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Full Economic Costing (fEC)

What is Full Economic Costing?

Research by Higher Education Institutions (HEI’s) in the UK is amongst the best in the world and this provides benefits, in both the public and private sectors. However, the UK research system is in huge financial deficit. The Government has therefore taken steps to maintain the UK’s position of excellence in research by ensuring that research activities are adequately funded. To this end, reforms to the Duel Support system have been put into place, including the requirement for HEI’s to calculate the Full Economic Costs of individual project.

Along with a better understanding of their costs HEI’s are being encouraged to price more realistically. As HEI’s adjust their pricing all sponsors of funding of HEI research will  inevitably be called upon to make an additional contribution to covering costs, and the government believes that it is right that they should do so.

The Government is providing significant initial extra funds: £120 million a year from 2005-06, rising to £200 million a year from 2007-08, for Research Councils projects (MRC, BBSRC, EPSRC etc) as well as increased block grants for HEI’s from Funding Councils, including £90 million to help support charity-funded research.

The Government has also set up the UK Research Base Funders’ Forum at which Government meets with all key stakeholders (including industry) to share information and research strategies and monitor progress towards sustainability.

Why is this process taking place?

The UK University research system is in huge deficit – up to £1 billion a year.

In the long term it needs to become financially more secure and sustainable. This includes improving costing and pricing practices, including the excessively low pricing culture.

This in turn will ensure that the university system can continue to produce excellent research for years to come.

Commercial bodies recognise the benefits of developing long-term relationships with HEI’s. Without FEC there will be less chance of a sustainable research base, with a resulting impact on long-term research.

What are universities being encouraged to do?

Universities are autonomous from Government and will set prices for themselves

Universities are expected by Funding Councils, taking one year with another, to recover, in aggregate, across their portfolio, the full economic costs of all their activities.

For more information and Frequently Asked Questions on Full Economic Costing please see www.ost.gov.uk/research/dualsupport.htm

Local developments

Queen Mary, University of London is currently in the process of installing specific costing software called pFACT, setting up the parameters, and testing the systems so that it is available for costings by September 1st 2005.

The previous system of awarding 46% overhead on salary will disappear, and instead, after the system has calculated the full cost of a project, the Research Councils will award 80% of that total cost.

The objective is to charge the full cost of the activity to the sponsor wherever possible. This will include:

  • Direct staff cost
  • Direct non-staff cost
  • Service and facilities costs
  • Overheads (or indirect costs)

Overheads will be based on the indirect costs incurred in housing and supporting research projects. They will include:

  • Premises costs
  • Directorate / Institute administration
  • Central administration 
  • Other indirect costs

More information and fEC guidance for Principal Investigators 

For detailed guidance and illustrative examples of full economic costing, please visit www.finance.qmul.ac.uk/old/TR/GuidanceforPIs.shtml