The background to the complaint

1. The present complaint concerns a recovery order which the European Commission issued against the complainant.

2. The complainant is a firm which, as one of 17 partners forming a consortium, participated in a project under the Sixth Framework Programme for Research and Development[1]. On 8 November 2006, the Commission concluded a Framework Contract with the consortium's Coordinator, whereby a grant of up to EUR 2 618 980 was made available to the consortium.

3. Annex 1 to the Framework Contract, entitled "Description of Work", stated that the costs for the participation of third party investor experts would be based on a "model" that provided for a daily rate of EUR 400 per person. That rate would be multiplied by the number of persons working and the number of days worked.

4. On the basis of the Framework Contract, the Coordinator concluded separate contracts ("consortium agreements") with each of the 17 partners in the consortium. The Framework Contract and the Description of Work were attached to those contracts. The Coordinator and the complainant concluded a consortium agreement on 16 October 2006. Article 5.1 of this agreement provided that the Coordinator would pay the Community's financial contribution to the partners, but payments were dependent on receipt by the Coordinator of the contributions from the Commission.

5. In an e-mail to the Project partners dated 5 March 2007, the Coordinator referred to some confusion that may have arisen between how costs for "in-house experts" and those for "third party experts" are covered. The Coordinator stated that the constraints relating to in-house experts did not apply to third party experts, except for the fact that third party experts needed to sign time-sheets. It then went on to state that "[t]hese individuals can be charged at a daily rate of € 400 per day, however your organisation is not expected to pay them but you will be able to claim against their time at € 400 a day in your budget, this is allowed within our contract with the EC" (emphasis in the original).

6. Between May 2007 and March 2010, the complainant received six payments totalling EUR 209 904. The Coordinator made these payments, after having received the corresponding amounts from the Commission[2].

7. In the spring of 2010, the Commission asked an external firm to carry out an ex-post audit into three of the partners, including the complainant. In the draft audit report, the auditor pointed out that, on page 103 of the "Description of Work", a model was set out to explain how budgeted costs of EUR 400 per day for the participation of each third party investor expert would be calculated. However, in the auditor's opinion, there was no suggestion that this rate was to be used as a fixed, contractually guaranteed amount, to be paid regardless of what the real costs might be. In the auditor's view, the model was merely meant as an indication of the likely average cost that could be reimbursed. The test as regards whether costs were eligible would, however, have to be made by reference to the real costs incurred. The auditor stated that it was unable to check whether the costs incurred were in accordance with the usual accounting principles of the third party investor experts given that (i) it did not have access to their accounting records and (ii) the complainant had not kept copies of the costs incurred by each investor expert. The auditor pointed out that the complainant did not record the costs in its accounting system and it could not show that the amounts had actually been paid. The auditor concluded that the complainant did not prove that it had incurred the costs claimed. The auditor therefore proposed that all personnel costs (amounting to EUR 94 800) be deemed "ineligible" for funding.

8. The complainant did not agree with the auditor's findings. It argued that, from the start of the project, the Coordinator had informed the Project partners that they "could claim 400 Euros per day for the participation of the third parties, without actually having to pay them". It argued that if there was a problem the Commission should resolve the issue with the Coordinator, and not with the partners[3].

9. On 17 November 2010, the complainant wrote to the Coordinator informing it of the audit and the problems it faced. The complainant reminded the Coordinator that it, that is the Coordinator, had informed the Project partners that they could claim a daily rate of EUR 400 per person for the participation of investor experts, without actually having to pay the investor experts, and that this system had been discussed with and approved by the Commission. The complainant also reminded the Coordinator that, with regard to the rejection of EUR 94 800 in claimed costs, it had in the past asked the Coordinator for official documentation concerning the fact that claiming the daily rate of EUR 400 for investor experts had been approved by the Commission. It stated that it had never received a response to these requests. The complainant informed the Coordinator that, if the Commission were to maintain its position, the complainant would hold the Coordinator liable for all costs and damages.

10. On 16 December 2010, the Coordinator informed the complainant that, following the audit, it also faced the same problem with the Commission and that it had challenged the auditor's findings (in a letter of 7 December 2010). The Coordinator stated that it considered that the relevant costs were fully valid and eligible, and that they should be reimbursed by the Commission.

