Part 2: Basic principles that govern all funding arrangements

Public sector purchases, grants, and gifts: Managing funding arrangements with external parties.

There are some basic principles that govern the use of all public funds. Public entities should consider these principles when contemplating any funding arrangement with an external party.

A question that should be able to be answered in any context is whether the proposed use of funds is for a public purpose. A more specific check is to ensure that the proposed use of funds is for the public purpose or goals of the particular public entity. If not, the proposed use of funds may be more appropriate for another organisation.

Once that threshold of public purpose is established, the focus turns to how to manage such funding arrangements. The international literature on this area includes many different versions of the principles that need to be considered. They all cover similar ground. We summarise these basic principles as:1

Accountability – Public entities should be accountable for their performance and be able to give complete and accurate accounts of how they have used public funds, including funds passed on to others for particular purposes. They should also have suitable governance and management arrangements in place to oversee funding arrangements.

Openness – Public entities should be transparent in their administration of funds, both to support accountability and to promote clarity and shared understanding of respective roles and obligations between entities and any external parties entering into funding arrangements.

Value for money – Public entities should use resources effectively, economically, and without waste, with due regard for the total costs and benefits of an arrangement, and its contribution to the outcomes the entity is trying to achieve. Where practical, this may involve considering the costs of alternative supply arrangements.

Lawfulness – Public entities must act within the law, and meet their legal obligations.

Fairness – Public entities have a general public law obligation to act fairly and reasonably. Public entities must be, and must be seen to be, impartial in their decision-making. Public entities may also at times need to consider the imbalance of power in some funding arrangements, and whether it is significant enough to require a different approach to the way they conduct the relationship.2

Integrity – anyone who is managing public resources must do so with the utmost integrity. The standards applying to public servants and other public employees are clear, and public entities need to make clear when funding other organisations that they expect similar standards from them.

By applying these principles sensibly, public entities can demonstrate that they are spending public money carefully and properly managing the process for spending it.

1: We first set out these principles in our good practice guide, Principles to underpin management by public entities of funding to non-government organisations.

2: For example, a traditional contract negotiation approach to setting a price may be problematic when contracting with a small non-government organisation with no other material income stream, because the non-government organisation may effectively have no bargaining power.

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