THE BACKGROUND TO THE COMPLAINT

1. The present complaint concerns the EC project NEWEMMSEC (Accompanying measures IST 1999-11922, 'the project'). The project was run by a consortium of five partners (the complainant, partner C., partner Q., partner A. and partner M.). The complainant, an English company, was the project coordinator. It submitted the present complaint on behalf of itself and partner A[1]. The project was governed by (a) the 'Accompanying Measures Contract' ('the Contract') of the Fifth Framework Programme for research, technological development and demonstration activities ('FP5'), as well as (b) its three Annexes, including Annex I 'Description of work' and Annex II, which contains the General Conditions.

2. As provided for in Annex I to the Contract, the project was a 'concertation project' aimed at (a) establishing and managing a strategic electronic business working group; (b) organising three annual workshops (conferences); (c) publishing the results of the workshops; (d) operating a web site; (e) publicising the workshops and (f) promoting contacts with industry. The three conferences were held over a period of three years from January 2000 to December 2002.

3. The total estimated eligible cost of the project was EUR 800 000; the Community was to contribute up to a maximum of this amount. The project funding was to support the planning and promotion necessary for the conferences (Annex I, point 9.1, section Method, in fine). The project also covered the organisation of the conferences (Annex I, point 13). The Commission was to fund the set up (organisation and promotion), and the industrial partners were to fund the actual events (the conferences) and to take the commercial risk that the revenue would cover the costs of the said events.

4. During the Contract period, two partners withdrew from the consortium, namely, partner C. and partner Q., the latter due to the company's bankruptcy. The final payment for both organisations was processed by the Commission, in order to end their contractual participation in the project. In accordance with the Contract, the final payments were transferred to the bank account of the complainant, who transferred the amount due to partner C., but not the amount due to partner Q.

5. From information obtained confidentially, the Commission became aware that the conferences appeared to have generated a financial surplus. Fifteen months after the project had ended, the Commission therefore requested an audit of the conference accounts. The consortium partners objected to this request, arguing that this 'audit' was outside the scope of the project. The Commission took the view that the amount of the financial surplus should be deducted from the project funding. In a meeting held on 26 November 2004, the consortium accepted (although with great reluctance) to provide the necessary figures to allow the Commission to calculate the actual expenses of the project. The partners then submitted a further report on 15 January 2005, which confirmed the project's final reports. From the figures provided, the Commission identified a profit of EUR 62 361. In mid-February 2005, the Commission requested further information, which was provided by the end of March 2005. No final payment appears to have been made by the Commission to date.

6. The complainant submitted six cost statements (Nos 1 to 6) to the Commission, covering consecutive periods of six months between January 2000 and December 2002. The amounts claimed were EUR 109 654 (cost statement No 1), EUR 30 259 (cost statement No 2), EUR 116 826.73 (cost statement No 3), EUR 91 599.31 (cost statement No 4) and EUR 10 321.15 (for both cost statements Nos 5 and 6).

THE SUBJECT MATTER OF THE INQUIRY

7. On 6 May 2005, the complainant complained to the Ombudsman that the Commission had acted improperly during and after the project term, and made three allegations:

(1) The Commission failed to fulfil its contractual obligations in relation to conflict resolution.

In this regard, the complainant referred to a conflict which arose in February 2001 between one of the partners of the project (partner C.) and the remaining four. As a result, the said four partners sought to remove partner C. from the project. The complainant wrote to the Commission regarding this in February 2001 and the other partners wrote to the Commission in April 2001. The Commission requested further information, which was submitted by the partners in July 2001. According to the complainant, repeated requests for action concerning this matter were made subsequently. However, it was not until 22 October 2002, shortly before the Contract ended, that the Commission issued a revised Contract, removing the partner in question. The complainant submitted, however, that at no stage did the Commission attempt to arbitrate. Additionally, the complainant submitted that the partner concerned withheld from the four other partners information vital to the continuation of the project. The complainant stated that when the other partners asked the Commission to obtain this information from the offending partner nothing was done. The consortium therefore had to undertake emergency extra work and incurred additional costs.

(2) There has been delay in the Commission's payments.

The complainant referred to the contractual provisions, according to which the payments had to be made within a maximum period of 60 days (2 months) from the Commission's express or implicit approval of the relevant project deliverables or documents. According to the complainant, however, the payments that were made were effected with a delay varying from 7 to 14 months; a detailed table contained in the complaint showed the alleged delays. It moreover alleged that the final payment (consisting of a 15 % retention) was still outstanding, 24 months after the final deliverables had been submitted and 28 months after the end of the project. In this regard, it claimed that the outstanding amount should be paid.

(3) The Commission has abused its power.

In February 2004, the Commission requested an audit of the conference income and expenditure, even though the Contract excluded the running of the conferences from the project and only covered the planning and preparation. According to the complainant, the Commission therefore had no right under the Contract to 'audit' these accounts. The complainant added that this request was not raised during the three years of the project, but only fifteen months after the project work had been completed.

8. By letter of 13 June 2005, the Ombudsman informed the complainant that the first allegation, namely, that the Commission failed to fulfil its contractual obligations in relation to conflict resolution, was inadmissible on the basis of Article 2(4) of his Statute. This Article provides that "[a] complaint shall be made within two years of the date on which the facts on which it is based came to the attention of the person lodging the complaint."

9. However, the Ombudsman asked the Commission to submit an opinion on the other two allegations and the claim, which he summarised as follows:

1. The complainant alleges that there has been delay in all payments (varying from 7 to 14 months) and that the final payment is still outstanding 28 months after the end of the project. The complainant claims the payment of the outstanding amount.
2. The complainant alleges that there has been abuse of power by the Commission because it demanded an audit of conference income and expenditure, that is, of items that were excluded from the Contract.

THE INQUIRY

10. The complaint and the further supporting documents sent by the complainant on 26 August 2005 were forwarded to the Commission for an opinion by 30 September 2005. On 28 September 2005, the complainant requested that the Ombudsman's final decision in its case should be forwarded to a lawyer it had contacted. The present decision will therefore be forwarded to the said lawyer.

11. On 7 October 2005, the Commission asked for an extension of the deadline for its opinion, on the grounds that it needed more time to take into consideration the supporting documents sent to it by the complainant. The Ombudsman accepted this request on 20 October 2005 and asked the Commission to provide an opinion as a matter of urgency. On 10 November 2005, the Commission informed the Ombudsman that its opinion would be delayed. In reply, the Ombudsman asked the Commission to send its opinion by the end of November 2005 at the latest. On 12 December 2005, the Commission informed the Ombudsman's office of a further delay in sending its opinion. The Commission finally sent its opinion on 5 January 2006. The complainant sent its observations on 28 April 2006.

12. On 14 June 2007, the Ombudsman sent a request for further information to the Commission. This request concerned the specific reasons accounting for the alleged delays in effecting the payments. The Ombudsman asked for a reply by 31 July 2007. On 16 July 2007, the Commission asked for an extension of the deadline for its reply until 30 September 2007. The extension was granted by the Ombudsman. On 11 September 2007, the Commission asked for a further extension until 31 October 2007. This extension was again granted by the Ombudsman. On 13 November 2007, the Commission asked yet again for an extension of the deadline until 15 December 2007, which was also granted. The Commission finally sent its reply to the request for further information on 13 December 2007 and the complainant sent its additional observations on 9 February 2008.

THE OMBUDSMAN'S ANALYSIS AND CONCLUSIONS

Preliminary remarks concerning the scope of the inquiry

13. The Ombudsman recalls that, according to Article 195 of the EC Treaty, he is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions or bodies". He considers that maladministration occurs when a public body fails to act in accordance with a rule or principle binding upon it[2]. Maladministration may thus also be found in connection with the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities.

14. However, the scope of the review that he can carry out in such cases is necessarily limited. In particular, he feels that he should not seek to determine whether there has been a breach of contract by either party, if the matter is in dispute. This question could only be dealt with effectively by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant national law and to evaluate conflicting evidence on any disputed issues of fact.

15. In cases concerning contractual disputes, he is justified in limiting his inquiry to examining whether a Community institution or body has provided him with a coherent and reasonable account of the legal basis for its actions and why it believes that its view of the contractual position is justified. If the contractual position of the institution or body is in fact justified, the Ombudsman will conclude that his inquiry has not revealed an instance of maladministration. This conclusion will not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction. The Ombudsman notes that, in the present case, Article 5(2) of the Contract provided that:

"[t]he Court of First Instance of the European Communities and, in the case of an appeal, the Court of Justice of the European Communities shall have sole jurisdiction to hear any disputes between the Community, on the one hand, and the principal contractors, on the other hand, as regards the validity, the application or any interpretation of this contract."

16. As regards the complainant's first allegation concerning the delays in effecting payment of the six cost statements and the outstanding payment, Article 2(4) of the Statute of the European Ombudsman provides that "[a] complaint shall be made within two years of the date on which the facts on which it is based came to the attention of the person lodging the complaint." In the present case, and in light of this two-year time limit, it would not be appropriate to inquire into the first two of the alleged delays, as the payments for cost statements 1 and 2 were made in February and December 2001 respectively, that is, more than four and three and a half years before the present complaint was lodged. The complainant should have been informed about the inadmissibility of this part of the allegation in the Ombudsman's letter of 13 June 2005, which also rejected the complainant's first allegation on the same grounds. The Ombudsman wishes to apologise to the complainant for this oversight.

