Cost Recovery and Pricing Guidelines and Procedures

Approving Authority: Executive Director of Administration

Establishment Date: 9 March 2006

Date Last Amendment: 21 July 2006

Nature of Amendment: Removal of equipment and travel grants from 2.6.1 Infrastructure Levy Exemption

Date Last Reviewed:

Publication Reference:

Contact Officer: Kim Jones, Office of the Executive Director of Administration

1.

Preamble

This document provides guidance in complying with the University’s policy for cost recovery and pricing University activities (the Policy). Faculty Resource Officers and/or staff in the Office of Research and Financial Services Division should be consulted, as appropriate, for more detailed advice about the budget or price for an activity. Financial Services Division may also develop financial tools from time to time to assist the costing and pricing of various activities

2.
Components of the full cost of an activity

When calculating the full cost of an activity, either to ensure all costs are fully recovered or to accurately estimate the University’s in-kind contribution to the activity, consideration should be given to each of the following:

• Direct costs (academic staff) or Direct costs (staff professional fees)
• Direct costs (administrative/technical staff)
• Direct costs (other)
• Capital and special costs
• Infrastructure costs
• GST

The University has considered its competitive neutrality obligations in drawing up its Cost Recovery and Pricing Policy and these associated Guidelines and is of the view that any competitive advantages or disadvantages arising from the University’s public funding have been adequately addressed.

2.1 Direct costs (academic staff)
Includes:
• Pro-rata gross salary and salary on-costs of all academic staff involved in the project, but who are not paid out of project funds; and
• Pro-rata gross salary and salary on-costs of academic staff, such as postdoctoral research fellows specifically appointed to the project and paid out of project funds.

Applicable statutory oncosts refers to payroll tax, employer’s contribution to superannuation, workers compensation insurance, leave loading and severance levy. As well as statutory salary oncosts, the University incurs additional oncosts associated with annual leave, sick/special leave, long service leave, public holidays, time spent in training, meetings, Outside Studies Programmes, conference leave, etc. The salary multiplier labour charge financial tool enables calculation of full salary oncosts incurred by the University, which will vary depending on individual circumstances.
Direct costs for academic staff are calculated as follows:

Method A for payroll costs sought in budgets for research projects funded from competitive grants Pro-rata salary plus applicable statutory salary on-costs only. Refer applicable oncosts at http://www.flinders.edu.au/hrsps/ps/oncost.htm.

Method B in all other cases, including when costing in-kind contributions Pro-rata salary plus full salary oncosts for each person committed or appointed to the project, determined using the salary multiplier labour charge financial tool,
OR substitute generally accepted professional fees (refer section 2.2).

Example: Cost of a level C academic doing one (1) day’s work

Assumptions

1. Paid hours per annum = 1917.13 hours

2. Hours per day = 7.35 hours

3. Gross annual salary (Level C step 6) = $83,890

4. Salary Oncosts = 52%

52% oncosts reflects the Method B calculation of full salary oncosts. It is the rate quoted in the AV-CC document ‘University Research: Some Issues’ February 1996, used as a reference for these guidelines.

Calculation of Direct costs (academic staff)
Salary + oncosts for Level C step 6, 1 day's work = 1.52 x $83,890 x 7.35/1917.13 = $488.87

2.2 Direct costs (staff professional fees)
In the above example of the direct cost of a Level C step 6 academic doing one (1) day’s consulting work, if full infrastructure costs are calculated as per section 2.6 and a 10% margin for reinvestment is also added to the price charged, we have:

Direct costs (academic level C, step 6, 1 day)
$488.87

Infrastructure costs = pro-rata gross salary x 1.3 = $83,890 x 7.35/1917.13 x 1.3
$418.11

FULL COST
$906.97

Margin (10% of FULL COST)
$90.70

PRICE
$997.67

A generally accepted professional fee for a Level C academic is $1000 a day (rate advised by the National Institute of Labour Studies). Comparison of this fee with the above full cost plus margin method of pricing demonstrates that allowance for full salary oncosts, infrastructure costs and margin for reinvestment is built in to the professional fee.
Professional consulting fees should be used in lieu of pro-rata payroll costs of professional/academic staff where the University may be competing with the private sector for provision of the service e.g. for contract research and consulting. The use of generally accepted professional fees in these cases will provide reasonable assurance that the University’s public funding does not result in the University gaining a competitive advantage over private providers and consultants by undercharging for academic/professional staff time and use of University infrastructure.

