1. Key points for the future guidance on direct costing for large infrastructures in Horizon 2020 Brussels, 08 April 2013 Vittorio Morelli RTD.M.1

2. Content of the presentation 1.Background 2.Key points for the future guidance 1.Definitions 2.Categories of costs that may be declared as direct costs 3.Conditions for declaring such costs as direct costs 4.Costs covered by the flat rate 3.Next steps RTD.M.12

3. 1. Background Commission's statement at the Council "Competitiveness" meeting on 10/11 October 2012 "For large infrastructures, the Commission will, based on best practices, issue guidelines on how some indirect costs can be moved to direct costs, i.e. where those costs can be directly attributed to the project". RTD.M.13

4. 1. Background Actions undertaken by the Commission's services November 2012:Workshop on the H2020 Grant Agreement with the Legal and Financial NCPs January 2013:Technical workshop with beneficiaries (Universities and RTD and Research Organisations) February 2013:Workshop with representatives of associations involved in Research & Innovation (industries, …) February 2013 :Presentation to the RWG RTD.M.14

5. 1. Background Outcome of those actions RTD.M.15 Input for key questions for the guidance Ideas on what is to be considered as direct eligible cost, in the case of an Infrastructure Under which conditions this would be justified, in the case of an Infrastructure Potential issue Some beneficiaries/associations consider their full organisational cost as "infrastructure" General feedback Some beneficiaries/associations considered stability of the rules as an asset Some beneficiaries/associations expressed their support to the EC proposal

6. 2. Key points for future guidance RTD.M.16 Today's presentation: Represents the view of the Commission's services only Is the current state of reflection and may need certain adjustments in order to ensure a coherent approach for all types of costs Is valid only insofar as the legislator retains the Commission's proposal concerning the reimbursement of indirect costs through a flat rate

7. 2. Key points for future guidance RTD.M.17 Today's presentation has the following main concerns: Keep simplification as a must Provide legal certainty

8. 2. Key points for future guidance RTD.M.18 Today's presentation will provide and clarify: 2.1 Definitions 2.2 Categories of costs that may be declared as direct costs 2.3 Conditions for declaring such costs as direct costs 2.4 Costs covered by the flat rate

9. 2.1 Definitions The Commission's statement refers to: infrastructures, which can be run by all beneficiaries costs can be directly attributed to the project 1.Definition of research infrastructure RTD.M.19 2.Definition of Direct Costs

10. 2.1 Definitions: Research Infrastructure From a scientific & legal point of view, the term "Research Infrastructure" is defined with reference to the definition agreed upon during the inter-institutional discussions on the Commissions proposal for H2020. From an accounting point of view those Infrastructures are recorded in the accounts on the basis of a grouping of costs are of a wide range (property, plant, equipment, but also staff, repair & maintenance etc.) are specifically dedicated to the infrastructure and necessary to bring it to working conditions RTD.M.110

11. 2.1 Definitions: Direct Costs direct costs "are costs which are directly linked to the implementation of the action and can therefore be attributed directly to it - which implies without using a cost driver or a proxy." In practice, these costs are: A) Costs that have been caused in full by the activities of the project B) Costs that have been caused in full by the activities of several projects, the attribution of which to a single project can, and has been directly measured (i.e. not attributed indirectly via an allocation key, a cost driver or an approximation) RTD.M.111

12. 2.2 Categories of costs that may be declared as direct costs The proposed legal framework refers to financing of actions and not to financing of an organisation as a whole Hence, the future guidance will focus only on the costs of the research infrastructure and not on the full organisational costs of the beneficiary RTD.M.112 1. Capitalized costs 2. Operating costs Group of costs

13. 2.2 Categories of costs: capitalized costs "capitalized costs" of an infrastructure: all the different costs incurred to set up and/or renew the infrastructure recorded as an asset in the balance sheet (B/S) and expensed over several years corresponding to the actual use for the action charged to the project via the relevant depreciation charge cost of lease (but no finance fees) RTD.M.113

