FMPM 621 Pricing - Commercial and Non-Commercial Activities Procedure

Intent

This procedure sets out the requirements for:

• pricing the application for external grant funds and the negotiation or tendering to supply goods or services to external parties;
• setting and waiving of indirect costs (overheads); and
• the use of project surpluses.

Scope

This procedure applies to any commercial or non-commercial activity undertaken on behalf of JCU, including, but not limited to, revenue generating activities involving grants, contracts, consultancies and commercial services. This procedure does not apply to commercial and non-commercial activities undertaken on behalf of JCUB or JCUS.

Definitions

Commercial Activity: undertaken at the specific request of industry or a government agency, where the sponsor/client would expect to:

• exercise some control over the project results; and
• own the project intellectual property or have some degree of exclusive access to it; or
• have the right to enforce project confidentiality and to restrict the release of results into the public domain.

Commercial activities include fee for service, consultancies, short courses not for academic credit, tenders, some contract research, expert opinion, analysis and testing services, and product and process development.

Non-Commercial Activity: where the intellectual property and confidentiality rights are negotiable, and where University staff and students have an unfettered right to publish results (subject to issues of privacy and other forms of non-commercial confidentiality).

Non-commercial activities include grants, most contract research and activities conducted in a collaborative framework (e.g. through collaborative research centres (CRCs)).

Direct Costs: include those directly and specifically attributable to the activity including:

• salary costs for all staff participating in the activity/project, including staff who are funded from other sources (such as general operating); and
• non-salary costs such as travel costs, equipment costs and consumable costs.

Indirect Costs: (also known as infrastructure charges or overheads) recognise that there are real indirect costs to the University in undertaking these activities.  Indirect costs for an activity may include:

• provision and maintenance of buildings and physical infrastructure
• information resources and technology telecommunications
• insurance and legal services
• financial management services security, electricity, water etc.
• general administrative services

Project Surplus: the amount by which the price exceeds the total of direct and indirect costs.

Procedure

In accordance with  FMPM Policy 620: Revenue –Commercial and Non-Commercial Activities, the approval of a commercial and non-commercial activity or project, including signing agreements/contracts, is the responsibility of the Financial Delegate – refer to Financial Delegations policy, sections 4.05 (non-research activities) or 4.06 (research activities) Contracts.

In approving a commercial or non-commercial activity or project, consideration should be given to the activity/project viability, in terms of:

• the University resources to be used;
• the activity/project pricing proposed is in accordance with this procedure and any Division guidelines in respect of project surplus rates;
• the adequacy of any provision for installation, establishment and recurrent costs associated with the purchase of equipment and/or the establishment of a facility included in the project;
• the ability to meet project milestones (i.e. the amount of time that staff, including the Chief/Principal Investigator(s), will be devoting to the project is appropriate to existing workloads); and
• any cash and in-kind contributions to be contributed by the University are correct and will be provided if the application is successful.

Pricing

The full cost of an activity, including direct costs and indirect costs (overheads) should be included in the price charged by the University to the client or funding agency.  It is recognised that trade-offs between price and intellectual property and confidentiality outcomes can be negotiated, however this should only affect the project surplus and not the requirement to include all direct and indirect costs (overheads).

Commercial activities should be priced to generate a project surplus.

a)   Direct Costs

All direct costs should be included in the activity/project budget.  This includes salary costs for all staff participating in an activity/project, whether the costs are intended to be paid for by the external client/funding body or paid for by JCU as an in-kind or cash contribution. This includes salaries of the Chief/Principal Investigators and other members of University staff who have other funding sources (such as general operating) for their salary payment, unless:

• excluded by grant scheme rules; or
• a waiver of full-costing requirement is obtained (refer Waiver of Full-Costing Requirement section below).

b)   Indirect Costs (Overheads)

Organisations which fund non-commercial activities at universities should be prepared to pay the indirect costs (overheads).  If indirect costs are not included the University is effectively subsidising the work from its own resources.

Commercial activities should be priced in accordance with the principles of competitive neutrality.

The indirect cost (overheads) rate of 35% is to be applied to the total direct salary costs (base salary + salary on-costs) for all staff participating in an activity/project, whether the costs are intended to be paid for by the client or paid for by JCU as an in-kind or cash contribution. This includes salaries of the Chief/Principal Investigators and other members of University staff who have other funding sources (such as general operating) for their salary payment, unless:

• excluded by grant scheme rules; or
• a waiver of full-costing requirement is obtained (refer ‘Waiver of Full-Costing Requirement’ section below).

Example 1.

* Any activity that constitutes the provision of a good or service in Australia attracts Goods and Services Tax (GST) at 10% (refer FMPM Procedure 722 Goods and Services Tax).  Financial and Business Services can provide advice in respect of pricing GST.

c)   Project Surplus

A project surplus should apply in the pricing of commercial activities.  The size of the project surplus appropriate for a commercial activity will depend on the extent to which there is commercial benefit to the client and the converse extent to which the University has unfettered access to the project results.

The relevant Deputy Vice Chancellor should put in place Division guidelines in respect of the project surplus rate, or range of appropriate project surpluses for the Division.  Refer Example 2:

Example 2.

A project surplus of 25% is used in this example. The project surplus for the Division is set by the relevant DVC.

