Strasbourg, 24 May 2006

Dear Dr K.,

On 27 April 2005, you made a complaint to the European Ombudsman on behalf of Mermayde Consultancy. Your complaint concerned the European Commission's decision to recover money granted to a project under the Fifth Framework Programme.

On 26 May 2005, I forwarded the complaint to the President of the Commission. The Commission sent its opinion on 4 October 2005. I forwarded it to you with an invitation to make observations, which you sent on 21 November 2005.

I am writing now to let you know the results of the inquiries that have been made. I apologise for the time it has taken to deal with your complaint.

THE COMPLAINT

According to the complainant, the Managing Director and representative of Mermayde, the relevant facts are, in summary, the following.

Mermayde Consultancy ("Mermayde") was the co-ordinator of a project called TRAP-LRM, which received Commission funding under the Fifth Framework Programme.

On 4 November 2004, the Commission sent Mermayde a decision to recover the sum of EUR 52 589.23, which had been granted for the project. The Commission explained that certain costs were not considered eligible since, contrary to the rules under the Fourth Framework Programme, full costs incurred by subcontractors were no longer taken into consideration.

However, during the contract negotiation phase and the implementation of the project, Commission staff did not seem to be aware of the change of rules under the Fifth Framework Programme.

Under the Fourth Framework Programme, with which Mermayde had experience, the Commission allowed for the total costs of subcontractors to be taken into account, even if only part of these costs were claimed. In drafting the TRAP-LRM proposal under the first round of the Fifth Framework Programme, budget details for each partner were provided, identifying both the total costs and the amounts for which Commission funding would be requested.

The Commission informed Mermayde that the proposal was retained for contract negotiations. The Commission did not indicate that only costs incurred by the partners, and not by subcontractors, would be fully eligible.

During the contract negotiations, neither the Commission's scientific officer, nor the financial officer, informed Mermayde that, under the Fifth Framework Programme, only the actual costs incurred by the partners would constitute eligible costs and that Mermayde therefore, using the subcontracting structure, could incur serious losses. The Commission should have warned Mermayde about the possible negative effects of using subcontractors and should have advised it to convert the envisaged subcontractors into partners instead. However, no such information was provided by the Commission and the contract was signed. Annex I to the contract showed the total identified cost, including the subcontractors' costs and the Commission's contribution. Annex II, however, stated that only actual costs of subcontractors, incurred by the co-ordinator, would be eligible. The two annexes were therefore confusing.

The project was successfully carried out and the Commission made the final payment. However, the Commission subsequently audited the project and the auditors did not agree with the project's finances since the total costs were not given in the cost statement. The auditors therefore requested Mermayde to reimburse the sum of EUR 52 589.23. Mermayde acknowledged that the subcontractors' total real costs were not shown in the cost statement, but informed the auditors that it would be possible to provide proof of the total real costs. The auditors did not mention anything about the fact that such proof would not solve the problem since the costs in question were not incurred by the contractor.

On the basis of the audit, the Commission sent Mermayde a recovery letter. Mermayde replied to the Commission, suggesting that it would collect and submit documents to prove the total costs incurred by the subcontractors. The Commission agreed to this and also asked Mermayde to submit a new cost statement. Again the Commission failed to mention that the total costs incurred by subcontractors could not be taken into account.

Proof of total costs incurred by the subcontractors was collected and sent to the Commission. Instead of accepting the proof, the Commission sent another recovery letter, stating that: "Under the contract, only those costs can be reimbursed which i.a. [sic] have been incurred during the duration of the project and which have been recorded in the accounts of the respective participants. This means in relation to subcontracting costs that these can only be reimbursed (at the rate fixed in the contract, here 48.37%) to the extent that the subcontractor has submitted an invoice to you which you have (fully) paid. Relevant are your actual costs. A comparison (and related declarations) between 'true costs' of subcontracting and their 'actual requested amounts' is therefore irrelevant and the 'new' cost statements are not acceptable."

The complainant alleged that the Commission's decision to recover the sum of EUR 52 589.23, granted to project TRAP-LRM under the Fifth Framework Programme was unfair.

The complainant argued that he signed the contract in good faith on the basis of his experience with the rules applicable under the Fourth Framework Programme and that the Commission should have informed him about the new rules and the possible negative consequences of using subcontractors.

