Q: What are the key features of Horizon 2020 and its Rules which will make it simpler to participate in?
A: Simplification in Horizon 2020 will target three overarching goals: reducing the administrative costs of the participants; accelerating all processes of proposal and grant management and decreasing the financial error rate.
These general objectives will be achieved along several dimensions:
- Structural simplification, which is provided through a simpler programme architecture, bringing together all research and innovation funding in one programme. This includes a single set of participation rules covering all components of the programme.
- Simpler funding rules, which will make the preparation of proposals and the management of projects easier. At the same time, they will reduce the number of financial errors.
T he following approach is proposed:
- Simplified reimbursement of real direct costs, with a broader acceptance of beneficiaries’ usual accounting practices;
- The possibility of using unit personnel costs (average personnel costs) for beneficiaries for which this is their usual accounting method, and for SME owners without a salary;
- Simplification of time-recording by providing a clear and simple set of minimum conditions, in particular abolition of time-recording obligations for staff working full time on the EU project;
- Only two reimbursement rates for all types of participants: 100% for research activities, 70% for piloting and demonstration;
- One single flat rate of 20% to cover indirect costs, instead of the current four methods for calculation;
- Continuation of the system of unit costs and flat rates for mobility and training actions (Marie Curie);
- Output-based funding with lump sums for whole projects in specific areas.
Revised control strategy, which takes into account the policy objective of achieving a new balance between trust and control and reducing the administrative burden:
- On the ex-ante side, the guarantee fund will cover all actions under Horizon 2020, leading to fewer ex-ante financial capacity checks and a reduced number of certificates on financial statements;
- Ex-ante financial capacity checks in Horizon 2020 will be required only for coordinators (i.e. abolition of the threshold of EUR 500000 for other partners), reducing thus further the number of ex-ante checks;
- Voluntary ex-ante certification of accounting methodologies of organisations using unit personnel costs will be offered, as means for preventing errors and for providing ex-ante assurance;
- The focus of the ex-post audits will shift from a minimisation of the residual error rate towards risk-based audit and fraud detection. The overall number of ex-post audits will be limited with the Commission considering that as general guidance, a maximum of 7% of participants in Horizon 2020 would be subject to audit over the whole programming period.
As a result, the Commission deems it possible to reduce the average time to grant in Horizon 2020 with 100 days as compared to the current situation.
Further simplification of research and innovation funding will result from the revision of the Financial Regulation (e.g. no declaration of interest on pre-financing, eligibility of VAT, limitation of extrapolation of systematic errors).
The whole set of practical arrangements for proposal and project implementation will also be revisited and streamlined. This includes the detailed provisions on the content and shape of proposals, the processes for turning proposals into projects, the requirements for reporting and monitoring, as well as the related guidance documents and support services. A major contribution to reduced administrative costs for participation will come from a single user-friendly IT platform for all interactions with participants, based on the FP7 Participant Portal.
Q: What is the rationale for applying the same funding rate for all types of participants?
A: The current situation under FP7 is defined by a complex matrix of funding rates, methods for determining indirect costs, activities and categories of legal entities (according to the legal status granted after validation by the services of the Unique Registration Facility). This complexity is difficult to explain, leads to long delays (in particular in the grant negotiation phase), hampers the expected flexibility in project implementation, and requires permanent maintenance of the legal status information, with a complex system for handling amendments.
Having a single reimbursement rate for all types of participants (together with a single flat rate for indirect costs) will considerably reduce:
- the length and complexity of guidance documents and the number of requests addressed to the help-desks;
- the administrative costs, in particular for coordinators having to manage the previous complex system (as changes to consortium composition, distribution of work packages etc. will not entail difficult budget operations as it was now the case due to the variety of reimbursement rates and indirect cost methods applied by different organisations in the consortium);
- the time-to-grant, as the validation of legal entities (particularly SMEs) and establishment of budgets of collaborative projects by the consortia will be simpler;
- the number of financial errors (an analysis of errors identified during audits of FP7 suggests that around 25-35% of them would be avoided by the simplification measures proposed, and the error rate can then be expected to fall by 1.5%, i.e. from close to current 5% to around 3.5%)
Q: Why does Horizon 2020 put more emphasis on using financial instruments (equity and debt) to support SMEs and other participants?
A: The two main EU financial instruments currently supporting research and innovation have been very successful. For debt, the Risk-Sharing Finance Facility (RSFF) combines EU budgetary resources and EIB funding to share the risks associated with investing in projects: EUR 1 billion comes from the FP7 budget, and another EUR 1 billion from the resources of the European Investment Bank. RSFF loans are available to public and private sector promoters of any size and ownership from the Member States and the countries associated to FP7. By mid-2011, funding for 91 projects worth over EUR 9 billion had been approved. A specific facility for SMEs will start up in early 2012. For equity, the High-Growth and Innovative SME Facility (GIF) under the CIP invests in specialised funds that provide venture capital for SME financing. Managed by the EIF, the GIF covers both early and growth-stage investments. By the end of 2010, some EUR 222 million had been committed to 19 funds supporting a target fund size of some EUR 1.5 billion.
Greater use of financial instruments will help leverage yet further private research and innovation investments, including venture capital investments for innovative, high-tech companies, and in particular SMEs. In Horizon 2020, financial instruments will be expanded in both scope and scale. A debt facility will provide loans and guarantees, and an equity facility will provide finance for early and growth stage investments. Their aim will be to support the achievement of the R&I objectives of all sectors and policy areas crucial for tackling societal challenges, enhancing competitiveness and fostering sustainable growth. They will be implemented via a mandate to, or a partnership with, the European Investment Bank group and/or other international financial institutions and national intermediaries.
Summery of current Key Horizon 2020 Financial Plans:
- Reimbursement via eligible direct costs continues
- Use of usual accounting practices is strengthened
- Possibility to use average personnel costs in some circumstances
- Time-recording will have specific rules
- Proposed Funding rates for activities:
- Research activities – 100%
- Piloting and demonstration – 70%
- Indirect Costs / Overheads will be a flat rate of 20%
- Lump Sums funding method to be introduced
- Guarantee Fund to Continue
- Ex-ante financial capacity checks only to apply to Coordinators
- Less Audits
Please note that all Horizon 2020 information is still labelled as “draft”. I will keep you updated as soon as more information is available from Brussels.
