Full Cost Recovery (FCR)

Full cost recovery is promoted in the Compact Code of Practice on Funding (www.thecompact.org.uk), and HM Treasury's 2002 Cross-Cutting Review of the Role of the Voluntary and Community Sector in Service Delivery (www.hm-treasury.gov.uk).

With the increasing move towards Public Service Delivery and more and more Service Level Agreements being agreed between Voluntary Sector groups and Statutory Agencies, Full Cost Recovery is a hot topic and an issue that groups need information and advice on.

What is Full Cost Recovery?
“The term ‘full cost recovery’ or ‘FCR’ is gaining widespread usage in the third sector. The concept is nothing new: it simply means securing funding for - or ‘recovering’ - all your costs, including the direct costs of projects and all your overheads. Every organisation - whether voluntary, public or private - needs to recover all its costs, and ideally generate a surplus, or it cannot pay its employees, rent office space, offer its products and services, or plan for the future and the continued development and delivery of its services.
Funding to cover your costs can come from a variety of sources including: fees, charges, grants, contracts, donations, trading activities or payments in exchange for a particular product or service. Some organisations also have investment income.”
“The full cost of your organisation includes both the direct costs of all your services and all your overheads. Therefore, the full cost of each of your services includes both the direct costs and a portion of overheads.”
(Source: Full Cost Recovery: a guide and toolkit on cost allocation ACEVO & New Philanthropy Capital, 2004)
For further information about the ACEVO Full Cost Recovery Guide & Toolkit, link to: http://www.acevo.org.uk/

Full Cost Recovery and Public Service Delivery:
“We advise charities not to agree to any contract that will not cover the full cost of providing the required service unless the trustees are satisfied ….(that) it is clearly in the beneficiaries' interests to do so. Any decision to subsidise or supplement a service must be made by the charity and should not be imposed as a condition of funding.

NCVO recommends that charities should know their full costs and use this information to set the price on which they negotiate (which could include full cost recovery, earning a surplus to reinvest or making a calculated loss). The Commission agrees that charities should always know their full costs but emphasises that they should only enter into contracts which do not cover these costs when they are fully satisfied that this is in their beneficiaries' interests.”
(Source: The Charity Commission’s Policy Statement on Charities and Public Service Delivery, June 2005)
Link to the Charity Commission website and:
http://www.charitycommission.gov.uk/supportingcharities/polstat.asp#2#2, for the Commission’s Policy Statement on Charities and Public Service Delivery.

Full Cost Recovery & Funding Applications:
Voluntary Sector groups wanting to implement FCR in funding bids may still find it a struggle.
“Funders can have genuine concerns about levels of overheads, which tend to be reinforced by the lack of transparency within third sector organisations about their overhead costs. Often third sector organisations do not know what the full costs of an activity are.”
(Source: Full Cost Recovery: a guide and toolkit on cost allocation ACEVO & New Philanthropy Capital, 2004)
However, some funders are now encouraging applicants to include FCR in their applications, including the BIG Lottery and it is expected that other funders will follow suit.

For further help with FCR and funding applications see:

• Fit 4 Funding – The Charities’ Information Bureau, Preparation Information Sheet on Full Cost Recovery.
  This is a useful Case Study of a group implementing Full Cost Recovery.
  www.fit4funding.org.
• Full Cost Recovery: a guide and toolkit on cost allocation, ACEVO & New Philanthropy Capital.
  This toolkit will enable your organisation to identify and allocate your full costs.
  www.acevo.org.uk
• The Charity Commission’s Policy Statement on Charities and Public Service Delivery.
  This policy guides charities and voluntary and community groups through Public Service Delivery and includes a section on Full Cost Recovery .
  www.charitycommission.gov.uk