Support costs

(1) At the first part of its 16th session (April 1955: CO-ORDINATION/R.193/Rev.1) CCAQ considered the definition of costs chargeable to the EPTA Special Account.

It approved the report of a joint TAB/CCAQ working group which had met in April 1955 to consider a revision of articles 13 and 14 of the Technical Assistance Finance Manual. The definitions recommended by the working group were contained in a draft article which was to supersede the existing articles 13 and 14 of the Manual. The Committee recommended ACC to approve the revised article for implementation by TAB.

(2) At the second part of the 17th session (April 1956: CO-ORDINATION/R.224, sections B.11 and 12) CCAQ considered a proposed format for recording overhead costs. Organizations wishing to engage in comparative cost studies on the lines suggested were to bring the results to CCAQ.

(3) At the 36th session (September 1972: CO-ORDINATION/R.960, paras. 22-32) CCAQ reviewed the report of a Task Force which it had established to develop systems of cost measurement and agreed the details of a cost-measurement system which the larger organizations were to try out for an experimental period of three months. It felt that the smaller organizations should be encouraged to develop some simplified common approach to cost accounting (if this suited their available reources), making full use of the experience of the larger organizations. The smaller organizations felt that this question could best be considered after the cost-measurement system was fully operational. Meanwhile, they would continue to study the development and implementation of the system.

(4) CCAQ proposals for the cost-measurement system were examined by JIU and by ACABQ, and then submitted, together with the reports of those two bodies, to the Governing Council of UNDP, which took note of them with satisfaction. The Council agreed that the initial experimental period for the system should cover the whole of 1973, rather than the three months suggested by CCAQ, and requested a progress report to its sixteenth and a substantive report to its seventeenth session. At its 37th session (March 1973: CO-ORDINATION/R.985, paras. 13-18) CCAQ commented on the JIU report (CO-ORDINATION/R.985, annex B) and agreed to prepare a progress report which would be made available to the Administrator for use in his report to the January 1974 session of the Governing Council.

(5) For the question of consolidation of overhead costs in regular budgets, also discussed at the 37th session, see section 16.3.

(6) At the 38th session (September 1973: CO-ORDINATION/R.1004, paras. 4-27) CCAQ reviewed the third and fourth reports of the Task Force. The third report described the progress made up to mid-1973 by the participating organizations, while the fourth contained an analysis of the cost figures for the first six months of 1973. CCAQ noted that the system was capable of providing valuable management data for individual organizations and, finding that it was already possible to identify certain cost elements for the purpose of calculating reimbursements, suggested a number of possible options.

(7) CCAQ returned to this question at its 39th session (March 1974: CO-ORDINATION/R.1032, paras. 4-13) and decided that it would in future use the term "programme support costs" (later shortened to "support costs") instead of "overhead costs" or "administrative and operational services costs". The Committee also proposed a draft statement by ACC (CO-ORDINATION/R.1032, annex B) recommending a general policy with regard to the financing of support costs.

(8) At a special session in April-May 1974 (CCAQ/SEC/327) CCAQ reviewed the fifth report of the Task Force and identified, from the data before it, certain elements of support costs which might be singled out for reimbursement by the various funding organizations to executing agencies. It selected four options, any one of which it believed could provide the basis for agreement on an appropriate level of reimbursement.

(9) At the same special session, CCAQ noted the conclusions of the Task Force on the difficulties of collecting cost data on a project or project-type basis, as had been suggested in the Governing Council. It also agreed that the organizations collaborating in the cost-measurement system should, in their internal management applications, take account of the reasons underlying some of the differences between them as to the percentage cost of certain functions.

(10) At the 40th session (September 1974: CO-ORDINATION/R.1054, paras. 5-13), CCAQ agreed that the report of its special session (CCAQ/SEC/327) should go forward to the Governing Council in January 1975 under cover of a submission by the Administrator. It was informed that the Administrator was considering putting forward the third option suggested in the report, and that he might also mention, as a possible alternative, the fourth option. CCAQ provided advice to UNDP on various important aspects of the third option, to ensure that as presented to the Council it would be clearly understood and easy to apply.

(11) At the same session (CO-ORDINATION/R.1054, paras. 14 and 15), CCAQ discussed the desirability of continuing with cost measurement in individual organizations. Most of the organizations already engaged in it intended to continue, but would dispense with one or another of the more detailed procedures.

(12) The Governing Council, at its 19th session in January 1975, authorized the reimbursement of "agency overhead costs" at the rate of 14 per cent of actual project costs for the years 1974-1977, with the possibility of an additional provision not to exceed 5 per cent in the case of unusually complex projects, this latter provision to be applied on a very restricted basis. The Council also recommended that CCAQ should continue the cost-measurement study, taking account of recommendations by JIU in its report 74/7 and considering inter alia the possibility of a better reimbursement formula.

(13) CCAQ considered JIU/REP/74/7 at its 41st session (March 1975: CO-ORDINTION/R.1088, paras. 7-10 and annex C). It submitted the draft of a statement which ACC subsequently adopted, with slight modification, as summarizing the organizations' initial views on the report.

(14) At the 43rd session (March 1976: CO-ORDINATION/R.1146, paras. 11-13 and annex D) CCAQ agreed revised draft definitive comments on the JIU report for approval by ACC (DP/207), on the basis of recommendations of the Task Force. ACC's comments were submitted to Governing Council in the spring of 1976. The Committee also considered proposals by the Task Force concerning its future its future programme of work and agreed that studies to be prepared by some of the participating organizations should be distributed through the CCAQ secretariat in order that the Committee might consider how best to deal with them. Two such studies were submitted at the 45th session (CO-ORDINATION/R.1174, para. 43) and were referred to the organizations for examination.

