1.10 How Long Should the Agreement Be For?

A short-term agreement will be appropriate in some cases, such as where:

• The service or activity is only of limited duration.
• Funding will only be available for a limited period.
• The Government has announced a change of policy.
• There is uncertainty about the ability of the NGO to deliver.

Short-term agreements can, however, have a number of disadvantages:

• Identifying the NGO and negotiating a contract impose significant costs on all parties.
• They may focus attention on negotiating and signing the contract rather than service delivery.
• They can be more expensive (e.g. to cover establishment costs).
• They may cause financial uncertainty to the NGO.
• They may undermine the ability of the NGO to perform the services (e.g. if a lack of job security limits their ability to employ or retain the right staff).
• They may discourage planning, investment and innovation.
• They may undermine relationship-building objectives.

Where ongoing service delivery is required, and the Government agency expects to have a medium to long-term relationship with an NGO, a longer-term agreement may be appropriate (e.g. 3-5 years). This is something the agency should think about if a longer-term contract is actively sought by the NGO in order to better perform the service. This is a matter of judgement and negotiation, taking into account the:

• Service to be delivered.
• Views of the NGO that will be delivering the service.
• The track record of the NGO delivering the service.
• Nature of the relationship with the NGO.
• Life cycle of the relevant policy (has the policy been changed or is it under review?).
• Contracting capability of the Government agency (a limited contract management ability implies a conservative approach).
• Negotiation costs.
• Effect on value for money for the service.

A one-year appropriation does not prevent a longer contract. A number of approaches can be adopted to provide a balance between giving reasonable security to the NGO and protecting the Crown from risk, such as:

• Having a multi-year agreement, but negotiating the services and funding annually within that agreement. Some NGOs may not wish to enter into a long-term contract if the prices are fixed.
• Including a review at the mid-point of the contract.
• Having a clear expectation of the agreement being renewed at the end of the year, subject to satisfactory performance, and funding being available.
• Including an explicit provision in the agreement that allows it to be terminated in the event of an appropriation not being made, Government policy changing or non-performance.

It is important to be clear with the NGO about what the length of the contract is and the scope for renewal. This is particularly important when establishing short-term contracts of a one-off nature with NGOs who are used to longer contracts – it is important to be clear that the contract will not be renewed so that the NGO does not anticipate that this will automatically occur.