The background to the complaint

1. The complaint concerns the funding of a project carried out under the EU-Asia Pro Eco Programme. It was submitted on behalf of a UK District Council which participated in a project under the Programme.

2. The complainant submits that the coordinator of the project continues to withhold payment from the District Council and that the former has wrongly claimed and received money from the EU in respect of the project.

The subject matter of the inquiry

3. In the complaint to the European Ombudsman, the complainant alleged that the EU Delegation to India failed to ensure the payment of legitimate costs claimed under the EU-Asia Pro Eco project.

4. The complainant claimed that the Commission should 1) ensure that all partners in the project are paid, which includes EUR 6 583.36 to the District Council; and 2) investigate the actions of the project coordinator, which allegedly claimed and received funding to which it was not entitled.

The inquiry

5. The Ombudsman initially asked the European External Action Service ('EEAS') to submit an opinion on the complaint by 31 July 2011. The deadline was later extended to 30 September 2011. On 26 September and 4 October 2011, the EEAS and the European Commission respectively informed the Ombudsman that the EEAS was not competent to deal with the present complaint, and that the competent institution was the Commission. The Commission stated that it was already in the process of drafting the opinion. By letter dated 15 November 2011, the Ombudsman officially asked the Commission to submit an opinion by 30 November 2011. Having been provided with extensions to that deadline, the Commission submitted its opinion on 22 March 2012. The opinion was forwarded to the complainant, who submitted his observations on 27 April 2012.

The Ombudsman's analysis and conclusions

A. Alleged failure to ensure payment and related claim

Arguments presented to the Ombudsman

6. According to the complainant, in 2006, the coordinator paid the District Council EUR 10 000 with regard to the project. After that, no further payments were made, despite the District Council's claim to be paid EUR 16 583.36 in total. The District Council sought payment from the EU Delegation in India ('the Delegation') and the coordinator, but was told by the coordinator that no further payments would be made "until all decisions have been finalised by EC Europa".

7. The complainant states that the Delegation then informed the District Council that it does not deal directly with project partners, and that all payments have to be made through the coordinator. The complainant is concerned that the coordinator continues to withhold payment from the District Council.

8. According to the complainant, both the Delegation and the coordinator have acknowledged that the balance of EUR 6 583.36 still owed to the District Council constitutes legitimate expenditure. Nevertheless, according to the complainant, the Delegation contends that there has been an overpayment of EUR 24 361.16 to the coordinator in respect of the District Council. In the complainant's view, this amount corresponds to "the difference between the work we showed evidence of having delivered (but for which we did not claim financial reward because ... we felt that the difference should be our contribution to the project) and the amount of actual claim based again on receipts and documented evidence."

9. In its opinion submitted to the Ombudsman, the Commission explained that the grant contract for the project was concluded in 2005 between the Delegation and the project coordinator. The project was co-financed by the Commission, which covered 70% of the estimated total eligible costs. In 2006, the coordinator paid a total of EUR 10 000 to the District Council, which was one of its partners in the project. However, the District Council's total claim for payment from the coordinator amounted to EUR 16 538.36. In February 2009, the Commission made a final payment to the coordinator in respect of the project.

10. The Commission went on to state that, later in 2009, the project was audited by Ernst & Young in the context of the annual audit plan. Ernst & Young submitted its final audit report to the Commission in July 2010. Further to an in-depth analysis of the audit report and of supplementary evidence provided by the coordinator, the Commission concluded that EUR 836.89 that it had already paid to the coordinator related to ineligible costs. The Commission therefore had to recover that sum from the coordinator which agreed to such recovery in a letter dated 21 November 2011.

11. According to the Commission, the District Council sent an e-mail to the Delegation in April 2010, asking for information on the audit of the project. In its reply, the Commission referred to the relevant provisions of the Practical Guide to contract procedures for EC external actions. In November 2010, the District Council sent an e-mail to the coordinator requesting the reimbursement of the remaining costs it had claimed, that is, EUR 6 538.36. The District Council resubmitted its request to the coordinator in December 2010 and January 2011. The e-mail sent in December was also forwarded to the Delegation for information.

12. The Commission stated that, in October 2011, the Delegation sent a letter to the coordinator in which, specifically in view of the persistent problems raised by the District Council, it reminded the coordinator of "[its] obligations towards [its] partners and in particular [its] duties to reimburse them the full eligible cost". The Delegation also asked the coordinator to provide a table summarising: (i) the total amount claimed from the coordinator by each of its partners; (ii) the amount paid by the coordinator to each of its partners; and (iii) a short explanation of the reasons, if any, for the differences between the amounts claimed and the amounts paid.

