The relationship between councils and charities is blighted by poor commissioning practice, according to a damning new report from the Audit Commission.

The report Hearts and minds: commissioning from the voluntary sector found that though
£3bn a year is spent by councils on services provided by charities, neither party is making the most of the relationship.

Commissioning is thwarted by the lack of information available around added value comparable costs of service provision. Councils are failing to understand the diverse nature of the sector, subjecting all organisations to the same contracting rules and processes. Government plans to increase the role of the voluntary sector in service provision are being constrained by a lack of capacity.

The commissioners that are getting the best from their relationship with the third sector do not necessarily give voluntary providers special treatment, but “commission intelligently” from service providers of all kinds, the report added.

Michael O’Higgins, chair of the Audit Commission, said it was up to the third sector to help councils select the best organisations to deliver local services. “What the voluntary sector needs is clarity, not charity, and that means improving bidding processes and demonstrating its worth in clear and measurable ways.”

Responding to the report, Acevo's head of policy Seb Elsworth said: “To move forward we must concentrate on developing intelligent relationships and strategic reform of the commissioning process. The conditions must be right if we are to move to an environment where we are significant contributors to public service design and delivery. Acevo will continue to champion full cost recovery and better funding arrangements and practices to third sector leadership.”

NCVO chief executive Stuart Etherington said government must be clear about the qualities, values and skills it wants the voluntary sector to offer in public service delivery, so charities could meet these requirements.

Volunteering England also welcomed the report, but urged local authorities and charities to account for the added value of volunteering in the commissioning process. “Volunteers play a vital role in the delivery of public services, and to ignore their contribution, both financially and otherwise, is to devalue their efforts on which society increasingly relies,” said Andy Forster, policy and campaigns strategist.