The complainant claimed that the Commission should withdraw its recovery decision and return the recovered sum of EUR 52 589.23 to the project co-ordinator, Mermayde.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made, in summary, the following comments.

Background

In 2000, Mermayde, represented by the complainant, the Joint Research Centre of Geel ("JRC") and the Directorate-General for Research of the European Commission concluded the TRAP-LRM contract under the Fifth Framework Programme. The contract foresaw that part of the work was to be carried out by nine subcontractors, which were identified in Annex 1. Annex 1 defined their role as "SC", that is, subcontractors, associated with the co-ordinator, Mermayde.

According to Article 3 of the contract, the total estimated eligible costs of the project were EUR 222 750 and the maximum Community contribution was fixed at EUR 107 950. The budget allocation among the principal contractors (Mermayde and the JRC) was laid down in the table of the indicative breakdown of the estimated eligible costs. For Mermayde, the rate of the Community financial participation was fixed at 48.37% of the allowable costs.

The project started on 1 January 2001 and an advance payment of EUR 43 160 was made on 15 March 2001. A first interim payment of EUR 39 726.21 was made on 23 September 2002. The Commission's financial officer accepted all costs submitted by Mermayde for the project (EUR 55 918.71) and deducted EUR 18 192.50 in order to recoup part of the initial advance. However, the financial officer erroneously based the payment on a reimbursement rate of 100% and not on the contractually-fixed rate of 48.37%.

In April 2004, the Commission carried out a financial audit of the contract. The auditors confirmed the eligibility and justification of basically all costs accepted by the financial officer, in particular all subcontracting costs submitted by Mermayde. There was only a minor cost adjustment of EUR 4 860.84 in favour of the Commission at total cost level. Nevertheless, as a result of the audit, EUR 52 589.23 had to be recovered. The sum of EUR 2 351.19 was a follow-up of the cost adjustment, whilst EUR 50 238.04 had to be paid back by Mermayde, as a result of the initial overpayment at a reimbursement rate of 100% instead of 48.37%.

The present complaint

There was no change between the Fourth and the Fifth Framework Programmes in respect of the role of subcontractors and the eligibility of subcontracting costs. Under both Framework Programmes subcontractors were not themselves contractors with contractual links to the Commission. However, contractors (co-ordinators and other contractors) were allowed to subcontract certain parts of their work. Such costs were eligible to the extent that they were "charged to the contract", in accordance with the contractual terms (Article 14(3), Part C of Annex II to the contract) and were therefore reimbursed to the contractor at the reimbursement rate laid down in the contract and applicable to all of the contractor's costs (in this case, at 48.37%).

There was no contradiction between Annex I and Annex II to the contract. Although it was true that Annex I used the term "partners", it clearly identified all entities with the exception of Mermayde and the JRC as SC, that is, subcontractors. Moreover, the table of breakdown of costs only mentioned these two entities as constituting participants to the project. It was therefore clear to the complainant from the table of breakdown of costs that the subcontractors, as identified in the contract preparation form, were not given the role of contractors. This was confirmed in the complainant's letter of 23 June 2000.

The complainant had broad experience of projects under various Framework Programmes. He participated in ten projects under the Fourth Framework Programme, in which context he also came across the reimbursement rules applicable to subcontractors. Since these rules had not changed from the Fourth to the Fifth Framework Programmes, he must have been familiar with them. Under these circumstances, there was no specific obligation on the Commission staff involved in the negotiations to advise the complainant on the potential financial consequences of the arrangement.

Under both the Fourth and the Fifth Framework Programmes, the (total) costs of subcontractors (including their profit) could be fully accepted as eligible costs of the principal contractor which concluded the subcontract. However, the reimbursement rate, which was applicable to all costs attributed to the contractor, depended on the arrangement in the contract with the Commission, that is 35% for demonstration activities, 50% for RTD actions or up to 100% in the case of accompanying measures.

The complainant stated that the "real total costs" of the subcontractors were not provided in the cost statements but that "it would be possible to provide the justification". However, the complainant's statement did not reflect the requirements for the eligibility and reimbursement of subcontracting costs under the contract. In order to be eligible, such costs had to be recorded in the accounts of the contractor and copies of the relevant invoices of the subcontractors had to be enclosed with the cost statements (Articles 13(1) and 14(3) of the General Conditions). This meant that a contractor could only claim reimbursement for subcontracting costs if he had received an invoice from the subcontractor, had paid the respective amount to the subcontractor and had registered this amount in his accounts. The actual reimbursement of these costs by the Commission then depended on the reimbursement rate laid down in the contract, which in the present case was 48.37%. It followed that in case the subcontractors actually had more costs and could have issued higher invoices, these invoices would first have had to be paid fully by Mermayde in order to be eligible. The costs in question could then be reimbursed at 48.37%. The reimbursement rate in question indeed meant that Mermayde had to bear 51.63% of all eligible costs, including subcontracting costs.

