Decision of the European Ombudsman on complaint 1815/2005/BB against the European Commission

Strasbourg, 16 July 2007

Dear Mr X,

On 6 May 2005, Mr Y. made a complaint to the European Ombudsman on behalf of Mr Z. against the Commission. The complaint concerns the Commission’s refusal to pay the sum of EUR 72 707.50 under a service Contract.

On 10 June 2005, I forwarded the complaint to the President of the Commission.

The Commission sent its opinion on 20 September 2005. I forwarded it to Mr Y. with an invitation to make observations.

On 20 December 2005, the complainant sent his observations.

On 1 December 2006, the complainant informed me that you, as Director, are acting on his behalf.

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

I apologise for the length of time it has taken to conclude my inquiry into your complaint.

THE COMPLAINT

The complaint may be summarised as follows:

The Contract was signed between the complainant and the European Commission in June 1999 for a period of two years(1) and for a total amount of EUR 2 667 020. The main objective of the service contract was the delivery of a management programme at a hospital within the framework of a Community programme ("the Project"). The contract began in July 1999 when the first members of the Management Team ("MT") arrived in A.

In 2000, the local conditions changed in A. and the MT had to be evacuated. The complainant continued to pay the MT during its displacement to keep it from fragmenting. Upon its return to B. in December 2000, the MT completed the project objectives on time and within budget. The invoice for the period when the MT was evacuated has been settled by the Commission.

In February 2001, the complainant agreed with the local Minister of Health and the Commission Delegation in A. (the "Delegation") to recruit Ms H. to the post of Nursing Director to complete the implementation of the Nursing Plan for the Hospital. This change to the original arrangements was "ratified in meetings with the EC Delegation in [A.] at the EU [B.] office in the spring of 2001". Moreover, on 2 May 2001, the complainant agreed with Mr B. of the Delegation to prolong Mr C.'s supervision role as Administrative/Strategy Director "for a sustained period until the Contract Completion Report had been submitted to the Commission".

On 16 December 2003, the Commission informed the complainant that the amount claimed for the post of "Nursing Director" and "Administrative/Strategy Director", namely, EUR 72 707.50, could not be paid, as the contractual ceilings had been exceeded. This outstanding sum consists of two budget lines, namely, the fees for: (i) the Nursing Director (EUR 5 320) and (ii) the Administrative/Strategy Director (EUR 67 387.50). The Commission indicated that all other budget lines of the complainant's invoice had received operational and financial clearance and that, therefore, the payment of EUR 490 943.75 would be initiated.

By letter of 5 February 2004, the complainant wrote to the Commission regarding the outstanding sum of EUR 72 707.50 and requested a review of the decision not fully to reimburse the complainant. According to him, "[t]he business proposals and CVs for both substitutions were discussed in detail at the [Delegation] with both [Mr B.] and his colleague [Mr K.]". The complainant argued that he was repeatedly told at meetings and in telephone conversations with the representatives of the Delegation that funding for these tasks should come from "under spends" elsewhere in the project budget, provided that the overall cost of the contract did not increase. He argued that the representatives of the Delegation led him to understand that decentralisation of programme management meant that decisions were to be taken locally. The complainant maintained that he was entitled to rely on the Delegation's commitments and that, in his view, the Commission could not seek to deny its responsibility. According to the complainant, he "purposely did not submit a 'rider' to the contract", as it was unclear how long Mr C. would have to carry out his duties.

On 22 April 2004, the Commission replied that it had no legal basis to give a positive answer to the complainant's request.

In his complaint to the Ombudsman, the complainant made the following arguments, allegation and claim:

The complainant argued that the Delegation (i) agreed the arrangements under which the expenditure in question was incurred; (ii) held itself out to the complainant as having authority to give such agreement; and (iii) informed the complainant that no other permission was needed.

The complainant alleged that the Commission’s refusal to pay the sum in question is therefore inconsistent and unfair.

The complainant claimed that the Commission should reimburse the outstanding sum, that is, EUR 72 707.50.

THE INQUIRY

The Commission's opinion

The Commission's opinion may be summarised as follows.

In 2000, the MT of the Hospital was evacuated due to the change of the local conditions.

Therefore, in spring 2001 and further to meetings with the Delegation, changes to some financial provisions were agreed by both parties in order to increase the input from certain specialists and to decrease the input of others, while keeping the overall budget for the contract the same. These changes were included in Rider no 2 to the contract.