17. In its observations on the Commission's reply to the further inquiries, the complainant stated that it was not seeking interest on the delayed payments made. It therefore appears that the only outstanding claim of the complainant in the framework of the present complaint is to receive the final payment and the outstanding interest on the final payment which, according to the complainant, has been due, in line with the Contract, since 18 July 2003. This claim for interest is new, because it was not made in the initial complaint, but raised in the complainant's observations of 28 April 2006. The complainant does not appear to have submitted a claim for this interest to the Commission, in accordance with the Contract. It therefore appears that no prior administrative approaches were made in relation to this claim. The Ombudsman will therefore not deal with this claim for interest in the framework of the present inquiry.

18. In its observations on the Commission's opinion, as well as in its observations on the Commission's reply to the Ombudsman's further inquiries, the complainant pointed out that the Commission had been inconsistent in its actions. This was because it had approved the final payments for two partners (C. and Q.), but not for the other three. The complainant had already raised this point in its initial complaint, not as a separate allegation, but in the form of what appeared to be a comment in the framework of its second allegation. In view of this, the Ombudsman concluded that the relevant point should not be considered as a separate allegation. The letter opening the present inquiry thus only asked the Commission to submit an opinion on two of the three allegations the complainant had made. The Ombudsman will therefore not deal with the said issue in the present decision. However, the complainant has the possibility to make a further complaint to the Ombudsman about this matter, after first making appropriate prior administrative approaches to the Commission.

19. In its observations and further observations, the complainant commented on the delays involved in the Commission's responses to the Ombudsman's letters. It pointed out that the Commission needed six months to reply to the four questions in the Ombudsman's letter of further inquiries and another six weeks to produce a table. It further stressed that the Commission had referred to a "slight delay" in this context. It is true that it took the Commission a considerable amount of time to send its opinion on the complaint and its reply to the further inquiries. The opinion was submitted more than 3 months after the deadline initially set by the Ombudsman; the reply to the further inquiries was sent more than 4 months after the deadline initially set by the Ombudsman. The Ombudsman regrets that such serious delays occurred. He understands very well the frustration of the complainant in this regard, moreover because the subject matter of the present inquiry was, precisely, alleged delays in making payments. However, the Ombudsman would like to point out that the Commission had duly asked for extensions to these deadlines and that these extensions were granted by him. It is true that a further delay occurred concerning the submission of the opinion, which was only sent on 5 January 2006, namely, more than a month after the extended deadline of 30 November 2005. It should be noted, however, that this delay was comparatively small, that the Commission informed the Ombudsman on 12 December 2005 that there would be some further delay, and that the Commission has made it clear that it regrets this delay. The Ombudsman will consider what further steps can be taken in the future to avoid a recurrence of such delays by the institutions when providing answers to the Ombudsman's inquiries.

A. Allegation of late payment and claim for payment

Arguments presented to the Ombudsman

20. The complainant alleged that there had been delays of 14 months in the payments of cost statements Nos 3, 4, 5 and 6 and that the final payment was still outstanding, 28 months after the end of the project. It also claimed the payment of the outstanding amount.

Arguments presented by the Commission

21. In its opinion, the Commission stated that the complainant's allegation was unfounded and referred in this context to the rules which apply to the payment of the Community's financial contribution, namely, Articles 3 and 4 of the General Conditions:

Submission and approval of the project deliverables (Article 4 of the General Conditions):

22. Each periodic report and corresponding cost statement (including the integrated cost statements), as well as each supplementary report have to be submitted to the Commission within two months of the end of the period covered by the report (Article 4(3), paragraph 1, of the General Conditions). The final report(s) and the cost statements for the final period, including the integrated cost statement, have to be submitted to the Commission within two months of the end of the project (Article 4(3), paragraph 2). If the Commission does not submit any observations on the reports within two months of receiving them, the project deliverables are deemed to be approved (Article 4(3), paragraph 4).

Payment of the Community's financial contribution (Article 3 of the General Conditions):

23. Payments have to be made within a maximum period of 60 days from the date on which the Commission approves, or is deemed to have approved, the periodic reports and the corresponding cost statements or other project deliverables (Article 3(1)(b)). The 60-day period may be suspended at any time by the Commission by notifying the contractors concerned that additional checks need to be carried out. The period will continue to run once the Commission has completed the additional checks (Article 3(1), paragraph 3). Payments may be suspended where the Commission suspects fraud or serious financial irregularity on the part of a contractor (Article 3(2)).

24. Upon the expiry of the period provided for, and without prejudice to the possibility of the Commission suspending the payments, the contractor concerned may claim interest, at the latest, within two months of receiving the late payment. This covers the period running from the day after the time-limit for payment until the date of actual payment (Article 3(1), paragraph 5).

25. On the basis of the above rules, the Commission emphasised that the figure concerning the delay indicated by the complainant was not correct, since it did not take into account all the relevant provisions of the General Conditions. The 60-day period for the approval of the project deliverables must be calculated from the date on which the Commission receives all the required documents and the 60-day period for payments must be calculated from the date on which the Commission approves or is deemed to have approved all these documents.

26. In other words, the Contract provided for a total period of four months for payments by the Commission, starting from the date on which it received all the required documents (and not from the date of their submission by the contractor). The Commission has two months to approve the project deliverables and another two months to execute payments. These periods could be suspended by the Commission in the event of a request for additional checks or supplementary documentation. Therefore, contrary to what is alleged by the complainant, the Commission cannot be considered as being in breach of its contractual obligations, simply because it executed a payment more than four months after the date of submission of the corresponding cost statement by the contractor.

27. The Commission pointed out that, in accordance with Article 4(4) of the General Conditions, it is entitled to withhold part or, exceptionally, all of the payments of the Community's financial contribution until the period covered by the next cost statement, in cases where the contractor fails to submit, within the deadline mentioned in Article 4(3) of the General Conditions (or in Annex I as relevant), a cost statement or a periodic report or any other project deliverable.

28. The Commission provided the following five reasons to explain the amount of time it had taken to analyse and process the cost statements and project deliverables.

1. The late transmission by the complainant of cost statements concerning all the reporting periods, and in particular periods 3, 4, 5 and 6. This was in breach of Articles 3 and 4 of the General Conditions. As explained above, these delays in the transmission of costs statements by the complainant had a direct impact on the date on which payments could be executed by the Commission. Only the complainant can be held liable for these payment delays.
2. The late transmission by the partners, in response to requests from the Commission, of further additional information needed to make an appropriate assessment of the costs claimed.
3. The need for Contract amendments to allow the Commission to pay both the new and the withdrawing partners. This caused a slowing down of the payments in process until the Contract was properly amended.
4. The assessment of allegations of financial irregularities and breach of contract. The Commission initiated an internal inquiry into those allegations. Further to this investigation, the Commission did not find any evidence of the alleged "irregularities and breach of Contract". However, this investigation slowed down the payments to the complainant and subsequently to the consortium partners.
5. The complainant's reluctance to cooperate, when the Commission investigated whether, as reported by some of the project's partners, the project had indeed generated profits.

29. In conclusion, the Commission stated that it had not unduly delayed payments, as alleged by the complainant. The delays mentioned in the table attached to the complainant's complaint, did not take into account the Commission's right to suspend payments until all the requested information had been made available. The Commission also noted that the complainant did not, at any time, claim interest for late payment.

30. As regards the final payment, the Commission sent a letter to the complainant on 3 May 2005, asking how the profit of EUR 62 361 realised by the consortium through the conferences would be allocated among the partners. Without this information, the Commission was unable to allocate the receipts to their actual beneficiaries, in order to then calculate the balance due to each partner and to process the final payment. On 28 July 2005, the Commission sent a reminder to the complainant, requesting that, after obtaining the consent of the project's partners, it provide its services with information on how the EUR 62 361 would be distributed between the partners. The letter also requested proof of the transfer of EUR 7 473.07 to Q.'s liquidator, which the complainant had (in the Commission's view, abusively) retained since August 2004. Instead of providing the requested figures, the complainant, in its reply of 26 August 2005, again disputed the "right of the Commission to audit the costs of the conference", thus returning to the position it held before the meeting of 26 November 2004. The complainant also highlighted the extra costs that the consortium had encountered in running the conferences and provided new cost figures from three of the project partners.

Arguments presented by the complainant

31. In its observations, the complainant stated that the Commission tried to justify its delays with several arguments. Its main argument, however, was that the Contract provided for a total period of four months for payments after receipt of all the required information. This was indeed so, but did not excuse delays in excess of that period of time. Moreover, the complainant pointed out that it had waited 37 months so far for the final payment, despite the fact that the Commission had received the closing statements on 18 March 2003. This meant that, according to the Contract, they should have been approved by 18 May 2003 and paid on or before 18 July 2003.

32. In a telephone conversation with the Ombudsman's office on 13 April 2007, the complainant indicated that the outstanding payment had still not been made.

Further arguments presented to the Ombudsman following his request for further information

Arguments presented by the Commission

33. In its reply to the Ombudsman's first question for more detailed information concerning the alleged delays in the payments concerning the various cost statements and the outstanding final payment, the Commission stated that, in its complaint, the complainant had produced a table which only indicated the alleged 'submitted' dates and the 'paid' dates, but did not provide any evidence to support these alleged dates. In many cases, the 'submitted' dates were also wrong, since the complainant only considered the date when it signed its own cost statements to be pertinent, disregarding the fact that it had to wait for the cost statements from the other partners for a considerable amount of time. A submission date could only be considered as valid if the package of documents submitted was at first sight complete, that is, if the cost statements from all partners, as well as the periodic reports were included.

