Description
The need for universities to become sustainable cannot be in question and it is their responsibility to ensure that they achieve the right level of research funding, and the right balance between core and external funding appropriate to their circumstances.
Expert Group report chaired by Sabine Herlitschka
November 2008
Diversifed Funding streams
for University-based research:
Impact of external project-
based research funding
on fnancial management
in Universities
European Commission — Directorate-General for Research
2
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3
detail. Its conclusions and recommendations are
in line with the Commission’s analysis and views
that action is required to strengthen the fnancial
sustainability of university-based research. This is
a joint responsibility of public authorities, funders
and universities. I will certainly consider carefully
the arguments of the report in reviewing the 7
th
Framework Programme and trying to ensure that it
achieves the right balance between administrative
burdens and accounting rigor.
The Commission’s concern for fnancial sustain-
ability should be met by a further professional-
ization of fnancial management in the universities.
Full costing means knowing objectively how much
your research costs and accounting for it. This is an
essential part of professional management. Some
universities have already understood this and taken
action. This means there is a wealth of experience
The European research landscape is changing rap-
idly. The new environmental and societal challenges
we face — such as climate change, energy and
ageing — demand answers from researchers.
Excellence in research is not accomplished in isola-
tion. It takes intensive cooperation across borders,
institutions, nations and disciplines. But the search
for prevailing solutions is also propelled by compe-
tition. Competition for better ideas, for better meth-
odologies, and for the funding to make it all hap-
pen.
For years now I have been strongly committed to
enabling cooperation and sharpening the competi-
tive edge. The 7
th
Research Framework Programme,
the European Research Council, the European Insti-
tute for Innovation and Technology (EIT) are ample
illustrations of how the EU implements these prin-
ciples of cooperation and competition.
Money matters for excellence in research, and as
Europeans we still have a long way to go towards
adequate investment in research. At 1.84 % of GDP
we are still a long way from our target of 3 % and
both public and private investment are contributing
to this gap. Against the background of the fnancial
and economic crises, we should not lose sight that
today’s investment is tomorrow’s prosperity. How-
ever, ‘more’ money is only a partial answer. We must
also use that investment better; more efciently.
That is why we are gradual building a true European
Research Area, in which borders become obsolete
and knowledge and researchers move freely. This
requires comprehensive structural reform.
The quality of funding of research is part-and-parcel
of this reform agenda. I therefore strongly welcome
this expert group report which I urge you to read in
FOREWORD
4
for others to learn from. The Commission will con-
tinue to encourage and actively support the transi-
tion towards full costing.
Achieving the ffth freedom is hindered by the lack
of consistency among fnancial requirements of
competitive research funding schemes across the
European Research Area. This lack of consistency,
even in basic terminology and interpretation, is
holding back research investment efciency. This is
why I support the development of common guide-
lines to increase the communality of conditions of
external research funding, to step up transparency
and greater synergies, and hence to better consider
the economic reality of research activities.
Funding agencies and their European umbrella
orga nizations have a great role to play here. Better
aligning competitive external research funding
schemes along mutually agreed common principles
would indeed create new opportunities for funding
of excellence and reduce administrative burdens on
research institutions.
It is also an exercise that will help Member States to
move ahead with Joint Programming and will help
to create the critical fnancial mass necessary to
make the Knowledge and Innovation Communities
under the EIT a spearhead of research excellence,
translated into knowledge sharing and innovation.
We need to have an open debate on how to make
our funding schemes better serve our common
ambitions and commitments. The report you are
about to read provides an important input into that
debate. Enjoy reading it, and let us discuss how we
can collectively move ahead.
Janez Poto?nik
European Commissioner for Science and Research
5
Introduction “Europe needs universities able to build on their own strengths
and diferentiate their activities on the basis of these strengths.” 6
Two key principles: fnancial sustainability and research management 8
Introducing the members of the Expert Group 10
Chapter 1 Executive summary and recommendations 16
Recommendations 22
Chapter 2 Defnitions and terminology used in the report 24
Chapter 3 Overview of the characteristics of external project-based research
funding mechanisms across Europe and comparative countries 26
Example of Hungary: Hungarian Scientifc Research Fund (OTKA) 31
Example of Germany: the German Research Foundation (DFG) 32
Example: Austria 34
Example of Finland: Tekes: 36
Example of Turkey: State Planning Organisation (DPT): 37
Chapter 4 Universities’ diferent experiences and needs: Identifcation of the impact
of external funding requirements and conditions and assessment of
universities experiences and needs 38
Interview with EIRMA 42
Example of Finland 47
‘Transparent approach to costing’ — An Overview of TRAC 48
Chapter 5 The way forward: the sustainability of university-based research 50
Chapter 6 Annexes 60
Annex 1: Research funding indicators and characteristics questionnaire 60
Annex 2: Overview of contributors to this report 64
Annex 3: Questionnaire to selected funding agencies 68
Annex 4: Questionnaire to selected universities 69
Annex 5: References and reports 70
CONTENTS
6
INTRODUCTION
With this statement the modernisation agenda
1
makes the importance and role of universities
very clear while at the same time pointing out the
specifc need for further development in order to
ensure that they contribute fully to the implemen-
tation of the European research area and to the Lis-
bon Agenda.
The recent consultations on the future of the Euro-
pean research area (ERA) stressed the need for
Europe to have fully autonomous, accountable,
well managed and performing universities, and
recalled the current context of insufficient fund-
ing for higher education institutions in Europe.
Terms of reference of the
Expert Group
The structure of funding both at European and
national levels tends increasingly towards project-
based funding. As a consequence, universities face
the challenge of diversifying their funding streams
in order to support fully their research activities, of
moving towards full recovery of research costs, of
fostering their fnancial management of research
activities driving their own strategies, and of adapt-
ing themselves to competitive project-based
research funding.
In this context, the Expert Group was tasked to:
provide a broad overview of the characteristics (a)
of external project-based funding mechanisms
across EU-27, with a focus on their fnancial and
accounting requirements and conditions;
1
Communication from the Commission to the Council and the European
Parliament: ‘Delivering on the modernisation agenda for universities:
education, research and innovation’, COM (2006) 208, 10 May 2006.
“Europe needs universities able
to build on their own strengths
and differentiate their activities
on the basis of these strengths.”
7
identify the impact of these external funding (b)
requirements and conditions on the develop-
ment of fnancial management capacity in uni-
versities;
assess universities’ diferent experiences and (c)
needs with the aim of informing further design
of future funding schemes;
consider the degree to which the conditions of (d)
external funding can assist the move towards
full recovery of research costs as a major com-
ponent of sustainability of university-based
research;
identify recommendations of appropriate action (e)
at European and national levels.
The Experts Group’s focus on
the funders’ perspective
The subject of this Expert Group report ‘Impact
of external project-based funding on the fnan-
cial management of universities’ might appear to
be very technical at frst sight. However, it relates
directly to the subject of fnancial sustainability,
which is a core condition for European universities
to contribute fully to the ERA.
Over the last couple of years, with reforms imple-
mented in several countries, there has been a lot of
refection on various issues and aspects related to
the fnancing of universities that has been summa-
rised in respective studies and reports.
What has received less attention is the role and per-
spective of funders. Funders play an important role,
since the funding provided is always linked to spe-
cifc conditions and requirements with respect to
the type of activities they support as well as in legal
and fnancial terms. Consequently, these funding
conditions and requirements develop signifcant
infuence and are closely interconnected with uni-
versities’ management approaches in general and
fnancial management in particular.
In focussing on the funders’ perspective, the expert
group included in its discussions national funding
agencies, the European Commission, companies
and to some extent foundations.
Based on the terms of reference the Expert Group
concentrated its refections on three aspects:
research activities of universities — education •
and training are not covered;
external project-based research at universities, •
with internal or core funding being addressed
as far as it relates to external project-based fund-
ing;
research universities — the entire higher educa- •
tion sector is not covered despite the fact that
several points will be relevant to it.
8
Financial sustainability is essential
‘Although universities are not primarily businesses
and should focus particularly on their academic
teaching, learning and research, they must also be
business-like in the way that they use their fnancial,
physical and human resources. This responsibility is
increased because they employ considerable pub-
lic funds’
2
.
The need for universities to become sustainable
cannot be in question and it is their responsibil-
ity to ensure that they achieve the right level of
research funding, and the right balance between
core and external funding appropriate to their cir-
cumstances. Financial sustainability is essential but
it cannot be achieved unless universities have the
necessary autonomy, and appropriate manage-
ment practices and systems, to make those deci-
sions and act in a business-like way.
Excellence in research and research management
go hand in hand
In our world of ever increasing complexity, research
needs pro-active research management. The Expert
Group is convinced that the ambition for excellence
in research applies equally as strongly to research
management.
EURAB in its report on research management sum-
marised it as follows.
3
‘Without excellent research management, Europe’s
RTD will simply not deliver the benefts expected
and needed. Excellence in research management
is also an essential enabler of the ambitions in the
2
Joint Pricing and Steering Group: ‘Transparent approach to costing: An
overview’, June 2005.
3
‘Research management in the European research area: Education, com-
munication and exploitation’ (EURAB 07.007), European Research Advisory
Board, May 2007.
There are two underlying
principles that substantially
infuenced the work of the
Expert Group.
TWO KEY PRINCIPLES: FINANCIAL
SUSTAINABILITY AND RESEARCH MANAGEMENT
9
Evidence for this report
The discussions of the Expert Group have been built
on the evidence set out below.
The members of the Expert Group themselves
cover a broad range of expertise including univer-
sity management, national funding organisations
for basic and applied research, as well as research
management and services at institutional, national
and European levels.
A questionnaire to all EU member states and some
comparative countries provided for the broad over-
view on external project-based research funding.
Two specifc questionnaires for selected universi-
ties and funding agencies respectively helped in
gathering specifc input.
An overview table of major national public funding
organisation, their budgets, orientation and fund-
ing requirements and conditions was produced
with the help of input from experts in each EU
Member State, Switzerland and Turkey.
Detailed interviews with several funding agencies,
companies, universities, associations and repre-
sentatives of the European Commission.
Each Expert Group member produced a country
overview in order to be able to specifcally describe
the funding conditions for universities in their
country.
European Commission’s recent Green Paper on the
future of the ERA.
Research management excellence is needed both at
a strategic level — doing the right things — and at
an operational level — doing things right; research
management is about far more than just fnancial
reporting. Excellence is needed at all stages of the
research process, from basic to applied research as
well as in collaboration and partnership with the
business community as part of research and inno-
vation ecosystems within non-linear complex inno-
vation processes.’
Structure of the report
The Expert Group’s report is structured according
to the following main chapters:
introduction of the members of the Expert Group; •
executive summary and recommendations; •
defnitions and terminology used in the report; •
overview of the characteristics of external •
project-based research funding mechanisms
across Europe and comparative countries;
universities’ diferent experiences and needs: •
Identifcation of the impact of external funding
requirements and conditions and assessment of
universities experiences and needs;
the way forward: the sustainability of university- •
based research;
annexes including the list of references, the ques- •
tionnaire used and the list of contributors to the
discussions of the Expert Group.
10
Rapporteur:
Pierre Espinasse
Oxford University, Head of
Research Services (science
area) and Associate Director
‘knowledge exchange’,
United Kingdom
A graduate in languages and economics, Pierre has
over 20 years’ experience of working in research
management and funding, initially with the UK
research councils and subsequently at the Univer-
sity of Oxford Research Services. Pierre was closely
involved in the development of full economic cost
in the UK and has been an active contributor to the
development of research and knowledge exchange
policy in the UK and Europe.
Chairperson:
Sabine Herlitschka
Austrian Research Promotion
Agency (FFG), Director of the
European and International
Programmes Division,
Austria
Educated as a biotechnologist, the professional
background of Sabine Herlitschka includes research
in international biotech industry, international
RTD cooperation at BIT-Bureau for International
Research and Technology Cooperation, internship
at the National Science Foundation, AAAS (Ameri-
can Association for the Advancement of Science)
and cooperation with the First Science Advisor in
the US Department of State. Before joining FFG, she
was founding Vice-Rector for research management
and international cooperation at the newly set up
Medical University of Graz/Austria. Since 1996 she
has been frequently involved in EU project devel-
opment, coordination and proposal evaluation, as
well as engagement in European and international
expert groups. She has been nominated Austrian
coordinating national contact point for the 7
th
EU
framework programme.
INTRODUCING THE MEMBERS
OF THE EXPERT GROUP
11
Olivier Küttel
Director of Euresearch,
Switzerland
Olivier Küttel has a PhD in plasma physics and
worked many years in the feld of nanotechnol-
ogy and surface science. From own experience he
knows the diferent national and European research
initiatives. He worked as a Patent Expert for the
Swiss federal institute of IPR and joined the Swiss
information network for European R & D Euresearch
as its Director in autumn 2000.
Expert assisting the rapporteur:
Willem Wolters
Wageningen University
and Research Centre,
Head of Wageningen
International Helpdesk,
the Netherlands
He has almost 25 years’ experience of supporting
participation in EU research programmes, with na -
tional and international public and private organ-
isations. Wageningen University and Research
Centre has a long tradition of participating in the
successive framework programmes. Heading the
Wageningen International Helpdesk, Willem Wol-
ters supports researchers developing proposals and
executing projects and guided transitions towards
the full costing system. As President of UNITE (Uni-
versities International Team of Experts), Adviser of
VSNU (Dutch Association of Universities) and mem-
ber of the EUA working group on the 7
th
framework
programme, he is involved in a wide range of EU-
afairs.
12
Gülsün Sa?lamer
?stanbul Technical University,
Turkey
Gülsün Sa?lamer is a Professor of architecture.
Former Rector of Istanbul Technical University
(1996–2004), she is a board member of EUA and
executive committee member of IAUP, and presi-
dent of the Council for Technology and Techno-
parks in Turkey and a board member of ITU’s Tech-
nology Park and Incubation Centre, ARI Tecnocity
(advanced research and innovation). She is a mem-
ber of the board of trustees of Kadir Has Univer-
sity. She has been a visiting scholar at Cambridge
University and a visiting professor at Queen’s Uni-
versity in Belfast. She is a member of the editorial
board of three international scientifc journals. She
was awarded honoris causa by Carleton University,
Canada (2001) and Universitatea de Nord Din Baia
Mare University, Romania (2002). The American
Institute of Architects (AIA) awarded her an honor-
ary fellowship (Hon. FAIA) in 2006, SEFI awarded her
the ‘Leonardo da Vinci Medal’ in 2005–06.
Thomas A. H. Schöck
Chancellor of the University
of Erlangen-Nuremberg,
Germany
Born in 1948, he earned degrees in law and eco-
nomics at the University of Erlangen-Nuremberg.
Having been Scientifc Assistant in tax law at the
same university he took up a career in the Bavarian
State Government with the Ministry of Finance and
the State Chancellery. In 1988, he became Chancel-
lor of the University of Erlangen-Nuremberg (i.e.
head of administration, chief fnancial and staf
ofcer and member of the governing board). From
1996–99 he served as Chairman of the Chancellors
of Bavarian universities, from 1999–2000 as Deputy
Chairman and from 2000–03 as Chairman of the
Chancellors of German universities. Since 2004 he
is Spokesman of the German chancellors’ working
group for intellectual property rights, third party
funding and European afairs. He served as a mem-
ber of the European Universities Association’s Insti-
tutional Experts Subgroup on Transparent Costing.
In 2008, he has been awarded the order of merit of
the Federal Republic of Germany.
13
Erika Szendrak
Hungarian Academy of
Sciences (HAS),
Deputy Head of the R & D
and Innovation Department
at the HAS secretariat,
Hungary
With her background as biotechnologist and as sci-
ence policy expert she provides EU science policy
and EU-level funding advice for the academy’s
scientifc community. Since April 2006 she is the
founding Director of Hunasco, the academy’s con-
tact ofce based in Brussels. Before her current
assignment at the Hungarian Academy of Sciences,
she worked in Brussels at the Directorate-General
for Research as a Research Policy Expert for four
years and at the University of Nebraska-Lincoln in
the US as a University Lecturer and Research Asso-
ciate. She is also programme committee expert and
national contact point of ERC/IDEAS in the 7
th
EU
framework programme as well as member of the
Team Europe Network as an appointed expert by
the Commission’s Representation in Hungary.
14
Jacques Voiron
Joseph Fourier University
Grenoble, France
He holds a degree in engineering, a PhD thesis in
computer science and is Professor in computer
science at the Université Joseph Fourier Greno-
ble, France. Successively he has been Dean of the
Department of Computer Science and Applied
Maths, Director of IMAG Research Laboratory in
computer sciences and technologies and applied
maths, Vice-Rector for research, and then Vice-Rec-
tor for industrial relations and research transfer at
Université Joseph Fourier, France. Furthermore, he
has served as European Afairs Adviser for the CPU
(the French conference of university rectors) and is
member of the French ICT national contact point
consortium for the 7
th
framework programme.
Tiina Vihma-Purovaara
Academy of Finland,
Manager for EU afairs at the
International Relations Unit,
Finland
With a background at the Institute for Art Research
at the University of Helsinki, Tiina Vihma-Purovaara
is Deputy Director of the International Afairs Unit
in the Academy of Finland responsible for coor-
dinating EU- and Latin-American activities in the
academy. She is a member of the National Science
and Technology Section under the Committee for
EU Afairs, chaired by the Ministry of Trade and
Industry. She is also the committee member and
national contact point of INCO for the 7
th
frame-
work programme as well as an expert member of
the specifc programme committee ‘cooperation’.
15
On behalf of the European
Commission:
Anne Rouault
National Seconded Expert
at the Directorate-General
for Research,
European Commission,
Brussels
Anne Rouault is one of the policy ofcers in charge
of the implementation of the modernisation agenda
for universities (Universities and Researchers Unit
(Unit C4)). Before joining the European Commis-
sion in 2007, she worked in the French Ministry of
Higher Education and Research, in the departments
of higher education, research, and fnance. In her
last position, she headed the Research Policies of
Universities Unit in the Department of Higher Edu-
cation and University-Based Research. She was thus
responsible for preparing the performance agree-
ments concluded between the State and the univer-
sities regarding their respective research portfolios
(agreement on the universities’ strategic objectives/
agreement on the volume of the core funding for
research). She holds a masters degree in geography,
and a permanent position in the French administra-
tion of education and research.
Observer:
Thomas Estermann
European University
Association (EUA),
Senior Programme Manager,
Brussels
Thomas Estermann is a Senior Programme Manager
at EUA. He is responsible for funding and fnance,
governance and autonomy issues in higher edu-
cation and research. Before joining EUA, he was
deputy head of the Department of Strategic Devel-
opment and Deputy Head of Administration at the
University of Music and Performing Arts, Vienna. He
was involved in implementing new cost account-
ing systems in Austrian universities and adapting
the university to conform to the last reforms in
higher education. Before entering the university
he pursued a career as a lawyer. He is a member
of the executive committee of Humane (Heads of
University Administration in Europe) and founding
chairman of WSAN. He is member of the editorial
board of the UK-based higher education journal
Perspectives. He holds a masters degree in law from
the University of Vienna.
16
The structure of funding both at European and
national levels tends increasingly towards project-
based funding. As a consequence, universities face
the challenge of diversifying their funding streams
in order to support fully their research activities, of
moving towards full recovery of research costs, of
fostering their fnancial management of research
activities driving their own strategies, and of adapt-
ing themselves to competitive project-based re -
search funding.
Funders play an important role in this since their
funding conditions and requirements infuence
and are closely interconnected with universities’
management and in particular fnancial manage-
ment, hence the focus by the Expert Group on the
funders’ role and perspective.
Drivers for change
Two underlying drivers substantially infuenced the
work of the Expert Group: fnancial sustainability
of universities is essential but cannot be achieved
unless universities have the necessary autonomy
and appropriate management practices and sys-
tems to make those decisions and act in a business-
like way; and, in our world of ever increasing com-
plexity, research needs pro-active management.
The Expert Group is convinced that the ambition for
excellence in research applies equally as strongly to
research management.
This report seeks to highlight those areas of stra-
tegic development which are essential if universi-
ties and their research are to remain sustainable
and competitive, and those issues which need to
be explored in greater depth. The report, and the
work undertaken in producing it, demonstrated
Executive summary
and recommendations
CHAPTER 1
17
on universities’ fnancial management although
very few of these agencies yet recognise or are pre-
pared to cover the full costs of research.
Assessment of universities’ experience and
the impact of external funding
Universities’ experiences and successes in external
project-based funding, on the one hand, heavily
depend on the management approach they apply
and the degree of institutional strategic perspec-
tive they are willing and able to implement. On the
other hand, external project-based funding itself
infuences the development of universities’ man-
agement approaches. These two factors of external
project-based funding and institutional manage-
ment are closely inter-related and infuenced by
each other. They represent a signifcant positive
feedback loop to be considered by universities and
funders alike, although the manner in which uni-
versities react to this is closely related to the degree
of autonomy they enjoy.
The ability to know the full costs of institutional
operation is an essential prerequisite in order to
develop a sustainable basis for a university that
intends to pro-actively manage its future oppor-
tunities. Doing so not only has to do with techni-
calities of accounting but also with funders’ percep-
tions towards universities and consequently cul-
tures that need to be changed or adapted. However,
changes in university acts already implemented
or currently under preparation in many European
countries show clear moves towards greater auton-
omy for universities and thus the development of
full costing approaches within them. Therefore, the
issue is high on the political agenda and plays a
that it represents just one step in a long and com-
plex process.
Two key issues emerged in undertaking the review.
The frst was that, as highlighted by the fndings of
the EUA report on fnancially sustainable universi-
ties
4
, there is a need to establish clear defnitions
for many of the terms relating to sustainability,
autonomy and full costing. The second was that
there are severe limitations as to the availability
of data on the characteristics of external project-
based research funding and, where data are avail-
able, there is considerable variance as to the way
they are collated and interpreted. In addition, the
Expert Group found it difcult to engage funders’
associations in discussion over the role and views of
their members on the questions raised.
Characteristics of external project-based funding
Expenditure on university-based research is a sig-
nifcant element of public funding on higher edu-
cation, with direct national or regional government
acting as the principal source of funding. Where
project-based funding is received, there is little
consistency between external funders on condi-
tions and requirements and universities in most
countries are having to adapt their fnancial man-
agement systems to meet the requirements of their
principal funding organisations. There does appear
to be a clear trend across Europe towards universi-
ties needing to adopt full costing as well as a more
strategic approach to the management of research
and the internal allocation of resources to support
their research. National funding agencies play an
important role in providing external project-based
funding for universities and, through their condi-
tions and requirements, have a signifcant infuence
4
Financially sustainable universities : Towards full costing in European universi-
ties, European University Association, EUA Publications 2008, pp. 17–19.
18
versity leadership and researchers across most of
Europe and has raised awareness of indirect costs.
For the university leadership — in many cases — it
was an ‘eye-opening’ experience to see the dimen-
sion of real indirect costs at their institution after the
frst rough estimations or calculations. This experi-
ence resulted in an increased awareness not only
towards direct, but also towards indirect costs and
thus a real sustainable funding approach. This will
again come up high on the agenda with the mid-
term evaluation of FP 7 and the 60 % transitional
fat rate of indirect costs.
It is clear that FP 7, with its approach to funding
based on full costs and recognition of indirect costs,
has had a very obvious direct as well as more indi-
rect impact on funding organisations at national
level in many countries. In more direct terms, infor-
mation gathered by the Expert Group suggests that,
infuenced by their experiences with FP funding
rates for direct and indirect costs, universities are
increasingly starting to request similar approaches
from national funding agencies.
The sustainability of university-based
research
External funding and accountability
There is a trend across Europe towards a mixed
economy model whereby many universities are
shifting from a model where they have signifcant
‘internal’ resources which they are able to allocate
as they see ft and support research in line with
their own strategic goals, to a model where they
are more dependent on competing for funds and
thus increasingly infuenced by research priorities
major role in discussions on the European research
area and the modernisation agenda for European
universities.
The Expert Group believes that full transparency is
the best possible way to ensure clear understand-
ing of costs by all actors involved. As a consequence,
and in order to substantiate the credibility of uni-
versities needs in terms of sustainable funding,
similar exercises such as the ‘Transparent approach
to costing’ (TRAC) in the UK would be necessary in
most countries. What is necessary is a good balance
of funding agencies and organisations that work
along the same principles and procedures, while at
the same time keeping the diversity in terms of the
diferent objectives they pursue, thereby strength-
ening the competition between funding organisa-
tions for the best research projects with respect to
their funding portfolio.
The catalytic role of the 7
th
framework
programme (FP 7)
Due to its specifc nature and regulations, the
framework programme generally and FP 7 in par-
ticular does have a strong catalytic role for universi-
ties, in the sense that it stimulates awareness of full
costing. It can be said that, from the point of view
of fostering and inciting the development towards
full costing and an increased awareness as regards
the necessity of sustainable funding for universities,
the rules as set up for FP 7 in relation to abolishing
cost models and allowing the opportunity of using
a simplifed method of identifying indirect costs
were a move in the right direction.
The fact that FP 7 reimburses indirect costs at a sig-
nifcant level clearly had an educating efect on uni-
19
date and are maintained. It is critical, therefore, that
where core funding is provided to universities, the
extent to which it is expected to meet current main-
tenance costs and/or to invest in updating infra-
structure to a competitive level is clearly agreed
between all partners.
Responsibility for fnancial sustainability
and reasonable accountability
While each university must take responsibility for
its own long term sustainability, the Expert Group’s
view is that Member States (through their national
and regional funding schemes) and the European
Commission together have a responsibility to main-
tain the sustainability of university-based research
at sector level. However, it is clear that this is often
not refected in the strategies adopted for the fund-
ing of research programmes. There can be tensions
between the goals expressed by EU and national
public funders in terms of how they see university-
based research developing and the controls and
regulations that are then imposed around individ-
ual project grants. There are also indications that
accountability requirements in funding schemes
can be too complex and that there is a real risk of
rules and procedures limiting university autonomy
or leading to complex bureaucratic reporting pro-
cedures. It is important, therefore, that sponsors
of research recognise this and, by entering into a
dialogue with universities, explore ways in which
these impacts can be lessened.
A key area which can cause confusion and concern
and which can lead to overly burdensome report-
ing requirements is that of the methodologies used
to record time spent on certain activities to support
cost allocations. The diversity of European universi-
set by funders. External funders, therefore, have a
key role to play in assisting universities in devel-
oping improved management and accountability
systems and in achieving sustainability through
identifying and recognising the full cost of their
research activity.
‘Core’ versus ‘external’ funding
There appears to be little empirical evidence to show
what the ‘right’ balance is between core funding
allocated at institutional level, which allows the uni-
versity to set its own priorities, and external project
funding. While it is clear that there are benefts to be
derived from the increased move towards external
funding, university research cannot be fully depend-
ent on such external funding. A university’s ability to
develop its strategic research activities with respect
to its profle and objectives can be restricted by an
over-reliance on competitive funding sources. Thus,
if universities are to maintain a degree of fexibility
to develop strategic research models and to suc-
cessfully target competitive research funding, it is
important that they retain an element of ‘internal’
core funding from the State which they are free,
subject to accounting for outcomes, to allocate as
they see ft. While ‘external’ funding of research is
very important for ensuring quality, it is also clear
that core funding is essential to support long-term
strategic planning by universities.
The need for clarity
A critical aspect of core funding relates to the main-
tenance and updating of existing infrastructure. It is
important to recognise that part of the cost of mak-
ing EU universities globally competitive is ensur-
ing that buildings and facilities are brought up to
20
ences and successes in external project-based fund-
ing heavily depend on the management approach
they apply and the degree of institutional strate-
gic perspective they are willing and able to imple-
ment.
Strong, autonomous universities have responsibil-
ity for their own sustainability and therefore need
to have robust management structures and sys-
tems in place to support their decision-making. Full
costing is a key tool in this regard as universities
cannot plan strategically and decide what areas to
develop and support if they do not know the real
long-term cost of their activities. The ability of a
university to identify robustly the true cost of a par-
ticular research project allows it to identify which
sources of funding are appropriate to its activity
and sector.
While it is important that the modernisation
agenda be managed so as not to destabilise Euro-
pean universities through too rapid changes, the
Expert Group’s view is that the majority of Euro-
pean universities are not developing fast enough. If
universities are to compete at an international level
and ensure the sustainability of their research it is
essential, if they have not done so already, that they
engage now in the process to identify the full costs
of their activities.
Acceptance of full costing
The ability to identify one’s true costs comes with
a responsibility to manage them strategically.
However, this can only be achieved if all the actors
involved, including the funders of research (whether
through core funding or competitive, project-based
funding) understand and accept the principles
ties, both in terms of their legal and administrative
structures and their remits and objectives, means
that no single model exists and a variety of meth-
odologies, all equally robust, are evolving to suit
particular national or functional circumstances. The
Expert Group concurs with the comments made
by EUA that any certifcation process at a European
level should remain ‘light touch’ and allow for the
diferent methodologies for time and activity allo-
cation that are being developed at a national or
sector level. The Group further believes that this is
consistent with the fact that research is a unique
activity which cannot be treated in the same way as
the procurement of goods and that, therefore, the
fnancial and audit requirements may need to be
adapted to take this into account.
Sharing best practice
The principal funders of university-based research
have the means to coordinate their conditions and
requirements to lessen the burden on universities
and support the simplifcation process. The Com-
mission is in a unique position to act as a moderator
and catalyst in this area and to facilitate a discus-
sion to identify a degree of commonality around
best practice. It should work with the national
funding agencies to share experiences and collect
information on good practice for external funding
terms and conditions, with the aim of identifying
best practice at European and national levels.
Full costing as a tool for sustainability
The sustainability of university-based research
requires universities to be able to identify their full
costs and, more importantly, cover these costs from
internal or external sources. Universities’ experi-
21
Excellent research needs excellent management
It needs to be recognised that, as well as the abil-
ity to identify the full costs of their research, it is
import ant that universities have the management
and administrative infrastructure necessary to
manage their internal resources so as to support
the strategic co fnancing of their research in a sus-
tainable way. In other words, the move towards full
costing is not an end in itself: it simply provides the
essential tool which universities require for identify-
ing and understanding their true costs and through
which they can move towards sustainability.
The current state of university infrastructure
The additional challenge for universities, once
they are able to identify their real costs, is being in
a position to make good past underinvestment in
their human and physical infrastructure as well as
to make strategic decisions on future investments.
In many cases, the level of investment required to
bring infrastructure up to a globally competitive
level is unknown and is likely to be substantial. Full
costing and recovery of real costs, while of prime
importance, are not sufcient in themselves if a uni-
versity’s human and physical infrastructure is not at
a competitive level and if there is no awareness, at a
national level, of the level of investment required to
bring them up to a suitable standard.
involved and recognise the need for universities
to recover the full costs of their activities. FP 7 is a
key driver in the move towards sustainability and
in encouraging universities to adopt full costing
methodologies appropriate to their national legal
situation. Using FP 7 as a tool to reward good prac-
tice can encourage the move from using the fat
rate for indirect cost recovery to the use of actual
indirect rates or the simplifed methodology, as
long as the benefts of doing so are not outweighed
by disincentives, such as overly burdensome audit-
ing requirements which exceed nationally agreed
methodologies, or the application of standard ‘pro-
curement’ type conditions on research activities.
Encouraging the move to full costs
Recent evidence suggests that the majority of Euro-
pean universities, particularly those in the new
Member States, will not be in a position to identify
the full costs of their research in the next few years in
a way which would allow them to improve their cost
recovery without strong incentives and the support
of their national funding agencies. It is important,
therefore, that the Commission take the opportunity
presented by the mid-term review of FP 7 to encour-
age Member States to support the move to full cost-
ing, whether through providing fnancial assistance
or incentives or through other support mechanisms.
The Commission should also take account of the
preparedness of universities to move to full costing
when considering the level of the default indirect
cost fat rate under FP 7 and be mindful of the need
to encourage rather than force any move towards
full costing. A reduced default rate could be a use-
ful tool in the move towards inciting universities but
should not, in itself, be the driver.
22
Responsibility at university level
Recommendation for strategic development:
Universities must recognise that excellence in
research requires sound and pro-active manage-
ment practices.
Excellence in research and management go hand
in hand. Financial management is a condition for
informed, strategic decision-making, in an environ-
ment where universities are expected to develop
long term excellent research activities in line with
their strategic profle.
Full costing is an essential component of appropriate
fnancial management of research in this context.
