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1.11 Investing in NGO Capability

Capability is what an organisation needs, now and in the future, to deliver agreed services in order to achieve desired outcomes. Capability includes:

  • The people in the NGO, in terms of both the skills and competencies they bring, and the mix of individuals within it.
  • The other resources the NGO uses to do its work (e.g money, information, technology, fixed assets).
  • The systems, processes or ways of doing things that the NGO uses to deploy its people and resources.
  • The structures, forms and governance arrangements within which the NGO operates.
  • The NGO’s culture.
  • The way the NGO manages relationships and partnerships in order to deliver services.

There are two situations in which an investment in capability might be expected:

  • An explicit Government decision has been taken to build capability.
  • Future NGO capability is needed in order for the Government agency to continue to be able to obtain services.

Services provided by NGOs under contract with the Crown will often be paid for out of departmental or non-departmental output class appropriations.

It is important to note that implicit in the amount being paid by the Crown is compensation, not only for the NGO’s out-of-pocket costs in providing those services, but also for the cost of maintaining or building the capability of the NGO to continue to provide those services effectively in the future. NGOs, at their discretion, are able to apply any revenue obtained from the Crown under a contract for services to capability building, as long as the services are delivered as expected. This is the normal and preferred way of providing for NGOs to obtain the capability that they require. Departments can normally expect NGOs to price their service to cover the true full cost (fixed costs and variable costs, including capability maintenance costs such as depreciation).

If, however, the Crown agrees that it would be desirable to provide direct financial support (additional to any contract for the provision of services) to an NGO to help build its capability, then an output class appropriation is inappropriate and another type of appropriation should be used. If this support is not in the form of a loan, an appropriation for other expenses should be used.

Investing in NGO capability can also include encouraging and promoting good practice and appropriate standards, rather than direct financial support.

For example, encouraging good employer provisions and practices to build people capability might take the form of:

  • encouraging and recognising the emphasis that an NGO places on best employment practices within their workplace (e.g. by negotiating a provision in the contract that obliges the NGO to undertake its work in a best practice manner); or
  • helping develop new participatory mechanisms or advice on EEO policy for employees within an NGO’s workplace, as part of the parties’ agreed contractual arrangements.

Because the focus of encouraging good practice and appropriate standards is to build capability, it is best to develop such arrangements in consultation with the NGO. In some circumstances it may not be practicable for the NGO to implement such policies or mechanisms (e.g. very small size).

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