Chapter 4

Finance

4.1. Introduction
4.1.1 Characteristics of RIs with respect to financial issues
4.1.2 Content of the chapter

4.2. Estimating, costing and budgeting the needs of a RI
4.2.1 Main principles and steps of budgeting in the context of a RI
4.2.2 Main cost categories and their characteristics
4.2.3 Overview of the spending profile and evolution of the cost distribution of various types of RIs
4.2.3.1 Single site hardware based RIs
4.2.3.2 Virtual RIs
4.2.3.3 Computing centres

4.3. Funding sources
4.3.1 Overview of the various types of funding
4.3.1.1 National funding
4.3.1.2 European funding
4.3.1.3 International funding
4.3.1.4 Philanthropic organisations / donations
4.3.2 Funding and Governance

4.4. Financial instruments
4.4.1 Loans (EIB/RSFF, banks/commercial)
4.4.2 Public Private Partnerships

4.5. RAMIRI Training Slides

4.1. Introduction

The purpose of this chapter is to provide an overview of the main financial issues that are to be considered by managers and scientists involved in the proposing, conceptual, design, construction, operation or decommissioning phases of research infrastructures (RIs). It will also provide useful information to other RI proposers, stakeholders and staff who are not directly involved in financial matters, but who have an interest in this topic.

4.1.1 Characteristics of RIs with respect to financial issues

RIs have specific characteristics when it comes to financial issues (estimating costs, negotiating participations, operating etc.) that differentiate them from ‘traditional’ research projects or large-scale projects in other fields. They differ at least in three respects:

1. RIs are long-term initiatives (the overall financial “reference period” to consider spans typically from 5 to 25 years). Some consequences follow from this:
The financial sustainability of an RI cannot be ensured from the outset for its whole lifetime. It is necessary (and common from a project management point of view) to consider the financial sustainability of the RI by phases. Usually, these phases follow the traditional development phases described in chapter one (conceptual design, technical design, implementation/construction, operation, decommissioning), but the context, type of infrastructure and other constraints may influence the characteristics of this phasing. For instance, operation – even partial – may start in some cases typically in distributed infrastructures with modular implementation while the implementation is not yet over*.

*A distributed research infrastructure (virtual or physical) is modular when its operation can start (and bring sufficient value and service quality) even if part of the nodes or constituent facilities is still missing.

While RI managers will tend to consider each phase as their immediate financial horizon (on top of the annual budgetary exercise, which applies to RIs as to any other research organisation as it constitutes the time basis upon which financial accountability is organised), it is necessary, from the outset, to address the overall and long-term financial sustainability of the RI: it is essential in this respect to define a “business model” (which covers both the nature of the activities and the conditions of its operation) that creates optimal conditions for the future sustainability of the infrastructure.

The RI itself should be distinguished from the umbrella organisation, which may of course outlive the infrastructure, or be involved only in its “launching”. The financial lifetime of the infrastructure starts with generic preparation activities (which may go from lobbying to organizing scientific seminars, to preliminary technology developments) and ends with decommissioning. The long preparation and duration of an infrastructure implies that the funding model is likely to evolve from one phase to the next: firstly, because the needs will be different in nature (non-investment costs vs. investment costs, for instance) and in amount (investment peak during construction and upgrades for some infrastructures, versus fairly stable running costs)and secondly, because the landscape of funding opportunities and the funding policies, as well as the scientific requirements and the available technologies are likely to evolve dramatically over the course of, say, 20 years. Flexibility and responsiveness are needed to ensure the financial sustainability and the success of the RI over such a great period of time.

From a financial management point of view, the rather long financial lifetime of RI projects (and in some instances the long duration of each financial phase) implies some uncertainty with cost estimates, with exposure to inflation, unexpected needs and more generally to the evolution of the macroeconomic and scientific context.

2. Most RIs have very substantial financial needs for each phase.
The RIs we refer to in this handbook are those RIs whose scientific and technical scope (and complexity in some instances) as well as their financial requirements necessarily imply the pooling of expertise and funding contributions on a European or even international scale. From a financial point of view, this is an essential aspect as the funding models of such RIs imply a strong ‘interference’ of the political dimension into the way in which financial sustainability is achieved (in particular through the question-hidden or openly expressed- of ‘juste retour’, being this the expected/hypothesised and politically acceptable distribution of returns –of various kinds – on investment). Another consequence of this is naturally the strong interplay between funding and governance, which will be highlighted later in this chapter, and has been referred to in the chapter on Legal/Governanance issues.

