Negotiating a grant contract

The purpose of contracts

Obtaining a grant is the start of a whole process of accountability. The accountability process is usually based on a contract that spells out everything that needs to be done to ensure the success of the project or program for which your organisation has obtained a grant.

The contract should cover everything that needs to happen during the project’s life – the outcomes and outputs expected by both the grantmaker and the recipient, how progress will be measured, how and when payments will be made, how project success will be measured, and what remedies will be enforced should things not go to plan.

While the contract has to meet the grant program manager’s requirements, it’s also very important you ensure that it protects the interests of your organisation. You also need to ensure that the contract is understood by, and the projected actions are achievable by, the members of your organisation. Organisations and individuals shouldn’t accept grants or sign contracts if they know there are conditions or clauses they don’t have the capacity to deliver. If contract negotiation is done well, it will:

• enhance relationships between the grant owner, the recipient organisation and the wider community;
• spell out clearly who is responsible for what; and
• indicate how progress will be reported, to whom and when.

Types of contracts

Contracts come in all shapes and sizes. Yours should be appropriate to the size of the grant and the risks involved in completing the funded project. It might be as simple as an exchange of letters, in the case of small grants for attendance at events or for small travelling scholarships. Or it might be as complex as a large formal legal document signed at a public ceremony, in the case of an organisation receiving $100,000 for establishing a community-based initiative.

And of course it could be anything in between.

Whatever the size of the contract, it must cover all that needs to be covered, and wherever possible, it should be a positive partnership document rather than an inhibiting one. Contracts that are achievement-oriented are more effective at building relationships than contracts that focus on ‘punishment’.

The right people to negotiate

It’s always worth thinking about whether your organisation has the right people within it to handle a contract negotiation successfully. It may be worthwhile taking a professional negotiator to contract negotiation meetings, or, failing that, someone with negotiating experience. Such a person won’t necessarily do the negotiating on your behalf, but they can work beside you to support you and build your capacity. This person could be a board member, a solicitor, or someone you know and trust who’s managed negotiations successfully before.

Standardised contracts: things to look out for

Grantmakers sometimes use standardised contracts with predetermined clauses, which means they won’t always provide grant recipients with the opportunity to negotiate. The awarding of the grant may be dependent on the acceptance of those terms and conditions.

Even in standardised contracts, however, there can be room for negotiation around the attachments to the contract.

When there is no opportunity to negotiate, you need to very clear what your organisation is being asked to agree to. Be mindful of any obligations you have to any other grant provider or sponsor and make sure the position of these other parties isn’t compromised in any new arrangements.

For example, if the grantmaker is contributing only part of the funds your project requires and other organisations are also contributing, it is important to see that the requirements of all grantmakers can be accommodated. Often, as the grant recipient, your organisation will be the only party to hold all the information about the project, so it is up to you to check.

If your organisation is receiving separate amounts of money for separate projects, you need to check that you have the capacity to deliver both projects; that the distinction between the projects and the sources of funds is transparent; and that your organisation isn’t taking on activities that are incompatible with each other.

If there appears to be a problem, the third party may need to be involved in the negotiations too, or at least be part of separate new negotiations with you alone. Resolving differences early

It’s important to sort out any differences in points of view between your organisation and the grantmaker early on. If the grant program manager expects particular outcomes that you feel your organisation won’t be able to deliver, you need to put these issues on the table now – there’s no point in hoping they’ll be sorted out later. It’s best to discuss the problem at the outset to try to come to a position that both the grant owner and the recipient can live with.

For example, the issue might be excluded from the contract altogether, or it might be watered down to the point where the recipient believes it’s achievable with some extra effort, or some other compromise might be found.

Penalties

If the recipient agrees to deliver something and then fails to do so, the recipient will at some stage be in breach of the contract. There are usually consequences for this.

Spelling out these consequences is an essential part of the contract negotiations. The contract might cover

• failing to meet targets;
• failing to provide reports;
• failing to achieve outcomes or outputs;
• failing to meet financial auditing deadlines. It should also be understood that there may be consequences for the grant program owner or manager if they don’t meet their obligations to
• provide funds on time;
• be available for inspections on time;
• respond to reports;
• avoid doing anything else that may adversely affect the funded organisation’s ability to meet their obligations under the contract.

You should be aware that you can ask for such conditions to be included. A contract isn’t intended to be a one-sided document; it’s a mutually agreed one.

Confidentiality

Contract negotiations are generally considered to be confidential, but you do have a responsibility to keep your stakeholders informed. It’s a tricky situation.

One way to deal with this is to provide your stakeholders with general updates about particular issues within the contract without divulging where negotiations are up to. This can also provide your contract negotiator with the opportunity to test possible positions before taking them back to the grant program manager.

However, you should ask your stakeholders to keep such information confidential, and inform them that the contents of the contract will (where appropriate) be made available when the contract has been signed. It’s not useful to have half-baked ideas cluttering up the public arena.

Checklist for contract negotiations

Relationships

Have I checked:

• whether some form of liaison mechanism with the grant owner and/or the wider community is needed?
• that a decision has been taken on who will sign off on the contract?
• that our expectations and those of the grant owner are known, and are compatible?
• whether there’s anything that the grant owner wants of us that we can’t deliver?
• whether we need the help of a professional negotiator in the process?
• whether any other community groups or funding bodies need to be involved?

Responsibilities

Have I checked:

• that the type of contract to be used is suitable for our organisation?
• that the project items we expect to be covered by the grant are included?
• that responsibility for publicity – the grant owner or recipient – is agreed?
• that we have achieved what we hoped to through these negotiations?
• that we can live with the responsibilities the contract will impose upon us?
• that we know how we are to liaise with others involved?
• that we know who’s expected to do what when the project starts?

Reports

Have I checked:

• what progress reports and final reports are needed?
• what timelines are involved?
• that we know what’s to be included in each report?
• that we know the required format for reports – electronic or hard copy?
• that the purpose, and the recipient, of every report is clear?