For many not for profit organisations, government contracts are a source of funding for its core operations or a significant portion thereof. When it comes to significant changes in government contracts, organisations may find they have been successful in acquiring additional contracts or conversely have lost contracts they have historically delivered. Either of these scenarios will pose different challenges to your organisation and strategic planning going forward.

An example of such change in government contracts is the Workforce Australia contract. From 1 July 2022, the jobactive program will be replaced with Workforce Australia to become a single front door for all government employment and skills programs initiatives. With the results of the tender process out, has your organisation found itself winning or losing contracts?

What if my organisation lost contracts?

In the case of the Workforce Australia contract, if employment services under jobactive are a core part of your business and services will not continue under Workforce Australia, it is time to revisit your organisation’s strategic plan and come up with a contingency plan to support the business in the meantime. Depending on the size of the loss, now is a key time to understand directors’ responsibilities should the change in contracts cause a potential cash flow and/or solvency issue.

Early identification of the issue, determination of the loss and seeking early advice can be essential for the stabilisation of the business and successful implementation of a restructuring plan. Cashflow during this period is a key element, and steps should be taken to understand the current cash position of the business, requirement to reduce cost from lost contracts, cash requirements of revised business (without the lost contracts) and where changes can be made to minimise cash burn. While attempts to maximise value should also be made, if your organisation has lost contracts in a region where a new provider will be coming in, consider proposals to new provider that assign existing premises leases and transfer applicable employees.

Actions your organisation can take to manage this situation are listed below.

  • Appoint a restructuring manger or advisor and undertake a financial assessment.
  • Prepare a cash flow forecast for decision making during the rationalisation process.
  • Use the cash flow forecast to undertake cost reduction measures to stabilise the business quickly.
  • Use the cash flow forecast to discuss funding requirements with financiers or other stakeholders.
  • Develop a detailed plan with milestones.
  • Consider if existing leases or employees can be transferred (sold) to new providers, or terminated, to reduce cash leakage.
  • Assess whether the loss of contracts may pose a going concern issue to your organisation.
  • As a director, understand your duties and responsibilities and consider if safe harbour advice/protection is required while implementing the restructuring plan.

What if my organisation won contracts?

In the current labour environment, winning new contracts comes with its own set of challenges. Unemployment is at an all-time low, therefore filling staffing requirements for new contracts may prove more difficult compared to the past. Furthermore, if your organisation has won a contract in a new region, your organisation will also need to procure suitable premises. Rather than doing this from scratch, a cheaper and more effective alternative could be for your organisation to merge with or acquire an organisation operating in the area, or “purchase” employees and premises from these organisations.

Below are actions your organisation can take to prepare for new contracts.

  • Cost procurement of staff and premises from scratch.
  • Understand if adequate systems and processes are in place to deliver the new contracts or if investment is required.
  • Consider the cultural impact of your new contracts, in terms of customers, staff and suppliers. Are you entering a close-knit area where stakeholders may be resistant to new entrants?
  • Contemplate whether partnerships with organisations in the area may mitigate any resistance resulting from entering a new area.
  • Consider if your organisation can merge with or acquire an organisation already delivering services in the area or acquire sites and teams from organisations currently in the area, to mitigate cost and resistance to change.

HLB Mann Judd is an experienced advisor in the not for profit space and in providing transaction advisory, restructuring and solvency advice. Please reach out if you have any questions or would like further information.

This article was co-authored by Natalie Tieck, NFP specialist.