EC Push for NGOs to Form Consortia

As an administrative and financial system, the EC is cumbersome and complex. It suffers from staff shortages and struggles with management difficulties. These problems have led the EC officials in charge of managing subsidy programmes to move away from the small project approach in order to limit the number of contracts being processed. The trend has been towards encouraging NGO consortiums to apply.

The ‘Consortium’ Model

A consortium is an ad hoc grouping between several NGOs with the aim of conducting a common programme or achieving a common objective. While there is a clear tendency within the EC towards this model, approaches vary depending on the directorate general (DG) or service concerned.

In general, DG VIII (now re-named DG Development) has encouraged NGOs to form consortia, but leaves the initiative to the NGOs. (ECHO is also increasingly, but still timidly, encouraging NGOs to present projects in this form). In line with this, the EC encourages NGOs in budget line B7-6000 to use the model of the consortium, and expects the following results from it:

• a reduction in the number of contracts to be administered by the EC;
• better understanding and more trust between the contracting NGOs and the EC;
• political dialogue;
• long term, more strategic approach to development activities;
• NGO grouping, exchanges of experiences, capitalisation and institutional support.

However, the risk is that small NGOs will be marginalised for lacking the institutional capacity to invest in a consortium. This is all the more so when DG1B, External Relations, only accepts consortium projects from NGOs. This happened in 1999 for several countries in refugees budget lines B7-302 and B7-312 (Afghanistan, Sri Lanka and Guatemala). This experience has shown that the imposition of a consortium on NGOs that are not accustomed to working together brings with it significant legal, administrative, financial and operational difficulties.

From the point of view of the EC, the reason for this move towards consortia is clear: lack of human resources and therefore the need to reduce the amount of contracts. The SCR (External Relations Common Service) was created with the same aim. In line with this simplification, there is also an effort towards standardisation: the standard contract for all Commission services, which has been reviewed many times, has now achieved its (seemingly) final stage. Once it comes into force it will be used for all budget lines that are accessible to NGOs (except, for the moment, ECHO).

However, the reasons to simplify, reduce and standardise have a purely administrative/technical nature and do not take into account the reality on the ground. Therefore, while the encouragement to form voluntary consortia can make sense if it does not become the only way to access funds, forcing NGOs to form consortia (DG1B) is not admissible.

The Afghanistan experience [1]

In June 1999, the EC announced to NGOs working in Afghanistan that the next funding round would only be given to a consortium of NGOs, united in one single contract. The four NGOs involved in this consortium did not self-select. Rather, the proposal was imposed on them and one was designated leader. The EC lacked the staff to manage the individual NGO contracts.

Operationally speaking, this consortium does not make sense: the NGOs concerned work in different parts of the country and in fundamentally different sectors (mines, agriculture, education and so on). On top of this, the consortium exposes the NGOs and their programmes to several dangers:

1. Operational responsibility: each NGO is responsible for the acts of the other NGOs of which they may know nothing. Therefore, the four NGOs are held jointly responsible vis-à-vis the EC for the successful realisation of the project.
2. Financial responsibility: the EC demands that the lead NGO gives a financial bank guarantee to ensure financial security. If a problem arises, the EC will claim reimbursement from this NGO, leaving it up to the NGO to claim from the non-performing NGOs the lost money. Even if the NGO leader is prepared to assume this risk, in most cases (like this one) it is evidently incapable of obtaining such a guarantee from its bank. The immediate consequence is therefore the blockage of the contract.
3. Administrative complexity: from an administrative point of view, the consortium model supposes several complexities that have important consequences for the NGOs and their programmes. For example, as the contract has a start and an end date, all NGOs are obliged to begin their programmes at the same time and to manage them at an identical pace. In addition, the Commission does not take into account the history of each programme, nor the diverse difficulties that NGOs may face during the implementation of the project.

The root of the problem

While the EC is trying to institutionalise mechanisms to guarantee financial security, the vast majority of NGOs are opposed to the use of such a guarantee (in particular a bank guarantee) and consider that such should only be applied in exceptional cases. The experience this year, during which a large number of contracts have been blocked as a result of this requirement, shows the extent to which the systematic application of this mechanism would paralyse collaboration between NGOs and the EC. For the moment, and as a temporary solution, the EC has accepted the SCR proposal suggesting that the financial guarantee only applies to payments above a certain amount, and that use of financial audits should be systemised.

There is also the possibility of requesting a derogation. NGOs believe that systematic audits on large projects or the use of their annual audits are the most appropriate and effective solutions for improving financial security. The latter is common practice in most European countries. Moreover, the use of the audit would make it possible to develop a relationship based on genuine trust between NGOs and the EC, something that the financial guarantee cannot deliver.

[1] Note Bene (16 November 1999) 

Update on the Afghanistan contract:

The final contract has now been signed by the lead NGO under the following conditions:

1. It is stipulated that the lead NGO alone is fully responsible for the technical and financial realisation of the project. Therefore, it is not the joint responsibility of all/each NGO involved in the consortium.
2. The lead NGO received a derogation concerning the requested bank guarantee in November, having sent the EC a supporting letter from the French government which stated that the NGO is supported financially by other donors.

For more information contact:
Liaison Committee of Development NGOs to the European Union
Tel. (32) 2 7438760
Email sec@clong.be