Big is beautiful for the commissioner and grant maker, because it is simple, contained and easy to manage. Competition for funding within the third sector has now grown so fierce that small and medium-sized charities are reassessing their approach in order to compete with the largest organisations.

The bourgeoning contract culture and the focus on commissioning to charities in the Local Government White Paper has encouraged charities to work more closely together, forming consortia and partnerships in order to attract funding on a larger scale.

Could these partnerships become something more? The Charities Act 2006 made it easier for charities to merge by providing new financial safeguards. Gareth Morgan, director of the Centre for Voluntary Sector Research at Sheffield Hallam University, believes that in the current climate, small charities will be considering the possibilities of merging more seriously than ever before.

“There are good reasons for smaller charities to consider merging, especially if it enables them to create a single organisation with a broad enough reach to bid for serious contracts to deliver public services,” Morgan says. “It is much easier to make a bid in the name of a single charity rather than a complicated partnership between multiple organisations.”

As a result of the Charities Act, a new Charity Mergers Register will be set up. This will ensure that gifts given to a charity which has merged automatically transfer to the new charity. New powers also allow very small charities to transfer all their resources to another organisation without going through the complex procedures previously required by the Charity Commission.

Thanks to these changes, charities can also focus on some of the very practical benefits of merger. “It is often difficult for small charities to secure the range of trustees with the skills they need – whereas several charities coming together may have a wider pool of potential trustees to draw on,” Morgan adds.

Nevertheless, merger remains a tricky and complicated exercise. Cecile Gillard, head of charities and the voluntary sector at Jordans, claims the provisions of the Charities Act do not make merging an easier option for smaller organisations.

“As you might expect, this will not provide answers to all the difficulties of merger,” she says. Merging charities will have to meet extremely strict conditions set out by the regulator, and assets including property will have to be dealt with by formal contract assignment.

Regulatory restrictions imposed by bodies like the Commission for Social Care Inspection do not automatically follow over to the merged organisation, and transition of staff may be problematic, with trustee liability a continuing grey area.

“Moving staff and funding arrangements are good examples of areas where the streamlined procedure alone will not suffice,” Gillard says. “Besides the legal issues, merging charities face difficulties in changing culture and ethos, and joining together two different staff and volunteer teams.”

These concerns are a cautionary tale for charities looking to merge in a bid to match their heavyweight counterparts in the ongoing battle for contracts. Local government is under pressure to deliver services under the constraints of the Gershon efficiency agenda and the Lyons review. For hard-pressed commissioners, simplicity in procurement is the key. This in itself may be an incentive to merge, but not necessarily for the right reasons.

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“If you were running a local authority you would be more open to bids from single consortia,” says Ann Blackmore, head of policy at the NCVO. “My instinctive reaction is that would not be a good reason to merge,” she says. “A major decision should be based on what’s best for delivery on charitable objectives. Mergers should be driven by the needs of beneficiaries not by the funding environment.”

If fighting for funding is the priority, it is easier for charities to enter into a procurement partnership, as full merger is a much bigger exercise. There are also a number of other partnership models that could be attractive to small and medium-sized charities, such as federation.

Nevertheless there are times when merging can both secure funding and be beneficial to supporters and service users. Duplication of mission among large charities can be a problem, and merger has become common in the cancer sector, for example, in order to address it. As Blackmore points out: “Mergers are much more fundamentally about what the charity exists for. It’s much more likely to be driven by what the best way is to deliver its mission.”

In Cumbria, and now in Kent, councils for voluntary service are going through a similar process. Five district councils in Cumbria have already merged to create the first county-wide council supporting small charities, Cumbria CVS. In Kent, Sevenoaks Voluntary Development Agency and Voluntary Action West Kent (VAWK) are going through the process of due diligence in anticipation of a merger in less than two months. Though both organisations provide similar services, VAWK chief executive Caroline Shaw is clear that financial incentives do influence decision making.

“Without a doubt there is increased competition when it comes to commissioning. All those sorts of things have been at the back of our mind,” Shaw says. “Our driving force has really been to try to create a more effective service for front line organisations; to offer more projects, more diverse services, more effective services.”

Though the changes in legislation have not affected the Kent merger – there are no significant funds to transfer – Shaw believes any move that makes merger easier should be welcomed by the sector. “There’s a huge amount [of charities] all fighting for funding. I really think that people should be looking at working more closely together,” she adds.

For some, however, allowing the debates around funding and merger to blend into one is a worrying prospect. NAVCA believes merger has its place, but if it becomes tied up with funding the valuable individuality of small, local charities could be lost.

Chief executive Kevin Curley says: “If merger was driven by the need to obtain local funding under contract then that would be absolutely the wrong reason.

“To push them together, which is the administrator’s dream, you’re going to lose a lot of very significant value that’s represented,” Curley warns. “I think there are clearer ways, smarter ways, of being able to get organisations working together in order to win funds.”

The forming of collectives, partnerships and consortia is more to his taste, though the sector as a whole has a certain appetite for merger. Curley maintains that this is born out of the ChangeUp agenda, requiring local infrastructure organisations to come together, rather than the far more cynical motivator of the funding environment.

National parenting charity Parentline Plus and Oxford-based Family Nurturing Network merged in 2005. Although both organisations were working in the same field, they had different specialisms and skills, and the merger also allowed the organisation to branch out into a new geographical area.

“I think probably an underlying motivator is that as a medium-sized charity we’re neither one of the big players nor the smallest,” says Kim Roberts, regional director of Parentline Plus. “Partnership makes sense and some of those partnerships can lead to merger.”

Roberts says two years ago the process was time consuming, and expects the new legislation will help to streamline the process. This, she says, can only be a good thing. Ultimately, the process of merger can make two charities into one extremely effective organisation. “We’ve got more to offer,” Roberts says. “We are in a much stronger position.”

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