Dear Dr. W and Dr. T.,

On 3 September 2001, I received a complaint made by you, on behalf of Harress Pickel Consult (HPC), against the European Commission. Your complaint concerns a payment dispute relating to service contract no. 98-0462.00.

On 6 September 2001, I forwarded the complaint to the President of the European Commission. The Commission sent its opinion on 16 November 2001. I forwarded it to you with an invitation to make observations. On 20 December 2001, my Office was informed that you would be represented by lawyers. Following correspondence between your lawyers and my staff, I received your observations on the Commission's opinion on 18 April 2002.

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

THE COMPLAINT

In September 2001, the complainants submitted their allegations and claims against the European Commission. Their complaint was made on behalf of their company Harress Pickel Consult (HPC), and concerned a payment dispute relating to PHARE service contract no. 98-0462.00.

The complainants considered that the European Commission wrongly refused to pay their company € 16, 224, 50 for fee-costs incurred under contract.

The dispute concerns the number of budget categories. The complainants considered that there were only three budget categories in the contract: A. Fees, B. Direct Costs and C. Reimbursables. Under this interpretation of the contract, the budget category A would be big enough to cover both the fees and the direct subsistence allowances (DSA) claimed by the complainant. The Commission on the other hand considers that there were not three but four items: A. Fees, B. Daily subsistence allowance, C. Other direct costs, and D. Reimbursables. This would imply that the budget item A would not be big enough to cover the costs claimed by the complainant.

• Thus, the complainants allege that the Commission was wrong in its view that their company exceeded the budget line for fees. They state that per addendum to the contract dated 14 December 1999, the "fees" total € 285 490 (€ 247.450 plus € 38.040 for DSA).
• The complainants claim payment of the amount that they consider to be outstanding, i.e. € 16.224,50.

THE INQUIRY

The Commission's opinion

The complaint was forwarded to the Commission, which submitted, in summary, the following opinion.

The argument set out by the complainants is based on a false premise. The budget allocated for the contract was not divided into three categories but four [ as noted above ]. These categories are clearly indicated in the initial contract and in the successive addenda. The sums specified therein are maximum amounts.

The complainants' argument is based exclusively on one document: Annex D1 "breakdown of prices" to Addendum I. In this document, the sums allocated to the budget lines "fee" and "daily subsistence allowances" are amalgamated into a single sub-total. However, even a superficial examination of this Annex D1 shows that there is a clear separation between these two categories ("A.1.1. Honoraria" and "A.1.2. Allowances"). It may indeed be regrettable that the document does not show a sub-total by category, but it is hard to imagine that this could be a source of confusion. It is wrong to deduce that this omission implicitly allows the two budget lines to be merged together. By way of comparison, all the PHARE programme services contracts are drafted like this, and no other contractor has, to the Commission's knowledge, drawn the same conclusion as the complainants.

Accordingly, it is hard to see how the request for payment of a balance of € 16, 224, 50 can possibly be admissible. The table drawn up by the Finance department clearly shows that the budget item "fees" has been used up. Article 26 of the General Conditions mentions that payments may not exceed the total maximum amount indicated in the contract. Moreover, no payment for "fees", "direct costs" or "reimbursable expenses" may exceed the maximum amount allocated for each of these categories. The text of this article is absolutely unambiguous.

The Commission considered that it had already explained the rules to the complainants (in a letter of 20 February 2001), and it considered that its refusal to pay the € 16.224, 50 was based entirely on sound financial management and consistent with the provisions of the contract signed between the Commission and the complainants.

The complainant's observations

The Commission's opinion was forwarded to the complainants, whose lawyers submitted observations. In summary, the observations presented the following points and arguments.

The contract contained three not four budget categories, i.e. a) fees and allowances, b) costs and c) reimbursables. The three budget categories are referred to in a number of the documents relating to the contract, e.g.:

1) Article 26 of the General Conditions for Service Contracts financed from Phare/Tacis Funds ("contract amount") refers to fees, direct costs and reimbursable expenses.

2) Annex D of the contract ("payment schedule") referring to fees, direct expenses and reimbursable expenses.

3) Annex D of the contract ("breakdown of prices") referring to A. fees (A.1.1 honoraria, A.1.2 allowances), B. direct costs and C: reimbursables.

4) Annex D1 to the Addendum No. 1 to the contract, referring to A. fees (A.1.1 honoraria, A.1.2 allowances), B. direct costs and C: reimbursables.

5) General Regulations for Tenders and the Award of Service Contracts Financed from Phare/Tacis Funds, in particular Annex D, referring to A. fees (A.1.1 honoraria, A.1.2 allowances), B. direct costs and C. reimbursables.

