Strasbourg, 21 January 2005

Dear Mr I.,

On 11 November 2003, you made a complaint to the European Ombudsman on behalf of the Spanish Foundation, El Monte, against the European Commission. The complaint concerns contract AML/B7-3110/IB/98/01106, which was concluded by the Foundation El Monte with the Commission on 14 January 2000.

On 5 December 2003, I forwarded the complaint to the President of the European Commission.

On 1 March 2004, the Commission sent its opinion, which I forwarded to you with an invitation to make observations.

On 29 April 2004, I received your observations.

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

I apologise for the length of time it has taken to deal with your complaint.

THE COMPLAINT

On the basis of the complaint and its annexes, the facts according to the complainant are summarised as follows:

On 14 January 2000, the complainant concluded grant contract No. AML /B7-3110/IB/98/0106 with the Commission (hereafter: “the contract”). By virtue of this contract, the complainant was to carry out a scientific project (analysis of the applicability of the EU regional policy to Latin America) and send the Commission several reports, and the Commission was obliged to cover 48% of its total cost (i.e. EUR 300 000 of the total cost of EUR 625 000).

On 2 May 2000, the Commission made an advance payment of EUR 117 758.

In October 2001, the complainant sent to the Commission the intermediate report (composed of financial and technical parts) concerning the execution of the first year of the project.

The Commission sent written comments on the intermediate report on 20 February 2002 (i.e. 88 working days after its receipt) and asked the complainant to explain several points concerning the report.

The Commission wrote to the complainant again on 18 April 2002 and gave to the complainant a deadline of one month to provide the information.

Given that the governing body of the Foundation was being renewed, the complainant could not comply with the above deadlines. The complainant therefore informed the Commission about its situation on 2 May 2002.

In its letter dated 18 July 2002 (sent, the complainant points out, 104 working days after the report was submitted), the Commission stated that: (1) it did not accept the execution of the project according to the information provided in the intermediate report; (2) the execution of the first part of the project depended on the approval of the Commission and (3) given that the contract expired on 14 July 2003, within the next two months the complainant should submit the financial and technical parts of its final report concerning the second part of the execution of the project, including inter alia documents concerning the selection of subcontractors (enterprises Insets Arrakis and Initiativas y Estudios Europeos).

On 30 July 2002, the complainant sent the Commission a clarification as regards the first and second stages of the project and the Commission accepted this by letter dated 9 August 2002.

Furthermore, the complainant continued to proceed with the project with some modifications that were accepted by the Commission. On 30 October 2002, the complainant sent the financial part of its final report.

On 17 December 2002, the complainant and the Commission met in order to agree on the formal aspects of the conclusion of the project. The complainant also presented the two parts (technical and financial) of its final report.

On 18 December 2002, the Commission asked the complainant for additional audit information, for the current version of the budget of the project and to make corrections to the financial report. The Commission set a deadline of 24 January 2003 for receipt of this information.

On 16 January 2003, the complainant provided the required information.

On 10 March 2003 and contrary to the complainant’s expectations, the Commission replied that the information provided was insufficient and irrelevant and that the Commission considered that the complainant was not able to execute the project according to the contract. The Commission stated that it was obliged, therefore, to request the reimbursement of the advance payment of EUR 117 758 that it had already made, announcing it would send the recovery order shortly.

On 28 April 2003, the complainant asked the Commission for a meeting.

The Commission did not answer this request and, on 10 July 2003, the complainant asked the Commission for the full payment, according to the contract. In this letter, the complainant pointed out that the Commission had not complied with Article 11.3 of the General Conditions for grant contracts, according to which the Commission should send the complainant a written request for the complainant to respect its obligations and the complainant should then have 30 days to provide an explanation.

The Commission replied on 28 July 2003 that the complainant’s request for payment had been transmitted to the Legal Service.

On 19 August 2003, the Commission proposed to the complainant's lawyer a meeting in order to find a friendly solution.

During the meeting, which took place on 26 August 2003, the Commission stated that it was waiting for decisions of several of its units concerning the evaluation of the contract.

On 18 September 2003 and on 1 and 16 October 2003, the complainant urged the Commission to reach a decision.

