Dear Mr B.,

On 17 December 2001, you made a complaint to the European Ombudsman against the European Commission on behalf of the "Centre Tecnològic Forestal de Catalunya" (CTFC). The complaint concerned the Commission's handling of a LIFE project carried out by CTFC (ref.: LIFE/ ENV/E/512). You sent me additional information concerning your complaint on 24 January 2002.

On 6 February 2002, I sent your complaint to the President of the European Commission. The Commission sent its opinion on 8 May 2002, and I forwarded it to you with an invitation to make observations, if you so wished. You sent me your observations on 30 July 2002. On 16, 22, 29, 30 and 31 October 2002, you forwarded additional information to me. I requested further information from the Commission on 31 October 2002. The Commission sent its second opinion on 3 December 2002, which I forwarded to you. You sent me your observations on the Commission's second opinion on 20 December 2002 and 10 January 2003.

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

THE COMPLAINT

According to the complainant, the facts are as follows:

In June 1996, the complainant's organisation (CTFC) submitted a proposal to the Commission, under the LIFE programme, to carry out a project for the development of edible mushrooms in the framework of afforestation initiatives (ref.: LIFE/ ENV/E/512). CTFC was to develop the project in co-operation with a number of individual forestry owners. In December 1996, the Commission approved the proposal. CTFC subsequently received Community assistance of 208.749,58 €.

In October and November 1997, the complainant held several discussions with the Commission services concerning how the project's budget should reflect the expenses incurred by individual forestry owners. As a result of these discussions, it was decided to define the relationship between CTFC and third party forestry owners through individual agreements, drawn up on the basis of a standard agreement. These agreements were to spell out both the areas of co-operation between the different parties and the budget implications of their work. On 30 October 1997, the complainant faxed the standard agreement to the Commission official in charge of the financial aspects of the project. On 4 November 1997, the contract was also faxed to Mr dB, the Commission official generally responsible to monitor and evaluate the project.

Following this communication, Mr dB phoned the complainant and approved the content of the standard agreement. In the course of the conversation, Mr dB insisted that for the sake of efficiency, future contacts be made directly with him, and always by telephone.

In February 1999, the complainant submitted the project's intermediate report, in which the budget implications of the forestry owners' work followed the model discussed with the Commission services in October and November 1997. In June 1999, Mr dB phoned the complainant and requested that the expenses linked to the forestry owners’ work be consolidated and treated as external assistance. Despite the complainant's initial reluctance to alter the agreed financial criteria, he was obliged to accept the changes as a condition for the release of the intermediate payment. In October 1999, the complainant delivered the new version of the report to the Commission by hand. The Commission made the intermediate payment in April 2000.

In February 2000, the complainant submitted the final report, in which the budget implications of forestry owners' work were dealt with in the same way as in the intermediate report. The Commission requested additional information in October 2000. Upon the receipt of the complainant's reply, the institution sent him a fax dated 30 January 2001 questioning the way in which costs incurred by forestry owners had been reflected, and claiming their reimbursement. The Commission's request did not respect the complainant’s right of defence since it did not allow for a hearing as foreseen in Art. 11 (2) of Regulation 1973/92 regarding the LIFE programme.

In the ensuing controversy, Mr dB declined any responsibility, and the Commission's financial services were unwilling to meet the complainant.

On the basis of the above, the complainant alleges that (i) the Commission services misled him and did not provide the necessary assistance, and (ii) the procedure followed by the Commission for the handling of his project was unclear and did not comply with the applicable rules. The complainant therefore claims (iii) that the Commission should halt its request for reimbursement and hand over the last payment for the project as well as the corresponding interests.

The Commission's opinion

In summary, the Commission's opinion was as follows:

Neither the Commission's decision granting financial assistance to the project (C896)/3058/final/0037) [henceforth the Decision] nor its proposed budget foresaw any role for third party forestry owners. Their involvement in the project required therefore a prior amendment of the Decision and the Commission's approval of the new relationship.

Although the complainant faxed on 30 October 1997 a draft agreement aimed at governing CTFC's working relationship with forestry owners, the document was never formally submitted for approval to the Commission, as required by the Decision.

