In this session we explore the key differences between grants and contracts reminding viewers of principles such as consideration, contract obligations, remedies for default and how they play into the discussion about whether an arrangement is a grant or a contract. Significantly, we explore how the distinction between grants and contracts can bring into play the operation of public procurement law with all its constraints and requirements for advertisement etc.
Transcript
Alexi Markham: Right good morning everyone. We will just give it a minute or two and let everyone join. OK we have got a good number of people in now so we will kick off.
Thank you very much for joining us today for our Thinkhouse session and we are going to be looking at grants v contracts. Just some housekeeping points. We are scheduled for about an hour today but hopefully we will have some time at the end to mop up some questions. There is a question and answer function available for if you have got questions as we go through, please do pop in that and we will try to get to them at the end.
Just in terms of introductions. I am Alexi Markham so I am a partner in the commercial IT and outsourcing team at Gowlings, and my focus is very much on the Government sector and the wider public sector. I am joined by Chris who is a public support lawyer and also a legal director specialising in public procurement.
In terms of the agenda today, it breaks down into three main topics. Firstly we are just going to be looking at what is a contract and what is a grant, what are the key differences between the two and probing some of the factors that you need to consider to decide which is the correct funding route for you.
The second part of the session will focus on where you find yourself in the grant territory - what is the governance regime that applies and what are the sort of things that you need to be thinking about and then finally the third part of the session and hopefully we will be a bit more interactive. We are hoping that IT is on our side today, fingers crossed for us, and we are just going through some examples and apply the framework that we just talked through to try to determine whether something is best suited to be grant or a contract.
And then as a bonus session Chris is just going to give us an update on the procurement bill at the end of the session because I am sure that is high up on everyone's lists. OK so I shall handover to you Chris.
Christopher Brennan: Thank you very much Alexi. Good morning everyone. Nice to see you except of course I can't actually see you but it is nice to know you are all tuned in and watching us here.
So from me, first of all key differences between a grant and a public contract and for a number of us I'm sure this perhaps is an issue that we might have come across in the past. We have some planned funding, a public body paying for something or funding something. How do we actually know whether or not we are dealing with a grant or a public contract of the type to which the public procurement regime might apply? There is of course there is a world of difference in the consequences of the answer to that question so in this session we are trying to almost split that out and kind of explain where the differences lie and how to stop them.
So first of all then basic features. A grant, a funding commitment from and awarding authority and grant awarding body a funding body to some recipient some sort of recipient whoever that recipient might be, and in a grant agreement we have funding which enables a recipient meeting I suspect eligibility criteria of one sort of another to fulfil some kind of project or activity that is going to benefit somewhere, benefit the wider community or achieve a policy objective of some sort. On the other hand the public contract of the type to which the procurement regimes applies is a rather different kettle of fish. There are defined in the Public Contracts Regulations 2015 reg 2 as contracts for "pecuniary interest" (which means payment or consideration of some sort) concluded in writing between economic operators, that is suppliers, businesses who are to provide a service or supply goods or carry out works and one or more contracting authorities and which have as their object the execution of works so the delivery of a project, the supplier products goods or the provision of services so a much more commercially orientated if you like arrangement. Payment by an authority to an economic operator a business to supply goods, services or whatever.
A grant has to be justified based on the activity that is being undertaken and the benefit that it will generate for the community or to achieve that policy objective. The awarding of grants is subject as we will see later to certain cross-Government standards and requirements and Alexi will explain a little bit more about that partway through. Competition should be considered, needs to be considered. A public contract I suppose on the other hand we could be called the default route in terms of ordinarily when an activity has been provided by the private sector to the public sector to the public purse, a default is perhaps the procurement route and we could perhaps characterise grants as maybe more of a sort of specific exemption to that.
Public contracts are of course as we know subject to procurement rules so tendering processes, evaluation criteria, principles, fairness, you know transparency equal treatment and so forth or applying whereas they don't apply in the same way in the grants sphere and of course when it comes to public procurement competition is mandatory when the expected value of the contract exceeds a certain threshold. Next slide please.
