof social contracting

“Partnerships with non-state actors can helpincrease the range of social services that is avail-able, improve quality through competition, andfoster greater public participation and ownershipof social assistance programs in civil society.” (World Bank)18

Limited government capacity

One main reason for introducing the mixedmodalities of service provision is that thestate cannot manage everything by itself, es-pecially in times of crisis when governmentsare required to provide more social serviceswith fewer resources. Every government facesthe problem of finite human and institution-al resources and the need to ensure the pro-vision of a wide range of services in responseto increasing needs. The argument of limitedresources and thus, limited capacity is espe-cially true in the CEE and the CIS countrieswhere the post-socialist governments inher-ited weak administrations and poorly main-tained infrastructure. In the CEE and the CIScountries it has been seen that the local gov-ernments prefer to contract out new services,

rather than employ new people, train them,secure premises for them, etc. and so it is of-ten easier to contract some of the services tonon-state providers. In addition, sometimesnon-state providers are better equipped to de-liver social services because they have moreexperience, and better access to difficult-to-reach target groups, etc.

One important reason for contracting non-state providers is that they bring in addition-al financial resources – be it capital investmentsor the financing of ongoing service provision.While this is an important argument, it shouldnot be seen as the main reason to contract outservices – financing of the services prescribedby the law should remain the responsibility ofthe government and reliable financing shouldbe allocated for these services.19 Significant re-sources may be mobilized from the private sec-tor through Public-Private Partnership (PPP)arrangements. (More information on PPP androle of for-profit sector in social contracting is giv-en in Section III.4 of this Handbook). In the caseof CSOs, additional resources such as volun-teers will enable CSOs to provide added ben-efits for a given price (see more on this in Sec-tion III.2), but the cost of providing the serv-ice should be borne by the state.

Focus on policy-making and core functions

The contracting of services should not nec-essarily mean that the government does nothave sufficient capacity for the provision of so-cial services. By contracting out services, thegovernment can concentrate its efforts on itscore functions – policy-making, setting serv-ice standards, monitoring of service quality,control on budget spending, etc. In this way,


18 World Bank. 2000. p 30919 This holds true even though in practice this is often not the case. For example, in many countries, the financing of services for people with

disabilities comes from the state lottery; therefore, the amounts are not stable and depend on the level of funding obtained through staterevenues from the lottery. Service contracts, where they exist, are typically concluded for a one-year term only.

it can devote more resources to creating bet-ter policies, and making sure that all the peo-ple in need have equal access to social serv-ices, and that the services provided are of bet-ter quality. In fact, there is an argument thatif the state provides the services and controlstheir quality, there might be a conflict of in-terest as sometimes political considerationsstand in the way of objective monitoring (seebelow). Therefore, the performance of statefunctions by a third party need not be seena sign of government weakness (as is often theperceived case), but can on the contrary rep-resent a legitimate and solid policy choice, pro-vided that appropriate consideration is givento the potential risks of such a choice.

Achieving government objectives

Importantly, social contracting can more of-ten be seen as helping implement governmentpolicies, rather than simply as a mechanism toinclude non-state actors in social servicesprovisioning. By financing selected types ofservices, the government can “generate de-mand” for certain types of actions by non-stateactors that promote its objective in resolvinga social problem. For example, in the Astanacase study, the local authority needed to de-velop a new policy to ensure appropriate serv-ices for children without parental care, and thusutilized social contracting to implement thispolicy. In Ukraine, government programs thatare aimed at long-term results, such as the fightagainst tuberculosis or the promotion of chil-dren’s rights, are always implemented with theinvolvement of CSOs and other non-stateactors. Therefore, social contracting can serveas a valuable tool for addressing the need forsocial services when government capacity isinexistent or insufficient.

Added value of non-state providers

Another key reason for contracting out serv-ices is that it is expected that the non-stateprovider will offer added value, i.e. additionalbenefits for the same service or a better pricecompared to provision by the government it-self. These may include closer contact with thebeneficiaries of the service; access to difficult-to-reach groups of people (for example, drugusers, youth at risk, people living with HIV/ AIDS,sex workers, etc.); an interest in developing theservices (to increase beneficiary satisfactionand, especially in the case of the CSOs to ad-dress unmet client needs arising from the ex-isting gaps in social services provisioning); aninterest in service innovation (piloting newservices offers the possibility of developing ca-pacities in a new area, which could in turn of-fer comparative advantages over competitors);management efficiency (especially amongfor-profit providers in a competitive environ-ment).20 Consequentially, it can be said that thegovernment will opt for social contractingwhen it can be expected that the beneficiar-ies will receive either higher quality services forthe same price, or lower prices for the samequality of service in comparison with gov-ernment entities (i.e., better value for money).

Attention should be paid to maximizing the po-tential of the added value. A case in point is thedilemma of encouraging competition versus en-suring continuity. Maintaining competitivepressure on all service providers (public, private,non-profit) raises overall efficiency. However, inpractice it often proves difficult to maintain com-petition in the longer term, as this would jeop-ardize continuity of the service. This is largely dueto the fact that social services require high spe-cialization, and that non-state providers wouldnot invest resources in training and retaining ex-


20 This point is reinforced by a US study: “Economic theory of organizations”. Specifically several aspects of the theory of the firmand transactions-costs theory, help illuminate why in many instances it may be more efficient for government to delegate de-livery of services to private organizations than to deliver those services itself.” In: Alternative Models of Government-NonprofitSector Relations: Theoretical and International Perspectives, Dennis R. Young, 2000 in: Nonprofit and Voluntary Sector Quar-terly 2000 29: 149, p. 153

pert personnel (not to mention buildings andinstitutional infrastructure) unless they seea guarantee for longer-term operations. Conti-nuity of service is also of pivotal importance fromthe perspective of the beneficiaries of the serv-ice. Thus, often when one of the existingproviders wins a contract and the local gov-ernment is satisfied with its performance, it willinvest in its development and a “monopoly” islikely to be created, since the breaking ofa long-term contract arrangement may cost toomuch for both sides.21 On the other hand, in wel-fare states where the state has been contract-ing with non-state providers for decades, it hasbeen observed that over time, the non-stateprovider may “adjust” its modus operandi to thatof its main funder, i.e. the state bureaucracy, andbecome less efficient in its economy. This is es-pecially true in the case of CSOs that do not havethe profit motive to keep them working towardsmaximizing financial efficiency.22

It is, therefore, crucial to monitor the effec-tiveness of the delivery of social services by thecontracted actors and strive for a balance be-tween competition and continuity. Ways toprovide incentives for efficiency include the pe-riodical review of service standards, benefici-ary assessments, and close monitoring ofcosts, ensuring that at the renewal of the con-tract/ license, the non-state provider has to ad-just its systems.

Accountability in public spending

In addition to better value for money, it is ex-pected that control over the quality of servicesand over spending will be stricter in the case

of non-state service providers than for gov-ernment providers. The reason for this is thatit is more difficult for the state to establish andcontrol self-control mechanisms (i.e., its ownservice providing agencies), than to controla separate non-state entity. In the first case,there are a number of political considerationsthat should be taken into account. Whencontrol is separated from the provision of serv-ices, the beneficiaries of the services will havemore freedom to assess the of quality servic-es and to complain about the low quality ofservice (as they would not be afraid that theprovider will treat them badly or simply excludethem from the service)23. It is important to note,however, that over-controlling may lead to low-er quality, as the provider will find it more im-portant to meet the administrative require-ments than to respond to the clients’ needs.Therefore, a flexible and effective contractingmodel is needed wherein quality control fo-cuses on the clients and considers the limita-tions of the providers as well. This dependshighly on the capacities of both central and lo-cal government to conduct effective controls.

Political considerations

Doubtless, there are also “purely” politicalreasons that may encourage social contract-ing.24 For example, in times of budget cuts anda freeze on hiring government personnel (atany level), social contracting provides an “es-cape route”: it makes it possible to expandgovernment services without expanding itspayroll.25 Social contracting may also give pub-lic authorities the chance to be relieved of di-rect engagement in the service provision. This


21 See e.g., Van Slyke, 200322 See for example House of Commons 200823 See Struyk p.5, referring to Cohen and Peterson, 199924 For more information on the political factors behind contracting out services see Theory and Practice of Contracting Out in the Unit-

ed States by Paul Seidenstat.25 “Contracting out is usually easier to get through the budget process because it does not appear as a county employee.” Van Slyke

(2003), p.305. This phenomenon was strongly prevalent in Hungary in the late 1990s, when local governments were not able tohire due to budget restrictions. Instead, they created or promoted so-called public benefit companies that hired laid off staff, andthen were contracted for the provision of the service.

works in two ways: on the one hand, the of-ficials in charge of social service delivery arerelieved from the tension of hiring or firing so-cial workers or other personnel involved in so-cial service delivery based on political influ-ence. (As the service provider is independent theyare not involved in personnel decisions.) On theother hand, if there are complaints about thequality of the social service, this can beblamed on the provider, and thereafter thepublic official (or public entity that has con-tracted the service) can take measures to cor-rect the situation (for example, terminatethe contract with the current provider). Thedownside of this argument is that authoritiesmay see it as a possibility for not having to dealwith certain target groups that should becatered for by the non-state provider (for ex-ample, one of the towns in Armenia transfersthe cases of all the people in need to the of-fice of the CSO providing social services,rather than dealing with them directly).

Risks in social contracting

While there are many reasons to engage in so-cial contracting, it is not a risk-free undertak-ing. There are many risks and pitfalls, most ofall because the purchase of service arrange-ments involves third-party contracts. Underthese contracts, the ‘buyer’ or ‘purchaser’(government agency) does not consume thepurchased services, the ‘client’ or beneficiarydoes not pay for the benefits, while the ‘con-tractor’ or ‘provider’ (non-state service provider)is left in the highly advantageous position ofdealing with a purchaser who rarely seeswhat is purchased, and a client who never paysfor the service.26 Therefore, government offi-

cials must put in place special procedures, andexercise considerable skill to formulate con-tracts that deliver the best deal27, in order tomonitor the process for quality performance,and to ensure accountability and transparency.This implies that they should obtain a new setof skills. This also requires capacity building ofgovernment officials in order to ensure the de-sired outcome.

Key risks include28:

Performance risks: For example, failureof the contractor/non-state serviceprovider to deliver the services at the re-quired volume or quality, or failure of thecontractor to deliver the services incompliance with the regulatory re-quirements;Financial risks: For example, increase incosts, or fraud, or misuse of the fundstransferred to the contractor;Political risks: For example, damage ofreputation or loss of constituency sup-port (citizens used to state-care may re-sent privatization29, especially if servicefees are even partially introduced).

Governments should be aware of the specif-ic risks applicable in the given political andeconomic context in which social contractingis to be introduced. Most of the risks can usu-ally be avoided (managed) by taking pre-ventive measures; most of all by ensuring ad-equate government capacity to prepare andmanage the contracts (see section II.7.). A clearand enabling legal environment and properfinancial measures are also necessary to mit-igate the risks.


26 Gilbert, N. 2006, p.4; See also World Bank Institute.27 Id.28 Based on Cordery, C. 201029 See for example, the referenda in Hungary in 2006, which blocked even partial privatization of health and higher education services.

II.4. Models of government-CSOcooperation30

Policies on social contracting depend also onthe overall relationship between CSOs and thestate. This relationship is complex and dependson many factors, including the social welfaremodel (i.e. universalist, corporatist, residual)31,the legal context (i.e. common law or conti-nental law), the main functions fulfilled by theCSO sector traditionally (i.e. service, advoca-cy, expressive functions)32 and other factorsthat to some degree predict the extent andvolume of the involvement of CSOs and oth-er non-state actors in social contracting. In de-veloped European countries, some models de-scribed below rely more on CSO provision ofsocial services than others. In most CEE andCIS countries, social welfare provision has tra-ditionally been within the exclusive realm ofthe state service providers. The direction of thesocial sector reform, as well as the relationshipbetween CSOs and the state, is still changingand evolving towards more market-based so-lutions. While the models described here arenot clear cut, and it is not clear whetherCEE/CIS countries will follow any of the existingmodels, we believe it might be helpful with-in the framework of social sector reform, asalso at the time of planning a policy frameworkfor social contracting, to consider in more de-tail the possible levels and methods of in-volvement of CSOs and other non-state actorsin service provision.

The potential for the mixed modalities of so-cial service delivery, which involve partnershipsbetween CSOs and the government, is close-ly related to the capacity and the potential of

the civil society sector. It is also related to thetradition of cooperation between CSOs and thegovernment, a shared understanding of whatare the basic preconditions for equal part-nerships between CSOs and the governmentwhile clarifying the ultimate goals of such part-nership in the area of social services provision.ECNL has studied the situation of partnerships,based on two characteristic features of the CSOsectors in different European countries.

– Institutionalization means the capac-ity of the non-profit sector to undertakeprojects and services for the govern-ment, i.e. the potential of the sector tobe a reliable and accountable partner tothe government in providing publicgoods and services. This includes, for ex-ample, the number of registered or-ganizations, average budgets of CSOs,the proportion of CSOs that are definedas public benefit organizations, theirphysical infrastructure as well as their hu-man and financial resources and over-all sustainability.

– Independence means the ability of thenon-profit sector to function inde-pendently from the government (orother institutions, for example, thechurch, political parties or foreigndonors); i.e. the potential of the non-prof-it sector to remain a partner on anequal footing with the government orto challenge the government (or otherdonors) in its policies and practices.The key features of ‘level of independ-ence’ include the general level of fund-ing that the government provides to thesector, and the types of mechanismsused for advocacy and interest repre-sentation.


30 This section builds heavily on the book Public Financing of Non-governmental Organizations in Europe, by Nilda Bullain and Ka-terina-Hadzi Miceva, ECNL (under publication). Quotes are taken with the permission of the authors.

31 Welfare models are defined in the Glossary32 See Salamon-Sokolowski, 2004

Within the reference framework of the abovetwo characteristics (the two axes), the ECNLstudy shows four main models of CSO-Gov-ernment relations:

– Corporatist (Continental): In this mod-el, CSOs are actively involved in the pro-vision of social services and may be themain providers - as in the case of Ger-many, where the principle of subsidiar-ity entails the primacy of community-based services. At the same time, thestate undertakes financing of the serv-ices as a whole, typically through third-party payments or subsidies to majorproviders and their interest groups.State funding thus represents well overhalf (usually 55%-75%) of the income ofthe sector.33 Therefore, the CSO sectoris highly institutionalized, as also high-ly dependent on the government for on-going support. Since the governmentalso needs the CSO sector, there isa kind of interdependence, termed “hi-erarchical interdependence” by ECNL,between the two sectors. A variation ofthis model exists in France, where thegovernment recently started to revise itspolicies of subsidizing the CSO (associ-ational) sector for its function of “soli-darity”, introducing grants and con-tracts based on performance in deliv-ering projects and services. Traditional-ly, in these countries, welfare has beencorporatist, i.e. based on contributionsof the workforce.34 Relationships be-tween the key actors (various levels ofgovernment, church and the third sec-tor) are mainly reflected in fiscal legis-lation and legal entitlements.

– Liberal (Anglo-Saxon): This is a modeltypical of Anglo-Saxon countries (in Eu-rope, primarily the UK; also Canada), al-though elements of it, especially theprinciple of contracting has spread to oth-er countries on the continent (for exam-ple, the Netherlands). In this model, CSOsare also highly involved in social servicesprovisioning; however, they are less de-pendent on the state. Even though theyreceive financing through contracts, theyhave strong roots in the communities; andtheir own assets, as also philanthropic andself-generated income, enable them toenjoy a strong advocacy role. The rela-tionship between CSOs and the state isbased on an overall policy agreement(known as Compact under the Blair gov-ernment in the UK), and contractingplays a key role in delivering social serv-ices. In the UK, the welfare model had orig-inally been residual, i.e. oriented towardthe poor, which was most likely a key rea-son for the development of a high levelof philanthropic and community basedservices for populations that lacked gov-ernment care. However, it has evolved intoan institutional model in which welfareprovision extends to everyone in need.35

In principle, all the sectors should partic-ipate equally in service provision (mixedwelfare economy). However, in practice,CSOs have been preferred in several areas- for example, in community based socialservices, specialized institutional care andhousing - due to the implementation ofCompact.

– Social-Democratic (Scandinavian): Thisis a model that is typical in the Scandi-


33 Id34 The corporatist welfare system, originating in the 1880s Bismarck regime of Germany, has been based on a social security system

in which welfare expenditure is financed from mandatory payroll taxes and benefits are related to the merits of employment (e.g.length of time served, level of income earned etc.). See also Glossary.

35 That is, welfare was seen as being for the poor, not for everyone (which is the same case as in the institutional model). In a resid-ual/ liberal model, welfare provision was a “safety net” for those most in need, not a “benefit” (corporatist model) or a “right” (so-cial-democratic model). For more, see Glossary.

navian countries. Here, the state is themain service provider. The CSOs are nottypically involved in the provision of so-cial services, but rather fulfill “expressive”functions (i.e. cultural, sports, hobby or-ganizations that primarily serve theirmembers’ and community interests).The welfare model is universalist/ insti-tutional, and even though almost every-thing in social services provision is fi-nanced and delivered by the state, in con-trast to the “statist” model of the formerSoviet bloc, there is a high level of socialcapital and engagement in civil society(that is, there is a high level of volun-teering, with the Scandinavian coun-tries having the highest levels of volun-tary engagement in Europe). The rela-tionship between the two sectors can becharacterized by the “live and let live” phi-losophy and consequently a low level ofpublic funding of CSOs (instead, CSOs se-cure their resources through volunteer-ing, membership fees, income generation,donations, etc.). At the same time, citizensand CSOs are extensively and directly in-volved in policy making, both at the lo-cal and the central levels (and increasinglythrough IT tools and the extensive use ofthe social media).

It should be noted that the Scandinavianmodel of state welfare is very expensiveand it would be difficult to introduce thismodel in countries where governmentsdo not have significant, continuous,and sustainable sources of funding so-cial services delivery by public institu-tions. If resources are not sufficient, in-evitable differences in access to servic-es between the well-off and the pooremerge, and if the government does notinvest in social contracting, those dif-ferences will not be rectified.

– Emerging (Mediterranean and CEE): Inthe Mediterranean countries (for exam-ple, Greece, Cyprus, and Portugal) andmost Central and Eastern Europeancountries, the relationship between thegovernment and CSOs in the area of so-cial services provision and policy makingis still evolving. It has been characterizedby low levels of public funding; eitherneglect of CSOs or dependency rela-tionships; traditions or nepotism or po-litical interest in funding and involvementof CSOs in service provision. Models of so-cial services provision are typically resid-ual, as well as rudimentary. This meansthat ‘care’ mostly remains with the fam-ily and social nets (which has specific im-plications for women who bear thebrunt of the care-giving burden). How-ever, as the countries’ economy and CSOsectors develop, they will be likely to con-verge towards one of the three modelsdescribed above.36

The existing models of government-CSO co-operation in social services provisioning may pro-vide important guidance to policy makers interms of involving CSOs in social contractingmechanisms. The following questions couldguide the decision making on the best suitedmodality for service provision involving CSOs:

Is there, or should there be, an overallpolicy document that may give guid-ance to all levels of government on howthey could cooperate with CSOs?Is the government aiming to involveCSOs in policy development and whatare the institutional arrangements forparticipatory policy making?What is the current capacity of the CSOsector to undertake social services?What would be sufficient or the desiredcapacity?


36 E.g., Hungary and the Czech Republic seem to be moving towards the corporatist model; while Estonia and Slovakia tend towardthe liberal model, and Slovenia and Latvia towards the Scandinavian model.

What is the current and what would bethe targeted levels of public funding ofthe CSO sector to ensure the access, con-tinuity and quality of social servicesprovided by CSOs? To what extent issuch funding sustainable?Does the government consider sup-porting complementary services, whilereserving the basic social services pro-vision to its own institutions?Or is the government also planning toinvolve CSOs in the provision of basic so-cial services, building on their compar-ative advantages?What would be the central principlearound which social contracting wouldbe organized?What would be the role of CSOs inmonitoring government social servicesprovision?

II.5. Governmentfinancing of non-state servicedelivery37

II.5.1. Main financing mechanisms

There are three main mechanisms used to fi-nance social services delivered by privateproviders in most European countries. This canhappen through providing budgetary sup-port, i.e. subsidies or grants to the non-state serv-ice provider; contracting out the service; or pro-viding so-called third party payments (seeTable I.). The purpose of each of these forms issomewhat different. Support through grants andsubsidies is typically used to promote imple-


Figure 1: Models of government – CSO relationships in Europe

Source: Public Financing of Non-governmental Organizations in Europe, ECNLPF = Percentage of public funding in total income of the sector

SOCIO-DEMOCRATIC /SCANDINAVIAN

“Autonomy”

PF 25-35%

LIBERAL /ANGLO-SAXON

“Partnership”(contracts)PF 35-55%

EMERGING(MED & CEE)

PF under 25%

CORPORATIST /CONTINENTAL

“Regulatory” (support)“Subsidiarity” (normative)

PF 55-75%

MORE INDEPENDENT

LESS INDEPENDENT

MOREINSTITUTIO-

NALIZED

LESSINSTITUTIO-

NALIZED

37 This section of the Handbook builds strongly on Chapter III of “Public Financing of Non-governmental Organizations in Eu-rope”, by Nilda Bullain and Katerina-Hadzi Miceva, ECNL, 2010 (under publication). Quotes are taken with permission from theauthors.

mentation of a government policy or foster in-novation, and they may also serve to support theexistence and functioning of organizations re-ceiving the funds (see examples below). In thecase of contracting, the government “commis-sions” a specific service, ideally through a pro-curement or another competitive tenderingmechanism. In the case of third-party pay-ments, the government essentially delegates theprovision of the service to an outside provider,based on set prices, quality and other criteria setby the law or the government in advance.

It is important to note that in all cases, thereis a possibility for co-funding, in which case oth-er resources complement government fi-nancing of the service. Typical sources of co-funding may include (among others):

– International and domestic donors,– Fees from the service beneficiaries,– Other government sources (for example,

a central support fund) 38

– Other income of the private provider (forexample, investment income or incomefrom economic activities).

Furthermore, the three main forms of financ-ing non-state providers are not mutually ex-clusive. In fact, most European countries useall three forms in practice in various fields ofservice provision.

Finally, it should be noted that while theseforms of financing can be applied for non-stateproviders from both the for-profit and not-for-profit sectors, the following elaboration isprimarily focused on funding CSOs.39

Budgetary support

The most widespread form of financing CSOactivities, including social services provision inthe CEE region is that of providing budgetarysupport.40 The two main forms of such mon-etary support are subsidies and grants (therecan also be in-kind support provided; for ex-ample, premises to house the service).41

(i) Subsidies are a form of support for certaincivil society organizations, and are often pro-vided in the form of institutional support. Inthe case of subsidies, there is usually no com-petition and the obligation to provide the serv-ice might even be part of a mandatory task de-fined by law. In many countries of Central andEastern Europe and the CIS, subsidies aregiven to different unions as representative or-ganizations of social groups, such as peoplewith disabilities – for example, the Union ofBlind People, Union of Deaf People and oth-ers – due to historical and other reasons

During the period of state-socialism, all socialfunctions were performed by the state. In or-der to better access certain vulnerablegroups, the government helped to establishand sustain representative organizations ofpeople with disabilities, of women, and othersimilar so-called public associations/ federa-tions.42 The state fully or partially funded theiractivities. It is important to note that the fund-ing was not allocated based on projects orany form of result-based plan. Some of theseorganizations, like the representative organi-zations of people with disabilities, later be-came partners to the state in different con-sultative bodies related to social policy.


38 Such funds exist in several CEE countries, e.g. the National Foundation for Civil Society Development in Croatia, the Social InnovationsFund in Serbia, the National Civil Fund in Hungary (as of January 1, 2011 called the National Cooperation Fund) etc.

39 Most forms of course apply also to for-profit providers should they be included in the social contracting scheme. For financing mech-anisms specific to for-profit providers, including the PPPs, see section III.4.

40 This is understood as funding support provided from the budget to CSOs, not as funding provided to the government by internationaldonors.

41 Id.42 In other cases, as in the case of writers’, artists’ or journalists’ federations, the goal of such support was rather to ensure ideological con-

trol over “civil society” organizations. The term often used for such organizations is government organized non-government organiza-tions – GONGOs, and they are still in existence in all the countries of the region.

Therefore, in a more current narrative, it isconsidered that the state supports them be-cause it needs consultation partners that rep-resent the interests of their target groups.

It must be noted that the subsidy model is lessfavored from the point of view of trans-parency and accountability of public funding,as it lacks the advantages of open and fair com-petition, as well as any performance measuresaccompanying the funding that would ensure“value for money” (see below). In addition,over time it develops a layer of CSOs that arein a “privileged” position since they receive un-conditional government funding. Newly es-tablished CSOs cannot access the same levelof unconditional funding (take for example,newly created organizations of people with dis-abilities). The subsidy model becomes in thatsituation a barrier to fair and transparent sup-port and equal treatment, as it perpetuates thedivision between the “old” and the “new”CSOs, regardless of the need and the efficiencyof the services that they provide their con-stituencies.

(ii) Grants are a form of support to CSOs fromthe central government or local budgets. Incontrast to subsidies, grants usually implycompetition for funding. CSOs are typicallyfunded to carry out a specific project which hasstrictly listed activities, deadlines for executionand an itemized budget, i.e. reporting isbased on whether money was spent in ac-cordance with the proposed budget. In caseof grants, the state usually has no specific re-quirements as to the exact activities thatshould be carried out.43 While announcing thegrants to the competition, the central or localgovernment usually defines a general goal ora more specific objective that should be ac-complished, and it is up to the individual CSOsto propose ways/activities through which

these goals can be achieved. In this way, thestate actually gives CSOs the option of pro-posing their own ideas, rather than imposespecific activities, thereby opening up thespace for social innovation.

Grants are the most common mechanism forproviding support to the civil society sector,supporting innovative ideas and promotinginnovative services. They are not as effectivelyused for supporting ongoing service provi-sion, given the project-based and time-lim-ited nature of the grant. Services need to beprovided, regardless of whether the projecthas ended, as the beneficiaries need conti-nuity in services. Therefore, CSOs relyingsolely on grants for social services provisionusually struggle to continue providing theservice in a funding gap, which is a problemnot only from the CSO perspective, butmore importantly, from the beneficiaries’perspective. Grants are also more susceptibleto budget cuts than other financing mech-anisms.44 CSOs that have a regular revenuesource (for example, a long-term governmentcontract or income from service fees) are bet-ter suited to provide social services, as theycan ensure uninterrupted services totheir beneficiaries.

On the other hand, grants are typically easierto administer than other financing mecha-nisms, such as contracting or third-party pay-ments as shown below. Therefore, in countriesthat are not yet ready to introduce a compli-cated scheme of financing in the delivery ofsocial services by non-state actors, grants toCSOs may be a good solution to bridge thegap between the existing needs and providercapacities. This is illustrated by the fact that inall the three countries examined in this Hand-book, grants are a key mechanism for sup-porting social services.


43 However, there may be standards related to the activities and services supported by the grants, which are set in different laws (seeSection II.7)

44 Struyk R., Contracting with NGOs for Social Services: Building Civil Society and Efficient Local Government in Russia, 2003, p.3.

At the same time, governments (both at thecentral and local level) should recognize thatbeneficiaries need the services on a continu-ous basis, and therefore it is necessary for thestate to ensure that service providers have on-going access to resources to provide servicesin the long term.

Contracting/ service procurement

In case of contracting or service procure-ment, the state or local authority shouldknow exactly what it wants to receive asa service (for example, providing day-care serv-ices to 10 children with learning disabilities fora three-year period, or operating a district fam-ily help center for five years). This requires anunderstanding of the dynamics of demand forthe service and how it may change in the com-ing years. The purpose of the contractingprocess is to make sure specific services areprovided to the beneficiaries, ensuring bestquality at a reasonable price. The term ‘con-tracting’ itself derives from the fact that thereis a contract between the parties, listing theobligations of each party clearly. In relation tothe contracting mechanism, it is important tonote that the contracting of social services isnot usually carried out under the usual pro-curement mechanism, given the differentnature of the social services to be provided, aswell as in the case of CSOs, different charac-teristics of the service providers.

There are different ways in which services canbe contracted.

(i) Most commonly, the central or local gov-ernment will have a tender competition andin this process evaluate the different offers andchoose the best candidate. In this competition,

service quality is of key importance, so priceshould not be the single most important cri-terion on which offers are evaluated. Selectionprinciples may include:

Economy – Careful use of resources,time or effort to ensure the acceptablelevels of public expenditure (this is clos-est to the lowest price principle).Efficiency – Delivering the same levelof service for less cost, time or effort(“lowest price for a given quality”).Effectiveness – Delivering a betterservice or getting a better return for thesame amount of expense, time or effort(“highest quality for a given price”).Value for money – Essentially a com-bination of the above three: the opti-mum combination of project or servicelife-cycle costs and benefits that meetthe tenderers’ needs45 (“highest qualityfor the lowest price”).

In most social contracting, the last two prin-ciples are applied. Often the amount budgetedfor a certain service is set and the bidders com-pete to provide the highest quality for thatprice. Overall, the ‘value for money’ (or ‘best val-ue’) principle is considered as best practice inproviding social services through mixedmodality (services provided by both stateand non-state actors). This approach requiresa comparative analysis of all relevant costs andbenefits of each proposal throughout theprocurement cycle (whole-of-life costing).