On 8 October 2003, the Commission, invoking a recovery order, which, it stated, had been previously sent to the complainant, sent a letter to the complainant requesting the reimbursement of its first payment including default interest within 15 days.

On 10 November 2003, the complainant informed the Commission that it had never received the recovery order referred to in the Commission’s letter of 10 March 2003, that the Commission had not provided it with a reasoned decision and that it would submit a complaint to the Ombudsman.

On 11 November 2003, the complainant lodged the present complaint with the Ombudsman.

It alleged that the Commission had failed to issue a recovery order for EUR 117 758, despite announcing in its correspondence with the complainant that it would do so.

The complainant also alleged that, during the execution of the contract, the Commission's behaviour was inconsistent, as shown by frequent changes of position when evaluating the complainant’s performance and negotiating a friendly solution and that the Commission's answers to its letters were late, incomplete and failed to indicate the possibilities of appeal.

Finally, the complainant alleged that, by requesting a reimbursement in the late stages of the execution of the contract, the Commission has infringed the principle of legitimate expectations.

In the complainant’s view, the infringement by the Commission of administrative rules and principles has caused it material loss and has damaged its reputation. It asked the European Ombudsman to examine the causal link between the Commission's maladministration and its losses and to recognise its right not to pay interest for the delay in reimbursing the Commission.

In summary, the complainant alleged maladministration during the execution of the contract, undue delay and failure to reply. The complainant claimed damages and the right not to pay interest for the delay in reimbursing the Commission.

THE INQUIRY

The Commission's opinion

The Commission’s opinion can be summarised as follows:

On 14 January 2000, the complainant signed a grant contract with the Commission for the execution of the project “La politica regional de la Union Europea y las possibilidades de aplicacion a los paises de America Latina-POLIREGI-UE-AL”. The Commission’s grant amounted to EUR 300 000.

On 15 February 2000, the complainant asked for the payment of the advance sum of EUR 117 758, which the Commission paid on 2 May 2000.

In October 2001, the complainant submitted to the Commission the intermediate report (composed of the technical and financial parts) concerning the first year of the execution of the project.

The Commission evaluated that report and did not approve the execution of the project. According to the Commission, the report showed that the complainant had concluded several contracts with third parties that were not foreseen in the terms of reference or in the budget of the contract. The complainant, which had proposed the project to the Commission, should have had the technical capacity to execute and manage it. However, the Commission noticed that a substantial part of the project had been subcontracted out to more than one entity. As a result, the cost of the project could increase and the project could be jeopardised.

On 20 February 2002, the Commission therefore sent a letter to the complainant informing it that the execution of the project up to that moment had not been approved (and consequently neither had the intermediate report), informing the complainant why and asking for additional information.

Given that the complainant did not provide any information, the Commission services requested it again on 18 April 2002. The Commission also informed the complainant that the requested information had to be received by its services within one month of receipt of the letter, otherwise the report would be deemed definitively not approved. By this letter, the Commission had also warned the complainant of the possibility of issuing a debit note equivalent to the advance payment that had already been made.

On 2 May 2002, the complainant replied to the Commission’s letter and informed it that it would send the requested information before 5 June 2002. On 23 May 2002, the complainant did so.

After having analysed this additional information, the Commission concluded that the complainant itself was not executing the major part of the contract, as it should according to the contract. The Commission also concluded that the complainant had signed contracts with its own Director, with a firm (Nistes Economistas S.L.) owned by the Director and, at the same time, with another firm (Initiativas y Estudios Europeos S.A.). The Commission concluded then that these firms were in fact performing the complainant’s contract. Consequently, the execution was not approved.

On 18 July 2002, the Commission informed the complainant that, after having analysed the intermediate report and the additional information submitted to it, it could not approve the execution of the project. The Commission also requested, according to the contract, the submission of the technical and financial parts of the final report, as the grant contract with the complainant had expired on 14 July 2002. One month later, although the grant contract foresees a period of six months to submit the final report (composed of the technical and financial parts), the Commission reminded the complainant of the need to send that report, especially because the intermediate report had not been approved.