3. Many RIs (in particular physics, Astronomy and analytical RIs, but also some e-infrastructures) involve a high level of complexity, because they are based on complex technological systems and/or innovative solutions. Large-scale politically influenced projects, in any sector, have building a bad reputation for generating systematic overruns (ref.4.2) because of weak management, while this has not been true in most cases where management had been properly empowered and selected. The risks arise from the complexity and intrinsic evolution of the boundary conditions (scientific, technological and political), added to the potentially long duration of each financial phase. This calls for excellent financial management practices (both at the stage of budget definition and budget execution) to avoid cost overruns and preserve the taxpayers’ interest. We can recommend the expert group report on Cost control and management of issues of global research infrastructures (EC, 2010) (ref.4.3).

4.1.2 Content of the chapter

• This chapter addresses in general the issue of financial sustainability. It does so by considering the following essential questions:What are the financial needs of the various kinds of RIs? – Costing, estimating, defining a budget and building a financial model
• What financial and in-kind resources and financial instruments are available in the successive development phases of a RI to ensure its financial sustainability? – Typology of funding sources, types of contributions to a RI consortium and management of in-kind contributions, loans and public-private partnerships (PPP)
• How do funding and contributions issues interact with governance and political concerns? – What rewards and returns for contributors

Financial management issues (in particular cost control and containment) are covered in the chapter on project management. A few principles are nevertheless presented in paragraph 2.1 of this chapter.

4.2. Estimating, costing and budgeting the needs of a RI

Building a sustainable financial model for a RI requires of course as a prerequisite the detailed and reliable identification, estimation and costing various kinds of needsthat the RI will face in each stage of its lifetime. This section provides indications on the basic rules and principles applying to budgeting in the context of a RI.

Two main questions will be addressed:

• What are the various categories of costs typically incurred by RIs and what are the estimation issues and risks related to each of them?
• What is the spending profile of a RI? In other words, how do the overall financial needs and the cost distribution of a RI evolve over time?

This section answers these two questions while taking into account the variety of RI types already described in chapter one of the handbook. It provides useful indications and comparisons on how these various types of RIs differ from the point of view of their financial needs and financial patterns.

As an introduction, paragraph 2.1 presents an overview of the main principles and steps that should apply to budgeting in any RI project.

4.2.1 Main principles and steps of budgeting in the context of a RI

Background Information (BOX 6)

Budgeting is an essential task in the preparation of a RI project. The availability of reliable data on the financial needs of the infrastructure is indeed a prerequisite to negotiations on contributions to the RI consortium, but also a precondition to professional financial management and to the accountability of the RI owners.

Each RI has unique features requiring special models and practices, but the collective experience of experts and practitioners in the field demonstrates that there are clear underpinning principles and good practices that can make a major contribution to the success of RIs. The report Cost control and management of issues of global research infrastructures (EC, 2010) (ref.4.3), prepared by a dedicated group of international experts and issued by the European Commission in October 2010, provides a set of key recommendations on the topic that may apply to any RI – be it international or “only” European. Here, we provide a summary of the main recommendations related to costing and budgeting, but we recommend reading the report in its entirety.

1. At the start of any given RI project, there must be a founding agreement and common understanding between the political stakeholders on the scope, the schedule and the cost of the undertaking, on the nature, volume and timing of their relative contributions and on the framework for the conduct of the project (which includes in particular institutional aspects). In this context, there must be clear and realistic information on the costs and their planning for all project phases from the outset to include construction, operation, upgrades, decommissioning and other exit costs.

Of course, the negotiation phase, which takes place at an early stage of the project, is usually characterised by an inherent uncertainty on the exact scope, the technical parameters and therefore the costs of the RI. The expert report recommends that a “consistent, stepwise, and phase-oriented approach in relation to the project’s maturity” be adopted to approve the RI. The figure below, coming from the report, provides an illustration of this stepwise approach.

