Strasbourg, 4 December 2007

Dear Mr X,

On 31 August 2005, acting on behalf of the company T., you submitted a complaint to the European Ombudsman against the European Commission. The complaint concerned the Commission's decision of 13 June 2005, whereby a number of expenses incurred by the company within the framework of a contract concluded with the Commission for the implementation of a project were considered ineligible for Community financial assistance.

On 8 November 2005, I informed the President of the Commission of your complaint and asked him to submit an opinion by 28 February 2006.

On 7 March 2006, due to difficulties encountered during the internal consultation procedure and to the need to hold political discussions, the Commission requested an extension of the deadline for submitting its opinion until 31 March 2006. By letter of 15 March 2006, I granted the requested extension. On 6 April 2006, the Commission requested a further extension of the deadline for an additional month. By letter of 11 April 2006, I granted an extension until 30 April 2006.

On 7 April 2006, your assistant contacted my services by telephone in order to request information on the latest developments in the case and to provide additional information. He was informed of the extensions that had been granted at the request of the Commission.

On 12 May 2006, the Commission expressed its regret that its opinion had not yet been transferred to the Ombudsman and informed me that it would do its utmost to send the reply within the following two weeks. In my letter of 22 May 2006 to the Commission, I noted with regret that the Commission had failed to meet the extended deadline of 30 April 2006 and emphasised that this fact would be recorded in my files. In a further letter of 9 June 2006, the Commission again expressed its regret for its delay in this case and informed me that it would do its utmost to send its opinion as soon as possible. By letter of 16 June 2006, I expressed my regret at the fact that the Commission had failed to meet the deadline and I informed it that this fact would be recorded in my files.

On 20 June 2006, the Commission submitted its opinion in English. On 4 July 2006, the Commission sent a translation of its opinion in (...), which I forwarded to you on 12 July 2006, with an invitation to make observations. In my letter, I informed you of the several requests for an extension of the deadline submitted by the Commission.

On 5 September 2006, acting on behalf of the company T., you sent your observations on the Commission's opinion. On 8 and 18 December 2006, your assistant again forwarded the same observations, which were acknowledged by my services on 19 December 2006.

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

THE COMPLAINT

Background information:

The complainant was acting on behalf of company "T.". In 1999, this company, jointly with two other companies and two public bodies(1) entered into an agreement with the European Commission's Directorate-General for Energy and Transport ("DG TREN"). The agreement was Contract (…) for Community activities in the field of the specific programme for (…) ("the contract"). The aim of the contract was the implementation by the five contractors of the project entitled (…) (the "S. project").

The purpose of the project was to demonstrate the technical and economic viability of (…). It involved the installation of (…) systems in the premises of public or private institutions (the so-called beneficiaries or "maîtres d'ouvrages") in (…) and (…).

The duration of the project was thirty-six months(2). In addition to being one of the contractors, T. acted as the general co-ordinator of the project and the intermediary between the contractors and the Commission.

Contract (…) provided that the project would be partially financed by the Commission through the Fifth European Community framework programme covering research, technological development and demonstration activities for the period 1998-2002 (the "Fifth Framework Programme"). It was foreseen that T. would receive the financial contribution from the Community.

T. was responsible for two installations at the premises of (…), and at the premises of (…) in (…). T. concluded individual agreements with (…) and ( )(3). (…) and (…) were referred to in these individual agreements as maîtres d'ouvrages publiques, that is, the public body in charge of the project.

Local project supervisors, or "maîtres d'oeuvre", chosen for each premises, would be in charge of monitoring the works undertaken by selected companies.

The complaint:

The complainant explained that, as clearly described in the work programme of the project(4), and in order to comply with (...) public procurement law as regards transparency, the maîtres d'oeuvre, which monitored the works and the companies undertaking the work (for example, providers), directly charged the maîtres d'ouvrages for the expenses incurred in the installation of (…). Therefore, they directly sent the invoices to them rather than to the contractor and co-ordinator of the project, namely, T. Subsequently, such expenses would be formally included under the heading "subcontracting" in the presentation of the final cost statements to be addressed to the Commission by T.

The complainant considered that the Commission's decision of 13 June 2005, by which it failed to accept invoices justifying significant amounts as regards the project, had a negative impact on the maîtres d'ouvrages that agreed to have the (…) systems installed. T. argued that the invoices corresponded to the object of the contract and could easily be checked. The complainant considered that the Commission's argument, according to which the invoices should had been registered on T.'s accounts, was incompatible with (...) public procurement law and that only an accounting fiction would have made it possible for T. to respect the rule imposed by the Commission since 2004. He considered that the Commission had treated T. in an inflexible and unjustified manner, while the company had respected the contract's technical requirements. The complainant also emphasised that, although the initial number of installations had been reduced, the project had been successfully completed.

The complainant attached to his complaint a copy of T.'s correspondence with the Commission, as well as of some parts of Annex IB (Description of the work)(5). He also included a copy of T.'s correspondence with (…) and (…), as well as of the "S. convention" concluded between T. and (…)(6).

According to this correspondence, on 11 October 2004, T. submitted to the Commission additional information on the previously submitted final cost statements. However, by letter of 31 January 2005, the responsible Head of Unit in DG TREN informed T. that, after conducting an in-depth analysis, the Commission had identified several mistakes and misunderstandings in the statements, which had to be rectified. The Commission granted the company one month to provide the requested information. Otherwise, the contract would be closed and only properly substantiated costs would be considered for reimbursement. The Commission reminded T. that the institution might require reimbursement of any overpayment made and asked it to inform the other contractors accordingly.