(15) At the 43rd session (CO-ORDINATION/R.1146, paras. 17-22) the Committee also considered proposals by ILO concerning a standard policy with regard to support costs financed from voluntary funds other than UNDP funds. The Committee agreed that as a general principle the normal rate of reimbursement should be 14 per cent, and that variations from this rate should be permitted only in exceptional circumstances. This view was reaffirmed at the 47th session (September 1977: CO-ORDINATION/R.1238, para. 37) and subsequently endorsed by ACC (CO-ORDINATION/R.1255, para. 103).

(16) At the 43rd session (CO-ORDINATION/R.1146, paras. 23-25) the Committee in addition noted that JIU report 75/6 on office accommodation for extrabudgetary staff had been referred to it by ACC in connection with its study of support costs. The report pointed out that the cost of providing office accommodation and related facilities was only one of many elements in the question of allocation of support costs, and the Committee invited ACC to remind ECOSOC of the need for legislative bodies to take decisions on the sharing of support costs as between the voluntary funding sources and the regular budgets of the organizations. ACC requested the UN Office for Inter-Agency Affairs and Co-ordination to prepare a paper for the General Assembly giving factual information on a system-wide basis concerning the accommodation of extrabudgetary staff and the allocation of the related costs.

(17) At the 47th session (September 1977: CO-ORDINATION/R.1238, para. 36) the Committee requested the CCAQ secretariat to compile a checklist of CCAQ and other documents relevant to the question of support costs. The organizations were to be asked to advise the secretariat if they produced any new documents on this subject. The checklist was subsequently circulated in CCAQ/FB/CM.11. An updated version of the list of documents on support costs appears in Handbook annex XI.

(18) A special CCAQ session on support costs took place in April 1978. The Committee agreed the text of a draft ACC statement for submission to the Governing Council's Intergovernmental Working Group on Support Costs (CCAQ/FB/R.49). This text, subsequently cleared by ACC, offered both general and specific comments on the proposals in JIU/NOTE/78/1, on a new system for agency support costs. The detailed comments of ACC inter alia questioned JIU's proposal to change the cost components that the organizations would absorb; favoured a different approach to "economies of scale" and adjustments for the nature and size of projects; urged a simpler and better formula for taking into account cost variations at agency headquarters; supported the JIU proposal to protect the organizations from sudden decreases in support-cost income; opposed the inclusion in project budgets of provisions for support costs; and estimated that the total cost of installing and operating for one year cost-measurement systems such as those proposed by JIU could be of the order of several million dollars.

(19) The question of support costs was again a major theme of the Committee's 49th session (September 1978). This followed the decision of the Intergovernmental Working Group of the Governing Council to ask the Administrator to submit recommendations on a modified reimbursement formula. Much of the discussion in CCAQ focused on certain elements which the Intergovernmental Working Group considered should or might be taken into account in a new formula. The main positions taken are set out in paragraphs 20-39 of CO-ORDINATION/R.1307.

(20) At the 50th session (March 1979) CCAQ asked the UNDP representative to call the attention of the Administrator to its concern at problems resulting from a growing tendancy on the part of certain UNDP officials to negotiate for individual projects support cost reimbursement arrangements that differed from the standard rate of 14 per cent (ACC/1979/R.11, para. 35).

(21) At the same session UNESCO drew the Committee's attention to a resolution of the 20th (1978) session of its General Conference, which among other things envisaged the establishment from 1981 of a reserve account drawing its resources from the regular budget to finance support costs for trust-fund projects. In the discussion that followed participants expressed the view that their organizations would have to continue levying support cost charges on such projects, and that for one organization to abandon such charges could complicate their negotiations with the donors of trust-fund monies. Finally, the Committee expressed the view that this matter was closely linked to the support-cost problem with respect to other extrabudgetary sources - particularly UNDP - and that it would be desirable to maintain existing arrangements at least until the broader issue was settled. It was not convinced that the UNESCO proposal would be viable in other organizations (ACC/1979/11, paras. 36-40).

(22) At the 51st session (September 1979) CCAQ reviewed recent developments relating to support costs, in particular the decision of the Governing Council that a limited study of certain aspects of such costs should be carried out. On the subject of the definition of cost elements to be included in support costs - one of the objectives of the study - CCAQ expressed support for the detailed list of cost groups that the Task Force had developed, and which had been endorsed by ACC (ACC/1979/R.69, paras. 21 and 22 and annex VI). CCAQ also responded to the interest of the UNDP Governing Council in an agreed definition of administrative and programme support costs - see Section 20.3.

(23) Following up on the matter of negotiated rates of support-cost reimbursement different from the standard formula (see para. 20 above), CCAQ at its 51st session (September 1979) recognized that both UNDP and the other organizations were often the object of pressures aimed at obtaining special rates; it reaffirmed its position that the normal rate for projects financed from non-UNDP extrabudgetary sources should be 14 per cent and that variations from that rate should be permitted only in exceptional circumstances. On the basis of an ILO proposal the Committee further decided that the principle of reimbursement for related support costs should apply whenever a part of a project was the subject of a formal sub-contract or similar arrangement, whatever the source of funds from which the project was financed (ACC/1979/R.69, paras. 24 and 25).