Fig. 4.1 – Illustrative example of cost evolution and approval stages following design evolution for a generic project. In this graph, CD-0 to CD-4 refer to the US DOE Critical Decision Process, while the arrows above refer to the equivalent UK OGC Gateway Review Process. The division in critical stages (top of the graph) has been carried out following the AACEi Cost Estimating Classification Guidance (figure has been taken from the report on Cost Control and Management Issues of Glogal Research Infrastructure, pages 14-15)

This stepwise approach reflects the evident interaction between the costing exercise and the technical maturation of the project. The initial cost book must be prepared and agreed prior to the construction decision on the basis of a clearly defined final design for construction. As stated in the report, “in order to mitigate risks and better understand the costs, a precise technical understanding of core components and their influence on the whole system and the critical path therefore is necessary in this phase.” In practice, this means that the final design (and the cost book that derives from it) requires that all critical aspects, activities and components have a demonstrated maturity allowing assessment of the remaining risks to the project. Substantial investment (sometimes up to 10% of the projected construction cost) is consequently necessary in the preparatory phases both to develop a detailed technical design and to test technical and manufacturing feasibility e.g. to preselect industries, decreasing costs and mitigating the risk. A preliminary detailed analysis of the future operation costs should also be developed, also taking into account that higher operation costs may reflect apparent savings in construction.

The preparation of the cost book follows this stepwise approach and estimates should be provided to the negotiating parties with increasing certainty as the project progresses towards construction and knowledge accumulates. In this respect, it is essential to assess and specify the level of confidence in the estimates. Independent verification of the cost estimates should be achieved through independent audits.

The final version of the cost book used as a basis for the approval of the RI should not only provide comprehensive information on the costs of the various phases, but also methodological indications (a) assigning values to in-kind contributions, and (b) defining how subsequent adjustments should be decided.

2. In addition to cost estimation, the identification of cost risks, their management and mitigation is another essential duty. The report recommends that “appropriate and adequate contingency budgets, and the terms under which they can be released, should be agreed in advance for each time period.” In other words, “the construction proposal should expressly state the shared understanding of the necessary size, purpose and terms of release of a management reserve or contingency, namely to provide for unexpected events that could arise during the different phases of any first-of-its-kind project.”

4.2.2 Main cost categories and their characteristics

A table representing the typical construction/operational cost items for any given RI is provided here.

4.2.3 Overview of the spending profile and evolution of the cost distribution of various types of RIs

Chapter one of this handbook gives an overview of various types of RI projects, which differ in particular in nature (virtual versus physical) and organisation (single-sited, distributed, mobile). This diversity finds also an expression when it comes to finance.

RIs show very different spending profiles. This is due in particular to the fact that the duration of their development phases vary substantially (the implementation phase of a computing centre, for instance, is much shorter than that of a synchrotron) and, of course, that they exhibit very different re-investment patterns (a computing centre and a biology laboratory will require frequent renewals, while a large ad hoc developed physical RI will go through a maximum of one or two major upgrades over its lifetime). Some infrastructures consist in pooling and coordinating the access to existing facilities, which implies a very short (if no) implementation phase and no construction budget, but here keeping track of the previous investments may be an issue, to understand the values conferred to the integrated RI.

Similarly, the type of costs and their evolution represent good criteria to draw distinctions among RIs. Hardware based facilities use much more capital investment by having to build or acquire an actual building and physical equipment whereas distributed, software and data based e-infrastructures usually rely heavily on software design, programming and other ICT related activities, which only require a lot of personnel costs and minor capital investments. The same applies to decommissioning: e-infrastructures have less decommissioning issues than other hardware based facilities.

In the following, we describe the financial life cycle / spending profile and the evolution in the distribution of the various cost categories of three major types of RIs – physical RIs, virtual RIs, computing centres. This is based on three fictitious examples used as case studies in the framework of the RAMIRI workshops.

4.2.3.1 Single site hardware based RIs

The graph below (Fig. 4.2) shows the spending profile and cost distribution over time of a typical physical research infrastructure.

