We're taking you to court

The Learning and Skills Council has just spent £155,000 on suing a tiny voluntary organisation in Wolverhampton over a £119,000 contract. John Plummer reports.

The Learning and Skills Council building
The Learning and Skills Council building

Not many organisations go near the Burger Bar Boys, the gang responsible for the murders of teenagers Letisha Shakespeare and Charlene Ellis in Birmingham four years ago. Kids in Communication, a tiny voluntary organisation based in a converted trailer in a car park at the University of Wolverhampton, is among the few that do.

The group has worked with members of the West Midlands gang as part of its mission to teach basic radio skills to disadvantaged young people in order to build their self-esteem and steer them away from crime. "We take on the hardest of the hard-to-reach," says Rob Smith, chief officer of Kids in Communication, who founded the organisation in 1999.

Smith has spent the past two years in a bitter and protracted battle not with troublesome youths but with lawyers representing his organisation's main funder, the Learning and Skills Council.

The dispute began in 2005, when the LSC demanded that the voluntary organisation repay the cost of a £119,000 contract, which it claimed had not been delivered "with reasonable care and skill". It ended this month when John Leport, a solicitor and former director of Kids in Communication, paid the LSC £50,000 of his own money to settle out of court. The row, between organisations with budgets of a few thousand pounds and £10.4bn respectively, is likely to go down as a landmark case in public service delivery.

Government departments and the umbrella bodies the NCVO and Acevo got sucked into what became a trial about one of the biggest funders in the country's alleged disregard of the Compact, the document that states how voluntary and public organisations should behave towards each other.

Such issues would not have crossed anybody's mind back in 2002, when the chancellor at the University of Wolverhampton told Smith he should consider applying for money from the LSC, the non-departmental public body set up in 2000 to fund non-university education and training for over-16s. Smith put together a bid and was awarded a £119,000 contract, dated 1 April 2003, to deliver basic training to 200 youths over a period of 21 months.

After the first year, funding was withheld and then reinstated at half the previous rate after it emerged that all 180 trainees had come from formal education and not, as the contract required, from outside the formal education system.

Smith thought it was up to Connexions, the Government's advice service for people aged 13 to 19, to find the referrals. When they didn't come, he did what he had always done and recruited youths from disadvantaged backgrounds through schools and youth clubs. "We had nine months' payments before the LSC recognised there was a problem," he says.

He was told that some of the referrals didn't count towards the target in the contract. Now he had half the time and half the money to deliver. Three members of staff had walked out when payment was frozen. Problems were mounting.

It was agreed that Kids in Communication would work with 30 inmates at Brinsford Young Offenders Institute, near Wolverhampton, until the contract ended in December. The contract was worked through, but in February 2005 the quango said it wanted its money back. It claimed documentary evidence relating to the work was missing.

Smith admits mistakes. "Our administrator had walked out when payment was frozen, so we didn't fill in all the records," he says. But he believes this could have been resolved easily if the LSC had taken a closer interest in matters, and that the punishment did not match the crime.

He also concedes that Kids in Communication, like many voluntary organisations, struggled with recruitment. "Because of the short-term contract, we could not recruit experienced staff," he says.

In February 2006, the LSC started legal proceedings to reclaim the value of the contract. Lawyers' letters went back and forth, and a hearing was scheduled for January 2007. Then, in October 2006, the NCVO got involved and claimed that the LSC had breached the Compact on seven counts. The umbrella body wrote to Alan Johnson, the Secretary of State for Education and Skills, urging him to intervene and make sure the case was dropped.

Leport, acting as Kids in Communication's solicitor, applied to amend its defence to take the Compact into account. He argued that, although the Compact was not legally binding, the document was "implied into the contract between the parties". The trial was rescheduled for 11 June.

In March, the LSC applied to strike out the Compact from the proceedings. It argued that the Compact's funding and procurement code of good practice was published in 2004, a year after the contract with Kids in Communication was signed, and was therefore not relevant. Publicly, the NCVO kept quiet, but privately it was fuming that a public body was trying to prevent the Compact, which was signed by Tony Blair on behalf of the Government in 1998, from being used as evidence.