In February 1999, and upon the submission of his intermediate report, the complainant expressed his wish to include the costs incurred by third party forestry owners within the project's budget. The Commission stated that its services made it clear to the complainant that this possibility demanded both a prior amendment of the Decision and the Commission's approval of the new relationship. At this occasion, the complainant was also reminded that any such change could not alter the financial conditions of LIFE assistance as defined in Arts. 2 and 3 of the Decision's Annex 2.

In May 2000, the Commission made the intermediate payment. It underlined that this financial operation only depended upon the level of expenditure, and that it did not prejudge the final eligibility of expenses.

The final report was received on 19 May 2000. Even though the aims of the project had been attained, its budget structure and contents, in particular as involved the costs incurred by forestry owners, did not respect the conditions set out in the Decision.

The Commission stated that the complainant had been unable to show that expenses incurred by third party forestry owners (147.867 €) had been in fact disbursed, as required by Arts 3 (4) and 4 (1) of the Decision. No proof of a cash flow between CTFC and any third party had been furnished. The Commission stressed that the provisions of Art. 3 (3) of the Decision are clear and unconditional. It added that its services could not have induced the complainant to believe that those legal provisions could be disregarded.

On 25 October 2000, the Commission requested additional information which was forwarded by the complainant on 13 November 2000. The Commission considered that the new information did not add any new element, and thus gave notice to the complainant by fax dated 30 January 2001 that the amount of assistance corresponding to these expenses would not be paid, and accordingly that part of the grant already paid (37.040 €) would have to be reimbursed. The institution granted the complainant a short period to have his views heard. On the basis of the information forwarded by the complainant on 8 February 2001, the Commission reduced the request for reimbursement to an amount of 30.429 €, and issued the recovery order on 6 March 2001. The Commission considered that the procedure followed by its services in this process was consistent with the criteria laid down in Art 7 of Annex 2 of the Decision.

The complainant had a meeting with the Commission services on 4 April 2001. Since he was unable to provide any further evidence, the Commission confirmed its previous stand on 26 April 2001. The Commission's final request for reimbursement was issued on 30 August 2001, and referred to the means of appeal available to the complainant.

The complainant's observations

In his observations of 30 July 2002, the complainant repeated the allegations made in his complaint. He stressed that the relationship with forestry owners as well as the accounting of the related expenses had been thoroughly discussed with the Commission services.

The complainant explained that the need for forestry owners to get involved in the work of the project had been reflected in three different chapters of CTFC's initial proposal, namely in section A13/4 (section on reforestation of the project's summary); section A14/7 (plant growing) and in several economic sections (A5, A6, A9 and A11).

He described the negotiations which, since July 1997, had taken place with the responsible Commission services to reflect the costs incurred by third party forestry owners into the project's budget. Two different models were considered: the first one whereby forestry owners were to be directly paid for the specific tasks performed; the other, based on the conclusions of individual contracts. In agreement with the responsible Commission services it was decided to opt for the second option in which no cash-flows were to be reflected. The faxes sent on 30 October 1997 and on 4 November 1997 illustrated this fact. The complainant underlined that the financial structure of the intermediate report, in particular the methodology for the accounting of third party expenses, had been changed in response to the suggestions made by the Commission.

On 16, 22, 29, 30 and 31 October 2002, the complainant forwarded additional information concerning meetings held with Commission officials which, in his view, supported his allegations.

FURTHER INQUIRIES

In view of the observations submitted by the complainant, the Ombudsman wrote to the Commission on 31 October 2002. In his letter, the Ombudsman referred to the factual details described in the complainant's observations which appeared to support his allegations, and requested the Commission to comment on these matters.

The Commission’s second opinion

The Commission argued that the observations made by the complainant did not add any new element to the case. The institution stressed that no instructions had been given by its services involving the amendment of the financial rules governing the contract. It explained that the complainant has never submitted any evidence to demonstrate that a Commission official made the alleged instructions in relation to the project. Moreover no such instructions appear in the Commission's file (neither in electronic or paper form).

The Commission referred to the faxes sent by the complainant to its services on 30 October and 4 November1997, suggesting modifications to the financial convention. It pointed out that these communications had no contractual value, and had been submitted for information. Although the need for an official request had been made clear various times to the complainant, this request has never been introduced to the Commission. Under these circumstances, the Commission believed the complainant had no other choice than respecting the contract in all its parts.

