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I Information

Court of Auditors

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OPINION No 1/2006

on the proposal for a regulation of the European Parliament and of the Council laying down the rules for the participation of undertakings, research centres and universities in actions under the Seventh Framework Programme and for the dissemination of research results (2007 to 2013)

(pursuant to Article 248(4), second subparagraph, EC)

(2006/C 203/01)

CONTENTS

Annex ‘Rules for participation’

THE EUROPEAN COURT OF AUDITORS,

Having regard to the Treaty establishing the European Community, and in particular Article 248(4) and Article 279 thereof,

Having regard to the Treaty establishing the European Atomic Energy Community, and in particular Article 160C(4) and Article 183 thereof,

Having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (1), and in particular Article 183 thereof,

Having regard to Commission Regulation (EC, Euratom) No 1261/2005 of 20 July 2005 (2) amending Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 (3),

Having regard to the Community Framework for State Aid for Research and Development (4) and to Article 8 of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (5),

Having regard to the Commission ‘Proposal for a regulation of the European Parliament and of the Council laying down the rules for the participation of undertakings, research centres and universities in actions under the Seventh Framework Programme and for the dissemination of research results (2007 to 2013)’ (6), hereinafter ‘Rules for Participation’,

Having regard to the Commission's request for an opinion on this proposal in the citations of the ‘Rules for Participation’,

Having regard to the European Parliament's request for an opinion on this proposal, which was submitted to the Court of Auditors on 2 March 2006,

Whereas, pursuant to Article 163(1) of the Treaty establishing the European Community, the Community shall have the objective of strengthening the scientific and technological bases of Community industry and encouraging it to become more competitive at international level, while promoting all the research activities deemed necessary by virtue of the Treaty;

Whereas, pursuant to Article 164 of the Treaty establishing the European Community, the Community shall carry out the following activities, complementing the activities carried out in the Member States:

Whereas, pursuant to Article 167 of the Treaty establishing the European Community, for the implementation of the multiannual framework programme the Council shall determine the rules for the participation of undertakings, research centres and universities and lay down the rules governing the dissemination of research results;

Whereas Article 274 of the Treaty establishing the European Community makes the Commission responsible for the implementation of the budget, having regard to the principles of sound financial management;

Whereas, in the area of the specific programmes referred to in Article 164(a) and Article 166(3) of the Treaty establishing the European Community, the budget can be implemented within a framework of direct and indirect centralised management by the Commission, in accordance with Articles 53(2) of the Financial Regulation applicable to the general budget of the European Communities and Articles 36 and 37 of its Implementing Rules;

Whereas, in its Opinion No 2/2004 (7), the Court outlined the principles of an integrated internal control framework, on the basis of which internal controls should be designed to provide reasonable assurance that revenue and expenditure are raised and spent in accordance with the legal provisions in force and managed in accordance with the principles of sound financial management;

Whereas the Court concluded in its Special Report No 1/2004 (8) that the rules for setting the Community's financial participation in the RTD framework programmes should be reviewed from first principles, with the aim of eliminating unnecessary complexity in the forthcoming Seventh Framework Programme so as not to compromise effective and adequate control over expenditure,

HAS ADOPTED THE FOLLOWING OPINION:

INTRODUCTION

Main features of the Commission proposal for ‘Rules for Participation’

The Court's Opinion

GENERAL OBSERVATIONS

Commission's proposal misses opportunity for a radical change

Key proposals to achieve further flexibility and simplification for participants

SPECIFIC OBSERVATIONS

Compliance with interinstitutional arrangements on legal drafting

Commission's obligation to monitor compliance with state aid rules for research and development

Applicability of the ‘Rules for Participation’ to activities funded within the framework of the European Research Council (ERC)

Distinction between internal control and external audit

Chapter I: Introductory provisions (Article 1 to Article 3)

Clarification of definition of ‘indirect action’ required

Chapter II: Participations (Article 4 to Article 38)

Section 1: Minimum conditions (Article 4 to Article 12)

Minimum conditions for participation to be clarified

Absence of provisions to guarantee the portability of ERC funding

Section 2: Procedures (Article 13 to Article 28)

Lack of clarity in rules applicable to Community funding by means other than grants awarded on the basis of calls for proposals

Horizontal selection and award criteria not specified in ‘Rules for Participation’

Implementing rules and procedures to be established and adopted by the Commission

