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 traditional ‘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.
The EC’s 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 the ongoing extensive financial management of their project. Currently, the traditional model (the “actual costs” model) is perceived as 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):
- The budget in Lump sum grants is defined up-front and is fixed in the grant agreement.
- The funding by the EC will follow the regular EC payment schedule. However, the EC will approve payments only upon completion of activities in work packages.
- The payment of lump sums does not depend on successful outcomes (which are never certain in research).
- 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 value, 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 (an Excel spreadsheet provided by the EC). 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 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, at least as a reference point.
- 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. 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 what the post-award phase will look like, 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 is centered around the work package structure.
Furthermore, the EC will approve payment (under lump sum grants) only for completed work packages (in each reported period). Therefore, when preparing the budget in the pre-award phase, keep these guidelines in mind:
- Make sure to provide the required detailed budget data per work package, per partner.
- The lump sum model, centered around the completion of work packages, adds the following complexity levels when preparing the work plan:
- The lump sum model creates the motivation to build the project’s work plan using work packages with the expected reporting & payments schedule in mind, meaning to align the work packages’ duration and their endpoints to this schedule. In the case of work packages that span over more than a single reporting period, the motivation is to break them down to several shorter work packages, again, aligned to the expected reporting schedule (the content of these divided work packages can be identical or similar for that matter).
- In that context, there is a big question mark about how the reporting schedule is going to look like during the project’s execution, as we want to align the work package structure to that. This information is not available in the pre-award phase (except for the cases of the EIC Pathfinder and Transition grants), and you will get this information only once the EC invites you to begin the “Grant Preparation process (GAP)”.
- And last, but not least – we should also attend to the effect of the actual payments (pre-financing and interim payments), which are designed to keep the project in a positive cash flow during most of its duration.
- Since these complexity levels have to do with how the project is going to be executed in the post-award phase, please refer to the Post-Award section below. The full details explained over there will allow you to better plan your lump sum project in the pre-award phase.
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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 any other “regular” direct cost in Horizon Europe (full official details are available in the Annotated Model Grant Agreement (AGA)); 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 those that do not meet the above criteria.
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. 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. Note that for Personnel costs 1 unit means 1 person-month (no other ways of presenting personnel costs are allowed).
- 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 of that 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.
- Note that for the case of lump sum grants, the reviewers are instructed to estimate the personnel costs according to the data available in the “Personnel cost dashboard”, which is accessible in the following link. Therefore we recommend adhering to the estimates reflected in this dashboard.
- Items such as travel, subsistence, other goods, works and services, should also be calculated using the abovementioned structure of the number of units multiplied by the cost of units. Sometimes it may not be as simple as one may think. To comply with the rigid requirements of the detailed budget requests Excel sheet, you may need to transform your cost presentation to match the required structure in this table (for example: the cost of consumables over time, as these may vary during the project’s execution). Since it is impossible to amend this Excel sheet structure, including the option of adding/removing lines and/or changing the cost description, etc., there might be cases where you will have to accumulate various expenses and present them by using average costs. For that matter, we recommend having an additional, back-end Excel sheet with your own detailed budget calculations for your internal records. Use this additional Excel sheet to collect all budget items and make all your calculations before feeding the formal detailed budget request.
In the 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.
The impact of the Lump Sum model on the partner selection process
One may wonder how one is connected to the other? Meaning, what does the budget model have to do with the partner selection process? Indeed, at first glance, there is no link between the two. However, when looking closely into the way Lump sum projects are implemented, a tight link is revealed. Let’s explain.
In Lump sum projects, the main reference point for the payments, reporting and potential changes in the way a project is implemented, is the completion of work packages. Any payment will be approved only for completed work packages. Any change of the budget allocations during the project execution will be done in direct link to the status of the relevant work packages, and so on. In other words, in Lump sum projects, the main pivot is the work package(s).
The motivation to have a smooth project operation and timely completion of work packages is universal and applies to all sorts of projects, including the traditional ‘actual cost model’ projects. However, when it comes to lump sum, this motivation is reaching a higher level, and the entire issue becomes more critical.
Why is that?
In ‘actual cost model’ projects, despite the above-mentioned motivation, if a work package is not completed, most of the partners will not suffer from that. This is because, in ‘actual cost model’ projects, each partner will get paid for its own actual work that was done, regardless of the performance of the other partners, which may lead to an incomplete work package. This means that it is possible to have a scenario in ‘actual cost model’ projects in which a work package is not completed or only partially completed, and most or even all partners will get paid for their work.
In ‘lump sum model’ projects this is different since the sole indicator for the EC to approve payment is the completion of work packages. Only once a work package is completed, all the involved partners will be paid for their work. If the work package is declared incomplete, the involved partners will not be paid for their work. Hence, the internal dependency of the project’s partners on their peers’ performance in ‘lump sum model’ projects is much higher, compared to ‘actual cost model’ projects. As a side note, we should mention the option of having partially completed work packages, which will be partially paid by the EC (subject to the project officer’s assessment and decision, as explained below in the Post-Award section). Yet, this does not change the above-mentioned messages.
The key to ensuring the project’s execution and full completion of work packages lies in a proper selection of your project’s partners. Typically it means selecting partners that you have past experience with, and that have demonstrated reliable project execution conduct. However, when doing so, we’d recommend our general recommendation about partner selection, as explained in this article.
Another important dimension of this topic, and in line with the above, is the Consortium Agreement settings for ‘lump sum model’ projects. We strongly recommend attending to the dedicated article about this issue here.
