CTA Scotland Conference 2010
Contracting: Fact and Fiction or ‘Expanding by Contracting’
Issues to be considered by CT’s when setting out to procure
1. WHY ARE WE DOING IT ?
There is nothing in the “rule book” that says that CT’s MUST try to act as pseudo-
commercial organisations and acquire Contract operations with Local Authorities,
Health Authorities or anyone else.
Many CT’s operate quite happily without Contracts or even Service Level
Agreements – they may be totally community based and independent of funding
from the statutory sector, perhaps raising funds by way of subscription, donations or
Other CT’s may get so-called ‘core’ funding from the statutory sector but might do
so on an ad hoc basis which gives them access to such funds which might not be
available if the arrangement was on a more permanent or structured basis.
Basically the reasons for CT’s pursuing contractual arrangements are as follows:
o It may be the only way to gain access to some or all of the beneficiaries defined in
the organisation’s Memorandum & Articles of Association
o It may be necessary if funders are unable (or unwilling) to provide financial support
via the Grant route
o It may provide the opportunity to spread overhead costs and so reduce unit costs of
all of the organisation’s activities as the more contracts there are the more such
costs can be diluted.
o It may be necessary if organisations of a certain type (eg. CVS: Councils for Voluntary
Service) find that the transport element of their activities is too great a proportion of
their total activities for the liking of the Charity Commissioners(OSCR in Scotland)
and they need to separate those activities.
o To make money in order to cross-subsidise other activities.
2. CONTRACTS CAN ONLY BE OPERATED BY SOCIAL ENTERPRISES – TRUE OR FALSE ?
UNTRUE. There is no reason why a Charity cannot, in its own right, tender for, acquire and
operate a contract with, for example, a Local Authority or a Health Authority and in the case
of passenger transport services, those contracts can be run under the Section 19/22 Permit
regime. In doing so, the organisation would need to ensure that it is applying FULL COST
RECOVERY and that those costs are reflected in the prices quoted for the contracts. Those
costs would have to include depreciation, a contingency reserve reflecting the level of
reserves acceptable to the Charity Commissioners (OSCR in Scotland) and the cost of
preparing and submitting Tenders.
However, if the organisation INTENDS TO run the contracts in a way which would generate
a surplus (also known as a PROFIT) then it would NOT be able to operate under the Permit
regime and would HAVE TO run under PSV rules with an ‘O’ licence and PSV drivers and
vehicles. It MAY also set up a Trading Arm (which might be a form of Social Enterprise such
as a Community Interest Company or CIC) but this is not essential.
It is important to understand that Contracts can be run under the Permit regime but if they
are run with a view to making a profit (or even incidental to making a profit – something to
bear in mind if the organisation is running as a sub-contractor to a profit-making contractor)
then they can no longer use the Permit regime. The consequence would be the need to
apply PSV ‘O’ Licence and PSV standards and this is almost certainly likely to be more
expensive than operating under the Permit regime. For example, all drivers would have to
acquire Driver CPC qualifications and training and there would have to be a suitably trained
and qualified Transport Manager with a Management CPC.
3. IF CONTRACTS CAN BE RUN UNDER THE PERMIT REGIME, WHY DO SOME LOCAL
AUTHORITIES/HEALTH AUTHORITIES ETC INSIST UPON CONTRACTORS ALL HAVING ‘O’
LICENCES AND RUNNING PSVs ?
There are several reasons for this:
o Lack of Understanding: Sadly, it is not unusual for VOSA Inspectors and
officials to be unaware of the intricacies of the Section 19 and Section 22
Permit Regime and they are supposed to be the ‘experts’. There have been
many occasions in my own experience where VOSA Inspectors have visited
an operating base of the Charity I used to manage and stated that they only
wanted to inspect PSV vehicles and records as “Section 19 has nothing to do
with them” ! It is therefore unsurprising that officers in other organisations
might also be unclear about what can or cannot be done.
o The Social Enterprise ‘Vision’: There is no doubt that some authorities have
taken to their hearts the concept that CTs becoming profit-making ‘Social
Enterprises’ will obviate the need for grant funding. There is a view that the
CT Sector itself has assisted them in reaching that conclusion. In doing so,
however, the Authorities have chosen to ignore (or been unaware of) the
financial and operational consequences of organisations moving from the
Voluntary sector to the quasi-commercial sector.
