Preparing the budget for a Lump Sum grant in Horizon Europe Projects

1. Introduction

Horizon Europe is the European Union’s flagship funding program for research and innovation. It supports initiatives aimed at addressing global challenges, driving scientific excellence, and fostering industrial competitiveness across Europe. Traditional Horizon Europe grants often require detailed cost reporting based on actual costs—namely, direct and indirect expenses. However, in recent years, the European Commission has introduced and expanded the use of lump sum grants as a simplified, alternative funding mechanism for certain actions under Horizon Europe.

Under lump sum grants, beneficiaries receive funding based on the completion of well-defined work packages or project activities, rather than on the precise accounting of actual incurred costs. This approach is intended to reduce the administrative burden associated with cost reporting, verification, and auditing. Instead of requiring beneficiaries to submit detailed invoices and timesheets, the lump sum model emphasizes performance and results. Consequently, carefully preparing the budget for a lump sum grant is crucial to the success of any Horizon Europe project awarded under this type of funding scheme.

This document provides a comprehensive guide for beneficiaries, coordinators, and consortium partners on how to prepare a lump sum budget in Horizon Europe. It outlines the main legal requirements, explains how to structure work packages and milestones, and highlights best practices for planning, monitoring, and reporting. By understanding the key principles of lump sum financing, beneficiaries can develop robust project proposals and avoid common pitfalls in budget preparation.

2. Understanding Lump Sum Funding in Horizon Europe

2.1 Lump Sum Basics

A lump sum grant is a funding mechanism in which the European Commission agrees to pay a fixed amount for the successful completion of specific activities or outputs. Once a beneficiary or a consortium completes the agreed work packages (WPs) or tasks, they become eligible to receive the corresponding lump sum. This system departs from the traditional “actual cost-based” reimbursement model, which requires detailed financial statements, timesheets, and cost itemization.

The lump sum itself is often broken down into parts assigned to different work packages or project phases. Each part of the lump sum corresponds to the successful execution of the relevant tasks or to the completion of milestones within that work package. The contractually agreed amounts and deliverables are documented in the project’s grant agreement (or annexes), ensuring clarity for both the beneficiaries and the European Commission.

2.2 Key Features of Lump Sum Financing

1. Performance-Based: Funding is linked to the successful delivery of work packages or project deliverables rather than to individual cost items or resources.
2. Reduced Administrative Burden: Beneficiaries do not have to maintain detailed cost records or justify every expenditure; instead, they must demonstrate that the agreed tasks and deliverables have been completed as specified.
3. Simplified Audits: Auditors focus on technical performance and whether tasks were completed, not on the intricate details of financial ledgers and receipts.
4. Risk Allocation: Under the lump sum approach, beneficiaries assume more risk in managing costs, since the European Commission will not reimburse over-expenditures beyond the agreed lump sum amount.
5. Work Package Structure: The success of a lump sum project depends on a clear definition of the tasks, objectives, and expected outcomes for each work package, along with realistic budget allocations.

2.3 Rationale Behind the Lump Sum Approach

The European Commission’s decision to implement lump sum financing in Horizon Europe stems from the need to simplify research project management and encourage broader participation. By emphasizing deliverables and results, lump sum grants aim to reduce some of the complexities that have traditionally been a barrier for smaller organizations or newcomers, including the intense administrative verification for actual cost claims. Ultimately, this approach seeks to promote a focus on technical excellence and project achievements rather than on extensive financial reporting.

However, the lump sum model also requires beneficiaries to accurately forecast costs and carefully plan their project’s technical activities. If a work package proves more expensive than anticipated, the beneficiary bears that additional cost. Conversely, if the tasks in a particular work package are completed below the estimated budget, the beneficiary may realize a cost saving that it can reallocate within the project’s internal planning (provided that it still delivers the agreed outputs). Therefore, thorough and strategic budgeting is critical to achieving project objectives without incurring unplanned financial burdens.

3. Eligibility and Legal Framework

Although lump sum grants simplify the overall process, they still operate within the broader legal and financial frameworks established by Horizon Europe. Key documents include:

1. Horizon Europe Regulation: The primary legislative basis for Horizon Europe, specifying general rules for the program, including the conditions for funding and participation.
2. Model Grant Agreement (MGA): The contractual framework between the European Commission and the beneficiaries, describing the applicable rights, obligations, and financial rules. For lump sum projects, the specific version of the MGA includes provisions tailored to lump sum funding.
3. European Commission Guidance: The European Commission provides guidelines and tutorials on how to structure and report under lump sum grants, which can be found in the official Funding & Tenders Portal.

