Decision of the European Ombudsman on complaint 847/98/(XD)ADB against the European Commission

Dear Mr B.,
On 5 August 1998 you lodged a complaint with the European Ombudsman in which you put forward that the European Commission has not honoured its commitment to co-finance a conference on public procurement which was organised in Dublin on 27/28 April 1995.
On 7 October 1998, I forwarded the complaint to the President of the European Commission. The European Commission sent its opinion on 15 February 1999 and I forwarded it to you with an invitation to make observations, if you so wished. I received your observations on 15 April 1999. I asked the Commission for an additional opinion which was forwarded to you on 27 September 1999 with an invitation to make observations. I did not receive any additional observations from your organisation.
I am now writing to let you know the results of the inquiries that have been made.

THE COMPLAINT

On 27 and 28 April 1995, the Irish Business and Employers Confederation (IBEC) on behalf of the Union of Industrial and Employer's Confederations of Europe (UNICE) organised a conference on European public procurement. IBEC successfully applied for funding to the European Commission. Two grants were awarded.
A first grant, awarded by Directorate General (DG) XV, amounted to 15.000 ECU and a second one, awarded by DG XXIII, amounted to 20.000 ECU. The contracts for these grants were respectively signed on 18 April 1995 and 27 December 1995.
After the Conference, IBEC requested the payment of the grants. Dissatisfied with the supporting documents handed in by IBEC the Commission considered that it could not pay.
IBEC considered that the supporting documents forwarded to the Commission complied with the requirements applicable to both contracts. Furthermore, the complainant put forward that the advance payment for the contract with DG XXIII had not been made, thereby increasing the losses even more.
IBEC therefore lodged a complaint with the European Ombudsman and made the following claims:
1. The Commission should have made the advance payment provided for in the contract with DG XXIII;
2. The Commission should pay the outstanding amounts increased by exchange rate losses as well as the interest due on the outstanding amounts.

THE INQUIRY

The Commission's opinion
The opinion of the European Commission on the complaint was in summary the following:
Two grants had been awarded by the European Commission, one by DG XV, and another one by DG XXIII.
The decision of DG XV to fund IBEC's project was based on its submission which showed an anticipated expenditure of 576.000 ECU and a shortfall of 156.000 ECU. It was made clear to IBEC that it had sole responsibility for the organisation of the conference, which could under no circumstances generate profit. The main conditions on which financial assistance was made available by DG XV to IBEC were contained in a mutual exchange of correspondence. No advance payment was foreseen. The contract (entitled "standard declaration") was signed on 18 April 1995.
The conditions for DG XXIII financial assistance were contained in a contract (entitled : standard declaration) signed by IBEC and returned to the Commission on 27 December 1995, once the event had already taken place (i.e. 27/28 April 1995). Unlike the contract signed with DG XV, the contract signed with DG XXIII foresaw a 60% advance payment. Given the uncertainty raised by the conference report and the supporting documents already handed in prior to the signature of the contract, the Commission decided to delay the advance payment.
The supporting documents provided by IBEC before the deadline agreed with DG XV did not respect the terms of the contract and revealed that the expenditures had been lower than foreseen. In order to verify the announced shortfall (178.448 ECU) the Commission invited IBEC to provide all the necessary supporting documents. The documents sent after the deadline revealed that due to a lower participation (208 instead of 400) the expenditure was lower than foreseen and that the staff costs increased substantially (40,64%).
Given these elements, and the delay in presenting the agreed documentation, the Commission, in accordance with the contract signed by IBEC, requested the supporting documentation for all expenditure items. Documentation was handed in on 19 July 1996 and 31 January 1997. However, IBEC admitted that it would not be possible to provide supporting documents to the full amount of declared expenditure.
All the supporting documents related only to 66,83% of the declared expenditure, and therefore the loss would amount to 52.832,47 ECU. However, the Commission considered that a part of these supporting documents was not acceptable. Furthermore IBEC had included VAT which according to its own declaration could have been partially recovered and therefore did not represent a cost.
Despite a meeting with IBEC representatives and an additional opportunity given on 15 May 1998, no reasonable conclusion could be found.
The complainant's observations
The European Ombudsman forwarded the European Commission's opinion to the complainant with an invitation to make observations. In his reply of 13 April 1999, the complainant maintained his claim and requested the payment of the grants on the basis of the loss evaluated by the Commission: 52,832.47 ECU.
IBEC in summary expressed the view that it had submitted all the documents requested by the contracts, and that it therefore did not respond to the Commission's ever increasing demands for supporting documents. Furthermore, IBEC blamed DG XV and XXIII for a lack of internal communication, stressing that IBEC could not be held responsible for the fact that reports sent to one DG were not communicated internally to the other one.
IBEC regretted that DG XV, unlike DG XXIII, had not accepted the explanations for the late submission of accounts which were delayed by practical problems.
Regarding the possibility to recover VAT, IBEC explained that it neither recovered VAT from the Irish Revenue Commissioners, nor charged VAT on the conference fee.

