Horizon Observations and Call for Amendments by Fraunhofer Gesellschaft
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1 Brussels, 01 February 2012 Horizon Observations and Call for Amendments by Fraunhofer Gesellschaft Observations Fraunhofer commends the focus of Horizon 2020 on innovation and applied research in the structure and content of the proposal. Especially the emphasis on societal challenges and the creation of a programme for key enabling technologies are appreciated. The budget, on the other hand, falls short of the intent shown in content and structure. The suggested budget of EUR 80 billion not be enough to maintain the annual research funding on the level of the last year of FP7 and in addition fund more pilot and demonstration projects. Fraunhofer therefore appreciates the request of the European Parliament to increase the budget to EUR 100 billion. Furthermore the budget distribution does not favour the intended focus on innovation either. It rather causes the proposal to shift once more towards purely cognition-oriented and mono-disciplinary research. Innovation, however, by its very nature requires interdisciplinary research involving all partners in the innovation chain. Especially, SMEs should receive a higher level of support. In this respect, Fraunhofer refers to the recommendations of the High-Level Group on Key Enabling Technologies. 1 The proposal s rules of participation are cause for great concern for Fraunhofer and many other Research Performing Organisations (research organisations, universities, industrial enterprises). The proposal provides for one single way of calculating reimbursements for research activities: 100% reimbursement of the direct costs and a flat-rate of a maximum of 20% of these direct costs to cover indirect costs. 2 This proposition comes close to a model based on expenditures and means a serious step backwards from the full cost accounting model promoted in the previous framework programme. This counteracts the tried and trusted cost calculations of research organisations which have been using full cost accounting for years. It also disappoints those research institutions and participants who - relying on the continuity of the financial rules - recently implemented full cost accounting or are a short way from implementation. For many institutions working with full cost accounting and the corresponding overhead rates, this means a significant reduction of the funding rate. 3 In other words: Organisations that have set up modern, innovative research facilities and infrastructures and utilise them to the benefit of European projects will be reimbursed for a considerably smaller portion of their actual total costs. Therefore, this not only affects Fraunhofer and the major European Research and Technology Organisations (RTOs), but also universities and industrial enterprises as well. European politics request research organisations to provide more innovative and output-oriented research that will contribute to enhanced competitiveness of the European industry. To reach this goal, higher investments by research organisations and universities for the acquisition, maintenance 1 see Annex II: High-Level Group on Key Enabling Technologies - Final Report, Recommendation No 4, pages This corresponds to the current funding modalities of the ERC 3 see Annex I: Overhead Costs at Fraunhofer 1
2 and operation of modern research installations are essential. The approach to reimburse indirect costs by considering a flat-rate of 20% of the direct cost (cost reimbursement rules analogous to the ERC model) is not adequate for result-oriented research. It ignores the actual costs of research and development and will hinder innovation and competitiveness in Europe. During the last years, many universities have invested a lot of effort to implement full-cost accounting, as it had been and is a major request of public funding bodies. Especially the European Commission encouraged full cost accounting in the seventh framework programme Here again, a reimbursement model using a flat-rate calculation for indirect costs not only provides stimuli in the wrong direction, but it additionally counteracts the progress university administrations have just made in this area. Full-cost accounting is the prerequisite for strengthening the cooperation between universities and private enterprises - for example for contract research - since here again, the European framework for state aid for research and development stipulates the indemnification of services at real costs or at market value. Ultimately, by using a fixed rate to calculate indirect costs, the European Framework Programme will lose attraction for Fraunhofer institutes and their partners. Participation is expected to decrease considerably. This is not primarily a budget issue for Fraunhofer. Although Fraunhofer is currently the second largest recipient of funds from EU Framework Programmes 4, these funds constitute merely 5% of the organisation s annual budget. The real concern is that many research organisations will no longer be able to contribute to the European Research Area. In addition, universities would not continue their progress towards financially sustainable full-cost accounting. 5 Finally, reducing attractiveness of the programme for Fraunhofer and comparable partners will have a negative effect on the participation of SMEs which often need to be guided towards European programmes by larger research organisations. The present draft distinguishes between projects with research activities on one hand, and projects with innovation activities close to the market on the other. For research activities 100% reimbursement of the direct costs is envisaged, for innovation activities 70%. Additionally a flat-rate of a maximum of 20% of these direct costs applies in both cases to cover indirect costs. Within each project only one single reimbursement rate is allowed. Fraunhofer sees this strict division with great concern. It will lead to an interruption of the innovation chain and it will complicate the exploitation of research results. Horizon 2020 proposes a share of 15% of the total budget of the pillars Industrial Leadership and Societal Challenges for the promotion of SMEs. However, it is as yet unclear how this budget is to be implemented. The same is true for the dedicated SME programme, which remains too vague in many areas. It is suggested that SMEs could cooperate with partners along the innovation chain, but no specifics are given, even though cooperation with research partners is of great significance to growing companies. The instruments of the current FP7 theme Research for the Benefit of SMEs were very successful in this context. When it comes to the actual funding instruments, Horizon 2020 lacks details. Thus, the framework programme provides great freedom in the creation of work programmes and for the outsourcing of different activities. It is our fear that the implementation will not only lead to the desired collaborative research projects. The introduction of new platform or cluster initiatives needs to be 4 see also: Annex III - Fraunhofer in Europe 5 see also: Wilso, Lesley (European University Association EUA) in European Voice, Volume 17, No. 45, December