The complainant sent the financial part of the final report on 30 October 2002, but failed to send the technical part. The Director of the complainant asked the Commission if he himself could personally present the content of the final report (the financial and technical parts). The Commission noted at this point that the procedure of personally presenting the final report is most unusual. The Commission takes the view that this request shows that the complainant knew that there were serious problems with its management of the project. The Commission accepted to receive the Director and the meeting took place on 17 December 2002 (i.e. nearly six months after the end of the grant contract). During the meeting, the Director of the complainant was informed that the Commission did not accept the execution of the project. The Commission attached to its opinion an internal note containing the minutes of the meeting.

According to the minutes, the Commission put forward during the meeting the following reasons for which the execution of the project was not accepted: (1) failure to respect the terms of the contract (the conclusion of several contracts with third parties not foreseen in the contract or in its budget); (2) unfair management practices (concentration of projects and payment for a Director of the project, conclusion of contracts with enterprises owned by the Director of the project and his wife); (3) lack of complete and clear financial information (in particular, lack of information about the financial participation of the Brazilian co-participant into the project); (4) an unacceptable external audit report incompatible with the contract. The Commission also noted that these reasons had already been explained to the complainant after the submission of its intermediate report.

After the meeting, the Commission considered that it still needed to analyse some additional financial information and requested this information from the complainant. The complainant provided it on 16 January 2003 but this did not change the views of the Commission about the execution of the project.

On 10 March 2003, the Commission informed the complainant that the information submitted was both irrelevant and insufficient that the Commission could not, therefore, proceed with the remaining payment and that it had decided to recover the advance that had already been paid (EUR 117 758).

The Commission stated that although the complainant knew that it was not entitled to any payment since the reports had not been approved, the complainant reacted on 28 April 2003, requesting a meeting with the Commission in order to find a friendly solution. Due to the sudden death of the Commission official in charge, this request was not answered.

After close consideration of all the elements of the file, the Commission decided to issue a recovery order. Recovery order No. 3240502366 was prepared on 16 July 2003. Following validation in SINCOM(1), the recovery order should have been sent to the complainant by registered mail. However, due to an administrative error, such a letter was not sent out.

On 10 July 2003, the complainant sent a letter to the Commission alleging that it had not acted in conformity with Article 11.3of the General Conditions of grant contracts concluded in the frame of external assistance (Annex II to the contract signed between the Commission and the complainant)(2) and asking for full payment.

On 28 July 2003, the Commission informed the complainant that it intended to transmit its request to the Legal Service of the Commission. In fact, the Commission services decided not to send the file to the Legal Service immediately, to hold a meeting instead and to discuss the complainant’s views on how the contract should be liquidated.

Therefore, on 19 August 2003, the Commission invited the complainant's lawyer to such a meeting, which took place on 26 August 2003. Since the Commission considered that no new elements had been presented, it abandoned the possibility of a friendly solution and informed the complainant that its final position would be communicated to it once it had been agreed between the several directorates involved.

On 8 October 2003, the Commission, unaware that the recovery order had never been sent out, sent the complainant a reminder that it should repay the Commission’s advance payment according to recovery order No. 3240502366 for an amount of EUR 117 758 plus interest for delay. The complainant acknowledged receipt of the reminder.

In summary, the Commission took the view that its position was coherent and that it always stated that the intermediate report was not approved and never gave any indication that it had changed its mind. The Commission also considered that it clearly explained to the complainant the reasons why the report was not approved and gave the complainant the possibility to provide additional information at every stage of the procedure, which finally confirmed its first evaluation. Therefore, the Commission concluded that it did not violate the principle of legitimate expectations.

The Commission also put forward that it sent its comments on the report submitted in October 2001 only in February 2002 because of the gravity of the management practices which were found and because the Commission had to maintain contacts between several services. The Commission apologised for the delays in answering some communications sent by the complainant and also for not having formally replied to some communications of a repetitive nature.

The Commission stressed that although the complainant had submitted the intermediate report and the final report (both composed of technical and financial parts) with corresponding payment requests, it was not entitled to any payment since the Commission services had never approved the project’s execution.

