The National Audit Office does not appear to recognise that the idea of loan finance was a very difficult concept for the sector to get its head around when Futurebuilders was first getting started, Richard Gutch, chief executive of the first Futurebuilders’ fund, has said.

Gutch was responding to the NAO report published today into the effectiveness of ChangeUp and Futurebuilders, which contained some criticism of the way the first Futurebuilders contract was handled.

The most damning finding was that four of the eight Futurebuilders loan recipients interviewed for the report didn’t think Futurebuilders would insist they repaid their loans.

In response, Gutch said he was pleased that the investigators concluded that Futurebuilders had helped third sector organisations to develop their capacity to deliver public services. “They are also right to recognise that repayment of loans is dependent on winning contracts,” he added.

‘We made contractual obligations clear’

However, with regard to the non-repayment of loans, Gutch said: “We always made clear that they were contractually obliged to repay their loans, both in their terms and conditions and through their investment officer, but we also reassured investees that if they failed to win contracts we would work with them to find ways of addressing the difficulties this would cause in repaying their loan, for example by extending their loan repayment holiday.

“This reassurance was essential to overcome the understandable concerns third sector organisations had about loan finance, given the unpredictable commissioning environment.

“The NAO report doesn’t appear to recognise that the idea of loan finance was a major challenge for the sector, when we started.”

Gutch agreed that the targets for the second contract are more clearly specified. “Indeed, we, and Adventure Capital Fund (the new contract-holder), were closely involved in developing these as part of the competitive dialogue process.

Unknown territory

“However, it has to be remembered that when Futurebuilders started, the Home Office (who were then the lead department) and us were embarking on unknown territory and it was understandable that only a more general target for numbers of investments was set at that stage.

"Four years later, there was much more evidence and experience to draw on and so it was possible to set more meaningful targets.”

He added that there are various comments in the report about the improvement in the success rate of applicants, the faster assessment process and the increase in the number of investments.

“These are all developments which we were involved in helping make happen in the later stages of our contract and which the new fund manager has been able to build on further.”

Report findings ‘great news’ says Brennan

The government also issued an early response to the report, though it was more succinct and ignored the specific criticisms around the early ChangeUp programme.

Third sector minister Kevin Brennan said: “The Capacitybuilders and Futurebuilders initiatives pioneer ways of supporting the sector, so it is great news that they are having a positive impact.

“I am pleased that the report finds we have dealt with many of the early problems. I want to ensure that we continue to develop our approach to get the best value for money possible.”