Contract culture : an inevitable drift?

Contract culture : an inevitable drift?

Contract culture : an inevitable drift? 1

Finance | Kate Sayer | 1 Sep 2006

In this series, a guest writer is asked to challenge current thinking. Kate Sayer (pictured) challenges the view that moving to contracts is a problem for charities and voluntary organisations.

More and more voluntary organisations are being asked to sign contracts instead of grant agreements. Is this the right way for the voluntary sector?

For many years, the voluntary and charity sector has been seeking equal status with private sector and government bodies. Putting relationships onto a contractual footing is a consequence of government bodies taking the sector seriously. Government departments and all political parties are now seriously interested in the role that charities can play in civil society and in delivering excellent services to communities. This invitation to stand as equals with the private and public sectors should not be thrown away. Contracts can be better for voluntary organisations because they give greater security of funding and clarify the expectations on both sides.

Contracts should be at the heart of good professional relationships. Yet the contract culture has brought with it many problems for charities and voluntary sector organisations. For example, many contracts are for very limited periods. In addition, numerous local authorities and central government departments still expect charities to subsidise the cost of delivering services, despite attempts to shore up the Compact and pronouncements by central government. Contracting on any basis other than full cost recovery is unsustainable and no private sector company would be prepared to do it.

However, it is not necessarily the fact that charities are being asked to sign contracts that is the problem. The current fudge between grants and contracts is much worse for charities and voluntary organisations. Service level agreements which are neither grants nor contracts are a disaster for charities, as are bad contracts. Typically, service level agreements attempt to specify the service to be provided, but also look for a clawback if any funding is unspent. This is not appropriate for a contractual relationship. Compare the private sector contract arrangements: you do not have to provide a detailed budget when you sell a cleaning service to the NHS, so why is this so often a requirement in contract negotiations with the voluntary sector?

At a recent conference for charities working in health and social care, we heard case studies describing contract negotiations. Some charities had spent a huge amount of time and effort in developing the service model, costing it and developing the contractual terms. While you might expect this when you are new to contracts, this should not be the norm. The charities also found that commissioning authorities did not understand that they could transfer risk, but at a price. They cannot have it both ways.

Pro forma templates

Contract negotiation is too adversarial and too time-consuming. Commissioning authorities of government should work together to establish a pro forma contract which can be used as a template, incorporating sensible terms on a range of issues such as termination, payment terms, monitoring and reporting.

If the way forward is public service delivery then what we need are more sophisticated specifications of services that incorporate quality measures as well as output measures. We need a proper process for negotiating contracts that truly puts voluntary sector organisations on an equal footing; accepts full cost recovery and accepts that charities have a duty to their beneficiaries, and so will sometimes criticise government policy.

I believe that we should put our energy into getting better contracts, rather than looking backwards at old grant funding arrangements. 


Kate Sayer, a partner of Sayer Vincent, is married with two children aged eleven and nine, and lives in Gloucestershire. Kate and husband, Tony, are building a new house in Cotswold stone and hope to move in this summer. The house is on their smallholding where they keep a few cattle and sheep and plan to have a productive vegetable garden. Kate and family still enjoy travelling. Kate managed one of her must do trips when she went to Venice earlier this year.

Kevin Allard
Senior Advisor
FIEC Limited
9 Aug 2012

Funding by way of contracts from public bodies presents a problem from the perspective of procurement law. Where a contract is entered into, the public body is effectively buying a service, in which case it is required to comply with the EU procurement rules and put the contract out to tender. This is likely to lead to the contract going to a private sector body. If a contract is entered into with it being put out to tender, the public body risks legal challenges from contractors across the EU who were denied the opportunity to bid. The courts may order the contract to be undone and there is also the risk of fines being imposed. The reason why public bodies go for contracts is because they don't want to be seen to be giving away public money to organisations over which they have no control. However, in doing this they risk incurring litigation for non-compliance with the procurement rules and they are also forgetting that charities are regulated by the Charity Commission and so they should not need to worry about public money being misused.


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