The seven categories of funding arrangements

Spending public money wisely and well: how to put basic principles into practice.

Minor conventional purchases

Minor conventional purchases are relatively self-explanatory. All public entities will have a range of goods and services that they buy regularly, that are of relatively low value, and that are able to be bought through ordinary procurement systems. Common examples include office consumables, such as stationery or catering, or once-only and short-term contracts for professional or consulting services. There will usually be a reasonable range of suppliers or providers to choose from, so that ordinary market-based procurement techniques and competitive processes are likely to be effective as a way of managing the price and value for money.

Major conventional purchases

As with the previous category, the presence of an effectively functioning market is the main factor in a conventional contracting environment. That means that ordinary market disciplines can be expected to operate well to manage price and value for money. Major conventional purchases are high value – possibly worth millions of dollars. Inevitably, they carry higher risk to the public entity and require a different level of planning, authorisation, documentation, monitoring, and general management.

Examples of major conventional purchases include contracts to procure or build capital assets, information technology contracts, and major consultancy contracts.

There can be some overlap between this category and that of major relational purchases, as there is a growing pattern of managing major contracts through more strategic arrangements such as partnering and project alliances. Such arrangements may have a lot in common with major relational purchases, even if they are developed within a market context.

Minor relational purchases

There are two main factors that suggest that a purchasing arrangement might not fit the conventional category, and might be better conceptualised as having a significant relationship dimension. They are:

  • the absence of an effective or meaningful market to provide the goods or services; and
  • the strategic importance of the goods or services, or of the relationship with the provider, for the public entity.

These two factors may be present more often for public entities purchasing goods or services that are essential to the delivery of public sector (and implicitly non-market) services, that are highly specialised, or that are provided by non-commercial and public interest bodies such as non-government organisations.

Other factors that might suggest a relational purchase include the nature of the goods and services purchased, the duration of the relationship between the public entity and external party, the relationship between the public entity or external party and an end user (such as a person receiving health care or other social services), and the specialist nature of the goods or services. For some external parties, there may be other policy goals that are relevant and that would suggest a relational approach, such as a goal to support the development of a strong and stable non-government organisation or civil society sector, or a goal to encourage strategic relationships or build capacity within some part of the wider state sector.

In such situations, conventional market-based systems for managing a contract may not be appropriate or particularly effective. It may be more useful to give greater weight to the relationship or strategic dimensions of the contract and to set up other systems to manage the dimensions usually managed by competitive market mechanisms.

Common examples of minor relational purchases include contracts to purchase policy or other advice from specialist advocacy or special interest representative groups, highly specialised professional advice, small and specialised research work, or the supply of minor health services or a niche product produced for a particular and unusual requirement.

Major relational purchases

The same factors apply to major relational purchases. The main difference between the previous category and this one is the value or size of the goods or services being purchased. A larger contract will inevitably require additional attention and management throughout its whole life cycle.

Examples of major relational purchases include residential care or other social support services (where the funding arrangement may need to provide stability for end users for many years), major and long-term research contracts, or significant professional or consultancy relationships.

As already noted, there is an overlap between this category and that of major conventional purchases, through the growing use of relationship-based contracting arrangements in major projects such as infrastructure development.

Conditional grants

A grant is a funding arrangement that is designed to support an organization or an activity rather than to buy goods or services. It can operate on any scale, from very small and localised grants to extremely large grants to support major infrastructure projects. We have found it most useful to distinguish between grants that have substantial conditions attached and grants that have very few conditions, rather than to focus on the value of the grant. However, it is likely that a high value grant will require more substantial and complex conditions.

Conditional grants are where the public entity manages the risk of non-performance by attaching significant conditions to the ongoing payment of funds. Common conditions include:

  • dividing a project into stages and releasing funds only as each stage is completed;
  • requiring the commitment of other funders to be confirmed before releasing all funds; or
  • requiring particular project management disciplines to be used, such as regular audit or the use of only certified or approved personnel or contracted providers.

There may also be conditions that require funds to be repaid if they are not used to achieve the purpose of the grant.

Grants with limited conditions

Grants with only a few and relatively simple conditions are common when the funding is relatively small. One example is grants to community groups from a fund set up for specific purposes, such as an environmental projects fund. Another is a fund that people can apply to if they want to organise an event to celebrate Waitangi Day or similar. Other examples include scholarship funds or grants to support an organisation with a specific initiative (for example, a community consultation exercise) or to build the organisation’s capacity (for example, by setting up a website).

However, not all grants within this category are small. In some circumstances, grants of foreign aid, for example, might have limited conditions attached, because they are being provided to another government and it may not be appropriate to impose strict conditions or reporting requirements in that context. In other contexts, aid funding may take the form of a grant with substantial conditions, or may be a contract with a provider to deliver a particular set of services or outcomes.


Gifts are self-explanatory. Sometimes public entities just give money, goods, or time to an external party. Things that are explicitly called gifts or donations are easily identified and should be covered by the public entity’s policy on such matters. We have already set out our expectations in this area in our good practice guide, Controlling sensitive expenditure: Guidelines for public entities. However, a grant may sometimes be awarded with no conditions attached at all. We would categorise an unconditional grant as a gift.

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