The European Commission (EC) has introduced lump sum funding in Horizon Europe to streamline the management of projects and make the programme more appealing to SMEs and newcomers. However, the process has proven to be more complex than some might expect. Preparing a lump sum budget requires careful attention during both the pre-award and post-award phases. In this article, we explain why it's essential for project coordinators to allocate ample time and resources to fully comprehend the intricacies of the lump sum grant and to craft a thorough budget for a Horizon Europe proposal.
While the primary focus of budgeting typically falls within the pre-award phase, it's equally crucial to understand the dynamics of the post-award phase, particularly in terms of how and when payments are made by the EC for lump sum projects. Since the lump sum model is centered around the completion of work packages, planned person-months and other costs must be not only detailed, but also accountable per work package and per partner. Before diving into budget preparation, it is beneficial to familiarize oneself with the two predominant types of lump sum models.
The two lump sum types
These two types play a significant role in shaping how a project budget should be structured and presented in your proposal. The type of lump sum is detailed in the topic text of the application you are submitting.
- The proposal call specifies a predetermined lump sum, employing what is known as a 'top-down' method. Your proposed budget must match this amount exactly. It is essential to allocate specific sums to each Work Package and outline the resources and effort each beneficiary, including any affiliated entities, will contribute to meet this sum.
- In contrast, the 'bottom-up' method allows you to determine the lump sum based on your assessment of the direct costs necessary to execute your project. An additional 25% is added to these costs to accommodate indirect expenses, in alignment with the standard practices of the European Commission. The lump sum you propose under this method must be supported by the resources you intend to utilize.
For both types, you are required to furnish a precise breakdown of your cost estimations. These should be a close reflection of your expected actual costs and adhere to Horizon Europe's fundamental eligibility requirements. These estimations facilitate the automatic division of the lump sum across various work packages and participants, including beneficiaries and any associated entities.
Eligible lump sum project costs
The eligibility criteria for costs in lump sum projects are straightforward, they must:
- Adhere to the basic eligibility rules set by Horizon Europe.
- Align with the normal operating practices of the beneficiaries.
- Be reasonable and not exceed what is necessary.
- Correspond to the activities outlined in the project proposal.
The cost categories eligible under various types of actions may include:
- Direct personnel costs: Costs associated with employees or equivalent personnel, sorted by staff category, including directly contracted individuals, seconded personnel, SME owners, and natural person beneficiaries.
- Direct subcontracting costs: Expenses related to subcontracting work as part of the project.
- Direct purchase costs: This category covers expenses for travel and subsistence, equipment purchases, and other necessary goods, works, and services.
- Other cost categories: These may include financial support to third parties, costs for internally invoiced goods and services, expenses related to transnational and virtual access to research infrastructures, and costs associated with Pre-Commercial Procurement (PCP) and Public Procurement of Innovative solutions (PPI).
Completing the lump sum budget table
When preparing a lump sum proposal, you must fill out the detailed Excel budget table. This table is available through the EU Funding and Tenders Portal and requires you to enter cost estimations for each category, distributed among beneficiaries and any affiliated entities, and categorized by work package. The table is designed to automatically calculate the distribution of the lump sum across each beneficiary and work package. After completing the table, you should submit it as an annex to Part B of your application within the online submission system. It is essential to include this table as it forms a critical component of your lump sum grant application.
The budget table indeed demands meticulous attention to detail. Thus, despite initial assumptions that lump sum projects are easier to manage, substantial time and effort must be allocated to craft a comprehensive budget plan for your project. Let's delve deeper into the table and review the process for inputting data (detailed instructions are provided here):
- Step 1: Populate the beneficiaries list on the "BE list" tab. You may include as many beneficiaries as necessary, and add affiliated entities if needed.
- Step 2: Enter the details for the work packages on the "WP list" tab. Ensure that you add all required work packages, maintaining the sequence outlined in Part B of your application.
- Step 3: Complete the individual sheets for each beneficiary under the "BEx" tab. Should there be any affiliated entities associated with a beneficiary, specific columns for these entities will appear automatically.
Entering personnel costs
Input the total number of units along with the average cost per unit for each category of personnel costs, keeping in mind that one unit is equivalent to one person-month.
It is important to note that for evaluation purposes, evaluators use the so-called "Horizon dashboard". This tool aggregates data regarding the number of person-months funded throughout Horizon Europe, categorised by country and type of organisation. This breakdown reveals differences in personnel costs across regions and sectors. Therefore, applicants are advised to use the Horizon dashboard to effectively gauge their personnel costs. Proposing costs that exceed the 80th percentile is not inherently an issue but does necessitate additional justification.
Finally, ensure that the "costs per unit" for personnel expenses in the lump sum budget table (where one unit equals one person month) are not confused with "unit costs" used in grants based on actual costs.
Expert tip: Accurate estimation of the required person-months per staff member, participant, and work package is crucial, as it lays the foundation for project execution and directly influences EC payments upon completion of a work package. This process can be efficiently managed with EMDESK, offering a collaborative, traceable, and secure environment. Within EMDESK, you can set up project participants – which represent the participating organisations – and assign different rates for various staff categories, such as project managers, senior experts, and junior experts. Participants can then easily allocate and plan person-months across work packages. The system automatically calculates the personnel costs based on these person-months and the corresponding rates.
