www.caplus.org.uk

Costing in consortia and sub-

contracts

London

28th November, 2012

John O‟Brien

Community Accounting Plus

www.caplus.org.uk

Costs or price

In the old „voluntary sector‟ we work out

the costs and ask people to cover them.

In the „commercial sector‟ we set a price

and drive down costs to make profits.

In the new voluntary sector commissioning

world of consortia, we need to set a price

that covers our costs…. most of the time.

Setting the price

“„My other piece of advice, Copperfield,‟

said Mr. Micawber, „you know. Annual

income twenty pounds, annual

expenditure nineteen pounds, nineteen

and six, result happiness. Annual income

twenty pounds, annual expenditure twenty

pounds nought and six, result misery.”

David Copperfield (1850)

www.caplus.org.uk

www.caplus.org.uk

Setting the price

The price decision is complex – it can be

quite painful if you get it wrong, ask Mr

Micawber

3 types of pasta

Price confusion – size of the bag, gas bills,

special offers, 10% free.

Setting the price – even more

complex in a consortium How open should you be with your

partners?

Are your real costs relevant to others

Who decides who is invited to the party?

Often there is no neat link to the price per

unit – it‟s not like selling pasta

www.caplus.org.uk

www.caplus.org.uk

Is your price sustainable?

Know your direct costs and your

overheads (support, shared, core, indirect)

Think about fixed and variable costs

Don‟t forget non-cash items – redecoration

every 5 years

Beware marginal costing and pricing

Be prepared for expansion and contraction

of services

www.caplus.org.uk

Today

Project A B C Total

Costs

direct 10 10 10 30

shared 4 4 4 12

14 14 14 42

Grants 14 14 14 42

Net result 0 0 0 0

www.caplus.org.uk

A new project

Project A B C D Total

Costs

direct 10 10 10 10 40

shared 4 4 4 12

14 14 14 10 52

Grants 14 14 14 10 52

Net result 0 0 0 0 0

www.caplus.org.uk

Project B comes to an end

Project A B C D Total

Costs

direct 10 0 10 10 30

shared 4 0 4 4 12

14 0 14 14 42

Grants 14 0 14 10 38

Net result 0 0 0 (4) (4)

www.caplus.org.uk

What should you have charged D?

D has only paid for „marginal‟ cost

Total support costs were £12 before project D. They didn‟t go up.

The „average‟ cost of project D could, and should, have included an amount for support costs.

At £4, with project D, the group wins. When B closes, the group survives.

At £3, with project D, the group wins, but when B closes, the group still dies.

www.caplus.org.uk

Some theory perhaps…

www.caplus.org.uk

And finally

If in doubt, call it £45 an hour

jo‟brien@caplus.org.uk