Beneficiaries should thoroughly review the specific lump sum requirements in the relevant call for proposals. Some calls indicate that a lump sum approach is mandatory, while others specify that it is an option. Each call will also define whether the lump sum is to be distributed at the work package level, milestone level, or through another structure that ensures clear tasks and deliverables.

4. Steps to Budgeting a Lump Sum for a Horizon Europe Project

The following sections outline a step-by-step approach to preparing the budget for a lump sum Horizon Europe project. While the details and exact sequence might vary depending on the project’s scope, the size of the consortium, and the European Commission’s specific instructions, these steps can serve as a guiding framework.

4.1 Step 1: Understand the Overall Project Scope and Requirements

Budget preparation for a lump sum project begins with a clear understanding of the call requirements and the project’s technical scope. During the proposal preparation phase, consortium partners, or the single beneficiary in a mono-beneficiary project, should carefully examine:

1. Call for Proposals: Identify the objectives, expected impacts, and types of activities supported by the call. Determine whether the call explicitly requires or allows lump sum funding and note any special rules, thresholds, or evaluation criteria.
2. Project Objectives: Clearly define the project’s main goals and describe the research or innovation activities needed to achieve them.
3. Timeline: Establish a realistic schedule for completing tasks, deliverables, and milestones. The overall budget must be consistent with this timeline.
4. Consortium Roles: If the project is collaborative, outline each partner’s responsibilities and the expertise they bring. This clarity helps when dividing tasks and costs.

At this initial stage, all project partners should align on how the lump sum approach will affect project management and risk allocation. For instance, a single beneficiary or a coordinator might consider setting up internal agreements to handle cost overruns in specific work packages if one partner’s tasks become more expensive than anticipated.

4.2 Step 2: Define Work Packages and Related Outputs

In lump sum financing, the backbone of the entire budget rests on well-structured work packages. Each work package should have clear objectives, deliverables, milestones, and measurable outcomes. This division of the project into logical, self-contained units simplifies budget preparation and reporting.

1. Work Package Objectives: For each work package, specify what the project aims to achieve, such as developing a prototype, conducting experiments, or delivering a specific report. The objectives should be directly linked to the overall project goals.
2. Tasks and Activities: Break down each work package into tasks, describing the research or innovation activities to be performed. This helps the consortium (and the European Commission) understand how the project’s resources will be allocated.
3. Deliverables and Milestones: Identify the tangible outputs or important checkpoints. These will be the basis for lump sum disbursements. For example, a deliverable might be a feasibility study, while a milestone might mark the end of laboratory testing and the beginning of field trials.
4. Responsibility Assignment: In collaborative projects, assign tasks to specific partners based on expertise. Allocate internal budgets or cost estimates for each partner’s contributions.
5. Realistic Scheduling: Set up a timeline or Gantt chart, ensuring that tasks and deliverables can be feasibly completed within the project duration.

Work packages that are too large or too vaguely defined can cause issues for lumpsum management. If a single work package covers a broad range of tasks, it might become difficult to demonstrate that all aspects have been successfully completed. Splitting complex tasks into multiple smaller work packages with clear deliverables often improves clarity and facilitates simpler budget allocation.

4.3 Step 3: Estimate the Resources, Effort, and Costs for Each Work Package

Once the work packages are clearly outlined, the next stage involves estimating the resources, effort, and associated costs needed to complete them. Although the final project grant will be a lump sum, the beneficiaries must still compile internal estimates to justify the proposed amount. These internal calculations are not necessarily submitted to the Commission in full detail (depending on the call’s requirements), but they are essential for internal planning and risk management. Some key considerations include:

1. Personnel Effort: Identify the staff categories (researchers, technicians, administrative personnel, etc.) required for each task. Estimate the Person-Months (PMs) needed. In a lump sum scenario, you do not need to provide timesheets later, but you still need an accurate forecast to ensure you can complete the tasks within the fixed lump sum.
2. Travel and Subsistence: If the project requires attending conferences, consortium meetings, or field visits, estimate the number of trips, the average cost per trip, and the necessary subsistence allowance.
3. Equipment and Consumables: Determine whether the project requires the purchase of equipment or consumables (for example, laboratory reagents, raw materials for prototyping, or software licenses).
4. Subcontracting: Identify any work that will be outsourced to third parties. Although lump sum grants place less emphasis on actual cost justification, it is crucial to plan and record the estimated cost for potential subcontracting.
5. Indirect Costs: Under a typical Horizon Europe grant, indirect costs are calculated at a flat rate of 25 percent of eligible direct costs. For lump sum grants, the principle is to include overhead costs proportionally in the lumpsum allocation. Beneficiaries should calculate an appropriate share of overhead within each work package’s cost estimate.
6. Contingency Margins: Because lump sum funding does not provide additional reimbursement if actual costs exceed the budget, some beneficiaries include a margin to hedge against financial risk. This margin can be distributed across work packages or concentrated in the ones deemed highest risk.

After generating these estimates, the total projected cost for each work package emerges. Summed together, these projections become the basis for the overall lump sum request from the European Commission. Beneficiaries may also consider the current market conditions, price fluctuations, and potential currency exchange risks (for those located outside the eurozone).

4.4 Step 4: Justify the Lump Sum Amount in the Proposal

The Horizon Europe proposal for a lump sum project typically requires a concise but clear explanation of how the lump sum was determined. Although beneficiaries are not always obliged to submit full cost breakdowns, they must still convince evaluators that the proposed amount is realistic and necessary to accomplish the project’s objectives. Common methods to justify the lump sum include:

1. Narrative Description: Provide an overview explaining the rationale behind each work package’s estimated cost. Emphasize alignment with the tasks, the staff needed, and the materials or equipment required to produce the deliverables.
2. Table Summaries: Offer short tables or summary sheets indicating the high-level cost categories (for example, personnel, travel, equipment) for each work package.
3. Reference to Similar Projects: If the organization or consortium has experience with similar projects, referencing past budgets and outcomes can help demonstrate that the proposed lump sum is well-grounded.
4. Effort Distribution: Show that the Person-Months and tasks for each partner are proportional to their roles and responsibilities in the project. This can reassure evaluators that the work plan is well-structured and feasible.

By providing a clear, logical justification of the lump sum, the project proposal becomes more competitive. Evaluators will check if the total budget aligns with the scope of the call, the project’s complexity, and the plan for achieving the stated outputs.

4.5 Step 5: Payment and Reporting Structure

In a Horizon Europe lump sum project, the grant agreement will specify the payment tranches, typically correlating with interim and final reports. The structure might look like this:

1. Pre-Financing: Upon signing the grant agreement, the coordinator (for multi-beneficiary projects) may receive a pre-financing payment. This amount helps beneficiaries start the work but does not constitute a direct reimbursement of tasks already completed.
2. Interim Payments: At specific reporting periods, beneficiaries submit technical progress reports that outline which deliverables and milestones have been achieved. The European Commission or its executive agencies will verify that the work packages in question were completed. The consortium can then claim the corresponding portions of the lump sum.
3. Final Payment: At the end of the project, the beneficiaries submit the final report along with all required deliverables. Once the Commission confirms successful completion of the project, the remaining lump sum is disbursed.

Unlike traditional cost-based projects, the primary focus is on verifying the technical achievements rather than verifying each cost line item. However, beneficiaries must be diligent in documenting their progress, producing deliverables, and ensuring compliance with ethical, environmental, and regulatory obligations. Failure to deliver a specific work package may result in reduced or withheld payments, highlighting the importance of careful planning and internal monitoring.

5. Considerations for Collaborative Consortia

Preparing a budget for a lump sum grant in a multi-partner project adds additional layers of complexity. Partners may have different cost structures, personnel categories, or overhead rates, and some might be located in countries with higher living costs. To ensure effective collaboration and avoid misunderstandings, the consortium should:

1. Agree on Work Package Assignments: Each partner should take clear responsibility for the tasks they are best suited to perform. This ensures that resources are used efficiently.
2. Allocate Budget Equitably: The total lump sum for each work package should reflect the actual effort required from each partner. Overestimation or underestimation might cause friction during project implementation.
3. Set Internal Guidelines: The coordinator can develop an internal plan, clarifying how the lump sum payments received from the European Commission will be distributed among partners once tasks are completed.
4. Address Risk Sharing: Determine in advance how the consortium will handle cost overruns if one partner faces unexpected expenses. Since the total project grant is fixed, partners must manage these risks collectively.
5. Regular Communication: Maintaining open lines of communication ensures that partners can alert each other to potential delays or resource shortages before they escalate.

