Finance Business Systems
Support and financial appraisal of research proposals
Frequently Asked Questions
Full Economic Costs
| What is FEC? | Question 1 |
| Why is FEC being introduced? | Question 2 |
| How will FEC affect Research Council funding? | Question 3 |
| Will charities and other sponsors meet FEC? | Question 4 |
| When will grant applications be submitted using FEC methodology? | Question 5 |
| How is UWE handling the implementation of FEC? | Question 6 |
| How will information be disseminated? | Question 7 |
| How can I pass on my views about FEC? | Question 8 |
| Funding arrangements and timing | Questions 9 to 21 |
| Proposals | Questions 22 to 27 |
| Costing | Questions 28 to 37 |
| Directly Incurred costs | Questions 38 to 40 |
| Directly Allocated costs: Investigators | Questions 41 to 48 |
| Directly Allocated costs: Estate costs | Questions 49 to 51 |
| Directly Allocated costs: Other directly allocated | Question 52 |
| Indirect costs | Questions 53 to 56 |
| Exceptions | Questions 57 to 60 |
| Management of FEC grants | Questions 61 to 67 |
| General | Questions 68 to 72 |
| Monitoring of implementation of FEC | Questions 73 to 74 |
If you have any suggestions/requests for questions to be included in this section, please email them to Raymond.Lockyer@uwe.ac.uk
Q1. What is FEC?
FEC (Full Economic Costs) is a development of TRAC (the Transparent Approach to Costing) to provide a forecast of the full economic cost of undertaking a research project.
Under the current system, sponsors make varying contributions towards the direct and indirect costs of research projects; indirect costs are not currently calculated accurately. A separate contribution towards the indirect costs of some categories of research projects is made to HEIs via the HEFCE block grant.
Under FEC, all HEIs in the UK will be required to identify all direct and indirect costs for each research project, including space/estates charges, depreciation, an adequate recurring investment for infrastructure, equipment, consumables, travel and the cost of all staff working on the project (including PIs, technical and administrative staff).
Q2. Why is FEC being introduced?
FEC is being introduced following consultation between the Government, funding bodies and HEIs, to redress the imbalance of significant increases in the volume of research in UK HEIs, which has not been matched by equivalent increases in contributions towards indirect costs. HEIs need to ensure that over their activities as a whole, their full economic costs are being recovered.
Q3. How will FEC affect Research Council funding?
Instead of paying the direct costs of research projects plus a contribution towards indirect costs (calculated on the basis of 46% of the additional staff costs), the Research Councils will pay 80% of the Full Economic Costs (FEC) of research projects (as announced on 06 January 2005). The government's 10-year investment framework for science has set the aim of increasing this proportion to close to 100% by 2010.
Q4. Will charities and other sponsors meet FEC?
Applications for funding from charities will also be costed on an FEC basis. It is expected that charities will meet certain costs that can be directly attributed to projects, although it is unlikely that they will meet the FEC of research projects. More information on this to follow.
Government departments (except the NHS) and industry will be expected to meet 100% of FEC.
Q5. When will grant applications be submitted using FEC methodology?
Grant applications will be submitted to the Research Councils from September 2005. It is anticipated that grant applications to other funding bodies will also be costed using FEC by this date. In the run up to September 2005 it is intended to pilot the new methodology - further information regarding this will follow.
Q6. How is UWE handling the implementation of FEC?
The University has set up a ‘Project Team’ Chaired by Professor Stephen Hoddell to implement the national requirement to manage research in a sustainable manner. Ian Dufty has been charged with the task of developing the technical financial detail; the development of a website and associated training
Q7. How will information be disseminated?
The project team have developed a communications strategy which involves the regular issue of information buletins to keep staff informed of updates and revisions to the fEC process. Deans and Heads of Service are the contact points for information dissemination, although research directors and administrator are also copied into communications. Dates are being arranged to provide awareness raising seminars and training workshops for all staff involved in research costing.
Q8. How can I pass on my views about FEC?
You can submit your questions to Ian.Dufty@uwe.ac.uk who will endeavour to pass your comments onto the project board.
