'Be pragmatic on cost recovery'

By Mathew Little, Third Sector, 1 August 2007

The voluntary sector needs to take a more pragmatic approach to recovering full costs from local council funders, according to the Audit Commission.

In a new report, Hearts and Minds: Commissioning from the Voluntary Sector, the commission argues that the debate over full cost recovery had created a false expectation in certain parts of the sector that more money would be available for the services it provides.

However, with limited budgets, local councils often face the choice of "funding fewer services or fewer organisations fully", the report says.

The commission says one council for voluntary service agreed with its local authority not to ask for full cost recovery in relation to grants because of concerns it would have a detrimental affect on the local voluntary sector.

The Audit Commission also found that some voluntary organisations were reluctant to submit fully costed bids to run services because they feared pricing themselves out of the market. "This fear is often justified," the report says.

It argues that public bodies and the voluntary sector should be pragmatic about full cost recovery, and that voluntary groups should decide whether to find match funding, reduce services or walk away.

"Some councils are interpreting the guidance on full cost recovery pragmatically, flexibly and in partnership with the local voluntary sector rather than just sticking to the theology," said John Kirkpatrick, director of studies at the commission.

"I would not expect voluntary organisations to bid for services at prices that are unsustainable in the long term. But when they have other sources of income, they may want to use them. For example, volunteers may help with services but not be charged for at a commercial rate."

Seb Elsworth, head of policy at Acevo, said: "The need for pragmatism in some situations does not undermine the need for third sector organisations to employ full cost recovery in their planning processes."

The report found that councils spent £3bn a year on services provided by the voluntary sector, but that the sector represented only 1-2 per cent of councils' suppliers.

It also found that local and national voluntary organisations often went head to head in the fight for contracts, and that small and medium charities said they feared they would lose out to larger charities.

The commission argues that public bodies should aim to adopt intelligent commissioning practices by getting to understand the needs of service users, consulting third sector organisations before commissioning and considering long-term outcomes as well as costs.

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