FC 94/4(d)

Finance Committee

Ninety-fourth Session

Rome, 8 - 12 May 2000

Review of Support Costs
Proposed Principles for Support Cost Reimbursement Rates for Field Programmes and Other Programmes Funded from Voluntary Contributions



1. The Finance Committee at its 93rd Session received and reviewed a paper1 on the issue of Support Costs. It welcomed the broadly based review initiated in the paper and acknowledged the conceptual framework as a helpful basis for further development of proposals.

2. The Committee at its present session has received a series of papers in response to its request that the Secretariat provide information on various related areas. These papers are as follows:

3. This paper builds on the conceptual framework which was developed for the last meeting of the Committee and the analysis of the existing support cost reimbursement regime to propose some principles for consideration by the Committee. Once the principles have been agreed, the Secretariat will develop the consequent internal policy and procedures which are to be applied to support cost reimbursements.


4. The following diagram portrays the full range of activities which may attract support costs and shows their potential relationship to the Regular Programme.

Table 1: Matrix of Activities by Funding Source and Type2

Funding Source  Technical Assistance (TA) Emergency


Normative Programmes and Other RP Activities
National Funding Donor Contributions Donor Contributions FAO RP Normative Activities inc. Commissions Jointly Funded Activities
Extra-budgetary UTF GCP, MTF and other TFs (inc. APOs in the field)
UN funds
World Bank and UN agencies: WFP and UNHCR
Trust Funds (inc. APOs at HQ)
UN Specialized Agencies
UNDP (e.g. contribution to TAC, etc.)
Regular Programme TCP
TCP FAO Regular Programme FAO Regular Programme

5. The shaded boxes above reflect all of the activities where some type of support cost potentially exists. The document examines each of the categories with a view to establishing principles for support cost recovery.

The Objectives of Change

6. The current practices outlined in FC 94/4 (b) suffer from having been developed over a period of many years. While an attempt was made in 1993 to introduce a new support cost regime, it failed to garner sufficient support from Member Nations with the result that existing practices remained in force, gradually evolving to address current needs. However, it is recognised that current policies are complex, sometimes inconsistent and not always equitable.

7. The longer-term strategy of the Organization in this area is reflected in the Strategic Framework as approved by the Conference at its 30th Session:

continuing efficiency savings with a view to reducing the cost of supporting field programmes and placing FAO in a better position to compete for resources3

8. This implies the reduction of support costs so that firstly, the reimbursements cover costs and secondly these costs further decline so that the reimbursement rates can be reduced to improve FAO's competitiveness in leveraging resources for its Members.

9. The immediate objectives of a new support cost reimbursement scheme are therefore to:

Proposed Principles



10. This issue was already discussed by the Committee when it considered it in relation to document FC 93/4 Support Costs at its last session. It was generally recognised by the Committee that full cost recovery including fixed overheads was not to be recommended as:


11. The Committee is recommended to confirm its earlier conclusion to the effect that support cost reimbursement should aim to fully recover indirect project support costs as defined in FC 93/4; that is, full costs less the following fixed costs:

  1. all costs related to the ADG Offices [i.e. AFD, AGD, ESD, FID, FOD, GID, SDD, TCD] excluding the Management Support Units (MSUs) which are allocated to indirect project support costs using the work measurement questionnaire;

  2. all fixed overhead costs related to the operation and maintenance of the information technology infrastructure by AFI;

  3. all costs of the operation of the financial system except the AFF units directly responsible for UNDP and Trust Fund accounting which are treated as indirect project support costs;

  4. all costs of administering the central personnel function by AFP;

  5. costs of space, security, communications (except those charged directly to projects), messenger service, central records and procurement for Regular Programme activities administered by AFS - although AFSP costs related to project procurement are treated as indirect project support costs;

  6. costs of regular budget preparation, control and evaluation by PBE, although costs of project budgetary control and evaluation are treated as indirect project support costs or, in the case of evaluation missions, as direct project costs;

  7. costs of legal services provided by LEG, excluding technical services to projects which are treated as direct project costs (see TSS below); and

  8. costs of Internal Audit and External Audit excluding direct services provided to projects.



12. The Committee at its last meeting expressed the general view that simplified support cost recovery rates were highly desirable so long as such rates were based upon a clear understanding and sound and consistent definition of indirect support costs to be recovered. This view is consistent with that of the Director-General and of the External Auditor. To determine how to achieve simplification, there is a need to examine the factors which have acted as a constraint to simplification despite the fact that it is an objective that all endorse.

