TABLE OF CONTENTS "" ID="1">General introduction> ID="2">0.1 - 0.12"> ID="1">Chapter 1 - The administration's management of the programme> ID="2">1.1 - 1.96"> ID="1"> Management stages> ID="2">1.1 - 1.33"> ID="1"> Preparation of programmes and calls for proposals> ID="2">1.1 - 1.6 "> ID="1"> Selection of projects and negotiation of contracts> ID="2">1.7 - 1.16"> ID="1"> Monitoring the work> ID="2">1.17 - 1.23"> ID="1"> The responsibilities of beneficiaries> ID="2">1.24 - 1.33"> ID="1"> Unwieldiness and slowness> ID="2">1.34 - 1.96"> ID="1"> Introduction: speed, a vital necessity> ID="2">1.34"> ID="1"> The facts: slowness> ID="2">1.35 - 1.60"> ID="1"> The causes: unwieldiness and complexity> ID="2">1.61 - 1.96"> ID="1">Chapter 2 - The ESPRIT programme as a strategic instrument> ID="2">2.1 - 2.35"> ID="1"> Introduction> ID="2">2.1 "> ID="1"> The objective of transnational cooperation> ID="2">2.2 - 2.8 "> ID="1"> Good internal cooperation: a condition of success> ID="2">2.2 - 2.3 "> ID="1"> Pooling information: a qualified success> ID="2">2.4 - 2.8 "> ID="1"> The objective of cooperation between industry, universities and research centres> ID="2">2.9 - 2.13"> ID="1"> Participation by universities and research centres> ID="2">2.9 - 2.10"> ID="1"> The role of the universities in transferring technology> ID="2">2.11"> ID="1"> A similar role for contract research companies> ID="2">2.12"> ID="1"> The objective of SMU participation> ID="2">2.13 - 2.27"> ID="1"> Scope> ID="2">2.13"> ID="1"> Increased SMU participation> ID="2">2.14 - 2.16"> ID="1"> The problems of participation for SMUs> ID="2">2.17"> ID="1"> The objective of economic and social cohesion> ID="2">2.18 - 2.21"> ID="1"> Scope> ID="2">2.18 - 2.19"> ID="1"> Strengthening economic and social cohesion> ID="2">2.20"> ID="1"> The problem for beneficiary countries of participating in the effort towards economic and social cohesion> ID="2">2.21"> ID="1"> Community efforts to improve SMU participation as well as improving economic and social cohesion> ID="2">2.22 - 2.26"> ID="1"> Variety of intervention modes> ID="2">2.22 - 2.23"> ID="1"> Suggested partners> ID="2">2.24 - 2.25"> ID="1"> Desirable improvements> ID="2">2.26"> ID="1"> ESPRIT and the international competitiveness of the European electronics and computer industries> ID="2">2.27 - 2.74"> ID="1"> Exploitation of results still inadequate> ID="2">2.29 - 2.45"> ID="1"> The IT industry between research and the other common policies> ID="2">2.46 - 2.74"> ID="1"> Additionality> ID="2">2.75 - 2.81"> ID="1"> The net contribution of the ESPRIT programme> ID="2">2.75"> ID="1"> Substitution effects> ID="2">2.76 - 2.77"> ID="1"> The costs of additional effects> ID="2">2.78 - 2.79"> ID="1"> ESPRIT's qualitative contribution> ID="2">2.80"> ID="1"> Alternative ways of pursuing the various objectives> ID="2">2.81"> ID="1">General conclusion> ID="2">3.1 - 3.10" ID="2">Page" ID="1">Commission reply> ID="2">36">

SPECIAL REPORT No 6/93 concerning the European research and development programmes in the field of information technology (the ESPRIT programmes) together with the Commission's replies (94/C 45/01)

GENERAL INTRODUCTION

The extent of the ESPRIT programme

0.1. The ESPRIT ('European Strategic Programme for Research in Information Technologies') programmes are shared-cost specific research programmes which fall under successive framework programmes. They are concerned with information technology ('IT'), which is to say that they cover all the technologies employed in the following areas:

- microelectronics, or the manufacture of semi-conductors;

- the manufacture of computer equipment (computers and peripherals such as printers, VDUs, etc);

- software and systems design.

0.2. Table 1 lists the Community research and development programmes which are concerned with information technology(1) ()(2) ()(3) ()(4) (). The 1984-88 and 1987-92 programmes were the only ones to be given the formal title of 'ESPRIT' programmes. For simplicity's sake, the 1990-94 programme will be called 'ESPRIT III' in this report. As each programme follows on from the previous one without a break, the report will refer to the ESPRIT programme in general where there is no risk of ambiguity. The ESPRIT programme was originally managed by Directorate A at Directorate-General (DG) XIII (Telecommunications, information and innovative industries). By a Commission decision, the ESPRIT Directorate was transferred on 12 May 1993 to DG III (Industry). The bulk of this report describes the programme's situation before that date.

0.3. Table 1 also reveals the considerable funds that have been earmarked for these programmes. At 1 600 Mio ECU, ESPRIT II alone accounts for almost 30 % of the total for the second framework programme. However, in terms of the total funding dedicated to research and development (R & D) in the IT sector in Europe, the proportion accounted for by ESPRIT is of the order of 5 % only. National funding from public and private sources continues to be the predominant method of financing. Table 2 gives a synopsis of the proposed distribution of funding between the main sectors of research for the three successive programmes.

0.4. The fundamental objectives of the ESPRIT programmes, as defined in the EEC Treaty, the framework programmes and the specific programmes, are as follows:

(a)'to strengthen the scientific and technological basis of European industry' in the IT sector(5) ();

(b)to promote specifically European research by means of transnational cooperation within cost-sharing research consortia, each of which must include at least two industrial undertakings established in different Member States(6) ();

(c)to involve companies, universities and research centres in the consortia(7) ();

(d)to secure a high level of participation in the programme by small and medium-sized undertakings (SMUs)(8) ();

(e)to strengthen the economic and social cohesion of the Community by strengthening scientific and technological infrastructure and potential throughout the Community and involving participants from the so-called 'peripheral' countries and the least-developed regions(9) ();

(f)'to encourage the industry to become more competitive in the IT sector at international level'(10) ().

Outline of the system

0.5. The implementation of the ESPRIT programmes comprises the formulation of the specific programme, including the definition of the technical areas to be covered and an estimate of the amount of funding deemed necessary for carrying out the work in question. These areas are then taken as the basis for the formulation of successive instalments, or 'work programmes', each of which is the subject of a call for project proposals published in the Official Journal of the European Communities.

0.6. The candidates group themselves in consortia comprising industrial undertakings, research centres and universities. The Commission submits the consortia's proposals to independent consultants for evaluation and forwards its own assessment to the programme management committee for an opinion (see paragraph 0.10). Once the list of successful proposals has been adopted, the Commission negotiates the relevant contracts with the consortia and signs them.

0.7. The partners share out the work and pool information on progress achieved at a series of meetings of various kinds, which are held at varying intervals. The Commission monitors current projects in two ways: it examines the many reports which the consortia are required to provide and it conducts technical reviews, in which independent assessors evaluate the work done by the consortia and make binding recommendations.

0.8. The contractors are required to exploit the results of their research and the Commission requires the proposers to state what their intentions are in this respect. However, as Community research remains, in principle, precompetitive, exploitation of the results is not included in the funding for ESPRIT projects.

0.9. The Commission conducts financial audits of some participants and carries out concurrent or ex post facto assessments of programmes.

0.10. It is assisted by a number of committees, whose roles may usefully be clarified at the outset:

- the Commission is required to submit a draft of the measures which it wishes to adopt to a Committee of representatives of the Member States, commonly known as 'the management committee' (ESPRIT I and II), and subsequently as 'the information technology committee' (ESPRIT III). For the sake of convenience this Committee will be called 'the management committee' in this report;

- the 'ESPRIT consultative committee' comprises scientific experts and industrialists from the IT sector. It is consulted on the scientific aspects of the programme and is particularly involved in the project selection procedure;

- the 'ESPRIT review board' carries out a concurrent and ex post facto assessment of the programmes.

It is also important not to underestimate the role of the 'Steering Committee', which is composed of representatives of the 12 major groups that make up the European computer and microelectronics industry. It was the Steering Committee which planned and led the execution of the ESPRIT programme. It is unofficial in nature and there is no basis in the decision adopting the programme for the creation of such a Committee, which in practice functioned like a Working Party.

The methodology of the Court's enquiry

0.11. The Court's enquiry was carried out on the premises of the relevant Commission departments and on the spot during visits to four Member States: Germany, Spain, France and Ireland. In the course of these visits the Court interviewed a large number of contractors and members of the national administrations with responsibility for this area.

0.12. The Court's aim was not only to audit the quality of the administrations' management of the ESPRIT programmes, but also to assess the extent to which these programmes are, in fact, a 'strategic' instrument which may be used to achieve the objectives assigned to them by the Treaty, the framework programmes and the Council Decisions in which the specific programmes were adopted. The Court did not, however, attempt to evaluate itself any results which are purely scientific or technical(11) ().

