Ombudsmanul European

Strasbourg, 3 December 1999

Mr President,

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. By virtue of this provision, I hereby open an inquiry into the subject of late payment by the Commission. The reasons for the inquiry are explained in section 1 below. The scope of the inquiry is defined in section 2. Section 3 sets out the procedure which the Ombudsman will follow, including the possibility of public participation in the inquiry.

1 The reasons for the inquiry

"A basic benchmark for good financial management is that the bills are paid on time."(1)

The Commission has identified late payment of its creditors as a persistent problem. In May 1991, the Commission set an overall time-limit of 60 days for payment to be made following receipt of an invoice. The 60 days is composed of 40 days for the authorising officer to validate and order the payment and 20 days for approval by financial control and for the accounting department to check and execute the payment.(2)

In June 1995, the Commission set a target that 95 % of payments should be made within 60 days and that in principle, payment should never take more than 90 days. Furthermore, authorising officers were instructed to inform the beneficiary of the payment within 25 days if there was a risk that the 60 day time-limit would be exceeded for any reason.(3)

The Commission returned to the issue of late payment in a communication dated 27 March 1996.(4) However, a further communication dated 10 June 1997 acknowledged that the situation had not improved. It also announced that, from 1 October 1997, the Commission will pay interest in cases where the 60 day time-limit is exceeded. The 60 day period is suspended if the Commission considers that the creditor has not produced the necessary documents, or that further checks are necessary. Furthermore, interest is only payable in the case of a contractual relationship where the contractor provides a clearly-identifiable service.(5)


Complaints to the Ombudsman

From the beginning of my first mandate as European Ombudsman, I have received complaints concerning late payment by the Commission. One such complaint, which involved a delay of seven months in paying fees and expenses to an expert, led the Ombudsman to make the following further remarks:

The European Ombudsman notes the Communication from Commissioners Gradin and Liikanen, in agreement with the President, concerning time-limits for payments by the Commission and interest on delayed payments (SEC (97) 1205, 10 June 1997) from which it appears that the Commission is seeking to reduce delays in making payments and proposes to pay interest when delays occur.

The Ombudsman will keep under review the situation as regards complaints against the Commission concerning late payment of fees and expenses, in order to consider whether it may be appropriate to envisage an own-initiative inquiry into the subject.(6)

The decision containing these further remarks was made in December 1997. In the two years since the decision was made, I have received an increasing number of complaints alleging late payment by the Commission. The complaints have concerned not only fees and expenses but other contractual payments, as well as grants and subsidies. One of the cases concerning grants led the Ombudsman to make the following critical remark:

Principles of good administration require that payments should be made within a reasonable time and that clear and understandable information should be provided, on request, about the causes of any delay. In response to repeated inquiries from the complainant, the Commission did not adequately explain why it needed a further three and a half months to issue payment, following a period of five and a half months during which it had sought further information on various aspects of the complainant's final report. Nor is it clear whether the approval of the payment referred to in the Declaration of the financial contribution means approval by DG XXIII, or by the Directorate General for Financial Control, DG XX. Moreover, the Commission does not appear to have informed the complainant when the final approval of the financial aspects of the project was given and when the 60 days period allowed for the payment to reach the complainant's bank account began to run.(7)

Twelve complaints made to the Ombudsman about late payment by the Commission are still under investigation and it remains to be seen whether the allegations in these cases are justified. However the number of complaints, as well as other cases brought to my attention by Members of the European Parliament, indicate that there is a widespread perception that late payment by the Commission remains a significant problem.


The effects of late payment

The Commission has proposed a Directive concerning late payment by undertakings and public authorities in the Member States.(8) It has explained that the economic rationale for the proposal lies in the fact that late payment threatens the survival of businesses and jobs and that one out of four insolvencies is due to late payment.(9) This argument also applies to the Commission. In addition, late payment by the Commission damages its reputation and, more generally, harms relations between citizens and the Union's institutions and bodies. These points apply not only to commercial transactions, but also to the payment of grants and subsidies.(10)

As noted above, since October 1997 the Commission is prepared to pay interest to creditors when the 60 day time-limit is exceeded, subject to certain conditions. This measure surely reduces the consequences of late payment for many contractors. However, some smaller businesses may not be able to survive cash-flow problems caused by late payment, whilst others may be able to do so only by borrowing at a higher rate of interest than that which is paid by the Commission.