34. The Commission attached to its reply its own table showing the dates for each payment and the periods concerned. It also enclosed documents to show that its services frequently needed to suspend the payments as documents were missing. The complainant was aware of the requests for such information because it was either asked to provide the information itself or informed in copy of the request sent directly to a partner. The complainant also knew that, as a consequence, these requests de facto delayed the payment process.

35. Where the documents were not complete, or where an amendment of the Contract was being processed, the Commission was unable to proceed to the payment of the cost statements. As a result, delays materialised until the missing information was provided or the amendments were signed.

36. As regards the final payment to the complainant, it had been blocked due to the new position adopted by the complainant in August 2005. Following the meeting of 26 November 2004, an agreement was reached between the parties on the basis of which the complainant was to provide additional information. A detailed calculation was made by the Commission's services and sent to the complainant on 3 May 2005. Contrary to the Commission's expectations, the complainant did not react to the Commission's letter. In its letter to the Commission of 26 August 2005, the complainant, in contradiction with its previous agreement, effectively reopened the discussion from its starting point, claiming that new costs should be taken into account. Therefore, no final payment could be processed until the case was clarified.

37. In its reply to the Ombudsman's second question, namely, whether the complainant had been informed of the delays caused by an investigation into allegations of financial irregularities and breach of contract, the Commission stated that, due to the late submission by the complainant, the cost statements for periods 3 and 4 were processed simultaneously, as requested by the complainant. The processing of these cost statements was delayed by the request, made by the complainant and the other partners, to remove partner C. from the project without its prior consent. This procedure needed to be investigated by the Commission to ensure its fairness. On this issue, several letters were exchanged between the complainant and the Commission. The complainant was well informed about the delays incurred by this discussion. The amendment was signed on 3 December 2002, and it was only from this date that the cost statements for periods 3 and 4 could be processed.

38. Furthermore, following information obtained from a partner, an investigation into an allegation of financial irregularities was launched in early 2003. This involved an internal analysis of the case, on the basis of documents in the Commission's possession. To ensure the necessary confidentiality which the said partner was entitled to expect, the Commission did not inform the complainant about the investigation. The complainant was nevertheless aware of the fact that not distributing to the partners the funds already received from the Commission prevented the latter from making further payments. Following the restatement by the partner of the said allegations to OLAF on 26 June 2003, OLAF opened an investigation. However, on 11 December 2003, OLAF decided not to pursue the investigation. An internal analysis by the Commission's services was then needed to assess the legality of the payment for periods 5 and 6. This explains the further delay. The payment was processed on 5 November 2003 and was ready to be transferred, but was suspended until 21 April 2004. The complainant was fully informed of this further investigation, since on 22 March 2004 he was asked to provide additional information in this regard.

39. The Commission further noted that, in order to gain time on payments, the complainant should have submitted the cost statements for period 3 on time. Its failure to do resulted in a 9 month delay. The Commission never objected to the reasons the complainant invoked to explain the late submission, and dedicated its best efforts to processing the file.

40. In reply to the Ombudsman's third question concerning the Commission's request for information on the allocation of the financial surplus among the partners, the Commission stated that this issue was mentioned during the meeting of 26 November 2004, at which the complainant was present. During this meeting, the Commission indicated that it had identified an amount which could be considered to constitute a surplus and that it intended to deduct this amount from the Community funding. The Commission then asked the complainant how the profit would be distributed among the partners. Instead, the complainant focussed the discussion on the right of the Commission to assess the conference accounts. The complainant and the other partners agreed to provide new figures on the expenses for the calculation of the surplus. During the meeting, it was emphasised that the submission of this additional information was a preliminary condition for effecting the final payment. The complainant was therefore well aware that, if a surplus were to be established, information on the allocation of this surplus among the partners would be necessary in order to calculate the accurate costs for each partner. Instead of providing the requested information in its letter of 26 August 2005, thus paving the way to the final payment, the complainant reopened the whole discussion and therefore blocked any progress towards making the final payment. In so acting, the complainant effectively ended the agreement reached between the consortium and the Commission.

41. As regards partner Q., the Commission stated that the Contract required that the coordinator transfer to the partners without delay the amounts it received from the Commission. By e-mail of 20 May 2004, the complainant recognised that it was still holding an amount for partner Q. for periods 5 and 6 and indicated "that the transfer will occur within a few days". However, this transfer was never carried out. On 15 July 2004 and 24 February 2005, the Commission requested the complainant to transfer the amount it unduly kept to the liquidator of Q. The complainant reacted by letter, which was received by the Commission on 4 April 2005. In that letter, the complainant attempted to subject the Commission to extra conditions and requirements before transferring the amount due to the partner. Such conditions were unacceptable to the Commission, since they were in contradiction to the Contract. The complainant could not impose new conditions before transferring the amount due to partner Q. By letter of 28 July 2005, the Commission reminded the complainant of its obligation, arising from the Contract, to pay the liquidator. In order to clarify the position, this letter combined the two remaining issues at stake, each of which prevented the Commission from proceeding with the final payment. The Commission also stated that this letter of 28 July 2005 was the letter which, in its letter of 3 May 2005, it had announced to be sent.

42. Following the complainant's reply of 26 August 2005, the Commission considered that it was not useful anymore to send a new letter to the complainant, which would have been the fourth one on the same issue, since the complainant had cancelled the agreement which could have allowed the final payment to be made. Without the information requested from the complainant, the Commission was not in a position to calculate the final figures for each partner and to propose a final payment. Since the complainant maintained its position, it would not have been useful to exchange further letters in the absence of any progress on the issue.

43. The Commission concluded that all of its payments had been processed on time. In reaching its conclusion, it had taken into account all of the information provided by the consortium and the various events which occurred during the course of the project, in particular, the amendment of the Contract and the suspicion of financial fraud. The Commission stated that if the final payment was still pending, this was due to the fact that the complainant had rejected the Commission's proposal of 3 May 2005.

44. The Commission also pointed out that, on 19 September 2007, the complainant's lawyer and the Commission had had a meeting to explore how the file could be closed. It was agreed that additional information justifying costs would be submitted by the consortium partners, in order to allow the Commission to review the eligible amount for the project. Settlement of this dispute would pave the way to the final payment.

Arguments presented by the complainant

45. In its additional observations, the complainant clarified a possible misunderstanding by pointing out that there were two budgets. The first was the project budget, which was completely funded by the Community. In the framework of this budget, the partners claimed reimbursements by submitting cost statements. The business plan for this project stated that Community funding would be provided only for the set up; the conferences were to be run on a commercial risk basis. The second budget (one for each conference) was the sole responsibility of the partners, who had to estimate earned income against possible costs.

46. Instead of replying to the Ombudsman's first question, the Commission questioned the dates put forward by the complainant. In this regard, the complainant pointed out that the Commission had not questioned the said dates in its initial opinion. Of the enclosures to the Commission's reply, only eight related to requests for further information on the cost statements. None indicated any serious problems. These could hardly justify the Commission's comment that errors and omissions had systematically occurred. The complainant also pointed out that the Commission referred to the receipt of progress or periodic reports. However, these reports, which were sent to the Commission's Project Officer, were not part of the Contract and had nothing to do with the cost statements. It was mischievous for the Commission to suggest that the receipt of these reports could alter the date of the submission.

47. The complainant stated that it was incorrect for the Commission to suggest that the complainant submitted cost statements without all the partners' statements included. The absence of just one partner's statement held up the submission of the cost statements for periods 3 and 5, which, with the Commission's permission and encouragement, were submitted along with the cost statements for periods 4 and 6 respectively. The delay concerning period 3 was caused mainly by the Commission, because partner Q. was awaiting a ruling on revised personnel rates. The delay concerning period 5 was the fault of the project, since one partner, which had to take over tasks from partner C., once the latter was removed as partner, needed to give priority to work-related tasks rather than to administrative tasks. These late submissions should not, however, have held up their subsequent processing.

48. With regard to the cost statements for periods 3, 4, 5 and 6, the Commission did not answer the Ombudsman's question, but repeated general reasons for the delays, namely, (i) the consortium's request that partner C. be removed from the project, (ii) the allegation of financial irregularities against the complainant, (iii) the complainant's reluctance to transfer the period 1 payment to partner C., and (iv) the complainant's reluctance to transfer the final payment to partner Q. Apart from the last issue, the Commission never informed the complainant of these reasons to justify the delays. It could therefore not use these arguments as reasons for not making payments. With regard to the request to have partner C. removed, the complainant pointed out that this request was first made in May 2001, on the Commission's advice, in separate letters from the other consortium partners. The amendment was finally signed in December 2002, so the Commission itself was responsible for the delay in removing partner C. from the project. Moreover, since it had authorised payments in this period (the payment of period 2 in December 2001), the Commission could not claim that this was a reason for not making payments. With regard to the allegation of financial irregularities, the complainant stated that, according to the Commission, this allegation was first made in September 2001; however, it was rejected by OLAF on 11 December 2003. During this time, the Commission paid for period 2 (in December 2001), and for periods 3 and 4 (combined, in June 2003). The Commission was thus responsible for the delay in investigating the charge and, since it had authorised payments in this period, it could not use the investigation as a reason for not making payments.

