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Decision of the European Ombudsman on own-initiative inquiry OI/5/2007/GG concerning the European Commission

Available languages: en
  • Case: OI/5/2007/GG
    Opened on 14 Dec 2007 - Decision on 20 Jun 2008
  • Institution(s) concerned: European Commission
  • Field(s) of law: General, financial and institutional matters,Right of establishment and freedom to provide services
  • Types of maladministration alleged – (i) breach of, or (ii) breach of duties relating to: Lawfulness (incorrect application of substantive and/or procedural rules) [Article 4 ECGAB],Reasonable time-limit for taking decisions [Article 17 ECGAB]
  • Subject matter(s): Execution of contracts

Strasbourg, 20 June 2008

Mr President,

On 14 December 2007, I informed you that I had decided to open an own-initiative inquiry concerning the issue of timeliness of payment by the European Commission.

On 25 March 2008, the Commission sent its opinion.

I am writing now to let you know the results of the inquiries that have been made.


THE REASONS FOR THE OWN-INITIATIVE INQUIRY

Article 195 of the Treaty establishing the European Community empowers the European Ombudsman to conduct inquiries on his own initiative in relation to possible instances of maladministration in the activities of Community institutions and bodies. In his own-initiative inquiry OI/5/99/(IJH)GG, the Ombudsman investigated the subject of late payment by the Commission. This inquiry was closed on 16 February 2001.

In his decision closing that inquiry, the Ombudsman reached the conclusion that the Commission had taken steps to tackle the problem, which appeared to be satisfactory. He added, however, that he would consider opening a new inquiry if it should prove in the future that, notwithstanding these measures, late payment by the Commission continued to pose serious problems.

Seven years later, and in light of a number of cases the Ombudsman had to deal with in recent years (see, for example, his decisions on complaints 818/2005/PB, 3067/2005/(MHZ)MF and 2692/2006/BB), it appeared to the Ombudsman that there was scope to launch a new own-initiative inquiry with a view to ascertaining what further measures had been taken by the Commission in this respect and whether there were still problems needing adequate remedy concerning timeliness of payments.

In particular, the Ombudsman recalled that he had received two consecutive complaints from a German citizen who regularly works for the Commission as an expert (complaints 1266/2005/MF and 2569/2006/WP), both of which concerned delays in payment by the Commission. In his decision on complaint 2569/2006/WP, which was adopted on 19 July 2007, the Ombudsman stated that he considered it appropriate to look into the issue of late payment again on a broader basis, by way of conducting a new own-initiative inquiry. The Ombudsman added that this inquiry would include an examination of the effectiveness of the measures taken by the Commission in order to accelerate payments.

In view of the above, the Ombudsman decided to open a new own-initiative inquiry into the subject of timeliness of payment by the Commission.

THE INQUIRY

The information requested in the own-initiative inquiry

In his letter opening his inquiry, the Ombudsman asked the Commission to inform him of the steps it had taken to identify and deal with the causes of delays in making payments to contractors and to beneficiaries of grants and subsidies.

The Ombudsman added that, in this context, it would be most useful if the Commission could also present statistical data that might illustrate the problem or the remedial action taken by the Commission. He added that he would be particularly interested in receiving information on the number and percentage of cases where delays in payment occurred, on the extent of the delays that actually occurred, on the sums involved and on the cases where interest was paid on account of late payment.

The Ombudsman noted that, in its opinion on complaint 2569/2006/WP, the Commission had referred to Article 106 of its Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities(1) ("Regulation 2342/2002") as establishing the default mechanism for the payment of interest.

In its original version, this Article provided as follows:

"Payment time limits and default interest

1. Sums due shall be paid within no more than forty-five calendar days from the date on which an admissible payment request is registered by the authorised department of the authorising officer responsible (...).

(...)

5. On expiry of the time limits laid down in paragraphs 1 and 2, the creditor may, within two months of receiving late payment, demand interest (...)."

In its opinion on complaint 2569/2006/WP, the Commission pointed out that, therefore, it did not automatically pay interest, but only upon request by the creditor.

The Ombudsman therefore requested the Commission to inform him as regards the practicalities of paying interest on account of late payment. He added that he would be particularly interested to learn whether creditors were specifically reminded of their right to claim interest when the delayed payment is made.

The Ombudsman pointed out that it would also be useful to know how many creditors who would be entitled to claim interest do in effect present such a claim.

