Public service delivery: rules for charities

How your charity can deliver public services on behalf of organisations like local authorities, the NHS or government departments.

How charities deliver public services

Government departments or their agencies may pay charities to deliver services for them. For example, some charities provide:

  • refuges for victims of domestic violence
  • sheltered housing and care for the elderly
  • sports activities for disadvantaged children
  • support and advice for people looking for work
  • meals on wheels services, delivering food to housebound people

If you’re considering delivering a service on behalf of a public body, you must make sure that you:

  • only carry out activities that fall within your charity’s purposes, as stated in your governing document
  • can remain independent of government
  • make decisions in line with your duties as trustees
  • can afford to deliver the service

How to manage funding agreements

Your charity can deliver services under a funding agreement with a public authority. You should keep track of the costs of providing the service and aim to recover all the costs.

If the funding on offer will not cover the full cost of the service, your charity can:

  • negotiate for more funding
  • offer an appropriate lower level of service
  • make up the shortfall with the charity’s other funds
  • reject the funding agreement and not deliver the service

You don’t have to get back full costs provided you’re satisfied this is in the best interests of your charity. Charities are also allowed to make money on funding agreements. Your decision must be based on your charity’s interests and the needs of your beneficiaries.

Full cost recovery guidance – Funding Central

Work with other charities to deliver larger contracts

Charities can also join forces to compete for larger contracts. This can be a very efficient way of working, as charities can share the administration tasks.

How to find and win public service contracts

Search online for public sector contracts with the government and its agencies.

If your charity is based in England, Locality can help with funding bids.

Stay independent when delivering public services

You and the other trustees should be able to decide for yourselves how to deliver the service. You should not be unreasonably influenced or directed by the public authorities you are working with. Charities must be independent, even if they receive all or most of their funding from government, and this can mean considering conflicts of interest.

Organisations that can help with guidance on public service delivery and independence include the Panel on the Independence of the Voluntary Sector and Compact Voice.

Manage any risks involved in delivering public services

If your charity is going to deliver public services you should think about the potential risks and make informed decisions before proceeding.

Potential risks involved in delivering public services include:

  • financial – such as not receiving enough money to deliver the service or losing the contract in the future
  • contractual – where you may have agreed to provide a service you later find you’re unable to
  • reputational – others may now view you as being too close to the public body that funds you
  • drifting from your aims – delivering services that don’t further your charity’s objectives

Some risks could be managed by becoming a limited company or charitable incorporated organisation (CIO). These structures each have their own legal status, which means that the company enters into contracts, instead of the trustees. In normal circumstances this means trustees’ personal liability would be avoided.

Use a trading company to reduce risk

Another option to reduce risk is to provide services via a trading subsidiary. A trading subsidiary is a non-charitable company that your charity controls, and has its own legal status. It is separate from the charity in the eyes of the law and can trade outside of the limits of your charity’s objects.

Before entering into any formal agreement, you should make sure you have thought about risks and how to manage them. You may want to take legal advice before signing a contract.

Published 23 May 2013