49. As regards the Commission's reply to the Ombudsman's second question, the complainant pointed out that the said reply addressed a different point. The Commission never suggested to the complainant that the consortium's request to have partner C. removed would delay payments. The complainant was certainly aware that the Commission was slow in complying with the request for the partner to be removed, but had not been informed that this would also delay payment.

50. As regards the allegation of financial irregularities, the Commission admitted in its reply that the complainant was never informed that this allegation was delaying payments. In fact, OLAF closed the investigation on 11 December 2003. This was more than two years after the allegation had first been made in September 2001 (the enclosures to the Commission's reply showed that the Commission was informed on 14 September 2001 about the allegation) and one year after the project had ended. The complainant was informally made aware of the fact that an allegation had been made and also of its source. The Commission stated that it appreciated that the allegation had been made out of spite by the partner whose contract was being terminated. This happened during a conversation in September 2002. But this was not given as a reason for delaying payments. The inquiry by the Commission was not launched until early 2003. It therefore took the Commission 15 months from September 2001 to begin an investigation.

51. As regards the Commission's reply to the Ombudsman's third question, the complainant stated that, at the meeting of 26 November 2004, the issue regarding the allocation of the surplus or the need for this to be known was never raised. The Commission's letter of 28 July 2005 thus introduced a new demand for information concerning the allocation of the EUR 62 361, which the Commission had assessed as profit. The complainant also stated that it would leave it to the Ombudsman to judge if the point made in its letter of 17 March 2005, namely, that the complainant was legally advised against making the transfer to Q.'s liquidator, was reasonable or not.

The Ombudsman's assessment

52. As pointed out above in paragraph 16, the Ombudsman considers that it would not be appropriate to investigate the alleged delays concerning cost statements 1 and 2. He will however investigate below the alleged delays concerning the payments for cost statements 3, 4, 5 and 6 and for the outstanding payment.

53. The Commission did not agree with the length of the delays as indicated by the complainant. On page 4 of its original complaint, the complainant included a table with an overview of the alleged delays. It appears, however, that the delays mentioned in that table were calculated on the basis of the time elapsed between the initial submission of the cost statements and the relevant payment. On the basis of this calculation, the complainant concluded that there had been delays of 14 months for the payments that had been made and an even more serious delay as regards the final payment. The complainant's calculation of the delays appears, however, not to take into account the rules for payment foreseen in Articles 3 and 4 of the General Conditions to the Contract. In its reply to the Ombudsman's further inquiries, the Commission enclosed its own, more detailed, table, which showed (i) the date of the initial submission of the cost statements, (ii) the date when the Commission considered to have received the complete submission of the cost statements, (iii) the payment deadline (four months calculated from the date of the completed submission) and (iv) the date of payment. Whereas the complainant's table referred to months, the Commission's table referred to exact dates.

54. As regards the possible justifications for the delays, the Ombudsman notes that, in its initial opinion, the Commission invoked five general reasons, namely, (i) the late transmission of the cost statements by the complainant for all the reporting periods, (ii) the late transmission by the partners of the additional information that had been requested, (iii) the need for amendments to the Contract in order to allow the Commission to pay both the new and the withdrawing partners, (iv) the need to assess allegations of financial irregularities and breach of contract, and (v) the complainant's reluctance to cooperate when the Commission investigated whether profits had been generated. The Commission initially provided these justifications in general terms, without setting out which of them it considered to be applicable to which of the particular delays. However, following the Ombudsman's further inquiries, the Commission provided more detailed information concerning these reasons and also indicated in its detailed table which of the reasons related to which payments.

55. Therefore, in order to examine whether there was maladministration by the Commission, the Ombudsman should establish (i) whether or not there was a delay, namely, whether payments were effected within the deadlines foreseen by the Contract, and (ii) whether, in case of delays, there were justifications for such delays.

56. The rules for payment are set out in Articles 3 and 4 of the General Conditions (Annex II) to the Contract. Article 3(1)(b) provides that "[p]eriodic payments shall be made within a maximum period of 60 days from the date on which the Commission approves or is deemed, in accordance with Article 4(3), fourth subparagraph, of this Annex, to have approved the periodic reports and the corresponding cost statements, or other project deliverables" (emphasis added). Article 4(3), fourth subparagraph, provides that "[i]n the absence of observations by the Commission, the project deliverables shall be deemed to be approved within two months of their receipt" (emphasis added). On the basis of the joint reading of the above two articles, the Ombudsman concludes that, in normal circumstances, the Commission disposed of a maximum of four months between the receipt of the periodic reports and the corresponding cost statements for making the payments. There could therefore only be delay if payments had not been made, either within 2 months of the approval of the periodic reports and cost statements, or within 4 months of their submission by the complainant and the other partners. In its additional observations, the complainant argued that the submission of the progress or periodic reports was not part of the Contract and could not be used as an argument by the Commission to explain delays. It should however be pointed out that, as clearly mentioned in Article 3(1)(b) of the General Conditions, the payments to be made by the Commission were dependent on the submission of the "periodic reports and the corresponding cost statements, or other project deliverables" (emphasis added). The complainant's argument that the submission of the progress or periodic reports was not part of the Contract must therefore be rejected. The progress report for period 4 and the progress reports for period 5 and 6 were submitted, respectively, two weeks and one and a half months after the initial submission of the cost statements. However, it appears from the Commission's table that the time taken by the Commission to make the payments was due not to the allegedly belated submission of the progress reports, but to other reasons which will be examined below.

57. In the present case, it appears that, according to Article 4(2) of the Contract, "[t]he periodic and final report(s), the corresponding cost statements, including each integrated cost statement, as well as each summary statement of amounts transferred to the principal contractors by the coordinator shall cover successive periods of 6 months from the project commencement date" (emphasis added). Therefore, given that, according to Article 2(1) of the Contract, the project started on 1 January 2000 and terminated 36 months later on 31 December 2002, the Ombudsman notes that periods 3 and 4 covered respectively January-June 2001 and July-December 2001, whereas periods 5 and 6 covered January-June 2002 and July-December 2002. According to Article 4(3) of the General Conditions, "[e]ach period report and the corresponding cost statements, including the integrated cost statement (...) shall be submitted within two months of the end of the period covered by the report" (emphasis added).

58. On the basis of these provisions, the Ombudsman concludes that cost statements for period 3 and 4 had to be submitted respectively by 31 August 2001 and 28 February 2002, and cost statements for periods 5 and 6 had to be submitted respectively by 31 August 2002 and 28 February 2003. In accordance with the payment rules mentioned in the General Conditions, the payments then had to be made, in normal circumstances, four months after the submission of the costs statements at the latest, namely, by 31 December 2001, 30 June 2002, 31 December 2002 and 30 June 2003.

59. The Ombudsman will therefore assess below whether the payments were made within the deadlines. He would like to point out that the starting point for calculating alleged delays on the part of the Commission can obviously not predate the point in time when the complainant submitted all the relevant information.

Payment of the cost statements for period 3

60. The complainant submitted the cost statements for period 3, together with the cost statements for period 4, on 10 April 2002. Normally, they had to be submitted by 31 August 2001 and 28 February 2002 respectively. In its letter of 10 April 2002, the complainant apologised to the Commission for the late transmission of these costs statements. The complainant justified the late transmission of the cost statements by referring to problems internal to the consortium. More particularly, the complainant stated:

"I enclose the consortium cost statements for period three and four and apologise that these are late. As you are aware the main reason for the delay to period three claims was that [Q.] had problems with their personnel rates and did not submit their claims until December. Then [M.] took advantage of the delay to resubmit, in order to correct their disallowed claims for period two (...) I have not received the original of [M.]'s revised period three or period four costs statements and I understand that they sent them direct to you. Despite my request, I received no period three costs statement from [C.] (...) I hope that you find the cost statements for periods three and four in order."

It appears from this letter that the submission of the cost statements for periods 3 and 4 was incomplete and that the following information was missing: (i) the revised cost statements for periods 3 and 4 from partner M. (to be sent directly by the partner), and (ii) the period 3 cost statement from partner C. The Ombudsman will however limit his analysis to the argument invoked by the Commission, which only concerned the additional information requested from partner Q.

61. The payments for both periods 3 and 4 were made by the Commission on 5 June 2003, more than one year after the submission of the cost statements on 10 April 2002. As reasons for the alleged delay in the payment of the cost statement for period 3, the Commission, in its detailed table, first argued that the amendment to the Contract, needed in order to withdraw partner C., was signed on 3 December 2002. It was only as from this date that the cost statements for periods 3 and 4 could be processed. The Commission also referred to additional information which was needed in order to complete the submission of the cost statement, and which was sent by the partner Q. on 2 April 2003. It appears that the Commission therefore calculated that the four month deadline for the payment was 2 August 2003, whereas payment was made on 5 June 2003.

62. As regards the Commission's first reason for the alleged delay, namely, the procedure leading to the removal of partner C., the Ombudsman notes that this procedure was formally initiated in April 2001, when the four other partners sent separate letters to the Commission requesting the removal of partner C[3]. On 22 October 2002, the Commission informed the complainant that it would soon send the amendment to be signed by the four remaining partners. The amendment was finally signed on 3 December 2002. In its complaint, the complainant criticised the length of this procedure, which had taken more than a year and a half. According to the complainant, even though repeated requests for action had been made to the Commission, it had only been on 22 October 2002, shortly before the Contract ended, that the Commission issued an amendment to the Contract which removed the offending partner. As mentioned before, the Ombudsman considered that, in view of Article 2(4) of his Statute, he was not able to investigate this allegation.

