Full Costing

As has been explained in Chap. 4 (Sect., English universities are using TRAC as a costing methodology and this seems to be unproblematic from a competition law perspective (Sect. 4.5.1). Nevertheless, pricing could be anticompetitive if, in areas of economic activity, neither market price nor full costs plus reasonable profit nor the at arm-length negotiated maximum economic benefit which at least covers marginal costs are charged. The interviewees explained that the full cost methodology is always used, but that there are very few sponsors paying full costs and the universities would need to underwrite many projects. Research councils would pay 80 %, charities only direct costs and with the private sector and other public funders (government departments, local government and quangos) it would be a matter of negotiation. The problem would then, as emerged from a focus group, be that they have, in advance, set aside a sum they are willing to pay for a certain piece of research. Therefore, the universities would have to go backwards to see how they could fit the project into the price. Especially with the private sector, the universities would attempt to receive 100 % fEC and, when an activity is classified as contract research or consultancy (which some interviewees mentioned was a ‘commercial activity’) or less beneficial research, an attempt would be made to generate an additional profit. This would be reinvested into


activities which are not funded at 100 %. If 100 % fEC could not be achieved, universities would be more restrictive with other terms of the agreement, in particular, the partners would have to share IPRs. Generally, the question of whether or not less than 100 % fEC is acceptable for the universities would also depend on the strategic importance of the project and the partner in question. One interviewee working in the area of formal sciences mentioned that universities would not like to go below 90 % with these funders. This would be hard to explain to academics who believed that the 80 % the research councils were paying was a generally acceptable level. Some interviewees expressed that negotiations would be made more difficult by academics promising to do more than is possible for the price. This would also be facilitated by government departments and local authorities constantly expecting more for less and other universities accommodating this tendency by undercutting prices.

Some interviewees mentioned the ‘public benefit test’[1] which is applicable to all charities in the UK, an organisational form often taken by UK universities including the ones under scrutiny. Accordingly, universities would not be allowed to trade and work for profit, but would have to further their charitable goals by conducting tasks for the public benefit. The test would establish if a certain activity serves the public benefit. If this was not the case for a certain research activity it could still be conducted, but usually as part of a university trading company. However, as an interviewee from the area of social sciences explained:

It’s still actually then delivered by the same academics, but that work would attract the VAT and there’s an extra charge for doing it, and we would have to make sure that we were covering all our costs, so there’s no way we’d be able to subsidise it in any way. It’s quite rare for things not to pass, and usually we’d try and renegotiate the terms to make sure that things did pass.

The public benefit test under national law does not necessarily seem to be congruent with the question of whether an economic activity is taking place. As has been explained above (Sect. 5.3.2) and more extensively in Chap. 3 (Sect., an economic activity is taking place if goods and services are or could potentially be offered on a market. It is irrelevant whether or not they are in the public interest. The latter might only play a role when it comes to exempting certain activities as SGEIs. Research which constitutes an economic activity has to be provided at market prices, for full costs and reasonable profit or at the at arm-length negotiated maximum economic benefit. The impression gained from the interviewees leads to the conclusion that currently this might not always be the case. Market prices or full cost plus certainly do not always appear to be charged and neither do there always appear to be fierce arm-length negotiations considering what has been said, for example, about academics keen to do a certain piece of research promising more for less before the research departments could even start negotiations. It would thus appear that there might be occasionally instances of potential state aid. The fact that some universities are (consciously) undercutting prices could simultaneously be regarded as predatory pricing if they were dominant and could be challenged by competitors.

  • [1] The test entails that there must be clear benefits and that these ‘must be to the public’. Whilstthis excludes organisations that are run for profit, it does not mean that organisations cannotcharge fees. Organisations must pass the test to be registered as a charity and registered charitieshave to make sure that their activities fall within the test. See Edwards and Stockwell 2011,p. 205 seq; Martin 2012, p. 458. According to the former, this means for research that it shouldbe ‘useful’ and that ‘some provision for the information gained to be disseminated and madeavailable for study’ should be made (ibid p. 211). It is thus a rather wide definition capable ofcapturing most research conducted by HEIs.
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