A transparent distribution of roles, responsibilities, and financial allocations promotes harmony within the consortium and increases the likelihood of a successful project outcome.

6. Implementation Phase and Monitoring

Once the lump sum project begins, beneficiaries must stay vigilant to ensure that the actual work and progress align with the proposed budget and deliverables. Key actions during this phase include:

1. Internal Project Management: Project coordinators, principal investigators, or project managers should track ongoing activities, monitor expenditures internally, and confirm that deadlines and deliverables are on track.
2. Technical Reviews: The consortium should conduct periodic internal reviews or peer evaluations to confirm that the quality of work meets the agreed standards. This step is especially important, given that full payment hinges on satisfactory completion of deliverables.
3. Documentation and Record-Keeping: Although lump sum grants do not require detailed financial reports, beneficiaries should still maintain sufficient documentation to demonstrate the completion of tasks in case of audits or reviews. For instance, they should keep final deliverables, meeting minutes, proof of prototypes or field tests, and other records of achieved milestones.
4. Risk Mitigation: If a work package is at risk of running over budget, the partners involved may need to adjust their internal resource allocation. Since the total lumpsum is fixed, they cannot simply request additional EU funds. The consortium must manage these risks internally.
5. Reporting to the Commission: At interim stages or when specific milestones are reached, the coordinator submits progress reports verifying the successful completion of the relevant tasks. This process usually involves an online submission of technical and financial data through the Funding & Tenders Portal.

By proactively monitoring the project’s activities and finances, the consortium can identify potential issues early and implement mitigation measures. This approach reduces the likelihood of failing to complete a work package, which can jeopardize the corresponding portion of the lump sum.

7. Common Pitfalls in Lump Sum Budget Preparation

While lump sum funding can simplify administrative burdens, it also introduces specific challenges that beneficiaries must address proactively. Some of the most frequent pitfalls include:

1. Overly Complex Work Packages: Defining a single work package that covers an entire project can lead to difficulties in demonstrating that all tasks have been completed satisfactorily. A better approach is to create multiple work packages with clearer objectives and deliverables.
2. Underestimating Project Costs: If a project’s actual costs exceed the approved lump sum, beneficiaries have no recourse to request extra EU funding. This situation can strain budgets or force cutbacks in research scope.
3. Insufficient Detail in Deliverables: Vaguely defined deliverables may trigger disputes at payment time if the European Commission does not recognize the submitted evidence as sufficient.
4. Inadequate Risk Management: A lack of contingency planning can lead to significant problems if a work package incurs higher expenses or faces unexpected delays.
5. Poor Internal Coordination: Inconsistencies between partners regarding resource allocation, scheduling, or expected outputs can derail a collaborative project.
6. Inaccurate or Insufficient Justification: Failing to properly justify the lump sum in the proposal can weaken the application and risk rejection during the evaluation stage.

Avoiding these pitfalls requires thorough planning, careful documentation, and effective communication among all project stakeholders. By investing time in the early stages of the proposal and budget preparation, beneficiaries can significantly reduce the risk of setbacks down the line.

8. Best Practices for Lump Sum Budget Preparation

To make the best use of the lump sum funding approach, consider implementing the following best practices:

1. Develop a Detailed Internal Budget: Even though the lump sum reporting to the Commission is simplified, maintain a robust internal budget that includes staff effort, overheads, travel expenses, and other cost categories for each work package. This allows beneficiaries to track actual spending against projections.
2. Set Measurable Deliverables: Ensure that deliverables and milestones are clearly measurable, so that demonstrating their completion is straightforward.
3. Break Down Complex Projects: For large or multidisciplinary projects, divide the work into several smaller, task-based work packages that are logically connected. This approach makes it easier to report on progress and secure partial lump sum disbursements.
4. Ensure Consistency and Transparency: In collaborative projects, share detailed cost assumptions and calculations among partners. This openness helps maintain trust and fosters more accurate project planning.
5. Monitor Continuously: Conduct regular check-ins and risk assessments, updating internal forecasts and addressing any discrepancies early on.
6. Document Achievements: Archive all project outputs and evidence of completed tasks in a systematic manner. Such documentation supports the payment claims and can serve as a reference if any disputes arise.