The Commission referred, in particular, to the cost statements submitted by T. on project work developed both during the periods between (i) 1 November 2000 and 31 December 2002 and (ii) 1 May 2003 and 31 October 2003. It pointed out, as regards their "subcontracting" section, that each contractor had to submit its own costs and that a contractor could not, at the same time, act as a contractor and a subcontractor. The Commission also emphasised that only those invoices that referred to the project and were sent by the subcontractors to T. and had already been paid by the latter could be submitted under subcontracting and be reimbursed. In this regard, the Commission referred to Articles 5 and 23 of Annex II of the contract(7). The Commission recalled that the responsible official in DG TREN had previously addressed these issues in his e-mails of 26 February and 27 July 2004(8).

By letter of 11 March 2005, T. emphasised that the accounting and contractual difficulties it faced were the consequence of the contradictory clauses that it had, in good faith, accepted in 1999. T. explained that the procedure that it had followed so as to organise the works and to bill each maître d'ouvrage, was described, in detail, in Annex IB(9) of the contact. T. clarified that the maîtres d'ouvrage were neither contractors nor subcontractors, in the sense of Annex II (General conditions) of the contact. T. emphasised that, as explained on page 8 of Annex IB of the contract, the expenses included under the heading "subcontracting" were not subcontracting expenses, since the invoice for the installation of each (...) system would not be paid by a contractor (T.), and added that this procedure had been duly explained and justified.

T. included those expenses under the heading subcontracting simply in order to comply with the transparency rules for public tenders laid down by (...) public procurement law, which applied, notwithstanding the Commission's financing. T. mentioned that, during the negotiation stage of the contract, it had provided the Commission with the letters signed by each of the nine initial beneficiaries (which owned the premises for the installations), including (...) and (...). In these letters, (…) and (…) undertook, inter alia, to find the necessary financial resources. On the basis of the contract, T. recalled that it had concluded agreements with each of the two beneficiaries. In light of the above, T. considered that, from a practical perspective, it had respected the work programme annexed to the contract(10), notwithstanding the reduction of the number of selected premises from nine to two.

From a financial perspective, T. acknowledged in the same letter that, although it would have been possible to respect the terms of the general conditions of the contract included in Annex II by recording the contested invoices in T.'s or another contractor's accounts, it had decided not to do so. It went on to point out, first, that the Commission had not addressed any remark to T. in this respect during the duration of the project and the two reminder e-mails from the responsible official were sent in 2004, namely, several months after the project was closed. Second, it also explained that according to Annex II of the contact, subcontracting amounts should not exceed 20% of the contractor's estimated eligible costs. However, the contested invoices significantly exceeded this figure, since they corresponded, in fact, to the setting up of the installations. T. also argued that the Commission had previously examined and subsequently accepted the total amount included under the heading "subcontracting" of the initial contract (EUR 1 717 511), which was, in T.'s view, quite high when compared to the total cost of the project (EUR 1 999 868). Therefore, it was difficult to understand why, at the end of the works undertaken on the already accepted basis and signed by all parties, the Commission was questioning the subcontracting aspect of the contract and had changed its position. In order to support its arguments, T. also mentioned that a previous similar contract was audited and, subsequently, approved for payment by another Commission official, without difficulties. T. finally expressed its wish quickly to solve its differences with the Commission and its will to meet the responsible services, in order to provide additional information.

By letter of 13 June 2005, the responsible Head of Unit informed T. that the procedures for the final payment of the Commission's participation in the S project had started(11) and that the payment would be made to T. in three instalments. However, notwithstanding T.'s comments of 11 March 2005, the Commission was not yet in a position to consider the claimed subcontracting costs as eligible under the contract. The responsible Head of Unit mentioned that, according to the general principles included in Article 22.1 of Annex II of the contract, eligible costs should be recorded in the accounts no later than the contract completion date. Since many of the invoices submitted to the Commission had not been addressed to T., and therefore would not be recorded in its accounts, they could not be considered as eligible costs. Any disagreement should be communicated to the Commission in writing and by registered mail, within a deadline of one month from receipt of the letter. This communication should contain due justification of the reasons for the disagreement, and should attach supporting documents, Otherwise, the project would be officially closed and no further costs could be claimed.

The Commission's letter of 13 June 2005 included a copy of the final financial tables. According to this information, the Commission had refused all subcontracting costs submitted by T. Since invoices did not show that the subcontractors had invoiced T.(12), it was clear that none of the costs had actually been included by the company and recorded in its accounts. Therefore, the Commission concluded that, from a financial and contractual point of view, it was impossible to accept these costs as eligible. Moreover, the Commission emphasised that it was not always clear which amounts had been charged to the contract or why those amounts had been charged.

After receiving the Commission's letter of 13 June 2005, the complainant's assistant sought to contact the (then) responsible Commission official by telephone. On 29 June 2005, he wrote an e-mail requesting a meeting to clarify the situation. He proposed several dates, even after the expiry of the one-month deadline provided by the Commission in its letter of 13 June 2005 for the submission of additional documents. By e-mail of 7 July 2005, the responsible official explained to the complainant's assistant that, although the responsible Head of Unit had been informed of his request for a meeting, he regretted that he would have to refuse it. As established in the Commission's letter of 13 June 2005, any complaint had to be submitted in writing, together with supporting documents. The e-mail emphasised that it was impossible to consider as "eligible costs" expenses that had not been billed to the contractor. Further, since the problem was administrative and related to accounting, the Commission's services were not able to intervene further. T. was informed that the one-month deadline for the notification of disagreements had been, in any case, exceptionally extended by ten days, that is, until 23 July 2005.

