AGRIFOOD TECHNOLOGY STATION – HOW IT COSTS ITS SERVICES

This may be a boring topic for some, especially if you do not use the services of ATS. It is lengthy but is packed with detail for those who use our services or who may wish to do so. However, in the interests of open communication, here goes!

Circumstances have dictated that we clarify our position while we are in the process of changing our Standard Operating Procedures. It is very important to us that, in doing this, we keep our existing clients as well as new incoming clients updated to minimize misunderstandings and incorrect perceptions.

Keep in mind that the Stations generally have two important outputs to meet with SMMEs i.e.
1. Innovation support and facilitation;
2. Technology transfer and localization.

Historically our pricing was done as a percentage of what commercial enterprises would charge for the same services, especially with respect to analytical work (microbiology and chemistry). We could obviously not charge more since we are not an accredited laboratory. For other types of services e.g. product and process development, our costs were estimated based on their value to a client (very fuzzy logic) and expenses roughly relating to man hours, type of expertise required and consumables (note: it is a little more complex than this but the description will suffice for now. See footnote1).

As part of our pricing, we were (and still are to a degree) able to offer a subsidy for smaller clients based on a sliding scale (the concept of “subsidy” is explained in more detail as a footnote2). This further enabled us to appeal to, and assist, techno-entrepreneurs, start-ups and smaller companies generally.

As we have evolved over the years, this mode of operation had been impacted upon by a number of things, the two key of which are:
3. Constraints in funding from our primary funder (Technology Innovation Agency) to meet our targets and to equip us adequately for some projects.
4. The legal obligation as a state-funded public institution to cost all services at “full cost”. The concept of “full cost” is explained in more detail as a footnote3. For (3) above, there are a number of ways of mitigating this risk, as outlined below:

  • Seek other forms of funding such as from DTI, IDC et al.;
  • Seek collaboratively funded projects;
  • Seek special funding for additional staff members/ contract employees/ researchers;
  • Expand our service range or renew existing services;
  • Advertise more aggressively;
  • Seek more innovation-rich projects;
  • Push up project throughput rates;
  • Generate intellectual property that could be converted to financial value or an annuity income stream.

This is by no means a complete list but, as the list grows longer, there is an implication of growth of the Station that would be required to handle the workload. Implicit in this workload is an additional administrative burden to handle the compliance issues for each funder involved and also to handle the monitoring and evaluation by the primary funder. For (4) above, the Station must (via this blog and other communiques) inform its stakeholders of the reason for an increase in the costs to which they have become accustomed over the years. For those services that are too expensive for the stakeholders, these may be done via ATS outsourcing such to commercial providers or by suggesting to clients that they use the commercial service directly. This could include an arrangement where the Station is the manager of a project during which the client takes samples from ATS for external servicing. It is important to note the following four caveats though:
a. ATS will still service internal demands from the CPUT research fraternity for those services which are more expensive than the commercial costs. The costs for this will only be restricted to expensive chemicals and other consumables required.
b. ATS will conduct such services toward student and ATS Intern training i.e. there is a solid reason for doing this.
c. Where ATS provides a legitimate community service these may also be provided at a minimum (subsidized) cost.
d. ATS still reserves the right to offer such services to clients with an appropriate subsidy to bring the cost down for specific cases where such is required. This option will be used sparingly.

All of this is a work in progress with a steep learning curve. The Station is indebted to Productivity SA through its Senior Adviser (Ms. Charlene Steyn) for conducting a training workshop for ATS staff. This contributed significantly to the process of becoming fully compliant in this regard.

Please direct any queries to us if this blog makes no sense at all!

Larry Dolley

Footnote 1:

Costing of non-routine services such as product and process development, use of the full steam line from the retort to the finished product after retorted et al. will be fully costed on a “per project” basis since there are many permutations of a set of unit operations. See later for the description of full cost.

Footnote 2:

The concept of “subsidy” as applied in the final price for a project is as follows:
Project price before VAT:       R 100.00
10% Subsidy applied:             R10.00
Project price incl. VAT:           R90.00 + 15%.

The key concept to note is that the subsidy implies that the Station has separate funding to apply such a subsidy. This means the Station still charges the full cost by taking the R10.00 from its reserves or from funding allocated to support such a project. If there are no reserve funds or special allocations, then a subsidy cannot be applied. For this reason subsidies are allocated sparingly and based on a strict set of rules.

Footnote 3:

The concept of “full cost” MUST be applied to ALL projects and quoted based on the following elements:

  • Project costs: Costs for man hours (HR), consumables, equipment time, communications, any new equipment purchased for a project, travel, IP assignment, contingencies, consulting services required, bursaries & fellowships and a margin.
  • Indirect project costs: A fee of 35% is added for these costs which includes electricity, water, IT infrastructure, CPUT administrative services, space, maintenance, etc.
  • Direct project costs: CPUT takes a percentage of the costs related to man hours above. In effect, the actual increase in project price (final cost to the client) above the Project Cost described above equates to about 12 – 15% at the end of the day depending on the nature of the project. The “full cost” concept and the “direct” and “indirect cost” concepts form part of the Intellectual Property Rights from Publicly Financed Research and Development Act (Act No. 51, 2008) (the IRP Act) and was signed by the President and appeared in the Government Gazette on 22 December 2008, but only came into effect on 2 August 2010.

This act places a legal obligation on ALL state funded institutions conducting research and possibly generating IP (universities not being an exception) to cost projects at full cost. The percentages referred to e.g. for indirect costs, is calculated separately per university and approved by the National Intellectual Property Management Office (NIPMO).

This act serves to protect IP generated using public funds (or allows sharing of IP on a pro rata basis) and also allows university to recoup costs for the use of facilities during such research.