The Commission had not, as argued by the complainant, changed its interpretation of the contractual implications of the Fifth Framework Programme. It was correct to say, however, that, during the financial audit an error in the processing of the payments made for the project was detected, namely, that the reimbursement rate for Mermayde should have been 48.37% and not 100%. This explained the amount of the recovery order. In taking this corrective action, the Commission was acting fully in line with the contractual stipulations and the audit conclusions. The Commission expressed its regret for the error which, however, was clear to the complainant in view of the contractual arrangements.

The complainant's observations

In his observations, the complainant made, in summary, the following remarks:

The Ombudsman asked the Commission to submit its opinion by 15 September 2005. The opinion was dated 4 October 2005, which meant that there was nearly a three-week delay by the Commission in submitting its opinion.

The complaint was not correctly summarised by the Commission in its opinion, as the real essence of his complaint was that the Commission should have informed Mermayde that its subcontractors ought to have become contractors to the Commission in order to ensure that Mermayde would have been eligible for costs incurred by the subcontractors.

From Mermayde's experience of earlier projects carried out for the Standards, Measurement and Testing Programme, subcontracted analytical laboratories, which undertook work worth several thousand euro, were reimbursed up to 100% of the costs claimed. Mermayde could accept that there had been no formal change of the rules between the Fourth and the Fifth Framework Programmes in respect of the role of subcontractors and the eligibility of subcontracting costs. However, the interpretation of these rules, and their implementation, might have changed.

The fact remained that the two annexes to the contract were confusing and controversial. In Annex I, all participants, including subcontractors (although all were described as "partners") were shown with total costs identified and EU contribution requested, whereas Annex II stated that only actual costs of subcontractors incurred by the co-ordinator were eligible. Hence, the issue was not whether the subcontractors were correctly described as such. The issue was that, in the financial table, total costs and requested amounts were identified for the subcontractors and Mermayde therefore assumed that the requested amounts indeed could be requested from the Commission. The Commission was probably correct in the legal sense in arguing that only 48.37% of the 50% indicated in the table were eligible costs, but this fact was certainly confusing.

He had indeed worked for many years in projects for the Commission, also as co-ordinator. However, up to 1995, he was employed by another organisation and only worked as responsible scientist, not as financial officer. The contract at issue in the present complaint was the tenth contract concluded between the Commission and Mermayde. However, not all these contracts were of the same nature. Only one of these contracts concerned a project similar to projects carried out under the Fourth Framework Programme. That project was an RTD project, whereas the present project was the first project under an "Accompanying Measures Action", with conditions and rules different from those applicable to RTD contracts.

In discussions with the auditors, the suggestion to find additional justification for the total subcontracting costs was not contradicted. However, the Commission ignored the fact that a letter was sent to the financial officer, suggesting that Mermayde would collect and submit all documentation that would justify the total costs by the subcontractors, in reply to which the financial officer advised Mermayde, by e-mail of 7 June 2004, to send the suggested justification together with a new cost statement. It was therefore clear that the financial officer did not fully understand the financial implications and the complainant therefore undertook considerable work in order to collect justifications. However, the Commission did not consider the justifications that were provided to be relevant.

THE DECISION

1 Preliminary remark

1.1 In his observations, the complainant remarked that the Commission sent its opinion almost three weeks late.

1.2 The Ombudsman notes that there was indeed a delay in the Commission's submission of its opinion. However, since the delay was limited, and in view of the fact that, in its cover letter accompanying the opinion, the Commission expressed its regret for the delay that had occurred, the Ombudsman finds no grounds for pursuing the matter further.