14. "operating costs" of an infrastructure: costs specifically incurred for the functioning of the infrastructure e.g. costs for administrative personnel and support staff, for the functioning of buildings, for equipment and facilities, including maintenance and repair, materials, facilities management, energy supply, necessary for the functioning of the infrastructure specificallyspecifically means incurred directly for the large infrastructure that is used for the project RTD.M.114 2.2 Categories of costs: operating costs

15. 2.3 Conditions for declaring such costs as direct costs Clear conditions will be established ensuring legal certainty on the acceptability of costs The future guidance will establish those conditions, defining a system feasible for the beneficiaries (simplification), while acceptable for the Commission (sound financial management of EU funds) RTD.M.115

16. 2.3 Conditions for declaring such costs as direct costs a. General eligibility criteria b. Costs identifiable & verifiable c. Direct relationship with the infrastructure and with the project d. Non-discriminatory accounting principles to declare the costs e. Costs not already included under any other cost categories f. Costs directly measured RTD.M.116

17. 2.3 Conditions a. General eligibility criteria Costs declared must respect the general eligibility criteria set out in Article 126.2 of the Financial Regulation, and H2020 Model Grant Agreement e.g. actually incurred by the beneficiary, indicated in the estimated budget, justified and in compliance with the principle of sound financial management, etc. RTD.M.117

18. 2.3 Conditions b. Costs identifiable & verifiable Costs declared must be supported by persuasive evidence allowing for a sufficient audit trail guidance will explain the kind of supporting evidence of the costs importance of the beneficiarys usual accounting principles, in particular for depreciation RTD.M.118

19. 2.3 Conditions c. Direct relationship RTD.M.119 Costs declared must be directly linked to the project not the full organisational cost of the beneficiary's entity

20. 2.3 Conditions c. Direct relationship for capitalized costs: the implementation of the project specifically requires the use of the infrastructure for operating costs: the functioning of the infrastructure specifically requires the assignment of support staff or the award if specific service or supply contracts guidance will explain kind of supporting evidence required: purchase order, delivery note, invoice, statement of work in progress, etc. beneficiary may prove the direct link through persuasive alternative evidence. RTD.M.120

21. 2.3 Conditions d. Non-discriminatory accounting principles to declare the costs o Beneficiary must use its usual accounting principles "usual accounting principles" - the general and cost accounting principles, standards and procedures used to compile the legal/statutory financial accounts (i.e. Balance Sheet, Profit & Loss accounts and annexes), AND - analytical management information The usual accounting principles should not be set up «on purpose» RTD.M.121

22. 2.3 Conditions e. Costs not already included under any other cost categories Beneficiary cannot declare costs already declared in the framework of another contract or grant financed from the Union budget Costs capitalized are declared through depreciation, and cannot be included (again) in another cost category Costs already financed by the Capacity program (FP7) cannot be declared again RTD.M.122

23. 2.3 Conditions f. Costs directly measured RTD.M.123 Costs declared must be directly measured Time spent on the project should be recorded reliably

24. 2.3 Conditions f. Costs directly measured RTD.M.124 The grant will finance the actual use of the infrastructure for the project

25. 2.3 Conditions f. Costs directly measured RTD.M.125 Depending on the type of cost, the measurement will differ for capitalised cost: depreciation costs (and project time) for the building: rental or lease cost (and project time) for administrative personnel: time recording for other operating costs (maintenance and repair, consumables, materials and spare parts, facilities management, energy supply): specifically explicitly labelled invoice (and project time)

26. 2.4 Costs covered by the flat rate In order to provide legal certainty, an indication of cost items considered as non-direct (i.e. indirect) will be established Those costs are deemed to be reimbursed through the application of the proposed flat rate RTD.M.126

27. 3. Next Steps -During 2013: Formal adoption of guidance on direct costing for large infrastructures as part of the Commission's comprehensive set of guidance for H2020. RTD.M.127

28. Questions and Answers 28RTD.M.1