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Subcontracting: Legal Implications for the Voluntary Sector Friday 28 th February 2014, London Russell-Cooke Solicitors.

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Presentation on theme: "Subcontracting: Legal Implications for the Voluntary Sector Friday 28 th February 2014, London Russell-Cooke Solicitors."— Presentation transcript:

1 Subcontracting: Legal Implications for the Voluntary Sector Friday 28 th February 2014, London Russell-Cooke Solicitors

2 Module 10 Issues in negotiation James Sinclair Taylor The Charity and Social Business Team Russell-Cooke Solicitors

3 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

4 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

5 Your strategy if you fail  Staff implications  Premises  Other opportunities  Merger  Review your business strategy

6 James Sinclair Taylor The Charity and Social Business Team Russell-Cooke Solicitors Module 1 – Moving from grants to contracts

7 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

8 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

9 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

10 Features of a Contract  Compliance Requirements  Insurance  Step in rights  Term and termination  Exit arrangements  Force majeure  Assignment and subcontractors

11 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

12 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

13 James Sinclair Taylor The Charity and Social Business Team Russell-Cooke Solicitors Module 3 – Governance Implications, Legal Structures and Trustee Risks

14 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

15 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

16 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

17 Contact Details James Sinclair Taylor Partner

18 David Mears The Charity and Social Business Team Russell-Cooke Solicitors Module 2 Risk and Mitigation

19 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

20 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

21 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

22 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

23 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

24 David Mears The Charity and Social Business Team Russell-Cooke Solicitors Module 7 – Termination, the implications of contract loss and dispute resolution

25 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. 

26 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.

27 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.

28 Implications of contract loss  Staff  Premises  Service contracts  Volunteers  Damages

29 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).

30 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 Mediation If mediation fails Alternative forms of ADR or litigation

31 David Mears The Charity and Social Business Team Russell-Cooke Solicitors Module 8 – Data Protection, Confidentiality and Intellectual Property

32 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

33 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

34 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

35 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.

36 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.

37 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.

38 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.

39 Contact Details David Mears Partner

40 28 February 2014 Jane Pendry Modules 5 & 6- Employment Law Aspects

41 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

42 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

43 When does TUPE apply?  Continuation of activities  Organised grouping of employees  Assignment

44 Why do I care if TUPE applies?  Risk  Employment Tribunal claims  Cost implications  Reputational damage

45 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

46 Pensions  Pension provisions transfer  Exceptions  Public-sector schemes  Auto-enrolment  Exit debt

47 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

48 Contact Details Jane Pendry Associate

49 Module 4 - Mergers and Collaborations The Charity and Social Business Team Russell-Cooke Solicitors

50 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

51 Collaboration - Contract Contractor A Contractor B Delivery of services Other obligations Payment of fees Other obligations Customer Receipt of services Payment to A

52 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?

53 Collaboration - New Entity or “SPV” JV Entity Charity A Member or Shareholder with right to appoint to board Charity B Member or Shareholder with right to appoint to board Charity C Member or Shareholder with right to appoint to board

54 Merger - Group Structure* *assumes corporate structure Parent Charity Trading Subsidiary Subsidiary Charity

55 Merger - Merge into new charity New Charity Charity ACharity B

56 Merger - One merges into another Charity A Charity B Charity A (+ B)

57 Contact Details Andrew Studd Partner – Charity and Social Business Team

58 James Sinclair Taylor The Charity and Social Business Team Russell-Cooke Solicitors Module 9 – Other Implications including working practices, volunteers, policies and data management

59 Working Practices  The Services  Good Industry Practice  Policies  Business Continuity  Volunteers

60 Documents and Records  Record keeping and data management  Audit  Information Assurances  ISPA Questionnaire

61 Contact Details James Sinclair Taylor Partner


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