Finally, the Commission recognised, however, that it had not sent out the recovery order prepared on 16 July 2003 and presented its apologies to the complainant for this administrative error. The Commission considers the date of the reminder i.e. 8 October 2003 as the date of the recovery order. Nevertheless, the Commission will not accept any other financial claims related to the contract, as it is clear that the execution of the project was never accepted and the complainant was always fully aware of that.

The complainant's observations

The complainant maintained its allegations.

In summary, it stressed that since February 2002 the Commission kept requesting additional information and failed to inform the complainant in a definitive and formal way of its objections as regards the intermediate report presented by the complainant. As a result, the complainant continued to fulfil its contractual obligation in good faith and incurred additional costs for the preparation of the final report (technical and financial parts).

The complainant interpreted the letters received from the Commission in this context. It took the view that the letter dated 20 February 2002 could not be understood as a definitive decision of non-approval of the preliminary report but as a preliminary decision, given its wording and the requirement to provide additional information. According to the complainant, the letter dated 18 April 2002 only confirmed that the final decision had not yet been taken and the letter dated 18 July 2002 only constituted an invitation for the complainant to fulfil its contractual obligations.

The complainant also took the view that, according to Article 1.1 of the General Conditions of the grant contracts concluded in the frame of external assistance (Annex II to the contract signed between the Commission and the complainant)(3), the complainant was free to conclude contracts with third parties and that the Commission had no contractual links with the subcontractors. The complainant pointed out that the Commission’s objections concerning its choice of subcontractors were only supported by documents and communicated to the complainant in the opinion sent by the Commission to the Ombudsman.

He also considered that the minutes of the meeting with the complainant’s Director of December 2002 had solely the character of an internal Commission document given that the Director did not sign it.

The recovery order was finally sent to the complainant on 23 December 2003 (the complainant forwarded a copy of the recovery order to the Ombudsman). However, the recovery order appears to have been issued only on 11 December 2003, although, according to the Commission, it should have been issued on 16 July 2003. In this context, the complainant did not agree with the Commission that the date of the “reminder” of the document (which appears not to have been a reminder at all since the document had not in fact been issued before the date of the reminder), could be considered as the date of the recovery order.

The complainant accepted the Commission’s apologies for not having sent the recovery order before the reminder and for its delay in replying to some communications of the complainant.

The complainant also appears to submit a new allegation and a new claim. First, he alleges that the Commission failed to comply with Article 11.3 of the General Conditions of the grant contracts concluded in the frame of external assistance (Annex II to the contract signed between the Commission and the complainant)(4) and argues that the complainant is therefore not obliged to pay the recovery order. Second, the complainant notes that the Commission did not invoke in its opinion the application of Article 93.1. (f)(5) of Council Regulation No. 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities and claims therefore that the Commission should not be empowered to exclude the complainant from future procurement procedures inasmuch as the Commission did not execute this sanction in a transparent way. In this context, the complainant takes the view that the Commission manifested a hostile attitude towards it during the execution of the contract.

THE DECISION

1 Preliminary remark

1.1 In its observations, the complainant made a new allegation that the Commission had failed to comply with Article 11.3 of the General conditions of the grant contracts. The complainant also submitted a new claim that the Commission should not be empowered to exclude it from future procurement procedures since the Commission had not invoked in its opinion the application of Article 93.1. (f)(6) of Council Regulation No. 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities and did not execute this sanction in a transparent way.

1.2 The Ombudsman considers that broadening the scope of his inquiry to include the new allegation would unduly delay a decision on the original complaint. The Ombudsman points out that the complainant retains the possibility to bring the case before the Brussels courts - in accordance with Article 13 of the contract between the complainant and the Commission which provides that "any dispute (…) which cannot be settled amicably between the two parties, shall be submitted to the courts in Brussels" - or to make a new complaint to the Ombudsman if he considers it useful to do so.

1.3 As regards the new claim, the Ombudsman considers that the issues raised are outside the scope of the original complaint and that, in accordance with Article 2 (4) of the Statute of the Ombudsman, the complainant should make administrative approaches to the Commission before turning to the Ombudsman concerning the matter.

