Changing the cost recovery paradigm

Peter J. Donaldson

The Covid-19 pandemic has encouraged greater donor flexibility and perhaps an overdue willingness to cover all costs

The Covid-19 pandemic has compelled philanthropic foundations to review their funding policies. As of writing, over 775 US foundations have signed a Council on Foundations’ pledge promising greater flexibility and to ‘loosen or eliminate the restrictions on current grants’, for example, by converting project-based grants to unrestricted support. This call for greater flexibility is welcome, but one must ask why did it take so long and require such extraordinary circumstances to reach this point?

The unhappy consequences of foundations’ restrictions on funding, particularly their failure to pay indirect costs, have long been apparent. One year ago, the presidents of five of the richest and most influential American foundations – Ford, Hewlett, MacArthur, Open Society and Packard – said they would finally address their limits on indirect cost recovery. A report by Bridgepsan Group which accompanied the presidents’ statement confirmed that to accomplish agreed upon activities non-profit organisations often spend more, sometimes substantially so, than they received in project funding. The five foundations could have learned this from many previous reports which drew similar conclusions.

Refusal to provide sufficient indirect costs is a sure sign that a foundation cares more about its project than its grantee organisation.

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