• The overall spending pattern shows a relatively large investment peak during construction, a quasi-flat spending period during operation followed by a new peak for decommissioning (it is assumed here that there is no major upgrade during operation, in which case another investment peak would have been visible).
• The distribution of costs during construction shows that civil engineering and technical hardware costs represent the vast majority of spending, while salaries tend to increase gradually during the period. The investment peak typically occurs in the middle of the implementation phase, following a ramp-up period.
• Year 5 in this example is a typical transition year. Costs connected to the final installation and commissioning of the equipment are still substantial and fixed staff salary costs increase substantially.
• The operational phase obviously shows a very different distribution of costs with salaries and utilities + maintenance representing by far the two main budget items.

Fig. 4.2 – Graph representing the spending profile and cost distribution over time of a typical physical research infrastructure

As already mentioned above, some distributed physical RIs rely on the pooling of existing facilities. Their spending pattern is then different as no prior investment is necessary. The operation costs of the nodes have characteristics similar to those described here, but also include costs related to the central coordination of the infrastructure. The operation costs, depending on the types of agreements may be contributed as in-kind contributions (access to the constituent facilities is made available by the consortium members), or accounted for by integrating national and EU contributions.The costs related to the central coordination activities (which should be marginal relative to the existing investments and operation costs) are provided in cash and/or in kind (i.e. seconded personnel, or office space etc). Costs of upgrades may be borne collectively or borne by the individual member facilities. A peculiar situation has been developing in a number of negotiations: the discussion on the cost of coordination, being in cash, tends to overtake the fact that the in kind investment and contributions are much bigger.

4.2.3.2 Virtual RIs

The graph below (Fig. 4.3) shows the spending profile and cost distribution over time of a typical virtual research infrastructure.
Distributed virtual facilities like CLARIN or LifeWatch distinguish themselves from most physical RIs:

• Lower relative importance of new capital investments
• Can operate on partial construction (modularity)
• Number of users is ‘infinite’
• Decommissioning costs are not substantial
• No clear budget distinction between construction and operation phase

Fig. 4.3 – Graph representing the spending profile and cost distribution over time of a typical virtual research infrastructure

Investments
Development of software and related activities represent the main task. This requires in general relatively less capital investments than for physical RIs, the largest investments being in personnel. Much of the regular tasks can be outsourced, sometimes partly as a joined effort with interested companies to develop new technology and thus generating an in-kind contribution from the company, but also to reduce risks by keeping long-term financial obligations low (no personnel contracts). These RIs can also easily profit from existing e-infrastructure as developed already by Europe (PRACE, GEANT, etc.).

Construction
Like software, distributed RIs can operate already when partly constructed, by using releases, increasing functionality over time when more funds come available. Costing the construction of an RI like this should then be done with a temporal repetition of investments, aimed at repeated improvements in the existing functionality. However a minimal critical mass should be defined, and costs should be adapted to that bottom line.

The pre-defined end goal of functionality determines the finalization of construction. After that, maintenance, support and regular upgrades move the RI into the operational phase.

The timeline of this construction phase depends on the available funds.

Users and access
Usually internet based facilities seem to have infinite access, and certainly the access policy for distributed RIs is much less complicated than for single sited experimental facilities such as a synchrotron.

However, there are limits to this infinity when special support for scientists to develop new services/tools is required, or when ‘heavy-user’ come around that soak up much of the available computing power. The RI needs to have a clear idea on how much to spend on these specialized requirements to offer a transparent access policy. Nevertheless, for off-the-shelf functionality access is virtually unlimited.

Decommissioning
Again, this is a relatively easy aspect of the costing of a distributed R.I. Since no large specialized (and thus difficult to sell) buildings or equipment are built, no problems arise with contaminated waste (chemical, nuclear), decommissioning costs remain mostly confined to having a provision for ending personnel contracts in a proper way, abiding any legislation and agreements.

It is suggested to manage data archiving/curation during the operational phase in such a way that decommissioning of the facility doesn’t prevent future access to the data.

Operational costs
As explained, a distributed R.I. can offer its functionality through different releases, thereby constructing bit by bit while in operation already. It is therefore difficult to determine an exact moment when construction ends, and operations begin.

Determining operational costs is for that reason difficult, but also because the costs mainly concern ICT-issues, which represent a very fast moving environment, where a future beyond 5 years is very hard to predict. Experience however shows that operational costs typically are around 15% of construction costs.

