Overhead cost allocation in the humanitarian sector

This study was carried out by Development Initiatives in collaboration with UNICEF and Oxfam, through the Inter-Agency Standing Committee (IASC) Results Group (RG) 5 workstream on the allocation of overhead costs to local and national NGOs (L/NNGOs). This workstream was established in early 2021 under the IASC RG5 as a follow up to a request made by IASC Principals in their December 2020 meeting to address this issue. The aim of this research was to map current practices across UN agencies and INGOs (international non-governmental organisations) around the provision of overheads to local and national partners (also referred to as indirect costs or indirect cost recovery (ICR) in this report) and to identify current and emerging good practice. This informs the IASC guidance note on best practice around the provision of overheads to local and national partners.

This study identified a number of barriers to providing overheads to L/NNGOs. These included a lack of transparency around how funding is currently passed to local actors; the lack of common cost classifications which limits meaningful comparison between different budgets; the potential financial implications for both donors and intermediaries of providing sufficient funding to cover the direct and indirect costs of L/NNGO partners; and current regulatory and internal organisational policy barriers to providing overheads.