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Fair is Fair: on contracts and sub-contracts

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Last week I published a post on funding that was inspired by some conversations with think tank funders in Indonesia. Missing from that post was a more nuanced discussion on the funding mechanisms used by funders. This is not it (more nuance is still needed, I mean) but I hope it counts as a first attempt to raise a number of issues of great importance to think tanks.

Over the last years I’ve been talking to think tank directors about the various challenges they face. One of these challenges, and one that often goes unnoticed, has to do with the contracts they have to sign with their funders and clients.

Contracting matters a great deal. Most of the time, think tanks do not have a say on the contracts they sign; they get them from their funders and clients and are expected to sign them with little or no alternative. And few have the luxury of rejecting projects if they do not like the terms of the contract.

Contracting matters because it affects think tanks in many different ways:

  • How they allocate their resources -within a project and within an organisation;
  • What kind of research they can do -and therefore what kind of skills they can develop;
  • Whether they can accumulate capital/reserves or not -and how much;
  • How they communicate their work -and what they can communicate;
  • Whether they own the intellectual goods they produce or not -and what they can do with them; and
  • Of course how much they get paid -and for what

Over the years I have been privy to a number of different types of contracts and sub-contracts. I have also been guilty, I must recognise, of sending out contracts that, at least now, with the benefit of hindsight, I know could not have helped the think tanks we were sub-contracting. (A couple of weeks ago I was sent a contract that I just had to send back -it was impossible for me to sign. The intellectual property section was out of this world: it stated that the clients did not only own the outputs I may produce for them but also everything else I did as well as the ideas I developed while the contract was in place. This is a contract that think tanks are certainly getting and are probably signing.)

Here is a list of what I think may be three ‘typical’ contracts and the effects they have on think tanks in developing countries. These contracts refer to the funds provided to ‘do work’ not those directed at capacity development (this is another story).

The contract instead of the grant: Most think tanks will say that they have funders or donors but in reality most (certainly all that receive funding from international development agencies to deliver a specific project or from private sector consultancies or corporations) have clients. What they sign are not always grant agreements (even if they are named as such) but contracts for services. These contracts come with expectations: the think tanks receive the money in exchange for a product, activity, or service. This is important to remember.

Few funders (if any) have contracts specifically designed for think tanks. They will be asked to sign the same contract as a consultancy or an NGO. When I worked in a UK based think tank we sub-contracted think tanks using the same contract template as we used for everyone else -in every country. There was no consideration for the fact that think tanks trade on ideas, or that they may be non-for-profit foundations who are not allowed to sign contracts for services if they want to maintain their non-for-profit status.

This is important because, increasingly, Aid money is being managed by large corporations like PWC or KPMG and others. Unlike a bilateral or multilateral donor who might have ‘looked the other way’ if the contract was treated as a grant by the think tank, these corporations won’t be as flexible or lenient. Their contracts, too, will be much longer and complicated and include lots of they fine print that needs to be read carefully before signing. Read by a lawyer, no less.

It would be a good idea if think tanks in a country or region got together to demand a contract for think tanks from their funders. Or to support each other in getting the legal aid that they will need to deal with contracts that affect their very nature as think tanks.

The sub-contract: Most think tanks won’t know it but most of the time they are being sub-contracted by an organisation that has been contracted by the original funder (sometimes they are even further down the line). These sub-contracts may seem alright at first glance but in fact hey both limit the role that the think tanks can play in a broader project (hence limiting their claim to the final intellectual property generated) and allows the client to appropriate the legitimacy that the sub-contracted (often ‘southern’) think tank confers.

This usually translates in participating as translators or guides for foreign researchers, writing up a short case study or text box for a larger study, or maybe being part of some training workshop devised in Europe or the U.S.

In the future, my advice is that before signing, think tanks should demand to see the terms of reference and contracts signed by their clients. Most of the time this will be public information (most Aid funds are, after all, public funds) so the clients should not be able to keep them private. This will give think tanks a better sense of what is it that they are contributing to and where they fit in the whole picture.

They should also ensure that their names feature in any publication that uses their work. Bur they should no allow their names to be used in a publication that they have had no control over. Most research centres, NGOs, consultancies, and think tanks based in developed countries will sub-contract think tanks to do their field-work for them: data collection, interviews, etc. but won’t include them as authors in the final publications; except maybe as a footnote or in the acknowledgements. These will be written and authored by their own staff.