Thus, according to the wording and the system on which the aforementioned sections have been based, the items "fees" and "allowances" have to be considered as a single budget category, referred to collectively as "fees". The other two budget categories are "direct costs" and "reimbursables".

The Commission, on the other hand, refers to Article 5(2) of the contract(1) in order to give evidence that the budget allocated is divided into four categories. However, the list in Article 5(2) cannot be considered as an indication of budget categories, otherwise it would be in contradiction with Article 5(1)(2) setting up the definition of the allocated budget and the different budget categories. On the contrary, it can only be read as different items which may constitute individually or jointly the budget category for the purpose of the contract. The sum of these items is the total amount to be paid under the contract.

The Commission correctly refers to Article 26 of the General Conditions for Service Contracts financed from the Phare/Tacis Funds (Annex E of the Contract), which provides that "the payments can not exceed the maximum total amount stated in the contract", and that payments for "fees, direct costs and reimbursable expenses can not exceed the maximum amount specified in the contract for each of these categories". But here again, the contract refers only to three budget categories. Therefore, every category may be composed of several items. It follows that each item may exceed the individual amount determined by the contract and be compensated with the unspent funds allocated to the same budget category. Consequently, the complainant does not agree with the Commission's view, that according to Article 26 the "balance of € 16,244.50 is not possible". This conclusion is only possible if the Commission understands that Article 26 refers to four budget categories (fees, allowances, direct costs and reimbursable expenses) and that none of these four categories may be exceeded. However, it has been shown above that this is not the case.

For the sake of completeness, reference is made to Article 10 (3) of the contract which establishes the payment procedure. This provision, on which the Commission has based its interpretation of the contract, is the only one referring to more than three "categories", i.e. fees, daily subsistence allowance, other direct costs and reimbursables and special funds. However, it should be noted that Article 10 only describes the payment procedure. On the contrary, the stipulation of the remuneration is governed by Article 5 of the contract. The provisions concerning the contract amount derive from Article 26 of the General Terms and Conditions.

On the basis of the above observations, the maladministration committed by the Commission is its use of a misleading contract, and its failure to respond to the complainant's arguments and provide the complainant with a coherent account of the legal basis for its actions and why it believes that its view of the contractual position is justified.

THE DECISION

1 Interpretation of the contract

1.1 The complainants allege that the Commission is wrong in its view that their company exceeded the budget line for "fees". They state that per addendum to the contract dated 14 December 1999, the fees total € 285 490 (€ 247.450 plus € 38.040 for daily subsistence allowances). The complainants consider that there were only three budget categories in the contract: A. Fees, B. Direct costs, and C. Reimbursables. Under this interpretation of the contract, the budget category A would be big enough to cover the costs claimed by the complainant.

1.2 The Commission argues that there were not three but four items: A. Fees, B. Daily subsistence allowances, C. Other direct costs, and D. Reimbursables. This interpretation would imply that the budget item A would not be big enough to cover the costs claimed by the complainant.

1.3 From the arguments submitted, it is clear that the dispute concerns two conflicting interpretations of the contract. In this respect, the Ombudsman notes his approach to contractual disputes:

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. 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.

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, if the matter is in dispute. 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 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 not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

1.4 In the present case, the Commission has made reference to Addendum 1 in its correspondence with the complainant and in its opinion in the present inquiry. Article 4 of the Addendum states that:

(...)

2. The total amount to be paid under the contract shall not exceed 395,250 EUR [ € ], comprising payment for:

Fees: 247.450 € max.

DSA [Daily subsistence allowances ] : 38.040 € max.

Other Direct Costs: 26.700 € max.

Reimbursables: 83.060 € max.

Article 5 of the Addendum repeats this cost division.

1.5 In light of this cost division in Addendum 1, the Commission does not appear to have given an incoherent justification for its view that the contract contains four budget categories. The Ombudsman concludes, therefore, that there appears to be no maladministration on the part of the Commission.

2 Conclusion

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

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

Yours sincerely,

 

Jacob SÖDERMAN

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(1) Article 5(2) reads: "the total amount to be paid under the Contract shall not exceed 395,250 ECU [ € ], comprising payments for fees 247,450 ECU [ € ] max., daily subsistence allowances 9,600 ECU [ € ] max., other direct costs, reimbursables 26,700 ECU [ € ] max. and special funds 0 ECU [ € ] max."

(2) Article 5(1) reads: "In consideration of the execution by the Contractor of the services specified in this Contract, the Contracting Party shall pay the Contractor for services rendered (fees/allowances), direct costs and reimbursables in accordance with the provisions of this contract ...".