Table 1 - Community R & D programmes in the field of information technology "" ID="1">Preparatory phase for a Community research and development programme in the field of information technologies (1)> ID="2"> 1.1.1983 31.12.1984> ID="3">11,5"> ID="1">European programme for research and development in information technologies (Esprit) (ESPRIT I) (2) 1st framework programme)> ID="2"> 1.1.1984 31.12.1988> ID="3">750"> ID="1">European strategic programme for research and development in information technologies (Esprit) (ESPRIT II) (3) (2nd framework programme)> ID="2"> 1.12.1987 30.11.1992> ID="3">1 600"> ID="1">Specific research and technological development programme in the field of information technologies (1990-1994) (4) (3rd framework programme)> ID="2"> 8.7.1991 31.12.1994> ID="3">1 532 (5)"">

Table 2 - Proposed allocation of Esprit programme resources (1) between the fields of IT-related research "(%)">Research field"> ID="1">23> ACCV="2.1.2" ASSV="2" ID="2">32> ID="3">29"> ACCV="2.2.3" ASSV="2" ID="3">17"> ID="1">20> ACCV="3.1.2" ASSV="3" ID="2">36"> ID="1"> "> ID="1">13> ACCV="2.2.3" ASSV="2" ID="3">19"> ID="1"> "> ID="1">20> ACCV="2.2.3" ASSV="2" ID="3">25"> ID="1">24> ID="2">32"> ID="3">10"> ID="1">100> ID="2">100> ID="3">100"">

CHAPTER 1 The administration's management of the programme

MANAGEMENT STAGES

Preparation of programmes and calls for proposals

The consultation process

1.1. The ESPRIT programme represented a new concept - a programme drawn up by the people who would be required to participate in it - which was subsequently extended to other high-technology programmes. The programme is, in fact, drawn up by representatives of industry, universities and research centres. Consultation takes place in two stages. Firstly, a draft programme is drawn up by a small number of industrial working parties which specialize in particular areas. The Commission then arranges workshops, which last for two or three days and bring together several hundred experts from a far wider range of backgrounds than those of the industrial working parties. The draft produced by the working parties is discussed at these workshops, but the industrial working parties are the only ones which can influence the contents of the programme directly. During the workshops it is not really possible to modify much more than the details of the plans put forward.

Frequency of calls for proposals

1.2. The ESPRIT I (Article 3(1)) and ESPRIT II (Article 6(3)) programmes state that a work programme is to be drawn up each year. ESPRIT II states that calls for proposals are to be established 'on the basis of the annual work programmes'. Consequently they have to be established on an annual basis as well. In fact, there were no work programmes and no general calls for proposals for the years 1987 and 1988 of ESPRIT I and none for the years 1988, 1990 and 1991 of ESPRIT II.

1.3. Whilst the ESPRIT III programme preserved the link between work programmes and calls for proposals, the annuality obligation disappeared (Article 5(3)). This simplification, which brought the regulations into line with what happens in practice, is a realistic one, in that neither the availability of budgetary resources nor the convenience of breaking up the programme into stages of varying size warranted the previous frequency and regularity.

Information concerning programmes and calls for proposals

1.4. Each proposer receives or can obtain detailed written documentation on the technical areas for the next call - this is the 'work programme' - and the method of submitting proposals - the 'information file'. The Commission has also made a significant effort to increase the number of information channels. In addition to the information seminars which it organizes itself, the Commission has asked each Member State to appoint a national organization to relay Community information to organizations interested in ESPRIT. The Commission has set up electronic contact points: EUROCONTACT is a database of actual or potential proposers, which is intended to facilitate the search for partners and EUROKOM is an electronic mail system. There were, however, a number of organizations which were, or claimed to be, badly informed (in Spain and Germany, for example).

1.5. In their view information had not arrived early enough. Organizations were inundated with brochures, periodicals, leaflets and forms through a number of channels. Instead of increasing total information, this superabundance of information only produced confusion, and the problem of 'information about information' was a frequent occurrence. The rule at the Commission should be to use a large number of channels to disseminate each document individually; it should not allow each Directorate - and in some cases, even individual units - to issue its own publications. EUROKOM and EUROCONTACT could be used more and to better effect: EUROCONTACT provides little more than the names and addresses of the organizations that are in the database. What is also needed is information about their human and technical resources and references to participation in ESPRIT projects.

1.6. Above all, however, there is in practice no equality of access to information. Those who were submitting proposals for the first time, as well as the small and medium undertakings (SMUs)(12) (), found it difficult to get their bearings. Those which are already known to the Commission and appear on its mailing lists, or who have already taken part in the groups and workshops which prepare the programmes, are at an advantage.

Selection of projects and negotiation of contracts

Management of the overall funding

1.7. At the time of the first general call for proposals in connection with ESPRIT II (1987-88), the ratio of funding awarded to funding requested was 1: 5,4. For the first general call for ESPRIT III (1991), the proportion was 1: 4,8(13) (). The proportion can vary significantly in the case of specialized calls: in the case of the 1989 microelectronics call it was only 1: 2,8. In all cases, however, the total volume of proposals recorded is always far in excess of the resources available. In itself, this situation is normal and even positive: it proves that the programme is successful. The problem lies, however, in determining whether the procedures which the Commission employs in order to keep funding within the limits of the total available budget are, in fact, the best ones.

1.8. The Commission often splits very large projects up into a series of stages. The first, one-year stage is the 'project definition' phase and is the only one which is funded at the initial stage. For example, the proposal for the ITHACA project covered a period of five years and requested 42,7 Mio ECU of funding, but the initial contract was for 12 months and provided funding of only 5,5 Mio ECU. Splitting up the funding in this way also makes it possible to bring projects which appear unlikely to succeed to an immediate halt.

1.9. The programme decisions provided for a 50 % rate of project funding (with the possibility of 100 % for the additional costs in the case of universities and research centres). Although the Commission observes the 50 % rate, it does, sometimes, underestimate the costs which are taken as the basis. In the case of CIM-ALIVE, for example, the Commission allowed a budget of only 4 Mio ECU for the one-year definition phase. The partners were, in fact, unable to avoid making a substantial additional financial contribution.

1.10. Sometimes the Commission 'suggests' merging two or more proposals. The aim is two-fold: technical integration but also husbanding of resources, in that the merged budget is less than the sum of the separate budgets. These 'shotgun marriages' often result in disunited consortia, in which each partner quietly continues with its own initial project. ITHACA resulted from the merger of two projects, each of which was headed by a giant of the European IT industry. During the first year of work the merger was more theoretical than real.

1.11. Essentially, though, there are two ways in which applications for funding may be brought into line with the amount of appropriations available: rejecting proposals and cutting the budgets of the proposals that are accepted.

1.12. For general calls for proposals the acceptance rate, which moreover is very stable, is one proposal in four. This results in a four-fold increase in the cost of preparing proposals and although it is undoubtedly affordable in the case of large companies, for SMUs it can become prohibitive. Moreover, the acceptance rate for proposals from SMUs is lower than that for proposals from large undertakings, where the rate rises to one proposal in two or three.

1.13. In a very large number of cases, the contract budget is cut back relative to the proposed budget, often very drastically. Out of seven accepted proposals that the Court tested on this point, all had been reduced by between 12 % and 46 %. The ATMOSPHERE project was reduced to one third of the amount the proposers had hoped for. The BASE project was cut by 75 %. As a result, many proposers have adopted the unfortunate habit of inflating their cost estimates in the expectation that reductions will be applied. The Commission cannot avoid rejecting and cutting back proposals. Table 3 shows how the Commission has combined the two methods in the past and may help it find a better balance between them in future.

Assessment of proposals

1.14. There is too much emphasis on the technical aspect of the assessors' role, to the exclusion of other aspects. The selection criteria are concerned with the eligibility of the proposal, its technical value, the approach and working methods proposed and the organization envisaged. The only aspect outside this strictly technical framework concerns the prospects for industrial exploitation. The assessors are thus not required to take any account of either the proposer's financial and technical status or the question of whether the proposed costs are reasonable in the light of the work envisaged.

1.15. The assessors, however, constitute only the first stage of the screening process. There are others. The assessors break the proposals down into three groups, the first being a short list of excellent proposals which are to be adopted in any case. The other proposals are divided more or less equally between a list of 'to be rejected' proposals and a list 'for further consideration'. The assessors do not, however, apply any kind of grading when they draw up the latter list(14) () and, unlike the case of the RACE programme, they do not present it to the management committee themselves. Half the proposals that are to be given further consideration, or a quarter of all proposals, will still be rejected, either at the stage where they are examined by the ESPRIT consultative committee and the management committee or, subsequently, at the Commission decision stage. Leaving aside the technical qualities, the use of an ungraded list at this stage of the selection allows the Commission to ensure that the SMUs and each country, especially the countries which are the object of the Community's economic and social cohesion measures, are adequately represented (but, see the comments on this point in paragraph 2.19).

Contract signature procedure

1.16. The contract signature procedure is still too long, but it could be speeded up if it were modified slightly. If the Commission were to delete from the contract cover note the section which advises those concerned to wait until they receive the telex with the official offer before they sign the contract, it would be possible for contractors to sign the contracts and return them immediately, thus saving a considerable amount of time. It would also enable the Commission to pay advances more quickly, whereas, at the moment, they are frequently delayed.

Monitoring the work

The system

1.17. Contractors are virtually unanimous in their recognition of the merits of the system designed and used by the Commission to monitor project progress. In addition to the periodic progress reports which consortia are required to send to the scientific officer responsible for monitoring projects at DG XIII, there are various working meetings, which are often attended by the Commission, and a technical review, which is arranged every six or twelve months. At each review the consortium makes an oral report on the progress of the works and expected developments to the scientific officer and two or three independent assessors selected by the Commission. Each assessor then draws up a diagnostic report with recommendations. At the next review, the scientific officer and the assessors check whether the recommendations have been put into effect. If not, penalties are imposed which may, on occasion, even include the suspension of the project.

Role of the managing departments

1.18. The staff of DG XIII play an important part in ensuring that projects progress satisfactorily. Nevertheless, at peak periods, when calls for proposals are being processed, the staff are overwhelmed with work and the quality of the project monitoring suffers. Each scientific officer has to monitor as many as 20 projects. At the rate of two meetings per project and per month - the current rate - the workload becomes almost unsustainable.

