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Charities in the contract culture: survival of the largest?

  • Debra Morris (a1)

Abstract

Drawing on the findings of a year-long empirical study of 15 charities in the county of Merseyside, this article examines some of the implications for charities of entering into the ‘contract culture’. Although not the focus of the empirical study as a whole, the particular aim of this article is to consider the effect of the contract culture on the typically small charity. After a brief consideration of the legal status of charities funding documents within the contract culture, a number of problems faced by small charities that are embraced by the contract culture, together with their legal consequences, are examined. A number of survival tactics for small charities are then discussed. In the light of the publication of the government Compact on relations between itself and the voluntary and community sector, a plea is made for more equal partnerships to be forged between charities and their funders within the contract culture.

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1. L Hems and A Passey UK Voluntary Sector Almanac 1998/99 (London: NCVO, 1998).

2. J Kendall and M Knapp The Voluntary Sector in the UK (Manchester: MUP, 1996) ch 7.

3. This is a major inquiry into the scope, structure, history, legal position and role of the non-profit sector in a broad cross-section of countries.

4. When discussing the development of the ‘contract culture’ in Britain, 6 and Kendall talk about how, in the 1990s, ‘grants became more and more contract-like over time’ in P 6 and J Kendall (eds) The Contract Culture in Public Services (Aldershot: Arena, 1997) p 6.

5. See D Morris Charities and the Contract Culture: Partners or Contractors? Law and Practice in Conflict (Liverpool: Charity Law Unit, 1999). This research, referred to throughout as ‘the empirical study’, was funded by the Esmée Fairburn Charitable Trust.

6. P Shore, M Knapp, J Kendall and S Carter ‘The Local Voluntary Sector in Liverpool’ in S Saxon-Harrold and J Kendall (eds) Researching the Voluntary Sector (London: CAF, 2nd edn, 1994).

7. Through its various boards, the National Lottery Distribution Fund awarded a total of £4.7bn between the start of the Lottery and December 1997, £674.5m (14%) of which was awarded by the National Lottery Charities Board to charities. Giving to charities by the other Boards boosts the overall figure for Lottery funding of charities to approximately £2.4bn since the start of the Lottery, between 50-60% of total Lottery funding. M Smerdon ‘National Lottery Charities Board… Life Beyond The Dome’ in C Pharoah and M Smerdon (eds) Dimensions of the Voluntary Sector (Kent: CAF, 1998 edn, 1998).

8. Most of the charities supplied several contracts for analysis.

9. Some of the specific concerns relating to small charities in the contract culture which are raised in this article derive from the wide-ranging discussions which the research participants entered into whilst being interviewed about their own experiences. Due to the fact that the same concerns were being voiced repeatedly, their validity has been accepted, although on an individual basis, it is acknowledged that much of the evidence is purely anecdotal.

10. S Osborne ‘What Kind of Training does the Voluntary Sector Need?’ in D Billis and M Harris Voluntary Agencies: Challenges of Organisation & Management (London: Macmillan, 1996) p 208.

11. L Russell and D Scott Very Active Citizens? The impact of the contract culture on volunteers (Manchester: University of Manchester, 1997) p 16.

12. For the purposes of charity accounting, charities with income under £100,000 are regarded as ‘smaller charities’ and are subject to simpler arrangements for the preparation of annual reports and accounts. See Charities Act 1993, Pt VI and the relevant Regulations made thereunder. There is currently a proposal to raise this threshold to £250,000. See Charity Commission Accounting And Reporting By Charities: Exposure Draft Of Recommended Practice (Revised 1999) (1999).

13. Two, however, formed parts of national networks.

14. See eg ‘Charting The New Legal Landscape’ The Lawyer, 26 April 1999.

15. See eg ‘Time To Leave The Profession?’ Solicitors Journal, 11 September 1998.

16. These do not include subsidiaries or branches of other charities.

17. This information, and the details on registered charities’ income are taken from the Charity Commission website: http://www.charity-commission.gov.uk/.

18. L Hems and A van Doorn NCVO Survey of Job Roles and Salaries in the Voluntary Sector 1997/1998 (London: NCVO, 1998). It is estimated that general charities have over 3 million volunteers and that they contribute the equivalent of almost 1.6 million full-time jobs, with an economic value of £12bn given to this activity.

