Navigating ‘Government Donor’ Roadblocks

By Andras Vamos-Goldman

This piece was originally published by the Open Road Alliance.

Feature photo by Christophe Laurenceau

“Where needed resources will come from is always on the mind of social entrepreneurs. It can seem like 90% of our time is taken up with “resource mobilization,” leaving the remaining 60% to innovate, fill gaps, problem-solve, and create impact (my math is correct — a 150%-time commitment is needed to run a social enterprise). Many social enterprises — especially those whose early support comes from philanthropic and grantmaking institutions — consider applying to governmental donors with mixed emotions. It is generally known that governmental donors tend to give more money, over longer periods. But applying to governments for funding can also be daunting. The following paragraphs are meant to highlight potential roadblocks in applying for government funds, so that social entrepreneurs can try to avoid them, and governments can better understand their unintended negative impacts.

The Good News:

First, some good news. I have found that a social entrepreneur is much less likely to encounter the “you have to get me to like you first” attitude with a government donor representative, an attitude which is so prevalent when seeking philanthropic and private grantmaking funding. It is usually enough to do thorough homework on the governmental donor’s priorities and procedures (often publicly available or easily attainable) and pitch the merits of the innovation and impact to match these.

Potential Roadblocks:

It Takes Time

Perhaps the single biggest roadblock is the amount of resources a social enterprise has to devote to applying for, managing, and reporting on the use of most governmental funding. It is vital for social entrepreneurs to understand the considerable investment of time, energy, and resources before they go down the “governmental donor” road.

Of equal importance, many governments should consider a better balance between adding procedures driven largely by their internal considerations and understand that this can tie-up a disproportional part of a social enterprise’s capacity. The results of not doing so are invariably at the expense of the very goals and priorities for which the government is supporting the social enterprise.

One Government — Many Pots

Each governmental donor has different criteria, requirements, policies, and procedures. While this also tends to apply to philanthropic and grantmaking institutions, frustratingly even within governments, separate ministries/agencies/branches/units usually have different priorities and may work with different procedures. Social entrepreneurs need to do research in order to match their goals, outputs, and impact not just to the right government, but also to the right ministry or agency — and sometimes to the right branch or unit.

In turn, governments should take into account the undue resource commitment that this often unnecessary complexity requires from a social enterprise merely to consider applying for support. At the very least they should ensure that “who does what” is well and clearly publicized. The consequence of not doing so is that governments end up with the same applicants year after year, the ones that have “learned the system.” While it is easy and convenient for any donor to fund “known entities,” by not paying attention to the resource-cost to potential grantees, the likelihood is high that new organizations, with fresh, innovative ideas will have a hard time getting on a government donor’s radar.

After All, They are Bureaucracies

There are usually two ways to access government funding: open and closed/targeted.

— Open processes are requests for proposals (RFPs) published on government/public websites. Some follow a regular cycle and some are ad hoc, so social enterprises should follow updates on governmental websites in order to track RFPs. Proposal invitations typically have a highly bureaucratic format, and are then evaluated through a competitive process. Governments do this with the belief that this format will “level the playing field.” Unfortunately, the “spoils” usually go to the entities with the experience and capacity to monitor and fulfill the bureaucratic, time-intensive requirements of RFPs. One way for new or smaller organizations to break into this cycle is by forming or joining coalitions, in which at least one partner has the requisite capacity.

— Targeted/closed funding processes are accessed mainly through contacts/networking. Social entrepreneurs take note: this is like private sector fundraising — it requires preliminary outreach. After contacts are found and relationships established, the next step is usually the preparation of a concept note for the consideration of the donor. This is a key capacity cross-road for social entrepreneurs, because if the concept note generates interest, the next step is a detailed, time-consuming project proposal and budget, often in a prescribed format. For some governmental donors such a project proposal is sufficient to make a decision. These governments should be commended, because there are others (thankfully a minority) where approvals require multiple bureaucratic layers (e.g. officials determining “policy,” — what the government wants to achieve — may be overseen by those who see their job as making make sure that the “taxpayers’ money” is spent according to prescribed administrative rules). When dealing with these kinds of donors, social entrepreneurs need to be prepared for protracted and repetitive negotiations — often without much transparency. This process can be unpredictable in length, requiring a lot of unexpected resources from an organization. In order to avoid a frustrating surprise, it is vital for social entrepreneurs to network with existing grantees before applying, in order to know which governments fall into this category.