Selection of assessors

1.19. It is absolutely essential for assessors to be independent of the commercial interests of the partners, and the Commission is aware of this. Contractors also have the right to ask for an assessor to be replaced, which happened in the case of the LSVI project.

1.20. The procedures for selecting both the assessors for the proposals and the technical reviews and the experts who are invited to take part in the groups and workshops which draw up programmes and calls for proposals are lacking in transparency. These experts are invited on a strictly personal basis, without their employers' knowledge.

Results of the monitoring system

1.21. Despite what has been said above, the monitoring system generally provides good results. If there is a crisis on a project, supplementary reviews are sometimes arranged, as, for example, with the DMPC and EWS projects. In the event of misdirection, the consortium is warned that the project could be halted unless the deficiency that has been noted is remedied. After two years' work on the CSIC four-year project, a review in December 1987 concluded that, in the light of technical developments and market trends, the hopes which the consortium and the Commission had placed in a new process for manufacturing integrated circuits were misplaced. The project was shortened by a year and stopped on 31 December 1988. Similar reviews led to the termination of the DASIQ project after three years instead of four. One of the partners had gone into liquidation, another was unable to put in the working time that had been pledged, progress in two other work areas had not yielded useful results and the assessors' recommendations had not been adequately followed up.

1.22. The outcome of the reviews is usually more favourable. In the MINSTREL project, the main contractor withdrew from the project after the first year, but the Commission helped the consortium to restructure itself and thus saved the project. The assessors issued a warning concerning LSVI and a special meeting was arranged in July 1990 to hear the partners' views on how commercial necessity and the needs of final consumers could be taken into account, as these aspects had been too much neglected until then. This omission was rectified following the meeting.

1.23. The few cases of defective technical monitoring that were noted by the Court often resulted in a temporary setback to or the permanent abandonment of projects. A succession of some ten scientific officers had responsibility for the BWN project during the 68 months for which it operated. There was a break of almost two years and there was no review for 20 months, between March 1987 and November 1988, followed by a further year before the next one took place, in November 1989. This temporary paralysis was due to a disagreement concerning the content of the revised technical annex. Nevertheless, the project did not end in failure. KIWIS, which was started on 1 January 1989, did not undergo its first review until 14 months later, instead of after six months. The review then highlighted an unsatisfactory contribution on the part of one of the partners. The finding was followed up with a warning in April 1990 which proved to be effective, and the project ended with good results. The reviews of TOWARDS THIRD INTEGRATION were too widely spaced out: the first was in February 1986, 14 months after the start of the project; the second was 15 months later; and the last came after a further ten months. The project approved by the management committee was for a term of five years, but it was the subject of a three-year contract, which was not renewed as the technical results had proved inconclusive. A period of six to nine months between reviews appears to be a satisfactory interval.

The responsibilities of beneficiaries

Participation by industrialists at every stage of the procedure

1.24. The categories of organization (industrial companies, universities, research centres) that participate in projects are the same as the ones that are required to play their part at every stage of the development of the programme: during the drafting of the programmes in the working groups and workshops; in the groups which assess proposals; on the ESPRIT consultative committee, which is required, inter alia, to give its opinion during the selection of proposals; and on the ESPRIT review board.

1.25. This opening up of the programme to the world of industry is one of the major innovations of the ESPRIT programme and it is a positive achievement. It has, nevertheless, produced some perverse effects. According to the official scheme, the industrial working groups propose areas of research and, at a later stage, the Commission canvasses ideas for projects by calling for proposals on the basis of the research areas that have been adopted. In fact, many experts come to the working groups with very clear ideas for projects from their own companies and then try to insert suitable themes into the programme. In addition, experts who have already taken part in projects or working groups are better placed to be reselected for other working groups and to influence the themes adopted for subsequent programmes. This is one of the reasons why large companies succeed in obtaining funding for one proposal out of every two or three, instead of the average of one out of four (see paragraph 1.12).

The role of the 'Big Twelve'

1.26. The 'Big Twelve' are the 12 main groups in the European IT sector, which the Commission originally took as the basis for the ESPRIT programme(15) (). At the time when ESPRIT was launched, the 'Big Twelve' accounted for around 85 % of the output of the European electronics industry.

1.27. The basic idea, understandably, was to obtain from leading industrialists in the sector a serious commitment to cooperation and participation in the programme. For a long time, the Big Twelve thus played a decisive role in the planning of the main stages of the ESPRIT programme. Between themselves they set up a 'steering committee' to organize their cooperation in the programme. The industrial working groups which prepared the specific and annual programmes were composed exclusively of representatives of the Big Twelve. This still applied in the case of the four industrial panels which drew up ESPRIT II.

1.28. The Big Twelve are still fairly heavily represented at the proposal assessment/selection stage. At the time of the 1989 call for microelectronics proposals, 42 % of the assessors were in this category. Of the 19 members of the ESPRIT consultative committee, there were six representatives from various of the Twelve.

1.29. The Big Twelve are the main manufacturers of hardware. Some very large-scale projects with good commercial prospects and a high level of advanced technological integration (the technology integration projects or 'TIP') were identified and planned in broad outline by the Big Twelve as part of the process of drafting the ESPRIT II programme. They were projects in which the Big Twelve all wanted to participate. In the file on the drawing up of the programme there is a working document dated 18 February 1986 showing, for each TIP project, the share of the work which each of the 'Big' companies wanted. Out of a total of 15 200 man/years, the Big Twelve stated that at that stage they would take 13 300 man/years, thus accounting for 87,5 % of the work and, therefore, of the Community funding.

1.30. As of 16 November 1990, the EPIC database, which contains data on all the ESPRIT projects, showed that at that date the Big Twelve had obtained 44,2 % of the funding authorized by the management committee. The partners in the 'JESSI' projects, which bear the double label of ESPRIT and EUREKA(16) (), are predominantly members of this group of twelve. For the first year of the TIP ITHACA II project, 63,5 % of the funding was granted to members of the group. For BICMOS I and II, which are actually two phases of the same project, two of the seven partners were from the 'Twelve' and obtained 98 % of the funding (as of 16 November 1990). It must be admitted that at the time no other European industrial company had mastered the technology involved in this project. In the TIP BASE project the principal and ordinary partners were all members of the Twelve and received 100 % of the funding of 28 675 Mio ECU.

1.31. This high level of participation by large companies cannot always be justified on the grounds that they are more creative or more committed to cooperation than the other partners. ARTIFACTS had to be halted on 15 May 1990, after 15 months' operation, because there was insufficient cooperation between the large companies that were participating. TIP TROPICS was halted on 30 June 1990, after 18 months' work, owing to the slow rate of progress and the loss of interest of some of the partners. Four out of the five members of the consortium were from the group of Twelve. They had received 91 % of the funding.

Participation by user industries

1.32. Hardware manufacturers are over-represented by comparison with the software industries. Users, especially, are under-represented, which has been one of the defects of the ESPRIT programme for a long time. Participation by users is nevertheless very desirable. Whereas involving several competing manufacturers in a project may end in their refusing to collaborate or to communicate viable results, in an association between manufacturers and users each complements the other and the association tends to mean that the results get through to the industrial and commercial phases. LITE is a good example. Its object is to establish an electronic catalogue of the information flows associated with the production of cutting tools. Within the consortium, a manufacturer features alongside a company specializing in cutting tools and a production rationalization consultancy specializing in SMUs: this is taking account of supplier/customer relations.

Restoring balance

1.33. The above situation, where the Big Twelve are dominant and the level of user participation is low, is gradually correcting itself. The Big Twelve's share of the funding diminished substantially between ESPRIT I and ESPRIT III: users were more involved in the preparation of the ESPRIT III programme.

UNWIELDINESS AND SLOWNESS

Introduction: speed, a vital necessity

1.34. According to the experts, a product generation lasts for two and a half years in the electronics sector. For the past twenty years the process of miniaturizing integrated circuits has progressed exponentially, by a factor of 4 every three years, and this will probably continue for the next fifteen as well. Whereas in 1970 it was possible to put the equivalent of 1000 transistors or bits(17) () on an integrated circuit, by 1993 the figure was 16 million and it is expected to reach 1000 million by the year 2000. Consequently products become obsolete very quickly. A delay in launching a new product of as little as six months is enough to turn a profit into a loss. In the field of electronics and computers, research will bear fruit only if it is combined with a strategy of market penetration. In this sort of environment, the time required for designing, executing and exploiting the ESPRIT programme is crucial.

The facts: slowness

Implementing the programmes

1.35. There is a contradiction between this need for speed and the slowness observed by the Court at both the decision-taking and administrative stages and at both the planning and implementation stages of the ESPRIT programme.

Framework programmes

1.36. The second framework programme should have been adopted at the end of 1986. In fact it was adopted nine months after that. The Council did not adopt the third framework programme until 23 April 1990, following a Commission proposal dating from 28 August 1989.

Specific programmes

1.37. Approval of ESPRIT I took around one and a half years. Two years of administrative procedures and nine months of political ones elapsed between the start of the preparatory work for ESPRIT II in July 1985 and the adoption of the programme in April 1988. The text of the Decision set the start of the programme nominally at 1 December 1987, but that did not prevent a delay of more than a year before the first projects started. The Decision concerning ESPRIT III was not taken until 8 July 1991, fourteen and a half months after the adoption of the third framework programme and 18 months too late in terms of the period covered, which ought to have been the same as that of the framework programme, namely 1990-1994. As a result, the duration of ESPRIT III was shortened to three and a half years, instead of five. The Commission had, however, taken the precaution of preparing the specific programme proposal at the same time as the framework programme. But, because the inter-institutional dialogue was particularly difficult, the programme was not adopted until more than 13 months after the Commission had tabled its proposals.

