The private sector does not hold all the tendering cards

Public trust in charities will help them to win contracts, writes Ray Jones

Ray Jones
Ray Jones

When charities got grants from government, I rarely heard accountants talk about "commercial sensitivity" or worry that disclosing information about their activities in their accounts could prevent them from winning funding in future. But mention the word "contract" and the attitude of some accountants towards providing information in accounts changes.

This past decade has certainly seen charities increasingly involved in delivering public services. And these services are now, more often than not, supplied under contract. This shift from grant funding to contracts has not always been easy to decipher in some agreements, and there are many anecdotal stories about references in agreements to "the contractual terms of this grant" and similar contradictions. Differentiating a grant from a contract is another story for another day, but in general terms a contract requires something to be done for the funder in return for payment that is defined by the terms of the contact.

Has this shift to contract funding caused some accountants to worry more about providing too much information in accounts? And is there any basis to these fears?

The worry, it seems to me, stems from the fact that the award of a contract often involves a tendering process, and those bidding may be charities, social enterprises or listed and private companies. Each organisation will have a different perspective on the advantages of public reporting and transparency about how it operates. Traditionally, private companies, which are often owner-managed, are cautious about including more information than the minimum required by statute. Their stakeholder class is much narrower than in charities, particular those charities that rely on donations and voluntary income, and who need public trust and confidence. Explaining how they spend their money and what they achieve makes business sense, but some say tendering processes can challenge that assumption.

Put simply, some fear that commercial rivals who provide less information in their accounts gain a commercial advantage.

But let's look at the reality. First, charities aggregate information in their accounts and, unless a charity has only one activity delivered under a single contract, the chance of working out the 'profit margin' on a single contract is remote. Second, charities should not forget that tendering processes can bring to light the added value that a charity can bring to service provision. Finally, I've never heard a charity complain that it lost a tender because its accounts were too transparent.

The trust that charities enjoy is enhanced by their accountability and reporting of activities - how money is spent is central to that accountability. Enjoying public trust and confidence never disadvantaged anyone in a tendering process. Even if a commercial rival understands your activities and costs better than you understand theirs, remember that you operate for the public benefit, and that brings its own advantages when delivering services.

Ray Jones is policy accountant at the Charity Commission

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