Communication campaign Most common issues identified: - Subcontracting - Indirect Costs - Indirect Costs Thanos BATSILAS FCH JU Financial Officer.

Communication campaignCommunication campaignMost common issues identified: - SubcontractingMost common issues identified: - Subcontracting

- Indirect Costs- Indirect Costs

Thanos BATSILAS Thanos BATSILAS FCH JU FCH JU

Financial OfficerFinancial Officer

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Third parties & other

sensitive relations

Link with the project Legal situations

Carry out the projects (core tasks)

1. Beneficiary

Carry out ancillary tasks2. A third pary working as a sub-contractor

3. A third party linked to a beneficiary working under special clause 11

Give access to some resources (staff, lab)

4. A third party making available ressources for free

5. A third party making available ressources and being reimbursed by the beneficiary

Sell (lease) equiment 6. A supplier

Subcontracts (1)

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– Who ? • Works under business conditions with profit purpose • Not subordinated to nor under supervision of beneficiary • Not another beneficiary• Not an affiliate

– In What Conditions ?• Limited and non core part of the project

• Not R&D• Not the coordinator’s tasks

• Tasks and amount indicated and justified in technical annex • Beneficiary remains responsible• If IP, it must belong to beneficiary• Best value for money, transparency and equal treatment

Several bids (or public procurement) Except for pre-existing framework agreement

Common errors:

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• Subcontracting costs (core tasks) are claimed without being indicated in the DoW (technical annex-I). If not in the DoW, request approval/amendment.

• Subcontracting costs (minor tasks e.g. website, catering etc) are claimed as other direct costs. To be claimed under subcontracting cost category

• Subcontracting between beneficiaries is not allowed. If beneficiary A (the “seller”) sells to beneficiary B (the “buyer”), then it is the beneficiary A (and not the beneficiary B) to claim the costs (NB without any mark-up and profit, only the costs)

Consultants: sub-contractor or personnel?

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Subcontractif hiring consultants to perform part of the work & the conditions of Art. II.7 of FCH JU GA are fulfilled:Sub-contracting agreement based on business conditions w/ profit includedSub-contractors do not have any IPR or ownership rights on the deliverablesdoes not usually work on the premises of the beneficiary and is not under the direct instruction /hierarchical supervision by Beneficiaryremuneration based on the delivering of specific outputs/products rather than on working hours ;Sub-contrcating between beneficiaries of the GA cannot be tolerated.

Common error: claimed as personnel costs

Personnel costs

if the following cumulative criteria :•beneficiary has a contract with a person to work tasks under the FCH JU project,

•person must work under the instructions of the beneficiary + in the premises of the beneficiary

•the result of the work belongs to the beneficiary

•costs of employing the consultant not significantly different from the employees

•The remuneration is based on working hours rather than on the delivering of specific outputs/products and should be recorded in the accounts of the beneficiary,

•Travel and subsistence costs related to such consultants' have to be paid directly by the beneficiary in order to be eligible.

•Not a criteria: whether the consultants are self-employed or employed by a third party,  

Common error: claimed as subcontracting costs

Subcontracts (2)

Indirect Costs

Costs excluded Identifiable indirect taxes including VAT Duties Interests owed Provisions for possible future losses or charges Exchange losses, costs related to return on capital Costs declared or incurred, or reimbursed in respect of

another FCH JU or EU/Euratom project Debt and debt service charges, excessive or reckless

expenditure 6

Indirect costs are all those eligible costs which cannot be identified by the beneficiary as being directly attributed to the project, but which can be identified and justified by its accounting system as being incurred in direct relationship with the eligible direct costs attributed to the project

Indirect costs are all those eligible costs which cannot be identified by the beneficiary as being directly attributed to the project, but which can be identified and justified by its accounting system as being incurred in direct relationship with the eligible direct costs attributed to the project

Methods of

calculation

Methods of

calculation

Indirect Costs

Actual indirect costsBeneficiaries with an analytical accounting system that can identify their indirect costs and assign them to the different projects and activities

Actual indirect costsBeneficiaries with an analytical accounting system that can identify their indirect costs and assign them to the different projects and activities

Simplified methodBeneficiaries that cannot agregate their indirect costs at a detailed level (centre, department), but only at the level of the legal entity

Simplified methodBeneficiaries that cannot agregate their indirect costs at a detailed level (centre, department), but only at the level of the legal entity

Flat rate 20%Industry whose accounting systems do not make a distinction between direct and indirect costsNon-profit public bodies, secondary and High Education establisments and research organisations (optional)

Flat rate 20%Industry whose accounting systems do not make a distinction between direct and indirect costsNon-profit public bodies, secondary and High Education establisments and research organisations (optional) 7

Indirect Costs reimbursement

8* For this calculation costs of subcontracting and resources made available by third parties outside of beneficiary’s premises must be deducted from direct costs

Identification method

Reimbursement

Actual indirect costs Including simplified methods

Reimbursement of indirect costs with a max of 20% of direct costs(*)

if indirect costs < 20% of DC(*)

=> reimbursement = actual indirect costs

if indirect costs >20% of DC (*)

=>reimbursement = 20% of DC

For CSA: same reasoning but 7%

Flat rate of 20% of direct costs (*)

20% of direct costs (*)

For CSA: same reasoning but 7%

Actual indirect costs

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Indirect costs are all those eligible costs which cannot be identified by the beneficiary as being directly attributed to the project, but which can be identified and justified by its accounting system as being incurred in direct relationship with the eligible direct costs attributed to the project

Indirect costs are all those eligible costs which cannot be identified by the beneficiary as being directly attributed to the project, but which can be identified and justified by its accounting system as being incurred in direct relationship with the eligible direct costs attributed to the project

Linked to the project itself? Linked to the project itself?

