Contracts vs Grants
What are the pros and cons?
The question of whether or not grants (or service level agreements) are subject to procurement rules is hotly disputed. Courts have tightened up on what are "exceptions" to the need for open, competitive tendering, and European legislation has set the limits, above which tenders must be advertised. The following documents describe the relationships between the Third Sector and statutory agencies.
Financial relationships with third sector organisations
The National Audit Office has developed a "decision support tool" (DST) for public bodies in England
The DST is designed for people working in the public sector who are responsible for financial relationships with Third Sector organisations (TSOs). The DST is a web-based tool which provides practical support for real-life decisions about the design of appropriate funding models. The National Audit Office hope that the DST will help in the design or modification of funding programmes and that it will help to ensure both achievement of objectives and comply with the government's principles of better TSO funding.
You can access this tool at
The National Audit Office has also produced a comprehensive document called "Working with the Third Sector" (June 2005) which states in a footnote:
"36 Some departments felt that service level agreements, which are not subject to procurement processes, were a useful mechanism for clarifying funding arrangements."
Download this document from http://tinyurl.com/ygqo894 (URL shortened using TinyURL)
The Decline of Local Authority Grants for the Third Sector: Fact or Fiction? - Final report & evaluation
Despite an unprecedented favourable policy environment for the Third Sector, the Finance Hub has noted "a creeping sense of crisis" regarding voluntary sector funding and a widespread perception in the sector that funding has not only changed markedly in character in recent years but has also significantly reduced. March 08
Download this document from http://tinyurl.com/yjh32a4 (URL shortened using TinyURL)
Improving financial relationships with the third sector: guidance to funders and purchasers
This document sets out best practice and guidance on use of public funds. It defines the difference between grants and procurement:
"A grant is a financial transfer used to fund an activity that is in broad alignment with the funder's objectives. Grant-in-aid is a payment to finance the costs of a body operating at arm's length. Procurement is the acquisition of goods and services in line with the government's policy of value for money, normally achieved through competition."
Download this document from http://www.hm-treasury.gov.uk/d/guidncefunders1505061v1.pdf
Can you still see the big picture? Do local authorities still have a third sector development role?
In 2007 the Finance Hub commissioned research to examine a number of issues in third sector funding, including the decline of local authority grant funding and the degree to which the funding sources currently available enable third sector organisations (TSOs) to invest in building capacity. This is the third of five briefing papers based on this work.
Download this document from http://www.financehub.org.uk/uploads/documents/FH16_5_Big_Picture_briefing%203_200.pdf
Grants or Contracts?
This guide looks at the treatment of funding in the accounts of recipient charities and voluntary organisations and considers how this might be different depending on whether you receive funding as grants or contracts. You may also receive funding which is a performance-related grant or a service level agreement.
Download this document from http://www.financehub.org.uk/uploads/documents/fh_sg_grants_or_contracts_march08_227.pdf