THE BACKGROUND TO THE COMPLAINT

1. In October 2001, the complainant's company, O.J.V. Consultancy Ltd., entered into a contract (research contract FIKS-CT-2001-00172) with the Commission along with eleven other contractors. After the contract came to an end, the contract coordinator ('the Coordinator') asked the complainant to assist him in drafting certain documents relating to the project governed by the contract. This extra work was not part of the work originally contracted to the complainant. However, having already completed and submitted his contractual work, the complainant agreed to help the Coordinator. The extra work was carried out during the additional time-period allocated for drafting and completing the final report.

2. The aforementioned contract foresaw the possibility for an audit to be carried out. By letter of 22 February 2005, the Commission informed the complainant that it would carry out such an audit on the cost statements provided by the complainant's company. The Commission selected the company Deloitte & Touche (Deloitte) for this purpose.

3. By letter of 19 May 2005, the Commission informed the complainant about the result of the audit. In particular, it stated that the auditors had identified certain costs which did not comply with the relevant provisions on cost eligibility in the contract. These included:

(a) costs relating to 44 hours of the extra work carried out, which totalled EUR 2 633.94; and

(b) VAT amounting to EUR 124.77.

4. The complainant contested the audit's above findings. However, both Deloitte and the Commission considered that the said findings were correct. The complainant subsequently sent various letters to the Commission regarding the matter. Although the Commission replied to the complainant's letters, the issue was not resolved to the latter's satisfaction.

5. On 15 January 2007, the complainant therefore turned to the Ombudsman (complaint 217/2007/DK). He complained about the Commission's alleged failure to reimburse him the above sums. After a thorough consideration of the complaint, the Ombudsman rejected it because he found that the complainant had not explained, in a sufficiently detailed way, why he considered that the Commission was wrong to refuse reimbursing him the relevant costs. The Ombudsman informed the complainant about his decision by letter dated 7 March 2007.

6. On 4 April 2007, the complainant sent a letter to the Ombudsman, providing further explanations regarding the matter. In so doing, he gave a detailed account of why he considered the Commission had wrongly refused to reimburse him for the items in question. The complainant's letter of 4 April 2007 was registered as a new complaint (reference number 1462/2007/DK). Based on the further explanations provided in this letter, the Ombudsman decided to open an inquiry.

THE SUBJECT MATTER OF THE INQUIRY

7. On 22 June 2007, the Ombudsman opened an inquiry into the following allegations and claims:

The complainant alleged that the Commission's:

1. refusal to pay for the extra work he was asked to perform is unfair;
2. position as regards the costs of the audit is unfair and discriminatory;
3. position as regards VAT registration is unreasonable because it ignores the fact that registering for VAT would involve disproportionate cost.

The complainant claimed that the Commission should:

1. pay for the extra hours of work; and
2. reimburse him the cost of the audit.

8. The Ombudsman asked the Commission to submit an opinion on the above allegations and claims, as well as to comment on certain arguments put forward by the complainant in his letter of 4 April 2007. These were as follows:

Whether it is ethically acceptable for the Commission not to reimburse the complainant for the extra work carried out but to reimburse the Primary Contractor for the same work;

The Commission's statement, made in its letter of 17 October 2006, that it "cannot regularly reimburse this work" implies that it could reimburse this work under special circumstances;

The complainant was not provided with a copy of Annex II to the Research contract, to which the Commission referred when arguing that the costs of the audit could not be reimbursed;

The fact that, as regards the costs of the audit, a large corporation is reimbursed by way of its overhead charges implies that the contract is prejudicial against the complainant.

THE INQUIRY

9. On 22 June 2007, the Ombudsman asked the Commission to submit an opinion on the above, which it did on 1 October 2007. The Commission's opinion was forwarded to the complainant, with an invitation to submit observations. The complainant sent his observations on 22 November 2007.

THE OMBUDSMAN'S ANALYSIS AND CONCLUSIONS

Preliminary remarks

10. The Ombudsman notes that, according to Article 195 of the EC Treaty, he is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions and bodies". 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 Community institutions or bodies is concerned.

11. However, the Ombudsman considers that the scope of review that he can carry out in such cases is necessarily limited. 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.