11. On 21 February 2011, another partner of the consortium, which had also been audited and had been informed of the ineligibility of the costs in question, wrote to the Commission arguing that the Coordinator had informed the partners that the Commission had approved the payment of a EUR 400 daily rate for the participation of third parties in the Project. The partner therefore asked the Commission to send its request for recovery of the costs to the Coordinator, rather than to the partners.

12. On 18 March 2011, the Commission sent the final audit report to the complainant. It stated that it fully confirmed the findings of the auditor and that it considered the audit to be closed. The audit report concluded that, of the total EUR 388 839.40 claimed by the complainant as costs, only EUR 275 352 were eligible. Therefore, it needed to make an adjustment of EUR 113 487.40 in the amount paid to the complainant. (The adjustment consisted mainly of EUR 94 800 in personnel costs, plus other direct and indirect costs.)

13. By e-mail of 1 April 2011, the complainant and the two other audited partners sent a joint letter to the Commission with regard to the issue. On 5 April 2011, the complainant also sent a letter to the Commission separately. The complainant argued that the Coordinator had informed it that (a) it could claim a daily rate of EUR 400 for the participation of third party investor experts and (b) this system had been discussed with and approved by the Commission. The complainant had charged personnel costs in accordance with the information received from the Coordinator. It therefore asked the Commission to address its request concerning the adjustment of the Project costs to the Coordinator.

14. On 6 April 2011, the Commission sent a holding reply by e-mail, stating that "all contractors are supposed to have read the contract and assume connected direct accountability by its signature and therefore be aware of the strict rules relating to costs (costs must imperatively be registered as costs by the claimant in its accounting system as such)".

15. On 18 April 2011, the complainant submitted the present complaint to the European Ombudsman.

16. By e-mail of 5 July 2011, the complainant informed the Ombudsman that, by letter of 24 June 2011, the Commission launched a recovery procedure for the amount of EUR 51 356.66. By e-mail of 12 July 2011, the complainant further informed the Ombudsman that, whereas initially only 3 of the 17 partners had been audited, other partners had now also been informed that an audit focusing on the third party costs would be carried out.

The subject matter of the inquiry

17. In its complaint to the Ombudsman, the complainant submitted the following allegation and claim:

Allegation:

The Commission's decision to recover the ineligible personnel costs from the project partners is unjustified and unfair.

In support of its allegation, the complainant argued that it had declared the costs for the third party investor experts in good faith and on the basis of the information it had received from the Coordinator. In this regard, the Coordinator confirmed that the Commission had agreed to pay a daily rate of EUR 400 per investor expert. The complainant pointed out that the Commission had already started recovering monies from at least one of the partners.

Claim:

The Commission should recover the relevant amounts from the Coordinator, and not from the partners.

The inquiry

18. On 1 June 2011, the Ombudsman opened an inquiry asking the Commission to submit an opinion. On 5 and 12 July 2011, the complainant sent additional information which the Ombudsman also forwarded to the Commission. The Commission sent its opinion on 19 October 2011. The Ombudsman forwarded the opinion to the complainant who sent its observations on it on 25 November 2011. The complainant sent further comments on 28 November and 19 December 2011 and on 15 March, 10 and 21 May 2012.

The Ombudsman's analysis and conclusions

Preliminary remark

19. The Ombudsman has already dealt with the issue which forms the subject matter of the present complaint in the framework of his inquiry into complaint 1096/2011/MMN. That complaint was submitted by another partner of the consortium and also related to a recovery order concerning the costs of third party investor experts. The Ombudsman concluded his inquiry with a finding of no maladministration by the Commission[4].

A. Allegation that the Commission's recovery order is unjustified and unfair and related claim

Arguments presented to the Ombudsman

20. The complainant alleged that the Commission's decision to recover the ineligible personnel costs from the project partners was unjustified and unfair. In support of its allegation, the complainant argued that it had declared the costs for the third party investor experts in good faith and on the basis of the information it had received from the Coordinator. In this regard, it stated that the Coordinator had informed it that the Commission agreed to pay a daily rate of EUR 400 per third party investor expert. The complainant also argued that Project partners should be able to trust the statements of the Coordinator. According to the complainant, the Commission should take a critical look at the Coordinator's role and responsibility. It claimed that the Commission should recover the relevant amounts from the Coordinator, and not from the partners.