So if we drill down into some of that a little bit, what perhaps we ask ourselves next are the key features or might there be key features when we are presented with a document or some sort of award proposal that might point to it being a grant or point more to it being a contract, a procurable public contract. Well here are some. First of all, factors that point towards a grant are we would say, a situation where the authority does not directly benefit so it does not have a direct economic benefit but accrues to itself. The benefit is much more out there in the community in terms of the end result achieved from the funding and indeed when it comes to a grant, it is important that there is not any direct economic benefits to the authority otherwise it is more a public contract. The absence of course of factors which might point towards a contract. We will deal with that on the next slide. The recipient of the funding in a grant situation tends to be required to put the sums to a particular use to apply them in a particular way towards the achievement of certain results and objectives.
There is an absence of any particular requirement to supply services so things are not perhaps couched in a grant funding agreement in the same way as they would be in a public contract with absolute obligations to supply services - KPIs, invoicing and so on and so forth - all those typical hallmarks for a public contract. With grants, outputs are often being provided directly to the public. So it is very much the public, the community at large that benefits and of course, key in a grant clawback in the event of the funding recipient applying the grant or perhaps receiving it as a subsidy was what we used to know as state aid. Also make sure that the body awarding grant has the legal power to do so. It might be worth checking. Next slide please Alexi.
By contrast then some contracts point towards a public contract because they provide a direct economic benefit accrued to the authority, and include performance obligations being imposed on the provider, on the recipient of the payment to which the recipient payment would not be subject if it were merely receipt of grant. A direct link between services provided and the money given. Therefore no services provided you don't get paid and of course this characterises the money as consideration for services rendered so this is provided. The activity of course being commercial in nature, and the payor i.e. the authority, being able to sue for breach of contract if services are not provided usually to its satisfaction. Next slide.
What about payment provisions specifically how those differ from contract to grant? Well we will see a few features of the payment regimes that apply to both listed there on the left hand side of this slide. We can see when we read across the slide how they differ between contract and grant. So what about profit? In a contract the provider can make a profit. In a grant the funding provided isn't intended for that. It is only intended to cover the recipient's costs. Clawback can be obtained by the provider in a contract whereas in a grant surplus might be clawed back, and of course there is generally going to be an ability to clawbacks funds as I have said before and has been misappropriated or is mis-used, mis-spent. Payment under a contract tends to be in arrears by results on an invoice in conduction of a valid invoice but in a grant situation, the recipient doesn't really invoice, it is more drawn down or claiming instalments of grant sometimes that is made in advance. Sometimes it is on achievement of certain milestones and objectives.
Funding risk very much on the supplier in a contract situation but retained by the authority in a grant.
Under permitted use well what happens in a contract in terms of what the provider of the supplier can do with its money. It can spend it as it chooses whereas in a grant very different. The provider may only use the funding that has been provided for the objectives of the project and for no other. Next slide thank you.
What about performance obligations? Again here we have listed on the left various facets of this. Outputs KPIs contract management benefits and enforcement and again these differ. In a contract there are clear specific outputs that need to be delivered, KPIs, service deliverables. Whereas a grant is perhaps phrased differently. That tends to be focused much more on supporting a policy objective or fostering a general outcome albeit of course subject to various conditions. In contracts we see service levels, KPI regimes, service credit regimes, liquidated damages and so forth. Well we don't really get that in a grant. There we tend to rely perhaps more on reporting requirements and on information streams where the recipient has to tell us how it is putting the money to good use or intended use or required use and how it is about achieving the objectives of the grant.
Management might be much more authority centred in a contract whereas in a grant the authority is likely I think in most situations have much more limited control and tends to be up to the grant recipient to make sure that it is delivering the required output as otherwise there might be clawback.
Direct economic benefit in the contract of course accrues to the authority whereas in a grant that doesn't happen. We don't really talk of a direct economic benefit there and of course what about enforcement, well in a public contract an authority could of course sue the economic operator if there is poor performance or the output service whatever is not delivered, the goods aren't delivered whereas in a grant it works somewhat differently. The authority has no remedy for a failure to achieve the objective other than perhaps to get any money back in terms of clawback.
So why is the distinction key; why is it important? Well it is important because if it is wrong, if the distinction isn't correctly drawn then there can be various implications so for example, tax - VAT in particular: grants fall outside of the scope of VAT whereas public contracts don't. Procurement: as we know grants aren't procurable within the ambit of the public contracts regulations, the public procurement regime whereas public contracts of course are and as we already noted enforceability grants generally speaking tend to be unenforceable against the funder unless executed as a deed, but of course there is clawback in there as you would expect in relation to enforcement against the relevant funded body being the recipient. Next slide.