13. The Commission further stated that, in November 2011, the coordinator sent a letter to the Delegation confirming that it had only paid the District Council the amount of EUR 10 000. Given that it considered the coordinator's reply unclear and incomplete, the Delegation sent it another letter in January 2012, urging it "to proceed with the immediate transfer to [the District Council] of Euro 6,583.36, as well as, to inform the Delegation by letter with copy of the bank transfer". In February 2012, the coordinator informed the Delegation of alleged difficult working relations with the District Council throughout the project, about its own financial difficulties and about an ongoing procedure before the UK Ombudsman that the coordinator had initiated against the District Council.

14. Having given an overview of the factual background of the case, the Commission addressed the complainant's allegation and first claim as follows. It argued that there is no evidence that the coordinator has any outstanding debts towards any project partner other than the District Council. With regard to the District Council's claim, the Commission first pointed out that the Delegation has paid the coordinator for all the costs incurred by the District Council for the project. Second, the Commission underlined that neither it nor the Delegation has any contractual relationship with the District Council.

15. The Commission then referred to Article 1.4 of the General Conditions of the grant contract, which provides that the "[b]eneficiary [the coordinator] and the Commission are the only parties to this Contract". Therefore, as stated in Article 1.3 of the General Conditions, "the Contracting Authority [the Commission] does not acknowledge any contractual link between itself and the Beneficiary's partner(s) or subcontractors". In the Commission's view, this is further confirmed by Article 3.2 of the General Conditions, which states that the beneficiary is the sole liable party towards third parties, including, for example, the beneficiary's partner(s) or subcontractors. According to the Commission, these principles stem from general principles of law according to which, contracts can produce effects, and therefore obligations, solely between the contracting parties. The Commission cannot involve itself in contractual disputes arising between a beneficiary and its partners, such as those arising in the present case, because it is not a party to the contract concluded between them. Such involvement would seriously impair the Commission in carrying out its role of supervising, implementing and managing EU cooperation projects. Furthermore, in the Commission's view, such involvement would not be in line with the principle that actions supported through grants are implemented under the sole responsibility of the beneficiaries.

16. The Commission argued that, in light of the provisions of the General Conditions, it is in no position to impose any course of action upon the coordinator regarding the seemingly complex relationship it has developed with the District Council, especially due to the fact that the Commission is not a party to the contract between the coordinator and the District Council.

17. The Commission underlined, however, that notwithstanding the above, the Delegation made efforts to remind the coordinator, in letters dated 4 October 2011 and 23 January 2012, of all aspects of its obligations towards its partners. Although the complainant wished the Commission to take a firmer stand on the matter, it is the Commission's view that it has used all leverage available to assist the District Council. The Commission also stated that there are clearly other legal remedies available to the District Council to compel the coordinator to respect the contract.

18. In his observations, the complainant stated that the Commission's opinion gave the impression that it simply tried to exonerate itself from any fault, explicit or implied, in ensuring that partners are suitably reimbursed when there are clear disagreements with the coordinator. The complainant also pointed out that, despite knowing of these disagreements, the Commission made no effort to recover from the coordinator the sum EUR 6 583.36 owed to the District Council.

The Ombudsman's assessment

19. The Ombudsman notes that the Commission does not dispute that the District Council has a valid claim against the coordinator amounting to EUR 6 583.36 and arising from the EU funded project in question. The complainant does not appear to dispute the Commission's statement that this amount is, to its knowledge, the only outstanding debt that the coordinator has towards its project partners.

20. The Ombudsman notes that the Commission has urged the coordinator to pay the District Council the outstanding amount. The Ombudsman thus finds that the Commission has taken a clear position in favour of the District Council, which it has communicated directly to the coordinator.

21. The complainant appears to consider that the Commission should have warned the coordinator that it would recover the amount in question from it in order to compel it to pay the District Council. In this respect, the Ombudsman notes that, according to Article 18 of the General Conditions, the beneficiary must repay any amount paid in excess of the final amount due. According to Article 17.1 of the General Conditions, the final amount of financing to be received from EU funds is established on the basis of eligible expenditure. In the present case, the outstanding amount due to the District Council is based on eligible expenditure. That eligible expenditure was calculated on the basis of the invoices submitted to the Commission by the coordinator, including the invoices from the District Council, and supporting documents.

22. If the coordinator is of the view that it should not settle the District Council's invoice, because it owes nothing to the District Council, the latter's invoice which the coordinator sent to the Commission for the purpose of claiming eligible expenditure can no longer be considered to be a valid invoice. In such circumstances, the Commission should issue a recovery order against the coordinator for the relevant amount.

