"With an agreement on Horizon 2020 needed before summer if it is to start on time, the two sides do not look set to compromise. Seán Sherlock, Ireland’s Minister for Research and Innovation, says the funding model, "is a red line for the Council", but Christian Ehler, EPP Group Rapporteur for Horizon 2020 says the Parliament will not give up easily, “If we need a second reading, we will have one.”

While the decision was welcomed by Máire Geoghegan-Quinn, Commissioner for R&D, who has argued the flat rate scheme reduces complexity, it is a major letdown for lobby groups, including the European Association of Research and Technology Organisations (EARTO) and European University Association (EUA), which have insisted on a full-cost option.

Controversial Flat-Rate System

In an October 2012 agreement, the Council set out a 100 per cent reimbursement rate for direct costs for Horizon 2020 projects, with a ceiling of 70 per cent for projects that are closer to market or co-funded with another grant scheme. These direct costs include personnel expenses and external expenses that can be directly attributed to the project. 

The Council increased the reimbursement for indirect costs to 25 per cent of the total direct costs from the 20 per cent proposed by the Commission and a ‘Bonus+’ scheme was included in the agreement whereby supplementary payments can be made of up to € 8,000 per researcher per year. According to Ehler, such a model would be, "Eleven-point-five per cent more expensive and less cost-efficient than in the last Framework Programme. This would equal an additional cut of €8 billion and mean roughly 4,000 fewer projects. The EPP Group cannot accept this,” he said.

Superficiality of the whole debate

Ehler has no sympathy with the Commission and Council position that the flat rate scheme is less complex, saying, "Simplification has become a buzz-word that has turned against the interests of European researchers." There may be room for simplification in other areas, such as "a stronger bottom-up approach, with more thematic open calls, a much shorter time of six months for granting funds, and a stronger acceptance of the beneficiaries' usual accounting practices in managing their project costs. Neither the Council nor the Commission have moved an inch towards these core demands of the Parliament,” Ehler said, adding, "I am deeply concerned about the superficiality of the whole debate.

Ehler argues that participants with high-end research facilities with huge overheads need reimbursement of actual infrastructure costs. This is “a reality which cannot be answered by an over-simplification or an over-simplified funding model that suddenly works on a flat-rate system," he said.

Full cost reimbursement is needed to support the modernization of Europe’s research infrastructure. "I strongly believe that declaring actual costs is the way forward in the management of international research projects and a more sustainable way of financing internationally-competitive research in Europe," he said.

At a time when many Member States are cutting funding for publicly-funded research institutes, it is crucial to let researchers claim full economic costs when carrying out research projects, Ehler said.

Speaking at the same press conference in the European Parliament, John Smith, Deputy Secretary General of EUA agreed, “Horizon 2020 as a flagship to enhance Europe’s research and innovation capacities needs to take a lead position here to strengthen European universities’ competitiveness globally.” 

For EARTO, it is a matter of simple economics. "H2020 is an innovation programme. Tackling grand challenges, boosting industrial leadership, and developing radical innovations is going to need major research efforts in both basic research, as well as technology developments that use high-end research infrastructure," said Christopher Hull, Secretary General. "Those facilities are necessarily expensive to build, maintain and operate. A flat-rate system as proposed by Commission and Council won’t cover the costs adequately, so the projects won’t get done."

Four weeks left to wrap things up

Speaking after the Council's decision, Geoghegan-Quinn said the Commission is still working on a solution to the issue of indirect costs. But she added, “Let me be clear that the Commission could not support a model that would re-introduce complexity by the back door, by means of a full cost option."

Given the strength of feeling on both sides a speedy conclusion to negotiations looks unlikely. With Ireland handing over the Presidency to Lithuania on July 1st, the pressure is on. "We have four weeks left to wrap up things or we simply start from zero with the Lithuanian Presidency," said Ehler. "Failing to reach an agreement before summer could severely delay the start of the programme for 2014."

Although it won’t budge on reimbursement Sherlock noted there is, “A high degree of flexibility in the Council for the Parliament's concerns on issues such as widening participation, science for society, experimentation on a fast-track to innovation approach, and budgetary ceilings for energy, the SME instrument and other elements."

It remains to be seen if this flexibility will be enough to secure a first-reading agreement."