12. In this regard, the Ombudsman notes that Article 5 of the contract signed between the complainant and the Commission (research contract FIKS-CT-2001-00172) provided as follows:

"Article 5 - Applicable law and jurisdiction

1. The law of Belgium shall govern this contract.

2. The Court of First Instance of the European Communities and, in the case of an appeal, the Court of Justice of the European Communities shall have sole jurisdiction to hear any disputes between the Community, on the one hand, and the contractors, on the other hand, as regards the validity, the application or any interpretation of this contract."

13. Therefore, the Ombudsman takes the view that, in the present case, he is justified in limiting his inquiry to examining whether the Commission 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 complainant to have the contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

A. Allegation that the Commission unfairly refused to pay for the extra work and the related claim

Arguments presented to the Ombudsman

14. The complainant alleged that the Commission unfairly refused to pay for the extra work that he carried out. He explained that the Coordinator initially requested that he carry out some extra technical work, not directly fall within the complainant's responsibility. Since the complainant had already completed all his work under the contract, he was "happy to assist". This extra technical work was carried out within the primary contract period and the complainant was later paid for it; it does not therefore concern the present complaint. The Coordinator then again requested his help with "some of the overview sections that knitted together the different technical areas and thus pulled" the final report together. The complainant again consented to carry out this extra work, which, however, he did not carry it out within the duration of the project, but rather within the time period foreseen for the drafting of the final report. The complainant pointed out that he responded positively and promptly to the Coordinator's request and he was therefore acting in the Commission's best interest.

15. In its opinion, the Commission argued that it cannot pay for the extra work, since it was carried out after the contract period had ended. In this regard, the Commission referred to Article 22.1 of Annex II of the Contract, which provides that (a)eligible costs must be incurred within the contract period; and (b) for the preparation of the final report, only costs incurred by the Coordinator are eligible costs. In reply to the Ombudsman's question put to it in this regard, the Commission pointed out that its decision to reject the reimbursement of thecomplainant'scostsfor the extra work carried out was in accordance withthecontract's terms. Its actions couldtherefore not be called into question forbeing unfair or ethically acceptable. In fact, it would have been unfair to apply different rules to the complainant than those applied to the other contractors of the same contract. The Commission went on to say that the tasks to be performed by the contractors were established in (Annex I of) the contract. In the event that additional tasks were needed, the contract would have had to be amended. Finally, when replying to the Ombudsman's relevant question, the Commission clarified that its wording "cannot regularly reimburse" referred to the case of the Coordinator, whose work can be reimbursed even after the end of the contract's duration.

The Ombudsman's assessment

16. Article 22.1 of Annex II of the contract provided that:

"Eligible costs are the costs defined in Articles 23 and 24 of this annex. They shall fulfil the following conditions:

- be necessary for the project,

- be incurred during the duration of the project, (...)

Without prejudice to the provisions of subparagraph 1,

- the costs for drawing up the final report shall be eligible when incurred by the coordinator within a maximum period of two months as of the end of the duration of the project (...)" (emphasis added)

17. The Ombudsman notes that the complainant does not dispute that he carried out the extra work after the end of the contract period, that is, beyond the duration of the project.

18. Bearing in mind his statements in paragraph 13 above, the Ombudsman also notes that, in its letter of 15 September 2006, the Commission referred to the relevant provisions of the contract and explained their meaning. The Commission wrote:

"Regarding your work carried out after the end of the contract, we have contacted our legal department for an interpretation. The provisions of Article 4.2 [of the contract] 'However, and without prejudice to the first or second subparagraph, the last cost statement of the coordinator and integrated cost statement shall also cover the period necessary for the drafting of the final report(s) within the maximum time limit of two months as of the end of the duration of the project' means that costs could be incurred by the coordinator within the last two months after the end of the project but not that any other contractor could do this. (...) We maintain our position that your work, as a contractor, after the end of contract is not reimbursable under the contract terms."