1.38. The conciliation procedure between the Parliament and the Council, as provided by the Single Act, itself pushed back the adoption of ESPRIT II by three and a half months. There is no reason to expect that the inter-institutional dialogue can be speeded up in the near future. In a field like IT, delays of that kind jeopardize the chances of achieving the programme's objective of promoting the development of the Community industry's international competitive capacity.

1.39. Delays in the adoption of a specific programme result in breaks in the continuity of the research work. By mid-1987 the number of researchers mobilized by ESPRIT I had stabilized at between 2 900 and 3 000. The Commission estimated that after that date the number would decline by around 60 research workers per month(18) (). ESPRIT II work, which should have started at around that time, would have taken over, but it was delayed for more than a year, by which time the decline in numbers had accelerated, resulting in the break-up of teams and even dismissals.

The funding decision and the negotiation of contracts

1.40. Although proposals are evaluated quickly (in barely a month), the financing decision and the negotiation and signature of contracts take much longer. It takes several months to negotiate the amount of funding and the duration of the projects and the technical annex often has to be redrafted as well. Budget cuts entail delicate discussions between the parties as to how the reduction is to be spread between them. In the case of BICMOS II, six and a half months elapsed between the drafting of the technical annex and the signing of the contract. A year of difficult negotiations elapsed between the proposal for PROMPT, on 10 June 1988, and the signing of the contract on 26 June 1989.

1.41. In order to avoid postponing the starting date for the work in cases where negotiations take longer than the consortium and the Commission have expected, the Commission often follows a procedure which ensures that the contract applies retrospectively, so that it takes effect on the date expected, even though it is signed substantially later.

1.42. In the case of the contract for the BWN project, the period covered retrospectively was six and a half months; for TAO, almost three months; seven months for ATMOSPHERE, from 1 March to 4 October 1989. In the latter case there were many factors which contributed to the slowness: the proposal was evaluated twice, the management committee's opinion was late, for a long time the composition of the consortium was uncertain, there was uncertainty over the way in which two EUREKA projects were to be associated with the ESPRIT consortium, the official offer was late, the partners were slow to sign it and the commitment procedure was abnormally protracted. It is rare for all these contributory factors to be encountered in a single project. It is less so for them to occur separately. The contract for VLSI Design Action was signed on 11 January 1990 with effect from 1 October 1989, but the consortium had, in fact, started work on 4 April 1989, nine months earlier, although only part of that period was covered by the retrospective effect of the contract.

1.43. Project extensions are often the subject of a late contract endorsement, which then applies retrospectively. In the case of the endorsement to the BICMOS II contract, dated 13 February 1991, it was four and a half months. The first phase of ATMOSPHERE ended on 28 February 1990. The clause extending it was signed on 21 February 1991, almost a year late, but it did ensure that the contract followed on directly from the first phase. During all these periods which were covered retrospectively, after the event, the consortia were working at their own risk.

1.44. A procedural change has produced a further source of hold-ups. For a long time the decisions to fund the selected research projets were taken by the Director General of DG XIII (or DG XII, depending on the programme). Since the beginning of 1992, these decisions have been taken by the Members of the Commission under a written procedure, which has temporarily produced a further slowdown of several weeks to several months in the implementation of the specific programmes. There was, admittedly, a legal basis for the change in procedure (decisions on funding cannot normally be delegated to an official), but the Commission must try to find solutions which combine observance of the rules with speed.

Execution of projects

1.45. Projects are very often for a term of four years. This is a long time when they claim to be in the field of applied research. EUREKA projects are usually shorter. There is a four-year ESPRIT project and a two-year EUREKA one for a system for cleaning aircraft. Many of the undertakings which have projects with a commercial objective cannot afford to wait as long as that.

1.46. In addition, a fair number of projects take longer than expected. Owing to the implementation delays, the scientific staff are accustomed to allow periods of grace: these are without any serious consequences if they are short, but they are an indication of serious difficulties with the project if they are longer. BICMOS II was approved for a term of 34 months, from 15 November 1988 to 14 September 1991. It was the subject of a first, eighteen-month contract, which was thus due to expire on 14 May 1990. As a result of delays on the part of the consortium, the Commission extended the first phase to 30 September 1990. A rider to the contract, which was also signed very late - on 13 February 1991 - subsequently provided funding for the second phase, up till 30 September 1992. The project thus arrived at fruition more than one year later than planned.

Exploitation of results

1.47. All these delays are, in theory, under Community control. In order to arrive at the final effect on the market, the period of industrial development (transition from prototype to product), for which the partners are entirely responsible and which may take several years, must be added to the above - always assuming that there is industrial exploitation.

Payment deadlines

1.48. Delays in making payment have serious implications. They create cash-flow problems, especially for universities and small firms. The economic survival of the latter may depend on prompt payment. Shortage of cash is a source of financial costs. One consortium had to borrow 1 Mio ECU following a missed payment on 1 October 1990, which was still outstanding at the time of the Court's visit in April 1991. Delays in making payment increase the exchange risk: one university showed a loss of 4 000 ECU for this reason.

1.49. In 1985, the Commission stated that it was confident that the payment delays on ESPRIT work could be reduced from three months to one month in the short term(19) (). However, the partners questioned in the Member States some years later quoted examples of much longer delays, in some cases as long as 15 months.

1.50. Examination of the Commission's files led to the same conclusions. Delays of four months (TAO); eight months (ATMOSPHERE), 13 months (same project), 15 months (TAO). In the case of final payments, the delays are even longer: a year for EPSILON and HECTOR; two years and three months for DASIQ; three and a half years for TAO. These delays in making payment are not incompatible with the finding (stated in paragraph 1.80) that the rate of budgetary implementation is satisfactory. Firstly, payment delays do not affect the rate of commitment, and secondly and more importantly, if the forecasting of the requirement for payment appropriations is realistic it will have allowed for the customary delays in making payment.

Statistical measurement of delays

1.51. Two sample checks carried out by the Commission in 1990 and by the Court in 1991 tallied. The Court's check showed that the average time which elapsed between the due date and the payment (the value date shown on the Commission's bank records) was 239 days for an interim payment and 510 days for a final payment. In the case of advances there was an average interval of 37 days between the signing of the contract and the value date.

1.52. Table 4, which was compiled on the basis of the Court survey, shows that the proportion of delays attributable to the Commission was higher than that for delays caused by contractors. Paragraphs 1.53 to 1.60 try to identify the causes of and responsibility for these lengthy delays. The Commission survey shows only a slight acceleration between ESPRIT I and ESPRIT II - for interim payments the overall process was reduced from 283 to 240 days.

Advances

1.53. Article 21.2(a) of Annex II to the model contract, by providing that an advance is to be paid within two months of the signing of the contract, is authorizing a period that is too long. The deadline is usually respected, but in view of the numerous contracts with retrospective effect (see paragraphs 1.41 to 1.43), it is often much longer in relation to the actual start of the works.

Cost statements

1.54. It is a condition of any payment that progress reports and cost statements must be submitted in the month following the end of the contract period concerned. Table 4 shows that contractors overrun this deadline substantially. In the case of HECTOR, the main contractor sent the statements for the period 1 May to 31 October 1989 to the Commission on 3 April 1990, five months after the due date. Moreover, they were not complete, because the statements from some of the partners were still missing on 25 October 1990. The half-year reports on the BWN project were sent excessively late: on 24 November 1989 for the 31 August 1988 and 28 February 1989 deadlines and on 15 November 1989 for the 31 August deadline of the previous year.

Internal deadlines at the Commission

1.55. Article 4.2 of the contract does, in fact, provide that payments are to be effected within two months, but reckoned from the date on which the progress reports and cost statements are approved. There is, however, no time limit for approval: the contract should stipulate one.

Table 3 - Elimination of the excess of funding requested over resources available. (Percentages of proposal rejected and funding cutbacks to proposals accepted) "(Mio ECU)""" ID="1">9 171> ID="2">(100 %)> ID="3">560> ID="4">(100 %)> ID="5">6 830> ID="6">(100 %)> ID="7">1 092> ID="8">(100 %)"> ID="1">7 093> ID="2">(77 %)> ID="3">376> ID="4">(67 %)> ID="5">5 482> ID="6">(80 %)> ID="7">879> ID="8">(80 %)"> ID="1">1 232> ID="2">(14 %)> ID="3">80> ID="4">(14 %)> ID="5">602> ID="6">(9 %)> ID="7">115> ID="8">(11 %)"> ID="1">846 (1)> ID="2">(9 %)> ID="3">104 (1)> ID="4">(19 %)> ID="5">746 (2)> ID="6">(11 %)> ID="7">98 (2)> ID="8">(9 %)"> ID="2">(59 %)> ID="4">(43 %)> ID="6">(45 %)> ID="8">(54 %)"">

Table 4 - Origin of payment delays "(days)""" ID="1">103> ID="2">192"> ID="1">136> ID="2">318"> ID="1">239> ID="2">510"> ID="1">(110)> ID="2">(290)"> ID="1">((77))> ID="2">((261))""Source: Sample check by the Court.>

1.56. Once the statements have been approved, a further eight weeks elapse at the Commission, more than half of this within DG XIII, plus the time required for bank transfers. The Commission's survey put this down to the waiting time between the various procedural stages and slowness in circulating the files, rather than the duration of the actual administrative operations. DG XX (financial control) takes only six days and has established faster methods (sending approval by electronic mail in advance of the paper version, approval after sample checks at DG XIII). Going via DG XIX (budget accounts) takes longer. Finally, the time required for bank transfers is abnormally long, especially for those to the more remote countries.