It entails an integrated assessment of techni-cal, organizational and pricing factors, such asreliability, quality, experience, reputation, past per-formance, cost/fee realism, and reasonable-ness.46 It may also include social and environ-mental impact, risk considerations, and other


45 UNDP Procurement Guide, http://content.undp.org/go/userguide/cap/procurement/principles/46 Id. This is especially important when comparing profit-oriented and non-profit service providers, as there is often relative advan-

tage in the efficiency of for-profit providers when calculated simply on the basis of cost per consumer, but the cost advantage quick-ly fades when considerations for the quality of care are introduced. See Gilbert, 2006

strategic objectives as defined in the pro-curement plan. The evaluation process will as-sess these factors by their relative impor-tance and the award will be given to theprovider with the highest overall value.47

In order to be in the best position to determinevalue for money when conducting a pro-curement process, the requested documen-tation needs to specify the relevant informa-tion and conditions for the evaluation criteria,which will enable the proper identification, as-sessment and comparison of the costs andbenefits of all submissions on a fair and com-mon basis over the whole procurement cycle.

(ii) Instead of opting for a competitive process,the contracting body can directly enter into ne-gotiations with potential providers. This canhappen when there are not enough good can-didates or there is a provider who already pro-vides services and has the necessary profes-sional qualifications, experience, premisesand technical equipment which the munici-pality would require in the service provision.Sometimes, negotiations are also used asa second stage after a tender competition.

(iii) A third mechanism is to provide the serv-ices in partnership – when the provider (usu-ally a CSO) secures part of the funding throughother sources (usually an endowment, itsown income, or in the case of non-EU coun-tries, international donor funds). (See the coun-try case study of Armenia for more on this.)Well-regulated partnerships, i.e. the Public-Pri-vate Partnership (PPP) arrangements are a dis-tinct financing mechanism, and in the “old” EUmember states, they are also being used forcontracting social services. However, given the

complexity of the fiscal and regulatory frame-works needed for PPPs to be effective in thefield of social services (as opposed to infra-structural investments), in the new EU mem-ber states and especially in the CIS countries,such arrangements remain a longer-termambition. See more on PPPs in section III.4.

Third-party payments

Another way of financing social servicesthrough non-state providers is through third-party payments.48 In the third-party paymentscheme, the government is the “third party”that pays for the cost of the service providedby the CSO to the beneficiary – either direct-ly to the CSO as in per capita payments, orthrough the beneficiary as in voucher pay-ments.

(i) Per capita payments, sometimes called “nor-mative” payments (as they are determined bycertain norms in terms of service standards andprice) are most often used in maintaining so-cial institutions, such as homes for the peoplewith disabilities, institutions for children with-out parental care or residential homes for theelderly. In these cases, the government es-sentially delegates the management of the in-stitution to the private provider, while retain-ing the responsibility for ensuring the conti-nuity and quality of service provision. The gov-ernment will usually set the standards and rulesby which the institutional services should berun. To that end, licensing will be used to en-sure that only those who qualify as compliantwith these standards can become serviceproviders. The government will also determinethe cost of the service, which is usually done


47 A simplified method to define and calculate best value is to quantify quality and price of each proposal relative to each other, wherethe award will go to the offer of the highest quality at the lowest price.

48 There is some debate in the terminology relating to this concept as most CIS and CEE governments consider it a subsidy, rather thana compensation (i.e. payment) for services provided. This determination stems from the Soviet times, when the government exclusivelyprovided subsidy type support to both lower levels of government and non-governmental entities. In many countries, legislationstill refers to this type of payment as a subsidy support. In our view, however, the ‘third-party payment’ terminology needs to bepromoted in order to help change the way governments view non-state providers.

on a per capita basis, and the CSO will be re-imbursed based on the number of clients itserves. Since the fee is established by the gov-ernment, it may not match the actual costs ofthe service of any one provider (it usually doesnot); therefore, the issue of who bears the fi-nancial risks will be of importance. The methodof verification of the services provided (giventhat the payment is based on service volume)is also important to ensure that the benefici-aries gain access to the services they are en-titled to, as also to prevent any misuse of funds.

(ii) The voucher mechanism is used more of-ten in non-institutional types of servicesand focuses on the choice of the beneficiar-

ies or clients. In this system, potential bene-ficiaries receive vouchers that entitle them touse certain services free of charge. For ex-ample, a person with a disability can visita physiotherapist twice a month and the ben-eficiaries get to choose their own therapist.There is usually a preliminary approval of allthe specialists who are licensed/ approved toprovide these services. Based on the vouch-ers collected by each provider, the statetransfers a fixed fee for each client served.From the rights-based perspective, vouchermechanisms are value-added, as they offerthe freedom of choice to the users of services,rather than presenting them with ready-made solutions.


Grants and support Procurement andcontracting

Third-partypayments

Aim Implementation ofgovernment policy

Providing services tothe government

Providinga government service

Terms of contract Set by the government Set by both parties(though dominantly bygovernment)

Set by law

Key selection principle Best ideas andproject plans

Highest quality at thelowest price

Fulfillment of legalrequirements

CSOs funded Several applicants One bidder One or more licensees

Type of activityfinanced

Generally any activityproposed by the CSOthat fitsprogram goals49

Typically services Services described inregulations

Cost structure Project budget Fee based budget Budget according toregulations

Indirect costs relatedto the activities

Percentage of projectbudget

May be fully coveredin fees

General overhead %set by law

Table I: Financial mechanisms to fund private providers for service delivery

Source: Public Financing of Non-governmental Organizations in Europe, ECNL

49 Certain tenders usually have specific limitations, e.g. one will not support conferences, another one will not support scholarshipsetc. Also tenders may be limited to specific fields (e.g., health) or specific types of CSOs (e.g., public benefit CSOs). In addition, mostgrant programs do not support investments.

II.5.2. Common principles for financing of social services

Regardless of the mechanism used, the cen-tral government should ensure that there is ad-equate financing for the statutory services evenif they are to be provided by the local gov-ernments. This can be done through directbudgetary transfers and/ or by enabling themunicipalities to generate their own funding(levy taxes, charge users, borrow and investetc.). In terms of direct transfers from the cen-tral budget, the state may finance social serv-ice provision at the municipality/ communi-ty level in two ways:

– The state includes the cost of social serv-ice provision among all the expendituresof the municipality that the governmentcompensates for on a per capita basis;

– The state determines and transfers thecost of (certain) social services separately,specifying the purpose towards whichit could be spent (earmarked funds).

For social contracting, the second method isimportant, as in this case the municipality could

“simply” transfer the amount received from thecentral government for the provision of cer-tain social services to the contracted serviceprovider. 50

As for optional services, they can also be fi-nanced by the central government, usuallythrough specified support programs, such asa fund or a ministry allocation for the givenservice. For example, in Hungary when per-sonal assistance for people with disabilitieswas included among the optional servicesthat the municipalities could provide, theMinistry of Social Affairs created a specialfund to encourage the establishment ofsuch social services across the country atthe level of municipalities. Local govern-ments, as well as CSOs, were eligible to ap-ply for the funds.

In the CIS and more generally the CEE coun-tries, devolution of responsibility for providingsocial services is not always accompanied bydesignated/ earmarked funding for the serv-ice from the central budget. Yet, not all com-munities are able to finance the services bythemselves – sometimes not even the statu-


Grants can be provided by local authorities at the local level, or at the national level by thegovernment directly (by each line ministry or by one ministry for all areas), or througha separate fund or foundation set up for that purpose (as is the case in several Central andEastern European countries including Hungary, Croatia and Estonia). Funding for an inde-pendent fund or foundation set up by the government to support CSOs may come fromthe budget annually or could be provided in the form of an endowment when a largeramount of money can be allocated for this purpose (an example of this is the setting upof the Foundation Investment Fund in the Czech Republic, where 1% of privatization in-come was provided as endowment to foundations). An interesting model in Kazakhstanis the BOTA Foundation – a foundation that was set up with money transferred to a Kazakhgovernment bank account (in a Swiss bank) from an unclear source. The money was orig-inally frozen by a US court. The three governments decided that the best way out was toset up a foundation with the money (initially 84 million USD) to provide grants to CSOs, andalso offer direct assistance to certain categories of vulnerable groups.

50 It should be noted, however, that based on the experience of the new EU member states social contracting can be challenging whenthe municipality contracts a CSO for a service that is funded from the central budget, since it usually involves a large amount ofbureaucracy and payment delays.

tory ones. In many cases, CSOs are needednot only to provide social services, but also tocompensate for the lack of funding at thecommunity level by bringing in additionalresources to make service provision possible,or to ensure that the services are being pro-vided at the level prescribed by the nationalstandards.

Another important factor when speakingabout financing services is the time horizon forwhich funding is provided. Social services directlyaffect people’s lives and, therefore, the conti-nuity of social services’ provision is of utmostimportance. Unlike some other services, mostsocial services should be provided on an on-going basis because the needs which they tar-get are constant. That is why there is a needfor securing long-term, uninterrupted fundingfor the social service provision. The legalframework should thus make it possible for theauthorities to commit to multiple-year fund-ing of the services. This issue is discussed inmore detail in the specific case studies (for ex-ample, the system in Kazakhstan).

Further, in the case of social contracting it is cru-cial to make a precise definition and analysis ofthe unit costs, i.e. a specification of what the pub-lic agency is purchasing – the units of social serv-ice (for example, number of clients, hoursspent with a client, number of beds etc.), andhow much each of these units cost.51 Theproper calculation of unit costs is the basis ofan effective contract. Therefore, the regulatoryframework should make it possible (if notmandatory) for the competent bodies to cal-culate unit costs for state financed social serv-ices. In the case of third-party payments, theseunit costs are usually determined in govern-mental regulations. However, it should be not-

ed that defining the unit costs is a complex andmulti-disciplinary task, and the expertise for suchcalculations is largely missing in the region.

II. 6. Key considerationsin the regulationof social contracting

Possibility to contract out services

In terms of the basic regulatory framework, itis of essential importance that there is the le-gal possibility to commission the provision of so-cial services to a non-state entity. In otherwords, the authority that has the responsibil-ity to take care of social service provision(whether at the central, regional or local lev-el) should also have the right to commissionthe actual provision of the services (i.e. runningthe service) to a non-state entity. The possibilityof commissioning social services is not alwaysstraightforward, even if it is not forbidden, es-pecially in this region where “anything that isnot allowed is prohibited”.52 It could be con-sidered good practice to include a provisionexplicitly allowing the possibility of contract-ing the services to non-state providers.

The regulatory framework should also beclear on who the potential non-state providersmight be. Most commonly any not-for-profit or for-profit legal entity or individual en-trepreneur may undertake social services pro-vision (subject to further conditions set out inthe law such as certification, etc.). However,countries may choose to limit the pool of non-state providers to not-for-profit actors, for ex-


51 This is especially important when comparing profit-oriented and non-profit service providers, as there is often relative advantagein the efficiency of for-profit providers when calculated simply on the basis of cost per consumer, but the cost advantage quicklyfades when considerations for the quality of care are introduced. See Gilbert, 2006.

52 In the CEE/CIS region, the continental legal system that requires any binding obligations to be written in law, combined with a cul-tural legacy of authoritarian rule has resulted in a legal culture in which people often perceive, and public authorities often con-sider, any activity that is not explicitly allowed by law as illegal.

ample to churches and/ or CSOs. In Ukraine,for example, for-profit companies are not list-ed among possible social services providers inaddition to the state providers.

One reason why CSOs have an advantageousposition in the CIS and CEE countries could bethat some countries are not yet in a positionto implement a full-fledged contracting mech-anism with the for-profit sector, due to thecomplex regulatory and fiscal frameworksthat this would require. When involving CSOsin social service provision, there are severalmeans of contracting and financing them, in-cluding monetary or in-kind support for theiractivities, grant programs, joint projects andothers. CSOs can be partners to the govern-ment in social service provision even whenthere is no comprehensive regulation on all theelements listed in this chapter. In the UK, onthe other hand, CSOs (the voluntary sector) arepreferred partners to the government in so-cial services provision – not by law but by pol-icy measures (The Compact53), including sup-port to develop their capacities in social serv-ices provision. This is due to the recognition bythe government that CSOs provide importantadded value in the delivery of social services.

The approach might depend also on thetypes of the social services provided, sincesome services have the potential to developa real market (most typically, homes for elderly)and hence there will be business interest. InHungary, when the government sets the unitcost of the institutional care of an elderly per-son, the government-maintained residentialinstitution will be covered by 100% of the cost,and a CSO will receive cca. 70%, while a for-profit company will receive only 30%. This isso because the government assumes thisservice to be profitable and expects the com-pany to use its profits to co-fund the social serv-ice. Overall, however, most social services do

not have such potential, which is another keyreason why CSOs (including faith-based or-ganizations) are more typical partners of gov-ernments across the region.

Legislation may also differ in terms of serviceareas. Social contracting may be allowed forsocial welfare services, but not for healthservices, and it may or may not be allowed foreducation services. Such differentiation gainsimportance when looking at social servicesthat cut across two or three policy areas – forexample, education of children with learningdisabilities or home assistance for the elderly(c.f. integrated services).

Procedures for contracting out

Further to the possibility of commissioning theactual provision of social services, a clear reg-ulation of the procedure of how this process is con-ducted is also needed. The reason why socialcontracting does not take hold in countrieswhere it is otherwise not prohibited is most of-ten the lack of clear procedures for arrangingthe transfers54.

When there is central government funding in-volved, the procedures will normally have tobe regulated at the central level even if theauthority to commission the provision of so-cial services, and eventually, the funds, toa non-state provider vests with the local gov-ernment. On the other hand, local govern-ments can usually regulate the procedures forthe commissioning of social service provisionand accompanying funding from the localbudget (as in Odessa – see case study ofOdessa municipality).

Central to the procedures on social contract-ing are the principles of open and fair com-petition, transparency, and accountability in


53 See www.thecompact.org.uk54 Based on the field research, this is the case for example in Armenia and Moldova.

spending public money. There are differentforms to financing non-state provision of so-cial services, described above in Section II.5.A common question related to the proceduresis whether the government can use the gen-eral procurement rules in purchasing socialservices. The answer to this question is thatwhile recognizing that each country hassomewhat different rules for procurement, thegeneral procurement rules are usually not ful-ly suitable for purchasing social services.Rather, they can serve as a basis for the regu-lation of social contracting. The most out-standing distinction is that in the case of so-cial contracting, price alone should not be theonly key factor in selecting the service provider.(If it were, the commissioning body would haveto determine the services in extreme detail toensure quality and to be able to capture anyadded value for the service beneficiaries thatit would expect from the service provider).More on this issue is included in the case studyof Kazakhstan.

For a detailed overview of the procedure of socialcontracting please see Annex 1 – Checklist Guidefor Introducing a Social Contracting Mecha-nism at the Local Level.

Standard setting and assessmentof providers

Another common aspect of regulation in re-lation to social contracting are the issues re-lated to setting standards for social servicesprovision, and assessing service providers ac-cording to those standards. Standard settingis a time-consuming exercise that is bestdone with the broad participation of both serv-ice providers and beneficiaries. In service ar-eas where there is a strong professional com-munity, this community could take the lead-ership in developing the standards (as it hasbeen the case in some CEE countries, includ-ing Hungary and Serbia). This process re-quires much patience and close coopera-

tion among all the stakeholders, as a lot of con-tentious issues are involved. From a regulato-ry point of view, it is most important to be clearon the purpose of developing the standards:

Will they serve as a basis for allowing ornot allowing service provision, thus be-ing of a prohibiting nature, or will theyserve as a basis for providing govern-ment funding to those who seek to re-ceive it?Should governments aim to establishminimum standards for social servicesor aim at excellence?)Who will assess the service providers andwhat kind of process will be used for theassessment?Who will monitor and supervise the serv-ice providers, and what will be thesanctions for non-compliance, etc.?

Assessments happen most commonly throughcertification, accreditation and licensing. Whilethere is no universally accepted definition ofeach of these terms, the laws on social serv-ices generally make distinctions along the fol-lowing lines:

– Certification refers to the person pro-viding the social service (i.e. a social work-er, child protection professional, nurse,etc.). Such a person needs to fulfill cer-tain educational and professional crite-ria as defined by law or relevant regu-lation in order to be allowed to engagein the service provision.

– Accreditation refers to the service (forexample, personal assistance, day-care,soup kitchen), which is being assessedagainst standards set out by law or rel-evant regulation. If the service complieswith the minimum standards, the socialservices will be accredited by a dedi-cated body. (In case of excellence stan-dards, there are usually different standardlevels that can be achieved.) Accredita-


tion of the service could mean that theservice provider is allowed to providea specific social service, and/ or that theprovider is entitled to receive the gov-ernment funding for that social service.Accreditation criteria may include thecertification requirements of servicepersonnel.

– Licensing refers to the organization (in-stitution, CSO, company) that runs thesocial service and which has to fulfill cer-tain criteria as set out by law or relevantregulation (for example, related to itsgovernance, internal policies, physical in-frastructure, safety and hygiene, finan-cial management, etc.). The provider mayonly run certain services if it is licensedto do so. Licensing is mostly used in thecase of institutional services. Licensingrequirements will usually include ac-creditation of services55.

According to good practice, certification, ac-creditation and licensing requirements willbe applicable to any service provider – be ita governmental, not-for-profit or for-profitprovider. This is because the purpose of set-ting standard requirements is to ensure cer-tain levels of quality of social services re-sponding to beneficiary’s needs, regardless ofwho provides the service.

Sometimes, CSOs funded by internationaldonors may be running higher quality servicessimply due to better infrastructure – for ex-ample, a newly built or renovated building, orreadily available funding. However, most oftenCSOs also struggle with capacity issues and the

overall problem of donor-supported socialservices provision is the lack of sustainabilityin the absence of clearly developed exitstrategies. As an example, in both Ukraine andArmenia, the implementation of licensingregulation was suspended because very fewCSOs could fulfill all the requirements (seeCountry Reports).

Professional standards in social services pro-vision may also lag behind due to the lack ofcourses for social workers and other careprofessionals in higher education. In addition,in some countries, there seem to be fewwell-organized professional organizations (forexample, social workers, child protection spe-cialists, disability caretakers etc.) that would beable to take the lead in developing stan-dards that would be owned by the caretakercommunity. The introduction of a system ofprofessional, service and institutional standardsand their assessments through certification, ac-creditation and licensing is likely to take somemore time in the CIS.

While having quality standards for social serv-ices is important in order to be able to moni-tor the quality of service provision, it is impor-tant to note that services for which there is no ac-cepted quality standard can also be contracted out.Standard setting usually requires that the serv-ice is predictable and determinable, leaving lessroom for innovation and thus efficiency gains,and less room to establish social services thatare not easily predictable. For example, CSOsmay detect from their other ongoing family serv-ices the need for a service to help victims of do-mestic violence. However, initially it will be hardto predict how many users there may be,


55 In many countries, there is also a basic requirement for any social service provider to register with a competent authority at the na-tional level. Such registration will be formal, without an in-depth assessment of the capacities of the provider to conduct specifictypes of services. It is a preliminary filter to ensure that service providers have the minimum capacity to undertake the service, andserves registry and supervision purposes rather than standard setting. As an example, in Bulgaria, all social service providers shouldhave registration with the Agency for Social Assistance. Registration is simple and does not place a significant burden on serviceproviders (there is no preliminary determination of their capacity), but they should produce annual reports. The only exceptionsto this are services for children; all organizations interested in providing such services should get a license from the State Agencyfor Child Protection.

what the level of need is among women andchildren, and what specific service wouldmatch the needs (a hotline or a support groupor a shelter etc.). There are also some services,such as those to assist young people at risk ordrug users that are hard to predict because theyrequire constant renewal due to the fast chang-ing environment (increased mobility, spread ofIT and social media, availability of new syntheticdrugs, etc.).

Contracting without set standards can beespecially helpful in the case of new or inno-vative services in the provision of which thereis no experience in the community. In such cas-es, it is important to leave greater flexibility tothe service provider so that it can tailor the so-cial service to match the needs of the bene-ficiaries. Providing a grant to the potential serv-ice provider might be even more appropriatebecause in that case the service provider cancome up with fresh ideas as to how best to ad-dress the needs of the service’s beneficiaries.

Contracting conditions

While stakeholders in the region are mostlyconcerned with the preparatory and selectionphase leading up to the contract, managingthe contract is an equally significant regulatorychallenge. Regulators, whether at the centralor local level, will have to address issues like:

– Payment timing and conditions (e.g.monthly, quarterly or annual, pre-financ-ing or post-financing, co-financing –such as user charges, what is required be-fore the next payment can be made, etc.)

– Liability issues (i.e. what liabilities aretransferred to the service provider)

– Risk sharing issues and risk management(including financial risk – for example,whether there should be actual cost re-imbursement or a set price, in whichcase the social service provider carriessome of the risk)

– Quality assurance (will there be per-formance indicators, complaints mech-anism or other incentives for increasedquality)

Many of these issues need careful planning andconsultation with the service providers and thelikely beneficiaries of social services to devel-op effective regulation that takes into con-sideration the given context.

Monitoring and supervision

The supervision and monitoring of the socialservice provision is of central importance inensuring accountability for public spending.There needs to be an authority that is re-sponsible for the monitoring of service qual-ity (or the monitoring of license conditions).At a national level, this can be the Ministryresponsible for social policy, a delegatedagency of the Ministry, or a self-regulatorybody; it can be done centrally or throughterritorial units; it can be done according toservice area or service type, etc. At the locallevel, it is usually done by the local govern-ment itself, but it may also use the servicesof a delegated government agency for thispurpose.

Monitoring is especially important in the caseof contracting out because, as noted above,in most contracted services the governmentpays the provider for social services con-sumed by the beneficiary, i.e. it does nothave direct feedback on the service delivery.In this case, the government has to ensure thatit pays for services that are actually provided(and not just accounted for) and the servicesmatch the required standards and/ or otherconditions. As a consequence, there is a needfor clear and objective criteria related to the so-cial service delivery. They should allow for anobjective assessment whether the service is de-livered to the quality required while matchingthe needs of the beneficiary.


When designing the monitoring and evalua-tion process, the purpose of the evaluation ofsocial service provision (and therefore, mon-itoring) needs to be clear. This can relate to:

(a) Process - How public funds are spent(and whether that has happened ac-cording to the contract conditions)?

(b) Performance - Whether the socialservices provided are in accordancewith the standards and outcomes setin the contract?

(c) Cost – Whether the projected costshave remained within the limits agreedby the contract, has there been over-spending and in general, what are thebudgetary results?

In order to be able to ensure these, a moni-toring mechanism needs to be in place at thebeginning of the contract and it should be builtinto the delivery process (for example, the con-tractor/ service provider should be obliged toregularly collect and provide data relevant tothe monitoring body). It is good practice to in-volve the beneficiaries of social services in theprocess of monitoring and evaluation, there-by creating an opportunity for the governmentto receive direct feedback on the service.(This can be done, for example, through an an-nual survey of the target population orthrough direct participatory methods likebeneficiary assessments). (See more in SectionVI, Recommendation #5.)

Supervision entails not only monitoring, butalso the possibility for sanctions in case there isa breach of the contract or the law.56 The reg-ulatory framework has to be clear as to whatthe possible sanctions are and the processthrough which they can be applied. The prin-ciples of due process (including the right toappeal) and proportionality (sanctions

should be proportionate to the extent of vi-olation) have to be observed. The possiblesanctions, the grounds for applying them,and their sequencing need to be spelled outin the contract.

Sanctions in the competence of the super-vising authority are usually related to:

– Suspension of funding– Withdrawal of future funding– Payment back of already transferred

funding– Suspension or withdrawal of license or

certificate– Prohibition to participate in future

tenders

When there is a serious violation involved (forexample, embezzlement of funds, causingdamages to beneficiaries), the authorities canalso undertake civil or criminal proceduresagainst the contractor.

II.7. Preconditions for effectivesocial contracting

The development of a comprehensive policyframework for social contracting is a complexundertaking, depending on many factors, allof which eventually need to be in place andbe harmonized. It should, therefore, be rec-ognized that the development of an ade-quate social contracting framework willhappen in stages over time and will requiresignificant upfront investment on the partof the government in order for it to bring inthe longer-term benefits that are associatedwith it and that can be expected to be realized.


56 Please note that supervision here is used in terms of supervising the execution of the contract. In the area of social welfare servic-es provision, there is also another kind of supervision which is aimed at supporting professionals to meet the quality standards indelivering specific services to their clients (e.g. speech therapy, psychological support, marriage counseling etc.).

In the following, we summarize the key con-ditions under which social contracting willbe effective, and the lack of which will likelylead to inefficiencies and increased risks forthe government or municipality. While thereare many more conditions needed – notleast, a clear and enabling legal environ-ment – these are the ones that can be seenas pre-conditions, i.e. the lack of which willpresent a basic obstacle in developing aneffective social contracting system. In thissection, we are merely summarizing thesepre-conditions with the purpose of provid-ing guidance in policy planning, and withthe understanding that they are furtherelaborated upon in other parts of the pub-lication (as referenced in each case). Further-more, Section V on Recommendations con-tains practical points to help ensure thatthese preconditions are met when embark-ing on social contracting for the purpose ofthe community services provision in thecountries of the CIS region.

1. Authority: Local governments shouldhave a mandate to deliver social serv-ices and the authority to determinethe service needs in their community.If these are absent (if, for example, allservice needs are centrally deter-mined, or the local government can-not spend central funds based on lo-cal needs), there will be a lack ofinterest on behalf of the municipalityto prioritize effective delivery of so-cial services. Instead, it will beprompted to wait for the central gov-ernment to prescribe the scope andmethod of social service delivery, re-gardless of the needs of its local con-stituency57. See more under SectionII.2.3 on Decentralization; as also thecase study on Armenia (Section IV.2.4).

2. Affordability: Sufficient, appropriateand predictable funding should beavailable to finance the social services atthe local levels. By sufficient, we meanthat they should cover the total cost ofservices that are legally prescribed for themunicipality to undertake; by appropri-ate, we mean that the method of trans-fers should be appropriate to the serv-ice needs (for example, timely advanceor reimbursement payments, ability totransfer funds to the non-state providersetc.); and by predictable, we mean thatmunicipalities and non-state actorsshould be able to foresee the levels offunding for specific services in thelonger term so they can plan on meet-ing the service needs. For more detailssee Section II.6 on financing non-stateactors, Section III.3. on impediments re-lated to funding, as well as the Odessacase study as a good practice in fund-ing arrangements (Section IV.4.4).

3. Capacity: Both local governments andCSOs need special skills and capacities toengage in social contracting. Capacity in-vestments are a special challenge for mu-nicipalities, as they are faced with press-ing needs to deliver the services, and thisdeters them from spending time and re-sources on learning new skills and elab-orating new mechanisms needed for so-cial contracting. However, social con-tracting is a complex undertaking and lo-cal authorities will face serious chal-lenges without having the tools to ad-dress the complexities. In parallel, CSOsalso need capacity development espe-cially with regard to becoming more sus-tainable, and thus a more reliable partnerto the local authorities. See more in Sec-tions III.1. and III.3.


57 On the other hand, as noted under the section on decentralization, when public office holders (mayor, parliamentarians) are di-rectly elected by their communities, they will be more inclined to engage in practices that further efficient social services deliveryin those communities. Such a change could, for example, be observed in Hungary and Romania.

4. Transparency: Social contracting will becompromised without a transparentand fair process in awarding and man-aging contracts. There are specific stepsand good practices municipalities canundertake in order to ensure fairness andtransparency, while at the same timesafeguarding the effectiveness and effi-ciency of the process. These include, forexample, the need for clear award criteria,clear contracting conditions, good re-porting systems, making informationpublic in a timely manner, etc. See morein Section III.3. related to the lack of trans-parency; good practices from the casestudies in Kazakhstan (Section IV.3.4) andUkraine (Section IV.4.4);

5. Accountability: Proper accountabilitymechanisms need to be in place tomake social contracting effective

throughout the process. Due to itscomplexity, social contracting involvesseveral layers of accountability aimed ata range of stakeholders. For example, thelocal government conducting the ten-der process will be accountable to itsown local council, to the central gov-ernment (at least in regard of spendingpublic funds), to the beneficiaries of thesocial services, to the CSO partners,and to the local community, among oth-ers. At the minimum, consultation, mon-itoring and reporting mechanismsshould be in place including the keystakeholders, which places a signifi-cant, but inevitable burden on the localgovernment. See more in Section II.7.on monitoring and supervision, as wellas the case study of Astana in the in-volvement of the community in moni-toring the services (Section IV.3.4).


45

III. The role of CSOs in social services provision

Upon familiarizing oneself with the wide andcomplex range of the policy implications of so-cial contracting described in the previouschapter, one may ask: what can be so greatabout this mechanism that would be worth allthe investment of developing new regulato-ry and fiscal schemes to accommodate it? Inthe following section, we will review themost common advantages and risks associatedwith social contracting so that decision-mak-ers can assess the level of benefits they mayexpect from introducing this mechanism. Wewill focus on CSOs, as they are the most typ-ical non-state social services providers and ex-amine the added value and specificities of CSOinvolvement, as also draw a comparison withthe for-profit sector. We will also explore themost common impediments to, and condi-tions for reaping, the full potential of social con-tracting with CSOs.

III.1. Considerationsin including CSOsin the systemof providing socialservices

Purpose of social contracting

The first consideration that should be made iswhat is the purpose of the social contractingmechanism: is it to make sure certain socialservices are provided, or is there also anoth-er purpose – to reach hard-to-reach benefi-ciaries, to include self-help groups in servicedelivery, or similar? Importantly, social con-tracting can contribute to the sustainability ofthe CSO service providers, thereby becominga mechanism to provide support to the civilsociety sector. In deciding whether to limit theparticipation in social contracting proceduresonly to CSOs, the government has to clearlyconsider what the primary purpose of theprocess is: ensure quality of services, supportto CSOs, or both. The purpose should be de-termined in line with the overall role envisionedfor CSOs in the service provision (as also in thelight of the models of CSO-government rela-tionships described earlier).

