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Good cost recovery enables the UCL to maintain its position as one of the world's best universities. Understand how to apply the principles of good cost recovery to your research activities.
UCL is rightly proud of its position as one of the world’s leading universities. To maintain our academic excellence, outstanding teaching, and top-class research we must secure our long-term financial sustainability to continue to have the ability to invest in our academic aspirations.
A fundamental part of achieving financial sustainability is to ensure we are recovering the cost of our research activities from external research funders and partners.
Funders such as UKRI, Charities and NIHR prescribe costing limits for Higher Education Institutions but there are still principles of good cost recovery that we can follow across all research and innovation activities to support a more sustainable approach.
Good cost recovery for industry funding
The price of the project is informed by the market value of the research activity being conducted and the long-term strategic value of the partnership to the university. Value takes account of several factors, such as:
- Ownership of intellectual property
- Beneficiary of the results of the research
- Publication rights
- Follow on funding opportunity.
- Competition from peer universities
Prices should be informed by the above considerations and negotiations should start at least at 120% FEC.
The costing and pricing of a proposed project, including indirect cost rates, should not be disclosed to the Funder to maintain commercial confidence and negotiation position. Local Industry support officers in your faculty can help to construct budget information for the partner.
Industry funded projects which are funded at less than 100% FEC cannot be entered without appropriate justification that shows the link between the activity and UCL/Faculty strategy and be fully approved by Faculty Director of Operations or Faculty Dean.
What are overheads?
Overheads in FEC Methodology are a combination of Directly Allocated budget headings and Indirect Cost budget heading but the terms are used interchangeably at UCL.
The ‘Overhead budget’ on your project which is income to your department throughout the life of the project consists of:
- Estates Costs
- Infrastructure Technician
- Directly Allocated Staff
- Indirect Costs
- Any shortfall between Cost to Funder and Price to Funder on your Directly Incurred Budgets
The calculation of the Estates, Infrastructure Technicians and Indirect Costs is based on the project staff and your departments TRAC rate. Your Department Manager can provide more information on your departments rates.
What’s included in Estates Costs?
This is an institutionally calculated rate which reflects the research projects use of UCL buildings and premises-related research costs, including buildings maintenance, utilities, rent, rates, insurance, capital (depreciation), cleaning, security, and safety.
What’s included in Indirect Costs?
They include institutional costs such as finance, procurement services, human resources, IT, library, RIS and other central and local administrative services as well as general office and laboratory consumables.
Where do the overheads contributions go?
Overhead income is allocated to your Department each month. Overheads form part of the overall income mix for each Department (e.g., tuition fees, consultancy fees). Department income is firstly used to support the direct running costs of that Department e.g., core funded staff and operational costs and the remaining balance is the Department’s contribution towards central costs such as UCL building and premises related costs, maintenance, utilities, cleaning etc as well as central and local administrative services.
Support available
Expert support is available to support your research costing and achieve good cost recovery. Contact your local Department Research Support officer in the first instance. They will be able to support you in costing your new research activities and guide you through the application process.
Frequently Asked Questions
- What is the difference between indirect costs and overheads?
From a research costing perspective these terms are used interchangeably. For research costings the Indirect Costs include institutional costs such as finance, procurement services, human resources, IT, library, RIS and other central and local administrative services as well as general office and laboratory consumables. Overheads are a combination of Directly Allocated budget headings and Indirect Cost budget heading, but the terms are often used interchangeably at UCL.
- Why are the full economic costs of a research project so high?
The Full Economic Costs included on research projects is determined through a method called TRAC (Transparent Approach to Costing). This is a standardised process across the University/Higher Education sector, and as such enables consistent benchmarking of the fEC costs. The benchmarking indicates that the fEC costs at UCL are commensurate with both the sector and our peer institutions.
- Are our full economic costs much higher than those of our competitor institutions?
The annual published benchmarking data indicates that we in line with the sector and immediate peers (e.g., 2019-2020 Indexed Indirect Rate – UCL £54,375, Sector average £53,129, Peer Group average £53,141).
- What is TRAC, and how does it relate to full economic costs?
