The union Unite has called for an urgent review of payment-by-results contracts involving charities after the collapse of the Lifeline Project.
Lifeline, which collapsed last month and officially enters administration today, was heavily dependent on public sector contracts to deliver its drug and alcohol services.
The social care and health charity Change, Grow, Live took over 40 of Lifeline’s projects and 1,000 staff today, and it is understood that the charity Addaction is also taking over one service involving 32 staff with the NHS and a local charity in Stoke-on-Trent.
According to the Lifeline Project’s accounts for the year to the end of March 2016, the charity had more than 1,400 staff – almost 500 more than the previous year – and an income of £61.8m, a 45 per cent increase on the previous 12 months.
Unite said Lifeline’s collapse showed that PBR contracts were "fundamentally flawed" and could result in serious cash-flow problems for charities, especially if they had to wait for payment for months after a service had been delivered.
The union said in a statement that it wanted a return to more collaborative funding models delivered through "consortia of providers and sustainable grants".
The union has also launched a campaign to get the public to contact parliamentary candidates about local drug and alcohol services.
Siobhan Endean, national officer for the not-for-profit sector at Unite, said: "The collapse of Lifeline should set alarm bells ringing, which is why we have launched an email campaign urging members of the public to contact their local prospective parliamentary candidates ahead of next week’s general election.
"They are being asked to protect the future of drugs and alcohol services in their local communities and the jobs of the people who currently work for Lifeline.
"Drug and alcohol services are chronically underfunded as a result of the government’s savage cuts. We believe that the payment-by-results model of commissioning is placing the services at risk. Unite members in the sector report that they are under pressure to focus on unattainable measures and targets.
"Organisations can be tempted to bid for contracts where they are at risk of operating at a loss."
Unite said it wanted the new providers of Lifeline’s services to commit to retaining the existing level of service and adopt a no-redundancy policy for Lifeline staff and agency workers.
After the takeover of some Lifeline services, Mike Pattinson, executive director at CGL, said: "Over the past weeks we have worked collaboratively with Lifeline management to transfer as much vital service provision as possible.
"This allows these services to continue to exist without withdrawing vital treatment and support, ensuring that the minimum possible risk is caused to service users’ lives.
"Service users can expect the same level of treatment and care. Referrals can continue as normal and contact details for services will stay the same for the time being."
The Charity Commission is understood to have been contacted with concerns about Lifeline in April.
A spokesman for the commission said the regulator had a case on the charity open.
"We have a case open and continue to engage with the charity and the administrators, both to assess the events that have led up to this outcome and to ensure that trustees fulfil their duties and responsibilities," he said.
"This case highlights the need for tight financial management and oversight by charity trustees, and the importance of following our guidance on managing charity assets and resources."