o Quality Concerns: Equally, there is no doubt that for some Authorities there
is a concern that employing contractors from the Voluntary Sector running
under S19 Permits will prejudice quality standards and it is seen to be safer
for both the Authority and the individual responsible officer to insist upon
what is perceived to be the ‘safer’ option of insisting upon all contractors
running under PSV rules and regulations. Whilst such concerns might be
misplaced it is a fact that legally, there is nothing to prevent the Authorities
commissioning Contracts from insisting upon such a requirement even
though Contract operation with S19 Permits is itself legal. However, it is
possible to have a compromise solution which satisfies both camps: In
Lancashire, for example, S19 Contractors for SEN (Special Education Needs)
and Social Service work are allowed but they must agree to apply standards
set by the Council and to pay the Council for an inspection regime to ensure
The CTA Quality Mark which is currently being trialled, also has the potential
to address this issue.
o The existence of the Profit Motive: In some instances the Authority
commissioning the contract might be the same authority which (before
introducing contract operation for some of its services) gave Grants to the
voluntary sector organisation. Having withdrawn the Grants when it
introduced contract commissioning, it may consider that tendered prices are
inevitably going to include some element of ‘surplus or profit’ generation in
order to finance the other activities of the organisation. In light of this it may
conclude that only profit-making contracts are possible and so PSV
regulations have to apply.
A CT does not have to operate in a Contract environment – If it can cover its
costs through the acquisition of Grants, Bequests, Donations etc then that is
A CT can choose to tender for contracts on a not-for-profit basis (which is not to
say that it will not seek to spread existing overhead costs and to apply Full Cost
Recovery) if, for example, it sees the operation of such contracts as a good way
of meeting its objectives as set out in its Memorandum & Articles of Association.
In such cases it is perfectly entitled to run such Contracts under S19/22 Permits
(although the Local Authority/Health Authority etc is not prevented from
applying its own rules to disqualify operation with Permits);
Before committing itself to abandoning the Permit regime in favour of PSV/’O’
Licence regulations, the CT needs to be aware (and to make the commissioner of
the service aware) of the likely consequences – there is a cost involved in setting
up Social Enterprises/Trading Companies and ongoing costs in running under
PSV rules which may be absent from Permit operation;
If the CT intends to make a profit from its individual contract operations (as
opposed to spreading costs) or to operate contracts on behalf of someone who
is running for a profit, then they must operate under PSV rules. HOWEVER even
then there may not be a need to set up a Social Enterprise/Trading Company as
Charities and Not-For-Profit organisations can acquire ‘O’ Licences and their
status is not affected in the eyes of the Charity Commissioners (OSCR in
Scotland) provided any ‘profits’ or surpluses from individual contracts are
ploughed back into the organisation so that overall it breaks even.
If the insistence on PSV qualification is for Qualitative reasons, then there are
alternative routes and Good Practice examples of how Quality Standards can be
maintained whilst continuing with operation under the Permit regime.
In order to demonstrate how significant Contract portfolios can be taken on board by CT Charities
without the need to depart from the Section 19/22 Permit Regime, the following case studies are
provided. These illustrate contract working by CTs for both Local Authorities and Health Authorities:
Special Education Needs Transport in the West Midlands:
West Midlands Special Needs Transport (WMSNT) is a Charity which provides Dial-a-Ride services
(using the brand name ‘Ring & Ride’) in the metropolitan West Midlands. Despite being the largest
UK Dial-a-Ride organisation (measured by trips performed – approximately 2,000,000 a year run with
150 buses) its services are over-subscribed and it also felt that it was not fulfilling its remit of
providing transport for younger disabled people: the vast majority of its registered Users being well
over retirement age. Additionally, it had spare capacity in some of its depots and considerable
expertise in scheduling and service delivery.
The Special Education Needs (SEN) provision in the Birmingham City Council area was procured in a
manner which is quite commonly used by UK Local Authorities: as an individual service User’s needs
were identified, Education Department staff would procure transport on an individual basis, usually
commissioning taxi operators on short term (single academic year) contracts.
WMSNT proposed to the Local Authority an innovative ‘Turnkey’ solution which would make
available to the Council the Charity’s expertise, high quality operation and economies of scale in
return for long-term contracts to provide services for complete SEN schools or groups of schools.
WMSNT undertook the scheduling of the services, provided on-site supervision, new vehicles (made
possible because of the longer-term nature of the contract) and guaranteed high quality training for
staff. All of the operations were provided under the Section 19 Permit regime as the Charity did not
undertake the work to make a profit (although it did apply Full Cost Recovery).
The result has been a series of contracts issued for 40+ vehicles at a time which have delivered
benefits for all the stakeholders as follows:
For the School: As the contractor has now taken full responsibility for transport there is no need to
use a highly-skilled SEN teacher (paid for out of the Education budget) to supervise transport. In
some cases this has effectively added another teacher to the school’s teaching staff !