A typical timeline for construction and operations for a distributed RI is shown in Fig 4.4.

Fig. 4.4 – Graph representing a typical timeline for construction and operations for a distributed RI

The blue columns represent construction costs over the years and the orange area represent the part of the construction costs that are actually used to support the first releases and can be considered as operational costs.

4.2.3.3 Computing centres

The graph below (Fig. 4.5) shows the spending profile and cost distribution over time of a typical computing centre.

Fig. 4.5 – Graph representing the spending profile and cost distribution over time of a typical computing centre

• The overall spending pattern shows frequent investment peaks (initial investment + re-investment).
• Operational costs are quasi-flat from the outset of the infrastructure with maintenance and repair and salaries and utilities (mainly electricity) as the main budget items.

4.3. Funding sources

Because they have substantial financial needs and that their life cycle typically spans 10 to 25 years, RIs can achieve financial sustainability only through complex funding models combining international contributions and other types of resources. RIs typically have four potential types of streams of revenue:

• Contributions of shareholders, i.e. the contributions (cash or in-kind) agreed on by the members of the RI consortium
• Grants, i.e. project-based funding stemming from an international, European or national institution or agency funding research which are awarded on the basis of a selection process
• Revenues resulting from its activities or the commercialisation of its results
• Other incomes (for instance, donations) outside the framework of a grant agreement.

Each of these funding categories – and the connected funding sources – has specific constraints and every RI combines them in an original way, through a unique overall “business model” funding model. Nevertheless, the graph below (Fig. 4.6) provides an illustration of how various funding sources and financial instruments (in particular loans from the European Investment Bank – EIB) can be used and combined over the life cycle of a RI (here, the spending profile is typically that of a physical RI). In this example, the design studies and preparatory activities of the infrastructure are funded with national resources and EU grants; construction costs may be covered thanks to national contributions and structural funds (with the potential use of an EIB loan); operation is funded from national and EU support (transnational access in particular).

Fig. 4.6 – Graph illustrating of how various funding sources and financial instruments can be used and combined over the life cycle of a RI

4.3.1 Overview of the various types of funding

In the following paragraphs, we provide a brief overview of the funding opportunities available at the national, European and international level for the preparation, implementation, operation, and decommissioning of RI projects as well as other types of revenues that can arise from the activities of the RI.

4.3.1.1 National funding

There are three main types of funding at the national level:

• National contributions to a RI consortium (more elements on this and on in-kind contributions in particular in section 3.2)
• Institutional funding: in the case of distributed infrastructures, in particular, this type of funding, which benefits the organisation hosting a node, may benefit indirectly the RI while not being accounted for as an in-kind contribution
• National grants (competitive project-based funding).

At the start of the ESFRI process, Governments committed themselves to reserve budgets for funding the RI listed on the Roadmap. Most EU countries have issued or are in the process of defining roadmaps that prioritise their intentions to invest in the construction of new RIs.

4.3.1.2 European funding

The European Union provides three key funding opportunities to support research and innovation: the Research Framework Programme, the Competitiveness and Innovation Framework Programme and the Structural Funds and the Cohesion Fund within the Cohesion policy. A practical guide to EU funding is available online.

Research Framework Programme
Within Framework Programme 7, EU provides various funding opportunities to RIs:

• Design studies
• Preparatory Phase
• Development of clustering R&D activities between RIs
• Transnational access.

The conditions of implementation of the new Framework Programme (Horizon 2020) are not yet approved. The proposal of the European Commission confirms that the aim of this programme is “to ensure the implementation, long-term sustainability and efficient operation of the research infrastructures identified by the European Strategy Forum on Research Infrastructures (ESFRI) and other world-class research infrastructures”. Importantly, it adds that “this objective will address specifically those infrastructures that are setting up or that have set up their governance, e.g. on the basis of the European Research Infrastructure Consortium (ERIC) or any equivalent structure at European or international level.”

