Explained: why stakeholders are sceptical about lump sum funding

22 Feb 2024 | News

The move to define costs up-front and fix them in the grant agreement is here to stay. But research lobbies are still unsure about it - here’s why   

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The introduction of lump sum funding to the EU funding landscape is gathering pace, but research organisations still lack confidence in the new less-strings-attached funding approach, despite its motive of reducing bureaucracy.

“There are legal uncertainties regarding lump sums, and many beneficiaries are waiting for final results of the pilot evaluation,” says Kamila Kozirog, policy analyst at the European University Association. “Some are quite hesitant to stop using time sheets, because they are proven and safe, and they want to avoid legal risk until the evaluation is completed.”

Lump sums have been a divisive issue in the EU’s Horizon Europe research programme for the last few years. A pilot of the approach in Horizon 2020 went well, according to the European Commission. Others say there wasn’t enough evidence to suggest lump sums worked better than real cost reporting, where each euro is accounted for by the project participants. Now, the Commission plans to deliver as much as half of Horizon Europe grants in lump sums by the end of the programme.

The idea is simple: lump sum grants are paid without the beneficiaries having to file time-consuming timesheets and report on each item of spending. Bureaucratic overheads are reduced, and the Commission says it can reduce high error rates in EU spending on research.

In 2023, the Commission expected to award between 10 and 15% of Horizon Europe grants this way, up from just 2% in 2022. And it will scale up the approach further in coming years, to as much as 30%, insiders told Science|Business in October.

In 2024, lump sums will be introduced to the European Innovation Council and the European Research Council’s Advanced Grants.

Most stakeholders agree it’s a simplification for the Commission first and foremost. It also simplifies the lives of smaller organisations that are less experienced with EU framework programmes.

But for bigger organisations, it can be an uncomfortable adjustment. “For us as a research and technology organisation that has been involved in these programmes for many years, we’ve evolved with the Commission on these rules and regulations, so we’re well accustomed to them and get audited on a regular basis. We’re fine as is,” says Jeroen Mulder, corporate controller at the Netherlands Organisation for Applied Scientific Research (TNO). TNO has about 4,500 employees with a €600 million turnover, of which European projects are only a small part.

What should the Commission fix?

Not much has changed since the initial introduction of lump sums in Horizon Europe. Stakeholders still see similar issues and there is too little experience to go by to assess if the type of funding is working well - or not. Few have concrete examples of things going wrong – or right.

Paperwork-heavy proposals: a lump sum project proposal must detail a plan on how the money will be spent, which shifts the burden of financial planning to the application stage of a project. This is a hefty ask when researchers’ chances of securing a grant can be as little as 5% in some elements of Horizon Europe. “Considering the often low success rates, for some it might be too risky, and even more so for newcomers with less experience,” says Kozirog.

Less risk taking: lump sum funding requires more trust from partners. The Commission hopes to democratise access to the programme by getting rid of paperwork-heavy real cost reporting, but research organisations say some may be uncertain about going into million-euro projects with unknown partners when there’s no system for accounting for the money.

“The worry might be that if people are becoming more risk-averse, the purpose of the projects – to work together – might come under pressure,” says Mulder. “We need to work together, that’s the whole point.”

Project size: the need to trust partners is also translating into smaller work packages with fewer beneficiaries in each one to reduce risk. For lump sums, organisations generally prefer smaller projects.

“It can be a simplification for smaller projects. For bigger projects it’s a simplification for the Commission, but not us, because we still rely on real cost reporting in the organisation and in the consortia,” says Gilles Mouton, financial controller at the French Alternative Energies and Atomic Energy Commission.

Mouton says financial management starts getting complicated when budgets reach €2 million and involve more than five partners. While lump sums can be good in principle, the approach should be limited to smaller projects and those with less technical uncertainty. “We feel we are more exposed to financial risks with this rigid lump sum framework, but we still have the same reporting needs inside,” Mouton said.

Changing costs: organisations are not sure how changing costs of staff, equipment and other resources are going to impact the budgeting process. A financial plan set in a proposal does not kick in until the project starts a year later and covers as much as five years of the project running – how inflation will be accounted for remains to be seen.

Personnel costs: for research and technology organisations, the biggest headache has been calculating personnel costs.

The Commission has a lump sum dashboard which suggests salary ranges for project participants. These are non-binding but if costs are high, the applicants might have to justify why. This has caused issues for countries and organisations with higher than average salaries.

This is the case in Austria. “We stick to the principle that this is only be an orientation tool,” says Michael Parik, grants affairs coordinator at the Austrian Institute of Technology. “The Commission says it’s non-binding, but we feel we always have to justify why we’re above.”

And it’s causing issues during the internal negotiations in consortia. “The issue with personnel costs is that this dashboard is being used by consortia to try to cut costs from beneficiaries that are perceived as more expensive. For us, we are a technical organisation, and our costs are higher than universities and public bodies,” says Mouton.

Financial audits: the lump sum approach promises to be bureaucracy-free, but a recent EU auditors’ report suggests this might not be the case. While audits are welcome, research organisations want to know what kind of information they’d need to have ready for one.

Parik says research managers need certainty: “the auditors claimed the Commission should try to establish an opportunity to check or audit some efforts. So, will there be financial audits?”

The future: the key question is what happens next and how prevalent lump sums will be in the Horizon Europe work programmes for 2025-2027 as well as FP10, the next EU research framework programme, which starts in 2028.

The stakeholders want to have more experience, both good and bad, to get used to the new way of financing projects. But this takes time, with most research projects running for several years. “We are now waiting for the first time when things don’t go right, and I’m very curious what will happen then,” says Mulder.

In the end, what stakeholders want is certainty. “The biggest simplification would be continuation,” says Parik.

This article is part of a preview series ahead of the launch of a newsletter tailored for those seeking funding and grants for research and innovation across Europe and beyond. Access in-depth analyses of grant programmes, and their policy background, deep dive into call design through expert interviews, and gain insights from Europe’s most prolific grant winners. Stay tuned for more updates and exclusive content.

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