The Ombudsman also notes that the payment of interest transfers the financial burden of late payment from contractors to the Community budget and hence to taxpayers. It is not obvious, therefore, that the provision for interest creates any incentive for the different Commission services to make payments in due time.

In general, therefore, it seems that whilst interest can reduce - but not eliminate - the adverse consequences of late payment, it does nothing to identify or tackle the underlying cause or causes.

 

2 The scope of the inquiry

The Ombudsman firstly requests the Commission to inform him of the steps which it has taken to identify and deal with the causes of delay in making payments to contractors and to the beneficiaries of grants and subsidies.

Secondly, it could help increase public understanding of the issue for the Commission to present an analysis of the continuing causes of the problem of late payment, together with an analysis of possible ways in which the problem could be dealt with. It would be useful for the latter analysis to distinguish between matters that could be dealt with administratively and those that would require action by the Community legislator.

Thirdly, the proposed Directive concerning late payment by undertakings and public authorities in the Member States notes that the "consequences of late payment can be dissuasive only if they are accompanied by procedures for redress which are rapid and effective." The Ombudsman has also received complaints in cases where the Commission has suspended the 60 day time-limit on the grounds that the documentation supplied by the contractor is incomplete, or that further checks are necessary. Furthermore, some complainants have alleged that they have not received adequate and timely information from the Commission about the documentation which they must produce in order to justify payment.

The Ombudsman therefore requests the Commission to inform him of the procedures for redress open to contractors in case of a dispute with the Commission about the adequacy of the contractor's performance, or of the documentation supplied by the contractor. The Ombudsman also requests that the Commission state whether it considers that the procedures for redress are sufficiently rapid and effective and whether improvements could be envisaged.

 

3 The inquiry procedure

The number of undertakings and citizens who may be affected by problems arising from late payment by the Commission is potentially very large. It therefore seems desirable to provide for the possibility of some public participation in the inquiry procedure. Furthermore, it is often claimed that undertakings may be unwilling to complain about late payment in their particular cases because they fear that their chances of being awarded future contracts will be damaged thereby. Public participation in the own-initiative inquiry could provide an opportunity for representative organisations to express general perspectives based on their members' experiences.

Public participation will be invited as follows. A copy of the present letter will be sent to representative organisations and will also be made available on the Ombudsman's website. Persons who may wish to submit observations relevant to the own-initiative inquiry will thus have the opportunity to do so. The own-initiative inquiry will not, however, deal with individual cases which could be the subject of complaint to the Ombudsman.

In order to facilitate public participation, I request the Commission to provide its opinion in all the official languages.

In view of the subject matter of the own-initiative, the European Ombudsman will also inform the Court of Auditors of the inquiry and invite it to submit an opinion, which may also be published on the Ombudsman's website.

I kindly request the Commission to send me its opinion before 31 March 2000.

Yours sincerely,


Jacob SÖDERMAN

cc Mr Eeckhout

(1) Commissioner Erkki Liikanen quoted in Commission press release IP/97/506, 10 June 1997.

(2) SEC (91) 1172.

(3) SEC (95) 1122.

(4) SEC (96) 564.

(5) SEC (97) 1205.

(6) Complaint 606/22.5.96/AH/UK/IJH, reported in the 1997 Annual Report, page 221.

(7) Case 440/98/IJH.

(8) See now Common Position (EC) No 36/1999 of 29 July 1999 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a Directive of the European Parliament and of the Council on combating late payment in commercial transactions, 1999 OJ C 284/1.

(9) Communication from the Commission to the European Parliament pursuant to the second subparagraph of Article 251 (2) of the EC-Treaty concerning the Common position of the Council on the proposal for a European Parliament and Council Directive combating late payment in commercial transactions SEC/99/1398 final - COD 99/0099.

(10) See the European Parliament Resolution on the damage caused by the Commission as a result of late payment, 1998 OJ C 34/379.