13. These include the following:

  1. the policies established by our UN system partners through their own Governing Body structures - examples include UNDP and most of the UN agency or programme funding arrangements which vary with each other and with FAO standard policy;

  2. the policies applied by major donors (e.g. ceiling rates placed on support cost reimbursement by the European Commission (EC) by project size);

  3. the preference expressed by some donors for a move away from percentage rates and for the conversion of indirect to direct costs specifically addressed in the project budget (e.g. UK, India, EC);

  4. the wide variation between projects of actual indirect project support costs when expressed as a percentage of the project budget (e.g. the difference between delivering US$ 20 million worth of pesticides where costs run at say 3% to the recruitment and servicing of US$  200 000 of TCDC assistance where costs may run at 20+% of delivery);

  5. the need to recognize that even projects of a similar size and input mix may exhibit significant variations in actual indirect project support costs (e.g. the difference between delivering and servicing three experts at FAO HQs in support of normative RP work versus the cost of delivering and servicing the same three experts to a remote field location);

  6. the need to be flexible in developing partnerships with other international organizations where such partnerships are in the interests of leveraging support for FAO policies in Member Nations; and

  7. the need to respect existing agreements.


14. It is recommended that a simplified approach to support cost recovery rates be recognized as a priority in the establishment of such rate structures, subject to due recognition of the need to respect the legitimate needs of our partners and to charge amounts which are a reasonable reflection of the indirect variable support costs actually incurred.



15. The need for simplification of approach requires us to avoid complex cost accounting structures which would, for example, allow us to accurately allocate costs to individual projects. Such a system would be both onerous and expensive to manage and is likely to result in divisive discussion with partners over costs. What is necessary is a rate-setting system which has sufficient flexibility to apply appropriate rates to appropriate circumstances - so as to align the average rates applied as close to actual as is practicable. Such a system must be transparent in that the decision making rules as to which rate should be applied need to be known and understood by our partners and by our Members.


16. It is recommended that a set of realistic rates be established for a limited number of circumstances and that the criteria for determining and applying such rates be clearly defined.

Proposed Support Cost Reimbursement Regime

17. In proposing a new regime, attention must be given to the principles recommended above (adjusted to the extent that these principles are revised by the Committee) and to existing agreements. With regard to the latter point, it is recommended that the existing agreements be fully respected but that FAO encourage its partners, particularly those in the UN system, to work towards a consistent inter-agency approach.

18. The following notes apply these principles to each of the categories of programme defined in Table 1 at the beginning of this document.


Technical Assistance - National Funding

19. These are defined as technical assistance projects in the field which are funded by the Government of the recipient country including those which are funded through loans from international financing institutions.

20. In principle, such projects should reimburse the variable indirect support costs associated with the project. Standard rates are not to exceed a ceiling rate (currently 13%) but can be adjusted where appropriate for special circumstances:

Technical Assistance - Donor Contributions

21. These are defined as technical assistance projects in the field which are funded by a third party other than FAO or the recipient Government.

22. In principle, such projects should reimburse the variable indirect support costs associated with the project. Standard rates are not to exceed a ceiling rate (currently 13%) but may be adjusted where appropriate for special circumstances:

Emergency Assistance

23. Emergency assistance is defined as a situation where there is an urgent response to the impact on the agriculture sector of a particular disaster, natural or man-made. Such disaster should therefore be addressed with immediate action which justifies specific operational procedures. If the project is characterized as an emergency, the request follows the "fast track" and is operationally treated as such. Generally, "prevention" and "preparedness" are not within the meaning of "emergency" for project operational purposes.

24. Rates for emergency assistance are to be determined on a case-by-case basis to recover the full variable indirect support cost of the project as incurred by the Special Relief Operations Service. Such rates currently range from a low of 3% to a high of 6%.

25. Further identifiable incremental costs incurred in the Special Relief Operations Service (TCOR) and other units (e.g. special purchasing missions or additional temporary staffing) should be covered by these support cost rates unless they are chargeable as direct costs to the project (often the case).

26. This implies that the time of Regular Programme staff (e.g. FAOR services, Technical Support Services, Administrative staff in HQ and the Regional Offices) will not generally be charged to emergency projects except where they can be treated as direct costs.