45

CSOs can fulfill multiple functions in relationto service provision58:

Representing the interests of vulnerablegroups (for example, people with dis-abilities, single mothers, people livingwith HIV/AIDS, etc.). That is why they areusually the ones that are most vocalabout the need to provide the appro-priate social services for such groups. Be-ing closer to the beneficiaries, they arealso really helpful in designing the serv-ices, since they are most familiar with theneeds of the target groups;Providing complementary or alternativeservices, services to under-served groupsof people in need for social services, anddeveloping/piloting new services thatin the future the government mightadopt59;Potential contractors for governmentservices – contracted to provide onbehalf of the government.

In the social contracting mechanism, does thegovernment – at the central and local level –aim to take advantage of all three functions?The mechanisms for social contracting willneed to be developed accordingly.

CSO capacities

Another important issue that has to be takeninto consideration when deciding how tostructure the process of social contracting toCSOs is related to the existing CSO capacity.This can be considered at three levels: (i) asa sector, (ii) at the level of the municipality (orother territory covering the scope of the in-tended social service), and (iii) at the level ofthe individual CSOs.

(i) At the level of the CSO sector, the capaci-ty to provide social services may varyacross the country. Most probably thereare no CSOs providing social services insome areas of the country. In Ukraine, forexample, one interviewee60 commentedthat the majority of CSOs only provideservices at the oblast level or at the levelof larger municipalities, and there is a lackof CSO providers at the local level. At thesame time, oblast level governments can-not engage in social contracting, giventhat they have no freedom to spendtheir own income as municipalities do (seemore in Ukraine case study).

(ii) At the level of the municipality, it is im-portant to understand the “market” for so-cial services. Even though this is not (usu-ally) a for-profit undertaking, there can bea quite complex “market” developing at thelocal level: a range of CSO providers, var-ious donors including the municipality,and the beneficiaries who are sometimesable to pay a contribution as well. The ex-istence of a suppliers’ (service providers) mar-ket, i.e. multiple CSOs providing servicesis key to effective social contracting; with-out a market there is no competition, andwithout competition most of the benefitsgenerally drawn from contracting outservices could be compromised.

The locally designed system should allowthe specificities of the local supplier mar-ket to be accommodated for. For example,in the case of an existing service wherelarge investments were made by a CSO,there might be a possibility for uniting theefforts with the local authorities (througha negotiated tender or partnership). Onthe other hand, there should be a possi-


58 Classification by ECNL.59 For example in Serbia, the service of personal assistants for people with disabilities was piloted by one CSO before the decision was

made to bring this service up to scale and include it in the new law on social protection.60 Director of Everychild Ukraine

bility to break a monopoly if the social serv-ices provided are not of good quality orare too expensive.61

Maintaining competition is generally eas-ier through grants (open tenders for proj-ect or time-limited institutional support),and more difficult when the municipali-ty contracts out a service properly, as in theCEE/CIS countries there may not be sev-eral providers of the same types of serv-ices for the same population (for example,donors don’t like duplication and tend toavoid supporting two CSOs with similarprofile in the same area). However, as theOdessa example illustrates, the strategy ofinvesting in social services market devel-opment (i.e. capacity building of CSOs)through grants can be successful; whenthe market is “ready”, proper contractingout of services can follow.

(iii) At the level of individual CSO capacities, theexpected level of human and material in-frastructure needs to be determined in theconditions for the contract award. ManyCSOs might not have the financial capacityto invest in pre-financing a social service,even though they may have highly skilledpersonnel and quality expertise. Alterna-tively, the CSO may be financially well po-sitioned, but may not have the capacity todeliver the expected benefits such ashigher efficiency or higher quality service.The municipality has to contemplate themain risks, costs and benefits involved inthese cases.

Local government capacity

As well as capacities of CSOs, the capacity oflocal government needs to be considered

when designing a system to involve CSOs in theprovision of social services. As can be seen fromthis Handbook, contracting out requires sig-nificant resources and a specific set of new skillson part of the local government. Naturally, it re-quires the financial resources dedicated to fundthe contracted services. It also demands cer-tain capacities in human resources, includingthe competence and ability to:

Assess needs and design appropriateservices at the community level (aswell as at the institutional level if appli-cable);Assess the supplier market and developa long-term strategy for contracting; de-sign and implement the local procedurefor contracting out;Develop the process of assessing the of-fers provided by the potential non-state service providers;Manage the contracts;Monitor and evaluate service provision;andIncorporate the learning into the new cy-cle of contracting.

In order to achieve this, the local governmentneeds to invest into training its employees and/or council members so that they can fulfill suchrequirements. This is a very important issue toaddress because without the necessary ca-pacity even the best social services system willnot be properly implemented. At the sametime, there is ongoing and immediate pressureon the local authorities to deliver services tomeet the current needs. For this reason, thetiming of training/ capacity building activitiesbecomes a problem – with constraints on re-sources, local governments tend to spend theirusually scarce resources on meeting the cur-rent needs, which in turn delays the possibil-ity to reform the inefficiencies of the social serv-


61 This may often be the case with so-called “old-style” CSOs, such as federations of people with disabilities or certain illnesses, referredto also under the subsidy model in Section II.5. These CSOs provide services to a wide range of beneficiaries, but the services are ofteninadequate, not following the professional developments and not responding to the changing needs of their users.

ices provision system. This dilemma can beovercome by introducing a gradual and se-quenced approach in social contracting (seemore in Section VI, Recommendation #6).

Overall relationship between the CSOsand the state

CSOs should be considered as genuine part-ners by the government. That is why theoverall relationship between CSOs and thestate is an important factor of the extent towhich social contracting is developed. CSOsare the most typical social service providers andusually the ones that are viewed as the bestpartners in the process. Therefore, feeling ofmutual respect or hostility between the mu-nicipality and the CSOs is of key significance,impacting the way the social contractingprocess develops. When there is tension in therelationship, whether at the central or the lo-cal level, it is more difficult for this concept totake hold. On the other hand, in countrieswhere there is a written policy document oncooperation between the government

and CSOs, (for example, a strategy for civil so-ciety as in Ukraine), as well as a general recog-nition of the value of the CSO sector in ad-dressing development needs, social con-tracting will likely develop faster. Experienceshows that the existence of a central level pol-icy encouraging partnership can help in de-veloping local versions of it, thereby enhanc-ing successful partnerships at the local level.62

Laws affecting CSOs

There are certain legal prerequisites whichshould be in place in order to ensure the ef-fective participation of CSOs in the socialcontracting process. Listed below are severalkey issues that should be considered when de-signing the contracting process:

CSOs should be allowed to operate inthe social area. An example of a pro-hibitive environment (in a slightly dif-ferent context) is Bulgaria, where legis-lation does not allow for CSOs to providehealthcare services.


62 Such experience comes from, among others, Ukraine, Hungary, and Croatia. See Bullain-Toftisova, 2005.

Serbia: The Social Innovation Fund

The Social Innovation Fund (SIF) is an example of how local partnerships can be fosteredthrough targeted support. SIF was created in 2003 in Serbia as an initiative of the Ministryof Labor and Social Policy in order to support social reform and the provision of socialservices throughout the country. Its purpose was to stimulate the creation of community-based services, which fell under the mandate of the local authorities, but they were veryslow in creating such. With the help of the SIF, more than 100 municipalities started suchservices. The evaluation of the activity of the SIF conducted in 2010 showed that most ofthe services supported under the SIF were new and did not exist before the supportprovided by the Fund. An important experience of the SIF was the clear system ofmonitoring that was set up. This is also an example of how states can partner with CSOsbecause six CSOs were engaged in the monitoring and evaluation process.

Source: UNDP/Foundation for the Advancement of Economics, Belgrade: Assessment of Results of the Social Innovation Fund, 2010

CSOs should be allowed to carry outeconomic activity because sometimessocial contracting might be interpretedas a form of economic activity. Even if thisis not the case, economic activity is animportant source of additional funds forCSOs who can use it to improve theirservice or provide the service to morebeneficiaries (with the same invest-ment on the side of the state).63

CSOs should receive other incen-tives/support from the state, such as taxbenefits for their donors, because this isalso a form of indirect support for thecore mission of the organizations, whichultimately has a positive impact for thebeneficiaries of their work – the clientsof the social services that CSOs provide.In essence, they help correct market andgovernment failures, which can be con-sidered as public good64.Another important factor is the possi-bility of CSOs to receive state funding inthe form of grants, subsidies or evencontracts, to allow them to pilot inno-vative social services. CSOs are “factoriesfor ideas” and the state can use them totest innovative approaches to existingproblems or piloting new programs be-fore scaling them up at the nationallevel (see below).CSOs should take part in the design ofthe social protection system and theplanning of the social needs, as well asin discussions related to the state so-cial policies. This should be defined inthe law.The state should allow for serviceproviders to build their capacity (in-cluding by allowing them to use thestate funds as they see fit, so long as theyprovide the necessary quality services).In case there is a saving from the mon-ey transferred for the social service (and

not at the expense of the quality of theservice), CSOs should be allowed touse the leftover funds for developing theservice, instead of returning them to thestate/local budget.

III.2. Advantages of CSOsas service providers

CSOs are close to the problems

Many CSOs work on a daily basis with the ben-eficiaries of social assistance and social serv-ices in the community. This “embeddedness” ofCSOs in the local community and profound un-derstanding of the problems that social serv-ices try to address is a key factor for success.They are often the first to detect a problem, orto understand its root causes. Furthermore,since they are well acquainted with the speci-ficities of the local context, they can better planthe resources they need and the servicesthey need to provide. CSOs can also reach dif-ficult to reach groups of beneficiaries – for ex-ample, the long-term unemployed who stayat home, street children, HIV-AIDS affected pop-ulation, women and children suffering from do-mestic abuse, ex-convicts, etc.

The authorities often consult CSOs, as they arecloser to the problems to better identify theneeds in the community and adequatelyplan the social services to be provided. The par-ticipation of CSOs in social service design isused as a channel to help hear the voices ofthe people in need of social services. It alsohelps avoid overlaps and lack of coordinationin service provision in cases when CSOs pro-vide social services that are funded by inter-national donors. CSO consultation and coor-dination of activities between the government


63 Economic activity for CSOs is not allowed in Armenia (see country report).64 In addition, there should be no taxes on the funds that the state transfers to CSOs such as corporate income tax.

and CSOs helps both sides share the infor-mation they have and jointly achieve im-proved outcomes for the beneficiaries of so-cial services. In addition, CSOs can achieve theirobjectives better when working in partnership,ensuring buy-in from the local authorities(which may not happen if they work inde-pendently). Finally, CSO “embeddedness” alsoleads to increased community ownership ofthe social services and the results achieved,while opening up the space for service ben-eficiaries to have a voice.

CSOs are a source of innovation

CSOs are a source of innovative ideas and goodpractices which the government can usewhen designing new social services, as also re-forming the existing ones. This is due to sev-eral reasons, such as CSO specialist knowledge(see below); openness to new, more effectiveways of achieving their missions; and their on-going commitment to meeting beneficiaryneeds. CSOs are also often well connected tothe international networks and are thereforewell positioned to facilitate knowledge ex-

change and adapt models that have workedin other contexts. They often develop a newsocial service, which then the local authoritiestake over and start supporting. In addition,CSOs develop or implement innovative serv-ices in pilot communities which the govern-ment can scale up to the national level if theresults of piloting are positive and the nationalcoverage is needed. In such cases, CSOs maystill continue to be involved in the provisionof services if appropriate. (See the example ofHopeful and Homeless NGO in Ukraine.) CSOsalso work on problems that the governmenthas no capacity to address. At the same time,once the problem has become visible and rec-ognized, it is normal for the government to turnfor assistance (or provision of specific socialservice) to the entity that knows most aboutthe issue and is often best placed to addressit – the CSO.

CSOs have specialist expertise

While the local government needs to runa range of public services for the whole pop-ulation, CSOs usually focus on one service area


Ukraine: Alisa Society

An example of innovative thinking and services is the Alisa Society. [...] The NGO was conceivedin 1991 at the time of perestroika when its founder, herself disabled, saw an opportunity to helppeople with physical disabilities. Initially, the Alisa Society sought to clothe and feed disabledpeople, but quickly learned that humanitarian efforts created dependence on handouts.[...] In1997, the Alisa Society changed course and reformulated its mission as the ‘social andeconomic rehabilitation of people with disabilities.’[...] The NGO started to recruit disabledpeople with business ideas who wanted to start and run a social enterprise. Three of Alisa’sclients took on the challenge of starting a business based on their ideas and credentials. Eachreceived basic business training and a small amount of start-up capital before taking theirideas to market. Alisa’s first enterprises are in computer training and software; appliancemanufacturing and sales; and architectural design. Today, two of the three original businessesare successful and continue to be operated by their founders. The third entrepreneur closedthe appliance business due to high production costs and slim margins, but then opened anadvertising and design firm.

Source: UNDP, EMES European Research Network Project, Social Enterprise: A New Model for Poverty

or one target group and that becomes theirspecialty. This means that they have, often un-paralleled, specialist knowledge related tothat area or target group, and therefore are inthe position to develop very effective meth-ods for delivering the social services in that field.For example, they may learn special ways ofcommunication with the target group; theymay find ways to make the social service moreefficient; and they may be aware of the latestmethods to address the specific needs of thetarget group65. Specialization is therefore a keydriver of innovation as well. Ultimately, due totheir specialized expertise, these CSOs providehigher quality services – but this may also cre-ate a monopoly in the market (so-called nichemonopolists).

CSOs are flexible

Another important factor related to the wayCSOs operate is that they are flexible and socan better accommodate to any changes inthe environment or the needs of the benefi-

ciaries. This can increase the quality, effec-tiveness and efficiency of the social service inseveral ways. Flexibility also means CSOs areless bureaucratic, so people often turn to themfor services, rather than opting for state-pro-vided social services. Furthermore, they can hirepeople part-time (for example, in case ofneeded specialized assistance) instead ofhaving to open a new position (which is usu-ally the case in state-delivered services). Bya combination of flexible recruitment policiesand voluntary work, they can provide servic-es when and where they are needed (for ex-ample, at night on the streets to work with theyouth at risk).

CSOs are likely to providehigher quality services

The above factors could lead to the conclusionthat due to their specific orientation and waysof working, CSOs are in a position to providehigher quality services than their public sectorcounterparts. Indeed, sometimes the quality of-


An example of the value of specialist knowledge and innovation is that of Salva Vita Foundation,a Hungarian CSO that specializes in finding employment for people with mental disabilities inthe mainstream labor market. Recently, Salva Vita engaged in an exercise of measuring itsSocial Return on Investment (SROI), a method developed initially by US and UK academics andnon-profits to be able to monetize the value creation of non-profit organizations. (Salva Vitahas been the first one to undertake such assessment in Hungary and to the best of ourknowledge, in the whole CEE region as well.) Based on results monitored over several years, itturned out that the clients assisted by Salva Vita will be employed on the average within sixmonths, will remain employed in the same place longer, and will find new employment fasterthan in similar programs run by state agencies. All in all, every one Hungarian Forint (1 HUF)invested in the activities of Salva Vita resulted in a 4,77-HUF return over a period of five years(for example, in savings or income generated).

Source: Salva Vita Foundation66

65 A study from the US also reaffirms the significance of specialization: “A constant challenge for county managers is to explain to theirlegislatures why a particular nonprofit is the only organization that provides a specific service, such as rehabilitating sexual offenders.Approximately 85% of the county managers explained the situation in terms of specialization”. David M. Van Slyke: The Mythology ofPrivatization in Contracting for Social Services, In: Public Administration Review, May-June 2003, Vol 63, No.3. Page 302.

66 http://salvavita.hu/index.php?menu_id=1210&topmenu=1200&oldal_id=1210&oldal_tipus=text (accessed on November 25)

fered by CSO service providers can be higherthan the quality offered by state serviceproviders. However, it is important to note thatin the region, there is a lack of appropriate datathat could serve as the basis for analysis; there-fore, the conclusion about the higher quality ofCSO service provision should be treated withcaution. Nevertheless, there is some evidencepointing in this direction. The Audit Commis-sion of the UK67 has published a Report in 200768

which contains some hard data regardingcomparisons of non-profit (voluntary), for-prof-it (private), and governmental (public) serviceproviders in the area of social services. The Re-port found that “voluntary sector providers meeta greater proportion of the national minimumstandards than in-house [i.e. public] or privatesector providers.” Data is retrieved from the Com-mission for Social Care Inspection. It analyses sev-en different types of social care services for chil-dren, younger adults and older people (most-ly residential/institutional care services) over theperiod 2003-2006. In six types of services, thevoluntary sector providers have consistently out-performed the other two sectors over the fouryears in terms of the levels of meeting nation-al standards. Only in the service area of resi-dential special schools have the private sectorproviders achieved a slightly higher rate of com-pliance than the voluntary sector.69

CSOs can bring in additional resources

In the first place, people that work in CSOs arehighly devoted to the cause, so they might re-ceive less money or do more work than ina similar government-organized institution. Inaddition, CSOs are able to attract volunteers

and also donations (to cover part of the costsor add value to the social services provided).The above-mentioned UK Report cites an ex-ample from Greater Nottingham, where a studyfound that for each 1 GBP the local council in-vested in the form of grant funding to local vol-untary organizations, the voluntary sectorwas able to lever in approximately another 6GBP through mobilizing volunteers and com-munity resources. In Newcastle, every 1 GBPgiven in grant aid brought in another 14 GBPfrom local voluntary organizations.70 Although,as the Audit Commission puts it, “an empha-sis on inputs focuses on benefits enjoyed bythe funder rather than the service user. Abroader view of value for money requires con-sideration of outputs and outcomes as well asinputs.” While there are many instances of CSO-government partnership in CEE/CIS in whichCSOs bring in resources (see, for example, theMission Armenia case study), in the longer termthis should remain a secondary considerationof the benefits that CSOs can bring to the areaof social services provision.

III.3. Impediments to CSOparticipation in socialservice provision

Lack of an enabling legal framework

An obvious obstacle for municipalities to en-gage in social contracting is the lack of an en-abling regulatory framework. The lack of clar-ity on whether and how to undertake a socialcontracting procedure seems to be a problem


67 The Audit Commission is an independent body responsible for ensuring that public money is spent economically, efficiently andeffectively, to achieve high-quality local services for the public.

68 Hearts and minds: commissioning from the voluntary sector. Audit Commission Public Services National Report, July 200769 Id. pp 19-20. It should be noted that the Audit Commission also observes: “the data available do not permit a robust assessment

of value for money. For example, they do not reveal the cost of achieving a higher proportion of minimum standards, nor whetherreaching a higher proportion of minimum standards actually lead to a better quality service for end users”. (Although the latter isan implicit assumption.)

70 Id. p 24.

for most local governments. Most of thecountries of the CIS have not yet elaboratedmany of the elements of a regulatory frame-work as described in Section II.7, whichmeans that there is no clear guidance for mu-nicipalities as to their competence, authorityand means to engage in social contracting. Aweak legal system is also a problem for CSOs,which can be exposed to the practices of thelocal authorities (for example, late payments,allegations of low quality services withoutproper indicators/ standards to measure theperformance), and remain in an inferior posi-tion in contract disputes.71

The case studies and examples listed in thisHandbook illustrate that nevertheless, socialcontracting can take place under unclear le-gal conditions. Even though those are the ex-ceptions rather than the rule, the best practiceexamples provided can be used across coun-tries and regions. They aim to convey the mes-sage that even when there is no clear and co-herent national level concept and legislationfor social services contracting, local authoritiescan find a way to introduce it legally and ef-fectively within the realm of their own man-dates and competences.

Weak capacity of local government

As mentioned already, local governmentsneed considerable human capacity to suc-cessfully design and manage contracts for so-cial services. There is undoubtedly a need tobuild the capacity of state and local level of-ficials to understand and implement social con-tracting. In local governments, this is true bothat the level of the Council and the adminis-tration. However, often this requires a changein mindsets besides and beyond the techni-cal knowledge. This is difficult to achieve andusually only “learning by doing”; for example,working with the CSOs themselves will provide

enough impetus for a local government offi-cial to understand the value added in con-tracting out the services. In addition, East-Eastknowledge exchange can be a powerful wayto promote relevant knowledge sharing. As anexample, it may be helpful to involve localNGOs in the preparatory process for social con-tracting (needs assessment, services map-ping etc.), who are familiar with the needs andmay help developing strategies in servicedelivery; this can be a good way to start co-operation. However, conflict of interest issuesneed to be considered here. (Also, CSOs are notalways friendly towards the local authoritiesand vice versa, which may hinder cooperationand establishment of constructive partnershipswhich are essential for a mixed modality of so-cial services provision.

Besides targeted training and other capacitybuilding activities, one way to address the lackof understanding at the local level can be theactive promotion of government-CSO part-nerships in social services provision by the stateauthorities engaged in social policy develop-ment. Promotion can be done through legalincentives, as well as through government com-munication policy, or both. The purpose of thispromotion is to acquaint all relevant institutionswith the legal possibility, show them success-ful practices and convey to them the benefitsof contracting. The practice shows that it is im-portant to allow space for action and to set anexample of practice that works – this could beseen in Ukraine where many others have fol-lowed the Odessa example (even some of themodels developed in Armenia are based on theUkrainian example).

Lack of CSO capacity

Even if the system is set perfectly and the ad-ministration is willing to contract services toCSOs, there is a need to have qualified CSOs


71 Struyk, 2003, p 70

that can provide social services. Very often thelack of capacity of CSOs hinders social con-tracting. They may not be able to fulfill thepromise of social contracting in terms of effi-ciency and higher service quality withoutadequate capacities. The level of organizationalcapacity of CSOs in the CIS region is general-ly weak72, this is a serious obstacle. Some CSOsfrom the old system may have a large infra-structure in terms of buildings and equipment,but they do not have a “modern” under-standing of issues of quality management,client focus, or user advocacy. Others havebeen largely dependent on foreign donors, andhave not been keen to develop their capaci-ty for providing long-term services because ofthe responsibility towards the target groupswhich they will not be able to fulfill if the fund-ing ends at a given point. With the possibili-ty for state support, they would be more in-terested to invest in their capacity as well astechnical equipment and even buildings(however this may only happen if there isa possibility for longer-term commitment onthe side of the local government). In a sense,the challenge of building CSO capacity be-comes a challenge for the local governmentto invest in the development of a sector thatcan become its long-term reliable partner inproviding much needed social services. The lo-cal government can devise funding and ca-pacity building programs to support such de-velopment. (See the Odessa example)

Lack of funding availablefor social contracting

In part, related to the problem of unclear le-gal framework, there is also the problem of fi-nancing social services at the local level. Lo-cal authorities may not receive appropriate

finances from the central government to pro-vide (or contract) services or they may not beable to generate local income to finance thesocial services. An example is shown also inthis Handbook: in Armenia, four towns thathave already adopted regulations for sup-porting CSOs within a social partnershipmechanism, have still not allocated any fund-ing for the implementation of this mecha-nism. Sequencing of decentralization meas-ures is therefore of utmost importance andfiscal decentralization is a key step in enablingsocial contracting at the local level. It guar-antees the existence of reliable funding whichis one of the key prerequisites for successfulsocial contracting.

CSO sustainability

The issue of CSO sustainability is a key im-pediment in social contracting. The local gov-ernment does not want to run the risk of in-vesting in a service that may collapse whenthe funding ends. Unfortunately, there havebeen stories, such as that of elderly people leftalone in an abandoned elderly home forweeks until some relative discovered that allthe staff was laid off because the CSO oper-ating the home went bankrupt. However, thisis to a great extent a chicken-or-egg propo-sition. In the given story, it turned out that themunicipality was just as responsible for thesituation as they were routinely late with thepayments to the CSO, and did not do anyservice monitoring which could have giventhem timely warning signals.73

It is not surprising that CSOs are not as “sus-tainable” as government institutions. CSOsvery often do not have access to finances toinvest in developing or maintaining the social


72 According to the USAID Sustainability Index 2009, the average organizational capacity ranking in NIS is 4.2 as compared to 3.0 in theCEE countries (on a scale 1(best)-7(worst) where 1-2.9 is “consolidated”, 3-4.9 is “mid-transition” and 5-7 is “early transition”).

73 The example is from Hungary based on the authors’ own information. A short article on the case in Hungarian is available athttp://www.origo.hu/itthon/20030624csod.html.

service, which in return is a problem for themwhen they want to access state funding forservice delivery. Often the state reimbursesthe expenses made instead of paying in ad-vance, which means that the CSOs shouldadvance some expenses from their opera-tional funds. While the lack of a sustainable in-come source is often seen as an impedimentto CSO involvement in social services provi-sion (“CSOs only run the service until there isfunding for them, so they are not reliable inthe long-term”), it is also a basis for negotia-tion of longer-term and regular governmentfunding (“if you want us to run the service inthe long-run, you need to commit the fund-ing for it”). Clearly, the continuity of serviceprovision is of key importance from the ben-eficiaries’ perspective, and therefore CSOs of-ten advocate for funding not just for the sakeof their own sustainability, but primarily keep-ing in mind the right of vulnerable people toaccess social services.

Image problems of CSOs

A reason for the negative attitude of the localauthorities towards the process of social con-tracting might be the bad image CSOs havein the eyes of the state officials and sometimeseven the wider community. In some places,there is a stereotype created about CSOs as“grant-eaters”, as also covers for businesses ororganizations that lack professionalism and arejust shouting on the streets without under-standing the problems. Another feature com-monly attributed to CSOs is that they just getthe money to pay high salaries for their staffwithout doing real work.74 All of these stereo-types might be obstacles to social contractingand in such cases CSOs have to work hard toimprove their image with the public and thedecision-makers.

Even when the image is not negative as such,in some countries the understanding is thatCSOs are a vehicle for attracting donor fundingto the local community, rather than receivingfunding from the community to provide serv-ices to the local population. This is true espe-cially in poorer countries where CSOs are pre-dominantly funded by foreign donors, and it isespecially problematic when foreign donors aresupporting basic social services without de-veloping an exit strategy from the outset. For-eign support does not last forever and fundingbasic services from foreign donor sources is nota sustainable mechanism to cater for localneeds. Foreign funding and/or donations maybe a good tool for attracting additional re-sources, but the basic funding should comefrom the national or local authorities.

Vested interests

Introducing a new mechanism inevitablybrings changes in the local power structure, of-ten radical ones. Social contracting, while it mayseem agreeable for all parties, may threatensome existing interests of different stakehold-ers. For example, local governments oftenfear introducing competition and a market-likeenvironment in the area of social servicesprovision. Government officials might have fearsthat CSOs providing services mean competi-tion, and contracting the service would resultin having to fire people employed by their owninstitutions. This fear persists even though inpractice CSOs will usually hire the experts wholeave the government sector (as experienceshows from some CEE countries where suchtransition already happened).

Sometimes a well-established donor-fundedCSO considers it threatening to open the“playing field” to other CSOs who could now


74 Such perceptions occurred for example during the evaluation of the Social Innovation Fund in Serbia, especially between Centersfor Social Work and CSOs (see UNDP, 2010, p.25). Perceptions of social service practitioners in Ukraine also recognize similar atti-tude (see DfiD Facilitating Reform of Social Services in Ukraine Project).

be funded by the local government and de-velop services similar to theirs.

Finally, in some cases, it is not the local gov-ernment or the CSO, but the communitythat feels threatened by the change resultingfromm the introduction of social contracting.For example, the local community might ob-ject the plans for new, CSO-managed day carecenters for children with disabilities to beopened “next door”.

In all these cases, a carefully facilitated medi-ation process needs to be put place whereineveryone gets to voice their problems and fears,be heard and mutually acceptable solutions beworked out. It is usually the responsibility of thelocal government to lead such a process,which in itself requires special skills. Localgovernments can utilize conflict mediationCSOs to facilitate multi-stakeholders’ discussionsand help resolve such situations.

Lack of transparency

One serious impediment for social contract-ing across the region is the lack of transparency.Inability of the authorities to demonstrate thetransparency of the social contracting processmakes decision-makers wary of engaging ina new practice of financing of non-state actorseven when there is a need and the outcomewould be clearly beneficial for all the actors in-volved. For that reason, there needs to bea clear regulation of the process, including howto publish information, how to avoid conflictof interest situations, how to select the winnersof the awards etc.

On the other hand, the lack of CSO/NGO ac-countability to their respective constituenciesis yet another factor that contributes to the over-all lack of transparency. Most CSOs are quitegood in presenting nicely-written donor reports,but only a few of them regularly account to thegroups whose interests they represent.

Transparency is very important for the processof social contracting because a corrupt se-lection procedure leads to failures in selectingthe best provider, which in turn directly affectsthe beneficiaries on the one hand and the priceof social service on the other. If the selectionprocess is not fair, potential candidates lose in-terest in participating in such proceduresand lose the incentive to develop their capacitywith respect to the contracted services. The im-portant prerequisites for transparency are:

Development of a clear tendering pro-cedure and the selection criteria;Defining clearly the amount and qual-ity of the contracted services – both dur-ing the competition and in the contract(which is then used as a basis for futuremonitoring of what is actually delivered);Clear contracts with defined rights andobligations of the provider and themunicipality;Good reporting and monitoring system;Ensuring the information on all thesteps is publicly accessible by publish-ing them in a timely manner (for ex-ample, in the local media or the internet).

III.4. Comparativeadvantages of CSOsand for-profitorganizationsin social servicesprovision

Underpinned by the agenda of Corporate So-cial Responsibility (CSR), there is an increasingtrend in the transition economies of the CEEand the CIS towards encouraging the for-prof-it private sector to be engaged in the deliveryof government policy initiatives, undertakegeneral business activities in deprived com-munities, and be involved in the delivery of so-


cial services as contractors, partners or evencompetitors. Moreover, the newly establishedentities to be found between the voluntarysector (civil society) and the private sector (themarket) – social enterprises – are emergingas active participants in addressing socio-eco-nomic problems, including social service de-livery. This chapter provides a short overviewon the role of for-profit organizations - com-panies in the provision of social services anda brief analysis of similarities and differencesrelated to social contracting of for-profitproviders compared to CSOs.