19. Charity Commission Charities And Contracts Leaflet CC37 (London: TSO, 2000) para 3.

20. A consideration of where these types of arrangement fit into the varieties of ‘contractual forms’ falls beyond the remit of this article, but might usefully form the subject matter of some additional work in this area. See, in general, eg H Collins The Law of Contract (London: Butterworths, 3rd edn, 1997).

21. By comparison, the uncertainties and patronage of the ‘grant culture’ are illustrated in the decision of New York City Mayor, Rudolph Giuliani, in September 1999, to cut the Brooklyn Museum of Art's $7m city subsidy, because of the gallery's determination to stage the controversial exhibition ‘Sensation: Young British Artists from the Saatchi Collection’ . See ‘Giuliani Stops Cash for British Art Show’ The Times, 23 September 1999. In June 1998, the US Supreme Court ruled that the federal government could opt not to subsidise through grants art that it considers indecent. That case, involving the National Endowment for the Arts, began over funding of homoerotic photographs and other images of a crucifix immersed in urine: National Endowment for Arts v Finley (1998) 524 US 569.

22. V Nicholls ‘Contracting and the Voluntary Sector’ (1997) Critical Social Policy 101.

23. Nicholls, above n 22 at 111, regards this in itself as ‘likely to reinforce the system bias in favour of large and experienced groups’.

24. See, in general, on contractual intention, G H Treitel The Law of Contract (London: Sweet & Maxwell, 10th edn, 1999) ch 4.

25. See eg Edwards v Skyways Ltd (1964) 1 WLR 349 at 355 per Megaw LJ.

26. See eg Balfour v Balfour (1919) 2 KB 571.

27. See eg S Osborne and P Waterston ‘Defining Contracts Between The State And Charitable Organisations in National Accounts: A Perspective From The UK’ (1994) Voluntas 291.

28. L Russell, D Scott and P Wilding Mixed Fortunes: The Funding of the Voluntary Sector (Manchester: University of Manchester, 1995).

29. Services which local or health authorities are under a duty to provide.

30. See eg Rose & Frank Co v JR Crompton & Bros Ltd (1925) AC 445.

31. Of these, all bar one specified that the agreements did not constitute a partnership.

32. Note, however, that arbitration clauses are common in collective agreements between employers and trade unions but that these agreements are not usually legally enforceable between the collective parties. Indeed, further work could usefully be carried out comparing the legal status of ‘contracts’ within the contract culture and ‘binding in honour only’ collective agreements. See further P Davies and M Freedland Kahn-Freund's Labour and the Law (London: Stevens, 1983) ch 6.

33. C Bemrose and J MacKeith Partnerships For Progress: Good Practice In the Relationship Between Local Government and Voluntary Organisations (Bristol: Policy Press, 1996).

34. This was based on case studies of five local authority areas which were widely regarded as having developed such good practice.

35. Unwin and Westland's research concluded that it was difficult to gauge the extent to which small organisations were disadvantaged in the competitive environment. J Unwin and P Westland Trends, Myths and Realities: Funding Policies and the Local Voluntary Sector (London: Association of Charitable Foundations, 1996).

36. Getting it Right Together. Compact on Relations between Government and the Voluntary and Community Sector in England Cm 4100 (London: Home Office, November 1998). Parallel compacts have also been developed in other parts of the United Kingdom.

37. See, in general, D Morris ‘Paying the Piper: The “Contract Culture” As Dependency Culture for Charities?’ in A Dunn (ed) The Voluntary Sector, The State and The Law (Oxford: Hart Publishing, 2000).

38. Getting it Right Together above n 36, para 9.1.

39. J Pybus ‘Disgruntled charities propose boycott of unfair contracts’ Third Sector, 15 April 1999.

40. Charity Commission The Hallmarks of a Well-Run Charity Leaflet CC60 (London: TSO, 1999).

41. Employment Rights Act 1996, s 94.

42. Examples of both such clauses were found within the research sample.

43. S Kumar Accountability in the Contract State. The relationships between voluntary organisations, local government and service users (York: YPS, 1997) ch 2.

44. See J Warburton and D Morris ‘Charities and the Contract Culture’ (1991) Conveyancer 419.

45. This may be due to prior amendment of charities’ governing documents. In line with recent developments in company law, several charities had recently changed their governing documents, so as to broaden their objects clauses and others said that they were in the process of doing so.

