Fee for Service: Preparing to Become a Vendor or Contractor of Services

by Michele Martin on March 4, 2016

This is part of our ongoing series of posts featuring material drawn from the CIL-Net self-study manual, “Establishing and Managing Fees for Service in Centers for Independent Living.” This week we are looking at preparing to become a vendor.

Initiating and sustaining business relationships is another skill for the CIL to consider. Business relationships are shaped by the enterprise design (product) and initiation (how the relationship is created.)

Some of the avenues that CILs can use to establish relationships with funders or purchasers of service include—

Response to a request for a proposal (RFP) or grant opportunity with a government, nonprofit, or for-profit entity;

Contract with a public or private entity to provide services;

Partnership with another entity; and

Business start-up or acquisition.

Each of these relationships is a fee-for-service opportunity, but each will have a distinct form based on the type of business relationships and is described in more detail below.

Request for proposal/grant sourced fees-for-service enterprises

The request for proposal/grant sourced fees-for-service enterprise typically has non-negotiable financial and programmatic requirements as specified in the original RFP. When applying for and accepting the award, the CIL is committed to these requirements. In applying through an RFP process, the CIL needs to measure the reporting requirements against capacity of the CIL to determine if additional staff, technology, or outside support will be required to meet the requirements as detailed. These are real costs of doing business and must be included in budgeting and program operations.

In a contract with a public or private entity to provide services, the CIL may be able to negotiate the terms for both financial and programmatic reporting. If payments for services are based on a performance metric (units sold, units of service delivered), it is essential to ensure organizational capacity to link performance and billing. This requires a careful look at the process time and transfer details between the service performed and the finance department billing it out. These are the real costs of doing business and must be included in budgeting and program operations.

Partnership with another entity

Partnership-based fee-for-service programs should be highly negotiable in terms of both performance expectations and financial and programmatic reporting, depending upon the ownership terms of the partnership. Either your organization or theirs will have to access the resources that are paying for services, so you must come into agreement on who’s managing what aspect of the program. Make sure to understand what the buyer’s expectations are of your organization, but also what they expect from your partner. Performance, payment, risk allocation, and benefit distribution should all be included in a partnership agreement as well as the timing of such payments. One small nonprofit was severely damaged when its bigger nonprofit partner made payments very slowly. Cash flow is critical. Partnerships are most effective when they are based on clearly articulated agreements of roles, responsibilities, risk, and benefits.

Business start-up or acquisition

In these types of enterprises, the organization is in control of its fate, as performance expectations and financial and programmatic reporting are internally driven and provide the measurements that will shape strategies and decisions. Internal business metrics must drive business decisions. Is it costing too much? Is the organization making money? An enterprise should be modeled in order to provide benchmarks, then as the enterprise is implemented, it is measured against those benchmarks. An exit strategy, in case things don’t work out, would be part of the initial enterprise design.

Application

How are big decisions made in your nonprofit? What questions will you ask to identify decision makers in other entities? Practice role-playing finding the decision maker.

Once you find a decision maker, how will you learn what they seek from the relationship?

Resources

The Only Grant Writing Book You’ll Ever Need, Ellen Karsh and Arlen Sue Fox, 2014. Basic Books, New York, NY.

Million Dollar Networking: The Sure Way to Find, Grow, and Keep Your Business, Andrea Nierenberg, 2005. Capital Books, Inc., Herndon, VA.

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