Final payments

1.57. The draft of the final payment is sent to the partners so that it can be agreed. Agreement and execution of the payment are frequently delayed by unforeseen occurrences. Sometimes the delay is due to individual contractors. If one partner is in debt to the Commission, it blocks payment for all the others (TOWARDS THIRD INTEGRATION). The principal partner may be in liquidation, which deprives the Commission of its customary interlocutor at a time when there are a large number of disputes to be settled (TAO). Sometimes the Commission is also involved. Disputes may arise between the Commission and the partners (the BWN and DASIQ projects). An audit in progress of a contractor who is in debt over other projects delays the final payment (HECTOR). One department queried the final statement after it had been agreed by all the parties (ITHACA I). As far as possible, two phases of the same project should not be treated as two successive projects, because the last payment on the first phase will be affected by all the delays to which real final payments are subject (ITHACA I and II). This inconvenience could however be eliminated, if the Commission adopted some of the suggested ways of simplifying payment procedures (see paragraph 1.95, for example).

Interdependence of project partners

1.58. The slowest partner determines the timetable for all the others. If appropriations are insufficient, the entire payment is held up. In fact, the Commission in principle makes a single payment to all the partners for a given period. In the case of the PCTE project, which was concluded on 30 June 1988, the disputed allocation of 30 000 ECU to one partner and 10 616 ECU to another, combined with large-scale unwarranted payments to two other partners totalling 457 953 ECU, was enough to hold up the payment of sums owing to the other partners which amounted to 1 330 7000 ECU. The final payment was not made until March 1992.

1.59. Where some amounts are in dispute, the Commission could pay the amounts that are not disputed without waiting; if one partner is excessively slow in submitting its cost statement, the Commission could make payment to the rest of the consortium. On 2 October 1989, the Commission did adopt procedures along these lines for

cases where one or more partners are indebted to the Commission at the final payment stage. Now, instead of waiting for the recoveries to be implemented before it proceeds to the final payment, the Commission pays the creditor partners without waiting, but charges the debts of the debtor partners to them. The Commission then makes an additional payment, after it has recovered the amounts owing to it.

1.60. EPSILON illustrates both the comments made in paragraph 1.58 (possible part-payment blocked for all) and paragraph 1.57 (delays to final payments). The last payment on the first phase of the project should have been for 508 239 ECU. However, pending the (delayed) signing of the additional clause prolonging the contract, the payment due had provisionally to be regarded as a final payment, from which an amount corresponding to 20 % of the total funding (i.e. 400 000 ECU) had been deducted by way of guarantee. Moreover, the payment of the 508 239 ECU would have increased the cumulative total expenditure on the project to 2 036 113 ECU, compared with a commitment of 2 Mio ECU, or, in other words, a limited overspend of 36 113 ECU. The Commission waited for the signature of the additional clause and the additional commitment associated with it before paying the amount in question all at once, seven months after the end of the first phase.

The causes: unwieldiness and complexity

Technical management

Difficulty of preparing proposals

1.61. Preparing proposals is a costly investment of time and money. The documentation sent to proposers is very well-produced, but very complicated. Some undertakings, once they have compared the cost involved against their chances of selection, decide to withdraw. The time allowed for submitting proposals varies a great deal. Since ESPRIT I, the shortest has been 47 days and the longest 126 days, the average being 80 days. Most proposers stated that it takes at least six months, and sometimes more, to prepare a proposal.

The unwieldy nature of some projects

1.62. The most widespread view in Community circles is that the number of partners in the consortia should be reduced and, alongside this, that the finance should be concentrated on a smaller number of larger projects. These two suggestions were put forward in the report produced in May 1989 by the ESPRIT review board(20) ()(21) (). In a Resolution of 8 April 1986, the Council had already recommended that 'a concentration of efforts and resources should be sought by greater recourse to more ambitious projects'(22) (). The two suggestions must be treated separately.

a)The number of partners

1.63. Contractors are unanimous in their view that the number of partners is generally too high and that the optimum number is between three and five (the only exception being the standardization projects, where, on the contrary, it is advisable to have a large number of partners from many countries). The complement of ESPRIT projects is generally in excess of this ideal number: the average for ESPRIT I was 5,8 and was as high as 9,5 in the first general call for ESPRIT II(1). In the first ESPRIT III call the average dropped back markedly. These averages conceal significant variations, however. There are projects with nine (KIWIS), 12 (GENESIS), 14 (CNMA), and 21 (EOC) partners. Coordination of such projects is very difficult, which is why the number of partners in some projects was reduced in the course of their work: from ten to seven in FCPN; from seven partners and 31 associates and subcontractors(23) () in the first phase to five and 14 in the second phase of ATMOSPHERE.

b)The size of the budget

1.64. The objective of financial concentration resulted in the introduction of the TIP projects (see paragraph 1.29), and limitations on the funding awarded to projects costing less than 5 Mio ECU (under ESPRIT I they could not be allocated more than 25 % of the annual funding; for ESPRIT II the corresponding figure is 30 %). In fact, during ESPRIT II the average size of projects increased. A relatively small number of large projects absorbed a substantial proportion of the finance. According to the Commission, as of 2 August 1991, for the 648 projects in the ESPRIT I and II programmes(24) (), almost half the finance had been allocated to around one hundred projects, each of which received 6 Mio ECU or more. As for the 15 or so TIP projects, at 16 November 1990 they had absorbed 215,2 Mio ECU out of the 1 455 Mio ECU awarded under ESPRIT II - 14,8 % of the total.

1.65. However, with the exception of some technologies which are not viable below a certain critical threshold, the volume of funding alone is not an indicator of which projects are more worthwhile. Some of the TIP projects have suffered setbacks and some, such as CIM ALIVE and TROPICS, have even been halted. The duration of two large-scale projects, CSIC (budget of 20,4 Mio ECU) and ARTIFACTS (11,6 Mio ECU) has been shortened. The technical aspirations of ATMOSPHERE (18,0 Mio ECU) have been curtailed. Even if they have not failed, most of the TIP projects have split up into a series of smaller projects along the way, such as GENESIS, because it was doubtful whether they were in the common interest of the partners.

1.66. In principle there are no longer any TIP projects in the ESPRIT III programme. They have given way to the far more promising concept of the 'targeted project' (see paragraph 2.65). It could, perhaps, be argued that the latter are, in fact, now re-emerging in the guise of 'priority technology projects' (PTP), which was the novelty presented at the 1992 ESPRIT conference (23 to 27 November). These projects are small in number (22 proposals, of which three have been financed), but large in size, and were defined directly by the large industrial groups which will be the main partners in them - all characteristics of the TIP. The only true criteria are the intrinsic value of the technology under investigation and the cost/result and cost/exploitation of results ratios.

Number of reports required

1.67. Whilst it is reasonable for the Commission to require a consortium to produce a progress report every six or twelve months, plus a final report, it is arguable that to require monthly management reports (which is not uncommon) is frankly excessive. All these reports require a lot of work by the consortia and one wonders how the scientific staff find the time to read them. For example, the number of reports of all kinds required for the second phase of the TIP ATMOSPHERE project was 106 in two years - the equivalent of one report per week. In the case of management reports the quarterly interval which is imposed on other projects appears more reasonable.

Staff management

1.68. The ESPRIT measures were conceived and launched within the framework of a 'task force', which grew with the programme, becoming Directorate A of DG XIII along the way, and then taking first place within the Directorate-General in terms of the number of staff employed.

Variable requirements, inflexible resources

1.69. Today the personnel department of DG XIII is facing a virtually insoluble dilemma. The requirements which it is required to meet are extremely variable in terms of qualifications and staff, as the research aspect of its activity involves the launch of specific programmes, split up into calls for specialized proposals, which last for a limited time. In order to cope with these varying requirements, the personnel department has assembled a mass of staff, who are employed on no fewer than fifteen different terms of employment, most of them strictly demarcated, which means that the possibility of transferring an employee from one system to another is unpredictable, or simply non-existent. There are salaried staff, service staff, contract staff (temporary or auxiliary) and officials; for some staff the employment costs are charged to Part A of the budget (administrative expenditure) and for others to part B (operating appropriations). The officials and temporary staff in part B are administrative or scientific staff. There are also sub-categories resulting from subdivisions or crossings of the above categories.

Origin of these piecemeal arrangements

1.70. This piecemeal approach is due to a process of budgetary or regulatory 'sedimentation', each stratum of which has a clear idea behind it.

1.71. The first of these is the idea that since research is subject to a system of management by objectives, i.e. programmes, the staff working for the research divisions should be funded from the operating appropriations.

1.72. The second idea is that since research work is carried out by means of specialized programmes with a specified duration, the scientific staff attached to them should be recruited for the same period of time and it should be possible to dismiss them at the end of the programme.

1.73. The third idea is that owing to the demand for particular services (specific or short-term assignments involving case studies or consultancy work, appointment of scientific visitors) the division has very specialized requirements as regards recruitment, duration of service and pay.

Present state of the system

1.74. The first of these ideas is only partially applied, in that, alongside the posts funded from part B of the budget and mentioned in the remarks against the various headings, DG XIII has posts which are charged to part A of the budget (323 posts in December 1991, of which 213 were posts in categories A and B). This solution is certainly justified where the posts involve administrative duties (or are concerned with activities other than research), but in that case it should be extended to all posts of that type. Of the posts that are charged to part B it was, in fact, possible to identify both scientific and technical posts and administrative posts (279 posts in December 1991).