27. When TCOR operates technical assistance projects because of special situations, the reimbursement rates for technical assistance shall normally apply.

Regular Programme Normative Activities

28. These are defined as voluntary contributions which directly support the implementation of Regular Programme activities. Such activities will generally be normative in nature and be implemented at HQ or at a Regional Office rather than directly in the field.

29. A standard rate (currently 6%) will apply to those projects which fully meet the definition (i.e. HQ implemented and normative in nature) being average actual variable indirect support costs incurred by such projects.

30. Such rates can be adjusted to reflect the impact of certain special circumstances:

Jointly Funded Activities

31. These arrangements cover activities which are part of the Regular Programme and are usually normative in nature. They are defined as partnership arrangements between FAO and other inter-governmental organizations including, in particular, UN system organizations.

32. The special nature of these partnership arrangements will be recognized and translates into an agreement to share direct costs in a manner appropriate to the joint activity's contribution to the strategic objectives of the Organization. Variable indirect costs are generally to be funded by the host organization although recognition of this fact should generally be given in the Memorandum of Understanding and related cost sharing formulae.



33. Regular Programme funded technical assistance (including emergencies) should, in principle, reimburse the variable indirect support costs incurred by "operating units" or their equivalent associated with the project (i.e. for operational services). This should be based on an average rate (currently 7%).

Technical Support Services (TSS)

34. These do not fall under the definition of indirect support costs as they are handled as direct charges to the project. However, given the inclusion of this type of expenditure under the general heading of support costs by the External Auditor, it is included here for the sake of completeness.

35. TSS is defined as inputs by technical staff of the Organization in their technical capacity to the processes of project formulation, appraisal, technical backstopping and evaluation. It is recognised that the provision of such technical assistance is part of the function of the Organization and that total recovery is not the target. On the other hand, it is also accepted that services which are paid for place a stronger obligation on the service provider to deliver satisfactorily.

36. Therefore, in principle, the Organization will encourage the specific inclusion in project budgets of resources to cover TSS to the maximum degree possible. The Organization will endeavour to forecast and budget for uncovered TSS in the form of a specific provision in the Programme of Work and Budget as approved by the Organization.

37. Charges to project budgets will be made on the basis of the number of days' service provided times the daily standard cost for the grade of post concerned. It is recognised that this may need to take account of cost sharing arrangements either through the application of a ceiling on the number of days or the rate to be charged as reflected in the project budget.


Table 2: Matrix of Activities by Funding Source and Type

Funding Source  Technical Assistance (TA) Emergency


Normative Programmes and Other RP Activities
National Funding Donor Contributions Donor Contributions FAO RP Normative Activities inc. Commissions Jointly Funded Activities
Extra-budgetary 13% ceiling (see text for exceptions) 13% ceiling (see text for exceptions) actual indirect costs of TCOR (3 to 6%) currently 6% (see text for exceptions) As per MoU
Regular Programme TCP } currently 7%
SPFS } currently 7%
TSS Days times standard cost per day
currently 7% FAO Regular Programme FAO Regular Programme


Cost Measurement

38. The policy approach proposed requires the Organization to have a reasonable knowledge of its costs in supporting the field programme. Therefore, even though such work measurement surveys (or time keeping) and cost measurement systems are not widespread throughout the UN system, it is recommend that such a system be maintained by FAO.

Rate Setting and Adjustment

39. Rates will tend to fluctuate with two factors: the cost of support and the volume of delivery. This implies a periodical review and revision of rates. To avoid an excessive numbers of changes to rates, it is recommended that these be looked at over a significant time frames - for example, as a moving average over three biennia.


40. The following reporting pattern is recommended:


41. The Committee is requested to consider the proposals in this document in the context of the information contained in the three supporting documents (FC 94/4 a, b and c).

42. In particular, the Committee is requested to endorse:

  1. the principles as contained in paragraphs 11, 14 and 16;

  2. the proposed policy for reimbursement rates as summarized in the table following paragraph 37 and detailed in paragraphs 19 through 33;

  3. the maintenance of a cost measurement system as per pawragraph 38 and the rate revision procedure in paragraph 39; and

  4. the reporting pattern proposed in paragraph 40.

1 FC 93/4

2 A list of acronyms is given as an Annex to the first of this series of documents, FC 94/4 a).

3 The Strategic Framework for FAO 2000-15, Rome 1999, paragraph 130 d)