Introduction and background to FEC

What is FEC?

FEC is a methodology for calculating the total costs to an institution of undertaking a project or activity in a sustainable manner. It is a development of TRAC (The Transparent Approach to Costing) to provide a forecast of the full economic costs of undertaking a research project and was the responsibility of the Joint Costing and Pricing Group (JCPSG), a Higher Education sector body established by the Funding Councils and supported by external advisors, JM Consulting Ltd.

FEC is defined as 'a price, which, if recovered across an organisation's full programme, would recover the total cost (direct, indirect and total overhead) including an adequate investment in the organisation's infrastructure'.

Under FEC, all Higher Education Institutions (HEIs) in the UK are required to identify all direct and indirect costs for each research project, including space/estate charges, depreciation, an adequate recurring investment for infrastructure, equipment, consumables, travel and the cost of all staff working on the project (including Principal Investigators, research assistants, technical and administrative staff).

The FEC of each research project is calculated on a reliable and comprehensive basis. This is then used to set the price for grants made by the Government (the Research Councils and other Government Departments) and informs the price on projects for other sponsors.

For more information about pricing, please see the Current pricing position page.

Back to top

Importance of FEC

Sustainability

TRAC data showed a significant under-funding on research, as it highlighted the inadequate investments being made in infrastructure for teaching and research. The evidence was supported by national studies of infrastructure carried out in 2001 and 2004. It showed that the UK University research system was in a huge deficit - calculated at approximately £1 billion per year, with the long term need for the system to become more secure and sustainable. Volumes of research had increased, however HEIs had developed a ' low price culture' in which they failed to recover the full economic costs of their research.

Institutions, in order to manage their research on a sustainable basis, therefore have to:

  • Establish and recognise the FEC of Research
  • Manage the research activity strategically
  • Secure better prices for Research
  • Improve project management and cost recovery
  • Invest in Research infrastructure

These changes to costing are therefore part of the Government's wish for institutions to take full responsibility for their own financial sustainability, with the emphasis on recovering FEC.

Cost Recovery

The absence of robust data on the full costs of research, had led to many institutions underestimating the costs of research and other projects. In the past, grant applications were generally made on the basis of directly incurred costs, and maybe some directly allocated costs. These existing costing methods had led to research being subsidised to an unmanageable extent, with public funders experiencing little pressure to pay the real costs of the work they fund.

The Office of Science and Technology conducted a consultation exercise on the 'Sustainability of University Research' in 2003. The Government responded in its ten year 'Science and Innovation Investment Framework' ('The framework') in 2004, and concluded that universities needed to know the full costs of the research they undertook and to invest appropriately.

The HEFCE Financial Memorandum says: "Institutions should know and understand the full economic costs of the activities that they undertake, and this information should be taken into account within their management decision-making processes. Institutions should seek to recover the full economic costs of all their activities, whether pricing is determined by reference to those full economic costs or by reference to prevailing market conditions. While there may be cases for individual projects or activities to be priced at below their full economic costs, this should be done as a conscious decision, within the context of strategic objectives. Institutions are expected, taking one year with another, to recover, in aggregate, the full economic costs of all their activities across the full range of their activities."

Cost recovery will be improved by preparing project applications to Research Councils, Government departments and other funders, on a FEC basis.

Back to top

Clarification of Costs under FEC

In general the FEC of a project is made up of several cost components, some of which are identified by those undertaking the project and some which are automatically calculated. These cost components are grouped under the following headings:

  • Directly Incurred (DI) costs
  • Directly Allocated (DA) costs
  • Indirect costs

Directly Incurred Costs

These are the costs that are directly incurred on a research project, and include both staff and non-staff costs. If the project did not take place then the expenditure would not be incurred, or it would be wholly dedicated to another project or activity. These are generally straight forward, as all costs of these items will be charged to the particular project. Examples include research assistants, consumables, travel and subsistence, dedicated technicians, equipment purchases, and research facilities where charge-out rates have been calculated. Further information can be found at Directly Incurred (DI) Costs.