Centralised and ex-ante verification and certification of legal entities recommended

Awarding of grants based on Commission decision

Clarification of the rules governing independent experts

Use of common databases and electronic exchange of data to be specified in the ‘Rules for Participation’

Model grant agreements should take account of specificities in funding arrangements

Overly complicated governance structure for indirect actions

Rights and obligations between the participants, in accordance with the grant agreement, to be established in the consortium agreement

Coordinators should have the possibility to subcontract their administrative and management activities

Changes in the composition of a consortium to be made in a fair, transparent and competitive manner

The use of reviews as a monitoring tool for indirect actions to be explicitly provided for in the ‘Rules for Participation’

Results of programme monitoring activities to be presented to a programme committee composed of representatives of Member States

Section 3: Community financial contribution (Article 29 to Article 38)

Court welcomes proposals to simplify financing systems

Lump sums for whole actions to be used only where appropriate

Compliance with the ‘no profit’ principle must be ensured

Rules governing the reimbursement of cost to be based on participant's accounting principles and cost accounting practices

Alternative proposal on how to determine the Community financial contribution in a transparent, robust and simple-to-administer way

Three categories of direct costs

Indirect costs based on negotiated flat rates

Increase in upper funding limits only justified by establishment of single cost system

Provisions regarding cost reporting and audit certificates not sufficiently explicit

No specific financing rules should apply to ‘Networks of Excellence’

‘Guarantee fund’ will not solve the difficulties experienced by beneficiaries

Chapter III: Dissemination and use, and access rights (Article 39 to Article 52)

Establishing access rights to foreground for affiliated entities

Promoting the use of jointly-owned foreground

Notification of the Commission of a transfer of ownership should be required only in specific circumstances

No limitation or exclusion of access rights after the grant award

Chapter IV: European Investment Bank (Article 53)

Clarification needed with regard to the ‘Risk Sharing Finance Facility’

Chapter V: Final provisions (Article 54)

CONCLUSION

This opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 5 April 2006.

For the Court of Auditors

Hubert WEBER

President

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(1)OJ L 248, 16.9.2002 (as amended by OJ L 25, 30.1.2003).

(2)OJ L 201, 2.8.2005, p. 3.

(3)OJ L 357, 31.12.2002, p. 1.

(4)OJ C 45, 17.2.1996, p. 5.

(5)OJ L 336, 23.12.1994, p. 156.

(6)  COM(2005) 705 final.

(7)OJ C 107, 30.4.2004, p. 1. See also the Commission's action plan towards an Integrated Internal Control Framework, COM(2006) 9 final, 17.1.2006 (in particular Action No 1 in Annex 1).

(8)OJ C 99, 23.4.2004, p. 1.

(9)  See Commission proposal COM(2005) 119 final.

(10)  See Commission proposals COM(2005) 439 final, COM(2005) 440 final, COM(2005) 441 final, COM(2005) 442 final, COM(2005) 443 final, COM(2005) 444 final, COM(2005) 445 final, 21.9.2005.

(11)  The Commission proposal organises collaborative research into nine sub-programmes: ‘Health’, ‘Food, agriculture and biotechnology’, ‘Information and communication technologies’, ‘Nanosciences, nanotechnologies, materials and new production technologies’, ‘Energy’, ‘Environment (including climate change)’, ‘Transport (including aeronautics)’, ‘Socioeconomic sciences and the humanities’, and ‘Security and Space’.

(12)  Commission staff working paper, ‘Follow-up on the discharge for implementing the European Union budget for the financial year 2003: Council recommendations No. 5665/05’ (COM(2005) 448 final, 19.9.2005) and European Parliament recommendations — Wynn report (COM(2005) 449 final, 19.9.2005).

(13)  In its amendment 740, the European Parliament placed 10 % of the appropriations in budget reference line 02 01 02 11 ‘other management expenditure’ in reserve, which are to be released once the Commission has demonstrated satisfactory effort to simplify and make more effective its procedures in line with the recommendations made in the Court's Special Report No 1/2004.

(14)OJ C 13, 18.1.2006. See paragraph 12.

(15)  COM(2006) 42 final, 7.2.2006.

(16)  See Special Report No 1/2004, paragraphs 74, 78 and 79.