Additionally, the schools no longer need to maintain their own minibus (again usually paid for from
the teaching budget) to take pupils on trips, to other teaching locations etc – WMSNT supplies those
needs by making available vehicles and drivers at marginal costs.
For the Pupils/Parents: Satisfaction levels surveyed by the Council have identified much higher
levels than applied to the previous arrangements. Drivers are properly trained and there is low staff
turnover, new vehicles are supplied which are comfortable and safe and reliability has improved.
Out of school times, pupils’ quality of life has also improved as they have been encouraged to use
the Charity’s Dial-a-Ride services in which they now have confidence.
For the Local Authority: Despite the higher quality standards, overall costs are lower as economies
of scale have been applied and due to more efficient scheduling the number of vehicles per school
have been reduced.
For the Charity: The contracts have allowed the Charity to access younger beneficiaries and the use
of the Dial-a-Ride service by younger Users has increased; overheads in operating depots were
spread over an increased number of vehicles and so led to a reduction in the Charity’s overall unit
costs; spare capacity was created in the SEN contracts’ downtime which WMSNT has been able to
utilise to boost its Ring and Ride availability.
WMSNT now runs 150+ vehicles on this type of contract operation and has introduced the concept
successfully to neighbouring Local Authorities in the West Midlands.
Health Service Transport:
A common problem for CTs is how to access opportunities for providing services to the Health
Sector. Procurement practices, lack of awareness of the capabilities of Community Transport and
lack of specific responsibility for transport within the NHS are usually cited as reasons for this.
It is apparent that no matter how convincing identification of Cross-Sector Benefits is, progress is
unlikely unless the services on offer relate directly to NHS financial targets.
Once that link has been made there is Good Practice evidence of benefits to both the CT operator
and the NHS.
Bed Blocking (Delayed Discharges): One such area in which progress has been made involves a
solution to the issue of Bed Blocking. Health Authorities are effectively charged if they allow a
situation to arise where a hospital bed is being occupied by a ‘patient’ whose treatment has been
completed. The amount varies but can be in the order of £400+ per night.
In Sussex a Pilot Project has been run which involved local CT’s supplying vehicles and staff to local
hospitals for a few hours per night after the in-house PTS service had finished. As patients were
discharged they could be ferried home, thus releasing the hospital bed. The cost of this exercise
amounted to under £100 per hospital per night. The benefits were:
For the Health Authority: For a relatively modest outlay they could make significant inroads
into their bed-blocking charges. Even at the rate of, say, one patient per night, hundreds of
pounds could be saved – a total increased greatly for each additional passenger. The annual
saving per hospital during the pilot was notionally in the hundreds of thousands of pounds
and the NHS Bed-Blocking reduction target has been effectively addressed.
For the CT: The CTs involved have been able to extend their services to target beneficiaries
whilst reducing overhead costs as the income from the contract offset some of the costs of
an otherwise idle vehicle.
D.N.As (Did Not Attends/Failed Appointments): Another key target within the NHS is the
level of DNA’s and each failed appointment is allocated a cost which reflects the under-utilisation of
equipment, staff time etc to a level which can be well in excess of £150 or more.
Perversely, the current practice within the Health Services of capping or reducing PTS (Patient
Transport Services) costs by tightening PTS qualification criteria by applying ‘clinical need’ is
increasing the likelihood for DNAs.
As described in the ‘Providing Transport in Partnership’ document which is downloadable from the
There have been a number of initiatives to reverse this trend and allow the Health, Local Authority
and Community Transport sectors to work together in order to satisfy the travel needs of hospital
outpatients who find themselves disqualified by the more stringent PTS qualification criteria.
From the above it can be seen that there is no single answer to the question: What legal
framework applies to CTs running Contracts ?
The answer very much depends upon the objectives of the Charity and how they deliver the
contracted services. It is entirely legal for CTs to deliver most Contracted operations under the
rules applicable to the S19/22 Permit regime but there may be good reasons why they may
instead choose (or be obliged) to run under PSV/PCV arrangements instead.
The only absolutes are that contracts run by Social Enterprises (Trading Companies, Community
Interest Companies etc) are obliged to run under the PSV/PCV rules as are contracts delivered by
Charities when they are run to make a profit or with a view to making a profit.
Further advice on this issue and many others affecting the Community Transport Sector can be
obtained from the Consultancy arm of the Community Transport Association:
028 9094 1664 or 07887 713528 or 07918 727119
or email firstname.lastname@example.org