For-profit and CSO service providers –similarities and differences

In general, they are two main structural fea-tures between CSOs and private companiesthat distinguish them. Firstly, CSOs are subjectto ‘non-distribution-constraint’ that entailsstrict limits to the appropriation of the or-ganisation’s surplus for those who run andcontrol it, such as its members or founders,while in for-profits owners are the residualclaimants. Secondly, for-profit companieshave owners whose aim is to obtain profits.On the contrary, CSOs cannot distribute theirprofits to the members and are expected toserve beneficiary stakeholders or the societyas a whole by providing products and serv-ices of general interest.75

The characteristics and comparative advan-tages of each of the non-state sector socialservice providers in the economy of particu-lar country will result in configuration, andnature of their ‘‘cooperation” in the delivery ofany particular social service. Both companiesand CSOs have to function in the markets,and when operating as service providers inso-called mixed markets, they are in principlecompetitors, must be demand oriented and

must provide quality to survive. However,there are also certain complementarities intheir functions that are prerequisites for part-nerships and cooperation, and are likely tocontribute to better results in social servicedelivery.

There is a general perception that when op-erating in the market, for-profits can be char-acterized as entities with high overallefficiency, but also substantially influencingthe level of government and market failures.In order to be financially viable, the privatesector usually provides its services to clientswith higher purchasing power, and the costsof their services tend to be less affordable forthe poor people. It is only with those sectionsof the population with very low or no pur-chasing power, where the government usu-ally steps in as a ‘‘purchaser” that acts asa agent of poor beneficiaries through con-tracting provision of services through non-state entities.76

Of course, there is a wide range of services thatneed to be provided for people in the middleor higher income level with specific need (forexample, a disability) and where the privatesector can play a role. For example, a high-in-come professional who loses his leg due to anaccident will want to pay for good service inrehabilitation, home care or job-retraining. Inaddition, if certain prerequisites are fulfilled,companies can compete with or even un-dercut the prices offered by CSOs. In case thereis sufficiently large quantity of customers onthe market and large volumes of effective de-mand, together with high standardization,companies with highly professional and effi-cient enterprise organization and manage-ment, can reduce the price of their services. Thiscan actually enable them to reach out thepoorer sections of the population (but not thepoorest ones).


75 Koning et al, 200676 So called “purchaser-provider model”. See Wagstaff , 2009

In contrast, CSOs are widely regarded as ve-hicles that reduce the consequences ofgovernment and market failures. Especial-ly, as social services are aimed at those who arein a disadvantaged situation, CSOs can sub-stantially contribute to increasing quality andaccessibility of social services for vulnerablegroups and consumers with a low income. Orsimply, they focus on the areas where for-prof-it actors do not have an interest to be engagedbecause they are not profitable. Therefore,CSOs are often stimulated by favourable reg-ulatory measures, such as tax exemptions orbudget support.77 Moreover, the process ofprovision of social services by CSOs usually hasadded value and positive long-term conse-quences on a larger constituency than theirclients, and these are actually hard to meas-ure (See Section III.2 on Advantages of CSOs asservice providers for more detailed information).In particular, organizing voluntary labour,building of social capital, attracting private do-nations at the local level and contributing tocommunity cohesion could be consideredpositive externalities that provide a rationalefor public interventions supporting CSOs.

On the other hand, in certain circumstances,the public sector support of CSOs may causemarket inefficiences – higher productioncosts of CSOs. If both CSOs and the private sec-tor can provide social services for certainmarket segments for the same price andsame quality, one might argue that there is nostrong argument to favour CSOs only becauseof their non-profit status. In this case, the statesubsidies and tax exemptions that are providedto CSOs should not disadvantage or evencrowd out the private sector from the com-petition. For example, if the local govern-ment tenders a contract for a meals-on-wheels service, a company and a CSO shouldhave an equal opportunity to apply and com-pete – both having comparative advantages

in their bids and the best value proposition. Inorder to raise the level of quality and efficiencyof provided services, government should usegeneric regulatory measures to combat mar-ket failures – irrespective of the legal statusof service providers.

Recently, new forms of organisations haveemerged as providers of social services for lo-cal communities and vulnerable groups ofpopulation – social enterprises. These are co-operatives, associations, foundations, voluntaryorganizations, and other not-for-profit or lim-ited-profit distribution entities that operate so-cial-purpose businesses with an objective toaddress market or government failure using in-novative approaches. In order to be able to ad-dress the needs of the clients who are usual-ly poor or even unable to pay, social enterprisescombine entrepreneurship with the pursuit ofsocial aims, and mobilise multiple fundingsources (public funding, commercial income,volunteer labour, donations, etc.). These en-terpreneurial activities have enabled manyCSOs to extend their mission-related productsand services, and reach out to new con-stituencies.


77 See UNDP-EMES Study, 2008

What is a ‘social enterprise’?

A common definition of social enterpriseis, ‘Any private activity conducted in thepublic interest, organized with anentrepreneurial strategy but whosemain purpose is not the maximization ofprofit but the attainment of certaineconomic and social goals, and whichhas a capacity for bringing innovativesolutions to the problems of socialexclusion and unemployment’ (OECD,Social Enterprises,1999)

In the UK, Belgium, and Spain, as also inPoland and the Czech Republic, social enter-prises are increasingly contracted by the localgovernments to provide social services. How-ever, in Eastern Europe and the CIS, they arestill in their infancy and their potential con-tribution as social service providers remainlargely unrealised. 78 Experiences from somenew EU member states demonstrate that so-cial enterprises could be a good way for tran-sition countries to develop sustainable andhigh quality providers of social services as part-ners of the government in addressing long-term social problems.

Although the contribution of CSOs and socialenterprises to correct market failures is im-portant, the public authorities should ensurethat the tax advantages provided to them donot encourage for-profit business organizationsto become CSOs or social enterprises and seekrent-extraction by other means than profitmaximization. Also, subsidisation by the stateshould not lead to diminishing the effects ofvoluntary labour, private donations and oth-er above-mentioned positive externalitiesthat are considered to be added value offeredby CSOs/ social enterprises.

The decision on opening up competition in so-cial service provision through social con-tracting to the private sector is thus largelya matter of perspective. First and foremost, thelocal government (or central authorities) needto decide what they find important in deliv-ering the service – i.e. map the needs, suppliersmarket, determine the service standards, etc.Second, based on the assessment of theneeds/ market and the required standards, thegovernment needs to decide on whichproviders to involve and in what manner. If atthis stage, financial criteria are a predominant

decisive factor79 – given a pre-determined qual-ity of services – then there is no stringent rea-son for the assumption of a categorical ad-vantage of the CSOs/social enterprises over thefor-profit sector. In this case, government in-tervention will be more effective throughregulatory measures that apply to all theservice providers. In particular, the publicsector should increase market transparencyand set quality standards, or subsidise the pro-vision of services for particular consumertypes or particular market types.

As already mentioned, both public and non-state sectors – the private sector and third-sec-tor (CSOs) – have their weaknesses andstrengths. The recent trends show that a three-folding partnership framework (the publicand private sector, and civil society) has the ca-pacity of bringing together these very differ-ent groups, and resources, and tackle the prob-lems which no single sector can solve by itself.Through the tapping of mutual comparativeadvantages and complementarities, includingdifferent skills and expertise, the appropriatebalance between key considerations – such asequal access to services, decent quality of serv-ices (ensured through standardisation and cer-tification processes), and costs of services –can be achieved.

Role of the for-profit sector in the provision of social services

An increasingly common form of social con-tracting of for-profit organizations in Europeis through contractual Public Private Partner-ships (PPPs). One could see such PPPs as oneoption for social contracting, where the gov-ernment contracts a private sector serviceprovider to provide welfare services under


78 See UNDP-EMES study , 200879 As emphasised in Section II.5, price should not be the single most important criterion for the selection of a provider for the provi-

sion of social services. In this case, “efficiency” considering service quality as a key principle, i.e. “lowest price for a given quality” shouldbe instead applied.

a special arrangement, in which – besides theservice standards and related requirements –the financial contributions, the sharing ofrisks and of financial and social returns on in-vestment by the parties are regulated.

Commonly, PPPs are limited to rather large in-frastructural investments, and the provision ofsocial services based on PPPs in the region ofEastern Europe and the CIS is still in its infan-cy. However, countries such as the UnitedStates, the UK, Canada, Australia, Japan, and toa lesser degree India, have already accumulatedmany years of experience in contracting wel-fare services as schools and hospitals throughPPPs. The Netherlands has success stories in so-cial housing and urban regeneration.

Since PPPs are rather complex and long-termarrangements, they require an elaborate reg-ulatory, institutional, legal and policy frame-work. In the transition economies, so far onlya few PPP contracts have been successfully im-plemented. One could argue that ideally, anysocial contracting requires similar precondi-tions. Governments should, for example, beable to properly plan and determine the re-quired service delivery and identify if they areaffordable. They should be able to ensure trueand transparent competitiveness in awardingcontracts (be it for not-for profit or for-profit or-ganizations) that need to be extended intocontract implementation (to ensure constantquality in the delivery). Governments shouldalso be able to assess which offers provide val-ue for money for which they should at least becalculating the so-called “Public Sector Com-parator (PSC, see Glossary)”, which is the esti-mated, risk-adjusted costs of the governmentitself delivering the service in question. Final-ly, governments should be able to effective-ly ensure and measure the agreed service de-livery, react to changing environmental or tech-nological conditions, and terminate or other-wise intervene in the case of underperform-ing contractual partners, while still giving theprivate partner sufficient planning security and

implementation freedom. The latter is very im-portant for achieving the minimal pay-offperiod of required investments (be it justa minimal kitchen equipment for the provisionof meals, or a large hospital), and to benefitfrom the assumed higher efficiency and in-genuity of the (for-profit or not-for profit) pri-vate sector. Clearly, there is a necessity for ac-countability, transparency and integrity.

Social service PPPs are particularly challeng-ing, as they usually require smaller invest-ment amounts (than, for example, a waterutility or a healthcare) and are often also moredifficult to measure. PPPs require a costly andoften lengthy tendering process and proposalwriting procedures, which are not justifiedfor smaller investments. This is why in practiceother forms of social contracting are morefrequently utilized. To circumvent these dis-advantages, governments can provide andtender a larger pipeline of social services, bun-dle projects and/or standardize contracts. Thedifficulties in efficiently measuring the provi-sion of social services in terms of quantityand quality can partially be addressed in thecontracts.


What is a “Private Public Partnership (PPP)”?

PPP is “an agreement between thegovernment and one or more privatepartners (which may include theoperators and the financers) accordingto which the private partners deliver theservice in such a manner that the servicedelivery objectives of the governmentare aligned with the profit objectives ofthe private partners and where theeffectiveness of the alignment dependson a sufficient transfer of risk to theprivate partners.”, (OECD, DedicatedPublic-Private Partnership Units - ASurvey of Institutional and GovernanceStructures. P18, 2010)

Involvement of for-profit companies in so-cial services in the CIS region

The research team has not been able to iden-tify any examples of for-profit companies be-ing directly involved in the provision of socialservices through social contracting in thethree countries examined in the report. Thismay have been due to several reasons, andbased on the experience of the CEE countries,it is bound to change.

First, in some countries like in Armenia, socialservices development is still in its early stage.There has to be a certain understanding ofthe range of services that can be providedand the professional requirements that ac-company them, to create the “supply side” ofthe “market”. This presupposes, for example,advanced education and adult training ofprofessionals in the various services, as well assome kind of regulatory body, whether gov-ernment or self-regulatory (for example,a professional association of social workers)that develops a list or even a register of serv-ices and appropriate standards based on up-to-date professional principles (such as inte-grated services, user involvement andempowerment, customer choice, etc.).

In countries where mixed modalities of socialservices provision (involving both state andnon-state service providers) are more devel-

oped, such as in the Ukraine, the missing linkmay be the lack of a proper regulatory en-vironment that enables government fundsto be channeled through to for-profitproviders in the same way as they would beto the government’s own or CSO providers. Aprerequisite for this is the so-called unit-basedcost calculation of services that allows thegovernment to understand the real costs in-volved in the service and assess the efficiencyof any cost-proposals by non-state providers.As already mentioned, “Public Sector Com-parator” can be used by the government asa tool to estimate and make decisions onwhether a proposal by the private sectorprovider offers value for money in compari-son with the most efficient form of public pro-curement of service delivery.

Based on the experiences of transition coun-tries with a more developed market for so-cial services, such as Hungary, the most typ-ical areas where for-profit providers getinvolved include elderly care (especially eld-erly homes, wherein the elderly person as-signs his or her home property to theprovider in exchange for ongoing care dur-ing his/her lifetime), child care (services re-lated to children, from kindergartens to earlychildhood development centers and sportsrehabilitation), and employment (e.g. jobplacements, vocational training, supportedemployment, etc.).


IV. Analysis of the policy and legal framework and the practicesin Armenia, Kazakhstan and Ukraine

IV. 1. The concept of socialcontracting in the CIS region

In the following analysis, we will look at the on-going efforts to introduce social contractingin three CIS countries with the purpose ofdrawing learning points for governmentsand CSOs in similar situations. Before we em-bark on a country analysis, we would like todraw attention to the fact that although thereis a term that is commonly used in the CIScountries for social contracting (see below), theconcept itself is not clear and is being inter-preted in different ways in the three countries.

One area where the lack of clarity is apparentis in the financing mechanisms. Section II.7identified three main mechanisms for financ-ing service delivery of non-state actors (bud-getary support, procurement and third partypayments), each of which serve different pur-poses and entail different rules and capacitiesfor effective implementation. However, intransition-economy countries, including thoseexamined in this Handbook, the specific formsand mechanisms of CSO financing are not yet

differentiated in legislation or in practice. Asa result, sometimes the conceptual elementsof each are mixed, leading to less effective orless transparent financing of the services. As anexample, in Kazakhstan, state support that is ineffect a grant mechanism is administered onthe basis of a contracting mechanism, whichleads to less efficient implementation of thegovernment policies. (See Kazakhstan contextand legal framework analysis).

Another result of the lack of conceptual clari-ty is the equation of CSO support with socialcontracting. Social contracting, as definedby this Handbook, represents only a part of CSOsupport, i.e. financing activities related to so-cial services provision carried out by CSOs. Yetthe so-called “social order” (“socialnyi zakaz”),which is widely referred to as social contract-ing across the CIS region, encompasses fi-nancing of all kinds of CSO activities (includingsocial services, but also for example environ-mental protection, cultural activities or insti-tutional costs of the CSO). From the perspec-tive of budgetary policy (categorizing publicspending), the social order would best be con-sidered as a grant mechanism for CSO support,and as such, it could have a specific role in sup-porting social services on a project basis;

62


however, it cannot be considered as a specif-ic method of social contracting on the whole.

A basic problem in providing a clear definitionrelated to social contracting in the examinedcountries is that both CSO support mecha-nisms and the reform of the system of socialservices provision are still evolving. At the sametime, it is hard to define, from a legal point ofview, what kind of contracting and financingrelationships belong to the area of “socialcontracting” until these are both crystallized,given that social contracting in essence rep-resents the overlap between the system ofCSO financing and the system of social serv-ices delivery. (This is true notwithstanding thefact that non-state providers other than CSOscan also be involved.) This is also true for boththe central and the local level in social con-tracting. (See Figure 2).

Regardless of the evolving meaning of the con-cept, governments are increasingly interest-ed in introducing or expanding social con-tracting as a key mechanism to address grow-ing social inequalities. Social welfare systems

have been comparatively neglected in thetransition to democratic political systems andmarket-oriented economies. As a result, the so-cial costs of the transformation have not beendistributed equally among the population;they have been in particular borne by the poor.80

Economic transition affects the vulnerablegroups disproportionately, so their need for so-cial support increases. Budget incomes may falldue to economic restructuring, so less moneyfrom the state is available to meet the socialneeds. At the same time, the existing social sys-tems are collapsing due to lack of resources evento maintain service quality, not to mention serv-ing the expanding needs.

Some governments have been relying on thesupport of international donors as one way todeal with the deficiencies. By now, however,there is an increasingly urgent need to developa system that will take over donor-funded serv-ices once they stop their support. This meansthat the states need to start seeing social serv-ices as their own responsibility and should al-locate reliable and long-term finances forthese services.

63

Figure 2: Overlap of the system of CSO financing and the system of social services delivery

“SOCIAL CONTRACTING”

80 See UNDP/EMES Study, 2008

State financingof CSOs

Grants, contracts, third party payments

Delivery of social services

Types of social services,service standards,

licensing etc.

Socialcontracting

All of this calls for a shift from the traditionalstate- and institution-centered thinking ofmeeting social needs to a modus operandi thatplaces effectiveness, cooperation among pub-lic and non-state providers (i.e. the private sec-tor and civil society), and the rights of bene-ficiaries in the focus. As the following countryexamples demonstrate, this shift is already hap-pening in the CIS, but there are still quite a fewchallenges for stakeholders to overcome be-fore they are able to harness the full potentialof social contracting.

IV. 2. Armenia81

IV.2.1. Context

Social contracting is closely related to theoverall system of social assistance in the coun-try. The Armenian social system is predomi-nantly focused on the provision of social as-sistance in the form of cash transfers ratherthan the provision of social services. The sys-tem was designed in the 1990s and wascalled “paros” (lighthouse) or Poverty FamilyBenefit System. Under this system, there are55 regional centers to which poor familiessend applications. All applications are evalu-ated based on certain criteria and the onesthat qualify under the criteria start receivingsupport from the state (financial support).This system is costly to maintain as roughly 11% of the state budget is spent on the povertybenefits82.

In addition to the family benefit, the state main-tains several institutions – eight orphanages,seven boarding institutions for children, andsome other institutions for children and theelderly83. There are a limited number of socialservices provided by the state (although there

are other services, including employment,health care, and one-time services). Almost allnon-institutional social services are providedby CSOs, funded in part by internationaldonors and in part from the large diaspora. Oneof the biggest providers of social services is Mis-sion Armenia – a CSO largely supported by for-eign donors, which receives partial support forits services from the state budget. Its servicesinclude soup kitchens, and some services forthe elderly and children. The support of thestate covers roughly around one-third of thetotal expenses of Mission Armenia for provid-ing the services (see the Armenian Case Studyfor more details).

In Armenia, there are more than 900 localcommunities/municipalities. The majority ofthese local self-governments are very smalland do not have sufficient fiscal capacity tocarry out their own functions, much less thedelegated functions of providing social serv-ices. Land and property taxes constitute themain own revenues of local self-govern-ments and these revenues are very low. In ad-dition the state transfers funds to local au-thorities to carry out some delegated stateobligations, but these funds are limited andrepresent a minor portion of the state budget.According to Art. 43 of the Armenian Law onLocal Self-Government, “taking measures forthe improvement of social conditions of dis-


81 The information in this section is based on document review and meetings/interviews held in 2010.82 Based on information received from Mission Armenia.83 Based on the Concept Note on Organization of the Process of Provision of Integrated Social Services, adopted by the Government

on 3 June 2010.

Armenia: World Bank Data Sheet

Income level: Lower middle incomeGDP: 9,264,794,733 USD (2010)GDP per capita: 3,090 USD (2010) Population: 3,092,072 (2010) Poverty headcount ratio at national poverty line: 26.5% (2009)

Source: http://data.worldbank.org/country/armenia

abled people, families that have lost a spon-sor and other socially vulnerable groups” ispart of the voluntary powers of local author-ities. This means that municipalities deal withthis only in case there is some money leftand they have taken care of their mandatoryobligations first. In addition, not many localauthorities have personnel dealing with socialservices or other social problems.

The primary state institution responsible forsocial service policy is the Ministry of Laborand Social Issues. Other ministries, such asthe Ministry of Education may have a role inproviding some services as well (for exam-ple, boarding schools for children with dis-abilities). The social protection system ishighly centralized as 51 of all 55 regional cen-ters of the Poverty Family Benefit System areunder the direct control and managementof the state. The remaining four regional cen-ters have been transferred to local authoritiesin a pilot attempt to decentralize the system,but this process could prove challenging asthe territories for which the centers are re-sponsible do not coincide with the municipalterritories. In addition, even where some so-cial responsibilities have been delegated tolocal authorities under the Law on Local Self-Government, there is no funding attached tothis transfer. So, in reality, there is no real del-egation of powers.

The Ministry of Labor and Social Issues has re-cently taken a new approach towards meet-ing the social needs of people in Armenia. Ithas developed a Concept Note on Organiza-tion of the Process of Provision of IntegratedSocial Services, which was adopted by the Ar-menian Government on 3 June 2010. The Con-cept Note is a step in the direction of creatinga model for provision of social services. One ofthe objectives of the integration of socialservices, according to the document, is se-curing continuity in service provision. In ad-dition, two of the approaches on which theprocess will be based are collaborations be-tween various organizations and partner-ships. The Ministry is developing a timeframefor the implementation of the basic steps inaccordance with the concept note. Amongthese is creating a database of all existing so-cial services and all existing providers, as wellas development of guidelines for social co-operation and joint work.

IV.2.2. Existing practices of socialcontracting (nationaland local level)

According to the 2009 USAID NGO Sustain-ability Index, in Armenia there are over 4,000CSOs, but only around 10%-15 % of them areactively pursuing their missions.


2007 2008 2009 2010

Mission Armenia

127 million AMD351,751 USD84

127 million AMD351,751 USD



Bridge of Hope


Prkutyun 16.5 million AMD45, 700 USD

16.5 million AMD45, 700 USD

16.5 million AMD45, 700 USD

Table II. State grants for CSOs to deliver social services in Armenia.

84 All USD amounts in this table are given according to the exchange rate of the National Bank of Armenia on November 19, 2010.1 USD equals 361.05 AMD. Historical rate is not available.

CSOs receive funding from foreign donors andthere are limited social services in Armenia thatare funded by the state and almost no socialservices are funded by the local authorities.Only three CSOs have received direct statefunding (in the form of grants) for social workin the past few years – Mission Armenia, Bridgeof Hope, and Pyunik. Listed below are theamounts they have received from the statebudget in the last four years.

The CSOs to be supported were selectedwithout a publicly announced competition,based on the need to support the services theyprovide. There are also other CSOs working inother areas and they sometimes receive fund-ing from the state. An example is the organi-zation UMCOR, which receives support fromthe Ministry of Labor and Social Issues for run-ning long-term shelters for victims of trafficking.The organization was contracted directly be-cause it is the only organization with extensiveexperience in the field.

Other CSOs receive different grants from min-istries for providing specific services. For ex-ample, the Pyunik CSO gets funds from theMinistry of Sports and Youth Affairs since

2005 for the implementation of youth and ed-ucational projects for disabled people. With-in the framework of the projects, Pyunik alsoprovides social work, speech and languagetherapy and psychological services support-ed by 1.5 million–2 million AMD85 each year.Since 1996, Pyunik receives a PresidentialGrant for organizing a Summer Camp at SevanLake for disabled children, approximately 6-7 million AMD86 each year87.

A number of municipalities in Armenia havedeveloped a mechanism for social partnership.This is a mechanism through which CSOs andlocal authorities jointly prepare local regulationon how they will cooperate; this usually in-cludes a mechanism for providing funding toCSOs (in the form of grants). This money is usu-ally distributed to cover some basic localneeds. The first such regulation at the local lev-el was adopted in the town of Vanadzor in2006. So far, 12 towns have adopted such reg-ulations, and four more are in the process ofdoing this. Interestingly, the four municipali-ties with regulations still to be adopted havealready provided funding in their own budg-ets for social partnership, while four of the oth-er municipalities have still not done so even


85 Between 4,100 and 5,400 USD (2010 exchange rate)86 Between 16,400 and 19,100 USD (2010 exchange rate)87 According to the president of Pyunik Mr. Hakob Abrahamyan

The Social Partnership Regulation in Vanadzor

The Social Partnership Regulation in Vanadzor was one of the ideas that was developedafter a study visit to Ukraine, where the good practice of CSO-municipal cooperation hasco-existed for some years. The representatives of the city of Vanadzor, CSOs and localauthorities, formed a joint social partnership advisory group after seeing the Ukrainianexperience. One of the major goals was the preparation of the regulation itself. Theregulation, in addition to its other provisions, also created a mechanism through whichfunding would be provided to CSOs. Even though the funding that was provided on anannual basis is quite modest (600,000 AMD), it nevertheless was a good example.Unfortunately, this practice was discontinued in 2010 due to the financial crisis, accordingto the vice mayor of Vanadzor.

though regulations were adopted more thantwo years ago. In general, funding is limited;the largest amount provided under this mech-anism has been for Ashtarak – 1,200,000 AMD(c. 3,300 USD)88.

IV.2.3. Legal frameworkfor social contracting

Currently, in Armenia, the law explicitly al-lows for the possibility of social contracting,but there is no specific or detailed legislationregulating this process. The Law on Social As-sistance provides that “the organizers of socialassistance may sign contracts with non-gov-ernmental non-commercial organizations inthe manner stipulated by the law, regardingthe transfer to the latter of certain functionsof the state or community program on socialassistance, providing them for this purposewith corresponding financial means, and inseparate cases providing them gratuitously oron beneficial terms with territory, property,and other in the manner stipulated by thelaw.”89 In addition to monetary or assistance inkind, the law also stipulates the provision ofother different types of assistance, such ascare arrangements and consultative assis-tance (which are in effect different types of so-cial services).

This possibility created by the law is, howev-er, not widely used. There are three main rea-sons for the lack of the spread of social con-tracting, despite the explicit authorization ofthe Law on Social Assistance:

(1) There are no further specific and de-tailed regulations to implement thisgeneral provision, especially on the pro-cedures as to how the transfer of pro-vision of services may happen.

(2) The state itself provides only a limitednumber of social services and there areno budget allocations for social serv-ices provided by CSOs. In the case ofthe exceptions when funding hasbeen provided to CSOs from the statebudget, the support was given asa grant, but without any tender pro-cedure.

(3) While the Law on Social Protection al-lows contracting, the Law on Public Or-ganizations prohibits CSOs from en-gaging in income generating activities,including contracting.

The fact that CSOs in Armenia cannot receivepayments for provision of services because cur-rent legislation prohibits them to engage ineconomic activities directly, formulates a con-crete legal obstacle to social contracting. Ac-cording to Art. 4, Par. 3 of the Armenian Law onPublic Organizations, CSOs can conduct eco-nomic activities only by setting up or partic-ipating in a limited liability company. While thishas become a more widespread practice in re-cent years, many CSOs still fear that theymay be targeted by the tax authorities in casethey engage in economic activities.90 The le-gal prohibition eliminates the possibility forCSOs to engage in any public procurement, asthat would entail receiving fees for services.Therefore, in terms of social services, the onlypossibility is to receive a grant for carrying outsocial activities. The limitation does not applyto foundations.

There are no provisions related to the partic-ipation of private sector providers in socialcontracting, but businesses may be con-tracted by the state for any task using thegeneral procurement mechanism. There havebeen no cases of businesses providing socialservices.


88 See Annex for the list of municipalities that have adopted social partnership regulations in Armenia as of 2010.89 Art. 22, par. 3 Law on Social Assistance90 USAID 2009 NGO Sustainability Index.

There was a requirement for social serviceproviders to have a license, but according toCSOs, this is not applicable anymore becausevery few organizations could actually live up tothe licensing standards. There are require-ments only with regard to the services provid-ed by organizations receiving state funding thatapply equally to state and non-state providers.The standards, however, do not differentiate be-tween an organization receiving the full amountof money required to complete the criteria andan organization that receives a small part of thetotal cost of the service. This creates problemsfor the organizations, as they have to adhere tostrict government requirements (for example,on how many people they should employ, etc.)without receiving funding for this work.

Government decision N 1937 from 24 December2003 establishes a mechanism for provision ofsubsidies and grants to legal entities from thestate budget after a competition. Based on Pres-ident’s Decree N 87 from 13 May 2005, the Pres-ident provides grants to CSOs. The grant ob-jectives, however, generally target areas oth-er than the provision of social services. Thegrants procedure is managed by a CSO.

As noted above, the current social assistancelaw does not provide for any special regulationon social contracting. It provides, however, thepossibility to delegate some social obligationsto CSOs based on a contract. Since there is nospecific procedure in place, the local author-ities may adopt their own regulations onhow to interact with CSOs more generally andin the area of social assistance more specifically.

IV.2.4. Case Study: Mission Armenia

General Overview

Mission Armenia is an Armenian CSO thatwas started by a group of volunteers in 1988with a commitment to help the victims of thedevastating earthquake, socio-economic cri-sis, and the war. The organization was officiallyregistered in 1993, shortly after the introduc-tion of the CSO sector in Armenia. Despite itsvarious activities, however, the tangible con-tribution that Mission Armenia has had in thesocial support system is the development, im-plementation and enforcement of the Com-munity-Based Service Provision Model in Ar-menia. In the course of its existence, MissionArmenia has set up about 50 community in-frastructures that are spread up across thecountry for the provision of social-healthcareservices. These are renovated, furnished andequipped sites with over 500 qualified andskilled personnel, among them day care cen-ters, soup kitchens, rehabilitation centers, re-source centers, old-age homes, health posts,libraries that have no alternative in Armenia.The organization is also involved in advocat-ing for an improved legal framework for socialservices in Armenia. It is one of the strongestsupporters of the idea to create a mechanismfor social contracting in the country (eventhough Mission Armenia is one of the three or-ganizations that already receive funding).Mission Armenia now wants to switch from fulldependency on grant-based funding to de-velop sustainable finances for itself.


Social Partnership Regulation of the City of Vanadzor: Basic Principles

The regulation of the municipality of Vanadzor provides that one of the basic principles isthe mandatory announcement of competition to select CSOs which will sign contractswith the local authorities. The proposals are evaluated by a committee on social partnershipconsisting of both CSO and municipality representatives. There are specific criteria usedto evaluate the projects.

