Good Practice: Offer Grants and Enter into a Funding Agreement

• Enter into a formal agreement with each approved grant recipient to ensure that both parties are clear about their roles and responsibilities.
• Both parties sign the agreement prior to the commencement of the term of the grant.
• Enter into 3-4 year performance-based agreements for recurrently funded services to support effective NGO planning and minimise administration costs.

Guidelines and Resources

Definition and purpose

A funding agreement is a legal document which sets out the arrangements under which a grant is provided, received, managed and acquitted.

A funding agreement contains appropriate controls and accountability mechanisms which need to be in place to enable the funding agency to ensure that grants are spent appropriately and the project or the service is going to plan. The agreement will contain a clear mechanism for managing issues that could lead to a change to the agreement.

A well drafted funding agreement includes a dispute resolution procedure. It is expected however, that the majority of issues arising between the funding agency and the recipient will be resolved satisfactorily in discussion between the recipient and the grants program manager.

Legal Status of Agreements

Funding agreements may not always be enforceable as contracts. Funding agencies should seek their own legal advice when customising the model funding agreement to determine legal status prior to use. For further information, refer to the NSW Crown Solicitor's Office's Legal Guide to Model Funding Agreement (Community Grants).

Forms of Agreements

The form of the agreement will vary with circumstances. Unless legislation or policy prescribes the form of agreement, the funding agency should choose the form of agreement that best suits the nature of the funding program and the nature of the recipient.

When choosing a form of agreement the decision should be taken consistent with funding agencies':

• internal control and audit system
• risk management guidelines; and
• legal advice.

Letter of Offer

For small community projects involving limited funds, a letter of offer from the agency and a copy of that letter signed by the recipient accepting the offer and conditions should be sufficient. The letter should contain all the relevant information.

Follow this link to the Model Letter of Offer (Small Community Grants).

Funding Agreement

For more complex projects or services involving significant funds (suggested over $15,000) a detailed funding agreement signed by both parties is more appropriate.

Clearly, no one form of funding agreement is applicable in all circumstances. There are, however, principles, common elements and some standard wording appropriate to all grants programs. A model funding agreement has been developed and reviewed by the NSW Crown Solicitor. The model contains standard clauses including compliance with law, employing staff, dispute resolution, asset management, confidentiality, protection of intellectual property and insurance; and schedules to contain the specifics of the grant arrangements such as amount of funding, monitoring, reporting and performance measures.

Follow this link to the Model Funding Agreement (Community Grants Programs). Also download the Legal Guide to Model Funding Agreement (Community Grants) prepared by the NSW Crown Solicitor's Office.

Model process templates can be customised and used according to this basic guide to Using Model Forms.

A model service agreement to support funded services is in development.

Agreements between agencies

In some circumstances a document commonly referred to as a Memorandum of Understanding (MOU) is used to detail arrangements relating to provision of resources between governments or between two or more government departments and authorities. For example:

• The political and administrative arrangements applying to funding provided by the Commonwealth Government to the NSW State Government for purposes of conducting specific grants programs are usually set out in a MOU.
• When funding is provided by one government agency to another with the intent that the money will be provided to a local government authority, non government organisation or an individual to conduct an activity or provide a service the arrangements are usually set out in a MOU.

When two or more government agencies jointly commit resources to a funding program one of the agencies should be specified in the MOU to take the lead role to administer the funding program. Agreed reporting arrangements should be set out in the MOU.

Relevant terms and conditions in a MOU should be subsequently incorporated into the funding agreement with the recipient of the funding. On occasion it may be appropriate for a copy of a MOU to be provided for information to the final recipient of the funding.

Further guidelines on agreements between agencies can be found in Service level agreements – guidelines for public sector organisations, NSW Premier's Department Corporate Services Reform Team,1999.

Model offer and fund process

STEPS	ACTIONS
1. Offer funding	Small community projects: Customise model grants letter of offer. Letter signed by Minister, CEO or delegate and recipient. Move to step 3.
	Complex projects or services: Initial system generated letter to successful applicants. Letter signed by Minister, CEO or delegate. Move to step 2.
2. Agreement signed	Model funding agreement customised in discussion with recipient. Agreement signed by CEO or delegate and recipient.
3. Funds transferred	Electronic transfer of funds arranged by financial officer.