In his complaint to the Ombudsman, the complainant alleged, in summary, that the Commission:

1. acted unreasonably by not allowing the complainant to meet its services, as he had formally requested on 11 March and 29 June 2005 in order to explain his position concerning the expenses in question, and
2. adopted an excessively restrictive approach to expenses that qualify as eligible under the contract.

He claimed that, in the interests of research and development in renewable energies, the Commission should review its position as regards the eligible expenses under the relevant contract.

Additional information:

In a telephone conversation with the Ombudsman's services, the complainant's assistant emphasised that he would like to solve the problem in an amicable way and to meet the Commission's services in order to discuss the matter. He explained that he had recently been informed that the official previously in charge of his case at the Commission, that is, the official who had refused to meet him, had left his post, and had been replaced by an official who, apparently, was ready to meet T.'s representatives and to reach an amicable settlement.

THE INQUIRY

The opinion of the Commission
Background information:

In its opinion, the Commission first clarified that only two installations of the nine that had originally been foreseen in the contract had been built in (…) under T.'s co-ordination (one in (…) and the other in (…))(13).

Since not all the costs initially foreseen as eligible were incurred, the Commission's contribution to the project had been significantly reduced. It had been further reduced due to T.'s submission of non-eligible "subcontracting costs" and the subsequent rejection of these "subcontracting costs" by the Commission. The Commission clarified that, apart from subcontracting costs, it had rejected only insignificant amounts. The Commission also pointed out that the main question in the present complaint was not whether the Commission had recognised the work done by the specific contractor or whether the contractor had failed to implement the project, but rather the non-recognition of invoices submitted by T.

According to the financial data presented in the Commission's opinion(14), it appears that T. submitted three cost statements: (i) statement 1, for the period running from 1 November 2000 to 31 December 2002, which was received by the Commission on 7 August 2003; (ii) statement 2, for the period from 1 January to 30 April 2003, received on 17 September 2003, and (iii) a final cost statement, covering the period from 1 May to 31 October 2003, received by the Commission on 25 June 2004. In 2005, the Commission made a total payment of EUR 23 807.86(15) excluding an advance payment made in 2002. All subcontracting costs claimed by T. in the three cost statements had been deemed ineligible to be charged to the contract and had not been accepted by the Commission.

The Commission included, with its opinion, copies of (i) the contract and its Annexes; (ii) two of the contested invoices submitted by T(16); (iii) the Commission's e-mails to T. of 26 February and 27 July 2004; (iv) a letter, without date, sent by the Commission to all the contractors asking them to submit the final technical and financial reports(17); (iv) the Commission's letter of 31 January 2005; (v) the Commission's e-mail to T. of 7 July 2005; (vi) the technical approval sheets, and (vii) the Commission's letter to T. of 13 June 2005.

Unreasonable attitude as regards meeting its services

The Commission explained that, after receiving T.'s first cost statement on 7 August 2003, the company was informed, by e-mails of 26 February and 27 July 2004, of the institution's position as regards the eligibility of costs. The Commission expressed regret for its delay in providing the company with this information.

The Commission emphasised that its services had always respected T.'s right to present its arguments on condition that they were presented in writing, together with supporting documents. It added that the company had been accordingly informed. The Commission expressed its opinion that invoices, which certify certain transactions, become valid documents once they are issued and explained that T.'s invoices were not acceptable in the form they had been presented.

Therefore, the Commission considered that there was no room for adjustments, as far as the invoices were concerned. It could only re-examine its stance when the contractor produced correct invoices. For that reason, the Commission's responsible services had, by e-mail of 27 July 2004, written to the complainant to explain the requirement for presenting supporting documents. The Commission explained that it had not deprived T. of its right to present its views, but had merely required it to present the relevant documents. In a further e-mail of 7 July 2005, T. had been explicitly invited to submit its arguments with supporting documents. This condition was never respected. The Commission underlined that it had never denied T.'s right to submit additional documents.

Finally, the Commission did not agree with the complainant's argument that T. could not keep its accounts in accordance with the requirements laid down by the Commission, since such a failure would constitute an infringement of (...) public procurement law, and strongly rejected the argument that it had given T. incentives to keep its accounts "à la limite de la légalité". It emphasised that the principles of accountancy which were applied in this case were appropriate.

Excessively restrictive approach to eligible expenses

The Commission rejected the complainant's allegation that it had adopted an excessively restrictive approach to the expenses that would qualify as eligible under the contract.

The Commission first explained that the contract, concluded under the "Fifth Framework Programme", was a cost-shared contract in which the Community reimbursed the contractor a specified percentage of costs actually incurred by the contractor. It pointed out, that, according to Article 109 of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the genera l budget of the European Communities(18), the contractor cannot make profits on the basis of the Community's financial contribution.

The Commission explained that, according to the first paragraph of Article 5(1) of Annex II of the contract, "[c]ontractors may conclude subcontracts where this proves necessary for the performance of their work" (...) and that the second paragraph of Article 5(1), point (a) provided for limits in excess of which the contractor needed a prior written approval, by the Commission, in order to conclude a subcontract. The Commission also emphasised that Article 5(2) of Annex II set out that "[t]he contractor shall ensure that subcontracts include an obligation for the subcontractors to submit invoices making reference to the project and providing a detailed description of the tasks or supply concerned."