(24) At its 52nd session (March 1980) CCAQ considered possibilities of responding to requests formulated by the Governing Council involving (a) the provision of information in annexes to the organizations' budget documents on their technical co-operation programmes, and related support costs financed from differing sources of funds; and (b) the provision of information to recipient Governments on the projected use of support costs corresponding to organizations' total UNDP-financed activities in a national programme. It was noted that the study on agency support costs which had been commissioned by the Intergovernmental Working Group on Support Costs (the "Rhodes report") had identified the main problems raised by the first of these requests, paramount among which was the difficulty of identifying indirect costs associated with activities financed from different sources of funds in organizations where all activities formed part of an integrated programme. The question of the utility of a budget annex along the lines envisaged was also questioned. As regards the second request, there was no meaningful way in which support-cost receipts, which were earned in and applied to global programme delivery, could be attributed to programmes or to the support of specific projects in individual countries (ACC/1980/16, paras. 24-26).

(25) At the 53rd session (September 1980) CCAQ studied the text of decision 80/44 of the Governing Council, entitled "Agency support costs", notably operative paragraph 2, which contained the principal provisions governing the reimbursement of support costs by UNDP in respect of the financial years 1982 to 1991. The Committee's understanding was that these provisions would apply both to UNDP-financed operational activities and to all other similar programmes under the jurisdiction of the Governing Council. In particular, the Committee:

(a) Examined the likely effects of the reduction of the rate of reimbursement from 14 to 13 per cent;

(b) Welcomedthe idea of establishing guidelines and procedures to apply in cases ofhardship due to exchange-rate changes, on the assumption that suchrelief would not affect the level of other reimbursements;

(c) Decidedto study means of producing the substance of the information to beincluded in ex post facto reports on support costs on the basis of dataalready required for management purposes and reports to governingbodies. It was agreed that the work required to develop a satisfactoryformat should be pursued under CCAQ auspices until a solution wasfound. The first report was presumed to be due in 1984 fororganizations operating biennial budgets and in 1983 for organizationshaving an annual budget cycle.

It was noted that the Governing Council's decision called for the application of the support-cost arrangements adopted by UNDP to technical co-operation activities financed from all sources of extrabudgetary funds. The Committee reaffirmed that this was also its own position in this matter (ACC/1980/32, paras. 24 and 25).

(26) At the 54th session (March 1981) the Committee was informed that the subject of ex post facto reports on support costs had been discussed at an Inter-Agency Consultative Meeting in December 1980, and that UNDP had been requested to ascertain what information was currently available in each agency that could produce the substance of the information requested by the Governing Council, to determine common denominators and to develop a format for the report. Having discussed an analytical summary by UNDP of the information communicated to it by other organizations, the Committee agreed that organizations should send comments on the summary to UNDP, which would then propose a format for the ex post facto reports for consideration at the next session of the Committee (ACC/1981/10, paras. 34-37).

(27) Also at the 54th session, UNDP advised the Committee of its intention to negotiate an across-the-board rate of reimbursement for support costs relating to capital assistance activities financed by UNCDF and UNSO, and pending the outcome of the negotiations to apply a rate of 4 per cent from 1 July 1982. The majority of the organizations represented in the Committee regretted this action, which they regarded as a departure from the Governing Council's stipulation, in its decision 80/44, that UNDP reimbursement of support costs for operational activities and similar programmes under the jurisdiction of the Governing Council would be at the rate of 13 per cent of annual project expenditures during the financial years 1982-1991 (ACC/1981/10, paras. 32 and 33).

(28) At the 55th session (September 1981), having considered a summary of data available to individual organizations which might be used for ex post facto reports, the Committee agreed that it would be impracticable to produce meaningful figures in the form requested by the Governing Council without re-introducing cost-measurement systems - a step ruled out by the Governing Council itself. It was agreed that the question of a format for the reports should be referred to a working party to meet in December 1981 (ACC/1981/30, paras. 61 and 62).

(29) The report of this Working Party on Extrabudgetary Activities, considered at the 56th session (March 1982), contained recommendations on the format of the ex post facto reports which had already been used by UNDP as a basis for proposals which it was required to submit to the Governing Council. A trial collection of information was now envisaged (ACC/1982/6, paras. 56 and 57). Following Governing Council approval of UNDP's proposals, arrangements for the preparation of the trial report were agreed at the 57th session (September 1982: ACC/1982/25, para. 53).

(30) At the 56th session the Committee also reverted to the question of support-cost rates for activities financed by UNCDF and UNSO (see para. 27 above). UNDP indicated that, having analysed the support costs actually incurred for such activities by its Office for Projects Execution, it intended to recommend to the Governing Council that rates of 5 and 11 per cent of project expenditures financed by UNCDF and UNSO should be adopted as regards both OPE and other organizations; OPE-executed projects under IPFs would also attract support-cost reimbursement at the rate of 11 per cent. Other members of the Committee considered that the rates to be proposed for OPE were a matter for UNDP alone but objected for a number of reasons for extending the same rates to other organizations. They asked UNDP to reconsider its position (ACC/1982/6, paras. 58 and 59). At the 57th session (September 1982) it was noted that the Governing Council had accepted a proposal by the Administrator to undertake a study aimed at obtaining more precise calculations of support costs for UNSO-financed activities and at confirming the rates proposed for projects financed from IPFs and by UNCDF; further consultations were also to be carried out with executing agencies on support-cost reimbursement for activities financed by UNSO and UNCDF (ACC/1982/25, paras. 54-56).

(31) At the 56th session the Committee in addition discussed support-cost arrangements for activities financed by UNEP, which considered that in most cases such activities were co-operative enterprises in which a support-cost levy was inappropriate. The Committee's view was that the normal support-cost reimbursement formula should be applied to technical co-operation activities assisted by UNEP; the question of whether a given activity should be regarded as technical co-operation was one for review by the organizations concerned (ACC/1982/6, paras. 60-63).

