Full economic costing
Full Economic Costing of Research Grants
Prof. Andrew Young, updated August 2012
With effect from 2005 the University sector must adopt Full Economic Costing (fEC) of all externally funded research contracts. Even in cases where the funding body does not accept or recognize fEC there is a mandatory requirement for HEIs to determine the fEC of each project that is applied for by their staff.
What is fEC?
fEC is a methodology for determining the full or true costs of undertaking a particular activity or project. In doing so it takes into account a number of factors that have previously been ignored by funders, including paying HEIs for the time spent on a particular activity by our existing staff. Taken alongside other key information (e.g., the intellectual value of a project, strategic fit etc.), fEC provides a more accurate way of helping determine whether an activity or a project is worthwhile doing or not.How is fEC calculated?
The fEC of a project is calculated as the sum of three separate components, namely: Directly Incurred Costs, Directly Allocated Costs and Indirect Costs. Note that the term ‘overheads’ is no longer used by the UK Research Councils (RCUK), although many other funding bodies still use it.
– These will be familiar to anyone who has previously submitted grant applications. DI costs include the additional staff to be employed in order to directly perform the work, equipment, travel and subsistence, and consumables.
Directly Allocated Costs – DA costs are new to fEC and consist of (a) payment for LJMU staff time on a project as PI or Co-I, (b) charge for the use of accommodation used by the project and (c) costs of using major items of University-owned equipment or facilities. LJMU staff costs will be applied at set rates according to the average band salaries for each School. Estates charges are set at a fixed rate for two types of accommodation (offices and laboratories) on a per FTE basis. The charge-out rate for major equipment will be determined on a case-by-case basis. All DA costs are determined by the finance department on an annual basis and will be applied to the project fEC accordingly.
Indirect Costs – Indirect costs are intended to be a contribution towards the other costs involved in a University conducting research. These costs are determined by the finance department as a single University set rate applied per FTE staff involved in the project.
Exceptions – The Research Councils will pay 100% of the cost for certain items of expenditure, including research student stipends and tuition fees. Equipment - From May 2011 capital equipment is treated differently depending on its cost. Individual items of equipment below £10k should be included in with Other Directly Incurred Costs at 80% fEC. For single items of equipment between £10k and £121,588 (incl VAT) additional justification of the requirement for these items needs to be provided to the Research Council. no more than 50% of the final purchase price will be contributed by the grant award and LJMU will be expected to provide the balance. If you plan to include such items in your bid please consult with Prof. Andy Young at the earliest opportunity. For single items of equipment costing more than £121,588, the Research Councils will only consider funding where there is a clear case that the equipment will benefit a range of research, to encourage equipment sharing.
How will we determine fEC at LJMU?
The process to determine the fEC of a grant application is relatively straightforward and is a simple extension of the previous grant application procedures in LJMU (Please click here for a copy of the grant application procedures). In order to calculate the fEC it will be necessary to provide the finance department with information that may not actually be required on the grant application form you are completing. This includes details of the time devoted to the project by existing LJMU staff (as PI, Co-I or technical) and the type of accommodation to be used in the project (office and/or laboratory).
What is the relationship between the cost and the price?
The true cost to the University for actually performing a particular research activity is the sum of DI, DA and Indirect costs as defined above. In doing so it takes into account both the additional costs of performing the project and the often hidden costs of University infrastructure required (Staff, equipment, buildings etc.). For any particular activity the cost is the same regardless who is paying for it.
The price set for a particular research activity is, however, determined by the funding body itself or by market forces. Ideally the price seeks to recover all our costs but this may not always be possible. For example, the RCUK currently only pay a fixed percentage of the fEC (see below) and income from charities usually falls well short of the fEC. In cases where projects are funded by industry we should at least aim to recover all our costs.
What is the position of each of the main funding bodies?
RCUK - From the1st September 2005 the UK Research Councils (RCUK) will only accept fEC for all grant applications. The forms available for grant applications, including those on-line in the JeS system have been revised to include fEC. The RCUK have announced that they will pay 80% of the fEC of all grants awarded (see exceptions listed above) from 2005-06 with the expectation that this rises to close to 100% by 2010.
Government departments – From 1st January 2005, all non-competitive research projets funded by Government department should be funded at 100% of the fEC.
Charities – The vast majority of Charities currently do not recognize fEC and it is unlikely that this position will change in the near future. As a result, HEFCE have announced that they will assist HEIs in helping meet the shortfall between the value of grant awarded by most charities (estimated at approx. 50% of fEC) and the true costs incurred by the University to the same level as the RCUK (i.e., 80% of the fEC). These funds will form part of the HEFCE R-allocation to HEIs from 2006-07 onwards and will be determined from the data submitted to HEFCE as part of the Annual Research Activity Survey. They will be distributed to Faculties / Schools in proportion to their recognized Charity income.