By following these best practices, beneficiaries increase the likelihood of successfully completing the project, fulfilling the requirements set by the European Commission, and securing the full lump sum funding.

9. Example Scenario: Budgeting for a Hypothetical Lump Sum Project

To illustrate how these principles come together, consider the following simplified hypothetical example:

• Project Title: Sustainable Urban Air Quality Monitoring
• Duration: 36 months
• Consortium Partners: Three entities (a university, an environmental technology SME, and a city council)
• Overall Lump Sum Requested: EUR 1,200,000

9.1 Work Package Breakdown

1. WP1 – System Design and Requirements (EUR 200,000)

   • Tasks: Literature review, stakeholder interviews, concept design
   • Deliverable: Report on system requirements and feasibility study
   • Leading Partner: University

2. WP2 – Sensor Development and Testing (EUR 400,000)

   • Tasks: Prototype design, lab testing, sensor calibration
   • Deliverable: Functional sensor prototypes with technical documentation
   • Leading Partner: Environmental technology SME

3. WP3 – Pilot Deployment in City (EUR 300,000)

   • Tasks: Site selection, sensor installation, data collection
   • Deliverable: Pilot deployment, preliminary data analysis, stakeholder workshop
   • Leading Partner: City council

4. WP4 – Data Analysis and Final Report (EUR 300,000)

   • Tasks: Comprehensive data analysis, policy recommendations, final project report
   • Deliverables: Data analysis results and policy recommendation document
   • Leading Partner: University

9.2 Internal Cost Assumptions

• WP1 (EUR 200,000):

  • Personnel: 10 Person-Months (mixed roles) at the university
  • Travel: 2 consortium meetings in the city council’s offices
  • Consumables: Analytical software licenses
  • Overheads: Approximately 25 percent integrated in the lump sum

• WP2 (EUR 400,000):

  • Personnel: 20 Person-Months of engineering staff at the SME
  • Equipment: Prototype hardware, testing bench, calibration systems
  • Consumables: Sensor modules, electronic components
  • Subcontract: Possibly a specialized lab for additional testing
  • Overheads: Rolled into the lump sum

• WP3 (EUR 300,000):

  • Personnel: City council staff, local technicians
  • Materials: Infrastructure setup and sensor installation
  • Events: Stakeholder meeting venue, communication materials

• WP4 (EUR 300,000):

  • Personnel: Analysis by the university’s data science team
  • Data processing software
  • Final publication and dissemination costs

The total lump sum (EUR 1,200,000) is divided across the four work packages. Each partner has a clear role and budget share, and each WP culminates in well-defined deliverables or milestones that trigger the respective lump sum payments.

10. Conclusion

Preparing a budget for a lump sum grant in Horizon Europe projects entails a systematic approach that underscores careful planning, transparent communication, and risk management. Unlike traditional cost-based reimbursement models, lump sum grants focus on delivering results and verifying milestones. This shift can significantly reduce administrative complexity related to cost reporting but demands that beneficiaries have a thorough internal understanding of their resource requirements and project structure.

A successful lump sum budget incorporates:

• Comprehensive Work Package Structuring: Clear objectives, tasks, and measurable deliverables for each work package.
• Realistic Internal Cost Estimates: Solid forecasts of personnel, travel, equipment, and overheads, even though the final reporting does not require detailed cost itemization.
• Risk Mitigation Strategies: Provisions for handling unforeseen costs or delays without the possibility of additional EU funding.
• Transparent Partnership Arrangements: Equitable distribution of tasks and budget shares in multi-partner consortia, with well-defined internal guidelines for lump sum allocations and payments.
• Continuous Monitoring and Documentation: Periodic progress checks and organized record-keeping that show compliance with contractual obligations and readiness for technical audits.

By following these principles, beneficiaries can create a robust lump sum proposal that aligns with Horizon Europe’s objectives, complies with the relevant legal frameworks, and maximizes the chances of achieving the project’s intended impact. Although the nature of lump sum grants shifts risk and responsibility more squarely onto the consortium, a well-prepared and appropriately managed project can thrive under this funding model, delivering innovative research and technology outcomes that address pressing challenges in Europe and beyond.