Public service contracts aren't always perfect, and it's up to charities to ensure they get a better deal.
Multi-million pound corporation Capita, which counts the Criminal Records Bureau among its portfolio of public service contracts, made a pre-tax profit of £121.2m in 2003. In the same year, care charity Norwood, which provides social services, subsidised local authorities by £1.9m, Sue Ryder Care did the same by £7m, and Leonard Cheshire was out of pocket to the tune of £1.2m.
In fact, the Social Care Employers' Consortium found that well over half of its members are unable to recoup their actual costs from local government, and more than a third have a shortfall of more than £1m each year. It would seem that companies often get a better deal than charities in the public service market.
"It quite often does feel like prescription from public authority, with the third sector having to take it or leave it," says Julian Blake, partner in the charity and social enterprises department at law firm Bates, Wells & Braithwaite. "This inequality of bargaining power doesn't make for good contracts."
A report released last year by chief executives' body Acevo and think-tank New Philanthropy Capital suggested several measures to improve life for voluntary sector contractors, including an accreditation body to kitemark funders that conform with principles for better funding, an insurance premium or penalty scheme for contracts that fail to comply with the principles of surer funding, and an independent ombudsman to identify, criticise and penalise parties for poor practice in contracting.
Keep goals, not money, in mind
The hope is that these laudable aims will be swiftly implemented. But for the time being, charities must take care not to saddle themselves with public service contracts that are inappropriate and, at worst, damaging.
Blake says charities must be strong enough to reject contracts if the terms are unacceptable, and cautions that it's best not to "bend resources and policy to follow the money", but rather to keep true organisational goals clear in mind. He is adamant that contracts shouldn't be subsidised by charities and sees no reason why charities can't apply a reasonable margin, with the money going towards other services provided by the charity.
Chris Priestley, partner at the law firm Withers and member of its charity team, recommends trying to cap liabilities where legally possible and making sure that appropriate insurance cover is in place. "Make sure you're pricing for everything because once it's set in stone, it's hard to change," he says.
The Reverend Mike Shaw, chief executive of disability charity John Grooms, agrees. "The voluntary sector needs to be smarter at procurement," he says. "If you want to go into public service contracting, you have to make sure the contracts are written to cover all of your costs."
Many of the contracts John Grooms has with local authorities last for just a year. Shaw would like to see these extended to five years. Among the key services provided by the charity is residential care for the disabled.
Not all of the capital required for refurbishment work on its properties comes from donations, so the charity sometimes needs to borrow money.
This is far harder and riskier to do when contracts are short. "There's ample evidence of short-termism, under-funding and the imbalance of risk being placed on the third sector, rather than on those who can best bear it," says Shaw.
Cutting costs is not an option
Last year, an RNID report, Adding Value to Public Services, demonstrated how the charity has driven the modernisation of public services , in partnership with the Department of Health and the Department for Education and Skills.
While the RNID is in favour of this kind of partnership, it's adamant that the third sector shouldn't compete for such contracts on price. "Because of the risk of working with vulnerable people, it's essential that the RNID does not reduce costs to win a contract, which will jeopardise the quality of staff, training, resources and delivery," says RNID director of communications Brian Lamb. "This would expose the charity to undue risk and possibly result in the failure to stand up to externally imposed quality standards. It's essential to make an honest assessment of the costs and charges to ensure quality, while remaining not-for-profit."
Finding out about contracts can be an added challenge. Contracts are advertised by local authorities, often in local newspapers. This makes it hard, especially for smaller charities, to hear about contracts further afield than where their offices are are. The RNID partners with other charities, such as the RNIB, to share information and make joint bids for community equipment services. the RNID also provides specialist care services for deaf people with additional needs, which means Social Services sometimes approach it directly to make a bid.
Undeniably, many contractual arrangements are far from perfect. Marie Curie Cancer Care, for example, argues that if it were given a minimum funding guarantee for its in-home nursing service, it could operate more efficiently, saving taxpayers' money in the process. The good news is that there's a climate of change. So long as charities are prepared not to cast themselves as the cut-price option, public service contracts can be beneficial all round.
- Be clear why you are pursuing a contract. Is it in keeping with your organisation's objectives?
- Compete on quality, not price. Make sure the contract covers all your costs
- Forge partnerships with complementary organisations to help you find out about tenders and, where appropriate, make joint bids
- Make sure the contract contains proper termination provisions, with a reasonable amount of notice specified for both parties
- Use the contract as a working document- it is there to help organisations working for the public good
- Seek to limit your risk and liability as much as legally possible, perhaps by agreeing a cap on your liabilities. With large contracts, it may be worthwhile creating a separate company as a way of ring-fencing liability
- Never allow the public authority a unilateral right to vary
- Ensure there is clarity as to who owns any equipment purchased as part of the contract, an important factor when the contract comes to an end
- Where possible, strive to avoid short-term contracts, which often throw up problems in areas such as resource planning and capital investment.