As funders race to set up rapid response funds to support groups hit by COVID-19, there are many good ideas circulating. One that has not had much traction in the best of times is the question of indirect costs. As civil society groups have been scrambling to respond to this health emergency, many groups face the reality of financial instability, which has been made worse by the current crisis. Because the needs are likely to change from one week to the next as this emergency unfolds, the best thing we can do right now is provide flexible funding, or at least consider shifting funding in project grants to cover more indirect costs.
Coronavirus’ impact on civil society actors
While many organizations have been rushing to combat COVID-19 and its side effects, groups throughout the affected areas are struggling to protect their staff, adapt to changing operational needs, and manage at a time when stress levels are high. As many of us work remotely, one glaring question is: Have we given our partners support that makes them equipped to respond? There are organizations in Central Asia and other parts of the world working with computers that are 12 years old and not all organisations are able to provide their staff with laptops. Many places have insufficient or no internet bandwidth. Staff will resort to using personal laptops raising crucial security risks especially in countries where civic space has been shrinking. This underinvestment in critical infrastructure is partly due to funder policies that provide insufficient coverage of indirect costs. But now is a great opportunity to disrupt the status quo and provide flexible funding, or at the very least, cover indirect costs adequately.
The pandemic will have long-term effects on civil society. Financial loss caused by cancelled activities will result in our partners forgoing critical investments and redirecting resources to delivery of critical services. Although the crisis is still unfolding, we already know that this health emergency is having a disproportionate impact on marginalised groups. Even in good times, they have a hard time attracting funding to cover their total costs. Often, they do not have the connections or networks to secure this kind of funding. If we want our partners to look more like the communities they serve, we will need to adequately support smaller organizations.
Unfortunately, the problem of insufficient funding for fundamental operational costs is not new. Open Society Foundations together with four other foundations came together to explore solutions to the challenge of insufficient cost recovery. Restricted project funding is the most common form of foundation funding around the globe and typically funders hesitate to cover the actual indirect costs associated with the project. Pilot research conducted by Bridgespan revealed that amongst US-based groups indirect costs range from 12 to 60 percent with a median of 31 percent depending on the type and size of the group, while many foundations provide an average rate of 15 per cent. Around the world groups operating in restrictive places spend more resources to respond to the imposition of excessive bureaucratic procedures as a result of legislative, administrative and financial restrictions.
Times of crisis are particularly challenging for civil society leaders. Vu Le has written compellingly about the incessant demands on leaders related to ineffective funding practice and the unending struggle to cover indirect costs. Why burden organizational leaders to find ways to cover the financial shortfall when they need to focus on keeping their teams safe and effective?
As we emerge from our private dens, our hope is that funders will appreciate the need for flexible funding. When our partners are given more flexible support, they do not have to struggle with insufficient coverage of indirect costs. In letter to Open Society grantees, the OSF president, Patrick Gaspard acknowledged that: ‘COVID-19 may require shifts in strategy, reprioritisation, and adjustments… We stand ready to find flexibility in our grants to help you respond to these challenges wherever possible.’
Tom Hilbink is the Director of the Grant Making Support Group at Open Society Foundations. Daniela Aydin is a Grant Making Support Officer at Open Society Foundations.