Full Cost Recovery
Full cost recovery means recovering or funding the full costs of a project or service. In addition to the costs directly associated with the project, such as staff and equipment, projects will also draw on the rest of the organisation. For example, adequate finance, human resources, management, and IT systems, are also integral components of any project or service.
The full cost of any project therefore includes an element of each type of overhead cost, which should be allocated on a comprehensive, robust, and defensible basis.
A historical look
It has now been ten years since ACEVO launched its promotion and awareness campaign for full cost recovery, and it has been fully accepted by government and opposition parties. There is no doubt vast ground has been covered with regards to sustainable, progressive and ‘surer’ funding for the third sector in the last decade.
In 2002 government and the third sector reached a powerful agreement on overhead costs. “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 acknowledged the need for organisations to meet their full costs and committed all government departments to fund accordingly by April 2006.
To meet this challenge, ACEVO and New Philanthropy Capital published Funding our Future II in 2002, which advocated the use of a Full Cost Recovery template. This approach was further supported by the Sir Peter Gershon’s Efficiency Review in July 2004, which recommended that the government should improve its funding relationship with the third 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”. In 2004 ACEVO produced Full Cost Recovery: a guide and toolkit on cost allocation which provided the sector with an updated and practical guide to full cost recovery. ACEVO have sold over 5,000 copies to date.
With support from the Big Lottery Fund, in 2006 ACEVO and NAVCA began a three-year programme providing education and training for the third sector in full cost recovery. The aim of the project was to integrate this template into the third sector and encourage its use by voluntary organisations. By training development workers and other staff within local infrastructure organisations, the skills, knowledge and tools were provided in order for them to offer affordable and sustainable support in full cost recovery to the smallest third sector organisations operating at a local level. In total, the programme was aimed at over 15,000 organisations during three years.
2007 saw a new commitment by the Government to the principles of full cost recovery. The Third Sector Review The future role of the third sector in social and economic regeneration, which set out plans to promote the partnership between the Government and the third sector, accepted that “Government funding should allow an organisation to recover the full cost of providing a service including an appropriate element of its organisational overheads” and that Government still had work to do developing more sophisticated statements on full cost recovery. The National Offender Management Services Third Sector Action Plan, which covers the role of the third sector in transforming public services, continued this direction in 2007, highlighting the overall importance of surer funding and stating that progress needed to be made in its implementation.
The impact of full cost recovery has been substantial; it looks set to remain an integral part of the future for a successful and progressive third sector. However, there is still much work to do.
