Full Economic Cost – Frequently Asked Questions
What is FEC? The Government’s 1998 Spending Review granted additional funds for
higher education, but required transparent costing at institutional level. This led to the
introduction of the Transparency Review, which established a Transparent Approach
to Costing (TRAC).
TRAC showed that all research was under-funded when full economic costs were
calculated. It also showed that there were significant problems of the investment in
HE infrastructure that were not apparent from institutional published accounts, as
these reflected expenditure and not the costs of activities.
In light of the above, the 2002 Spending Review awarded additional funding for
research, both recurrently (QR and the Science Budget) and as capital through SRIF2.
There was, however, a condition that institutions are required to take responsibility for
their own financial sustainability, particularly in respect of research infrastructure.
OST is in the process of distributing £120 million of funds per annum, rising to £200
million from 2007/8. The aim of these extra funds is to ensure that a greater
proportion of the cost of research is met. These funds will not lead to an increased
volume of research being funded and the aim is to take a significant step away from
the “Low Price Culture” in research applications.
As a result “Full Economic Cost” was introduced, and is a follow on from the TRAC
methodology. It is anticipated that FEC should be fully embedded within HEIs’ by
2008-9
When does the FEC regime begin?
As from June 2005, proposal forms to the research councils will be FEC compliant.
31st July is the final date for pre-FEC proposals. All proposals after 1st September
2005 will be submitted on a FEC basis only. The last date for announcement of preFEC grant awards is 31st March 2006.
What categories of expenditure are recognised under FEC?
There are three categories of expenditure that are recognised under full economic cost
principles; directly incurred costs, directly allocated costs and indirect costs.
Directly incurred costs are expenditure incurred for a project and only that project.
These costs should be recorded against the project during its life, and the institution
should have auditable and verifiable systems for each cost.
These costs include (but are not limited to) cost of research staff and other staff
dedicated to the project, travel and subsistence, consumables, equipment,
subcontracts, bursary costs, etc.
Directly allocated costs are those costs that can be attributed to the project but can
only be allocated as an estimation of usage. These costs include academic time,
technician and administrators time and estates cost.
The estates cost is calculated by determining the cost of the Institutions Estate
attributable to research. This cost is then allocated on a full time equivalent basis and
varies depending upon whether the work is carried out in a laboratory or a generic
based environment.
Indirect costs are those support costs as identified in TRAC and now exclude the
estate costs of the faculties’ as this is now a direct cost. This indirect cost is also
calculated based upon the number of full time equivalent members of staff working
on the project.
When will all of this be happening? The timeframe for FEC is as follows:
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June 2005 – New Grant Application form was made available
31 July 2005 – Closing date for all pre-FEC applications
1 September 2005 – Earliest date for submission of FEC application forms
31 March 2006 – Last date for award of pre-FEC grants
1 April 2006 – All grants awarded on FEC basis from this date onwards
Will UK Research Councils’ be paying 100% FEC?
OST (Office of Science and Technology) is in the process of distributing £120 million
of funds per annum, rising to £200 million from 2007/8. The aim of these extra funds
is to ensure that a greater proportion of the cost of research is met. These funds will
not lead to an increased volume of research being funded. Instead, grants will be
better resourced and will aim to therefore get better outputs.
Research Council projects will be awarded under an FEC basis from 1 September
2005 with equipment funded at 80% for the first £50,000 and 100% above £50,000.
The long-term expectation is that 100% of FEC will be paid on Research Council
projects by the beginning of the next decade. Projects awarded under a pre-FEC basis
will continue to be funded at 100% of eligible costs plus a contribution of 46%
towards overheads.
In terms of how Research Councils’ will review bids that they receive, there will be
no change to the peer review concept or case for support. The peer review focus will
remain on the pursuit of excellence in applications and the matching to strategic
priorities – not cost.
How about Government Departments?
Government Departments are expected to pay 100% of FEC on all commissioned
work, not simply research.
The NHS R&D programme including the Service Delivery Organisation – SDO - will
accept bids on FEC and calculated on TRAC methodology from September 2005 and
anticipates funding 80% of FEC from April 2006. However, NHS funding is still
being investigated due to the “knock-for-knock” situation that exists with HEIs’.