3 avoided. All specific parts of Horizon 2020 need clear governance structures in order to guarantee a coordinated implementation. We welcome the Commission s intention to implement the programme for key enabling technologies through specific structures. But these structures need to be laid out and explained in greater detail too. Call for Amendments Full Cost Accounting Fraunhofer s position is that a full cost accounting model must be established as an option under the rules of participation. Fraunhofer will strongly defend this position in the consultations to come. The established and well-proven model of full cost accounting must be maintained, together with the possibility to include project-related indirect costs. Only those full-cost accounting models which reflect the actual indirect costs will meet the cost structure requirements of the different participants and the varying conditions in the member states. One size fits all flat rates, as the current draft of participation rules envisages, must be seen critically in respect to the principles of equal opportunity 6, and they contradict competition law principles and the elaboration of these principles within the European framework for state aid for research and development. 7 Considerable simplification can be achieved by providing a cost accounting model that stipulates specific rates for personnel and indirect costs which have been approved by certified auditors. This is also the way it is done at national level in most cases. Otherwise, the disadvantages of a flat-rate financing model for indirect costs outweigh the advantages that this simplification was supposed to bring. Funding Rates Funding rates should be determined in a separate step as was the case in FP7. The funding of research and innovation activities with different funding rates should be made possible within the same project. This could be achieved through different work packages. Fraunhofer still considers that an overall funding rate of at least 75% for public research entities would be adequate. No difference should be made between direct and indirect costs. A closer approach to the Commission s current proposal could be realized as follows while still maintaining the cost-based concept: While direct costs would be funded at 100%, the true indirect costs would be taken into account and be funded at a percentage rate yet to be determined. In order to prevent a loss in attractiveness of Horizon 2020, this funding rate should be chosen so as not to lower the funding rate of the research partners in comparison to FP7. This full cost 6 Flat rates result in the discrimination especially of those participants who possess a high-end infrastructure and / or special expertise due to this infrastructure. 7 The R + D + I Common Framework includes overhead costs in the total reimbursable costs and provides for different reimbursement rates depending on the recipient. 3
4 accounting option should be allotted for those Non-profit research organisations that can provide a certificate of methodology 8. Instruments and Implementation The available instruments need to be developed in greater detail. Successful formats, like collaborative research projects, should be highlighted as essential parts of Horizon In addition, the systematic involvement of stakeholders in drafting work programmes and research agendas should be stipulated in the programme, together with clear governance structures for programme implementation. This is the only way to ensure an effective and efficient distribution of funds. SME Programme An SME programme with a strong budget must enable growing companies to cooperate with research partners throughout the innovation chain. The designated SME budget should be implemented in an autonomous programme, for which detailed and reliable programme structures need to be put in place. The instruments of the current FP7 theme Research for the benefit of SMEs should be incorporated as an important part of the SME programme. This allows RTOs to provide the support which SMEs need in order to develop innovative products and services. Support measures could further ease the access of SMEs to the dedicated instruments. Budget Distribution Fraunhofer urges the members of Parliament and Member States to increase the budget for applied and interdisciplinary research and for technological development in Horizon 2020 adequately. In particular with regard to Europe s economic situation, it is important to foster European competitiveness through increasing its innovation capacity and so to overcome the European Paradox. 9 Funding innovation and application oriented research must thus take highest priority in Horizon 2020.Only by doing so Horizon 2020 will contribute to maintain Europe s prosperity and ultimately the creation of new jobs in Europe. 8 In the opinion of Fraunhofer, this rate should be around 80 %. 9 Europe's inferiority in terms of transforming the results of technological research and skills into innovations and competitive advanatges, European Commission: Green Paper on Innovation, December 1995, page 5 4
5 Annex I - Overhead Costs at Fraunhofer The 60 Fraunhofer institutes are divided into over 100 cost centres with individual cost allocation rates. The indirect costs of the different Fraunhofer institutes and facilities vary considerably depending on the research area. The higher the indirect costs, the lower future funding will be. Funding rates for research activities within the EU framework programme would decrease from 75% in the current FP7 to an average of 65% in the current proposal of Horizon For institutes with higher indirect costs, the reimbursement modalities might even be reduced by 1/3, leading to a funding rate of around 50%. The proposed reimbursement rates will make a participation of the Fraunhofer institutes in Horizon 2020 projects less feasible or attractive. We estimate that the participation of Fraunhofer institutes would decrease by as much as 50% compared to FP7 participation. Funding Rates for Fraunhofer: Funding of Research Activities under FP7 and Horizon 2020 FP7 Horizon 2020 Direct Costs Indirect Costs % Direct Costs Indirect Costs ø65% Costs Reimbursement Costs Reimbursement 5
6 Annex II In its report on key enabling technologies, the European Commission s High Level Group on Key Enabling Technologies pointed out the disproportionate distribution of European funding between fundamental research, applied research and technology development. By international comparison, the funding of fundamental research is disproportionately higher in Europe. Under recommendation no. 4 of the KET-report, the expert group suggested to re-balance the distribution under Horizon 2020 in order to strengthen the innovation capacity and competitiveness in Europe. 10 Percentage of basic, applied, and development activities by public sources Basic FP7 Applied Development 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 58% 32% 11% 44% 32% 48% 28% 24% 24% 19% 45% 36% China South Korea USA EU-Member States (sum) 11% 7% EU 7th FWP (EU 2010) CIP+PPP EIT+JTI 82% FP7 82% 24% 76% Horizon 2020 (EC Proposal) High Level Group KET proposal proposed rebalance 50% 25% 25% Horizon 2020 Source: Key Science and Engineering Indicators, National Science Board, 2010 Digest, NSF, OECD "Research and Development Statistics", additional analysis courtesy CEA 10 Vgl: High-Level Group on Key Enabling Technologies - Final Report, Recommendation No 4, pages
7 Annex III Fraunhofer in Europe 7
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