FMPM 621 Pricing - Commercial and Non_Commercial Activities Procedure

Policy Procedures Finance Procedures Revenue Procedures - FMPM 600-699 FMPM 621 Pricing - Commercial and Non_Commercial Activities Procedure

Print Friendly and PDFPrint Friendly

Scope

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 incentive margins.

This policy applies to any commercial or non-commercial activity.

Definitions

Activity/project types:

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)).

Cost types:

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

Incentive Margin: 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 pricing, is the responsibility of:

  • The relevant Head of School or Director for an activity or project with a total value of less than:
    • $400,000 (GST exclusive) for the Faculty of Science and Engineering, the Faculty of Medicine, Health & Molecular Sciences and the ARC Centre of Excellence for Coral Reef Studies (ARC CoE); and
    • $200,000 (GST exclusive) for the Faculty of Law, Business & Creative Arts, Faculty of Arts Education & Social Sciences and Divisions, excluding the ARC CoE.

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

  • the School/Office resources to be used;
  • the activity/project pricing proposed is in accordance with this procedure and any
  • Faculty/Division guidelines in respect of incentive margin 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 School/Office 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 incentive margin and not the requirement to include all direct and indirect costs (overheads).

Commercial activities should be priced to generate an incentive margin.

1. 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, including Chief/Principal Investigators and other members of University staff who have other 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).

2. 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, including Chief/Principal Investigators and other members of University staff who have other 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.

Direct Costs

Indirect Costs (Over heads)

Total Project Budget

GST

Total Contract Amount

Base Salary

On cost

Total Salary

Non Salary

Total

A

B

C

= (A+B)

D

E

=(C+D)

F

=(35% of C)

G

= E+F

H

I

=G+H

100,000

29,280

129,280

25,000

154,280

45,248

199,528

19,953

219,481

* 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.

3. Incentive Margin

An incentive margin should apply in the pricing of commercial activities. The size of the incentive margin most 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 Senior Deputy Vice Chancellor, Pro Vice Chancellor, Deputy Vice Chancellor or Executive Director should put in place Faculty/Division guidelines in respect of the incentive margin rate, or range of appropriate incentive margins for the Faculty or Division.  Refer Example 2.

Example 2.

An incentive margin of 25% is used in this example.  The incentive margin for the Faculty or Division is set by the SDVC, PVC, DVC or ED.

Direct Costs

Indirect Costs (Over heads)

Incentive Margin

Total Project Budget

GST

Total Contract Amount

Base Salary

On cost

Total Salary

Non Salary

Total

A

B

C

= A+B

D

E

=C+D

F

=(35% of C)

G

(25% of C)

H

= E+F+G

I

J

=H+I

100,000

29,280

129,280

25,000

154,280

45,248

32,320

231,848

23,185

255,033

* 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.

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:

1. Non-commercial activities

i) 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 Innovation, Industry, Science, Research and Tertiary Education.

ii) 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.

iii) 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.

2. 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-CommercialActivitiesand this procedure, the incentive margin will be reduced in the first instance, and if the price is still below the full cost, the price must be renegotiated.

Pricing tools and assistance

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

Presentation of price

The most straightforward way of presenting the price is to:

  1. Group direct total salary costs with the indirect costs (overheads) and incentive margin 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.
  1. To take the commercial activity example (using data from Example 2):
     

    $

    Non-salary costs

    25,000

    Salary costs, including indirect costs

    206,848

    Total (GST-exclusive)

    231,848

    GST

    23,185

    Total (GST-inclusive)

    255,033

  2. Project Account
  3. Based on information provided by the Research Services Office or Commercial Services Office, a separate project account is established if:
  4. (a) activity/project revenue can be counted towards the Higher Education Research Data
  5. Collection [HERDC]; or
  6. (b) financial reporting is required; or
  7. (c) the value of the activity/project is $10,000 or more.
  8. 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.
  9. 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 respective Faculty/Division Financial and Business Services team is responsible for financial reporting and invoicing for project accounts.

Use of funds

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

a) The indirect costs (overhead) priced in the activity/project budget. The 35% indirect costs (overheads) amount is wholly allocated to the relevant Faculty or Division and is to be applied at the discretion of the SDVC, PVC, DVC or ED to meet the indirect costs of carrying out the activity.

b) Non-salary direct costs.

c) Direct total salary costs relating to staff employed on the activity/project.  This includes:

i) Staff employed on and paid directly from the activity/project account; and

ii)  Where a staff member is paid from another source (e.g. operating 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 SDVC, PVC, DVC or ED.

d)   The SDVC, PVC, DVC or ED has the responsibility for approving the use of any incentive margin 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 incentive margin 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 Faculty/Division guidelines in respect of incentive margins or at the discretion of the SDVC, PVC, DVC or ED.

For enquiries in relation to this Finance Procedure please contact  Manager of Budgeting

Approval Details

Policy Sponsor:

Deputy Vice Chancellor, Services and Resources

Approval Authority:

Finance Committee

Date for next Major Review (in accordance with the Policy Handbook):

06/02/18

Modification History

Version no.

Approval date

Implementation date

Details

16-221/07/201622/07/2016Administration details amended to reflect correct Policy Sponsor and Approval Authority in accordance with the Policy and Delegation Framework.
16-131/05/20161/06/2016 Link to updated pricing tool created

12 - 01

06/02/13

06/02/13

 

03 - 1

11/2003

11/2003