This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 2nd edition of The Voluntary Sector Legal Handbook by Sandy Adirondack and James Sinclair Taylor (Directory of Social Change, 2001). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking . It costs £50 for voluntary organisations or £80 for others, plus 10% p&p. We expect the third edition to be published in 2007.

The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.

Chapter 48
CONTRACTS AND SERVICE AGREEMENTS

CHARITIES AND PUBLIC SECTOR SERVICES

COMPACT CODE ON FUNDING AND PROCUREMENT

Updated 16/10/05. This information adds to chapter 48 in The Voluntary Sector Legal Handbook 2nd edition.
The Compact Code of Funding and Procurement, launched on 22 March 2005, is based on the 2002 funding code but covers public sector contracts and procurement as well as grants. The new code identifies good practice at all stages of the relationship between public sector bodies and voluntary organisations: programme design, applications/tendering, negotiation, monitoring, reporting, and the end of the grant or contract. Among the significant additions is the government's recognition that voluntary organisations need to cover their overhead costs (full cost recovery)--but the voluntary sector, in turn, needs to be able to identify and clearly allocate those costs. The new code also recognises the advantages of longer-term funding.

To go to the Compact click here (the address is too long to show on screen) or access it via the Compact website at www.thecompact.org.uk, which can also be used to keep up to date on Compact matters.

CLAWBACK ON PUBLICLY FUNDED ASSETS

Added 22/8/05.
In the past, public sector funding has often included a requirement that if the organisation earns income as a result of a grant or contract, the income has to be repaid to the public body. There is also often a requirement that if public sector funding has been used to help purchase or refurbish a building, the organisation cannot use the building as collateral for further loans and has to repay the proceeds if the building is sold. The Treasury announced in February 2005 that these clawback rules will eased significantly. It will be possible for assets to be used as collateral, and the public body can allow the organisation can keep income generated through a grant or contract or from the same of an asset, provided the income will be used to achieve the same general outcomes as originally agreed.

Information is available from the Development Trusts Association www.dta.org.uk and Community Matters www.communitymatters.org.uk.

FUNDING FOR HEALTH-RELATED SERVICES

Added 22/12/05. This information adds to chapter 48 in The Voluntary Sector Legal Handbook 2nd edition.
In a case involving Cardiff Local Health Board and three service users of Riverside Advice, a Cardiff-based charity, the Court of Appeal has ruled that the National Health Service Act 1977 does not prevent local health boards (in Wales), health authorities or primary care trusts from funding welfare benefits services and other non-medical services for people who are or have been ill.

The health board said that NHSA s.3 allowed it to provide medical, nursing, dental, ambulance, diagnostic and treatment services--but for prevention of illness and for care and aftercare, it could provide only facilities. It therefore argued that it might be ultra vires (outside its powers) for it to continue funding a welfare benefits service for people with mental ill health, as this was a service rather than a facility. On this basis, funding was not renewed even though Riverside Advice had scored highly in a review of voluntary sector provision.

Service users of Riverside Advice sought a judicial review but the High Court, in a decision on 23 March 2005, agreed with the health board's interpretation. In a decision on 6 July 2005 the Court of Appeal disagreed, saying "facilities" should be interpreted more widely, as "that which facilitates", and giving the example of a day centre "which facilitates the prevention of illness, or the care of persons suffering from illness, or the after-care of persons who have suffered from illness". This judgment confirms that a wide range of services can be funded under NHSA 1977 s.3.

The Court of Appeal decision is at www.bailii.org/ew/cases/EWCA/Civ/2005/847.html.
A one-page summary from the Public Law Project, which acted on behalf of the service users, is at www.publiclawproject.org.uk/Downloads/KeatingCardiff.pdf.

WHERE DOES A ROLLING CONTRACT ROLL TO?

