Prompt List when Considering Subcontracts for the Voluntary and Community Sector July 2012

About this Guide

This is a brief list of prompt questions for organisations considering entering subcontracts. Subcontracting relationships are potentially more challenging and more rewarding because of the mix of collaboration and competition within them. The prompts we list here are designed to help you work out the quality and risk of these potential relationships. Here we present some of the questions you need to consider when deciding whether to enter into these relationships. We dont suggest measures for success we just want to prompt you to think around a variety of issues. We also presume an experience of evaluating contract opportunities and that this will be in addition to the usual questions your organisation considers such as whether it receives Full Cost Recovery. For advice on standard questions to consider, see the NCVO webpage http://www.ncvovol.org.uk/advice-support/public-service-delivery/submitting-a-tender (Note: this is only a quick guide and not designed to be comprehensive. Please send any comments or suggested amendments to commercialmasterclasses@ncvo-vol.org.uk)

Why does subcontracting matter?

Government policy makers and commissioners are increasingly encouraging the use of subcontract structures in the delivery of public services. As purchasers of services, they see the advantages as being: Able to let fewer contracts at larger scale and thus reduce their transaction costs Increased integration across services The responsibility for managing the contracts is passed down in part to the lead (or prime) contractor

Yet for the voluntary and community sector, this can present significant challenges, as:

Organisations lose their direct contact and influence with commissioners Organisations often have to take on risks, contract clauses, system structures and pricing schedules which have been designed between the prime provider and the commissioner and therefore may not be suitable for organisations of their size or capacity Direct competition between the lead agency and those organisations it subcontracts with can create difficult relationships in which the subcontractors are most vulnerable

How should you consider subcontracts?

1. Find out as much as you can about the potential partners; speak to them directly as well as others who have worked with them 2. Use the basic questions youd usually use when reviewing tender opportunities (we have a recommended list here http://www.ncvo-vol.org.uk/advice-support/public-servicedelivery/submitting-a-tender) then go through the questions below 3. Once you have all the information you need, use a reliable process for working out the relative risks and rewards of the subcontract 4. Make sure you involve your trustees in the final decision, and the reasoning behind it

The Prompt List

We have divided our suggested questions into a number of sub categories. You may wish to add or subtract questions to these categories.

Due Diligence of the Prime

What do you know of the Primes commercial model? What proof do you have of its previous successful contract delivery in related contracts?

What systems and capital will need to be in place for the prime to lead the contract; are you confident these are available? Are the agreed delivery targets reflective of your past experience: are they achievable and relevant to your users needs?

Quality of your relationship with the prime

Do you understand what drives the prime to lead this contract? Do you have an established relationship with the prime? Are you seeking a relationship with them beyond the life and content of this contract? What has been the value and quality within this relationship? Are there significant differences in culture? How accessible and communicative is the prime?

Supply chain management

What is the performance management process in the supply chain? The Prime has to adhere to Compact principles: have they stated their commitment to this? What issues arise from the balance of power between your organisation and the prime; and between your organisation and the other subs?

Business Flow and Market Positioning: what risks do you face?

Is there competition within the supply chain for the type of work you do? How is this being managed and what are the implications? What factors affect the flow and placement of referrals through the supply chain? What will be the factors determine how many referrals you get? Do you have influence over these factors? What guarantees do you have of received a specified financial volume of work?

What guarantees do you have of receiving the necessary number of user referrals to make the payment model viable? If sufficient numbers of referrals / business dont reach you, how will you manage cash flow problems? Are there regular opportunities to discuss these throughout the life of the contract? How flexible is the contract termination / performance management clauses in response to these identified risks? What tier will you be in the supply chain? Eg direct to the prime or with another sub? What are the risk and referral implications around this?

Contractual Issues

Is there a contract? (this might sound obvious but youd be surprised how many organisations never receive a contract from a prime) What are the terms of the contract, especially: o Payment schedule o Payment terms o Performance management o Dispute resolution o Termination for either Failure of the prime to deliver Failure of your organisation to deliver What rights exist for both sides to vary and/or break the contract? How would your organisation be affected by these possibilities? What protection do you have of your intellectual property (service design, resources, communications and branding) during and after the life of the contract? Are there any gagging clauses and/or restrictions which could hamper your independence and campaign roles?

Capacity Building and Communications

Is there any offer of capacity building support? What would trigger this?

Is there any access to capital and/or emergency funding from the prime? What on-going communication will there be between you and the prime, and you and other subcontractors? What actions does the prime propose to encourage communication and collaboration between the subcontractors? What evidence of effectiveness, reach and your unique selling point do you have?

Business Systems

What new business systems will be required? (This is important because the systems used by a prime may well reflect a very different level of back office and IT support which will be difficult for your organisation to achieve.) What support is offered to develop and maintain these systems? Is there a chance the prime will provide these on your behalf? Is it compatible / building upon your current systems eg databases? Are there any conflicts with your current systems and policy eg equality and diversity, data sharing and confidentiality?

Influencing Commissioners

Is there opportunity to feed evidence of emerging and changing needs directly to commissioners? Will the prime recognise your contributions in their conversations with commissioners? Will the commissioners have any contact with you as a subcontractor? What recourse do you have to involve the commissioner and/or other third parties in resolving complaints about the supply chain and prime?

Please send any comments or suggested amendments to commercialmasterclasses@ncvovol.org.uk.