Directly Allocated Costs

These are costs of resources, both staff and non-staff that are shared between several projects or activities and are charged to the projects on the basis of estimates rather than actual costs. These include:

  • DA academic staff costs. These are the costs of academics and research staff who work on more than one project. The Principal Investigator and any Co-Investigators estimate their time on a project (hours per week or per project). Salary bands are then used to apply the costs according to their grade. For more advice on how to estimate your time on a project please see the Research project time estimation page.
  • DA laboratory technician costs. These are the costs of pooled technicians supporting a number of projects.
  • DA non-staff costs.  These are the costs of using Research Facilities where charge-out rates have been calculated.
  • Estates costs. These are the costs of the space in the research area required for the project, and local support space charged on the basis of the actual costs incurred by the University.  Two rates are calculated (one for laboratory based departments, and one for non-laboratory based departments) and are charged to projects as a £ per full time equivalent (FTE) of all academic and research staff (not support staff unless they are performing research).
  • Infrastructure Technicians costs. These costs take into account the costs of time spent by laboratory technicians on activities that cannot be directly identified with specific research projects such as health and safety etc. A rate is calculated and added automatically to research project costings based on the number of academic/researcher FTEs (just as the Estates and Indirect costs are) in departments that use the lab Estates rate.

Indirect Costs

These are non-specific costs charged across all projects not otherwise included as Directly Allocated costs. These costs are necessary for underpinning research but cannot be allocated to individual projects. One indirect cost rate is calculated at Oxford and charged to projects as a £ per full time equivalent (FTE) of all academic and research staff (not support staff unless they are performing research).

Back to top

Researcher Salary Costs

These can be either Directly Incurred (DI) or Directly Allocated (DA).

  • The costs of research staff dedicated to the project are Directly Incurred.
  • The costs of academics that work on several projects and activities are generally Directly Allocated.

The key distinction between these is that:

  • Directly Incurred costs are charged on the basis of actual salaries and actual time; whilst
  • Directly Allocated costs are charged on the basis of standard charge-out rates (salary pay bandings) and estimated time (no timesheets are required).
Back to top

Equipment and Research Facility Costs

Equipment purchased specifically for a project is a Directly Incurred cost. All costs of the purchase should be included as well as the costs of installation, set-up, testing, maintenance, spares, additional insurance, exceptional procurement costs and buildings modification. Where equipment is being built rather than being bought, the materials used in the manufacture or assembly process can be included as a DI cost, but the labour costs cannot. These are part of staff costs and charged as either a DI or DA laboratory technician cost. However these costs can only be included as a DI cost where the same costs are not included as a DI cost on any other project.

When the FEC is to include the costs of equipment purchased for a specific project, these equipment costs should be written off against the project according to the likely useful life of the equipment (which is often the same as the useful life of the grant).

Where a department wishes to charge out for using a specialist service/facility, this can be done through auditable charge-out rates with the designation of the service/facility as either a Major Research facility (MRF) or a Small Research Facility (SRF). The total costs of these facilities are then removed from the annual determination of the University's Estates and Indirect cost rates (to ensure no double charging of sponsors). Departments have the choice of charging a facility out as either a Directly Incurred or Directly Allocated cost.

Back to top

Laboratory Technicians and Other Support Staff

Under FEC laboratory technician costs can be either Directly Incurred, or Directly Allocated.

The costs of clerical, administrative and departmental IT staff where they support Research are included in the Indirect cost rate unless they will be employed on the project and incurred as a DI cost.

Back to top

How the FEC Rates are calculated

The Indirect costs and Estates costs used to calculate the rates are derived from the TRAC Support cost total, produced from the annual TRAC process. This process takes the expenditure from the University's audited financial statements, adds on two cost adjustments, and attributes these costs to the activities of Teaching, Research and Other using a number of cost drivers (one of which is data from the Academic Activity Survey). The Indirect costs and Estates costs used to calculate the FEC rates are derived from the Support costs attributed to Research.

The Estates Rates

The estates costs for Research in non-laboratory departments, is divided by the number (FTEs) of academic and research staff working on Research in those departments, plus PGR student FTEs in those departments weighted by 0.5.

This gives a £/FTE non-laboratory Estates rate.

The estates costs for Research in laboratory departments, is divided by the number (FTEs) of academic and research staff working on Research in those departments, plus PGR student FTEs in those departments weighted by 0.8.

This gives a £/FTE laboratory Estates rate.

The Indirect Cost rate

The total Indirect costs for Research divided by the total FTEs for Research provide the Indirect cost rate for Research (£ per FTE). The FTE numbers used in the Indirect cost rate comprise:

  • The time spent on direct Research activities (excluding support time) of academic staff.
  • All of the time of research staff, including visiting researchers.
  • The FTE number of post-graduate research students (PGR) multiplied by a standard weighting of 0.2.

All the rates are set once a year (1 February) and used for the following 12 months.  

Information on the current rates can be found at FEC, Inflation and Exchange rates.

Back to top

Related links