46. This is consistent with other findings on the impact of contracts (eg Russell, Scott, and Wilding, above n 28).

47. Bemrose and MacKeith, above n 33, p 9.

48. Nicholls, above n 22, p 110.

49. For example, there are over 1400 local Age Concern groups. These are autonomous and separately registered charities. They may be full members or associate members of Age Concern England (or the National Council On Ageing) or they may be neither. In order to be full members, groups have to satisfy standards set by the National Council in relation to structure, policies and service delivery. ‘Charities and Their “Branches” - The Age Concern Experience’ talk to the Charity Law Association, by Bill Prouse, Age Concern England, 11 December 1997.

50. There is a downside, however, as these charities complained that local power had diminished as a result of increased accountability to head office.

51. J Lewis ‘Developing the Mixed Economy of Care: Emerging Issues for Voluntary Organisations’ (1993) J Social Policy 173 at 189.

52. The study on local Mind groups referred to the ‘highly significant’ transaction cost of negotiating contracts. See Nicholls, above n 22, p 108.

53. N Deakin ‘Government and the Voluntary Sector in the 1990s’ (1991) Policy Studies 11 at 17.

54. Nicholls, above n 22, p 107.

55. Above n 53 at 15–16.

56. See eg J Harrow, A Hind and P Palmer ‘Themes and Issues in Charity Management and Charity Trusteeship’ in J Harrow, A Hind and P Palmer Charity Managers and Trustees. Meeting the Challenges of the 1990s (London: NCVO, 1993).

57. Research on the impact of National Lottery Charities Board (NLCB) funding on small charities found that some charities had to set up new systems for payroll upon receipt of funding. It was noted that ‘paying staff on time was widely regarded as a priority’ by the charities. See S Browning and H Trevaskis ‘The Impact of Major NLCB Funding on Small Organisations’ in Pharoah and Smerdon, above n 7.

58. Employment Rights Act 1996, s 94.

59. I Cunningham Prospects for Union Growth in the UK Voluntary Sector - The Impact of Fairness at Work (Paper to 5th NCVO Researching the Voluntary Sector Conference, London, 7–8 September 1999).

60. Some even have their own insurance departments, assessing and minimising risks.

61. Discussed above, nn 20–32 and associated text.

62. See eg Russell and Scott, above n 11.

63. Legal Structures for Charities Survey Charity Law Association, NCVO, Charity Law Unit (1995).

64. Trowers & Hamlins Charities Structure and Governance Survey Report (London: Trowers & Hamlins, 1997) p 4.

65. Charities Act 1992, now largely consolidated in Charities Act 1993.

66. See eg W Tumin On Trust. Increasing the effectiveness of charity trustees and management committees (London: NCVO, 1992).

67. The Act did add to the responsibilities of charity trustees in other ways, particularly in relation to accounting and reporting. See now Charities Act 1993, Pt V1.

68. Deakin talks about the contract culture bypassing new ‘local hero’ opportunities. See Deakin, above n 53, p 17.

69. E Yates Winding Up and Insolvency of Charities (Including Rescue Mechanisms) (PhD Thesis, University of Liverpool, 1999).

70. See eg M Taylor and J Lewis ‘Contracting: What does it do to voluntary and non-profit organisations?’ in 6 and Kendall, above n 4.

71. A Thompson ‘Juggling Priorities’ Community Care, 27 March-2 April 1997.

72. This practice is contrary to the Charity Commission's advice: ‘We strongly advise charities not to enter into contracts to deliver a service that a public body is required to provide unless the public body pays the full economic cost.’ Charity Commission, above n 19, para 31.

73. L Noble ‘Fighting the Squeeze’ Guardian, 28 October 1998.

74. Commission on the Future of the Voluntary Sector Meeting the Challenge of change: Voluntary Action Into the 21st Century. Summary of Evidence and Selected Papers (London: NCVO, 1996) pp 12–13.

75. These are usually specialist bodies made up of charities providing a specific service, for example, the provision of care for the elderly.

76. Often termed Councils for Voluntary Service (CVSs) or Rural Community Councils (RCCs). These umbrella groups provide both support to smaller organisations and a forum for co-ordination across the voluntary sector. As early as 1978, the potential significance of such bodies as co-ordinators of the local voluntary sector and a key link to the statutory sector was recognised by the Wolfenden Report. J Wolfenden The Future of Voluntary Organisations: Report of the Wolfenden Committee (London: Croom Helm, 1978).

