Full support

Recent rulings have brought charities to the forefront of public service. By Chris Priestley

The role of charities in the provision of public services has evolved dramatically in recent years and looks to have been given centre stage in the current Government’s agenda. In the immediate aftermath of World War II the UK public and Government held fast to the principle that the state would provide healthcare, education and affordable housing directly to those in need. Independent hospitals that had previously been supported by voluntary contributions were taken over by the National Health Service (NHS); free schools were operated by local education authorities; thousands of homes provided by local councils and orphanages, which had been run by voluntary bodies, were largely replaced by children’s homes operated by social services. The role of charities in providing core public services was reduced significantly at that time.

Half a century later, the Government and charities are working together to promote the provision of public services by voluntary and community organisations, now referred to as the ‘Third Sector’. Private hospitals perform operations on NHS patients, independent, state-funded academies are run by charities and philanthropists, charitable housing associations provide affordable accommodation and charities contract with government agencies to rehabilitate prisoners and teach work skills to unemployed school leavers.

Yet for all the media coverage in recent months the provision of public services by charities is not new. The cornerstone of English charity law, the Statute of Elizabeth, passed in 1601, includes in its statement of charitable purposes the provision of free schools, the repair of bridges, havens and highways, the education of orphans, the maintenance of houses of correction and helping young tradesmen.

Rule change
Although charities have always worked alongside the state in providing public services, until recently it was thought that a charity could not provide public services that a public body was under a statutory duty to provide. However, last year a decision of the Charity Commission for England & Wales confirmed that, in certain circumstances, charities can provide services that are the statutory duty of a public body.

In what has been referred to as a landmark decision, two charitable companies limited by guarantee – Trafford Community Leisure Trust and Wigan Leisure and Culture Trust – which had been established to operate sports, leisure and cultural facilities previously operated by their respective local authorities, applied successfully to the Charity Commission to be registered as charities.

The Charity Commission maintained that, in making the decision to accept these two bodies onto its register of charities, it has not changed the law, but “simply reviewed the law and concluded… that there are no legal rules against charities using their funds to provide the services of a public authority”. The underlying charity law has not changed: charities may only provide public services if the proposed activity falls within their charitable purposes and they have power to undertake the specific activity in furtherance of those purposes, and they must maintain their independence from the public body for which they provide services.

This decision has brought about an increase in the provision of public services by charities, and the current Government is keen that this trend should continue. Ed Miliband, appointed in May as the first Minister for the Third Sector in the Cabinet Office, says: “The role of the Government will be to enable voluntary organisations to deliver services in partnership with the public and private sectors, bringing with them a more intimate knowledge of user needs, the ability to engage hard-to-reach groups in society and the capacity to innovate in response to unique local combinations of delivery challenges.” Despite this enthusiasm, the National Council for Voluntary Organisations (NCVO) reported that only 2 per cent of public spending outside housing is currently channelled through the voluntary sector.

The Compact
So what are the challenges and developments that face both the public and voluntary sectors as they work together to increase public service provision by charities?
In 1998 the Home Office, in consultation with 25,000 voluntary sector organisations, published ‘The Compact’ – described as an “agreement between Government and the voluntary and community sector in England to improve their relationship for mutual advantage”.

The Compact is accompanied by five codes of practice, including ‘The Funding and Procurement Code of Practice’, which contains detailed guidelines for voluntary and community sector organisations and public sector bodies that wish to work together. Key principles include full cost recovery, longer-term contracts and the avoidance of disproportionate indemnity and insurance requirements that prevent voluntary and community sector organisations tendering for contracts. These requirements were echoed in ‘Think Smart, Think Voluntary Sector’, the Office of Government Commerce’s best practice guidance on the procurement of services from the Third Sector, which was published in 2004.

However, while most stakeholders in Government and the Third Sector agree with the principles contained in The Compact, and local compacts between local authorities and local charities have been fairly popular, The Compact has been criticised for being too long and lacking in bite and many of those involved in the Third Sector claim that public authorities are either unaware of it or pay only lip service to it, as they are not required legally to comply with its principles.

In response to growing criticism, the Home Office has invested £2m in the establishment of a Compact Commission and several measures have been introduced to increase compliance with the principles of The Compact.

Last month, for example, the Treasury appointed Portsmouth City, Cumbria County, Tower Hamlets, Dorset County and Nottingham City Councils as pathfinder councils to investigate how Third Sector organisations deliver public services and how national and local government can improve their work with these organisations. Central government will send experienced civil servants to each pathfinder council to help them improve their support of their voluntary sector public service partners. The Compact Working Group has also announced ‘Compact Plus’, the highlight of which will be a kitemark that will be awarded to voluntary and community sector organisations and public bodies that commit to a succinct set of agreed standards of practice. A Compact Commissioner will be appointed to ensure that those organisations that have been awarded the kitemark comply with The Compact’s guidelines and to provide mediation services.

Recovering costs
One aspect of public service contracts that will certainly keep the Compact Commissioner busy is the issue of full cost recovery. With their armies of volunteers and their charitable funds, charities have been seen by some as a way of procuring high-quality services ‘on the cheap’. Contract payments often fail to take into consideration the overheads of running a charity, and charities embarking on new public service activities sometimes underestimate the cost of providing the services for which they tender.

Few government departments met the Government’s April 2006 deadline for the implementation of full cost recovery. In the first action of its kind, Praxis Care Group, a charity that provided homes for people with learning disabilities under a contract with Sperrin Lakeland Trust, threatened to sue the trust for £1.5m for its failure to pay the charity enough to cover the costs of providing the service. Both the Government and the voluntary sector are committed to resolving this problem.

The NCVO and the Association of Chief Executives of Voluntary Organisations (Acevo) have published guidance and toolkits for charities to enable them to calculate the true cost of providing a service, and both the National Audit Office and the Office of Charity and Third Sector Finance are working on the issue.

There is also good news in the contentious area of the length of the terms of contracts awarded to charities. Currently, Acevo states that 92 per cent of its members have one-year contracts with local authorities, a length of contract that few non-charitable suppliers would countenance. The LGA has committed itself to ending one-year contracts and has encouraged councils to award contracts to charities for at least three years to allow them to plan their service provisions and develop their infrastructures.

These developments in legislation and policy have been matched by extensive governmental financial investment. For example, Futurebuilders England, a Government-backed £125m investment fund, has already distributed more than £45m in the form of grants and loans to help voluntary and community sector organisations deliver better public services. With political, public and financial support there has arguably never been a better or more exciting time for charities to work with the public sector to deliver services to the communities that they were founded to serve. n
Chris Priestley is a partner at Withers