Finally, the Ombudsman asked the Commission to provide him with its views on whether the need to present a claim for interest and to do so within two months following receipt of the delayed payment might not dissuade certain of its partners from insisting on their rights.

The Commission's opinion

In its opinion, which was presented to the Ombudsman by Commissioner Grybauskaité, the Commission made the following comments:

As a preliminary remark, it should be recalled that time-limits for payments are laid down in Regulation 2342/2002, and exceptionally in sector specific regulations.

Under Article 106 of Regulation 2342/2002, payments must be made within 45 calendar days from the date on which an admissible payment request is registered or 30 calendar days for payments relating to service or supply contracts, save where the contract provides otherwise. Normally, Commission standard contracts are in line with the time-limits provided for in Regulation 2342/2002.

However, for payments which, pursuant to the contract, grant agreement or decision, depend on the approval of a report or a certificate (interim and/or final payments), the time-limit does not start until the report or certificate in question has been approved(2). As regards the European Development Fund, the European Social Fund and the Cohesion Fund, a specific rule applies: payments have to be made within 2 months(3).

The Commission has improved its performance for payments over 2005-2007, in number and in value, even if the average delay has not significantly decreased. The following table summarises the current situation concerning payments made after the expiry of the time-limits (hereafter late payments):

Table 1: Number and value of late payments; average delay

 

2005

2007

Late payments in number(4)

42.74%

22.57%

Late payments in value(5)

17.48%

11.52%

Delays on average(6)

49.13 days

47.98 days

The Commission is fully aware of the need to comply with time-limits for payments. It has identified the reasons causing delays, such as the complexity of the evaluation process concerning supporting documents, in particular of technical reports requiring external expertise in some cases, the difficulties encountered in seeking to ensure the efficient coordination of financial and operational checks of requests for payments, and managing suspensions. In addition, the Commission is not in a position to predict when requests for payments will be submitted and may thus have several and sometimes competing priorities to manage at the same time.

The Commission has taken many steps to avoid late payments, both at the administrative and legislative levels.

At the administrative level, compliance with the time-limits for payments has been defined as a performance indicator, in particular in Directorates-General implementing large parts of the EC Budget. Internal monitoring systems, providing for regular reporting on late payments and/or requested payments have been put in place. Simplification initiatives have been taken to speed up the process of examining requests for payments, such as a wider use of audit certificates, a better definition of the deliverables or types of costs to facilitate the checks to be carried out. Awareness actions and exchanges of best practices also take place on a regular basis. As the above statistics indicate, these measures have already had a positive impact.

At the legislative level, the Commission has introduced provisions to address such problems in the revision of Regulation 2342/2002 adopted in August 2006 and in May 2007(7). In particular, the following measures should be highlighted:

  • Possibility to use a single time-limit for approval of a report and for the payment linked to it. This practice will encourage a parallel examination of financial and operational aspects(8);
  • Easing of the use of lump sums and flats rates, which avoids time consuming and cumbersome checks for standardised actions/costs(9);
  • Introduction of a maximum period of time for the examination of the admissibility of the request for payments(10);
  • As from 1/1/2008, payment of interest for late payments is automatic and, in principle(11), no longer conditional upon the presentation of a request for payment(12);
  • Report to the Budgetary Authority on respect of payment time-limits and the management of suspensions aspects(13).

The results of these measures will be evaluated in the forthcoming reports that the Commission will have to prepare for the Budget Authority.

As far as the payment of interest for late payments is concerned, the European Commission has had to deal with limited requests over 2005-2007.

Table 2: Number of requests for interest for late payments and amount of interest

 

2005

2007

Number of requests

149, i.e. 0.11%

136, i.e. 0.16%

Amount of interest paid

EUR 230 736.58

EUR 378 211.57

The rules governing the payment of interest for late payments are clearly stipulated in the standard contracts and grant agreements used by the Commission. Beneficiaries should thus be aware of their right to claim interest for late payment.

The very limited number of requests for payment of interest could mean that beneficiaries have not paid sufficient attention to the clauses entitling them to claim interest or that they deliberately do not claim it, in particular if the amount is not significant or if they have submitted the supporting documents late(14). In any event, as indicated above, as from 1/1/2008, payment of interest will in principle be made without any prior request.

In conclusion, the Commission considers that the overall situation is constantly improving as showed by the statistical data.