Linked to EU-research projects in general? Linked to EU-research projects in general?

Linked to research in general? Linked to research in general? Including other activities such as teaching,

production or sales? Including other activities such as teaching,

production or sales? Including all indirect costs at the level of the organization?

Including all indirect costs at the level of the organization?

Actual indirect costs

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Actual indirect costs

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2010 2011A General and Administrative expenses 346,173.22 360,810.10A1 Consumables 20,197.52 21,961.76

A1.1 Office supplies 2,122.70 2,851.76

A1.2 Electricity 13,545.52 15,235.30

A1.3 Water 4,529.30 3,874.70

A2 Hire and rental expenses 66,756.81 81,001.03A2.1 rental for premises 20,000.00 20,000.00

A2.2 car fleet 15,000.00 15,000.00

A2.3 computer hardware 31,756.81 46,001.03

A3 Repairs and maintenance 33,993.23 32,950.88A4 Insurance 7,929.70 9,283.46A5 Administrative expenses 35,582.31 31,709.70

A5.1 Telecommunication, postal and other G&A expenses 20,000.00 17,000.00

A5.2 Travel and subsistence expenses 15,582.31 14,709.70

A6 Professional fees 15,382.00 20,552.44A6.1 chartered accountant 8,832.00 12,052.44

A6.2 lawyer 7,000.00 8,500.00

A7 Management fees 164,150.50 132,460.50A8 Entertaining 2,181.15 14,691.75A9 Internship costs 0.00 16,198.58B Amortization 15,171.39 17,541.37C Indirect personnel costs 117,853.31 120,056.36D=A+B+C TOTAL INDIRECT COSTS 479,197.92 498,407.83

E DIRECT PERSONNEL COSTS 953,889.69 1,070,474.42

D/E INDIRECT COSTS RATE 50.24% 46.56%

Actual indirect costs

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2010 2011A General and Administrative expenses 346,173.22 360,810.10A1 Consumables 20,197.52 21,961.76

A1.1 Office supplies 2,122.70 2,851.76

A1.2 Electricity 13,545.52 15,235.30

A1.3 Water 4,529.30 3,874.70

A2 Hire and rental expenses 66,756.81 81,001.03A2.1 rental for premises 20,000.00 20,000.00

A2.2 car fleet 15,000.00 15,000.00

A2.3 computer hardware 31,756.81 46,001.03

A3 Repairs and maintenance 33,993.23 32,950.88A4 Insurance 7,929.70 9,283.46A5 Administrative expenses 35,582.31 31,709.70

A5.1 Telecommunication, postal and other G&A expenses 20,000.00 17,000.00

A5.2 Travel and subsistence expenses 15,582.31 14,709.70

A6 Professional fees 15,382.00 20,552.44A6.1 chartered accountant 8,832.00 12,052.44

A6.2 lawyer 7,000.00 8,500.00

A7 Management fees 164,150.50 132,460.50A8 Entertaining 2,181.15 14,691.75A9 Internship costs 0.00 16,198.58B Amortization 15,171.39 17,541.37C Indirect personnel costs 117,853.31 120,056.36D=A+B+C TOTAL INDIRECT COSTS 479,197.92 498,407.83

E DIRECT PERSONNEL COSTS 953,889.69 1,070,474.42

D/E INDIRECT COSTS RATE 50.24% 46.56%

Actual indirect costs

• Telecommunication, postal and other G&A expenses

- Once the accounting system considers these costs as indirect, ensure they are not claimed as direct costs. If claimed as direct costs, they should be removed from the IC pool

• Travel and subsistence expenses

- Once the accounting system considers these costs as indirect, ensure they are not claimed as direct costs. If claimed as direct costs, they should be removed from the IC pool

- Expenses by non-productive employees should be removed

- Expenses by productive employees but not linked to the project should be removed• Lawyer fees

- Eligible if incurred in direct relationship with the eligible DC attributed to the project• Entertaining expenses (e.g. team building, receptions etc)- Non eligible, to be removed

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20% flat rate

Subject to the accounting principles of the beneficiaries, the following items may be considered as indirect eligible costs: -costs related to general administration and management; -costs of office or laboratory space, including rent or depreciation of buildings and equipment, and related expenditure such as water, heating, electricity, maintenance, insurance and safety costs; -communication expenses, network connection charges, postal charges and office supplies; -common office equipment such as PC's, laptops, office software; -miscellaneous recurring consumables; etc.

provided they can be identified and justified by the accounting system of the participant as being incurred in direct relationship with the eligible direct costs attributed to the project.

Such costs are normally deemed to be covered by the flat rate (20%) and cannot be charged as direct costs unless it is established that the accounting principles of beneficiaries consider them as direct costs.

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Indirect costs

Common errors:•ICM Actual/Simplified-IC pool includes ineligible items, -not incurred in direct relationship with the eligible DC -or already claimed as DC although the accounting system considers them as IC (depending on the characteristics of the operation in question, it is possible that some costs can be considered either direct costs or indirect costs, but no cost can be taken into account twice as a direct cost and an indirect cost.-Budgeted IC or based on 20% flat rate (NB! In case of ICM Actual, this 20% flat rate is rate for reimbursement and not rate to define and claim IC•ICM 20% flat rate-Indirect costs claimed as direct costs without being considered as DC by the accounting principles of the beneficiary•General-Mistake in choice of ICM during the first participation in FP7

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For further info: Guide to Financial Issues for beneficiaries of FCH JU Programme

Questions?

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