Added 11/10/04. This information updates s.48.3.1 in The Voluntary Sector Legal Handbook 2nd edition.
Organisations and funders/purchasers of services often refer to rolling contracts, but without defining what they mean. In a case in June 2004, two parties who had signed a "three year rolling contract" disagreed about whether rolling meant it could be terminated by notice at the end of three years and would continue (be renewed) only if neither party gave notice, or was a contract that could be terminated only with three years' notice. The court said that both interpretations were reasonable but that the word rolling suggested a continuing contract, rather than one subject to renewal. It ruled that rolling in this context meant a contract that required three years' notice, thus enabling both parties to plan ahead for a three-year period. The case, G&A Limited v HN Jewelry (Asia) Limited is at www.bailii.org/ew/cases/EWCA/Civ/2004/674.html.

CODE OF PRACTICE ON PUBLIC SECTOR TRANSFERS

Added 21/3/05. This information updates ss.26.4.2.3 and 48.3.6.1 in The Voluntary Sector Legal Handbook 2nd edition.
The government's code of practice on the transfer of services from local authorities to private and voluntary sector contractors, issued in February 2003, has been extended from 18 March 2005 to the wider public sector. This will include transfers from the civil service, NHS and maintained schools. The code states that employees who join the new contractor after the transfer must be offered terms and conditions which are, overall, no less favourable than those of employees who have transferred from the public sector body. The public sector body must monitor compliance through its best value reviews.

The Code of Practice on Workplace Matters is at www.cabinetoffice.gov.uk/opsr/workforce_reform/code_of_practice/index.asp.

GUIDANCE ON FULL COST RECOVERY

Added 1/7/07. This information updates s.48.5 in The Voluntary Sector Legal Handbook 2nd edition.

Know your cost base, know your charity, published by the Charity Finance Directors' Group in April 2007, aims to help charities negotiate better terms for contracts and grants, and provides a framework for considering costs, cost drivers and special considerations such as VAT, reserves policy, and transfer of risk. The publication is free to CFDG members but costs £10 for others, from www.cfdg.org.uk. The introduction can be downloaded free of charge via tinyurl.com/2cwxp3 .

GUIDANCE ON PUBLIC SECTOR CONTRACTS

Updated 6/8/06. This information updates s.48.5.1 in The Voluntary Sector Legal Handbook 2nd edition.
The government is increasingly committed to more public service delivery being contracted out to the voluntary sector--a trend that some people are calling soft privatisation. The Charity Commission has confirmed that charities can provide public sector services (see above), and the government has said it is committed to finding solutions to problems arising from short contracts of less than three years, the lack of full cost recovery, the lack of advance payments at the start of contracts, disproportionate monitoring and reporting arrangements, and the possibility that smaller organisations, in particular, may not have the capacity to meet the demand to provide public services. In May, the chair of the Local Government Association called on all local authorities to review their procurement practices to ensure they are proportionate to the type and size of contract, and to offer three-year rather than one-year contracts--a move some commentators criticised, saying there should not be a three-year cap (for the LGA press release, click here). And in June, the National Audit Office announced that it has set up a third sector research team, looking at the government's funding relationships with the voluntary sector.

For organisations that want to go down the contracts route--or have no alternative, as grant finding increasingly mutates into service agreements and contracts--various resources are available.

Business Link for London, at www.businesslink4london.com (click on "tendering" on the left-hand side), has straightforward guidance notes under headings such as becoming ready to supply, finding tender opportunities, and preparing to bid. You will discover that the process is not dissimilar to a grant application process, so there's not all that much to be afraid of--apart from not getting the contract, but you have the same worries with a competitive grants process.

The Department for Trade and Industry launched on 27 June 2006 a web portal to help small and medium enterprises, including voluntary organisations, identify and bid for public sector contracts. www.supply2.gov.uk lists central and local government contracts below £100,000. (The Business Link website above has links to sites that list larger contracts.) The new website does not seem to me to be very user-friendly, and does not include the very useful flowcharts (a typical procurement process, financial assessment, increasing your chances) that were on its www.supplyinggovernment.gov.uk precursor. However the good news is that you can register to receive email information about contract opportunities in your area, and hopefully the website will become more useful over time.

Before signing on the dotted line, published by the National Council for Voluntary Organisations, is intended to provide a complete guide to the public sector procurement process. It covers finding information about tenders, deciding whether to bid for the contract, contract regulations and management, types of agreement, how to prepare a bid, and what to do if you are successful or unsuccessful. The publication includes case studies of organisations that have bid for public service contractsand is available via www.ncvo-vol.org.uk/sfp/earning/contracting.