63. In any event, although the request for having partner C. removed and the consequent amendment of the Contract certainly complicated matters, the Commission could not, in any case, have made payment for the cost statement concerning period 3 before the submission of the cost statements was complete and thus before all the information concerning the costs of the partners had been sent.

64. With regard to the Commission's second reason for the alleged delay, it appears that additional financial information from partner Q. was submitted to, and registered by, the Commission respectively on 2 and 8 April 2003, nearly a full year after the complainant initially submitted the cost statement in April 2002. More particularly, in its letter of 2 April 2003, partner Q. wrote "[a]s requested, please find attached the required information regarding personnel and costs for cost statement 3 of the above-mentioned project. Copy of [sic] related invoices are enclosed". Although this letter refers to a request ("as requested"), there is no proof in the file when and how the Commission made the request for additional information following the complainant's letter of 10 April 2002. In its reply to the Ombudsman's further inquiries, the Commission simply mentioned that, in general, the complainant was aware of requests for additional information, but did not indicate when and how it made such requests to the complainant or to the other partners.

65. Given these circumstances, the Ombudsman comes to the following conclusion: If the submission of the initial cost statement on 10 April 2002 was not complete, it was for the Commission, in accordance with Article 4(3), fourth subparagraph of the General Conditions, to make observations within two months and ask for the supplementary information. Although the Ombudsman asked the Commission for more detailed information as to when it requested the additional information, the Commission has failed to indicate when and how it made such a request. It is clear, however, from the wording of the letter of 2 April 2003 that such a request was, in fact, made. In the absence of further information, the Ombudsman is unable to conclude that the Commission failed to request this additional information in good time. Considering that the Commission received the additional information from partner Q. on 8 April 2003, it would appear that it had therefore until 8 August 2003 to make the payment. The payment, which was made on 5 June 2003, would therefore appear to have been made within the applicable deadline. Given these facts, and on the basis of the evidence available to him, the Ombudsman is unable to find an instance of maladministration by the Commission with regard to the alleged delay in effecting payment of the cost statement for period 3.

Payment of the cost statements for period 4

66. As already pointed out above, the Commission effected payment of the cost statements for period 4 on 5 June 2003, more than one year after the complainant initially submitted the cost statement on 10 April 2002. The Commission relied on three reasons to explain the amount of time it had taken it to make the relevant payment. First, it referred to the investigation of an allegation of financial irregularities. Second, it referred to additional information needed to complete the submission of the cost statement, which was submitted on 8 April 2003. It appears that, on the basis of that latter date, the Commission calculated that the four-month deadline for the payment was 8 August 2003, whereas the payment was made on 5 June 2003. Third, it referred to the need to amend the Contract in order to withdraw partner C. from the project.

67. As regards the Commission's second reason, which the Ombudsman will analyse first, the Ombudsman found no documents in the file to show when and how, after the initial submission of the cost statements for period 4, the Commission requested additional information. However, there is a very short letter from the Commission to the complainant, dated 25 April 2003, which acknowledges receipt, on 8 April 2003, of the "missing information regarding Subcontracting Costs, plus three invoices for period 4 01/07/2001-31/12/2001" (emphasis added). On the other hand, it should be pointed out that the Commission's registered letter to the complainant dated 13 June 2003 and entitled "Cost statements No. 4 for the period 01/07/2001 to 31/12/2001" informed the complainant that "the periodic Progress Report submitted to the Commission on 26/04/2002 for the above-mentioned contract and period has been examined and found in line with Annex I to this contract. The corresponding cost statements, which were received on 26/04/2002, have been processed" (emphasis added). Although this letter does not make any reference to additional information submitted after 26 April 2002, it would appear from the letter of 25 April 2003 that the submission of the cost statements was only considered complete by 8 April 2003. In these circumstances, it would therefore appear that the four-month deadline for the payment of the cost statements expired on 8 August 2003, as calculated by the Commission. The payment, which was made on 5 June 2003, appears thus to have been made within the applicable deadline. The Ombudsman therefore finds no delay with regard to the payment of the cost statement for period 4. No instance of maladministration is therefore found as regards this aspect of the complaint.

68. In view of this conclusion, the Ombudsman does not consider it necessary to analyse the two other arguments invoked by the Commission.

Payment of the cost statements for periods 5 and 6

69. As regards the cost statements for periods 5 and 6, which had to be submitted by 31 August 2002 and 28 February 2003 respectively, the Ombudsman notes that the complainant submitted them together on 14 March 2003. They were registered by the Commission on 18 March 2003. In its letter of 14 March 2003, the complainant apologised for the late transmission of these cost statements and referred again to problems internal to the consortium. More particularly, the complainant stated:

"I apologise that the statements for both periods are late. Period five was due on or before 31 August [2002], but, as I have earlier explained to you, we were not able to submit the statements because [partner A.] was unable to prepare them, being heavily involved at that stage with the final preparations for the Conference. I, therefore, decided to hold submission of period five and combine it with period six in the same way as we combined three and four last year. The statements for period six were due on or before 28 February [2003] so please, overlook the slight delay with these. The main culprit was again [partner A.] who has been heavily involved with other projects but some discussions and clarification were necessary with both [partner A.] and [partner Q.]. [partner Q.]'s claim is complicated by two factors: 1) According to them the Commission has now accepted their revised personnel rates. 2) They have redistributed the amended budget between categories. On the latter point they have already written to you so we shall not explain it further here. The first factor caused us a problem in completing the forms E2 in that the figures in the 'A' rows relate to 'costs accepted by the Commission'. We have therefore submitted two versions: one with the actual accepted costs and one with the costs that should be accepted with the newly approved personnel rates (...)".

70. The Commission paid the cost statements for periods 5 and 6 on 21 April 2004, a year and a month after their submission by the complainant. In order to justify the amount of time it had taken to make this payment, the Commission, in its detailed table, first referred to additional information which was needed to complete the initial submission of the cost statements, namely, the submission of the progress report on 2 May 2003, and additional information which the Commission requested on 23 October 2003. The Commission further referred to documents which, in its view, showed that the complainant was aware of the additional requests for information and of the need to provide proof to the Commission that it had paid the partners before being able to receive further payments from the Commission. Second, the Commission referred to OLAF's investigation of the allegation of financial irregularities, after that allegation had been reiterated to it by a partner on 26 June 2003. It stated that, on 11 December 2003, OLAF closed the investigation, but added that an internal analysis by the Commission was subsequently needed to assess the legality of the payments for periods 5 and 6. The Commission stated that the payment was processed on 5 November 2003 and was ready to be transferred, but was then suspended until 21 April 2004. The Commission referred to further additional information, which was requested on 22 March 2004. The Commission calculated that the deadline for the payment of cost statements for period 5 and 6 had been 22 May 2004.

71. As regards the first argument invoked by the Commission, it appears that, after the initial submission of the cost statements on 14 April 2003, it received the progress report from the complainant one and a half months later, namely, on 2 May 2003. Also, on 8 May 2003, the complainant sent additional financial information concerning partner Q, namely, the "original Summary Sheet for their cost statement for period five". This letter was received by the Commission on 26 May 2003. It would therefore appear that the provisional deadline for the payment should have been 26 September 2003. It appears, however, from the documents in the file that just one month after the Commission had received the additional information from partner Q. (on 26 June 2003), the allegation of financial irregularities by a partner was reiterated. As a result, OLAF opened an inquiry, which was finally closed on 11 December 2003. It further appears that during the same time, on 15 and 19 September 2003, the Commission sent two further letters to the complainant asking for additional information. In the first letter, the Commission asked for proof that the complainant had transferred the payment to partner C. and for the "updated E-3 form to be attached to Cost Statements for period 5 and detailing the transfer of money to the partners, including Cost Statements for periods 3 and 4". In its letter of 19 September 2003, the Commission again requested the complainant to provide proof of the transfer of the payment to partner C. Also, on 23 October 2003, the Commission requested, via e-mail, further additional financial information. In this e-mail, the Commission stated that "before finalising periods CS 5 and 6, we need the following clarifications: [partner A.] (period 2): Travel costs have been provisionally accepted subject to reception of a detailed breakdown table including the names of all the people having travelled to Madrid + dates of travels". There are no documents in the file showing whether and when the complainant submitted the above requested additional information. The Commission however indicated in its reply to the further inquiries that "the payment processed on 5 November 2003 and ready to be transferred was therefore suspended until 21 April 2004" (emphasis added). It therefore appears that, on 5 November 2003, the cost statements for periods 5 and 6 had been approved. On 11 December 2003, OLAF had also concluded its investigation. According to the General Conditions, the payment should therefore have been made within 60 days of the approval, that is, by 5 January 2004. On 5 January 2004, the complainant sent a letter to the Commission inquiring, among other things, about the delay concerning the payment of cost statements for period 5 and 6. In its reply of 22 March 2004, the Commission informed the complainant of its detailed examination of the cost statements and stated the following: "For your information the Commission services have examined in detail the cost claims related to period 5 and 6 of the project and covering the period January-December 2002. However, in order to reach a final conclusion on the amounts to be paid/recovered we need additional information, in particular on the direct income generated through the project." At this point, the Commission's correspondence concerned not only the cost statements for periods 5 and 6, but also the issue of the profits generated by the project and the effect of such profits on the final/outstanding payment, which is dealt with in the paragraphs below. It appears that, although the Commission had not yet received the financial information requested in its letter of 22 March 2004, it nevertheless proceeded to the payment of cost statements for periods 5 and 6 on 21 April 2004, just one month later. This would appear to indicate that the information which the Commission requested in that letter was necessary as regards the handling of the final payment, but not necessary for the payment of cost statements for periods 5 and 6. On the basis of the above, the Ombudsman comes to the conclusion that the Commission failed to provide reasons to justify the further delay in the payment of cost statements 5 and 6, which occurred from 5 January 2004 to 21 April 2004. This constitutes an instance of maladministration and the Ombudsman will make a corresponding critical remark below.

