University of Leeds
and Resources Committee
Report on Costing and Pricing and the Transparency Review
paper provides members with an update on progress of the
Costing and Pricing of Research Projects as well as an
update on the Transparency Review both nationally and
and Pricing of Research
university research costing and pricing policy is to ensure
continued financial viability whilst providing maximum
scope for flexibility in relation to University and Resource
Centre objectives for academic excellence. It is anticipated
the overall portfolio of a resource centre must recover
the immediate costs of carrying out research whilst also
making a significant contribution to maintaining research
contribution should be in line with the resource centre
operating statements and plans so the financial status
of a resource centre's overall research portfolio may
severely limit flexibility. Contribution rates lower than
our peers. Rise to average rate for our peers equivalent
to a gift of £3m. If the price is too low resource
centres should consider rejecting the work or reducing
the scope so that it brings costs in line with income.
Additionally, the University should not normally accept
extensions or supplements to research contracts at worse
conditions than those included in the original contract.
The Research Project Appraisal forms (RPAs) supports the
decision making process by capturing cost and anticipated
benefits. RSU also provides specific guidance on the types
Centres are monitored on their performance through the
Resource Centre Monitoring Committee. Such university
policies also demand improved management information systems
and improved negotiation skills.
comparison to our peer universities the contribution rate
at Leeds is significantly below that of other institutions.
Other universities have:
Significant in-depth costing processes , in all cases
'full' justification is required where the price of the
research does not meet its costs before a sponsor can
be approached. Many Universities have different range
of overheads depending on the sponsor. There is central
intervention in the costing of research projects as well
as monitoring under-performance centrally. In some cases
the central research units over-ride any negotiation previously
carried out by the Principal Investigators (PI).
best practice at Leeds in acquiring good contribution
rates is found in Dentistry and includes peer to peer
interaction, Head of Department willing to turn down work
that would be under-funded, group largely self funding
from a variety of sponsors, group 'knows' their target
marked and has spent years cultivating appropriate research
industrial contacts, development of strong negotiation
skills and proportion of overhead goes to PI as an incentive.
balance must be achieved between costing and pricing.
Costs include the project resources, existing resources
and infrastructure. The benefits include both quantitative
and qualitative including the project fee, long term exploitation,
academic kudos, publication rights, use of results, RAE
related income, access to equipment. Ultimately it is
for a Head of Resource Centre to decide whether or not
a particular piece of research should be undertaken.
Progress of the Transparency Review
David Westury, Vice-Principal of the University of Birmingham
and Chair of the Joint Costing and Pricing Steering Group
and Dr Jim Port, JM Consulting visited the University
to report on progress of the review.
main objectives of the review were to ensure the transparency
of costs of publicly funded research and to ensure public
funds were being spend cost effectively. The focus of
the review is on expenditure as the majority of University
income is from non-public sources. There is no agreed
method for allocating income and although this means there
is no measure of profitability, it also means that institutions
do not report potentially commercially sensitive information.
are required to report the expenditure as per the financial
statements to HEFCE over the five mandatory activity classifications.
Two accounting adjustments are then made and added to
total expenditure as follows:
Infrastructure adjustment - an additional amount is calculated
to represent the present productive capacity to ensure
that the assets of the institution are maintained in their
current state. This is based on government formula and
highlights Universities are spending less on, for example,
building maintenance, than is required to maintain the
2. Cost of capital employed - an additional amount to
ensure that institutions account fully for the economic
cost of capital. This covers:
· Financing costs of institutions covering the
existing costs of borrowing and the opportunity cost of
institutional cash used for financing.
· A surplus for the rationalisation and development
of the institutions business capability and capacity.
on unofficial results these adjustments account for 7%
of sector expenditure. In cash terms this is £950m
for the sector for the infrastructure adjustment alone.
first year results have shown that both publicly and non-publicly
funded research are in deficit. Publicly funded teaching
is in deficit, but this is relatively small. There is
no evidence public funds are supporting non-publicly funded
activities. Indeed the results show that non-publicly
funded teaching and other activities support deficits
particular the results for research show that most research
sponsors pay inadequate overheads. This can be attributed
to both cultural and historical reasons as historically
the sector has a low price culture reinforced by the dual
support system and the RAE focuses on volume rather than
contribution - both academic and financial.
are not-for-profit organisations but they cannot survive
if they do not invest for the future. This implies managing
costs, responding to market and generating surpluses.