Currently, the organization covers eight out of10 “Marzes” (regions) in Armenia and pro-vides services to the needy (with a predomi-nant focus on the elderly and children, butthere are also services for people with men-tal problems). It operates 28 daycare centersthroughout the country. There are over 5,500beneficiaries of the organization’s programs(2,000 people receive food in the soupkitchens). A large part of the services provid-ed are covered by foreign donor funding. In ad-dition to this, Mission Armenia works with di-aspora and has representative offices in Syd-ney (Australia) and Los Angeles (USA).

For several years already, Mission Armenia hasbeen trying to make sure there are localsources of funding available as well. In 2007,for the first time, Mission Armenia managed toreceive funding from the Budget of the Min-istry of Labour and Social Affairs. This was a re-sult of heavy negotiations with the Ministry ofFinance and other institutions to make sure theservices the organization already providescontinue to exist. In this process, Mission Ar-menia was supported by the Social Ministry.This funding does not cover the overall costof the services, but is used for covering thesalaries of social workers etc., which in totalamounts to one-third of the total cost (see thetable of the budget subsidies provided by the Ar-menian government above).

This process has not been as smooth as it mayseem. In 2010, the Social Minister at thattime decided to organize a competition for thefunds that had already been allocated to Mis-sion Armenia for 2010 as he decided he want-ed to have a new provider (the subsidies arebudgeted annually, but are provided through-out the year). He announced a competition,but gave a really short deadline for applicationsand the competition failed. In the end, MissionArmenia signed a new contract for until theend of 2010 as initially planned.

In addition to state funding, Mission Armeniareceives support from the local authorities aswell. Traditionally, the support is “in kind”. Inmany of the towns where Mission Armenia hasdaycare centers, they receive free-of-chargebuildings which they use as precincts to pro-vide the service.

Mission Armenia has also started approachingthe local authorities for support for the serv-ices it provides. The organization has startedoffering local authorities signed partnershipcontracts through which it seeks to cover partof its running costs for the provision of serv-ices. Mission Armenia provides information onthe number of people it serves (and the serv-ices provided to them), as well as on the costof maintaining the service locally. The organ-ization thereafter requests local authorities to


Mission Armenia: The Town of Ararat case

In the town of Ararat, Mission Armenia had a building which it used as its daycare center.Its contract with the town provided that it could use the building free of charge, as longas it provided the daycare service from within the precincts of the building. However,because of withdrawing donors and the economic situation, Mission Armenia hadproblems in maintaining the service. Mission Armenia turned to the town’s Mayor toprovide part of the funding in order to ensure that the daycare center continues itsoperations. The Mayor, however, refused to provide funding and Mission Armenia had tosubsequently close down the daycare center in the city. Shortly after, the Mayor privatizedthe building (sold it to a private company), making use of all the improvements andrenovation that Mission Armenia had incorporated in the building.

help cover part of these costs. Listed above arethe local authorities (towns) that have agreedto provide co funding.

As one can see, the communities that haveagreed to provide funding are increasing,which is a good sign. However, even thoughfunds are included in the local budgets, Mis-sion Armenia does not receive all the moneybudgeted. Examples include Vanadzor, whichhas budgeted 3 million AMD in 2009, and Hraz-dan, which has budgeted 3 million AMD in2010 – both have not provided any money asyet to Mission Armenia.

Conclusion: Factors of success or failure

Mission Armenia faces several serious problemswith its engagement in long-term service de-livery in Armenia. While its services were cre-

ated and developed with donor funding, it istime the organization become sustainable,which means that the national and local au-thorities should take the responsibility to pro-vide most, if not all, of its funding.

The example of Mission Armenia demon-strates that even in a lower-middle-incomecountry with a not well-established system ofproviding social services, the government(both at the central and at the local level) willbe compelled to support CSOs, as the gov-ernment acknowledges that they make an im-portant contribution in addressing socialneeds and reaching the most vulnerable sec-tions of society. There are several important fac-tors as to why the government has providedpublic support to Mission Armenia:

The services Mission Armenia providesare needed and people rely on them;


91 Information in the two tables has been provided by Mission Armenia.

Community LSGB investment(% of the total costof the contract)

Actual amountpaid by LSGB (% of the total costof the contract)

Mission Armeniainvestment (% of the total costof the contract)

1 Gavar 6,4 6,4 93,6

2 Charentsavan 30,0 13,18 70

3 Sevan 30,0 3,85 70

4 Spitak 10,26 10,26 89,74

5 Masis 40,0 35,87 60

6 Verin Getashen 34,0 34,0 66,0

7 Vanadzor 20,0 0,0 100,0

8 Goris 20,0 20,0 80,0

9 Sisian 4,2 2,1 95,8

10 Alaverdi 30,0 25,77 70,0

11 Chambarak 4,6 4,6 95,4

Table III. Mission Armenia CSO cost-sharing contracts with Local Self-Governing Bodies (LSGB) in 200991

The state has no other alternative for pro-viding the services;Mission Armenia has the support of in-ternational donors, which are also in-terested in making the services sus-tainable (as they fund most of them atthe moment);Mission Armenia has the capacity, ex-pertise and follows high service stan-dards;The fact that Mission Armenia works atthe local level enables it to get a goodpicture of the real problems andneeds, which it then tries to addressby developing a wide array of so-cial services.

It is extremely important that the govern-ment recognizes that foreign donors mayleave, but the social problems will remain.The problem with the insufficient state fund-ing is related not only to the difficult eco-nomic situation that Armenia faces. It also re-lates to how the system is organized and howthe money that is given is actually spent. Thecurrent arrangement of funding a small partof the expenses of Mission Armenia may wellbe due to a lack of budget funds overall, andnot aimed specifically against the provision ofsocial services. However, it has to be recog-nized that the governments in the region, in-cluding Armenia, cannot count on foreigndonors or diaspora funding to finance serv-


No. Community LSGB investment Mission Armenia investment

LSGBinvestment(% from thetotal cost ofthe contract)

Actualamount paidby LSGB(% from thetotal cost ofthe contract)

MAinvestment(% from thetotal cost ofthe contract)

MA actualamount(% from thetotal cost ofthe contract)

1 Kapan 16.0 10.7 84.0 89.3

2 Charentsavan 30.0 17.0 70.0 83.0

3 Sevan 30.0 9.4 70.0 90.6

4 Spitak 16.5 16.5 83.5 83.5

5 Masis 40.0 40.0 60.0 60.0

6 Verin Getashen 34.0 34.0 66.0 66.0

7 Vanadzor 20.0 8.3 80.0 91.7

8 Goris 29.4 29.4 70.6 70.6

9 Alaverdi 22.3 22.3 77.7 77.7

10 Chambarak 5.9 4.7 94.1 95.3

11 Tashir 8.0 3.0 92.0 97.0

12 Artik 11.3 11.3 88.7 88.7

13 Hrazdan 36.6 - 63.4 100.0

14 Sisian 7.0 - 93.0 100.0

Table IV. Mission Armenia CSO cost-sharing contracts with Local Self-Governing Bodies in 2010

ices that would be the governments’ duty toprovide. As seen from the case study, the factthat Mission Armenia stopped the service inone town has not changed state behavior –it has not provided more funding to maintainthe service (and the same is the situation withthe local authorities).

On the other hand, the fact that the govern-ment has started to finance some part of theservices can be seen as an important firststep in the process of the government as-suming more responsibility. The ConceptNote on Organization of the Process of Provi-sion of Integrated Social Services is a goodfirst step forward in recognizing the role thatCSOs play is social service delivery. However,there need to be further steps by designinga specific procedure through which CSOs canbe contracted and by providing in the statebudget more funds for securing that socialservices are provided in the country (and toensure that the vulnerable sections of societydo not have to rely on foreign donors for theirbasic needs).

In addition, in order for social contracting todevelop, there needs to be more competi-tion. So the state needs to support the de-velopment of the capacity of other non-stateservice providers as well. More needs to bedone in terms of empowering the local au-thorities to initiate social contracting com-petitions based on the local needs and se-lecting the best service providers locally (thispower needs to be supported with money tofinance it). In brief, the whole system relatedto social contracting should be developed.

IV. 3. Kazakhstan92

IV.3.1. Context

The social protection system in Kazakhstan isdifferent from the one in Armenia. The first im-portant difference is that in Kazakhstan thereis a focus on social services. Owing to the sizeof the country, the distances between cities aresignificant. So the government has decided totry to move away from the previous institution-type of services that were provided (for ex-ample, orphanages, homes for people with dis-abilities, etc.) because they completely isolatedpeople from their community (as one re-spondent said, relatives could not visit theirfamily member for years because the institu-tion was in another town). A second differenceis the mechanism of “social order” (“socialnyi za-kaz”, see below), based on which a partnershipbetween CSOs and the government in the pro-vision of services has been developing forsome time now.

The key institution with regard to social poli-cy in the country is the Ministry of Labor andSocial Protection (the Social Ministry). It is incharge of designing the state policy, planningservices and providing funds for their imple-mentation.


92 The information in this section is based on document review and meetings/interviews held in 2010. Since then a draft law for amend-ments to the Law on State Social Contracts has been developed and was adopted by the Senate of the Parliament on 24 November2011. ECNL would like to express special thanks to Aigul Kaptayeva , lawyer from the ICNL Central Asia Office which provided uswith invaluable information on the law and its amendments.

Kazakhstan: World Bank Data Sheet

GDP: 149,058,911,551 USD (2010) GDP per capita: 9,136 USD (2010) Population: 16,316,050 (2010) Poverty headcount ratio at national poverty line: 15.4% (2002)

Source: http://data.worldbank.org/country/kazakhstan

Kazakhstan has a total of 14 regions. There arethree levels of government – national, regionaland local. There is some transfer of responsi-bilities from the national to the regional lev-el. Governors of the regions (akims) are ap-pointed by the President and they, in their turn,appoint the local level administrators. Taxes arecollected by state employees who are locat-ed at the regional level. The only tax that goesdirectly to the local budgets is the land tax. Re-gions are free to determine the amount of theland tax within certain limits, as determined bylaw. Based on the obligations that regions have,the state budget makes transfers to themwhen the local budgets are short of their ownresources. There are three regions in thecountry that are net donors to the statebudget (rather than recipients of state subsi-dies) – Astana, Almaty, and Atyrau. This, how-ever, does not preclude them from receivingfunds from the state under special programs,for example, for the provision of specialized so-cial services. The State Budget Law in Kaza-khstan is adopted for a period of three years,which is beneficial from the point of view oflonger-term planning, although there are stillsome restrictions on spending the budget sub-sidies received – they should be spent in thesame year as received. This has a negative im-pact on the continuity and reliability of socialservice provisions (see below).

Kazakhstan has already had several years of his-tory of social contracting of CSOs (“socialnyi za-kaz”). In October 2000, in his annual speech tothe nation, the President of Kazakhstan men-tioned the need to create a “system of grantsfor implementation of socially important proj-ects”93 in order to support nongovernmentalorganizations. As a result of this, in January2002, the government adopted “Concept ofState Support of Nongovernmental Organi-zations of the Republic of Kazakhstan”94. As a re-

sult of the state policy in this area, in 2005 a Lawon State Social Contracts was adopted95. It reg-ulates the possibility for the state to requestCSOs to provide different services in the areasof social assistance, culture, environment, etc.CSO services can be contracted at both the na-tional and local level, so local authorities alsohave an option of contracting out services toCSOs using the provisions of the law.

In December 2008 the Government of Kaza-khstan adopted the Law on Specialized SocialServices, which targets specifically children withdisabilities and the elderly. According to the law,special standards for these services are adopt-ed and the state provides a special line in itsbudget for implementing these new standards.The budget provides additional funding forcontracting CSOs using the mechanism of “so-cialnyi zakaz” (this money is additional to the al-ready provided funding under the mechanism).As explained by the Social Ministry, the purposeof the law is to delegate provision of the spe-cialized social services closer to the community,following strict professional and service stan-dards. Initially (for the first several years), the statewill fund these services with the aim that localauthorities will later undertake the responsibilityto fund the services out of their own budgets.Other social services, such as medical-social in-stitutions and others, are usually the respon-sibility of local authorities.

The key institution with regard to civil socie-ty development and social contracting is theMinistry of Culture. It is the body within thegovernment of Kazakhstan which has the taskto communicate with and take into consid-eration civil society relations. The Ministry is thebiggest contracting agency in Kazakhstanunder state social contracting. Apart from itsown objectives that are included in the socialcontracting announcements which the Min-


93 Annual speech of the President “For free, effective and safe society”, Astana, 24 October 2000.94 Resolution 85 of the Government of Kazakhstan, 23 January 2002.95 Law on State Social Contracts, 12 April 2005.

istry publishes, it collects the requests for so-cial contracts from some other ministries, forexample the Ministry of Justice, and an-nounces their tenders as well. This tendencyis decreasing in recent years, but still there areMinistries that do not fully use the socialcontracting system.

It is for this reason that the amendments to thelaw from November 2011 state that all stateagencies (ministries and local authorities) willhave to include in their budgets money for so-cial contracting. They have to provide socialcontracts to NGOs according to each institu-tion’s area of operation. In order to support theindividual agencies, the government will cre-ate a Coordinating body with the follow-ing functions:

– Coordination of the activity on formationand implementation of state social con-tracting by other state agencies in-volved in the process

– Provide consultative and methodolog-ical support to other state agencies(consultation and trainings)

– Collect and analyze the monitoringdata of implementation of all state so-cial contracts in Kazakhstan

– Submit information on results of mon-itoring to the Government

In addition, the 2011 amendments to the Lawon State Social Contracts provide for the cre-ation of an electronic registry so that once anorganization submits certain documents, itdoes not have to provide them for every sin-gle tender.

It is important to also note that the govern-ment is interested in the dialogue with civilsociety so each second year it supports a Na-tional Civic Forum. CSOs from the wholecountry are present there and they meet with

representatives of the government to discussdifferent issues. The last Civic Forum tookplace in 2009.

IV.3.2. Existing practices of social contracting

Kazakhstan is a vast country with financial re-sources larger than most of the other former So-viet countries. The availability of such fundingallows the State to provide substantial financialresources to CSOs. This mechanism contributesto the improvement of access and quality of so-cial services and at the same time, brings im-portant benefits for CSOs in terms of their sus-tainability and enhancement of their social mis-sions. In addition to providing support to CSOsand making sure certain services are provided,the decision to start providing funds to CSOsalso plays an important role in balancing the fi-nancial inflow to Kazakh CSOs from foreigndonors. So, in contrast to other countries in theregion, state funding is an important financialsource for local organizations.

According to the 2010 USAID NGO SustainabilityIndex, there are more than 31,201 CSOs in Kaza-khstan, out of which more than 8,034 are pub-lic associations – the most common CSO form.The state finances CSOs in all regions, as well asat the central level, by using the mechanism of“social contracting” or “social order” (socialnyi za-kaz). There is no other mechanism that the stateuses to finance CSOs:

There is no definition of state grants andthis mechanism is not used in Kaza-khstan;When the state needs the services96 ofNGOs, it uses “social order” mechanism(in essence “social contracting” is themechanism to procure any kind of NGOservices and activities).


96 The mechanism of socialnyi zakaz is used not just for social services, but for any type of services or tasks NGOs can provide.

Since the introduction of the Law on State So-cial Contracts in 2005, the amount of moneydisbursed under this mechanism at both thenational and local level has increased steadi-ly97. In 2006, the amount provided under thismechanism was a little over 300 million KZT(Tenge) (c. 2.2 million USD at the National Bankrate in 2006). In 2009 the received amount was1.2 billion KZT (c. 9.9 million USD at the NationalBank rate in 2009). In 2010, the amount com-mitted by the state was a little over 1.2 billionKZT (c. 9.5 million USD at the National Bankrate). At the Civic Forum held in November2009 in Astana, the Secretary of State, Mr. Saud-abaev, committed that the amount of fund-ing for CSOs would increase in the next threeyears to about 1.5 billion KZT (over 10 millionUSD) at the national level, and 1 billion KZT (6.8million USD) at the local level.

According to the USAID NGO Sustainability In-dex, in 2009, CSOs received funding from fiveministries at the national level and another threeat the local level. The biggest amount of the so-cial contracting budget falls within the Ministryof Culture (1.2 billion KZT in 2009 or c. 8.1 mil-lion USD), while the Ministry of Education andScience issued social contracts for 266 millionKZT or (c. 2 million USD). The Ministry of Healthhad social contracting worth 40 million KZT or(c. 308, 000 USD). One important fact with re-gard to the practice is that a large part of themoney given for social contracts in 2010 has ac-tually been budgeted for promoting the Pres-ident’s Statement “New Decade – New Eco-nomic Growth – New Possibilities for Kazakhstan”and for the tasks and perspectives that thespeech reflects98. The amount for this is 500 mil-lion KZT or (c. 3.4 million USD).

Under the new program for special social serv-ices, the Ministry of Labour and Social Protec-

tion planned to spend on social contracting 453million KZT (about 3 million USD) in 2010. Thiswould make it the second largest contractor af-ter the Ministry of Culture. This money is trans-ferred to local authorities (based on a very spe-cific contract between the ministry and the mu-nicipality including requirements for monitor-ing the service), who in turn contract CSOs us-ing the social contracting procedure. This is thecase for part of the social services funded by theAstana municipality (see the Astana Case Studyfor details). As explained by the ministry, it triesto divide the social contracts into smaller lotsso that more CSOs are able to access thefunding and provide the services. It also tries toput in place such requirements at the time ofpreparing the documents for application suchthat only CSOs with experience and qualifiedstaff can take part.

The practice of state “socialnyi zakaz”, despitebeing criticized by some, has achieved one veryimportant result – CSOs have become muchmore visible to state institutions and state in-stitutions see the benefits of working withCSOs, and also use their capacities and ex-pertise. Moreover, regardless of the deficien-cies in the mechanism (including sometimeswaste of money and dumping prices), thereare a number of CSOs that undertake impor-tant activities with the help of this funding.

IV.3.3. Legal frameworkfor social contracting

In December 2008, the Government of Kaza-khstan adopted the Law on Specialized SocialServices. This law details the basic division ofresponsibilities between the different institu-tions in the area of social service provision. Allthe people in difficult living conditions are en-


97 The information in the brackets was provided by the Ministry of Culture at a meeting with them held on 26 July 2010. This amountdoes not include the budget planned by the Social Ministry for specialized social services.

98 An argument against this policy could be that instead of promoting the speech and clarifying it, this amount could have been usedfor implementing the ideas in the speech itself.

titled to receiving social services based on anassessment of their needs. Social services aredivided in three groups – guaranteed, addi-tional and paid. The guaranteed social servicesare covered by the state. The decision on whichservices will be guaranteed is taken by thestate. The decision on which services above theguaranteed will be supported, as well is tak-en at the local level (these are the additionalservices). The additional services are coveredalso by the local authorities and not by the ben-eficiary. All other services are paid by the ben-eficiaries. As explained by the Social Ministry,the purpose of the law is to delegate the pro-vision of the specialized social services closerto the community, following strict standards.That is why social service provision, includingthe organization of competitions for selectingservice providers, is left at the local level. Ini-tially (for the first several years), the state willfund these services with the aim that the lo-cal authorities will later undertake the re-sponsibility to fund the services out of theirown budgets.

Service providers need to be licensed, re-gardless of whether they provide guaran-teed services or paid services. They are subjectto state control and are obliged to adhere tothe service standards.

In line with the adoption of the Law on Spe-cialized Social Services, the state has also in-troduced amendments to several other acts,including the Regulations for the Implemen-tation of Procurement. One of the most im-portant changes is that for specialized socialservices, competitions need to be organizedat the end of the current year for services tobe provided the next year. This would allowservices to be delivered all-the-year-round (un-like the case with the other social contractingprocedures described below). The state hasalso provided a special line in its budget withregard to implementing the Law on Special-ized Social Services for contracting CSOs us-ing the mechanism of “socialnyi zakaz”.

The Law on State Social Contracts adopted in2005 is the basic law regulating the process ofproviding funding for CSOs for carrying dif-ferent tasks. Apart from social services per se,the tasks may include programs, projects orcertain activities in the field of demography,arts and culture, environment, protection of cit-izens’ rights and other fields. Social contract-ing in Kazakhstan means that the respectiveinstitution divides the budget it has for socialcontracting into lots (each lot is a separate serv-ice), and each lot can be contracted to only oneCSO – the one that submits the lowest priceunder the lot. However, one organization canapply and win several different lots. There areseveral important aspects that have to be men-tioned with regard to the Law:

a. Until May 2007, the Kazakh Constitutionprohibited financing of citizen associa-tions. This is one of the CSO legal formsin Kazakhstan, but it is sometimes con-fused with the term CSO itself. So, de-spite having a special Law on State So-cial Contracts, some officials were notwilling to use the procedure because ofthe Constitutional prohibition. Aftera CSO-led initiative, this has beenchanged and the ban was revoked.However, this may be one of the reasonswhy under social contracts the statedoes not fund any administrative/insti-tutional expenses of the CSOs, but onlyexpenses directly related to the provisionof the service (for example, salaries). Eventhough the last amendments have notchanged this aspect of the law, there aresigns that the government may givea more favorable interpretation as tohow to spend the social contractingfunds, which would then include someadministrative expenses.

b. The Law covers a wider area of activities(such as culture, environment, etc.) andnot just activities in the narrow socialarea (as defined in the Glossary).


c. Only CSOs99 are allowed to compete forsocial contracts. Business entities or in-dividuals, political parties, religious or-ganizations and trade unions are ex-cluded from being the potential sup-pliers of social services.

d. The law does not provide for a separateprocedure on how providers of socialservices should be selected so the gen-eral procurement mechanism applies.There have been several important ex-emptions created for CSOs because ofstate social contracts, like the exemptionfrom the obligation to provide a finan-cial guarantee prior to the competition(although a second exemption from pro-viding a security deposit of 3% for suc-cessful completion of the service was re-voked in 2007). However, the major is-sue with the process is the fact that theonly criterion for selecting the winner ina competition is the lowest price. Thiscreates numerous problems becausethere are CSOs that provide “dumpingprices” in order to win the competition,and they thereafter find they cannot de-liver the service. Or if they deliver, thequality is actually much lower. This sim-ilarly creates problems for the state be-

cause it cannot spend all the planned re-sources, and usually in the middle of theyear there is a second announcement(and sometimes even a third one) for themoney that was not spent in the firstcompetition.

e. Before the last amendments from No-vember 2011, contracts could not ex-ceed 12 months because all moneyneeded to be spent in the budget yearin which it was received. This did not al-low for long-term engagement or pro-vision of a service without interrup-tion. There was no possibility for a CSO,once it won a social contracting com-petition, to get an extension and con-tinue the service in the next year (or ifthe state is satisfied with the service, tomake sure the same provider gets a newcontract next year). Owing to this, CSOshad no interest in investing too much indeveloping a service because therewas no guarantee they could sustain itin the longer term. The last amendmentschanged that position and provided thepossibility of one- to three-year contracts.Even though this may require changesin some other Acts, it opens up the pos-sibility for long-term financing.


99 Art. 1, point 7 of the Law of the Republic of Kazakhstan on State Social Contracts defines CSO as “noncommercial organization(with the exception of political parties, trade unions and religious associations) established by citizens and/or non-governmentallegal entities on the voluntary basis for the achievement of common goals by them in accordance with the legislation of the Re-public of Kazakhstan”.

Astana: The SAD Center

The SAD Center is one of the CSOs that has won the contract for providing social servicesin Astana for two consecutive years. The problem is that because of the specificities of theprocedure (new announcement and competition every year), they signed a contract forproviding the service in the second year only in March. So they had a group of childrenwhich needed the service, but they had no money to pay their specialized personnel in thefirst few months of the year. They subsequently had to use volunteer labor in order toensure the service is not discontinued.

f. Another related aspect is that the wholecontracting process should be carriedout and completed within the budgetyear. This means that even if, for exam-ple, the Ministry of Culture announcesthe tender in January, and the winnersare selected only in April / May. The win-ners then receive the money that has tobe spent by December 10, the date theirreport is due. That makes the timeline foreffective delivery of services only five-sixmonths at a maximum (as the moneycannot cover costs incurred prior to sign-ing the contract). In case there is mon-ey left from the first competition (whichis a common situation), a second tenderis announced (in May or June). Thesecontracts are signed sometime in Sep-tember, and so for the second group, theactivities should be carried in threemonths if not less. This timeframe, inessence, does not support the provisionof long-term social services (as op-posed to one-off events, researches ortrainings) like setting up a daycare cen-ter or feeding hungry people, simply be-cause this type of service should be car-ried out 12 months a year. It remains tobe seen how the possibility for long-termcontracts (see the bullet point above)

will affect this. There is a chance, though,that this problem will be overcomewith the latest amendments.

g. There is no clear mechanism for deter-mining the priorities of the different lotsof the social contracting competition.Each institution can determine whattypes of services it needs and thenbudget for it. The Ministry of Culture, asthe most important ministry in theprocess (and the one that has thebiggest budget for contracting CSOs),collects ideas for the specific lots, forwhich it will announces competitionsfrom other state institutions and fromCSOs (through the website http://mon-itoring.academy.kz). However, in theend, it is not clear how the exact lots areselected. More importantly, if a lot is an-nounced one year, it is absolutely unclearwhether the same type of activity will beamong the lots in the following year.

h. There is a special website (http://mon-itoring.academy.kz) set up by the Min-istry of Culture on which the public canfind information on all the lots andwho won them, as well as additional in-formation on the projects. There are a lot


Almaty Municipality: Social contracting allocations

The Almaty municipality is one of the biggest institutions contracting CSOs under thesocial contracting procedure among local authorities in Kazakhstan. In 2010, it will provide80 million KZT (c. 542,000 USD), and the plan is that in the next year the amount willincrease to 150 million KZT (a bit over 1 million USD). The municipality has set up a PublicCouncil consisting of 48 people, of which only 25 % are from the local authority, while therest are CSO representatives. The Council determines the lots that will be announced eachyear. The problem is that only three people in the municipality were in charge ofmonitoring what is going on with the projects so there was no possibility for really strictmonitoring of what has been achieved. This task has been transferred to the Informationand Analytical Center of Almaty, which has 25 employees.

Source: Tolkun Sametova, Almaty Information and Analytical Center.

of problems, however, with regard to themonitoring of individual projects and theactivities carried out, as well as their re-sults and impact (primarily due to thelack of human and financial resources).

i. There are special tax exemptions forCSOs receiving social contracts – they donot pay corporate tax on the amount ofthe contract. Until 2009, such CSOswere also exempted from paying VATwith the contract money, but that haschanged with the new Tax Code. Thereis also a discussion to exempt from so-cial tax the salaries covered with mon-ey from state social contracts, but thathas not been adopted so far.

IV.3.4. Case Study: Astana Municipality100

General overview

Astana is the capital of Kazakhstan. It is one ofthe richest municipalities in the country witha population over 600,000 and growing. Themunicipality has experience in working withCSOs for several years. The area of special in-terest is supporting children with disabilities.During the Soviet period, children with dis-abilities were admitted to specialized kinder-gartens, where specialists took care of them.After the collapse of the Soviet system, thisservice was discontinued for lack of resources.This resulted in social isolation for such childrenat their homes, since regular kindergartenswere not properly equipped to accept them.As a result of lobbying efforts by the parents,the municipality started supporting someCSOs that provided services these children athome or in a daycare center. This was donewith municipal funding initially; for instance,

the SAD Center was the organization that onseveral occasions received support from themunicipality to provide the services.

In 2009, after the Ministry of Labour and So-cial Protection started to support specializedsocial services for children with disabilities(based on the Law on Specialized Social Serv-ices adopted in the end of 2008), Astana waschosen as one of the four pilot municipalitieswhere the ministry will support the provisionof such services financially. As a first step, themunicipality carried out a survey of howmany children with disabilities are left athome without being able to attend kinder-garten or school. In 2010, based on the infor-mation received, the municipality dividedthe city into three regions and announcedthree separate competitions for providinghome-based services for children with dis-abilities. In two regions, the competitionswere won by the SAD Center, and in one re-gion, by The Union of Children with Disabili-ties in Astana. Before announcing the tender,the municipality consulted with CSOs onhow to best structure the services101. Eventhough the children were divided geograph-ically, they could still choose to get the serv-ices of the other CSOs (not the one workingin their region). In this way, the actual clientscould choose who will provide them with theservice. This was especially important be-cause in the case of social work, children getattached to the social worker so if the CSOprovider changes, children could still go backto the social provider they liked.

When announcing the three tenders, themunicipality set criteria such that only quali-fied CSOs could actually take part. These cri-teria included, for example, a certain numberof specialists and a requirement that the or-ganization have an in-house lawyer in order to


100 The information in the case study is based on information provided by the interviews with representatives from the EmploymentOffice of the Astana Municipality, SAD CSO and the Union of Children with Disabilities carried out in July 2010.

101 As explained by the Deputy Director of the Employment Office of the Municipality.

provide legal advice when needed to childrenand their parents. In 2010, the municipality pro-vided a total of 32 million KZT (c. 216,000 USD)for these three regions (the amount was sim-ilar to the one provided in 2009). The amountwas based on the service standards set by theSocial Ministry and the number of children thatneeded the service. However, the expensesthat could be covered under the social con-tract did not include rent and administrativeexpenses.

The municipality monitors the quality of theservices – they receive timesheets and serv-ice-acceptance reports from the CSO andthen pay. They also call the parents to checkwhether they are satisfied with the service. Par-ents can also call the municipality, but so farthere have been no such complaints.