TRAC is an acronym for Transparent Approach to Costing. It was initiated in 1999 to inform government of how universities spend the funding they were given. UK Higher Education sector calculates research project budgets using Full Economic Costing (FEC) Methodology which is a development of the Transparent Approach to Costing process that is government mandated standard costing practice introduced to support the long-term financial sustainability of Higher Education Institutions. The methodology is used across the UK Higher Education sector to produce consistent and transparent research project costs with the underlying principle of establishing the actual cost of research which informs the price. In simple terms, FEC aims to capture all the costs of conducting research projects.
- Why aren’t some of the overheads on my research project paid back to me?
With the current contribution model at UCL, research overheads are paid back to individual departments and faculties.
- Why are we asking research funders to cover the costs of things that UCL should be paying for anyway, such as maintaining the estate, or providing computing infrastructure?
If there was no research conducted at UCL then the size of the estate needed would be smaller and costs lower, similar for IT costs these would also be much lower. It is therefore reasonable that research funding covers some of these costs.
- Who sets our indirect cost and estates rates?
The indirect and estate rates are set by an annual process known as TRAC. This is a methodology prescribed by the Office for Students and UKRI. Internally the rates are reviewed and authorised by the Full Economic Cost Steering Group (FECSG) and updated annually in February.
- Why is my time being charged to a research project when UCL would pay me whether I worked on it or not?
Funders expect to see requests for PI/Co-I time and cost reimbursement on research applications as this assures the Funder that the PI/Co-I’s time is being ringfenced to spend on this project.
- What should I say to potential funders who tell me that UCL’s is so expensive to work with?
UCL is a world leading university and our academic experts who are world leading in their field. UCL’s costs are in line with the sector and immediate peers as per the benchmarking. For support, contact our Award Services team.
- What is Indexation and how is the rate set?
Indexation (or inflation) is added to research costings where allowed by Funders to forecast future year spend. Some funders impose the rate of inflation/indexation that can be used on the costings. For example, UKRI do not allow HEI’s to include inflation on its costings and they add inflation at their set rate at award stage. Where these rates are not imposed, the inflation added to costings uses UCL’s own forecasted inflation rates which are calculated using government and banking forecasts and authorised by the Financial Performance and Planning Committee (FPPC) annually. These rates are reviewed annually.
Definitions and terminology
- Directly Incurred (DI) costs are project-specific costs. They are supported by auditable records and include, staff directly employed for the project, travel costs and consumables
- Directly Allocated costs (DA) are shared costs. They are based on estimates and do not represent actual costs on a project-by-project basis. This includes estates, infrastructure technicians and the Principal Investigators time
- Indirect Costs do not relate to any one project or activity but are a necessary part of the costs of undertaking an activity
- Cost to HEI is the Full Economic Cost (FEC) of Research to UCL minus the value we forecast the research will cost UCL
- Cost to Funder is the estimated value being applied for within funder regulations
- Price to Funder is the estimated Value of award (what the funder would pay, e.g., 80% FEC)
- Surplus/deficit (FEC % Recovery) is the difference between Price to Funder and Cost to HEI
- Contribution to overheads is a contribution to cover the projects use of estates costs, indirect costs and DA Staff Costs. This figure is a live value that changes depending on costs entered, bearing in mind the more non-staff costs and non-research staff you have this can reduced the overhead rate/percentage
- Project FTE is the total sum of the research staff Full Time Equivalent (FTE) included on the application. The project FTE is the driver for the calculation of the estates, infrastructure technicians and indirect costs at project level
- Transparent Approach to Costing (TRAC) is the methodology developed with the higher education sector to help them cost their activities. It is an activity-based costing system adapted to academic culture in a way which also meets the needs of the main public funders
- Full Economic Costing (FEC) is a government-directed standard costing methodology used across the UK Higher Education sector to produce consistent and transparent research project costs. The underlying principle of FEC is to establish the true cost of research, and for this to inform the amount requested from funders (the price). In simple terms, FEC aims to capture all the running costs of the research project
- FEC rates - UCL has a set rate for indirect costs across all UCL departments. For estate rates these are divided into 3 rates A, B and C, with separate rates for infrastructure technician costs where applicable for departments. These are effective from 1st February each year. The total research FTE is multiplied by these rates.