77. Noble, above n 73.

78. Unwin and Westland, above n 35.

79. C Pharoah and M Smerdon ‘Local Income Overview’ in Pharoah and Smerdon, above n 7.

80. Wolfenden, above n 76.

81. S Osborne Promoting local voluntary and community action: The role of Local Development Agencies (York: YPS, 1999).

82. Wolfenden, above n 76, pp 111 and 116.

83. Discussed, above n 62–67 and associated text.

84. Pro bono work has traditionally been undertaken on a piecemeal and ad hoc basis, dependent on the charitable instincts of a particular individual or firm. In Australia and in the USA there are national bodies that actively support and encourage pro bono work in the legal profession. However, in England and Wales, until the formation of the Solicitors Pro Bono Group (SPBG) in September 1997, there was no official support for giving legal advice on a voluntary basis. See now, SPBG SPBG Guide to Pro Bono Opportunities in England and Wales (London: Solicitors Pro Bono Group, 1999). See also Professor Simon Lee's public lecture at the Annual Conference of the Society of Public Teachers of Law at Leeds. 13 September 1999 ‘The Social Responsibility of the Lawyer’.

85. See A Boon and R Abbey ‘Moral Agendas? Pro Bono Publico in Large Law Firms in the United Kingdom’ (1997) MLR 630 at 643–646, for an indication of the nature of pro bono services most commonly provided.

86. G Slapper ‘Charity Should Begin at the Lawyers Office’ The Times, 16 February 1999.

87. J Saunders Mutual Obligations - NCVO's Guide to Contracts with Public Bodies (London: NCVO, 1998).

88. ‘Pro Bono Work’ Law Society Gazette, 10 March 1999.

89. Boon and Abbey, above n 85.

90. ‘Pro bono: taking the lead from the US experience’ The Lawyer, 16 June 1998.

91. Wheeler and Wilson point out that one reason for the difference between the position of the professional bodies in this country and in the USA is that the Law Society has to avoid creating conditions whereby any pro bono scheme is used as argument for further reduction in the legal aid budget. In the US, pro bono work was transformed in the 1970s after the federal government cut funding to legal services and attorneys began to view the representation of the poor as a responsibility of the profession. S Wheeler and G Wilson ‘Corporate Law Firms and the Spirit of Community’ (1998) NILQ 239 at 258, fn 120.

92. SPBG News, Summer 1999. Available on the SPBG website: http://www.scl.org/spbg/.

93. ‘Foreign Lawyers Seek Answers In New York to Pro Bono Woes’ New York Law Journal, 26 July 1999.

94. See the Lawyers Alliance For New York website: http://www.lany.org/.

95. On 1 April 1997, the Association of Metropolitan Authorities (AMA), the Association of County Councils (ACC) and the Association of District Councils (ADC) merged to form the Local Government Association (LGA).

96. Association of Metropolitan Authorities Contracts for Social Care - The Local Authority View (London: AMA, 1990).

97. Charity Commission Charities And Contracts: Important New Guidance For Charities (London: Charity Commission Press Release, 29 October 1998).

98. Bemrose and MacKeith, above n 33, p 2.

99. See Saunders, above n 87.

100. See eg ‘Dawning of a New Era’ Law Society Gazette, 17 December 1999.

101. See eg N Thody ‘Charities Merging Ahead’ Third Sector Trustee, September 1998.

102. In May 1999, the Law Society set up a High Street Firms Task Force, comprising Law Society Council members and high street practitioners, to devise a strategy for the future of high street firms. The objective of the task force is to make recommendations on how the Law Society can stimulate the efficient development of high street firms and provide an environment that enables them to compete effectively in the marketplace. See ‘High Street Concerns’ Law Society Gazette, 18 June 1999.

103. G Hanlon ‘A Profession in Transition? - Lawyers, The Market and Significant Others’ (1997) MLR 798 at 821.

104. This is in line with the suggestion in the Centris Report that the voluntary sector may, in the future, split into two. B Knight Voluntary Action (London: Home Office, 1993).

* The author would like to thank Vicky Whitehouse, who acted as research assistant on this project, and this journal's anonymous referees for their helpful suggestions.

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Charities in the contract culture: survival of the largest?

  • Debra Morris (a1)

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