Intro to Full Economic Costing (FEC)
The origins of fEC
The Government's 1988 Spending Review granted additional funds for higher education, but in return, the Government required transparent costing at institutional level.
This lead to the introduction of the Transparency Review, a costing exercise which requires all institutions to submit a return to HEFCE identifying the costs of teaching, research and other, split between publicly and non-publicly-funded. The collective returns showed that all research was under-funded when the full costs of research were identified. It also showed that there was significant under investment in HE infrastructure.
The Government broadly accepted these conclusions and the 2002 Spending Review awarded additional funding for research through QR, capital, and additional funding to the research councils. The condition of this additional funding is that Universities are required to manage research on a sustainable basis by achieving higher prices from research sponsors. This has led to the Transparency Review being extended to involve the costing of projects and the introduction of Full Economic Costing.
What is a full economic cost?
The full economic cost of a project is the full cost to the University of undertaking the activity. Included are all direct and indirect costs such as space, central services, depreciation and a contribution to investment in the University's infrastructure.
What does this Mean for the University?
From September 2005 the University has applied for Research Council and other grants on the basis of full economic cost
Research Councils will pay 80% of full economic cost
Government department research schemes should fund at 100% of full economic cost, although some such as NIHR and Innovate will only pay 80%
Charities and EU don't accept fEC and fund based on their own specific rules
For all sponsors the University has developed a pricing policy that will determine the minimum price based on full economic cost for that particular sponsor type.
Full economic costing and the costing of research projects
The full cost of research projects is calculated regardless of sponsor rules. Costs and budgets will be based on calculated costs rather than what the sponsor is prepared to pay. This creates a distinction between cost and price as the full economic cost is likely in many cases to be very different from the price or funding paid by the sponsor.
FEC means that we cost research projects to include the following:
a. Academic staff time - the time spent on research projects must be estimated and included
b. Directly allocated costs i.e. those shared between different projects and activities will be identified and charged to projects e.g. estates costs, pool technicians and principal investigators.
c. Overheads are calculated as a fixed sum per FTE employed on the project. Rates are calculated for indirect costs and estates costs and infrastructure technician costs associated with the project.
All costings are carried out centrally by Research and Enterprise Services rather than by School administrators or PIs.
Full Economic Costing (fEC)
The Research Councils have designated fund headings to be applicable for all proposals costed under fEC. The fund headings and specific subheadings and the costs that should be included under each are explained below. These fund headings are used for costing and project budgets post award regardless of sponsor.
Summary cost headings
There are four summary headings:
- Directly Incurred Costs
- Directly Allocated Costs
- Indirect Costs
1. Directly Incurred Costs
Directly incurred costs are the direct additional costs needed to do the work. These are costs that are charged to projects and based on amounts actually spent.
Directly incurred costs comprise the following sub-headings.
Travel and Subsistence
Directly incurred staff are staff that are dedicated wholly or in part to the projects. Costs must be based on actual rather than estimated time spent. This would normally be staff whose salaries are coded to the project via the payroll eg research fellows, technicians.
With effect from May 2011 new rules on funding of equipment were introduced by the Research Councils. For items above £10K and only a proportion will be funded by the Research Councils. See document entitled 'Equipment on Research Grants'. Note that this applies to Research Council applications only.
Travel and Subsistence
This includes all travel for the project including field trips, conferences and visits to collaborators.
This includes all direct costs not included under another heading eg consumables, consultancy and other bought in items.
These are significant items that the University has determined as Research Facilities which are costed on projects using rates calculated in accordance with the fEC methodology. Only rates calculated and agreed by Finance can be used. These include equipment and services in:
- Bioresource Unit
- Chemical Analysis Facility
- Cedar Farm
- Reading Functional Imaging Facility
2. Directly allocated Costs
Directly allocated costs are costs charged to projects on the basis of estimates rather than actual costs. They are costs of services used by the project where the services are shared by other activities and projects. The projects use of the service is estimated in terms of units of time eg hours and a standard charge out rates per unit is applied to arrive at the directly allocated costs for that project. The sub headings of directly allocated costs are as follows.
- Principal Investigators
- Estates Costs and Infrastructure technician costs
- Pool Technicians
Principal and co-investigators
Academics estimate hours to be spent over the life of the project. When multiplied by and hourly rate this will give the total investigator costs on the project.
See separate guidance on estimating PI time.
Estates costs will be charged to projects using a rate per FTE per annum working on the project. There are two rates, one for classroom-based projects and one for laboratory-based projects
Infrastructure Technician costs
These are laboratory technicians that do not work directly on projects. They are charged to projects based on a £ per academic/research FTE working on project in the same way as estates and indirect costs. This is calculated automatically and no information is required from PIs.
These are technicians funded by Schools and working directly on one or more projects or activities. They are estimated at the time of application in the same way as PI time.
See separate guidance document on technician costs.
3. Indirect Costs
This is a single calculated rate per FTE employed on the project. It covers the costs of all central and school support services.
Exceptions are specific categories of costs that the research councils have agreed they will fund in full at 100% of fEC and will include
- Project studentships
- Some overseas costs for specific calls