And what are the legal risks then of getting it wrong, getting this distinction wrong. First of all VAT claims. I am struggling to think of procurement cases where the particular point in issue has been a mis-classification of a public contract as specifically a grant but that is much more the centre of attention when it comes to VAT claims that does tend to be a bit of a feature of VAT claims.
Public procurement risk, contracts of course as we know over the thresholds have to be competitively tendered effectively procured in order to ensure equal treatment and the rest of it and of course to achieve value for money whereas of course grants are not. If the distinction is not correct then an authority might find itself directly awarding mistakenly thinking it is a grant but it is actually a public contract which should have been publicly tendered.
JR is still essentially an issue even when we are squarely within the grant space because there are certain procedures which accompany the awarding of grants and procedural requirements measurably in the form of a Cabinet Office grant standards and it is possible that one could see a judicial review claim for failure to follow the decision making procedure laid out in the Cabinet Office grant standard.
Then of course there is subsidy control or what we used to know as state aid: in order to be classed as a subsidy, a grant would need to meet certain criteria and those were on that slide. It is possible that a grant that is mis-spent or perhaps is not awarded following the requisite homework or due diligence could end up being or operating as a unlawful subsidy on the recipient if the recipient is the type of recipient that could be based at a competitive advantage as a result of having received subsidiary in the form of a grant and so for that reason when one comes to awarding grant funding agreements there is usually care that needs to be taken to make sure that no subsidy is being conferred and I think with that I will actually yes hand to Alex to take us through the next few slides.
Alexi: Thanks Chris. So now Chris has put the scarers on about what happens when you get it wrong? I just wanted to pick up one last point before we get on to the governance regimes and grants and that is just legal powers so Chris eluded that in order to make a grant then you have to have the correct legal power and the slide here we have just set out some of the common powers that are used at Central Government so the Local Government Act, the Charities Act, the housing grants construction and pre-generation Acts I think the important thing here is just to flag that we need to speak to you internal GLD lawyers and the usually check you have got the right legal powers in place and then you need to record that in your business case and also we tend to record it on the ground agreement as well so that is what we want to say about that so having gone through all the factors that Chris has just outlined and got yourself comfortable about actually you should be looking at a grant for the correct funding, sometimes we find our clients think oh phew we are home and dry, we are outside of the public procurement regulations actually this is going to be easy but actually unfortunately that is not the case any longer so in 2006 the Cabinet Office again bought out its grants functional standards and this was very much a reaction to the lack of sort of regulation in the space before so on the collapse of Kids Company back in 2025 there was a pack enquiry looking at some of the financial management that went wrong in that organisation so it was sort of wholly funded by Government grants and as a result of that they bought out this very useful standard which was aimed at trying to get some consistency across the different Government departments as to how grant provenance work. In terms of what it looks like, it is essentially 10 minimum requirements. Each of which focuses on the particular area grant making and those are summarised on the slide here today so you get sort of a high level summary of what the minimum requirement is and then for each of those you get a quite useful more in depth guidance so it goes into the details of what that looks like so I would strongly encourage going on to the Cabinet Office website and finding that guidance.
We are not going to look at all these today but what I thought we would do is just pick up on some of the ones that are of particular interest to lawyers so we are going to look at the approvals process which is minimum requirement 2 and we're going to look at robust business case which is minimum requirement 4 completed by default minimum requirement 5 and then obviously robust grant agreements because we love agreements.
So minimums requirements 2 and 4, robust business cases and approvals process so grants are generally left to be determined in accordance with the organisation's own governance management framework. However, the minimum requirement does sort of set some limits around that and I summarise that on this particular slide and there is a sliding scale depending on whether the grant is determined to be low risk or no value or high risk and high value and that also points to whom might need to approve the business case but also points to the level of detail that would be required in the business case.
In the context of legal advice the key things that we typically get asked to input into business cases around the legal power to award the grant which is something we have just touched upon. We typically will give any legal assessment around subsidy control risk which Chris talked about. We will give a legal assessment around the procurement risks so should it have been completed as a public contract rather than a grant and then your GLD lawyers will input into the public sector equality duties so have you had due regard to the impact that the grant will have on equality considerations.
