subcontracting: legal implications for the voluntary sector friday 28 th february 2014, london...

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

Contact Details

James Sinclair TaylorPartner

020 8394 6480James.Taylor@russell-cooke.co.uk

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.

Contact Details

David Mears Partner

020 8394 6484

David.Mears@russell-cooke.co.uk

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

Contact Details

Jane PendryAssociate

0208 394 6478Jane.Pendry@russell-cooke.co.uk

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

andrew.studd@russell-cooke.co.uk

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

Contact Details

James Sinclair TaylorPartner

020 8394 6480James.Taylor@russell-cooke.co.uk