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1.3  Key considerations in cost recovery

Cost recovery regimes are 'living' regimes. The decision to cost recover is only part of the process. The cost recovery charges also need to be designed, implemented, monitored and regularly reviewed.

Throughout the different parts of the process, an open book approach should be borne in mind. As part of this, the following considerations should be key.

  • Authority: does the public entity have legal authority to charge a fee for the goods and services provided?
  • Effectiveness: Are resources allocated in a way that contributes to the outcomes being sought by the activity? Is the level of funding fit for purpose? Does it enable the cost recovered activity to be delivered to a level of quality that is appropriate for the circumstances (eg, it should not be 'gold-plated' or conversely at a poor level of performance that impedes the ability of organisations to do business)?
  • Efficiency: are decisions on volume and standards of services, and costs to recover and when to recover, consistent with the efficient allocation of resources? What efforts have been made to ensure that there are reasonable constraints on charging, in order to demonstrate efficiency, particularly in the context of variable or hourly fees? Have options for pricing been considered in terms of what would be most efficient?
  • Transparency: is information about the activity and its costs available in an accessible way to all stakeholders? Has the cost recovery analysis been approached in an 'open book' manner? Is detailed information about the cost drivers and the components that make up the charges available to stakeholders?
  • Consultation: Has the entity engaged in meaningful consultation with stakeholders, and is there opportunity for stakeholders to contribute to the policy and design of the cost recovery activity?
  • Equity: have the impacts of the proposed or existing cost recovery regime been identified? Will stakeholders be treated equitably? Have impacts over time been identified?
  • Simplicity: is the cost recovery regime straightforward and understandable to relevant stakeholders? Have the costs of participation been kept low and evasion opportunities mitigated to acceptable levels?
  • Accountability: public entities are accountable to Parliament and to the public. In practical terms, this can be demonstrated by consultation with stakeholders about change, through recording any surpluses and deficits generated by cost recovery regimes, through reporting on performance, and through reviews of the use of powers to set fees under regulation.

It is important to recognise that cost recovery analysis will be part of an overall mix of different policy settings. Sometimes these principles outlined above might be in conflict. For example, what is most efficient or equitable might not necessarily be the simplest approach.

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