Contracting for public service providers from the third sector

Public service delivery by non-profit organizations (NPO) is an everyday activity for about 60% of local governments in Estonia. These municipalities cover about 87% of Estonian population.

Public service delivery contracts are signed by 42% of local governments, the rest 18% sign only contracts for supporting the organizations that offer public services cover indirect costs related to service provision (room rent, bookkeeping and other overhead costs). The later means that service provision is based on the need to look for other funding resources or on volunteers

The total funding of contracting public services to NPOs has doubled during 2006-2008, but the 2009 NPO survey  (by Network of Estonian Nonprofit Organisations) shows that 1/3 of organizations need to reduce the amount of services provided, because of budget cuts in local governments.

The audits done by National Audit Office have showed that municipalities in Estonia lack financial resources for offering public services. The current analysis by PRAXIS confirms that, as among the main reasons for contracting to NPOs is possibility to fund the services from different resources (87% of municipalities). Through NPOs local governments can access foreign funds and programs not available for municipalities.

Most of the service delivery contracts are signed in social (44%), sport (15%) and culture areas.. Supporting contracts are signed mainly in sports (34%) and community and other local development (22%) areas.

NPOs often find it difficult making ends meet when offering public services. The lack of financial resources and the wish of local governments to minimize the cost of public services leave NPOs often in situation where they have to co-finance the service by means of unpaid work or find projects for covering indirect costs.

Not too many local governments have realized that offering public services in partnership with the neighbor municipalities and creating service regions can optimize the use of human and financial resources. NPOs as service providers can be a link in such cooperation.

For information on the project please contact Annika Uudelepp.