Frequently Asked Questions about Contract Research

Are contract research projects more difficult to attract because full-cost accounting is used for calculation?
Contracting parties might view calculation based on full-cost accounting plus a margin as a price increase. However by not calculating in the total cost of a contract, society is in fact subsidising the work and therefore giving an advantage to the contracting party. Until all universities and research facilities have adopted an accounting approach that separates public and private funds (“Trennungsrechnung”) and full-cost accounting, Heidelberg may be at a disadvantage when contract research projects are awarded. However, contracts are awarded based not on price alone. Available expertise is an even more important consideration, and therefore university administration does not expect to suffer any major disadvantage.

Why were the new rules for contract research adopted?
All universities within the European Union (EU) must provide evidence that the economic services they provide (e.g. contract research, commercial services/consulting activities, advanced and continuing education, leasing of infrastructure) are not subsidised. The underlying legal basis is the “Community Framework for State Aid for Research and Development and Innovation of the EU dated 31 December 2006 (2006/C 323/01)”, also known as the EU state aid framework. The EU Commission wants to keep state-financed institutions like universities from underbidding private suppliers of research services through cross-subsidising their offerings out of state budgets. The rules are also designed to prevent private firms from gaining an economic advantage over competing firms through “inexpensive research results” gained from contract research with universities.

In order to meet the requirements of the EU state aid framework, Heidelberg University is required to calculate the costs for a private contracting party based on the market price or the incurred expenditures at full cost plus a minimum of a 5% margin without consideration of their public budget. This separation of private and public funding on a full-cost basis is required for contract research projects entered into starting 15 November 2010.

What are the research-related economic activities at Heidelberg University?
Such activities include contract research for third parties, i.e. research for companies (contracting parties), that meets the following criteria:

• The services are provided for commensurate remuneration,
• the contracting party defines the conditions for the service,
• the contracting party receives all rights to the results of the research,
• the contracting party bears the risk of failure.

A non-economic activity is one that meets the following criteria:

• Research, including within a collaboration, serves to expand knowledge and understanding,
• research results will be disseminated,
• in the case of technology transfer projects, all receipts are invested in the primary activity of the research institution.

Research projects financed by public national or international funders (e.g., DFG, BMBF, EU) are considered non-economic. Non-economic research projects are not subject to the constraints of the EU state aid framework.

What does the introduction of separate private and public funds mean for calculating contract research projects?
As of 15 November 2010, contract research projects must be offered at a price that either corresponds to the market price or includes all costs (full costs) and a reasonable margin (minimum 5%). The market price is determined using fee regulations or competitive bids. The basic solution is the full-cost accounting method, since a market price can be determined only rarely.

How are contract research projects calculated?
In full-cost accounting, all the costs of the project must be included. Costs are divided into two categories:

• direct project costs that arise directly in connection with the contract research project (e.g. personnel costs, consumables, etc.),
• indirect costs (overhead) that are not directly attributable to a contract research project but are identified and justified as costs by the individuals carrying out the project, such as use fees for infrastructure, occupancy, power, heat, telephone, etc. The indirect costs are divided between the rectorate and the institute at a ratio of 70:30 in order to adequately cover the cost of project overhead.

A margin of at least 5% is added to the full costs. The researcher involved may also add a research allowance. In this case, the third-party funder must explicitly provide the funds for this allowance and the funding must cover the allowance plus the direct costs and overhead of the research project. Lastly, the value added tax is included in the gross calculation.

How are indirect costs determined?
At Heidelberg University, indirect costs for contract research projects are determined in the same way as full costs within the 7th EU Research Framework Programme.
According to the programme, an overhead rate should be added to the research personnel employed in the project. The overhead rate is recalculated annually by Division 4 and the Controlling staff unit. The amount of the overhead rate depends on which university organisation will be conducting the contract research. The organisations are divided in the three clusters, with an overhead rate for:

• Cluster 1 (book and media sciences) at 109%,
• Cluster 2 (empirical humanities and social sciences as well as theoretical natural sciences) at 74%,
• Cluster 3 (experimental natural sciences) at 106 %.

Only the personnel costs of the research personnel are included (usually starting with TV-L E13). This may also include personnel employed for the project as well as personnel already employed and financed by the university. The university administration requires that personnel costs for research personnel always be incurred in contract research projects.

Any additional changes for contract research projects?
Since 15 November 2010 Heidelberg University must enter its economic activities into the accounting records, i.e. to record the actual costs of the contract research project in order to calculate and verify the direct and indirect costs actually incurred.  This means that the research personnel involved in the project must document time worked on a time sheet. Division 6 can furnish time sheet templates.

Research and Teaching Allowance

Who can request a research and teaching allowance?
Only professors appointed in accordance with Federal Civil Service Act W are authorised as well as junior and university lecturers according to §51 of the State University Law.

How much can a research and teaching allowance be?
A maximum of one year’s basic salary per calendar year, whereby the allowance is not considered pensionable.

Who receives the research and teaching allowance?
The researchers personally receive the allowance in their salary.

To whom does this regulation apply at Heidelberg University?
The new regulation applies to all faculties, except for the medical faculties, who have elected to use another accounting method to determine full costs.