Recommendation for action: Universities need to
adopt full costing methodologies appropriate to
their national legal requirements as a key tool for
sustainable development.
Shared roles and responsibilities for
Member States and the European
Commission
Recommendation for strategic development:
Member States have a responsibility to contrib-
ute to the sustainability of the university-based
research sector together with the European Com-
mission supporting this process at EU level. Both
should, therefore, ensure that this objective be one
of the prin ciples underpinning all the research pro-
grammes they fund.
Recommendation for action: Member States, work-
ing with the principal national funding agencies
Recommendations
23
tion’ of knowledge. Thus, consideration should be
given to the fnancial regulations which surround
research funding to ensure that they are suited to
the nature of research activities, in terms of report-
ing requirements and expected accountability.
The Commission should reward best practice
and encourage the adoption of full costing while
ensuring that those universities which do so are
not placed at a disadvantage when competing for
funds.
The FP 7 transitional fat rate can be used as major
external driver towards full costing implementation
but shall not be considered in isolation. Appropri-
ate support at national level has to be provided to
universities to facilitate their transition to full cost-
ing implementation.
Recommendations for action: As part of the mid-
term review of the 7
th
framework programme, the
Commission and the Member States should review
the state of play across the EU-27 on the ability of
universities to identify the true costs of their research
as well as the national support mechanisms avail-
able to them to do so, and should promote the
sharing of best practice and mutual learning while
taking into account national legal and structural
constraints.
in the frst instance, but involving other research
funders in time, together with the European Com-
mission should consider drawing up good practice
guidelines for external funding. Terms and condi-
tions in consultation with universities.
Role and responsibility at national level
Recommendations for strategic development:
The fnancing of university infrastructure underpins
universities’ ability to maintain research excellence
and competitiveness.
In allocating core funding, Member States need to
be clear about the purpose of that funding and rec-
ognise the cost of maintaining existing infrastruc-
tures as well as that of bringing them up to a glo-
bally competitive standard.
Recommendation for action: Where such an exer-
cise has not yet been undertaken an assessment of
the current state and competitiveness of university
research infrastructure (both human and physical)
in individual Member States will be necessary so as
to identify priority areas for investment.
Responsibility at European level
Recommendation for strategic development:
Research activities shall not be supported like pro-
curement, as there are fundamental diferences
between funded research and procured activities.
Where procurement requires the defnition of all
kinds of detailed input descriptions and reporting,
research activities should be supported and funded
by focusing on their contribution to the ‘produc-
24
In undertaking this review, it became clear to the
Expert Group that there was a need to establish
clear defnitions for many of the terms used as
often, both during discussions within the Group
and with other organisations, many of the terms
were interpreted quite diferently by the interlocu-
tors. For the purposes of the report, therefore, the
following defnitions have been used.
Full costing:
an accounting methodology used to identify and
calculate all the direct and indirect costs incurred
in undertaking a project or an activity.
Direct costs:
costs directly attributable to an activity.
Indirect costs
(sometimes referred to as ‘overheads’):
costs that relate to an activity but which cannot be
identifed and charged at the level of the activity.
Sustainability:
the ability at institutional or sector level to maintain
an activity into the future without loss of quality
and with the appropriate resources.
Autonomy:
a fully autonomous university will be able to set
its own programmes of teaching and research,
have full budgetary freedom and control of its
own fnances (subject to normal auditing rules),
freedom to recruit faculty members and set salary
levels, and freedom to allocate resources as it sees
ft and engage in new activities of its choosing.
Defnitions and terminology
used in the report
CHAPTER 2
25
Sponsor:
the external party providing the funding for a de -
fned programme of research.
Infrastructure:
the resources within a university needed to under-
take teaching or research activities. For the purposes
of this report this includes both physical (buildings,
major facilities, systems) as well as human (academic
and support posts, working conditions, remunera-
tion levels) resources.
TRAC (transparent approach to costing):
the activity based accounting methodology intro-
duced in all UK universities for costing their main
activities (Teaching, Research, and Other activities).
Accountability:
for the purposes of this report, the accountability of
a university to an appropriate national or regional
authority for the use of public funds and for the
outcomes of its actions and decisions.
Core funding:
funding allocated to a university by national or
regional government or public agency as part of
an annual budgeting round for the support of the
university’s general teaching and/or research activ-
ities.
External project-based funding:
funding received from an external party, whether
public or private, in many cases based on compe-
tition by peer review, to undertake a defned pro-
gramme of research.
Funders:
for the purposes of this report, a diverse group of
possible funding sources including national or
regional public funding either directly through
government or funding agencies, national private
funding from diferent sources and international
public and private funding.
26
As part of its review, the Expert Group undertook a
survey consisting of a questionnaire (see Annex 1)
and the development of an overview on conditions
and requirements of the major national funding
organisations in Europe.
The intention was twofold:
to obtain • broad indicators and an overview of
the characteristics of external research project-
based funding mechanisms across Europe and
comparative countries,
to identify • recent trends in order to assess their
impact on the development of fnancial man-
agement capacity in universities and the move
towards full recovery of research costs.
Broad interest — but substantial limitations of
available data
Although many of the organisations and individu-
als approached were very interested in the informa-
tion being sought in the questionnaire, it became
apparent that there are severe limitations as to the
availability of such data across Member States and
that, where data are available, there is considerable
variance as to the way they are collated and inter-
preted. Nevertheless, the Group was able to iden-
tify some broad indicators which provide useful
background to the subject of this review.
General characteristics of research funding
across Europe
While, for the reasons set out above, it is difcult to
obtain comparable fgures, it is clear that expendi-
ture on university based research is a signifcant
element of public funding on higher educa-
tion accounting, as it does, for between 30 % and
50 % of that funding in most countries and that it
is growing.
Overview of the characteristics
of external project-based
research funding mechanisms
across Europe and comparative
countries
CHAPTER 3
27
diversifed funding base and where national fund-
ing agencies have signifcantly more importance.
For example, while national government accounts
for 70 % to 80 % of research funding in the Czech
Republic, Poland, Estonia, Latvia and Hungary,
in the UK and Switzerland it is national agencies
which are the primary funders. European funding
varies in importance across countries but is a major
contributor in some (such as Portugal, Netherlands,
Poland and Switzerland) while, perhaps surpris-
ingly, industry or other proft-making organisations
appear as the third major source of funding in a sig-
nifcant but diversifed number of Member States,
including Germany, Portugal, Spain and Ireland.
This indicator links in with other sources of data
showing over time increasing expenditure on aca-
demic research in some Member States and com-
parator countries (see Fig. 1).
Direct national or regional government remain
the principal source of funding for university-
based research across most of Europe as well as
comparative countries. It would appear, however,
that in newer Member States and in those countries
which have yet to adopt a more strategic approach
to the management and funding of universities,
this source of funding accounts for a greater pro-
portion than in other countries which have a more
1
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Figure 1:
Expenditure on academic
research as a proportion of
GDP, 1992/93 vs. 2002/03
(Source: Austrian Research
and Technology Report 2007)
1992/93 2002/03
28
surveyed, where there are a number of agencies
involved there is little evidence, other than in the
UK, of much strategic thinking behind this. This is
borne out by a brief review of some research uni-
versities across Europe with very diferent fund-
ing profles who all reported that the conditions
and requirements of their external project-based
funding difered between funders
5
. Overall, there-
fore there is little consistency when all external
funders are considered and there are clear indi-
cations that universities in most countries are
having to adapt their fnancial management
systems to meet the requirements of their prin-
cipal funding organisations. In some cases, Euro-
pean funding is acting as the driver, for instance in
Spain where the EC accountability requirements
have been an important factor behind the pressure
for the introduction of analytical accounting in the
Spanish university system.
There is also little evidence of any trend by the
primary funders of project-based research to
streamline their fnancial reporting requirements
(indeed, where there is a stated aim to simplify
such requirements, there appear to be doubts at
university level of the efcacy of such simplifca-
tion or, as one respondent commented: ‘simplif-
cation remains a challenge‘). In many cases, there
remains signifcant diversity and the accountabil-
ity and reporting requirements are described as
remaining burdensome. For example, while there
has been much focus in the UK on reducing the
burden on institutions, the extent to which that
burden has decreased is questionable.
5
See Annex 4 for questions posed to universities.
In the majority of countries national or regional gov-
ernment core funding appears to be awarded on
a formula basis to universities, usually using past
performance metrics or, in a small number of cases,
using current volumes or metrics. For the most part,
universities are free to use these funds as they see ft
but with explicit reporting requirements, although
in a few countries, mainly newer Member States but
also France and Spain, they have to be allocated to
specifc activities.
Where project-based funding is received, ac -
countability for expenditure at project level and
activity reports on the outcome of research are uni-
versally required. In some cases, there are explicit
requirements for match funding by the university
although, given the fact that very few sponsors will
meet the full economic cost of the research (the
exception being the UK where Government depart-
ments and proft-making bodies are expected to do
so), the requirement for match funding is implicit
even if not recognised as such by the players
involved. There appear to be wide variations in the
requirements or expectations for co-funding with
no clear pattern across Europe or across funders
suggesting that, with the exception of Framework
programmes, the reasons for co-funding may not
have been fully thought through by the organisa-
tions involved.
The Group was also interested in seeing what con-
sistency there might be at national level between
sponsors and what impact sponsor conditions
had on universities. While there does appear to be
a move towards consistency between the rules and
conditions imposed on awards for project-based
research by national agencies in half the countries
29
There are, however, clear indications that funders
are moving to change their criteria for awarding
funding: greater accountability is being sought to
justify funding; greater use of competitive fund-
ing is seen as a way to improve quality of project
proposals; and there is increased pressure to intro-
duce performance indicators. Competitive-based
research funding is being introduced in Lithuania
while, in Ireland, all major funders have moved to
full international peer review as a way of increas-
ing national research excellence. These indications
are borne out by a recent review
6
which found that
many OECD countries had extended their competi-
tive research funding with the aim of improving
the efectiveness and efciency of their scientifc
research through focussing on performance and
competition. The study concluded, however, that
there appeared to be no fundamental superior-
ity of any specifc type of funding over another.
When asked about identifying the primary ob -
stacles or problems faced by research sponsors in
awarding funding to universities, weaknesses in
fnancial reporting and project management were
identifed. However, it was commented that spon-
sors sometimes failed to understand universities’
internal procedures and the need to adapt their
systems to meet sponsor requirements. The impact
of low success rates was also mentioned as having
a detrimental efect on universities’ interactions
with sponsors.
There does also appear to be a clear trend across
Europe towards universities needing to adopt
full costing as well as a more strategic approach
6
Review by Dr K. H. Leitner reported in the ‘Austrian Research and Technol-
ogy Report 2007’, p. 125.
to the management of research and the internal
allocation of resources to support their research.
The implementation of such moves seems, how-
ever, to be quite fragmented in practice. UK univer-
sities are required to manage their research portfo-
lios in a sustainable way and are therefore becom-
ing more strategic in how they manage research
funding, while universities in Finland, Estonia,
Germany and Switzerland are moving to changing
their accounting systems to identify the full costs
of their research. In Sweden, there are instances
of sponsors looking to universities to have identi-
fed priority strategic research areas before funding
new research centres.
Public funding agencies at national level
In contrast to the general university funds (GUF) for
ensuring the core funding of universities, project-
based research funding is most frequently pro-
vided by governmental agencies, in exceptional
cases directly by ministries. In most European coun-
tries this external project-based funding at national
level accounts for an important share of the univer-
sity research budget and can exceed 50 % in some
countries. Thus, national funding agencies play
an important role in providing external project-
based research funding for universities.
As indicated above, in many cases national fund-
ing agencies have recently undergone or are in the
pro cess of changing their methodologies as well as
their funding conditions and requirements. Exam-
ples of such changes include restructuring/consoli-
dation of funding organisations (Czech Republic,
Hungary, Estonia, France), or changes of funding
mechanisms (Switzerland, Finland, Austria).
30
In providing project-based research funding, agen-
cies through their conditions and requirements
do have a signifcant infuence on the fnancial
management of universities. It can be said that it
is useful that there is a broader spectrum of funding
opportunities ofered at national level with the var-
ious agencies developing their specifc profles, e.g.
focussing on basic or applied research, innovation
or specifc structures of research projects (coope-
ration with industry, centres of competence, etc.).
However, these opportunities tend to be linked to
a substantial diversity in funding models and
mechanisms applied.
Particularly with respect to discussions in the con-
text of ‘joint programming‘
7
it is important to see
that funding agencies work with very diferent con-
ditions and requirements not only in the respective
countries but also all over Europe. This diversity is
not related to the type of research (basic or applied)
7
‘Towards joint programming in research: Working together to tackle com-
mon challenges more efectively’, Commission Communication COM(2008)
468, 15 July 2008.
or specifc country groups (new or old member
states).
The Expert Group’s overview of the main fund-
ing agencies across Europe showed that over half
those surveyed covered either the full direct costs
of the research together with a nominal fxed con-
tribution towards the indirect costs (typically 20 %),
or the ‘additional costs’ of the project and a fat
rate indirect cost (using the FP 6 ‘additional cost’
model). In a few countries project-based research is
supported by lump sum payments, including either
no or very limited reimbursement on indirect costs.
Outside the UK, very few national agencies yet
recognise or are prepared to cover the full costs
of university research. The exceptions appear to
be FFG in Austria, and the Academy of Finland and
Tekes in Finland who have indicated that they will
do so where a university is able to show the full cost
of their research.
31
The Hungarian Scientifc Research Fund (OTKA) pro-
vides fnancial support for basic research, international
cooperation, research infrastructure development
and fellowships to young scientists. OTKA supports
Hungarian researchers in the life sciences, the natu-
ral sciences and engineering, and the social sciences,
with a distribution of roughly 40/40/20. Universities
are the main benefciaries with a share of some 60 to
65 %, while institutes of the Hungarian Academy of
Sciences (HAS) account for 25 to 30 % of OTKA’s fund-
ing. OTKA’s budget in 2007 was EUR 20.7 million.
There is an impact of external project-based funding,
such as OTKA, on universities’ fnancial management,
but only for those which are successfully competing
for grants. From the 71 higher education institutes in
Hungary only about 10 % are among the main clients
of OTKA beside the research institutes of HAS, so in
fact most of the 60 % budget of OTKA goes to those
few universities. Obviously for these universities OTKA
is a mayor provider, and thus OTKA’s reporting system
is well integrated into the overall fnancial manage-
ment.
Another interesting phenomenon is that OTKA has
varied impacts even inside the same university,
depending on the faculty/department. This very
much depends on the type of disciplinary area, the
faculty/department engaged. Those who are not
among the typical clients of OTKA, one group of HEI is
still rather active in obtaining competitive funds, but
more from sources labelled for applied research (such
as the NKTH/KPI type of funds) or from grant schemes
administered by sectorial ministries (Ministries of
Agriculture, Transport, Environment, Health, etc.).
Others in fact not really performing research, and are
mainly engaged in education only.
Another issue is the introduction of co-fnancing in
the national and international grant systems and its
growing importance. As core funding is extremely
limited, and thus the budget which could be pre-
sented as co-fnancing — unless having income from
industry cooperations — universities even with a
high scientifc potential face problems in applying
for competitive funds. At the moment OTKA has no
co-fnancing requirements (focussing mainly on basic
research), but this is usually not the case with other
competitive funding schemes in Hungary.
Hungarian HE institutions (and other public research
performers) are perfectly equipped to do analytical
accounting and to estimate their full costs. This is in
fact a legal requirement which goes back several dec-
ades. To maintain operations from such limited fnanc-
ing, analytical accounting is a must. OTKA requests
in its reporting system an analytical approach and
there were no complaints from any organisations for
doing so. External funding — either national or EU
— through their rules and reporting requirements
clearly push universities (or certain departments/fac-
ulties) to adapt to a diferent approach both in terms
of planning and recording. It is also forcing all institu-
tional players to spend the available funds on what
they were originally provided for. The difculty is that,
in the case of universities, the diferent activity types
compete unevenly: education, as a public mission and
an obligation has to be the frst one to be covered and
fnanced; however to remain among the best, high
research performance also needs to be presented.
Example of Hungary: Hungarian Scientifc Research Fund (OTKA)
32
The DFG is a registered association according to Ger-
man Civil Law. Its members are legal entities accord-
ing to public law (universities and academies) as well
as civil law (research organisations). The DFG as an
institution is funded jointly by the federal and state
governments. Additionally, the DFG receives project-
based funding for specifc purposes from the federal
and state governments. Due to the fact that 99 % of
the DFG’s funding is fnanced from public sources, it
has to follow the rules of public budget law. The DFG
received a total of approximately EUR 2.1 billion for
the year 2008 from the federal and state governments,
which was used to fund research at universities and
public research organisations. Particular attention is
devoted to the promotion of young researchers and
equal opportunity measures.
Despite the fact that the DFG is funded by public
sources, its administration is scientifcally self gov-
erned, i.e. the thematic orientation of the DFG’s
research funding is not infuenced by the federal or
state governments.
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the universities’
fnancial management? Is there any impact?
The degree of project-based funding as compared
with institutional funding at universities has been
increasing and has led to decentralised fnancial con-
trolling and more responsibility. From the DFG’s point
of view this development is the natural consequence
of project-based funding and its disadvantages for
the recipients (e.g. time limitations of funding).
With respect to project-based funding and fnancial
management it is important to be aware of the fol-
lowing:
project-based funding binds institutional funding, •
provides important aspects for performance-based •
funding and thus
promotes the development of an entrepreneurial •
orientation of the fnancial system.
Do you expect changes in behaviour from the
increasing number of autonomous universities
in Europe? What is your perception of fully
autonomous universities, particularly in terms
of strategic research development and fnancial
management issues?
Strengthening the autonomy of universities is one of
the most important elements for the development
of modern fnancial management. Independence of
governmental micromanagement requires that uni-
versities take their own decisions on how to use their
resources — particularly with respect to the profle
they want to develop as well as decentralised bud-
geting. This development is ultimately linked to an
increased awareness towards the fnancial responsi-
bility at all levels in the university. Universities become
more entrepreneurial, which results in an increased
orientation of the fnancial management in line with
the strategies of universities.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent can the conditions
of external funding assist the move towards full
recovery of research costs as a major component of
sustainability of university-based research?
In principle external funding requirements with spe-
cifc rules towards the fnancial management are well
suited to launch a process of increased transparency
of resource allocation in research. In order to support
the development of sustainable fnancial manage-
ment, these rules must not interfere too much with
the internal processes at universities. Requirements in
Example of Germany: the German Research Foundation (DFG)
33
the sense of adequate accountability on the funders’
side and the needs of research organisations must be
balanced. This critical balance has not been set up in
a satisfactory way for all funding organisations. Fur-
thermore, it is problematic in that the funders have
diferent funding requirements and rules.
What is your position towards supporting overhead
costs at universities? Under which conditions and to
what extent are overheads funded? Is there a long-
term strategy and, if so, what is it like?
The DFG currently awards an overhead allowance of
20 % of actual direct project costs for DFG-funded
projects. Funding of these indirect costs is not linked
to any requirements on cost-performance calculation
or usage guidelines. However, the DFG has noticed
that the availability of this part of the funding and
how it is intended to be used has caused a new cost
awareness and interest in cost calculations.
We believe that it is more useful to waive detailed
requirements in order to achieve acceptance of mod-
ern and sustainable controlling and steering tools
instead of defning and enforcing strict accountability
conditions.
34
Example: Austria
FFG — the Austrian Research Promotion Agency is
one of three major funding organisations in Austria
focused on supporting applied research for individual
companies and cooperative research projects and ini-
tiatives. FFG funding is provided by the government,
in the year 2007 at a level of EUR 586 million.
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the fnancial
management of universities? Is there any impact?
External project-based funding conditions generate
an increasing impact, e.g. through its regulations of
funding rates (new Community rules) as well as over-
heads.
There is also an impact on the fnancial management
due to the continuing trend of an increasing pro-
portion of cooperative funding programmes within
FFG, thus linking universities with industry in joint
projects. Nowadays cooperative programmes neces-
sitate a strong involvement of the knowledge base
represented by universities. For an agency such as
FFG this development is of interest since it helps to
generate real additionality of its funding devoted to
companies. On the other hand, FFG tries to avoid a
potential inclination of universities being involved in
projects as alibi partners.
In order to be able to generate this impact, FFG is inter-
ested in ofering suitable and attractive programmes
with adequate characteristics and matching evalua-
tion procedures.
Do you expect changes in behaviour from the
increasing number of autonomous universities
in Europe? What is your perception of fully
autonomous universities, particularly in terms
of strategic research development and fnancial
management issues?
Autonomous universities develop a stronger entre-
preneurial attitude in hopefully all felds of activities.
In principle, they are also supposed to demonstrate
a strategic research development (e.g. system atically
developing their strong felds of research from an
institutional point of view) linked with respective
fnancial management approaches. However, so
far, this tendency has not yet been observed in the
case of Austrian universities. At the same time, this
kind of development would be highly desirable
for FFG since it would increase the accuracy of FFG
funding.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent do you think the
conditions of external funding can assist the move
towards full recovery of research costs as a major
component of sustainability in university-based
research?
It needs an open and comprehensive discussion on
the real cost structure of universities. Currently, Aus-
tria works with a mixed system of GUF funding, exter-
nal project-based funding and overhead coverage.
These elements have to be sorted out and structured
in a complementary way.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded by FFG? Is there a
long term strategy, if yes, what is it like?
FFG has a clear picture of its overhead regulation
which is currently at the stage of being discussed
and further developed with the Austrian ministries
responsible. In general, FFG pays a lump sum of 20 %
overheads on personnel costs. If universities are able
to prove their entire full costs (including overheads),
FFG would be ready to provide funding for the entire
35
overheads. This strategy will depend on the general
direction of the Austrian government and the respec-
tive provision of funds to FFG.
FWF — the Austrian Science Fund is one of the three
major funding organisations in Austria with focus on
supporting basic research for individual researchers
and networks of researchers, and — as one of the sig-
nifcant new funding lines — clusters of excellence.
FWF funding is provided by the government, in the
year 2007 at a level of EUR 163 million.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent do you think the
conditions of external funding can assist the move
towards full recovery of research costs as a major
component of sustainability in university-based
research?
External project-based funding stimulates the discus-
sion on the relationship between core and external
project-based funding at national level. Also in the
European context, national funding organisations
are more and more aware of the issue of sustainable
research funding for universities. As a consequence,
FWF recently started to reimburse 20 % of overheads
on its newly awarded projects. The higher the rate,
the more relevant it will get for universities, which will
increase their level of awareness and related acti vities
towards full recovery of research costs. As important
as it is for universities to know their real costs, they
will need to consider carefully the extent of cost
monitoring procedures (particularly time monitor-
ing) they put in place. What happens to all the data
that is being generated at the cost of researchers’
eforts and time? Alternative approaches have to be
considered.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded? Is there a long
term strategy, if yes, what is it like?
FWF recently started to reimburse 20 % of overheads
on its newly awarded projects. This rate represents
the starting point, most likely a 50 % overhead rate
will be feasible in the near future.
In the long run, it will be necessary to fnd a coordi-
nated approach for the contribution of core funding
(GUF — General University Fund) at Austrian univer-
sities. Currently we have a mixed model of funding
a range of university activities. In principle, costs for
basic infrastructure and personnel should be cover ed
by the government. Thus, overheads for external
projects should be fully covered by the core funding. A
way to handle this issue in organisational terms could
be to transfer the specifc amount of overheads linked
to external projects in the performance agreements
of each university with the responsible ministry. In
order to keep the monitoring eforts low, overheads
could be reimbursed according to lump sum cate-
gories. Each university could negotiate its category
in the course of the discussions on the performance
agreements every three years. Thus, FWF would pro-
vide exclusively for the direct costs.
36
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the fnancial
management of universities? Is there any impact?
Dealing with external funding will certainly have
impacts on university fnancial management.
(1) Universities are expected to calculate the costs of
diferent functions/activities as a whole (e.g. research
vs. education, economic vs. non-economic activities)
as well as the total costs of separately funded research
projects.
Community framework for state aid for research and
development and innovation (2006/C 323/01) states,
that
‘If the same entity carries out activities of both •
economic and non-economic nature, in order to
avoid cross-subsidisation of the economic activity,
the public funding of the non-economic activities
will not fall under Article 87(1) of the EC Treaty, if
the two kinds of activities and their costs and fund-
ing can be clearly separated. Evidence that the
costs have been allocated correctly can consist of
annual fnancial statements of the universities and
research organisations.’
In practise this means that universities must have a
reliable accounting system to report project costs
on a full cost basis. In Finland universities have in the
last few years actually made a great deal of efort to
develop their accounting systems in order to fulfl
these requirements.
(2) In research projects, the maximum Tekes contri-
bution is usually 60–70 % of the total costs. In addi-
tion to that, Tekes also expects benefciaries to obtain
some contribution (5–15 %) from companies to show
that the project has also a utilisation potential in the
Finnish economy.
In collaboration with companies, universities must be
even more aware of state aid regulation and full cost-
ing to avoid transferring project results to companies
below cost.
In the context of the modernisation agenda, autono-
mous, increasingly entrepreneurial and thus fnan-
cially sustainable universities are high on the politi-
cal agenda. To what extent do you think the condi-
tions of external funding can assist the move towards
full recovery of research costs as a major component
of sustainability in university-based research?
Tekes is prepared to fund all the research costs (direct
and indirect) that are incurred in research projects. How-
ever, this doesn‘t mean that Tekes should fund 100 %
of total costs of the project. If universities received
100 %, there might be a danger that they would take
part in research projects they are not really commit-
ted to. That is, at no risk to them, as all the money will
come from external funding organisations.
From this point of view universities should always
have a real interest (money) of their own in research
projects. However, in order to do that in Finland
research in universities should also be funded in the
State budget, particularly because research is one of
the universities’ statutory functions.
All Tekes’ research benefciaries (universities and
other research organisations) will report with full cost
model from 1 January 2009. In the full cost model,
Tekes accepts all indirect costs (overheads) that are
incurred in research function, provided that costs are
determined according to the usual accounting and
management principles and practices of the benef-
ciary. So any indirect costs related, for instance only
with education are not eligible. Indirect costs are
covered to the same extent as the rest of the project
costs (60–70 %).
Example of Finland: Tekes:
37
Do you expect changes in behaviour from the
increasing number of autonomous universities in
Europe? What is your perception of fully autonomous
universities, particularly in terms of strategic research
development and fnancial management issues?
In Turkey, universities are autonomous in their fnan-
cial management. Some of the well established uni-
versities have sound fnancial systems run by their
strong administrative staf while the new ones are
still trying to establish such systems. This asymmet-
ric higher education space creates many problems
especially for internationally funded R & D projects.
The State Planning Organization has been trying to
help universities to create awareness about the new
developments and to establish modern fnancial
management systems such as ‘full cost model’ which
has become one of the main issues on the agenda for
universities across Europe.
In the context of the modernisation agenda, autono-
mous, increasingly entrepreneurial and thus fnan-
cially sustainable universities are high on the politi-
cal agenda. To what extent do you think the condi-
tions of external funding can assist the move towards
full recovery of research costs as a major component
of sustainability in university-based research?
Financial resources which are provided by national pro-
grammes or EC Framework programmes are project-
based programmes. Therefore, universities should be
able to calculate the real cost (full cost) of their activi-
ties and infrastructure costs and the other costs related
to their specifc research project. Otherwise sustain-
able funding cannot be achieved. We believe that full
recovery of research cost has great potential to achieve
sustainability in university-based research. As it has
been mentioned before, in Turkey we are still in the
process of creating awareness of the issue. There are
three or four universities which have already started
to work on ‘full recovery of research cost’ as they have
more EU funded projects than the others.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded? Is there a long
term strategy? If yes, what is it like?
In each project there is no detailed description of
‘overheads’ specifed by the universities in their appli-
cation forms. In fact this is partly the result of the
existing funding model in Turkey. The Investment
Budget is defned and allocated by the State Planning
Organization while current expenditures are defned
and allocated by the Ministry of Finance. Conse-
quently, the projects funded by DPT can only include
project related expenditures but not overheads. The
expenses which can be classifed under ‘overheads’
such as salaries, maintenance, running costs of build-
ings are provided by the Ministry of Finance under
the regular university budgets.
Although there is coordination between DPT, Ministry
of Finance and the university at the point of allocation
of resources, this is not maintained on a very continu-
ous manner within the year to monitor and synchro-
nise R & D activities. So sometimes problems are faced
within the implementation processes. When the regu-
lar current expenditures budget is not sufcient to
cover the running costs there are always delays in the
completion process of the projects funded by DPT or
Tubitak in universities.
In order to solve this problem the State Planning
Organisation asks the universities to guarantee
the overheads which are necessary for the projects
funded by DPT. In the long term we are aiming to put
into practice the ‘full recovery of research cost’ model
in universities. We are establishing working groups
between stakeholders to design and implement this
model in the nearest future.
Example of Turkey: State Planning Organisation (DPT):
38
The variety of some 4 000 European universities
as well as funding organisations naturally leads to
a broad spectrum of universities’ diferent experi-
ences. This chapter summarises the major aspects
based on the experts’ experiences, national ques-
tionnaires, questionnaires to selected universities
and input provided in the course of interviews done
by the Expert Group. Furthermore, a limited number
of illustrative examples are given that demonstrate
practically the key messages.
Universities’ experiences with external project-
based funding for research are signifcantly related
to and depend on their legal framework and oppor-
tunities (autonomy versus no autonomy), their mis-
sion as well as objectives, and are infuenced by the
management approach they apply.
Autonomy of universities high on the political
agenda: government responsibilities,
entrepreneurship and external
project-based funding
In many European countries major reforms related
to the autonomy of universities have recently been
implemented
8
, are currently on the way or are
under preparation. It is important to get the right
understanding of universities’ autonomy in the
various reforms: typically autonomy is understood
and limit ed to fnancial autonomy, whereas auton-
omy in the wider sense includes the opportunities
of universities to defne their own objectives and
strategies.
Amongst others, autonomy of universities raises
the question of governments’ responsibilities for
sustainable university funding based on full cost-
ing. The answer depends on the objectives defned
8
‘Activities of EU Member States with regard to the reform of the public
research base’, framework service contract No 150176-2005-F1SC-BE,
Technopolis Ltd.
Universities’ different
experiences and needs:
Identifcation of the impact of
external funding requirements
and conditions and assessment
of universities experiences
and needs
CHAPTER 4
39
the top, develop their profles and thus strengthen
their competitiveness.
However, not all European universities can or should
become world leaders. In line with their objectives,
universities have diferent roles in the various coun-
tries and specifc importance in the regional con-
text that does not necessarily demand the claim
of world class excellence. Particularly in teaching,
educating future employees and engineers for the
knowledge-based economy is a task of utmost
importance ensuring regional development.
Universities’ experiences with external project-
based funding and the diferent types of funding
organisations vary a lot with the objectives and
related claims — be it world class excellence or
focus on regional impact — universities themselves
or states defne.
Consequently, the individual university orienta-
tion is also refected in its fnancial structure and its
behaviour towards external project-based funding.
University management: institutional approaches
combining bottom-up and top-down
Successful research and its conditions need pro-
active management with institutional perspec-
tive and orientation. This is true not only for com-
panies but also academic institutions. It is the
key task of the institutional leadership together
with its administration to provide the framework
of adequate institutional management, to set the
conditions that facilitate creativity and allow the
university to grow and flourish.
Successful management at universities, particularly
with respect to research, needs a number of essen-
tial elements:
shared vision of the future development of the •
university;
for universities in each country and all stakeholders
must have a clear picture of it. At the same time,
governments have to ensure funding for universi-
ties and allow them to fulfl their tasks in teaching
and take advantage of the freedom of research
which is necessary in order to be competitive for
external project-based funding.
Real autonomy is always related to the develop-
ment of entrepreneurship, understood here as
entrepreneurial thinking at all levels within the
university, which has a signifcant impact on the
behaviour towards external project-based funding.
This does not mean that universities are expected
to behave like companies, but rather that they
react proactively to opportunities and use external
project-based funding as a key tool to support their
further development.
Therefore, it can be said that universities act difer-
ently with respect to external project-based fund-
ing depending on whether or not they are legally
autonomous.
The infationary demand for excellence —
universities’ role as world leaders as well as
regional centres of ‘gravity’
Despite the importance of the Lisbon objectives
and modernisation agenda, it may be legitimate to
question the expectation that all 4 000 European
universities should become world-leading centres
of excellence.