This positive trend is expected to continue and improve as a result of the application of the targeted measures adopted by the Commission. The Commission believes that the new obligations requiring it automatically to pay interest for late payments and report annually to Parliament on compliance with time-limits are inevitably bound to strengthen transparency, efficiency and accountability in the management of deadlines. At the same time they will reinforce protection of the individual rights of the operators and solidify the existing partnership between the Commission and beneficiaries of EC funds.

These two new measures constitute a strong incentive and will provide an impetus for a more robust financial management. They will require continuous efforts from the Commission to comply constantly with high performance standards, assess the efficiency of its tools and take appropriate corrective measures to safeguard timely payments. The Commission's departments have been made fully aware of this new management environment and of the need to achieve better performance with regards to timely payments.

In light of the above developments, it is clear that the Commission is engaged with determination in addressing these challenges which will make it an ever more appealing partner for operators.

THE DECISION

1 The Ombudsman's own-initiative inquiry

1.1 The present inquiry concerning the issue of timeliness of payment by the European Commission follows an earlier one (OI/5/99/(IJH)GG), which was opened on 3 December 1999 and closed on 16 February 2001. I n his decision closing that inquiry, the Ombudsman reached the conclusion that the Commission had taken steps to tackle the problem that appeared to be satisfactory. He added, however, that he would consider opening a new inquiry if it should prove in the future that, notwithstanding these measures, late payment by the Commission continued to pose serious problems. Seven years later, and in light of a number of cases the Ombudsman had to deal with in recent years, it appeared to the Ombudsman that there was scope to launch a new own-initiative inquiry with a view to ascertaining what further measures had been taken by the Commission in this respect and whether there were still problems concerning timeliness of payments which needed adequate remedy. On 14 December 2007, the Ombudsman therefore opened the present inquiry.

1.2 In its opinion, which was submitted on 25 March 2008, the Commission presented a detailed account of the situation and of the measures that had been taken in this field.

1.3 The Ombudsman notes that it follows from the information provided by the Commission that late payment continues to constitute a serious problem. According to this information, in 2007 there were delays involving 22.57% of all payments made by the Commission. This means that delays occurred in more than one out of five cases. It should also be taken into account that the average delay amounted to 47.98 days. The Ombudsman further notes that the figures for 2007 show that, whereas the delays which occurred concerned 22.57% of all payments, these payments constituted only 11.52% of the total value of payments. It would thus seem that delays are a particular problem as regards payments involving small or relatively limited amounts. Given that it appears fair to assume that claims for payment by individual citizens or small and medium-sized undertakings normally fall into this category, delays in payment would thus appear to be of particular relevance to the very persons that are most in need of being protected against the negative results issuing from delays in payment.

1.4 The Ombudsman considers that the present situation is thus clearly unacceptable and needs to be improved considerably and rapidly.

1.5 However, the Ombudsman is pleased to note that the Commission appears to have understood the seriousness of the situation and that measures have been taken to combat the problem. He considers that the measures to which the Commission has referred in this context, both as regards the administrative and the legislative level, are clearly useful and likely to lead to improvements.

1.6 As regards administrative measures, the Ombudsman takes the view that the Commission's decision to consider compliance with the time-limits for payments as an indicator when assessing the performance of its staff is particularly relevant in this context.

1.7 As regards legislative measures, the modification of Article 106(5) of Commission's Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities(15) ("Regulation 2342/2002") needs to be highlighted in particular. According to the amended version of this provision, and as from 1 January 2008, interest shall be paid automatically where payments are delayed, and its calculation will be based on the period "elapsing from the calendar day following expiry of the time limit for payment up to the day of payment". The Ombudsman welcomes this change. In his view, this step, which clearly goes in the right direction, is likely to provide a further, strong incentive for the services concerned to avoid delays in payments.

