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Using grant

While grant making is less regulated than procurement, there remain important rules you need to follow if you choose this approach as the basis for a financial relationship. Elsewhere, we discuss the need for a power to pay a grant, and for the need to comply with European Union (EU) law on state aid. The Compact (pdf – 294KB) and your Local Compact set out commitments to follow to help ensure the effectiveness of your grant-making. In addition, there is Treasury guidance on important issues, such as the difference between grant and grant-in-aid. [Note 1]

Grant-making is also covered by administrative law – the branch of law which governs the actions of public bodies and the exercise of their public functions. Acting without the necessary legal power or beyond that power could result in the courts reviewing the decision your public body has made (known as a ‘judicial review’).

Key relevant principles of administrative law are that you must act reasonably and proportionately. Applying that in general terms to grant making, you need to have a procedure in place to determine grant applications and decisions – you cannot simply follow your whim – and you need to be open to representations. If you are in doubt and need further guidance on this area of the law, consult your legal manager.

Using procurement

All public procurement in the UK is governed by the European Union (EU) Treaty and the EU Procurement Directives and UK Procurement Regulations that implement the Directives. This legal framework helps to ensure that public procurement is conducted in a fair and open manner both within the UK and across the EU. There is flexibility within these regulations to take account of the sector you are targeting in your commissioning and of local circumstances. [Note 2] Additional commitments, signed up to by the government, are covered in the Compact (pdf – 294KB).

The most misunderstood regulations that apply to public procurement from the third sector concern:

  • Thresholds and Part A and B.  Many contracts are not covered by the most stringent procurement rules. This is the case if a contract is either:
    • for what is known as a ‘Part B’ service. This includes education, health, social services, culture, recreation and sport; or
    • if it is under certain financial thresholds. [Note 3]

    You still need to demonstrate value for money and you must apply principles of transparency, proportionality, equal treatment and non-discrimination. But you are not required to apply the other, more stringent procurement rules, such as advertising invitations to tender in the Official Journal of the European Union and the length of notice required.

  • Consultation. You can discuss the design of a service with third sector organisations (TSOs). This will help you improve the service provided to users. And that organisation can apply to deliver the service.  To be fair, you must offer other potential providers, from all sectors, the same opportunity to discuss.  But you should avoid specifying the service in a way that gives the TSO an unfair advantage in bidding or when you come to assess bids to provide the service. For example, specifying that a bespoke computer program or training programme is used. This does not mean that the TSO will not have a fair advantage: it may have more experience of the service to be delivered; more knowledge of the users; greater expertise in the method of delivery; or it has little or no start-up costs that need to be built into its price. Transparency and openness during the design and bidding process are likely to help reduce the risk of your award of the contract being challenged.
  • Awareness. You need to advertise contract opportunities widely and appropriately enough to achieve sufficient competition that will help ensure value for money. You can advertise through third sector networks and press (for example, through a Council of Voluntary Service (CVS) or a national membership organisation for TSOs) provided you also advertise to the private sector.

‘Contracts Finder’ is a free service for businesses, government buyers and the public. This service provides access to, and search for, live contract opportunities, tender and contract documentation published by government departments and agencies. Funding Central is a free smart website, managed by the National Council for Voluntary Organisations (NCVO) and funded by the Office for Third Sector, which provides access to funding and finance opportunities for TSOs operating in England from European, national, regional and local government and charitable sources.


Note 1: HM Treasury, Managing Public Money

Note 2: Office of Government Commerce and Home Office [now Office of the Third Sector], Think Smart, Think Voluntary Sector, 2004 contains guidance on good practice in procurement from the third sector. A general guide on procurement is Office of Government Commerce, An Introduction to Public Procurement.

Note 3: From 1 January 2010, these are: in the case of services for local government, £156,442; for services for central government and the NHS, £101,323; and for all works contracts, £3,927,260. More information can be found at: