Gloomy forecast for full cost recovery

Finance | 1 May 2006

More than half of charities recover only 85 per cent or less of the cost (including overheads) of delivering public services to the funder, according to new research.

The initial findings of a survey undertaken by CFDG in collaboration with CIPFA's charities panel also found that 60 per cent of charities didn't expect to achieve full cost recovery of the services they provide despite a government announcement that as of April this year all statutory funders should implement full cost recovery. It states that funders are requiring greater levels of financial detail such as office and staff costs rather than agreeing a price for a quality service that ensures best value for money.

The research outlined a number of challenges charities have faced in building full cost recovery into their processes. Over 60 per cent of charities believe they aren't adequately compensated for the risk they undertake in delivering the service. Reasons given for this included greater risk transference without additional payment, short-term contracts that cause difficulty in resource redeployment when a contract ends, and funder/provider relationship weighed in favour of the funder.

More than half of charities highlighted that the lengths of their contracts are inappropriate to the service they provide. Elsewhere, a key theme arose of charities having pricing imposed on them by their funder. Additionally, funders themselves are facing greater financial pressure and uncertainty over government funding. This is making them reluctant to sign or renew contracts for periods longer than a year.

Chris Harris, chair of the CIPFA charities panel, commented: "Public sector procurement performance is poor with ill-fitting contracts being imposed without much thought. The beneficiaries suffer because the quality of service is not acknowledged, the charities suffer because compliance is onerous and the public sector suffers because resources are not used appropriately."

Directory: Charity Finance Directors' Group (CFDG) | CIPFA

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