The Commission further explained that, in the case of subcontracting, the contractor was normally invoiced by a third party and that the invoice was then presented to the Commission as a cost incurred by the contractor. All subcontracting invoices were carefully assessed by the Commission in order to prevent a situation whereby Community financial contributions would be excessively shifted to third parties that had not been evaluated and chosen in the selection procedure which was to lead to the award of a grant. The Commission emphasised that it could not reimburse costs that had neither been incurred by the contractor, nor costs which were not reported in its accounts.

As regards the complainant's argument that he had informed the Commission about its working methods from the very beginning (when it submitted its project) and that the Commission had never explained that the proposed working method was not compatible with the terms of the contract, the Commission emphasised that, in the project work plan attached to the contract, the complainant had simply referred to subcontracting as T.'s chosen working method. Since subcontracting costs were eligible under the terms of Annex II of the contract, the Commission considered that there was no reason for it to comment on the working arrangement or even to suspect that the complainant might have misunderstood the terms of the contract.

In particular, the Commission emphasised that, since the complainant had submitted invoices of sub-subcontractors addressed to subcontractors which did not make any reference to the project, T. had not respected the requirements of Article 5 of Annex II that invoices had to be addressed to the contractor and that they had to contain a reference to the project. Therefore the Commission maintained that these costs were not considered eligible. The Commission pointed out that, in a certain case(19), T. had claimed its costs twice by presenting its own invoice for costs for which it expected payment from another company.

In light of the above, and most notably, in view of the need to ensure the proper implementation of the Community budget, the Commission considered that its position was not excessively restrictive, but rather a logical and proper application of the provisions of the contract.

Conclusions

The Commission recognised that, in accordance with the Ombudsman's Decision on complaint 100/2004/GG(20), "cases of maladministration might also be found when the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities is concerned". However, it also emphasised that, in this decision, the Ombudsman had pointed out the limited scope of his review in such cases(21). The Commission further pointed out that, according to this decision and in cases concerning contractual disputes, the Ombudsman was justified in limiting his inquiry to examining whether the Community institution or body had provided him with a coherent and reasonable account of the lega l basis for its actions and why it considered that its views of the contractual position were justified(22).

On the basis of these considerations, the Commission submitted that its decision to reject the eligibility of costs was based on the contract's provisions. It also argued that it had acted in a diligent and reasonable manner by carefully examining the costs resulting from subcontracting and, as in this case, sub-subcontracting, based on the reasons stated above.

The Commission also argued that its decision had been further communicated to T. on several occasions and was duly substantiated. Therefore, the Commission considered that the requirement, as mentioned in its e-mail of 7 July 2005, that it could re-examine its position only upon presentation of the supporting documents was fully reasonable. It also emphasised that the contractor was expressly invited to present its arguments and reiterated that it had respected the contractor's right to present its arguments, on condition that they were presented in writing, together with supporting documents, and stressed that it had never denied T. its right to submit additional documents which could influence the Commission's decision as to the eligibility of costs.

In view of the above, the Commission rejected the complainant's two allegations.

The complainant's observations

In his observations, the complainant acknowledged that he had properly understood the very detailed and precise argumentation developed by the Commission and mentioned that he did not, in principle, disagree with it.

However, on behalf of T., the complainant formulated several remarks. First, he considered that professionals in the area of (...) technology still needed the Commission's support to develop the technology.

The complainant also acknowledged that, as affirmed in its opinion, the Commission could not reimburse costs which had neither been incurred by the contractor, nor costs which were not reported in its accounts. By contrast, he formulated two remarks in this respect.

First, he explained that, during the 1990s, numerous European projects had been developed, under the aegis of (…), in complete contradiction with the above statement. Since T. had taken part in these projects, the current work programme for the S project had been drafted following the same logic.

Second, the complainant stated that the procedure followed by T. was thoroughly described on page 8 of chapter 2 ("Project Work Plan") of Annex 1B to the contract. According to this description, the "works" ("travaux") would mainly appear under the heading "subcontracting". These subcontracting operations would be absolutely transparent, since the total of the works and works supervision (maîtrise d'oeuvre) would be included in separate invoices which were to be sent to the different beneficiaries (maîtres d'ouvrages")(23). In addition, the complainant explained that, as set out on page 25 of chapter 4 ("Project Management") of the same Annex, in the point related to the works ("travaux"), the selected companies would carry out the works under the supervision of the local project supervisors. Those companies would bill the total of their services to each beneficiary (maître d'ouvrage), to which the allocated Commission share would then be directly paid(24). In light of the above, the complainant clarified that invoices were addressed to each beneficiary, and emphasised that beneficiaries were not "contractors". He also clarified that T. was not a beneficiary and went on to affirm that, since the Commission had signed the contract and thus accepted the procedures described above, the company could not have anticipated that, subsequently, the invoices would be refused.

Although the complainant was well aware of the Commission's concerns as regards the abusive shift of the Community financial contribution to third parties that had been neither evaluated nor chosen in the selection procedure, he emphasised that T. was not in such a situation, since the contested third parties (i) were public bodies; (ii) had carried out visible and easily verifiable works, which entirely corresponded to the project and its objectives; and (iii) had selected the companies through a public tender, under the very restrictive framework of the Public Works Contracts.

The complainant also contested the Commission's somewhat abusive statement that the submitted invoices "did not make any reference to the project". Although, as the complainant recognised, a reference to the contract between the Commission and T. was not included in the invoices, the invoice addressed to (...), for instance, mentioned, specifically, the type of work carried out by T:.

The complainant contested, on the grounds of the logic described in the work programme, the Commission's statement that T. had claimed its costs twice by presenting its own invoice.