Completed by default so the key message here is just because it is a grant and just because you are outside the public procurement regulations and you do not have a legal regime that you have to follow in terms of competing grants. The policy is very clear that direct awards are not the norm. Grants should be completed and that is needed to help demonstrate value for money to meet the public duties of transparency and fairness. There are instances when a direct award of the grant can be justified and the examples of that might be if there is any wrong provider within the marketplace who is capable of delivering the activities and questions, what could be a situation of extreme urgency which has not been caused by your own fair hand so you can see the exemptions are starting to look very much like what you would find under regulation 32 of the Public Procurement Regulations and I think the important thing is if it a direct award you need to get approval and you need to be very clear in the business case that it is a direct award and why that is appropriate, what you have done to sort of mitigate any risks around things like that you can lead to transparency and fairness given as a direct award.
The guidance so minimum requirement 5 isn't particularly prescriptive about what the competition looks like so you have got a lot more discretion than you would have under the procurement regulations but there is some sort of helpful pointers in there but essentially the key thing here is when you set out prospectors you need to be quite clear about how you are going to be evaluating applications and then you need to apply the valuation criteria consistently so do what you said you were going to do.
So minimum requirement 6 then is around a robust grant agreements and the good news here is that the Cabinet Office have got a template grant agreement and if you use that I would say you are sort of 80% of the way to having a robust grant agreement because it sort of picks up on all the key risk areas so things like subsidy concerns and making sure that you have got the right visibility in terms of things of award and use of funds. We are just going to pick up on a couple of the features now but as I said I would strong point you towards that template in the first instance so what do we need to build into the grant agreement? Firstly a clear description of expenditure so what can the money be spent on and equally important is in eligible categories of the expenditure so things that you are not allowed to spend the money on so typical things there would be political purposes or logging for example, payment just like a contract it is important to understand when the monies are going to be paid, will they be paid in one lump sum upfront or are you looking at tranched based on some sort of delivery so meeting milestones and just typing back to what Chris said earlier do focus on the language it should be drawing down rather than payment jut to make sure that you are firmly in the grant camp. Reporting is really important so that be both financial reporting so how money has been spent and delivery based reporting so how is the provider progressing in terms of meeting the desired outcomes of the grant. That tends to be sort of quarterly and annual and then there will be an impact in valuation at the end of the grant funding.
Counter fraud policy, fraud is obviously a big concern when it comes to grants so the grant agreement should have some provisions that facilitate identification of any fraud and then the rapid escalation and potential termination of the contract in those instances. Audit insurance again hopefully you have got good reporting but if you want more comfort to having looked at the reporting then typically the grant agreement would allow me to sort of request the invoices to back up the reporting and potentially putting an auditor to confirm that everything is accurate. Subsidy compliance we tend to sort of build in a right to terminate the grant agreement and in the event that the payment is found to be an illegal subsidy and then the key thing here is remedies. They are not remedies in the normal contract sense in that you do not get damages but what we are really looking at are things like what can you do if you have got a concern that the grant receiver is not compliant with the terms of the grant agreement so you will want to be able to pay suspend any future payments of the grant and then potentially you will want to be able to terminate and claw back some of the grant that has been given today and that might be just unspent funds or if you are terminating for something like fraud you might want to start to want to clawback spent funds as well.
We talked about impact evaluation and then finally data sharing and data protection. Due to the nature of grants it often touches on sort of individuals and the public at large and it is often in terms of trying to understand the impact, important to have data that you contain personal data so it is important at the outset to sort of understand what data needs to be collated in order to understand the impact of the grant and then understand who is going to be responsible so collating that and who is going to need access to it and that would then inform what you need to put in there in terms of data protection provisions so who is going to be the data controller who is going to be processing what you need to put in there to be compliant with the Data Protection Act and it might be that we need a separate data sharing agreement. That is quite common with grants. It is just something to make sure is on your radar as such.
OK so this is the interactive bit which I am nervous about with the IT but essentially what we thought we'd do now is just try to sort of apply some of the concepts and framework that we have just talked about and get you to answer some of the activities listed on the screen are a contract or a grant so number 1 local authority providing funding to plant trees. Number 2 funding for running IT workshops in a disadvantaged area. Number 3 is funding to create the covid symptoms map and then number 4 is funding for museum and visitor information centre. Hopefully IT allowing we should have a poll pop up in a second so if you can just complete that poll, which would be the right funding mechanism that would be great. We'll just give you a minute or so to do that. There we go. We'll shut that down now KJ.