Considering universities’ main objectives of teach-
ing and research — according to Humboldt’s model
— European universities certainly should strive for
world class excellence. No matter what the detailed
criteria of rankings such as Shanghai or Times
Higher are, they are important and European uni-
versities have to improve their positions towards
40
sity reforms towards autonomy have taken place
have typically introduced tools that help in specify-
ing university objectives. Examples include devel-
opmental plans, intellectual capital reports for uni-
versities, etc. However, it is an additional challenge
in itself to translate these objectives into strategies
and related actions. This is an important process
since it defnes a university’s approach towards
external project-based funding.
In order to generate the necessary sustainability,
objectives and strategies have to be developed in
a ‘healthy’ balance of top-down and bottom-up
exchange, including all actors at the university, to
create a joint vision and shared ownership commu-
nicated among the members of the university.
Institutional objectives and strategies of each uni-
versity should provide the framework for activities
related to obtaining external project-based funding
which, as a consequence, defne the respective pro-
fle and success of the acquisition of project-based
funding. At the same time, external project-based
funding can play the role of a compass with respect
to quality assurance of research activities and the
defnition of institutional thematic focus areas.
Thus, a balanced approach is needed between fully
strategic and opportunistic behaviour, while at the
same time elaborate ways to interpret the results of
project-based funding need to be set up.
Dealing with external project-based funding by
industry is a particularly interesting feld if per-
ceived with the perspective of strategic partner-
ship development. Despite the fact that few Euro-
pean universities behave like typical US universities
in terms of pro-actively marketing their research
results, indications are that industry is getting more
interested in cooperation with universities with a
strategic mid- to long-term vision. This will become
clear and coordinated objectives at institutional •
level that allow the development of a competi-
tive, visible institutional profle;
strategic perspective and an appropriate action •
plan on how to implement defned objectives;
framework and a culture that enable a ‘healthy’ •
balance of bottom-up and top-down approaches;
commitment, focus, fexibility and speed in im - •
plementation;
strong and pertinent communication targeted •
inside and outside the academic institution.
Universities’ experiences and successes in external
project-based funding on the one hand heavily
depend on the management approach they apply
and the degree of institutional strategic perspec-
tive they are willing and able to implement. On the
other hand, external project-based funding itself
infuences the development of universities’ man-
agement approaches. These two factors of external
project-based funding and institutional manage-
ment are closely inter-related and infuenced by
each other. They represent a signifcant positive
feed-back loop to be considered by universities
and funders alike.
Institutional objectives and strategies and
their translation into management
Institutional objectives and strategies not only
set the framework for universities’ experiences
with external project-based funding, they are also
infuenced by the results of external project-based
funding through, for example, the acquisition of
highly prestigious awards and grants such as the
European Research Council (ERC) or similar projects
that certainly have an impact on thematic priority
development.
The majority of universities in Europe have very
general objectives. Those countries where univer-
41
84 % of universities in signed contracts work on the
basis of the transitional 60 % fat rate indirect costs.
Doing so not only has to do with technicalities
of accounting but also with funders’ perceptions
towards universities and consequently cultures
that need to be changed or adapted.
The UK and the Netherlands are exceptions. Since
the introduction of the ‘transparent approach to
costing’ (TRAC) in 2000, all UK universities use
TRAC as standard methodology for costing their
main activities in teaching, research and other core
objectives. Pending certifcation of the TRAC meth-
odology adapted for use in FP 7, UK universities are
not yet using real full costs for EU projects. In the
Netherlands a diferent approach was chosen, with
universities developing their own full costing sys-
tems while exchanging best practices. FP 7 played a
major catalytic role in this and it is expected that all
Dutch universities will operate FC real indirect costs
before 2010 when participating in FP 7 projects.
However, changes in university acts already imple-
mented or currently under preparation in many
European countries
11
show clear moves towards
greater autonomy for universities and thus the
development of full costing approaches within
them. Therefore, the issue is high on the political
agenda and plays a major role in discussions on
the European research area and the modernisation
agenda for European universities.
Full costing attitude: getting to know the real
full costs
Universities’ experiences with implementing and/or
working on a full cost basis are manifold. The most
11
‘Activities of EU Member States with regard to the reform of the public
research base’, framework service contract No 150176-2005-F1SC-BE,
Technopolis Ltd.
even more relevant as European universities put
forward proposals for collaboration with industry
based on full costs and with clearer interests in the
ownership and exploitation of arising intellectual
property. Thus, funding by industry does not only
play a role in fnancial terms but also can have a
substantial impact with respect to strategic coop-
eration management on both sides between uni-
versities and industry
9
.
Capabilities of universities in organisational terms
The ability to know the full costs of institutional
operation is an essential prerequisite in order to
develop a sustainable basis for a university that
intends to pro-actively manage its future opportu-
nities. The EUA Report provides a frst mapping of
the status of full costing development in European
universities, where the typology of situations is
usefully presented with regards to the national
mechanisms and drivers playing for such an imple-
mentation. Beyond the diversity of full costing
developments across EU-27 highlighted by this
mapping exercise, this report brings useful indica-
tions on reforms implemented or currently being
initiated in some Member States and regions,
namely the United Kingdom, Netherlands, Austria,
Ireland, Bavaria, Spain, Sweden, Flanders. However,
in a majority of Member States, trends of reforms
seem to remain at a starting stage, or without con-
sistent national coordination.
Taking FP 7 as an indicator, currently very few uni-
versities in Europe — 6 % of universities in signed
grant agreements
10
— work on a real full cost basis
substantiated by analytical data, whereas around
9
Interviews with Emil Aarts (Philips Research); Uwe Hermann (Siemens);
Andrew Dearing (EIRMA).
10
Overview on universities in signed grant agreements from the start of FP 7
up to October 2008, European Commission.
42
Interview with EIRMA
EIRMA is Europe’s premier membership association
for companies involved in research, development and
innovation in support of their business activities. EIRMA
is an independent, not-for-proft organisation. Its aim
is to help companies improve the performance of their
R & D and enhance innovation. Its unique features are
the networking and personal contact that the Finan-
cial Times recommends. EIRMA deals with the efec-
tive management and organisation of business R & D.
EIRMA does this through a topical programme of round
tables and other activities, supported by extensive on-
line information and focussed public outreach.
In cooperating with European universities,
how do your members experience the relation
between external project-based funding and its
impact on universities fnancial management?
Is there any impact?
Some companies are moving towards more strategic
partnerships with universities, which require more
professional management of signifcant partnerships.
The ability to manage and run activities well on a
project base, where the project is defned outside the
university, is a key skill which these companies tend
to appreciate.
At the same time, quite a number of people fnd it
difcult to accept the accompanying consequences
of, for example, ‘full costing’. They have been used
to setting up relatively informal arrangements with
universities, and may consider that subsidised access
to public research is justifed because of the contri-
butions that companies make through taxation to
en abling universities to operate. This is down to dif-
fering interpretations of universities’ roles in society.
Problems also arise, e.g., when there is a mismatch
between the reforms that a university is trying to
implement and the quality with which it is able to
implement what it is doing. Like the rest of us, they
fnd that signifcant changes in approach require time
to implement well and develop new skills and new
attitudes. Often, delivered quality may be patchy in
the early stages of a reform, yet the nature of the rela-
tionship has changed so everyone is disappointed. So
the challenge is to ensure rapid learning, both within
university and within partner organisations, of how to
deal well with the new world.
Do you expect changes in behaviour from the
increasing number of autonomous universities in
Europe? What is your perception of fully autonomous
universities, particularly in terms of strategic research
development and fnancial management issues?
Autonomy and the accompanying factors such as
greater responsibility are an inevitable and very desir-
able step towards enabling European universities
to raise standards and diferentiate themselves in
the face of what is evidently much greater competi-
tion. In the process, some will fail. This is inevitable.
People and institutes need to be helped, but they
should not be indefnitely protected. However, many
more should succeed. I have heard good examples of
European universities which have been able to estab-
lish signifcant strategic partnerships with industry
precisely because their reforms have enabled them
to bring together the extensive multi-disciplinary
approaches required by external sponsors.
I hope that universities will use the opportunity to
express clear local priorities in terms of core subjects,
inter-disciplinary, balance between research, teaching
and third-mission activities with the rest of society, gov-
ernance, etc. I hope that this will be based on a strong
engagement with the relevant stakeholders, so that
the strategic plans are established based on under-
standing the contribution that the university is able to
make (rather than the one that people inside think they
should make), and strong stakeholder support for their
actions. But I think we expect that (e.g.) governments
will provide clear terms of reference setting out the con-
tinuing purpose and mandate of universities. Govern-
ments can, in their enthusiasm for greater ‘innovation’,
tend to believe that there are no conficts between,
e.g. becoming more entrepreneurial and sustaining
the required long-term service to society. Universities
43
are in my view among society’s key guardians of know-
ledge, searchers for new knowledge in defned areas,
and educators. This is view widely shared in industry,
and there is no enthusiasm to see the universities aim-
ing to become, e.g., surrogate companies focusing on
short-term contract research. There are others who will
do that job much better, e.g. our RTOs.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and
thus fnancially sustainable universities are high
on the political agenda. How do you think do
universities’ eforts towards fnancial sustainability
impact the cooperation with industry?
It is important to learn from others, without believing
that the context is necessarily the same. For example,
the conclusions from recent activities of the US Gov-
ernment–Industry–University–Research Round Table
(GUIRR) are useful and contain some salutary warn-
ings. From 1972 to 2000, the fastest growing source
of university income in the US was industry’s spon-
sorship of university research. It grew, as I recall, to
8 % or so. It has since declined quite precipitously, to
around 5 %, and quite a number of observers on both
industry and university sides believe that the growing
attention to a particular sort of third-mission income
(i.e. licensing) has been responsible for harming the
much-more-important collaborative activities. Cer-
tain well-known institutes bear a disproportionate
share of opprobrium.
What kind of responsibility of industry do you see
in contributing to the fnancial sustainability of
universities?
It is a shared responsibility, as we set out in respon-
sible partnering. Industry needs strong universities,
mainly because of their need for skilled people. Uni-
versities need strong industry, not least because this
makes a region more prosperous and hence able to
fund good public services.
To what extent do you think the conditions of external
funding can assist the move towards full recovery of
research costs as a major component of sustainability
in university-based research? In this context, what
would be important from the industry perspective?
Industry includes ‘multinationals’ and smaller high-
tech companies (including university spin outs) and
smaller medium tech companies. Perspectives difer,
and this is often not well understood. A university’s
ability to sustain local small frms can be very impor-
tant. In the higher-tech area, it may be important for
the university to understand and accommodate the
nature of the value chains in which the target frms
are operating, particularly if the intention is to move
towards participation in larger, longer-term collabo-
rative activities.
Research collaborations are always set up in order
to address specifc company/institutional objectives
and are not an end in themselves. It is important to
develop a mindset of defning and meeting the part-
ner’s project objectives rather than seeing projects as
a way of getting funding for already-defned work.
At the same time, the intuitional mindset must also
remain clear: ‘why are we entering into this contract
at all and what is our special contribution’.
How do you experience a professional attitude of
universities with regard to building and maintaining
partnerships and contract management?
I see growing professionalism in many universities.
But the problems which were articulated in the past
(e.g. in an EIRMA study in 1969) are still with us.
There is an inevitable tension between organisations
which exist to address fundamentally diferent mis-
sions, but there is substantial evidence that these ten-
sions can be overcome with good will. Again, we set out
the prerequisites in responsible partnering — strategic
understanding of the role of partnership in addressing
own mission; development of the right professional
skills to address that strategy; an intent to treat each
partnership so that it can help establish a basis for
long-term collaboration based on mutual trust (with-
out expecting that this will be made contractual).
44
similar exercises such as the ‘transparent approach
to costing’ (TRAC) in the UK would be necessary in
most countries.
Funding organisations and agencies play an impor-
tant role not just because they provide funding, but
also due to the funding requirements and condi-
tions that are linked to this funding and which have
ob vious steering efects within universities. How-
ever, universities are confronted with very heteroge-
neous sets of requirements depending on the dif-
ferent types and roles of funders at national and
European levels, ranging from classical additional
cost or lump sum models to schemes supporting
the full costing approaches at universities. It is clear
that these conditions not only make it difcult for
universities to develop their own coherent systems,
but often force them to develop and maintain mul-
tiple systems based on diferent approaches and
cultures.
What is necessary is a good balance of funding
agencies and organisations that work according to
the same principles and procedures, while at the
same time keeping the diversity in terms of the dif-
ferent objectives they pursue thus strengthening
the competition between funding organisations
for the best research projects with respect to their
funding portfolio.
Managing indirect costs
Together with direct costs, indirect costs are an
integral part of the full costing approach. Having a
clear picture of their indirect and direct costs is a
must and not an option if universities are to plan for
sustainable development.
To date, the majority of universities have only a
rough estimation rather than a clear idea based on
comprehensive data as far as their indirect costs are
concerned. By and large, the UK is again an excep-
extensive and systematic experiences are available
at UK universities due to the introduction of TRAC
eight years ago.
It needs to be said that misunderstandings with
respect to full costing typically infuence discus-
sions as there seems to be a lack of defnitions or
at least there exist diferent defnitions and termi-
nology when full costing is being discussed.
The implementation of full costing at a university
at all levels is, as evidenced by the experience in
the UK, a heavy task that should not be underes-
timated. Beyond the technical aspects, the intro-
duction of full costing immediately touches upon
a cultural issue due to the necessity of time record-
ing. Researchers in the academic setting perceive it
as a profound change in their role with respect to
the freedom of research. However, again the TRAC
exercise and Dutch examples demonstrate that
there are alternatives for time recording other than
detailed time sheets.
Full costing is also seen as a way to consider fairly
true costs with respect to joint research projects
involving heterogeneous consortia with teams
from academia and business. Increased awareness
towards full costing at universities has to do with
the entire budget structure, thus being related to
the issue of core funding and the share of core ver-
sus external funding. Currently, the rates for core
funding at European universities depend on the
situation in the specifc countries but typically vary
between 90–60 %. Generally speaking, there is a
trend to reduce the share of core funding as com-
pared with external project-based funding.
The Expert Group believes that full transparency is
the best possible way to ensure clear understand-
ing of costs by all actors involved. As a consequence,
and in order to substantiate the credibility of uni-
versities’ needs in terms of sustainable funding,
45
ing elements can be the type of projects they fund.
If industry cooperates with universities in the feld
of applied research, there is stronger acceptance of
funding on the basis of full costs, which is limited in
the case of basic research-oriented projects.
Can universities decide on how to use the indirect
costs acquired?
There is a danger that universities might perceive
the reimbursement of indirect costs as ‘extra money’
and not as a contribution to their full cost calcula-
tion. Indeed, there are many instances of universi-
ties having set up varying strategies on how to ‘use’
the indirect costs received rather than taking them
in order to cover their indirect costs. One unsatisfac-
tory consideration in many cases is the use of indi-
rect costs as ‘compensation’ in addition to the 75 %
funding rate for research activities in FP 7. Several
universities have developed specifc incentive pro-
grammes that foresee defned distributions of indi-
rect costs between researchers and the university.
Impact of European funding, particularly FP 7 and
future framework programmes
At frst glance, one could question any impact of
European funding since the FP contributes a rela-
tively small percentage to the overall budget of
the majority of European universities. Comparing,
however, the share of FP project funding with other
competitive funding received by universities, the
result can be very diferent. Adding the amount
received per FP project, FP 7 is of greater fnancial
signifcance for many institutions.
The move towards full costing: the catalytic role
of FP 7 on universities
Due to its specifc nature and regulations, the FP
generally and FP 7 in particular does have a strong
catalytic role on universities in the sense that it
stimu lates awareness of full costing.
tion. The specifc challenge in identifying realistic
indirect costs — in addition to technical aspects
that might be relevant — is the allocation of time
and resources to the key activities of universities,
primarily research and teaching. This point is closely
related to the issue of time recording and associ-
ated concerns and perceptions of researchers.
With the increased awareness and knowledge
about full costing in general and indirect costs in
particular, three key questions regularly come up at
universities.
To whom do indirect costs belong in universities?
There can be misunderstandings on this issue
amongst researchers within a university. In many
cases researchers are inclined to think that since
they have been the ones who successfully acquired
externally funded research projects, they should
receive the entire funding, including the indirect
costs. In an academic setting it can be difcult to
convey a joint institutional understanding where
researchers and non-researchers jointly work on
achieving common objectives.
Whose job is it to care about sustainable funding
of universities including the reimbursement of
indirect costs?
Funding organisations such as national agencies,
industry and foundations tend to raise this point by
mentioning that they want to fund ‘the real research
and not administration’. However, this attitude is
changing and more and more funding organisa-
tions are starting to understand that funding has
to be provided on a sustainable basis. On the other
hand, the reimbursement of indirect costs is cer-
tainly closely linked to the defnition and dimension
of core funding universities receive from the govern-
ment. For industry, the primary consideration is that
of value for money. However, one of the diferentiat-
46
Already in FP 6, discussions started on whether or
not universities should calculate their costs based
on full instead of additional costs. Few universities
in FP 6 moved to full costing. However, a number
did undertake a rough comparison of FP 6 project-
related costs according to full versus additional
costing. So FP 6 did infuence some universities to
consider their way of cost calculation. This efect
was substantially reinforced under FP 7 through the
abolishment of cost models and introduction of full
costing for all participating organisation linked with
the opportunity of using the ‘simplifed method’.
This method in FP 7 allows universities without an
accounting system enabling a detailed cost alloca-
tion to declare their real indirect costs for research
projects, as long as the method used is in accord-
ance with their usual accounting and management
principles and practices and is based on actual costs
derived from the fnancial accounts. For the alloca-
tion of the legal entity’s indirect costs to individual
projects they are required to use a fair ‘driver’ such
as total productive hours.
It can be said that, from the point of view of fostering
and inciting the development towards full costing
and an increased awareness as regards the necessity
of sustainable funding for universities, the rules as
set up for FP 7 were a move in the right direction.
Indirect costs
The catalytic role of FP 7 is particularly obvious in the
case of indirect costs. With FP 7 universities not only
get 75 % of full costs for research. Within this, they
can either claim the transitional fat rate for indirect
costs of 60 % or, based on full documentation, get
reimbursement based on their entire indirect costs.
In principle, the opportunity of getting funding for
FP 7 projects based on the entire indirect costs is
intended to be an incentive for universities towards
the development of full cost awareness includ-
ing indirect costs. At least it is an incentive to do
estimations and get an idea of whether or not the
respective university is above or below the 60 % fat
rate indirect costs.
This discussion will again come up high on the
agenda with the mid-term evaluation of FP 7 and
the 60 % transitional fat rate of indirect costs due
by January 2010 when the fat rate will again be
fxed (with the lowest possible level of 40 % prede-
fned). If there is evidence that the reimbursement
of fat rate indirect costs is a key stimulus towards
strengthening full cost awareness linked to the
application of real indirect costs, it could be argued
that the Commission should consider reducing the
transitional indirect cost fat rate to the lowest pos-
sible level of 40 %.
The fact that FP 7 reimburses indirect costs at a sig-
nifcant level clearly had an educating efect on uni-
versity leadership and researchers across most of
Europe and has raised awareness of indirect costs.
For the university leadership — in many cases — it
was an ‘eye-opening’ experience to see the dimen-
sion of real indirect costs at their institution after the
frst rough estimations or calculations. This experi-
ence resulted in an increased awareness not only
towards direct, but also towards indirect costs and
thus a real sustainable funding approach. Although
it has to be said that the defnition of indirect costs
as regards the type of expenses covered is rather
variable across Europe.
Very few universities, however, use the reimburse-
ment of indirect costs to really cover their indirect
costs. Instead, many of them have set up internal
rules resulting in a part or entire transfer of these
indirect costs to the researchers involved in FP 7
projects, although sometimes this has been in
order to cover the balance of the direct costs of the
projects not funded by the Commission.
47
The wider impact on funding organisations at
national level
FP 7, with its approach to funding based on full
costs and recognition of indirect costs has had a
very obvious direct as well as a more indirect impact
on funding organisations at national level in many
countries.
In more direct terms, information gathered by the
Expert Group suggests that, infuenced by their
experiences with FP funding rates for direct and
indirect costs, universities are increasingly start-
ing to request similar approaches from national
funding agencies. Based on the Austrian example
these eforts of universities resulted in an increased
awareness of funding agencies towards the issue of
indirect costs, and consequently in a discussion on
the adaptation of the funding regimes of the two
major Austrian funding agencies.
FFG — the Austrian Research Promotion Agency •
providing funding for applied research already
supports 20 % of indirect costs on personnel as
a lump sum. As a new development, FFG is in
discussion with the government for the precise
Academy of Finland:
In 2007 a working group led by the Ministry of Finance
fnalised its report on general guidelines for methods
and cost accounting of jointly fnanced activities in
Finland. The working group recommended that all
government agencies that grant, intermediate or use
budget funds for jointly fnanced activities should use
a total cost model.
The focal feature of the model is coverage of over-
head costs as part of the total cost of jointly fnanced
activities.
Currently a lump sum (12.5 %) overhead cost is applied
to almost all funding instruments of the Academy. The
Academy of Finland has been charged by the Ministry
of Education to apply the total cost model to all of its
research funding from 1 January 2009 onwards, and
hence, the Academy will support overhead costs of
the universities through its funding.
The working group report defnes the general princi-
ples and requirements applied to total cost accounting
in organisations using joint fnancing. The Academy of
Finland takes the defnitions of the report as the mini-
mum standard. According to the model the responsi-
bility of the organisations using joint fnancing is to
put forward an application based on the concept of
total cost, and including a ratio for the overhead costs
based on cost accounting of the organisation. (The
ratio can be organisation- or department-specifc.)
The Academy will assess the funding applications and
apply a predetermined fnancing ratio to the projects
accepted. The fnancing ratio will be the same for
overhead costs and other costs, thus increasing the
relative share of overhead costs compared with the
current system of 12.5 % lump sum overhead costs.
The working group set certifcation of the cost
accounting in organisations using joint fnancing
as the prerequisite to the application of the model.
Whether a national certifcation project will be carried
out is still under discussion.
The Academy of Finland is planning to apply the total
cost model to all of its funding from 1 January 2009
onwards. Delays in certifcation of cost accounting
in organisations using joint fnancing, may have an
impact on the timetable.
Financing overhead costs — as a part of the applica-
tion of total cost model — is in line with the strategy
of the Academy of Finland. The Academy supports the
model in the long term.
Example of Finland
48
‘Transparent approach to costing’ — An Overview of TRAC
June 2005
Since 2000, TRAC has been the standard methodology
used by the 165 higher education institutions (HEIs) in the
UK for costing their main activities (teaching, research,
and other core activity), and it is increasingly informing
the public funding of higher education.
While it followed naturally from work done in the higher
education sector in the 1990s, introducing TRAC was
a government requirement. It was developed in 1999
as part of the Government’s transparency review. It
was piloted during academic year 1999–2000, and
implemented, progressively, from 2000–01. The dual-
support reform of Research funding in 2003-04 has
given further impetus (and new costing requirements)
to TRAC, and further implementation work now in hand
by institutions will continue for several years (until about
2008).
TRAC is not a single costing method, nor does it involve
prescriptive standard requirements. HEIs in the UK are
very diverse, as are the activities to be costed, and the
uses of such cost information. Much academic activity
poses inherent challenges for costing — think, for ex -
ample, of defning the diferences between research and
scholarship and teaching; or the complexities of costing
heritage buildings; or of knock-for-knock arrangements
with the NHS in medical schools.
The strength of TRAC is that it is broad and fexible
enough to accommodate all these challenges, and that
it allows HEIs a good deal of discretion about the precise
methods they use. Crucially, it does not require a much
greater administrative burden, which ‘full commercial
costing systems’ could, nor does it require academic staf
to complete timesheets. At the same time, TRAC has been
accepted by Government and the major public funders of
research and teaching (chiefy the funding councils and
research councils) as an appropriate and robust method
for costing in higher education. Much of the funding of
research is now based on TRAC costs (known as full eco-
nomic costs — FEC).
TRAC could also be seen as a collaborative efort be -
tween HEIs and their principal stakeholders and public-
funding bodies. The success of the sector in imple-
menting TRAC, and the support of the treasury for TRAC
has benefted all institutions both directly in terms of
their funding, and indirectly through the confdence it
has engendered in Government.
The information which TRAC has provided on the full
long-term costs to institutions of their main publicly-
funded activity has informed the funding of research,
with over GBP 1 billion of additional funding being pro-
vided by the Government to make the UK’s research base
sustainable (that is, to make existing volumes of research
more secure, not to increase volumes). Notably, from
2005, the Research Councils will fund research projects
at 80 % of the TRAC full economic cost and this is signif-
cantly higher funding for the same work than the previ-
ous basis of ‘direct costs plus 46 %’.
guidelines and budgets in order to propose to
go further in supporting indirect costs. This new
regime would be understood as incentive for
universities to apply a true full costing approach
which is in line with the new legal framework for
Austrian universities following the introduction
of the University Act 2002 in 2004
12
.
12
Interview with M. Binder and K. Pseiner (FFG).
FWF — the Austrian Science Fund in charge of •
supporting basic research — has started to reim-
burse 20 % of indirect costs for newly submitted
projects as of the year 2007, with a clear inten-
tion to increase the reimbursement rate for indi-
rect costs to 50 %
13
.
13
Interview with C. Kratky (FWF).
Joint Costing and Pricing Steering Group
49
More generally, TRAC has contributed to the current
policy interest in the sustainability of higher educa-
tion, especially by highlighting the inadequate invest-
ments being made in infrastructure for teaching and
research. The Government has provided extra capital
funding, and all institutions are now required to take
account of the full costs of their activities in their plan-
ning and management. Better cost information is of
beneft to management decision-making, not least by
informing price negotiations.
TRAC has introduced some new processes and activi-
ties in institutions that sit alongside existing account-
ing and project management systems. The most nota-
ble (from an academic’s perspective) are the require-
ments to allocate academic staf time, and to build up
the cost of research projects on a full economic cost
basis.
Time allocation has been the most contentious issue,
but is essential if HEIs are to know where their aca-
demic staf efort is being directed, and if they are to
plan how these costs can be funded. The TRAC time
allocation approach ofers alternative options to HEIs,
and does not require the use of timesheets. The pro-
cess of costing research project grants has built on
previous research council requirements, and the new
procedures should not, if efciently organised, prove
onerous. However, academic principal investigators
will need additional support and training in the early
days of the new system.
and audit system to reduce the number of audits, for
national funding in particular. This system assumes
mutual trust, and a move towards responsible part-
nering.
More indirectly, related efects touch upon the issue
of the budget structure of universities, in particular
the ratio of core funding to project-based funding.
Particularly in countries with high rates of govern-
mental core funding, it has to be assumed that
many of the indirect costs are covered by the core
funding. Therefore the question arises as to whether
or not project-based funding provided by national
funding agencies should cover indirect costs and
thus introduce the risk of double funding.
As a consequence, and in order to substantiate the
credibility of universities’ needs in terms of sustain-
able funding, a similar exercise such as the ‘trans-
parent approach to costing’ (TRAC) in the UK could
be necessary in other countries.
Dealing with diferent funding conditions and
requirements
In the process of moving towards implementing
full costing, universities fnd themselves confronted
with a huge variety of diferent funding conditions
and requirements. An overview of the major fund-
ing organisations at national level starkly illustrates
this, as has been described in the previous chapter.
These varying funding conditions at national and
European levels might contribute to the devel-
opment of two diferent speeds: one for the par-
ticipation in FP 7 where full costing is encouraged
and possible while keeping a diferent system for
national funding. This issue will be explored further
in the following chapter.
Dutch public funders, in particular the national
agency SenterNovem
14
, consult users before intro-
ducing new funding schemes or conditions. This
approach strengthens efectiveness, commitment
and user-friendliness. Guided by their association,
Dutch universities enter into a single information
14
Interview with Janse and Kruithof (SenterNovem).
50
Universities need real autonomy with accountability
In its communication on ‘Delivering on the mod-
ernisation agenda for universities — Education
research and innovation’
15
, the European Commis-
sion identifed universities as key players in Europe’s
future and for the successful transition to a know-
ledge-based economy. However, it also noted that
this potential could not be realised without real
autonomy and accountability as, without such con-
ditions, universities could not be innovative and
responsive to change. This was confrmed in the
recent consultation on the future of the European
research area (ERA)
16
when, in their replies, pub-
lic authorities and stakeholders stressed the need
for Europe to have autonomous, accountable and
well-managed universities and that ensuring their
fnancial sustainability is an important condition
for them to contribute fully to the ERA. European
universities are becoming increasingly depend-
ent on external project-based funding. The condi-
tions attached to that external funding has a major
impact on their fnancial management. External
funders, therefore, have a key role to play in assist-
ing universities in developing improved manage-
ment and accountability systems and in achieving
sustainability through identifying and recognising
the full cost of their research activity.
While some countries, such as the UK, have long
had a mixed economy model of funding for univer-
sity-based research, with core funding provided by
Government and project funding provided by pub-
lic and private organisations, historically universities
in many countries have relied on core Government
15
‘Delivering on the modernisation agenda for universities: education,
research and innovation’, Commission Communication, COM(2006) 208,
10 May 2006.
16
‘The European research area: New perspectives’, Green Paper, COM(2007)
161, 4 April 2007.
The way forward: the
sustainability of university-
based research
CHAPTER 5
51
where they have signifcant ‘internal’ resources
which they are able to allocate as they see ft and
support research in line with their own strategic
goals, to a model where they are more dependent
on competing for funds and thus increasingly infu-
enced by research priorities set by funders.
The trend from core to external funding
External funding as a driving force
While there is evidence that a diversifed funding
model is good, there appears to be little empirical
funding for most of their research activities. There is,
however, a trend across Europe towards the mixed
economy model. For example, German universities
have had, as a legal objective within the last 10 to
15 years, a requirement to attract third party fund-
ing while most of the post-communist New Mem-
ber States which relied solely on the State funding
system in the past and played a lesser role in the
research arena, are now developing their research
capacity and moving very rapidly ahead with a
mixed system, often with governmental pressure to
obtain more competitive funds. These moves mean
that many universities are shifting from a model
1
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D
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Figure 2:
Financing structure of
expenditure on
academic research,
1993/94 vs. 2002/2003
(Source: Austrian RTD Report 2007)
International
Corporate sector
Private non-proft sector
University sector
Direct public payments
GUF
52
the move towards full costing, so far not all funders
would be able or willing to cover the real full cost of
research and many require evidence of co-fnanc-
ing. For example, most private foundations will not
cover indirect cost. In the UK, the charity sector has
recognised the full cost methodology as providing
a reasonable indication of the real cost of research
but has publicly stated its opposition to funding
general indirect costs or any infrastructure costs
which do not relate directly to the research funded,
seeing this as the role of the State.
In addition, as highlighted by EUA, in its recent
report ‘Towards full costing in European universi-
ties’
18
, a university’s ability to develop its strategic
research activities with respect to its profle and
object ives can be restricted by an over-reliance on
competitive funding sources. Thus, if universities
are to maintain a degree of fexibility to develop
strategic research models and to successfully tar-
get competitive research funding, it is important
that they retain an element of ‘internal’ core fund-
ing from the State which they are free, subject to
accounting for outcomes, to allocate as they see ft.
While ‘external’ funding of research is, as we have
seen, very important for ensuring quality, it is also
clear that core funding is essential both to allow
universities to provide the co-fnancing required by
many sponsors but also to support long term stra-
tegic planning. Core funding allows universities to
cover the ‘unfunded’ aspects of externally funded
research (primarily resources and personnel costs)
and to develop new areas and infrastructures, both
physical and human.
Recommendation: The fnancing of university infra-
structure underpins universities’ ability to maintain
research excellence and competitiveness.