(17)  In the Commission's proposal, several definitions are given in other articles of the ‘Rules for Participation’ (e.g. the definition of dissemination, access rights or use in Article 1 or of legal entity in Article 4), some of which are however not fully consistent with their use in the other parts of the legal base (e.g. the proposed definition of indirect action in Article 1). In other cases, the terms are used in the legal base, but the definition is missing (such as for instance the definition of investigator-driven frontier research projects in Article 9, coordinator in Article 23 and Article 25, receipts in Article 31).

(18)  In the case of participation of entities from the candidate countries, Annex III states that an additional contribution from the pre-accession financial instruments could be granted under similar conditions.

(19)  See Court opinion No 2/2005, paragraphs 10 and 11.

(20)  See Court Opinion No 10/2005, paragraphs 46 to 47.

(21)OJ L 11, 16.1.2003, p. 1.

(22)  See the ‘Decision’, Annex III a) 4. Individual projects.

(23)  When entrusting the ERC's executive agency with the executive powers the Commission enjoys under the Treaties, the provisions of Article 54 of the Financial Regulation are to apply. In particular, the implementing tasks delegated must be clearly defined and fully supervised (see also paragraph 40).

(24)  For the different roles of external audit and internal control, see also the Court's proposal for an integrated internal control framework as described in the Court's Opinion No 2/2004.

(25)OJ L 312, 23.12.1995, p. 1.

(26)OJ L 292, 15.11.1996, p. 2.

(27)OJ L 136, 31.5.1999, p. 1.

(28)OJ L 136, 31.5.1999, p. 8.

(29)  See Special Report No 1/2004, paragraphs 18 and 78.

(30)  See Article 160 of the Financial Regulation (Article 229(3) of the Implementing Rules).

(31)  The final sentence in section a) 3. ‘Coordination and support actions’ reads as follows: ‘These actions may also be implemented by means other than calls for proposals’. This should be replaced by ‘In addition to grants, and in accordance with the applicable provisions of the Financial Regulation and its Implementing Rules, these actions may also be implemented by: public procurement for goods or services established by contract and selected on the basis of calls for tender; study, research or training scholarships and prizes following contests; subscriptions to organisations; or honoraria for independent experts’.

(32)  See also the Court's proposal for a simplified governance structure of consortia carrying out multi-partner indirect actions (see paragraphs 45 to 52).

(33)  However, a specific provision for scholarships and prizes is missing in the Commission proposal for Article 14 (see also Article 30(1)).

(34)  See Proposal for a Council Decision concerning the Specific Programme ‘Cooperation’ (COM(2005) 440 final, 21.9.2005, Article 6(3): ‘The work programme will specify the criteria on which proposals for indirect actions under the funding schemes shall be evaluated and projects selected. The criteria will be those of excellence, impact and implementation and within this framework additional requirements, weightings and thresholds may be further specified or complemented in the work programme.’

(35)  See also Special Report No 1/2004, paragraphs 88, 92 and 128.

(36)  Note that the term ‘selection’ refers to the Commission drawing up, on the basis of the evaluation results, a list of proposals that have passed the minimum thresholds of the evaluation (possibly with a reserve list in the event that some additional funding becomes available during the negotiation period) and the list of the proposals to be rejected (ineligible, those which have not attained the minimum thresholds of the evaluation, those which cannot be funded because of budget limits).

(37)  Special Report No 1/2004, paragraphs 92 and 122.

(38)  Note that as a starting point, the Commission could establish a first set of supporting documentation using its archive of those documents requested from all legal entities which have participated under previous RTD framework programmes.

(39)  Special Report No 1/2004, paragraph 66.

(40)  See Article 117 of the Financial Regulation (Article 181 of the Implementing Rules).

(41)  These stages include in particular: electronic proposal submission, identification and selection of experts, proposal evaluation and selection, negotiation of proposals, the award and management of grants, the receipt of project deliverables (such as reports and financial statements) and communication with participants.

(42)  Special Report No 1/2004, paragraphs 86 and 138; Court's Annual Report concerning the financial year 2004, paragraph 6.10.

(43)  Special Report No 1/2004, paragraph 111.

(44)  Special Report No 1/2004, paragraph 115.

(45)  These subcontracted services could then be reimbursed by the Commission according to the rates defined for ‘management and training’ activities, as provided for in Article 33(4).

