How to implement Full Cost Recovery

Full cost recovery is linked to the choice of funding method (grant or contract), because of the importance of overhead costs to the negotiation of a contract or the award of a grant:

Ideally, a third sector organisation (or a private company) bidding for a contract should submit a price based on a clear understanding of the overhead costs that the organisation needs to cover, as well as the direct costs associated with delivering the contract. In general, however, the details of overhead costs would not be disclosed to the funder, nor should the funder seek this information since it would not normally be expected from a private sector supplier.

In the case of grants, the application of full cost recovery will depend on the purpose of the grant: 'giving' or 'investing'. Costing, rather than pricing, is likely to be the more appropriate basis for funding decisions. In some cases it will be appropriate for the funder to make a contribution to costs whilst in others they might be expected to cover full costs.
National Audit Office 2005, Working with the Third Sector