EU Framework Programmes and Full Economic Costing Universities UK, 18 March 2005

1. EU Framework Programmes and Full Economic CostingUniversities UK, 18 March 2005 UK Research Office ukro@bbsrc.ac.uk + 32 2 230 1535

2. UKRO’s Sponsors Arts and Humanities Research Board Biotechnology and Biological Sciences Research Council Economic and Social Research Council Engineering and Physical Sciences Research Council Medical Research Council Natural Environment Research Council Particle Physics and Astronomy Research Council

3. Overview of Presentation • FP6 costs • Moving to Full Cost • Findings of case studies • Indirect costs • Auditing • Issues for consideration

4. FP6 Cost Models Full Cost (FC) • Proportion ofALL eligible costs Full Cost Flat Rate (FCF) • Proportion ofALL 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

5. Use of Cost Models

6. 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.

7. 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

8. FP6 Cost Reimbursement Rates * Up to 7% of the Community contribution AC participants ALWAYS receive 100% of eligible (additional) costs

9. 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

10. 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

11. 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

12. Findings – IP and STREP Research 50% Demonstration 35% Training (IP only) 100% Management 100% (up to 7%) • 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

13. Findings – NoE Other specific activities 100% Management 100% (up to 7%) • 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%

14. 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

15. 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

16. Examples of Non-eligible Indirect Costs • Teaching-related costs • Student services • Cost of capital employed • Bank charges • Irrecoverable VAT

17. 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

18. 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

19. 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

20. 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?