Part V - TRAC fEC

Section E: The fEC total

1. The full economic cost total for a project would have been built up using the methods described above. These costs should all be expressed in terms of the prices for each year that the work is being carried out.

Indexing to year one

2. Investigators should make a realistic estimate of the start date. There is room for improvement in this area. This will affect the fEC, and the price, perhaps materially.
3. Institutions should ensure that the year one costs (i.e. to be charged to the project in year one of its life) have themselves included appropriate indexation. Costs are often quoted to sponsors at year one price levels. However, indirect cost rates, estates charges and charges for other DA costs will initially have been calculated using historical data.
4. A reasonable assumption is for two years’ indexation to be applied to these historical rates when bidding for a research project. This is an average figure, and there will be swings and roundabouts in how appropriate it is for any one research project, but it could provide a relatively simple method of indexing to arrive at the year one rates to be used on any project.
5. (For example, projects bid for in 2005 will be based on 1 February 2005 rates that use 2003/04 data (i.e. 1 February 2004 price levels). These rates are to apply from 1 February 2005 to 31 January 2006. It could be assumed that projects bid for over this 12-month period actually start six months after application. That means that the average mid-point of year one for these projects could be 1 February 2006. This would imply that a two-year indexation of the 1 February 2005 rates is reasonable.)
6. A more detailed calculation could be made, based on the specific (likely) start date of each project, coupled with information that will be available from the Research Councils about their indexation practices. However, this would be complicated and need not be done unless institutions wish to. The two-year indexing assumption for indirect cost rates and estates charges is an acceptable basis for TRAC.
7. In order to arrive at year one rates, an institution should apply the indices that it is using in its planning processes – e.g. those used for their financial forecasts reported to their Funding Council.
8. The salaries quoted at year one prices for investigators should include an element to recognise promotion/increment drift over the life of the project. This was covered above.

Indexing for future years

9. A realistic profiling of costs should be made to ensure that indexing (whether done by the sponsor or by the institution) and therefore the fEC, are appropriate. This applies to all elements of cost in the fEC: DI, DA, and indirect costs.
10. This will help to ensure that the fEC-based prices are appropriate and will give an institution valuable information about the level of the price and the fEC (and therefore their possible contribution). It will also allow standard journal entries to be set up on the accounting system so that future year’s postings of PI costs, estates, and other directly allocated costs such as equipment, can be made easily, at the right price levels.
11. The profiling can, however, be made over the years that the sponsor will be funding the project. This may be a shorter time period than the elapsed period that that the project will actually be ‘live’. Profiling can be made on a linear basis, but it is good practice to profile costs (including PI costs) according to the year they are expected to be incurred. Indirect costs and estates costs could again be spread in a linear fashion, or across years according to FTEs in each year (the latter method is good practice).
12. Pay increments for Research Assistants should be included. These could be based on one spinal point increase each year. Pay increments for Investigators are included when indexing to year one.
13. Indices should then be applied both for pay and non-pay, in accordance with Funding Council planning guidelines, to allow the costs to be expressed in future year’s prices.
14. Institutions can use their own assumptions on indexation rates and cost profiling of costs. Indexation dates could for example be a 12-month period calculated: from the expected start date of the project; or from 1 April each year; or from 1 August each year. There could be separate dates for pay awards. This is an institutional decision; but it is good practice (and less burdensome) to use one method for all projects.
15. It is good practice for an institution to use the same price indices and pay awards as those used by the institution in its internal planning and forecasting.
16. However, the Research Councils will be asking for costs based on year one price levels and will then be using their own indexing methods. Institutions may find it easier to replicate these, if published – see Research Council DSR website accessible at Annex 1.