Voluntary and community sector organisations (VCSOs) are often asked to make voluntary cuts in their funding by public authorities such as Councils. How do they to decide “What to Offer”?
The starting point is that this is a negotiation, even if the whole process is done by email/letter. The public authority is negotiating with you about a variation in a contract. It makes no difference if it is termed a grant. All relationships where there is an exchange, where an organisation gives you money and expects something in return are forms of contractual relationships. The terms of the contract and legislative requirements on the funding body determine the freedom they have to vary the level of funding they offer.
Public authorities are required to act reasonably, and so cannot just impose a standard cut across the board without considering the impact on both the organisation and its clients. However, they also have an overriding requirement to balance their books.
So what should you do if a public authority approaches you to negotiate a reduction in the funding they are giving you? I am assuming here that your organisation is at least willing to enter into a negotiation. This article does not attempt to cover the approach of refusing to negotiate.
Stage 1
The first stage in preparing to negotiate is bringing together the negotiating team. This should be made up of the people who will conduct the negotiation: the person with responsibility for project finance; the person with responsibility for operational management; the person responsible for HR; and an appropriate organisational strategic lead. In practice, for small organisations, this might all be the same person but your negotiation team needs to be at least 2 people.
Stage 2
The second stage is financial scenario planning.
This begins with an analysis of the real cost of the service being funded by the public authority. It may be a standalone service where costs and services are very closely connected, but for many organisations with multiple streams of funding it may not be so clear. You may discover that the service uses more staff time, more office and other costs than the funding covers. It is being subsidised by other services. A cut in funding will proportionally have less effect on the whole organisation.
Alternatively you may find that the funding is subsidising other services and a cut in funding may jeopardise their ability to meet targets. It is essential that you have a clear idea of the real costs before you begin the next stage.
Imagine a number of scenarios.
If you were to offer a 5% cut, where would you make the cut, what impact would it have on services, what impact would it have on the organisation? There are usually several ways that you could make the cut, for instance, by reducing venue costs, administration costs, staffing costs, or monitoring costs. You need to think about not only what is important to your organisation to keep, but also about what is important to the funding body. It is little use offering to cut all your admin if that means that you are no longer to provide any monitoring information which the funding body requires. Equally the funding body might think that you could easily reduce venue costs by moving services but you know that this would impact on the viability of other services you provide.
Now carry out the same process imagining that you are offering a 10% cut and then for 15% and 20%. The actual numbers you use will depend on the level of cuts the public authority is asking for. If they are suggesting 15% or through your research you have found out that this is the average they need to achieve, then there is little point offering 1% as it will be rejected out of hand.
This stage is absolutely critical as the discussion and the decisions you make here will prepare you for the detail of the negotiation with the public authority. It will allow you to justify your offer.
Stage 3
The third stage is your negotiating position. This is based on an understanding of the power and interests of each party. For instance, if you are the sole supplier of a critical service then you have a strong negotiating position. On the other hand if you are one of many then you may have little power. A major issue for VCSOs is that they underestimate their power to negotiate; they assume they have far less power than they actually have.
Those that negotiate in a thought-through and professional way usually fare better.
The starting point is that the funder purchased your services because they wanted what you offer and care about the outcomes for clients. They want an outcome of the negotiation that works both for them and for you because that will offer the best solution for the clients, and will mean that there are fewer problems down the line. If a poor agreement is reached then there is a fair likelihood that the funding body will have to deal with the fallout at a later date.
I’ll now go through the main elements of a negotiating position:
Viability of the project: At what point does a cut in funding mean that the project can no longer operate or has to undergo radical change. The funder will want to maintain a reasonable degree of quality and especially where there is a risk to vulnerable clients.
Viability of the organisation: Where the funding for the project is a significant slice of the organisation’s budget a significant cut in the project funding may put the whole organisation at risk. It may mean that workers have to be laid off, or office costs are no longer affordable. Funders do not want to be responsible for pushing an organisation into crisis.
Criticality of the Service: You will need to make a judgement about how critical the service you are offering is in the view of the funder, or you may need to convince them of its importance. It might be that you are the only service of your kind in a particular geographic area. You may offer the only service for a particular client group because of their type of need e.g. people with anxiety. Equally you might be the only service working with people from a specific ethnic background, or who have a protected characteristic e.g. specialist service for women.
In all cases the key question that the funder will want answered is: “what will the impact be if you reduce or stop providing the service?”. To make this judgement you not only need to know what impact your service has but also what other services there are for your clients. Funders do not want to abandon particular groups of clients if they can avoid it.
Quality of the Service: Finally you can make an argument based on quality - that your service is better than other similar services - but you will need to be able to demonstrate this. Always avoid making statements about the poor quality of other organisations.
Think about your own performance indicators, client feedback, compliance with contracts and reporting, financial management etc. Funders want to spend their resources wisely on services of good quality, but they also want value for money.
Stage 4
The final stage is the negotiation itself. The aim is for both sides to have thoroughly understood each other’s negotiating positions and to have a courteous and adult discussion to find a workable solution. It’s an opportunity to learn and inform, for both sides, which sets out the terms of the continuing relationship. It depends on both sides entering the negotiation with good will and fully prepared and this is possible even when the negotiation is about the level of cuts. There is not enough space in this article to go through the details of how to negotiate but here are some basic rules which apply whether you are entering a negotiation by letter, email, phone or face-to-face.
- Never do a negotiation alone
- Speak with one voice and decide who the lead negotiator is
- Discuss everything in detail so there is no room for misunderstanding
- Ask for what you want and see what happens
- Always take your own notes
- Always confirm the details of agreements in writing within a working day
- If the negotiation gets heated, take a break or reschedule
Nigel Rose
Strategic Lead (Commissioning)