Perfect alright so we will go through them now I guess in a little bit more detail because I think as you will hopefully know from what we have talked about today there are more questions you are going to probably need to ask in order to determine so number 1 local authority funding to provide to plant trees so the consensus from the poll on this one is that it is a grant and I would agree my gut reaction is the grant but what do we think of some of the question? If you could just pop this into the Q&A that we need to ask in order to sort of test that initial reaction. Any thoughts or should I just jump up with my questions? First question - is it public land. Yeah very good. So yes basically in terms of using the frameworks you want to understand the nature of the obligation as you said are we demanding the planting of the trees or is it more generic. Where do we want them planted? If we wanted them planted on the local authority land and that is then going to be a direct benefit to the local authority whereas if it just in the community at large then that is a benefit for the larger community. So assuming that it is just for the benefit of the larger community and it is doing it to improve the quality of life for its residents then it feels like a grant doesn't it but the watch out point then here is just about whether the legal authority has an obligation under law to plant those trees itself so if there was some sort of Central Government legislation that compelled local authorities to plant the trees and that would then look like it is outsourcing its own obligations to a third party provider and then that would put it back into the grant territory.
So question number 2 the funding for running an IT workshop in a disadvantaged area so here we have got 59% say grant and 32% say contract. So again questions around what we think we need to sort of ask to determine which is the correct answer? You can just stick them in the chat. That can be depending whether you demand it.
Yes so again is the output free for the public? Grant yeah so yes we need to look at the nature of the obligation so I'll be requiring that the IT workshop is provided in a specific venue. Is it a school or is a community centre and that does not necessarily mean it needs to be a contract so it could just be a conditioned grant which is fine but it is helpful to understand and not as helpful to understand who the provider is, is it a not for profit organisation or is it a profit organisation? They key thing is to try and understand the benefit. On the face of it, it doesn't seem like the department would be getting anything in return as the IT workshops are for the public, it is not for its own employees for example so it kind of feels like a grant but again the one thing to check is whether the organisation under an obligation to provide those workshops itself because if it were then that could push it into the contract category again.
So the third one then funding to create the covid symptom map so here we have gone 73% contract versus 16% grant and yes I would say on the base of things that does look like a contract so any sort of questions around what we need to probe on that one? Well we'll just dive in I think so it an interesting this one because I think it could probably go either way so in terms of what the nature of the obligations wanting to understand really what happens if they do not provide their app. If the app is not up and running would the funding organisation want the ability to sue or is it just they are trying to facilitate the production of that app but is not necessarily a hard obligation to provide it and there is no service levels in terms of things like uptime. Understanding the market is going to be important than that one do is it a not for profit organisation or is it a profit organisation and again that is not determinative but I think if you know it is commercial organisation so a full profit organisation that sort of points it towards the contract piece in a bit more detail and then I think in terms of the benefit that is going to be really key here so try and understand what happens with the data from that app? Is the data going to the public at large and it is jut useful that that data is available to the Government or is that data just going to the Government and equally things like intellectual property rights so what is the branding that that is going to put on the app, is it a Department for Health app or is it a third party app and then obviously one way or another you need to think quite carefully about subsidy control on that particular one.
And then the final one, funding for a museum and visitor information centre, we have got 57% grant. This is an interesting one so when you apply the framework then the nature of the obligations obviously funding a museum and visitor information centre does it then fit the authority probably not. It is for the public at large, it kind of feels like it should be a grant. Is it a non for profit or a profit provider? This one was non for profit but actually this is one of the cases that got taken by HMRC up to court and initially it as found that it was correctly categorised as a grant but on review the court found that actually it should have been a contract and the reason for that was because the language used in the ground agreement so it was very much phrased in a way that a contract would be phrased so there were some quite firm requirements around what needs to be delivered and then categorise the services and the opening times and really specific sort of obligations and equally the payment was written in the way that you would write a contract so they would not get paid if they didn't deliver and it was talked about as being inconsideration for the services and equally there was no restrictions around what the museum and visitor information centre could use the funds for which again looks a lot more like a contract then a grant so I think that one we have just added it to the slide just to really underline the point that even if you have got something that should be a grant you can get yourself into trouble unless you sort of structure it in a way and use the right terminology so hopefully going back to some of Chris' slides about that will help you mitigate that risk.