In April, the judge agreed to strike out the reference to the funding code, but allowed Leport to amend his defence so that it relied on the previous Compact funding code made in 2000. In a reserved judgement made in May, Judge Oliver-Jones ruled: "Where a contract is made between any of these parties, the code undoubtedly becomes relevant to the enhancing of the relationship. In my judgement, it is more than merely arguable that the substance of the code is capable of being incorporated into the particular contract by necessary implication."

This meant the Compact codes could be used as part of the defence. But four days before the hearing was due, Leport agreed to pay the LSC £50,000 of his own money in an out-of-court settlement. He feared that an unfavourable ruling would saddle him with the LSC's mounting legal costs, bankrupt him and jeopardise his career as a solicitor. Smith says: "I would have carried on and gone to court."

Last week, it emerged that the LSC's legal fees amounted to £155,000 - £36,000 more than the value of the contract. Rob Wye, director of strategy and communications at the LSC, defended his organisation's behaviour, saying it had been motivated by the principle of saving public money from organisations that "take our money and don't deliver".

The NCVO abandoned its softly, softly approach, accused the Department for Education and Skills of "washing its hands" of the matter and described the LSC as "draconian, pernicious and bullying". Wye said the LSC "would never employ bullying tactics nor tolerate them".

The two voluntary sector members sitting on the LSC's top-tier national council were less forthcoming. Mary Marsh, chief executive of the NSPCC, declined to comment; Shirley Cramer, chief executive of Dyslexia Action, was unavailable to do so - her PA told Third Sector that her diary was "horrendous for the whole of June". The LSC, which throughout all this has been trying to woo more voluntary organisations to work with it, denies any breaches of the Compact in this case.

In the meantime, Kids in Communication continues to operate from the car park opposite the Crop Technology Unit at the University of Wolverhampton. What happens after December, when its contract with youth volunteering charity v expires, is less clear.

What legal force does the compact have?

The Kids in Communication case highlights issues with the Compact, writes Alex Murdock. It is often argued that the Compact has no legal force.

The original wording of the 1998 Compact stated: "The Compact is a memorandum concerning relations between the Government and the voluntary and community sector. It is not a legally binding document. Its authority is derived from its endorsement by government and by the voluntary and community sector itself through its consultation process."

Government endorsement of the Compact led to the establishment of codes of practice. Phrases such as 'code of practice' can acquire new force through usage and time. Paul Goggins, a Home Office minister, stated that the codes set out the "rules of engagement between the voluntary and community sector and public bodies".

Codes of practice can also carry a clear and explicit expectation that they will be followed. The Highway Code is an example. Some of this code is legally binding, but its wording notes: "Although failure to comply with other rules of the code will not, in itself, cause a person to be prosecuted, The Highway Code may be used in evidence in court proceedings."

In the case of Kids in Communication, voluntary sector bodies believed the Learning and Skills Council failed seven aspects of the Compact codes. A driver who commits seven infractions of The Highway Code could be held to be at significant fault - even if the infractions were not part of the absolute legal requirements of the code. So should the focus be upon the Compact as a professional code of practice, which both parties are expected to observe?

Codes are often associated with professionals, such as medical or social workers. Failure to observe them can lead to a person being struck off. Professionals are expected to be aware of and abide by changes to codes of practice. The excuse of prior qualification is not generally tenable. Failure to observe codes can be accompanied by similar sanctions levied on those failing in professional standards. For voluntary organisations, the removal of state funding (or prosecution for non-performance) may represent a severe and livelihood-threatening sanction.

But what should be the sanction for serious breaches of a code of practice by state funding bodes? Perhaps the ultimate sanction should be removal of the power to decide and award funding or contracts until such time as the agency in question is deemed to have resolved its situation.

In this case, the judge seems to have taken the view that the Compact codes were relevant and that it was arguable that they could be brought into the contract. Let's hope the discussions that will follow will use the codes of practice to identify shortcomings and solutions and that they do not rely purely upon the legalism of 'contract compliance'. Perhaps all parties to the Compact should be governed by a Highway Code-style or professional-standards approach.

- Professor Alex Murdock is head of the Centre for Government and Charity Management at London South Bank University. He writes in a personal capacity.

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