In addition to this service, provided in the threeregions, the municipality has also providedfunding to another CSO for operating a day-care center. With regard to this service, therewere some complaints from other CSOs thatthe requirements for participating in thisservice (which are set by the state) are too high- the CSO needs to have its own premises andhas to provide a lot of space for each childserved. This does not allow regular CSOs to ap-ply because they do not have own premises,and they are not willing to make such an in-vestment as it is not clear whether they will re-ceive funding on a longer-term basis from thestate as social contracts are concluded fora maximum duration of one year.

Another interesting service that has beencontracted to a CSO is the so-called “taxi” forpeople with disabilities. Now 452 personswith disabilities can move around Astanawithout paying for a taxi. This service has justbeen contracted by the municipality to the As-sociation of People with Disabilities (actuallyit was the Mayor that suggested such a serviceis needed). In addition to the traditional taxiservice, this “taxi” also offers an assistancewhich takes you from your home and then onyour way out, assists you to go to your desti-nation (so it is a door-to-door service). The costof this lot was 11.5 million KZT or about 78thousand USD (for six months) in 2010.

All of the services provided with money undersocial contracts are free of charge for their users.A distinct aspect of the social contractingprocess is the fact that the CSOs that receivesupport from the Astana municipality actual-ly fulfill their mission through providing theseservices. This is a very important distinctionwith other types of contracted services by thestate (for example, construction work, wastedisposal, etc.) because in this case CSOs con-tinue to provide the service even when fund-ing is not sufficient or sometimes missing. Forexample, because of the specificities of the so-cial contracting process, in Astana contracts areconcluded only in March. So for the first two-three months of the year, there is no fundingfor the respective services (and more impor-tantly, these expenses cannot be compensatedor reimbursed through the contract signed inMarch). Despite this fact, CSOs still provide the


The Union of Children with Disabilities: Diversifying financial resources

Another initiative of the Union of Children with Disabilities in Astana: in addition toproviding services to children in their homes, they have also set up a daycare center forthese children. The center is funded by another donor. A group of volunteers helps tofundraise for surgeries needed for the children who are beneficiaries of the organization.Since 2009, more than 60 children have received financial assistance for medical treatmentwith the help of the organization.

service to the extent they can afford it on a vol-untary basis. In addition, they try to attract ad-ditional resources in order to increase the qual-ity of the services they provide or to provideadditional services.

Conclusion: Factors of success or failure

The first important issue we have to point outin the Astana case study is that here the localauthority/state has taken the responsibility toprovide services to the vulnerable groups bydesigning new services (for example, the taxiservice) and by providing funding that will guar-antee that the services will be delivered. Themunicipality has identified the problems, buthas also recognized that CSOs would be bet-ter suited to provide the services and that is whythey use the social contracting procedure. TheAstana Municipality is a good example thatshowcases both the challenges and benefitsof how the system of state social contractsworks in Kazakhstan. It is obvious that the long-term services are difficult to sustain in this sys-tem because the current system requires thatcompetitions are organized annually.

Among the positive aspects, funding devot-ed for a specific social service in the munici-pal budget, which is continued for a secondyear in a row. This indicates that CSOs in Astanawill be able to count on this resource for fund-ing their activities in the future. Clients of theservices are also assured that regardless of theprovider, there will be a service delivered(even though this does not happen through-out the whole year because of the time nec-essary to announce and carry out the com-petition). This is a good practice in line with theencouragement of long-term partnershipsand sustainability of service delivery. Anoth-er good thing about the Astana example is thefact that clients of the service were allowed tochoose the CSO that can provide them withsocial services (and are not constricted to theCSO chosen for their region).

The case study actually shows the importantbenefits that accrue from CSOs providing so-cial services. Even when there is no funding,CSOs (because it is within their mission andthey feel responsibility for the people) try toprovide the service and help their beneficiar-ies. In addition to this, they have participatedin the design of the service so that it better fitsthe needs.

The example of these CSOs (for example, theSAD center had provided different services forchildren with disabilities and received supportunder different municipal programs) showsthat once the municipality understands theproblems and the needs of the people andthey see the importance in providing servic-es to satisfy those needs, they try to supportthe CSOs. They realize that with proper support,CSOs can become their partners in solving lo-cal social problems.

There are, however, several important issueswhich need to be taken into account whenconsidering the improvement of the currentsocial contracting system:

The standards for some services (such asdaycare centers) practically preventmost CSOs from taking part in the com-petition. This could be reconsidered – forexample, the need to have an ownbuilding is not a necessary prerequisitefor delivering good services.CSOs also face problems because of theprohibition to cover their administrativeexpenses with money from the socialcontract.Services such as the ones contracted inAstana require that the service is pro-vided non-stop 12 months a year. Thefunding gap that, therefore, appears atthe beginning of each year (because ofthe need to announce new competition)is a problem that needs to be solved.One simple way to do this would be toannounce competitions at the end of


the previous year, so the services couldstart from January 1.In addition to the 12-month a year pro-vision, there should be the possibility forlong-term contracts for social service de-livery. Such an option would allow CSOsto better plan their resources, and investin training their personnel, as also inequipment and even buildings. Clientsof the services often get used to the peo-ple that provide them the services so anannual change of the provider maylead to deterioration in services.

IV.4. Ukraine

IV.4.1. Context

In Ukraine, social services are primarily run bythe government. At the same time, severalforms of support for CSOs have been in ex-istence for a long time and CSOs are often fi-nanced from the funds of the central or lo-cal government to provide social services.The system of social service provision, aswell as the system for CSO support, is cur-rently undergoing comprehensive reform inorder to improve existing practices and in-troduce new mechanisms to address socialdevelopment.

The responsibility for the provision of socialservices in Ukraine is divided among sev-eral ministries and state agencies, butthe two main ones are the Ministry of SocialPolicy and the Ministry for Educationand Science, Youth and Sports.102 The formeris officially responsible for leading the re-form efforts and has created a Working

group with representatives from both Min-istries, as well as the Ministry of EconomicDevelopment and Trade, and other stake-holders, to develop the policy framework, in-cluding the framework and mechanism forpurchasing social services provision (i.e. so-cial contracting).

In addition to the two main Ministries, throughdirectly providing or supporting the provisionof social services in various areas, the Ministryof Health is also involved, not to mention theagencies and institutions run by these Min-istries at the oblast (governorate) and rayon (re-gion) levels. Regional-level institutions havea strategic role in the budget process, as theyare the ones that dispose of the centralfunds. The local authorities are also key stake-holders in the reform process. Finally, there area few areas, primarily HIV-AIDS, where CSOstradionally take the lead in service provisionwith funding from a global donor-funded pro-gram. In December 2010, by the President’sDecree 1085, the State Agency on HIV/AIDSand other socially dangerous diseases, wasformed103. Therefore, one of the biggest chal-lenges in developing a coherent and imple-mentable policy in purchasing social servic-es has proven to be coordination among thevarious actors.


Ukraine: World Bank Data Sheet

Income level: Lower middle incomeGDP: 137,929,309,476 USD (2010) GDP per capita: 3, 010 USD (2010)Population: 45,870,700 (2010)Poverty headcount ratio at national povertyline: 7.9 % (2005)

Source: http://data.worldbank.org/country/ukraine

102 After the Constitutional court’s decision of September 30, 2010, the Ukrainian constitution was restored in its initial version of 1996.As the result, the President issued Decree number 1085 On Optimizing the System of Central Executive State Bodies that reformedthe executive branch, reorganized several ministries, also creating new state agencies.

103 President’s Decree 1085 On Optimizing the System of Central Executive State Bodies, see the reference in Russian: http://www.profi-wins.com.ua/ru/news/1381-1085.html

Currently, the Ministry for Education, Science,Youth and Sports has the most extensivenetwork of social services providing institutions,which comprise a total of 1,888 local centersunder the authority of 75 institutions nation-wide. These primarily cater to the needs of fam-ilies, children and youth, while the Ministry ofSocial Policy territorial centers in each oblastare responsible for the needs of the elderly andthe disabled. The Ministry provides funding toits institutions based on the level of service theyhave been providing in previous years, sup-porting the running costs and staff of the in-stitutions, but without a clear feedback mech-anism as to how the support of the institutionsrelates to the changing needs in the com-munities.

According to policy experts in the field of childdevelopment, it is hard to speak of financingof social services in Ukraine because there isa lack of definition of the concrete services andtheir standards104. Currently, only standards forsocial services for people with HIV/AIDS andrisk groups were approved by three min-

istries both for public institutions and non-stateproviders (Order 3123/275/770). Rather, thereare “social programs” and policy goals that areimplemented through supporting variousstakeholders, including CSOs.105

There is cooperation happening with CSOs atthe central level, but this is more in the formof professional partnerships than regular so-cial contracting. Ministries often utilize the ad-vice of experienced CSOs; however, suchconsulting services are usually paid for bydonors of the CSOs. Ministries also cooperatewith CSOs in organizing professional pro-grams, for example training of educators orconferences for professional development –again, through co-funding of a donor. Finally,the Ministries also give direct budget supportto CSOs, including subsidies and grants, but asyet the mechanism for providing these has notbeen transparent and has faced much criti-cism106. On October 12, 2011, the Cabinet ofMinisters approved the regulations on CSOs’projects funding via contests (Resolution N1049), aside of budget support to the CSOs of


104 There have been earlier attempts to develop standards for social services, including a project funded by the European Commis-sion. In July 2011, the Ministry for Social Policy reported that it had developed the matrix for social services standards to providefor unified methods for other ministries. However, these were not implemented as it was not clear where and who should adoptthem; furthermore there was no political agreement reached on the framework for applying the standards.

105 Although the Cabinet of Ministers approved special regulations for granting funds in line with each program, these funds are rathersubsidies for specific events and/ or institutional support of certain CSOs. Only three CSOs won official procurement proceduresin 2009.(Information provided by Alex Vinnikov.)

106 These are typically umbrella federations that used to be socialist mass organizations, which often administer the public subsidieson behalf of the competent ministry. As a result, participation in the calls for subsidies and grants tends to be limited. For exam-ple, only so-called all-Ukrainian youth organizations are eligible to apply to the State Agency for Youth and Sports for an annu-al budget subsidy, which means they need to be registered in Kiev and 13 oblasts and two-thirds of their governing board haveto be representatives of the youth (people older than 35 years shall not have more than 1/3 of the seats in the youth organiza-tion’s governing bodies and 10% of all membership under Art. 5 of Law on youth and children associations).

Ukraine: CSO creating a model program

In 1993, the Hopeful and Homeless CSO established a model institution to prevent theabandoning of newly born babies, a home for mothers in desperate situation to raisetheir child. The Ministry of Family, Youth and Sports saw the positive results and startedallocating money locally to build such centers. Today, there are 17 of them aroundUkraine and still more are planned to be built.

youth and disabled people. These projects cancover social services, too. Its implementationwould start in mid 2012.

There were earlier attempts to introduce li-censing, but these were discontinued, as nei-ther CSOs nor the administration was ready toadopt and apply licensing regulations. No li-censing for social services is required after Feb-ruary 2010, except for ones in health care.Meanwhile, only non-state providers can besubject to licensing in question, and it con-strains the competitive mechanisms.

It is an important factor in the developmentof the social services system of Ukraine that thetraining of social workers and social policy ex-perts in higher education started 15 years ago.As a result, today there is a cadre of young pro-fessionals with a holistic understanding of theproblems and who can play an active role inthe reform process.

A key concept in the new policy will be the shiftfrom institution-based financing of socialservices to financing the service itself, basedon the cost of service units that are calculatedaccording to certain standards in each re-spective area (for example, elderly care, disabilitycare, children etc.). This process involves the def-inition of each concrete type of service, settingstandards and calculating its costs – a lengthyand difficult process in itself. Yet this needs tobe the basis of the new approach of the gov-ernment: creating a market for social servicesin which government and non-state providers(including, but not limited to CSOs) competeto provide the best quality to the users. Con-tracting procedures and a new quality controland monitoring – supervisory system will com-plete the regulatory reform.

IV.4.2. Existing practices of social contracting

At the national level, it is important to men-tion that since 2007, there is a Concept onEnabling Civil Society in Ukraine107, whichlays out the most important directions of co-operation with support for civil society or-ganizations by the government. Based onthese directions, a number of laws are cur-rently being revised or newly drafted (seeSection 3 below), which concern the moreefficient and more transparent use of publicfunds in support of the CSO sector. The high-level commitment of the government to en-gage with CSOs provides a good basis to ne-gotiate the appropriate role of CSOs in socialservices provision.

According to official data, provided by theMinistry of Justice and the local authorities inJanuary 2011, there were 77,252 registeredCSOs in Ukraine108. As mentioned in the US-AID 2009 NGO Sustainability Index, publicfunding accounts only for an insignificantportion of income for CSOs. Other expertsstressed shrinking reliance on foreign funding;currently, only between one-third to one-fourth of all CSO income is from foreignsources. According to the Statistics Commit-tee Bulletin “Civic Associations in Ukraine in2010”, 19,500 CSOs received c. 593.5 millionUAH (c. 74 million USD) or 21.5% of their re-ported annual income. Domestic public fund-ing can be allocated through the national orlocal budget; for example, directly throughthe ministries or municipalities, althoughthese mechanisms have some limitations109.The reported CSOs income from these budg-ets is 220.7 million UAH (c. 27.4 million USD),or 8.0% of CSOs annual income.


107 The text of the Concept in Ukrainian: http://zakon1.rada.gov.ua/cgi-bin/laws/main.cgi?nreg=1035-2007-%F0108 Civic Associations in Ukraine in 2010 – State Statistics Committee, 2011 (http://ukrstat.org/uk/druk/katalog/kat_u/publposl_u.htm)109 The Budget Code and other budget laws provide for subsidies from the national budget only to CSOs having branches in the ma-

jority of governorates (14 or more oblasts, including Kyiv and Sebastopol cities). CSOs having local status may get direct subsidiesfrom local budgets only.

Several ministries and other state institutionsprovide funding to CSOs under various socialprograms, from the Ministry of Culture to theState Service on Veterans’ and Disabled Affairs.As to the local level, there is a relatively wide-spread practice of supporting CSOs throughthe “socialnyi zakaz”, usually translated as “so-cial contracting” mechanism. Initially, Odessaelaborated this model (see Case study) and sev-eral others followed suit over the last decade.This is essentially a broadly understood smallgrants program by the municipality to supportCSOs operating in its territory and fulfilling im-portant tasks for the community (mainly, butnot exclusively in the area of social services).

The practice of “social contracting - smallgrants” is today applied in such towns asKiev, Lutsk, Kamenets-Podolskyi, Mykolaiv,Boyarka, Donetsk, Kharkiv, Rivne, Ivano-Frankivsk and others – altogether in 15-20 outof 459 municipal towns. It can be seen thatthese municipalities can afford to undertakesuch a commitment, and have some level oftheir own income (from various local taxes –see the Case study).110 The funding is allocatedfrom the local budgets. For example, in 2010Odessa 350,000 UAH (c. 44,000 USD) was al-located for social projects. The same year, thetotal budget for social contracting in the cityof Mykolaiv was 191,770 UAH (c. 24,310 USD).The funds are allocated for different social caus-es that are identified on the local level by themunicipality, sometimes on an annual basis.111

Importantly, only municipal councils are cur-rently allowed to freely decide on how tospend the city’s own income. Therefore, theycan allocate some of their own income towardsthe support of CSOs. However, even then theywill have to comply with central regulations onthe use of public funds; for example, there is

a set – very low – level of daily allowances forfood or transport of supported beneficiaries.The new Tax Code effective as of January 2011improved the situation of beneficiaries by rais-ing the amount of daily allowances and ex-empting disability CSOs from taxation. Rayonsand oblasts (territorial units, see Glossary), onthe other hand, may not dispose freely of theirown income: even if the money was locallygenerated, it must be spent on delegated re-sponsibilities from the national level.

An apparent problem in local service provisionis the relative lack of CSO capacity, whichmeans that many CSOs in Ukraine are pro-fessional, well-managed organizations, somewith a nationwide network of supporters,but their combined efforts are still not enoughto serve the needs of a population of 46 mil-lion people on a daily basis. In 2008, 200,000people applied to CSOs for assistance, but only30,000 received it, according to the Kiev In-stitute of Sociology. Also, apparently CSOs donot have as much of a presence at the local lev-el – with the clear exception of municipalitiesthat have already introduced social contract-ing. The representatives of the Ministry of Ed-ucation, Science, Youth and Sports estimatedthat approximately 10% of all services couldbe contracted out to CSOs at their current lev-el of capacity – though this is largely a roughestimate.

IV.4.3. Legal framework for social contracting

There is no national legislation as yet thatwould regulate social contracting as such.However, a number of laws at the national lev-el concern the provision of social services, aswell as CSO support. Several of these have


110 One interviewee made a note regarding Lviv – Lviv does not have a social contracting scheme, because CSOs in Lviv did not needit: they have always been abundantly funded by Western donors and were mutually not very interested vis-à-vis the local coun-cil in what the other may be able to offer.

111 USAID NGO Sustainability Index 2009

been recently amended in a favorable way tofacilitate the involvement of CSOs in the pro-vision of social services and to promote pub-lic financing of CSOs. They include:

The Law on Social Services,adopted in 2003

According to the Law on Social Services,Art.1, social services are identified as “a com-plex legal, economic, psychological, educa-tional, medical, rehabilitation and other meas-ures aimed at specific social groups or indi-viduals who are in difficult circumstancesand need help (hereinafter - the person in needof social services) to improvement or repro-duction of their livelihoods, resettlement andreturn to normal life.”

Social service providers can be state andcommunal enterprises and institutions, non-profit organizations and physical persons.

The law contains a non-exclusive list of typesof social services112, the order of social serviceprovision, the rights and obligations of the so-cial service provider, the rights of the benefi-ciaries, competition procedures and respon-sibility for the violation of the law.

Until 2009, there was certain discriminationagainst CSOs embedded in the Law on SocialServices, since non-state providers were re-quired to license all their services. However, onDecember 15, 2009, these provisions were re-pealed, followed by amendments to the Lawon Licensing in October 2010, according towhich the only services that are subject to li-cense are now health services.

An alternative draft Law on Social Services wasprepared by a group of CSOs recently; however

their lobby attempts have not been success-ful. At the same time, there is a draft concepton purchasing social services being preparedby the Working Group under the leadership ofthe Ministry of Social Policy, which is, howev-er, progressing slowly due to the immensework involved in coordination and legal har-monization.

The Law on State Procurement,adopted in June 2010

The Law defines the procedure of open pub-lic procurement and two-level procurementprocedure, where the participants provide in-formation to qualify for the competition andprovide price quotes in the second round ofcompetition. The procedures apply to thethreshold of over 100,000 UAH (c. 12,400USD) for services. This law has been used a fewtimes to purchase services provided by CSOsto the government. It has, however, provedburdensome and complicated to apply. Thereare currently laws planned to make it easier fororganizations dealing with people with dis-abilities to take part in the procurement pro-cedures for social services113. However, no gen-erally applicable amendments have as yet beensubmitted. An alternative recommendation tointroducing a new law on social contracting– which may be adopted faster – has been toamend the Law on Procurement in a way thatspecial provisions would apply to the pur-chasing of social services.

The Budget Code of Ukraine andthe State Budget Law of Ukraine

As an important development, the new budg-et code adopted in July 2010 explicitly includesCSOs as a form of organization that may receivebudgetary funds and prescribes the possibil-


112 It has to be noted that while in Art. 5, the list of social services is non-exclusive, Art. 8 authorizes the Cabinet of Ministers to approvethe exclusive list of these services as well as standards for their delivery.

113 This group of organizations, including both CSOs and enterprises, has been traditionally privileged in accessing governmental fundsin Ukraine, see DfiD/FRSSU, 2007.

ity to designate funds for CSO support at all lev-els of the government. The new code effectivefrom January 1, 2011, makes it obligatory tofund CSOs of veterans and people with dis-abilities, arts and culture CSOs, and youth andchildren CSOs from the national budget,while it leaves the support of other CSOs op-tional.

Other laws and regulations,including the Law on Associations,tax laws and the Law on Licensing ofCertain Types of Economic Activities

The Law on Associations114 contains Art. 24 thatallows economic activities of associations viasubsidiary enterprises. Ukrainian tax authori-ties usually interpret this regulation as pro-scribing direct economic activities of associ-ations. However, Art. 8 of this law provides fortax preferences for economic activities both byassociations themselves and their subsidiaries.The new tax code does not prohibit economicactivities explicitly, but imposes some restric-tions (for example, all economic activitiesshall be included in the association’s articles,

and prices for their services shall be lower thanmarket prices; besides, tax exempt income shallnot be used for business purposes115).

The CMU Order N 1049/2011 on CSOs’ proj-ects funding via contests, and the develop-ment of the draft Strategy for enabling civil so-ciety, have already helped regional authoritiesto approve several long-term programs (eventhough they are not obligatory for munici-palities). For instance, Kherson oblast councilassigned 50 thousand USD for 2012 and 1.75million UAH (215 thousand USD) for 2012-2015for the social projects of local CSOs116.

At the local level, a number of municipalitieshave developed regulations for “socialnyi za-kaz”. These regulate the procedure of themunicipality tendering small grants amongCSOs that are active in a priority area deter-mined by the city. While it is called social con-tracting in English, it does not cover servicecontracts per se; rather, these are regulationsfor a well-planned and transparent grantsmechanism that focus on the thematic areas(for example, children, disabled, elderly) and


114 N 2460-XII of June 16, 1992115 Par. 157.15 of Tax Code116 http://govgrant.org.ua/?p=1541#more-1541

Mykolaiv: Contracting out municipal grant-making to a CSO

Mykolaiv presents an interesting example not only because it adopted regulations tosupport community-based neighborhood associations (self-governance bodies), but alsobecause its Council decided to contract the administration of the small grants to anindependent CSO. This has been prompted by the positive experience in this town relatingto the local Community Foundation for Development of the town of Mykolaiv, a grant-making organization supported by various international donors. In view of the example ofprofessional and effective management of a small grants program, and seeing the gaps inits own capacity to implement such a program, the Council decided to contract a CSO toundertake the administration of the process. Thus, in 2009, a tender was announced bythe Department of Housing and Communal Services, and a local CSO Perspektiva has beenawarded the implementation.

often essentially provide institutional sup-port to the CSOs working in these areas.They have proven an important tool in the de-velopment of the local CSO sector, as well asin ensuring ongoing support to certain ben-eficiary target groups assisted by the CSOs. Thecity of Odessa pioneered the Regulations onSocial Orders back in 2000 (see Case study). Oth-er towns followed suit over the past decade.As one of the most recent examples, the‘Regulations on Annual Competition for Self-governance Bodies’ was adopted in the cityof Mykolaiv in 2009.

IV.4.4. Case Study: Odessa Municipality

General overview

The story of the Odessa Municipality SocialContracting model began 12 years ago, whena deputy of the City Council launched an ini-tiative to institutionalize cooperation be-tween the local authority and public associa-tions. The deputies recognized the importantwork carried out by the associations in the cityand agreed to establish a mechanism for co-operation, which they saw not as a “financiallife support” for the CSOs, but rather a mech-anism to help jointly solve the social problemsin the city, implement common tasks andbuild social capital locally. Thus, the first andforemost condition of introducing the localsocial contracting mechanism, i.e. the politi-cal will of the local authorities was given inthe city of Odessa.

The second condition was that of finding a nor-mative (legal) basis for the procedure. Therewas no national legislation on this type ofprocess (see Legal framework above). Howev-er, it was possible for the city of Odessa to makespecial regulations on spending the non-

state part of its local budget. Thus the first mu-nicipal regulation, the Decision of the CityCouncil on Social Order was adopted in 2000.

Odessa is a big port town, with strategic po-sitioning, and has regular income from varioussources, such as local taxes and fees ontourism, port fees, market fees, communal in-come taxes and others. Therefore, it was ableto afford the third important condition in theprocess, i.e. allocating appropriate funding forthe purpose of social contracting every year.

The fourth condition, according to the localexpert,117 has been the efficient organizationof the management of the funds. Appropri-ate human resources – both paid and volun-tary – have to be dedicated to the imple-mentation of the mechanism, as it involvesmany different tasks and a lot of coordination.In Odessa, there is a Working Group, underthe auspices of the Odessa Institute for SocialTechnologies (a non-profit consultancy insti-tute hired for this purpose), which does all thegroundwork, including technical and admin-istrative work relating to the funding pro-gram. It also helps develop the methodol-ogy base. In addition to the Working Group,there is also the Commission, which is thegoverning and decision-making body in theprocess. The Commission consists of fivedeputies, five city administration workers andfour CSO representatives. They agree eachyear on the priority program areas and eval-uate the project proposals. There is no termlimit for the membership, but members aretypically rotated every four-five years, exceptfor the key “founding” members who ensurecontinuity. In total, 30 out of 1,700 employeesof the city administration work on the imple-mentation of this mechanism.

In terms of the funding process, five main stepswere identified:


117 Andrej Kroupnik, Odessa City Council

The first step is called “social diagnosis”, a com-munity needs assessment carried out by theInstitute in collaboration with the relevant de-partment of the City Council. During this “di-agnosis”, all social problems and needs aremapped with statistical and sociological tools,from the analysis of demographic data to sur-veys and focus groups or the analysis of com-plaints received by the municipality. Every fewyears, this assessment is done thoroughly, whilein other years, the information is updated.

In the second step, the City Council agrees onthe priorities and on which ones it will to ad-dress through social contracting with CSOs.This results in the Municipal Decision on theAnnual Program for Solving Priority SocialProblems in the City of Odessa with the As-sistance of Social Contracting Mechanism. TheProgram details the tasks (for example, im-proving the situation of homeless children) andprescribes the participation of CSOs in solvingthose tasks. “In drawing up a CommunityCare Plan a social services authority needs totake key strategic decisions about how far itintends to remain a direct provider of servic-es, and how much service it will be seeking topurchase from other sectors. This is a major lo-cal political decision.”118 There is a budget al-location for all the tasks as well. In 2010, for ex-ample, the Program allocated a total of 350,000HRN to address seven priority program areas.

The third step involves running the tendercompetition. At the start, the Mayor an-nounces the competition through a Decision.The Decision includes the key problem areasand tasks, eligible organizations, deadlines forthe application, application form and docu-ment samples, and a budget template. (Spe-cial emphasis is paid to the ratios betweensalaries and direct project costs, i.e. the salariescannot constitute the largest expense of theproject.) There is usually a three-week time pe-

riod for CSOs to apply. During this period, con-sultations are held twice to help prepareCSOs for successful application. Submissionsare paper based, and in a closed envelope.

When the Commission opens each enve-lope, it makes 14 copies of each application fordistribution to the members. On average,the Commission receives 60-70 applications.Evaluation is based on a rating system, where-by 10-criteria for evaluation can be awardeda maximum of 10 points each. Therefore, themaximum points that can be awarded to anapplication are 100. Commission membershave one week within which to evaluate andscore the proposals. After a technical rankingorder based on the scores has been generat-ed, the Commission discusses each problemarea and agrees on the CSOs to be support-ed (based on their general score and the im-portance of the problem). Generally, theCommission is able to support up to three pro-posals in each problem area; for example, in2009, 18 projects in six problem areas wereawarded out of 58 applications.

CSOs with representatives sitting in the Com-mission may also apply, but their representa-tive cannot take part in the evaluation of theirproposal. When a CSO is rejected, the Com-mission does not provide an explanation,but the CSOs usually ask for a reason, and geta chance to learn from their mistakes if theyare interested.

The fourth major step is the implementationof the project. Contracts are drawn with thewinners of the awards by the respective de-partments of the municipality. Sometimes theCommission decides to award less money thanwhat was requested. This can happen in casethe CSO fails to secure the required matchingfunds from non-state sources; then the con-tract may be drawn for an amended (lesser)


118 Flynn and Common, 1990.

amount. However, CSOs are usually able toraise additional funding. They have notedthat often the support from the municipalityserves as a stepping stone for the CSO to raisefunding from other sources. While the fund-ing is only for one year, CSOs are allowed to ap-ply every year and are evaluated based ontheir merits every time (i.e. it is possiblefor a CSO to receive funding over several years).When the contract is drawn with the munic-ipality, the department orders the paymentfrom the Treasury and the CSO has to claim thefunds from the Treasury directly.

In the fifth and final step, the municipality re-ceives the reports by the CSOs on the projectimplementation. There is some publicity pro-vided to the outcome and results; for exam-ple, through presentations of the successfulprojects, case-study books, and meetingswhere the winners who have successfullyimplemented the project receive a certificate.

Conclusions: Factors of success and failure

Over the past 10 years, the Odessa municipalityran eight competitions, in which 383 projectsparticipated, 155 projects were funded,2,384,000 HRN from the city budget and 9 mil-lion HRN from other sources (as matchingfunding, material and in-kind) was allocated toresolve the social problems of the city. It canbe seen that the city has gained with thismechanism in terms of financial resources fromother donors that were directed towards thecity’s priority problems, as also in terms of CSOsand local citizens taking far more responsibilityin solving these problems.

Conclusively, the Odessa example can beconsidered a success story in terms of creat-ing a sustainable mechanism of engage-

ment of the local government with the CSOsto address jointly the key problems in thecity. The learning points from the city’s suc-cess have been summarized above, as pre-sented by the representatives of the Counciland the Commission, and include the needfor political will and initiative, enabling legalframework, sustainable funding, and efficientand transparent administration of funds.

There is also the need to involve CSOs inthe design of the mechanism from the out-set. In Odessa, according to our intervie-wee119, the CSOs initially did not like the ideaof competition, but they came to see thebenefits of it over time. In other instances,the local council may involve a wider pool ofCSOs already at the stage of designing therules of the competition to enhance owner-ship of the process as early as possible.

On further challenges and the need for im-provements, one should note the need totransfer leadership in this mechanism (bothpolitical and administrative) to other actors –for example, by introducing term limits forthe Commission members – so that successdoes not become too dependent on one ora handful of figures.

