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

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

4. The Problem Result Increasing volume at marginal rates
Deteriorating Infrastructure

5. DfES publicly planned unit of funding (teaching)
(real terms =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

6. HEI Research Income (position in 2002)
2500
2000
1500
1000
500
HEFCs Block Grant
Total project funders

7. Transparency Review and TRAC (Transparent approach to costing)
Phased implementation of annual TRAC
Annual return giving fEC of publicly-funded and non-publicly funded Teaching, Research and Other activities
£Bns public investment

8. 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

9. 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)

10. What was involved
Additional funding for research
Public sector sponsors pay % 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)

11. 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

12. 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

13. 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.

14. 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

15. 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

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

17. 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

18. But-different funding policies
Other Government departments
Charities
EC (FP7)- 75% of ‘full cost’
Industry

19. 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!

20. 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)?

21. 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”)

22. 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

23. 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

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