Funding Arrangements and Timings
Q9. Why are these changes being made?
The changes are part of the Government’s wish to put university funding on a more sustainable footing, to address the under-investment in infrastructure that was demonstrated by the Transparency Review. The basic funding model is that Research Councils/AHRB will pay a proportion of FEC.
Q10. Are additional funds available for these changes?
Yes. An additional £120M from 2005/06 and £200M from 2007/08 has been made available to Research Councils/AHRB. Additional funds have also been provided to Funding Councils to increase QR.
Q11. Why will Research Councils/AHRB pay only a proportion of full economic costs?
The Government has asked RCs/AHRB to maintain the current volume of research they support. With the additional funding to be provided, RCs/AHRB will be able to pay only a proportion of FEC, with the balance of support from Funding Councils or other sources. In the 2004 10 year Framework the Government signalled an intention to move towards payment of 100% FEC by RCs/AHRB, by the end of the decade.
Q12. Who will decide what portion of full economic costs…and when?
The Government has announced that as from September 2005 Research Councils will pay 80% of fEC with a view to increasing that percentage to 100% by 2010.
Q13. How will the standard % FEC figure be determined?
It is being modelled on the basis of what proportion of FEC can be sustained by the additional funds being provided, without changing the volume of research supported.
Q14. How will the additional funding be made available?
£120M available in 2005/06 will be distributed by single payments to universities in July 2005, made by ESRC on behalf of all Research Councils and AHRB. The payments will be based on RC/AHRB grants income in 2003/04. The purpose of this interim funding is to provide better support for existing research, not to increase the volume funded. In subsequent years, the first call on additional funding will be to support FEC grants; any residue will be paid out in support of continuing pre-FEC grants.
Q15. What is the timetable for these changes?
The key milestones for implementation of changes to Research Council arrangements for grants are:
- June 2005: New proposal forms available
- 31 July 2005: Last date for submission of pre-FEC proposals
- 1 September 2005: Earliest date for submission of FEC proposals
- 31 March 2006: Last date for announcement of pre-FEC grants.
Q16. Will there be changes to the closing dates of grant rounds?
For NERC the small grants closing date will be moved from 1 September 2005 to 15 September. No other changes are expected.
Q17. How will pre FEC proposals that have not been announced at 31 March 2006 be transferred across to FEC?
They will be returned to the Research Organisation for re-costing on an FEC basis.
Q18. Should Research Organisations accelerate submission of proposals before the August close-down or wait until 1 September 2005? Research Councils' advice is for no change in behaviour concerning timing of proposals in relation to the implementation of FEC.
Q19. How will non-university research organisations be affected?
Research Councils will apply the same funding arrangements to all organisations that are eligible for their support. Non-university organisations will not be expected to use the Transparent Approach to Costing (TRAC) methodology, but Research Councils will require a validation process to ensure that non-university costing methodologies are robust. For Research Council Institutes, validation will be by the host Research Council.
Q20. What about FEC for grants that currently do not attract overheads eg fellowships?
Fellowships are covered by the FEC changes. The funding elements on fellowships will be analogous to those proposed for research grants. Estates and indirect costs will be payable.
Q21. What happens with existing grants that are due to carry on running some time into the future?
There will be no change to existing grants. All pre-FEC grants will be allowed to run their course. However if a review point comes up this may be an opportunity to move the grant onto an FEC basis.
Proposals
Q22. Will Research Councils use common forms and procedures?
As far as possible, yes. The data requirements for FEC have been worked out on a cross-Council basis, with the expectation that Councils will apply a common approach.
Q23. How does this fit in with electronic proposal forms?
Six Councils are committed to using the Je-S electronic proposal form by the time FEC arrangements are introduced. MRC has its own electronic form already in use. RCs/AHRB are also committed to electronic submission in 2005.
Q24. In a RC/AHRB proposal what is the structure of costs that can be applied for?
Proposals will show the total (100%) FEC of the research proposed broken down according to the three summary fund headings defined by TRAC (Directly Incurred, Directly Allocated and Indirect Costs), and their constituent subheadings, and to a fourth (Exceptions) to be introduced by the RCs/AHRB.