1.75. The second idea is not being consistently applied either, as some of the posts for officials are occupied by staff who are working for the scientific departments. Furthermore, a large number of the temporary posts charged to part A and, more particularly part B, of the budget are for administrative tasks (almost 300 for the 1991 financial year). Admittedly, the posts charged to part B became permanent posts in 1991, but that does not really affect the question that is raised above, because the majority of these posts are still occupied by temporary staff. For reasons of social policy, however, the Commission wanted to give temporary staff who had been working on contract for a certain length of time, whether or not they were scientific staff, the possibility of becoming established officials. It is not possible for the staff concerned to be appointed to their own posts, however, and they are usually transferred to other DGs, with a flow of officials from other DGs moving in the reverse direction to fill the posts that have thus become vacant. Insofar as the Community allows temporary staff to be established, it ought to be possible for the Commission to establish them without transferring them to other posts.

1.76. DG XIII does not always abide by the budget remarks concerning the attribution of the posts in Part B. For example, an internal note dated 10 April 1989 on the administrative and financial management of the RTD programmes openly admitted that owing to the lack of established posts for activities other than research, some of the temporary research posts (in part B of the budget) had been taken from research and assigned to these other activities. For example, 21 of the posts were assigned to Directorate XIII-D (telecommunications policy).

1.77. There is also a drift away from the third idea, which was described in paragraph 1.73 above. Use of the various terms of employment mentioned in that paragraph is not confined to the particular types of services which provided the justification for them. In practice DG XIII uses some of the 'suppliers of services' formulae to circumvent the budgetary and regulatory limitations on manpower and staff expenditure associated with research.

1.78. As expenditure relating to the provision of services is charged to Part B of the budget, the result of the above practices is that amounts earmarked by the budget and the programme for research work are siphoned off for administrative tasks. They also illustrate a tendency, which has become increasingly widespread at the Commission, to draw on operating appropriations to finance administrative expenditure (mini-budgets). For example, by issuing a call for proposals in August 1991, DG XIII attempted to subcontract the entire administration of the European Software and Systems Initiative ('ESSI')(25) (), one of the vast 'targeted projects' of the ESPRIT III programme. On the other hand, it is because the regulatory and budgetary limits are unrealistic that DG XIII resorts to such expedients. Although DG XIII's establishment has increased, the volume of appropriations it is required to manage and the number of projects to be monitored have increased even more rapidly.

1.79. The way to achieve a healthier, and above all more flexible, system of personnel management is to go back to the underlying ideas set out in paragraphs 1.71 to 1.73 and thus reduce the number of employment categories. According to this line of thought, the posts which may be filled by temporary staff should be reserved for scientific and technical staff, and no-one else, should be authorized in Part B of the budget and should be identified by programme. All other unestablished staff, i.e. all unestablished category A staff who are employed on non-scientific administrative and cross-boundary duties, on the one hand, and, on the other, all the unestablished B, C and D employees (because their duties do not require special scientific skills), should be covered by Part A of the budget and be able to occupy established posts in any Directorate-General on identical terms (there are at present around 120 C category 'research' posts which will usually be filled by temporary staff and for the most part are, in fact, occupied by such staff).

Financial management

Satisfactory follow-up of the utilization of commitments

1.80. The rate of utilization of final commitment appropriations has always been above 90 %, with the exception of 1984, 1985 and 1987. For final payment appropriations the rate has always been higher than this (except in 1984 and 1985) and has even been as high as 98 % if the years 1986 and 1987 are added to the above exceptions. These are satisfactory results.

1.81. Nevertheless, there are some contradictions in the final out-turn figures quoted in the most recent budgets. Thus total payments for ESPRIT I up till 1989 amounted to 663 887 035 ECU according to the 1991 budget and 659 577 403 ECU according to the 1992 budget. The total amount of ESPRIT II payments up till 1990 was 711 456 814 ECU according to the 1992 budget, but 711 499 712 ECU according to the 1993 budget. It is not possible to refer to the revenue and expenditure accounts in order to ascertain the exact amount, because they do not always distinguish between successive programmes and sometimes merge them under the same budget heading.

Identifying eligible costs

a)Redundant calculations

1.82. The amount of each interim payment is established four times over, as follows. Once by the responsible scientific unit; once by financial unit XIII-E-1. In addition, when the final payment is to be made, all the payments since the start of the project are included in a general review, again with successive action by the two units referred to above. Should there be an external audit, the same expenditure will have been checked five times. Reconstructing the expenditure from the beginning in this way obviously represents a considerable amount of work, for both the contractors and the Commission.

b)Actual costs and estimated costs

1.83. As the present system is based on actual costs, the Commission pays very little attention to the cost estimates given in the proposals. The Commission asks proposers for forecasts of labour costs and a breakdown of overheads only after selection and does not evaluate them until after the contract has been signed. Thus, in the case of EPSILON, the Commission did not become concerned about the excessive level of overheads stated by one partner until after the contract had been signed.

1.84. Sometimes when contractors are drawing up their cost statements they do not know what the true costs are, because the accounts for that year have not been drawn up. They provisionally base their statements on cost forecasts and are then obliged to correct them subsequently (this was established during an external audit of a COSMOS partner).

c)Labour costs

1.85. Contractors found that the rules for calculating labour costs were not clear and called for them to be simplified. Misunderstandings are a source of protracted to-ing and fro-ing between the Commission and the contractor.

1.86. The accuracy of these meticulous checks is illusory, to judge by the great disparity in the hourly costs declared by partners. No doubt the variations of more than 50 % between countries do reflect objective economic differences. But there are significant variations between contractors within the same country. One contractor declared different labour costs for his participation in three research projects, which was why the Commission ordered an audit (ATMOSPHERE). In the case of the universities and some research centres, the Commission carefully takes into account 'actual' costs which are, in fact, calculated by the contractors on the basis of a scale of man/month charges sent to them by the administration of the university or research centre.

d)Overheads

1.87. The accuracy with which overheads for reimbursement are calculated is just as illusory. Except where the marginal cost is financed in full - which is a very small minority of cases - the contracts allow overheads to be declared as a further percentage of labour costs. If this percentage were to be calculated accurately, it would require a thorough investigation of the contractor's analytical accounts, which is ground onto which DG XIII's scientific staff do not venture. Moreover, the Commission accepts the percentage declared by the contractor, if it appears reasonable and, if not, the matter is discussed again. Thus, despite the principle that the actual costs are to be taken into account, the situation with regard to overheads tends to be one of negotiated flat charges. The level of general expenses that is accepted may be as much as 80 % or 100 % of the staff costs. The inaccuracy thus affects some very substantial amounts.

Improvements and simplifications to be studied

a)Intervals between payments

1.88. Payments are sometimes made at six-monthly intervals, sometimes yearly. In the case of short-term projects (between one and two years), and especially for the definition stage, which is often decisive in terms of the continuation of the project, a six-monthly interval for reports and payments is justifiable in the interests of careful monitoring. On the whole, this is what the contracts specify. Nevertheless, a fair number of long-term projects are also divided up into six-monthly periods. In this instance, yearly intervals would suffice, once the definition stage is over.

b)Indirect payments

1.89. Whilst the Commission has gone over from a sequential system of signing contracts to one in which all the parties sign simultaneously and in parallel, it has done the reverse in the case of payments. At the time of ESPRIT I, it paid the partners separately. With ESPRIT II, it pays the whole consortium via the main partner, who is then responsible for dividing the payment up between the partners.

1.90. The new procedure simplifies the Commission's task, but sometimes complicates that of the principal contractor. The fact is that, when making transfers to the latter, the Commission does not always quote the references by which the project and the reason for the payment can be identified and does not state how the payment is to be allocated between the partners. This results in a waste of the principal partner's time, which subsequently rebounds on the other partners.

1.91. The Commission could easily rectify this. Whilst retaining the indirect system in the direction partners-DG XIII for the collection of reports and cost statements, the Commission could pay each partner directly, since it calculates the amount due to each of them in any case. By speeding up the payments to the ordinary partners, this reform would also benefit the associated partners and subcontractors who are paid, by sub-allocation, after the ordinary partners and are thus most affected by the delays.

1.92. This system may, in certain cases, result in the inequitable treatment of the partners. As paying agent, the principal contractor in the TAO project was both judge and defendant in the disputes between them and several of their subcontractors. If the principal contractor goes into liquidation (as occurred with TAO and SUPERDOC) or withdraws, the partners which have not been paid are in difficulty. Such cases are not unusual.

c)Application of flat rates

1.93. This can take a variety of forms, but the common feature is that a rate for one or more cost factors (price, quantity, or both) is fixed by contract in advance at a level that is deemed to be reasonable and that rate is then referred to when the amount for payment is being determined. As a result payments cease to be a function of the actual costs. The use of fixed rates was advocated as the panacea which would, at last, genuinely simplify payment procedures. One Commission consultant recommended it in a report in 1990(26) (). The Court itself encouraged this move in its 1990 annual report(27) (). The Commission then began to study possible procedures for applying the concept but has not, so far, reached any conclusion.

d)Other simplifications

1.94. The Commission should nevertheless continue to study ways of simplifying the present system. Two possible alternatives in particular could be studied. The first would be to defer the problem of the cost calculation to the end of the project, the second would be the reverse - to simplify the final phase, which is too cumbersome at present.

1.95. The first alternative would follow through to its logical conclusion the fact that periodic payments are merely instalments and so eliminate precise calculation of eligible costs from these interim stages. The final period would thus be the only occasion on which the eligible costs would be calculated precisely in full. The second way would be for the Commission periodically (e.g. annually) to grant the contractors discharge, which would be final. In this case, the final payment would simply be the last periodic payment and no more complicated to calculate than any other. In order not to prolong the uncertainty surrounding the project's eligible costs, the Court's preference is for this second way. It would also be necessary to rationalize the ex post facto checks by the scientific unit and financial unit XIII.E.1.