(46)  The term ‘competitive call’ has already been used in the Sixth Framework Programme, but was not legally defined. Since then the Commission has provided informal guidelines on how to carry out such a ‘competitive call’ (generally speaking a procedure similar to a ‘call for proposal’). No information has been provided by the Commission on the number of cases in which such a procedure has actually been carried out so far.

(47)  Special Report No 1/2004, paragraph 62.

(48)  Court's Annual Report concerning the financial year 2004, paragraph 6.47; Special Report No 1/2004, paragraphs 36 to 39 and 139.

(49)  It should be noted that this calculation has to be made taking into account the different activities carried out by individual participants (e.g. management and training activities, which have different co-financing rates), the application of either lump sums or flat rates depending on the specific activities, the specific cost structures of the legal entities participating, and the different upper funding limits laid down in Article 33. Of course, this underlying principle also applies to the reimbursement of eligible costs as provided for in Article 31.

(50)  Court Opinion No 10/2005, paragraph 44.

(51)  The Commission proposal to make only ‘identifiable’ indirect taxes ineligible may induce participants to conceal VAT in their cost reporting.

(52)  Court's Annual report concerning the financial year 2001, paragraph 4.47; Special Report No 1/2004, paragraphs 36 to 40 and 115 and Opinion No 3/2005, paragraph 13.

(53)  Special Report No 1/2004, paragraphs 30 to 33.

(54)  Special Report No 1/2004, paragraphs 23 to 26.

(55)  Opinion No 2/2004; paragraph V.: Internal control systems should have, at their basis, a chain of control procedures, with each level having specific defined objectives which take into account the work of the others. Claims of expenditure or costs over a certain threshold should be accompanied by an independent audit certificate and report, based on common standards of approach and content.

(56)  See Article 117 of the Financial Regulation (Article 180(2) of the Implementing Rules).

(57)OJ L 126, 12.5.1984, p. 20.

(58)  Opinion No 2/2004, paragraph VIII: ‘Internal control systems require an appropriate balance between the cost of controlling a particular budgetary area and the benefits the checks bring in terms of limiting the risk of loss and irregularity to an acceptable level.’

(59)  The amendments proposed by the Court to increase the autonomy of the consortia (see Articles 18, 19, and 23 to 26) and the Commission's verification of the existence, legal status and operational and financial capacity of participants (see Article 16a) should reduce the potential risk to the Community budget to such an extent that in a majority of cases the authorising officer would not have to invoke a third-party joint and several guarantee or the irrevocable and unconditional joint guarantee (which, according to Article 182(3) of the Implementing Rules of the Financial Regulation, is mandatory if pre-financing is above 80 % of total grant).

(60)  Note that the Commission proposes in Article 38(2) that the following do not have to contribute to the ‘Guarantee fund’: public bodies, legal entities whose participation in the indirect action is guaranteed by a Member State or an Associated Country, higher and secondary education establishments, participants in actions to support training and career development of researchers, frontier research actions, and actions for the benefit of specific groups with the exception of actions for the benefit of SME's.

(61)  See also Opinion No 10/2005, paragraphs 20 and 22.

(62)  In particular, it should also be clarified whether, based on the wording in Annex III of the ‘Decision’, this extends to actions outside the scope of the Seventh Framework Programme, such as EUREKA projects, or whether actions other than those referred to in Annex III (i.e. joint technology initiatives, large projects – including Eureka projects, and new research infrastructures) could be the beneficiaries of the EIB's loan and guarantee financing activities.

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ANNEX:

‘RULES FOR PARTICIPATION’

COM(2005)705 final — REGULATION

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(1)  OJ C (...), (...), p. (...).

(2)  OJ C (...), (...), p. (...).

(3)  OJ C (...), (...), p. (...).

(4)  Opinion of the European Parliament of April 2005, and Council Decision of (...).

(5)  OJ C (...), (...), p. (...).

(6)OJ L 248, 16.9.2002, p. 1.

(7)OJ L 357, 31.12.2002, p. 1, as amended by Commission Regulation (EC, Euratom) No 1261/2005 (OJ L 201, 2.8.2005, p. 3).

(8)  Currently Community Framework for State Aid for Research and Development, (OJ C 45, 17.2.1996, p. 5). See also World Trade Organization (WTO) Agreement on subsidies and countervailing measures, Article 8 (see OJ L 336, 23.12.1994)

(9)OJ L 124, 20.5.2003, p. 36.

