Government still failing on full cost recovery targets

Government contracts with charities still don't cover the full costs of delivering public services - despite a promise to do so by April 2006.

Research by the National Audit Office concluded that: “few Government departments had made significant changes to funding practice in response to the target.”

“Government has shown a commitment to implement full cost recovery – but our report has shown that the expectations vary significantly between funders and the sector, and that real changes in practice are hard to see,” said Joe Cavanagh, director for work on the third sector for the National Audit Office.

The report, Office of the Third Sector – Implementation of Full Cost Recovery, recommended that the Office of the Third Sector and HM Treasury “develop more sophisticated statements on full recovery that reflect funders’ responsibilities for fair treatment and risk management”.

It also said that the government’s current initiative to support the training of 2,000 public sector commissioners working with the third sector was an opportunity to develop ideas for the “practical application” of full cost recovery.

The extent of the full cost recovery shortfall had not been quantified, but the report said: “Failure to pay for the full costs could result in third sector organisations subsidising public services and eroding their charitable reserves.

“This can threaten value for money through short-term risks to the quality and effectiveness of a service, and longer-term risks to choice and competitiveness in public service markets if organisations collapse or withdraw due to financial difficulty.”

Stephen Bubb, chief executive of Acevo, said it was “truly staggering” that no government department had undertaken a review to ensure third sector organisations achieved full cost recovery.

He added: “We now want to work with government on a radical overhaul of procurement, so that third sector organisations can secure fair prices for their work. Local authorities and primary care trusts must take into account the wider social benefits of commissioning through the third sector. Driving prices down to rock bottom levels will not secure real value for the public.”

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