18
Financially sustainable universities: Towards full costing in European universi-
ties, European University Association, EUA Publications 2008, p. 72.
evidence to show what the ‘right’ balance is between
core funding allocated at institutional level which
allows the university to set its own priorities, and
external project funding. Indeed, a recent review
17
found no signifcant diferences in performance
between universities in Switzerland, the Nether-
lands, the UK, Sweden and Finland — countries
with very diferent ratios of general, or core, uni-
versity funds and external funding. However, while
there may still be a discussion to be had over the
balance between externally and internally driven
research priorities, it is clear that there are benefts
to be derived from the increased move towards
external funding. External funding becomes a driv-
ing force and provides a focus for greater syner-
gies and collaboration between research institu-
tions. It also helps improve research management
and robustness of management systems through
greater accountability requirements and the intro-
duction of commonly understood terminology and
methodologies. The greatest beneft is, arguably,
the value of competitive bidding which introduces
a benchmark of excellence for that research which
is funded, in other words that it has been judged to
be of excellent quality in open, peer-reviewed com-
petition. In addition, much collaborative research
which arises from external funding provides valu-
able opportunities for knowledge transfer and the
exploitation of results. External funding therefore
has the potential to have a higher impact than
internal funding.
University-based research cannot be fully
dependent on external funding
However, it is clear from the various funding models
across Europe, that university research cannot be
fully dependent on external funding as, even with
17
Quoted in ‘Austrian Research and Technology Report 2007’, p. 123.
53
ing research capability. The EU and national funders
have a strategic aim of funding the best research to
beneft society and the economy and to maintain
and/or enhance economic and innovative competi-
tiveness. However, as recognised by the European
Commission and many Member States, increasing
moves towards competitive project-based fund-
ing allied with greater autonomy and account-
ability for universities mean that, unless the need
to ensure the fnancial sustainability of universities
is recognised, the public research base will not be
in a position to undertake globally-competitive
research in the future or to recruit the best students
and researchers from across the globe. Thus, while
for public funders the continued competitiveness
and sustainability of universities must be strategic
objectives in themselves, for other funders uni-
versity-based research is a means to an end. The
impact on universities of the various objectives
of research funders can hardly be overestimated.
For most European universities the predominance
of national and regional funding means that their
management and fnancial structures are geared
primarily to the requirements of these funding
streams. However, an overview of national funding
agencies shows little evidence of any commonal-
ity between the various funding streams, whether
national or at a European level, in terms of fund-
ing strategies and fnancial management require-
ments. In particular, expectations on co-fnancing
strategies vary signifcantly.
The responsibility of national funders
and the European Commission
towards the fnancial sustainability
of university-based research
While each university must take responsibility for
its own long term sustainability, the Expert Group’s
view, for reasons stated above, is that Member
The need for clarity in the purpose of core funding
A critical aspect of core funding relates to the main-
tenance and updating of existing infrastructure.
It is important to recognise that part of the cost
of making EU universities globally competitive is
ensuring that buildings and facilities are brought
up to date and are maintained in a status equal to
that of the ‘rising stars’ (or ‘awakening tigers’) espe-
cially in the Far East. This requires, frstly, recogni-
tion by national authorities that there may be a sig-
nifcant ‘one of’ cost to bring the infrastructure up
to date and, secondly, the ability of universities to
identify and recover the real full cost of maintaining
their physical and human infrastructure. It is criti-
cal, therefore, that where core funding is provided
to universities, the extent to which it is expected to
meet current maintenance costs and/or to invest
in updating infrastructure to a competitive level is
clearly agreed between all partners.
Recommendation: In allocating core funding,
Member States need to be clear about the purpose
of that funding and recognise the cost of maintain-
ing existing infrastructures as well as that of bring-
ing them up to a globally competitive standard.
The impact of funders’ strategy on
universities’ development
Funders of research have diverse objectives
In funding research, diferent funders have funda-
mentally diferent aims. Private charities and foun-
dations will have diferent objectives, ranging from
societal impact to cures for major diseases or the
alleviation of poverty. Industry funders will have
clear commercial goals around maintaining their
own competitive advantage and will have an inter-
est in paying for a research activity rather than fund-
54
lic bodies work (typically three years’ funding with
detailed accountability on inputs) does not always
allow universities to adopt a coherent approach
that supports their research strategies.
The need for a balance between accountability
and complexity
There can also be tensions between the goals
expressed by the EU and national public funders
in terms of how they see university-based research
developing and the controls and regulations that
are then imposed around individual project grants,
for example the European Commission has a clear
object ive of introducing simplifcation in both the
range of funding opportunities ofered and the
burden of compliance faced by universities. There
is a clear danger, however, that the audit require-
ments imposed on the applying universities can
undermine the original aim of simplifcation. Thus
the question arises as to whether the implemen-
tation of funders’ strategies takes account of the
real needs of universities. EUA, in its recent report,
found indications that accountability requirements
in funding schemes can be too complex and that
there was a real risk of rules and procedures lim-
iting university autonomy or leading to complex
bureaucratic reporting procedures.
There is no doubt that funders are in a position to
impose co-fnancing and fnancial reporting mod-
els onto universities and that these, while show-
ing evidence of fexibility in responding to such
conditions, are faced with having to develop mul-
tiple management and reporting systems to meet
the various requirements imposed by funders.
Co-fnancing requirements and cost eligibility can
vary from funder to funder and the evidence col-
lected by the Expert Group suggests that these
have a signifcant impact on universities’ ability to
States (through their national and regional funding
schemes) supported by the European Commission
have a responsibility to maintain the sustainability
of university-based research at sector level. How-
ever, it is clear that this is often not refected in the
strategies adopted for the funding of research pro-
grammes with many national funders failing to fund
other than the marginal costs of research projects
and having little regard for the associated longer
term infrastructure costs. Even where there is rec-
ognition by the sponsor of the real costs of project-
based research, there can be inconsistencies in the
way this is refected in the various funding schemes
it supports. As an example, while the European Com-
mission is efectively supporting the sustainability
of university-based research by recognising the real
costs of projects funded under the 7
th
framework
programme (and contributing 75 % of those costs),
the same rules do not apply to all instruments and
thus this principle of sustainability does not fow
through all programmes.
Recommendation: Member States have a respon-
sibility to contribute to the sustainability of the
university-based research sector together with the
European Commission supporting this process at
EU level. Both should, therefore, ensure that this
objective be one of the principles underpinning all
the research programmes they fund.
As universities become more dependent on exter-
nal funding for their research, they face a number
of challenges. The nature of competitive external
project funding has in the past led to a short-term,
reactive approach by universities often driven by
the need to take advantage of whatever funding
opportunity is available and securing the minimum
funds needed to carry out the project, without
regard to the real cost involved. The way many of
the funding schemes ofered by both EU and pub-
55
therefore, the fnancial and audit requirements may
need to be adapted to take this into account. The
Commission, in the context of State Aid rules, can
steer this process through a review of the fnancial
regulations and the rules for participation in frame-
work programmes.
Recommendation: Research activities shall not be
supported like procurement, as there are funda-
mental diferences between funded research and
procured activities. Where procurement requires the
defnition of all kinds of detailed input descriptions
and reporting, research activities should be sup-
ported and funded by focusing on their contribu-
tion to the production of knowledge. Thus, consid-
eration should be given to the fnancial regulations
which surround research funding to ensure that
they are suited to the nature of research activities,
in terms of reporting requirements and expected
accountability.
Sharing best practice — the European
Commission as a catalyst
Both the EU and national public funders, as the prin-
cipal funders of university-based research have the
means to coordinate their conditions and expecta-
tions around accounting, co-fnancing, time record-
ing and reporting to lessen the burden on univer-
sities and support the simplifcation process. It is
also important to recognise that these issues apply
in much the same way to public research insti-
tutes and that the impact is, therefore, wider than
just the university sector. The Commission is in a
unique position to act as a moderator and catalyst
in this area and to facilitate a discussion to identify
a degree of commonality around best practice for
co-fnancing, cost reporting and accountability
requirements. Much as has done through the Char-
ter on Intellectual Property, implemented through
manage and support their research infrastructure.
It is important, therefore, that sponsors of research
recognise this and, by entering into a dialogue with
universities, explore ways in which these impacts
can be lessened.
Time recording — the need to accept diversity
A key area which can cause confusion and concern,
both at university and sponsor level, and which
can lead to overly burdensome reporting require-
ments is that of the methodologies used to record
time spent on certain activities to support cost
allocations. There are concerns at university level
that full timesheets by individuals that record all
research and academic activity are incompatible
with normal academic practice (and, in reality, may
be almost impossible given the overlaps and inter-
relationships between activities, be they teaching
or research). Indeed, there are views that the use of
full timesheets for both recording time on particu-
lar projects and as a basis for overall time allocation
is far from ideal. The diversity of European universi-
ties, both in terms of their legal and administrative
structures and their remits and objectives, means
that no single model exists and a variety of meth-
odologies, all equally robust, are evolving to suit
particular national or functional circumstances. It is
interesting to note, in this context, that the recent
EUA report found that the difering methods used
by the universities it surveyed produced similar
results. The Expert Group concurs with the com-
ments made by EUA that any certifcation process
at a European level should remain ‘light touch’ and
allow for the diferent methodologies for time and
activity allocation that are being developed at a
national or sector level. The Group further believes
that this is consistent with the fact that research is
a unique activity which cannot be treated in the
same way as the procurement of goods and that,
56
Full costing as an essential tool
for informed strategic decision making
by universities
Moving away from additional cost recovery
towards sustainability
Historically, whether funded from internal resources
or from external grants, university-based research
has been supported on a marginal cost basis with-
out proper regard, either by universities or funders
of the real long term full cost of research. The sus-
tainability of university-based research requires
universities to be able to identify their full costs and,
more importantly, cover these costs from internal
or external sources. Universities’ experiences and
successes in external project-based funding heavi ly
depend on the one hand on the management
approach they apply and the degree of institutional
strategic perspective they are willing and able to
implement. On the other hand, external project-
based funding itself infuences the development
of universities’ management approaches. Strong,
autonomous universities have responsibility for
their own sustainability and therefore need to have
robust management structures and systems in
place to support their decision-making. Full cost-
ing is a key tool in this regard as universities cannot
plan strategically and decide what areas to develop
and support if they don‘t know the real long term
cost of their activities. At the same time as provid-
ing a tool for more strategic decision-making and
internal resource allocation, full costing allows uni-
versities to benchmark themselves against simi-
lar institutions and provides them with a greater
capacity to negotiate and price their research
activities which, in turn helps improve cost recov-
ery and thus contribute to their sustainability. It is
important, in this context, to recognise that costing
the code of practice for universities and other pub-
lic research organisations on the management of
IP, the Commission should work with the national
funding agencies to share experiences and collect
information on good practice for external funding
terms and conditions, with the aim of identifying
best practice at European and national levels. Such
good practice guidelines should promote best
practice and minimum reasonable reporting and
accountability requirements, identify reasonable
time recording methodologies, highlight areas for
greater commonality between funders, both at
national and European levels, and explore poten-
tial ways of minimising the bureaucratic burden
placed on universities. Such an initiative will be of
particu lar relevance to current discussions on joint
programming activities.
Recommendation: Member States have a respon-
sibility to contribute to the sustainability of the
university-based research sector together with the
European Commission supporting this process at
EU level. Both should, therefore, ensure that this
objective be one of the principles underpinning
all the research programmes they fund. Member
States, working with the principal national fund-
ing agencies in the frst instance, but involving
other research funders in time, together with the
European Commission should consider drawing
up good practice guidelines for external funding
terms and conditions in consultation with univer-
sities.
57
national legal requirements as a key tool for sus-
tainable development.
Investing for success
While universities should, in practice, have the abil-
ity to adopt a full costing methodology and identify
the real cost of their research at project level, this
will require substantial investment on their part. It
is clear that the benefts to be derived from such
an investment can only be achieved if the funders
of that research recognise the value of full costing
and support the development of suitable account-
ing methodologies.
The development of the TRAC methodology
in the UK and the move towards full cost
accounting at project level was undertaken
in partnership between the university sector,
at a national level, and Government. The cost
of implementation was estimated to be EUR
700 000 for a medium sized, research-inten-
sive university. The incentive for universities
to make such an investment was the clear
undertaking by Government to recognise the
outcome and a commitment to fund a greater
proportion of the cost of research, thus allow-
ing them to recover far more than the initial
investment.
Excellent research needs excellent management
The conditions of external funding are therefore a
determinant driver in assisting universities to move
towards full recovery of research costs. However, as
outlined above, not all sponsors of research will rec-
ognise, as their primary objective, the ongoing sus-
tainability of research. The European Commission,
with the funding models under FP 7, is in a strong
and pricing are two separate but interrelated activi-
ties. The ability of a university to identify robustly
the true cost of a particular research project allows
it to identify which sources of funding are appro-
priate to its activity and sector. It also puts it in a
better position to establish collaborations with
industry and with other partners and to price its
research competitively or at a level which matches
the expectations of non-industrial sponsors. State
Aid rules have to be considered and will also be a
driver in this context.
The world is changing rapidly
While it is important that the modernisation agenda
be managed so as not to destabilise European uni-
versities through too rapid changes, it is important
to note that, looking beyond Europe, the world is
changing quickly and emerging economies such as
India and China are developing rapidly. The ques-
tion arises therefore as to whether European uni-
versities are fast enough in their modernisation
process to support the building up and fostering
of their international competitiveness. The Expert
Group’s view is that the majority of European uni-
versities are not developing fast enough and that
this is refected in many ranking tables where there
are too few European universities amongst the
top positions. What is needed is a modernisation
process taken seriously and high on the political
agenda, with the necessary speed at all levels for
the implementation of further reforms. If, therefore,
universities are to compete at an international level
and ensure the sustainability of their research it is
essential, if they have not done so already, that they
engage now in the process to identify the full costs
of their activities.
Recommendation: Universities need to adopt
full costing methodologies appropriate to their
58
activities in line with their strategic profle. Full cost-
ing is an essential component of appropriate fnan-
cial management of research in this context.
All funders need to recognise and encourage full
costing — whether or not they then cover those
costs
The ability to identify one’s true costs comes
with a responsibility to manage them strategi-
cally. However, this can only be achieved if all the
actors involved, including the funders of research
(whether through core funding or competitive,
project-based funding) understand and accept the
principles involved and recognise the need for uni-
versities to recover the full costs of their activities.
This includes allowing universities to participate
in research programmes on the basis of their own
costs rather than through the allocation of ‘lump
sum’ funding established on the basis of notional
or ‘average’ sector costs.
The 7
th
framework programme is a key driver in the
move towards sustainability and in encouraging
universities to adopt full costing methodologies
appropriate to their national legal situation. Using
FP 7 as a tool to reward good practice can encour-
age the move from using the fat rate for indirect
cost recovery to the use of actual indirect rates or
the simplifed methodology, as long as the benefts
of doing so are not outweighed by disincentives.
Such disincentives could include overly burden-
some auditing requirements which exceed nation-
ally agreed methodologies or which apply stand-
ard ‘procurement’ type conditions on research
activities. They can also include situations arising
whereby those universities which have adopted
full costing, and are therefore aware of the real
cost of the research, fnd themselves at a disadvan-
tage in consortia involving universities which have
position to engage with Member States to sup-
port the sustainability of universities as a strategic
objective at national level. In doing so, the EU and
Member States will need to recognise that, as well as
the ability to identify the full costs of their research,
it is important that universities have the manage-
ment and administrative infrastructure necessary
to manage their internal resources so as to support
the strategic co-fnancing of their research in a sus-
tainable way. In other words, the move towards full
costing is not an end in itself: it simply provides the
essential tool which universities require identifying
and understanding their true costs and through
which they can move towards sustainability. As
highlighted by a EURAB report
19
, good research
management is about far more than just fnancial
reporting and is vital for Europe’s economic and
social prosperity.
‘Research management tasks are becoming
more and more demanding, as those who invest
in research expect ever greater accountabil-
ity and performance. In addition, the growth
of research partnering and open innovation is
creating fresh challenges, as research manag-
ers increasingly have to operate on a truly glo-
bal basis and deal with teams whose members
come from multiple organisations, nationalities
and cultures.’
Recommendation: Universities must recognise that
excellence in research requires sound and pro-active
management practices. Excellence in research and
management go hand in hand, fnancial manage-
ment is a condition for informed, strategic decision-
making in an environment where universities are
expected to develop long-term excellent research
19
‘Research management in the European research area’, EURAB 07.007,
May 2007.
59
tool in the move towards inciting universities but
should not, in itself, be the driver.
Recommendation: As part of the mid-term review
of the 7
th
framework programme, the Commission
and the Member States should review the state of
play across EU-27 on the ability of universities to
identify the true costs of their research as well as the
national support mechanisms available to them to
do so, and should promote the sharing of best prac-
tice and mutual learning while taking into account
national legal and structural constraints.
Is current university infrastructure ft for the
purpose?
The additional challenge for universities, once
they are able to identify their real costs, is being in
a position to make good past underinvestment in
their human and physical infrastructure as well as
to make strategic decisions on future investments.
In many cases, the level of investment required to
bring infrastructure up to a globally competitive
level is unknown and is likely to be substantial. Full
costing and recovery of real costs, while of prime
importance, are not sufcient in themselves if a uni-
versity’s human and physical infrastructure is not at
a competitive level and if there is no awareness, at a
national level, of the level of investment required to
bring them up to a suitable standard.
Recommendation: Where such an exercise has not
yet been undertaken an assessment of the current
state and competitiveness of university research
infrastructure (both human and physical) in indi-
vidual Member States will be necessary so as to
identify priority areas for investment.
not identifed the full costs of their participation:
in such situations the former can be deemed ‘too
expensive’ by the consortium and either excluded
or required to reduce their ‘price’ and/or their input
to bring them inline with other members.
Recommendation: The Commission should reward
best practice and encourage the adoption of full
costing while ensuring that those universities which
do so are not placed at a disadvantage when com-
peting for funds. The FP 7 transitional fat rate can
be used as a major external driver towards full cost-
ing implementation but shall not be considered in
isolation. Appropriate support at national level has
to be provided to universities to facilitate their tran-
sition to full costing implementation.
The importance of encouraging the move to full
costing
The recent EUA report suggests that the major-
ity of European universities, particularly those in
the new Member States, will not be in a position
to identify the full costs of their research in the
next few years in a way which would allow them
to improve their cost recovery from EU or national
funding programmes without strong incentives
and the support of their national funding agencies.
It is important, therefore, that the Commission take
the opportunity presented by the mid-term review
of FP 7 to encourage Member States to support the
move to full costing, whether through providing
fnancial assistance or incentives or through other
support mechanisms. It is also important that the
Commission take account of the preparedness of
universities to move to full costing when consid-
ering the level of the default indirect cost fat rate
under FP 7 and that it be mindful of the need to
encourage rather than force any move towards full
costing. A reduced default rate could be a useful
60
Annex 1:
Research funding indicators and characteristics questionnaire
Indicators (provide estimates if detailed data not readily available)
(1) What is the proportion (expressed as a % of GDP) of expenditure on higher education:
…… % (indicate year this relates to: 20…)
(2) What proportion (value in euros and % of total) of higher education public funding is spent on univer-
sity-based research: …….. euros (…. % of total public funding)
(3) What are, in order of importance, the three principal types of funding organisations for university-based
research (indicate 1, 2, 3 and, if possible, the proportion as a % of overall university-based research each
accounts for — e.g. ‘Regional Government is the frst source of funding and accounts for, on average,
52 % of total expenditure for university-based research). Note: if national or regional funding is avail-
able in both core funding and as competitive funding then enter each as a separate type of funding.
Rank and %
…. …. % (a) National Government
…. …. % (b) Regional Government
…. …. % (c) National, publicly-funded Government agency
…. …. % (d) European Commission
…. …. % (e) Not-for-proft organisations (charity, foundations, learned societies)
…. …. % (f ) Industry or other for-proft organisations
…. …. % (g) Overseas Governmental agencies
…. …. % (h) Other (please indicate: ……)
CHAPTER 6: ANNEXES
61
(4) For each of these top three categories of funding organisation, indicate the primary co-funding model
used (tick one model for each funder only):
Co-funding model 1
st
funder 2
nd
3
rd
(a) Formula-based core funding ___ ___ ___
(b) Competitive-based funding ___ ___ ___
If Competitive, how is funding awarded
(i) 100 % of all costs of research ___ ___ ___
(ii) 100 % of direct costs only of research ___ ___ ___
(iii) Direct costs plus set overhead (indicate %) ___ ___ ___
(iv) % of research costs ___ ___ ___
(v) other (indicate…..) ___ ___ ___
(5) What conditions do each of the three main funding organisations usually attach to their funding (tick
all that apply)
Conditions 1
st
funder 2
nd
3
rd
(a) Match funding by University ___ ___ ___
(b) Match funding from other funder ___ ___ ___
(c) Time sheets ___ ___ ___
(d) Accountability for expenditure at level of research project ___ ___ ___
(e) Activity reports on outcome of research ___ ___ ___
62
(6) Where core funding, used to support research, is received by universities, what is the primary method-
ology used for allocating funds to the university (tick only one):
(a) Formula based using past performance metrics ___
(b) Formula based using current volume/activity metrics ___
(c) Set lump sum amount ___
(d) Set proportion of national core funding available ___
(e) No core funding ___
(f ) Other (please indicate) ___
(7) Where core funding is received by universities, what degree of autonomy do universities have in using
these funds (tick one only):
(a) Free to use as see ft with no reporting requirement ___
(b) Free to use as see ft with explicit reporting requirement ___
(c) Must be allocated to specifed activities ___
(d) Other (please specify) ___
63
Characteristics
(8) For project-based external research funding, do universities have to adapt their fnancial manage-
ment systems to meet the requirements of their principal funding organisations?
(9) Is there consistency between the rules and conditions imposed by external research funders on awards
for project-based research?
(10) Is there an explicit requirement, or expectation, by the principal external research funders for universi-
ties to provide or obtain co-funding for project-based research?
(11) What are the primary obstacles or problems that research funders fnd in awarding funding to univer-
sities (e.g. relating to the internal organisation of universities, or to external pressures or constraints)
(12) Are the principal funders of research (as indicated under question 3 above) planning to change, or
have they recently changed, their methodology or their criteria for awarding funds? If yes, what are
they and what are the drivers?
(13) Is there a general trend by the primary funders of project-based research to simplify their procedures
and/or to streamline their fnancial reporting requirements?
(14) Is there a general trend by universities to change their fnancial management systems and, if so, what
are the drivers and intended outcomes?
(15) Are universities adopting, or being required to adopt, a strategic approach to the management of
research and the internal allocation of resources to support their research?
64
Country Name of organisation Name of contributor Position
Austria
ARC Karl-Heinz Leitner Expert
FFG Michael Binder Head of Strategy Unit
FFG Klaus Pseiner General Manager
FWF Christoph Kratky President
Rectors Conference Heribert Wulz Secretary-General
University Vienna Lottelis Moser Head of Research Services
University Linz Franz Wurm Vice-Rector for Finance
Belgium
IWT Alain Deleener Co-ordinator European
programmes
Cyprus
Research Promotion Foundation Kalypso Sepou Head of Unit, European Research
Programmes and International
Collaboration
Czech Republic
Technology Center of the
Academy of Sciences
Vladimir Albrecht Deputy Director
Denmark
Aahus University Lauritz B. Holm-Nielsen Rector
Estonia
Archimedes Foundation Ülle Must NCP Coordinator
Research Policy Department,
Ministry of Education and
Research
Rein Kaarli Adviser
Finland
Tekes Marita Virtanen Chief Adviser
Academy of Finland Mervi Taalas Director Financial Unit
Helsinki University Marja Nykänen Head of Strategic Planning and
Development
Rectors Council Liisa Savunen Secretary-General
Ministry of Education,
Department for Education and
Science Policy, Division for
Higher Education and Science/
Research
Kauppinen Petteri Senior Adviser
France
University Lyon 1 Lionel Collet Rector
Germany
Volkswagenstiftung Wilhelm Krull Secretary-General
Siemens AG Uwe Hermann Chief Technology Ofce —
Cooperation Management
Corporate Technology
Greece
PRAXI / HELP-Forward Network Epaminondas Christoflopoulos Technology Transfer Consultant
Hungary
Hungarian Scientifc Research
Fund (OTKA)
Gabor Makara President
Annex 2:
Overview of contributors to this report
65
Country Name of organisation Name of contributor Position
Iceland
Rannis Magnus Lyngdal Magnusson Senior Adviser
Ireland
Enterprise Ireland Imelda Lambkin National Director for FP 7
Higher Education Authority Sarah Dunne Research Programmes Expert
Irish Universities Association Conor O‘Carroll Head of Research Ofce
Israel
ISERD Yael Gilead Expert
Latvia
Latvian Academy of Science Dace Tirzite Expert
Lithuania
Agency for International Science
and Technology development
Programmes
Aiste Vilkanauskyte NCP Coordinator
Ministry of
Education and Science
of the Republic of Lithuania,
Division of International
Research Programmes
at Department of Science
and Technology
Kristina Babelyte
Netherlands
Philips Research Emil Aarts Vice President Scientifc Program
Manager
SenterNovem Lisette Janse Manager Knowledge
Infrastructure
SenterNovem Hans Kruithof Senior Adviser
Norway
Research Council of Norway —
Norwegian Liaison Ofce for EU
RTD
Gudrun Langthaler Head of Ofce
Poland
PolSCA — Polish Science Contact
Agency
Jan Krzysztof Frackowiak Director
Romania
National Authority for
Scientifc Research
Viorel Vulturescu NCP Coordinator
Slovak Republic
Slovak Research and
Development Agency
Department for International
Cooperation
Peter Beno NCP Coordinator
Slovenia
Ministry of Higher Education,
Science and Technology
Bojan Jenko NCP Coordinator
Spain
CDTI Serafín de la Concha Head of Division, European
Community Programmes
Universitat Autonoma de
Barcelona
Ramon Noguera i Hancock Research Park Business Manager
NB: For Portugal and Bulgaria, no exploitable data was received.
66
Country Name of organisation Name of contributor Position
Sweden
Swedish Agency for Innovation
Systems (Vinnova), International
Collaboration and Networks
Gunnar Sandberg NCP Health, Ideas, Regions
Vetenskapsrådet Sweden,
Department:
Research Policy
Johan Fröberg Analyst
Switzerland
Swiss National Science
Foundation
Danièle Rod Head International Afairs
CTI KTI Innovation Promotion
Agency
Ingrid Kissling Head
Turkey
State Planning Organisation
(DPT)
Halil Ibrahim Akca Under Secretary
State Planning Organisation
(DPT)
Bilgehan Ozbaylanli Expert
United Kingdom
UK Research Ofce in Brussels Amanda Crowfoot Director
Universities UK Chris Hale Policy Adviser
Research Councils UK Helen Thorne Head
United States
Jeferson University Sam Taylor Programme Manager
Ofce of Science and Technology,
Embassy of Austria
Philipp Marxgut Director and Attaché for Science
and Technology
67
Associations
EUA — European University Association John Smith Deputy Secretary-General
EUA — European University Association Thomas Estermann Senior Programme Manager
EFPIA — European Federation of Pharmaceutical Industries
and Associations
Karen Strandgaard Research Director’s Group
EIRMA — European Industrial Research Management
Association
Andrew Dearing Secretary-General
European Commission
Megan Richards Research DG B, Director, ‘Resource Management’, Joint Research Centre
Giorgio Clarotti Research DG B1, Policy Ofcer
Philippe Coenjaarts Research DG A5, HoU Certifcation Policy
Irene Norstedt Research DG, Head of Sector IMU JU
William Cannell Research DG S1, Head of Unit
Robert-Jan Smits Research DG B, Director
Walter Schwarzenbrunner DG INFSO S, Director
ERC — Scientifc Council
Helga Nowotny Vice-President
Note that although contributions were invited, no input was received from the
following associations:
Taftie — The Association for Technology Implementation in Europe
ESF — European Science Foundation
Eurohorcs — European Heads of Research Councils
68
In providing funding for universities, how do you experience the relation between external project- •
based funding and its impact on universities fnancial management? Is there any impact?
Do you expect changes in behaviour from the increasing number of autonomous universities in •
Europe? What is your perception of fully autonomous universities, particularly in terms of strategic
research development and fnancial management issues?
In the context of the modernisation agenda, autonomous, increasingly entrepreneurial and thus •
fnancially sustainable universities are high on the political agenda. To what extent do you think the
conditions of external funding can assist the move towards full recovery of research costs as a major
component of sustainability in university-based research?
What is your position towards supporting overhead costs of universities? Under which conditions •
and to what extent are overheads funded? Is there a long-term strategy. If yes, what is it like?
Annex 3:
Questionnaire to selected funding agencies
69
(1) Do you have core funding entitled for research?
(2) Do you have external project-based funding for research?
Please provide a breakdown by category:
% (or amounts in euro) per national funding organisation/agency,
% (or amounts in euro) European framework programme?
% (or amounts in euro) other international programmes?
% (or amounts in euro) industry?
% (or amounts in euro) foundations or non-proft sources?
% (or amounts in euro) others?
(3) What is the ratio of core to external project-based funding at your university?
(4) What is the total budget of your university?
(5) Are the conditions and requirements of external project-based funding diferent? Y/N
(6) Please describe the major diferences and challenges of funding conditions and requirements, and
how you deal with it with respect to the fnancial management and potentially its implications on
the strategic decision-making.
(7) Do you have a specifc unit at the university assisting in the preparation and management of exter-
nal project-based funding? Do you think this unit can meet researchers’ requirements adequately? If
there are any, what kind of changes would you think could be necessary in the coming years?
Annex 4:
Questionnaire to selected universities
70
Clark, B. R. (1998), Creating entrepreneurial uni-
versities — Organisational pathways of transfor-
mation, Pergamon IAU Press.
Conraths, B. and Smidt, H. (2005), The funding of
university-based research and innovation in Europe
— An exploratory study, EUA Publications.
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measuring scientific production — Results for a
panel of OECD countries’, SPRU Electronic Work-
ing Paper Series, 133, Brighton.
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indirect cost rates matter?’ NBER Working Paper
Series, Working Paper 6976.
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costing in European universities, EUA Publica-
tions.
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(2007), ‘Research management in the European
research area: Education, communication and
exploitation’, EURAB 07.007.
European Commission (2003), ‘ Third European
report on science and technology indicators
2003’, Research DG, Brussels.
European Commission (2006), ‘Delivering on the
modernisation agenda for universities — Educa-
tion, research and innovation’, Commission Com-
munication, COM(2006) 208 final.
Annex 5:
References and reports
Aghion P., Dewatripont M., Hoxby C., Mas-Colell
A. and Sapir A. (2007), ‘Why reform Europe’s uni-
versities?’ Bruegelpolicybrief.
Beatie, A. (1997), ‘From core grants to contracts
for performance: Lessons from the UK experi-
ence’, Paper presented at the DFID-sponsored
workshop on financing agriculture research,
September, London.
Benner, M. and Sandström, U. (2000), ‘Institu-
tionalising the triple helix: research funding and
norms in the academic system’, Research Policy,
29, pp. 291–301.
Bonaccorsi, A. and Daraio, C. (2003), ‘Age effects
in scientific productivity — The case of the Ital-
ian National Research Council (CNR)’, Scientomet-
rics, 58, 1, pp. 49–90.
Bonaccorsi, A. and Daraio, C. (2007), ‘Efficiency
and productivity in European universities —
Exploring trade-offs in the strategic profile’, in A.
Bonaccorsi and C. Daraio (eds), ‘Universities and
strategic know ledge creation — Specialisation
and performance in Europe, Edward Elgar PRIME
Collection.
CHEPS — Center for Higher Education Policy
Studies (2006), ‘ The extent and impact of higher
education governance reform across Europe —
Final report to the Directorate-General for Edu-
cation and Culture of the European Commission’,
Contract: 2006–1407/001–001 S02-81AWB.
71
Lepori, B., Benninghoff, M., Jongbloed, B., Salerno,
C. and Slipersaeter, S. (2005), ‘Changing patterns
of higher education funding — Evidence from
CHINC countries’, interim report for the project
‘Changes in university incomes: Their impact
on university-based research and innovation’,
(CHINC)
(http://english.nifustep.no/norsk/publikasjoner/
changing_pattern_of_higher_education_fund-
ing_evidence_from_chinc_countries).
Lepori, B., Benningshoff, M., Jongbloead, B.,
Salerno, C. and Slipersaeter, S. (2007), ‘Changing
models and patterns of higher education fund-
ing — Some empirical evidence’, in A. Bonaccorsi
and C. Daraio (eds), ‘Universities and strategic
knowledge creation — Specialisation and per-
formance in Europe’, Edward Elgar PRIME Collec-
tion.
Nyiri, L. and Havas A. (eds) (2007), ‘National sys-
tem of innovation in Hungary — Background
report for the OECD Country Review 2007’,
National Office for Research and Technology,
December 2007.