2 The allegedly unfair recovery decision

2.1 The complaint concerns the Commission's decision to recover money granted to a project under the Fifth Framework Programme, co-ordinated by Mermayde Consultancy ("Mermayde") . According to the complainant, who complained on behalf of Mermayde, the Commission requested the recovery of the sum of EUR 52 589.23 because certain costs were not considered eligible due to the fact that, contrary to the rules under the Fourth Framework Programme, full costs incurred by subcontractors were no longer taken into consideration. Under the Fourth Framework Programme, with which Mermayde had experience, the Commission allowed for the total costs incurred by subcontractors to be taken into account, even if only part of these costs were claimed. In drafting the proposal under the first round of the Fifth Framework Programme, budget details for each partner were provided, identifying both the total costs and the amounts for which Commission funding would be requested. The Commission informed Mermayde that the proposal was retained for contract negotiations but did not indicate that only costs incurred by the partners, and not by subcontractors, would be fully eligible. Annex I to the contract showed the total identified cost, including the subcontractors' costs, and the Commission's contribution. Annex II, however, stated that only actual costs of subcontractors, incurred by the co-ordinator, would be eligible. The two annexes were therefore confusing.

2.2 The complainant further explained that, after the project had been successfully finalised, the Commission carried out an audit and the auditors did not agree with the project finances since the total costs were not given in the cost statement. The auditors therefore requested Mermayde to reimburse the sum of EUR 52 589.23. Mermayde acknowledged that the subcontractors' total real costs were not shown in the cost statement, but informed the auditors that it would be possible to provide proof of the total real costs. The auditors did not mention that such proof would not solve the issue of reimbursement since the costs in question were not incurred by the contractor. Proof of total costs incurred by the subcontractors was collected and sent to the Commission. Instead of accepting the proof, the Commission sent another recovery letter, stating that: "Under the contract, only those costs can be reimbursed which i.a. [sic] have been incurred during the duration of the project and which have been recorded in the accounts of the respective participants. This means in relation to subcontracting costs that these can only be reimbursed (at the rate fixed in the contract, here 48.37%) to the extent that the subcontractor has submitted an invoice to you which you have (fully) paid. Relevant are your actual costs. A comparison (and related declarations) between 'true costs' of subcontracting and their 'actual requested amounts' is therefore irrelevant and the 'new' cost statements are not acceptable."

The complainant alleged that the Commission's decision to recover the sum of EUR 52 589.23, granted to project TRAP-LRM under the Fifth Framework Programme was unfair.

The complainant argued that he signed the contract in good faith on the basis of his experience with the rules applicable under the Fourth Framework Programme and that the Commission should have informed him about the new rules and the possible negative consequences of using subcontractors.

2.3 According to the Commission, a contract was signed with Mermayde, represented by the complainant, and the Joint Research Centre of Geel ("JRC") under the Fifth Framework Programme, foreseeing that part of the work was to be carried out by nine subcontractors, which were identified in Annex 1. According to Article 3 of the contract, the total estimated eligible costs of the project were EUR 222 750 and the maximum Community contribution was fixed at EUR 107 950. The budget allocation among the principal contractors (Mermayde and the JRC) was laid down in the table of the indicative breakdown of the estimated eligible costs. For Mermayde, the rate of the Community financial participation was fixed at 48.37% of the allowable costs. The Commission's financial officer accepted all costs submitted by Mermayde for the project (EUR 55 918.71) and deduced EUR 18 192.50 in order to recoup part of the initial advance. However, the financial officer erroneously based the payment on a reimbursement rate of 100% and not on the contractually-fixed rate of 48.37%. In April 2004, the Commission carried out a financial audit of the contract. The auditors confirmed the eligibility and justification of basically all costs accepted by the financial officer, in particular all subcontracting costs submitted by Mermayde. There was only a minor cost adjustment of EUR 4 860.84 in favour of the Commission at total cost level. Nevertheless, as a result of the audit, EUR 52 589.23 had to be recovered. The sum of EUR 2 351.19 was a follow-up of the cost adjustment, whilst EUR 50 238.04 had to be paid back by Mermayde as a result of the initial overpayment at a reimbursement rate of 100% instead of 48.37%.

2.4 The Commission further argued that there had been no change between the Fourth and the Fifth Framework Programmes in respect of the role of subcontractors and the eligibility of subcontracting costs. Under both Framework Programmes subcontractors were not themselves contractors with contractual links to the Commission. However, contractors (co-ordinators and other contractors) were allowed to subcontract certain parts of their work. Such costs were eligible to the extent that they were "charged to the contract" in accordance with the contractual terms (Article 14(3), Part C of Annex II to the contract) and were therefore reimbursed to the contractor at the reimbursement rate laid down in the contract and applicable to all of the contractor's costs (in this case, at 48.37%). There was no contradiction between Annex I and Annex II to the contract. Although it was true that Annex I used the term "partners", it clearly identified all entities with the exception of Mermayde and the JRC as "SC", that is, subcontractors. Moreover, the table of breakdown of costs only mentioned these two entities as constituting participants to the project. It was therefore clear to the complainant from the table of breakdown of costs that the subcontractors, as identified in the contract preparation form, were not given the role of contractors.

