Full Economic Costing and Pricing Latest developments John

Full Economic Costing and Pricing – Latest developments John Newton National Co-ordinator for Costing and Pricing JCPSG

What is f. EC? • TRAC methodology • “The full economic cost of a project/activity incorporates all direct and indirect costs, including the cost adjustments, required under TRAC” (a definition) • Direct costs • Indirect costs • Cost adjustments- Infrastructure - COCE JCPSG Joint Costing and Pricing Steering Group

Background • TRAC • Investing in Innovation • Cross-Cutting Review of Science and Research • CSR 2002 • Government expectations/commitment • JCPSG Strategy - cost/market-based pricing • DSR - new funding arrangements • OGDs/Treasury letter • HEFCE Financial Memorandum • Long-term strategy for science/CSR 2004 JCPSG Joint Costing and Pricing Steering Group

Why is f. EC important? • Sustainability • “ An institution is being managed on a sustainable basis if, taking one year with another, it is recovering its full economic costs across its activities as a whole, and is investing in its infrastructure (physical, human, and intellectual) at a rate adequate to maintain its future productive capacity appropriate to the needs of its strategic plan and students, sponsors and other customer requirements. ”(Definition in TRAC Volume III) • Issues - f. EC, strategic, pricing, project management/cost recovery, investment JCPSG Joint Costing and Pricing Steering Group

TRAC requirements • Definitions • Accounting/costing principles and conventions • Time allocation - now every 3 years • Sampling • Cost drivers • T, R, O, S • PGRs • T, R, O /dept • R by research sponsor • Library/learning resources and estates robust • Testing • Internal Audit • Audit Committee • Approval of figures - to Funding Councils JCPSG Joint Costing and Pricing Steering Group

f. EC requirements • Estates - direct cost (by FTE or sq m) JCPSG • 1650 hours • Indirect cost rate calculations - £/FTE • RC projects - time estimates, pay bandings, monitoring, check on total RC time, direct costs • QA process • Default indirect cost rates • Dispensations • Income reporting (January 2006) Joint Costing and Pricing Steering Group

f. EC research project calculation Directly Incurred costs • Researcher salary costs - names, time (hours) • PGR salary costs - names, time • Technical/clerical salary costs • Direct non-staff costs, exc. Estates Directly Allocated costs • PI/Co-investigators - names, time (hours) • Charges for lab. technicians • Directly allocated Estates costs (Inc. infrastructure adjustment) • Equipment • Indirect costs, inc. COCE adjustment calculated for PI/researcher and PGR FTEs Exceptional items JCPSG Joint Costing and Pricing Steering Group

f. EC data requirements • FTEs • Costing schedules for salary costs (note standard time), estates, charge-out rates for equipment, indirect cost rates/FTE • Verification of costs • Recording of actual costs • Recording of estimated costs and matching with other records • Comparison • No double-charging • Indexation JCPSG Joint Costing and Pricing Steering Group

Use of f. EC • Pre-award estimates • f. EC for cost-based pricing • Funding of project • Difference – to be subsidised from other income streams • Review of processes • Post-award reporting JCPSG Joint Costing and Pricing Steering Group

Pricing publications • Pricing toolkit (JCPSG) • Financial strategy in higher education institutions (HEFCE) • Developing a pricing strategy in higher education institutions (JCPSG) • OST guidance on the pricing of competitive and non-competitive contracts • OST guidance on the pricing of non. Research Council projects JCPSG Joint Costing and Pricing Steering Group

Pricing tips • Don’t disclose costs • Have clear pricing policy guidelines • Clarify ownership over IPR • Target appropriate markets • Be aware of market position and competition • Beware of Risk • Use Lambert Model Agreements • Negotiate for win-win JCPSG Joint Costing and Pricing Steering Group

Implementation issues • Control/systems processes JCPSG • Project management • Cultural change • Communication • Resources • Performance measurement • Training • Planning for Sustainability Joint Costing and Pricing Steering Group

Future developments • Funders Forum – Public Good Funding Principles • Public sector acceptance – Treasury letter • Cost recovery on Framework Programmes • Eligible/ineligible costs - charities, EU, etc • HEFCE Review of Teaching • Shortfall on Research, European and Public Good projects – use of QR or…? JCPSG Joint Costing and Pricing Steering Group

Performance Indicators • % of full economic costs recovered/project or activity. JCPSG This could also be stated by sub-category of activity Joint (e. g. research sponsor, client, customer, etc) and category of activity (e. g. PFT, NPFT, PFR, NPFR, and O) Costing and Pricing • Contribution (being the difference between income and Steering full economic cost) by project or activity, sub-category Group and category (as above) • Total of indirect costs recovered annually (which may be compared annually) • Total of estates costs recovered annually (which may be compared annually) • % of S time to time spent on T, R, O by department or school annually

Performance Indicators • Surplus/deficit for major categories of activity (i. e. , NPFT, PFR, NPFR, O) annually • % of surplus /deficit for major categories of activity to full economic costs annually • % of surplus/deficit for major categories of activity to income annually • % of surplus/deficit to COCE by category of activity annually • Review of backlog in investment in infrastructure annually • Success rate of bids to research sponsors and clients annually – to indicate competitiveness JCPSG Joint Costing and Pricing Steering Group

Performance Indicators • Number of customers/sponsors/clients for R and O • Income growth by category of activity annually • Comparison of forecast to actual of surplus/deficit by category of activity and surplus/deficit for competitor institutions year on year • Quality reviews of performance from customers, clients, students, sponsors – comparing trends JCPSG Joint Costing and Pricing Steering Group

Strategic issues • Shortfall on Research, European and Public Good projects – use of QR or…? • Pricing implications - contribution/project, negotiation. • Research strategy - portfolio, mix by sponsor by dept JCPSG Joint Costing and Pricing Steering Group

Future • JCPSG website - www. jcpsg. ac. uk • Self-help groups • BUFDG group • Sector bodies – AURIL, ARMA, etc JCPSG Joint Costing and Pricing Steering Group