EU Framework Programmes and Full Economic Costing
Universities UK, 18 March 2005
UK Research Office
+ 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?