2.5 The Commission recalled that the complainant stated that the "real total costs" of the subcontractors were not provided in the cost statements but that "it would be possible to provide the justification". The Commission argued, however, the complainant's statement did not reflect the requirements for the eligibility and reimbursement of subcontracting costs under the contract. In order to be eligible, such costs had to be recorded in the accounts of the contractor and copies of the relevant invoices of the subcontractors had to be enclosed with the cost statements (Articles 13(1) and 14(3) of the General Conditions). This meant that a contractor could only claim reimbursement of subcontracting costs if he had received an invoice from the subcontractor, had paid the respective amount to the subcontractor and had registered this amount in his accounts. The actual reimbursement of these costs by the Commission then depended on the reimbursement rate laid down in the contract, which in the present case was 48.37%. It followed that, had the subcontractors actually had more costs and could have issued higher invoices, these invoices would first have had to be paid fully by Mermayde in order to be eligible. The costs in question could then be reimbursed at 48.37%. This reimbursement rate indeed meant that Mermayde had to bear 51.63% of all eligible costs, including subcontracting costs. The Commission had not, as argued by the complainant, changed its interpretation of the contractual implications of the Fifth Framework Programme. It was correct to say, however, that, during the financial audit, an error in the processing of the payments made for the project was detected, namely, that the reimbursement rate for Mermayde should have been 48.37% and not 100%. This explained the amount of the recovery order.

2.6 In his observations, the complainant argued that the complaint was not correctly summarised by the Commission in its opinion, as the real essence of his complaint was that the Commission should have informed Mermayde that its subcontractors ought to have become contractors to the Commission in order to ensure that Mermayde would have been eligible for costs incurred by the subcontractors. Mermayde could accept, however, that there had been no formal change of the rules between the Fourth and the Fifth Framework Programmes in respect of the role of subcontractors and the eligibility of subcontracting costs. He added that the interpretation of these rules, and their implementation, might have changed. The issue was that, in the financial table, total costs and requested amounts were identified for the subcontractors and Mermayde therefore assumed that the relevant amounts indeed could be requested from the Commission. The Commission was probably correct in the legal sense in arguing that only 48.37% of the 50% indicated in the table were eligible costs, but this fact was certainly confusing. In discussions with the auditors, the suggestion to find additional justification for the total subcontracting costs was not contradicted. However, the Commission ignored the fact that a letter was sent to the financial officer, suggesting that Mermayde would collect and submit all documentation that would justify the total costs by the subcontractors, in reply to which the financial officer advised Mermayde to send the suggested justification together with a new cost statement. It was therefore clear that the financial officer did not fully understand the financial implications and the complainant therefore undertook considerable work in order to collect justifications. However, the Commission did not consider relevant the justifications that were provided.

2.7 The Ombudsman notes the following from the correspondence between the complainant and the Commission, copies of which were submitted by the complainant in support of his complaint. On 1 June 2004, the complainant sent the Commission a letter stating, among other things, that: "As will be clear from the original proposal and the contract with the Commission, the requested amount indeed was to be 48.37% of the total costs. (...) In these sub-contracts the work was defined and the maximum financial contribution they would be allowed to invoice to Mermayde. (...) Mermayde has not included the real total costs in the respective cost statements. (...) Once I have all evidence on the total costs, I can prepare - if required - a revised cost statement for the full project period, demonstrating that the requested amount does not exceed the contractual 48.37% of the total costs."(1) By letter of 17 June 2004, the complainant submitted new cost statements to the Commission, explaining that: "Only difference is the total real costs incurred by the sub-contractors. The requested amount is identical to the amount requested before. This renders the requested percentage to a value below the 48.37% stated in the contract"(2).