At the time of writing, Government Departments have not been allocated additional
funds to take account of any budgetary pressures that result from FEC.
Will Charities pay FEC at the same level as the Research Councils’?
Charities are unlikely to use TRAC as a methodology and fund all costs. They are
unlikely to pay indirect costs or academic staff time but may fund some directly
allocated costs – for instance pooled equipment costs or support staff. AMRC
(Association of Medical Research Charities) are likely to accept TRAC methodology
but it is unlikely that they will fund most directly-allocated or indirect costs. If you are
making an application and are in doubt or require clarification, please contact Paul
Woolnough in Research and Development Service – [email protected] or
[email protected] in the Research Finance Office.
HEFCE (Higher Education Funding Council for England) have introduced a new fund
indicating that it will be replacing the charity element that was part of the overall QR
(Quality Research) grant that University of Portsmouth receives. The new fund will
only be given in departments and research groups that have charitable research in
UOA (Units of Assessment) rated in the 2001 RAE (Research Assessment Exercise)
as 4 or above, plus 3 graded capability areas. The HEFCE criteria for funded income
now also includes overseas charities and peer review.
The changes will be occurring from 2006/7 and increased funds will be available. The
increased funding will initially amount to £135million in 2006/7, rising to
£180million by 2007/8. To be eligible for these extra funds, the grant sponsor must be
recognised for charitable purposes and the award must have been won in open
competition and by peer review.
Will FEC limit my ability to attract EU Framework Programme (FP) funding?
The situation regarding FP 6 funding and FEC is currently unclear. However, it is not
anticipated that FEC will be recognised before the end of the programme. The first
draft of FP7 is expected to emerge in September 2005. Universities UK will continue
to monitor the issue of the EU recognising FEC.
It is likely that the cost models will differ slightly in FP7 from FP6 although UUK
feel that they will be similar to the current models. If the EU were to accept FEC as a
cost recovery model, it is likely that the indirect cost that an HEI charges would be
reduced in order to remove the costs that the EU define as `ineligible`. The funding of
EU research will continue to be on a “shared cost” basis meaning that projects would
only be partly funded with the HEI funding the remainder of the costs.
When would I price a bid at less than 100% FEC?
It is important to price all projects at 100% FEC whenever possible. However, there
may be circumstances that mean that 100% could not conceivably be recovered but,
for example, the research project to be undertaken is of key strategic importance to
the University or cutting edge at international level but likely to be loss-making.
The decision to cost at less than 100% FEC after 1 September 2005 would need to be
of clear benefit to teaching conducted here at University of Portsmouth. The FEB
(Full Economic Benefit) would also need to be outlined within the application. Any
go-ahead given to submit such project applications would need to come from the
Dean of the relevant Faculty before being sent for approval to the Research Finance
Office.
What impact is FEC likely to have at University of Portsmouth level? On a national
level, it will be some time before the full range of costs are revealed and sustainability
within the sector is not anticipated until at least 2008-9. However, at an HEI level any
current or short-term deficits will be replaced by a regime of FEC in the longer-term
with properly priced bids submitted. FEC is therefore something that UOP and the
HEI sector as a whole are moving towards.
Funds that are not recovered from the sponsor will need to be met from other sources
such as QR funds, donations and surpluses gained from other Research and
Knowledge Transfer activity.
However, it should be noted that the University of Portsmouth is a “Mixed Economy”
institution and that FEC is not a barrier to international class research. The difference
FEC will bring is that decisions made by Departments on whether or not to go ahead
with a particular application will be better informed than pre-FEC. Therefore,
applications that are priced at less than 100% FEC will not be automatically rejected
but a sound and clear justification of the Full Economic Benefit must be provided.
Who do I need to contact for more information on FEC? For information on FEC
policy please contact [email protected] in Research and Development
Service. For costing and pricing issues and guidance regarding FEC, please contact
[email protected] in the Research Finance Office.
There is also information on FEC on the University’s Finance intranet at
http://www.port.ac.uk/intranet/finance/TransparencyReviewFullEconomicCosti
ngFEC/FullEconomicCosting/FrequentlyAskedQuestions/
The Research Councils’ have also provided information via
http://www.pparc.ac.uk/jes/DSR_FAQv1.0.pdf