Costing in consortia and sub-contracts

National Council for Voluntary Organisations

Sustainable Funding Project

PM 2

Costing in consortia and sub-contracts Chair: Fiona Sheil, Public Services Officer, NCVO



Dave Packwood Business Development Unit, Barnardo’s



John O’BrienChief Executive, Community Accounting Plus

www.caplus.org.ukwww.caplus.org.uk

Costing in consortia and sub-Costing in consortia and sub-contractscontracts

LondonLondon2828thth November, 2012 November, 2012

John O’BrienJohn O’Brien

Community Accounting PlusCommunity Accounting Plus


Costs or priceCosts or price

In the old ‘voluntary sector’ we work out In the old ‘voluntary sector’ we work out the costs and ask people to cover them.the costs and ask people to cover them.

In the ‘commercial sector’ we set a price In the ‘commercial sector’ we set a price and drive down costs to make profits.and drive down costs to make profits.

In the new voluntary sector commissioning In the new voluntary sector commissioning world of consortia, we need to set a price world of consortia, we need to set a price that covers our costs…. most of the time.that covers our costs…. most of the time.

Setting the priceSetting the price

“‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know. Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”David Copperfield (1850)



Setting the priceSetting the price

The price decision is complex – it can be The price decision is complex – it can be quite painful if you get it wrong, ask Mr quite painful if you get it wrong, ask Mr MicawberMicawber

3 types of pasta3 types of pasta

Price confusion – size of the bag, gas bills, Price confusion – size of the bag, gas bills, special offers, 10% free.special offers, 10% free.

Setting the price – even more Setting the price – even more complex in a consortiumcomplex in a consortium

How open should you be with your How open should you be with your partners?partners?

Are your real costs relevant to othersAre your real costs relevant to others

Who decides who is invited to the party?Who decides who is invited to the party?

Often there is no neat link to the price per Often there is no neat link to the price per unit – it’s not like selling pastaunit – it’s not like selling pasta



Is your price sustainable?Is your price sustainable?

Know your direct costs and your Know your direct costs and your overheads (support, shared, core, indirect)overheads (support, shared, core, indirect)

Think about fixed and variable costsThink about fixed and variable costs

Don’t forget non-cash items – redecoration Don’t forget non-cash items – redecoration every 5 yearsevery 5 years

Beware marginal costing and pricingBeware marginal costing and pricing

Be prepared for expansion and contraction Be prepared for expansion and contraction of servicesof services

www.caplus.org.uk

Today

Project A B C Total

Costs

direct 10 10 10 30

shared 4 4 4 12

14 14 14 42

Grants 14 14 14 42

Net result 0 0 0 0

www.caplus.org.uk

A new projectProject A B C D Total

Costs

direct 10 10 10 10 40

shared 4 4 4 12

14 14 14 10 52

Grants 14 14 14 10 52

Net result 0 0 0 0 0

www.caplus.org.uk

Project B comes to an endProject A B C D Total

Costs

direct 10 0 10 10 30

shared 4 0 4 4 12

14 0 14 14 42

Grants 14 0 14 10 38

Net result 0 0 0 (4) (4)


What should you have charged D?What should you have charged D?

D has only paid for ‘marginal’ costD has only paid for ‘marginal’ costTotal support costs were £12 before project D. Total support costs were £12 before project D. They didn’t go up.They didn’t go up.The ‘average’ cost of project D could, and The ‘average’ cost of project D could, and should, have included an amount for support should, have included an amount for support costs.costs.At £4, with project D, the group wins. When B At £4, with project D, the group wins. When B closes, the group survives.closes, the group survives.At £3, with project D, the group wins, but when B At £3, with project D, the group wins, but when B closes, the group still dies.closes, the group still dies.


Some theory perhaps…Some theory perhaps…


And finallyAnd finally

If in doubt, call it £45 an hourIf in doubt, call it £45 an hour

jo’[email protected]’[email protected]

Costing in consortia and sub-contracts

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