On 22 July 2003, a meeting took place in Brussels between the representatives of the Commission and the complainant to settle the final payments due. It was agreed that the final payment would be carried out upon prior submission of the supporting documentation for all the amounts claimed by the contractor.

On 30 July 2003, the Commission sent the minutes of this meeting to the contractor. In its cover letter, the Commission reiterated that its services expected, as agreed, the supporting documents and the invoice, upon receipt of which it would process the invoice with high priority.

On 10 November 2003, the complainant sent the supporting documents as well as the final invoice (n. 3), which amounted to EUR 563 651.25.

By letter of 16 December 2003 the Commission informed the complainant about the reduction applied to the submitted invoice. It stated that the amount claimed for the posts "Nursing Director" and "Administrative/Strategy Director" could not be fully paid, as the contractual ceilings had been exceeded. In this regard, the Commission submitted, inter alia, a copy of that letter.

On 22 December 2003, the Commission paid to the complainant EUR 490 943.75.

The difference between the amount initially claimed in the complainant's invoice of November 2003 (EUR 563 651.25) and the amount paid by the Commission in December 2003 (EUR 490 943.75) is therefore EUR 72 707.50.

As regards the complainant's argument that the Delegation agreed the arrangements concerning the appointment of Ms H. as Nursing Director and Mr C. as Administrative/Strategy Director, the Commission stated that the initial arrangements indeed took place in spring 2001. However, the Commission underlined that they were formalised by the signature of Rider no 2 to the contract which took place in September 2001. In fact, this Rider regarding the contract's duration and the reallocation of the provision of technical assistance was signed by the Commission on 12 July 2001 and by the complainant on 12 September 2001. This was done in compliance with Article 20 of the contract, which clearly states the following: "(...) any modification of this contract, including the annexes thereto shall take the form of a written rider concluded on the same terms as the contract; no oral understanding shall bind the contracting parties to that effect".

Consequently, the complainant was aware of all the contractual ceilings, and agreed to them with the signature of Rider no 2 to the contract some months after the asserted arrangements had been agreed. Furthermore, the conditions agreed in this Rider were recalled during the meeting for settling the contested payments, held in July 2003.

At the time the Commission verified the eligibility of costs and supporting evidence of the complainant's final invoice, the contractual ceilings remained the same as agreed in September 2001. In this regard, the Commission pointed out that there was no record authorising the overrun of contractual ceilings either at the Commission's Brussels headquarters or at the Delegation, which were the two addresses to which all correspondence relating to the execution of the contract had to be sent. In this regard, the Commission recalled that Article 5 of the contract stated that this correspondence "shall be addressed in duplicate to the Commission. In the case of the EC: EC Representation Office in [A.] (...) With copy to: Commission (...) Brussels".

The Commission concluded that the refusal to pay the claimed amount was thus neither inconsistent nor unfair, and considered that there was no basis on which the amount claimed could be granted.

The Commission stated that it had applied the existing contractual ceilings and refused partial payment of the invoice for the sake of good financial management. Accordingly, the complainant was informed of this by the Commission's letter of 16 December 2003 which provided him with an account of the legal basis justifying the refusal to pay the claimed amount.

The complainant's observations

In summary, the complainant maintained his complaint and argued that amendments were made, throughout the Project, to budget lines within the overall budget ceiling.

He stated that there was no doubt that the representatives of the Delegation had approved the changes which the Commission subsequently refused to refund.

He added that all parties recognised the need for great flexibility in the Project and that paperwork following on-the-ground actions was frequently absent from decisions made by the Commission. In this respect, he pointed out that he was forced to evacuate the MT without written permission from the Commission. The only contact he had during the evacuation was with Mr B. from the Delegation approving the evacuation of the team and indicating that he had the authority to make such contractual decisions about the project. The complainant was of the view that the above situation was an example that the Brussels headquarters was leaving major decisions to the Delegation and, furthermore, that the modus operandi for "the programme management adopted by the Commission was one of verbal instruction (often not followed up in writing)".

Therefore, although Rider no 2 was agreed in September 2001, the conduct of the Delegation demonstrated very clearly that it had authority to make decisions binding on the Commission.