Structural Funds

• Basic elements on the cohesion policy and its objectives

Structural funds represent a remarkable opportunity for the realisation of new research infrastructures within the new member states of the European Union and other eligible regions. The accession of the 12 new member states in 2004 and 2007 prompted a major strategic focus to direct central EU funds to address economic and infrastructural imbalances across the community through the availability of additional funding for major projects. This strategy, known as the Cohesion Policy, sets out three major strands of activity in the areas of convergence, competitiveness and employment and territorial cooperation. It is the first of these – convergence – that is of particular interest here, and indeed the convergence theme channels over 80% of the total funds available via cohesion policy.

The theme of convergence addresses the need to support activities that will stimulate long-term economic growth and job creation within the poorest member states, with a view to converging over time the currently disparate economies of the European Union. The European Regional Development Fund (ERDF) is a key component of this strategy, and makes funds available to regions that have a per capita GDP lower than 75% of the EU average. Funds are allocated on the basis of a strategic plan defined by each member state in cooperation with the European Commission and translated into specialised ‘operational programmes’. National or regional authorities are in charge of implementing these programmes by organising the selection of the investment projects to be selected and by controlling the distribution and use of the funds to grant beneficiaries. Investment projects requesting more than €50 million have to be approved by the national or regional managing authority but also by the European Commission. Grants are co-funded by structural funds (up to 85%) and by national budgets.

Research infrastructure projects may be eligible for funding under the ERDF, and can look to structural funds to support both the initial investment and the start-up costs during the implementation phase of the project, e.g. for personnel and other non-investment costs. As such, this represents an enormous opportunity for eligible regions and for the growth of research capacity within the European Union. This opportunity, however, is not without some challenging aspects, both in the practical application process but also in the management of the funds.

The use of structural funds has been so far territorially bound. In other words, they could be used to fund the construction of research infrastructure located outside the eligible region, and this also by sending “in kind” contributions of equipment built in the region. The new EU Framework Programme, Horizon 2020, is expected to be much more flexible, and under these conditions, structural funds can be considered for the funding of single-sited research infrastructures, but also for the funding of the nodes of distributed research infrastructures.

• Challenges in the application for and use of structural funds for RI projects

Applying for funding of research infrastructure via structural funds is a challenging process. The application documentation comprises:

• A feasibility study including a detailed analysis of the socio-economic background of the hosting region, a detailed description of the technical, legal and institutional, financial conditions of implementation of the project, a detailed implementation and procurement plan, an analysis of the risks and implementation options
• A Cost-Benefit Analysis (for projects requesting more than €50 million euros) which is an economic tool demonstrating the socio-economic relevance of the investment project
• The conclusions of the Environmental Impact Assessment.

The Cost-Benefit Analysis CBA represents a standard tool, which allows the EC services to evaluate all projects beyond their own specific features. It is a well-established economic model that is commonly used in the public and private sectors. As the name indicates, a CBA allows the assessment of the relevance on an investment (and to compare it with other investment options) by computing the net present value of its financial and economic costs and benefits over a certain reference period (i.e. weighing them over time).

The CBA consists of two interconnected parts: financial analysis and a socio-economic analysis. In the context of a grant application, the objective of the CBA is not to provide an all-inclusive evaluation of the socio-economic impacts, but to demonstrate that:

• The economic net present value is positive
• The economic rate of return is higher than the socio-economic discount rate

A socio-economic impact is a measure of the variation in the level of welfare among a population of reference, generated in and out of markets (i.e. with or without price mechanism). The benefits and costs that should be taken into account in a socio-economic analysis are those that are generated directly by the project (need for a stakeholders’ analysis).

Here, we provide examples of the indicators that are typically used to assess the economic benefits of a RI project:

• Knowledge – Typical benefit indicators: Number of Publications in Impact factor journals, Number of Publications in other journals, Value of the access granted to external researchers through an open access policy
• Development – Typical benefit indicators: Number of National patents granted, National patents operated in practice, International patents (Europe, USA, Japan) granted, Number of Technologies developed in-house and transferred, Number of Prototypes developed, and Number of methodologies/industrial designs transferred.
• Education and training – Typical benefit indicators: Number of graduates (M.A. level) trained in the infrastructure, Number of graduates (PhD level) trained in the infrastructure, Number of students (MA, Ph.D.) using the infrastructure.
• Employment – Typical benefit indicators: Number of newly created jobs (non-research staff), Number of newly created jobs (researchers), Number of newly created jobs (researchers under 35 years).
• Knowledge transfer and collaborations – Typical benefit indicators: Number of collaborative projects with application sphere, Volume of contract research, Volume of competitive funding (national), Volume of international grants.