The institution noted that the complainant had already benefited from the LIFE programme in the past, and was well aware of its financial rules. In its view, the complainant should have acknowledged that all financial verifications are carried out at the final stage of the project. Accordingly, he could not have assumed that the Commission's intermediate payment implied the acceptance of his financial amendments.

The Commission underlined its willingness to consider paying the costs claimed by the complainant, and thus to halt its recovery order, provided that he submit evidence that these costs were effectively incurred. The Commission pointed out that it had requested, on several occasions, proof of the existence of payments made by the beneficiary to the organizations that executed the work. Despite these requests, the information has not been supplied. For this reason, the Commission had decided to proceed with a recovery order for € 30.429, in application of Art. 3.3c of the Grant Decision. It added that should the complainant fail to provide such evidence, however, the Commission would continue with the implementation of the recovery order.

The complainant’s observations on the Commission’s second opinion

In his observations on the Commission’s second opinion dated 20 December 2002 and 10 January 2003, the complainant insisted that the format of the financial section of his reports had arisen from suggestions from the Commission services, who had not later on expressed any formal disagreement. Whilst the complainant could not put forward any written evidence, he referred to a number of formal statements made by participants in the project confirming his point of view. The complainant expressed his willingness to testify before the Ombudsman, if necessary.

The complainant enclosed different documents which showed that the Commission had accepted, at least as regards LIFE project 97/ENV/E/260, the use of bilateral agreements between the beneficiary and several subcontractors in which no cash-flows took place.

To conclude, the complainant stated the CTFC might be ready to reformulate the financial section of the project in line with the Commission's requests, if necessary. He requested the Ombudsman to supervise the procedure, in order to ensure that a fair solution should be reached and that CTFC is not unjustly penalised.

THE DECISION

1. Attitude of the responsible Commission's services towards the complainant

1.1 The complainant alleges that the Commission services misled him and did not provide the necessary assistance. He argues that the relationship with forestry owners as well as the accounting of the related expenses had been thoroughly discussed with the Commission services.

1.2 The Commission has argued that its services could not possibly have induced the complainant to believe he could disregard the rules of the project. It stated that no evidence had been put forward by the complainant to demonstrate that Commission officials made the alleged instructions in relation to the project, and that no such instructions appear in the Commission's file.

1.3 The Ombudsman notes that the complainant has submitted a large amount of documentary evidence which reflects his continuous exchanges with the responsible Commission services. Having reviewed these documents, it appears that the responsible officials were well aware of the complainant's work, and therefore should have known of the financial criteria being used to account for the work of sub-contractors. However, the Ombudsman is of the view that there appears to be no direct evidence which could lead to the conclusion that the Commission misled the complainant.

The Ombudsman therefore concludes that there is no maladministration by the Commission as regards this aspect of the case.

2. The Commission's procedure for the reimbursement of part of the assistance

2.1 The complainant alleges that the procedure followed by the Commission for the handling of his project was unclear and did not comply with the applicable rules. He argued that his rights of defence had not been respected and that the Commission's request for reimbursement of part of the assistance did not allow for a hearing as foreseen in Art. 11 (2) of Regulation 1973/92 regarding the LIFE programme.

2.2 The Commission argues that the procedure followed by its services in this process was consistent with the applicable rules (Art 7 of Annex 2 of the decision granting financial assistance to the project [the Decision]). It explained that its first request of 30 January 2001 allowed the complainant to have his views heard before a final decision was to be adopted, and also that its final request of 30 August 2001 included information on the means of appeal.

2.3 The Ombudsman notes that the rules governing the implementation of projects financed through the LIFE programme are set out in Council Regulation 1973/92(1), as well as in each Commission's Decision granting assistance to individual projects.

The procedure to be followed by the Commission in cases of undue payment is laid down in Art. 11 (2) of Regulation 1973/92, which reads as follows,

" [...] If only part of the allocated financial assistance is justified by the progress in implementation of an action, the Commission shall request the beneficiary to submit its observations within a specified period. If the beneficiary does not give a satisfactory answer, the Commission may cancel the remaining financial assistance and demand repayment of sums already paid."