2.3 Direct costs (administrative/technical staff)
Includes:
• Cost of hire of outside agencies/services; and/or
• Pro-rata gross salary and salary on-costs of administrative and technical personnel for the period dedicated to the project, and which are additional to those included in the general infrastructure of the University, in so far as these can be calculated on an individual person basis.
Calculate as for 2.1 Method A or B above, unless it is not possible to identify particular staff as direct costs, in which case the costs associated with the administrative or technical service would be included in infrastructure costs (refer 2.6).

2.4 Direct costs (Other)
Includes, but is not necessarily limited to the sum of costs associated with:
• Consumable materials and supplies;
• Equipment costs including freight and installation costs, minor works and maintenance;
• Hourly rates for use of glasshouses, specialised equipment etc;
• Travel and field expenses (transportation and subsistence);
• Animals/animal house charges;
• Photographic services;
• Special library materials;
• Reporting expenses;
• Specific insurance costs that may be required for, in particular, medical or other research involving human subjects (Advice should be sought from the University Insurance Officer on a case-by-case basis);
• Project management services, etc.

2.5 Capital and special costs
Includes the sum of:
• Special space requirements charged at suitable commercial rates, as advised by Buildings and Property Division from time to time;
• Building works costs; and
• Depreciation costs associated with the use of major equipment items.
Cost of equipment used may be estimated using a linear depreciation model, as follows:
Equipment cost ($/day) = Asset cost/ normal maximum economic life of the equipment in years/52 weeks/5 days.
Capital and special costs should be included in the price charged for collaborative R&D with industry, consulting and contract research and fee-paying non-award and short courses. These costs will not generally be eligible for funding by ARC and NHMRC type funding agencies and certain charitable research foundations, but should be recognised as a University in-kind contribution. Where resulting intellectual property may be jointly owned and proportional ownership is based on relative financial contribution, it will be important to at least recognise these costs as a University in-kind contribution.

2.6 Infrastructure Costs
Infrastructure costs relate to the general infrastructure associated with the functioning of the University rather than costs that can be clearly identified and assigned to the specific project or activity. Even in cases where use of University infrastructure may seem minimal, the University will still incur some infrastructure costs associated with, for example, invoicing the client or funding agency, use of the University systems, insurance and professional indemnity cover for staff.

Inclusion of the University’s minimum infrastructure charge of 15% of the sum of the direct costs of the activity will generally only represent a partial contribution to infrastructure costs.

The ARC, CSIRO and CRCs use salary multiplier models for estimating infrastructure costs, which will be relevant for establishing the full cost and hence the value of University in-kind contributions on projects funded by these organisations.

At Flinders, a rough salary multiplier model for estimating the full cost of infrastructure use is:
Full Infrastructure Costs = pro-rated gross salary (not including oncosts) of all academic staff involved in the activity x 1.3.

The 1.3 multiplier is based on the following comparison of annual expenditure:

$’000 in 2004

$’000 in 2003

A.Total non-salary expenses from ordinary activities
65,027

59,564

B.Total academic salaries (not including oncosts)
48,656

44,824

A/B
1.34

1.33

2.6.1 Infrastructure Levy Exemptions
The following categories of external research funding are exempt from including a charge for infrastructure costs:

• Public sector research funding bodies included in the Australian Competitive Grants Register (ACGR) . A contribution to infrastructure is already directed to the University by a formula which acknowledges universities’ annual access to these grants (the Research Infrastructure Block Grant); and
• Salary awards such as fellowships and scholarship stipends for training of postgraduate students, because these awards are of strategic benefit to the University and the levy would impact detrimentally on the individual’s stipend.