GUIDANCE FOR FUNDING/PURCHASING BODIES, & MODEL CONTRACT

Updated 1/7/07. This information updates s.48.5 in The Voluntary Sector Legal Handbook 2nd edition.
The Department of Health's Third Sector Commissioning Task Force reported in July 2006, with No excuses. Embrace partnership now. Step towards change! (which sounds like something more out of Mao's China than Blair's Britain....). The report contains good practice points not just for health and social care purchasers but for all public sector purchasers of voluntary sector services. Best of all, it includes a model contract for block purchase of health and social care services, drafted by Bates Wells & Braithwaite solicitors with input from the task force. This can be adapted for other types of service. The report can be accessed via tinyurl.com/ywdjw9. The model contract is in chapter 4 of part II of the report.

Mind the gap: A funder's guide to full cost recovery was published by ACEVO and the Big Lottery Fund on 1 July 2006, and aims to help funders implement full cost recovery for organisations they fund or from which they purchase services. It is free at www.acevo.org.uk/UserFiles/File/FCRfundersmanual.pdf.

The Charity and Third Sector Unit in the Treasury issued on 15 May 2006 Improving financial relationships with the third sector: Guidance to funders and purchasers. The guidance is intended to help government departments, non-departmental public bodies, other funding bodies and voluntary organisations who receive funding understand government accounting rules as they apply to funding and contracts.

The guidance looks at four issues:

• Stability in the funding relationship: moving from one-year funding to longer-term funding arrangements where appropriate;
• Timing of payments and the balance of risk: recognising that payment in arrears often results in voluntary organisations bearing the upfront costs of borrowing and the risks that this entails;
• Full cost recovery: ensuring that funding bodies recognise that it is legitimate for voluntary organisations to recover the appropriate level of overhead costs associated with the provision of a particular service;
• Reducing the burden of bureaucracy: streamlining access and performance management requirements for multiple, and often very small, funding streams.

LOCAL COMPACT IMPLEMENTATION WORKBOOK

Added 30/7/06. This information adds to s.48.5 in The Voluntary Sector Legal Handbook 2nd edition.
The Local Compact implementation workbook, issued by the Compact Working Group on 5 April 2006, includes 250 good practice examples from more than 100 areas, as well as 50 performance indicators for evaluation and many more ideas for successful Compact implementation. To download a copy click here or go to www.thecompact.org.uk.

NEW RULES ON PUBLIC SECTOR PROCUREMENT

Added 30/7/06. This information updates s.48.5.1 in The Voluntary Sector Legal Handbook 2nd edition.
Alongside the government's commitment to voluntary sector involvement in public service delivery (see above), there have also been significant changes in public sector procurement in general, and in particular in relation to larger contracts which must comply with European law.

The Public Contracts Regulations 2006 came into effect on 31 January 2006, implementing the EU Consolidated Procurement Directive. These include new provisions on e-procurement systems, a competitive dialogue procedure for particularly complex contracts, framework agreements where the public body enters into contracts with several potential suppliers and calls off supplies or services as they are required, and the scope to take account of social and environmental issues, including the ability to "reserve" contracts for supported businesses and factories, where more than 50% of employees have disabilities. Another change is that public sector bodies must publish their evaluation criteria, and the relative weightings, in advance, so bids can be tailored to specific evaluation criteria.

The regulations are at www.opsi.gov.uk/si/si2006/20060005.htm.

FULL COST RECOVERY TOOLKIT

Added 10/2/05. This information updates s.48.6.3 in The Voluntary Sector Legal Handbook 2nd edition.
ACEVO and New Philanthropy Capital published in November 2004 a revised guide to full cost recovery, intended in particular for small and medium organisations. It includes a step-by-step "toolkit" to costing everything from a single item to an entire service, including identification and allocation of overheads. The guide and toolkit are available on paper (£20) or interactive CD (£35.25), or as a package (£44.20). Details are at www.acevo.org.uk/main/publications.php?content=pubcatalog.

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