Aid Modalities Guideline
Section D | Contracting Mechanisms
Defining Contracting mechanisms
While the choice of Aid Modality, and associated partnership frameworks will provide direction to activity planning and design, actual delivery of the activity including the flow of resources from those financing the work to those mediating or implementing the work must also be supported by specific legal and contractual documents. NZAID terms these Contracting Mechanisms.
A Contracting Mechanism is: The particular type of contract for services/grant funding arrangement which NZAID uses to resource an aid modality with ODA funds and which establishes appropriate accountability for those funds. Any aid modality may have a number of possible contracting mechanisms. It may rely on one single mechanism or a combination, though generally it is preferable to avoid too many separate contracts. Fitting or tailoring an appropriate mechanism/s to the particular modality can be critical to the effectiveness of the activity and must be considered early in planning and design.
NZAID has identified ten key types of contracting/funding mechanisms clustered according to whether the contract is a commercial contract for services or a grant funding arrangement. Each mechanism has particular attributes and is appropriate for different circumstances, partners, or approaches. Table 3 below lists the key NZAID contracting mechanisms together with their broad purpose. Each mechanism has associated selection requirements which are outlined in the procurement policy and guidelines.
While NZAID has standard templates for some of these mechanisms they are all tailored to particular activities via annexed details of the programme, scope of work, particular milestones, and reporting requirements. For more complex multi-donor activities, arrangements are often specifically tailored to the situation.
Table 2: Contracting Mechanisms
|
Mechanism |
Broad Purpose |
|
| Contract for Service Mechanisms |
Contract for Services (CfS) Contract for (Management) Services (CfMS)-including provision to sub-contract |
Procurement of commercial goods and services including: Specialist or technical consultancy and/or inputs. Management Services Contractor (MSC) which provides for a key role in managing and delivering the activity including sub-contracting |
|
Memorandum of Understanding (MOU) |
Procurement of Services from a New Zealand Government Department |
| Grant Funding Mechanisms |
Budget/Economic Support Arrangement (BSA) |
Budget Support - direct or sector budget support to partner Government |
|
Letter of Contribution (LoC) |
Grant Contribution - core support and additional allocation to multilateral agencies, contributions to emergency appeals, and additional allocations such as for emergency relief. |
|
|
Core Funding Arrangement (CFA) – untagged contribution to an agency’s organisational programme/budget. Grant Funding Arrangement (GFA) – to partner or to Not for Profit for specific projects Multi-Party Funding Arrangement – a tailored GFA involving a number of parties Donor Funding Arrangement (delegated) or Trust Fund Arrangement allowing grant funds to be managed by another donor |
Grant Funding for specific projects, programmes or organisational plans, generally applying to NGO/CSO or Regional Agencies or grants to partner governments tagged to specific projects
|
|
|
Letter of Disbursement (LoD) |
Small allocations for attendance at conferences/meeting attendance etc |
Determining Appropriate Contracting Mechanisms
Particular aid modalities often lend themselves to certain contracting mechanisms. For example, a partner project with an NGO will almost always be delivered by a Grant Funding Arrangement. In other cases, however, there may be a range of possible mechanisms and some modalities may rely on a number of supporting mechanisms agreed with different partners or at different stages of implementation.
The key considerations when identifying the correct contract or grant funding mechanism are explored in some depth in the NZAID Procurement, Contracting and Grant Funding Policy. This policy also identifies key types of contracting mechanisms, their degree of conditionality, and level of reporting requirements.
Table 9.8 shown below (from the NZAID Procurement Policy - pg19) will help to determine whether a Grant Funding mechanism or a Contract for Service is most appropriate.
