The high price of lowballing local organisations

What do you do when people give you something you badly need—but insult or injure you in the process? You smile, you thank them, and you walk away quickly to hide your feelings.

That’s how it is when a local organisation like ours receives a grant that doesn’t include funding for its overhead expenses—for what is known as indirect cost recovery (ICR). A grant that only covers the direct costs of a given project, in other words.

Why ICR matters

People often describe ICR as the money that enables organisations to pay the rent and keep the lights on, and that’s true. But it represents so much more.

• It supports strong partnerships. For an organisation to survive—say nothing of thrive—it must pay the rent on its office, maintain its equipment and systems, and employ people to play an array of roles that are not directly connected to funded projects. If that money isn’t available from its grants, the group may have to close its doors. INGOs and other funders who fail to or pretend not to understand this can’t hope to win the respect and trust of local organisations.
• It makes fair labour practices possible. Our staff has to work for free. Often. It’s as painful and as simple as that. When a project is underway, we sometimes work 12-14 hours a day, seven days a week, for months. And there is never enough money left to compensate project staff for the reporting they must do when the project is complete. Long hours may be inevitable, but ICR can enable us to pay people for ALL their work.
• It reduces staff turnover. Organisations that are limping from grant to grant without money for overhead expenses must lay off key staff after every project is complete. This is extremely hard on the project staff, and damaging to the morale of the organisation. It also represents financial waste: we invest in staff training and then have to let trained staffers go.
• It can help prevent discrimination against women in the workplace. A small organisation working within tight, inflexible budget constraints can’t afford something as basic and essential as providing women staffers with maternity leave.
• In politically charged settings, it enables aid to be neutral and impartial. Organisations that align themselves with political parties receive financial benefits for doing so, and they have the security of knowing the party has their backs no matter how many mistakes they make. Agencies like ours, which are committed to providing aid on the basis of need—not politics—and to high-quality responses, play an essential role in emergencies. But we pay a high price for our independence, neutrality, and impartiality, and without ICR, our survival is always on the line.
• It enables staff to care for themselves and their families. It is hard to describe the stress of our daily lives. We work long hours, setting aside the needs of our families. When grant budgets fall short, we spend our personal money to fill the gaps. We work under so much pressure that we inadvertently hurt one another. (“It’s your fault the project is running late!”) All of this takes a toll on our mental and physical health, but without ICR, we are chronically—often extremely—understaffed and overworked.
• It is an investment in sustainability. Achieving sustainability means investing time and money into creating stable funding, into building a staff that is both well-trained and adequately compensated, and into continuous learning and capacity-strengthening. These are just some of what ICR makes possible.
• It enables local leaders to truly lead. The pressure to charge all our staff time to narrowly focused grants prevents local leaders from growing professionally and building our organisations’ influence and networks. From attending forums, engaging in advocacy, working on localisation, serving on humanitarian country teams, and otherwise making our voices heard.
• It represents trust. We know how to spend money wisely and do not need to be told how important it is to keep our costs down while delivering aid to people in need.

A badge of honour

Some funders decline to give us ICR and also—through strict budget guidelines and monitoring—effectively cut off any other opportunity to charge out our indirect costs. What are they thinking? Do they imagine that indirect costs are not real, or that they somehow represent corruption? Do they think the projects will go better if we close up our offices and do our work from park benches, using paper and pencil? Or are they just unwilling to share, and refusing to look at the consequences?

In Iraq, Oxfam has proven to be an ally on this issue. They have strategised with us about how to qualify for ICR; they recently negotiated for 7% ICR on a major grant to us from a Western government-funded agency; and in their grants to us, they build flexibility into the budgets that enables us to charge out indirect costs. Yet, while Oxfam encourages its affiliates around the world to share ICR with local partners, it doesn’t require it. We hope and trust they will keep advancing on this issue—both in their advocacy work and through their own example—to provide leadership on ICR around the world.

ICR is not simply an administrative add-on. It represents and enables so much of what we all care about in this work. I look forward to the day when INGOs and other funders share ICR generously and wear it as a badge of honour. When they say, proudly, “we care about fairness, strong partnerships, aid effectiveness, sustainability, impartiality, trust, the rights and well-being of women and other workers, local leadership, healthy organisations, and reducing waste, so OF COURSE we provide local organisations with the ICR they need.”

This blog was originally published on Oxfam America’s Politics of Poverty site.