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1.7 Risk

Agreements will usually involve some implicit risk sharing. These risks may be in terms of:

  • Outcome achievement (including unintended negative effects).
  • Service delivery (both quality and quantity).
  • Value for money (including waste and fraud).
  • Capability (managing capability to ensure ongoing delivery. See section 1.11)
  • Fiscal risk.
  • Control risk.
  • Reputation or political controversy.
  • Legal.

Risk may arise from a Government agency’s overall contract or funding management (e.g. tendering) as much as from a particular contract or relationship with an NGO. Government agencies need to think about risk management as part of their contract management system, and should expect NGOs do likewise.

In general, it will be sensible for risks to be borne by the party best placed to manage the risk. Different organisations may also have different risk preferences - some organisations are more willing to accept risk than others. Government agencies should not bear all the risk, but they do need to assess the capacity of the parties they deal with to bear risks. Many community organisations (including Maori organisations) may not be in as good a position to manage some risks as either commercial firms or Government agencies. Expecting community organisations to bear most of the risk could lead to:

  • NGOs being reluctant to sign agreements.
  • The viability of NGOs being compromised.
  • Unexpected behaviour by the NGO as it seeks to manage its risks.

Perceptions of risk will often influence the level and nature of the monitoring undertaken by Government agencies. This is described further in Section 4.1 below.

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