OPINION: HOT ISSUE - Should charities walk away from underfunded contracts?

The voluntary sector is taking on a growing number of contracts from local and central government, which are frequently underfunded. Charities are often forced to compete with private- and public-sector suppliers but have to meet overhead costs from donations in order not to let down beneficiaries.

Bryan Dutton, director-general, Leonard Cheshire - YES

In principle, voluntary organisations providing public services to statutory standards should receive the full costs of delivery in the fees paid.

We negotiate all new contracts on this basis. We provide services for some 19,000 disabled people across the UK and the attitudes, political positions and finances of local authorities vary enormously. We are in the process of renegotiating the fees for every individual on a full cost basis. The charity cannot afford to effectively subsidise the delivery of statutory services.

We have, however, an underlying commitment to our disabled service users and it would be unthinkable to walk away from underfunded government contracts. We seek to resolve this positively at a local and national level.

If the financial damage is unsustainable, we have to end contracts, but this is the last resort and would mean a failure on the part of local authorities to meet their statutory obligations. They in turn would cite lack of central government funding as the root cause.

James Strachan, chief executive, RNID - YES

The role of the voluntary sector is to innovate and provide high-quality services. Far too often voluntary organisations end up merely substituting when they should be innovating.

Indeed, the relationship with government has expanded way beyond simple old-style contract culture with examples of voluntary-sector organisations, such as RNID, managing modernisation projects, negotiating on procurement and seconding policy officers into government departments in the medium term. We should be taking the lead in defining our relationship with the Government, rather than waiting to be asked to fill funding gaps.

RNID, like all charities, has a responsibility, defined by the Charity Commission, to ensure that we are not simply propping up what the state should be delivering. The focus must be on added value and this should be paid for in full.

Jon Barrick, director of community services, RNIB - YES

The reality is that agencies, which continually supply services or products without adequate income streams, will atrophy and go bankrupt.

Government and local authorities call for partnership with voluntary-sector agencies in service delivery rings hollow when it's a case of using our donor finance and expertise, but solely for contract commissioners' short-term advantage.

Voluntary-sector agencies are driven by the desire to innovate and provide quality service provision for beneficiaries. If contracts are underfunded, inevitably a price is paid in terms of quality, innovation, user involvement, staff training and development, and sustainability. The reasons for initial involvement become subsumed beneath the reality of managing difficult situations created by underfunding.

Voluntary-sector agencies are often not treated equally in our experience as costs for management, staff training, and IT are subject to a scrutiny, which rarely seems to be applied to in-house teams. The added value of utilising those who have the connections, skills, and knowledge, should not be exploited through underfunding, as this will eventually undermine these very attributes.

Neil Churchill, director of communications and marketing, Age Concern - YES

The pressure on charities to balance the books by going along with compromises on quality is very real. This can obviously have serious consequences for vulnerable service users and the reputation and long-term viability of the charities concerned. It's a self-defeating strategy for everyone involved.

In some areas of the country, Age Concern organisations demonstrate their commitment to older people locally by choosing to subsidise underfunded contractual services themselves. Increasingly they're coming to view such contracts as millstones around their neck. The trouble is that the pur-chaser ups the ante so the charity has to spend even more time raising funds for the subsidy.

By underfunding contracts, purchasers are also failing to recognise the added value that charities bring to a contract, for example their specialist knowledge of the client group. With the upcoming Treasury review, the Government has the opportunity to address this situation.

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