EU Framework Programmes and Full Economic Costing

Universities UK, 18 March 2005

UK Research Office

ukro@bbsrc.ac.uk

+ 32 2 230 1535

UKRO’s Sponsors

Particle Physics and Astronomy Research Council

Biotechnology and Biological Sciences Research Council

Engineering and Physical Sciences Research Council

Economic and Social Research Council

Medical Research Council

Natural Environment Research Council

Arts and Humanities Research Board

Overview of Presentation

FP6 costs

Moving to Full Cost

Findings of case studies

Indirect costs

Auditing

Issues for consideration

FP6 Cost Models

Full Cost (FC) Proportion of ALL eligible costs

Full Cost Flat Rate (FCF) Proportion of ALL DIRECT eligible costs plus a

flat-rate of 20% of these costs to cover indirect costs

Additional Cost Flat Rate (ACF) 100% of ADDITIONAL DIRECT costs plus a flat-

rate of 20% of these costs to cover indirect costs

Use of Cost Models

Full Cost Models Additional Cost

FC FCF ACF

International organisation

Available Available Available

Physical person

Mandatory

Public body, JRC

Available Available Available

SME Available Available

All other contractors

Mandatory

FP6 Eligible Costs

No pre-defined eligible costs

Actual, economic and necessary

Incurred in project lifetime

Determined according to each organisation’s

usual accounting principles

Recorded in each organisation’s accounts

Not subject to taxes, interest etc.

FP6 Non-eligible Costs

Any identifiable indirect taxes, including VAT or duties Interest owed Provisions for possible future losses or charges Exchange losses Costs declared, incurred or reimbursed in respect of another

Community project Cost of return on capital Debt and debt service charges Excessive or reckless expenditure Any cost which does not meet the definition of eligible costs Current costs, notional costs, opportunity costs

FP6 Cost Reimbursement Rates

RTD Demo Training Management* Other

NoE 100% subject to conditions

IP 50% 35% 100% 100%

STREP 50% 35% 100%

SME specific

50% 100%

I3 50% 35% 100% 100%

CA 100% 100% 100%

SSA 100% 100%

* Up to 7% of the Community contribution

AC participants ALWAYS receive 100% of eligible (additional) costs

Cost Issues

The Framework Programme operates on a shared cost basis

AC partners in FP6 must provide a global estimate of resources

Reimbursement is subject to the Community Framework for State Aid for Research and Development

Full Economic Cost is NOT the same as 100% reimbursement

A number of EU countries want an increase in reimbursement rates for universities in FP7

Reimbursement rates for FP7 are not yet decided May be changes to cost models for FP7

Moving to Full Cost

The Commission has indicated that: A move to FC (or FCF) will not affect FP6

contracts already signed For new FP contracts

─ If a university cannot fully identify direct and indirect costs at project level, AC can be used

─ If a university can fully identify direct and indirect costs at project level, FC (or FCF) must be used

Case Studies

Five organisations in England, Scotland and Wales Integrated Projects, Networks of Excellence, STREPs Follow-up meetings with four institutions Participants asked to:

─ Select current FP6 project, where using AC─ Re-cost as FC, using TRAC─ Answer series of supplementary questions

Preliminary findings indicate that overall AC and FC reimbursement is roughly equivalent, BUT

There are significant differences between projects Results would be different for projects costed under FC

from the outset

Findings – IP and STREP

Grant to the budget Case study projects had slightly lower reimbursement

under FC than under AC, BUT Little or no training in IPs selected High demonstration components If costed as FC originally:

─ Would have included different staff (more core-funded)─ May have altered balance of activities

Only complete costs for first 18 months of projects

Management100% (up to 7%)

Research50%

Demonstration35%

Training (IP only) 100%

Findings – NoE

Grant for integration Expenditure must be higher than the grant Reimbursement higher under FC in case study Can charge core-funded staff, BUT Need to ensure institutional contribution Planning difficult due to flexible nature of an NoE

N.B. CA and SSA also both reimbursed 100% for direct costs, but flat-rate overhead of 20%

Management100% (up to 7%)

Other specific activities

100%

Findings – Potential Problems

University departments with no core-funded staff – how to make up own contribution in an IP or STREP?

Institution’s own contribution in an NoE Need for time accounting system – timesheets? Apportioning direct and indirect costs within the

university Balance of activity within and across projects

Indirect Costs

All case studies significantly higher than 20% Much variation between institutions in selection

of cost drivers Inclusion of some elements that are not eligible

under FP Rules of Participation If using FC, will need to ‘strip out’ non-eligible

elements Will need to break down into individual items Will need to cost individual items

Examples of Non-eligible Indirect Costs

Teaching-related costs

Student services

Cost of capital employed

Bank charges

Irrecoverable VAT

Examples of Problematic Indirect Costs

Infrastructure adjustment Sports and recreation services Health and safety Corporate Development Travel and subsistence Professional fees Registry Other costs in academic departments International Relations office Support time of academics PI thinking time Schools Catering and residences Back recharges

Indirect Cost Rates

May need more than one indirect cost rate Precedence for applying different rates amongst current

FC participants If using more than one rate, participants need to ensure

that:─ They are applied consistently─ There is as little variation as possible between rates─ Areas of divergence are clearly identified─ Two (or more) rates can be managed in parallel

The Commission will not ratify indirect cost rates of individual institutions

Questions addressed to UKRO in first instance

Auditing Direct and Indirect Costs

Increased responsibility for contractors in FP6 Should consistently apply institution’s own accounting

principles Should not employ separate practices for EU funding Cost eligibility checked by institution’s own auditor Appropriateness of cost model checked by institution’s

own auditor The Commission will not over-rule choice of cost model,

BUT may make recommendation Commission audit may identify non-eligible costs Good co-operation between institutions and auditors

needed

Issues for Consideration

What are your particular concerns – and why? Additional case studies welcomed Additional feedback welcomed on:

─ Details of indirect costs─ Management of different indirect cost rates─ Apportioning of direct/indirect costs with institutions─ Changes to nature of staff working on projects─ Mechanisms for time accounting

What effect might the move to FEC have on institutional strategy for participation in externally-funded activities

What would you like to see in terms of the next steps?