Why local partners need overhead too

What is overhead and why does it matter?

Overhead means indirect cost: the cost of running an organisation safely, effectively and accountably. The NRC briefing note on overheads describes them as the costs of managing, overseeing and putting in place policies, frameworks and systems that let an organisation deliver its mandate. They are not attributable to one project, and they are not always incurred within one project period.

Think of the finance officer who also supports four projects, the audit that covers the whole organisation, the security plan, the HR system, the internet and the office. A project budget that pays only for activities leaves these costs unfunded. The organisation then has two bad choices: weaken its systems, or quietly subsidise donors from its own limited reserves.

Why do local partners need it too?

The NRC briefing puts the point plainly: overheads are essential for all organisations in the delivery chain, whether UN agency, INGO or local and national actor. A local partner is expected to meet the same requirements: safeguarding, financial controls, audits, reporting and security. Without overhead, it cannot afford the systems that make it a reliable partner.

The briefing also describes a gap between policy and practice. Intermediaries hold legal and financial liability for funds they pass on but often have too few resources to meet their oversight duties. Where subsidy is not affordable, the share of overhead that reaches local actors falls further.

The Charter for Change and ALTP analysis for the Grand Bargain went further in 2019: it recommended that at least 10% administrative and overhead costs be included in programme budgets for local partners as well as international partners.

How do donors and agencies pass overhead on?

Approaches vary. The IASC overhead page and the Development Initiatives review give these examples:

The IASC Guidance on the Provision of Overheads to Local and National Partners, published in 2022, recommends harmonised practice. The Development Initiatives paper says it was informed by research mapping what intermediary organisations do and where local actors see good practice.

What is additionality?

The NRC briefing argues that overheads for local partners must be additional, not split. Additionality means each organisation in the chain receives its own overhead, and none is drawn from another partner's share. Donors can implement it by adding the local partner's overhead to the intermediary's allocation for onward transfer, or by using a separate budget line.

For it to work, the briefing says overheads should be unrestricted, not time-bound, subject only to simplified audit and additional to direct support costs. A split of one fixed percentage between two organisations leaves both underfunded, because the work and the risk remain.

How can you ask for overhead?

Use this five-step approach.

1. Know your cost base. Add up your annual indirect costs: salaries of management and support staff, rent, utilities, audit, insurance, systems. Divide by your total annual direct costs to see a realistic rate.
2. Check the donor's rules. Some donors cap or fix rates. Others allow a separate line for partners. Ask the intermediary which rules apply.
3. Put it in the budget. Show overhead as an explicit line, calculated on your share of the project budget, at the same rate the intermediary receives.
4. Write it into the agreement. State the rate, the base and the flexibility. Our guide to what to include in a partnership agreement lists other clauses to check.
5. Show how you manage it. A short cost allocation policy, applied consistently, builds trust. See cost allocation across several grants.

If a partner says it cannot give overhead, ask what part is a donor rule and what is its own policy, and whether the partner can advocate with the donor. Raising overhead for all partners as a regular topic in donor discussions is a practical step an intermediary can take.

What if a partner offers only a share of its own overhead?

Ask whether the overhead is being split. If the intermediary keeps 7% and you receive 3% of that, both of you are underfunded for the same work. Explain what the amount covers, and ask whether an additional line is possible. Also ask for flexibility: overhead that can only be spent on named items stops helping you.

For the broader context of core costs, see why core costs matter and how to ask for them.

How EMPO can help

EMPO is a reliable training and consultancy provider in Yangon and one of Myanmar's leading names in practical NGO training, with 1,200+ people trained and 15 partner organisations. We work in English and Burmese, online and in person across Myanmar. We can help your team work out its indirect cost base, build budget narratives and prepare policies. See our services or contact us.

Sources

• Delivering on Localisation: Why Overheads for Local Partners Must Be Additional, Not Split — Norwegian Refugee Council, 2026
• Overheads: good practices — IASC, 2024
• Donor approaches to overheads for local and national partners — Development Initiatives with UNICEF
• Joint analysis and recommendations for the Grand Bargain Annual Review 2019 — Charter for Change and ALTP, 2019