The main challenge arises when it comes to the quantification and monetisation of the benefits. Some methodological suggestions may be found here.

Alongside this application and challenges, the time boundaries applying to the use of structural funds represent a major constraint. The period of eligibility of structural funds is strictly limited to the EU Framework Programme (FP) period (2007-2013 for the FP7; 2014-2020 for Horizon 2020) and tolerates very little flexibility. In the case of RIs from the ESFRI roadmap whose effective proposal to the structural funding was not prepared well in advance, this time (and budget) constraint has required excellent project planning, procurement calendars and risk monitoring that may be difficult to meet. To compound this difficulty, the countries that stand to benefit from the development of research infrastructure are necessarily those that are less likely to have previous experience in this area.

As a consequence, the use of structural funds should be considered for RI projects whose implementation characteristics are already clearly defined and risk-assessed (they should include sufficient time contingencies, taking into account the time requirements implied by the particular public procurement rules applying to the use of structural funds). Feasibility should be demonstrated and the team in charge of the implementation of the project should already be in place at the time the grant decision is approved.

4.3.1.3 International funding

This type of funding (usually through competitive grants) stems from intergovernmental organisations and forums such as the UN or the G8 (GEOSS, etc.). They are usually connected to global challenges (climate change, natural disaster, health protection, security issues, etc.).

4.3.1.4 Philanthropic organisations / donations

Research Infrastructures may be eligible to financial support from charities and philanthropic organisations. See here the examples of the RI for research on the Holocaust (EHRI) or charities funding research on diseases such as Alzheimer or cancer. Charities usually provide financial support on the basis of project-based grant agreements. They may also support individual researchers on the basis of scholarships.

Revenues from activities (revenues from access and commercialisation of results)

Other Sources of Funding
Research Infrastructures usually are designed and operated at the frontier of technological development. This offers interesting prospects for technology-based companies that are interested in co-development of equipment, software, tools, services etc. to be able to use them as out-of-the-box products in the future.

RIs can therefore profit from this interest by having cutting edge technology partly being financed by these third parties and thus getting in on the cheap. Moreover, structural cooperation between companies and the RI guarantees a constant upgrading of this technology, which is also profitable for both. Countries may consider the vicinity of an RI a huge chance to stimulate high-end economic activity in their country/region.

4.3.2 Funding and Governance

Contributions
To get a country on board the RI will need to offer an interesting proposal to invest, this can depend on several things:

• in-kind vs. in-cash contributions
• voting rights and governance
• access for scientists
• regional development (increased employment, economic activity)
• ‘owning’ all or part of the facility
• …

To determine how much a country will need to contribute, several calculation methods can be considered:

• Equal amounts for each country
• GDP based division, covering all construction costs by the participating countries
• GDP based division with fixed amounts per country (this implies that if not all countries participate a smaller budget is available; this is only feasible for RIs that can operate with partial construction)
• Variations on GDP based division, for instance using GDP per capita, to relieve poorer countries (counter argument against this system could be that these countries usually get large amounts of structural funds that can be used to cover the contribution)
• …

Voting Rights
Although it is widely understood that ‘whoever pays, decides’, it’s important to stress that experience teaches not to formalize this too much in that way, as it discourages trust among partners, and trust is the main basis on which a sound research Infrastructure is built. Most existing RI’s therefore opt for a one-country-one-vote system (CERN), whatever the difference in payments. Of course this means that consensus is the main way to reach a decision and voting is not really used.

However, this is based on past experience, in the days that RIs usually were large, single sited exceptionally expensive things, of which only a few existed in Europe.

ESFRI’s proposals as well as preparatory support by the EC has allowed the evolution of a wide and very varied landscape of larger and smaller RIs with many different types of contributions from different kinds of institutions. These are not always set-up and managed by the same small set of experts that used to run larger, single site facilities, nor the homogeneity and strong structuring of the interested scientific fields is so strong, many of them being intrinsically multidisciplinary, and this means that new consortia, with new relationships are created rapidly, with less historical perspective of trust building and institutional support.

