Frequent questions on cooperation with private third parties
Who decides if a cooperation with a private third party is contract research?
Cooperation with private third parties must be contractually defined before any research activity begins. Even before the contract is initiated, the Research Division assists university researchers in categorising the specific project as contract research, cooperative research, or an application of proven results and, if needed, signs the contract.
Why does Heidelberg University use a separate full-cost accounting method for contract research and what does that mean?
Heidelberg University uses separate accounting for economic and non-economic activities to satisfy the competition rules of the European Union (EU) according to article 87 of the EC agreement and the Community Framework for State Aid for Research and Development and Innovation (the EU state aid framework, for short) dated 31 December 2006 (2006/C 323/01). All universities within the 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 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.
To comply with the EU state aid framework, Heidelberg University has been obligated to use a separate accounting method on a full-cost basis for contract research projects. Contract research projects must therefore 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.
What are the research-related economic activities at Heidelberg University?
Such activities include contract research for private 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 and contract research 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.
How are contract research projects calculated?
In full-cost accounting, all costs of the project plus an appropriate margin must be included:
- 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 profit margin of at least 5%
- Research allowance, if applicable
- Value added tax (VAT)
How are indirect costs determined for contract research?
At Heidelberg University, indirect costs for cooperation projects with private third parties are determined in the same way as full costs within the 7th EU Research Framework Programme. The amount of the overhead rate depends on which university organisation will be conducting the contract research.
- Cluster 1 (book and media sciences): 78 % overhead
- Cluster 2 (empirical humanities and social sciences as well as theoretical natural sciences): 59 % overhead
- Cluster 3 (theoretical natural sciences): 101 % overhead
How are project costs calculated for cooperative research and scientific services (WDL)?
For cooperative research and scientific services (WDL), direct costs are used in the calculation. Indirect costs are assessed at 20% of all direct costs across the university and no profit or research allowances are imposed. Cost plans that need to be created for cooperative research must identify the value added tax. VAT may also need to be identified for scientific services (WDL) (see below).
What are the rules for including research allowances?
Professors appointed in accordance with Federal Civil Service Act W and junior and university lecturers according to §51 of the State University Law can claim a non-pensionable research allowance for the duration of a contract research project. The researchers personally receive the allowance in their salary.
The researchers themselves initially negotiate the payment of a research allowance and the amount directly with the private third party. The research allowance can be awarded only if the third party agrees to pay it in addition to the direct and indirect costs and the profit margin.
Furthermore, the research allowance must be proportional to the scope of the contract. In one calendar year, the maximum research allowance may not exceed one year’s basic salary.
What else needs to be considered in the cost calculation and the project implementation?
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. The Research Division can furnish time sheet templates.
For contract research, the profit margin is automatically credited to the project account of the project manager, whereas the research bonus and other earnings are paid directly to the project manager upon request to the personnel department.
For work associated with scientific services (WDL), researchers who generate revenue for the university exceeding 35,000 euros within a 12-month period should make provisions in the budget for any applicable taxes. Exceeding this upper limit renders the university a commercial enterprise, which specifically requires Department 4.3 to automatically reserve a portion of the total amount provided by the third party for any capital gains, corporate and business taxes due.