1.8 The Ombudsman notes that, as the Commission has stressed in its opinion, the figures available indicate that an improvement has already occurred. Indeed, whereas 42.74% of all payments made by the Commission were delayed in 2005, this figure had nearly been halved in 2007 (22.57%, see above). A marked, albeit much more limited improvement can also be noted as regards the overall value of the payments, in percentage terms, that were delayed, which diminished by more than a third (from 17.48% of the total sum of payments in 2005 to 11.52% in 2007). It should nevertheless be underlined that the improvement that has occurred so far is clearly relative. The Ombudsman is very much surprised, and not at all satisfied, to hear that in 2005, that is to say, several years after his first inquiry into the problem of late payment, nearly half the payments made by the Commission continued to be beset by delays. It should also be noted that whereas obvious progress was made between 2005 and 2007 as regards the number and the value of the payments concerned, hardly any improvement is noticeable concerning the average length of the delays. Above all, and as indicated above (see point 1.3), the figures provided by the Commission do not allow the conclusion that the improvements achieved so far have sufficiently benefited those persons who are most in need of protection against the negative effects issuing from delays in payments.

1.9 However, given that many of the measures adopted by the Commission in this context, and in particular those that resulted in changes of Regulation 2342/2002, appear to be comparatively recent, the Ombudsman considers that it is too early to assess the impact that they will have on the situation. In the Ombudsman's view, the best way to proceed is thus to close the present inquiry and to open a new own-initiative inquiry in early 2009, when figures for the Commission's performance in 2008 will be available. On the basis of these figures the Ombudsman will then be able to decide whether the Commission has taken all appropriate steps to combat delays in payments or whether further action is necessary.

1.10 It may be useful to point out that this review will also consider the effects of the revision of Article 106(5) of Regulation 2342/2002. In this context, it should be noted that the second sub-paragraph of this provision provides that interest shall not be paid automatically "when the interest calculated in accordance with the provisions of the first sub-paragraph is lower than or equal to EUR 200". In such cases, interest will be paid to the creditor "only upon a demand submitted within two months of receiving late payment." For these cases, the revision has thus not brought about any change. It appears fair to assume that claims for payment by citizens or small and medium-sized undertakings will normally fall into this category(16). In his letter opening the present inquiry, the Ombudsman asked the Commission to provide him with its views on whether the need to present a claim for interest and to do so within two months upon receipt of the delayed payment might not dissuade certain of its partners from insisting on their rights. The Commission has not submitted a precise answer to this question. This issue will therefore form part of the new own-initiative inquiry to be opened in early 2009. In the Ombudsman's view, it cannot be excluded that thoroughly addressing the negative effects of late payment, in particular as regards citizens and small and medium-sized undertakings, may make it necessary to reconsider the threshold foreseen in Article 106(5) of Regulation 2342/2002.

2 Conclusion

2.1 In view of the above, the Ombudsman considers the present inquiry should be closed.

2.2 A new own-initiative inquiry will be opened in early 2009, when figures for the Commission's performance in 2008 will be available.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS


(1) OJ 2002 L 357, p.1.

(2) Pursuant to Article 106(3) of Regulation 2342/2002, the time allowed for approval may not exceed (a) 20 calendar days for straightforward contracts relating to the supply of goods and services, (b) 45 calendar days for other contracts and grant agreements and (c) 60 calendar days for contracts and grant agreements involving technical services or actions which are particularly complex to evaluate.

(3) See Article 87 of Regulation (EC) No 1083/2006 of the European Parliament and of the Council laying down general provisions on the European Regional Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 (OJ L 210, p. 25).

(4) Expressed as a percentage of all payments.

(5) Expressed as a percentage of all payments.

(6) Net delays.

(7) Regulation 2342/2002 was last amended by Regulation (EC, Euratom) No 478/2007 of 23 April 2007 (OJ L 111, p. 13).

(8) Article 106(3) of Regulation 2342/2002 (as amended).

(9) Article 181 of Regulation 2342/2002 (as amended).

(10) Article 106(1) of Regulation 2342/2002 (as amended).

(11) With the exception of small amounts (EUR 200 in total or less).

(12) Article 106(5) of Regulation 2342/2002 (as amended).

(13) Article 106(6) of Regulation 2342/2002 (as amended).

(14) In 2007, more than one third of the total amount of interest was paid to two energy suppliers.

(15) OJ 2002 L 357, p.1 (as last amended by Regulation (EC, Euratom) No 478/2007 of 23 April 2007, OJ L 111, p. 13).

(16) On the basis of the interest rates applicable as of 1 June 2008, the maximum rate for the caluculation of the interest foreseen in Article 106(5) would be 11.19%. On the assumption that the delay in a given case corresponds to the average delay witnessed in 2007 (i.e., 47.98 days), a creditor would need to have a claim against the Commission that is considerably above EUR 10 000 in order to be entitled to more than EUR 200 in interest.