The complainant stated that he relied on the authority and good faith of the Delegation. The complainant referred to the letter of 4 August 1999 from the Brussels Headquarters which clearly stated that the complainant was to "address all questions related to [his] contract" to the Delegation. Furthermore, the complainant underlined that, after the project began, all communications to the complainant came from the Delegation. The complainant maintained that a third rider would have resolved the situation and expressed his willingness to negotiate a post-contract third rider.

THE DECISION

1 Alleged inconsistency and unfairness

1.1 The complainant signed a contract with the European Commission in June 1999 for the provision of a management team ("the Hospital Team") for the Hospital within the framework of a Community programme ("the Project"). According to the complainant, given the change of the local conditions, he agreed with the Commission Delegation in A. ("the Delegation") (i) to evacuate the Hospital Team during the execution of the contract and, as a result, (ii) to replace the Nursing Director in place and extend the contract of the acting Administrative Director and, in addition, that "funding for these tasks should come from under spends elsewhere in the project budget provided that the overall cost of the contract did not increase". As a result, the complainant made a transfer of sums between budgetary lines agreed in the Contract. However, when in November 2003 the complainant submitted the final invoice to the Commission, the latter refused to pay for the budgetary lines concerning the positions of the Nursing Director and Administrative Director. The Commission explained that the amount claimed for the posts of Nursing Director and Administrative/strategy Director, that is, a total of EUR 72 707.50, could not be paid as the contractual ceilings for these items had been exceeded.

The complainant alleged that the Commission’s refusal to pay EUR 72 707.50 is therefore inconsistent and unfair.

He claims that the Commission should pay the above amount.

1.2 In summary, the Commission admitted that in spring 2001 the Delegation allowed some staff changes resulting from the need to evacuate the Hospital Team but denied that the budgetary transfer in question was allowed. The Commission stated in this respect that: "there is no record authorising the overrun of contractual ceilings [n]either at the Commission's Brussels headquarters [n] or at the delegation, being the two addresses where all correspondence relating to the execution of the contract had to be sent". (brackets added by the Ombudsman.)

The staff changes were formalised and relevant financial provisions were agreed by the Commission and the complainant in Rider no 2 to the Contract (September 2001) and discussed later on during a meeting between the complainant and the Commission (July 2003). As a result, the complainant was well informed about the contractual ceilings and the refusal to pay the claimed amount was thus neither inconsistent nor unfair.

The Commission applied the existing contractual ceilings and refused partial payment of the invoice for the sake of good financial management.

1.3 At the outset, the Ombudsman points out that the dispute between the complainant and the Commission concerns in fact the costs actually incurred by the complainant for the services of the Administrative Director and the Nursing Director which resulted in the overrun of the budgetary ceilings foreseen in the Contract for these posts, and not the fact that the complainant made staff changes in the composition of the Hospital Team due to the escalation of the conflict in B.

1.4 The complainant appears to submit, and the Commission in its opinion does not appear to contest, that the Delegation allowed him to make staff changes. Furthermore, he appears to submit that the Delegation allowed him to make corresponding budgetary changes without any written confirmation, to be followed by a written agreement with the Commission.

1.5 In this respect, the Ombudsman notes the Commission's statement that there are no (written) records in the Commission's headquarters or in the Delegation that could prove that this was a fact.

1.6 In light of the above, the Ombudsman is not convinced that, taking into account the time lapse of six years and the rotation of the staff of the Commission's Delegations abroad, there are at present any possible means available to him to verify whether such authorisation was in fact given in spring 2001. However, the Ombudsman takes the view that it is reasonable for the complainant to consider that, in the emergency situation arising from the escalation of the conflict in B., the Delegation in situ had the authority to resolve immediate problems concerning the execution of the contract related to a very vital activity, namely, the running of the Hospital. In light of this background, it is not excluded that the Delegation had to issue verbal rather than written decisions under the pressure of the circumstances.

1.7 Nevertheless, the Ombudsman points out that, on the basis of Article 20 of the Contract(2), in conjunction with Article 5 of the Contract(3), if the verbal authorisation in question were given, it would be unlikely that no written records as regards the authorisation in question would exist, provided that the parties complied with the Contract. In effect, pursuant to Article 20 of the Contract, any changes agreed verbally should be subsequently confirmed in writing and the Contract should then be amended. Furthermore, pursuant to Article 5 of the Contract, any correspondence concerning the execution of the Contract should be sent simultaneously to the Delegation and to the Commission's headquarters in Brussels.