However, as PFT is just in balance and R in deficit institutions
cannot afford the required level of investment. Any increase
in public funds will be conditional on institutions managing
assets and activity. Transparency is one of the sector's
most powerful tools to demonstrate funding needs and manage
Treasury has recognised the under investment in science
infrastructure and the Joint Infrastructure Funding (JIF)
and the Science Research Infrastructure Funding (SRIF)
has been provided to address this. Although the University
received £20.3m SRIF funding it is not recurrent.
JM Consulting are currently reviewing the recurrent Research
and Human Resource infrastructures and the reports due
at the end of November should feed into the next Comprehensive
Spending Review. A parallel study is also being undertaken
for teaching, arts and humanities. Although the Arts and
Humanities Research Board (AHRB) was established in October
1998 to address issues in the Arts this body does not
look at the infrastructure. In particular a further study
to look at Libraries is expected to review the underfunding
of Libraries and the impact on the Arts.
sponsors of research projects, including charities, research
councils and the EU pay less than the full economic costs.
HEFCE QR funding supports the infrastructure for research
councils via the dual support system but in recent years
the QR grant has grown much slower than the volume of
research creating an infrastructure gap. As part of the
transparency review the recommendation is that government
sponsors should use the TR process as a basis for negotiating
funding of research is an important source of funding
in a number of areas. Although they do not pay overheads
they will pay for infrastructure and additional direct
costs. In particular:
"The medical research charities were not established
to invest in bricks and mortar
Nor were we set up
to pay for lighting; heating, water, security, building
maintenance or uniforms. Rather, our mission is to help
the State find cures for disease and to increase knowledge
for the health benefit of mankind" - Mike Dexter,
To address this JM Consulting has recommended to HEFCE
additional QR grant to remove the difference between charity
and Research Council projects. In addition HEIs must be
more business-like and professional during contract negotiations
and managing projects.
Joint Costing and Pricing Steering Group are taking a
number of initiatives forward over the next 12 months
and these include costing and pricing for the sector and
the use of indirect cost rates. JM Consulting will also
reviewing best practice for the transparency review by
looking at time allocation methods and the allocation
of indirect costs. Cost adjustments are also being reviewed
with the possibility of a further adjustment for staff
to recognise their contributions.
Progress of the Transparency Review at Leeds
The results of the first Transparency Review exercise
for 1999/2000 were sent to HEFCE by the end of July 2001
and a copy of the institutional return is enclosed (appendix
1). The results were discussed at the seminar on 3rd October
and subsequently the results by Resource Centre were distributed
to HoRCs for their comments (appendix 2). In summary both
publicly and non-publicly funded research were in deficit
and these were offset against surpluses in non-publicly
funded teaching (short-courses and overseas students)
and other activities.
The 2000/2001 annual retrospective exercise is currently
underway and resource centres have been asked to complete
schedules for the allocation of staff and non-staff costs.
This is identical to the exercises in previous years,
however, the exercise is being completed earlier in the
academic year due to the HEFCE deadline being moved.
those Resource Centres who took part in the 2000/2001
in-year verification exercise, the results of the diary
exercise are being analysed and statistical techniques
applied. Although the required response rate of 80% was
not achieved, it is hoped the results will be statistically
valid in order to avoid a repeat of the exercise. These
results of this exercise will be signed off by the HoRC
and will inform the 2000/01 annual retrospective time
allocation. Discussions will then take place with the
Resource Centres to provide feedback for improving the
process in future years.
Review processes must improve over time and discussions
are taking place with the non-academic areas, in particular
Estates Services and the Academic Services in order to
improve the allocation of their costs. Changes will be
made in the 2000/2001 return and there is expected to
be a refinement of the methods over time.
results of the 2000/2001 exercise must be reported to
HEFCE by 31 January 2002 and a benchmarking exercise is
planned for December/January to compare the results with
During June and July meetings were held with the HoRCs
and staff meetings attended for those resource centres
taking part in the 2001/02 in-year verification exercise.
Staff were also contacted individually giving details
of the exercise, including the weeks (up to 6) they are
asked to complete. In order to improve the response rates
staff are being e-mailed in advance of the week they are
due to complete. The average response rate as at 25 September
for weeks up to and including 3rd September is currently
47%, however this does exclude staff who are on leave
and the response rates are expected to pick up. Staff
who have not made returns have been e-mailed and if no
returns are forthcoming the HoRCs will be informed.