OECD (2004), Main science and technology indica-
tors, OECD, Paris.
OECD (2005), University research management
— Developing research in new institutions, OECD,
Paris, 122.
OECD (2006), Education at a glance, OECD, Paris.
European Commission (2006), ‘Changes in uni-
versity incomes: Their impact on university-
based research and innovation’, Final report from
the CHINC project, 2006.
European Commission (2007), ‘ The European
research area: New perspectives’, Green Paper,
COM(2007) 161 final.
European Commission (2008), ‘ Towards joint
programming in research: Working together to
tackle common challenges more effectively’,
Commission Communication, COM(2008) 468.
Gulbrandsen, M. and Smeby, J.-C. (2005), ‘Indus-
try funding and university professor’s research
performance’, Research Policy, 34, pp. 932–950.
Jongbloed, B., Lepori, B., Salerno, C. and Sliper-
saeter, S. (2005), ‘European higher education
institutions — Building a typology of research’,
interim report for the project ‘Changes in univer-
sity incomes — Their impact on university-based
research and innovation’, CHINC (http://english.
ni fustep. no/norsk/publ i kasj oner/changes_
in_european_higher_education_institutions_
research_income_structures_and_strategies).
Karl-Heinz Leitner (ARC), Werner Hölzl (WIFO),
Brigitte Nones (Joanneum Research), Gerhard
Streicher (Joanneum Research) (2007), ‘Finan-
zierungsstruktur von Universitäten, Internation-
ale Erfahrungen zum Verhältnis zwischen Basis-
finanzierung und kompetitiver Forschungsfinan-
zierung’.
72
OECD (2007), ‘On the edge: Securing a sustain-
able future for higher education’, OECD Educa-
tion Working, Papers, No. 7, OECD Publishing.
DOI:10.1787/220180871707.
OTKA annual report 2007 (in OTKA Hirlevel
2008/1, pp. 7–16, in Hungarian).
Payne, A. A. and Siow, A. (2003), ‘Does Federal
research funding increase university research
output?’ Advances in Economic Analysis and Pol-
icy, 3, 1, pp. 1–21.
Salerno, C. (2006), ‘Funding higher education’,
in J. File and A. Luijten-Lub (eds), Reflecting on
higher education policy across Europe — A CHEPS
resource book, The Hague, pp. 72–95.
Science and Public Policy, 34(6), July 2007, pp.
370–371, DOI: 10.3152/030234207X234596
(http: //www. i ngentaconnect. com/content/
beech/spp).
Strehl, F., Reisinger S. and M. Kalatschan
(2007), ‘Funding systems and their effects
on higher education systems’, OECD Educa-
tion Working Papers, No. 6, OECD Publishing,
DOI:10.1787/220244801417.
UK Government (HM Treasury, DTI and DfES),
‘UK science and innovation investment frame-
work 2004–14’, 2004.
doc_924895352.pdf
The need for universities to become sustainable cannot be in question and it is their responsibility to ensure that they achieve the right level of research funding, and the right balance between core and external funding appropriate to their circumstances.
Expert Group report chaired by Sabine Herlitschka
November 2008
Diversifed Funding streams
for University-based research:
Impact of external project-
based research funding
on fnancial management
in Universities
European Commission — Directorate-General for Research
2
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3
detail. Its conclusions and recommendations are
in line with the Commission’s analysis and views
that action is required to strengthen the fnancial
sustainability of university-based research. This is
a joint responsibility of public authorities, funders
and universities. I will certainly consider carefully
the arguments of the report in reviewing the 7
th
Framework Programme and trying to ensure that it
achieves the right balance between administrative
burdens and accounting rigor.
The Commission’s concern for fnancial sustain-
ability should be met by a further professional-
ization of fnancial management in the universities.
Full costing means knowing objectively how much
your research costs and accounting for it. This is an
essential part of professional management. Some
universities have already understood this and taken
action. This means there is a wealth of experience
The European research landscape is changing rap-
idly. The new environmental and societal challenges
we face — such as climate change, energy and
ageing — demand answers from researchers.
Excellence in research is not accomplished in isola-
tion. It takes intensive cooperation across borders,
institutions, nations and disciplines. But the search
for prevailing solutions is also propelled by compe-
tition. Competition for better ideas, for better meth-
odologies, and for the funding to make it all hap-
pen.
For years now I have been strongly committed to
enabling cooperation and sharpening the competi-
tive edge. The 7
th
Research Framework Programme,
the European Research Council, the European Insti-
tute for Innovation and Technology (EIT) are ample
illustrations of how the EU implements these prin-
ciples of cooperation and competition.
Money matters for excellence in research, and as
Europeans we still have a long way to go towards
adequate investment in research. At 1.84 % of GDP
we are still a long way from our target of 3 % and
both public and private investment are contributing
to this gap. Against the background of the fnancial
and economic crises, we should not lose sight that
today’s investment is tomorrow’s prosperity. How-
ever, ‘more’ money is only a partial answer. We must
also use that investment better; more efciently.
That is why we are gradual building a true European
Research Area, in which borders become obsolete
and knowledge and researchers move freely. This
requires comprehensive structural reform.
The quality of funding of research is part-and-parcel
of this reform agenda. I therefore strongly welcome
this expert group report which I urge you to read in
FOREWORD
4
for others to learn from. The Commission will con-
tinue to encourage and actively support the transi-
tion towards full costing.
Achieving the ffth freedom is hindered by the lack
of consistency among fnancial requirements of
competitive research funding schemes across the
European Research Area. This lack of consistency,
even in basic terminology and interpretation, is
holding back research investment efciency. This is
why I support the development of common guide-
lines to increase the communality of conditions of
external research funding, to step up transparency
and greater synergies, and hence to better consider
the economic reality of research activities.
Funding agencies and their European umbrella
orga nizations have a great role to play here. Better
aligning competitive external research funding
schemes along mutually agreed common principles
would indeed create new opportunities for funding
of excellence and reduce administrative burdens on
research institutions.
It is also an exercise that will help Member States to
move ahead with Joint Programming and will help
to create the critical fnancial mass necessary to
make the Knowledge and Innovation Communities
under the EIT a spearhead of research excellence,
translated into knowledge sharing and innovation.
We need to have an open debate on how to make
our funding schemes better serve our common
ambitions and commitments. The report you are
about to read provides an important input into that
debate. Enjoy reading it, and let us discuss how we
can collectively move ahead.
Janez Poto?nik
European Commissioner for Science and Research
5
Introduction “Europe needs universities able to build on their own strengths
and diferentiate their activities on the basis of these strengths.” 6
Two key principles: fnancial sustainability and research management 8
Introducing the members of the Expert Group 10
Chapter 1 Executive summary and recommendations 16
Recommendations 22
Chapter 2 Defnitions and terminology used in the report 24
Chapter 3 Overview of the characteristics of external project-based research
funding mechanisms across Europe and comparative countries 26
Example of Hungary: Hungarian Scientifc Research Fund (OTKA) 31
Example of Germany: the German Research Foundation (DFG) 32
Example: Austria 34
Example of Finland: Tekes: 36
Example of Turkey: State Planning Organisation (DPT): 37
Chapter 4 Universities’ diferent experiences and needs: Identifcation of the impact
of external funding requirements and conditions and assessment of
universities experiences and needs 38
Interview with EIRMA 42
Example of Finland 47
‘Transparent approach to costing’ — An Overview of TRAC 48
Chapter 5 The way forward: the sustainability of university-based research 50
Chapter 6 Annexes 60
Annex 1: Research funding indicators and characteristics questionnaire 60
Annex 2: Overview of contributors to this report 64
Annex 3: Questionnaire to selected funding agencies 68
Annex 4: Questionnaire to selected universities 69
Annex 5: References and reports 70
CONTENTS
6
INTRODUCTION
With this statement the modernisation agenda
1
makes the importance and role of universities
very clear while at the same time pointing out the
specifc need for further development in order to
ensure that they contribute fully to the implemen-
tation of the European research area and to the Lis-
bon Agenda.
The recent consultations on the future of the Euro-
pean research area (ERA) stressed the need for
Europe to have fully autonomous, accountable,
well managed and performing universities, and
recalled the current context of insufficient fund-
ing for higher education institutions in Europe.
Terms of reference of the
Expert Group
The structure of funding both at European and
national levels tends increasingly towards project-
based funding. As a consequence, universities face
the challenge of diversifying their funding streams
in order to support fully their research activities, of
moving towards full recovery of research costs, of
fostering their fnancial management of research
activities driving their own strategies, and of adapt-
ing themselves to competitive project-based
research funding.
In this context, the Expert Group was tasked to:
provide a broad overview of the characteristics (a)
of external project-based funding mechanisms
across EU-27, with a focus on their fnancial and
accounting requirements and conditions;
1
Communication from the Commission to the Council and the European
Parliament: ‘Delivering on the modernisation agenda for universities:
education, research and innovation’, COM (2006) 208, 10 May 2006.
“Europe needs universities able
to build on their own strengths
and differentiate their activities
on the basis of these strengths.”
7
identify the impact of these external funding (b)
requirements and conditions on the develop-
ment of fnancial management capacity in uni-
versities;
assess universities’ diferent experiences and (c)
needs with the aim of informing further design
of future funding schemes;
consider the degree to which the conditions of (d)
external funding can assist the move towards
full recovery of research costs as a major com-
ponent of sustainability of university-based
research;
identify recommendations of appropriate action (e)
at European and national levels.
The Experts Group’s focus on
the funders’ perspective
The subject of this Expert Group report ‘Impact
of external project-based funding on the fnan-
cial management of universities’ might appear to
be very technical at frst sight. However, it relates
directly to the subject of fnancial sustainability,
which is a core condition for European universities
to contribute fully to the ERA.
Over the last couple of years, with reforms imple-
mented in several countries, there has been a lot of
refection on various issues and aspects related to
the fnancing of universities that has been summa-
rised in respective studies and reports.
What has received less attention is the role and per-
spective of funders. Funders play an important role,
since the funding provided is always linked to spe-
cifc conditions and requirements with respect to
the type of activities they support as well as in legal
and fnancial terms. Consequently, these funding
conditions and requirements develop signifcant
infuence and are closely interconnected with uni-
versities’ management approaches in general and
fnancial management in particular.
In focussing on the funders’ perspective, the expert
group included in its discussions national funding
agencies, the European Commission, companies
and to some extent foundations.
Based on the terms of reference the Expert Group
concentrated its refections on three aspects:
research activities of universities — education •
and training are not covered;
external project-based research at universities, •
with internal or core funding being addressed
as far as it relates to external project-based fund-
ing;
research universities — the entire higher educa- •
tion sector is not covered despite the fact that
several points will be relevant to it.
8
Financial sustainability is essential
‘Although universities are not primarily businesses
and should focus particularly on their academic
teaching, learning and research, they must also be
business-like in the way that they use their fnancial,
physical and human resources. This responsibility is
increased because they employ considerable pub-
lic funds’
2
.
The need for universities to become sustainable
cannot be in question and it is their responsibil-
ity to ensure that they achieve the right level of
research funding, and the right balance between
core and external funding appropriate to their cir-
cumstances. Financial sustainability is essential but
it cannot be achieved unless universities have the
necessary autonomy, and appropriate manage-
ment practices and systems, to make those deci-
sions and act in a business-like way.
Excellence in research and research management
go hand in hand
In our world of ever increasing complexity, research
needs pro-active research management. The Expert
Group is convinced that the ambition for excellence
in research applies equally as strongly to research
management.
EURAB in its report on research management sum-
marised it as follows.
3
‘Without excellent research management, Europe’s
RTD will simply not deliver the benefts expected
and needed. Excellence in research management
is also an essential enabler of the ambitions in the
2
Joint Pricing and Steering Group: ‘Transparent approach to costing: An
overview’, June 2005.
3
‘Research management in the European research area: Education, com-
munication and exploitation’ (EURAB 07.007), European Research Advisory
Board, May 2007.
There are two underlying
principles that substantially
infuenced the work of the
Expert Group.
TWO KEY PRINCIPLES: FINANCIAL
SUSTAINABILITY AND RESEARCH MANAGEMENT
9
Evidence for this report
The discussions of the Expert Group have been built
on the evidence set out below.
The members of the Expert Group themselves
cover a broad range of expertise including univer-
sity management, national funding organisations
for basic and applied research, as well as research
management and services at institutional, national
and European levels.
A questionnaire to all EU member states and some
comparative countries provided for the broad over-
view on external project-based research funding.
Two specifc questionnaires for selected universi-
ties and funding agencies respectively helped in
gathering specifc input.
An overview table of major national public funding
organisation, their budgets, orientation and fund-
ing requirements and conditions was produced
with the help of input from experts in each EU
Member State, Switzerland and Turkey.
Detailed interviews with several funding agencies,
companies, universities, associations and repre-
sentatives of the European Commission.
Each Expert Group member produced a country
overview in order to be able to specifcally describe
the funding conditions for universities in their
country.
European Commission’s recent Green Paper on the
future of the ERA.
Research management excellence is needed both at
a strategic level — doing the right things — and at
an operational level — doing things right; research
management is about far more than just fnancial
reporting. Excellence is needed at all stages of the
research process, from basic to applied research as
well as in collaboration and partnership with the
business community as part of research and inno-
vation ecosystems within non-linear complex inno-
vation processes.’
Structure of the report
The Expert Group’s report is structured according
to the following main chapters:
introduction of the members of the Expert Group; •
executive summary and recommendations; •
defnitions and terminology used in the report; •
overview of the characteristics of external •
project-based research funding mechanisms
across Europe and comparative countries;
universities’ diferent experiences and needs: •
Identifcation of the impact of external funding
requirements and conditions and assessment of
universities experiences and needs;
the way forward: the sustainability of university- •
based research;
annexes including the list of references, the ques- •
tionnaire used and the list of contributors to the
discussions of the Expert Group.
10
Rapporteur:
Pierre Espinasse
Oxford University, Head of
Research Services (science
area) and Associate Director
‘knowledge exchange’,
United Kingdom
A graduate in languages and economics, Pierre has
over 20 years’ experience of working in research
management and funding, initially with the UK
research councils and subsequently at the Univer-
sity of Oxford Research Services. Pierre was closely
involved in the development of full economic cost
in the UK and has been an active contributor to the
development of research and knowledge exchange
policy in the UK and Europe.
Chairperson:
Sabine Herlitschka
Austrian Research Promotion
Agency (FFG), Director of the
European and International
Programmes Division,
Austria
Educated as a biotechnologist, the professional
background of Sabine Herlitschka includes research
in international biotech industry, international
RTD cooperation at BIT-Bureau for International
Research and Technology Cooperation, internship
at the National Science Foundation, AAAS (Ameri-
can Association for the Advancement of Science)
and cooperation with the First Science Advisor in
the US Department of State. Before joining FFG, she
was founding Vice-Rector for research management
and international cooperation at the newly set up
Medical University of Graz/Austria. Since 1996 she
has been frequently involved in EU project devel-
opment, coordination and proposal evaluation, as
well as engagement in European and international
expert groups. She has been nominated Austrian
coordinating national contact point for the 7
th
EU
framework programme.
INTRODUCING THE MEMBERS
OF THE EXPERT GROUP
11
Olivier Küttel
Director of Euresearch,
Switzerland
Olivier Küttel has a PhD in plasma physics and
worked many years in the feld of nanotechnol-
ogy and surface science. From own experience he
knows the diferent national and European research
initiatives. He worked as a Patent Expert for the
Swiss federal institute of IPR and joined the Swiss
information network for European R & D Euresearch
as its Director in autumn 2000.
Expert assisting the rapporteur:
Willem Wolters
Wageningen University
and Research Centre,
Head of Wageningen
International Helpdesk,
the Netherlands
He has almost 25 years’ experience of supporting
participation in EU research programmes, with na -
tional and international public and private organ-
isations. Wageningen University and Research
Centre has a long tradition of participating in the
successive framework programmes. Heading the
Wageningen International Helpdesk, Willem Wol-
ters supports researchers developing proposals and
executing projects and guided transitions towards
the full costing system. As President of UNITE (Uni-
versities International Team of Experts), Adviser of
VSNU (Dutch Association of Universities) and mem-
ber of the EUA working group on the 7
th
framework
programme, he is involved in a wide range of EU-
afairs.
12
Gülsün Sa?lamer
?stanbul Technical University,
Turkey
Gülsün Sa?lamer is a Professor of architecture.
Former Rector of Istanbul Technical University
(1996–2004), she is a board member of EUA and
executive committee member of IAUP, and presi-
dent of the Council for Technology and Techno-
parks in Turkey and a board member of ITU’s Tech-
nology Park and Incubation Centre, ARI Tecnocity
(advanced research and innovation). She is a mem-
ber of the board of trustees of Kadir Has Univer-
sity. She has been a visiting scholar at Cambridge
University and a visiting professor at Queen’s Uni-
versity in Belfast. She is a member of the editorial
board of three international scientifc journals. She
was awarded honoris causa by Carleton University,
Canada (2001) and Universitatea de Nord Din Baia
Mare University, Romania (2002). The American
Institute of Architects (AIA) awarded her an honor-
ary fellowship (Hon. FAIA) in 2006, SEFI awarded her
the ‘Leonardo da Vinci Medal’ in 2005–06.
Thomas A. H. Schöck
Chancellor of the University
of Erlangen-Nuremberg,
Germany
Born in 1948, he earned degrees in law and eco-
nomics at the University of Erlangen-Nuremberg.
Having been Scientifc Assistant in tax law at the
same university he took up a career in the Bavarian
State Government with the Ministry of Finance and
the State Chancellery. In 1988, he became Chancel-
lor of the University of Erlangen-Nuremberg (i.e.
head of administration, chief fnancial and staf
ofcer and member of the governing board). From
1996–99 he served as Chairman of the Chancellors
of Bavarian universities, from 1999–2000 as Deputy
Chairman and from 2000–03 as Chairman of the
Chancellors of German universities. Since 2004 he
is Spokesman of the German chancellors’ working
group for intellectual property rights, third party
funding and European afairs. He served as a mem-
ber of the European Universities Association’s Insti-
tutional Experts Subgroup on Transparent Costing.
In 2008, he has been awarded the order of merit of
the Federal Republic of Germany.
13
Erika Szendrak
Hungarian Academy of
Sciences (HAS),
Deputy Head of the R & D
and Innovation Department
at the HAS secretariat,
Hungary
With her background as biotechnologist and as sci-
ence policy expert she provides EU science policy
and EU-level funding advice for the academy’s
scientifc community. Since April 2006 she is the
founding Director of Hunasco, the academy’s con-
tact ofce based in Brussels. Before her current
assignment at the Hungarian Academy of Sciences,
she worked in Brussels at the Directorate-General
for Research as a Research Policy Expert for four
years and at the University of Nebraska-Lincoln in
the US as a University Lecturer and Research Asso-
ciate. She is also programme committee expert and
national contact point of ERC/IDEAS in the 7
th
EU
framework programme as well as member of the
Team Europe Network as an appointed expert by
the Commission’s Representation in Hungary.
14
Jacques Voiron
Joseph Fourier University
Grenoble, France
He holds a degree in engineering, a PhD thesis in
computer science and is Professor in computer
science at the Université Joseph Fourier Greno-
ble, France. Successively he has been Dean of the
Department of Computer Science and Applied
Maths, Director of IMAG Research Laboratory in
computer sciences and technologies and applied
maths, Vice-Rector for research, and then Vice-Rec-
tor for industrial relations and research transfer at
Université Joseph Fourier, France. Furthermore, he
has served as European Afairs Adviser for the CPU
(the French conference of university rectors) and is
member of the French ICT national contact point
consortium for the 7
th
framework programme.
Tiina Vihma-Purovaara
Academy of Finland,
Manager for EU afairs at the
International Relations Unit,
Finland
With a background at the Institute for Art Research
at the University of Helsinki, Tiina Vihma-Purovaara
is Deputy Director of the International Afairs Unit
in the Academy of Finland responsible for coor-
dinating EU- and Latin-American activities in the
academy. She is a member of the National Science
and Technology Section under the Committee for
EU Afairs, chaired by the Ministry of Trade and
Industry. She is also the committee member and
national contact point of INCO for the 7
th
frame-
work programme as well as an expert member of
the specifc programme committee ‘cooperation’.
15
On behalf of the European
Commission:
Anne Rouault
National Seconded Expert
at the Directorate-General
for Research,
European Commission,
Brussels
Anne Rouault is one of the policy ofcers in charge
of the implementation of the modernisation agenda
for universities (Universities and Researchers Unit
(Unit C4)). Before joining the European Commis-
sion in 2007, she worked in the French Ministry of
Higher Education and Research, in the departments
of higher education, research, and fnance. In her
last position, she headed the Research Policies of
Universities Unit in the Department of Higher Edu-
cation and University-Based Research. She was thus
responsible for preparing the performance agree-
ments concluded between the State and the univer-
sities regarding their respective research portfolios
(agreement on the universities’ strategic objectives/
agreement on the volume of the core funding for
research). She holds a masters degree in geography,
and a permanent position in the French administra-
tion of education and research.
Observer:
Thomas Estermann
European University
Association (EUA),
Senior Programme Manager,
Brussels
Thomas Estermann is a Senior Programme Manager
at EUA. He is responsible for funding and fnance,
governance and autonomy issues in higher edu-
cation and research. Before joining EUA, he was
deputy head of the Department of Strategic Devel-
opment and Deputy Head of Administration at the
University of Music and Performing Arts, Vienna. He
was involved in implementing new cost account-
ing systems in Austrian universities and adapting
the university to conform to the last reforms in
higher education. Before entering the university
he pursued a career as a lawyer. He is a member
of the executive committee of Humane (Heads of
University Administration in Europe) and founding
chairman of WSAN. He is member of the editorial
board of the UK-based higher education journal
Perspectives. He holds a masters degree in law from
the University of Vienna.
16
The structure of funding both at European and
national levels tends increasingly towards project-
based funding. As a consequence, universities face
the challenge of diversifying their funding streams
in order to support fully their research activities, of
moving towards full recovery of research costs, of
fostering their fnancial management of research
activities driving their own strategies, and of adapt-
ing themselves to competitive project-based re -
search funding.
Funders play an important role in this since their
funding conditions and requirements infuence
and are closely interconnected with universities’
management and in particular fnancial manage-
ment, hence the focus by the Expert Group on the
funders’ role and perspective.
Drivers for change
Two underlying drivers substantially infuenced the
work of the Expert Group: fnancial sustainability
of universities is essential but cannot be achieved
unless universities have the necessary autonomy
and appropriate management practices and sys-
tems to make those decisions and act in a business-
like way; and, in our world of ever increasing com-
plexity, research needs pro-active management.
The Expert Group is convinced that the ambition for
excellence in research applies equally as strongly to
research management.
This report seeks to highlight those areas of stra-
tegic development which are essential if universi-
ties and their research are to remain sustainable
and competitive, and those issues which need to
be explored in greater depth. The report, and the
work undertaken in producing it, demonstrated
Executive summary
and recommendations
CHAPTER 1
17
on universities’ fnancial management although
very few of these agencies yet recognise or are pre-
pared to cover the full costs of research.
Assessment of universities’ experience and
the impact of external funding
Universities’ experiences and successes in external
project-based funding, on the one hand, heavily
depend on the management approach they apply
and the degree of institutional strategic perspec-
tive they are willing and able to implement. On the
other hand, external project-based funding itself
infuences the development of universities’ man-
agement approaches. These two factors of external
project-based funding and institutional manage-
ment are closely inter-related and infuenced by
each other. They represent a signifcant positive
feedback loop to be considered by universities and
funders alike, although the manner in which uni-
versities react to this is closely related to the degree
of autonomy they enjoy.
The ability to know the full costs of institutional
operation is an essential prerequisite in order to
develop a sustainable basis for a university that
intends to pro-actively manage its future oppor-
tunities. Doing so not only has to do with techni-
calities of accounting but also with funders’ percep-
tions towards universities and consequently cul-
tures that need to be changed or adapted. However,
changes in university acts already implemented
or currently under preparation in many European
countries show clear moves towards greater auton-
omy for universities and thus the development of
full costing approaches within them. Therefore, the
issue is high on the political agenda and plays a
that it represents just one step in a long and com-
plex process.
Two key issues emerged in undertaking the review.
The frst was that, as highlighted by the fndings of
the EUA report on fnancially sustainable universi-
ties
4
, there is a need to establish clear defnitions
for many of the terms relating to sustainability,
autonomy and full costing. The second was that
there are severe limitations as to the availability
of data on the characteristics of external project-
based research funding and, where data are avail-
able, there is considerable variance as to the way
they are collated and interpreted. In addition, the
Expert Group found it difcult to engage funders’
associations in discussion over the role and views of
their members on the questions raised.
Characteristics of external project-based funding
Expenditure on university-based research is a sig-
nifcant element of public funding on higher edu-
cation, with direct national or regional government
acting as the principal source of funding. Where
project-based funding is received, there is little
consistency between external funders on condi-
tions and requirements and universities in most
countries are having to adapt their fnancial man-
agement systems to meet the requirements of their
principal funding organisations. There does appear
to be a clear trend across Europe towards universi-
ties needing to adopt full costing as well as a more
strategic approach to the management of research
and the internal allocation of resources to support
their research. National funding agencies play an
important role in providing external project-based
funding for universities and, through their condi-
tions and requirements, have a signifcant infuence
4
Financially sustainable universities : Towards full costing in European universi-
ties, European University Association, EUA Publications 2008, pp. 17–19.
18
versity leadership and researchers across most of
Europe and has raised awareness of indirect costs.
For the university leadership — in many cases — it
was an ‘eye-opening’ experience to see the dimen-
sion of real indirect costs at their institution after the
frst rough estimations or calculations. This experi-
ence resulted in an increased awareness not only
towards direct, but also towards indirect costs and
thus a real sustainable funding approach. This will
again come up high on the agenda with the mid-
term evaluation of FP 7 and the 60 % transitional
fat rate of indirect costs.
It is clear that FP 7, with its approach to funding
based on full costs and recognition of indirect costs,
has had a very obvious direct as well as more indi-
rect impact on funding organisations at national
level in many countries. In more direct terms, infor-
mation gathered by the Expert Group suggests that,
infuenced by their experiences with FP funding
rates for direct and indirect costs, universities are
increasingly starting to request similar approaches
from national funding agencies.
The sustainability of university-based
research
External funding and accountability
There is a trend across Europe towards a mixed
economy model whereby many universities are
shifting from a model where they have signifcant
‘internal’ resources which they are able to allocate
as they see ft and support research in line with
their own strategic goals, to a model where they
are more dependent on competing for funds and
thus increasingly infuenced by research priorities
major role in discussions on the European research
area and the modernisation agenda for European
universities.
The Expert Group believes that full transparency is
the best possible way to ensure clear understand-
ing of costs by all actors involved. As a consequence,
and in order to substantiate the credibility of uni-
versities needs in terms of sustainable funding,
similar exercises such as the ‘Transparent approach
to costing’ (TRAC) in the UK would be necessary in
most countries. What is necessary is a good balance
of funding agencies and organisations that work
along the same principles and procedures, while at
the same time keeping the diversity in terms of the
diferent objectives they pursue, thereby strength-
ening the competition between funding organisa-
tions for the best research projects with respect to
their funding portfolio.
The catalytic role of the 7
th
framework
programme (FP 7)
Due to its specifc nature and regulations, the
framework programme generally and FP 7 in par-
ticular does have a strong catalytic role for universi-
ties, in the sense that it stimulates awareness of full
costing. It can be said that, from the point of view
of fostering and inciting the development towards
full costing and an increased awareness as regards
the necessity of sustainable funding for universities,
the rules as set up for FP 7 in relation to abolishing
cost models and allowing the opportunity of using
a simplifed method of identifying indirect costs
were a move in the right direction.
The fact that FP 7 reimburses indirect costs at a sig-
nifcant level clearly had an educating efect on uni-
19
date and are maintained. It is critical, therefore, that
where core funding is provided to universities, the
extent to which it is expected to meet current main-
tenance costs and/or to invest in updating infra-
structure to a competitive level is clearly agreed
between all partners.
Responsibility for fnancial sustainability
and reasonable accountability
While each university must take responsibility for
its own long term sustainability, the Expert Group’s
view is that Member States (through their national
and regional funding schemes) and the European
Commission together have a responsibility to main-
tain the sustainability of university-based research
at sector level. However, it is clear that this is often
not refected in the strategies adopted for the fund-
ing of research programmes. There can be tensions
between the goals expressed by EU and national
public funders in terms of how they see university-
based research developing and the controls and
regulations that are then imposed around individ-
ual project grants. There are also indications that
accountability requirements in funding schemes
can be too complex and that there is a real risk of
rules and procedures limiting university autonomy
or leading to complex bureaucratic reporting pro-
cedures. It is important, therefore, that sponsors
of research recognise this and, by entering into a
dialogue with universities, explore ways in which
these impacts can be lessened.
A key area which can cause confusion and concern
and which can lead to overly burdensome report-
ing requirements is that of the methodologies used
to record time spent on certain activities to support
cost allocations. The diversity of European universi-
set by funders. External funders, therefore, have a
key role to play in assisting universities in devel-
oping improved management and accountability
systems and in achieving sustainability through
identifying and recognising the full cost of their
research activity.
‘Core’ versus ‘external’ funding
There appears to be little empirical evidence to show
what the ‘right’ balance is between core funding
allocated at institutional level, which allows the uni-
versity to set its own priorities, and external project
funding. While it is clear that there are benefts to be
derived from the increased move towards external
funding, university research cannot be fully depend-
ent on such external funding. A university’s ability to
develop its strategic research activities with respect
to its profle and objectives can be restricted by an
over-reliance on competitive funding sources. Thus,
if universities are to maintain a degree of fexibility
to develop strategic research models and to suc-
cessfully target competitive research funding, it is
important that they retain an element of ‘internal’
core funding from the State which they are free,
subject to accounting for outcomes, to allocate as
they see ft. While ‘external’ funding of research is
very important for ensuring quality, it is also clear
that core funding is essential to support long-term
strategic planning by universities.
The need for clarity
A critical aspect of core funding relates to the main-
tenance and updating of existing infrastructure. It is
important to recognise that part of the cost of mak-
ing EU universities globally competitive is ensur-
ing that buildings and facilities are brought up to
20
ences and successes in external project-based fund-
ing heavily depend on the management approach
they apply and the degree of institutional strate-
gic perspective they are willing and able to imple-
ment.
Strong, autonomous universities have responsibil-
ity for their own sustainability and therefore need
to have robust management structures and sys-
tems in place to support their decision-making. Full
costing is a key tool in this regard as universities
cannot plan strategically and decide what areas to
develop and support if they do not know the real
long-term cost of their activities. The ability of a
university to identify robustly the true cost of a par-
ticular research project allows it to identify which
sources of funding are appropriate to its activity
and sector.
While it is important that the modernisation
agenda be managed so as not to destabilise Euro-
pean universities through too rapid changes, the
Expert Group’s view is that the majority of Euro-
pean universities are not developing fast enough. If
universities are to compete at an international level
and ensure the sustainability of their research it is
essential, if they have not done so already, that they
engage now in the process to identify the full costs
of their activities.
Acceptance of full costing
The ability to identify one’s true costs comes with
a responsibility to manage them strategically.
However, this can only be achieved if all the actors
involved, including the funders of research (whether
through core funding or competitive, project-based
funding) understand and accept the principles
ties, both in terms of their legal and administrative
structures and their remits and objectives, means
that no single model exists and a variety of meth-
odologies, all equally robust, are evolving to suit
particular national or functional circumstances. The
Expert Group concurs with the comments made
by EUA that any certifcation process at a European
level should remain ‘light touch’ and allow for the
diferent methodologies for time and activity allo-
cation that are being developed at a national or
sector level. The Group further believes that this is
consistent with the fact that research is a unique
activity which cannot be treated in the same way as
the procurement of goods and that, therefore, the
fnancial and audit requirements may need to be
adapted to take this into account.
Sharing best practice
The principal funders of university-based research
have the means to coordinate their conditions and
requirements to lessen the burden on universities
and support the simplifcation process. The Com-
mission is in a unique position to act as a moderator
and catalyst in this area and to facilitate a discus-
sion to identify a degree of commonality around
best practice. It should work with the national
funding agencies to share experiences and collect
information on good practice for external funding
terms and conditions, with the aim of identifying
best practice at European and national levels.
