• What are direct costs?
  
• What are indirect costs?
  
• What is an indirect cost model? What indirect cost models exist in FP7?
  
• What are the funding rates?
  
• When may I place a subcontract?
  
• What is a Form C?
  
• What is a Financial Audit?
  
• What is a “Third Party”?
  
• What has to be handed in at the European Commission in the course of the Reporting?
  

What are direct costs?

Direct costs are all proveable financial expenses which can be allocated to a project according to the valid accounting principles and national guidelines.
Examples for direct costs are:

• Personnel costs
• Consumables
• Travel expenses
• Depreciation on equipment
• Subcontracting

What are indirect costs?

Indirect costs are also called overhead. Indirect costs cannot be definitely allocated to one project, but do incur in direct context with the project.

Examples for indirect costs are:

• Structural costs and entertainment costs
• Rent
• Electricity
• Heating
• Telephone costs
• Shipping costs
• Copy costs
• Cleaning costs

 

What is an indirect cost model? What indirect cost models exist in FP7?

In FP6, there were the following cost models: "Full Cost Model" (FC), "Full Cost with Flat Rate model" (FCF) and "Additional Costs" (AC).

These cost models do not exist in FP7 anymore. The project partners have to disclose their direct and indirect costs as "actual costs".

The terminology in FP7 differentiates between direct costs (=costs that incur through the project, e.g. personnel, material and travel expenses) and indirect costs (=costs that do not directly incur through the project, e.g. rent, laboratory maintenance or communication).

The reimbursement is carried out on the basis of the total eligible costs and consists of the direct and indirect (overhead) costs.

In order to calculate the indirect costs, there are the following methods:

Simplified method:

The "Simplified Method" is a basic method for organizations, which are not able to generate a detailed cost statement for individual projects (according to the usual accounting and management principles).

Actual Real Indirect Costs:

Project partners, who are able to identify the indirect costs along the analytic accounting principle, have to provide proof of their real indirect costs or opt for the 20% flat rate alternative. This method can be chosen by all institutions, the industry and SME's.

Special Transitional Flat Rate (60% overhead):

This method can be applied by any project partner who is not able to display the indirect costs per project (in FP6: "Additional Costs model"). Non-commercial public institutions, research and educational institutions as well as SME's can opt for this method.

Standard Flat Rate (20% overhead):

This method can be applied by all project partners, independent from their accounting system. In case this method is chosen, the indirect costs do not have to be proven.

What are the funding rates?

The maximum "funding rate" depends on the type of project, the type of activity as well as the type of institution (SME, public body, etc.):

When may I place a subcontract?

Subcontracts are generally allowed in FP7. However, there are certain rules that need to be complied to:

• Subcontracts may only be placed for minor activities, not for any major tasks in the project. Generally, subcontracts deal with specific tasks, which cannot be carried out by the project partners themselves. Furthermore, it proves to be more efficient to pass on these tasks to third parties. A typical example for a subcontract is the development of a website.

• Management may not be outsourced as a subcontract.

• Each subcontract must be justified in the Annex I and needs to include an estimation of costs

• Subcontracts have to be placed according to the principle "best value for money". 

• No overhead costs may be added for subcontracts.
  

What is a Form C?

The Form C (=Financial Statement) is a table showing the eligible costs.

What is a Financial Audit?

An audit certificate, also called "Certificates on the Financial Statements" is a confirmation on the financial statement, which was created in the course of the Reporting, as soon as the threshold of 375.000 Euro is exceeded. The audit certificate serves as a confirmation of the correct accounting of the eligible costs.

In a project of 2 years duration or less, all partners must hand in an audit certificate (independent of the amount of funding), together with the other documents, at the end of the project duration.

What is a “Third Party”?

The term "Third Party" depicts an entity which participates in the project, but is not an official project partner.

What has to be handed in at the European Commission in the course of the Reporting?

On a regular basis, a Reporting has to be completed in FP7 projects. These reports consist of a scientific (Periodic Report, Deliverables) as well as financial report (Financial Statement, Form C, audit certificate, Distribution Report (only with the Final Report)). The format and style of the Report is predefined by the European Commission.