|
|
Grant Funding |
Contract for Services |
|
Activity |
Only given to support not-for-profit activities. |
Used to purchase goods or services at a commercial rate. |
|
Organisation |
Generally only given to not-for-profit organisations – including partner governments, multilateral organisations of the UN and Commonwealth, development banks, regional agencies, civil society organisations (including NGOs) and other New Zealand Government agencies. |
Generally used with private sector suppliers of goods or services. However, where a not-for-profit agency is engaged in delivering goods or services at commercial rates this would be purchased by NZAID through a contract. |
|
Initiation |
The activity is initiated by the not-for-profit organisation. |
The requirement to purchase the goods or services is initiated by NZAID. |
|
Specification |
Project proposal and budget are developed by the not-for-profit organisation. |
Terms of Reference including deliverables are developed by NZAID who will also set the maximum budgetary allocation. The contractor will generally propose the detailed methodology, workplan, and develop a detailed budget. |
|
Approach |
Not-for-profit organisation approaches NZAID for funding. |
NZAID approaches the market - consultants/contractors to undertake the work (ACS/tender/single source etc). (Generally this does not include proposals sought from NGOs for grant funded project support via a contestable fund) |
|
Control |
Not-for-profit has primary control in implementing the development activity. |
NZAID has primary control in directing the contractor. |
|
Payment |
Not-for-profit receives grant funding in advance – and often in regular tranches. |
Contractor is paid only on satisfactory delivery (although an accountable advance can be made to cover immediate out of pocket expenses). |
|
Accounting |
NPOs may account to NZAID through financial acquittal reports signed by an authorised officer, together with regular activity reports or through other duly agreed means such as annual consolidated reports and accounts which go to a pool of contributing donors. |
Contractor is paid on the production of GST invoices. |
|
Sole Provider |
NZAID may be only one of a number of donors funding the not-for-profit activity. |
Generally NZAID is the only purchaser of the goods or services to be delivered to NZAID or its development partners. |
Similarly, the decision tree shown below (from the NZAID Procurement Policy, clause 10.5-pg21) provides a basis to navigate through to a particular type of contracting mechanism depending on:
- Whether the provider is commercial or non-commercial
- Whether NZAID is purchasing services or funding activities
- The nature of the organisation
- The level of financial and operational reporting required
- The quality of the relationship and level or risk
Linking Aid Modalities and Contracting Mechanisms
Detailed guidance on procurement and contract planning is available in the Contract Planning Tool (this tool is in development). The Aid Modality tool simply seeks to highlight the primary and possible supporting contracting mechanisms for each modality and where they might be used.
Table 3: Primary and Supporting Contracting Mechanisms for Aid Modalities
|
Aid modality |
Primary Contracting Mechanism |
Possible Supporting Contracting Mechanisms |
|
International Pooled Funds |
Letter of Contribution
|
|
|
National Poverty Reduction Support |
Direct Budget Support Arrangement – where this modality is to be delivered via direct Budget Support (this tool is in development) this is supported by way of a letter to the partner government Donor Funding Arrangement, Multi-Party Arrangement or Letter of Contribution if NZAID is to fund via another donor or trust fund
|
Grant Funding Arrangement – This might be used to support a partner country government during the phase of preparation of policy development. Memorandum of Understanding – where inputs such as policy advice or technical support are sought from a NZ Govt Department Contract for Services - where there is a need for New Zealand to provide additional specialist expertise, policy development, or review. |
|
Sector Support
|
Direct Sector Budget Support Arrangement - where this modality is to be delivered via direct Budget Support [link to budget support tool] this is supported by way of a letter to the partner government Delegated Donor Funding Arrangement, Multi-Party Arrangement or Letter of Contribution if NZAID funding via another donor or trust fund Grant Funding Arrangement – where the agreement is only between NZAID and the partner government |
Grant Funding Arrangement – This might be used to support a partner country government during the phase of preparation of policy development t - Memorandum of Understanding - with NZ Govt Department to provide specialist advice
Contract for Services - for design work or ongoing monitoring, evaluation and review where services external to NZAID are required.
|
|
Organisational Support / Strategic Partnership
|
Letter of Contribution (to multilateral partner) Core Funding Arrangement (to regional agency or NGO) |
Grant Funding Arrangement - to NGO where Core Funding Arrangement not sought |
|
Contestable Fund
|
Grant Funding Arrangement - with the successful not for profit proposers for delivery against the project plan and budget. Contract for Services - with the successful commercial sector proposers for delivery against the project plan and budget |
Contract for Services – for administration and management of fund where this is external to NZAID or involves external consultants. Grant Funding Arrangement – to partner government or not for profit to support administration and management of the fund |
|
Scholarships and Training
|
Letter of Offer - to successful applicant awarding scholarship / training funding support Contract for Management Services – for in-country training programmes not managed locally |
Contract for Services - with Universities for support services |
|
Partner project |
Grant Funding Arrangement (to partner government agency or not-for-profit) Multi-Party Arrangement between partner and a number of donor agencies. May include schedules identifying individual donor project activities. |
Contract for Services - such as to provide in-line or ad hoc technical or specialist assistance (to support development, implementation or review of programme Memorandum of Understanding - with NZ Govt Department to provide specialist advice or inputs |
|
Joint project (NZAID facilitated)
|
Contract for (Management) Services - with specialist project management consultants for implementation Memorandum of Understanding – where NZ Govt Department managing the project |
Grant Funding Arrangement – to partner government agency or not-for-profit implementing parts of project Contract for Services - such as to provide in-line or ad-hoc technical or specialist assistance to support design, implementation, or review
|
|
Third party project
|
Delegated Donor Funding Arrangement - between donors). (Co-financing Agreement Channel Funding Letter) Multi-Party Arrangement between donor agencies and partner government Grant Funding Arrangement to a non-developing country not-for-profit agency |
Memorandum of Understanding - with NZ Govt Department to provide specialist advice and support
|
|
Technical Assistance
|
Contract for Services - where services procured commercially Memorandum of Understanding – where provider is NZ Govt Department |
|