Art. 7 of Annex 2 of the Decision reproduces identical procedural requirements.

2.4 The Ombudsman also notes that the first request for reimbursement issued by the Commission on 30 January 2001, indicated in its last paragraph that a note would be submitted for prior approval to the financial controller on 9 February 2001, at the latest, so that the complainant could send his observations as foreseen under Art. 11 (2) of the LIFE Regulation. The final debit note was sent to the complainant on 6 March 2001. Even though, the note did not mention any possible means of appeal, the Commission referred to these means in its further correspondence with the complainant dated 30 August 2001.

2.5 On the basis of the above, the Ombudsman does not consider that the Commission infringed the complainant's rights of defence when issuing its request for reimbursement of part of the assistance. In these circumstances, the Ombudsman takes the view that the procedure followed by the Commission for the handling of his project did not appear to be unclear, and accordingly, that the institution appeared to comply with the applicable rules. The Ombudsman therefore concludes that there appears to be no maladministration by the Commission as regards this aspect of the case.

3. Commission's request for reimbursement of part of the funds

3.1 The complainant claims that the Commission should halt its request for reimbursement, and hand over the last payment of the project as well as the corresponding interests.

3.2 In its first opinion, the Commission justified its request for reimbursement on the grounds that the complainant never formally submitted an amendment to the Decision in order to allow third party property owners to participate in the project. The institution pointed out that the complainant had not been able to show that the expenses incurred by third party forestry owners had in fact been disbursed.

3.3 As regards the participation of third party property owners, the Ombudsman notes that the technical description of the project, included in the beneficiary’s proposal, foresaw their co-operation. On 30 October and 4 November 1997, the complainant formally notified the Commission services of the forthcoming participation of third party forestry owners in the implementation of the project. The Ombudsman notes that the Commission has not provided any proof that its services raised any objections to the complainant's initiative.

In relation to the accounting of expenses incurred by these third parties, the Ombudsman considers that the Commission did not appear to be entirely unaware of the criteria used by the complainant, as shown by the text of his faxes to the institution of 30 October and 4 November 1997(2). The Ombudsman takes notice of the fact that the accounting scheme used by the complainant in his final report followed the pattern of the intermediate report. Upon the receipt of the intermediate report, not only did the Commission fail to object to its contents, but indeed proceeded with the mid-term payment. By so doing, and as set out in Art. 3 (2) of the Decision's Annex 2, the Commission seemingly accepted the contents of the financial statement and the mid-term report submitted by the beneficiary(3).

3.4 In its reply to the Ombudsman's further inquiries, the Commission underlined its willingness to consider paying the costs claimed by the complainant, and thus to halt its recovery order, provided that he submit evidence that costs incurred by third party property owners were effectively incurred. In his latest observations, the complainant has expressed his readiness to reformulate the financial section of the project in line with the Commission's requests, and has asked the Ombudsman to supervise the procedure in order to ensure a fair solution. In view of this situation, the Ombudsman considers that there are no grounds to inquire further into this aspect of the case.

3.5 The complainant has asked the Ombudsman to supervise the procedure. The Ombudsman points out that, under Community financial procedures, the Commission is responsible for administration of the contract in question. The complainant has the possibility, however, to make a new complaint to the Ombudsman in future, if he should consider it necessary to do so.

4. Conclusion

On the basis of the European Ombudsman’s inquires into this complaint, there appears to have been 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) Council Regulation (EEC) No 1973/92 of 21 May 1992 establishing a financial instrument for the environment (LIFE); OJ L 206 , 22/07/1992 p.1.

(2) The text of the fax sent by the complainant to the Commission official in charge of the financial aspects of the project dated 30 October 1997 is particularly illustrative:
"Dear J., As we agreed last July, please find enclosed a proposed "agreement" in order to account for the contribution to project LIFE' 96 ENV/E/512 of forestry owners, both in terms of time and resources. I would appreciate if you could inform us about the type of documentary evidence, if necessary, we should keep, and the constraints, if any, we should be aware of. [...]"

(3) "[...] an intermediate payment shall be made once the Commission accepts the financial statement and the corresponding report submitted by the beneficiary [...]".