The outstanding payment

72. As regards the outstanding payment[4], the Ombudsman notes that, in its letter of 22 March 2004, the Commission informed the complainant (as well as the consortium partners, to whom a copy of this letter was sent) that, in order to reach a final conclusion on the amounts to be paid/recovered, it needed additional information concerning direct income generated through the project and pointed out that "any income directly generated from the project should be returned to the Commission". More particularly, the Commission stated in this letter that "[t]he documents, reports and cost statements you made available to [the] Commission services do not give a precise indication on the exact amount of these receipts, the total costs nor the whereabouts of the total surplus income". The Commission therefore asked the complainant to provide additional information on three items. In its letters of 21 June 2004 to the complainant's lawyer and of 9 August 2004 to the complainant, the Commission stated that it had still not received the financial information requested from the complainant in its letter of 22 March 2004, and proceeded to repeat its request. Also, a meeting with the complainant was held on 26 November 2004 concerning the outstanding issues, after which the complainant accepted to prepare a financial report, which it submitted to the Commission on 15 January 2005. In its letter of 3 May 2005 to the complainant, the Commission concluded that the conferences had generated a financial surplus and that it would "recommend to the operational services in charge of the project to proceed with the payment of the outstanding balance under consideration of the above mentioned project surplus." In its letter of 28 July 2005 to the complainant, the Commission referred to its earlier letter of 3 May 2005 and to the payment to which it would proceed, but stated that "[u]nfortunately, it appears that up to now you have failed indicating how this surplus should be split amongst the partners. Furthermore you are still retaining the amount of EUR 7 473.07 you should have transferred to [Q.], or now its liquidator, since August 2004. These elements prevent me from processing the final payment as foreseen. The Commission therefore stated that: "[i]n order to be able to finalize the payment for the NEWEMMSEC project, I urge you to take the appropriate steps with the consortium and send me as soon as possible: i) the proof of payment of the amount of EUR 7 473.07 to [Q.]'s liquidator, as requested the last time in my letter of 24 February 2005 (copy attached); and ii) the distribution of the surplus of EUR 62 361 between the partners after collecting their agreement." The Commission official added that "[a]s soon as I receive those documents, the final payment will be processed without delay". In its reply of 26 August 2005 to the Commission's letter of 28 July 2005, the complainant questioned the Commission's demand to send the requested financial information and pointed out that the Commission's earlier letter of 3 May 2005 did not ask for information on the allocation of the surplus and that, moreover, this request was not clear. The complainant also repeated its position that the Commission's earlier request of 22 March 2004, to provide additional financial information concerning the surpluses generated by the conferences, was outside the scope of the Contract.

73. The Ombudsman concludes from the Commission's letter of 28 July 2005 to the complainant that the Commission gave two reasons which prevented it from making the final payment, namely, the complainant's failure (i) to transfer the amount of EUR 7 473.07 to partner Q.'s liquidator and (ii) to provide information on the division of the surplus among the partners.

74. The Ombudsman would like to point out that, in the present inquiry he will only examine the reasons put forward by the Commission to justify its view that the final payment could not be made to date. He will not examine whether the Commission's view that EUR 62 361 needed to be deducted from the final payment was justified. The complainant remains free to make a further complaint concerning this substantive issue.

75. The Ombudsman will analyse below whether the Commission was entitled to request from the complainant information concerning (i) the transfer of the amount of EUR 7 473.07 to Q.'s liquidator and (ii) the division of the surplus among the partners.

The Commission's request for the transfer of EUR 7 473.07 to Q.'s liquidator

76. First, with regard to the Commission's request for proof of payment of the amount of EUR 7 473.07 to Q.'s liquidator, the Ombudsman notes that, already in its letter of 13 June 2003 to the complainant, the Commission had indicated that "[a]s soon as you receive these funds, you must forward the information concerning the payment of the costs statements to the relevant contractors and ensure that the funds are appropriately and promptly transferred in accordance with the terms of Article 2(1)(e) of Annex II [namely, the General Conditions] to the contract." In an e-mail of 20 May 2004 addressed to the Commission, the complainant indicated that it had received the payment for periods 5 and 6 and that the transfer to the liquidator of Q. "will occur within a few days. However, I shall confirm with you when that transfer is authorised with our bank". In a letter of 15 July 2004, the Commission again asked the complainant to transfer the amount of EUR 7 473.07 to Q.'s liquidator. However, in his letter of 7 February 2005 to the Commission, Q.'s liquidator informed the Commission that the amount had still not been paid to Q. and that no reason justified this delay. On 24 February 2005, the Commission therefore wrote a new letter to the complainant, referring to its earlier letter of 15 July 2004 and to Q.'s liquidator's letter of 7 February 2005. The Commission also asked the complainant to make the transfer to Q.'s liquidator, in the process referring to the complainant's obligation to do so in accordance with Article 2(1)(e) of the General Conditions. In a letter dated 17 March 2005[5], the complainant stated that it had every intention to transfer the amount to Q.'s liquidator, but that it was awaiting the outcome of the dispute between the consortium and the Commission and was legally advised that it would be unwise to make this payment until the matter was settled. In its reply of 3 May 2005 to the complainant, the Commission stated that a separate letter on this issue would follow shortly. In its reply to the further inquiries, the Commission indicated that its letter of 28 July 2008 was in fact the letter which it had announced in its reply of 3 May 2005. The Ombudsman notes that, in the letter of 28 July 2005, the Commission did not elaborate further on the issue, but merely reminded the complainant to provide proof of the transfer to Q.'s liquidator. According to the information available to the Ombudsman, the complainant has still not submitted proof to the Commission that this transfer has been made, although it indicated already in May 2004 that it had received the payments for cost statements 5 and 6, which had been made by the Commission on 21 April 2004.

77. According to Article 3(3) of the Contract, the Community's financial contribution for the project is paid to the coordinator, who then has to distribute it among the principal contractors. Article 2(1)(e) of the General Conditions provides in particular that "not being the beneficiary of payments intended for other principal contractors pursuant to this contract, [the coordinator] shall transfer to them within 30 days of receipt of the funds paid by the Commission the amount owing to them up to the maximum provided under Article 3(3), third subparagraph of this contract." The Ombudsman concludes that, by requesting the complainant to provide proof of this payment, the Commission was acting in accordance with the Contract. Although the Ombudsman understands the complainant's hesitation to forward money to Q.'s liquidator, without an assurance from the Commission that it would not claim back that money, the fact remains that the complainant has not invoked any provision in the Contract that could justify the retention of the relevant sum. The fact nevertheless remains that the complainant's failure to make the transfer was not in conformity with the rules of the Contract. The Ombudsman therefore finds no instance of maladministration by the Commission concerning this aspect of the case.

The Commission's request for information on the division of the surplus

78. Since it was demonstrated in the previous paragraph that the Commission was entitled to ask the complainant for information concerning the transfer of the amount of EUR 7 473.07 to Q.'s liquidator, and that the Commission was also entitled to take the view that the complainant's failure to do so prevented it from making the final payment, the Ombudsman no longer needs to examine the second reason invoked by the Commission for the fact that it could not proceed to the final payment.

79. The Ombudsman therefore finds no instance of maladministration by the Commission with regard to the alleged delay concerning the outstanding payment.

B. Allegation of abuse of power

Arguments presented to the Ombudsman

80. The complainant alleged that there had been an abuse of power by the Commission because it demanded an audit of conference income and expenditure, even though such a power was not contained in the Contract.

Arguments presented by the Commission

81. In reply to the complainant's allegation that the Commission had abused its power by asking for an audit of conference income and expenditure, and that the scope of the Contract was limited to the planning and the preparation of the conferences, but did not concern the running of these conferences, the Commission made the following comments:

The running of the conferences is part of the project

82. As provided for in the General Conditions of the Contract, part A, Article 1, point 8, "'[p]roject' means all the work referred to in Annex I of this Contract". Annex I to the Contract makes it clear that the objective of the project was the preparation, as well as the running of three workshops. The running of the workshops was proposed to be self-funded, without implying that it is not part of the project, as the complainant wrongly concluded.

83. For the sole purpose of funding, the Contract separated, on one side, "the planning and promotion involved in the events" (the workshops), which were to be funded by the Community and, on the other side, the "on site running costs (venue, meals and refreshments, printing of books and CD-ROM production etc)", which were self-financed out of the delegates' fees. This does not mean that the cost of running the events was outside the scope of the Contract. In order to avoid any ambiguity, the Contract made it clear that "[f]inancially, the project negotiates good value services, determines the fee level and structure, collects income from delegates, pays bills and keeps financial records" (emphasis added) - (Annex I to the Contract, point 9.1 Workplan/General description, section Method).