(10)  OJ C (...), (...), p. (...).

(11)OJ L 75, 22.3.2005, p. 67.

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OPINION No 2/2006

on a proposal for a Council Decision on the system of the European Communities' own resources

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2006/ 203/02)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community and in particular Article 248(4), second subparagraph thereof,

Having regard to the Treaty establishing the European Atomic Energy Community and in particular Article 160c(4),

Having regard to the Council Decision of 29 September 2000 on the system of the European Communities' own resources (1),

Having regard to the Council Regulation of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (2),

Having regard to the previous opinions given by the Court of Auditors on the system of the European Communities' own resources and its Opinion No 4/2005 (3) in particular,

Having regard to the Council's request, dated 26 April 2006, for the Court of Auditors' opinion on the proposal (4) for a Council Decision on the system of the European Communities' own resources,

Whereas the Fontainebleau European Council of 25 and 26 June 1984 concluded (5), inter alia, that expenditure policy is ultimately the essential means of resolving the question of budgetary imbalances; that, however, any Member State sustaining a budgetary burden which is excessive in relation to its relative prosperity may benefit from a correction at the appropriate time,

Whereas the Berlin European Council of 24 and 25 March 1999 concluded (6), inter alia, that the Union's own resources system should be equitable, transparent, cost-effective and simple and that it must be based on criteria which best express each Member State's ability to contribute,

Whereas the Brussels European Council of 16 and 17 December 2004 took note of the presentation by the Commission of the report on the operation of the own resources system as well as the proposal to introduce a generalised correction mechanism (7) and called on the Commission and the Council to continue the examination of all issues arising in this connection, including a possible simplification of the system,

Whereas the Brussels European Council of 15 and 16 December 2005 reached agreement (8), inter alia, that the own resources arrangements should be guided by the overall objective of equity, that these arrangements should therefore ensure, that no Member State sustains a budgetary burden which is excessive in relation to its relative prosperity and that these arrangements should accordingly introduce provisions covering specific Member States,

HAS ADOPTED THE FOLLOWING OPINION:

I.   INTRODUCTION

II.   GENERAL OBSERVATIONS

III.   SPECIFIC REMARKS

IV.   CONCLUSIONS AND RECOMMENDATIONS

This opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 28 June 2006.

For the Court of Auditors

in the absence of Hubert WEBER

President

François COLLING

Member of the Court

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(1)OJ L 253, 7.10.2000, p. 42.

(2)OJ L 248, 16.9.2002, p. 1.

(3)  Opinion No 4/2005 on a proposal for a Council Decision on the system of the European Communities' own resources and on a proposal for a Council Regulation on the implementing measures for the correction of budgetary imbalances in accordance with Article 4 and 5 of the Council Decision of (...) on the system of the European Communities' own resources (OJ C 167, 7.7.2005, p. 1).

(4)  COM(2006) 99 final of 8 March 2006.

(5)  See Bulletin EC 6-1984.

(6)  See Bulletin EU 3-1999.

(7)  COM(2004) 501 final of 14 July 2004.

(8)  See paragraph 6 of the Presidency Conclusions (Council Document 15914/1/05, REV 1, CONCL 3 of 30 January 2006) refering to Council Document 15915/05 CADREFIN 268 of 19 December 2005, and in particular paragraph 77 thereof.

(9)  In accordance with Member States' respective constitutional requirements pursuant to Article 269 of the Treaty.

(10)  See Council Document 15915/05 CADREFIN 268 of 19 December 2005.

(11)  See Opinion No 4/2005 (OJ C 167, 7.7.2005, p. 1), Opinion No 7/2003 (OJ C 318, 30.12.2003, p. 1) and Opinion No 8/99 (OJ C 310, 28.10.1999, p. 1).

(12)  See paragraph 14 of Opinion No 4/2005.

(13)  See paragraph 14 of Opinion No 4/2005.

(14)  See in particular paragraphs 6 to 15 of Opinion No 4/2005.

(15)  See paragraph 23 of Opinion No 4/2005.

(16)  See point 3.2.

(17)  Article 279(2) stipulates that ‘the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and obtaining the opinion of the Court of Auditors, shall determine the methods and procedure whereby the budget revenue provided under the arrangements relating to the Community's own resources shall be made available to the Commission (...).’

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