Dear Mr E.,

On 7 August 2001, you made a complaint to the European Ombudsman against the Commission on behalf of a company, Accelerated Business Growth (UK) Limited. The complaint was registered as 1160/2001/IJH.

On 5 September 2001, I informed you that the Ombudsman had not found sufficient grounds to conduct an inquiry into your complaint because you had not given details of your legal allegations and claims against the Commission. I sent you a complaint form and invited you to renew your complaint. In the same letter, I informed you that, in dealing with complaints concerning a contractual relationship with a Community institution or body, the Ombudsman limits his inquiry to examining whether the Community institution or body has provided him with a coherent and reasonable account of the legal basis for its actions and why it believes that its view of the contractual position is justified.

On 15 September 2001, you sent the completed complaint form and supporting documents to the Ombudsman by recorded delivery post. The Ombudsman regrets that, although these documents were correctly addressed, they were not delivered to the Ombudsman but were returned to you. On 29 October 2001, you sent the complaint form and documents to the Ombudsman by fax. Your renewed complaint was registered as 1590/2001/IJH.

On 4 December 2001, I forwarded the complaint to the President of the European Commission. The Commission sent its opinion on 22 February 2002. I forwarded the Commission's opinion to you with an invitation to make observations, which you sent on 23 March 2002.

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

THE COMPLAINT

In October 2001, Mr E. made a complaint against the Commission on behalf of a company, Accelerated Business Growth (UK) Limited (ABG).

According to the complainant, ABG entered into an EC development funding programme in collaboration with a number of other larger companies. The programme was related to the transport industry in Europe, with ABG contributing to one specific aspect of the programme. This resulted in ABG creating a successful handling system for palletised goods. EC funding was to provide up to 50% of the costs of the project.

The relevant contract was rushed through under "draft" signatures. The complainants stated their concern, but they were assured that their situation would not be affected and were encouraged to get on with the project. A nightmare of irregularities and abuse of power then began, culminating in a backdated contract amendment to cover up the irregularities.

The complainant sought arbitration in the UK, but the UK courts rejected the application because the contract does not contain an arbitration clause.

The complainant annexed an opinion from the complainant's legal adviser, dated 10 November 2000. The opinion analyses the complainant's claim in relation to disputed costs for work carried out by the directors of ABG. It concludes that the Commission has no realistic defence to the claim for payment and that proceedings should be instituted before the Court of First Instance for recovery of the sums due.

In the complaint to the Ombudsman, the complainant stated that ABG does not have the financial capability to take the matter to court, alleges that the Commission has failed to pay for the work that the complainant has carried out under an EC development funding programme and claims payment of UK £ 70 000 plus interest and the costs of pursuing the claim.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made, in summary, the following points:

ABG was a party to a contract related to a transport research project called TACTICS (The Automated Conveying and Transfer of Intermodal Cargo Shipments), together with three other contractors. The contract was signed on 15 December 1997 with a 15-month duration from that date. The contract was an Actual Cost Contract under which the Commission "shall contribute up to and including 50 % of the allowable full costs." The total cost for the project including all the four partners was to be EUR 1 635 600, with a maximum EC contribution of EUR 800 000. Total costs for ABG were estimated to be EUR 368 010 with an EC contribution of EUR 180 000.

During the contract negotiations and according to the normal practice of the Directorate General for Energy and Transport, it was made clear that:

- the allowable costs must be the costs actually incurred and properly recorded in the accounting systems of the contractors; and

- the Commission only provides 50 % co-funding based on actual costs incurred on the project by the contractors.

Since the actual anticipated costs could not be demonstrated, the Commission did not accept the request for a full advance payment. The Commission requested copies of the financial accounts of ABG and evidence to support the labour rates for its two directors. These documents were not submitted. Although some financial concerns remained, the contract was eventually signed but the advance payment was limited to 10% of estimated costs. The requested documents were never supplied.

It soon became apparent that ABG could not meet its obligations under the contract. After approximately 9 months, it was mutually agreed that ABG would leave the project with effect from September 1998 and an amended contract, also including the withdrawal of two other contractors involved in the project, was signed. The amended contract included a reduction to EUR 57 710 of the maximum amount of the Commission contribution payable to ABG. In fact, however EUR 74 710 in total was paid to ABG.

During this period, the technical officer raised questions about the nature and extent of the contribution to the project from ABG and its claims to the Commission. In February 2000, the Commission and ABG agreed that an external firm of accountants could undertake an audit to verify the costs claimed in cost statements. The audit report concluded that many of the costs claimed were ineligible. Total claims from ABG amounted to £ 96 732, whilst the audit report concluded that total eligible costs only represented £ 8 517. The auditors also raised concerns about the ability of the company to pay the 50 % contribution due under the terms of the contract.

As regards the complainant's allegation, the Commission denied that that the work undertaken was not remunerated. The Commission agreed that eligible costs incurred in performing the tasks undertaken up to the date ABG left the consortium should be taken into consideration in calculating its contribution to the project. Those costs which were substantiated were accepted and reflected in the audit report.

