Universities and colleges are being strongly encouraged to charge the full market price for their services (including research), and this encouragement is reinforced through the financial memoranda with the funding councils. HEFCE sets out to the English institutions: "as part of ensuring its long term viability, an institution should know the full economic cost of its activities and use this information in making decisions. If it does not seek to recover the full cost, this should be the result of a clear policy set by the governing body and included in the financial strategy, and should not put the institution into financial difficulty. We expect our funds not to subsidise non-public activities".
The funding councils, with Universities UK and SCoP (now GuildHE), set up the Joint Costing and Pricing Steering Group in 1997 to help institutions to develop effective costing and pricing arrangements. One of the outcomes of the work of the JCPSG was the Transparency Review which developed the Transparent Approach to Costing (TRAC), an activity based costing methodology for institutions. A set of TRAC guidance was published in 2005, both in the form of a non-technical overview and with detailed technical guidance. It can be applied both at institutional, or project/activity level. A report on financial management information and the role of TRAC provides more information. There is a TRAC Support Unit, now run by KPMG, which provides a range of support services to institutions.
Two years after research councils began using full economic costs in the awarding of grants, Research Councils UK published a review of the process and a further review, chaired by Professor Bill Wakeham, resulted in Financial Sustainability and Efficiency in Full Economic Costing of Research in UK HEIs.
Following an extensive study JM Consulting have reported to the UK HE funding bodies on the calculation of research cost relativities based on the TRAC methodology.
In practice many institutions are not able to secure the full costs of their services, so commercial decisions have to be taken, in the light of market conditions, to maximise returns, often on a “cost plus” basis.