Decoding lump sum funding – how to plan your Horizon proposal budget
9th February 2024 at 12:48 pm
Researchers and academia preparing a Horizon Europe proposal are set to encounter a significant shift in the project budgeting because all stage-2 Health proposals, the main European Innovation Council (EIC) calls (excluding Pathfinder Open calls) and all 2024 Advanced Grants and some other calls transition to the lump sum (LS) cost model. The LS framework is quite different from traditional actual cost grants. The European Commission’s (EC) transition to the LS cost model is primarily aimed at streamlining the funding process, minimising financial errors and shifting the focus of reporting towards content and technical progress while reducing extensive financial administration. This shift is mainly intended to help provide easier access to the programme for smaller organisations and newcomers, who often lack EU framework programme experience. In fact, over 70% of beneficiaries manage only one or two grants with the vast majority being SMEs or newcomers, which often lack the capacity and resources for handling the complexities of actual cost reporting. With this new funding approach, the EC aims to simplify participation, with more than half of Horizon Europe projects to adopt this model by 2027. But what exactly is this LS cost model and how does it impact you during the proposal preparation? Let’s explore the main consequences below.
What is the lump sum cost model and how to set up your proposal budget
Even though LS funding might ease the financial reporting during the project, it might be a bit more work during the proposal writing stage. For LS applications, the Part B includes a higher page limit to accommodate for this change (e.g., RIA/IA projects have 50 pages instead of 45; EIC Pathfinder Challenges have 30 pages instead of 25). As part of the proposal submission you need to complete the detailed Excel budget table that is provided in the EU Funding and Tenders Portal with cost estimations (approximation of the planned actual costs) for each cost category (personnel costs, subcontracting costs, purchase costs and other cost categories) per beneficiary and affiliated entity (if any) and per work package (WP). The completed Excel budget table needs to be submitted separately in the online submission system as an Annex to Part B, as an .xlsx or .xls file as you can see below. For each WP, one LS is then defined based on each partner’s cost estimations which is paid out only upon completion of its activities. Note that this is independent of the achievement of results in a WP, as in research projects this is never a certainty. All cost categories are still subject to the same eligibility rules as in actual-cost based grants. There are two types of LS-based projects in Horizon Europe:
- Type 1: the so-called ‘top-down’ approach where the total LS amount is fixed by the EC and your requested budget must equal (add up to) this. Here, you need to propose a split of lump sums per WP and describe the efforts and resources each beneficiary (and affiliated entity) commits to mobilise for this amount.
- Type 2: the so-called ‘bottom-up’ approach where you are free to define the total LS amount by estimating your project’s direct costs, to which a flat rate of 25% is added to cover indirect costs as per the European Commission’s standard practice.
The type of LS model you are required to apply is mentioned in the call topic description.
When it comes to your proposal evaluation, LS proposals are subject to the same evaluation criteria as for other Horizon projects: ‘excellence’, ‘impact’ and ‘efficiency of the implementation’. However, two points are specific to LS-based proposals regarding the evaluation of the ‘implementation’:
- There is the possibility to split up WPs with a long duration (e.g., management WP, dissemination WP, clinical trial, etc.) into multiple WPs along the reporting periods. Given that WPs are only paid out after completing the activities of the WP at the end of a reporting period, the EC recommends splitting these WPs to ensure smoother project implementation, more sound financial management and to avoid cash-flow problems. It is possible that the resulting WPs contain the same tasks (e.g. project management). In this case, there is no need to repeat the same description for each split WP in the proposal (part B, table 3.1b). You may include as many WPs as needed, but they should still be effective and support the entire project (a single task or activity is not a WP), so carefully consider what a WP constitutes, how long it runs and how much costs are linked to its activities.
- The evaluators and independent experts will look at your submitted cost estimations in the detailed Excel budget table and judge on whether the estimations are reasonable and non-excessive. Additionally, they will consider if the proposed resources and the distribution of WPs enable the completion of the activities described in the proposal. Only clearly over- or under-estimated costs will lead to a lower score in the ‘implementation’ evaluation criterion. Note that the EC still reserves the right to reduce a certain LS share in the grant preparation phase (contract negotiations with the EC) even after your proposal has been selected for funding if it is deemed too high.
To facilitate the evaluation, experts will utilise the so-called ‘Horizon dashboard for lump sum evaluations’, a tool that provides a comprehensive analysis of personnel costs. The dashboard compiles data on the number of person months funded across Horizon Europe, broken down by country and organisation type, highlighting regional and sectoral variations in personnel costs. It allows even a more detailed analysis which might only be comprehensible to financial experts: For each specific combination of country and organisation type, it showcases the range of funded costs, focusing on the distribution between the 20th and 80th percentiles and differentiated by staff qualification levels, thus offering a robust benchmark for assessing cost reasonableness in proposals. Applicants are also strongly encouraged to utilise the Horizon dashboard to benchmark their personnel costs effectively. While proposing costs above the 80th percentile isn’t inherently problematic, it does require extra justification. At last, the “costs per unit” for personnel costs (1 unit is 1 person month) in the detailed LS budget table must not be confused with the concept of “unit costs” in actual-cost based grants.
Key take-home messages:
|To keep it simple and as a general principle, applicants should aim to provide as many justifications for each cost item as possible, as evaluators seek realistic, non-excessive budgets that are feasibly aligned with the project’s objectives.
|Divide longer WPs into smaller ones over the project duration for better project management and cash flow, but make sure each WP is meaningful and well-planned.
|Additionally, the description of activities within each WP should be sufficiently detailed, enabling a clear assessment (e.g., based on KPIs or milestones) of whether a WP has been completed. This level of precision ensures that both costs and project’s implementation plan are well-defined and justifiable.
|Initiate budget discussions with partners early in the process, as refining and agreeing on WP splits and costs may require several iterations.
In the EU Funding and Tenders Portal, namely the administrative forms, you will find a new statement dedicated to LS budgeting in the list of declarations. It goes without saying that in order to submit the proposal, this box must be ticked just like the others.
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Dr. Johannes Ripperger
Research & Innovation Manager
Research & Innovation Project Manager