Government policy on Full Cost Recovery

Full Cost Recovery From Positive Steps

"6.1. The voluntary and community sector brings particular advantages and expertise to the delivery of services and we want to ensure that voluntary and community organisations are able to operate on a level playing field with other service providers.

We will work to remove barriers which hinder this engagement. For example, voluntary and community organisations must be able to include full overhead costs related to delivering a contracted service.

This has been endorsed by HM Treasury* and guidance issued to all NI Government Departments."

"6.2. It is the responsibility of voluntary and community organisations, however, to ensure that full overhead costs are included in any contract bids and the voluntary and community sector should adopt an independently assured methodology for cost identification and apportionment.

Some useful work has already been done in helping organisations allocate overhead costs. ** Although allocation of full costs primarily impacts on service contracts, reasonable overhead costs may also be included as part of grant awards but this will be a matter of negotiation with funders.

HM Treasury Guidance to Goverment Funders and Purchasers

There is no reason why service procurers should disallow the inclusion of relevant overhead costs in bids. Furthermore, funders or purchasers should not flatly reject or refuse to fund fully costed bids.

Funding bodies must recognise that it is legitimate for third sector organisations to recover the appropriate level of overhead costs associated with the provision of a particular service.

When grant-making, funders should assess in a simple, proportionate and equitable manner whether third sector organisations have allocated relevant overhead costs and ensure that costs are recovered only once.

Under a competitive procurement regime, purchasers should be clear that they expect third sector providers to be aware of the risks of not bidding on a full cost recovery basis. A third sector organisation unwittingly subsidising a public service is unlikely to represent good value for money, particularly in the long term.

Fixed percentages without any evidence base do not provide a sound basis for the calculation and award of relevant overhead costs. Clear and consistent allocation of relevant overhead costs can provide a more accurate guide to funders of the true cost of delivering a service or output.