So in conclusion then, unfortunately it is not one of those areas where we can give you a black and white answer. There is quite a lot of grey in the middle but hopefully we have given you a relatively useful framework to think bout in terms of classifying when contracts are grants and some of the key points there that you want to draw out is what is it you are trying to achieve, how specific is it an what do you want to happen if that does not happen. Really importantly will the outcome directly benefit the authority? If it does then you are looking at a contract if it doesn't then you could be looking at a grant. Do you have the legal power to spend the money because if you don't have the legal power then procurement is going to be your only route and then finally it is about knowing the market so have you looked out to the market, do you know who potentially will be interested in those services? Are they likely toc commercial entities or not for profit because obviously those commercial considerations are going to put you down one route or the other.
That is that so Chris I'll just hand over to you then for an update on the procurement bill.
Christopher: Thanks very much Alexi. Yes so only a very brief update from me as there isn't that much to say really at the moment other than that the latest version of the Bill is available on the Cabinet Office's website. The timetable as far as we know is that the aim is to implement the regime into 2024. We don't think it is going to be this year but I would have thought that by this time next year, the bill ought to be law so perhaps early spring 2024 looks like he direct of travel at the moment. As far as we know, a six-month transition period or sort of teach-in period from the old regime to the new is still going to happen, still anticipated and we expect there to be lots of supporting materials issued not only by the Government but also we will be keeping watch on that and doing our own set of further updates at this end. It is not yet know when the bill is likely to receive Royal assent, however it is now at the report stage in the House of Commons having already gone through all the station house Lords. There will be a third reading after the report stage and then the set of station in the Commons will be complete. If there are any amendments following the third reading in the House of Commons then we expect that the bill will go back to the Lords to be approved before then receiving Royal assent so I suppose if I were a betting man I might say that perhaps Royal assent we could have that by the end of the summer or the early autumn and then the six month lead in perhaps before the bill is then implemented early next year. That is all I was planning to say on that. Obviously we will keep you abreast of developments.
OK with that shall we, we've got a few minutes left. Is it worth Alexi do we think having a look through some of the questions and seeing whether we can answer any on the spot?
Alexi: Yeah that sounds like a good idea. Let's a look here then. So what is your view on grant recipients trying to insert force majeure clauses into a grant agreement? I think that would be a little strange because force majeure is very much a sort of a feature of a contract and actually the obligations aren't hard in a grant agreement so I don't really understand what they would be trying to achieve there and to the extent that there is some force majeure there has an impact on the delivery of the grant activities and they are not going to be sort of held to account in the normal legal way in terms of they can't be sued for damages for non-delivery but what it might impact I guess is just the payment profile so yeah I wouldn't typically expect to see a force majeure clause in a grant agreement but very happy to be corrected on that.
What else have we got, other provisions you see grant recipients trying to insert into grant agreements that you have pushed back on, on the basis that they could risk putting the agreement into contract for services territory. I guess that probably goes to some of the stuff in your slides Chris doesn't it?
Christopher: Yes absolutely. I think quite a lot of this may well depend at least to an extent on how you frame some of these requirements so the first thing I suspect you can do is to avoid some of the language classically associated with public contracts - such as invoicing performance regimes, KPIs, anything like this or indeed perhaps even calling the outputs "services" - of course there are certain vernaculars which do tend to kind of sit quite squarely within the procurement regime or within the public procurement territory and if you can avoid those sort of that language then it should be fine. That at least is good. However I think "substance over form" is always the mantra here and you really do have to make sure that what you are getting as the funding body at the end of the day isn't a service for which you are paying. You need to make sure therefore that the direct economic benefit does not accrue and that the outputs of the grant do look much more the other way at fulfilling a public good or a policy objective. I suppose if that is the starting point, and that is where you are going anyway well then it is much easier to make the arrangement work as grant and to make sure that it Is not staying into the public procurement regime but it is substantively avoiding the direct economic benefit.