19. Furthermore, in its letter of 17 October 2006, the Commission referred again to the above Article, as well as to Article 22.1 of Annex II of the contract. The Commission wrote:

"We refer not only to art. 4.2. of the FP5 contract, but also to art. 22.1 of the General Conditions, which states that: '... eligible costs (...) must be incurred during the duration of the project (...) Without prejudice to the provisions of the first subparagraph, the costs for drawing up the final report shall be eligible when incurred by the Coordinator within a maximum period of two months as of the end of the duration of the project.' Your costs were clearly not incurred by the coordinator. Furthermore, the sense and meaning of 'drawing up' seems to exclude further 'technical work'."

20. Therefore, the Commission explained to the complainant twice in writing the legal basis on which it had rejected his request for reimbursement. In addition, the Commission thoroughly explained the legal (and contractual) basis in its opinion on the present complaint. The Ombudsman considers these explanations reasonable and factually correct. Furthermore, the Commission advised the complainant on two occasions about the possibility, foreseen in Article 5 of the contract, of referring the matter in dispute to the Court of First Instance.

21. Finally, the Ombudsman also notes that Article 6(c) of the contract provides that the contractors (including the complainant) were to be represented by the Coordinator. To this effect, the contractors, including the complainant, signed a power of attorney, which became Annex III to the contract. In this regard, the Ombudsman points out that the Coordinator is not to be equated to the Commission, and the former's actions cannot be attributed to the latter. Furthermore, it was the Coordinator, not the Commission, who asked the complainant to carry out the extra work. In addition, it appears that the complainant voluntarily accepted the Coordinator's request to help with some additional work.

22. The Ombudsman therefore considers that the complainant's allegation has not been substantiated, and finds no corresponding instance of maladministration by the Commission. The Ombudsman's finding is based on the above analysis, and in particular on the following considerations.

(a) The complainant's tasks, together with the conditions of cost eligibility and the relevant deadlines, were clearly provided in his contract with the Commission, and the extra work in question was not part of these tasks.

(b) The complainant was requested by the Coordinator to "help" with some of the work contracted to the Coordinator, and he was not requested by the Commission to do additional work.

(c) According to the complainant, he willingly consented to help the Coordinator. The complainant's related claim must therefore also fail.

B. Allegation that the Commission's position regarding the costs of the audit is unfair and discriminatory, and related claim

Arguments presented to the Ombudsman

23. The complainant alleged that the Commission's position regarding the costs of the audit was unfair and discriminatory. He explained that his company is a very small enterprise ('VSE'), which consists of only two people: himself and his wife. During the audit, his company was required to assist Deloitte, which in reality involved "the best of a week's work". He argued that the Commission's position was unfair and discriminatory because large companies have separate departments and personnel to deal with issues such as assisting audits. In general, large companies charge overheads to cover different costs of equipment, buildings, support staff, etc. These overheads are then "integrated across all their contracts" and may OR can include, for example, the costs of the department that provided the assistance to the audit. This way, big companies can OR may be indirectly reimbursed for the works carried out during the audit. However, as explained above, his company consists of only two people and thus has no possibility to charge overheads and be indirectly reimbursed for said works. The complainant finally pointed out that he did not know about Article 26 (of Annex II to the contract), which foresees the possibility of an audit, as he was never provided with a copy of Annexes I, II or III.

24. In its opinion, the Commission stated that Article 26.1 of Annex II to the contract foresees the possibility of an audit, and Annex II forms an integral part of the contract. In reply to the Ombudsman's question in this regard, the Commission explained that it systematically sends a copy of all Annexes to the Coordinator. It is the latter's responsibility to distribute these copies to the contractors. In the present case, as discussed above, the complainant gave a power of attorney to the Coordinator for the signature of the contract. Moreover, the annexes are available on the Cordis website[2], where the research project was published. The Commission further explained that the audit took place after the end of the project. As stated above, costs incurred after this period are not reimbursable. In addition, the Commission pays the auditors and not the possible expenses incurred by those audited. Finally, the Commission pointed out that there is no contractual basis for the reimbursement of hours worked by those audited.

The Ombudsman's assessment

25. The Ombudsman recalls that his review is limited to verifying whether the Commission gave a coherent and reasonable account of the legal basis for its actions. The Ombudsman has carefully studied the relevant contract and found that it contains no explicit provisions on the eligibility for reimbursement of costs incurred by those audited during an audit. Therefore, the question here concerns the interpretation of the contract, which, according to its provisions, falls under the sole jurisdiction of the Court of First Instance.

