Funding the full economic costs of research International Symposium on university costs and compacts 14-15 July Canberra Steve Egan Deputy Chief Executive

Origins and purpose The Dual Support Reform project Practical issues Policy issues Lessons from UK experience

The Problem Result Increasing volume at marginal rates Deteriorating Infrastructure

DfES publicly planned unit of funding (teaching) (real terms 2006-07=100) 9,000 grant grant + public fee 8,500 grant + public fee + private regulated fee grant + public fee + private regulated fee + capital 8,000 7,500 7,000 £ per FTE student 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- 2010- 90 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 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) 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? +Infrastructure Time allocation Annual TRAC reporting (surplus identification by activity) TRAC Cost Adjustments Cost allocation to activities +Infrastructure adjustment Time allocation -academic costs Publicly-funded Research Financial Accounts TRAC full economic costs Non-publicly funded Research +Return for financing and investment (RFI) Publicly-funded Teaching Other cost drivers e.g.sq metres,student numbers, staff numbers Non-publicly funded Teaching Other

Dual Support Reform Project 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? TRAC annual return (surplus/deficit by activity) TRAC cost adjustments TRAC annual return (surplus/deficit by activity) Financial accounts time allocation academic staff TRAC fEC cost of research projects Subject-FACTS discipline-related cost of T Student numbers HESA other cost drivers e.g. sq metres student nos. etc Special investigations based on TRAC e.g. research cost weights, sustainable T calculate charge-out rates TRAC EC-FP7

Formula capital allocations Learning & Teaching £m Research Total 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 1,094 7,492

Research income from Funding Councils and Research Councils 1999-2000 to 2006-07 Source: HESA finance record, HEFCE funded HEIs

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 International Symposium on university costs and compacts 14-15 July Canberra Steve Egan Deputy Chief Executive