Does the move toward commissioning and the recession mean the end to Full Cost Recovery?

Full Cost Recovery represents the single most important factor in the sustainability of the Third Sector. The model has been in existence since 2002, so why then has it been adopted by so few major funders or statutory sector commissioning agents? I believe the problem lies in the fact that it was devised by accountants and only accountants understand it. I also believe that in an attempt to justify the allocation of costs to funders and commissioning agents, it has become over complicated and un wieldy with few organisations adopting it. If Full Cost Recovery was going to replace the prevailing view among many commissioning agencies “that the Third Sector could somehow survive on its own sense of self-satisfaction” it needed to be taken up and used wholesale by the Charitable Sector. Only through critical mass could we reduce the incidence of top slicing management fees whenever there was a need to save money.

Full Cost Recovery was always going to be a harder sell in the competitive tendering process than it was through the allocation of grants. However, now we have substantial Local Authority cuts, the term ‘Most economically advantageous’ will, I fear focus heavily on the bottom line. Running costs of many charities are higher than the private sector and using the Full Cost Recovery model may result in charities losing out to other organisations. One of the hard realities of Full Cost Recovery is, that if it were adopted across the board, fewer organisations would receive grants, however in the long term, the funding would be realistic and we could see a change in culture where the Third Sector are no longer just seen as a cheap option. To some extent we have missed the boat, at least for the time being. No organisation is in a strong position to argue recovery of full costs when commissioning agents go for the cheapest bid.

I would like to see a stripped down and simplified model of allocating full costs and an attempt to spread it across the sector including emerging social enterprises, so that even if they are not in a position to claim full costs, they have an understanding of the true cost of delivering services and then can consider whether contracts are worth applying for.

It is likely now that we will not see a realistic approach to funding the sector until after the worst of the recession has ended. In the meantime charities and social enterprises need to be adept at using Social Accounting Models to demonstrate how much they save statutory services as a result of their intervention and need to be robust in their defence of using the funding of local charities to deliver services as a method of creating sustainable communities. I hope that the next time the door opens on Full Cost Recovery, the 3rd Sector is willing and able to charge through it!

This entry was posted on Wednesday 23rd May 2012.