Is contracting right for your organisation?

This post, my first of 2016, will look at contracts from the perspective of small organisations that might be wondering whether formal contracting is right for them, and highlights a grant opportunity for organisations with their sights on £1M contracts.

Why think about contracts?

With austerity taking its toll on public services, and the prospect of further cuts to come over the next five years, voluntary organisations need to explore every avenue for their sustainability.

Over the last few years there has been a big shift in funding patterns with government (national and local) increasingly funding the voluntary sector through contracts. In some areas, local authorities have abandoned voluntary-sector grant programmes altogether. So organisations that are traditionally funded by grants might need to consider contracting as an option.

What is a contract?

A contract is a legally enforceable agreement between two or more parties. A contract exists (regardless of what it is called) when:

• both parties have accepted something – ie, one person makes an offer and another person accepts it by performing the offer’s terms or communicating approval
• there is an exchange of consideration (anything of material value)
• there is an intention to create a legally binding relationship.

Is a contract so different from a grant?

The reality is – in many ways – not really. It’s true that a contract has ‘heavier’ legal obligations, but many grant programmes nowadays require charities to deliver specific outputs or outcomes, and will withhold payments if those are not delivered. So there is a big grey area between grants and contracts.

Key considerations in contracting

• If an organisation behaves irresponsibly, the trustees could be held personally liable
• Many public-sector bodies will not formally contract with an organisation that is not registered as a company
• Organisations might be required to undergo a detailed assessment process, usually called a pre-qualification questionnaire before they are eligible to bid for a contract
• Monitoring and evaluation requirements might be more stringent
• Smaller organisations might not be able to bid for larger contracts because commissioners often deem this to be too risky. But there may be opportunities for smaller organisations to be part of a local voluntary-sector consortium or act as a sub-contractor.

Larger contracts

For larger organisations, contract readiness is about having:

• robust processes in place to be able to decide whether or not a contract opportunity will benefit the organisation
• good financial management processes
• a good understanding of risk and how to mitigate or plan for risk
• productive working relationships with other organisations.

The latter is becoming more important as larger contracts often require providers to work in partnership.

Big Potential offers grants that will enable organisations with their sights on £1m contracts to develop their organisational capacity in these ways.

More information and resources

Knowhow Nonprofit content – Is contracting right for us?

How to find out about contract opportunities