Eligible costs exclude any profit margin

84. Article 13 ('Eligible costs - general principles') of the General Conditions of the Contract states that eligible costs shall "exclude any profit margin". The consortium was well aware of the "not-for-profit basis" on which the project was built. In this respect, the Commission referred to the NEWEMMSEC proposal in order to highlight the context in which the Contract was concluded, and to provide some clarifications on the allocation of the funding. In the Commission's view such context envisaged community funding for the preparation of the workshops, and self-funding for running of them. This was borne out by the following provision: "This proposal seeks financial support for the planning, but not for the actual conferences. These are organised on a not-for-profit basis, with the objective to manage the conference budget so that income from delegates matches conference expenditure" (emphasis added) - (NEWEMMSEC proposal - B3 Objectives, last paragraph, page 4).

85. This is again indicated in a more detailed way in the NEWEMMSEC proposal, "B6 Project workplan" (page 9):

"The project funding supports the planning and promotion involved in the Conferences. It does not support the on site running costs (venue and audio visual hire, meals and refreshment's [sic], printing of proceedings and CD-ROM production etc.) as the Conferences are managed to be self-financing out of the delegates fees (...). Financially, the project negotiates good value services, determines the fee level and structure, collects income from delegates, pays bills and keeps financial records" (emphasis added).

86. Moreover, the "Project Risks" part of the same section of the proposal provides, in point 7, as follows:

"Surplus: The NEWEMMSEC conference is organised on a not for profit basis. Surpluses are minimised by continuously adjusting the conference budget to provide better facilities for delegates as the income allows (for example better quality menus for lunches). Any surplus will be carried forward to help future conferences. As an example, the surplus from the 1996 conference was used to buy extra copies of the book of the 1996 conference proceedings which were then given to delegates at the 1997 conference" (emphasis added).

87. The text of the proposal shows clearly that the complainant was aware of the financial issues involved in such a project. It is also clear that the financial issues of the project encompass the funding part, as well as the self-financing part as set out in the proposal.

The financial assessment carried out was made in accordance with the Contract

88. On 22 March 2004, the Commission asked for additional accounting information, following allegations of profit made in October 2003 and confirmed in January 2004. This was done in accordance with Article 3(1), paragraph 3 of the General Conditions of the Contract. The Commission had to ensure that the Community's financial rules applicable to this Contract were correctly implemented, and, in particular, that the partners did not realise any profits as a result of running the project (Article 13 of the General Conditions).

89. Furthermore, on several occasions during the running of the project, the complainant, as project coordinator, was reminded that the costs remained subject to further verification and possible adjustment, that payments would be treated as advances, that the results of an audit of the organisations in the project might require adjustments, and that actual costs had to be reported in the cost statement submitted for each period.

90. Finally, the consortium was well aware that it was not allowed to make any profit, as reiterated in the Commission official's letter of 2 October 2002 to the complainant: "(...) I therefore would like to draw your attention and consortium's attention on [sic] the fact that possible profit margin coming from the NEWEMMSEC project need to be reinvested in the same project or alternatively compensated with remaining project payments" (emphasis added). Given that the consortium's final report mentioned that "the Commission's contribution to the planning was not enough to pay for all the work involved", the profit margin generated by the conferences needed to be reinvested in the project (or compensated with remaining project payments). Consequently, the financial records of the conferences had to be analysed by the Commission, in order to allow the reinvestments made by the consortium in the project to be monitored.

91. The Commission pointed out that the complainant confirmed the consortium's knowledge of the non-profit rule and clearly accepted this fact in its letter of 5 January 2004: "the partners knew that the three Conferences had to be managed to be self-financing out of the delegate fees. (...) Any excess was reinvested to guarantee features and provide more and improved facilities". During the meeting with the consortium proposed by the Commission and held on 26 November 2004, the complainant accepted to provide the information requested by the Commission on the accounts of the three conferences, covering the costs and the receipts. It was only during this meeting that the consortium, after an exchange of arguments, was convinced and accepted to cooperate and to provide the requested figures within a month. The requested information was received on 15 January 2005 and updated on 4 April 2005. By letter of 3 May 2005, the Commission proposed to close the still pending financial issues. The Commission's final assessment, based on the figures provided by the consortium, identified a surplus of EUR 62 361 to be deducted from the still outstanding final payment. Following the Commission's request of 28 July 2005 to the complainant to indicate how the surplus would be allocated among the partners, the complainant, instead of providing the expected figures, reopened the discussion on 26 August 2005 and disputed the "right of the Commission to audit the costs of the conference". The blocking position of the complainant prevented the Commission from executing the final payment.

92. In conclusion, the Commission stated that it had not abused its authority in managing the project. On the contrary, it had always taken proportionate and adequate action, based on the legal and contractual framework in force and on the principles of sound financial management of public funds, enshrined in the Financial Regulation applicable to the general budget of the Communities.

Arguments presented by the complainant

93. In its observations, the complainant maintained its allegation that the Commission had abused its power. The complainant stated that, in order to delay (and to date refuse) paying its contractual obligations, the Commission had bullied the consortium by withholding the final payment. The Commission had also threatened to seek repayment of all project support, unless the consortium gave the Commission access to additional information which was contractually irrelevant and which the Commission was now attempting to use as an argument to unduly reduce the sums contractually owed by it.

94. The complainant stated that the partners had been forced to submit a report, the preparation of which created extra work. It pointed out that the partners had prepared and submitted this report under duress. The alternative was to seek outstanding payments through the courts but the partners were naturally reluctant to take this step. Overall the Commission refused to acknowledge four fundamental points:

The project philosophy was that the conferences were not funded

95. The complainant stated that the business model, contained in its proposal, envisaged that the Commission would provide kick-start financial support and the partners would take the commercial risk. This business plan was approved by independent evaluators and endorsed by the Commission. Only if the Commission had been willing to fund the conferences (and bear the economic risks thereof) could it have investigated the accounts. This, however, was not the case.

There is clear evidence that the surpluses were used in an effective way

96. The final report, approved in April 2003 by independent reviewers and the Commission, confirmed that all surpluses were used to provide 61 extra features, and to cover extra work and funding shortages resulting from a partner's withdrawal.

The Commission cannot use the rules which apply to eligible costs to monitor earned income

97. The complainant stated that, in order to justify an audit of the conference accounts, the Commission invoked the General Conditions, Part D (Auditing), which, in its view, only included one Article (Article 17), with two clauses[6]. Article 17(1) refers back to Article 3, entitled "The Community's financial contribution". Article 17(2) refers to "documentation referred to in Article 16" and Article 16 refers to "eligible costs" and "the costs and time reported in his cost statements". These articles therefore deal solely with costs submitted in the cost statements under Part C (Reimbursement of Costs), and do not cover project income.

98. The complainant stated that the Commission claimed that the conference accounts should have been part of the project's annual reports. However:

• they were not in the list of deliverables in Annex I and the Commission did not request that they be included in the list during the Contract negotiations, or at any time in the running of the project;
• no reference was made to the conference accounts in the Contract Amendment, issued by the Commission in October 2002 (two months before the end of the project); and
• three annual reports (of 2000, 2001 and 2002) were approved by the Commission and independent reviewers, and there was no suggestion at that time that they should have included the conference accounts.

99. In fact, the Commission had waited until March 2004 to demand the accounts. This was 15 months after the project had been closed (on 31 December 2002), 11 months after the independent reviewers had approved the final report, 11 months after the Commission was deemed to have approved the final report and the cost submissions, and nine months after the final payment was due.

Inconsistency: final payments were approved for two partners but not for the other three

100. The Commission was inconsistent regarding the extra work in that it made final payments to partners C. and Q., but not to the other three partners.

101. The complainant finally pointed out that Article 3(1)(c), paragraph 2 of the General Conditions states that "the final payment shall correspond to the difference between the total amount of eligible costs approved by the Commission and the amount of the initial advance and the periodic payments." There was no mention of adjustments for conference income. The Commission accepted that the partners had fulfilled the work specified in the Contract. It should therefore honour its own obligations and settle the final payment, plus the interest due since 18 July 2003.

Further arguments presented to the Ombudsman following his request for further information

Arguments presented by the Commission

102. The Ombudsman requested the Commission to comment on the complainant's remark that the conference accounts had never been questioned in twelve earlier conferences. In reply, the Commission stated that, in this specific case, there had been an allegation of profit made by the consortium in the management of a Community project. Such a situation, if confirmed, would have been in breach of the financial rules. Therefore, the Commission was obliged to inquire further and to retain any payment during its investigation until clarifications were achieved. The complainant's argument referring to earlier conferences was not relevant, since each project was independent and managed differently. It would not have been reasonable for the Commission to rely on the reputation of the partners to base its judgement on previous behaviour and to decide a priori that no inquiry was necessary. The Commission again rejected the allegation of abuse of power. It needed to ensure that any profit made by the consortium would be declared with the last funding request and also that the transfer of all previous Commission payments would be completed by the complainant before any further payment could be made.

Arguments presented by the complainant

103. In its additional observations, the complainant stated that it had run three previous conferences (in 1997, 1998 and 1999) for the same Commission department, but with different Commission officials. It had not had any problems in this regard. The Commission admitted that OLAF had concluded in December 2003 that the allegation (first made in September 2001) was a "non-case". The Commission's officials however chose to ignore OLAF's finding and pursued their own investigation. The Commission could, however, not rely on an allegation of profit, as this allegation had been dismissed by OLAF.

