Lump sum funding in Horizon Europe: How does it work?

Horizon Europe's introduction of lump sum funding projects marks a significant shift in the financial management of EU research and innovation projects. Lump sum funding involves a predefined payment arrangement that encompasses the entire budget for a research project. With an increasing chance of encountering a lump sum grant within the program, understanding this emerging model – both as a standalone and in comparison with the conventional actual costs model – is becoming increasingly important.

Lump sum projects: What changes?

The European Commission (EC) advocates for the wider adoption of lump sum funding in Horizon Europe with the aim of simplifying the program by eliminating the need for reporting actual costs. This approach is designed to allow researchers and developers to dedicate more attention to their project's content rather than the extensive financial management previously required. Consequently, lump sum projects are expected to lessen administrative burdens and financial discrepancies, making the program more appealing to small and medium-sized enterprises (SMEs) and new participants.

Under the official EC Lump Sum Grant framework, lump sum grants are poised to streamline the program and facilitate easier management by incorporating several core principles:

• Lump sums are determined in advance and fixed within the grant agreement.
• Payments are issued upon the completion of specified activities in work packages, without altering the fundamental aspects of project planning, evaluation, and execution.
• The disbursement of lump sums is not contingent on the research outcomes and adheres to a standard payment timeline.
• Lump sum projects maintain the same flexibility as traditional actual cost projects and are evaluated against the same criteria.

Lump sum model: What needs to be considered?

The foundation of the lump sum approach is built on the arrangement of work packages. Payment approval from the EC for lump sum grants hinges solely on the completion of these work packages for each reporting cycle. Thus, during the budget formulation stage prior to awarding the grant, it's imperative to furnish a more comprehensive and detailed budget breakdown for every work package and each consortium partner than in the actual cost model.

Under this model, the necessity to itemise and validate actual costs is removed. Payments are now merit-based rather than expenditure-based. For instance, should a consortium partner deplete their budget without meeting the expected outcomes, funding will continue only once these outcomes are satisfactorily met and verified. However, this alteration does not diminish the importance of financial oversight in ensuring the success of the project. Although lump sum projects simplify financial reporting and documenting the use of funds in alignment with the project's progress remains essential. The official Lump Sum Grant Agreement, an adaptation of the Model Grant Agreement, contains Article 25 which outlines audit procedures for Horizon Europe projects, making no exceptions for lump sum projects.

In projects operating under the actual cost model, scenarios may arise where work packages are either incomplete or only partially fulfilled, yet partners may still receive compensation for their contributions. The lump sum model diverges from this approach by making the completion of work packages the primary criterion for EC payment approval, thus collectively distributing the financial risk among all partners as lump sum grants are contingent upon the fulfilment of these packages. Payments are collectively approved for all participants involved in a given work package, upon its completion being officially recognised during the relevant reporting period.

Therefore, it is anticipated that the project Coordinator will need to oversee the execution of the lump sum projects with greater detail. This enhanced oversight can be established through consensus among partners during the formulation of the consortium agreement. The agreement could stipulate the need for more frequent progress meetings with work package leaders and partners, the use of management and collaboration tools (like EMDESK), meticulous documentation of meeting minutes and reports, prompt follow-up on tasks, and the management of any deviations or issues. Cooperation in the consortium agreement helps to set clear regulatory and governance frameworks, thereby minimising the potential for future disagreements.

The execution and achievement of work plan components are anticipated to mirror the standards set in other Horizon Europe projects. Maintaining alignment with the project's objectives and the proposed work plan ensures smooth progression without issues. Should there be any deviations from the set plan, they must be adequately justified and documented in the periodic progress reports. Essentially, there is no variance in the reporting frequency between lump sum and other Horizon Europe project types. The EC specifies the timelines for reporting and reviews, which in turn, influences the schedule for payment approvals.

Project officers oversee lump sum projects with the same diligence as those based on actual costs, without any predisposition towards stricter evaluation. Approval and payment for lump sum work packages are granted based on the completion of activities, regardless of the outcomes being positive or negative. Payment is also possible in instances where certain tasks are incomplete, provided that all critical tasks have been finished, equivalent tasks have been performed, or any deviations have been properly rationalised. This level of adaptability and discretion aligns with that afforded to actual cost grants.

Lump sum budgeting: What is crucial?

