Fine-tuning the budget

3.4 Fine-tuning the budget

There are limitations and / or special requirements for some types of costs in the programmes and these need to be considered when the budget is prepared: It may be necessary to reduce or even remove some of the costs the project has planned. The rules vary because they are frequently influenced by national rules but we outline some main points below.

Staff costs

Calculating the cost of fulltime staff employed on the project should be relatively easy based on standard salaries for the types of positions involved (generally determined by partner organisations).

Tip: Some programmes do not allow ‘staff overheads’ such as pension contributions and social security costs. Most programmes treat them as part of the staff costs as long as they are really paid by the partner organisation. You need to check.

Calculating the cost of staff employed part-time on the project is more complex. As a starting point all such staff need to keep timesheets of the hours worked on the project and all partners should check that the timesheets in use in their organisations meet programme requirements (there are normally templates available from the programme).

Calculating an hourly/daily/weekly rate for such staff often causes problems. Generally speaking the salary should be split and the project should simply pay the proportion related to project work. There are many potentially complicating factors, however, such as overtime rates and time off work for sickness and holidays. Should the project pay any of these costs?

Some programmes have rules. In other cases, such costs should be split proportionally and transparently between the project and other employers. You may also want to check the method of calculation with financial controllers once the project is approved: Disagreements about the way these costs are calculated is a common cause of reductions in project payments.

Tip: Find out the programme rules for staff costs and make sure all partners keep documentation of how staff rates are calculated.

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External experts and consultants

Many projects require expertise that is not available in partner organisations. As soon as experts are hired, however, projects need to consider public procurement rules. Under these rules all contracts for external services must be tendered in order to get the best value offer.

There are two basic types of tender – full public tender and limited tender. The tender rules to be followed depend on the value and type of contract offered and are decided by national rules. Every Member State has ‘threshold values’. If the contract is larger than this amount, full public tender must generally be used. Even smaller amounts generally require that three offers are collected to ensure value for money. This means that it is not possible to identify contractors before the project is approved and it is not possible to firmly set the amount for a contract. Budgets should therefore be based on maximum contract amounts.

Tip: Find out the national procurement thresholds in participating countries if your project involves any contracts to external service providers. Do not assume that these rules will not apply: Some countries have extremely low threshold values. Find out the relevant tender rules before project start.

Travel and accommodation

These costs will necessarily be based on estimates due to price changes. You should be aware that many programmes and Member States have rules about these costs – as an obvious example, first class air travel and five star hotels are generally never allowed. Travel allowances for staff can be more difficult. National rules often set limits and these may be different from those in use in some partner organisations. The other problem often encountered is travel outside the programme area. This almost always has to be approved by the programme before the journey takes place or the costs will not be accepted. It is worth deciding at the budget stage whether any such travel is planned but note that it will normally only be approved if it has a direct benefit for the project’s objectives.

Tip: Check rules for travel and accommodation costs and particularly rules for calculating daily allowances for staff.

Meetings, conferences, seminars + promotion and publications

These costs naturally depend heavily on the number of participants / number of copies printed etc. and will need to be estimated using the same value for money procedures as other costs.

Some projects in the past have had problems due to under-estimating the number of meetings needed. The application stage should therefore include a detailed discussion on working methods in the project and the need for meetings of the partnership, professional working groups, steering groups etc.

Investments in equipment and infrastructure

The first issue to be resolved is whether the programme allows projects to include full purchase costs or only depreciation over the project’s lifetime. Rules vary between programmes and Member States. Secondly, it should be considered that only equipment essential to the implementation of the project is allowed and this sometimes leads to restrictions on, for example, buying mobile phones and computers. In addition, some programmes require that office equipment is specified in the budget. Others accept its inclusion under overhead costs.

Tip: Check whether the programme allows purchase cost or depreciation cost.

Does this vary depending on the type of equipment concerned? Is it possible

3. Project development and application

to claim depreciation for items bought before project start while they are being used for the project?

Overheads / General costs

The most problematic cost category involves the indirect costs related to running the project.

Project offices are generally hosted in a larger organisation and a fair and transparent way must be found for allocating part of the general costs to the project. This is done on a pro rata basis: Taking the total costs for the organisation and then assigning some of them to the project based on the number of staff working there. Costs that are generally included if they are paid directly by the host organisation include:

Office supplies and photocopies Office furniture

Electricity Heating

Other utilities (water etc)

Charges for phone, fax and internet services Cleaning

IT support for computers / printers etc.

Rent if the building is not owned by the host organisation Taxes on the building

Insurance for the building

Administrative support (maintenance of archives etc)

Costs that are generally rejected:

Costs for snacks, drinks, meals etc Social events

Works of art

Tip: Overhead calculations are perhaps the most frequent cause for reductions to project payments. It is essential that all costs paid by the project are documented and based on the real costs for the organisation of hosting the project. All partners should have this documentation available at all times.

VAT

It should be remembered that only irrecoverable VAT is eligible for payment. This means that a calculation should be made of the amount of VAT it is expected will be reclaimed and this amount should be deducted from the project budget.

In-kind contributions

The project budget includes not only the ERDF funds but also the co-financing. This means that part of the budget may be made up of ‘in-kind’ costs in the form of unpaid work or materials provided to the project (paid staff hours in partner organisations count as cash rather than in-kind contributions). Again, the key here is that there is a fair and transparent

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calculation of the value of these contributions and many programmes and Member States have rules on how to do this and /or limits for the value of in-kind contributions.

Tip: Check whether any partners plan to make use of in-kind contributions and how they have calculated the value of these contributions.

Revenues

Some projects produce products or services that are later offered to the public for a charge (though this is not allowed in some programmes, which require free public access to all project outputs). All such charges are counted as revenues regardless of whether they only cover costs or also generate a profit. All revenues generated within the project’s lifetime and any estimated revenues for 3 years after project closure must be deducted from the project budget.

Tip: Check whether the programme allow projects to generate revenue. Are any partner activities expected to generate revenues? Has the amount been deducted from the budget? Some programmes have very strict rules about revenue generation and if not checked properly this may lead to serious problems at a later stage.

Ineligible costs

Various costs are not funded under the Territorial Cooperation programmes and cannot be included in the budget (payment of interest on debts or fines, for example). Some of these costs are defined by European rules but many more are included in national rules. Some programmes also put limits of certain types of costs (for example, capping staff costs at 50%

of the total budget) or require additional information before allowing certain costs (infrastructure investments are a common example).

Tip: Check that all partners have a working knowledge of all rules applicable in their country and that they have checked to make sure their budget does not include ineligible expenditure.