Full costing as a tool for sustainability
The sustainability of university-based research
requires universities to be able to identify their full
costs and, more importantly, cover these costs from
internal or external sources. Universities’ experi-
21
Excellent research needs excellent management
It needs to be recognised that, as well as the abil-
ity to identify the full costs of their research, it is
import ant that universities have the management
and administrative infrastructure necessary to
manage their internal resources so as to support
the strategic co fnancing of their research in a sus-
tainable way. In other words, the move towards full
costing is not an end in itself: it simply provides the
essential tool which universities require for identify-
ing and understanding their true costs and through
which they can move towards sustainability.
The current state of university infrastructure
The additional challenge for universities, once
they are able to identify their real costs, is being in
a position to make good past underinvestment in
their human and physical infrastructure as well as
to make strategic decisions on future investments.
In many cases, the level of investment required to
bring infrastructure up to a globally competitive
level is unknown and is likely to be substantial. Full
costing and recovery of real costs, while of prime
importance, are not sufcient in themselves if a uni-
versity’s human and physical infrastructure is not at
a competitive level and if there is no awareness, at a
national level, of the level of investment required to
bring them up to a suitable standard.
involved and recognise the need for universities
to recover the full costs of their activities. FP 7 is a
key driver in the move towards sustainability and
in encouraging universities to adopt full costing
methodologies appropriate to their national legal
situation. Using FP 7 as a tool to reward good prac-
tice can encourage the move from using the fat
rate for indirect cost recovery to the use of actual
indirect rates or the simplifed methodology, as
long as the benefts of doing so are not outweighed
by disincentives, such as overly burdensome audit-
ing requirements which exceed nationally agreed
methodologies, or the application of standard ‘pro-
curement’ type conditions on research activities.
Encouraging the move to full costs
Recent evidence suggests that the majority of Euro-
pean universities, particularly those in the new
Member States, will not be in a position to identify
the full costs of their research in the next few years in
a way which would allow them to improve their cost
recovery without strong incentives and the support
of their national funding agencies. It is important,
therefore, that the Commission take the opportunity
presented by the mid-term review of FP 7 to encour-
age Member States to support the move to full cost-
ing, whether through providing fnancial assistance
or incentives or through other support mechanisms.
The Commission should also take account of the
preparedness of universities to move to full costing
when considering the level of the default indirect
cost fat rate under FP 7 and be mindful of the need
to encourage rather than force any move towards
full costing. A reduced default rate could be a use-
ful tool in the move towards inciting universities but
should not, in itself, be the driver.
22
Responsibility at university level
Recommendation for strategic development:
Universities must recognise that excellence in
research requires sound and pro-active manage-
ment practices.
Excellence in research and management go hand
in hand. Financial management is a condition for
informed, strategic decision-making, in an environ-
ment where universities are expected to develop
long term excellent research activities in line with
their strategic profle.
Full costing is an essential component of appropriate
fnancial management of research in this context.
Recommendation for action: Universities need to
adopt full costing methodologies appropriate to
their national legal requirements as a key tool for
sustainable development.
Shared roles and responsibilities for
Member States and the European
Commission
Recommendation for strategic development:
Member States have a responsibility to contrib-
ute to the sustainability of the university-based
research sector together with the European Com-
mission supporting this process at EU level. Both
should, therefore, ensure that this objective be one
of the prin ciples underpinning all the research pro-
grammes they fund.
Recommendation for action: Member States, work-
ing with the principal national funding agencies
Recommendations
23
tion’ of knowledge. Thus, consideration should be
given to the fnancial regulations which surround
research funding to ensure that they are suited to
the nature of research activities, in terms of report-
ing requirements and expected accountability.
The Commission should reward best practice
and encourage the adoption of full costing while
ensuring that those universities which do so are
not placed at a disadvantage when competing for
funds.
The FP 7 transitional fat rate can be used as major
external driver towards full costing implementation
but shall not be considered in isolation. Appropri-
ate support at national level has to be provided to
universities to facilitate their transition to full cost-
ing implementation.
Recommendations for action: As part of the mid-
term review of the 7
th
framework programme, the
Commission and the Member States should review
the state of play across the EU-27 on the ability of
universities to identify the true costs of their research
as well as the national support mechanisms avail-
able to them to do so, and should promote the
sharing of best practice and mutual learning while
taking into account national legal and structural
constraints.
in the frst instance, but involving other research
funders in time, together with the European Com-
mission should consider drawing up good practice
guidelines for external funding. Terms and condi-
tions in consultation with universities.
Role and responsibility at national level
Recommendations for strategic development:
The fnancing of university infrastructure underpins
universities’ ability to maintain research excellence
and competitiveness.
In allocating core funding, Member States need to
be clear about the purpose of that funding and rec-
ognise the cost of maintaining existing infrastruc-
tures as well as that of bringing them up to a glo-
bally competitive standard.
Recommendation for action: Where such an exer-
cise has not yet been undertaken an assessment of
the current state and competitiveness of university
research infrastructure (both human and physical)
in individual Member States will be necessary so as
to identify priority areas for investment.
Responsibility at European level
Recommendation for strategic development:
Research activities shall not be supported like pro-
curement, as there are fundamental diferences
between funded research and procured activities.
Where procurement requires the defnition of all
kinds of detailed input descriptions and reporting,
research activities should be supported and funded
by focusing on their contribution to the ‘produc-
24
In undertaking this review, it became clear to the
Expert Group that there was a need to establish
clear defnitions for many of the terms used as
often, both during discussions within the Group
and with other organisations, many of the terms
were interpreted quite diferently by the interlocu-
tors. For the purposes of the report, therefore, the
following defnitions have been used.
Full costing:
an accounting methodology used to identify and
calculate all the direct and indirect costs incurred
in undertaking a project or an activity.
Direct costs:
costs directly attributable to an activity.
Indirect costs
(sometimes referred to as ‘overheads’):
costs that relate to an activity but which cannot be
identifed and charged at the level of the activity.
Sustainability:
the ability at institutional or sector level to maintain
an activity into the future without loss of quality
and with the appropriate resources.
Autonomy:
a fully autonomous university will be able to set
its own programmes of teaching and research,
have full budgetary freedom and control of its
own fnances (subject to normal auditing rules),
freedom to recruit faculty members and set salary
levels, and freedom to allocate resources as it sees
ft and engage in new activities of its choosing.
Defnitions and terminology
used in the report
CHAPTER 2
25
Sponsor:
the external party providing the funding for a de -
fned programme of research.
Infrastructure:
the resources within a university needed to under-
take teaching or research activities. For the purposes
of this report this includes both physical (buildings,
major facilities, systems) as well as human (academic
and support posts, working conditions, remunera-
tion levels) resources.
TRAC (transparent approach to costing):
the activity based accounting methodology intro-
duced in all UK universities for costing their main
activities (Teaching, Research, and Other activities).
Accountability:
for the purposes of this report, the accountability of
a university to an appropriate national or regional
authority for the use of public funds and for the
outcomes of its actions and decisions.
Core funding:
funding allocated to a university by national or
regional government or public agency as part of
an annual budgeting round for the support of the
university’s general teaching and/or research activ-
ities.
External project-based funding:
funding received from an external party, whether
public or private, in many cases based on compe-
tition by peer review, to undertake a defned pro-
gramme of research.
Funders:
for the purposes of this report, a diverse group of
possible funding sources including national or
regional public funding either directly through
government or funding agencies, national private
funding from diferent sources and international
public and private funding.
26
As part of its review, the Expert Group undertook a
survey consisting of a questionnaire (see Annex 1)
and the development of an overview on conditions
and requirements of the major national funding
organisations in Europe.
The intention was twofold:
to obtain • broad indicators and an overview of
the characteristics of external research project-
based funding mechanisms across Europe and
comparative countries,
to identify • recent trends in order to assess their
impact on the development of fnancial man-
agement capacity in universities and the move
towards full recovery of research costs.
Broad interest — but substantial limitations of
available data
Although many of the organisations and individu-
als approached were very interested in the informa-
tion being sought in the questionnaire, it became
apparent that there are severe limitations as to the
availability of such data across Member States and
that, where data are available, there is considerable
variance as to the way they are collated and inter-
preted. Nevertheless, the Group was able to iden-
tify some broad indicators which provide useful
background to the subject of this review.
General characteristics of research funding
across Europe
While, for the reasons set out above, it is difcult to
obtain comparable fgures, it is clear that expendi-
ture on university based research is a signifcant
element of public funding on higher educa-
tion accounting, as it does, for between 30 % and
50 % of that funding in most countries and that it
is growing.
Overview of the characteristics
of external project-based
research funding mechanisms
across Europe and comparative
countries
CHAPTER 3
27
diversifed funding base and where national fund-
ing agencies have signifcantly more importance.
For example, while national government accounts
for 70 % to 80 % of research funding in the Czech
Republic, Poland, Estonia, Latvia and Hungary,
in the UK and Switzerland it is national agencies
which are the primary funders. European funding
varies in importance across countries but is a major
contributor in some (such as Portugal, Netherlands,
Poland and Switzerland) while, perhaps surpris-
ingly, industry or other proft-making organisations
appear as the third major source of funding in a sig-
nifcant but diversifed number of Member States,
including Germany, Portugal, Spain and Ireland.
This indicator links in with other sources of data
showing over time increasing expenditure on aca-
demic research in some Member States and com-
parator countries (see Fig. 1).
Direct national or regional government remain
the principal source of funding for university-
based research across most of Europe as well as
comparative countries. It would appear, however,
that in newer Member States and in those countries
which have yet to adopt a more strategic approach
to the management and funding of universities,
this source of funding accounts for a greater pro-
portion than in other countries which have a more
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
.
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Figure 1:
Expenditure on academic
research as a proportion of
GDP, 1992/93 vs. 2002/03
(Source: Austrian Research
and Technology Report 2007)
1992/93 2002/03
28
surveyed, where there are a number of agencies
involved there is little evidence, other than in the
UK, of much strategic thinking behind this. This is
borne out by a brief review of some research uni-
versities across Europe with very diferent fund-
ing profles who all reported that the conditions
and requirements of their external project-based
funding difered between funders
5
. Overall, there-
fore there is little consistency when all external
funders are considered and there are clear indi-
cations that universities in most countries are
having to adapt their fnancial management
systems to meet the requirements of their prin-
cipal funding organisations. In some cases, Euro-
pean funding is acting as the driver, for instance in
Spain where the EC accountability requirements
have been an important factor behind the pressure
for the introduction of analytical accounting in the
Spanish university system.
There is also little evidence of any trend by the
primary funders of project-based research to
streamline their fnancial reporting requirements
(indeed, where there is a stated aim to simplify
such requirements, there appear to be doubts at
university level of the efcacy of such simplifca-
tion or, as one respondent commented: ‘simplif-
cation remains a challenge‘). In many cases, there
remains signifcant diversity and the accountabil-
ity and reporting requirements are described as
remaining burdensome. For example, while there
has been much focus in the UK on reducing the
burden on institutions, the extent to which that
burden has decreased is questionable.
5
See Annex 4 for questions posed to universities.
In the majority of countries national or regional gov-
ernment core funding appears to be awarded on
a formula basis to universities, usually using past
performance metrics or, in a small number of cases,
using current volumes or metrics. For the most part,
universities are free to use these funds as they see ft
but with explicit reporting requirements, although
in a few countries, mainly newer Member States but
also France and Spain, they have to be allocated to
specifc activities.
Where project-based funding is received, ac -
countability for expenditure at project level and
activity reports on the outcome of research are uni-
versally required. In some cases, there are explicit
requirements for match funding by the university
although, given the fact that very few sponsors will
meet the full economic cost of the research (the
exception being the UK where Government depart-
ments and proft-making bodies are expected to do
so), the requirement for match funding is implicit
even if not recognised as such by the players
involved. There appear to be wide variations in the
requirements or expectations for co-funding with
no clear pattern across Europe or across funders
suggesting that, with the exception of Framework
programmes, the reasons for co-funding may not
have been fully thought through by the organisa-
tions involved.
The Group was also interested in seeing what con-
sistency there might be at national level between
sponsors and what impact sponsor conditions
had on universities. While there does appear to be
a move towards consistency between the rules and
conditions imposed on awards for project-based
research by national agencies in half the countries
29
There are, however, clear indications that funders
are moving to change their criteria for awarding
funding: greater accountability is being sought to
justify funding; greater use of competitive fund-
ing is seen as a way to improve quality of project
proposals; and there is increased pressure to intro-
duce performance indicators. Competitive-based
research funding is being introduced in Lithuania
while, in Ireland, all major funders have moved to
full international peer review as a way of increas-
ing national research excellence. These indications
are borne out by a recent review
6
which found that
many OECD countries had extended their competi-
tive research funding with the aim of improving
the efectiveness and efciency of their scientifc
research through focussing on performance and
competition. The study concluded, however, that
there appeared to be no fundamental superior-
ity of any specifc type of funding over another.
When asked about identifying the primary ob -
stacles or problems faced by research sponsors in
awarding funding to universities, weaknesses in
fnancial reporting and project management were
identifed. However, it was commented that spon-
sors sometimes failed to understand universities’
internal procedures and the need to adapt their
systems to meet sponsor requirements. The impact
of low success rates was also mentioned as having
a detrimental efect on universities’ interactions
with sponsors.
There does also appear to be a clear trend across
Europe towards universities needing to adopt
full costing as well as a more strategic approach
6
Review by Dr K. H. Leitner reported in the ‘Austrian Research and Technol-
ogy Report 2007’, p. 125.
to the management of research and the internal
allocation of resources to support their research.
The implementation of such moves seems, how-
ever, to be quite fragmented in practice. UK univer-
sities are required to manage their research portfo-
lios in a sustainable way and are therefore becom-
ing more strategic in how they manage research
funding, while universities in Finland, Estonia,
Germany and Switzerland are moving to changing
their accounting systems to identify the full costs
of their research. In Sweden, there are instances
of sponsors looking to universities to have identi-
fed priority strategic research areas before funding
new research centres.
Public funding agencies at national level
In contrast to the general university funds (GUF) for
ensuring the core funding of universities, project-
based research funding is most frequently pro-
vided by governmental agencies, in exceptional
cases directly by ministries. In most European coun-
tries this external project-based funding at national
level accounts for an important share of the univer-
sity research budget and can exceed 50 % in some
countries. Thus, national funding agencies play
an important role in providing external project-
based research funding for universities.
As indicated above, in many cases national fund-
ing agencies have recently undergone or are in the
pro cess of changing their methodologies as well as
their funding conditions and requirements. Exam-
ples of such changes include restructuring/consoli-
dation of funding organisations (Czech Republic,
Hungary, Estonia, France), or changes of funding
mechanisms (Switzerland, Finland, Austria).
30
In providing project-based research funding, agen-
cies through their conditions and requirements
do have a signifcant infuence on the fnancial
management of universities. It can be said that it
is useful that there is a broader spectrum of funding
opportunities ofered at national level with the var-
ious agencies developing their specifc profles, e.g.
focussing on basic or applied research, innovation
or specifc structures of research projects (coope-
ration with industry, centres of competence, etc.).
However, these opportunities tend to be linked to
a substantial diversity in funding models and
mechanisms applied.
Particularly with respect to discussions in the con-
text of ‘joint programming‘
7
it is important to see
that funding agencies work with very diferent con-
ditions and requirements not only in the respective
countries but also all over Europe. This diversity is
not related to the type of research (basic or applied)
7
‘Towards joint programming in research: Working together to tackle com-
mon challenges more efectively’, Commission Communication COM(2008)
468, 15 July 2008.
or specifc country groups (new or old member
states).
The Expert Group’s overview of the main fund-
ing agencies across Europe showed that over half
those surveyed covered either the full direct costs
of the research together with a nominal fxed con-
tribution towards the indirect costs (typically 20 %),
or the ‘additional costs’ of the project and a fat
rate indirect cost (using the FP 6 ‘additional cost’
model). In a few countries project-based research is
supported by lump sum payments, including either
no or very limited reimbursement on indirect costs.
Outside the UK, very few national agencies yet
recognise or are prepared to cover the full costs
of university research. The exceptions appear to
be FFG in Austria, and the Academy of Finland and
Tekes in Finland who have indicated that they will
do so where a university is able to show the full cost
of their research.
31
The Hungarian Scientifc Research Fund (OTKA) pro-
vides fnancial support for basic research, international
cooperation, research infrastructure development
and fellowships to young scientists. OTKA supports
Hungarian researchers in the life sciences, the natu-
ral sciences and engineering, and the social sciences,
with a distribution of roughly 40/40/20. Universities
are the main benefciaries with a share of some 60 to
65 %, while institutes of the Hungarian Academy of
Sciences (HAS) account for 25 to 30 % of OTKA’s fund-
ing. OTKA’s budget in 2007 was EUR 20.7 million.
There is an impact of external project-based funding,
such as OTKA, on universities’ fnancial management,
but only for those which are successfully competing
for grants. From the 71 higher education institutes in
Hungary only about 10 % are among the main clients
of OTKA beside the research institutes of HAS, so in
fact most of the 60 % budget of OTKA goes to those
few universities. Obviously for these universities OTKA
is a mayor provider, and thus OTKA’s reporting system
is well integrated into the overall fnancial manage-
ment.
Another interesting phenomenon is that OTKA has
varied impacts even inside the same university,
depending on the faculty/department. This very
much depends on the type of disciplinary area, the
faculty/department engaged. Those who are not
among the typical clients of OTKA, one group of HEI is
still rather active in obtaining competitive funds, but
more from sources labelled for applied research (such
as the NKTH/KPI type of funds) or from grant schemes
administered by sectorial ministries (Ministries of
Agriculture, Transport, Environment, Health, etc.).
Others in fact not really performing research, and are
mainly engaged in education only.
Another issue is the introduction of co-fnancing in
the national and international grant systems and its
growing importance. As core funding is extremely
limited, and thus the budget which could be pre-
sented as co-fnancing — unless having income from
industry cooperations — universities even with a
high scientifc potential face problems in applying
for competitive funds. At the moment OTKA has no
co-fnancing requirements (focussing mainly on basic
research), but this is usually not the case with other
competitive funding schemes in Hungary.
Hungarian HE institutions (and other public research
performers) are perfectly equipped to do analytical
accounting and to estimate their full costs. This is in
fact a legal requirement which goes back several dec-
ades. To maintain operations from such limited fnanc-
ing, analytical accounting is a must. OTKA requests
in its reporting system an analytical approach and
there were no complaints from any organisations for
doing so. External funding — either national or EU
— through their rules and reporting requirements
clearly push universities (or certain departments/fac-
ulties) to adapt to a diferent approach both in terms
of planning and recording. It is also forcing all institu-
tional players to spend the available funds on what
they were originally provided for. The difculty is that,
in the case of universities, the diferent activity types
compete unevenly: education, as a public mission and
an obligation has to be the frst one to be covered and
fnanced; however to remain among the best, high
research performance also needs to be presented.
Example of Hungary: Hungarian Scientifc Research Fund (OTKA)
32
The DFG is a registered association according to Ger-
man Civil Law. Its members are legal entities accord-
ing to public law (universities and academies) as well
as civil law (research organisations). The DFG as an
institution is funded jointly by the federal and state
governments. Additionally, the DFG receives project-
based funding for specifc purposes from the federal
and state governments. Due to the fact that 99 % of
the DFG’s funding is fnanced from public sources, it
has to follow the rules of public budget law. The DFG
received a total of approximately EUR 2.1 billion for
the year 2008 from the federal and state governments,
which was used to fund research at universities and
public research organisations. Particular attention is
devoted to the promotion of young researchers and
equal opportunity measures.
Despite the fact that the DFG is funded by public
sources, its administration is scientifcally self gov-
erned, i.e. the thematic orientation of the DFG’s
research funding is not infuenced by the federal or
state governments.
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the universities’
fnancial management? Is there any impact?
The degree of project-based funding as compared
with institutional funding at universities has been
increasing and has led to decentralised fnancial con-
trolling and more responsibility. From the DFG’s point
of view this development is the natural consequence
of project-based funding and its disadvantages for
the recipients (e.g. time limitations of funding).
With respect to project-based funding and fnancial
management it is important to be aware of the fol-
lowing:
project-based funding binds institutional funding, •
provides important aspects for performance-based •
funding and thus
promotes the development of an entrepreneurial •
orientation of the fnancial system.
Do you expect changes in behaviour from the
increasing number of autonomous universities
in Europe? What is your perception of fully
autonomous universities, particularly in terms
of strategic research development and fnancial
management issues?
Strengthening the autonomy of universities is one of
the most important elements for the development
of modern fnancial management. Independence of
governmental micromanagement requires that uni-
versities take their own decisions on how to use their
resources — particularly with respect to the profle
they want to develop as well as decentralised bud-
geting. This development is ultimately linked to an
increased awareness towards the fnancial responsi-
bility at all levels in the university. Universities become
more entrepreneurial, which results in an increased
orientation of the fnancial management in line with
the strategies of universities.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent can the conditions
of external funding assist the move towards full
recovery of research costs as a major component of
sustainability of university-based research?
In principle external funding requirements with spe-
cifc rules towards the fnancial management are well
suited to launch a process of increased transparency
of resource allocation in research. In order to support
the development of sustainable fnancial manage-
ment, these rules must not interfere too much with
the internal processes at universities. Requirements in
Example of Germany: the German Research Foundation (DFG)
33
the sense of adequate accountability on the funders’
side and the needs of research organisations must be
balanced. This critical balance has not been set up in
a satisfactory way for all funding organisations. Fur-
thermore, it is problematic in that the funders have
diferent funding requirements and rules.
What is your position towards supporting overhead
costs at universities? Under which conditions and to
what extent are overheads funded? Is there a long-
term strategy and, if so, what is it like?
The DFG currently awards an overhead allowance of
20 % of actual direct project costs for DFG-funded
projects. Funding of these indirect costs is not linked
to any requirements on cost-performance calculation
or usage guidelines. However, the DFG has noticed
that the availability of this part of the funding and
how it is intended to be used has caused a new cost
awareness and interest in cost calculations.
We believe that it is more useful to waive detailed
requirements in order to achieve acceptance of mod-
ern and sustainable controlling and steering tools
instead of defning and enforcing strict accountability
conditions.
34
Example: Austria
FFG — the Austrian Research Promotion Agency is
one of three major funding organisations in Austria
focused on supporting applied research for individual
companies and cooperative research projects and ini-
tiatives. FFG funding is provided by the government,
in the year 2007 at a level of EUR 586 million.
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the fnancial
management of universities? Is there any impact?
External project-based funding conditions generate
an increasing impact, e.g. through its regulations of
funding rates (new Community rules) as well as over-
heads.
There is also an impact on the fnancial management
due to the continuing trend of an increasing pro-
portion of cooperative funding programmes within
FFG, thus linking universities with industry in joint
projects. Nowadays cooperative programmes neces-
sitate a strong involvement of the knowledge base
represented by universities. For an agency such as
FFG this development is of interest since it helps to
generate real additionality of its funding devoted to
companies. On the other hand, FFG tries to avoid a
potential inclination of universities being involved in
projects as alibi partners.
In order to be able to generate this impact, FFG is inter-
ested in ofering suitable and attractive programmes
with adequate characteristics and matching evalua-
tion procedures.
Do you expect changes in behaviour from the
increasing number of autonomous universities
in Europe? What is your perception of fully
autonomous universities, particularly in terms
of strategic research development and fnancial
management issues?
Autonomous universities develop a stronger entre-
preneurial attitude in hopefully all felds of activities.
In principle, they are also supposed to demonstrate
a strategic research development (e.g. system atically
developing their strong felds of research from an
institutional point of view) linked with respective
fnancial management approaches. However, so
far, this tendency has not yet been observed in the
case of Austrian universities. At the same time, this
kind of development would be highly desirable
for FFG since it would increase the accuracy of FFG
funding.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent do you think the
conditions of external funding can assist the move
towards full recovery of research costs as a major
component of sustainability in university-based
research?
It needs an open and comprehensive discussion on
the real cost structure of universities. Currently, Aus-
tria works with a mixed system of GUF funding, exter-
nal project-based funding and overhead coverage.
These elements have to be sorted out and structured
in a complementary way.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded by FFG? Is there a
long term strategy, if yes, what is it like?
FFG has a clear picture of its overhead regulation
which is currently at the stage of being discussed
and further developed with the Austrian ministries
responsible. In general, FFG pays a lump sum of 20 %
overheads on personnel costs. If universities are able
to prove their entire full costs (including overheads),
FFG would be ready to provide funding for the entire
35
overheads. This strategy will depend on the general
direction of the Austrian government and the respec-
tive provision of funds to FFG.
FWF — the Austrian Science Fund is one of the three
major funding organisations in Austria with focus on
supporting basic research for individual researchers
and networks of researchers, and — as one of the sig-
nifcant new funding lines — clusters of excellence.
FWF funding is provided by the government, in the
year 2007 at a level of EUR 163 million.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and thus
fnancially sustainable universities are high on the
political agenda. To what extent do you think the
conditions of external funding can assist the move
towards full recovery of research costs as a major
component of sustainability in university-based
research?
External project-based funding stimulates the discus-
sion on the relationship between core and external
project-based funding at national level. Also in the
European context, national funding organisations
are more and more aware of the issue of sustainable
research funding for universities. As a consequence,
FWF recently started to reimburse 20 % of overheads
on its newly awarded projects. The higher the rate,
the more relevant it will get for universities, which will
increase their level of awareness and related acti vities
towards full recovery of research costs. As important
as it is for universities to know their real costs, they
will need to consider carefully the extent of cost
monitoring procedures (particularly time monitor-
ing) they put in place. What happens to all the data
that is being generated at the cost of researchers’
eforts and time? Alternative approaches have to be
considered.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded? Is there a long
term strategy, if yes, what is it like?
FWF recently started to reimburse 20 % of overheads
on its newly awarded projects. This rate represents
the starting point, most likely a 50 % overhead rate
will be feasible in the near future.
In the long run, it will be necessary to fnd a coordi-
nated approach for the contribution of core funding
(GUF — General University Fund) at Austrian univer-
sities. Currently we have a mixed model of funding
a range of university activities. In principle, costs for
basic infrastructure and personnel should be cover ed
by the government. Thus, overheads for external
projects should be fully covered by the core funding. A
way to handle this issue in organisational terms could
be to transfer the specifc amount of overheads linked
to external projects in the performance agreements
of each university with the responsible ministry. In
order to keep the monitoring eforts low, overheads
could be reimbursed according to lump sum cate-
gories. Each university could negotiate its category
in the course of the discussions on the performance
agreements every three years. Thus, FWF would pro-
vide exclusively for the direct costs.
36
In providing funding for universities, how do you
experience the relation between external project-
based funding and its impact on the fnancial
management of universities? Is there any impact?
Dealing with external funding will certainly have
impacts on university fnancial management.
(1) Universities are expected to calculate the costs of
diferent functions/activities as a whole (e.g. research
vs. education, economic vs. non-economic activities)
as well as the total costs of separately funded research
projects.
Community framework for state aid for research and
development and innovation (2006/C 323/01) states,
that
‘If the same entity carries out activities of both •
economic and non-economic nature, in order to
avoid cross-subsidisation of the economic activity,
the public funding of the non-economic activities
will not fall under Article 87(1) of the EC Treaty, if
the two kinds of activities and their costs and fund-
ing can be clearly separated. Evidence that the
costs have been allocated correctly can consist of
annual fnancial statements of the universities and
research organisations.’
In practise this means that universities must have a
reliable accounting system to report project costs
on a full cost basis. In Finland universities have in the
last few years actually made a great deal of efort to
develop their accounting systems in order to fulfl
these requirements.
(2) In research projects, the maximum Tekes contri-
bution is usually 60–70 % of the total costs. In addi-
tion to that, Tekes also expects benefciaries to obtain
some contribution (5–15 %) from companies to show
that the project has also a utilisation potential in the
Finnish economy.
In collaboration with companies, universities must be
even more aware of state aid regulation and full cost-
ing to avoid transferring project results to companies
below cost.
In the context of the modernisation agenda, autono-
mous, increasingly entrepreneurial and thus fnan-
cially sustainable universities are high on the politi-
cal agenda. To what extent do you think the condi-
tions of external funding can assist the move towards
full recovery of research costs as a major component
of sustainability in university-based research?
Tekes is prepared to fund all the research costs (direct
and indirect) that are incurred in research projects. How-
ever, this doesn‘t mean that Tekes should fund 100 %
of total costs of the project. If universities received
100 %, there might be a danger that they would take
part in research projects they are not really commit-
ted to. That is, at no risk to them, as all the money will
come from external funding organisations.
From this point of view universities should always
have a real interest (money) of their own in research
projects. However, in order to do that in Finland
research in universities should also be funded in the
State budget, particularly because research is one of
the universities’ statutory functions.
All Tekes’ research benefciaries (universities and
other research organisations) will report with full cost
model from 1 January 2009. In the full cost model,
Tekes accepts all indirect costs (overheads) that are
incurred in research function, provided that costs are
determined according to the usual accounting and
management principles and practices of the benef-
ciary. So any indirect costs related, for instance only
with education are not eligible. Indirect costs are
covered to the same extent as the rest of the project
costs (60–70 %).
Example of Finland: Tekes:
37
Do you expect changes in behaviour from the
increasing number of autonomous universities in
Europe? What is your perception of fully autonomous
universities, particularly in terms of strategic research
development and fnancial management issues?
In Turkey, universities are autonomous in their fnan-
cial management. Some of the well established uni-
versities have sound fnancial systems run by their
strong administrative staf while the new ones are
still trying to establish such systems. This asymmet-
ric higher education space creates many problems
especially for internationally funded R & D projects.
The State Planning Organization has been trying to
help universities to create awareness about the new
developments and to establish modern fnancial
management systems such as ‘full cost model’ which
has become one of the main issues on the agenda for
universities across Europe.
In the context of the modernisation agenda, autono-
mous, increasingly entrepreneurial and thus fnan-
cially sustainable universities are high on the politi-
cal agenda. To what extent do you think the condi-
tions of external funding can assist the move towards
full recovery of research costs as a major component
of sustainability in university-based research?
Financial resources which are provided by national pro-
grammes or EC Framework programmes are project-
based programmes. Therefore, universities should be
able to calculate the real cost (full cost) of their activi-
ties and infrastructure costs and the other costs related
to their specifc research project. Otherwise sustain-
able funding cannot be achieved. We believe that full
recovery of research cost has great potential to achieve
sustainability in university-based research. As it has
been mentioned before, in Turkey we are still in the
process of creating awareness of the issue. There are
three or four universities which have already started
to work on ‘full recovery of research cost’ as they have
more EU funded projects than the others.
What is your position towards supporting overhead
costs of universities? Under which conditions and to
what extend are overheads funded? Is there a long
term strategy? If yes, what is it like?
In each project there is no detailed description of
‘overheads’ specifed by the universities in their appli-
cation forms. In fact this is partly the result of the
existing funding model in Turkey. The Investment
Budget is defned and allocated by the State Planning
Organization while current expenditures are defned
and allocated by the Ministry of Finance. Conse-
quently, the projects funded by DPT can only include
project related expenditures but not overheads. The
expenses which can be classifed under ‘overheads’
such as salaries, maintenance, running costs of build-
ings are provided by the Ministry of Finance under
the regular university budgets.
Although there is coordination between DPT, Ministry
of Finance and the university at the point of allocation
of resources, this is not maintained on a very continu-
ous manner within the year to monitor and synchro-
nise R & D activities. So sometimes problems are faced
within the implementation processes. When the regu-
lar current expenditures budget is not sufcient to
cover the running costs there are always delays in the
completion process of the projects funded by DPT or
Tubitak in universities.
In order to solve this problem the State Planning
Organisation asks the universities to guarantee
the overheads which are necessary for the projects
funded by DPT. In the long term we are aiming to put
into practice the ‘full recovery of research cost’ model
in universities. We are establishing working groups
between stakeholders to design and implement this
model in the nearest future.
Example of Turkey: State Planning Organisation (DPT):
38
The variety of some 4 000 European universities
as well as funding organisations naturally leads to
a broad spectrum of universities’ diferent experi-
ences. This chapter summarises the major aspects
based on the experts’ experiences, national ques-
tionnaires, questionnaires to selected universities
and input provided in the course of interviews done
by the Expert Group. Furthermore, a limited number
of illustrative examples are given that demonstrate
practically the key messages.