FURTHER INQUIRIES

The Commission considered that part of the supporting documents supplied by IBEC were not acceptable. The Ombudsman therefore asked the Commission to ascertain that IBEC had been informed of this (1). He also asked the Commission for an additional opinion on the actual amount of losses the Commission considered to be evidenced by acceptable supporting documents (2). Finally, he sought clarifications as to the recoverability of VAT (3).
In its additional opinion the Commission pointed out that:
(1) The expenditures supported by documents amounted to approximately 320.000 ECU. However only 40.000 ECU corresponded to expenditure actually invoiced to IBEC. On a meeting on 19 November 1997, and in a subsequent letter of 15 May 1998, IBEC had been informed that "any expenditure incurred by subcontractors, etc., should be invoiced back to IBEC". Given that this had not been done, 280.000 ECU remained unjustified.
(2) The expenditures covered by acceptable supporting documents (i.e. 40.000 ECU) combined with the revenue of the event, showed a substantial profit amounting to 230.000 ECU. Therefore, no grant could be paid to IBEC.
(3) The Commission's opinion on the recoverability of VAT was based on assertions of IBEC's representatives in a meeting of 19 November 1997 which were explicitly repeated in the Commission's letter to IBEC of 15 May 1998. The Ombudsman did not receive any additional observations from the complainant.
The Ombudsman did not receive any additional observations from the complainant.

THE DECISION

1 The payment of an advance provided for in the contract with DG XXIII
1.1 The complainant considered that an advance payment should have been made after the signature of the contract with DG XXIII. In the Commission's view this payment provided for in the contract was delayed because the supporting documents, already handed in before the signature, were not satisfactory.
1.2 According to Article 195 of the EC Treaty, the European Ombudsman is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions or bodies". The Ombudsman considers that maladministration occurs when a public body fails to act in accordance with a rule or principle binding upon it(1). Maladministration may thus also be found when the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities is concerned.
1.3 However, the Ombudsman considers that the scope of the review that he can carry out in such cases is necessarily limited. In particular, the Ombudsman is of the view that he should not seek to determine whether there has been a breach of contract by either party. This question could be dealt with effectively only by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant law and to evaluate conflicting evidence on any disputed issues of fact.
1.4 However, the Ombudsman considers that the scope of the review that he can carry out in such cases is necessarily limited. In particular, the Ombudsman is of the view that he should not seek to determine whether there has been a breach of contract by either party. This question could be dealt with effectively only by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant law and to evaluate conflicting evidence on any disputed issues of fact.
1.5 The Ombudsman therefore takes the view that in cases concerning contractual disputes it is justified to limit his inquiry to examining whether the 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 that is the case, the Ombudsman will conclude that his inquiry has not revealed an instance of maladministration. This conclusion will of course in no way affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.
1.6 In the present case, according to the contract signed by the recipient of the funds with DG XXIII, the payment of financial assistance awarded by the Commission depends on the justification of its use. The failure to justify the use of funds(2) can lead to a reimbursement of amounts unduly paid.
1.7 The Ombudsman considers that the purpose of an advance is to hand over funds in a simplified procedure at a stage of a project when, for practical reasons, it is impossible to justify their use. Justification however remains compulsory at a later stage.
1.8 The Ombudsman notes that in the present case the funded project had been carried out 8 months before the signature of the contract foreseeing an advance payment of 60%. The documents justifying the payment were available before the signature of the contract and therefore the simplified advance procedure became irrelevant. Making a payment and requesting its reimbursement at the same time would have been pointless. The Ombudsman considers that the Commission acted reasonably in checking the documents before the payment of the funds and in delaying the payment because of uncertainties raised by these documents. The Ombudsman's inquiry has revealed no maladministration in relation to this issue.
2 Payment of awarded funds refused further to a thorough check of documents
2.1 The complainant considered that the awarded funds should have been paid on the basis of the supporting documents requested by the contract, and which he considered to have supplied. The Commission was not satisfied with the documents handed in by the complainant and therefore decided to carry out thorough checks. Moreover, the Commission put forward that IBEC included VAT in its accounts while it had the possibility to partially recover it.
2.2 According to the contracts signed between the Commission and IBEC, the recipient had to transmit to the Commission a report on the use of the awarded funds, and either "an account statement certified by the person in charge of the body receiving the contribution, or a financial statement together with duly certified supporting documents indicating the nature and amount of each item of expenditure and the corresponding income (…)".
2.3 Further to the receipt of the agreed documentation, the Commission, in accordance with paragraph 3(3) of the contract, decided to carry out a thorough check of the supporting documents for all expenditure items. It found that IBEC could not supply supporting documents for all its expenditures, and that a substantial part was not invoiced to IBEC. The Commission informed the recipient accordingly and gave several opportunities to rectify the documents.
2.4 IBEC, claimed that it neither recovered VAT from the Irish Revenue Commissioners, nor charged VAT on the conference fee. However it did not contradict the Commission's assertions according to which IBEC itself, during a meeting with Commission officials, declared that it had the possibility to recover VAT.
2.5 It appears that the Commission has acted in accordance with the principles of sound financial management and complied with the applicable Financial Regulation(4). The Ombudsman therefore concluded that there is no evidence of maladministration as regards this aspect of the case.
3 Conclusion
On the basis of the European Ombudsman's inquiries into this complaint, there appears to have been no maladministration on the part of the European Commission. The Ombudsman has therefore decided to close the case.
The President of the European Commission will also be informed of this decision.
Yours sincerely
Jacob Söderman

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(1) See Annual Report 1997, pages 22 sequ.

(2) Declaration signed by the director of IBEC on 27 December 1995 paragraph 7 : " I, the undersigned [the recipient] (…) agree, should the statement of expenditure fail to justify the use of financial assistance, to reimburse, at the Commission's request, any amount unduly paid".

(3) Declarations signed by IBEC for both contracts paragraph 3 : " I, the undersigned [the recipient] (…) agree to checks on the use of the Community funds being made by the Commission and the Court of Auditors, in accordance with the Financial Regulation of 21 December 1977 (…)".

(4) Financial Regulation of 21 December 1977 (OJ L 356, 31.12.1977, p.1) applicable to the General Budget of the European Communities, as amended on 13 March 1990 (OJ L70, 16.03.1990, p. 1).