In the complainant's view, the only solution for T. to prove its good faith, as well as the internal contradictions inherent in the contract, would be to start legal proceedings. However, he stated that T. had no intention of making use of this possibility, which was not economically viable for a small and medium-sized enterprise.

The complainant reiterated his claim that rules should be applied in a reasonable way, which should be consistent with the content of the contract. He expressed the hope that a favourable resolution of the question would be found.

THE DECISION

1 Unreasonable attitude of the Commission as regards meeting its services

1.1 The complainant is acting on behalf of the (...) company ("T"). He alleges that the European Commission acted unreasonably by not allowing T.'s representatives to meet its services as had formally been requested on 11 March and 29 June 2005, in order to explain their position concerning the expenses that qualified as eligible under contract N° (…) for Community activities in the field of the specific programme for (…) ("the contract") , as it had formally requested on 11 March and 29 June 2005.

On 31 January 2005, the Commission informed T. of several mistakes and misunderstandings identified in the additional information on the final cost statements submitted by the company on 11 October 2004 and granted it one month to provide the requested information. Otherwise, the contract would be closed and only properly substantiated costs would be considered. In his letter of 11 March 2005, the complainant's assistant provided additional information to the Commission and expressed a wish quickly to solve its differences and to meet the Commission in order to provide additional information. However, the Commission ignored this request.

Following the Commission's letter of 13 June 2005, in which T. was informed that certain subcontracting costs would not be considered to be eligible, the complainant's assistant sought to contact, by telephone, the responsible Commission official. On 29 June 2005, the complainant's assistant sent an e-mail to the responsible Commission services, requesting a meeting with a view to clarifying the situation on subcontracting and proposing several dates. However, by e-mail of 7 July 2005 to the complainant, the responsible Head of Unit expressed his regret that he would have to decline this request and that, as explained in the Commission's letter of 13 June 2005(25), any complaint had to be submitted in writing, together with supporting documents. The Commission also informed T. that the one-month deadline for the notification of any disagreement, of which he had been informed in the Commission's letter, had been, in any case, exceptionally extended by ten days, that is, until 23 July 2005.

1.2 In a telephone conversation with the European Ombudsman's services, the complainant's assistant expressed its intention to solve the problem in an amicable way and to be able to meet the Commission's services in order to discuss the matter.

1.3 In its opinion, the Commission explains that, after having received T.'s first cost statement on 7 August 2003, the company was informed of the institution's position by e-mails of 26 February and 27 July 2004. The Commission expressed its regret for its delay in providing T. with this information.

The Commission emphasises that its services have always respected the complainant's right to present its arguments on condition that they be presented in writing, together with supporting documents. By e-mail of 27 July 2004, the Commission informed T. accordingly. As regards the present case, the Commission explains that T.'s invoices were not acceptable in the form they were presented. Therefore, the Commission considers that it could only re-examine its position if the contractor produced correct invoices. The Commission contends that it has not deprived the complainant of his right to submit additional documents.

The Commission argues that, since its decision to reject the costs had been communicated to the contractor on several occasions, and was duly substantiated, the condition set out in its e-mail of 7 July 2005 that it could re-examine its position only upon presentation of the supporting documents (the correct invoices) is reasonable. It notes that the contractor was expressly invited to present its arguments, along with the relevant supporting documents. However, T. did not do so.

1.4 In his observations, the complainant does not make additional comments on this point, but expresses his hope that a favourable resolution of the subcontracting question will be found.

1.5 The Ombudsman recalls that the European Code of Good Administrative Behaviour provides, in its Article 12(1), that:

"[t]he official shall be service-minded, correct, courteous and accessible in relations with the public. When answering correspondence, telephone calls and e-mails, the official shall try to be as helpful as possible and shall reply as completely and accurately as possible to questions which are asked."

1.6 The Ombudsman notes that it appears that the Commission did not, in its letter of 13 June 2005, specifically address T.'s request for a meeting on 11 March 2005. However, in this letter, the Commission informed T. that any disagreements with its decision to exclude subcontracting costs as eligible costs under the contract should be communicated to it in writing, by registered mail, duly justifying its reasons and attaching supporting documents. Otherwise, the project would be officially classified as closed. The Ombudsman also notes that the Commission granted T. a one-month period in order to express its disagreement with the Commission's decision of 13 June 2005 and that, on 7 July 2005, this deadline was extended by ten days.

1.7 The Ombudsman is of the view that, given the technical nature of the dispute, and, in particular, given that, in essence, it concerned the existence and the classification of documents, the Commission's position that it was appropriate to deal with the issue in writing, rather than in a meeting, seems reasonable. In light of the above, the Ombudsman considers that the Commission has taken appropriate steps in order to offer T. the possibility to present its views concerning subcontracting costs. In these circumstances, the Ombudsman finds no maladministration as regards this allegation.

2 The Commission's excessively restrictive approach to eligible expenses and related claim for a revision of its position

2.1 The complainant alleges that the Commission adopted an excessively restrictive approach to the expenses qualifying as eligible under Contract N° (…) and claims that the Commission should review its position as regards this point.

2.2 The complainant was of the opinion that the invoices submitted to the Commission corresponded, in fact, to the object of the contract and were easily verifiable. He explained that both the maîtres d'oeuvres and the companies undertaking the work directly charged the maîtres d'ouvrages for the expenses incurred in the installation of the (...) devices. Therefore, they directly sent the invoices to the maîtres d'ouvrages rather than to T. such expenses were then formally included under the heading "subcontracting" In the presentation of the final cost statements sent to the Commission by T., such expenses were then formally included under the heading "subcontracting".