26. It is nevertheless useful to address the issue that the complainant was allegedly not provided with the Annexes, which the Commission appears to challenge. In this respect, the Ombudsman notes that Article 8 of the contract states:

"1. The following annexes are an integral part of this contract: Annex I - Description of work, Annex II - General conditions"

27. It would have been reasonable for a person in the complainant's position to ask for and to obtain a copy of the annexes - through the Commission or through the Coordinator. This would have been the only way to learn about their content as they contain (i)the "Indicative breakdown of estimated eligible costs" (Annex I); (ii)the "General conditions" of the contract (Annex II), and (iii)the "duties to be carried out" (Annex III), which are the most important elements of any contract.

28. As the complainant signed a power of attorney to the Coordinator, he could and should have turned to the Coordinator, as foreseen in Article 2 of Annex II. This article provides that "the coordinator shall be in charge of the scientific, financial and administrative coordination of the project. In this respect, he shall be the intermediary between the contractors and the Commission. In particular, he shall be responsible for transmitting to the Commission all documents and correspondence relating to the project."

29. Even if the complainant did not know about the Coordinator's role (as described in Annex II that he allegedly did not receive), he could have checked the Cordis website, which he must have known about.

30. In light of these facts, and in particular of the findings made in paragraph 25 above, the Ombudsman considers that the complainant's allegation has not been substantiated. His related claim must therefore also fail. Accordingly, the Ombudsman finds no instance of maladministration by the Commission regarding these aspects of the present complaint.

C. Allegation that the Commission's position regarding VAT registration is unreasonable

Arguments presented to the Ombudsman

31. The complainant alleged that the Commission's position as regards VAT registration is unreasonable because it ignores the fact that registering for VAT would involve disproportionate costs. The complainant recalled that the UK Inland Revenue Office confirmed to him that "it would have been possible for [his company] to have become VAT registered. However, (...) the effort and subsequent cost of registration is disproportionate both to the VSE and (...) to the Inland Revenue also. And so, registration is actively discouraged."

32. In its opinion, the Commission underlined that there was no obligation for any contracting parties to register for VAT in order to participate in the research project. It also emphasised that Article 22.3 of Annex II of the contract provided that indirect taxes and duties, including VAT, were non-eligible costs. This is true irrespective of whether a contractor can recover the VAT or not. The Commission went on to explain that the complainant was a contractor to a research contract, to which the Commission was contributing financially. Such research contracts are shared cost actions in the sense that the contractors have to contribute to the project. However, the Commission is not a customer of the contractors. Therefore, the provisions foreseen in the contract apply to it and not the standard commercial rules, as claimed by the complainant. Based on the contract provisions, VAT and profit are explicitly excluded for reimbursement by the Commission.

The Ombudsman's assessment

33. The Ombudsman first notes that Article 22.3 of Annex II of the contract provides that "Non-eligible costs are in particular the following: (...) indirect taxes and duties, including VAT". Second, the UK Inland Revenue Office and not the Commission stated that registering for VAT would create a disproportionate burden for the company (and itself). In fact, the Commission left it open for each contractor to decide whether or not to register for VAT.

34. The Ombudsman recalls that discrimination occurs when comparable situations are not treated alike or different situations are treated the same way without any reasonable justification. In the present case, since it was left for each contractor to decide whether or not to register for VAT, and thus to bear what could be considered as a "disproportionate burden", each contractor was in the same position; none of them were treated differently. Similarly, since no contractors could claim the reimbursement of VAT costs, they were treated in the same way.

35. In view of the above, the Ombudsman considers that the complainant's allegation has not been substantiated. The Ombudsman therefore finds no corresponding instance of maladministration by the Commission.

D. Conclusions

On the basis of his inquiries into this complaint, the Ombudsman considers that the complainant's allegations have not been substantiated and he therefore finds no maladministration in the Commission's actions. Consequently, the complainant's related claims must also fail.

The complainant and the Commission will be informed of this decision.

 

P. Nikiforos DIAMANDOUROS

Done in Strasbourg on 22 January 2009

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[1] See the European Ombudsman's Annual Report 1997, p. 22.

[2] http://cordis.europa.eu/fp5/management/provisions/r_provisions.htm