* Any activity that constitutes the provision of a good or service in Australia attracts Goods and Services Tax (GST) at 10% (refer FMPM Procedure 722 Goods and Services Tax).  Financial and Business Services can provide advice in respect of pricing GST.

d)   Waiver of Full-Costing Requirement

The full cost of an activity/project, including direct costs and indirect costs (overheads) must be included in the price charged by the University to the client or funding agency, unless:

In respect of:

Non-commercial activities

1. Grants applications must be priced in accordance with scheme rules.  For Australian Competitive (research) Grants [ACGs] (classified in the Higher Education Research Data Collection [HERDC] as Category 1 income), the inclusion of Chief/Principal Investigator salary costs and indirect costs (overheads) is generally excluded.  This exclusion is possible because the University receives additional research block grant funding for these activities/projects from the Department of Education and Training (DET).
2. Activities/projects conducted as part of a collaborative venture, such as a collaborative research centre (CRC) (classified in the Higher Education Research Data Collection [HERDC] as Category 4 income), must be priced in accordance with the venture guidelines.  Generally these exclude Chief/Principal Investigator salary costs and indirect costs (overheads); which are often counted as in-kind contributions to the project.
3. The other types of non-commercial activities (classified in the Higher Education Research Data Collection [HERDC] as Category 2 or 3 income) in which either the charging of Chief/Principal Investigator salary costs or of indirect costs (overheads) or both can be waived on the grounds of reasonableness include:

• funding support for a student thesis project;
• a project funded by a charitable or community organisation;
• sponsorship of solely a salaried position at the University; or
• project sponsorship by an organisation that genuinely cannot commit budget to fully cover such costs.

Commercial activities

The full-costing requirement may only be waived in exceptional circumstance (e.g. where a commercial research activity is in an area of strategic research importance to the University).

The requirement to include all direct costs and indirect costs (overheads) for commercial activities cannot be waived if the proposed price structure would be in breach of the principles of competitive neutrality.

The requirement to include all direct costs and indirect costs (overheads) cannot be waived retrospectively.  In the event that a staff member has proposed a price to a client or funding agency prior to working through the requirements of  FMPM Policy 620: Revenue –Commercial and Non-Commercial Activities and this procedure, the project surplus will be reduced in the first instance, and if the price is still below the full cost, the price must be renegotiated.

e)   Pricing tools and assistance

The activity/project full-costing tool (XLSM, 1193 KB) or the charge out rate schedules may assist in pricing commercial and non-commercial activities in accordance with this procedure.

Presentation of price

The pricing tool includes an output page that can be used to present the price to an external client.

The most straightforward way of presenting the price is to:

1. Group direct total salary costs with the indirect costs (overheads) and project surplus in one line;
2. Group all non-salary costs in one line; and
3. Show the GST as a separate line to eliminate any confusion about the total GST inclusive price.

To take the commercial activity example (using data from Example 2):

f)   Project Account

Based on information provided by Research Services Office in the case of research activities, a separate project account is established by Finance if the activity/project revenue can be counted towards the Higher Education Research Data Collection [HERDC].

For non-research activities, a separate account is required if, based on the information provided by the organisational unit, one or more of the following criteria are met:

1. financial reporting is required; or
2. the funding had to be applied for, or services requested; or
3. the project has an end date; or
4. the project has milestones or deliverables; or
5. any unspent funds have to be returned to the funding body; or
6. the value of the contracted activity/project is $10,000 or more.

A separate project account is generated upon execution of the contract/agreement  and where relevant obtaining of Ethics approval. For research activities, a project account may be created earlier in limited circumstances upon written request to the Research Services Office.

Financial and Business Services will determine the most appropriate fund pool for all new project accounts.

Indirect costs (overheads) are applied at the time the account is established based on the contractual terms of the agreement or the activity/project pricing budget, unless otherwise directed.  If revenue is received in excess of the original budget (e.g. if the activity/project contract is extended), then indirect costs (overheads) will be applied to the additional income on the same basis as the original terms, unless otherwise directed.

The Grants Finance  team within Financial and Business Services is responsible for financial reporting and invoicing for project accounts.

g)   Use of funds

Grant, contract, consultancy or commercial services revenue will be applied to meet all costs associated with the activity, including:

• The indirect costs (overhead) priced in the activity/project budget.  The indirect costs (overheads) amount is wholly allocated to the relevant Division and is to be applied at the discretion of the relevant DVC to meet the indirect costs of carrying out the activity.
• Non-salary direct costs.
• Direct total salary costs relating to staff employed on the activity/project.  This includes:

1. Staff employed on and paid directly from the activity/project account; and
2. Where a staff member is paid from another source (e.g. operating funds) and the cost is to be met via the grant funds, an amount equivalent to salary cost for that staff member (i.e. the cost included in pricing the activity/project) shall be transferred from the project account to the account from which the staff member is paid.  The subsequent use of these funds is at the discretion of the relevant DVC.

The relevant DVC is responsible for approving the use of any project surplus which remains after the full costs, including direct costs and indirect costs (overheads), of the activity/project have been met. Subsequent to meeting all of the direct and indirect costs, the project surplus which remains will be applied in the following order:

1. Where indirect costs (overheads) were not included in the activity/project pricing, the equivalent of the waived indirect costs (overhead) amount will be charged to the activity/project; and
2. The balance of the activity/project revenue may be applied in accordance with any Division guidelines in respect of project surpluses or at the discretion of the relevant DVC. Under no circumstances are project surpluses to be paid out to employees.

For enquiries in relation to this Procedure please contact  Manager of Budgeting & Forecasting.

Administration

Approval Details