FC 100/5


Finance Committee

Hundredth Session

Rome, 9 13 September 2002

Report on Support Costs Expenditure and Recoveries

Table of Contents



Introduction

1. This annual report informs the Committee on the implementation of the FAO support cost reimbursement policy. In the light of experience in its application, it submits proposals for minor amendments and informs the Committee on ongoing in-house consultations on the support cost reimbursement rate for emergency projects.

Implementation of the Support Cost Reimbursement Regime

2. The FAO policy for setting Project Servicing Costs (PSC) rates was endorsed by the Council in November 20001 and subjected to minor modification in September 20012. The policy is firmly established on the principle that there should be a reasonable alignment of charges to actual costs, taking due regard of existing arrangements and the need for a simple and transparent approach.

3. Project Servicing Costs on Trust Funds may deviate from the 13% ceiling where the variable indirect support costs on the project are expected to be lower. The function of appraising deviations from standard rates is entrusted to the Office of Programme, Budget and Evaluation. The categories of projects to which PSC rates apply are defined as follows: Technical Assistance; Normative (including jointly funded activities and Commissions); and Emergency Assistance. Within each category, circumstances that merit a departure of PSC rates from the applicable ceiling rates are clearly spelled out.

4. The policy and implementation approach have been made known throughout FAO, to project formulators and decision makers. The policy has been posted on the FAO intranet and described within the Field Programme Information Management System (FPMIS), where answers to a number of frequently asked questions on support cost matters are also included. Presentations on the policy and its application have been given to key staff and the related material widely distributed throughout the house and posted under the FPMIS Procedures. A consultative arrangement with the Technical Cooperation Department (TC) has been operational for over a year to ensure consistency of approach when the variable indirect support cost, and consequently the PSC rate, is dependent upon the designation by TC of the unit that will operate the project.

5. The statistics in the table below cover the period 1 June 2001 through 31 May 2002, during which time FAO opened 285 Trust Fund projects. The table provides a categorised distribution of the PSC rates applied to these projects in terms of both project numbers and lifetime budgets. It is noted that all projects have been charged at rates which fall within the currently approved policy.

Table 1: Distribution of the categories of PSC rates applied

PSC Category

Number of projects

Lifetime Budget (US$)

% of Total Budget

1

Projects approved at their ceiling rates

93

92,587,045

24%

2

Projects approved under the rates for Emergency Assistance

140

196,060,520

51%

3

High proportion of contracts, supplies and equipment (Manual Section 250 Annex II applies)

6

10,851,946

3%

4

Normative projects (6% applied)

15

17,757,363

5%

5

Normative projects at lower than 6% rate (where particular circumstances in conformity with policy apply - e.g. travel of developing country participants)

11

2,694,587

1%

6

"Mixed" Trust Funds with Normative and Operational elements (6% to 13% applied)

5

10,577,531

3%

7

Global Environment Facility (around 6% applied)

1

680,000

0%

8

Administration and Operational Support from SPFS projects

10

54,304,821

14%

9

Partnership with UN system organizations (UNEP at 0% and UNFIP at 5% based on pre-existing arrangements)

2

87,250

0%

10

HQ Infrastructure

2

94,000

0%

GRAND TOTAL

285

385,695,063

100%


Proposal for Amendment to the Support Cost Policy

6. The following situation is not explicitly covered by the current support cost reimbursement regime:

7. Contributions to FAO for hosting non-FAO sessions on FAO premises, which are consistent with the policies, aims and activities of the Organization, are covered in Manual Section 531 - Property and Services. Specifically, support costs rates, based on estimated actual costs, are set at 5 percent of the budget for the event, excluding rental charges. This rate, which is already foreseen in the FAO Manual, is based upon the estimated actual cost of supporting these activities. As such it is considered reasonable and is therefore submitted for endorsement by the Committee for inclusion in the policy.

On-going Review of the Emergency Projects Direct Operating Costs Rate

8. The current policy states that 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, with rates currently ranging from a low of 3% to a high of 6%. In light of the results of the 2000 and 2001 cost studies, in-house consultations are under way to examine whether there is a the need for a higher ceiling for emergency projects, which would also be consistent with the rates charged by other agencies. The Committee will be kept informed of any proposals arising from this activity.

Conclusion

9. The Committee is invited to note the experience in the implementation of the new policy on support cost reimbursement rates, and to endorse the following:

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1 CL 119/13 Annex II, Review of Support Costs Summary of Proposals, refers

2 CL 121/4, Report of the Ninety-seventh Session of the Finance Committee paragraphs 21 23 refer