(32) At the 57th session (September 1982) the Committee noted decision 82/5 of the Governing Council, which inter alia confirmed the request in decision 80/44 concerning the application of the same support-cost reimbursement arrangements to technical co-operation activities financed from all extrabudgetary sources of funds, including trust funds, and authorized the Administrator to apply lower reimbursement rates for trust funds in respect of which the executing agency had indicated willingness to accept a lower rate. After a review of current practices, the Committee reaffirmed once more its commitment to the principle that the support-cost rate applied for trust-fund projects should not differ from that applied for projects financed from other extrabudgetary sources (ACC/1982/25, paras. 57-60).

(33) At the 58th session (March 1983) the Committee examined difficulties which had arisen in the collection of data for the trial ex post facto report and means of resolving them. It was agreed that the report to be submitted in 1983 would concern only agencies having annual budget cycles; all agencies would be covered by the report to be submitted in 1984. Thereafter, it would be desirable for any further such reports to be submitted on a biennial basis (ACC/1983/11, paras. 61-63).

(34) Also at the 58th session, the Committee was informed of the results of the UNDP study mentioned at the end of paragraph 30 above, which confirmed the previous figures of 11 and 5 per cent respectively for projects funded under IPFs and by UNCDF and established a rate of 8 per cent for projects financed by UNSO. UNDP was urged to arrange for urgent consultations with agencies on the UNSO and UNCDF rates to be recommended to the Governing Council (ACC/1983/11, paras. 64-66). Such consultations having taken place, the Committee was informed at the 59th session (September 1983) that the Governing Council had subsequently decided that special rates of support-cost reimbursement would not apply to projects financed by UNCDF and UNSO which were not executed by UNDP (ACC/1983/21, para. 56).

(35) At the 59th session the Committee was in addition informed that the Governing Council had accepted the Administrator's proposal concerning biennial ex post facto reports on support costs and noted the arrangements put forward by UNDP for the collection of data for the 1984 report (ACC/1983/21, para. 58). Problems which arose in the course of preparation of the organizations' contributions were reviewed at the 60th session (March 1984: (ACC/1984/10, para. 62).

(36) In further discussions at the 59th session, the Committee noted that Governing Council decision 83/10 called upon the Administrator to examine with executing agencies the feasibility and financial implications of waiving support costs in respect of projects financed by the UN Fund for Namibia. Contributions from that Fund might, it was suggested, be regarded as government cash counterpart contributions involving support-cost charges of not more than 3.5 per cent when such charges were not yet waived entirely. The organizations found themselves unable to accede to this request, given the high actual cost of support for the projects in question, existing decisions by their governing bodies calling for the application of uniform support-cost charges and the rationale behind their acceptance of the present support-cost rate of 13 per cent, which involved the assumption that it would be of general applicability (ACC/1983/21, paras. 57-59).

(37) At the 60th session (March 1984) CCAQ considered a UNDP request that the organizations should waive support-cost charges for activities financed from the remaining balance of the UN Emergency Operations Trust Fund, given the waiver granted by them before the liquidation of the Fund. Additional out-of-pocket expenses incurred in managing these activities could, however, be considered for reimbursement. Most of the members of the Committee opposed any departure from the usual support-cost reimbursement arrangements, and did not consider that the activities under consideration warranted an exception; they were also oppossed to the introduction of new and undefined arrangements such as reimbursement for out-of-pocket expenses, which might involve different proportions of reimbursement (ACC/1984/10, paras. 63-65).

(38) At the 61st session (September 1984) the Committee examined, and made certain suggestions on, a draft for the comparative analysis of the relationship between programme delivery and administrative costs pertaining to operational activities for development which had been prepared by the Office of the UN Director-General for Development and International Economic Co-operation in response to a request in General Assembly resolution 38/171. The Committee was informed that its observations would be taken into account to the greatest extent possible. It agreed to study the Assembly's reaction to the text at the next session of CCAQ (ACC/1984/17, paras. 70-74).

(39) At the 62nd session (March 1985) UN informed the Committee of the main questions that had emerged in the Assembly. CCAQ offered to assist the Director-General in responding positively by providing him with a statement on differences in the levels of support costs incurred for technical co-operation projects managed by different organizations. It requested its secretariat to draft such a statement, consulting the Director-General's Office at each stage, and obtaining inputs from the organizations as required; the draft was to be cleared by correspondence (ACC/1985/7, paras. 60-62). The draft as cleared was reviewed at the 63rd session (September 1985), at which time members of the Committee expressed views on the inclusion of statistical data and on the nature and presentation of the statistics that might be used. The UN agreed to take those suggestions into account (ACC/1985/17, para. 51). A revised version subsequently appeared in section 111C of A/40/698.

(40) At the 65th session (September 1986) the Committee took note of decision 86/49 of the Governing Council, taken after its examination of the 1986 ex post facto report. This decision called for the continued submission of such reports on a biennial basis. The decision also requested UNDP to review the impact of fluctuating exchange rates on support-cost earnings of agencies covered by flexibility arrangements and to report thereon (ACC/1986/12, para. 6).

(41) At the 66th session (March-April 1987) the Committee was informed that the Governing Council had requested the Administrator to undertake a review of the mandate, role and work priorities of the UN Volunteers and to consult with specialized agencies on compensation for services provided to them by volunteers serving on agency-executed projects. The Inter-Agency Consultative Meeting held in December 1986 had subsequently been informed that the Administrator would propose sharing the support costs payable in respect of volunteers on such projects between the agency concerned and UNDP; IACM had recommended that the sharing should be on a 50/50 basis. CCAQ agreed on the mechanics of accounting for this arrangement. Some members, however, expressed reservations concerning the arrangement, which represented a departure from the global support-cost reimbursement formula; it was also pointed out that such a loss of support-cost income was inopportune during the current period of financial difficulties. The Committee agreed to request UNDP to suggest to the Governing Council that, in approving the revised arrangements, it should defer their application pending improvement of the organizations' financial position (ACC/1987/6, paras. 32 and 33). At the 67th session (September 1987) UNDP indicated that no change had yet been made in support-cost arrangements for the UN Volunteers (ACC/1987/12, para. 43).

