‘Brokerage’ is a term frequently used by home care providers. In our experience it has become a term used to describe a number of situations in which providers use a third party to deliver services to a care recipient (ie client).
In truth, an approved provider who engages a third party service provider can do so under a brokered model (as an agent) or under a subcontracting arrangement (as principal to a subcontractor). It depends on the terms of the particular contractual framework that is agreed.
Subcontracting versus brokering
There is a technical difference between true brokering, and what would more correctly be regarded as subcontracting:
- To ‘broker’ means to buy and sell goods or services for another person.
- To ‘subcontract’ (applying a legal dictionary definition of the term) refers to: ‘An agreement between a contractor and a third party for the performance by the third party of some or all of the contractor’s obligations under its contract with another party’.
Subcontracting and brokering are not terms specifically used in the Aged Care Act or User Rights Principles; but secondary Government sources confirm the distinction we have described. For example:
- The December 2015 Home Care Packages Programme Operational Manual (Operation Manual) states that ‘Services may be provided directly by the provider, sub-contracted to another service provider (individual or organisation), or brokered through another organisation’. (Our emphasis.)
- The NSW Government’s May 2012 policy, ‘Sub-contracting and Brokerage Policy for ADHC [ie, Ageing, Disability and Home Care] funded services’ aptly explains:
'Sub-contracting is where a funded provider enters into a contract with another third party provider to deliver services or activities that it would usually provide directly.
Brokerage is where a funded provider facilitates the delivery of services on behalf of a service user through another provider using funds that are available to support that person.
In the brokerage model the funded provider is an intermediary, and has responsibility for understanding what is available that might suit a person’s needs or preferences, and ensuring that the person has all the information that they need to decide if the brokered arrangement is right for them’.
Considerations for home care providers and third party service providers
Where a home care provider engages a third party to provide services to a client, we recommend that all parties should have clarity on:
- Whether the approved provider is requesting services on behalf of its client and as agent for the client, or whether the approved provider is subcontracting the third party to service the client.
- Whether the client is to have a direct contractual relationship with the approved provider only, or with the third party service provider also.
- Whether services are to be provided to the approved provider or the client.
- The degree of control to be retained by the approved provider. Bear in mind, however, that in the Department’s view, regardless of how services are delivered and by whom, the approved provider remains responsible for service quality and meeting all regulatory responsibilities.
- The ‘brokerage fee’ (if any), and what it is intended to cover. We do not consider the charging of such fees as determinative of the relationship that exists.
- Intended payment arrangements (who pays who), and GST treatment (whether transactions are intended to be GST free, or whether they will be taxable supplies on which input tax credits are to be claimed). The general rule is that your supply of home care is GST free if you receive a home care subsidy or government funding, and you supply the care to a care recipient – and not to another party who is in fact the approved provider. These considerations can be complex, and specialist advice is recommended.
It is a decision for an approved provider whether their preference is to act as a principal or an agent on behalf of their client.
Depending on the content of a provider’s standard service agreement or ‘brokerage agreement’, it can be advisable to have the terms reviewed and amended if necessary to clarify the status of the third party service provider.