Requests for exemption, waiver or reduction of the infrastructure levy must be made via the Flinders Certification Form and be accompanied by approval from the Cost Centre Head. The Flinders Certification Form is a University form required to accompany:

• Research grant applications;
• Agreements submitted for signing by an authorised officer of the University that involve the receipt of income to the University; and
• Requests to the Grants Finance Office to establish an account (whether research or non-research), to indicate inclusion of infrastructure levy and whether the activity meets the DEST definition of research, among other purposes.

2.6.2 Application of infrastructure levy on competitive research grants when the grant awarded is less than the amount requested
Where an infrastructure charge is included in the amount requested and the total grant awarded is less than that applied for, the amount levied as a contribution to infrastructure costs will be calculated as per the following example:

Direct costs
$32,000

Infrastructure cost contribution requested (15% of direct costs)
$4,800

Total grant requested (GST exclusive)
$36,800

If Total grant awarded (GST exclusive)
$34,500

Infrastructure contribution actually levied (15/115 or 13.043% x $34,500)
$4,500

3.
Margin for reinvestment in the University

The Policy provides for the price charged for an activity to include a margin for reinvestment in the University where the market will bear it.

price = full costs + x% of full costs + GST

The University’s standard target margin for reinvestment is 10% of the full cost of the activity, although the margin for reinvestment will normally be guided by what the market for the activity will bear. The percentage margin, if any, will be determined by the relevant Cost Centre Head, taking advice as appropriate.
Surplus or margin for reinvestment in the University will also be derived from the inclusion of payroll costs or professional fees in the price charged to the client or funding agency where the cost centre is not reliant, or only partly reliant on this income for payment of the staff member’s normal salary.

4. Pricing different University activities

The following includes general guidance on appropriate pricing in each case.

4.1 Consulting refers to:

(a) Projects involving buying the skills and expertise (pre-existing know-how) of University staff and equipment to work on a specified project;
(b) The client would expect to own the intellectual property arising from the paid consultancy and would also expect confidentiality by the University; and
(c) The price will be at full cost, including charging generally accepted professional fees for the staff member’s time and there will often be a margin for reinvestment (M) in the University if the market will bear it.
Price = Direct costs (professional fees for staff not paid from project funds + academic staff paid from project funds: method B + administrative and technical staff: method B + other) + capital and special costs + (1.3 x pro-rata gross salary of academic staff paid from project funds) + M + GST

Examples of consultancy include surveys, the provision of reports, testing, training, professional tutoring or lecturing, the provision of products and other services, secondments to other organisations and involvement with committees, companies and other bodies for profit.

Also refer section 4.4 in relation to consulting undertaken through Flinders Partners Pty Ltd.

4.2 Fee Paying Non-Award or Short Courses refers to:

(a) Provision of a course for a fee to the community, individuals or an organisation that does not lead towards the provision of a University award. Common examples are short courses delivered to organisations or individuals, teaching of non-award students and conferences.
(b) The full cost of running the course should be recovered.
Full Cost = Direct costs (academic staff: method B + administrative/technical staff: method B + other) + capital and special costs + (1.3 x pro-rata gross salary of academic staff)
or
Full Cost = Direct costs (staff professional fees + administrative/technical staff: method B + other) + capital and special costs
The fee or price to course attendees should cover the full costs and provide a margin for reinvestment in the University.

4.3 Research

4.3.1 Research funded by competitive grants refers to:

(a) Research proposals submitted to a funding agency, where the funding is awarded on a competitive basis;
(b) The research is basic or strategic but not usually concerned with commercial outcomes;
(c) The intellectual property results are owned by universities; and
(d) The full direct costs of the project and subject to 2.6.1, at least a contribution to infrastructure costs should be provided, unless the funding body is on the ACGR.
Budget/Price = Direct costs (academic staff paid from project funds: method A + administrative/technical staff paid from project funds: method A + other) + (at least 15% x Direct costs) + GST

Examples of this type of research funding include project funding from agencies listed in the ACGR. These grants attract an infrastructure contribution from the Commonwealth through the annual Research Infrastructure Block Grant funding. The University receives no infrastructure contribution from the Commonwealth in respect of grants from funding agencies not included on the ACGR, hence infrastructure costs should be included in the budget for such grants.