Universities’ experiences with external project-
based funding for research are signifcantly related
to and depend on their legal framework and oppor-
tunities (autonomy versus no autonomy), their mis-
sion as well as objectives, and are infuenced by the
management approach they apply.
Autonomy of universities high on the political
agenda: government responsibilities,
entrepreneurship and external
project-based funding
In many European countries major reforms related
to the autonomy of universities have recently been
implemented
8
, are currently on the way or are
under preparation. It is important to get the right
understanding of universities’ autonomy in the
various reforms: typically autonomy is understood
and limit ed to fnancial autonomy, whereas auton-
omy in the wider sense includes the opportunities
of universities to defne their own objectives and
strategies.
Amongst others, autonomy of universities raises
the question of governments’ responsibilities for
sustainable university funding based on full cost-
ing. The answer depends on the objectives defned
8
‘Activities of EU Member States with regard to the reform of the public
research base’, framework service contract No 150176-2005-F1SC-BE,
Technopolis Ltd.
Universities’ different
experiences and needs:
Identifcation of the impact of
external funding requirements
and conditions and assessment
of universities experiences
and needs
CHAPTER 4
39
the top, develop their profles and thus strengthen
their competitiveness.
However, not all European universities can or should
become world leaders. In line with their objectives,
universities have diferent roles in the various coun-
tries and specifc importance in the regional con-
text that does not necessarily demand the claim
of world class excellence. Particularly in teaching,
educating future employees and engineers for the
knowledge-based economy is a task of utmost
importance ensuring regional development.
Universities’ experiences with external project-
based funding and the diferent types of funding
organisations vary a lot with the objectives and
related claims — be it world class excellence or
focus on regional impact — universities themselves
or states defne.
Consequently, the individual university orienta-
tion is also refected in its fnancial structure and its
behaviour towards external project-based funding.
University management: institutional approaches
combining bottom-up and top-down
Successful research and its conditions need pro-
active management with institutional perspec-
tive and orientation. This is true not only for com-
panies but also academic institutions. It is the
key task of the institutional leadership together
with its administration to provide the framework
of adequate institutional management, to set the
conditions that facilitate creativity and allow the
university to grow and flourish.
Successful management at universities, particularly
with respect to research, needs a number of essen-
tial elements:
shared vision of the future development of the •
university;
for universities in each country and all stakeholders
must have a clear picture of it. At the same time,
governments have to ensure funding for universi-
ties and allow them to fulfl their tasks in teaching
and take advantage of the freedom of research
which is necessary in order to be competitive for
external project-based funding.
Real autonomy is always related to the develop-
ment of entrepreneurship, understood here as
entrepreneurial thinking at all levels within the
university, which has a signifcant impact on the
behaviour towards external project-based funding.
This does not mean that universities are expected
to behave like companies, but rather that they
react proactively to opportunities and use external
project-based funding as a key tool to support their
further development.
Therefore, it can be said that universities act difer-
ently with respect to external project-based fund-
ing depending on whether or not they are legally
autonomous.
The infationary demand for excellence —
universities’ role as world leaders as well as
regional centres of ‘gravity’
Despite the importance of the Lisbon objectives
and modernisation agenda, it may be legitimate to
question the expectation that all 4 000 European
universities should become world-leading centres
of excellence.
Considering universities’ main objectives of teach-
ing and research — according to Humboldt’s model
— European universities certainly should strive for
world class excellence. No matter what the detailed
criteria of rankings such as Shanghai or Times
Higher are, they are important and European uni-
versities have to improve their positions towards
40
sity reforms towards autonomy have taken place
have typically introduced tools that help in specify-
ing university objectives. Examples include devel-
opmental plans, intellectual capital reports for uni-
versities, etc. However, it is an additional challenge
in itself to translate these objectives into strategies
and related actions. This is an important process
since it defnes a university’s approach towards
external project-based funding.
In order to generate the necessary sustainability,
objectives and strategies have to be developed in
a ‘healthy’ balance of top-down and bottom-up
exchange, including all actors at the university, to
create a joint vision and shared ownership commu-
nicated among the members of the university.
Institutional objectives and strategies of each uni-
versity should provide the framework for activities
related to obtaining external project-based funding
which, as a consequence, defne the respective pro-
fle and success of the acquisition of project-based
funding. At the same time, external project-based
funding can play the role of a compass with respect
to quality assurance of research activities and the
defnition of institutional thematic focus areas.
Thus, a balanced approach is needed between fully
strategic and opportunistic behaviour, while at the
same time elaborate ways to interpret the results of
project-based funding need to be set up.
Dealing with external project-based funding by
industry is a particularly interesting feld if per-
ceived with the perspective of strategic partner-
ship development. Despite the fact that few Euro-
pean universities behave like typical US universities
in terms of pro-actively marketing their research
results, indications are that industry is getting more
interested in cooperation with universities with a
strategic mid- to long-term vision. This will become
clear and coordinated objectives at institutional •
level that allow the development of a competi-
tive, visible institutional profle;
strategic perspective and an appropriate action •
plan on how to implement defned objectives;
framework and a culture that enable a ‘healthy’ •
balance of bottom-up and top-down approaches;
commitment, focus, fexibility and speed in im - •
plementation;
strong and pertinent communication targeted •
inside and outside the academic institution.
Universities’ experiences and successes in external
project-based funding on the one hand heavily
depend on the management approach they apply
and the degree of institutional strategic perspec-
tive they are willing and able to implement. On the
other hand, external project-based funding itself
infuences the development of universities’ man-
agement approaches. These two factors of external
project-based funding and institutional manage-
ment are closely inter-related and infuenced by
each other. They represent a signifcant positive
feed-back loop to be considered by universities
and funders alike.
Institutional objectives and strategies and
their translation into management
Institutional objectives and strategies not only
set the framework for universities’ experiences
with external project-based funding, they are also
infuenced by the results of external project-based
funding through, for example, the acquisition of
highly prestigious awards and grants such as the
European Research Council (ERC) or similar projects
that certainly have an impact on thematic priority
development.
The majority of universities in Europe have very
general objectives. Those countries where univer-
41
84 % of universities in signed contracts work on the
basis of the transitional 60 % fat rate indirect costs.
Doing so not only has to do with technicalities
of accounting but also with funders’ perceptions
towards universities and consequently cultures
that need to be changed or adapted.
The UK and the Netherlands are exceptions. Since
the introduction of the ‘transparent approach to
costing’ (TRAC) in 2000, all UK universities use
TRAC as standard methodology for costing their
main activities in teaching, research and other core
objectives. Pending certifcation of the TRAC meth-
odology adapted for use in FP 7, UK universities are
not yet using real full costs for EU projects. In the
Netherlands a diferent approach was chosen, with
universities developing their own full costing sys-
tems while exchanging best practices. FP 7 played a
major catalytic role in this and it is expected that all
Dutch universities will operate FC real indirect costs
before 2010 when participating in FP 7 projects.
However, changes in university acts already imple-
mented or currently under preparation in many
European countries
11
show clear moves towards
greater autonomy for universities and thus the
development of full costing approaches within
them. Therefore, the issue is high on the political
agenda and plays a major role in discussions on
the European research area and the modernisation
agenda for European universities.
Full costing attitude: getting to know the real
full costs
Universities’ experiences with implementing and/or
working on a full cost basis are manifold. The most
11
‘Activities of EU Member States with regard to the reform of the public
research base’, framework service contract No 150176-2005-F1SC-BE,
Technopolis Ltd.
even more relevant as European universities put
forward proposals for collaboration with industry
based on full costs and with clearer interests in the
ownership and exploitation of arising intellectual
property. Thus, funding by industry does not only
play a role in fnancial terms but also can have a
substantial impact with respect to strategic coop-
eration management on both sides between uni-
versities and industry
9
.
Capabilities of universities in organisational terms
The ability to know the full costs of institutional
operation is an essential prerequisite in order to
develop a sustainable basis for a university that
intends to pro-actively manage its future opportu-
nities. The EUA Report provides a frst mapping of
the status of full costing development in European
universities, where the typology of situations is
usefully presented with regards to the national
mechanisms and drivers playing for such an imple-
mentation. Beyond the diversity of full costing
developments across EU-27 highlighted by this
mapping exercise, this report brings useful indica-
tions on reforms implemented or currently being
initiated in some Member States and regions,
namely the United Kingdom, Netherlands, Austria,
Ireland, Bavaria, Spain, Sweden, Flanders. However,
in a majority of Member States, trends of reforms
seem to remain at a starting stage, or without con-
sistent national coordination.
Taking FP 7 as an indicator, currently very few uni-
versities in Europe — 6 % of universities in signed
grant agreements
10
— work on a real full cost basis
substantiated by analytical data, whereas around
9
Interviews with Emil Aarts (Philips Research); Uwe Hermann (Siemens);
Andrew Dearing (EIRMA).
10
Overview on universities in signed grant agreements from the start of FP 7
up to October 2008, European Commission.
42
Interview with EIRMA
EIRMA is Europe’s premier membership association
for companies involved in research, development and
innovation in support of their business activities. EIRMA
is an independent, not-for-proft organisation. Its aim
is to help companies improve the performance of their
R & D and enhance innovation. Its unique features are
the networking and personal contact that the Finan-
cial Times recommends. EIRMA deals with the efec-
tive management and organisation of business R & D.
EIRMA does this through a topical programme of round
tables and other activities, supported by extensive on-
line information and focussed public outreach.
In cooperating with European universities,
how do your members experience the relation
between external project-based funding and its
impact on universities fnancial management?
Is there any impact?
Some companies are moving towards more strategic
partnerships with universities, which require more
professional management of signifcant partnerships.
The ability to manage and run activities well on a
project base, where the project is defned outside the
university, is a key skill which these companies tend
to appreciate.
At the same time, quite a number of people fnd it
difcult to accept the accompanying consequences
of, for example, ‘full costing’. They have been used
to setting up relatively informal arrangements with
universities, and may consider that subsidised access
to public research is justifed because of the contri-
butions that companies make through taxation to
en abling universities to operate. This is down to dif-
fering interpretations of universities’ roles in society.
Problems also arise, e.g., when there is a mismatch
between the reforms that a university is trying to
implement and the quality with which it is able to
implement what it is doing. Like the rest of us, they
fnd that signifcant changes in approach require time
to implement well and develop new skills and new
attitudes. Often, delivered quality may be patchy in
the early stages of a reform, yet the nature of the rela-
tionship has changed so everyone is disappointed. So
the challenge is to ensure rapid learning, both within
university and within partner organisations, of how to
deal well with the new world.
Do you expect changes in behaviour from the
increasing number of autonomous universities in
Europe? What is your perception of fully autonomous
universities, particularly in terms of strategic research
development and fnancial management issues?
Autonomy and the accompanying factors such as
greater responsibility are an inevitable and very desir-
able step towards enabling European universities
to raise standards and diferentiate themselves in
the face of what is evidently much greater competi-
tion. In the process, some will fail. This is inevitable.
People and institutes need to be helped, but they
should not be indefnitely protected. However, many
more should succeed. I have heard good examples of
European universities which have been able to estab-
lish signifcant strategic partnerships with industry
precisely because their reforms have enabled them
to bring together the extensive multi-disciplinary
approaches required by external sponsors.
I hope that universities will use the opportunity to
express clear local priorities in terms of core subjects,
inter-disciplinary, balance between research, teaching
and third-mission activities with the rest of society, gov-
ernance, etc. I hope that this will be based on a strong
engagement with the relevant stakeholders, so that
the strategic plans are established based on under-
standing the contribution that the university is able to
make (rather than the one that people inside think they
should make), and strong stakeholder support for their
actions. But I think we expect that (e.g.) governments
will provide clear terms of reference setting out the con-
tinuing purpose and mandate of universities. Govern-
ments can, in their enthusiasm for greater ‘innovation’,
tend to believe that there are no conficts between,
e.g. becoming more entrepreneurial and sustaining
the required long-term service to society. Universities
43
are in my view among society’s key guardians of know-
ledge, searchers for new knowledge in defned areas,
and educators. This is view widely shared in industry,
and there is no enthusiasm to see the universities aim-
ing to become, e.g., surrogate companies focusing on
short-term contract research. There are others who will
do that job much better, e.g. our RTOs.
In the context of the modernisation agenda,
autonomous, increasingly entrepreneurial and
thus fnancially sustainable universities are high
on the political agenda. How do you think do
universities’ eforts towards fnancial sustainability
impact the cooperation with industry?
It is important to learn from others, without believing
that the context is necessarily the same. For example,
the conclusions from recent activities of the US Gov-
ernment–Industry–University–Research Round Table
(GUIRR) are useful and contain some salutary warn-
ings. From 1972 to 2000, the fastest growing source
of university income in the US was industry’s spon-
sorship of university research. It grew, as I recall, to
8 % or so. It has since declined quite precipitously, to
around 5 %, and quite a number of observers on both
industry and university sides believe that the growing
attention to a particular sort of third-mission income
(i.e. licensing) has been responsible for harming the
much-more-important collaborative activities. Cer-
tain well-known institutes bear a disproportionate
share of opprobrium.
What kind of responsibility of industry do you see
in contributing to the fnancial sustainability of
universities?
It is a shared responsibility, as we set out in respon-
sible partnering. Industry needs strong universities,
mainly because of their need for skilled people. Uni-
versities need strong industry, not least because this
makes a region more prosperous and hence able to
fund good public services.
To what extent do you think the conditions of external
funding can assist the move towards full recovery of
research costs as a major component of sustainability
in university-based research? In this context, what
would be important from the industry perspective?
Industry includes ‘multinationals’ and smaller high-
tech companies (including university spin outs) and
smaller medium tech companies. Perspectives difer,
and this is often not well understood. A university’s
ability to sustain local small frms can be very impor-
tant. In the higher-tech area, it may be important for
the university to understand and accommodate the
nature of the value chains in which the target frms
are operating, particularly if the intention is to move
towards participation in larger, longer-term collabo-
rative activities.
Research collaborations are always set up in order
to address specifc company/institutional objectives
and are not an end in themselves. It is important to
develop a mindset of defning and meeting the part-
ner’s project objectives rather than seeing projects as
a way of getting funding for already-defned work.
At the same time, the intuitional mindset must also
remain clear: ‘why are we entering into this contract
at all and what is our special contribution’.
How do you experience a professional attitude of
universities with regard to building and maintaining
partnerships and contract management?
I see growing professionalism in many universities.
But the problems which were articulated in the past
(e.g. in an EIRMA study in 1969) are still with us.
There is an inevitable tension between organisations
which exist to address fundamentally diferent mis-
sions, but there is substantial evidence that these ten-
sions can be overcome with good will. Again, we set out
the prerequisites in responsible partnering — strategic
understanding of the role of partnership in addressing
own mission; development of the right professional
skills to address that strategy; an intent to treat each
partnership so that it can help establish a basis for
long-term collaboration based on mutual trust (with-
out expecting that this will be made contractual).
44
similar exercises such as the ‘transparent approach
to costing’ (TRAC) in the UK would be necessary in
most countries.
Funding organisations and agencies play an impor-
tant role not just because they provide funding, but
also due to the funding requirements and condi-
tions that are linked to this funding and which have
ob vious steering efects within universities. How-
ever, universities are confronted with very heteroge-
neous sets of requirements depending on the dif-
ferent types and roles of funders at national and
European levels, ranging from classical additional
cost or lump sum models to schemes supporting
the full costing approaches at universities. It is clear
that these conditions not only make it difcult for
universities to develop their own coherent systems,
but often force them to develop and maintain mul-
tiple systems based on diferent approaches and
cultures.
What is necessary is a good balance of funding
agencies and organisations that work according to
the same principles and procedures, while at the
same time keeping the diversity in terms of the dif-
ferent objectives they pursue thus strengthening
the competition between funding organisations
for the best research projects with respect to their
funding portfolio.
Managing indirect costs
Together with direct costs, indirect costs are an
integral part of the full costing approach. Having a
clear picture of their indirect and direct costs is a
must and not an option if universities are to plan for
sustainable development.
To date, the majority of universities have only a
rough estimation rather than a clear idea based on
comprehensive data as far as their indirect costs are
concerned. By and large, the UK is again an excep-
extensive and systematic experiences are available
at UK universities due to the introduction of TRAC
eight years ago.
It needs to be said that misunderstandings with
respect to full costing typically infuence discus-
sions as there seems to be a lack of defnitions or
at least there exist diferent defnitions and termi-
nology when full costing is being discussed.
The implementation of full costing at a university
at all levels is, as evidenced by the experience in
the UK, a heavy task that should not be underes-
timated. Beyond the technical aspects, the intro-
duction of full costing immediately touches upon
a cultural issue due to the necessity of time record-
ing. Researchers in the academic setting perceive it
as a profound change in their role with respect to
the freedom of research. However, again the TRAC
exercise and Dutch examples demonstrate that
there are alternatives for time recording other than
detailed time sheets.
Full costing is also seen as a way to consider fairly
true costs with respect to joint research projects
involving heterogeneous consortia with teams
from academia and business. Increased awareness
towards full costing at universities has to do with
the entire budget structure, thus being related to
the issue of core funding and the share of core ver-
sus external funding. Currently, the rates for core
funding at European universities depend on the
situation in the specifc countries but typically vary
between 90–60 %. Generally speaking, there is a
trend to reduce the share of core funding as com-
pared with external project-based funding.
The Expert Group believes that full transparency is
the best possible way to ensure clear understand-
ing of costs by all actors involved. As a consequence,
and in order to substantiate the credibility of uni-
versities’ needs in terms of sustainable funding,
45
ing elements can be the type of projects they fund.
If industry cooperates with universities in the feld
of applied research, there is stronger acceptance of
funding on the basis of full costs, which is limited in
the case of basic research-oriented projects.
Can universities decide on how to use the indirect
costs acquired?
There is a danger that universities might perceive
the reimbursement of indirect costs as ‘extra money’
and not as a contribution to their full cost calcula-
tion. Indeed, there are many instances of universi-
ties having set up varying strategies on how to ‘use’
the indirect costs received rather than taking them
in order to cover their indirect costs. One unsatisfac-
tory consideration in many cases is the use of indi-
rect costs as ‘compensation’ in addition to the 75 %
funding rate for research activities in FP 7. Several
universities have developed specifc incentive pro-
grammes that foresee defned distributions of indi-
rect costs between researchers and the university.
Impact of European funding, particularly FP 7 and
future framework programmes
At frst glance, one could question any impact of
European funding since the FP contributes a rela-
tively small percentage to the overall budget of
the majority of European universities. Comparing,
however, the share of FP project funding with other
competitive funding received by universities, the
result can be very diferent. Adding the amount
received per FP project, FP 7 is of greater fnancial
signifcance for many institutions.
The move towards full costing: the catalytic role
of FP 7 on universities
Due to its specifc nature and regulations, the FP
generally and FP 7 in particular does have a strong
catalytic role on universities in the sense that it
stimu lates awareness of full costing.
tion. The specifc challenge in identifying realistic
indirect costs — in addition to technical aspects
that might be relevant — is the allocation of time
and resources to the key activities of universities,
primarily research and teaching. This point is closely
related to the issue of time recording and associ-
ated concerns and perceptions of researchers.
With the increased awareness and knowledge
about full costing in general and indirect costs in
particular, three key questions regularly come up at
universities.
To whom do indirect costs belong in universities?
There can be misunderstandings on this issue
amongst researchers within a university. In many
cases researchers are inclined to think that since
they have been the ones who successfully acquired
externally funded research projects, they should
receive the entire funding, including the indirect
costs. In an academic setting it can be difcult to
convey a joint institutional understanding where
researchers and non-researchers jointly work on
achieving common objectives.
Whose job is it to care about sustainable funding
of universities including the reimbursement of
indirect costs?
Funding organisations such as national agencies,
industry and foundations tend to raise this point by
mentioning that they want to fund ‘the real research
and not administration’. However, this attitude is
changing and more and more funding organisa-
tions are starting to understand that funding has
to be provided on a sustainable basis. On the other
hand, the reimbursement of indirect costs is cer-
tainly closely linked to the defnition and dimension
of core funding universities receive from the govern-
ment. For industry, the primary consideration is that
of value for money. However, one of the diferentiat-
46
Already in FP 6, discussions started on whether or
not universities should calculate their costs based
on full instead of additional costs. Few universities
in FP 6 moved to full costing. However, a number
did undertake a rough comparison of FP 6 project-
related costs according to full versus additional
costing. So FP 6 did infuence some universities to
consider their way of cost calculation. This efect
was substantially reinforced under FP 7 through the
abolishment of cost models and introduction of full
costing for all participating organisation linked with
the opportunity of using the ‘simplifed method’.
This method in FP 7 allows universities without an
accounting system enabling a detailed cost alloca-
tion to declare their real indirect costs for research
projects, as long as the method used is in accord-
ance with their usual accounting and management
principles and practices and is based on actual costs
derived from the fnancial accounts. For the alloca-
tion of the legal entity’s indirect costs to individual
projects they are required to use a fair ‘driver’ such
as total productive hours.
It can be said that, from the point of view of fostering
and inciting the development towards full costing
and an increased awareness as regards the necessity
of sustainable funding for universities, the rules as
set up for FP 7 were a move in the right direction.
Indirect costs
The catalytic role of FP 7 is particularly obvious in the
case of indirect costs. With FP 7 universities not only
get 75 % of full costs for research. Within this, they
can either claim the transitional fat rate for indirect
costs of 60 % or, based on full documentation, get
reimbursement based on their entire indirect costs.
In principle, the opportunity of getting funding for
FP 7 projects based on the entire indirect costs is
intended to be an incentive for universities towards
the development of full cost awareness includ-
ing indirect costs. At least it is an incentive to do
estimations and get an idea of whether or not the
respective university is above or below the 60 % fat
rate indirect costs.
This discussion will again come up high on the
agenda with the mid-term evaluation of FP 7 and
the 60 % transitional fat rate of indirect costs due
by January 2010 when the fat rate will again be
fxed (with the lowest possible level of 40 % prede-
fned). If there is evidence that the reimbursement
of fat rate indirect costs is a key stimulus towards
strengthening full cost awareness linked to the
application of real indirect costs, it could be argued
that the Commission should consider reducing the
transitional indirect cost fat rate to the lowest pos-
sible level of 40 %.
The fact that FP 7 reimburses indirect costs at a sig-
nifcant level clearly had an educating efect on uni-
versity leadership and researchers across most of
Europe and has raised awareness of indirect costs.
For the university leadership — in many cases — it
was an ‘eye-opening’ experience to see the dimen-
sion of real indirect costs at their institution after the
frst rough estimations or calculations. This experi-
ence resulted in an increased awareness not only
towards direct, but also towards indirect costs and
thus a real sustainable funding approach. Although
it has to be said that the defnition of indirect costs
as regards the type of expenses covered is rather
variable across Europe.
Very few universities, however, use the reimburse-
ment of indirect costs to really cover their indirect
costs. Instead, many of them have set up internal
rules resulting in a part or entire transfer of these
indirect costs to the researchers involved in FP 7
projects, although sometimes this has been in
order to cover the balance of the direct costs of the
projects not funded by the Commission.
47
The wider impact on funding organisations at
national level
FP 7, with its approach to funding based on full
costs and recognition of indirect costs has had a
very obvious direct as well as a more indirect impact
on funding organisations at national level in many
countries.
In more direct terms, information gathered by the
Expert Group suggests that, infuenced by their
experiences with FP funding rates for direct and
indirect costs, universities are increasingly start-
ing to request similar approaches from national
funding agencies. Based on the Austrian example
these eforts of universities resulted in an increased
awareness of funding agencies towards the issue of
indirect costs, and consequently in a discussion on
the adaptation of the funding regimes of the two
major Austrian funding agencies.
FFG — the Austrian Research Promotion Agency •
providing funding for applied research already
supports 20 % of indirect costs on personnel as
a lump sum. As a new development, FFG is in
discussion with the government for the precise
Academy of Finland:
In 2007 a working group led by the Ministry of Finance
fnalised its report on general guidelines for methods
and cost accounting of jointly fnanced activities in
Finland. The working group recommended that all
government agencies that grant, intermediate or use
budget funds for jointly fnanced activities should use
a total cost model.
The focal feature of the model is coverage of over-
head costs as part of the total cost of jointly fnanced
activities.
Currently a lump sum (12.5 %) overhead cost is applied
to almost all funding instruments of the Academy. The
Academy of Finland has been charged by the Ministry
of Education to apply the total cost model to all of its
research funding from 1 January 2009 onwards, and
hence, the Academy will support overhead costs of
the universities through its funding.
The working group report defnes the general princi-
ples and requirements applied to total cost accounting
in organisations using joint fnancing. The Academy of
Finland takes the defnitions of the report as the mini-
mum standard. According to the model the responsi-
bility of the organisations using joint fnancing is to
put forward an application based on the concept of
total cost, and including a ratio for the overhead costs
based on cost accounting of the organisation. (The
ratio can be organisation- or department-specifc.)
The Academy will assess the funding applications and
apply a predetermined fnancing ratio to the projects
accepted. The fnancing ratio will be the same for
overhead costs and other costs, thus increasing the
relative share of overhead costs compared with the
current system of 12.5 % lump sum overhead costs.
The working group set certifcation of the cost
accounting in organisations using joint fnancing
as the prerequisite to the application of the model.
Whether a national certifcation project will be carried
out is still under discussion.
The Academy of Finland is planning to apply the total
cost model to all of its funding from 1 January 2009
onwards. Delays in certifcation of cost accounting
in organisations using joint fnancing, may have an
impact on the timetable.
Financing overhead costs — as a part of the applica-
tion of total cost model — is in line with the strategy
of the Academy of Finland. The Academy supports the
model in the long term.
Example of Finland
48
‘Transparent approach to costing’ — An Overview of TRAC
June 2005
Since 2000, TRAC has been the standard methodology
used by the 165 higher education institutions (HEIs) in the
UK for costing their main activities (teaching, research,
and other core activity), and it is increasingly informing
the public funding of higher education.
While it followed naturally from work done in the higher
education sector in the 1990s, introducing TRAC was
a government requirement. It was developed in 1999
as part of the Government’s transparency review. It
was piloted during academic year 1999–2000, and
implemented, progressively, from 2000–01. The dual-
support reform of Research funding in 2003-04 has
given further impetus (and new costing requirements)
to TRAC, and further implementation work now in hand
by institutions will continue for several years (until about
2008).
TRAC is not a single costing method, nor does it involve
prescriptive standard requirements. HEIs in the UK are
very diverse, as are the activities to be costed, and the
uses of such cost information. Much academic activity
poses inherent challenges for costing — think, for ex -
ample, of defning the diferences between research and
scholarship and teaching; or the complexities of costing
heritage buildings; or of knock-for-knock arrangements
with the NHS in medical schools.
The strength of TRAC is that it is broad and fexible
enough to accommodate all these challenges, and that
it allows HEIs a good deal of discretion about the precise
methods they use. Crucially, it does not require a much
greater administrative burden, which ‘full commercial
costing systems’ could, nor does it require academic staf
to complete timesheets. At the same time, TRAC has been
accepted by Government and the major public funders of
research and teaching (chiefy the funding councils and
research councils) as an appropriate and robust method
for costing in higher education. Much of the funding of
research is now based on TRAC costs (known as full eco-
nomic costs — FEC).
TRAC could also be seen as a collaborative efort be -
tween HEIs and their principal stakeholders and public-
funding bodies. The success of the sector in imple-
menting TRAC, and the support of the treasury for TRAC
has benefted all institutions both directly in terms of
their funding, and indirectly through the confdence it
has engendered in Government.
The information which TRAC has provided on the full
long-term costs to institutions of their main publicly-
funded activity has informed the funding of research,
with over GBP 1 billion of additional funding being pro-
vided by the Government to make the UK’s research base
sustainable (that is, to make existing volumes of research
more secure, not to increase volumes). Notably, from
2005, the Research Councils will fund research projects
at 80 % of the TRAC full economic cost and this is signif-
cantly higher funding for the same work than the previ-
ous basis of ‘direct costs plus 46 %’.
guidelines and budgets in order to propose to
go further in supporting indirect costs. This new
regime would be understood as incentive for
universities to apply a true full costing approach
which is in line with the new legal framework for
Austrian universities following the introduction
of the University Act 2002 in 2004
12
.
12
Interview with M. Binder and K. Pseiner (FFG).
FWF — the Austrian Science Fund in charge of •
supporting basic research — has started to reim-
burse 20 % of indirect costs for newly submitted
projects as of the year 2007, with a clear inten-
tion to increase the reimbursement rate for indi-
rect costs to 50 %
13
.
13
Interview with C. Kratky (FWF).
Joint Costing and Pricing Steering Group
49
More generally, TRAC has contributed to the current
policy interest in the sustainability of higher educa-
tion, especially by highlighting the inadequate invest-
ments being made in infrastructure for teaching and
research. The Government has provided extra capital
funding, and all institutions are now required to take
account of the full costs of their activities in their plan-
ning and management. Better cost information is of
beneft to management decision-making, not least by
informing price negotiations.
TRAC has introduced some new processes and activi-
ties in institutions that sit alongside existing account-
ing and project management systems. The most nota-
ble (from an academic’s perspective) are the require-
ments to allocate academic staf time, and to build up
the cost of research projects on a full economic cost
basis.
Time allocation has been the most contentious issue,
but is essential if HEIs are to know where their aca-
demic staf efort is being directed, and if they are to
plan how these costs can be funded. The TRAC time
allocation approach ofers alternative options to HEIs,
and does not require the use of timesheets. The pro-
cess of costing research project grants has built on
previous research council requirements, and the new
procedures should not, if efciently organised, prove
onerous. However, academic principal investigators
will need additional support and training in the early
days of the new system.
and audit system to reduce the number of audits, for
national funding in particular. This system assumes
mutual trust, and a move towards responsible part-
nering.
More indirectly, related efects touch upon the issue
of the budget structure of universities, in particular
the ratio of core funding to project-based funding.
Particularly in countries with high rates of govern-
mental core funding, it has to be assumed that
many of the indirect costs are covered by the core
funding. Therefore the question arises as to whether
or not project-based funding provided by national
funding agencies should cover indirect costs and
thus introduce the risk of double funding.
As a consequence, and in order to substantiate the
credibility of universities’ needs in terms of sustain-
able funding, a similar exercise such as the ‘trans-
parent approach to costing’ (TRAC) in the UK could
be necessary in other countries.
Dealing with diferent funding conditions and
requirements
In the process of moving towards implementing
full costing, universities fnd themselves confronted
with a huge variety of diferent funding conditions
and requirements. An overview of the major fund-
ing organisations at national level starkly illustrates
this, as has been described in the previous chapter.
These varying funding conditions at national and
European levels might contribute to the devel-
opment of two diferent speeds: one for the par-
ticipation in FP 7 where full costing is encouraged
and possible while keeping a diferent system for
national funding. This issue will be explored further
in the following chapter.
Dutch public funders, in particular the national
agency SenterNovem
14
, consult users before intro-
ducing new funding schemes or conditions. This
approach strengthens efectiveness, commitment
and user-friendliness. Guided by their association,
Dutch universities enter into a single information
14
Interview with Janse and Kruithof (SenterNovem).
50
Universities need real autonomy with accountability
In its communication on ‘Delivering on the mod-
ernisation agenda for universities — Education
research and innovation’
15
, the European Commis-
sion identifed universities as key players in Europe’s
future and for the successful transition to a know-
ledge-based economy. However, it also noted that
this potential could not be realised without real
autonomy and accountability as, without such con-
ditions, universities could not be innovative and
responsive to change. This was confrmed in the
recent consultation on the future of the European
research area (ERA)
16
when, in their replies, pub-
lic authorities and stakeholders stressed the need
for Europe to have autonomous, accountable and
well-managed universities and that ensuring their
fnancial sustainability is an important condition
for them to contribute fully to the ERA. European
universities are becoming increasingly depend-
ent on external project-based funding. The condi-
tions attached to that external funding has a major
impact on their fnancial management. External
funders, therefore, have a key role to play in assist-
ing universities in developing improved manage-
ment and accountability systems and in achieving
sustainability through identifying and recognising
the full cost of their research activity.
While some countries, such as the UK, have long
had a mixed economy model of funding for univer-
sity-based research, with core funding provided by
Government and project funding provided by pub-
lic and private organisations, historically universities
in many countries have relied on core Government
15
‘Delivering on the modernisation agenda for universities: education,
research and innovation’, Commission Communication, COM(2006) 208,
10 May 2006.
16
‘The European research area: New perspectives’, Green Paper, COM(2007)
161, 4 April 2007.