1.4 The Ombudsman therefore confines his decision to the complainant's original allegations and claims.

2 Alleged failure to issue a recovery order

2.1 The complainant alleges that the Commission has failed to issue a recovery order for EUR 117 758, despite announcing in its correspondence with the complainant that it would do so. The complainant claims damages and the right not to pay interest for the delay in reimbursing the Commission.

2.2 According to the Commission, recovery order No. 3240502366 was prepared on 16 July 2003. Following validation in SINCOM, the recovery order should have been sent to the complaint by registered mail. The Commission stated, however, that due to an administrative error, the letter was not sent out and it apologised for that error. The Commission also stated that, on 8 October 2003, unaware that the recovery order had never been sent out, it issued a reminder for an amount of EUR 117 758, plus interest for delay. The complainant acknowledged receipt of the reminder. In these circumstances, the Commission considers the date of the reminder i.e. 8 October 2003 as the date of the recovery order.

2.3 The Ombudsman has carefully examined the Commission’s letter to the complainant dated 23 December 2003, a copy of which was attached to the complainant’s observations on the Commission’s opinion. The Ombudsman notes that the letter states that the Commission was sending the original recovery order number 3240502366, for the amount of EUR 117 758 to be repaid following the instructions in that order. The Commission also stated that "even though the complainant had received the first reminder to make the payment in the course of October, it pointed out that it had not received the original recovery order"(7). The Commission took the view that in sending the recovery order as an enclosure to its letter, it was satisfying the complainant's allegations. Attached to the letter was a recovery order for EUR 117 758, which bears the date 11 December 2003.

2.4 As regards the complainant’s allegation, the Ombudsman considers that no further inquiries are necessary, since the Commission has explained and apologised for the failure to send the recovery order prepared on 16 July 2003 and has taken the necessary action to correct the administrative error that occurred by sending the recovery order to the complainant on 23 December 2003.

2.5 As regards the complainant’s claim for damages, the Ombudsman takes the view that no evidence has been submitted to show that the complainant suffered any loss as a result of the delay by the Commission in sending the recovery order. The Ombudsman therefore considers that it is unnecessary for him to examine this claim.

2.6 As regards the complainant’s claim not to pay interest for the delay in reimbursing the Commission, the Ombudsman notes that the Commission’s opinion states that it considers 8 October 2003 to be the date of the recovery order. The Ombudsman points out, however, that the Commission’s opinion appears to have been drafted in ignorance of the fact that the recovery order was in fact sent to the complainant on 23 December 2003.

2.7 The available evidence as a whole, therefore, does not lead the Ombudsman to understand the Commission to be seeking payment of interest from a date earlier than 23 December 2003; i.e. the date on which it actually sent the recovery order to the complainant. On the basis of this understanding of the Commission’s position, the Ombudsman considers that there does not appear to be any dispute between the parties concerning the payment of interest and that no further inquiries are necessary. The Ombudsman points out that if his understanding of the Commission’s position on this question should be mistaken, the complainant has the possibility to make a new complaint to the Ombudsman.

3 Alleged inconsistent behaviour and infringement of the principle of legitimate expectations

3.1 The complainant alleges that, during the execution of the contract, the Commission's behaviour was inconsistent, as shown by frequent changes of position when evaluating the complainant’s performance and negotiating a friendly solution. The complainant also alleges that, by requesting a reimbursement in the late stages of the execution of the contract, the Commission has infringed the principle of legitimate expectations.

3.2 The Commission considers that its position was coherent and that it always stated that the intermediate report was not approved and never gave any indication that it has changed its mind. The Commission argues that it explained clearly to the complainant the reasons why the report was not approved and gave it the possibility to provide additional information at every stage of the procedure, which finally confirmed its first evaluation. Therefore, the Commission considers that it did not violate the principle of legitimate expectations.

3.3 The Ombudsman recalls that according to the case law of the European Courts, no one may plead infringement of the principle of protection of legitimate expectations unless he has been given precise, unconditional and consistent assurances from authorised, reliable sources, by the administration(8).

