subcontracting: legal implications for the voluntary sector friday 28 th february 2014, london...
TRANSCRIPT
Subcontracting:
Legal Implications for the Voluntary Sector
Friday 28th February 2014, London
Russell-Cooke Solicitors
Module 10
Issues in negotiation
James Sinclair TaylorThe Charity and Social Business Team
Russell-Cooke Solicitors
Issues to consider in negotiations
Importance of information gathering Becoming really familiar with the Government’s
position and the framework of this exercise Identifying key targets or goals for the service to be
provided Be clear about your minimum costs, volumes, service
types and client types and defining them clearly Identifying risk transfers that you cannot accept and
other deal points Clarify your key arguments
Negotiating prior to award of contract to Tier 1 organisation
Seek assurances on the work, volume and client type that you will get
Agreement about what is an unacceptable payment arrangement
Seeking to limit competition? Gaining access to information and in particular their
bid Clear liaison arrangements Identify your arguments and key points Model the financial and staffing and premises
implications
Your strategy if you fail
Staff implications Premises Other opportunities Merger Review your business strategy
James Sinclair TaylorThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 1 – Moving from grants to contracts
Introduction
Industry Standard Partnering Agreement is a contract, not a grant
ISPA is model for a subcontract
It is a framework not a complete document
Contract – high risks attached – liabilities wider
May be granted by commercial contractor focused on profit maximization
Expect the contractor to enforce its terms
Key Differences between a Grant and a Contract
GRANT CONTRACT – and it is a subcontract
Not enforceable Enforceable
A donation/gift Payment for services
No profit/restricted Possible profit/unrestricted
Risk neutral Allocates risk
Principles Detailed
Other Features of a Contract
In ISPA many terms need specific tailoring don’t accept initial “standard” terms of the contractor wholesale don’t accept objective at odds with your mission
Contracts must be clear consider triggers/outcomes needed for payments to be made service levels/service credits in IPGA currently blank; must ascertain and
understand payment/deduction mechanisms Do you understand exactly what the wording requires you to do?
Multiple Requirements reporting IP rights transfer confidentiality
Features of a Contract
Compliance Requirements
Insurance
Step in rights
Term and termination
Exit arrangements
Force majeure
Assignment and subcontractors
Tax & VAT Implications
Contracts constitute business income – count towards VAT threshold
Depending on the service VAT rate could be full, zero-rated or it could be exempt
Contracts for services can mean an organisation should register for VAT
Charitable – primary purpose trading is exempt from corporation tax. If trading is not directly furthering charity’s objects – it may become subject to corporation tax
Seek advice early
Liabilities Associated with Grants & Contract
Losses/damages are more wide-ranging than a grant
Contract law principle:in the position he would have been in had the contract been properly performed and had the breach not occurred
Contract – person suffers a loss: claim for repayment of the fee any other losses they suffer
e.g. the higher cost of using another provider to perform the services
Indemnities widen liability to include a possible claim for costs and expenses not covered by
damages Dispute Resolution provision
James Sinclair TaylorThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 3 – Governance Implications, Legal Structures and Trustee Risks
Your Governance
Within your objects? Conflicts of interest created? Missions and values effected? Impact on campaigning Views of your other stakeholders Board/staff skills adequate Authorisation process Special monitoring needed Board member responsibility
Managing Liability
Contract through the main organisation or a subsidiary
Issues in using a trading subsidiary
Creating a special purpose vehicle
Implications for your control
Trustee and staff liability
Contractual Governance
Try to keep the reporting workload practical
Agreeing exactly how it is to be done to avoid disputes
Ensuring you get prior warning of changes in service level or other changes
Clarity about who has authority
Building relationships of trust
David MearsThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 2Risk and Mitigation
Legal Structure of your Organisation
Not appropriate to use unincorporated structure eg trust or unincorporated association – risk of personal liability
Benefits of using limited liability structure ie company limited by shares/guarantee; CIC; IPS; CIO
Depending on your existing structure you may want to set up a new limited company to operate the ISPA
Risk Assessment
Establish process for quantifying and managing risk Cost a range of consequences:
Termination after 1 year No TUPE transfer of staff on expiry Volume of services half at mid point Double volume at mid point
“Holistic” approach to risk including strategic risk Operational risk Financial risk Cost mitigation measures and insurance An ongoing process during ISPA
Financial Risks
No guaranteed volume of work
Service Levels and Service Credits
Inflation/other increases in costs and whether charges can be increased
Full cost recovery including extensive management obligations under ISPA
Cashflow implications
Tax and VAT
Specific issues under ISPA
Charges ie price payable to you
Service Levels
Service Credits – reduction of charges if work not fully carried out to Service Levels
Clause 1.1 (h) - no guarantee of volume of work under ISPA
Specific issues under ISPA
1.2 – requirement to meet Service Levels
1.4 – changes to Service Levels and Service Credits
6.4 – fully considered and assessed risk
Subcontracting – permitted under 22 but all risk stays with you
David MearsThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 7 – Termination, the implications of contract loss and
dispute resolution
Contract Term and Termination
ISPA can be terminated in a number of ways
“Initial Term” of three years
ISPA can be terminated voluntarily by either party after the Initial Term on 6 months’ notice
May need MoJ’s consent to terminate voluntarily if it is a “Material Contract”
ISPA will terminate if Services Agreement (Head Contract) terminates for any reason
ISPA will terminate if either party becomes insolvent.
