The Horizon Europe programme is expanding the scope of lump sum grants, with plans to expand even more in the future. Lump sum refers to the payment scheme and budget model associated with the research project. Due to the increasing likelihood of coming across a lump sum grant in the programme, it is important to get to know this raising model both independently, and in comparison to the (still) prevailing ‘actual costs’ model (should you be more accustomed to it). We present here the first of a series of articles wholly dedicated to the lump sum subject. In this article, we will break down the idea of lump sum, discuss the unique benefits and added values of this budget model, and understand how it works both during pre-award and post-award phases. In the following article we’ll touch on the existing “discrepancies” and shortcomings within this model, and finally in the 3rd article we’ll introduce our answers to some of the most frequently asked questions we receive regarding lump sum.
A short disclaimer before we begin: The complete & official information about this topic is provided in the EC “Lump Sum Model Grant Agreement” and in the “Annotated Grant Agreement” documents. This article does not substitute for these official documents and does not substitute for specific professional consulting by experts.
Justification for expanding the use of the lump sum model
As the EC explains, the main motivation to expand the use of lump sum in Horizon Europe is to make the programme simpler by reducing existing barriers that discourage many from participating. Another motivation is to allow researchers & developers to focus more on the content of their work, rather than on ongoing extensive financial management of their project. Currently, the ‘regular’ model (the ‘actual costs’ model) is considered to be complex with many specific rules that produce significant administrative and financial burdens. These may lead to numerous budget-related errors, or in worse cases even turn SME’s and newcomers away from the programme.
According to the official EC agenda, lump sum grants hold the potential to make the programme simpler and easier to manage by introducing the following key official principles (full information is communicated here):
- Lump sums grants are defined up-front and are fixed in the grant agreement.
- Funds are paid out upon completion of activities in the work packages.
- The payment of lump sums does not depend on successful outcomes (which are never certain in research) and follows the regular EC payment schedule.
- Lump sum projects enjoy the same degree of flexibility as traditional actual cost projects, and their performance is judged by the same standards.
- There is no need to keep specific records on the actual costs incurred in lump sum projects.
As can be seen, lump sum grants can indeed be a more practical method of financial management compared to the traditional actual costs model.
Having understood the motivation and added values, let us now discuss how to prepare the budget for a lump sum grant.
Pre-Award phase: Preparing a budget for a lump sum grant application
Unlike other types of project applications, and despite what many may initially think, lump sum project proposals undergo a relatively detailed budget preparation phase. The requirement is to present the budget through a dedicated budget table (in the form of an Excel spreadsheet). This is a mandatory part of the lump sum grant application.
Although the detailed budget is for evaluation purposes only, we offer the following points and suggestions to consider:
- It is recommended that a proper budget plan will accompany the project’s execution. The accounting department in your institution will likely require a budget plan anyway, regardless of the EC’s regulations and expectations. For that matter, we suggest using this detailed budget for the execution phase as well.
- This plan may also be useful in case of a potential financial audit (see more details about audits in the following 2nd article).
- Last, but not least – as one can see, the budget tables below represent a high level of details (normally not requested in proposals following the traditional ‘actual costs’ model). This means that, regardless of initial thoughts, considerable time and resources will need to be set aside for the purpose of successfully constructing your project’s budget plan.
Although we are discussing the pre-award phase, it is important to realize how the post-award phase will look, specifically how and when the EC will pay for the work done. Specifically in lump sum projects, this has implications on how to prepare and present the project’s budget. In that sense, we should highlight that the lump sum model works primarily according to the work packages structure (in a way that is different from the actual cost model that you may be aware of). Therefore, when preparing the budget in the pre-award phase, keep these simple guidelines in mind:
- The EC will pay (under lump sum grants) only for completed work packages.
- Make sure to provide the required detailed budget data per work package, and adjust the work packages timeline to the expected reporting & payments schedule.
Having said that, let’s look deeper into the details, beginning with the eligibility rules.
Eligible costs in lump sum projects
Eligibility rules in lump sum are very simple. For a cost to be eligible, it should:
- Be assessed using the same methodology as an actual cost-based grant agreement; and
- Be listed in the detailed budget table (as explained above&below); and
- Be part of a completed work package and in accordance with the work plan.
In line with that, ineligible costs are either those that do not meet the above criteria or those that are a ‘double funding’ case, meaning a cost that is already covered by other EU grant (there are some rare exceptions to that, which we do not discuss here. The information is available in the “Lump sum MGA”, Article 6.3).
Budget data per work package & beneficiary
For each work package & beneficiary combination, applicants should provide a detailed breakdown of eligible costs in the following form (taken from the template). Note the following:
- The table relies on a simple mechanism of ‘Units’ X ‘Cost per Unit’ in order to calculate the total costs per category. For Personnel costs 1 unit is considered 1 person-month.