2.8 It appears from the above that Mermayde instructed its subcontractors to invoice it for only 48.37% of their total costs and that Mermayde, for its part, only declared to the Commission 48.37% of the total costs of the project. This is further confirmed by the following. The total estimated costs of the project were EUR 222 750(3), whereas the total accepted costs for the project were EUR 97 303.97(4), that is 43.68% of the total estimated costs. According to the Commission, basically all costs submitted by Mermayde were accepted. Unless the real costs of the project were far lower than expected, this suggests that Mermayde only declared less than 50% of the real costs.

2.9 The Ombudsman regards as undisputed the fact that the Community financial contribution to the project was fixed at 48.37% of the total costs of the project, up to a maximum of EUR 107 950. The question remains, however, how the costs should have been declared in order to be funded. On the basis of points 2.7 and 2.8 above, the complainant appears to be of the opinion that 48.37% of the total costs of the project should have been declared and should then have received funding. The Commission, on the other hand, appears to be of the opinion that the full costs of the project should have been declared, of which 48.37% would then receive funding.

2.10 The Ombudsman recalls in this regard that Article 3 of the contract provides that "[t]he total estimated eligible costs of the project are EUR 222 750" and that "[t]he Community shall fund the eligible costs of the project (...) up to a maximum of EUR 107 950". The Ombudsman understands this Article as meaning that the Community funding was provided on the basis of the eligible costs of the project. The Ombudsman further considers that, in order for the Commission to determine the eligible costs of the project, all costs had to be declared. The Commission would then provide funding for, in this case, 48.37% of the costs that it declared eligible. The Commission's position that the full costs of the project should have been declared therefore appears reasonable.

2.11 The Ombudsman further recalls that Article 16 of Annex II to the contract stipulates that "[e]ligible costs shall be reimbursed where they are justified by the principal contractor". It appears undisputed in the present case that Mermayde was the principal contractor. Since Mermayde appears to have provided justifications only for less that 50% of the total costs, it appears reasonable for the Commission to have provided funding only for 48.37% of these justified costs.

2.12 However, the Ombudsman notes the complainant's argument that the financial officer advised him to send justifications for the total subcontracting costs, but that the Commission in the end did not consider the justifications relevant. The Ombudsman recalls in this regard that Article 13 of Annex II to the contract stipulates that eligible costs shall "be determined in accordance with the accounting principle based on historic costs and the usual internal rules of the principal contractor" and shall "be recorded in the accounts". It thus appears that, in order to be eligible, costs had to be recorded in the accounts of the principal contractor (in this case, Mermayde). Article 14(3) of the same Annex stipulates that subcontracts may be charged to the contract if "the copies, certified by the principal contractors concerned, of relevant invoices are attached to the corresponding cost statements", which further suggests that subcontracting costs had to be invoiced to the principal contractor, that is, recorded in the principal contractor's accounts. The Commission therefore appears to have acted in accordance with the contract when considering that only costs of the subcontractors that were actually borne by the principal contractor, that is, Mermayde, were eligible for 48.37% funding. The Ombudsman does not find anything in the correspondence between the complainant and the Commission's financial officer to suggest that the latter advised Mermayde to submit evidence of the subcontractors' costs that had not been borne by Mermayde, particularly not since he, in an e-mail of 7 June 2004(5), refers to "supporting documents and invoices"(6).

2.13 In the Ombudsman's view, it appears from the above that the complainant misunderstood the functioning of the Community funding scheme concerned and the way in which costs should have been declared. The question thus remains whether there was anything in the preparations for the signing of the contract that should have made the Commission suspect that there had been a misunderstanding and prompted it to clarify the contract for the complainant.

2.14 The Ombudsman recalls in this regard that the complainant considered that the two Annexes to the contract were confusing, particularly since the financial table in Annex I identified the total costs and requested amounts for the subcontractors, whereas Annex II stated that only actual costs of subcontractors made by the co-ordinator were eligible. The Ombudsman notes that, in the financial table in question, the subcontractors were listed, together with their respective total costs and "EU contribution", which varied from 0 to 100% of the total costs. It is true that, looking individually at the subcontractors, the financial table is not compatible with the Commission's view on how costs should be declared in order to be funded, since the costs of a specific subcontractor, taken in isolation, could not be funded by the Community at 100%. Having invoiced Mermayde, only 48.37% of the subcontractor's invoiced costs would receive Community funding. However, the Ombudsman does not consider the financial table in question to have provided sufficient reasons for the Commission to become suspicious about the complainant's understanding of the funding scheme since the totality of the listed "EU contribution" was set at EUR 107 950, entirely in line with the Article 3 of the contract. The Ombudsman has found no other reason for which the Commission should have suspected that the complainant had misunderstood the funding scheme.