Entering subcontracting costs
Each beneficiary and work package should have a single line entry for subcontracting, which includes all subcontracting activities relevant to that beneficiary within the work package. Input the number of subcontracted tasks as units for each beneficiary and work package. The unit cost will be the average of all subcontracting costs involved. Further detail is not necessary in the Excel file. However, remember that you must clearly describe and justify the subcontracted tasks and their associated costs in table 3.1g of Part B of the application form.
Entering direct purchase costs
Input the total units and the average cost per unit for each applicable cost category. The cost per unit should represent the average price of all items within that category for the specified beneficiary and work package. Additional detail beyond this is not needed in the Excel file. However, should the purchase costs surpass 15% of the personnel costs for any beneficiary, that beneficiary is required to fill out table 3.1h in Part B of the proposal template.
Regarding the 'equipment' category, which includes equipment, infrastructure, and other assets, it's necessary to enter the depreciation costs on the tabs corresponding to each beneficiary.
Expert tip: To meet the strict rules of the Budget Excel sheet, you need to match your cost details to the format of this sheet, which you can't change. This sheet only requires summarized budgets, but these figures are binding. So, plan your budget in detail on a separate Excel sheet first. Then, add up the totals and put them in the main Budget Excel sheet. To manage this process with others in a secure and clear way, consider using a basic project and financial management tool like EMDESK.
Entering other direct costs
Some cost categories may only be included if they are specifically permitted under the conditions outlined for your project topic. Examples include financial support to third parties, transnational and virtual access to research infrastructures, and costs related to Pre-Commercial Procurement (PCP) or Public Procurement of Innovative solutions (PPI).
Indirect costs and total costs are calculated automatically by the system. The 'Summary per WP' and 'BE-WP person months' tables are also generated automatically. These tables will be utilized by evaluators when assessing your proposal.
Lump sum budget flexibility
Should your lump sum proposal be approved for funding, the typical procedure for drafting the grant agreement is adhered to. In the grant agreement, the distribution of the lump sum across each beneficiary and work package will be detailed. The specific cost estimates provided in your proposal are not incorporated there.
Once the lump sum is fixed in the grant agreement, it will not be questioned in case prices for goods or services change later on. This involves the 'no negotiation' rule, meaning that the total lump sum amount specified in the grant agreement remains unchanged. But there is room for some budget flexibility in terms of budget transfer, as long as changes do not impede the ability of the project to reach its goals. You can use the budget as you see fit as long as the project is implemented as agreed.
Once established in the grant agreement, the lump sum remains constant, unaffected by any subsequent changes in the costs of goods or services, adhering to the 'no negotiation' rule. However, the agreement does allow some flexibility for budget reallocation provided such adjustments do not hinder the project's objectives. The budget can be utilized as needed, ensuring the project is carried out as planned.
Nevertheless, specific conditions must be met for transferring budgets between work packages, as outlined in article 5.5 of the lump sum MGA:
- the work packages concerned are not already completed (and declared in a financial statement) and;
- the transfers are justified by the technical implementation of the action.”
Therefore, it is crucial to manage these transfers promptly to prevent delays and to begin the transfer process before the completion of the work package from which funds are being reallocated.
Furthermore, article 5.5 of the Lump sum MGA indicates that any adjustments to the proposed budget breakdown necessitate a formal amendment. So, while budget flexibility exists within lump sum grants, any changes must be formalized through a contract amendment. These amendments are bound by strict conditions, particularly when it involves reallocating funds between work packages. The approval process by the European Commission is thorough and requires both time and effort.
In essence, while the option for budget flexibility exists, it introduces an additional layer of administrative responsibility. Therefore, it is advisable to thoroughly prepare and plan your budget well in advance. Early engagement in budget discussions with your partners is crucial, as aligning and refining the allocation of work packages and their associated costs might need multiple adjustments. Significant attention should be given to organizing the structure and connectivity of the work packages.
Expert tip: To work together on lump sum budgets, take advantage of collaborative platforms like EMDESK. With EMDESK, you can create detailed budget plans together, directly linking your financial planning to specific work packages, tasks, and deliverables – all in real-time. Forget about endless email exchanges or unsecured cloud editing. EMDESK facilitates efficient teamwork and seamless partner collaboration in a secure, GDPR-compliant environment. Features such as online editing, automatic updates, smart notifications, video calls, and chats help synchronise your consortium's activities effectively.
Conclusion
While the lump sum budgeting introduces some challenges, proper planning and the use of collaborative tools like EMDESK can enhance the management of financial aspects in Horizon Europe proposals and projects. EMDESK offers a secure, integrated platform for real-time budget collaboration, ensuring that all partners can efficiently contribute to and monitor the financial planning process. This methodical approach helps in aligning the budget with project objectives and regulatory requirements, facilitating a smoother proposal preparation.
This article is written by Stefan Detschew, Chief Technology Officer at EMDESK.