Q25. Can Research Organisations apply for less than standard % FEC (eg. if getting additional funds from elsewhere)
No. The proposal form will ask for 100% FEC and automatically identify the % FEC that Councils will contribute.
Q26. What will the new proposal form look like?
An illustrative research grant proposal form is available at https://researchcouncils.intranets.com/ plus a summary of requirements. This highlights the main changes and includes explanatory notes on each change. It must be stressed that the actual forms are unlikely to resemble this illustration.
Q27. Will the case for support change?
Not in essence, but there will be a need to include justification for all Directly Incurred/Exceptions costs and the amount of investigator time included, plus some DA costs. Guidance on the completion of the form and case for support will be provided in due course.
Costing
Q28. Will there be any inadmissible costs?
All costs that contribute to the full economic costs of a project should be included.
Q29. What is the distinction between Directly Incurred and Directly Allocated costs?
Directly Incurred costs (DI) are those costs that are explicitly identifiable as arising from the conduct of the research, are charged on the basis of the cash amount spent and are verifiable and auditable from the accounting records. Directly Allocated costs (DA) are shared costs based on estimates, and do not represent actual costs on a project-by-project basis.
Q30. Can Research Organisations still apply for pooled staff effort such as technicians or secretaries?
Are they DI or DA? Yes. Pooled staff effort is usually taken to include staff who are specific to a project even though only a proportion of their time is allocated to it, plus support staff in the category ‘departmental technical and administrative services’.
Where staff are specific to a project, they can be DI if their costs can be charged as actuals and underpinned by an auditable record; otherwise they will be DA. Departmental technical and administrative services should be listed under Other Directly Allocated costs.
Q31. If the usage of a facility can be accurately attributed to specific projects, could it be a directly incurred cost rather than a directly allocated cost?
It could be directly incurred if you can identify usage by each project and have a means of charging costs based on actual usage. The records must be auditable. The alternative approach is to allocate costs to projects based on a charge-out rate, in which case the figures are estimates and should be shown as ‘Other Directly Allocated’ costs.
Q32. Will the costs of recruitment and dissemination be included?
Recruitment costs can be included in DI provided they occur after the announced start date of the grant. For RC projects the time spent writing the final report should be included in the PI time estimates - even if this takes place after the research grant has been completed. However, dissemination of research that takes place months or years after completion of the project are included in the indirect cost rate.
Q33. Will the indirect and estate costs rates used by each organisation become public knowledge?
No. RCs/AHRB will ask for costs, not the rates they are based on.
Q34. How will project partner funding, e.g. with industry, be calculated?
Project partner contributions in cash should be seen as additional to the RCs’/AHRB % contribution, provided the RO is not making a return of more than 100% FEC; in-kind contributions are not considered to be part of the FEC of a project.
Q35. How will collaborative schemes involving other sponsors be affected?
Collaborative schemes managed by the RCs/AHRB will be funded at the standard proportion of FEC. The arrangements for those schemes managed by other organisations are still under discussion.
Q36. If a reduction is recommended in resources on a project, how will the proposal be re-costed?
RCs/AHRB will introduce a procedure to enable the RO to re-calculate estates and indirect costs, if research staff resources are changed. There will be a 10 working day period in which to do this. The request will be made to the administrative group by whom the proposal was submitted.
Q37. Why can’t Councils do this re-calculation themselves?
The proposal will ask for costs for estates and indirect costs, not the underlying rates used. The RO is therefore best placed to re-calculate the figures.
Directly Incurred costs
Q38. Can we use the salary bandings for RAs, or should we use spine points?
As RAs are directly incurred costs and will be charged as actuals, spine points should be used.
Q39. What staff increments can be included?
Full employment costs should be charged for staff, whether DI or DA, including national insurance and superannuation and increments where appropriate.
Q40. Where equipment has been funded by a RC/AHRB grant, how should usage be charged out on other grants?
A relevant share of equipment costs can be charged to each grant using the equipment. This will include both running and capital costs. Where RCs/AHRB have already funded the capital costs, double counting should be avoided due to a set of specific adjustments that have to be made to the estates charges when they are calculated, as set out in the TRAC manual.