104. The complainant further stated that the running of the conferences had explicitly been omitted from the Contract, which made it clear that the conferences had to be run on a separate commercial basis. The conference budget was not part of the Contract; if the Commission had wanted it to be included, it should have taken the appropriate steps in 1999, before the project started. The Commission never showed any interest in the financial aspect of the conferences until it demanded a detailed audit in 2004, 15 months after the project had finished. This behaviour was totally unreasonable and constituted an abuse of power.

The Ombudsman's assessment

105. The Ombudsman notes that the allegation made by the complainant is that there was an abuse of power because the Commission demanded an audit of conference income and expenditure, which were allegedly excluded from the Contract. The provisions on auditing are contained in Part D of the General Conditions. Article 17(1) of the General Conditions provides that "[t]he Commission, or any representative authorised by it, may initiate an audit at any time during the contract and up to five years after each payment of the Community contribution, as referred to in Article 3(1), first subparagraph of this Annex". Article 17(3) provides that "[o]n the basis of the conclusions of the audit, the Commission shall take all appropriate measures which it considers necessary, including the issuing of a recovery order regarding all or part of the payments made by it."

106. The Ombudsman would however like to point out that an audit in the sense of Article 17(1) of the General Conditions appears to have never been carried out by the Commission. No correspondence in the file appears to refer to such an audit, nor did the Commission in its opinion or reply to the further inquiries mention that an audit had been initiated[7]. The Commission instead referred to an investigation (or internal analysis), by its services and by OLAF, into an allegation of profit and financial irregularities. The fact that no formal audit appears to have been initiated by the Commission is also confirmed by a reference to "a possible audit" in the minutes of the meeting of 26 November 2004 and by the statement in the Commission's letter of 3 May 2005, which refers to the possibility of a future audit by informing the complainant "that this financial assessment does not withstand the Commission's right to conduct a complete financial audit of the project NEWEMMSEC within the frame set by the contract". It appears that, instead of a formal audit in the sense of the General Conditions, the Commission, in its letter of 22 March 2004, asked the complainant to provide additional information concerning the profits generated by the conferences. It also appears that it is the complainant who considered the request by the Commission to provide the additional financial information as constituting an 'audit'.

107. Therefore, in order to deal with the complainant's second allegation, the Ombudsman shall verify whether, by requesting the complainant to provide the additional financial information on the profits generated by the conferences, the Commission abused its power.

108. Article 1 ('Scope') of the Contract provides that the contractors shall carry out the work set out in Annex I to the Contract. Annex I 'Description of Work' provides on pages 3 and 4 that the project will "organise three annual concertation workshops (...)" The Description of Work, on page 13, provides that "the project funding supports the planning and promotion involved in the events. It does not support the on site running costs (...) as the events are managed to be self-financing out of the delegate fees". Article 13(1) of the General Conditions ('Eligible costs - general principles') provides that eligible costs shall "exclude any profit margin" (emphasis added). The NEWEMMSEC proposal itself (of June 1999), on page 4, also indicated that "[t]his proposal seeks financial support for the planning but not for the actual conferences. These are organised on a not-for-profit basis, with the objective to manage the conference budget so that income from delegates matches conference expenditure" (emphasis added).

109. Article 3(1), third paragraph, of the General Conditions concerning the Community's financial contribution provides the possibility for the Commission to carry out additional checks, and Article 17(2) of the General Conditions provides that the Commission "may request that data be handed over to it in an appropriate form in order, for instance, to ascertain the eligibility of the costs".

110. The Ombudsman considers that the wording of the provisions of the Contract as such is not entirely conclusive as regards the issue being examined here. It is clear, however, that the parties to the Contract had agreed that no profit was to be made by the consortium from the project. It is further clear that the Community financing was to cover the costs for preparing the conferences and that the costs of the conferences themselves should be met by participants' fees. However, it is difficult to see how the Commission could ascertain that the consortium did not make any profit out of the project if one were to assume that it was not entitled to ask the complainant (and the consortium as a whole) for information concerning the costs and the income involved by the conferences as such. As regards the complainant's argument that the surpluses were reinvested in the project and that there was evidence for this, the Ombudsman notes that this argument (even if it were established) would not alter the principle that no profits were to be made. However, since this argument would appear to be relevant as regards the calculation of the profits allegedly made, the Commission could take it into account in the framework of its future discussions with the complainant concerning the final payment.

111. As pointed out by the Commission, it appears that the complainant's argument concerning the fact that twelve earlier conference accounts had not been questioned related only to these earlier conferences (which took place between 1997 and 1999). The Commission's judgement concerning these conferences could thus not simply be transposed to the conferences of the NEWEMMSEC project. The complainant's argument can therefore not be validly used to claim that the conference accounts of the NEWEMMSEC project could or should not have been investigated.

112. In its observations, the complainant argued that the Commission had further abused its power by bullying the consortium. In the complainant's view, the Commission did so by withholding the final payment and by threatening to seek repayment of all project support, unless the consortium gave its services access to the additional information it was looking for. The complainant further argued that it had complied with this demand under duress. It also submitted that, at the meeting of 26 November 2004, the Commission official who was acting as Chairman of the meeting "lost his temper and shouted" and that the report of the meeting did not record this. With regard to these arguments, the Ombudsman would first like to point out that, as indicated in the previous paragraph, the Commission's request for additional financial information concerning the surplus appears to have been justified. As regards the alleged bullying, the Ombudsman notes that the complainant referred in particular to the Commission's statements in its letter of 9 August 2004: "the Commission will seriously consider to terminate the contract (...) A contract termination on these grounds may entail a request for repayment of all or part of the Community's financial contribution".

113. The Ombudsman would like to underline that the phrase quoted by the complainant followed immediately after the phrase in the letter in which the Commission repeated its request to the complainant to provide, by the deadline of 15 September 2004, the financial records of the conferences. The reason for this renewed request was that the Commission had received no reaction to its earlier request for additional information, made in its letter of 22 March 2004 to the complainant, and its additional letter of 21 June 2004 to the complainant's lawyer. Given these circumstances, the Ombudsman considers that the Commission's reference to the possibility of requesting that the Community's financial contribution be repaid could not be considered as an act of bullying or a threat. As regards the alleged duress in connection with the submission of the report, the Ombudsman notes that the report in question is the 18-page report which the complainant submitted to the Commission on 15 January 2005, in response to the latter's request of 22 March 2004 for additional financial information on the surplus generated by the conferences. This was further to what had been discussed at the meeting of 26 November 2004. On page 2 of this report, the complainant reiterated its view that the Commission's request was outside the scope of the contractual terms, but that "in the interests of good will and understanding, the Consortium is prepared to meet the Commission's request". In the absence of any further proof of duress, the Ombudsman considers that no abuse of power in this regard has been established. As regards the complainant's statement that the Commission official lost his temper and shouted, the Ombudsman notes that the complainant did not provide proof of this. In the absence of such proof, and considering that no abuse of power by the Commission has been demonstrated, the Ombudsman considers that no further inquiries into this point are necessary.

114. On the basis of the above considerations, the Ombudsman finds no instance of maladministration with regard to the complainant's second allegation.

C. Conclusions

The Ombudsman finds no instance of maladministration by the Commission as regards the alleged delays in the payments of the cost statements 3 and 4 and in the final payment and as regards the second allegation of abuse of power.

On the basis of his inquiries into the first allegation in so far as it concerns the alleged delays in the payments of cost statements 5 and 6, the Ombudsman makes the following critical remark:

The Commission failed to provide convincing reasons capable of justifying the delay in the payment of cost statements 5 and 6 which occurred from 5 January 2004 to 21 April 2004. This constitutes an instance of maladministration.

Considering that the complainant indicated in its observations on the Commission's reply that it was not seeking interest on the delayed payments, the Ombudsman will not pursue a friendly solution in this regard.

The complainant, the complainant's lawyer, and the Commission will be informed of this decision.

 

P. Nikiforos DIAMANDOUROS

Done in Strasbourg on 16 December 2008

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[1] In its observations of 9 February 2008, the complainant however stated that the complaint was submitted on behalf of three consortium partners, including partner Q.

[2] See Annual Report 1997, p. 22.

[3] The file contains a copy of a Commission letter of 4 June 2001 referring to four letters from the other four partners, sent to the Commission between 3 and 9 April 2001.

[4] Article 3(1)(c) of the General Conditions provides that "the final payment shall correspond to the difference between the total amount of eligible costs approved by the Commission and the amount of the initial advance and the periodic payments." The Contract provided in Article 3 that the total eligible cost of the project was EUR 800 000 and that the "guarantee retention shall be 15 % of the maximum amount of the Community's financial contribution". The final payment concerns this 15 % guarantee retention.

[5] The letter annexed by the complainant to its observations is dated 17 March 2005. However, the same letter, enclosed with the Commission's reply to the Ombudsman's further inquiries, bears no date. It nevertheless contains the date of registration by the Commission, which is 4 April 2005.

[6] The Ombudsman would like to point out that Part D "Auditing" also contains a second Article, 18.

[7] In this context, it should be noted that Article 17(1) of the General Conditions mentions that "[t]he audit procedure shall be deemed to be initiated on the date of receipt of the relevant registered letter with acknowledgement of receipt sent by the Commission".