Practical Pre-Award tips when preparing a lump sum budget
Pre-award tips for applicants:
- Keep in mind the EC’s reporting and 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.
- If needed, break down a “long” work package (which spans over more than one reporting period) into “short” identical/similar work packages, aligned with he reporting and payment schedule.
- Build the work plan according to an assumed reporting schedule, and then revisit this aspect when the project is selected for funding (explained below in the “Post-Award phase” section).
- Be aware of the payments schedule and the positive case flow (explained below in the “Post-Award phase” section).
- Remember that each work package should have a detailed budget plan. This is a more demanding task compared to preparing a budget in the traditional “actual costs model”.
- 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.
- Mind the issue of the Consortium Agreement. This should not be taken lightly, especially in case your organization is in the project’s Coordinator seat. We’d recommend reading this article about this issue.
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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 now 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. In some cases, a mandatory contract amendment might be needed (see more details in the 2nd article). As always, you should keep the EC Project Officers (PO) 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.
Having said all that, it is important to highlight again that lump sum grants (including reporting and approved payments) are centered around the completed work packages. See more details below.
Reporting & Payments schedule
In principle, there are no differences between lump sum projects and other types of Horizon Europe projects with regard to the periodic reporting schedule. The EC will dictate the reporting periods and reviews schedule for the project. In turn, these reporting periods will also dictate the payments approval schedule.
In lump sum grants, due to the fact that payments are approved only for completed work packages, there is a strong motivation that the work plan and the reporting & payments schedule will be well synchronized.
However, there is a subtle issue to highlight here: how can you plan (during the pre-award phase) a work plan that will be in sync with the reporting schedule if the reporting schedule is determined only after the project is selected for funding (excluding the cases of the EIC Pathfinder and Transition grant, in which the reporting & payment schedule is pre-determined)?
In most cases, the reporting schedule will set a reporting period every 12 or 18 months. Therefore, in the pre-award phase, we recommend to simply assume one of the two options (12 or 18 months per reporting period) and abide by that assumption.
Later, once you reach the post-award phase (when the project is selected for funding), you will face one of two scenarios: The first “easy” scenario is the one in which you assumed right, and your plan is according to the EC’s dictated schedule. No issues in this case. The second scenario is the case where you assumed wrong and your work plan is not in sync with the EC’s dictated reporting schedule. What can be done in such a case? Practically, you have two options:
- Option I – Get with the program and execute the project as planned, while taking into account that some of the work packages will span over reporting periods, and then the payments will be approved accordingly. This may cause significant gaps in payment approvals for some of the work packages. But, then again, keep in mind the positive cash flow (as explained below), which may allow this situation to be manageable.
- Option II – if you are keen to have full sync between your work plan and the reporting schedule, our advice is to take this issue to the EC Project Officer during the Grant preparation process(“GAP”). It is probable that you won’t have to explain much as the motivation and rationale for discussing this issue is supposed to be clear to them (you may find out that you have mutual interests here…). When discussing with the EC Project Officer you can offer the following alternatives:
- Alternative A – Ask the Project Officer to change the reporting schedule to be in sync with the work plan; OR
- Alternative B – if the Project Officer declines alternative A, you can ask her/him to change the work plan (as part of the GAP) to make it in sync with the schedule.
- Our experience shows that you have good chances to get what you want, with one of these alternatives. Open dialog with the Project Officer is key for success here (as well as in other aspects of preparing the grant agreement).
Reports
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.
Payments
The payment schedule of a lump sum project follows the regular payment schedule in the programme (including pre-financing, interim payments, and final payment). However, the payments mechanism in Horizon Europe may cause some confusion as one should differentiate between the money transfers to the bank and the payments that are recognized and approved in the periodic reports.
On one hand, as mentioned already, the payments are approved only for completed work packages.
On the other hand, the EC’s policy is to allow the applicants to have a positive cash flow right from the start and up until the late stages of the project. It is manifested first with the initial (usually) generous pre-financing payment, which can be anywhere between 30%-90% of the maximum grant amount. Later, additional interim payments will be made (subsequent and adjacent to the periodical reports, and up to 90% of the maximum grant amount). The rest of the grant will be paid after the final report. This means that during most of the project’s execution time you can expect to have the funds to finance your project’s activities.
Therefore, the confusion can stem from the discrepancy between the positive cash flow (money is already in the bank) and the approved payments (only for completed work packages) in the periodic reports. The fact that the money is already in the bank does not mean that you are free from completing the work packages and reporting on them. The reporting and approval mechanism enables the EC to monitor the way you execute the project and how you utilize the allocated funds.
It might be relevant to consider this discrepancy in the case of “long” work packages that span over several reporting periods. As mentioned, the lump sum grant mechanism may create a motivation to break such “long” work packages into smaller ones (aligned to the reporting and payment schedule). However, you may not have to do that after all. The positive cash flow could potentially eliminate any financial issues if the work packages span over more than one reporting period. In such cases, the approvals might arrive late in the game, but this won’t affect the actual cash flow.
Clearly, this is something to consider and carefully plan to ensure the smooth execution of your project, under these rules.
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.
- Here as well, we would recommend attending to the issue of the Consortium Agreement in the case of lump sum projects. This might be a critical instrument in the post-award phase. You can read more about this important aspect here.
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, in the context of a potential future audit (read more about this here): 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.
Conclusion
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.