Guidance to partners on the new approach to Holdback and greater Budget Line Flexibility

We've listened to recipient organizations' feedback. This includes what we heard during our June 2023 Risk Hackathon and the Chief Financial Officer Partner Focal Points. We're changing the way we manage contribution agreements for International Development Assistance (IDA). This is consistent with our evolving risk appetite.

We have introduced two financial policy innovations to support efficient programming:

1. Greater Budget Line Flexibility – we have increased recipient organization’s flexibility to manage project budgets, by increasing the general variance, of between 10-30%, to a fixed rate of 40% for all organizations. The new flexibility excludes the remuneration section of the budget as well as budget lines with negotiated overhead rates. This change will provide organizations with greater flexibility to adapt to external changes while enabling efficiencies in their project management.
2. Reduced Holdback – We have reduced the financial impact of holdbacks on recipient organizations, by:
   1. reducing the holdback amount – from a maximum of $500,000, to the lesser of $50,000 or 5% of GAC’s contribution; and,
   2. no longer applying holdback to all projects, and instead applying it only on the first project funded by GAC for all organizations without an active GAC-funded project in the last 5 fiscal years.  For organizations with active GAC-funded projects in the last 5 fiscal years, the right to apply the holdback will be reserved when deemed necessary based on its risk assessment. 

This measure will reduce the financial impact of holdbacks on organizations’ cash flow and simplify the management of contribution agreements for both the organizations and GAC.

To support an effective transition this fiscal year, the release of the holdback on operational projects will depend on Programs’ budget availability. 

These changes apply to all IDA contribution agreements as of December 1, 2023, including operational projects as well as new projects. GAC will not make formal amendments to active contribution agreements; please consider this communication as GAC’s formal notification of the change.