Furthermore, it would seem timely and ben-eficial if the public (as well as Councildeputies) were acquainted not only with theresults of the annually implemented projects,but also with the larger social impacts ofthe funding mechanism over the years. Thismechanism has been in place for 10 yearsnow, so there must be a way to measure itscontribution to resolving the social problemsthat were identified (many of them recurringover several years) and how the projects re-sulted in a better life of the community atthe impact level (for example, how there areless homeless children on the street or more


119 Andrey Kroupnik, Odessa City Council

disabled young people employed). If an im-pact study could demonstrate convincingdata in satisfying local needs, this would actas a clear statement not only for other mu-nicipalities, but also for the central govern-ment on the value of CSOs in contributingto social and economic development.

In summary, while the “socialnyi zakaz” is not,strictly speaking a model in contracting socialservices, and its scope extends beyond socialservices, the CSOs that have been supported

through this mechanism have had thechance to invest in their institutional devel-opment, as well as in the development oftheir services, and some of them have be-come a potential partner for the local gov-ernment to actually contract services on a feebasis or through normative support. There-fore, the Odessa example illustrates the im-portance of the government investing inthe long-term institutional developmentof CSOs to prepare them for their future roleas the “only” providers of social services.


The recommendations provided here arebased on our research in the three countriesstudied, as well as comparative informationfrom a number of other countries in Europe.Some of the recommendations address spe-cific problems found in specific countriesthat might not be issues in other countries. Onthe whole, however, we have included rec-ommendations that could be applicable to allthe countries in the CEE and CIS region.

1. Responsibility for socialservices should remain withthe government; however serviceprovision may be contracted out

As stipulated at the outset, governmentshave an obligation under the internation-al law to ensure the provision of basic so-cial services to the population. In case thegovernment does not fulfill its obligation toprovide social services, there could be no sys-tematic way to organize social contracting be-cause decision making on the need for socialservices and the need to contract out suchservices will be arbitrary, and can be takenbased on individual preferences and opinions.This runs against efficiency and accountabil-ity in public spending. From among the coun-tries examined, Armenia stands out as a coun-try in which the social area is within the ‘vol-untary’ (discretionary) responsibilities of localauthorities. While many stakeholders, includ-ing the local authorities, are making impor-tant efforts to address pressing social needs,

an obligation for the provision of certain ba-sic services will need to be introducedto achieve a long-term solution.

In shouldering its responsibility, the stateneeds to design an appropriate policyframework to deliver social services to thepopulation in need. This does not necessari-ly mean that the state has to deliver the serv-ice itself through its own institutions. Based onthe perceived advantages and considering thepotential risks of the given context, govern-ments may introduce social contracting as ei-ther the main mechanism or as a comple-mentary mechanism for social service delivery.However, if and when it decides to contract outthe social services delivery, it will still need toensure at least two things as part of its over-all responsibility: (a) providing adequate fund-ing, and (b) making sure social services adhereto certain standards (so to ensure that bene-ficiaries’ needs are addressed in the appropriateway). For example, if service users are dissat-isfied with the services, it should be the obli-gation of the state to change the serviceprovider or the type of service delivered.

2. Governments should ensure fundingof the cost of social services that theyhave a legal obligation to provide

By default, the government should fund thetotal cost for the social services that it hasa legal obligation to provide (including national

A H a n d b o o k o n N o n - S t a t e S o c i a l S e r v i c e D e l i v e r y M o d e l s

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and local legislation). In cases where there isno legal obligation, for example in comple-mentary or alternative services, the govern-ment may decide to fund only part of the serv-ice while recognizing if they are important fora specific part of the population or con-tribute to the welfare of all local citizens. In gen-eral, however, when there are strict standardsand other parameters for social services, thegovernment should be prepared to fund thecosts of social service in exchange for the de-sired quality and quantity of the service.

Putting the beneficiary perspective at theheart of the social services provision, there isalso the need to secure long-term sustainabilityof the services. This means that fundingshould be predictable so as to enable CSOsand other non-state service providers to planthe future service provision having an indi-cation of the approximate funding that will beavailable for this type of social service. Oncefunding is predictable, CSOs may be willing toinvest in developing their capacity for socialservice provision, including buying technicalequipment because they will know that thisinvestment could be used in the future. If fund-ing priorities change annually or if only short-term contracts are awarded, CSOs are not like-ly to invest in building their capacities for long-term social services delivery.

Predictable funding is more feasible when thegovernment (national or local) has a clear pol-icy aiming to support the social service delivery.In addition, it is important that in the budget(local or national), there is a separate/ distinctiveline item for social services that does notchange unpredictably or dramatically eachyear. Possibly, a separate fund could be es-tablished for this purpose. Predictable fundingalso means that multi-year planning is possi-ble, thereby allowing a service provider to en-ter into long-term (multi-year) agreements. This

is of utmost importance from the beneficiaryperspective, as a multi-year funding frameworkprovides for continuity of service, as also con-tinuity of familiar service providers (so long asthe provider is providing good quality servic-es in line with the prescribed standards). Forservices targeted at certain vulnerable groups(for example, daycare centers for childrenwith autism), continuity of service, as well asfamiliar, known service providers are of utmostimportance.

3. There is a need to make a differencebetween grants and social contracts

Grants are a form of direct funding for specificactivities/ projects proposed by the CSOwithin the scope of general programs an-nounced by the government120. Their pur-pose is generally twofold: to achieve specificresults in line with the government’s socialpolicy, promoting social innovation, and tosupport the civil society sector. Social con-tracts have as their main aim the delivery ofstrictly defined social services. They are closerto procurement, although there are somevery important differences: for example, low-est price is not the most important evaluationcriterion. So when a social contracting systemis designed, it has to determine the purposeof the social contract – to ensure good qual-ity social services, to provide funding to theCSO sector, or both. The Kazakh system, forexample, even though it uses the term “socialcontracting”, aims to a large extent to supportcivil society organizations as an equally im-portant goal in ensuring the provision of so-cial services.

It is important to make the distinction betweengrants and services when providing fundingto CSOs. Grants are a good tool to solicit in-novative ideas on the side of CSOs; they areless suitable to fund specifically determined

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120 See Section II.5 or the Glossary for a more detailed definition of grants.

services. Grants are also a good mechanism tostrengthen the capacity of CSOs, including theircapacity for the provision of social services.They can also be used to design or pilot in-novative/ new social services for which thereare no existing service standards, or for whichresults/ parameters are difficult to estimate. Inthis way, grants can be an effective vehicle toachieve the government’s social policy ob-jectives as well.

Social services, on the other hand, are more of-ten related to longer-term engagementwith the target groups: for example, assistinga child with disabilities is not a one-off event,but requires a longer period in order for thechild to get used to the social service providerand to get some results. Therefore, the gov-ernment could establish a longer-term part-nership with a relatively smaller number ofCSOs with the capacity to cater to the needsof the local population. The municipalities ofAstana and Odessa are examples of havingmade steps in this direction by announcingtheir support for the same social services inconsecutive years (see Sections IV.3.4and IV.4.4).

It would be important that each of the coun-tries in the region considers introducing bothof these mechanisms and using them de-pending on the needs and resources available.The two tools can be combined to enhancethe system of social contracting as well. Forexample, the government can provide grantsfor increasing the capacity of certain social serv-ice providers and then announce a social con-tracting competition for the provision of thespecific service. The state may also design grantprograms to provide co-financing to otherdonors’ programs which target the deliveryof specific social services. This would guaran-tee that CSOs (which otherwise might not beable to secure the co-financing and hence ap-ply for such programs) would be able to accessthe funding and provide the needed socialservices. A similar example is presented in Ar-

menia, where several municipalities agreed topartially fund the CSO, Mission Armenia, asa way to contribute to its work in their com-munities, which is primarily funded from in-ternational support (see Section IV.2.4).

4. There is a need to create a specificmechanism and develop guidelineson social contracting

The lack of regulation of social contracting isan impediment to developing it. It is advisableto develop nation-wide legislation to regulatethis area. However, even when there is nomechanism or procedure adopted by law, thelocal or national authorities could designtheir own regulations that could serve asa basis for social contracting. This is importantbecause it makes the process a systemic onethat is transparent and open, rather than de-pending on arbitrary decisions and individualrelations. In either case, there is a need for a sep-arate regulation on social contracting, differ-ent from the traditional procurement mech-anism. One reason is that often procurementis overly burdensome for smaller local gov-ernments and civil society organizations.More importantly, under procurement, theleading criterion for determining the winneris typically the lowest price (this is the case inKazakhstan where social contracting usesthe procurement procedure). The lowestprice should not be the leading evaluationstandard in social contracting, because insocial services provision it is important to ob-tain the best possible quality or standardquality service for more people at a certainprice. In addition, the effect of dumpingprices leads to problems for the beneficiariesin the end as once the service provider getsthe contract at a dumped price, it cannot de-liver the services at a reasonable quality.

The social contracting mechanism should also:

Provide for longer-term contracts - theneed to organize a new social con-


tracting competition each year might begood for one-off events, but does notsupport social service delivery that iscontinuous and predictable, which is im-portant from the beneficiary perspective;Ensure there are no requirements thatare unnecessarily burdensome for ap-plicants; for example, too many docu-ments required at the time of applica-tion or burdensome requirements forpotential candidates;Provide for a possibility to include the ad-ministrative expenses, as well as orga-nizational and capital expenses, of CSOsin the allowed expenses. For example,in Kazakhstan, this is currently not al-lowed; creating problems for CSOs be-cause they have to co-finance the serv-ice for which they are contracted. In ad-dition, CSOs, similar to private compa-nies need to have offices, accountantsand other personnel related to the suc-cessful operation of the organization. Aslong as these costs are reasonable, theyshould be part of the recognized ex-penses;Ensure the whole funding and selectionprocess is fully transparent. This in-cludes clear evaluation criteria, clearcriteria for choosing the thematic callsor lots, as well as publicly accessible in-formation on how many CSOs receivemoney from the government in all pos-sible areas, including the amount offunding allocated.121

There is also a need to develop guidelines andmodel contracts which each potential con-tractor can use to set up its own procedure forsocial contracting. For guidance about whatsuch a procedure should look like please refer tothe Annex – Guidelines for Introducing a SocialContracting Mechanism at the Local Level.

5. Beneficiaries’ rights and needsshould have a central placein the process

Following from the HRBA, the rights andneeds of beneficiaries should be consideredand respected when designing a social con-tracting model. There are several good prac-tices demonstrated in this Handbook, as wellas in the referenced literature, to help ensurethe inclusion of beneficiaries in the process.First and foremost, beneficiaries should receiveservices that are based on their needs and notbased on the decision of someone seated inan office in the capital. This calls for a decen-tralized and participatory approach in deter-mining the priorities for the social services.There are several ways to ensure this:

Service design: Local authorities shouldhave not only an obligation to ensure theprovision of the appropriate social serv-ice, but also the competence to decide onthe programming of social service sup-port. They should determine the priorityneeds through a community-based map-ping exercise, such as the “social diagno-sis” described in the Odessa case study(Section IV.4.4). The Astana case study alsodemonstrates the importance of involv-ing CSOs that are most familiar with thebeneficiaries in the early phase of the so-cial service design (Section IV.3.4).Service delivery: As far as possible, thechoices for beneficiaries should be pro-vided in the social service delivery – theAstana case study, where the childrencan chose to stay with their caretakerthroughout the program, is a good ex-ample of this (Section IV.3.4). The vouch-er system described in this Handbook isalso a possible way to encourage ben-eficiary choice (Section II.5.1).


121 The website of the Ministry of Culture in Kazakhstan is a good example – see point h) from the Section IV.3.3. Also see Odessa ex-ample, where the announcement and the results of the competition are posted on the city council’s webpage:http://www.odessa.ua/en/acts/council/28568/.

Service monitoring: Monitoring andevaluating the service is not just the jobof a monitoring agency. Service bene-ficiaries and the larger communityshould also have the option to take partin this process. There are different formsof citizen engagement in the oversightprocess, such as complaint desks, in-tegrity packs, citizens’ report cards, andmulti-stakeholder forums. There aregood examples for monitoring the qual-ity of services with the help of benefi-ciaries; for example, the fact that parentscan always call the municipality of As-tana if there is a problem with the serv-ice provider, or the creation of Councilsof service clients in Bulgaria that monitorthe quality of the service.

6. Governments should investin the capacity development of local authorities and CSOservice providers

In order for the process of social contractingto be properly implemented, there is a needto have qualified civil servants that understandthe ideas and purpose of the process, as wellas the technicalities of the procedure. Gov-ernments should focus on increasing the ca-pacity of the public officials that deal with de-signing of social contracting procedures, car-rying out, evaluating and monitoring socialcontracting. Officials should also understandthe importance and added value of involvingCSOs in the social services delivery system.

The sequencing of such investment isa critical challenge for many governments,as they cannot implement an effective socialcontracting system without the capacity,even as the immediate and ongoing need todeliver social services puts a serious resourceconstraint on the capacity developmentprocess (both financially and in terms of avail-ability of human resources). This dilemma canbe overcome by taking a more sequential ap-

proach to introducing social contracting; for ex-ample, by launching a systematic effort initiallyonly in certain territories or in certain types ofsocial services. It is advisable to start with ar-eas where the essential pre-conditions are met:for example, there are enough capable CSOs,social service standards are already developedand/ or local authorities have not only the man-date, but also the financial resources. A grad-ual approach provides the opportunity for fo-cused learning and skill building of a special-ized part of the administration, which can thenpass on the learning to other departments.

On the other hand, CSOs are a key actor in thesocial contracting process. Often, they donot have the necessary equipment or accessto finances to be able to match the require-ments for delivering social services. This shouldnot be seen as an obstacle by the government,but rather as an opportunity. The governmentshould support CSOs by providing them withtraining, access to funding, etc., in order to sup-port their capacity building and sustainabili-ty. In this way, CSOs can become better andmore reliable partners to the government indelivering social services. This is well illustrat-ed by the Odessa case study (Section IV.4.4),where the municipality has been providing in-stitutional support to CSOs, which have in turndeveloped to deliver higher quality services.

7. CSOs should be allowed to carry outdirect economic activities

Armenia is one of the few countries in the CISregion that does not allow all the CSOs to en-gage in direct economic activities. This influ-ences the capacity of CSOs to deliver socialservices for two reasons:

Social contracting, in its essence, meanshiring a service provider to deliver socialservices for a fee. If interpreted in thestrictest sense, this is an economic ac-tivity as it generates income for the serv-ice provider. A prohibition of econom-


ic activity would then mean that CSOstechnically cannot participate in socialcontracting procedures.Economic activity is a way for CSOs tohave an independent source of income,which helps them carry out their activ-ities in a more sustainable and pre-dictable way. For example, in somecountries clients of social services pay fora portion of the services they receive. Ifeconomic activities were illegal, thiswould not be possible. In addition, thiswould limit the capacity of CSOs to at-tract additional funds (which could beused for improving the quality of the ser-vice).

Economic activities are a legitimate way forCSOs to acquire funds for achieving theirgoals and are in fact one of the biggestsources of income for the CSO sector global-ly122. Several countries even provide special taxexemptions on the income generated fromsuch CSO activity. Of course, governments canplace some restrictions on these activities, forexample, requirements can be put in place forthe income to be used solely for the CSO’sgoals or the introduction of tax exemptions forincome only up to a certain level. The most typ-ical policy of governments towards CSO eco-nomic activity is to allow it, but with some re-strictions (for example, allow only economicactivity related to the mission and statutorygoals of the CSO; require that it is additionaland clearly distinguished from the non-prof-it activity, etc.).123

8. There is a need to effectivelymonitor how social servicesare provided

It is not sufficient to secure funding and con-tract a non-state entity to provide the service.It is also necessary to make sure that funding

is used appropriately and the social servicesare delivered as per the contract. There arevarious levels of monitoring and evaluation:

(1) The first one is a technical, administra-tive check to make sure all documentsare legitimate and all expenses madeare within the budget (in case there isa budget). This is an important check,but it should not become too formal.Often, the monitoring authority be-comes overly bureaucratic and thismight impede the effective imple-mentation of the projects related to so-cial services provision.

(2) The second, and sometimes more im-portant form of monitoring is to makesure that social services are actually de-livered. For example, if the contract is forhome assistance, it is important tomake sure the home visits are madeand not simply that the time of the so-cial worker is billed.

(3) What is even more important is to eval-uate the effectiveness of the activitiescarried out – in the example above, thatwould mean to determine whether thesocial worker assisted the client ac-cording to her needs and did not im-pose on the client something thatshe/ he was not comfortable with,and that the home assistance con-tributed to the long-term objective ofthe social service (for example, keep-ing the ability of the client to live in her/his home rather than being placed ina residential institution). Thus, thisevaluation can help in achieving clientsatisfaction and an improvement in thelife of the service user.

Monitoring is necessary because often cir-cumstances change. This requires a change inthe activity or approach. If there is a person


122 Salamon et al, 2007 123 For more, see ICNL and ECNL, 2007

that has been following the situation, he or shemay understand the reasons and agree tomake the requested change of activities. Oth-erwise, CSOs may be obliged to do what theywrote down in their offer without taking intoconsideration the real-life situation.

It is also worth including CSOs in the processof monitoring, as they would be best posi-tioned to judge how much the purposes of thefunding were achieved. While their role is lim-ited when monitoring their own services (i.e.to providing the data for indicators stipulatedin the contract); CSOs can be very helpful inconducting monitoring and evaluation atthe program level, for example, to evaluate theoverall impact of a three-year municipal pro-gram addressing a specific problem related toa certain target group which the CSO is familiarwith.

9. Social contracting works bestas a partnership

In the process of social contracting, CSOs, gov-ernments (both central and local) and busi-nesses are partners who aim to improve thesituation of the people in the local community.That is why the aim of their cooperationshould be that people who need socialservices, have equal access to them andthey are assured that regardless of a possible

change in the service provider, the socialservice will have the continuity. The partner-ship can be more effective when it is docu-mented in a policy framework for cooperation(as in Odessa, see Section IV.2.), or expressedin a jointly prepared regulation as is the casein several municipalities in Armenia (see Sec-tion V.2.2.)

As demonstrated through this Handbook,CSOs are valuable partners since they workclosely with the communities. In the goodpractice examples included in this Hand-book, CSOs are not just seen as serviceproviders, but as participants in everystage of the social contracting process –from developing the social policy to evaluat-ing the needs and designing the specificservices and eventually in providing those serv-ices. The quality of social contracting de-pends highly on the good results of each ofthese stages.

If a service is to be of good quality, providersneed to invest in it. This is possible only if thereis the possibility for long-term involvement inthe service delivery, which happens withlong-term contracts. Long-term contracts al-low for partnerships between the gov-ernment and service providers, rather thanperceiving them just as vehicles deliveringa needed social service.


All definitions have been formulated by ECNL forthe purposes of this Handbook based on the rel-evant literature, except when a direct reference tothe source is provided.

Accreditation of services means evaluationof the service by an authorized body to ensurethat it meets specific requirements (complieswith certain standards) and prevents poten-tial risks for the service beneficiary.

Akimat is an administrative municipal unit inKazakhstan.

Basic or primary social services are socialservices defined in some laws as servicesprovided at the community level for everyonein need, mainly aimed at prevention and lim-itation of factors leading to marginalization (e.g.,youth centers, family help centers, job centers,hotlines, counselling, legal aid etc.). [c/f Spe-cialized social services]

Best value concept originates in the UKCompact and refers to the selection criterionfor a tender with an announced budget allo-cation on the basis of the highest quality of theoffer at the given price.

Certification of services means confirmationof compliance with certain standards by theproviders of the service (i.e. confirmation of theprofessional competence to provide the serv-ice).

Civil Society Organization (CSO) includes alltypes of nongovernmental organizations andorganizations established with non-com-mercial purposes which in different countriesmay take the legal form of public organizations,associations, foundations, institutions andnot-for-profit companies among others.

Commonwealth of Independent States(CIS) is a regional organization of some for-mer Soviet Republics created in 1991.Presently, there are 11 members of the Com-monwealth: Armenia, Azerbaijan, Belarus,Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajik-istan, Turkmenistan, Uzbekistan and Ukraine.

Community social services are services thatmay be provided outside a residential insti-tution and at the community level to thosein need, regardless of the target group or thelevel of specialization needed for the service.Community services are also defined as non-institutional services. For example, in case ofa child without parental care, an orphanagewould be an institutional service, while fos-ter care is a community service. [c/f Institu-tional services]

Compulsory social services: see Statutory so-cial services

Corporatist welfare: see European WelfareRegimes

Cost sharing means that part of the costs areborne by a different donor.

Decentralization, according to the defini-tion of the Decentralization Thematic Teamof the World Bank, embraces a number ofconcepts based on different characteristics,policy implications, and conditions for suc-cess. Essentially, decentralization means “thetransfer of authority and responsibility forpublic functions from the central govern-ment to subordinate or quasi-independentgovernment organizations and/or the privatesector.” The types of decentralization includepolitical, administrative, fiscal, and market de-centralization. They can appear in different

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Glossary

A H a n d b o o k o n N o n - S t a t e S o c i a l S e r v i c e D e l i v e r y M o d e l s100

forms and combinations across countries,within countries and even within sectors.

Political decentralization aims to give citizensor their elected representatives more powerin public decision-making. Political decen-tralization lies at the core of the participatorydemocracy, assuming that decisions madewith greater participation will be better in-formed and more relevant to diverse interestsin society than those made only by nationalpolitical authorities.

Administrative decentralization seeks to redis-tribute authority, responsibility and financialresources for providing public services amongdifferent levels of government. It is the trans-fer of responsibility for the planning, financingand management of certain public func-tions from the central government and itsagencies to local authorities. Administrative de-centralization can be of three major forms:

Deconcentration, that redistributes decisionmaking authority and financial and manage-ment responsibilities among different levels ofthe central government. It can merely shift re-sponsibilities from central government officialsin the capital city to those working in regions,provinces or districts, or it can create strongfield administration or local administrativecapacity under the supervision of centralgovernment ministries.

Delegation, when central governments transfersresponsibility for decision-making and admin-istration of public functions to semi-autonomousorganizations not wholly controlled by thecentral government, but ultimately accountableto it. Governments delegate responsibilitieswhen they create public enterprises or corpo-rations, housing authorities, transportation au-thorities, special service districts, semi-au-tonomous school districts, regional developmentcorporations, or special project implementationunits. Usually these organizations have a greatdeal of discretion in decision-making.

Devolution is the third type of administrative de-centralization. When governments devolvefunctions, they transfer authority for decision-making, finance, and management to quasi-au-tonomous units of local government with cor-porate status. Devolution usually transfers re-sponsibilities for services to municipalities thatelect their own mayors and councils, raise theirown revenues, and have independent author-ity to make investment decisions.

Fiscal decentralization refers to the possibilityfor local authorities to charge fees and levy tax-es on the inhabitants/businesses in the areathat would go directly to the local budget orto withhold part of the taxes that the centralauthority levies. It can take many forms, in-cluding a) self-financing or cost recoverythrough user charges, b) co-financing or co-production arrangements through which theusers participate in providing services and in-frastructure through monetary or labor con-tributions; c) expansion of local revenuesthrough property or sales taxes, or indirectcharges; d) intergovernmental transfers thatshift general revenues from taxes collected bythe central government to local governmentsfor general or specific uses; and e) authoriza-tion of municipal borrowing and the mobi-lization of either national or local governmentresources through loan guarantees.

Market decentralization shifts responsibilityfor functions from the public to the private sec-tor. It can happen in the following forms: Privatization is a phenomenon that can rangein scope from leaving the provision of goodsand services entirely to the free operation ofthe market to “public-private partnerships” inwhich government and the private sector co-operate to provide services or infrastructure.It can include: 1) allowing private enterprisesto perform functions that had previouslybeen monopolized by government; 2) con-tracting out the provision or management ofpublic services or facilities to commercial en-terprises; 3) financing public sector programs

through the capital market and allowing pri-vate organizations to participate; and 4) trans-ferring responsibility for providing services fromthe public to the private sector through the di-vestiture of state-owned enterprises.

Deregulation reduces the legal constraints onprivate participation in service provision or al-lows competition among private suppliers forservices that in the past had been provided bythe government or by regulated monopolies.

(This classification is based on definitionsprovided by the Decentralization ThematicTeam of the World Bank. Available at:http://www.ciesin.org/decentralization/Eng-lish/General/Different_forms.html)

Deconcentration. See Decentralization.

Delegation. See Decentralization.

Deregulation. See Decentralization.

Devolution. See Decentralization.

European Welfare Regimes - below is asummary of the classic welfare regimes thatwere developed in Europe over the past cen-tury and a half. It is important to note thatthese are not clear-cut models, e.g. Britain to-day has an institutional model of welfare (ac-cessible to everyone) mixed with the needsbased selectivity (focused on populations inneed) and mixed service provision (both pub-lic and private providers) of the liberal regime.Social contracting, although in different ways,plays a key role in the corporatist and liberalregimes, while it is less pursued in the social-democratic model.

Corporatist welfare regime originating in the1880s Bismarck regime of Germany, has beenbased on a social security system in which wel-

fare expenditure is financed from mandatorypayroll taxes and benefits are related to themerits of employment (e.g. length of timeserved, level of income earned etc.). The cor-poratist nature of these systems originates inthe fact that workers’ associations and othercollective organizations ran the public insur-ance funds in Germany and Austria. In othercontinental regimes, e.g. France, Belgium, theprinciple of “solidarity” is also key in welfare pro-vision (mutual societies and insurance fundsetc.). In these systems welfare can be definedas a “benefit” linked to contributions.

Liberal welfare regime. In this model, which hasbeen typical in the common-law countries,public welfare exists in parallel with private in-surance mechanisms and is oriented towardsthe poor population which cannot afford thehigher costs of the latter. It is seen as a “safe-ty net” for the poor and will often result in a two-tier system of poor quality public welfareservices and high quality private ones. It op-erates on a “residual” principle, i.e. public wel-fare is provided to those who are left out of themarket based solutions.

Social-democratic welfare regime. In this mod-el public welfare services are provided toeveryone (i.e. based on rights rather than onneed or contributions). The model has an “in-stitutional” approach, which in contrast to theresidual approach operates on the principlethat welfare is for everyone. Typical in the Scan-dinavian countries, this system provides highquality services with universal access but tai-lored to individual needs. While seen as idealby many, the costs of this complex model arevery high and impose a high tax burden as wellas sophisticated administrative capacity.124

Gross Domestic Product (GDP) is the amountof goods and services produced in a year in acountry.


124 These descriptions are based on the classic definitions by Esping-Andersen (The Three Worlds of Welfare Capitalism, 1990) and the fol-lowing websites: http://www.pitt.edu/~heinisch/concept.html, http://www2.rgu.ac.uk/publicpolicy/introduction/socpolf.htm)


Grant is a form of direct budgetary supportthat is awarded on a competition basis for de-veloping and implementing a specific projectwith listed activities, deadlines for executionand an itemized budget. Grants are used toreach certain government goals.

Guaranteed social services: see Statutory so-cial services

Human rights based approach (HRBA) is aprinciple applied in international developmentbased on human rights standards enshrinedin the international human rights laws, e.g. Uni-versal Declaration of Human Rights.

In-kind support is a type of cost-sharing tothe action that does not posses monetary val-ue, but contributes to reaching the goals of theaction. Examples of in-kind support might bevolunteer work, providing office space orequipment free of charge.

Institutional social services are servicesthat are provided within a residential institu-tion (e.g., elderly home, disability home, or-phanage). [c/f Community social services]

Integrated social services are services thatcombine service provision from differentfields of welfare (e.g., health, education, em-ployment) and that of social assistance, withthe aim to respond to the various needs of thesame person in need in a harmonized and ho-listic way, instead of providing the all the serv-ices separately. This approach puts the servicebeneficiary at the center of policy actionwhile also providing a more efficient means ofservice delivery (e.g. the day care service for eld-erly can integrate medical checkups, or the af-ter-school care for disabled children can in-tegrate rehabilitation and learning).

Liberal welfare: see European Welfare Regimes.

Licensing of services is a procedure in whichthe organization providing the service is as-

sessed against legal requirements that typicallyencompass organizational and financial ca-pacities as well as service standards and pro-fessional competences.

Mixed modality of social services provisionrefers to the collaboration of the state and non-state providers in financing and operating so-cial services.

Non-institutional social services: see Com-munity social services

Non-state service delivery is provision ofservices by private actors, including CSOs, for-profit companies and individuals.

Non-statutory services are optional servic-es which can be provided by private entitiesbased on perceived needs and resourcesavailable. They can be listed and regulated bylaw, but it is not mandatory for local authori-ties to ensure their provision.(c/f Statutory so-cial services)

Oblast is a territorial administrative division unitin Ukraine.

Per capita or normative payment is a typeof budgetary support to the service providerbased on the average per capita cost of theservice and the number of clients served.

Primary social services: see Basic socialservices

Procurement is acquisition of goods or serv-ices at the best possible value or cost.

