Referrals? The risks of being subcontracted

Fiona Sheil was responsible for co-ordinating NCVO’s programme of seminars, training and advice work on public service commissioning and procurement. Fiona left NCVO in October 2013 but we have retained her blog posts for reference.

In a future of sub-contracting and spot-purchasing, what are the risks?

When NCVO and Clinks ran a roundtable discussion for sub-contractors of private sector service providers a few weeks ago, many different issues were aired and experience shared. Some issues were clearly felt more keenly by some organisations than others and it was clear that the size of the organisation was a significant factor in their experience. However, one issue that kept cropping up and that was shared by both small and large organisations was problems around referrals;  lack of referrals, the wrong kind of referrals, how to get them and how to get paid for them.

The issue of referrals is closely linked to that of risk and is, as one organisation said “the crunch part to any contract”. Without knowing how many referrals your organisation will get it is almost impossible to calculate the financial risk you are putting yourself under by signing a contract. In some cases the level of referrals can be written into the contract but in other situations this is not practical, such as where it is unknown who and how many users might be coming through the door.

A while ago I spoke with an organisation that provides services for newly arrived immigrants. The level of immigrants coming to their particular local council can vary hugely from one year to the next and they had therefore had to devise a contract that guaranteed them payment for a certain level of set up costs, regardless of the level of referrals, and then topped up the cost for each immigrant that actually arrived and used their service. Broken promises.

However, in many cases it would appear as if the prime contractor is unwilling to commit to a specific level of referrals in the contract, despite having a fairly good idea of the overall numbers of service users.  Another organisation I spoke to felt that their prime contractor had merely used their name as bid-candy, and the almost complete lack of referrals that followed was not a problem of a lack of service users generally, but a problem with their relationship with the prime contractor.  What had seemed like a good understanding between the prime contractor’s bid team and the sub contractor had vanished into thin air when the work moved on to the implementation stage, and the organisation was left with hardly any referrals at all.

If possible it is strongly recommended that a level of referrals, and if appropriate, what type of referrals, is agreed before the contract is signed and the work commences. Try to always get the agreement around referrals in writing, even if it is minutes from a meeting, rather than a formal contract. Some organisations will not enter a contract without a guaranteed level or referrals, and sometimes have to make the difficult decision to walk away from contracts and potential work if this can’t be ensured. Others can take the risk because they may already have the service set up and it’s therefore less of a risk. One organisation told me they had anticipated an income of around £30,000 from a contract with a prime contractor but in the end only received £500 from very few referrals. An organisation may be able to take this kind of hit once, but probably not again, and they will be wary of entering into relationships with primes that have a history of not delivering.

Long term effects If you don’t get the referrals you had planned for this could put your organisation at serious risk. You may have taken on staff and other financial commitments which you can now not honour. If you need to close a service down because of the lack of referrals from a particular contract other service users will also be affected.  This could also have a knock on effect on other funding you have and relationships with public bodies. It is therefore well worth doing everything you can to get firm commitments around referrals written in to your contract. Making a complaint

If a prime contractor breaches an agreement regarding referrals this should be brought to the funder’s attention. It may be that the Merlin Standard or the Compact can be applied to help resolve the situation. Many organisations are reluctant to make a formal complaint about a prime contractor as they feel this may jeopardise their future chances of winning work, but I would encourage anyone who has had a bad experience to contact the public body in question, or the Compact Advocacy Programme, at least for a preliminary discussion. Unless someone makes the first move, bad practice will go unchallenged and will affect more sub contractors. This will be detrimental to the whole sector and will make it even harder for voluntary organisations to play a part in service delivery.

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