23. However, the Ombudsman notes, it would certainly be in the District Council's interest for the Commission to allow the coordinator and the District Council every opportunity to resolve their differences, with a view to ensuring that the coordinator will pay the District Council. If the Commission were immediately to proceed to recover the sums considered to have been unduly paid to the coordinator, any possibility that the latter would pay the District Council would no longer exist. It should be pointed out that, even if the Commission were to recover monies considered to have been unduly paid to the coordinator, the Commission would not be legally empowered to pay that same amount directly to the District Council since it has no contract with the District Council. Therefore, it would be appropriate for the Commission to inform the coordinator that it should take all measures necessary to resolve its differences with the District Council. In the event that the coordinator cannot do so, it should repay the Commission the outstanding amounts due to the District Council and claimed by the coordinator as costs incurred by the District Council. The Commission should continue to monitor closely the developments in this case, with a view to determining whether the attempts to resolve the dispute between the coordinator and the District Council have failed. In such an event, that is, if the coordinator makes no payment to the District Council, the Commission should issue a recovery order against the coordinator.

24. On the basis of the above, the Ombudsman considers reasonable the Commission's position that it has, for the moment, used all leverage available to it to assist the District Council. The Ombudsman therefore finds no maladministration by the Commission in respect of this aspect of the complaint. As regards the need for the Commission to monitor closely developments in the dispute between the coordinator and the District Council, and to issue a recovery order if circumstances so require, the Ombudsman will make a further remark.

B. Claim that the coordinator should be investigated for claiming excessive funding

Arguments presented to the Ombudsman

25. In its opinion, the Commission emphasised that an in-depth analysis of the audit of the project, along with supplementary evidence provided by the coordinator, showed that the amount of EUR 836.89, which the Commission had already paid the coordinator, corresponds to ineligible costs and should be recovered. The Commission underlined that the amount to be recovered does not include any of the costs incurred by the District Council and claimed from the coordinator. According to the Commission, other than the above amount, a further in-depth analysis of the audit report did not indicate that the coordinator received funding to which it was not entitled.

26. In his observations, the complainant argued that, by simply hiding behind the fact that its only contractual relationship is with the coordinator, the Commission is distancing itself from the fact that, by allowing the beneficiary free rein to do as it pleases, it exposes EU grants to abuse and to excessive payment claims. The complainant maintained that illegitimate payments had been made in the present case and that the Commission is not in control of its budget.

27. According to the complainant, the coordinator actually over-claimed from the Commission an amount of EUR 62 055.40. This was set out in a letter from the Commission to the coordinator dated 18 October 2010. The complainant's understanding is that the Commission made significant, but apparently futile, efforts to recover that amount. The complainant argued that the over-claimed sum included a part of the District Council's legitimate expenditure, a part that the coordinator claimed from the Commission and received, but that the District Council never claimed from the coordinator. According to the complainant, the District Council claimed EUR 16 583.26 from the coordinator, of which it only received EUR 10 000. However, the coordinator claimed and received from the Commission EUR 40 944.52 in respect of the District Council's costs. That amount corresponded to the District Council's actual legitimate expenditure, although the District Council never claimed the full amount from the coordinator. In the complainant's view, given that the Commission only recovered EUR 836.89 from the coordinator, the latter has received an over-payment of EUR 23 524.27 (EUR 40 944.52 - EUR 16 583.36 - EUR 836.89). According to the complainant, the Commission's opinion shows that it is incapable of managing errant coordinators.

The Ombudsman's assessment

28. The Ombudsman first notes that the second claim is entirely separate from the first allegation and the claim related to that allegation. In sum, the issue of a possible recovery of EUR 6 583.36 from the coordinator, if it does not pay the District Council, is not covered by the present claim.

29. The complainant argues that the Commission allows the coordinator free rein to do as it pleases, that it is not in control of its budget, and that it allows EU grants to be abused through excessive payment claims. The Ombudsman notes that the Commission commissioned an audit. Following an in-depth analysis of the audit report and supplementary evidence obtained from the coordinator, the Commission arrived at the conclusion that the EUR 836.89 it had paid the coordinator corresponded to ineligible costs and should be recovered. The Ombudsman has been provided with no arguments or evidence calling into question the Commission's explanation of how it came to the conclusion that only EUR 836.89 constituted ineligible costs.

30. On the basis of the foregoing, and taking due account of the possible further need to issue a recovery order against the coordinator, if it does not pay the District Council, the Ombudsman finds that the Commission has taken appropriate steps to ensure that the project was funded in line with the applicable rules. The Ombudsman therefore finds no maladministration by the Commission in respect of this aspect of the complaint.

C. Conclusion

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

There has been no maladministration.

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

Further remark

It would be appropriate for the Commission to inform the coordinator that it should take all measures necessary to resolve its differences with the District Council. The Commission should continue to monitor closely the developments in this case, with a view to determining whether the attempts to resolve the dispute between the coordinator and the District Council have failed. In such an event, that is, if the coordinator makes no payment to the District Council, the Commission should issue a recovery order against the coordinator.

 

P. Nikiforos Diamandouros

Done in Strasbourg on 18 December 2012