i

Commercial contracts: is your organisation ready to take the plunge?

Photo: © pixonaut/iStock

Move over private sector, NGOs are taking over commercial contracts

26 July 2016

Commercial contracts are no longer the preserve of the private sector. International NGOs are taking on the dark side of the development sphere.

Commercial contract creep

Commercial contracting in international development is not new. Commissioners (aka donors) like DFID not only give grant funding but also put out significant pieces of work to tender. Think tens or even hundreds of millions of pounds for projects of two to five years, start adding multiple countries and an array of partners, and it can become really complex.

The commissioner defines the work required, though not usually the methodology, and expect to pay organisations based on the results achieved. Organisations are expected to pre-finance the project and take on the risks around delivery, security, project staff and the usual myriad of issues on the project risk matrix.

The revolution has begun

There is no denying that the private sector firms are good at commercial contracts. Their organisational structure is tailored to bid, win and deliver contracts. The private sector firms are more able to take the risks passed down to them from the commissioners, they can pre-finance, have significant management and coordination expertise, have an extensive database of consultants to draw on and a strong portfolio of past experience of delivering large complex projects.

However, international NGOs have now got in on the act. Increasing numbers are dipping their toe in the commercial waters, some brave (or imprudent) ones have even plunged right in, fully clothed with no lifeguard around and actually do very well in the eyes of DFID, though are paddling very fast underneath it all.

Over the last seven years a number of the larger international NGOs have stepped up to take on the lead role in a bid, admittedly not all entirely successfully  the learning curve has been steep as well as expensive. One or two have even had private sector firms as sub-contracted partners, acknowledging the skills that the private sector can bring.

Anything you can do…

International NGOs are learning to adapt their processes and systems to become more efficient at managing large complex projects. They are learning the rules of the game and how best to play it but on their terms.

Despite the commercial nature of contracts, essentially the values of the NGO remain in place. Projects look to reach the most in need, not merely the cheapest to reach. Equity is being given the prominence it deserves in this sphere of work and not merely subsumed within another of DFID’s value-for-money "Es" – economy, efficiency and effectiveness. Sustainability is more deeply understood as international NGOs have a long history in a country, with a commitment to a portfolio of projects.

In theory, an international NGO should be a more cost effective alternative for DFID – though overheads can become unwieldy, project offices are already set up, in house expertise is available and networking with CSOs and at the community level is strong.

The private sector should be very worried.

Want to know more? If you're new to commercial contracts or considering applying for commercial funding, sign up for our course on Commercial contracting with DFID, taking place on 5 December at the Bond Studio in London.

About the author

Haniya Dar-Tobin headshot
Hamilton Verney Consulting

Haniya Dar-Tobnin is a consultant who supports INGOs with the paradigm shift from grants to commercial contracts.