As a result of contract Amendment No. 1, the estimated allowable costs for ABG are EUR 57 710, whilst payments made in advance to ABG amount to EUR 74 710. Pursuant to the contract, the Commission agreed to contribute a percentage of the allowable costs of the project up to an agreed 50 % limit. It was the responsibility of ABG as contractor to ensure that the costs incurred can be verified if the Commission considers it necessary. The auditors, who are based in the UK and are familiar with the Commission's Research contracts, found that many of the costs claimed were excessive and could not be verified. The report concluded that eligible costs only amounted to £8 517 in total. The payment overdue will be subject to recovery proceedings.

The Commission annexed to its opinion copies of the original contract, of contract amendment no. 1 and of correspondence relating to the contract.

The complainant's observations

The complainant's observations argued that the Commission had not addressed the allegation of maladministration and also made detailed criticisms of a number of points contained in the opinion.

Furthermore, the complainant pointed out that the Commission had accepted, in a letter dated 8 June 2001 from the Director General of DG Energy and Transport to the complainant's Brussels-based lawyer, that "(t)here is no question that the work has been done and that the quality of the work has been accepted."

The complainant also pointed out that the Commission's position means that ABG carried out 60% of the work (9 months out of 15 originally foreseen) in exchange for an EC contribution that would amount to only 10% of the cost.

THE DECISION

1 The alleged failure to pay for work carried out and the claim for payment, interests and costs

1.1 The complainant company ABG alleges that the Commission has failed to pay for the work that the complainant carried out under an EC development funding programme. The complainant argues that the Commission's position means that ABG carried out 60% of the work in exchange for an EC contribution that would amount to only 10% of the cost.

1.2 According to the complainant, the relevant contract was rushed through under "draft" signatures. The complainants stated their concern, but they were assured that their situation would not be affected and were encouraged to get on with the project. A nightmare of irregularities and abuse of power then began, culminating in a backdated contract amendment to cover up the irregularities.

1.3 According to the Commission, it made clear during the contract negotiations that the allowable costs must be the costs actually incurred and properly recorded in the accounting systems of the contractors and that the Commission only provides 50 % co-funding based on actual costs incurred on the project by the contractors. The contract amendment by which the complainant withdrew from the contract was by mutual agreement.

1.4 The Ombudsman considers that the complainant has not provided evidence to show that the Commission acted improperly to obtain the signatures of the parties, including the complainant, either to the original contract or to the amendment.

1.5 An opinion from the complainant's legal adviser, dated 10 November 2000, analyses the complainant's claim in relation to disputed costs for work carried out by the directors of ABG. It concludes that the Commission has no realistic defence to the claim for payment. The complainant also argued that the Commission had accepted, in a letter dated 8 June 2001 from the Director General of DG Energy and Transport to the complainant's Brussels-based lawyer, that "(t)here is no question that the work has been done and that the quality of the work has been accepted." The complainant claims payment of UK£ 70 000 plus interest and the costs of pursuing the claim.

1.6 According to Article 195 of the EC Treaty, the European Ombudsman is empowered to receive complaints concerning instances of maladministration in the activities of the Community institutions or bodies. The Ombudsman considers that maladministration occurs when a public body fails to act in accordance with a rule or principle binding upon it. Maladministration may thus also be found when the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities is concerned.

1.7 However, the Ombudsman considers that the scope of the review that he can carry out in such cases is necessarily limited. In particular, the Ombudsman is of the view that he should not seek to determine whether there has been a breach of contract by either party, if the matter is in dispute. This question could be dealt with effectively only by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant national law and to evaluate conflicting evidence on any disputed issues of fact.

1.8 The Ombudsman therefore takes the view that in cases concerning contractual disputes it is justified to limit his inquiry to examining whether the Community institution or body has provided him with a coherent and reasonable account of the legal basis for its actions and why it believes that its view of the contractual position is justified. If that is the case, the Ombudsman concludes that his inquiry has not revealed an instance of maladministration. This conclusion does not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

1.9 The Commission argued that, as a result of contract Amendment No. 1, the estimated allowable costs for ABG amount to EUR 57 710, whilst payments made in advance to ABG amount to EUR 74 710. It was the responsibility of ABG as contractor to ensure that the costs incurred could be verified. An audit, carried out by auditors who are based in the UK and are familiar with the Commission's Research contracts, found that many of the costs claimed were excessive and could not be verified. The audit report concluded that eligible costs only amounted to £8 517 in total.

1.10 The Ombudsman notes that the Commission disputes the complainant's contractual claim to be entitled to further payment. The Ombudsman considers that the Commission has provided him with a coherent and reasonable account of its actions and why it believes that its view of the contractual position is justified.

1.11 In the light of the above, the Ombudsman concludes that his inquiry has revealed no maladministration. The Ombudsman does not therefore consider it necessary to inquire further into the complainant's claim for payment of UK £ 70 000 plus interest and the costs of pursuing the claim.

2 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 Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN