Funding the full economic
costs of research
Steve Egan
Deputy Chief Executive
International Symposium on university costs and
compacts
14-15 July Canberra
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Origins and purpose
The Dual Support Reform project
Practical issues
Policy issues
Lessons from UK experience
• The Problem
– Increasing volume at marginal rates
• Result
– Deteriorating Infrastructure
DfES publicly planned unit of funding
(teaching)
(real terms 2006-07=100)
9,000
8,500
grant
grant + public fee
grant + public fee + private regulated fee
grant + public fee + private regulated fee + capital
8,000
£ per FTE student
7,500
7,000
6,500
6,000
5,500
5,000
4,500
4,000
1989-1990-1991-1992-1993-1994-1995-1996-1997-1998-1999-2000-2001-2002-2003-2004-2005-2006-2007-2008-2009-201090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
HEI Research Income
(position in 2002)
2500
2000
1500
1000
500
0
1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00
HEFCs Block Grant
Total project funders
Transparency Review and TRAC
(Transparent approach to costing)
• Transparency review 1999
• Phased implementation of annual TRAC
2000-04
• Annual return giving fEC of publicly-funded
and non-publicly funded Teaching,
Research and Other activities
• £Bns public investment
How did TRAC phase 1 work?
TRAC Cost
Adjustments
Cost allocation
to activities
+Infrastructure
Time allocation
-academic costs
adjustment
Financial
Accounts
+Return for financing
and investment (RFI)
Annual TRAC reporting
(surplus identification by activity)
TRAC
full economic costs
Other cost drivers
e.g.sq metres,student numbers,
staff numbers
Publicly-funded
Research
Non-publicly funded
Research
Publicly-funded
Teaching
Non-publicly funded
Teaching
Other
TRAC phase 2
Dual Support Reform Project
An institution is financially sustainable if, taking
one year with another, it recovers its fEC across
its activities as a whole, and invests in its
infrastructure (physical, human, intellectual) at a
rate adequate to maintain its future productive
capacity, appropriate to its needs.”(10 year
Research and Innovation Framework)
What was involved
• Additional funding for research
• Public sector sponsors pay 80-100%
of fEC (Research Councils £200M pa)
• Funding councils support through QR
(block grant- £90M pa)
• Charities supported by additional dual
support funding (£180M pa)
• More money in capital streams
(£4.5bn)
Institutions required to:
•Understand costs and manage
sustainably
•Inform infrastructure needs and
investment
•Price and improve cost recovery
•Improve project management
So needed proper costing of research
projects
TRAC fEC 2004-09
Forecasting full economic cost of research projects
• estimating academic staff time/cost
• estimating other direct costs (researchers, consumables)
• clarification and stricter rules on claiming direct costs
(e.g. research facilities, technicians)
• applying estates and indirect cost rates to FTEs
• many project costs funded on estimate to minimise
burden
• external QA process to assure funders of accountability
and value for money
Stakeholders in these changes
•
1. Funding Councils (and DIUS/Treasury) – institutional sustainability and
good financial management. Information for policy and funding
•
2. DIUS/OSI - sustainability of the research base and good value for
science budget
•
3.
Research Councils (and NAO) – good research, value for money
and can show that funds are well spent
•
4. Other sponsors (charities, OGDs, NHS, EC etc) – want best value
•
•
5. HEIs –pilots and then the sector Can we implement and afford the changes? Are they reasonable?
Changes to pricing, resource allocation, management information systems.
How does TRAC work?
Financial
accounts
TRAC cost
adjustments
time allocation
academic staff
Student
numbers
HESA
other cost
drivers e.g. sq
metres student
nos. etc
calculate
charge-out rates
TRAC annual return
(surplus/deficit by
activity)
TRAC fEC cost of
research projects
Subject-FACTS disciplinerelated cost of T
Special investigations based
on TRAC e.g. research cost
weights, sustainable T
TRAC EC-FP7
Formula capital allocations
Learning &
Teaching
£m
Research
£m
Total
£m
1999 to 2002
185
150
335
2002 to 2004
214
600
814
2004 to 2006
494
845
1,339
2006 to 2008
645
903
1,548
2005 to 2011
1,086
1,276
2,362
2,624
3,774
6,398
Other capital programmes
Total
1,094
7,492
Research income from Funding Councils and
Research Councils 1999-2000 to 2006-07
1,500
Funding Council
grants - recurrent
research
1,000
Income
(£M)
500
OSI Research
Councils
0
1999-2000 2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
Academic year
Source: HESA finance record, HEFCE funded HEIs
2006-07
Benefits
• Research more sustainable
• Academics aware of full, long-term costs of their
research
• Proper basis for pricing:
– UK research universities were “the only price
– cartel that kept prices low” they can now (in theory)
price at sustainable level
But-different funding policies
• Other Government departments
• Charities
• EC (FP7)- 75% of ‘full cost’
• Industry
Differences TRAC-OMB A21
• TRAC is about full economic cost of all university
activities, in context of a Dual Support system.
• So it supports improved business awareness by
universities and all their funders.
• It is a flexible approach but institutions must meet a
detailed set of minimum requirements (no negotiation).
• OMB A-21 is about calculating allowable costs on
research projects (only), and cost sharing.
• It requires significant negotiation.
• Fundamentally different aims and processes.
• OMB process is less visible to academics – all UK
academics are aware of TRAC!
Issues about TRAC
Government and HE funders believe in TRAC (and it has
delivered over £1bn per year to the sector)
It has facilitated a cultural change, BUT:
Is it becoming too burdensome; is it too driven by funding
bodies (e.g. RCUK, EC)?
Do institutions believe the data they produce (validated,
used internally, creditable?)
Are institutions allowing TRAC to overstate the costs of
research and understate the costs of teaching (peer
pressure to show research-active)?
To take these forward
• External quality assurance
• Recording scholarship as being an important
‘part of’ teaching
• Ensuring VCs and FDs support and review
figures (“take it away from the accountants”)
Policy Issues
Is UK research more sustainable – yes
Have all funders bought into the policy – no
Are there risks in the situation – yes
Is it all perfect in the UK – no
Are we moving in the right direction - yes
Lessons from the UK experience
•
•
•
•
Costing is not the hard part
Tension: rigour/detail/burden vs. simplicity
Needs to be holistic – equal focus on Teaching
With parallel initiatives on capital investment –
and balance sheet issues
• Engagement of VCs and FDs is critical
• Acceptance by all sponsors as robust
• Need for national project management and
support
Funding the full economic
costs of research
Steve Egan
Deputy Chief Executive
International Symposium on university costs and
compacts
14-15 July Canberra