21. In its opinion, the Commission referred to Article 1 of the Framework Contract, which states that the consortium is composed of the Coordinator and the other partners who have agreed to the Contract "as contractors assuming the rights and obligations established by the contract". Consequently, all the partners of the consortium, and not only the Coordinator, are bound by the obligations set out in the Framework Contract. The Commission also pointed out that the Coordinator could under no circumstance be considered to act in the name or on behalf of the Commission.

22. The Commission stated that the obligations of the consortium are defined in the General Conditions of the Framework Contract, more particularly in Article II.3. This article assigns to the consortium responsibility for taking all necessary and reasonable measures to ensure that the project is carried out in accordance with the terms and conditions of the Framework Contract. The Framework Contract does not assign this responsibility to the Coordinator in particular. In accordance with paragraph 3 of this Article, the latter simply acts as the intermediary for communication between the contractors and the Commission and as the recipient of the payments made by the Commission in favour of the contractors. The Commission pointed out that the manner in which the Consortium implemented this joint operational obligation was subject to the arrangements made between the members of the consortium, in accordance with Article 1.4 of the Framework Contract.

23. As regards the eligibility of the costs, the Commission stated that the Union's financial contribution to the Project took the form of a grant to the budget. As established in Article II.24.1 of the General Conditions, this contribution is based "on the reimbursement of eligible costs claimed by the contractors" (emphasis added by the Commission). According to Article II.19.1 of the General Conditions, to be eligible, costs incurred by a contractor must be actual, economic and necessary for the implementation of the project (point (a)), and they must be recorded in the accounts of the contractor that incurred them by no later than the date when the audit certificate is drawn up (point (d)).

24. The Commission stated that the auditor had not approved the costs claimed for third party investor experts, as there was no evidence that these costs had actually been incurred. There was, in sum, no record of any payment to the investor experts in the complainant's accounts. The Commission confirmed the findings of the auditor in its letter of 18 March 2011. In the absence of any proof that the complainant had actually incurred costs corresponding to EUR 400 per day per investor expert, the Commission could not consider these costs to be eligible in view of their non-compliance with the eligibility rules in Article II.19.1 of the General Conditions.

25. The Commission stated that it had also decided to audit three other Project partners, including the Coordinator, and that in all cases, the auditor had rejected the costs for the investor experts, since there was no evidence of actual costs incurred and no record of payment in the partners' accounts. The four audits performed on the partners revealed a systematic error in the costs claimed for the participation of third party investor experts. The Commission also stated that it was carrying out desk checks of those partners' claimed costs which had not already been audited and that it intended to proceed with the recovery of the relevant amounts from these partners.

26. As regards the recovery of the ineligible costs from the complainant, the Commission stated that, in accordance with the General Conditions, it can recover the amounts directly from a contractor to which the funds have been paid.

27. The Commission finally pointed out that the project partners should rely on their consortium agreements with the Coordinator, and on any other legal commitment that may exist between them, to solve the issue of financial liability resulting from the reimbursement of disallowed costs.

28. In its observations, the complainant argued that, in its opinion, the Commission had overlooked the core issues of the complaint, namely, the role and responsibility of the Coordinator. It pointed out that the Coordinator had given false/misleading information to the whole consortium, and that, considering the damage suffered by the Project partners (amounting to approximately EUR 1 million), it would be unfair if the Coordinator would now be protected by the provisions of the consortium agreement. It added that the contract gives carte blanche to the Coordinator to provide false information. The Coordinator was the project leader and the intermediary for communication between the project partners and the Commission. The 17 partners of the Project trusted the Coordinator and followed its instructions in good faith. The complainant stated that the Coordinator instructed partners to claim EUR 400 per day plus overheads per third party investor expert, without actually having to pay those investors. The complainant was of the view that the partners should not be affected by mistakes made by the Coordinator and/or the Commission, as this would result in a clearly unfair situation. It enclosed with its observations a further joint letter that seven partners had sent to the Commission, in which they referred to the Coordinator's "instructions" and reiterated their position that they should not be affected by mistakes made by the Coordinator. On 28 November and 19 December 2011, the complainant informed the Ombudsman that three other partners had signed the joint letter.