(42) At the 66th session the Committee also gave attention to the general level of reimbursement of support costs by UNDP, recalling that the floor placed by Governing Council decision 80/44 (see para. 25 above) under reimbursements of support costs to executing agencies of UNDP-financed projects had disappeared at the end of 1986. This reflected the expectation current at the time of the decision that programme delivery would continue to increase. Executing agencies had also expected at that time that steady growth in their regular budgets would permit them to continue to maintain adequate levels of servicing for extrabudgetary projects. Neither of these expectations had materialized, and this unfavourable situation was aggravated for a number of executing agencies by the adverse effects of currency instability and the problems arising from non-payment or delayed payment of assessed contributions. In these circumstances the Committee proposed that ACC should raise with the Administrator of UNDP the possibility of obtaining an extension for a further five years of the minimum reimbursement arrangements provided for in decision 80/44. The Committee would then arrange through its Chairman for a suitable collective proposal to be placed before the Governing Council at its session of June 1987 (ACC/1987/6, paras. 34-37). At the 67th session (September 1987) UNDP provided the Committee with details of the Governing Committe's response to the proposal put forward, which had been negative (ACC/1987/12, para. 42).

(43) At an informal inter-organization discussion in Geneva in January 1988 it was agreed that special remedial measures should be proposed to the Governing Council for increased support-cost reimbursements in respect of 1987, to counter the effect of changes in US dollar exchange rates. ACC should make a statement on this issue. CCAQ subsequently agreed (68th session, March 1988) the text of a draft ACC statement for submission to the Governing Council (ACC/1988/5, paras. 43-45 and annex V; see also ibid., paras. 29-33). A revised version was agreed by ACC (decision 1988/8).

(44) At the 69th session (September 1988) the Committee reviewed action taken on support costs by the Governing Council at its 35th session. On the subject of inter-organization co-ordination in the crucial area of successor arrangements for the reimbursement of support costs (Governing Council decisions 88/50 and 88/52) CCAQ recognized the primary competence of CCSQ(OPS), but noted that because of the implications of support-cost arrangements for the organizations' budgets and finances as a whole it would need to be closely involved at all stages (ACC/1988/13, paras. 55-60).

(45) The Committee reiterated these views at the following (70th) session, after reviewing action taken at the February 1989 session of the Governing Council. It noted in particular that the terms of reference of the expert group that would study successor support-cost arrangements appeared to view the latter as the by-product of a reappraisal of the multilateral development system as a whole. In its view the implications of any radical restructuring of the 1970 Consensus would be such that participation by all the governing bodies concerned was imperative; the timetable for consideration of the conclusions of the expert group must make this possible (ACC/1989/7, paras. 59-62).

(46) At the 71st session (September 1989) the Committee called attention once more to problems arising from the declining purchasing power of US dollar income received by organizations for the support of extrabudgetary activities (ACC/1989/15, para. 5). This was one of a series of concerns that the Committee discussed during its session at a meeting with the expert group on successor support-cost arrangements appointed by the Governing Council. Noting that the expert group planned to finalize its report early in December 1989, the Committee believed careful planning would be vital if the organizations' reactions were to be available in time to have an impact on consideration of the report by governments. There would need to be co-ordination between members of CCAQ(FB) and the task force of CCSQ(OPS) which would examine a draft inter-organization position paper in October, and CCAQ(FB) might also need to consider reconvening its Working Party on Support Costs. In the meantime members of the Committee would provide the UNDP expert group with comments on its study of cost measurement. The importance of successor support-cost arrangements, and their potential financial impact, were such that a special session of ACC might be warranted early in 1990 to consider the expert group's recommendations (ACC/1989/15, paras. 62-64).

(47) CCAQ(FB) reconvened its Working Party on Support Costs in January 1990 to make a technical study of the financial aspects of the report of UNDP expert group, and the Working Party's report was considered at the Committee's 72nd session (March 1990) (with UNDP and UNFPA not participating). The main thrust of the Committee's observations was on the need for more favourable arrangements for smaller technical agencies; the advantages of the "possible further option" put forward by the Working Party alongside those proposed by the expert group; the safeguards supported by the Working Party against the effects of currency instability (based essentially on the equalization of purchasing power); and the issue of support cost accountability. On the latter subject CCAQ expressed its conviction that the financial control mechanisms of the agencies fully met accountability requirements; as the General Assembly had recognized (resolution 44/211), recipient Governments would need to take the necessary steps so that they too could satisfy the accountability requirements of their executing role. On a related aspect of accountability, that of transparency in the use of support-cost income, CCAQ believed that periodic cost-measurement surveys, with certain provisos, would be a means of meeting the Governing Council's requirements at reasonable cost. Subject to those observations the Committee endorsed the Working Party's report. It expressed support for the intention of CCSQ(OPS) to prepare a draft statement for ACC on issues raised by the expert group's report (ACC/1990/5, paras. 52-65 and annex V, containing the report of the Working Party).