NHS – At present the NHS does not recognize fEC costing methodology.
Other – The European Union Framework programmes do not recognize fEC and the future position concerning funding from the European Union in FP7 is still unclear.
Frequently asked questions
Do we need to calculate the fEC of all research grant applications?
Yes, this is necessary even in cases where the application form itself makes no reference to fEC. The University is required to determine the fEC of all grant applications.
Who performs the fEC calculations?
As PI you will be required to identify your specific resource requirements for the project. First determine what your new staff requirements are (post docs, technicians etc.) – you need only determine grade and length of contract. The finance department will then determine the actual staff costs (taking into account inflation, increments etc.) as recognized by the funding body. You will also need to determine your other project costs, namely, new equipment, consumables, travel and subsistence etc. Together, these comprise the DI costs. You will also be required to identify any planned use of major equipment in the University and the type of accommodation (office or laboratory) to be used, as well as the time you and other LJMU staff (acting as co-investigators or technicians) plan to spend on the project. The finance department will use this information in order to determine the DA and Indirect costs allowing the overall fEC for your grant proposal to be calculated. The finance department will also calculate the total amount of grant that can be requested from a particular funding body.
A checklist is provided to assist you in identifying your project requirements (Please click here for a checklist of costings).
The grant forms I have to complete do not make any reference to fEC. What should I do?
At present, only the RCUK, The British Academy, Department of Health (NEAT Project) and the Royal Society (some grants only) have revised their application forms to accommodate fEC calculations. For other funding bodies the forms are unchanged and the finance and research departments will advise on what costs you should actually enter.
If my application is successful, the University will only receive X% of the fEC of my grant proposal – will this application be approved by the University?
At present we do not necessarily expect to recover 100% of the fEC of externally funded projects from most funding bodies (except from industry and from Government departments). As a minimum, the DI costs of undertaking an externally-funded project should be met by the funding body.
The approval of grant applications being submitted to external funding bodies will consider costing and pricing as follows:
For RCUK and most charity-funded projects we do not expect any change in Institutional behaviour in terms of grant application approval. For RCUK projects the value of grant awarded at 80% of fEC is usually significantly higher than if the same grant was awarded before fEC was used in place. HEFCE have also announced that they will provide additional funds to HEIs undertaking research sponsored by charities from 2005-06 in order to cover the shortfall in funding (see above). Note that such HEFCE funds will be allocated to Faculties or Schools, as appropriate, and not to individual projects.
For other funding bodies and where there is determined to be a significant shortfall in the income against the fEC of a project, the University may decide not to proceed with the application unless a supporting case can be made based on the perceived intellectual and / or strategic value of the proposed project to the School, Faculty or Institution.
Because the RCUK will now pay for LJMU staff time as a PI or Co-I on a grant, can I simply increase the amount of time I (and/or colleagues) to this project and thereby increase the funds awarded to LJMU?
No, the Research Councils have clearly stated that they will be closely monitoring this and do not expect to see any change from past application behaviour (which varies across disciplines). Any request for ‘above average’ PI and Co-I time to be devoted to a project will have to be fully justified to the funding body concerned. As a guide, the supervision of a project with a full time post-doctoral research assistant would typically require a day per week (20%) of staff time as PI.
Can I devote more than 100% of my time as PI on RCUK grants?
For any one investigator, the amount of time that RCUK will fund across all the projects they support is a maximum of 1650 hours a year (equivalent to 37.5 hours a week, 44 weeks a year). The total salary costs for any individual on all RCUK grants and fellowships must not exceed 100% FTE.
PIs, Co-I’s and Fellows whose time and salaries have already been wholly awarded in the fEC funded from other research or fellowship grants provided by the RCUK should still indicate their level of involvement in a new proposal, but with zero hours charged to the grant.
Under fEC projects funded by the RCUK and Government departments will provide the University funding for my time as PI. What does this mean for me?
Schools should ensure that when staff act as funded PI and Co-Is on RCUK grants, that these staff are provided with sufficient time to devote to research. Project diaries are not required, although staff will have to be able to show evidence that they have worked on the project (e.g., through the School’s workload allocation model). Staff may also be asked to certify that the project has (very broadly) required the amount of time originally estimated.
What happens to the Indirect Costs when a grant is awarded?
After the DI expenditure is met, the balance of project funds is devolved to the School or Faculty (depending on local arrangements within the Faculty). There is no central retention of funds on externally-funded research projects.
I have been invited to be a co-investigator on a project being submitted by another University. How does fEC work in this case?
We will need to determine the costs of the project associated with LJMU. This may include some DI costs, and will certainly involve commitment of your time to the project. This and other DA and Indirect costs will be charged to the project using LJMU rates as part of the overall fEC determination.