2.15 As regards the complainant's argument in the complaint that the Commission should have informed him about the new rules under the Fifth Framework Programme and the possible negative consequences of using subcontractors, the Ombudsman notes that the complainant, in his observations, acknowledged that the rules probably had not changed between the Fourth and the Fifth Framework Programmes in respect of the eligibility of subcontracting costs, but that the interpretation of the rules might have had. However, the Ombudsman has found no evidence to suggest that, under the Fourth Framework Programme, the Commission interpreted the rules in such a way as to provide funding for costs of entities other than the principal contractors that had not been taken over by these contractors by way of invoicing. The Ombudsman further notes that the "negative consequences" of using subcontractors could have been avoided by having these subcontractors invoice their full costs to Mermayde, which would then have received funding based on these full costs. The Ombudsman therefore finds no duty of information in relation to this issue.

2.16 The Ombudsman certainly considers unfortunate the fact the complainant appears to have misunderstood the Commission's funding scheme. However, in view of the above, he finds no maladministration by the Commission regarding the matter.

2.17 Notwithstanding the above, the Ombudsman notes that the Commission explained, in its second recovery letter of 4 November 2004, the meaning of costs that have been "recorded in the accounts" in relation to sub-contracting costs, stating that these costs can only be reimbursed, at the rate fixed in the contract (in the present case 48.37%), to the extent that a sub-contractor has submitted an invoice to the contractor which the contractor has fully paid. The Ombudsman considers that it would be useful, in order to avoid possible future misunderstandings as regards the funding of sub-contracting costs, if the Commission could take steps to improve the clarity of the contracts providing Community funding by explaining, in explicit terms, the conditions that have to be fulfilled in order for these costs to be considered. The Ombudsman will make a further remark in this regard.

3 The complainant's claim

3.1 The complainant claimed that that the Commission should withdraw its recovery decision and return the recovered sum of EUR 52 589.23 to the project co-ordinator, Mermayde.

3.2 The Commission argued that, during the Commission's audit of the project in April 2004, t he auditors confirmed the eligibility and justification of basically all costs accepted by the financial officer, in particular all subcontracting costs submitted by Mermayde. There was only a minor cost adjustment of EUR 4 860.84 in favour of the Commission at total cost level. Nevertheless, as a result of the audit, EUR 52 589.23 had to be recovered. The sum of EUR 2 351.19 was a follow-up of the cost adjustment, whilst EUR 50 238.04 had to be paid back by Mermayde as a result of an initial overpayment at a reimbursement rate of 100% instead of 48.37%. The financial officer had erroneously based the payment on a reimbursement rate of 100% and not on the contractually-fixed rate of 48.37%. In taking corrective action and requesting a recovery of the overpaid sum, the Commission was acting fully in line with the contractual stipulations and the audit conclusions. The Commission expressed its regret for the error which, however, was clear to the complainant in view of the contractual arrangements.

3.3 The Ombudsman regards as undisputed in the present case the fact that the reimbursement rate was to be 48.37%. It further follows from point 3.2 above that the Commission appears to have been correct in its calculation of the eligible costs, which means that there indeed was an erroneous overpayment. Unfortunately, this overpayment appears to have coincided with the complainant's misunderstanding of the calculation of the eligible costs and he therefore did not notice the error. However, on the basis of the Ombudsman's finding of no maladministration in point 3.2 above, the Commission's recovery decision appears reasonable and the complainant's claim cannot, therefore, be upheld.

4 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.

FURTHER REMARK

The Ombudsman considers that it would be useful, in order to avoid possible future misunderstandings as regards the funding of sub-contracting costs, if the Commission could take steps to improve the clarity of the contracts providing Community funding by explaining, in explicit terms, the conditions that have to be fulfilled in order for these costs to be considered.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) The Ombudsman's underlining.

(2) The Ombudsman's underlining.

(3) Article 3 of the contract, a copy of which was submitted by the complainant with his complaint.

(4) Global Financial Overview, enclosed with the Commission's letter of 11 May 2004 to Mermayde, copies of which were submitted by the complainant with his complaint.

(5) A copy of which was submitted by the complainant with his complaint.

(6) The Ombudsman's underlining.