(48) At the 73rd session (September 1990) the Committee was briefed by the Director of UNDP's Planning and Co-ordination Office on the implications of decision 90/26 of the Governing Council, setting out the support-cost arrangements to be applied by UNDP from 1 January 1992. The decision reflected important changes in UNDP's approach to development activities, and they would involve some difficult adjustments for executing agencies, which UNDP planned to discuss in a series of group and individual consultations. Several participants in CCAQ drew attention to the magnitude and urgency of some of the action required to follow up the Governing Council's decision, and to the urgency of identifying costs in the light of the new arrangements. The Committee agreed that there might be a need to convene meetings of participants in CCAQ(FB) in the coming months to study aspects of the decision. On the question of support costs for activities financed by UNFPA, the Committee was informed that in July 1990 UNFPA and executing agencies had reached conclusions providing in particular for reimbursements from UNFPA programme resources for technical support costs of executing agencies, and for the sharing of administrative costs related to UNFPA-financed programmes. The Committee agreed that meetings of particpants in CCAQ(FB) before its next session might also consider UNFPA support-cost arrangements (ACC/1990/12, paras. 50-57).

(49) The Committee returned at its 74th session (March 1991) to several key aspects of the new agency support-cost arrangements. On transitional measures, it noted with interest that consideration was being given to applying for a time the old régime arrangements; on cost surveys, the five largest executing agencies thought it essential that there be preliminary reviews of survey methodology between each of them and the consultant firm engaged by UNDP, and subsequently a similar review involving all five agencies, the consultants and UNDP. CCAQ emphasized that the cost information to be submitted to the Governing Council in June 1991 would be provisional and preliminary, and that final establishment of costs and a rate structure would require further refinement of the methodology. On protection against currency instability, the Committee expressed interest in a new proposal by UNDP involving the application of a moving average of the relevant UN operational rate of exchange to support-cost payments; however, it would have difficulties with any requirement that agencies repay balances outstanding at the end of the sixth programming cycle. Moreover, the proposal would not provide adequate protection should there be a persistent significant downward trend in the value of the dollar. On arrangements for smaller agencies, representatives of those agencies expressed concern that one of two possible arrangements proposed by UNDP would not merely involve accounting adjustments but could also have operational implications. Finally, on ex post facto reporting, the Committee felt that it was still too early to make recommendations on the format of the new report to be submitted to the Governing Council providing accurate information on support costs incurred, by source of funds (ACC/1991/6, paras. 41-53).

(50) Various aspects of the successor support-cost arrangements were again discussed at the 75th session (September 1991). CCAQ(FB) affirmed that it should continue to concern itself with the issue of protection against currency instability, and was prepared to study possible solutions in detail. The executing agencies represented supported the idea of symmetry in compensatory payments (decision 91/32 of the Governing Council), interpreting it as an equitable compensatory system that should result in no net loss to UNDP over time; they would, however have difficulty with a system designed to guarantee no such loss through obligatory restitution of receipts at predetermined times. Not only would that violate the principle of symmetry, it would require contingency reserve funds which organizations might not be authorized to establish. Moreover, while it was reasonable to envisage limits to the compensatory payments that might be made, the resources available for such payments must be sufficient to mitigate the exchange losses that would result from a significant and persistent decline in the value of the US dollar over several years. On the question of support costs for trust-fund activities, and in particular minimum rates to be charged, it seemed clear to the Committee that the interests of the organizations would be served by a concerted approach (ACC/1991/18, paras. 58-65).

(51) At the 76th session (March 1992) the Committee was informed that the study of support costs incurred in the five agencies with the largest UNDP-financed programmes, updated to reflect 1992-1993 budgeted costs, showed administrative and operational services costs (AOS) on average 17.7 per cent higher than the amount previously identified, and combined monthly total costs for technical support services at the programme level (TSS-1) and the project level (TSS-2) on average 16.7 per cent higher. It was noted that several factors could produce distortions in the figures for individual agencies (ACC/1992/11, paras. 43-45). At the 77th session (August-September 1992) the Committee reviewed proposals inter alia for obtaining cost data needed to establish UNDP reimbursement rates for 1994-1995 under the successor support-cost régime, and for ex post facto reporting on support costs incurred in 1992-1993; the cost of the extra work would be shared among seven interested organizations. Those organizations were generally favourable to the proposals, but agreed that the methodology to be applied should be worked out with the consultant firm in a working group (which met in October 1992). On the subject of cost-sharing those organizations considered that the formula applied should be capable of continuing application but should permit actual shares to vary in accordance with the circumstances; the formula selected was based on total UNDP delivery (including support costs) in the preceding biennium, and for the 1993 work, which would exclude WHO, the shares would be:

	Per cent
United Nations	18.41
UNDP	24.92
ILO	11.02
FAO	27.31
UNESCO	5.06
UNIDO	13.28
	100.00 (ACC/1992/25, paras. 32-36)

(52) On the related subject of support cost charges for activities financed by trust funds, the Committee was informed at the 76th session (March 1992) by FAO and WHO that their actual costs were also being studied by the consultant firm (ACC/1992/11, para. 46). At the 77th session (August-September 1992) the Committee requested them to make the results available to it at its next session (ACC/1992/11, para. 46; ACC/1992/25, para. 36).

(53) New proposals by UNDP for protection against currency instability (see paras. (43), (46), (49) and (50) above) were before the Committee at the 76th session (March 1992); they would eliminate the previous requirement (in document DP/1991/25) for zero net cost to UNDP over 10 years, and recognize the Committee's concern about adequate protection against a persistent downward trend or major drop in the value of the US dollar; UNDP further indicated that its proposals would cover all UNDP support costs and would be voluntary. The Committee supported UNDP's intention to submit them to the Governing Council for consideration at its 39th session (ACC/1992/11, paras. 47-50). At the Committee's 77th session (August-September 1992) UNDP notified its intention to apply in 1992 the arrangements adopted by the Council (decision 92/22, paras. 19 and 20) and, where an agency requested them, to apply them to all its approved projects (ACC/1992/25, para. 37).

