The European Commission introduced lump sum funding in Horizon Europe with promises of streamlined financial processes, reduced error margins, and easier project management. However, for those of us actively involved in these projects—especially small and medium-sized enterprises (SMEs)—this new model presents unique challenges. While simpler for the Commission, lump sum funding has proven more complex and burdensome for applicants, shifting the administrative weight onto their shoulders.
In this article, we’ll explore why lump sum funding, despite its streamlined approach, introduces significant hurdles, adding unforeseen layers of complexity.

Usually, Horizon Europe projects (RIA / IA) were funded through an actual-cost reporting model, where:

• Projects received a prepayment of about 35% to cover initial expenses.
• Interim payments were based on documented, actual expenses.
• Audits ensured transparency and accountability, checking if the funds were spent according to the rules.

In a lump sum model, the European Commission links payments to completed work packages, which sounds convenient but introduces several issues:

• Budgeting intricacies: Applicants must justify every expense within each work package.
• Work package dependencies: Delays from one partner affect all associated parties.
• Financial strain on smaller partners: SMEs, in particular, may face financial hardships due to payment delays.

While lump sum funding eliminates some reporting tasks, the new requirements are more extensive than they appear. Applicants must anticipate every expense, from personnel costs to supplies, within each work package—a daunting task for multi-partner projects

Under the lump sum approach, applicants face detailed budget requirements, and all partners are required to break down costs precisely for each work package. Challenges include:

• Excessive Budget Detailing: Budgeting under lump sum models demands justification for every cost. This includes specifics on personnel costs, materials, and even travel-related expenses.
• Dependency on Work Package Completion: Payments are tied to entire work package completion. If one partner experiences delays, all partners in that package face a payment hold.
• Increased Administrative Time: Budget preparation for lump sum projects takes significantly longer, consuming resources that could otherwise go toward scientific work.

The dependency structure within lump sum funding creates issues when one partner delays a work package. Since the Commission only releases funds upon package completion, all partners within that package experience delays, creating financial strain, particularly for SMEs.

The lump sum model’s administrative and financial demands can discourage SMEs and smaller organizations from applying. These entities often cannot absorb extensive upfront work without a guarantee of funding. Consequently, this approach could hinder the diversity and innovation that Horizon Europe aims to promote.

While lump sum funding presents clear benefits, it also brings notable drawbacks that can hinder project timelines and applicant diversity.

The extensive budgeting needed under lump sum funding creates a significant time drain. A study revealed that budget planning for a 12-partner consortium can now take over 50 person-days, whereas traditional projects required only a fraction of that time. This lengthy preparation time detracts from valuable scientific development.

The lump sum model can inadvertently stifle innovation by deterring SMEs and diverse applicants. Preparing a lump sum budget often requires significant resources, creating a barrier for small teams with limited administrative bandwidth. The funding model, designed to streamline processes, can actually limit participation from a broad spectrum of innovative contributors.

Administrative tasks, which have increased under lump sum funding, often detract from the scientific focus of Horizon Europe projects. Instead of concentrating on research objectives, partners must allocate time and resources to complex administrative work, making project management more difficult.

Under the lump sum model, the interdependent structure of work packages forces all partners in a package to wait until the package is completed before receiving payments. This setup may harm SMEs, which rely on timely payments for cash flow stability, creating potential financial risks within the consortium.

Traditional cost-based models provided a more flexible approach, with funding adapted to actual expenses. With lump sum funding, partners must adhere to a rigid cost structure, reducing flexibility and increasing administrative complexity.

In a recent report, over half of participants claimed that preparing a detailed budget under lump sum funding took less than one day. However, many find that in reality, lump sum projects require extensive administrative effort—disproportionate to the intended “simplification.”

While lump sum funding may appear simpler on paper, the experience of applicants tells a different story. For SMEs and smaller partners, lump sum funding has introduced new challenges and barriers, making participation in Horizon Europe more complex than anticipated. To fulfill its goal of promoting innovation and inclusion, the European Commission should consider refining the lump sum model, creating a balance that truly supports all participants.

Tired of managing and generating a lump sum budget? Would you like to concentrate on generating the science parts? We provide support in generating the lump sum budget. Call us or send an email.