The way forward: the
sustainability of university-
based research
CHAPTER 5
51
where they have signifcant ‘internal’ resources
which they are able to allocate as they see ft and
support research in line with their own strategic
goals, to a model where they are more dependent
on competing for funds and thus increasingly infu-
enced by research priorities set by funders.
The trend from core to external funding
External funding as a driving force
While there is evidence that a diversifed funding
model is good, there appears to be little empirical
funding for most of their research activities. There is,
however, a trend across Europe towards the mixed
economy model. For example, German universities
have had, as a legal objective within the last 10 to
15 years, a requirement to attract third party fund-
ing while most of the post-communist New Mem-
ber States which relied solely on the State funding
system in the past and played a lesser role in the
research arena, are now developing their research
capacity and moving very rapidly ahead with a
mixed system, often with governmental pressure to
obtain more competitive funds. These moves mean
that many universities are shifting from a model
1
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Source: OECD (Research and Development Statistics); tip calculations.
D
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Figure 2:
Financing structure of
expenditure on
academic research,
1993/94 vs. 2002/2003
(Source: Austrian RTD Report 2007)
International
Corporate sector
Private non-proft sector
University sector
Direct public payments
GUF
52
the move towards full costing, so far not all funders
would be able or willing to cover the real full cost of
research and many require evidence of co-fnanc-
ing. For example, most private foundations will not
cover indirect cost. In the UK, the charity sector has
recognised the full cost methodology as providing
a reasonable indication of the real cost of research
but has publicly stated its opposition to funding
general indirect costs or any infrastructure costs
which do not relate directly to the research funded,
seeing this as the role of the State.
In addition, as highlighted by EUA, in its recent
report ‘Towards full costing in European universi-
ties’
18
, a university’s ability to develop its strategic
research activities with respect to its profle and
object ives can be restricted by an over-reliance on
competitive funding sources. Thus, if universities
are to maintain a degree of fexibility to develop
strategic research models and to successfully tar-
get competitive research funding, it is important
that they retain an element of ‘internal’ core fund-
ing from the State which they are free, subject to
accounting for outcomes, to allocate as they see ft.
While ‘external’ funding of research is, as we have
seen, very important for ensuring quality, it is also
clear that core funding is essential both to allow
universities to provide the co-fnancing required by
many sponsors but also to support long term stra-
tegic planning. Core funding allows universities to
cover the ‘unfunded’ aspects of externally funded
research (primarily resources and personnel costs)
and to develop new areas and infrastructures, both
physical and human.
Recommendation: The fnancing of university infra-
structure underpins universities’ ability to maintain
research excellence and competitiveness.
18
Financially sustainable universities: Towards full costing in European universi-
ties, European University Association, EUA Publications 2008, p. 72.
evidence to show what the ‘right’ balance is between
core funding allocated at institutional level which
allows the university to set its own priorities, and
external project funding. Indeed, a recent review
17
found no signifcant diferences in performance
between universities in Switzerland, the Nether-
lands, the UK, Sweden and Finland — countries
with very diferent ratios of general, or core, uni-
versity funds and external funding. However, while
there may still be a discussion to be had over the
balance between externally and internally driven
research priorities, it is clear that there are benefts
to be derived from the increased move towards
external funding. External funding becomes a driv-
ing force and provides a focus for greater syner-
gies and collaboration between research institu-
tions. It also helps improve research management
and robustness of management systems through
greater accountability requirements and the intro-
duction of commonly understood terminology and
methodologies. The greatest beneft is, arguably,
the value of competitive bidding which introduces
a benchmark of excellence for that research which
is funded, in other words that it has been judged to
be of excellent quality in open, peer-reviewed com-
petition. In addition, much collaborative research
which arises from external funding provides valu-
able opportunities for knowledge transfer and the
exploitation of results. External funding therefore
has the potential to have a higher impact than
internal funding.
University-based research cannot be fully
dependent on external funding
However, it is clear from the various funding models
across Europe, that university research cannot be
fully dependent on external funding as, even with
17
Quoted in ‘Austrian Research and Technology Report 2007’, p. 123.
53
ing research capability. The EU and national funders
have a strategic aim of funding the best research to
beneft society and the economy and to maintain
and/or enhance economic and innovative competi-
tiveness. However, as recognised by the European
Commission and many Member States, increasing
moves towards competitive project-based fund-
ing allied with greater autonomy and account-
ability for universities mean that, unless the need
to ensure the fnancial sustainability of universities
is recognised, the public research base will not be
in a position to undertake globally-competitive
research in the future or to recruit the best students
and researchers from across the globe. Thus, while
for public funders the continued competitiveness
and sustainability of universities must be strategic
objectives in themselves, for other funders uni-
versity-based research is a means to an end. The
impact on universities of the various objectives
of research funders can hardly be overestimated.
For most European universities the predominance
of national and regional funding means that their
management and fnancial structures are geared
primarily to the requirements of these funding
streams. However, an overview of national funding
agencies shows little evidence of any commonal-
ity between the various funding streams, whether
national or at a European level, in terms of fund-
ing strategies and fnancial management require-
ments. In particular, expectations on co-fnancing
strategies vary signifcantly.
The responsibility of national funders
and the European Commission
towards the fnancial sustainability
of university-based research
While each university must take responsibility for
its own long term sustainability, the Expert Group’s
view, for reasons stated above, is that Member
The need for clarity in the purpose of core funding
A critical aspect of core funding relates to the main-
tenance and updating of existing infrastructure.
It is important to recognise that part of the cost
of making EU universities globally competitive is
ensuring that buildings and facilities are brought
up to date and are maintained in a status equal to
that of the ‘rising stars’ (or ‘awakening tigers’) espe-
cially in the Far East. This requires, frstly, recogni-
tion by national authorities that there may be a sig-
nifcant ‘one of’ cost to bring the infrastructure up
to date and, secondly, the ability of universities to
identify and recover the real full cost of maintaining
their physical and human infrastructure. It is criti-
cal, therefore, that where core funding is provided
to universities, the extent to which it is expected to
meet current maintenance costs and/or to invest
in updating infrastructure to a competitive level is
clearly agreed between all partners.
Recommendation: In allocating core funding,
Member States need to be clear about the purpose
of that funding and recognise the cost of maintain-
ing existing infrastructures as well as that of bring-
ing them up to a globally competitive standard.
The impact of funders’ strategy on
universities’ development
Funders of research have diverse objectives
In funding research, diferent funders have funda-
mentally diferent aims. Private charities and foun-
dations will have diferent objectives, ranging from
societal impact to cures for major diseases or the
alleviation of poverty. Industry funders will have
clear commercial goals around maintaining their
own competitive advantage and will have an inter-
est in paying for a research activity rather than fund-
54
lic bodies work (typically three years’ funding with
detailed accountability on inputs) does not always
allow universities to adopt a coherent approach
that supports their research strategies.
The need for a balance between accountability
and complexity
There can also be tensions between the goals
expressed by the EU and national public funders
in terms of how they see university-based research
developing and the controls and regulations that
are then imposed around individual project grants,
for example the European Commission has a clear
object ive of introducing simplifcation in both the
range of funding opportunities ofered and the
burden of compliance faced by universities. There
is a clear danger, however, that the audit require-
ments imposed on the applying universities can
undermine the original aim of simplifcation. Thus
the question arises as to whether the implemen-
tation of funders’ strategies takes account of the
real needs of universities. EUA, in its recent report,
found indications that accountability requirements
in funding schemes can be too complex and that
there was a real risk of rules and procedures lim-
iting university autonomy or leading to complex
bureaucratic reporting procedures.
There is no doubt that funders are in a position to
impose co-fnancing and fnancial reporting mod-
els onto universities and that these, while show-
ing evidence of fexibility in responding to such
conditions, are faced with having to develop mul-
tiple management and reporting systems to meet
the various requirements imposed by funders.
Co-fnancing requirements and cost eligibility can
vary from funder to funder and the evidence col-
lected by the Expert Group suggests that these
have a signifcant impact on universities’ ability to
States (through their national and regional funding
schemes) supported by the European Commission
have a responsibility to maintain the sustainability
of university-based research at sector level. How-
ever, it is clear that this is often not refected in the
strategies adopted for the funding of research pro-
grammes with many national funders failing to fund
other than the marginal costs of research projects
and having little regard for the associated longer
term infrastructure costs. Even where there is rec-
ognition by the sponsor of the real costs of project-
based research, there can be inconsistencies in the
way this is refected in the various funding schemes
it supports. As an example, while the European Com-
mission is efectively supporting the sustainability
of university-based research by recognising the real
costs of projects funded under the 7
th
framework
programme (and contributing 75 % of those costs),
the same rules do not apply to all instruments and
thus this principle of sustainability does not fow
through all programmes.
Recommendation: Member States have a respon-
sibility to contribute to the sustainability of the
university-based research sector together with the
European Commission supporting this process at
EU level. Both should, therefore, ensure that this
objective be one of the principles underpinning all
the research programmes they fund.
As universities become more dependent on exter-
nal funding for their research, they face a number
of challenges. The nature of competitive external
project funding has in the past led to a short-term,
reactive approach by universities often driven by
the need to take advantage of whatever funding
opportunity is available and securing the minimum
funds needed to carry out the project, without
regard to the real cost involved. The way many of
the funding schemes ofered by both EU and pub-
55
therefore, the fnancial and audit requirements may
need to be adapted to take this into account. The
Commission, in the context of State Aid rules, can
steer this process through a review of the fnancial
regulations and the rules for participation in frame-
work programmes.
Recommendation: Research activities shall not be
supported like procurement, as there are funda-
mental diferences between funded research and
procured activities. Where procurement requires the
defnition of all kinds of detailed input descriptions
and reporting, research activities should be sup-
ported and funded by focusing on their contribu-
tion to the production of knowledge. Thus, consid-
eration should be given to the fnancial regulations
which surround research funding to ensure that
they are suited to the nature of research activities,
in terms of reporting requirements and expected
accountability.
Sharing best practice — the European
Commission as a catalyst
Both the EU and national public funders, as the prin-
cipal funders of university-based research have the
means to coordinate their conditions and expecta-
tions around accounting, co-fnancing, time record-
ing and reporting to lessen the burden on univer-
sities and support the simplifcation process. It is
also important to recognise that these issues apply
in much the same way to public research insti-
tutes and that the impact is, therefore, wider than
just the university sector. The Commission is in a
unique position to act as a moderator and catalyst
in this area and to facilitate a discussion to identify
a degree of commonality around best practice for
co-fnancing, cost reporting and accountability
requirements. Much as has done through the Char-
ter on Intellectual Property, implemented through
manage and support their research infrastructure.
It is important, therefore, that sponsors of research
recognise this and, by entering into a dialogue with
universities, explore ways in which these impacts
can be lessened.
Time recording — the need to accept diversity
A key area which can cause confusion and concern,
both at university and sponsor level, and which
can lead to overly burdensome reporting require-
ments is that of the methodologies used to record
time spent on certain activities to support cost
allocations. There are concerns at university level
that full timesheets by individuals that record all
research and academic activity are incompatible
with normal academic practice (and, in reality, may
be almost impossible given the overlaps and inter-
relationships between activities, be they teaching
or research). Indeed, there are views that the use of
full timesheets for both recording time on particu-
lar projects and as a basis for overall time allocation
is far from ideal. The diversity of European universi-
ties, both in terms of their legal and administrative
structures and their remits and objectives, means
that no single model exists and a variety of meth-
odologies, all equally robust, are evolving to suit
particular national or functional circumstances. It is
interesting to note, in this context, that the recent
EUA report found that the difering methods used
by the universities it surveyed produced similar
results. The Expert Group concurs with the com-
ments made by EUA that any certifcation process
at a European level should remain ‘light touch’ and
allow for the diferent methodologies for time and
activity allocation that are being developed at a
national or sector level. The Group further believes
that this is consistent with the fact that research is
a unique activity which cannot be treated in the
same way as the procurement of goods and that,
56
Full costing as an essential tool
for informed strategic decision making
by universities
Moving away from additional cost recovery
towards sustainability
Historically, whether funded from internal resources
or from external grants, university-based research
has been supported on a marginal cost basis with-
out proper regard, either by universities or funders
of the real long term full cost of research. The sus-
tainability of university-based research requires
universities to be able to identify their full costs and,
more importantly, cover these costs from internal
or external sources. Universities’ experiences and
successes in external project-based funding heavi ly
depend on the one hand on the management
approach they apply and the degree of institutional
strategic perspective they are willing and able to
implement. On the other hand, external project-
based funding itself infuences the development
of universities’ management approaches. Strong,
autonomous universities have responsibility for
their own sustainability and therefore need to have
robust management structures and systems in
place to support their decision-making. Full cost-
ing is a key tool in this regard as universities cannot
plan strategically and decide what areas to develop
and support if they don‘t know the real long term
cost of their activities. At the same time as provid-
ing a tool for more strategic decision-making and
internal resource allocation, full costing allows uni-
versities to benchmark themselves against simi-
lar institutions and provides them with a greater
capacity to negotiate and price their research
activities which, in turn helps improve cost recov-
ery and thus contribute to their sustainability. It is
important, in this context, to recognise that costing
the code of practice for universities and other pub-
lic research organisations on the management of
IP, the Commission should work with the national
funding agencies to share experiences and collect
information on good practice for external funding
terms and conditions, with the aim of identifying
best practice at European and national levels. Such
good practice guidelines should promote best
practice and minimum reasonable reporting and
accountability requirements, identify reasonable
time recording methodologies, highlight areas for
greater commonality between funders, both at
national and European levels, and explore poten-
tial ways of minimising the bureaucratic burden
placed on universities. Such an initiative will be of
particu lar relevance to current discussions on joint
programming activities.
Recommendation: Member States have a respon-
sibility to contribute to the sustainability of the
university-based research sector together with the
European Commission supporting this process at
EU level. Both should, therefore, ensure that this
objective be one of the principles underpinning
all the research programmes they fund. Member
States, working with the principal national fund-
ing agencies in the frst instance, but involving
other research funders in time, together with the
European Commission should consider drawing
up good practice guidelines for external funding
terms and conditions in consultation with univer-
sities.
57
national legal requirements as a key tool for sus-
tainable development.
Investing for success
While universities should, in practice, have the abil-
ity to adopt a full costing methodology and identify
the real cost of their research at project level, this
will require substantial investment on their part. It
is clear that the benefts to be derived from such
an investment can only be achieved if the funders
of that research recognise the value of full costing
and support the development of suitable account-
ing methodologies.
The development of the TRAC methodology
in the UK and the move towards full cost
accounting at project level was undertaken
in partnership between the university sector,
at a national level, and Government. The cost
of implementation was estimated to be EUR
700 000 for a medium sized, research-inten-
sive university. The incentive for universities
to make such an investment was the clear
undertaking by Government to recognise the
outcome and a commitment to fund a greater
proportion of the cost of research, thus allow-
ing them to recover far more than the initial
investment.
Excellent research needs excellent management
The conditions of external funding are therefore a
determinant driver in assisting universities to move
towards full recovery of research costs. However, as
outlined above, not all sponsors of research will rec-
ognise, as their primary objective, the ongoing sus-
tainability of research. The European Commission,
with the funding models under FP 7, is in a strong
and pricing are two separate but interrelated activi-
ties. The ability of a university to identify robustly
the true cost of a particular research project allows
it to identify which sources of funding are appro-
priate to its activity and sector. It also puts it in a
better position to establish collaborations with
industry and with other partners and to price its
research competitively or at a level which matches
the expectations of non-industrial sponsors. State
Aid rules have to be considered and will also be a
driver in this context.
The world is changing rapidly
While it is important that the modernisation agenda
be managed so as not to destabilise European uni-
versities through too rapid changes, it is important
to note that, looking beyond Europe, the world is
changing quickly and emerging economies such as
India and China are developing rapidly. The ques-
tion arises therefore as to whether European uni-
versities are fast enough in their modernisation
process to support the building up and fostering
of their international competitiveness. The Expert
Group’s view is that the majority of European uni-
versities are not developing fast enough and that
this is refected in many ranking tables where there
are too few European universities amongst the
top positions. What is needed is a modernisation
process taken seriously and high on the political
agenda, with the necessary speed at all levels for
the implementation of further reforms. If, therefore,
universities are to compete at an international level
and ensure the sustainability of their research it is
essential, if they have not done so already, that they
engage now in the process to identify the full costs
of their activities.
Recommendation: Universities need to adopt
full costing methodologies appropriate to their
58
activities in line with their strategic profle. Full cost-
ing is an essential component of appropriate fnan-
cial management of research in this context.
All funders need to recognise and encourage full
costing — whether or not they then cover those
costs
The ability to identify one’s true costs comes
with a responsibility to manage them strategi-
cally. However, this can only be achieved if all the
actors involved, including the funders of research
(whether through core funding or competitive,
project-based funding) understand and accept the
principles involved and recognise the need for uni-
versities to recover the full costs of their activities.
This includes allowing universities to participate
in research programmes on the basis of their own
costs rather than through the allocation of ‘lump
sum’ funding established on the basis of notional
or ‘average’ sector costs.
The 7
th
framework programme is a key driver in the
move towards sustainability and in encouraging
universities to adopt full costing methodologies
appropriate to their national legal situation. Using
FP 7 as a tool to reward good practice can encour-
age the move from using the fat rate for indirect
cost recovery to the use of actual indirect rates or
the simplifed methodology, as long as the benefts
of doing so are not outweighed by disincentives.
Such disincentives could include overly burden-
some auditing requirements which exceed nation-
ally agreed methodologies or which apply stand-
ard ‘procurement’ type conditions on research
activities. They can also include situations arising
whereby those universities which have adopted
full costing, and are therefore aware of the real
cost of the research, fnd themselves at a disadvan-
tage in consortia involving universities which have
position to engage with Member States to sup-
port the sustainability of universities as a strategic
objective at national level. In doing so, the EU and
Member States will need to recognise that, as well as
the ability to identify the full costs of their research,
it is important that universities have the manage-
ment and administrative infrastructure necessary
to manage their internal resources so as to support
the strategic co-fnancing of their research in a sus-
tainable way. In other words, the move towards full
costing is not an end in itself: it simply provides the
essential tool which universities require identifying
and understanding their true costs and through
which they can move towards sustainability. As
highlighted by a EURAB report
19
, good research
management is about far more than just fnancial
reporting and is vital for Europe’s economic and
social prosperity.
‘Research management tasks are becoming
more and more demanding, as those who invest
in research expect ever greater accountabil-
ity and performance. In addition, the growth
of research partnering and open innovation is
creating fresh challenges, as research manag-
ers increasingly have to operate on a truly glo-
bal basis and deal with teams whose members
come from multiple organisations, nationalities
and cultures.’
Recommendation: Universities must recognise that
excellence in research requires sound and pro-active
management practices. Excellence in research and
management go hand in hand, fnancial manage-
ment is a condition for informed, strategic decision-
making in an environment where universities are
expected to develop long-term excellent research
19
‘Research management in the European research area’, EURAB 07.007,
May 2007.
59
tool in the move towards inciting universities but
should not, in itself, be the driver.
Recommendation: As part of the mid-term review
of the 7
th
framework programme, the Commission
and the Member States should review the state of
play across EU-27 on the ability of universities to
identify the true costs of their research as well as the
national support mechanisms available to them to
do so, and should promote the sharing of best prac-
tice and mutual learning while taking into account
national legal and structural constraints.
Is current university infrastructure ft for the
purpose?
The additional challenge for universities, once
they are able to identify their real costs, is being in
a position to make good past underinvestment in
their human and physical infrastructure as well as
to make strategic decisions on future investments.
In many cases, the level of investment required to
bring infrastructure up to a globally competitive
level is unknown and is likely to be substantial. Full
costing and recovery of real costs, while of prime
importance, are not sufcient in themselves if a uni-
versity’s human and physical infrastructure is not at
a competitive level and if there is no awareness, at a
national level, of the level of investment required to
bring them up to a suitable standard.
Recommendation: Where such an exercise has not
yet been undertaken an assessment of the current
state and competitiveness of university research
infrastructure (both human and physical) in indi-
vidual Member States will be necessary so as to
identify priority areas for investment.
not identifed the full costs of their participation:
in such situations the former can be deemed ‘too
expensive’ by the consortium and either excluded
or required to reduce their ‘price’ and/or their input
to bring them inline with other members.
Recommendation: The Commission should reward
best practice and encourage the adoption of full
costing while ensuring that those universities which
do so are not placed at a disadvantage when com-
peting for funds. The FP 7 transitional fat rate can
be used as a major external driver towards full cost-
ing implementation but shall not be considered in
isolation. Appropriate support at national level has
to be provided to universities to facilitate their tran-
sition to full costing implementation.
The importance of encouraging the move to full
costing
The recent EUA report suggests that the major-
ity of European universities, particularly those in
the new Member States, will not be in a position
to identify the full costs of their research in the
next few years in a way which would allow them
to improve their cost recovery from EU or national
funding programmes without strong incentives
and the support of their national funding agencies.
It is important, therefore, that the Commission take
the opportunity presented by the mid-term review
of FP 7 to encourage Member States to support the
move to full costing, whether through providing
fnancial assistance or incentives or through other
support mechanisms. It is also important that the
Commission take account of the preparedness of
universities to move to full costing when consid-
ering the level of the default indirect cost fat rate
under FP 7 and that it be mindful of the need to
encourage rather than force any move towards full
costing. A reduced default rate could be a useful
60
Annex 1:
Research funding indicators and characteristics questionnaire
Indicators (provide estimates if detailed data not readily available)
(1) What is the proportion (expressed as a % of GDP) of expenditure on higher education:
…… % (indicate year this relates to: 20…)
(2) What proportion (value in euros and % of total) of higher education public funding is spent on univer-
sity-based research: …….. euros (…. % of total public funding)
(3) What are, in order of importance, the three principal types of funding organisations for university-based
research (indicate 1, 2, 3 and, if possible, the proportion as a % of overall university-based research each
accounts for — e.g. ‘Regional Government is the frst source of funding and accounts for, on average,
52 % of total expenditure for university-based research). Note: if national or regional funding is avail-
able in both core funding and as competitive funding then enter each as a separate type of funding.
Rank and %
…. …. % (a) National Government
…. …. % (b) Regional Government
…. …. % (c) National, publicly-funded Government agency
…. …. % (d) European Commission
…. …. % (e) Not-for-proft organisations (charity, foundations, learned societies)
…. …. % (f ) Industry or other for-proft organisations
…. …. % (g) Overseas Governmental agencies
…. …. % (h) Other (please indicate: ……)
CHAPTER 6: ANNEXES
61
(4) For each of these top three categories of funding organisation, indicate the primary co-funding model
used (tick one model for each funder only):
Co-funding model 1
st
funder 2
nd
3
rd
(a) Formula-based core funding ___ ___ ___
(b) Competitive-based funding ___ ___ ___
If Competitive, how is funding awarded
(i) 100 % of all costs of research ___ ___ ___
(ii) 100 % of direct costs only of research ___ ___ ___
(iii) Direct costs plus set overhead (indicate %) ___ ___ ___
(iv) % of research costs ___ ___ ___
(v) other (indicate…..) ___ ___ ___
(5) What conditions do each of the three main funding organisations usually attach to their funding (tick
all that apply)
Conditions 1
st
funder 2
nd
3
rd
(a) Match funding by University ___ ___ ___
(b) Match funding from other funder ___ ___ ___
(c) Time sheets ___ ___ ___
(d) Accountability for expenditure at level of research project ___ ___ ___
(e) Activity reports on outcome of research ___ ___ ___
62
(6) Where core funding, used to support research, is received by universities, what is the primary method-
ology used for allocating funds to the university (tick only one):
(a) Formula based using past performance metrics ___
(b) Formula based using current volume/activity metrics ___
(c) Set lump sum amount ___
(d) Set proportion of national core funding available ___
(e) No core funding ___
(f ) Other (please indicate) ___
(7) Where core funding is received by universities, what degree of autonomy do universities have in using
these funds (tick one only):
(a) Free to use as see ft with no reporting requirement ___
(b) Free to use as see ft with explicit reporting requirement ___
(c) Must be allocated to specifed activities ___
(d) Other (please specify) ___
63
Characteristics
(8) For project-based external research funding, do universities have to adapt their fnancial manage-
ment systems to meet the requirements of their principal funding organisations?
(9) Is there consistency between the rules and conditions imposed by external research funders on awards
for project-based research?
(10) Is there an explicit requirement, or expectation, by the principal external research funders for universi-
ties to provide or obtain co-funding for project-based research?
(11) What are the primary obstacles or problems that research funders fnd in awarding funding to univer-
sities (e.g. relating to the internal organisation of universities, or to external pressures or constraints)
(12) Are the principal funders of research (as indicated under question 3 above) planning to change, or
have they recently changed, their methodology or their criteria for awarding funds? If yes, what are
they and what are the drivers?
(13) Is there a general trend by the primary funders of project-based research to simplify their procedures
and/or to streamline their fnancial reporting requirements?
(14) Is there a general trend by universities to change their fnancial management systems and, if so, what
are the drivers and intended outcomes?
(15) Are universities adopting, or being required to adopt, a strategic approach to the management of
research and the internal allocation of resources to support their research?
64
Country Name of organisation Name of contributor Position
Austria
ARC Karl-Heinz Leitner Expert
FFG Michael Binder Head of Strategy Unit
FFG Klaus Pseiner General Manager
FWF Christoph Kratky President
Rectors Conference Heribert Wulz Secretary-General
University Vienna Lottelis Moser Head of Research Services
University Linz Franz Wurm Vice-Rector for Finance
Belgium
IWT Alain Deleener Co-ordinator European
programmes
Cyprus
Research Promotion Foundation Kalypso Sepou Head of Unit, European Research
Programmes and International
Collaboration
Czech Republic
Technology Center of the
Academy of Sciences
Vladimir Albrecht Deputy Director
Denmark
Aahus University Lauritz B. Holm-Nielsen Rector
Estonia
Archimedes Foundation Ülle Must NCP Coordinator
Research Policy Department,
Ministry of Education and
Research
Rein Kaarli Adviser
Finland
Tekes Marita Virtanen Chief Adviser
Academy of Finland Mervi Taalas Director Financial Unit
Helsinki University Marja Nykänen Head of Strategic Planning and
Development
Rectors Council Liisa Savunen Secretary-General
Ministry of Education,
Department for Education and
Science Policy, Division for
Higher Education and Science/
Research
Kauppinen Petteri Senior Adviser
France
University Lyon 1 Lionel Collet Rector
Germany
Volkswagenstiftung Wilhelm Krull Secretary-General
Siemens AG Uwe Hermann Chief Technology Ofce —
Cooperation Management
Corporate Technology
Greece
PRAXI / HELP-Forward Network Epaminondas Christoflopoulos Technology Transfer Consultant
Hungary
Hungarian Scientifc Research
Fund (OTKA)
Gabor Makara President
Annex 2:
Overview of contributors to this report
65
Country Name of organisation Name of contributor Position
Iceland
Rannis Magnus Lyngdal Magnusson Senior Adviser
Ireland
Enterprise Ireland Imelda Lambkin National Director for FP 7
Higher Education Authority Sarah Dunne Research Programmes Expert
Irish Universities Association Conor O‘Carroll Head of Research Ofce
Israel
ISERD Yael Gilead Expert
Latvia
Latvian Academy of Science Dace Tirzite Expert
Lithuania
Agency for International Science
and Technology development
Programmes
Aiste Vilkanauskyte NCP Coordinator
Ministry of
Education and Science
of the Republic of Lithuania,
Division of International
Research Programmes
at Department of Science
and Technology
Kristina Babelyte
Netherlands
Philips Research Emil Aarts Vice President Scientifc Program
Manager
SenterNovem Lisette Janse Manager Knowledge
Infrastructure
SenterNovem Hans Kruithof Senior Adviser
Norway
Research Council of Norway —
Norwegian Liaison Ofce for EU
RTD
Gudrun Langthaler Head of Ofce
Poland
PolSCA — Polish Science Contact
Agency
Jan Krzysztof Frackowiak Director
Romania
National Authority for
Scientifc Research
Viorel Vulturescu NCP Coordinator
Slovak Republic
Slovak Research and
Development Agency
Department for International
Cooperation
Peter Beno NCP Coordinator
Slovenia
Ministry of Higher Education,
Science and Technology
Bojan Jenko NCP Coordinator
Spain
CDTI Serafín de la Concha Head of Division, European
Community Programmes
Universitat Autonoma de
Barcelona
Ramon Noguera i Hancock Research Park Business Manager
NB: For Portugal and Bulgaria, no exploitable data was received.
66
Country Name of organisation Name of contributor Position
Sweden
Swedish Agency for Innovation
Systems (Vinnova), International
Collaboration and Networks
Gunnar Sandberg NCP Health, Ideas, Regions
Vetenskapsrådet Sweden,
Department:
Research Policy
Johan Fröberg Analyst
Switzerland
Swiss National Science
Foundation
Danièle Rod Head International Afairs
CTI KTI Innovation Promotion
Agency
Ingrid Kissling Head
Turkey
State Planning Organisation
(DPT)
Halil Ibrahim Akca Under Secretary
State Planning Organisation
(DPT)
Bilgehan Ozbaylanli Expert
United Kingdom
UK Research Ofce in Brussels Amanda Crowfoot Director
Universities UK Chris Hale Policy Adviser
Research Councils UK Helen Thorne Head
United States
Jeferson University Sam Taylor Programme Manager
Ofce of Science and Technology,
Embassy of Austria
Philipp Marxgut Director and Attaché for Science
and Technology
67
Associations
EUA — European University Association John Smith Deputy Secretary-General
EUA — European University Association Thomas Estermann Senior Programme Manager
EFPIA — European Federation of Pharmaceutical Industries
and Associations
Karen Strandgaard Research Director’s Group
EIRMA — European Industrial Research Management
Association
Andrew Dearing Secretary-General
European Commission
Megan Richards Research DG B, Director, ‘Resource Management’, Joint Research Centre
Giorgio Clarotti Research DG B1, Policy Ofcer
Philippe Coenjaarts Research DG A5, HoU Certifcation Policy
Irene Norstedt Research DG, Head of Sector IMU JU
William Cannell Research DG S1, Head of Unit
Robert-Jan Smits Research DG B, Director
Walter Schwarzenbrunner DG INFSO S, Director
ERC — Scientifc Council
Helga Nowotny Vice-President
Note that although contributions were invited, no input was received from the
following associations:
Taftie — The Association for Technology Implementation in Europe
ESF — European Science Foundation
Eurohorcs — European Heads of Research Councils
68
In providing funding for universities, how do you experience the relation between external project- •
based funding and its impact on universities fnancial management? Is there any impact?
Do you expect changes in behaviour from the increasing number of autonomous universities in •
Europe? What is your perception of fully autonomous universities, particularly in terms of strategic
research development and fnancial management issues?
In the context of the modernisation agenda, autonomous, increasingly entrepreneurial and thus •
fnancially sustainable universities are high on the political agenda. To what extent do you think the
conditions of external funding can assist the move towards full recovery of research costs as a major
component of sustainability in university-based research?
What is your position towards supporting overhead costs of universities? Under which conditions •
and to what extent are overheads funded? Is there a long-term strategy. If yes, what is it like?
Annex 3:
Questionnaire to selected funding agencies
69
(1) Do you have core funding entitled for research?
(2) Do you have external project-based funding for research?
Please provide a breakdown by category:
% (or amounts in euro) per national funding organisation/agency,
% (or amounts in euro) European framework programme?
% (or amounts in euro) other international programmes?
% (or amounts in euro) industry?
% (or amounts in euro) foundations or non-proft sources?
% (or amounts in euro) others?
(3) What is the ratio of core to external project-based funding at your university?
(4) What is the total budget of your university?
(5) Are the conditions and requirements of external project-based funding diferent? Y/N
(6) Please describe the major diferences and challenges of funding conditions and requirements, and
how you deal with it with respect to the fnancial management and potentially its implications on
the strategic decision-making.
(7) Do you have a specifc unit at the university assisting in the preparation and management of exter-
nal project-based funding? Do you think this unit can meet researchers’ requirements adequately? If
there are any, what kind of changes would you think could be necessary in the coming years?
Annex 4:
Questionnaire to selected universities
70
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