Directly Allocated costs: Investigators
Q41. Will investigator salaries be funded?
Yes. Directly Allocated costs should include the cost of the time investigators expect to give to the conduct and management of the project, calculated in accordance with the guidance given in the TRAC manual. Investigator salaries can also be directly incurred costs. The costs of an RA who is a co-investigator must be shown as Directly Incurred.
Q42. Why is investigator time normally directly allocated rather than directly incurred?
Directly allocated costs are based on estimates rather than actuals. As Investigator time will usually be an estimate, it will come under DA. Investigators will not be required by the RCs/AHRB to complete timesheets.
Q43. How do we ensure that we are not overcharging academic staff’s time?
RCs/AHRB will not fund more than 100% of an investigator’s salary (i.e. a maximum of 37.5 hours a week, 44 weeks pa). Councils accept the need for flexibility in relation to individuals because of the difficulties of estimating both time and the likelihood of success of applications. They will seek assurance that at organisation level the costs paid for investigators are in balance with the total time attributed to grants.
Q44. Why have Councils gone for a 37.5 hour week when academics often work far longer than this in reality?
This figure is in accordance with TRAC and has been chosen for costing purposes. If a higher figure had been chosen then ROs would have been required to ensure that academics worked this time in order to ensure full cost recovery.
Q45. If an investigator spends double the amount of time originally estimated on the proposal, how does the Research Organisation recover the costs?
Investigators’ costs on grants will be paid on the estimates shown on the grant announcement – no more, no less.
Q46. Investigator time on the project is averaged over the length of the grant, but if some is for writing up at the end where is this estimated?
This should be rolled into the average time.
Q47. Should we use average band values or actual values for salaries?
Research Organisations can choose either method, as long as they are consistent within the organisation. The UWE Project Board has chosen to use Bandings for Directly Allocated staff in order to maintain the confidentiality of staff salaries. Therefore, spinal points cannot be used for this category.
Q48. Will peer reviewers see investigators’ salaries?
Peer reviewers will see all costs, which will include a salary figure, but they will not know how it has been calculated (i.e. actual, banding, average or pool).
Directly Allocated costs: Estates costs
Q49. What do Estates costs pay for?
Estates costs cover those costs related to buildings and premises, including maintenance, utilities costs, cleaning, security and safety.
Q50. Could estate costs be charged on an actual rather than FTE basis?
Estates costs are based on estimates. There is no expectation that Research Organisations should try to record actual costs - it would not be a cost-effective approach. However, TRAC does offer the option of charging on the basis of space occupied as an alternative to FTE
Q51. Is there a requirement for justification of estates costs in a proposal?
For instance a high cost facility would have high estates costs. No justification is required for estates or indirect costs, as the TRAC methods are designed to ensure that, overall, estates costs charged to projects are a fair and reasonable reflection of the costs incurred.
Directly Allocated costs: Other Directly Allocated
Q52. What costs would fall under “Other Directly Allocated”?
Other Directly Allocated is envisaged to include costs of shared resources, such as, pooled staff and departmental technical services, central and distributed computing services, and charge-out rates for shared equipment and major research facilities.
Indirect Costs
Q53. What do Indirect Costs pay for?
Indirect costs cover the costs of RO administrative services, including personnel, finance, library, together with some departmental services.
Q54. How is redundancy pay covered?
Redundancy costs are covered by the cost of capital employed (COCE) element that is included within Indirect costs.
Q55. Do indirect cost rates apply to technicians?
No. The FTE used as the denominator for indirect costs is based on research staff on the project. Technicians are not regarded as research staff. TRAC provides details.
Q56. The cost of writing up final reports can be included but what about the cost of preparing the proposal?
These costs should be taken into account in the indirect cost calculations, as part of research support activities.
Exceptions
Q57. Will there be any exceptions to % FEC?
Yes. Project studentships (tied students for NERC) will be exceptions, together with equipment above a threshold level – Councils will pay % FEC up to the threshold for equipment, and 100% FEC above it.
Q58. Why are project studentships an exception?
