2.2. The unique challenges of the sector
The state - central and local government is “the most powerful single influence on the voluntary sector, whether through income, which affects some, or the policy, regulatory and commissioning environment, which affects all”
Independence Panel of the Voluntary Sector, 2013

There are issues around financial dependence, and rules imposed by the external environment stating how third sector organisations operate.
The third sector contracting regime in the UK
One of the main challenges for many third sector organisations is the socio-economic environment they operate in, that concerns contracting (or partnering) with the public sector. The market (private sector) engages in the economic environment where profit can be achieved, or they will not survive. The state (public sector) engages in the social environment where there is a relatively universal need (e.g. social services, broadly speaking). The third sector engages in environments where there is often a more unique need, e.g. providing services to a small sub-sample of a sector (deaf children, blind people, the few hundred people with MND in Scotland, etc.), where no profit can typically be made (if it was an option, then private enterprises would have likely swooped in already). As has been noted previously, countries where there is a narrower public sector tend to have a larger third sector, because the needs are still there and someone needs to try to meet them. This is where contracting often comes in. So the public sector may not provide a service themselves, but may still need to or wish to deliver it in some shape or form, so they can contract out to private or third sector organisations.
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There was a time when third sector organisations were given grants, that they could use relatively freely, with limited monitoring or reporting requirements. However, under the contracting regime, third sector organisations need to compete for every penny, and they need to jump through many a hoop while going through the procurement process but also while running the service and when reporting on the use of the funds. This has made life for many in the sector far more difficult, and has created this vicious cycle, where charities often need to chase funds, which has significant negative consequences for the people within the organisations and the service users. In addition, there is today much more emphasis on demonstrating impact from the use of any funds. Especially if there is public money involved, there is a need to demonstrate the value that has been generated from that money. All of this means a lot of hard work, and that there is a need for people with key specialist skills.
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"The third sector have more stakeholders or potentially more stakeholders than any other. And also because of their number and difficulty to connect, it is easy to lose sight of who’s really important and what for."
Adina
"Different strands of economic theory support alternative notions of the nonprofit sector":
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Supplementary view; "nonprofits are seen as fulfilling the demand for public goods left unsatisfied by government."
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Complementary view; "nonprofits are seen as partners to government, helping to carry out the delivery of public goods largely financed by government."
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Adversarial view; "nonprofits prod government to make changes in public policy and to maintain accountability to the public. Reciprocally, government attempts to influence the behavior of nonprofit organizations by regulating its services and responding to its advocacy initiatives as well."
Young, 2000
The main issue for third sector organisations, regardless of type, or size even, is that they are always fighting for resources, whether that is time or money, there is never enough of it, and this makes managing organisations in the sector extremely challenging.
The sector consists of many vicious circles, not least the need to continuously apply for funding (contracts and grants are often only for 1, 2 or 3 years) which is a waste of staff resources (e.g. staff having to spend much of their working time applying for funds), and amending your organisation a bit to fit the funding opportunities available (for some organisations), but also then making assumptions e.g. that others are willing to work overtime without pay because they believe in the cause, as it has become so normalised.