1.96. The execution of the project has very little impact on the amount of overheads. Under these circumstances, funding overheads is tantamount to awarding an arbitrary, open-ended operating subsidy in addition to the funding for the costs that are actually attributable to the project. It might, therefore, be possible to move in the direction of abolishing the funding for overheads, or at least, restricting it to a limited fixed percentage of the recognized direct costs.

CHAPTER 2 The ESPRIT programme as a strategic instrument

INTRODUCTION

2.1. The ESPRIT programme may be deemed to be a good strategic instrument if it achieves the basic objectives discussed in paragraph 0.4. As stated in paragraph 0.12, the Court has not assessed the scientific and technical results of ESPRIT itself (paragraph 0.4 (a)) but, in the opinion of the experts, these results are many and useful. This Chapter will discuss the other objectives listed in paragraph 0.4 and also contains a detailed discussion of the additionality aspect of the ESPRIT programmes, as it is clearly one of the objectives, even though it is not set out in the basic texts.

THE OBJECTIVE OF TRANSNATIONAL COOPERATION

Good internal cooperation: a condition of success

2.2. The principle of transnationality is a mandatory aspect and one which the Commission always observes. Moreover, it is not confined to ESPRIT, but extends to all shared-cost Community research. The contractors and other interested parties interviewed by the Court were unanimous in their praise of transnational cooperation in the form which it takes in the ESPRIT programme. There are many examples which show that the value of a project's results is closely dependent on the degree of motivation within a consortium and on the quality of the cooperation between the partners. The personality of the coordinator nominated by the main contractor is of prime importance. BASE, DMPC, BICMOS II, PROMPT and BASIC GOODS were progressing satisfactorily, and showed signs of promising results: they all had the benefit of being well-managed, with good cooperation between the partners. ATMOSPHERE was poorly coordinated at the outset, but underwent marked improvement in the later stages, mainly due to a change of main contractor, and finally produced work that was increasingly well-targeted and useful.

2.3. Conversely, if the project leadership is weak, the consortium tends to split up into sub-groups and the common objective is forgotten. BWN's objectives had to be reduced following a mid-term crisis, mainly because the project leader, although technically brilliant, proved to be very weak when it came to planning the works. Cooperation between the partners deteriorated, reports were submitted late, or not at all, one partner withdrew and the project effectively split into two ill-connected sub-projects. Similarly, DASIQ's partial lack of success and the sudden termination of the project were the consequences of the fact that one of the partners had gone into liquidation. The situation was aggravated by the attitude of the parent company, which refused to honour its undertaking to take over from the subsidiary in the event of the latter's default. In the case of TAO, the main contractor transferred responsibility for coordination to another contractor. This proved to be an unfortunate choice, because a series of disputes, which have still not been resolved, brought the subcontractors into conflict with the new coordinator and the latter's business was wound up. Another partner subcontracted all the work for which it was responsible. In consequence the project progressed far too slowly. It did achieve its objectives, more or less, but only after a 14-month extension.

Pooling information: a qualified success

Pooling information within the consortium

2.4. The contract requires the partners to pool the information which they have acquired as a result of their work on the project ('foreground information'), but this rule also extends to any other information ('background information') that may become necessary for the execution of the project (Articles 16.1.1 and 16.2.1 of Annex II to the model contract). In the case of foreground information, the information must be made available free of charge. The necessity of pooling information that is needed for the project is indisputable.

2.5. The specimen contract leaves a fairly serious risk of unjustifiable discrimination between the categories of partners(28) (). Subcontractors are simply paid by partners to carry out works; they do not make any contribution to the project finance and have no rights as regards the results of the project, which is normal. The Commission wanted to introduce the possibility of an intermediate position with a greater degree of involvement - that of associated partners. The latter also work for a principal, the contractor, and are not signatories to the project contracts. Unlike subcontractors, however, they do contribute to the project funding and, on that score, would normally acquire certain rights in respect of the results. However, the specimen contract gives only a vague definition of their rights of access to information and their obligations regarding the exploitation of results. The specimen contract should specify these rights and obligations more precisely.

2.6. In this respect the protocol signed by the Commission on 17 October 1989 cannot be considered to have settled the question adequately. The protocol does, indeed, clarify the rights of associates as a function of their greater or lesser contribution to the funding and work of the project. Nevertheless, it is still drafted in terms of guidelines rather than specific rights. Moreover, when the Commission was seeking to take action against an unjustifiable situation, the only case in which the protocol had contractual force was that of the ITHACA consortium. For the other consortia it merely has the force of Commission internal rules. The contracts of association are submitted to the Commission for prior approval and, in principle, the latter checks in every case that the proposed terms are equitable, in the spirit of the protocol. The rules contained in the latter must, however, be defined and raised to the status of clauses with real contractual force.

Cooperation outside the consortium

2.7. Not only does the specimen contract require contractors to make information available to their partners, but they must also share it with other contractors in the programme and in other Community R & D programmes (Article 16 paragraphs 1.2 and 2.2 of Annex II). Leaving aside the risk that this obligation will remain a purely theoretical one, especially where large organizations are concerned, many contractors deem it to be excessive, and one can understand why. In their view, any inventions which result from a project must, on the contrary, be protected against third parties, and contractors of any other project or programme are deemed to be third parties in that respect. With the Commission's agreement, the specimen consortium agreement, which is used by the 'big' electronics companies for the projects in which they participate, includes a clause which specifically gives partners preference over third parties to exploit the information generated by the project (Article 8(1)). In the matter of intellectual property rights, the specimen contract is so complex that, paradoxically, it tends to lead to the adoption of provisions which depart from it, to a greater or lesser extent, in favour of consortium agreements.

2.8. The Commission sometimes recommends that an ESPRIT project consortium should cooperate with another, similar, ESPRIT programme, another Community programme or the EUREKA programme. Not infrequently the suggestion is, in fact, ignored. The Commission considered cooperation between the EPSILON project and LOKI and other projects in the field of 'information and knowledge storage' to be highly desirable. There is nothing on the project file which would indicate that such cooperation ever occurred. The TAO project consortium ignored the Commission's repeated suggestions that it should look at Stanford (USA) University's ONCOCIN project. It was proposed that the same project (TAO) should be combined with Eureka project No 150, as there were areas of considerable overlap between the two projects. There is nothing in the file to indicate that this complementarity was followed up.

THE OBJECTIVE OF COOPERATION BETWEEN INDUSTRY, UNIVERSITIES AND RESEARCH CENTRES

Participation by universities and research centres

2.9. As of 1 April 1992, the EPIC database showed that although universities and research centres were in the minority as far as participation in ESPRIT projects was concerned, their contribution was, nevertheless, significant and was also increasing. The level of university participation represented 30 % of the overall level of participation, with 13,6 % of ESPRIT II funding, compared with 19,4 % and 9,1 % of funding in ESPRIT I. The number of research centres participating was 16,0 % of the total, with 11,5 % of ESPRIT II fundings, as against 12,0 % with 8,3 % of ESPRIT I fundings (the rest of the participation being by companies).

2.10. Universities often set themselves up as centres for the collection and dissemination of information on programmes and calls for proposals. Some of the large research centres do the same. On occasion they do more than just provide information, by helping small undertakings to prepare proposals. One university research centre in Ireland organized courses for its partners in ESPRIT projects, thus helping to increase the number of electronics graduates. VLSI Design Action is itself a vast mechanism for disseminating information on leading-edge microelectronics through the medium of some 120 universities and technical colleges and is a valuable project, given the desperate shortage of electronics engineers in Europe.

The role of the universities in transferring technology

2.11. The fact that many universities have developed a commercial research business by means of contracts with industry is clear evidence that the know-how which they have accumulated, partly as a result of ESPRIT projects, is being taken seriously. A large number of them have established independent institutes, or even commercial companies, for this purpose. In Ireland one such university established a national centre for software engineering; another university institute set up a complex of satellite companies to develop and market the accumulated know-how. Virtually all the Spanish universities have a technology transfer centre. The same phenomenon can also be observed in Germany and France. A fair number of research centres have developed similar ways of exploiting their results.

A similar role for contract research companies

2.12. The part played by contract research companies in the ESPRIT programme is very important. These companies occupy a position between the needs of industry on the one hand and the supply of leading-edge technology on the other. They maintain up-to-date information on the state of the art, particularly within the framework of ESPRIT projects, and by concluding commercial contracts outside the Community research framework they facilitate user-manufacturer collaboration, thereby compensating for one of the traditional weaknesses of the ESPRIT programme. Their cross-boundary skills are a rich soil for technological cross-fertilization. Their particular contribution lies in the way in which they bridge the pre-competitive boundary, which is theoretically outside the scope of the ESPRIT programme. These companies are, therefore, natural agencies for the exploitation of the results of Community research and make no calls on the Community budget at this stage, thus providing a positive example of subsidiarity, where national enterprise takes precedence over Community-funded exploitation of results under programmes such as VALUE. For all these reasons, the Commission should examine ways of involving these companies more, firstly in ESPRIT projects and then in the exploitation of the results which they produce.

THE OBJECTIVE OF SMU PARTICIPATION

Scope

2.13. The dynamism of the SMUs justifies the reliance placed on them. Since their resources are limited, any research work carried out by them must produce commercially viable results quickly, thus ensuring that they are reliable agents for the exploitation of results. Two projects in the same area (work stations) were launched simultaneously: SPIRIT, with a consortium of small undertakings, and EWS, where the consortium was made up of large undertakings. The small undertakings were far more dynamic and their project continued, whereas the EWS project, although not a failure, was not extended. And if the latter project appears at last to be offering some prospect of added value, it is due to the SMUs which are forming an industrial consortium to follow up the results that have been ignored by larger undertakings. In conclusion, the establishment of a dense substrate of technologically advanced SMUs is essential as a basis for the development of larger-scale industries.

