PLC Public Sector reports:
A key Government policy has been to promote the provision of public services by the third sector. The latest contract award decision made by a Northern Irish government department to end up in court highlights an important issue for contracting authorities when considering letting a contract to a third sector organisation (particularly if it is a charity) - will the proposed supplier’s own constitution allow it to provide the services in question?
As mentioned in last week’s post, Citizens Advice Northern Ireland (CANI) has taken court action following the Department of Enterprise Trade and Investment’s (DETI) decision to award a debt advice contract to Advice NI (an umbrella organisation with numerous specialist charity members). It has been reported that CANI has claimed that as the members of Advice NI are charities with objects allowing them only to act in the interests of specific groups, Advice NI is not able to provide the general debt advice that the DETI was procuring. CANI claims that the DETI failed to carry out the appropriate due diligence to identify this problem.
While CANI has also raised other grounds for challenge, this is the most interesting. Obviously, it is not possible to comment on the strength of the claim without knowing far more about the specific circumstances, but it is an issue that public authorities looking to partner with the third sector need to be aware of.
Public authorities contracting with the private sector have never needed to be overly concerned about whether the objects of the provider could prevent it from supplying the relevant goods or services. Company law developed general objects clauses long ago that meant that they would no longer prevent a hurdle. The situation with charities is different. The benefit of tax breaks means that charitable companies continue to have bespoke and restrictive objects, which in England and Wales must be approved by the Charity Commission. Therefore, it is not impossible that an agreement to provide services of a general nature or to the public at large could put a charity in breach of these objects.
A second reason to pay close attention to this issue is that a public authority should (rightly) have no hesitation in pursuing a private sector provider to the fullest extent permitted by law if the provider has contracted to provide something it is unable to deliver. The position with regard to a charity is different and, whatever the legal entitlement, it is difficult to imagine many public authorities taking the approach they would take for a private sector provider, if the provider in question was a charity.
Undertaking the necessary due diligence is not always an area that public sector purchasers excel at. Where a public authority proposes to contract with the third sector, it is particularly important that it is not an area that is overlooked.