To those governments that recognize themselves in the above description: such excessive bureaucratic layering actually wastes taxpayers’ money, and keeps resources out of reach for most of the partners your funding is intended to support.

The Devil in the Grants:

All governments are on “fiscal year” budget cycles, which of course vary. Knowledge of this is important because governments only seriously consider proposals when the budget for that cycle is set. Social enterprises ought to remain in regular contact with governmental donors so they know when to submit proposals. But there is also a “silver lining” to being in such a time-bound box: most governments tend to be conservative in early approvals (in order to have funds during the year in case of an emergency situation needing support or should the political level determine a new priority). Since budgets tend to be annual, this process means that there is sometimes left-over “year-end money.” In most governments, if this money is not spent, it goes back into “the pot” and may even reduce the size of the budget allocation in for the following year. Therefore, governments have an incentive to spend their grant allocations. Keeping in close contact throughout the year with your governmental interlocutors could lead to a good source of late-year revenue.

There are a myriad of other grant-related questions to consider, such as: does the government or grant instrument allow cost-recovery; can indirect costs (overhead) be included, and if so at what percentage; and can the cost of direct project staff be included in addition to overheads? [1] Another key financial consideration is whether the donor pays in advance or reimburses expenses retroactively. If the latter, the organization has to evaluate if it has sufficient working capital to cost-manage the project until payments are received. This consideration also applies to the related question of late or delayed payments.

For governments, expecting social enterprises to have money on hand or to cash-manage is unfair, unrealistic, and will largely exclude new organizations with fresh, innovative approaches.

Hidden Costs in Reporting

When budgeting and evaluating the real cost of implementing the grant, a social enterprise also needs to factor in the resources needed to meet the donor’s reporting requirements (narrative and financial). These are usually time and labor intensive. Smaller organizations and new grantees, perceived to be higher risk, will often be subjected to greater scrutiny, needing even more resources. So before applying, a social entrepreneur needs to make sure that the grant is actually sufficient to cover the social enterprise’s actual costs and enable it to deliver on its proposed results — without “going into the red” or that “being in the red” is worth-while, in order to build a relationship and position itself more solidly on the map of public donors.[2]

In order for an organization to make this risk vs. reward evaluation, governmental donors must ensure that all information about their policies, practices, and the rules governing their grant-making is up-to-date and well publicized.

Finally, donors expect visibility and credit for their contribution. Even if this does not pose a problem (e.g. security or confidentiality) for a potential grantee, it involves time, energy, and resources to meet the communication expectations set out by donors.

Governments need to ensure that grants include realistic resources (including human resources) for the publicity they expect the grantee to deliver.

The Bottom Line

Relatively larger pots of money; long-term relationships; more predictability; less superficiality; access to networking opportunities; and the convening power of governments are factors that make it a “no-brainer” for social enterprises to seek government funding. If, that is, they first do their homework — especially networking with existing grantees — to know the “real cost” of doing business with specific governments.

Government officials, on the other hand need to remember that they are not “doing favors” when they are making grants. They make grants because they need partners with ideas and unique capacities to implement the policies that voters and/or political leaders have decided upon. Practices that make it too difficult to be a government grantee and partner is, therefore, counter-productive to governments.

[1] Budgets for public sector donors are generally divided between direct costs (the activities themselves), direct support staff costs (mainly the percentage of staff costs directly involved in the implementation of the grant — not go above 25%), and indirect costs (overheads — usually up to a maximum of 12%).

[2] Public sector donors tend to move in packs. If they see other donors are funding an organization, they will feel more comfortable to do so as well.

For more data on partnering with Government Funders, see Open Road’s Roadblock Analysis Report.”