Material Breach
Either party can terminate if the other party is in “material breach” of the ISPA and either: the beach cannot be remedied; the breach has not been remedied within the requisite time frame; or it is a repeated or persistent breach.
“Material breach” is not defined in the ISPA - usually a “serious” or “significant” breach – best practice to define.
If a material breach occurs- innocent party issues a notice of termination and the ISPA will terminate on expiry of the specified Exit Period.
Force Majeure and Relief Events
Force Majeure: an external event outside of the control of the parties i.e. flooding/
earthquakes etc. must give notice if a Force Majeure Event occurs and take steps to
minimise disruption to the services Subcontractor will not be paid and Contractor can use another provider.
Relief Event: a failure of the Contractor to carry out a “Dependency” (something the
Contractor is obliged to do) Subcontractor will not be at fault if it commits a breach as a result of a
Relief Event occurring Subcontractor must notify Contractor – compensation for any loss is at
Contractor’s discretion and covers “excess” only.
Implications of contract loss
Staff
Premises
Service contracts
Volunteers
Damages
Contract changes
No limit to amount of changes Contractor can change the service levels- consider impact
on cost and resources Contractor can amend ISPA to reflect changes to Services
Agreement Schedule 7 (Change Control) is currently blank and needs
to be agreed No provision for change in contract price- include in
Schedule 6 (Charges) Other external factors (i.e. inflation, changes in the law
etc).
Dispute Resolution Dispute is referred to the
Relationship Managers
Dispute notice is issued and dispute referred to Chief Execs
If dispute is not resolved within 10 working days
If dispute is not resolved within 10 working days
Mediation
If mediation fails
Alternative forms of ADR or litigation
David MearsThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 8 – Data Protection, Confidentiality and Intellectual
Property
Data Protection- the law
Organisations must comply with the DPA 1998 when handling personal data
DPA applies to data about identifiable individuals (data subjects) and can come in a range of forms and materials
Additional requirements apply to “sensitive personal data”
When contracting or undertaking joint activities, it is essential to establish who is the “data controller” and who is the “data processor”
Data controller is subject to DPA but will pass down contractual obligations to the data processor
Data Protection- under IPSA
The Contractor is the data controller and Subcontractor the data processor
Subcontractor must only process personal data in accordance with instructions of the Contractor and which is “reasonably required” to be processed in connection with the services
You must not disclose personal data to third parties other than employees or subcontractors
Contractor can request details of personal data that is processed- need to inform clients of obligation to share data
Your organisation must adopt technical and organisational measures to safeguard personal data
Record keeping
Subcontractor is obliged to maintain a range of records e.g. overheads, expenditure, performance and payments.
Records must also be kept of all staff matters e.g. turnover, pay and disciplinary matters.
Any loss or damage to data must be rectified at own cost.
