Full Cost Recovery in the Voluntary Sector

Full Cost Recovery in the Voluntary Sector – Impact Assessment [Research Publications]

Report on costs and impacts of the implementation of the principle of Full Cost Recovery in the public sector contracts with the voluntary sector

Main Findings

The main findings of the study were that:-

§         The voluntary sector in Scotland delivers a wide variety of services for public bodies. Contracts for these range in value from small ones, of less than £50,000 a year, to those in excess of £1 million;

§         The majority of these contracts are delivered at less than full cost, that is the value of the contract is judged not to cover the direct costs of service delivery and the related overhead costs (such as management and administration) that any organization has to cover if it is to survive;

§         Of the contracts identified, 71% were not explicitly based upon FCR. The estimated extent of underfunding of the survey respondents was £2.55 million, or 0.96% of their total income;

§         Voluntary organisations tended to cover the gap between their full costs and the value of contracts by running down reserves.

The implementation of FCR was seen as a way of building up reserves and improving the quality of service delivery;

§         Voluntary organisations that attended Focus Groups had, in the absence of many funders paying their full costs, developed a number of survival strategies including cross subsidy and presentation of costs in different ways to different funders;

§         The Focus Group attendees were sceptical about FCR being introduced. However, if it were, they felt that it would mainly benefit the larger voluntary organisations;

§         The public sector interviewees felt that the introduction of FCR would, over the longer term, be detrimental to the sector as voluntary providers would be displaced by private sector competitors and public bodies would cease to buy some services
from the sector due to lack of funds; and

§         When the estimated extent of contract underfunding from the sample of voluntary organisations was corrected, and grossed up to the population of voluntary bodies within Scotland, the annual cost of implementing FCR was estimated to be £118 million or 4.5% of the sector’s estimated annual income.

Action Points

The study concluded with 16 Action Points. The main ones were:-

§         The promotion and development of the National and Local compacts would be a way of beginning to develop greater trust between the voluntary and public sectors;

§         This would be helped if public funders involved the sector in discussions when formulating policy and funded voluntary organisations for longer than one year;

§         Best Value needs to be promoted to local authorities in a way that stresses that it is about more than cost;

§         Voluntary organisations should be willing to withdraw from providing services if they are not paid full costs;

§         The Strategic Funding Review partners need to reach agreement on those items that are eligible for inclusion in any FCR model and the type of funding relationships to which it will apply;

§         The Executive should consider the increased costs faced by the public sector in implementing FCR and how these should be reflected in their financial allocations;

§         Consideration should be given as to whether “one-off” support should be given to cover training costs; and

§         Training should be provided for the voluntary sector and public bodies to make them aware of the theory and practical implementation of FCR.

Report on costs and impacts of the implementation of the principle of Full Cost Recovery in the public sector contracts with the voluntary sector