(54) At the 78th session (March 1993) the Committee reviewed the report of the Working Group on Support Costs mentioned in (51) above, which had been mandated to consider matters relating to cost-survey work in 1993 in the organizations subject to the sucesssor support-cost régime of UNDP. In the meantime, however, it had become clear that for organizational reasons UN and the existing UNDP/OPS would not be able to participate in the project, although they recognized that participation represented a continuing commitment. In the circumstances calculations concerning UN and UNDP/OPS were deferred, and the project description, timetable and budget were revised accordingly. UNDP agreed to take responsibility for the necessary contractual arrangements with the consultant firm (ACC/1993/7, paras. 56-59).

(55) At the same session the Committee considered the views of several organizations on possible changes in the current standard support-cost change of 13% of project costs for trust-fund projects, and the desirability of maintaining a standard rate. The Committee also examined a study commissioned by FAO on a possible new support-cost system for its trust-fund activities. This system would maintain the principle of cost-sharing, but would reduce the burden of trust-fund support services on the regular budget, while enhancing the quality of service provided, adding to the transparency of the amounts charged and improving accountability for the use of funds. The Committee noted that this system would also result in different charges for different projects and, if generally applied, in different organizations; it decided to revert to the matter at its next session (ibid., paras. 61-64).

(56) At the 79th session (August-September 1993) the Committee was briefed on the status of arrangements for the cost study envisaged (see para. 54 above) and urged UNDP to press ahead with the signature of the contract. UNDP provided a revised proposal for the presentation of the ex post facto report to be submitted to the Governing Council in the spring of 1994. The proposed format consisted of two tables, of which the first showed separately by agency delivery and support costs financed by UNDP, support costs financed by the agency and the total. For the agencies concerned, TSS-1, TSS-2 and AOS costs financed by UNDP were also shown separately. The second table showed separately, by cluster of AOS costs and by agency delivery, AOS costs financed by UNDP and by the agency, and the total. Agencies subject to the new support-cost régime considered that TSS-1 costs, being at the programme level, should not be associated with project delivery or added to TSS-2 and AOS costs; they also expressed a preference for avoiding separate agency figures in the second table. UNDP was requested to review its proposals bearing these considerations in mind (ACC/1993/23, paras. 54-56).

(57) At the same session FAO informed the Committee of progress in the development of its proposed new support-cost arrangements for trust funds and related questions. It continued the approach of using work-measurement and cost-accounting methods as in the successor support-cost arrangements of UNDP, but had found that identical rates and rate structures would be impractical as between agencies; uniformity in costing methodology would thus be particularly important at an inter-agency level, where several other organizations were contemplating a similar approach. FAO had now reduced the complexity of the charging mechanism planned by establishing a single percentage for the life of the project, while maintaining the principle that the amount to be charge (through the project budget) would be based on the technical, administrative and operational services provided (ibid., paras. 58-60).

(58) At its 80th session (February - March 1994), CCAQ(FB) was informed that the results of the latest cost survey were not yet available but that the CCPOQ Task Force on Support Costs proposed to consider the survey as soon as it was available. The CCAQ secretariat was requested to remain in close contact with the secretariat of CCPOQ on this issue, to keep Committee members informed of developments, and to ensure that there were continuing CCAQ(FB) inputs to inter-organization work on support costs wherever such inputs appeared to be appropriate (ACC/1994/5, para.43).

(59) At the same session, UNDP provided CCAQ(FB) with a revised proposal concerning the format for ex post facto reports on support costs. A number of changes were suggested in the format proposed which were accepted by UNDP (ibid., para. 44).

(60) The Committee also received information from FAO and WHO on the current situation in their organizations with regard to support cost arrangements for activities financed by trust funds (ibid., para. 45).

(61) At its 81st session (August - September 1994), CCAQ(FB) held an exchange of views on the current position of organizations on the reimbursement of support costs for activities financed by trust funds and on the costs of providing such support (ACC/1994/15, para. 40).

(62) At its 82nd session (February 1995), CCAQ(FB) had before it a proposal for the expansion of the CCPOQ Task Force on Support Costs into a Joint CCPOQ/CCAQ(FB) Task Force. Believing that such a task force should have a clearly defined task with a finite date of termination of the work, the Committee was not convinced that the establishment of a standing joint task force would be useful at this time (ACC/1995/6, paras. 40 and 41).

(63) With regard to this issue, at its 83rd session (August - September), CCAQ(FB) was informed that the CCPOQ Task Force on Support Costs had suggested that it would propose meetings with CCAQ(FB) on an ad hoc basis on specific items of common interest. CCAQ(FB) supported this approach (ACC/1995/20, para.35).

(64) At the February 2004 meeting (CEB/2004/HLCM/12/Rev.1, paras. 13-15) of the FB Network, the lead agency, UNESCO, in presenting the report of the Working Group on support costs on extra-budgetary activities, suggested that organizations share information and experiences on: charge-back mechanisms, how these budgets were recorded and presented, the use, billing, etc. of standard costs and how to charge staff directly to individual projects. There was support for the implementation of a common methodology for the recovery of support costs throughout all organisations; many organizations said that they would change their existing policies in favour of the introduction of a joint framework or principles. The application of different rates for support costs in organizations led to unhealthy competition. The Network should, therefore, concentrate on explaining why and how costs were covered, rather than rates applied. Although the implementation of a common methodology would not remove the need for individual rates, the system of cost calculation would be made significantly more transparent to donors. Discussion also covered the experience of applying discounts for good donor behaviour, inconsistencies in the definitions of terminology across the system, how to minimise transaction costs associated with joint programme funds that were passed through several organizations and the need for accounting standards to underpin support cost systems.