The complainant referred to the Commission's argument that, in order to be considered "eligible", the invoices should have been registered directly on T.'s accounts. In this regard, the complainant argued that the registering of the invoices on T.'s accounts was incompatible with (...) public procurement law and that only an accounting fiction would have made it possible for the company to respect this provision. He considered that the Commission had treated T. in an inflexible and unjustified manner, even though the company had respected the technical requirements of the contract.

2.3 The complainant also noted that the Commission had not made any remark as regards subcontracting during the duration of the project and that the two reminder e-mails of 26 February and 26 July 2004 dated from several months after the project had been closed. Since the Commission had previously examined and subsequently accepted the total amount included under the heading "subcontracting" of the initial contract(26), which was quite high when compared to the total cost of the project(27), it was difficult to understand why the Commission had, subsequently, changed its position.

2.4 In its opinion, the Commission first clarified that its initial contribution to the project had been significantly reduced, since the results of the technology had not been very positive and not all the costs initially foreseen as eligible had been incurred. It had subsequently been further reduced due to the submission by T. of non-eligible subcontracting costs. Apart from the issue of subcontracting costs, the Commission had rejected only insignificant other costs.

2.5 The Commission rejected the complainant's allegation that it had adopted an excessively restrictive approach to the expenses that would qualify as eligible.

The Commission explained that, according to Article 5(1) of Annex II of the contract, contractors may conclude subcontracts where this proves necessary for the performance of their work. Article 5(1)(a) provided for limits in excess of which a prior written approval by the Commission was required in order to conclude a subcontract. The Commission also explained that Article 5(2) of Annex II set out the contractor's obligation to ensure that subcontracts included an obligation for the subcontractors to submit invoices that referred to the project and provided a detailed description of the tasks concerned. The Commission explained that all subcontracting invoices were carefully assessed in order to prevent a situation whereby Community financial contributions would be excessively transferred to third parties which had not been evaluated and chosen in the selection procedure which led to the award of a grant. The Commission noted that it could not reimburse costs that either had not been incurred, or that had not been reported in the accounts of the contractor.

The Commission emphasised that, in the project work plan annexed to the contract(28), the complainant had simply referred to subcontracting as the chosen working method. Since a certain amount of subcontracting costs can be deemed eligible under the terms of Annex II of the contract, the Commission had considered that there was no reason for it to comment on the working arrangement or even to suspect that the complainant might have misunderstood the terms of the contract. In any event, since the complainant had submitted invoices of sub-subcontractors addressed to other subcontractors, and invoices which did not make any reference to the project, the Commission considered that T. had not respected the requirements of Article 5 of Annex II. Therefore, the contested costs were not considered to be eligible costs.

The Commission considered that its position was not excessively restrictive, but rather a logical and proper application of the provisions of the contract.

2.6 In his observations, the complainant acknowledged the Commission's detailed and precise argumentation and did not, in principle, disagree with it. He agreed that the Commission could not reimburse costs which had been neither incurred by the contractor nor reported in its accounts. However, he emphasised that, during the 1990s, numerous European projects had been developed, under the aegis of (…), in complete contradiction with this statement. Since T. had taken part in them, the current work programme for the S project had been drafted following the same logic.

The complainant also explained that the procedure followed by T. was precisely described on page 8 of chapter 2 in Annex 1B, according to which, the "works" ("travaux") would mainly appear under the heading "subcontracting". These subcontracting operations would be absolutely transparent, since the total of the works and works supervision (maîtrise d'oeuvre) would give rise to invoices addressed to the different beneficiaries ("maîtres d'ouvrages"). In addition, the complainant explained that, as set out on page 25 of chapter 4 of the same Annex, in the point related to the works ("travaux"), the selected companies would carry out the works under the supervision of the local project supervisors. Those companies would bill the total of their services to each beneficiary (maître d'ouvrage), to which the allocated Commission share would then be directly paid.

In light of the above, the complainant clarified that invoices were addressed to each beneficiary, and explained that beneficiaries were not contractors and that T. was not a beneficiary. The complainant went on to affirm that, since the Commission had signed the contract and thus accepted the procedures described above, T. could not have anticipated that the invoices would subsequently be refused.

Although the complainant recognised that a reference to the contract between the Commission and T. was not included in the submitted invoices, he argued that, for instance, the invoice addressed to (...), mentioned, specifically, the works for (...).

The complainant reiterated his claim that rules should be applied in a reasonable way, as well as in a manner that was consistent with the content of the contract. He also expressed his hope that a favourable resolution of the question would be found.

2.7 According to Article 195 of the EC Treaty, the Ombudsman is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions and bodies". The Ombudsman considers that maladministration occurs when a public body fails to act in accordance with a rule or principle which is binding upon it(29). 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.

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

The Ombudsman therefore takes the view that, in cases concerning contractual disputes, he is justified in limiting 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 will conclude that his inquiry has not revealed an instance of maladministration. This conclusion will not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

2.8 The Ombudsman also notes that, according to its Article 5, the contract is governed by the law of Belgium and that any disputes between the Community, on the one hand, and the contractors, on the other hand, as regards the validity, application or any interpretation of the contract fall within the sole jurisdiction of the Court of First Instance of the European Communities and, on appeal, of the Court of Justice.

2.9 The Ombudsman has carefully examined the legal basis for the Commission's action as regards the complainant's second allegation, namely, Contract N° (…).