Alexi: Yeah and I think the one we do sometimes is the whole piece around what suppliers don't like is they don't like the level of visibility that you need to have around for all purposes not to see fit value for money and understanding how the funds have been applied so if you are giving a grant to the commercial organisation who is typically used to contract we sometimes find quite a lot of pushback around that sort of whole audit piece and visibility piece and also there can be a bit of mind set difficulty in terms of keeping the surplus and making profits they sort of think we're getting this money and we can use it for what we want and the whole piece around surplus as being clawed back seemed to be a bit alien and that typically happens at the end of the financial year so we do tend to have some sort of interesting conversations around that but that is Christopher saying you look to the substance and that is key really to whether the distinction so it is important that those rights are built into the grant agreement.
Right any other questions? Do you have any drafting tips where we give grants to a recipient who is using that money to make onwards grants?
Yeah it all depends on who you are giving it to because I think the convention if you are giving the money to Local Government then Local Government should be left relatively free to sort of spend the funds themselves but assuming that we are not talking about Local Government, we are talking about a third party outside of the Government. I guess it would be about visibility for me so making sure that you have got the flow down of the audit rights. You might want to include some provisions in there about how they sort of make those decisions about the onwards grants. How do they complete those? Chris, I don't know is there anything you would add to that?
Christopher: I don't think so. I think I'd agree with that yes I don't think I've got anything particularly I want to add other than to say yes, all very valid points I think.
There is just one more question I think I can see right at the top: "Apologies for the daft question but when and why would a grant be executed as a deed?" Well first of all I suppose no question around this whole area is ever daft! I think perfectly worthwhile and a valid question. Alexi do you have any view on that?
Alexi: I think it is quite unusual. We don't typically see it because it is unhelpful in respects towards the Government so I think if you just have a commercial operator that was particularly nervous about having confidence that the money would come I guess that might drive you down that road. I'm trying to think, not sure when I have done it that way?
Christopher: Just thinking back actually I have looked at quite a few grant agreements in my time to make sure they are grant agreements rather than public contracts and I don't think I've seen one, I can't recall seeing one executed as a deed, or I'm sure there are reasons so I think generally speaking you probably would expect them not to be.
Alexi: Yeah OK. So scrolling down then as unclear about something you said earlier if a local authority is obliged to provide IT workshops and it sources this obligation, is that likely to be a grant or contract so would be a contract so essentially if you are an organisation and you are legally obliged to provide something then if you get someone else to provide it that that would be a direct benefit to you because you no longer have to provide it which then pushes you into the contract territory. Hopefully that's a bit clearer.
The case that we're discussing so that case was Wokingham Borough Council and Wokingham Museum and we can actually we have got quite a useful table of the cases which Chris sort of eluded to of mainly HMRC cases and very happy to circulate those after the session to everyone who attended if it is helpful.
Christopher: I can see another one here which is a more procurement type question: "Thanks for the session. Can you say a little more about how an economic operator could bring a challenge under the Public Contracts Regulations where the authority has directly awarded and disguised a public contract which purports to be grant funding. Yes we certainly can say a little more. This is a situation where what the challenge from the economic operator would be doing would basically be challenging an illegal direct award - so this is all part of making sure the distinction is achieved between a grant and a contract because in substance, the arrangement is actually a public contract and has been mis-classified either wilfully or not as a grant and when in substance it is a public contract and if it is then directly awarded then technically you have an arrangement which is challengeable on the basis that is it an illegal direct award and should have been subject to the Public Contracts Regulations. This of course assumes that the value of the contract is above the relevant threshold but technically certainly historically illegal direct awards of procurable public contracts are basically about the most serious breach of procurement law it is possible to commit and it is for that reason of course that we have you know potentially the ineffectiveness remedy (not that there have been that many of those but it is technically a possibility at least in theory). These things of course tend to depend on... whether this sort of challenge scenario might arise is going to depend in reality on whether anyone actually hears about it because of course direct awards by definition tend to be under the radar and so obviously things do get out but whether in reality, a challenge arising would be less likely than a challenge succeeding. If it were to arise whilst possible I suppose but it is an area of risk and it is one of the reasons why it is important to get the distinction right. Bear in mind of course what Alexi was saying earlier about the sort of question that actually even grant awards should where possible be completed or at least competition thought about so yes an important area and thanks for asking us about it.
Alexi: I think we have just about time so there are a few more questions left but what we will do is we will pick those up and we will circulate answers to them afterwards to all of the recipient so thank you everyone very much for joining us today and the interaction of your very good questions. You are keeping Chris and I on our toes. That's for sure and we look forward to seeing you at the next ThinkHouse session.
Christopher: Thanks very much everyone.
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