Proposal submission and budget planning in lump sum projects are inherently more complex, necessitating detailing during the budget preparation phase. A meticulous breakdown of eligible costs for each work package and beneficiary is required, utilising a dedicated budget table provided by the EC.

This table calculates total costs per category using a "Units" X "Cost per Unit" formula, with personnel costs based on person-months. Travel, subsistence, and other costs are also calculated in this manner, with equipment costs based on depreciation values.

Expert tip: It's important to highlight that when dealing with lump sum grants, the assessment of personnel costs by reviewers is guided by "Personnel cost dashboard." Consequently, it's advisable to base your personnel cost projections on the information presented in this dashboard to ensure consistency with reviewer expectations.

How can EMDESK support?

• EMDESK allows project coordinators to design comprehensive work plans, accommodating projects of any scale and complexity. Its intuitive interface and planning tools enable the structuring of projects into work packages, tasks, and deliverables. This organisation facilitates clear project outlines, helping consortia understand their roles, responsibilities, and timelines, which is crucial for the fixed and result-oriented nature of lump sum projects.
• EMDESK enables the creation of highly detailed budget plans, linking financial planning directly with work packages and their respective tasks and deliverables. This coherence ensures that the budget allocation directly supports the project's objectives and all potential costs are considered and appropriately justified. Work on your budget together with the whole consortium, collect all budget items, make all your calculations on EMDESK prior to populating the official detailed budget request form.

Reporting in lump sum projects

For lump sum grants, since payments are contingent on the completion of specific work packages, aligning the work plan closely with the reporting and payment timeline is essential.

It's critical to meticulously document the completion of work packages in the respective periodic progress reports. The compensation is not based on a detailed tally of expenses but rather on the achievement of project milestones. So, the emphasis on the monitoring of work package progression, tasks, and outcomes becomes more crucial.The failure to deliver agreed-upon outputs can result in payment delays or partial disbursements only.

Expert tip: Since EC Project Officers are authorised to sanction partial payments for work packages that are only partially completed, should a work package remain unfinished according to its schedule – it is still advisable to report the progress of any tasks that have been completed within such work packages.

How can EMDESK support?

• EMDESK offers suitable tools to track progress and monitor the advancement of work packages, tasks, or even action points step by step to accurately determine the percentage of service achieved, minimise deviations, and thus control whether completion meets the deadline. Regular progress updates allow for timely adjustments to keep the project on track toward its goals.
• Effective task management is particularly important in lump sum projects, where funding is tied to completing work packages, achieving specific milestones and outcomes rather than incurred costs. EMDESK provides tools for creating and assigning tasks, setting due dates, monitoring completion status, ensuring every task moves smoothly from "Open" to "Completed".
• In Lump Sum projects, partners share the financial risk collectively and must work more closely together to achieve agreed results to receive reimbursements. EMDESK extensive tools for collaboration, real-time editing, document sharing, action logs, messaging, meetings, and much more, facilitate work within the consortium. This collaborative environment helps achieve agreed performance results and also create technical progress reports.
• Additionally, proper financial management with EMDESK helps to keep track of costs and consumption per activity and partner against the planned budget and project milestones, not to exceed the budget but to consume it evenly. Detailed internal reporting aids in cost control and prevents disputes and misunderstandings within the consortium.

Conclusion

While the European Commission (EC) aims to simplify the process for lump sum projects, the transition may not be as seamless as anticipated. It is crucial to invest substantial time and resources to thoroughly understand the lump sum grant mechanism. During the initial budget formulation stage, it's essential to create a detailed budget breakdown for each work package and consortium partner.

In the lump sum funding model, payments are only made when all beneficiaries participating in a specific work package have collectively completed their tasks. This setup means that entities involved in lump-sum-based collaborative projects are now more reliant on their peers' performance than ever before. This increased interdependence necessitates careful consideration and precise drafting in the Consortium Agreement.

Although lump sum projects streamline financial reporting, effective management and documentation of fund usage in alignment with project progress are vital. Comprehensive internal financial management and oversight are highly recommended since the EC retains the right to perform full financial audits on lump sum projects, just as with any other Horizon Europe project, as stipulated in the Lump Sum Grant Agreement.

This article is written by Stefan Detschew, Chief Technology Officer at EMDESK.

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