In this landscape, delegates and funders have had less time to develop a true understanding and confidence of each other, and, a delegate will need some legal safety net to operate when it comes to decisions. A double majority vote can then be considered where a decision needs the majority of the participating funders as well as the majority of the funding represented by each country. This requires both small and large European countries to keep negotiating untl all parties are happy.This effectively resembles to operating as a ‘stick and carrot’ to reach consensus.

Here maybe the issue added before on the cost of operation and investment versus the marginal cost of coordination could be developed better.

Negotiations
Issues to be considered when it comes to negotiations are:

• Make sure to have as many funders contacts as possible that are regularly updated on preparatory activities, include them in special meetings to explain progress, both on the technical and the governance level;
• Assist countries in making the case for the RI when a national roadmap is being developed;
• Have detailed and reviewed budgets and construction-plans available when negotiations on construction start;
• Make sure the scientific community in any interested country is backing the plans;
• Assist countries in applications for Structural Funds to finance all or part of the contributions;
• Have detailed legal frameworks for the facility developed and ready when starting negotiations; especially ministries are eager to have this covered properly;
• Agree on how to value in-kind contributions; this can be an interesting incentive for a country to join and top-up existing projects with additional cash.

Some of these points imply that there needs to be a professional secretariat / public relations / communications team from the outset.

In-kind contributions and “juste retour”
The policy on industrial return and the means of monitoring, accounting and adjusting the balance should also be determined at the outset. It should provide for the continuous monitoring of the delivered industrial return. This enables short-term imbalances to be identified and rectified, thus maintaining long-term financial stability, while taking due account of the partners’ technical capabilities.

An adequate balance between cash- and in-kind contributions has to be agreed and clearly stated in the founding document.

4.4. Financial instruments

We have previously stated that there is a risk of confusing funding options with financing options in discussions of investment in research infrastructure, and there is value in re-stating this. Nevertheless, the idosyncrasies and conditionalities of national and European funding schedules require that thought be given to financing instruments of various kinds in order to ensure the uninterrupted provision of cash to meet the needs of keeping momentum in the construction/setting-up of new RI or their upgrades as they arise. Delays of any kind almost inevitably entail greater costs, either immediately or further down the line. Having financial contingency in place to meet the cash-flow in a timely fashion is a crucial aspect not only for the project but also for the costs scheduled. Within that context, the use of regular bank loans or the EIB risk-sharing finance facility, which has been specifically tailored to the case of investment in research infrastructure, may be an invaluable instrument, and, in present times, not even that costly.

4.4.1 Loans (EIB/RSFF, banks/commercial)

EIB loans and RSFF

Bank Loans and agreements
Countries, and possibly also Structural Fund sources tend to have peculiar payment procedures and schedules. It is possible that a country sign for its contribution but will not be able actually to transfer the money within the first two years. This can cause cash flow problems for the construction of the facility.

If based on these commitments the EIB is not an option; it is wise to negotiate early in the construction process a deal with a bank to get pre-financing. Usually setting up an R.I. requires to establish a legal person (either the now well-known ERIC or something on a national legislative basis, or an international organization reference to L&G chapter), which requires being in relationship with a bank anyway. Selecting a bank should also be done with the above pre-financing possibility in mind.

4.4.2 Public Private Partnerships

Under construction

4.5. RAMIRI Training Slides

• Learning session – Finance. Introduction – Florian Gliksohn
• Opportunities and challenges in the use of structural funds – Florian Gliksohn
• EIB loans as a financing tool – Paola Bembich
• The impacts and added value of research infrastructures. Identification, estimation, determinants – Florian Gliksohn
• Management and control of in-kind contributions. Case study: European XFEL Facility – Serge Prat

 

RAMIRI stands for Realising and Managing International Research Infrastructures (RIs). The projects RAMIRI and RAMIRI 2 were funded by the European Commission under FP7, in the periods 2008-2010 (project ID: 226446) and 2010-2013 (project ID: 262567). The projects delivered a training and networking programme for people involved in planning and managing international RIs in the EU (and Associated States).