Powering on

Mergers in the charity sector have become a particularly acute issue in the current economic climate; in many ways, a stark reality of either merge and survive, or remain separate and fail.

While there are many different forms of merger, all of them incur costs. Great emphasis is often placed on the cost of professional fees, but, in reality, the cost to the charities themselves in terms of the time, effort and energy spent by the senior management team, employees and trustees during a merger cannot be under estimated.

Against this background, there is now an emergence of collaborative working and joint ventures rather than the more traditional, full-blown mergers.

Collaborative working

Charities can choose to work collaboratively in a wide variety of ways. Many charities have been doing this informally for a number of years as part of associations, groups or federations, or networking and sharing of information. More formal collaborative arrangements include:

• sharing back office space such as finance, IT and payroll services;
• sharing resources such as training or transport;
• co-locating and sharing accommodation and premises;
• formal partnerships to pool these resources to secure staff or services that the charities could not afford on their own; or
• joint projects or programmes for aspects of service delivery.

The motivation for collaborative working will vary hugely from one organisation to the next. However, there is now an increasing trend to work collaboratively to pool the resources to be able to 'punch above their weight'.

Contracting authorities are commissioning much larger contracts, often including in one contract a range of services they require where previously separate contracts would have been commissioned for each individual service. While charities may well wish to continue to provide the service that many have been providing for a number of years with an excellent track record, the harsh reality is that their scale and range of expertise would not enable them to bid for these much larger contracts.

Rather than merging to be able to service these contracts, a quicker alternative for charities is for a number of them to work collaboratively, either through an informal partnership arrangement or through a more formal joint venture. The result is that these charities immediately pool their resources and expertise to create a much larger contracting entity able to bid for, and hopefully win, these larger contracts.

Identifying the benefits and risks

Trustees are required to act prudently in the best interests of their charity at all times. This is no different when considering collaborative working and therefore the trustees of each charity must be convinced of the benefits of proceeding with the collaborative working arrangements. The Charity Commission has issued general recommendations for trustees on the matter (see box).

Regardless of the size and complexity of the proposed arrangement, trustees should assess the risks involved to ensure that these have been sufficiently addressed. It can be tempting to be distracted by the opportunities that collaborative working presents, perhaps even to the extent that the question of whether such collaborative working is in furtherance of the charity's objects is overlooked.

The starting point for any collaborative working arrangement will be to assess the objects of all the charities involved to ensure that they are similar or compatible with each other. As long as the trustees are satisfied, and can justify, that the collaboration is in furtherance of their own objects, collaborative working is possible.

There is also the question of resources required to make the collaboration a reality. The charitable resources used must be reasonable in relation to the extent to which the objects are furthered.

Also, any private benefits that people or organisations may achieve other than as a beneficiary must be incidental; i.e. a necessary result or bi-product of carrying out the charity's aims.

Attention to detail

To make collaboration a success, it should not be underestimated how much time, effort and attention to detail will be required. As with many things, the devil will be in the detail, in particular the legal agreements or contracts between the partner charities, not to mention the ethos and personalities involved.

In any collaboration, the proposed partners should consider what would happen if one of the parties was suddenly unable to meet its obligations. Would the remaining parties be able to continue with the working arrangement? Who would be liable for any failure to deliver under the contract? Issues of liability can have wider implications for the charities involved with repercussions for their assets, but also their reputation which can have more long-lasting damage.

Trustees' powers

To be able to work collaboratively in furtherance of their objects, it will require either an express power allowing them to establish and support any charitable association or body, or an implied power to work towards the furtherance of its objects by collaborating with one or more organisations. While in the majority of cases, charities will collaborate with other charities, some will also work with public and private sector partners.

In all cases, trustees must be confident that the collaboration furthers their own charity's purposes, is an appropriate use of charitable funds and any private benefit is incidental. If necessary, the Charity Commission can make an order to clarify or add to the trustees' powers but, before making any order, they will need to be sure that what is proposed is in the best interests of the charity concerned.

There are a variety of formal and informal structures that charities can use to work collaboratively, but the three most common ones are: the group structure '“ a formal association of separate organisations; the affiliated or federated structure '“ where a parent body offers support including strategic and central services to its affiliated members; and the coalition structure '“ where a group of charities works together for a common purpose.

Group structures

Group structures are a distinct form of working together, enabling charities to fulfil common purposes over a wide area or to deliver a complex range of related services to their beneficiaries. A group structure is a formal association of separate organisations. One example of this would be a parent charity setting up other charities and non-charitable subsidiaries.

Group structures can take many different forms with a range of terminology to describe the parties involved, but all group structures are likely to have:

• the group members acting as a collective to deliver a range of services to beneficiaries;
• the arrangement being formalised by a contract, service level agreement or memorandum of understanding;
• a parent organisation with one or more other charities and non-charitable subsidiaries;
• organisations which are both charitable and non-charitable;
• all organisations within the group having their own name and distinct (albeit compatible) objects; and
• consolidated accounts.

Charities are becoming increasingly sophisticated in the use of group structures '“ often establishing new charities or wholly-owned trading subsidiaries to hive-off a particular activity and protecting the main charity from risk if that venture should fail.

Affiliated structures

Here, there is usually a national charity which exercises some degree of control over local independent charities which are its members. Each local charity member will have its own trustees who have responsibility for the general control and management of that local charity.

In contrast, if the national charity is responsible for the general control and management of the local charities that may mean that the local charities are not independent but are merely branches of the main charity. In such a case, there is only one charity and this is not an example of an affiliated structure.

Coalition structure

Again, this is often described by a range of different terms such as a collaboration or joint venture. This is a structure where a number of separate charities agree to work together for a common purpose. The arrangement may only be a temporary collaboration with a particular aim in mind or it could be established on a more formal and long-term basis with a new joint venture being set up. This could involve setting up a new company where the collaborating charities are members.

Documentation

Collaborative arrangements can vary between bespoke articles of association and members' agreement, contracts, service level agreements and memoranda of understanding.

For those trustees less experienced in these areas, the documentation can seem quite baffling and perhaps overwhelming. However, trustees must ensure that they properly exercise their duty of care when drawing up collaborative agreements. Such agreements should be sufficiently robust to protect each party's interests and take account of the risks while allowing the collaboration to work innovatively and cost-effectively.

Many charities are seeing opportunities in the new contracting and political environment. The case study on the left gives an example of one such venture.