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Cost transparency: 7 principles for DFID guidelines that cater for all CSOs

There has been a lot of high quality feedback on DFID’s draft cost transparency guidance and templates by up to 30 civil society organisations (CSO).

This reflects how important full cost recovery will be for the financial viability and sustainability of UK CSOs facing a tough public fundraising environment and cost pressures due to the pound’s fall in purchasing power.

It is encouraging that DFID has worked through a considerable amount of comments and suggested changes, which we understand will lead to a significant adaptation of the templates that were previously circulated. As we previously wrote in in October 2017, CSOs welcome DFID’s overall aims and approach in seeking transparency on costs and providing full cost recovery. However, the devil is in the detail, and the level of detail can itself be a devil. There has been a unanimous plea from CSOs for DFID to simplify the templates significantly, so that they will be easy to understand and complete for organisations of all sizes.

DFID has pulled back from proposing a process to agree a single organisational-wide rate for the Non-Project Attributable Cost (NPAC) which will be applied to multiple projects with the same organisation. DFID’s work on this is officially “paused”, which concerns CSOs who have found that similar processes, like the one used by DFID’s humanitarian department CHASE, create a more clear and predictable funding relationship with DFID, while also simplifying and reducing time spent in negotiating cost recovery with DFID.

However, an NPAC calculation will be included in all proposal budgets, meaning there’s still opportunity to create a methodology for all grant recipients to claim fair and transparent recovery of their organisational-wide costs. We could have an NPAC approach that works for everyone, regardless of size. DFID, Bond and Humentum have agreed to create a small working party to look more deeply into how this NPAC process could work.

7 principles for better cost transparency guidelines

As the feedback process has unfolded, Bond and Humentum have sought to clarify and sharpen our engagement with DFID, by developing a set of principles for what we are trying to achieve with new cost transparency guidelines, templates and potential single NPAC rate.

The first and overarching principle we are hearing is simplicity, which was our biggest concern with the first draft of the templates. The templates need to be simple and easy to understand by organisations of all sizes, including national CSOs in countries across the world.

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Achieving simplicity should also enable any stakeholder to achieve another important principle – transparency. This has been a guiding light for DFID throughout the lengthy discussions around all costs in grants and contracts and will facilitate fairness. There are many perceptions swirling around on the differences in the level of core costs that different agencies (both not for profit and for profit) have received. Different CSOs will have different support costs depending on the type of operation, the country in which the operation is taking place, and the type of organisation. Differences are to be expected but they need to be seen to be fair.

Fairness is also reflected in whether the process and methods for calculating and recovering costs are scaleable, which means they should work well for all organisations regardless of size and whether they have one, or many, DFID grants.

One of the attractions of a single NPAC rate for an organisation is the level of predictability. The contribution that NPAC could make to the core running costs of an organisation are vital. Organisations will be able to better plan and mitigate their risks. By contrast if the rate varies grant by grant and is subject to negotiation each time, this will increase the risk that organisations will be unable to cover their core running costs.

The new regime of cost transparency must drive the right behaviour and is more about true value for money than controlling costs. All 4 E’s in value for money (economy, efficiency, effectiveness and equity) are important, not primarily Economy, and DFID will need to increase its emphasis on Equity if no-one is to be left behind – as the SDGs and DFID new commitments to inclusion imply. DFID has listened to feedback from CSOs and are reorganising the templates to link costs to activities and intended outcomes. This will help increase focus on value for money at the programme level.

Finally, and for CSO’s most importantly, the levels of cost recovery need to be substantive. This was a key driver to move on from the “non-profit starvation cycle”. Bond and Humentum’s previous surveys of CSOs’ cost recovery showed most organisations experience a significant funding gap when working with DFID and other funders.

CSOs continue to look for a reasonable agreement that exhibits true partnership between DFID and the CSOs that receive grants. The coming months will show how close we are to this and the other principles outlined here.