Purchaser-Provider model is a model usedto illustrate the roles of the state and the non-state actors when the state reimburses thecost of the service to the non-state provider.„This model attempts to duplicate the roles ofthe consumer and the supplier in the marketsystem, but without the market failurescaused by inadequate financing and imper-

fect information. The public sector retains thefinancing role, but public sector finance is pro-vided in a more competitive environment,with more voice for the consumer. The pub-lic roles are divided into two different func-tions: (a) the purchaser, who finances and pur-chases care, and (b) the provider, who oper-ates the service delivery units. The job of thepurchaser is: (a) to act as gatekeeper or rationerof public funds, determining eligibility, and (b)in the case of more specialized services, to actas the agent for the principal (the vulnerableindividual). Fundamentally, the role of the pur-chaser is (…) to ensure that funds are used toget the best outcome for the client. While theprovider could be a public agency, in OECDcountries, the provider is more likely to be aprivate or NGO provider contracted by thepublic authority, an approach adopted tobring increased client responsiveness and ef-ficiency. In transition countries, publicproviders are more likely in the initial stagesas the private sector is underdeveloped.” As theprivate and non-profit sector grows, the pur-chaser-provider model gains more signifi-cance. (From: Redirecting Resources to Com-munity Based Services:A Concept Paper, Louise Fox and Ragnar Götes-tam, Social Protection Unit, The World Bank, 2003)

Public Private Partnership (PPP) is “an agree-ment between the government and one ormore private partners (which may include theoperators and the financers) according towhich the private partners deliver the servicein such a manner that the service delivery ob-jectives of the government are aligned with theprofit objectives of the private partners andwhere the effectiveness of the alignment de-pends on a sufficient transfer of risk to the pri-vate partners.”, (OECD, Dedicated Public-PrivatePartnership Units - A Survey of Institutional andGovernance Structures. P18, 2010)

Public Sector Comparator is a method ofcomparing the costs and benefits of (value pro-vided by) a service delivered by the govern-

ment itself to the value provided by a publicprivate partnership (or other social contract-ing arrangement).

Rayon is a territorial administrative subdivisionof Oblast in Ukraine.

Social contracting represents cooperation be-tween the state and private providers in orderto deliver social services to the population. Inthis cooperation, the state designs, financesand supervises the provision of social servic-es which are carried out by non-state actors,including civil society organizations, busi-nesses and individuals.

Social democratic welfare: see EuropeanWelfare Regimes.

Social enterprise is an organization with a so-cial mission that applies market-based ap-proach in its activities.

Social services are defined as services with theaim to improve the quality of life of people indisadvantaged situations that help vulnerablegroups to have equal opportunities and accessto public life. This encompasses a wide rangeof services, including e.g., personal assistanceservices, adult day-care and half-day centres,temporary housing services, nursing and longterm care, counselling, transport services, ex-tra-curricular and extra-institutional education,humanitarian services for impoverished citi-zens, psycho-social support, assisted living serv-ices, informing and awareness raising in thecommunity and many others.

While the term ‘social services’ includes abroad range of services, its specific content canbe understood in different ways depending onthe legislation of a given country. Sometimesthis term is equated with the broader realm of“public services” or “welfare services”, such ashealthcare, culture, education etc. In other cas-es, social services and their contracting refersonly to the area of social assistance.



Social order or socialnyi zakaz (Russian) is aform of state support spread throughout theCIS region for various kinds of CSO activities,including social services, but also others, for ex-ample, environmental protection, cultural ac-tivities or institutional costs of the CSOs.

Specialized social services are services de-fined in some laws as aiming at the provisionof individual care for a person in need requir-ing specialist intervention (e.g., rehabilitationof a physical disability, dietary supervision, nurs-ing etc.). [c/f Basic social services]

Statutory social services (also called com-pulsory or guranteed services) are those serv-ices which are aimed at providing support toindividuals and families. They are imple-mented according to the specific adminis-trative procedures. The provision of such serv-ices is guaranteed by law. They are usually list-ed and defined in one or more laws of thecountry (e.g., law on social assistance, law onmunicipalities, law on health or education etc.).

Subsidy is a form of direct budgetary sup-port, which is often provided as institution-al support to a specific organization thatworks on social issues.

USAID NGO Sustainability Index is an in-strument for measuring strength and viabili-ty of CSOs in a given country, as prepared bythe United States Agency for International De-velopment (USAID) on an annual basis. The In-dex reviews several dimensions of the CSO sec-tor: legal environment, organizational capac-ity, financial viability, advocacy, public im-age, service provision, and CSO infrastructure.More information can be found here:http://www.usaid.gov/locations/europe_eura-sia/dem_gov/ngoindex/

Voucher is a mechanism that allows benefi-ciaries or clients to choose their serviceproviders. In this system potential beneficiar-ies receive certificates of monetary value thatentitle them to use certain services of li-censed providers free of charge.

Vulnerable or disadvantaged groups aregroups of people with no or little access toresources to satisfy their social needs, e.g. per-sons with disabilities, the poorest eligible tocash assistance, dysfunctional and/or abusivefamilies where special treatment for par-ents/and children call for therapeutic sup-port, hard to reach groups, includingminorities.

Annex 1 – Checklist for Introducing a Social Contracting Mechanism at the Local Level

This“Checklist” presents a brief overview of thesteps a municipality will have to think throughin order to introduce a social contractingmechanism at the local level. These stepsshould be taken irrespective of the larger pic-ture in the national context. They are based onthe actual procedures in a number of munic-ipalities from the CEE/ CIS region (including thethree case studies described in this Handbook,as well as from the experiences of several lo-cal governments from Hungary, Poland, Bul-garia, and the UK).

The Checklist is divided into four main sectionsthat reflect the main stages in the process – Plan-ning, Preparation, Implementation, and Moni-toring and Evaluation. For each stage, there arespecific questions that need to be answered andspecific steps to be taken. The guidelines with-in each step reflect good practices, with the aimof demonstrating the entire process and the ma-jor issues to be considered for each step of theway. As mentioned before (Section III.1), newskills will be required by the local governmentofficials (for example, on how to make a unit costanalysis) when designing a system to involveCSOs in the provision of social services, and ingeneral, to make social contracting work for ben-eficiaries at the community level.

1. Planning

1.1. Defining the needs for social services

A proper needs assessment is the founda-tion for developing effective communityservices, as it provides a clear picture of the

needs of the various vulnerable groups inthe local population. CSOs are best placed toensure a participatory approach to the as-sessment and ensure that the needs of thevulnerable people and communities aretaken into account. Therefore, the local gov-ernment should include CSOs in the processof developing the “map of needs” at thecommunity level. The information about lo-cal needs should be regularly updated basedon surveys with different groups, discussionwith representatives of the vulnerablegroups, experts and CSOs.

1.2. Assessing the local “market”for social services

In addition to a detailed assessment of needs,it is useful to conduct a mapping of the existingand the potential service providers, as well asthe potential resources in addition to the re-sources which should be provided by the lo-cal government. This should include infor-mation that is of key importance for localstrategic planning, such as the number of ex-isting social service providers (including theneighboring municipalities), types of servicesthey provide, how many people they serve,what are their sources of funding, etc. Thismapping should include also possible specialgovernment programs that fund certain serv-ices at the local level.

1.3. Agreeing on a vision/strategy

After the local authority has outlined theneeds, it has to decide what it wants toachieve and decide on the priorities. Based on

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the information collected, municipalities canprepare a strategy or an action plan outliningthe priority needs to be tackled and servicesthat should be put in place to address theseneeds. This is often called the “local social as-sistance strategy” or “local social policy plan”. Itcan be developed either as part of the overalldevelopment plan for the municipality or asa separate strategic document. If a separatesocial protection strategy document is drafted,it is of utmost importance to ensure that thisdocument refers to the key local develop-ment strategy and other relevant policy doc-uments (for example, the national level socialprotection strategy, or the national develop-ment strategy).

The planning process should be participato-ry in order to gather a wide range of impor-tant information and views, and to ensure a lo-cal ownership of the process and its result.Therefore, the strategy should be developedwith the participation of all the interestedgroups – beneficiaries and potential benefi-ciaries, the existing and potential serviceproviders, social protection experts, and oth-er relevant experts, as well as expert groupsand community based organizations.

1.4. Determining the scope of local services

Based on the strategy, the municipality mayplan the specific social services that will fitbest with the overall strategy. This includesplanning the needed types of services, thenumber of beneficiaries that should be cov-ered, the duration of the services, and whichof the services are to be provided by publicservice providers or contracted out to non-state providers. In addition, the municipalitymay develop quality standards for the service.Sometimes, quality standards are developedat the national level, but in most cases theseare minimum standards and municipalitiescan develop their own standards that include

additional requirements. However, it is im-portant for municipalities to consider if theycan afford these higher standards of serviceswith the amount of funding that the munic-ipality plans to provide for the specific serv-ices. Municipalities should carefully considerall policy implications before making a deci-sion on prescribing any additional require-ments for the quality of services.

Municipalities often set up consultationcouncils where the representatives of dif-ferent groups regularly meet and discuss thelocal social policy. The public council couldconsist of a representative of the social de-partment of the municipality, a representa-tive of the financial department, serviceproviders and representatives of the vul-nerable groups. Sometimes, it is good to alsohave a representative of the local council (thelocal legislative body).

1.5. Performing the analysis of costs

When determining the type of services to beoffered at the community level, the munici-pality should also make a cost analysis – i.e.how much it will cost to provide the servicesplanned to all the people that need them. Thisis based on the so-called unit-cost: how muchis the cost per person per service unit? The unitprice should include a detailed and compre-hensive list of costs – salaries of social work-ers, materials, administrative expenses, services,transportation of beneficiaries and mainte-nance of a building (in case the service is ofa residential type). Based on these calculations,it should be clear how much money is need-ed for the services planned. In general, theprocess of creating a detailed list of costs forservices might represent a major challenge fora local government’s officials because of thefragmented information available. Therefore,there is a risk that some costs remain “hidden”or underestimated.


Once the municipality makes the calculationfor the cost of the service per capita, it can thencalculate the cost for providing the service in-ternally and contracting it out (so-called Pub-lic Sector Comparator). This second calculationis closely linked to the capacity of the mu-nicipality to provide the service, the quality itcan achieve by providing the service itself, andthe experience it has with this kind of serviceprovision.

1.6. Identifying the funding sources

In most countries, some of the services are cov-ered by the state, while the rest are to be cov-ered by the local municipality. Firstly, prioriti-zation should be made regarding the most es-sential services that should be provided andthe priority groups of people that should beserved. Secondly, based on the source offunding, services are separated in two cate-gories (for which different rules and proceduresmight apply). The services that are not coveredby another source should be funded throughthe local municipality budget. In order to makethis process long-term and sustainable, it is pru-dent to have a separate budget item for thespecific services, so that it is visible howmuch is spent and how much is planned to bespent on each service.125

In addition, it is possible, in case legislation al-lows it, to split the service cost between themunicipality and the beneficiary of the serv-ice. In this way, more people might get accessto the service. It will then be important to de-termine who should pay the fee for the serv-ice and who should be eligible for the servicefree of charge (for example, people living in ex-treme poverty). In case fees for services are in-troduced, it is important to elaborate detailsof the system for collecting the fees.

In some cases, the municipality may set co-funding from other sources as a requirement(this is the case in Odessa). Regardless of theform of financing, the allocations should be re-alistic, affordable and measurable.

1.7. Making choices based on theneeds and costs (trade-offs)

Once the municipality has undertaken a com-prehensive assessment of the needs of ben-eficiaires, strategic choices can be made on pri-oritisation of services, given the financial re-sources available and taking into accountthe opportunities for additional fundraising.This process is closely related to the processof identifying the funding sources describedabove. Trade-offs are inevitable given finite re-sources, and an appropriately conducted as-sessment provides a basis for informed choic-es on the trade-offs to be made.

1.8. Creating a funding plan

Based on the information from the local socialstrategy and the identified funding sources, themunicipality can go about developing anannual funding plan for the services. Thisplan will usually include the details of how thesocial contracting mechanism will be run:

What services are planned to be con-tracted out – listing the different serv-ices, their target groups and duration;What kind of lots will be announced –describing whether one service is to beprovided by one provider or is to be splitinto several components that are thento be contracted separately. Some-times, separate services might be unit-ed in one lot if they are interrelated to


125 If the municipality decides to fund the CSOs through a grant scheme, a separate fund may also be established, which can be man-aged somewhat independently from the municipal administration.

each other and there is a need for closecoordination between them (for ex-ample, the same beneficiaries needseveral related services);What will be the amount of financial al-location towards each lot – this is basedon the calculations on the cost of theservice per person/ service;Will there be a competition or a nego-tiation for each of the lots – this dependstoo on the mapping of the resources de-scribed under the needs assessment sec-tion (for example, there is a serviceprovider that already supports this tar-get group that has made the necessaryinvestments in a service so the munic-ipality does not have to make the sameinvestments again or there is only onepotential provider in the region and thebeneficiaries are satisfied with the serv-ices provided). In any case, competitionis a good and healthy way to ensuregood quality of services. In addition, themunicipality should always take intoconsideration the fact that in case thebeneficiaries are not satisfied with theservice, there should be a possibility foralternative service provision;How many competitions are plannedduring the year, and what are the dead-lines for applications;Who makes decisions on the various lots– whether it is the Mayor only or whetherthere would be commissions compris-ing different people, etc.

2. Preparation

2.1. Initiating the procedure

At the local level, it is usually the municipal ad-ministration that initiates the process. Some-times, depending on the legislation, theremight be a need for the local legislative bodyto either vote on the need to start providing

a certain service or on the decision to contractit out. Regardless of the specificities of the na-tional legislation, it is important that the pro-cedure does not depend on the will of just oneperson (for example, the Mayor). There shouldbe provisions that oblige him/ her to organ-ize a competition under certain conditions. Al-ternatively, there could be a possibility thata procedure is opened even if the Mayor doesnot approve it, and if the local council supportsit. In addition, the provision of a certain serv-ice could be proposed by CSOs or through cit-izens’ initiatives as well.

For example, in Poland, CSOs can propose theopening specific services. Within two months,the municipality has to decide whether it wantsto support the service and what would be thebest way to do it (a grant, a contract or a part-nership agreement). In this case, the munici-pality is not obliged to organize a tender.

2.2. Assigning management capacity

Designing, implementing and managing thecontracting process is no small task for any mu-nicipality. Therefore, it is good practice to as-sign a specific person that will be responsiblefor coordinating the process of outsourcingservice providers. In larger municipalities,a whole unit may be needed to facilitate theprocess and ensure communication amongthe different stakeholders. Sometimes thistask is assigned to a Council Committee,rather than to an administrative unit (for ex-ample, the Committee on Social Affairs). In suchcases (as is the practice in Hungary), the sec-retariat of the Committee will be responsiblefor managing the day-to-day process of prepa-ration, implementation and monitoring. Thekey is to ensure that there is adequate humancapacity assigned to the process, otherwisetransparency will be compromised and the ad-ministration or Council members will need towork in their free time, which will not aid to aneffective process.


2.3. Decision on eligibility of service providers

In general, the procedure can be open to anyeligible provider – an individual, a businesscompany, a CSO or a state provider. Somecountries prefer to limit the potential partici-pants in contracting procedures for various rea-sons. Often, CSOs are the preferred candidatesbecause of their experience with the targetgroups, and because it is within their missionto support the target beneficiaries. In addition,local authorities consider it important thatCSOs operate in their community and thismechanism may also be used as a tool to sup-port the CSO sector.

It is important that once potential providershave been determined, there is equal treat-ment for all. It is especially essential to ensureequal treatment of state and non-stateproviders. In Poland, there is a requirement thatif a service is to be delivered, a tender must beimplemented. Both the municipal depart-ments that can provide the service, as well asthe CSOs, participate in the tender – and thebest offer wins. In Bulgaria, by contrast, it is upto the Mayor to decide whether to opena competition. So if the municipality is willingto provide a service, it is able to do so withoutcompeting with other potential providers.From the beneficiary point of view, competi-tion increases the quality of service and pro-vides more choice; therefore, it is consideredas good practice.

Sometimes, national legislations require thatthe candidates should be licensed or registeredas social service providers. This is a form of pre-liminary control of the capacity of providers toensure that only those providers will be eligi-ble for receiving public funds that have suffi-cient capacity to both undertake the serviceand manage funds accountably. When thecontrol is only formal (certain informationneeds to be provided), this is usually consid-ered a form of registration. When there is

a need for in-depth monitoring to determinewhether the provider has the necessary ca-pacity, this is considered licensing. Licensingis usually required in the case of more spe-cialized services when the beneficiaries mayneed a higher level of protection against in-competent or abusive practices (for example,children, mental health patients etc.). While lo-cal authorities are not usually in a position toissue licenses, they may require registration ofthe service providers locally. Registration andlicensing requirements should be applied toproviders from all sectors without discrimi-nation. (See also Section II.6 of the Handbook)

2.4. Decision on the selectionprocedure

There are two main ways through which theservice providers could be selected at the lo-cal level: through open competition or throughdirect negotiations (see Glossary). There mayalso be other ways too: for example, theprovider could be chosen at the national lev-el and provide services locally, or in casethere is a voucher system, eligible beneficiar-ies can receive vouchers and choose theproviders according to their preferences.Sometimes, municipalities decide to deliverservices in partnership with CSOs (which is alsoa form of negotiation, although more often theinitiative comes from the CSOs).

Negotiations are usually a better way to selectthe provider when there are not enough po-tential providers or the municipality cannot se-cure funding for the full expenses for the serv-ice. Even in this case, however, there should beclear criteria as to when the municipality canchoose this form of contracting and how a po-tential provider can initiate negotiations.

Competition is the best way to select theprovider when there are several candidatesfor the service. Whether selection is madethrough competition or negotiations, the cri-


teria for the service provider, the expectedparameters of the service, and the monitoringand reporting criteria (see below under“Launching a competition”) need to be clear, aswell as transparent (for example, published inan announcement, or in the case of negotia-tions at least documented and made avail-able to the public).

3. Implementation

3.1. Launching a public competition

The competition starts with an official decisionto initiate the procedure (usually a decision ofthe Mayor). An announcement containing themost important requirements is published.

The announcement will include the subjectof the competition, the expected deliverablesfrom the contestants, the amount allocatedfor the lot, deadline for accepting proposals,as well as where interested parties can findadditional information about the competi-tion (including detailed guidelines for appli-cants). The announcement should be publi-cized through all possible channels andshould give sufficient time to candidates forpreparation of their proposals. For example, inBulgaria, the announcement should be pub-lished in at least one national and one localnewspaper 45 days before the final deadlinefor submission of proposals. Using national(and not only local media) aims to attract po-tential providers from outside the local com-munity.

Prior to the announcement, the municipalityshould also prepare the guidelines whichdetail all the requirements for the candidatesand the service to be delivered. They shouldcontain:

Requirements for experience of thecandidates (for example, previous workwith the target group, number of simi-lar projects carried out, etc.);Requirements as to the personnel thatshould be employed in providing theservice (number and exact qualifica-tions);Details on the exact content of theservice – how many beneficiariesshould be covered, what types of assis-tance they should receive, etc.;Expected timeline and location of theservice provision – one or more years;The maximum budget available, themechanism and timeline for paymentsunder the contract and any risk-sharingprovisions;How are the potential beneficiaries de-termined and who has the responsibil-ity to identify them;The documents that need to be sub-mitted together with the proposal.126 Itis good practice to require a limitednumber of documents at the time ofapplication and ask for additional doc-uments only prior to signing the con-tract with the winning candidate.

The guidelines should also contain a de-scription of how the project will be evalu-ated (will it be just a document review, willthere be interviews with shortlisted candi-dates, what are the most important criteriawhen choosing the winner, etc.). It shouldalso contain the timeline of the process –when is the exact deadline (including at whathour and whether the documents have toarrive or be sent by that time), what is the ex-pected time for announcement of the resultsand when is the expected start of the servicedelivery.


126 These usually include certification of current legal standing, registration of the organisation, recommendations etc

3.2. Evaluation of the proposals

The evaluation committee is appointed by theMayor. The committee should consist of spe-cialists in the area in which the service is to beprovided. It is good practice to include in theevaluation committee a representative of theauthority providing the funds (the state or themunicipality finance office), as well as inde-pendent representatives (for example, thepublic council dealing with social issues, CSOrepresentatives with proviso that their or-ganizations are not participating in the com-petition etc.). The committee should adopt itsworking procedures and voting mechanismsat its first meeting. An additional way to en-hance transparency of the evaluation processis by inviting independent observers to eval-uation committee meetings. Their role is to ob-serve the process related to the conduct,fairness and equity of the evaluation process;however, they are not allowed to participatein the evaluation of proposals.

3.3. Selection criteria

It is key to agree on the central principles re-garding the selection of the applicants (effi-ciency, effectiveness, best value etc.); this willdepend on whether the competition is a grantor a procurement-type tender. (See Section II.5for details on the key selection principle.) It is im-portant to reiterate that in the social con-tracting competition, price should not bethe leading factor (as long as the offeredprice is within the suggested budget in the an-nouncement). It might have a weight whenevaluating, but it should be secondary toa number of other considerations.

The evaluation criteria could include, for ex-ample:

Experience of the candidate in the areaof the service;Proposed plan for service delivery;

Qualifications of the proposed person-nel;Financial stability and experience inmanaging funds;Observance of gender related aspects;Appropriate internal monitoring andevaluation procedures;Other requirements depending on thenature of the service.

There should be a unified evaluation matrix,which to is be used by all the members of theevaluation committee so that they use com-mon criteria when evaluating the proposals.Typically, evaluation is carried out by settingcertain criteria, each of them awarded by a cer-tain maximum points depending on its im-portance.

Firstly, applications are screened to check if theyfulfill formal criteria (such as the accuracy andcompleteness of project proposals). The ap-plications who fail to meet the formal criteriaare not eligible to enter the competition.

The applications that have met the formal el-igibility criteria are further ranked using theevaluation matrix and a set of standard crite-ria. Finally, the winning applicant of the com-petition is determined and awarded witha contract.

There are two main types of contracts: fixed val-ue contracts and price contracts. In the former,the bidder offering the highest quality proposalfor the given budgeted amount is awarded thecontract. The proposal receiving the highestnumber of points on the various evaluation cri-teria will be the winning one.

In the other type of contract, i.e. price contracts,price is considered as a factor in the evaluationas well. In this case, technical evaluation maybe conducted first and the price offers can bechecked only for the most highly evaluatedtechnical proposals. Both the technical andprice offers will receive a number of points in


each proposal, relative to each other. In de-termining the best value for money, the tech-nical rating is multiplied by the price value rat-ing, thereby the highest amount will representthe best value proposition. Importantly, there-fore, even in price contracts, price should notbe the leading factor of awarding the contract.

In case there is only one candidate in the com-petition, the municipality may decide to repeatthe competition or to negotiate the terms withthat candidate.

3.4. Dealing with conflicts of interest

Strict rules for conflicts of interest should beset. Providers should not be related to the con-tracting authority, including through a legal en-tity in which someone from the municipalityhas shares or control. If there is a prohibitionfor entities other than CSOs to take part in theprocedure, it is important to ensure that thecandidate CSOs were not set up by businessesor a state entity exactly for the purpose of get-ting hold of the funding.

If CSOs have been involved in the design of thesocial policy planning process and/ or in thedesign of the service tender, the municipali-ty will have to make a decision about whetherthis represents a conflict of interest. In most cas-es, participation in the more general strategydevelopment would not be a reason to ex-clude a potential provider from the competi-tion. However, if the CSO was providing con-crete advice relating to the specific tender, thenit may not apply for the tender implementa-tion. (The reason why this may create problemsis that often there are only one or two CSOsproviding services in a specialized area of care.In these cases, direct negotiations may bea better choice. In case, a municipality decidesto select a provider through direct negotiations,it is crucial to clearly justify this choice as thismight provoke speculations on corruption,nepotism, or favoritism, etc.)

3.5. Type and key termsof the contract

A model contract should be published as anannex, together with the guidelines for ap-plication, so that potential candidates knowwhat is expected from them. Nevertheless,there should be a possibility to negotiate someof the contract terms after the winning can-didate is selected. The change should not, how-ever, include a change in the substantiveprovisions (such as the price or decrease in thenumber of people served) because that wouldbe a breach of the competition.

It is very important to note that once a serviceprovider is selected, that entity and its per-sonnel are not municipality staff so the May-or and/ or municipality officials cannot inter-fere in the service delivery process, unless thatis included in the contract. The employer of thepersonnel providing the social services is theorganization that provides the service – andnot the municipality.

The contract should include:

Clear service specification/ definition -type and quantity of the service to beprovided (there might be a possibility ifresources allow it, to increase the priceif the number of beneficiaries to be sup-ported is increased);The price – if the period is for more thanone year (when the municipal budgetfor the next year is not yet clear), the con-tract can state the price for the first yearand the way in which the budget for thenext years will be calculated (for exam-ple, based on the same cost standard perperson as for year one, multiplied by theinflation, etc.);Period of the contract;Mechanisms for monitoring the serv-ices, including types of reporting, pos-sibility for on-site visits by the munic-ipality, etc.


Rights and obligations of the parties;Guarantees for correct expenditure ofthe municipal funds and sanctions ornon-delivery of services;Rules on how the contract can be ter-minated by each party;Sanctions in case of non-compliancewith the legal obligations (including latepayments by the municipality);Other provisions.

There is one very important fact about socialcontracting which the contract needs to con-sider. Social services have to be provided ona continuous basis – they cannot be stoppedin the event of a disagreement between themunicipality and the provider. This should bereflected in the contract – both as an obliga-tion of the contractor not to stop the serviceprovision and for the municipality – not to stopthe payments during disputes.

3.6. Possibility for appeal

Municipalities should aim to create an inde-pendent appeal mechanism where unsuc-cessful candidates can complain about the re-sults of the competition. This is important inorder to assure that the evaluation is fair, andshould also help participants to understand theweaknesses in their application to be betterequipped to participate in future competitions.

This mechanism could be an independentcommission, unrelated to the evaluators. Itshould make decisions fairly quickly, so that itdoes not block the process, and the contractwith the winner should not be signed beforethe final decision of this commission in caseof appeal.

4. Monitoringand evaluation

Several countries in the Central and EasternEurope region have developed standards forcertain social services (for example, Poland,and the Czech Republic). Standards are aimedto provide the basis for assessing the quality ofservices. They are universal, and thereforeshould be applicable to all types of servicesand all service providers – both state and non-state providers. These standards should befollowed either by all service providers or bythose that receive public funding. One type ofmonitoring would be to ensure that the serv-ices delivered follow these standards. It maybe carried by the state or by the municipalityitself and this is usually defined in the nationallegislation of the respective country.

On the other hand, the municipality throughthe contract can have additional require-ments as to what can be monitored besidesthe requirements set by the law (if any). Thisseparate type of monitoring is carried out bythe municipality and could be in the form ofaccess to the premises where services areprovided, unannounced site-visits, docu-ments proving that the beneficiaries have re-ceived the services to which they are entitled,requests for information from the serviceprovider, regular reports, etc. These, if applied,should all be detailed in the contract, andthe pros and cons for such additional re-quirements should be carefully considered,since the risk with any additional require-ments is to place an additional burden, whilenot ensuring better quality of services. If theprovider has to provide reports, these shouldnot be too frequent, or too detailed. The re-ports should focus on important informationon beneficiaries and point to any relevantchanges in the context or any other issuesthat might affect the quality and/ or conti-nuity of service provision.


The municipality usually monitors the fol-lowing:

Whether money is spent in accordancewith the contract;Whether the services are being provid-ed to the specified number of benefi-ciaries;Whether the beneficiaries are receivingthe full package of services to which theyare entitled;Whether the quality of the services is atthe level expected;Whether the provider ensures that theinformation on the services is avail-able to the potential beneficiarieswho are eligible to receive the service,and so on.

The municipality can control the quality, ac-curacy and effectiveness of the provided serv-ices through beneficiary assessments - inter-views or surveys, including the beneficiariesor their relatives. It is good practice to involvethe beneficiaries directly in the monitoringand evaluation of the service.

The local government can establish a phoneline for citizens or an interactive website. It canalso use citizen report cards or any other so-cial accountability mechanism through whichbeneficiaries can directly contact the munic-ipality with complaints and suggestions relatedto the service provision. Beneficiaries’ views canalso be gathered through focus groups, as wellas in customer councils.

The monitoring could be carried out either bymunicipal officers or by independent experts(including expert CSOs), contracted by the mu-nicipality for that purpose.

Finally, monitoring should not serve only as a con-trol mechanism. It serves to gather lessonslearned and best practices in order to create newknowledge that can be shared among serviceproviders, municipalities and all the actors con-cerned with social service provision at the com-munity level. The knowledge management as-pect is also an important part of monitoring andevaluation of service provision. It allows forcross-fertilisation and prompts innovation, as wellas scaling up of services as appropriate.


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Annex 2: Armenia - List of Municipalities wheresocial partnership regulations were adopted

Town Marz Date of adoptionof SP Regulation

Amount in AMDprovided to localNGOs

1 Vanadzor Lori 2006 600.000

2 Ashtarak Aragatsotn 2007 1.200.000

3 Goris Syunik 2007 To be budgeted

4 Kapan Syunik 2007 To be budgeted

5 Kajaran Syunik 2008 300.000

6 Meghri Syunik 2008 100.000

7 Agarak Syunik 2008 100.000

8 Gavar Gegharkunik 2007 500.000

9 Vardenis Gegharkunik 2007 100.000

10 Noyemberyan Tavush 2008 200.000

11 Masis Ararat 2008 To be budgeted

12 Ararat Ararat 2008 To be budgeted

Berd Tavush To be adopted 200.000

Ijevan Tavush To be adopted 200.000

Gyumri Shirak To be adopted 500.000

Artik Shirak To be adopted 600.000

Information provided by Professionals for Civil Society (PFCS) CSO.

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Studies, reports, white papersand other materials

Audit Commission, Hearts and Minds: Com-missioning from the Voluntary Sector, 2007, ac-cessed on November 15, 2010 at: http://www.audit-commission. gov.uk/SiteCollec-t ionDocuments/AuditCommissionRe-ports/NationalStudies/Workingeffecivelyvol-untarysectorfinalproofREP.pdf

BCNL, Contracting of Social Services between theState and the NGOs in England, Germany, Poland,Hungary, the Czech Republic and the practices inBulgaria, Sofia, 2004

BCNL, Legal Framework of the Social Services inBulgaria, Sofia, 2006

BCNL, NGOs and Public Procurement in the Eu-ropean Union, 2009

BCNL, Quality of the Social Services in Bulgaria,2008

BCNL, Questions and Answers on Social Servic-es in Bulgaria, 2004

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