(65) The Network agreed to recommend to the HLCM that it take note of the progress of the work being carried out on support costs related to extrabudgetary activities and invite the Working Group to continue its work to reach a common agreement, with all urgency, on a common methodology or a set of principles on support costs recovery for extra-budgetary activities, including the system of full cost recovery and, in particular, on the support costs to be charged when dealing with more than one organization, building upon the questions currently being addressed in the UNDG framework, the best practice to be used in order to charge direct costs on projects and the best practice for budget, planning, presentation and reporting, to manage the recovery of support costs related to extrabudgetary activities.

(66) At its March 2005 video-conference(CEB/2005/HLCM/8, para. 16-20) the FB Network reviewed progress of theWorking Group on Support Costs on Extrabudgetary Activities. UNESCO hadprepared a study of the costs it incurred in providing support toextrabudgetary financed activities. As part of the development of thestudy, UNESCO had reviewed materials provided to the working group byFAO, WFP, UNICEF and UNDP, as well as reports of previous multi-agencycost measurement studies and information from some international NGO’s.In order to obtain additional information concerning charges related toextra-budgetary projects and activities, UNESCO had finalized a surveyto be circulated to the FB Network. UNFPA informed participants thatthe subject of cost recovery was also being investigated in the contextof UNDG. It was agreed that the two working groups would coordinate toshare approaches and conclusions, as well as to avoid duplication ofwork.

(67) At its July 2005 meeting (CEB/2005/HLCM/26,paras. 94-104) the FB Network was informed that the Working Group onSupport Costs had reached agreement on definitions of costs categoriesand principles on cost-recovery. In principle, the Working Group hadagreed that: (a) Direct Costs were recoverable and should be chargeddirectly to the project; (b) Fixed Indirect Costs should be financed byregular/core resources (except for the organizations that do not havecore resources); (c) Variable Indirect Costs, usually referred to asProgramme Support Costs, should be recovered in one way or another (asa percentage rate, or even as a cost component of the project directcosts). The Group would be expanded to include the World Bank.Methodologies for standard costs calculation would be shared aftercirculation of a draft questionnaire to collect relevant informationfrom different organizations for comparison purposes. The Working Groupconcluded that its mandate had been fulfilled and it would keepfunctioning through email exchange and within the framework of the FBNetwork. The Network expressed its appreciation for the work of theGroup and requested its Chair to represent the Network on the UNDGFinancial Policies Working Group at its meetings dealing with SupportCost Recovery to ensure coordination between the two groups.

(68) At the same meeting (ibid., Paras. 105-112) theFB Network was briefed on the activities of the UNDG Financial PoliciesWorking Group (FPWG), with the objective of identifying possible areasof cooperation and avoiding duplication of work. The Management Grouphad tasked FPWG with two priorities: Cost-recovery and Joint Office.The Joint Office project included initially two locations, Maldives andCape Verde. After the Tsunami, only one location – Cape Verde – wasretained. Mainly due to legal issues, the initial approach of “oneentity” had been replaced by the concept of one agency with“supporting” role at the joint office location. On Cost-recovery, theGroup had worked to address the need for harmonization of cost-recoverypolicies among the agencies. That had been done in close coordinationwith the FB Network Working Group on Support Costs. It was noted that,from a technical point of view, the issue of harmonization of rates wasvery much affected by different budget methodologies, as well as bydifferences in the sources of funding and cost structures. It was alsounderlined that the fundamental technical basis for any attempt atrate-harmonization was consistent cost-categorization. The plannedactivities of the FB Network in this area would provide useful insightson the feasibility of taking this further. The FB Network suggestedthat, in reporting back to the HLCM, the Working Group on Support Costswould seek the Committee’s guidance on the precise mandate for anyfurther work on this subject. Finally, it was agreed that UNESCO wouldrepresent the FB Network in any further collaborative work with theUNDG Financial Policies Working Group.

(69) At its 10th Session (October 2005: CEB/2005/5,paras. 48-54) HLCM reviewed the conclusions of the working group onSupport Costs on Extra-Budgetary Activities. The Working Group hadagreed on the following definitions of cost categories, as well asprinciples on cost recovery: (a) Direct Costs (e.g. project personneland equipment) were recoverable and should be charged directly to theprojects; (b) Fixed Indirect Costs (e.g. top management of anorganization and its corporate costs) should be financed byregular/core resources (except for the organizations that did not havecore resources); (c) Variable Indirect Costs, usually referred to asProgramme Support Costs (e.g. administrative units which supportproject activities), should be recovered from extra-budgetary projectsin one way or another (as a percentage rate, or even as a costcomponent of the project direct costs). The Group also concluded thatcost recovery policies should encompass both programme support costsand direct costs and stressed that both these costs should be fullyrecovered from extra-budgetary projects. As all the costs of projectimplementation had to be paid in any case, if these costs were notcharged to the extra-budgetary project, it would be the regular/coreprogramme that would fund the balance, making extra-budgetary projectsmore attractive and regular/core programme seemingly less efficient.Furthermore, the Group noted that the method as to whether the costswere recovered through support cost rates or direct charges, as well asthe cost classification itself, depended largely on judgment and theworking framework of each organization. Through e-mail exchanges underthe auspices of the FB Network, organizations would continue tocollaborate and develop methodologies for building standard staffcosts. It was noted that UNDG had agreed to build on these findings inits work on harmonization of support cost recovery policies. To ensurecoordination with HLCM, the convenor of the working group wouldrepresent the Network in UNDG's meetings. HLCM expressed itsappreciation for the achievements of the Working Group, endorsed itsconclusions and encouraged organizations to exchange information oncost recovery methodologies with the view to the further harmonizationof practices.