The Ombudsman points out however in this respect, that, when dealing with complaints concerning contractual matters, the scope of the review that he can carry out is necessarily limited. If the matter is in dispute, the Ombudsman does 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 national law and to evaluate conflicting evidence on any disputed issues of fact. The Ombudsman limits 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 believed that its view of the contractual position is justified.

1.8 The Ombudsman notes therefore that the Commission stated in its opinion that "the initial arrangements" made between the Delegation and the complainant in the spring 2001 "were formalised by the signature of rider n. 2 to the contract which (...) took place in September 2001".

In this respect the Ombudsman notes that the complainant does not appear to contest the legal basis given by the Commission, in its letter to the complainant dated 16 December 2003, for its refusal to pay the sum in question. In that letter, the Commission explained, inter alia, that "the amounts claimed for the budgetary posts Nursing Director and Administrative /Strategy Director exceed the contractual ceilings as fixed by rider n. 2 to the contract". The complainant considers however in his observations that "[a]lthough the 2nd rider was agreed in September 2001, the conduct of the [A.] Delegation demonstrated very clearly to the complainant that it had authority to make decisions binding on the European Commission." (emphasis added)

1.9 The Ombudsman notes therefore that, in September 2000, the complainant and the Commission agreed the Rider no 1 to the Contract, and in September 2001, they agreed the Rider no 2 to the Contract. The Ombudsman further notes that, there was a decrease in the budgetary ceiling for the position of the Nursing Director in Rider no 2, as compared to Rider no 1 (the budgetary ceiling for the position of Administrative Director did not change)(4).

The Ombudsman understands that, the decrease in the budgetary ceiling for the position of the Nursing Director in Rider no 2 was the result of arrangements concerning the staff changes made verbally between the complainant and the Delegation in spring 2001.

Moreover, the Ombudsman notes that according to Rider no 2: "the new version of "Annex D: Financial Provisions" is attached to the rider and replaces the present version" and "all terms and conditions of the Contract and its previous riders remain unchanged with the exception of the following (...) Annex D: Financial Provisions".

The Ombudsman further notes that any other rider appears to have been agreed by the Commission and the complainant.

1.10 The Ombudsman understands therefore that the complainant was aware of the budgetary requirements when submitting its final invoice to the Commission because (i) after the verbal arrangements had been made with the Delegation in spring 2001, in September 2001 the complainant signed Rider no 2 of his own free will, and (ii) he had the occasion to clarify the issue of the budgetary ceilings during the meeting with the Commission in July 2003.

1.12 In light of the above, the Ombudsman considers that the complainant did not submit enough evidence to prove that the costs concerning the position of a Nursing Director and Administrative Director could be claimed for an amount in excess of that agreed in Rider no 2, on the basis of prior verbal arrangements with the Delegation.

Therefore, the Commission's explanation concerning this allegation appears to be coherent and the Ombudsman does not find any instance of maladministration as regards the complaint. Therefore, the complainant's claim cannot be sustained.

2 Conclusion

On the basis of the Ombudsman's inquiries into this complaint, there appears to have been no maladministration by the Commission. The Ombudsman therefore closes the case.

The President of the Commission will also be informed of this decision.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) By mutual agreement (rider no 1), the contract period was subsequently extended for six months until 13 January 2002.

(2) Article 20 of the Contract stipulates that "(...) any modification of this contract, including the annexes thereto shall take the form of a written rider concluded on the same terms as the contract; no oral understanding shall bind the contracting parties to that effect."

(3) Article 5 of the Contract stipulates that "[a]ll correspondence relating to the execution of the contract shall be in writing and shall include the project number and title. It shall be addressed in duplicate to the Commission. In the case of the EC: EC Representation Office in [A.](...) With copy to: Commission (...) Brussels".

(4) As regards the position of the Nursing Director, in Rider no 2, the payment of EUR 206.150 for 15.50 units was agreed while in Rider no 1 the payment of EUR 266 000 for 20 units was agreed, and, as regards the position of Administrative Director, in Rider no 2, the amount of EUR 180 000 for 20 units was agreed, which was the same amount as in Rider no 1.