29. On 10 May 2012, the complainant forwarded to the Ombudsman a copy of a debit note issued by the Commission on 25 April 2012 for the amount of EUR 51 356.66. On 21 May 2012, the complainant sent further information to the Ombudsman, namely, a reply dated 18 May 2012 from the Coordinator to three of the partners, in which the Coordinator stated that it was in no way liable to the project partners in respect of any sums claimed back by the Commission and that there was no financial collective responsibility. The complainant also drew attention to the fact that, whereas the Commission issued a debit note on 25 April 2012, the Project officer sent an e-mail to the complainant on 8 May 2012 asking it to "reconsider again all possibilities of any costs that [it] might have had related to the third party investors and eventually send them to [the] audit unit for a possible reconsideration of the recovered amounts". The Project officer pointed out that many partners forgot to provide the external auditor with "proofs of costs that they in fact had in their accounts" and that, in many cases, partners were able to retrieve copies of bank orders showing that sums had in fact been paid in order for third party investor experts to attend events of the Project. The Project officer therefore asked the complainant to verify again if it possessed proof of such payments.

The Ombudsman's assessment

30. As a preliminary matter, the Ombudsman underlines that the complainant is bound by the provisions of the Framework Contract. This conclusion results from the Framework Contract[5] and the Consortium Agreement[6]. He further notes that the complainant has recognised in its observations that the consortium's obligations were defined in the Framework Contract which set out the performance obligations of all the partners.

31. The Ombudsman considers that both the Commission's interpretation of the Framework Contract and the conclusion it reached appear to be correct, for two reasons.

32. First, the Ombudsman notes that pages 101 and 102 of Annex I to the Framework Contract ('Description of Work') indicate the following: "The budget for this workpackage [...] reflects the significant costs entailed in bringing 100 investors across the partner regions to attend 2 transnational presentation events for selected KBBs. Our extensive experience has shown that investors require incentives for travel and accommodation in order to attend transnational presentation events [...] the budget therefore reflects the costs of the time and expertise of the investors and relevant professionals in attending these events [...]. The costs of this workpackage includes the travel of between 5 and 12 business angels and early stage investors (described as 'third parties') from most of the partner agencies to attend transnational presentation events. Costs are also included for their time in preparation and during the event and afterwards in due diligence (average 5 days per investor) for an average of two transnational events".

33. The above passage suggests that the amount of EUR 400 per day per investor expert was an estimate of the maximum eligible costs that could be incurred during a number of days to cover investors' travel, accommodation and daily subsistence costs. Therefore, it appears that the amount of EUR 400 per day was not a sum that could be claimed by the complainant as a "payment" to it for its own services, including arrangements for the participation of international investors in events. In sum, it should not have been regarded as a payment to partners for finding investors.

34. Second, and as the Commission correctly pointed out, in order to be eligible, the costs must be real[7]. This means that the participant should have incurred these costs in order to obtain the Commission's financing. Therefore, in the absence of evidence that the complainant incurred costs of EUR 400 per day per investor (namely, travel expenses, daily subsistence allowances or financial compensation for the investor's time), it was not entitled to obtain financing from the Commission for this amount.

35. In view of the foregoing, the Ombudsman concludes that, pursuant to the Framework Contract, in the absence of any evidence that it incurred such costs, the complainant could not claim payment of EUR 400 per day per investor expert who participated in the relevant events. In fact, the complainant's main argument concerns the instructions allegedly given by the Coordinator in this respect. The Ombudsman will now address this issue.

36. As regards the instructions allegedly given by the Coordinator, the Ombudsman notes that, in its opinion, the Commission did not address the role played by the Coordinator in relation to the disputed issue. However, this is due to the fact that the Commission considers that the Coordinator cannot be regarded as acting on behalf of the Commission.

37. The Ombudsman agrees that the Coordinator was not the Commission's representative. Any statement or act by the Coordinator[8] which did not result from express instructions given by the Commission does not bind the institution.

38. There is no evidence in the file that the Commission asked the Coordinator to inform the partners of how they should claim costs, that the Commission approved the instructions given by the Coordinator to the partners or that the Commission was even informed of these instructions. Therefore, the instructions the Coordinator gave were based on the Coordinator's own interpretation of the Framework Contract, without any involvement of the Commission.