The Contractor and MoJ can request sight of all records
Confidentiality
Parties have a duty not to disclose Confidential Information
Confidential Information is defined as: “information that ought to be considered as confidential (however it is conveyed or on whatever media it is stored) and may include information whose disclosure would, or would be likely to, prejudice the commercial interests of any person, trade secrets, Intellectual Property Rights and know-how of either party and all personal and sensitive personal data within the meaning of the Data Protection Act 1998” (“Confidential Information”)”.
Confidential Information may only be used for purposes of providing the services under ISPA.
It may be passed to employees or subcontractors on a “need to know” basis only.
Both parties are permitted to disclose the terms of the ISPA, but...
you must consult with the Contractor before publicising the services.
Freedom of Information
Freedom of Information Act 2000 (FOIA) provides a right of access to information held by public authorities
MoJ passes down obligation to provide information in the ISPA
You are required to assist the MoJ in responding to requests and must adhere to the tight time deadlines
Time, cost and resources.
Intellectual Property
IP includes assets such as names, logos, branding and goodwill, which should be protected when entering into contracts or collaborations.
ISPA defines Intellectual Property Rights (IPRs) as all IP whether registered or not e.g. trade marks, copyright and know-how.
“Background” IP in existence before ISPA belongs to the original owner.
Subcontractor is granted a licence to use the MoJ’s IP
Subcontractor must grant a corresponding licence to the Contractor and MoJ to use its IP “to the extent necessary to receive the services”- allows use of any of your IP and includes right to sub-license.
Intellectual Property
Duty to notify Contractor of any infringement of IPRs or potential claims
Subcontractor indemnifies the Contractor against any financial loss as a result of infringement and vice versa
All materials produced in connection with ISPA (“Project data”) belong to the MoJ
Project Data is licensed back to you for term of the ISPA, but cannot be used for future projects
Project Data must be stored in the correct way Unlikely that the Contractor will be willing to negotiate
these terms.
28 February 2014
Jane Pendry
Modules 5 & 6-
Employment Law Aspects
Introduction – the Key Questions
What is TUPE?
When does TUPE apply?
Why do I care if TUPE applies?
How do I deal with TUPE in the ISPA?
Pensions
What is TUPE? Employees follow their work on the same terms and
conditions
You can’t dismiss because of the transfer
You treat employees as if they’d always been employed by you - claims and liabilities transfer
You have to talk to them
You have to give the new contractor some information
When does TUPE apply?
Continuation of activities
Organised grouping of employees
Assignment
Why do I care if TUPE applies?
Risk
Employment Tribunal claims
Cost implications
Reputational damage
How do I deal with TUPE in the ISPA?
Impact of employee issues on the wider deal
Data gathering and preparation
Negotiation, warranties and indemnities
Specific issues
Pensions
Pension provisions transfer
Exceptions
Public-sector schemes
Auto-enrolment
Exit debt
Key Points to Remember
Consider TUPE from an early stage
Carry out appropriate due diligence
Warranties & indemnities
Don’t forget about exit provisions
Pension issues
Module 4 - Mergers and Collaborations
The Charity and Social Business TeamRussell-Cooke Solicitors
Collaboration - Key Legal Issues
Assumption and management of risk – structures and contracts
Identifiable benefits, outputs or cost reduction Management and decision making - process Communication Due diligence
Viability and motivation of partner Employees, TUPE and Pensions VAT/Tax/Accounting Legal and Financial Culture?
Control Exit
Collaboration - Contract
Contractor A
Contractor B
•Delivery of services•Other obligations
• Payment of fees•Other obligations
Customer• Receipt of services• Payment to A
Collaboration - Contract
Accountable Body and Sub Contractor Primary responsibility remains Apportion:
Service responsibility Payments, clear and measurable triggers Liability for non performance
Risk of default by subcontractor?
Collaboration - New Entity or “SPV”
Merger - Group Structure**assumes corporate structure
Merger - Merge into new charity
Merger - One merges into another
Contact Details
Andrew Studd
Partner – Charity and Social Business Team
020 8394 6414
James Sinclair TaylorThe Charity and Social Business Team
Russell-Cooke Solicitors
Module 9 – Other Implications including working practices, volunteers, policies and data management
Working Practices
The Services
Good Industry Practice
Policies
Business Continuity
Volunteers
Documents and Records
Record keeping and data management
Audit
Information Assurances
ISPA Questionnaire
