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FP6 Financial Info & FAQs --> Proposal --> Overheads

Calculated Overheads (FC)

Direct costs are those costs directly related to the project, which can be clearly identified and justified by the accounting rules and principles of the contractor.  Overhead costs (also referred to as Indirect costs) are those costs which are not directly related to the project, not identified as direct costs and which do not include any costs already directly charged to the project.  They are determined in accordance with the accounting principles of the contractor but must be related to the project, subject to audit trail and be real.

 

The calculated overheads could include the following types of costs:

   in house technical service departments utilised by project such as QA, design services

   allocations for internally funded R&D if it is normal practice

   costs related to general administration and management;

   costs related to ongoing professional training of staff

   costs of office or laboratory space, including rent or depreciation of buildings and equipment, and all related expenditure such as water, heating, electricity, maintenance, insurance and safety costs;

   communication expenses, network connection charges, postal charges and office supplies;

   depreciation on common office equipment such as PC’s, laptops, office software;

   miscellaneous recurring consumables.

 

In the FC cost model the contractor uses his own “normal” accounting basis for calculating overheads, whether it is based on salaries only or on all direct costs. The reporting rate is based on historic accounting information per published accounts of the organisation.

 

The indirect costs used for FC must be based upon the actual costs for the life of the project not on the last set of financial accounts. Only indirect costs relevant to the project are eligible and they have to be actual costs for each period concerned. While an estimate can be used to identify the expected costs over the life of the project, only actual costs may be claimed at each reporting period. Any necessary adjustments to reflect corrections to amounts claimed in a previous period must be identified in the subsequent period.

 

The basis for allocating the indirect costs (e.g. project direct staff hours / total direct staff hours) must be calculated for the life of the project. It is not possible to use the figure (e.g. total direct staff hours) for the period of the last financial accounts. Only indirect costs relevant to the project are eligible and they have to be actual and adjusted where they deviate from the estimates.

 

Flat rates for indirect costs where applicable (FCF and AC)

In some models a flat rate for overheads can be charged (generally 20% of direct costs minus any subcontracting costs).  In these cases, either the contractor has opted for the flat rate or is not capable of identifying its real costs.

Indirect costs covered by a flat rate should normally include all costs related to general administration and management. Subject to the accounting principles of the contractor the following items: 

   costs related to general administration and management;

   costs of office or laboratory space, including rent or depreciation of buildings and equipment, and all related expenditure such as water, heating, electricity, maintenance, insurance and safety costs;

   communication expenses, network connection charges, postal charges and office supplies;

   common office equipment such as PC’s, laptops, office software;

   miscellaneous recurring consumables.

 

Example of third party’s costs eligible for project and conditions for acceptability

The Article 8 of the Rules for Participation in combination with Article 14.2, third indent of the same rules, indicates that the resources placed at the disposal of a participant by third parties could be eligible and therefore be refunded.

This provision (Article 5.5, 13.5 and 14.2 third indent of Rules for Participation) has been specifically conceived with a view of encouraging the participation of common legal entities (e.g. EEIG and similar entities without legal personality) instead of its members, as an element of simplification in line with the spirit of FP6.

 

This provision is practically implemented as follows:

In accordance with Article 8 of the Rules for Participation, this provision requires that a prior

agreement between the third party and the contractor exists prior to the signature of the EC contract. The contractor has to submit the aforementioned agreement to the Commission during the negotiation phase. In the event of agreement of the Commission (Ref. to the Guidelines on Negotiation and Selection) the third party and its tasks, will be mentioned in Annex I of the contract. Any other provision that could emerge during the implementation of the action cannot be considered as potential eligible cost from a third party.

These costs, even if incurred by a third party, will have to be certified by an external auditor, and they are under the contractor's responsibility, which will declare them for its account.

 

Overheads on “Management Costs”

Contractors may charge overheads on management costs using the same basis as for all other costs i.e. AC and FCF, 20% of all direct costs except subcontracts and audit certificates and FC the percentage as defined by the organisations normal accounting principles, either on all direct costs or salaries only, depending on standard basis within the organisation.

Overheads FAQs


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