1. Context
In 1998 the Comprehensive Spending Review (CSR) granted additional funds for higher education. These were conditional upon the sector implementing a transparent and consistent costing methodology.
The result was the Transparent Approach to Costing (TRAC). It has been implemented by institutions since 2001. TRAC showed, amongst other things, that research was significantly underfunded and that there were significant problems in connection with the investment in Higher Education (HE) infrastructure.
The Treasury broadly accepted these conclusions and awarded further additional funding in the 2002 CSR. Again, this funding was conditional on the development of improved management information and financial accountability in institutions, particularly in respect of research.
Full economic cost (fEC) is defined, in the context of TRAC, as "the total cost to a Higher Education Institution (HEI) of an activity or project. It includes all direct and indirect costs, and thus includes the costs of all staff time spent on the activity, and an appropriate share of the costs of maintaining and developing relevant aspects of the research infrastructure".
2. TRAC Methodology
TRAC was originally designed at an institutional level. To allow calculation of fEC at a project level institutions will need to extend and improve their current TRAC processes and data.
There are four main changes required:
- estimating academic staff time spent on research projects
- identifying more costs as direct, including space costs, and charging them to projects
- using appropriate cost drivers to allocate indirect costs
- improving verification & audit processes
The guidance laid down by Joint Costing and Pricing Steering Group (JCPSG) is intended to be "light touch", practical, and is concerned with materiality. In line with this, the guidance manual stipulates minimum requirements that must be met by institutions. If an institution fails to meet these minimum requirements, that institution will not be permitted to submit project bids on the basis of full economic cost. Instead, default overhead rates must be used resulting in a substantial loss of research income to that institution.
2.1 Academic Staff Time
In a similar way to the present, a project budget will be built up by including the cost of research assistants, technicians, and non-staff direct costs. To this will be added a share of:
- estates costs
- a share of indirect costs
- and, for the first time, the cost of the time spent by the principal investigator (PI) on the project
With appropriate support, PIs will be required to estimate the actual hours that will be worked on a project and cost these hours on the basis of supplied pay bandings. They will also need to keep simple records during the course of a project in order to verify that academic time input has been as planned (within a reasonable tolerance limit - the guidance suggests 20%). The proposals do not require detailed time sheets.
The guidance also specifies in detail the circumstances in which the costs of research assistants may be included in the fEC of a project.
2.2 Direct Costs
Funders often fund all direct costs. It's therefore good practice to charge as many costs as possible as direct costs. After staff, estates costs are the second largest cost element in the Higher Education sector. Achieving sustainability of the research estate is one of the key drivers behind the new funding initiatives.
Institutions must have in place systems for allocating space costs to research and an interim methodology for allocating these directly to projects. An estates charge based on ý/FTE (as described in more detail below) is the minimum allowable method. A minimum of two estates charges should be calculated - a generic rate and a laboratory rate.
2.3 Indirect Costs
The current TRAC methodology calculates an institution's indirect cost rate by expressing all non-direct costs as a proportion of direct staff costs.
However, this approach assumes that there is a direct relationship between the cost of a member of staff and the Professional Services expenditure associated with that member of staff. This is not necessarily the case. For example, a highly-paid professor does not necessarily make significantly greater demands on Professional Services than a lower-paid lecturer.
In order to address this limitation, indirect costs are now to be expressed as a fixed sum per FTE member of staff on a research project. There will be a single generic rate for all projects.
2.4 Verification and Audit
Verification of academic staff time will become more important under the new system. This is to reassure research councils that time being charged to a project is actually being committed. It also ensures that researchers are not over-allocating their time.
To assist with this the guidance in relation to the TRAC academic time allocation processes has now changed:
- time spent supervising Postgraduate Research (PGR) students must now be identified separately
- all RA time must be allocated to research
- increased emphasis on response rates/sample sizes
- data is to be collected over a three-year cycle (the previous guidance stipulated a five-year cycle)