4.3.2 Collaborative Research and Development refers to:

(a) Joint research projects developed between the University and industry partner/s.
(b) Ownership of intellectual property arising from such a project is negotiated on a case-by-case basis and depends on:
• equity contributions of each party;
• existing intellectual property brought to the project by each party.
(c) The industry partner would usually have the right to exploit commercially the final intellectual property in return for a royalty payable to the University.
(d) Price of the project will normally be at full cost. Any unrecovered costs must be recognised as an in-kind contribution.
Full Cost = Direct costs (academic staff: method B + administrative/technical staff: method B + other) + capital and special costs + (1.3 x pro-rata gross salary of academic staff) + GST

4.3.3 Contract Research refers to:
(a) Specified projects with identified aims and objectives that are carried out at the request of industry or Government (includes research work done by University staff for a University spin-off company);
(b) The project funding is often awarded by industry or an agency on the basis of a competitive bid or tender;
(c) It is anticipated that the research will result in a deliverable product or report of commercial importance to industry or an agency;
(d) Ownership of intellectual property is negotiated between the parties and depends on the financial and intellectual contributions of both parties;
(e) Industry or agency should be charged at least the full costs of the research including charging generally accepted professional fees (PF) and a margin for reinvestment (M) if the market will bear it.
Price = Direct costs (professional fees for staff not paid from project funds + academic staff paid from project funds: method B + administrative/technical staff: method B + other) + capital and special costs + (1.3 x pro-rata gross salary of academic staff paid from project funds) + M + GST

Also refer section 4.4.

4.4 Consulting or contract research undertaken through Flinders Partners Pty Ltd (FP)

To the extent that FP need to access University staff and resources/infrastructure for consulting and contract research, the University is a party to the agreement for provision of the services, whether this takes the form of a formal written agreement between the University and FP (rare) or by verbal undertaking (more common) i.e., activities managed through FP are covered by clause 1.1 of the Policy.

This means that in relation to staff member responsibilities, 4.1 (ii) of the Policy applies and the staff member who is performing the consulting or contract research must consult with Faculty Resources Officers to ensure that the price charged to FP is in accordance with the Policy and these Guidelines. Otherwise, the Cost Centre Head’s approval must be obtained, in accordance with Clause 3.5 of the Policy.

In practice, little, if any, consultation will be needed if the price only involves a generally accepted professional consulting fee. For contract research which may involve the use of other University resources and employment of project-specific staff, there will be greater need to consult on the appropriate University charge for the service.

5 Procedures for distribution of income

5.1 A project account will be established in the relevant cost centre against which direct expenditure in relation to the activity may occur.

5.2 Where the University is party to the agreement and the income includes payroll costs and/or professional fees for staff, the amount not required for payment of the staff member’s normal salary will be distributed:

(i) as surplus or margin for reinvestment in accordance with 6.5 of the Policy; or
(ii) to the staff member’s consulting account; or
(iii) subject to Cost Centre Head approval, may be partially paid to the staff member as salary in accordance with clause 5.6 of the Policy. Payroll Services will deduct applicable taxes and superannuation guarantee contribution from the staff member payment. [Note that this only applies to situations where University staff elect to receive consulting fees through Flinders Consulting as salary. Staff cannot receive funds paid into University consulting accounts as salary.]

5.3 The Grants Finance Office or Faculty accounts staff will process the relevant journals transferring infrastructure levy to the nominated accounts.

5.4 On an annual basis, the Budget Officer, Financial Services will prompt processing by Faculties of the relevant journals transferring the Central Administration share of income from offshore teaching and short courses and for any other activity as provided by existing policies and procedures or prior agreement.

5.5 The infrastructure levy on GST exclusive revenue credited to University consulting accounts will be levied automatically by the Finance System.

6 Reports

The Grants Finance Office will provide a quarterly report to the Faculties, which itemises amounts distributed in accordance with clause 5.2(i) of the Policy.

Reference

‘University Research: Some Issues’ February 1996, AV-CC, ISBN 07266 0323 6