Securing a larger piece of the funding pie for more impact
As we strive to keep our NGOs financially robust, it’s time for a financing shake-up. Many NGOs have long complied with the restrictions of governmental, foundational, or institutional grants, adhering to predefined proposals and strict programme guidelines. However, as grant funding diminishes and major donors alter their priorities, NGOs need to diversify to continue to deliver impact. But how? How can NGOs break free from the constraints of grants and unlock new financial avenues? How do we overcome internal barriers? One key diversification avenue is commercial contracts.
Diversifying funding with commercial contracts
Commercial contracts, distinct from grants or simple donations, provide NGOs with alternative kinds of funding. Issued by governments or large institutions, these contracts follow commercial principles. The most common form of a governmental commercial contract is that of an infrastructure or building contract where the government instructs the building of a new school. But they are also issued to “buy” social progress or even humanitarian outcomes.
The key to understanding the major difference to grants is understanding that commercial contracts do not fund programmes, instead they buy programmatic services. They are based on the premise that donors are paying for a predefined service, rather than funding a set of project activities. NGOs, traditionally grant-oriented, may find the shift to value-driven service contracts challenging.
Reasons to pursue commercial contracts
Less limitations: Traditional grant contracts frequently compel NGOs to tailor their programs to align with donor preferences, as funding is often directly tied to these. However, the administrative efforts of a grant and the restricted ability to adapt programmes to new circumstances makes grants often unviable. In contrast, commercial contracts offer funding without such limitations, granting NGOs greater flexibility and autonomy in designing and implementing impactful projects.
Opportunities exceed that of traditional grants: Commercial contracting opportunities far exceed grant allocations. For instance, funding from the European Union through commercial contracts in the humanitarian space has exceeded grant allocations from as far back as 2011. As the grants pool shrinks, attracting commercial contracts becomes a strategic move for sustainable funding.
Preparing for commercial contracting
Recognizing that commercial contracts aren’t a one-size-fits-all solution, NGOs should integrate them sensibly and carefully into their funding mix. For most NGOs, financial success will require a combination of grants, contracts and other income sources. Finding that right combination though can be challenging. What is clear however is that it requires a degree of business acumen and willingness to try new things. A commercially capable organization that remains an NGO at heart will make a huge difference here.
Non-profit leaders could start by determining the role of commercial contracts in the organization’s programmatic future, planning and investing in the necessary systems and mindset changes for success. For those ready to take the next steps, our step-by-step guide on how to secure commercial contracts and dedicated team are available to assist in navigating the path to securing commercial contracts.
The paradigm shift from traditional grants to commercial contracts offers NGOs a strategic means of diversifying their funding streams. This shift is not just about financial gain but about ensuring NGOs remain true to their missions while securing the necessary resources for sustainable impact. By proactively embracing commercial contracts, NGOs can secure a larger piece of the funding pie and safeguard their ability to make a difference in the ever-evolving landscape of international development.