39. The Ombudsman notes that the Coordinator played an important role as the intermediary between the Commission and the participants in the project in question. Despite the fact that there is no evidence that the Commission actually gave any instructions to the Coordinator that non-incurred costs could be claimed, the Ombudsman does not exclude the possibility that the complainant may have been led to believe, in good faith, that the Commission requested the Coordinator to provide such guidance to the project participants. In this respect, the Ombudsman notes that, in its e-mail of 5 March 2007 addressed to the partners, the Coordinator unequivocally stated that "[t]hese individuals can be charged at a daily rate of € 400 per day, however your organisation is not expected to pay them but you will be able to claim against their time at € 400 a day in your budget, this is allowed within our contract with the EC". The Ombudsman underlines, firstly, that he has no power to inquire into the behaviour of the Coordinator, since it is not an EU institution, body, office or agency. Secondly, even if the complainant was led to believe, in good faith, that the Commission did provide such instructions to the Coordinator, the complainant should still have had serious doubts that it could charge costs without actually having incurred them.

40. The Ombudsman agrees with the Commission's view that it must address its request for reimbursement of sums unduly paid to the beneficiary of the sums in question, that is, in the present case, the complainant. This results from Article II.31.1 of the General Conditions which establishes that "[i]f any amount is unduly paid to the contractor or if recovery is justified under the terms of the contract, the contractor undertakes to repay the Commission the sum in question on whatever terms and by whatever date it may specify". Point 7 of Article II.1 of the General Conditions makes clear that the term "contractor" refers not only to the Coordinator, but also to every participant in the project.

41. In view of the above, the Ombudsman rejects as unfounded the complainant's allegation that the Commission's recovery decision was unjustified and unfair, as well as the corresponding claim.

42. The Ombudsman notes from the latest correspondence sent by the complainant, namely, from the Project officer's e-mail of 8 May 2012 (see paragraph 29 above), that the Commission appears to be ready to reconsider the ineligibility of the costs if the complainant were now able to provide proof of payments made to the third party investor experts. The Ombudsman notes that such a position is consistent with the applicable rules, which require that any payments by the Commission be justified by the necessary evidence of expenditure incurred. The Ombudsman also notes with approval that, by informing the complainant and other partners that, even at this stage in the proceedings, they can still submit the necessary evidence of expenditure incurred, the Commission shows that it is prepared to apply the relevant rules in a reasonable manner. This constitutes good administration.

B. Conclusions

On the basis of his inquiry into this complaint, the Ombudsman closes it with the following conclusion:

There has been no maladministration by the European Commission.

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

 

P. Nikiforos Diamandouros

Done in Strasbourg on 24 October 2012

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[1] The Project, which ran from 1 September 2006 to 31 August 2008 (24 months), was aimed at stimulating cross-border investments by "business angels" (investor experts) in start-up technological companies. It involved the organisation of seven international investment events in which the investor experts participated.

[2] Page 22 ("11.2 Findings") of the draft and final audit reports.

[3] Pages 39-41 of the final audit report.

[4] http://www.ombudsman.europa.eu/cases/decision.faces/en/11693/html.bookmark

[5] In particular, Article 1(2) of the Framework Contract, which states as follows: "The consortium is composed of the contractor acting as coordinator and the following legal entities, who shall accede to the contract in accordance with the procedure referred to in Article 2, as contractors assuming the rights and obligations established by the contract with effect from the date on which it enters into force". Moreover, this provision listed the names of the participants in the project, including the complainant.

[6] Article 12(1) of the Consortium Agreement concluded between the Coordinator and the complainant explicitly indicates that the Framework Contract and its work programme are an integral part of the Consortium Agreement. The Consortium Agreement further establishes that the members of the consortium, such as the complainant, had to charge their fees and expenses in accordance with the Framework Contract and the indicative table of estimated eligible costs (Article 5(2) of the Consortium Agreement).

[7] Article II.19 of the General Conditions.

[8] Such as the statement in the Coordinator's e-mail of 5 March 2007 to the partners that "[t]hese individuals can be charged at a daily rate of € 400 per day, however your organisation is not expected to pay them but you will be able to claim against their time at € 400 a day in your budget, this is allowed within our contract with the EC" (emphasis in the original).