The Ombudsman notes that , according to Article 1(8) of Annex II of the contract, a subcontract is an agreement to provide services, supplies or goods concluded between a contractor and one or more subcontractors for the specific needs of the project. According to Article 5(1) of Annex II, contractors may conclude subcontracts where this proves necessary for the performance of their work(30). The Ombudsman therefore concludes that, in principle, it was possible for T. to use subcontractors to carry out certain work.

2.10 The Ombudsman notes that, according to Article 5(2) of Annex II, "the contractor shall ensure that subcontracts include an obligation for the subcontractors to submit invoices making reference to the project and providing a detailed description of the tasks or supply concerned."

Eligible costs are defined in Articles 23 and 24 of Annex II. Subcontracting costs are included in Article 23(3), which deals with direct costs(31). According to this provision:

"(...)

3. Subcontracting

With the exception of costs charged to the contract pursuant to paragraph 1 of this article, the actual costs of subcontracts may be charged to the contract if:

-they are incurred in compliance with the conditions set out in Article 5 of this Annex,

-the subcontracts are awarded and concluded in accordance with the usual procedures of the contractors,

-they are in accordance with market prices,

and,

-the copies of the relevant invoices, certified by the contractors concerned, are attached to the corresponding cost statement."

According to Article 22(1) of Annex II, eligible costs shall fulfil certain conditions. Among others(32), eligible costs shall be recorded in the accounts no later than the contract completion date, or in the tax documents. Also, according to Article 25 of the Annex,

"[e]ligible costs are justified where they are justified by the contractor. To this end, the contractor shall maintain, on a regular basis and in accordance with the normal accounting conventions of the State in which he is established, the accounts for the project and appropriate documentation to support and justify in particular the costs and time reported in his cost statements. This documentation must be precise, complete and effective."

The Ombudsman understands that the above provisions of the contract should be interpreted as requiring that, in order to constitute "eligible costs", invoices from subcontractors should be submitted to the contractor (in this case, to T). Such invoices should be precise, complete and effective.

2.11 The Ombudsman has examined the copies of the two invoices attached to the Commission's opinion. The Ombudsman notes that the two invoices attached to the opinion of the Commission appear, in light of the descriptive list of invoices furnished to the Ombudsman, to be a representative selection of the contested invoices.

2.12 The Ombudsman notes that invoice N° (…) was issued by T. to (...) on 10 October 2003. The Ombudsman is of the view that this invoice constitutes evidence of a demand for payment by T., and, if paid by (...), a source of income for T. It cannot be understood to represent a "cost" incurred by T.

The Ombudsman is also of the view that while the Ombudsman cannot exclude that T. may have indeed incurred costs in order to provide the services referred to in invoice N° (…), it could presumably, have produced evidence of such costs in the form of invoices to T. It appears, from the evidence submitted to the Ombudsman, that T. has not done so.

2.13 The Ombudsman notes that invoice (…), of 23 September 2003, was issued by the company C. to company A. The Ombudsman is of the view that this invoice constitutes evidence of a demand for payment by company C. to company A. Invoice (…) does not constitute evidence of a "cost" incurred by T.

2.14 The Ombudsman notes, in addition, that the Commission appears to have carried out a careful assessment of all subcontracting invoices, in order to check whether they were eligible or not. The Ombudsman also points out that, prior to reaching its conclusion on the refusal of subcontracting costs in its decision of 13 June 2005, the Commission informed the complainant, several times, of the requirements for reimbursing subcontracting costs (e-mails of 26 February and 27 July 2005; letter of 31 January 2005; e-mail of 7 July 2005).

2.15 Further, the Ombudsman notes that the complainant, in his observations, expressly agreed with the statement made by the Commission in its opinion that it could not reimburse costs which had neither been incurred by the contractor nor reported in its accounts.

2.16 The Ombudsman considers it useful to address the complainant's argument that T. had, from the very beginning, informed the institution about its working methods, namely its intention to use subcontracting.

The Ombudsman notes, however, that the Commission does not contest the fact that T. was entitled to use subcontracting and that certain subcontracting expenses could constitute "eligible costs". The Ombudsman notes that the refusal of the Commission to accept the invoices submitted by T. is, however, based on the fact that the invoices submitted by T. to the Commission do not in fact represent costs incurred by T. to pay subcontractors for work carried out on behalf of T. in relation to the project.

In light of the above observation, the argument put forward by the complainant is not of relevance.

2.17 In light of the above, the Ombudsman considers that the Commission has been able to provide a coherent and reasonable account of the reasons for rejecting certain invoices submitted by T. Therefore, and bearing in mind that the scope of the Ombudsman's review is limited in such cases, the Ombudsman has concluded that the inquiry has not revealed an instance of maladministration as regards this aspect of the case. The same conclusion applies to the related claim that the Commission should review its position as regards eligible expenses.

3 Conclusion

On the basis of his inquiries into the complainant's allegations, the Ombudsman finds that there is no maladministration as regards the complainant's first allegation. The Ombudsman also finds that there is no maladministration as regards the complainant's second allegation and related claim.

The Ombudsman therefore closes the case.

The Ombudsman will send a copy of this decision to the President of the Commission.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) The companies were "V." and "J.", while the public bodies were the " I." and the "AD".

(2) According to the contract, the project was due to start on 1 January 2000. However, in its opinion, the Commission explained that, according to an amendment agreed on 24 February 2003, the start date for the project was set at 1 November 2000 and the end date at 31 October 2003.

(3) According to section 4 (Project Management) of Annex IB (Description of the work).

(4) The Ombudsman understands that the complainant is referring to Annex IB.