3.4 The Ombudsman has carefully examined the documents submitted to him, including the Commission’s letters to the complainant dated 20 February 2002, 18 April 2002, 18 July 2002, 9 August 2002, 18 December 2002 and 10 March 2003. On the basis of these documents, the Ombudsman takes the view that the Commission has never given the complainant an assurance that its intermediate report would be approved. Moreover, on 18 July 2002 the Commission stated that the execution of the project was not accepted following the intermediate report and, on 10 March 2003, the Commission informed the complainant that it did not consider the complainant able to administer the Community payment according to the contract and that the Commission would be obliged to recover the advance payment(9). Moreover, the Ombudsman has found no evidence that the Commission adopted inconsistent positions as regards either its attitude to the complainant’s reports and contractual performance, or the reasons for that attitude.

3.5 In view of the above, the Ombudsman takes the view that the complainant has not succeeded in showing that the Commission acted inconsistently or in breach of the complainant’s legitimate expectations. The Ombudsman therefore finds no maladministration as regards this aspect of the case.

4 Alleged delay in replying to letters

4.1 The complainant alleges that the Commission's answers to his letters were late, incomplete and failed to indicate the possibilities of appeal.

4.2 The Commission apologised for the delays in answering some communications sent by the complainant and also for not having formally replied to some communications of a repetitive nature.

4.3 The Ombudsman considers that not replying to letters within a reasonable time is regrettable. However, the Ombudsman notes that the Commission has acknowledged its error, apologised for it and that the complainant accepted these apologies in its observations.

4.4 The Ombudsman also notes that the Commission explicitly provided the complainant with the possibility to defend its position. In its letter to the complainant of 18 April 2002, the Commission gave the complainant a 30-day deadline to provide explanations before deciding definitively not to approve the intermediate report and terminate the contract. The Commission also accepted the proposal of the complainant’s Director for a meeting (which took place in December 2002) and invited the complainant’s lawyer for a further meeting (19 August 2003).

4.5 The Ombudsman therefore considers that no further inquiries into this aspect of the complaint are necessary.

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 European Commission will be informed of this decision.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) SINCOM-the budget management application of the Commission

(2) The complainant refers to the first paragraph of Art. 11.3 of the General Conditions of the grant contracts concluded in the frame of external assistance (Annex II to the contract signed between the Commission and the complainant ) which states as follows: "The Commission may terminate the contract without prior notice or compensation in case the Beneficiary:

- does not comply with any one of the obligations incumbent on him insofar as such non compliance is unjustified and if the Beneficiary, having been sent a written request asking him to comply with his obligations, continues not to comply or fails to provide a satisfactory explanation within 30 days from the date of the request".

(3) Art. 1.1 of the General Conditions of the grant contracts concluded in the frame of external assistance (II Annex to the contract signed between the Commission and the complainant): "(...) The Beneficiary may subcontract, preferably to the local enterprises, the execution of a limited part of the project (works and services) but should carry out the execution of the fundamental part. (...) The Community will not recognise any contractual link with the partner or partners of the Beneficiary or with subcontractors (...)."

(4) Supra, footnote 2.

(5) Art. 93.1 (f) of Council Regulation No. 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (JO L 248, 16/09/2002 P. 0001-0048):

"(...)Candidates or tenderers shall be excluded from participation in a procurement procedure if: (f) following another procurement procedure or grant award procedure financed by the Community budget, they have been declared to be in serious breach of contract for failure to comply with their contractual obligations".

(6) Supra, footnote 5.

(7) in original:"Aunque ustedes ya habían recibido en el transcurso del mes de octubre un primer aviso de recuerdo para realizar este reembolso, manifestaron que la nota de débito original nunca fue recibida en su sede."

(8) See Joined Cases T-236/01, T-239/01, T-244/01 to T-246/01, T-252/01 Tokai Carbon Ltd. and others v. Commission, judgement of 29 April 2004, paragraph 152 and the case law there cited.

(9) in original: "Lamentamos comunicarle que, en nuestra opinión, la Fundación El Monte no ha sido capaz de ejecutar y gestionar la subvención comunitaria otorgada en el respeto de las condiciones acordadas. Por todo ello, nos vemos en la obligación de recuperar la cantidad total abonada en concepto de anticipo por incumplimento de contrato (...)."