Collaboration might be a solution to stretched services and resources, but working more closely with another organisation can be daunting. Ian Hempson and Helen Hirst from Hempsons share advice on how to get your collaborations off to a flying start.
Many charities and social enterprises are looking for different ways to meet the growing need for their services, or changes in user expectations, in the face of uncertain or reduced resources.
This is often at the same time as funders and commissioners are changing the ways they work with the sector. Collaboration might be an option.
To collaborate can seem daunting. However, in your case, could commonly perceived barriers be more imagined than real?
An initial reaction might be that collaborations (often called 'partnerships') are complex to structure, particularly as 'collaboration' has no legal meaning. This article will guide you through some of the possible structures.
Think broadly
Collaborations can range from one-off to long-term projects. You should keep an open mind whether greater impact could be achieved if you work with public or private sector organisations, as well as charities and social enterprises.
For charities collaborating outside their sector, they need to be aware of the Charity Commission 'guidance for charities with a connection to a non-charity', which focuses on how the risks from those relationships could be managed.
However, an added challenge for collaboration by charities and social enterprises is the need to operate within the constraints of the organisation’s governing document, for example ensuring that the intended activity furthers the objects and will not expose the organisation to spending funds outside its objects where a partner defaults.
If you are a community interest company (CIC), the asset lock requires careful consideration to ensure it is not breached when the CIC provides funds or resources to others within the collaboration.
Below are a few potential structures for collaborations.
'Simpler' form of contract
The most straightforward way to document a collaboration is by a contract. This may start with a memorandum of understanding between the parties (which may only be partially legally enforceable), which is often followed
by a formal written agreement containing more detail.
The challenges are to find common ground and a shared purpose for the collaboration, which is why agreeing a memorandum of understanding or heads of terms to start with can be a more accessible way to capture the fundamental points.
Here are a few pointers of issues to consider (which generally will apply to all collaborative structures):
- What are the joint objectives of the collaboration?
- What is the duration of the collaboration?
- How will it be funded and resourced between the parties?
- Will any staff or intellectual property be shared between the parties?
- What is the exit strategy if any party wishes to withdraw early?
- How will you manage poor performance by a party?
More 'complex' contracts
The structure will often be dictated by a funder or commissioner, who will only want to contract with a single party. Thus, one party would take the main contract as the prime contractor and sub-contract to each of the other parties in the collaboration the parcel of services to be provided by each.
The prime contractor would have the direct relationship with the funder/commissioner and have overall control of the contract. However, that carries the risk of being responsible for any defaults by the sub-contractors.
Before the delivery start date, the prime contractor should ensure written sub-contracts are in place. However, the usual contractual protections of indemnities by a sub-contractor for their default, or termination for a sub-contractor’s default, could be of little worth if the sub-contractor has no value or there is no alternative provider of the services.
From the sub-contractor’s perspective, they have less control of the relationship with the main funder/commissioner, but in a well-drafted sub-contract their risk would be limited to their own areas of services.
Their main concerns could be around whether they are receiving a fair allocation of the main contract price and work and that they will get paid promptly for work they have done.
Operationally, a series of sub-contracts could produce silo services which would not be the best outcome for users and therefore often a joint working agreement is put in place between the prime and sub-contractors to deal with sharing of information, maintaining service standards and dealing with poor performance.
Special purpose vehicle
This option can be used, for example, for a consortium set up to bid for a contract and also where there is a pipeline of future tenders.
In order to minimise the risk to each of the organisations, they can set up a company (known as a special purpose vehicle) which is the legal entity that enters into the contract with the main funder/commissioner, in order to ringfence risk within that company.
The most suitable company form would need to be determined, but that could be a company limited by guarantee or shares, CIC or even a charity.
The organisations would be members or shareholders of the special purpose vehicle, normally with rights to nominate directors of its board. They would also hold sub-contracts from the special purpose vehicle.
If the special purpose vehicle is relying on administration services from one of the partners, there would also need to be a support services level agreement.
As a new special purpose vehicle would have no trading history, it would be essential to check with the funder/commissioner that it would be eligible to bid relying on the trading history of the partners.
A special purpose vehicle can provide a clear focus for governance as it would have directors or trustees with statutory and legal responsibilities, as long as the objects are clearly stated.
There would need to be a bespoke constitution and/or members/shareholders agreement to set out the responsibilities of the parties. The parties would want to do a due diligence on the way the special purpose vehicle purpose is set up to ensure that their risks are limited and that the ringfencing would not be broken by a call for further funds or indemnities.
How well do you know the other organisations?
Whatever legal structure or contracting route you decide, you need to ensure that there is communication between the parties throughout the process.
This will, of course, be a fundamental part of any collaboration. Getting to know the other organisations is key to ensuring that you can work together and build up trust.
Part of this process is due diligence, which may be undertaken formally by solicitors and accountants, but equally as important is the work undertaken by the trustees and staff to get to know each other to enable a shared purpose and approach, and acceptance of shared values, when jointly delivering the work.
Knowing your partners could include looking at their:
• financial health
• quality of service
• reputation
• rights to make available project assets
• customer care
• complaints history
• values and vision
Full Merger
This article does not explore mergers, but observes that collaboration can sometimes be a first step towards a merger. A successful collaboration can be a great way to build up trust, and to learn more about how the other organisation operates and lives its values than can be gleaned from a formal due diligence process.
However, collaboration is not an inexorable slide to merger. Under a collaboration, the parties remain separate and independent organisations and therefore retain their sovereignty. A merger could only happen if and when the parties formally agree to do so.
This article has been reproduced with kind permission from Hempsons. It was first published in Hempsons' Charities and Social Enterprise Newsbrief, Winter 2022/23.