- A major hurdle could be the estimation of the cost per unit of the personnel participating in the action, as the calculation should take into account not only the cost of employment of these individuals, but also the relative and varying time investment of the personnel in each of the work packages during execution. Having an accurate calculation at such an early stage, might not be simple without a deep proper preparation phase. Disregarding this may lead to improper estimations, and this is something we recommend avoiding.
- Items such as travel, subsistence, other goods, works and services are relatively simple to calculate. It does require transforming cost presentation to match the required structure in this table (for example: cost of consumables over time, as these may vary during the project’s execution).
In case of equipment cost, the calculations should be based on ‘depreciation value’ (as always in Horizon Europe grants). For a lump sum project, a detailed explanation for these costs should be provided in the following table (taken from the EC template) which calculates the depreciation value according to the parameters that you provide. We emphasize this point since this level of details has never been required nor included in project proposals in actual costs model. This new requirement is exclusive to ‘lump sum model’ proposals.
Practical Pre-Award tips when preparing a lump sum budget
Pre-award tips for applicants:
- Keep in mind the EC’s payment schedule during the preparation of the budget request.
- In principle, aim for work packages that end before each reporting period, instead of work packages spanning over several reporting periods.
- Remember that each work package should have a detailed budget plan.
- Gather all required information for the budget as early as possible. Preparing a budget request for a lump sum project should not be left to the last minute.
Pre award tips for Research Managers & Funding Advisors:
- In line with the above, encourage your applicants to complete the work plan as soon as possible, so the budget preparation will be done properly
- We recommend briefing the financial department in your institution about the unique features of lump sum funding (as explained in this set of articles), and the importance of preparing a highly detailed budget request using the mandatory EC template.
Post-Award phase: How lump sum projects are executed
Having discussed how to prepare a budget in a lump sum project proposal, let’s review the execution of such a project. In many ways, lump sum projects are financially managed like any other regular project under Horizon Europe.
Work packages, Deliverables and Milestones
The work plan building blocks are expected to be executed and reached like in any other Horizon Europe project. As long as you are on track and reach the project’s goals while conforming to the suggested work plan, there are no problems. Any deviations from the original plan will have to be presented through a justifiable cause and recorded in the periodic progress reports. As always, it is recommended to keep the EC Project Officers in the loop, consult with them, ask them for guidance, and “get their blessing” for such justified deviations. In that sense, lump sum projects are no different from other projects in the programme.
One important difference has to do with the payments mechanism, which allows payments only for completed work packages. See more details below.
Here as well, there are no differences between lump sum projects and other projects. The EC will dictate the reporting periods for the project. In turn, these reporting periods will also dictate the payment schedule.
Periodic progress reports, alongside financial progress reports, are expected in lump sum projects, like in any other project in the programme.
Note that it is of utmost importance to clearly report on completed work packages in the relevant periodic progress report, as this will affect the payments schedule. In case a work package is not completed as scheduled, it is still recommended to report on all completed tasks within this incomplete work package. This is because the EC Project Officers have the mandate to approve partial payments in lump sum projects for partially completed work packages.
The payment schedule of a lump sum project follows the regular payment schedule in the programme (including pre-financing, intern payments and final payment). Each payment (except for the pre-financing payment) corresponds to the relevant periodic report, and will cover only the completed work packages during the reporting period.
Practical Post-Award tips for lump sum budget execution
Post-award tips for participants:
- Monitor your work plan and aim to minimize deviations
- We recommend monitoring the work both at the task level in addition to the work package level, although it may require more effort.
- Do your best to complete the work packages on time and as planned.
- In case of deviations, make sure to have good, documented justification for the deviation.
Post-award tips for Research Managers & Funding Advisors:
- In addition to the above, make sure to involve the financial department in monitoring the work. It is important that they will be fully aware of how the project is progressing, in the context of reporting and payments.
- In case of deviations, we recommend that you will be informed, as sometimes the implications of deviations may affect your institution.
- In case of major deviations, there are two possible scenarios that may require your involvement from the institution’s point of view: 1. the actual cost of execution is significantly higher than planned, 2. when the budget is significantly underutilized (compared to the plan). In both cases, it is our recommendation to be on top of the details as soon as possible in order to rectify the problem.
The lump sum grant model aims to offer a simple manner of financial management of Horizon Europe projects. In order for that to happen, a more thorough preparation phase is needed during the pre-award phase, while in the post-award phase, the emphasis is on completing the work packages, as grounds for payments. In many other aspects, the lump sum is identical to other Horizon Europe grants.
In the following articles, we will dive into more intricate levels of lump sum grant implementations.