acevo

Full Cost Recovery

Historically, third sector organisations have struggled to secure funding for their overhead costs, leading to underinvestment in management and leadership, internal and external infrastructure, strategic development and governance. This difficulty has been exacerbated by a trend on the part of the sector's funders towards funding the direct costs of projects rather than overheads or "core funding". Failure to secure funding for overhead costs makes important services, including public services, and the organisations that deliver them, unsustainable. Both government and the sector's representatives have agreed on a solution: Full Cost Recovery (FCR).

Under FCR, organisations and their funders ensure that the price of contracts and grants reflects the full costs of delivery, including the legitimate portion of overhead costs. This commitment poses challenges for both organisations and their funders. 

• Third sector organisations must cost their projects and services on an accurate, defensible and sustainable basis.
• Government must ensure that all public bodies fund services sustainably, by permitting the inclusion in prices of the relevant portion of overheads, and ensure that prices are determined on a realistic basis.

HM Treasury first endorsed the principle of Full Cost Recovery in its 2002 cross cutting review, "The role of the voluntary sector in service delivery". The review stated that "Funders should recognise that it is legitimate for providers to include the relevant element of overheads in their cost estimates for providing a given service under service agreement or contract."

The review stated that the deadline for statutory funders to implement Full Cost Recovery was April 2006.

Although this date has passed with many funders still not adhering to Full Cost Recovery principles, much progress has been made. Over the past three years ACEVO, with Big Lottery funding, have trained over 1,000 development workers on Full Cost Recovery, aiming to cascade this to reach approximately 15,000 front line organisations. We have also released the Full Cost Business Planner, an advanced version of the Full Cost Recovery Template, to allow organisations to cost multiple projects to ensure overheads are allocated consistently and appropriately.

However, further development must be made to fully embed this costing model into the third sector. ACEVO are currently reviewing their training programmes, which will be launched over the coming months. To register your interest in these future courses, please contact Hollie Montgomery T: 0845 873 0975 E: hollie.montgomery@acevo.org.uk

ACEVO's Full Cost Business Planner

The Full Cost Business Planner (FCBP) is an advanced version of the Full Cost Recovery Template which will allow organisations to cost multiple projects and ensure all overheads are allocated consistently and appropriately. The template is aimed at all members from very small residence associations to large voluntary organisations.

The FCBP toolkit also includes a Business Plan Writer which will help third sector organisations to write their business plans efficiently and effectively. The toolkit enables organisations to assess their true capacity and plan strategically as well as cost projects on a sustainable basis.

The Full Cost Business Planner is available to order here. For queries please contact Hollie Montgomery at hollie.montgomery@acevo.org.uk

Full Cost Recovery Anniversary Briefing

It has now been over two years since ACEVO launched its promotion and awareness campaign for Full Cost Recovery with the support of the Big Lottery Fund. Commemorating this occasion, acevo has produced an anniversary briefing, which reviews current practice in the third sector in relation to the implementing and obtaining of Full Cost Recovery.

Using feedback collected from post-training programmes and interviews of third sector front-line practitioners and funders, the briefing looks at the impact of Full Cost Recovery so far and provides recommendations for the future of Full Cost Recovery in today's third sector.

What the report shows is that our increasing role in service delivery is transforming the sector. This change has led to new dialogue within the third sector regarding cost recovery and has led some to challenge that the sector must modernise and talk in terms of 'price' rather then 'cost'. Yet as this report illustrates, the reality for the third sector remains the same: for successful public service delivery, third sector organisations must fully cost their products and services.

The impact of Full Cost Recovery within the third sector has been substantial and it looks set to remain an integral part of the future of a successful and progressive third sector. However, to fully realise the potential of the third sector in terms of service delivery we must address new challenge; this includes both the behaviour cultures of the third sector and the funding organisations they interact with.

Key Recommendations from the study include:-

Third Sector leaders should:

• Be pragmatic but prudent - The need for pragmatism in some situations does not undermine the need for third sector organisations to employ full cost recovery in their planning processes. What ever the funding arrangement, third sector organizations must fully cost their products and services for a sustainable future.
• Be inspired – good practice should be highlighted and acknowledged across the sector.
• Be confident – skill sets and attitude within the third sector need to be improved in order to facilitate Full Cost Recovery.

Commissioners should:

• Engage - Commissioners need to achieve new theoretical and practical understanding of their roles in relation to commissioning services from the third sector.
• Upskill – successful engagement will only be facilitated by upskilling commissioners in Full Cost Recovery.
  

A full copy of the briefing is available here.

If you would like further details about the study please do not hesitate to contact Hollie Montgomery at hollie.montgomery@acevo.org.uk 

Further information

Click Here to View the Treasury Report

Treasury support was reiterated in the 2003 report "Guidance to Funders", and by Home Office ministers.

Click Here to View the "Guidance to Funders" Report

The Gershon Efficiency Review in 2004 recommended that government improve its funding relationship with the voluntary sector through measures including, "making further progress towards full acceptance of the principle of full cost recovery, ensuring publicly-funded services are not subsidised by charitable donations or volunteers".

Click Here to View the Gershon Efficiency Review