(5) The complainant attached, in particular, pages 7 and 8 of Annex IB, included in chapter 2 (Project work plan) and page 25, included in chapter 4 (Project management).

(6) The "S. convention" was concluded on 15 February 2002 between T. and (…) (the beneficiary or maître d´ouvrage) for two years, with the purpose of defining the reciprocal rights and obligations of the two parties within the framework of the financing and installation of a (...)for the beneficiary.

(7) Article 5 of Annex II (General Conditions) of the contract refers to Subcontracts, while Article 23, dealing with direct costs, includes a section on Subcontracting.

(8) By e-mail of 26 February 2004, the (then) responsible Commission official had asked T. to provide the name of its subcontractors as well as a brief description of the work to be provided. This e-mail also underlined that invoices between contractors were not accepted. In the same e-mail, T. was also informed that each contractor was responsible for the obligation of subcontractors to submit invoices referring to the projects, with a detailed description of their tasks. By e-mail of 27 July 2004, the responsible official reminded T. that each contractor had to submit its own costs. T. was also required to submit additional information by 20 August 2004.

(9) The complainant referred, in particular, to the section "Maîtrise d'oeuvre et Travaux". He also clarified that the maîtres d'ouvrages (...) and C. were mentioned in the contract.

(10) The Ombudsman considers that the complainant is referring to Annex IB of the contract.

(11) According to the Commission, this participation amounted to EUR 23 807.86.

(12) According to the document entitled "T subcontracting breakdown", the reasons invoked by the Commission for not accepting the claimed costs presented as "subcontracting" were the following: (i) the claimed costs were supported by invoices issued by T. to (...) and therefore T. could not claim EC funding with respect to invoices that had been paid by a third party; (ii) the invoices had been sent by other companies, such as (…) could not therefore be accepted by the Commission as claimed costs for T.

(13) The Commission explained that, among the reasons explaining why the seven remaining installations were not built were: the decision of a client not to invest in this technology; and the failure of the (...) government to grant subsidies or to sell one of the selected premises.

(14) The Commission included, in its opinion, (i) general data on the contract; (ii) information on financial reporting and payment; (iii) details of T.'s budget costs breakdown and (iv) information on T.'s non-eligible and rejected subcontracting costs.

(15) The Commission made two intermediary payments corresponding to statements 1 and 2 and a final payment corresponding to the final cost statement.

(16) The Commission included a copy of Invoice N° (…) issued by T. to company C. on 10 October 2003 for the amount of EUR 9 657.65 and explained that, although T. had already been paid this invoice, it was still charging the Commission for this amount. The Commission clarified that, effectively, T. would receive the full amount from company C., to which the EC contribution of 35% would be added. The Commission also included a copy of Invoice (…) issued, on 23 September 2003, by company C. to company A. and amounting to EUR 13 943.43. The Commission explained that this invoice had not been paid by T. However, T. was claiming these costs as eligible. Moreover, the Commission pointed out that there were no references to the project in this invoice.

(17) In this letter, the contractors were advised that if the Commission services were not to receive all the requested documents within one month following receipt of the letter, the contract would be terminated. In this case, the Commission might require reimbursement of the whole or part of the financial assistance provided on the basis of the above-mentioned contract.

(18) OJ 2002 L 248, p. 1.

(19) The Commission referred to Invoice (…) issued by T. to C. on 10 October 2003 and provided a copy of it.

(20) The Ombudsman's Decision on complaint 100/2004/GG against the Commission, which is available at the Ombudsman's website (http://www.ombudsman.europa.eu).

(21) According to point 2.7 of Decision on complaint 100/2004/GG, "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 could 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".

(22) Point 2.8 of the Decision.

(23) According to this section of Annex 1B (Description of the work) of the contract, "[l]es postes travaux apparaissent principalement dans les rubriques "sous-traitance" (sub-contracting) (...) Ces opérations de sous traitance seront, de plus, totalement transparents puisque l'ensemble des travaux et de la maitrise d'oeuvre donneront lieu à facturations aux différents maitres d'ouvrage".

(24) According to the point entitled "Travaux", "aprés selection, les entreprises réaliseront les travaux sous contrôle du maître d'œuvre local. Elles factureront l'ensemble de ses prestations à chaque maître d'ouvrage, auquel sera versée directement la participation de la Commission."

(25) According to this letter, any disagreement should be communicated to the Commission in writing, by registered mail, within a deadline of one month from the date of receipt, duly justifying the reasons, and attaching supporting documents.

(26) This amount was EUR 1 717 511.

(27) This amount was EUR 1 999 868.

(28) The Ombudsman understands that the complainant refers to Annex IB (Description of the work) of the contract.

(29) See the European Ombudsman's Annual Report 1997, p. 22.

(30) According to this Article, unless Annex I of the contract contains sufficiently detailed data, the Commission's prior written approval is required where, according to Article 5(1)(a), the cumulative amount of the subcontracts for the contractor exceeds 20% of his estimated eligible costs or EUR 100 000, whichever amount is the lower. The Commission's approval shall be deemed to be granted in the absence of observations within one month of receipt of the request made by the co-ordinator of the project.

(31) Article 24 of Annex II deals with indirect costs.

(32) The other conditions that costs must fulfil in order to be eligible were: (i) they must be necessary for the project; (ii) they must be incurred during the duration of the project; (iii) they must be determined in accordance with the accounting principle based on historic costs and the usual internal rules of the contractor, provided they are regarded as acceptable by the Commission; and (iv) they must exclude any profit margin.