Postgraduate training is not currently included in the move to FEC, so those Councils that fund project studentships will fund them as exceptions. Where project studentship costs are paid on the grant, 100% of stipend and fees will be included, but these students must not be counted in FTE for calculating the estates and indirect costs on the application form.
Q59. Is the suggested equipment threshold for single items or the total of the equipment heading?
For the total of the heading.
Q60. How will large surveys be treated?
ESRC surveys will be treated in the same way as equipment, with a threshold above which FEC will be paid in full at 100%.
Management of FEC grants
Q61. What about grant transfers?
It will be possible to transfer FEC grants in the same way as under existing arrangements. Grants will not be re-costed on account of transfers. The balance of unspent DI and exceptions, plus a pro-rata share of DA and indirect costs will be available for transfer following financial reconciliation of the grant.
Q62. Will virement of funds be possible?
Virement will be permitted only with Directly Incurred/Exceptions costs. Existing restrictions on virement of savings on the purchase of equipment will continue.
Q63. Will it be possible to start a grant (eg with investigator resource) before an RA starts?
Yes, but the commencement of profiled payments will remain unchanged. (e.g. profiled payments will not start until an RA is in post).
Q64. What will happen where a project has substantial change in the use of funds over its lifetime?
For example, extra or fewer RAs used. As now, RCs/AHRB will give investigators flexibility to use grant funds according to the needs of the project. At the end of a grant, the final expenditure statement will reconcile actual expenditure under the directly incurred and exceptions headings against payments made. Major variations in Directly Incurred and exceptions costs should be explained in the final report. Directly Allocated and Indirect costs will normally be paid as awarded.
Q65. What information will Research Organisations be asked to provide at the end of grant reconciliation?
Directly Incurred and exceptions expenditure will be reconciled against actual payments made. Directly allocated and Indirect costs will be met as awarded (unless the grant has been affected by transfer, early termination or financial sanction).
Q66. Will cash limits continue?
Research Councils will retain the principle of cash limits. They have agreed to maintain a dialogue with universities over the index used to cover inflation.
Q67. Why do RCs/AHRB use the GDP deflator as the basis of indexation in cash limits?
The GDP deflator is a known standard and reflects the level of indexation that RCs/AHRB are likely to receive. They are therefore applying to ROs the same financial discipline that applies to Councils themselves.
General
Q68. Will value-limited schemes continue?
All Research Councils have schemes where there are limits on how much can be sought. The expectation is that these will continue. Each Council will be considering the appropriateness of the limits applied in relation to FEC.
Q69. Will there be any changes to research grant terms and conditions?
Yes. Councils plan to publish terms and conditions for comment in December 2004 and issue the conditions that will apply under FEC in March 2005.
Q70. Where joint applications are made with another Research Organisation will there be the capacity to show different estates and indirect cost rates?
Yes. Each RO seeking funds should prepare its own costing, which can form the basis of either its own application or be a contribution to a single application submitted on behalf of a number of ROs. This will depend on the RC being applied to.
Q71. How does FEC work for research that takes place abroad?
Where a Research Organisation receives a grant which is mainly conducted abroad, indirect costs can be included, but not estates charges. There should be no reduction in costs for temporary or short-term absence.
Q72. Locally employed staff overseas – how are they affected?
These arrangements are not affected by FEC. RCs/AHRB will not pay estates and indirect costs for overseas ROs.
Monitoring of implementation of FEC
Q73. What sort of monitoring will RCs/AHRB apply?
Councils will monitor a range of factors to check the nature of grant applications (e.g. impact on PI time requested), and also whether there is an impact on the volume of research funded.
Q74. Will RCs/AHRB be monitoring estates rates, given that there will be a variety of rates in use?
No. This is an aspect of the TRAC methodology that falls to the Funding Councils to monitor. The quality assurance process currently underway will indicate the state of preparedness of universities to implement TRAC in 2005. A benchmarking process is also being undertaken to enable universities to compare their rates. This will be used to provide an average rate which may be used as a default for those organisations not able to implement TRAC robustly enough. Differences in estates charges are a fact of life in an FEC environment. Costs will vary between universities, due to a range of factors, not just geography.
