Part 3: Taking a strategic approach

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

Three stages of strategic thinking

Funding arrangements are not an end in themselves. They are a way of achieving the broader goals of the public entity. A fundamental part of strategic thinking and business planning for any public entity is considering the most effective way to use public funds to achieve its goals. It is important for public entities to think clearly about the different ways they can use funds, and the benefits, costs, and management consequences of different approaches, throughout their planning.

This Part identifies three distinct stages where we consider it important for a public entity to specifically and strategically consider the different ways it might use public funds:

Stage 1: When a public entity is doing overall strategic and business planning, it (and/or its business units) should consider the different funding options available to it and the significance of each for its activities. Often, this is a discussion about whether it would be better for the public entity to “make” or “buy” a particular product or activity.

Stage 2: If a public entity has concluded at a strategic level that purchasing goods and services (procurement), for example, is a significant part of their activity or is a significant contributor to effectively delivering its goals, then we expect the public entity to have a specific procurement strategy to help it manage that aspect of its work. Similarly, if grants and capacity-building activities are an important part of the public entity’s work, we expect the public entity to have a specific strategy to guide and manage that work.

Stage 3: Before entering into any particular funding arrangement, a public entity should pause and consider the purpose of the funding, what type of relationship it is setting up, and what form of funding arrangement will best fit with that goal and relationship.

Considering funding choices as part of overall business planning

Taking a strategic approach to managing public funds should usually begin at the highest level of a public entity’s planning, namely its strategic or business plans. All public entities periodically do some kind of strategic or business planning, whether as part of the annual cycle of preparing statements of intent and other accountability documents, or as part of a longer-term organisational strategy.

This planning involves identifying the public entity’s main goals (what it is trying to achieve), how it is organising itself, and what else it may need to achieve its goals. That may involve thinking about staffing levels and skills, equipment, or types of activities and business processes, and working out what is important and what gaps there are.

Although this high-level thinking may not always be separately identified as a specific discussion, it will often involve considering the different types of funding arrangements that the public entity could use. In these processes, the entity will often make fundamental decisions on the types of funding arrangements it will use to help achieve its goals, and on how important a particular type of funding arrangement is for its work.

For example, procuring equipment may be a multi-million dollar part of some public entities’ work, and so a crucial part of their ongoing strategic development and management. In many public entities, procurement will be closely linked to their capital asset management. In contrast, a social services organisation might not procure on the same scale, but might have a primary role in delivering on the Government’s Pathway to Partnership programme to provide sustainable funding support to community organisations providing social services.1

In some large public entities with many disparate business units, strategic planning might also take place at the business unit level.

In our view, it is useful for public entities to think clearly about the different ways they can use public funds, and to identify at the outset of their planning whether any particular types of funding arrangements will be critical to their work or form a significant part of their activity. If so, we expect the public entity to prepare a specific strategy for how it will guide and manage that type of funding.

Strategies for procurement and other funding options

Our good practice guide on procurement discusses in more detail our expectation that public entities will have a procurement strategy if procurement is an important part of their activities. Every public entity needs to consider the type of procurement that it does, the associated value and risks, and how important procurement is to achieving its goals and business strategy. That consideration should not be isolated from the rest of the public entity’s planning and management. Procurement will often need to be closely connected to the public entity’s strategies for capital asset management.

If procurement is integral to achieving the overall business strategy, we expect the public entity to have a procurement strategy to help it manage that activity effectively. Even if procurement is not integral to achieving the public entity’s goals, we expect the public entity to have a good understanding of what it purchases, and to have policies and procedures in place to ensure that it follows good procurement practices.

The same expectations logically apply to other forms of funding arrangements with external parties. If the public entity’s overall strategic planning identifies grants and other capacity-building funding as a major part of its work or as integral to achieving its goals, then we expect the public entity to have an equivalent strategy to help manage that activity effectively. Even if grants are not integral to the public entity’s goals, it should have sound policies and procedures in place to ensure that it administers them well, and in keeping with the basic principles set out in Part 2 of this guide.

Thinking strategically about particular funding arrangements

Before entering into a particular funding arrangement, it can be useful to pause and think about the purpose of the funding and the relationship that is being set up, and to check that the form of the funding arrangement matches those goals. The funding arrangement is a means to an end, so it is important that it fits with the purpose. The form that is chosen for the funding arrangement will then inform the public entity’s approach to planning, choosing a provider, and managing the funding arrangement. Problems can arise if the form does not fit the goal or the relationship.

For many standard transactions or funding arrangements, that check may be brief and straightforward. The public entity’s policies and procedures should contain processes for checking that the proposal meets the right criteria for receiving the form of funding, or that the contracting requirements are met. However, for other more significant funding arrangements, it may be useful to specifically consider at the planning stage what form of funding arrangement is most appropriate.

The rest of this guide is designed to support that consideration. It describes:

  • the different types of funding arrangements;
  • their common features;
  • the factors that should guide decisions on the most appropriate form of a funding arrangement; and
  • the high level expectations for planning, selection, management, and review that accompany each type of funding arrangement.

1: See Ministry of Social Development, Pathway to Partnership Fact Sheet, 21 April 2008, and other background information on this programme, available at

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