The ‘against expenses’ contract: Many funders will only pay for what is spent -and is backed-up by a receipt. They will demand receipts for everything from staff salaries to the organisation’s utilities. This means that think tanks cannot include overheads in their budgets unless there is a receipt to back them up. One could argue that this is fair; why should the client pay for things that are not directly linked to their projects? Why should they pay for corporate communications, office management, or staff training?

There are at least two arguments for paying for overhead. First, all the other things that clients claim are not directly relevant to their projects are what make these think tanks the organisations that they want to hire. Without communications they would now know about them; without staff training they could not guarantee quality work; etc. And in any case, someone else is paying for it so it is a bit unfair on other funders.

The second reason has to do with fairness in the terms of the contracts that different think tanks receive. A donor’s contract with a consultancy, NGO or think tank in the UK, for example, will include several budget lines to cover their overheads. They will charge an admin fee for holding the funds (even if most will be used to pay sub-contractors); they will include staff in the projects that don’t really do much (like people to oversee the project mangers); they will also add an overhead to staff fees (e.g. if the fee is USD500 the staff member will get about half of that as a salary -or less; the rest is overhead for the organisation) that the client will not know about as well as include the cost of central services’ staff; they will double and even triple book staff time; etc. This is common practice in the UK -and is not unheard of in other places.

Again, a solution to this is for think tanks in developing countries to demand to see the terms of reference and contacts signed by their clients with the original funders. At the very least, it is important that they demand the same treatment as others receive. I am not suggesting that think tanks in developing countries should be paid the same, in nominal terms, as think tanks in developed countries; I am all for purchase power parity. But they should receive the same terms. If ODI or IDS or PWC (no fault of theirs, of course) is allowed to include an un-receipted overhead in their budgets, included in the daily fee of their consultants, then a think tank in Indonesia or Tanzania should too.

This discrimination often happens within the same county. Funders often have ‘favourites’ who get special treatment in a country while the rest are forced to accept unhelpful conditions.

How to demand fairer contracts?

Fairness, here, is a difficult concept to define. Maybe ‘better contracts’ would be more appropriate. The following recommendations could help to develop better contracts for think tanks:

  1. Grants are always better than contracts. But grants should be for ideas and initiatives developed by the think tanks and ‘pitched’ to the funders. Funders should, therefore make it easier for a think tank to pitch ideas to them but establish higher standards for funding. E.g. Let think tanks in a country know what their policy and research agendas are and what kind of things they’d be interested in funding -but let the think tanks come up with the projects themselves. Funders can transition into this mode of funding over a couple of years thus encouraging the think tanks they fund to use some of the funds they receive to develop these projects and to prepare for potentially difficult times. Funders note, however, that you may not be able to allocate all your funds… but then you should not have to.
  2. Contracts should be published (and studied). Funders (foundations, bilaterals, multi laterals) should publish templates of  the contracts they issue and of the contracts that those they grant and hire issue to their own grantees or subcontractors. There is no need to set up a central database but comparison would be useful. It may lead to significant improvements of some of the most damaging contracts. A research project on this could be a good idea).
  3. Funders should develop think tank specific contracts. Whether for grants or for consultancies, funders should not fund think tanks as if they were service delivery NGOs or consultancies. They need to recognise their unique nature and fund them accordingly.
  4. Funders need to develop think tank policies and publish them. It is not enough for IDRC to have the Think Tank Initiative and assume that ‘this is how it supports think tanks’. Or for Australian DFAT to have the Knowledge Sector Initiative in Indonesia. They both fund think tanks via many other mechanisms: grants, contracts, training, etc. A clear and public policy (which could include lots of different mechanisms) would be a good idea.
  5. Think tanks need to get their act together. At the national level, within certain initiatives that fund several think tanks, and in the many other networks that think tanks belong to, are opportunities to address these issues in greater detail and develop collective alternatives to the current state of affairs. There is really no reason why a group of think tanks in South Saharan African couldn’t write to the British Government outlining how the current contracts they are subject to (by DFID directly oo via its various contractors) affect them and their broader objectives; and recommend alternative terms. I doubt that DFID would dismiss such a serious and sensible effort.

Do you have examples of contracts that you rather never signed? Or maybe a perfect contract you’d like to see more of? Please share them with me on enrique@mendizabal.co.uk or as a comment to this post. I will not publish them but try to look into them in future posts.

For more on funding visit the Funding Topic Page.

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