Dear Mrs S.,

On 25 July 2001, you submitted, acting on behalf of Deutsch-Russischer Austausch e.V., a complaint against the European Commission (EuropeAid Co-operation Office) concerning the handling of Contract 95-2105 by the Commission. On 9 August 2001, you forwarded to me a copy of a letter that you had sent to the Commission on 5 June 2001.

On 21 August 2001, I forwarded the complaint and your further letter to the Commission for its comments.

The Commission sent its opinion on your complaint on 11 December 2001. I forwarded the Commission's opinion to you on 12 December 2001 with an invitation to make observations, if you so wished, by 31 January 2002 at the latest. I received no such observations by that date.

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

THE COMPLAINT

The complainant, a German association, carried out the project "Regional Support to NGOs in Western Siberia and the Urals" (Contract 95-2105) for the European Commission within the framework of the Tacis programme between 1996 and 1998.

According to the complainant, the facts underlying its complaint were as follows:

In January 1998 the Commission began to suspend part of the payments that were due, apparently as a result of an anonymous letter it had received. In September 2000, the complainant was informed that an audit was to be carried out. The audit took place in October 2000. By the time the complaint was lodged, the complainant had only received an informal copy of the audit report. A letter commenting on this report that it had sent to the Commission on 5 June 2001 had not been answered. In this letter, the complainant commented in particular on several adjustments proposed by the audit report with regard to various items of expenditure. These adjustments amounted to a sum of € 44 498.44.

In its complaint submitted to the Ombudsman in June 2001, the complainant made the following claims:

(1) The Commission should reply to its letter of 5 June 2001

(2) The Commission should reimburse the complainant the sum of € 43 814.16 that it had spent since 1998 pre-financing the project, together with appropriate interest

(3) The Commission should in particular reimburse the amount of VAT that the complainant had to pay (€ 8 760.63)

THE INQUIRY

The Commission’s opinion

In its opinion, the Commission made the following comments:

On 21 December 1995, the complainant had signed a contract with the Commission for a maximum value of € 700 000. In early 1998, the Commission became aware of some possible irregularities and began to suspect poor performance on the contractor’s side. Therefore, the Commission decided to suspend all further payments requested until the project would have been audited through an external audit company.

The external audit company was contracted in December 1999 and the audit report was completed in November 2000. The EuropeAid Co-operation Office’s external audit unit requested the services in EuropeAid and the EC Delegation in Moscow to comment on this report by 9 February 2001. In May 2001, the final audit report was delivered to the Commission’s services as well as to the contractor. On 11 June 2001, the Commission received the complainant’s comments on the final audit report, which were the subject of thorough examination by the Commission’s services. Several explanations for reimbursement were found to be inconsistent, as was the request for reimbursement of VAT. Thus, the Commission wrote to the complainant on 3 August 2001, asking it to submit new documents. The letter also informed the contractor that there would be a recovery order (the amount of which would depend on the submission of documentation requested). In the course of the subsequent exchange of letters, the Commission continuously reiterated the necessity for the complainant to submit the supporting documents in order to achieve a solution. The complainant submitted some further information on 20 September 2001, without however providing sufficient evidence. A letter was sent to the complainant inviting it to explain the inconsistencies listed.

Based on the final audit report, the comments of the services in EuropeAid and the complainant’s comments, the Commission would need to issue a recovery order.

The Commission replied to the complainant’s letter of 5 June 2001 on 3 August 2001. This reply necessitated a detailed consultation with three units. The Commission apologised for the delay in answering the complainant, which was due to a thorough review of the dossier.

It was normal procedure, when a project was under audit, to suspend payment until its finalisation. The handling of the file on this issue could not be considered to be an instance of maladministration. Nevertheless, the Commission’s services apologised for the time elapsed before the completion of the audit in November 2000.

Regarding the issue of VAT, Article 36 of the General Conditions for Service Contracts excluded taxes from Community financing. Therefore, the Commission could not pay VAT under a Tacis contract. Furthermore, the framework agreement between the Commission and the Russian Federation contained a clause stipulating that no taxes could be paid out of EC grants.

Moreover, Article 8 of the contract between the complainant and the Commission provided as follows: "In the European Community, the Commission as a contracting Party is exempt from all taxes and duties, including Value Added Tax (VAT) (…) The contracting Party shall bear no financial liability in the event that the authorities of the recipient state should refuse to apply in favour of the Contractor the above mentioned exemptions and privileges. (…)."

For these reasons, it was the Commission’s point of view that reimbursement of VAT payments should be requested from the Russian authorities and not the Commission. The Commission nevertheless acknowledged that despite the framework agreement signed between the EC and the Russian Federation some contractors struggled against the national authorities in Russia to have this agreement respected. In accordance with the contract, the Commission had tried to resolve the problem, without however being successful until now.

The complainant’s observations

No observations were received from the complainant.

THE DECISION

1 Failure to reply to the complainant’s letter of 5 June 2001

1.1 The complainant, a German association, carried out the project "Regional Support to NGOs in Western Siberia and the Urals" (Contract 95-2105) for the European Commission within the framework of the Tacis programme between 1996 and 1998. In early 1998, the Commission suspended payments and subsequently arranged for an audit to be carried out. On 5 June 2001, the complainant sent its comments on the audit report to the Commission. In its complaint to the Ombudsman lodged in late July 2001, the complainant alleges that the Commission failed to answer to this letter.

1.2 The Commission explains that it replied to the complainant’s letter on 3 August 2001. According to the Commission, this reply necessitated a detailed consultation with three units. The Commission apologises for the delay in answering the complainant.

1.3 The Ombudsman considers that the complainant’s letter of 5 June 2001 raised a number of substantial issues. The Commission’s argument that answering this letter therefore took a certain amount of time and required consultations between its services thus appears reasonable. Given that the Commission has apologised for the delay that occurred the Ombudsman considers that there is no need for him to continue his inquiry into this aspect of the complaint.

2 Failure to reimburse the complainant the sum of € 43 814.16 and in particular the amount of VAT spent by the complainant

2.1 The complainant claims that the Commission should reimburse the sum of € 43 814.16 that it spent since 1998 pre-financing the project, together with appropriate interest.

2.2 The Commission points out that it became aware of some possible irregularities and began to suspect poor performance on the contractor’s side. Therefore, it decided to suspend all further payments requested until the project would have been audited through an external audit company. According to the Commission, this was the normal procedure, and its approach could not be regarded as maladministration. The Commission further claims that on the basis of the outcome of the audit, it asked the complainant to submit new documents. In the course of the subsequent exchange of letters, the Commission continuously reiterated the necessity for the complainant to submit the supporting documents in order to achieve a solution. The complainant submitted some further information on 20 September 2001, without however providing sufficient evidence. The Commission would therefore need to issue a recovery order.

2.3 The complainant further claims that the Commission should in particular reimburse the amount of VAT that it had to pay (€ 8 670.63).

2.4 The Commission takes the view that under the terms of the contract and further related rules, it could not pay VAT under a Tacis contract. In its view, the reimbursement of VAT payments should be requested from the Russian authorities.

2.5 The Ombudsman considers that it is appropriate to consider these two claims together. These claims concern the obligations arising under a contract concluded between the Commission and the complainant.

2.6 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.

2.7 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.

2.8 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.

2.9 In the present case, the Commission has put forward a coherent and reasonable account of the reasons for which it believes that it does not have to meet the claims put forward by the complainant.

3 Conclusion

On the basis of the European Ombudsman’s inquiries into this complaint, it appears that there is no maladministration on the part of 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) See Annual Report 1997, pages 22 sequ.