Increased SMU participation

2.14. The level of SMU participation in projects is substantial and has increased with time. As of 1 April 1992 the EPIC database showed 653 projects (ESPRIT I and II). At least one SMU was involved in 68,1 % of cases. In 22,8 % of cases the main contractor was an SMU. Between ESPRIT I and ESPRIT II, SMU participation as a percentage of total participation by all contractors in all projects rose from 18,2 % to 23,1 %, and the percentage of total funding obtained by SMUs rose from 15,2 % to 20,1 %. This percentage was even higher in the most recent calls for proposals.

2.15. Nevertheless, this increase is primarily a reflection of the fact that the number of SMUs in the IT sector in Europe is rising steadily. The proportion of SMUs in the sector which take part in the programme is, however, still very low (approximately one in ten).

2.16. The above statement must itself be qualified, in that a fair number of the companies are apparently SMUs, but are in actual fact subsidiaries of large companies (or, even, of the 'Big Twelve'), or they emanate from large organizations of various types, such as higher education establishments and research centres. Some SMUs were created on the initiative of a particular Ministry, which in some cases then constituted their main client. Such occurrences give a false impression of the extent of real SMU participation in the programme. From this viewpoint, it is apparent that the objective of substantial SMU involvement in the ESPRIT programme requires further attention.

The problems of participation for SMUs

2.17. SMUs experience practical difficulties in gaining access to the international level, because they are generally operating within a purely regional framework. They are overwhelmed by the size of the projects, the excessive number of partners and the might of some of the latter. At meetings where one of these partners has sent five representatives the SMUs may be able to send only one and are thus at a disadvantage. The time and money required for travelling and preparing proposals, the waiting period while contracts are being negotiated, the duration of projects and the burden of coordination and administrative work are often beyond their means. For them, a project is big business and a big risk. The chances of proposals succeeding are slim. It is often necessary for work to start before the contract is signed and late payments are a burden on their cash flow. However promising the results may be, exploiting them is expensive and a SMU may be obliged to share the exploitation with larger undertakings. These are all risks which may cause SMUs to elect not to become involved.

THE OBJECTIVE OF ECONOMIC AND SOCIAL COHESION

Scope

2.18. Article 130b of the EEC Treaty states that the objective of economic and social cohesion is to be pursued not only through the Structural Funds, but also through the other existing financial instruments. The ESPRIT programme is thus required to make its contribution towards this objective. It would in fact be dangerous to promote leading-edge technology whilst neglecting the less advanced countries and regions, with the risk of their being put out of the race definitively in this area where competition is so fierce.

2.19. In the context of ESPRIT, the countries to which the Commission has been devoting particular attention in this respect are Spain, Greece, Ireland, Italy and Portugal. The list makes no other distinction (for the sake of convenience, these countries will be referred to as 'the countries of ESPRIT cohesion' in the remainder of the chapter). The Commission, in fact, intervenes on grounds of economic and social cohesion only in favour of entire Member States, despite the invitation contained in the basic texts, specifically to favour participation by regions whose development is lagging behind. The Commission does not make use of maps defining the regions whose development is lagging behind (Objective No 1 of the Structural Funds) and the declining industrial regions (Objective No 2), nor does it use any comparable map. The R & D expenditure and activities of the countries of ESPRIT cohesion are highly concentrated in capital cities and regions which are outside the scope of Objective No 1. To fund research in Barcelona or Milan on the grounds that, for example, Spain is to benefit from the effort towards social and economic cohesion in Andalusia, or Italy in the Mezzogiorno, is to miss the purpose of the objective. The cohesion effort must be better targeted.

Strengthening economic and social cohesion

2.20. As of 1 April 1992, the EPIC database supplied the following data. Between ESPRIT I and ESPRIT II the level of participation by the countries of ESPRIT cohesion as a percentage of total participation by all organizations in all projects rose from 21,5 % to 28,2 % and the proportion of total funding awarded to those countries increased from 17,5 % to 19,7 %. In 16,3 % of cases the principal contractor was from one of these countries. Although the figures are higher, these percentages are substantially lower than the percentage of the Community population and Community gross domestic product represented by these countries (37,0 % and 31,4 % respectively).

The problem for beneficiary countries of participating in the effort towards economic and social cohesion

2.21. Most of the computer and microelectronics undertakings in the countries of ESPRIT cohesion are small or medium-sized undertakings. Thus, all the problems which SMUs experience in taking part in ESPRIT are also problems for these countries. The technological level of existing industries is not always up to the level which projects require. The reduced dimensions of these companies prevents them from taking part in large projects. Spain has participated in only one TIP. The range of research areas which appears in the programme is very wide for an industry which does not cover all the fields. The countries in question will generally be able to participate in software projects, but few or none in projects concerned with microelectronics. For candidates from the South, it is much easier to participate in ESPRIT by agreeing to collaborate on projects designed in the North than to gain acceptance for an idea of their own.

COMMUNITY EFFORTS TO IMPROVE SMU PARTICIPATION AS WELL AS IMPROVING ECONOMIC AND SOCIAL COHESION

Variety of intervention modes

2.22. The Commission set up the EPIC database in order to be able to track participation by SMUs and the countries of ESPRIT cohesion separately. This type of analysis is not possible in most of the other Community research programmes. On the other hand, the objectives of economic and social cohesion and SMU participation are neither quantified nor monitored specifically in the course of the procedures for implementing the programme.

2.23. The Commission seeks to maintain a certain geographical balance in the composition of the industrial working groups. The choice of subject area is modulated slightly, so as to avoid excluding certain countries. During the preparatory work on ESPRIT II, DG XIII worked with the Commission's SMU Task Force to improve the flow of information on the programme to the SMUs and to facilitate contacts which might be useful in forming consortia. The best advocate for a beneficiary country's participation in projects is that country's representative in the programme management committee. The Commission tried to develop Greek participation in the advanced data-processing programme. When the consortium decided to cut back the number of participants in ATMOSPHERE, the Commission intervened to protect the interests and participation of the Spanish, Greek and Irish SMUs. It took advantage of the 62 Mio ECU transfer to ESPRIT in 1990 mainly to increase the sums awarded to the SMUs and universities.

Suggested partners

2.24. The Commission exerts pressure on the consortia to include one or more additional partners in order to increase the level of participation by SMUs and the countries of ESPRIT cohesion. Sometimes the pressure is applied in generic terms, sometimes an undertaking is nominated for inclusion in the consortium. The Commission gained admittance to the LIGHTING APPLICATIONS project for a Spanish research centre and, similarly, for two partners in the FLEXPLAN project, one of which was nominated specifically. The Commission itself came under pressure from various sides (and also brought pressure to bear) to include Irish, Greek and even British partners in the ITHACA I consortium, with varying degrees of success. It won admission to EWS for a partner which was both an SMU and a national of a country of ESPRIT cohesion, with negative consequences for the initial stages of the project's development but, fortunately, it was possible to rectify this at a later stage.

2.25. When a partner is nominated specifically and the consortium has reservations, the method employed is not very satisfactory. It prolongs the contract negotiations, which are already very protracted. It increases the number of partners, which on average is already too high. It reduces the funding for the initial partners, as the partners are usually 'grafted on' without any increase in the overall funding.

Desirable improvements

2.26. One possible way of benefiting the less-developed regions would be to provide for measures which, whilst being of interest to the Community from the technological point of view, are adapted to the needs of those regions and, in some respects, are virtually pilot projects. 'Special measures' along these lines already exist (see paragraph 2.54). One programme which could provide a useful model is the BRITE-EURAM programme (advanced material research), under which it is possible to grant aid for the preparation of proposals, but to reserve the grant for SMUs, undertakings in the less-developed regions and organizations which are applying for the first time. It should be possible to find some method of preventing an excessive drain on the programme resources. It would also be a good idea if the SMUs could be helped to transfer their results to the industrial development stage. The structure for coordinating research departments and the departments which are responsible for the management of the structural funds exists. That structure could usefully be reinforced, as some structural measures are directly concerned with research. For example, the objectives of STRIDE (European Development Fund) (400 Mio ECU, 1990-93)(29) () are to strengthen the research and innovative capacity of less-developed regions and to encourage these regions to join Community R& D programmes.

ESPRIT AND THE INTERNATIONAL COMPETITIVENESS OF THE EUROPEAN ELECTRONICS AND COMPUTER INDUSTRIES

Changes in the industrial groups which were the mainstays of the programme

2.27. Since 1986 almost half the 'Big Twelve' groups, which were all independent when the Commission used them as the initial basis for the ESPRIT programme, have been taken over by a dominant European or even, in one case, Asian, group. Other groups outside Europe have acquired minority shareholdings in several others. Moreover, most of the 'Big Twelve' have suffered substantial financial losses in recent years, either at group level or in IT-related activities, so that some have been obliged to look to the private or even, in some cases, public sector for injections of capital. These restructurings have also been accompanied by substantial job losses.

Macroeconomic changes

2.28. Progress in the world market for electronic products in the wider sense (including telecommunications) is very rapid (see Table 5), and in the European market progress is even more rapid than on the world market. European production has not, however, followed at the same rate as the change in demand on the European market. This inability to meet European demand from local production can be seen more clearly in the pattern of changes in the balance of inter-regional trade (Table 6). Even in software, Europe is in deficit(30) (). Furthermore, an increasing percentage of European production has come under the control of groups which are predominantly non-European. Finally, Europe's share of world production is particularly low in the case of state-of-the-art products. Whereas Europe accounts for 34 % of the world market for integrated circuits, it has only a 9 % share of production of such products(31) ().

Exploitation of results still inadequate

Two positive aspects: dissemination of information