Moving the Ford Foundation Forward

In his announcement on the new strategic direction for the Ford Foundation, Darren Walker, President of the Ford Foundation, also sought to address the overhead myth issue:

Addressing the overhead fiction

At the same time, even outside the BUILD portfolio of grantees, we are rededicating ourselves to strengthening the partners and grantees that are recipients of our project support.

All of us in the nonprofit ecosystem are party to a charade with terrible consequences—what we might call the “overhead fiction.” Simply put, because of this fiction, foundations, governments, and donors force nonprofits to submit proposals that do not include the actual costs of the projects we’re funding.

I recently learned of one local government request for proposals that gave extra points to applicants that submitted proposals with lower overhead, resulting in the winning groups receiving overhead payments of 5 percent—an absurd and self-defeating outcome.

The overhead fiction also results from well-intended metrics developed by nonprofit watchdog groups that have equated lower overhead with organizational effectiveness when, in fact, the opposite may be true.

At Ford, we have been willing participants in this charade. Our policy of 10 percent overhead on project grants in no way allows for covering the actual costs to administer a project. And to be honest, we’ve known it.

This number does not reflect what it takes to actually manage a project; nor does it help those we support to effectively run robust organizations capable of executing projects. Thus, beginning January 1, we will double our overhead rate on project grants to 20 percent. We hope to encourage more honest dialogue about the actual operating costs of nonprofit organizations working in the US and internationally.

For more information of the Ford Foundation’s Announcement, please visit here.