If your centre received a legacy top-up in 2025 or a rolling top-up in 2026, there is a real possibility you have already been selected for a cost review this year. Under the April 2026 CWELCC Cost-Based Funding Guideline, CMSMs and DSSABs were required to identify and engage the top 10% of centres ranked by top-up ratio for a cost review by March 31, 2026. Those reviews must be completed by December 31.
If you have not heard from your SSM yet, that does not mean you were not selected. It means the engagement has not started. When it does, you need to be ready.
What a Cost Review Actually Is
A cost review is not a routine check-in. It is a structured process in which your CMSM or DSSAB reviews your cost structure with one explicit goal: to identify potential cost reductions. The guideline is direct about this. CMSMs are directed to select centres with the most disproportionately high top-up allocations and to work with those centres to find either ineligible costs or opportunities for improved efficiencies.
If ineligible costs are found, your Cost-Based Funding Allocation for the current year must be reduced. There is no discretion on that point.
If eligible costs are found to be inefficient, your SSM can recommend reductions and establish a schedule to bring your allocation down over a period of up to three subsequent calendar years.
The goal of the cost review process, as stated in the guideline, is to gradually shift overall costs toward standardized benchmark allocations. What that means for your centre is that your SSM is coming in with a mandate to find room to reduce what you receive. Understanding that clearly is the starting point for protecting yourself.
What They Are Looking For
CMSMs are instructed to look for two categories of costs in a review. The first is costs that may not provide significant value to the quality of child care being provided, such as redundant costs that could be eliminated. The second is costs that could be incurred in more efficient ways, such as through bulk ordering, outsourcing of certain tasks, or other common business approaches.
Both of these categories require judgment. Neither is a bright line. This is where the review becomes a negotiation, and why documentation and a coherent narrative about your cost structure are not optional.
What the Guideline Says In Your Favour
The most important thing to understand about the cost review process is that the guideline explicitly states that no further actions need to be taken if no cost reductions can be found. That outcome is available to you. The question is whether you can demonstrate why your costs are what they are.
The guideline specifically identifies circumstances where cost reductions may not be possible:
Long-term leases.
If your accommodation costs are fixed by a lease agreement, you cannot reduce them on a schedule of your SSM's choosing. Your lease is your lease. Document it. Bring the signed agreement. The guideline acknowledges this explicitly.
Geographic remoteness.
If your centre is in a rural or remote area where costs for food, supplies, maintenance, or staffing are structurally higher than in urban centres, that context matters and the guideline says so. Build that case with specifics.
Language-specific staffing.
If your centre delivers child care in French, an Indigenous language, or another language where qualified staff are scarce or command higher compensation, that is a recognized cost driver. The supply constraint is real and documentable.
Dietary and cultural considerations.
Food costs at a centre serving children with complex dietary requirements or operating under specific religious or cultural guidelines may be materially higher than a benchmark would assume. Document the need and the cost.
Value propositions included in base fees.
If your centre includes music lessons, swimming, a specific pedagogical program, or other inclusions as part of the base fee, those costs are legitimately attributable to the provision of child care included in the base fee. The guideline recognizes these explicitly. Do not let your SSM treat them as extras.
How to Build Your Defence
The centres that fare best in cost reviews are the ones that arrive prepared with a clear, documented, and coherent account of why their costs are as high as they are. Not apologetic. Not reactive. Prepared.
Start by mapping your cost structure against the benchmark components: program staffing, supervisor, accommodations, and operations. Identify which components are driving your top-up ratio. For each one, understand the specific reason your costs in that category exceed what the benchmark assumes.
Gather the documentation that supports each reason. Lease agreements, staffing contracts, supplier invoices, payroll records, licensing requirements, and parent handbooks are all relevant. If your costs are higher because of a specific circumstance, the documentation needs to exist before your SSM asks for it.
Understand the eligible cost framework. The guideline defines eligible costs as those that are attributable to the provision of child care included in the base fee, appropriate for the provision of child care for eligible children, and reasonable in quality and amount having regard to all relevant circumstances. Every cost you are defending needs to satisfy all three criteria. If it does, defend it. If it does not, address it before the review does.
Know your numbers before the review begins. Your top-up ratio, the components driving it, your eligible cost run rate for 2026, and the gap between your actual costs and your Program Cost Allocation should all be at your fingertips. Walking into a cost review without this information puts you at an immediate disadvantage.
What Happens If Reductions Are Agreed To
If your review results in an agreement to reduce costs, the guideline requires your CMSM to reduce your Cost-Based Funding Allocation on a reasonable schedule that accounts for contractual obligations. That schedule can extend up to three subsequent calendar years. That means changes agreed to in 2026 can be implemented as late as December 31, 2029.
This is not nothing. A properly negotiated schedule protects your ability to honour existing commitments while transitioning your cost structure. If reductions are unavoidable, the terms of when and how they are implemented matter enormously to your bottom line.
Do Not Go Through This Alone
The CWELCC funding formula is one of the most complex funding frameworks in Ontario's public sector. A cost review conducted by a CMSM with a mandate to reduce your allocation, against an operator working from incomplete information, is not a fair process. It is a negotiation with a party that has institutional knowledge, provincial direction, and a clear objective.
ChildcareFundingIQ offers direct child care consulting and CWELCC funding consulting services for Ontario licensed operators navigating cost reviews, reconciliation, and funding disputes. We specialize in child care accounting, daycare bookkeeping, and the financial management of CWELCC-enrolled centres. We review your cost structure, identify your strongest defensible positions, prepare your documentation strategy, and work through the review process with you.
Whether you are facing a cost review, trying to understand your eligible cost position ahead of reconciliation, or simply need a qualified advisor who understands the Ontario child care funding formula, we work exclusively for operators, not for SSMs or the Ministry.
If your centre has been selected or you believe it may be at risk, the time to prepare is before your SSM makes contact, not after.
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