COMMISSION NOTICE GUIDELINES ON THE USE OF SIMPLIFIED COST OPTIONS WITHIN THE EUROPEAN STRUCTURAL AND INVESTMENT FUNDS (ESI) – REVISED VERSION

(2021/C 200/01)

Guidance on Simplified Cost Options (SCOs): Flat rate financing, Standard scales of unit costs, Lump sums

(under Articles 67 and 68, 68a and 68b of Regulation (EU) No 1303/2013, Article 14 of Regulation (EU) No 1304/2013 and Article 19 of Regulation (EU) No 1299/2013)

Revised edition following the entry into force of Regulation (EU, Euratom) 2018/1046

DISCLAIMER: ‘This is a working document prepared by the Commission services. On the basis of applicable EU law, it provides technical guidance for colleagues and bodies involved in the monitoring, control or implementation of the European Structural and Investment Funds. This guidance is without prejudice to the interpretation of the Court of Justice and the General Court.’

TABLE OF CONTENTS

Chapter 1 – Introduction 6

1.1. Purpose 6

1.2. Why use simplified cost options? 6

Chapter 2 – Horizontal principles and scope 7

2.1. When to use simplified costs 7

2.2. Use of Simplified Cost Options 7

2.2.1. The principle 7

2.2.2. The exception: cases where the use of simplified cost options is mandatory [section revised following the Omnibus Regulation] 7

2.2.3. Application in time and transitional provisions 10

2.3. Combination of options 11

2.3.1. General principles 11

2.3.2. Examples of combinations 11

2.4. Public procurement & the use of simplified cost options 12

2.4.1. Use of simplified cost options in the case of public procurement 12

2.4.2. Use of the flat rate for calculation of direct staff costs in operations implemented through public procurement 14

2.5. Compatibility of simplified cost options with State aid rules 15

2.5.1. Compatibility of simplified cost options with the General Block Exemption Regulation and the Agricultural Block Exemption Regulation 15

2.6. Use of simplified costs in operations generating net revenue 16

2.6.1. Operations generating net revenue after completion (Article 61 CPR) 16

2.6.2. Operations generating net revenue during implementation and to which paragraphs 1 to 6 of Article 61 CPR do not apply 17

2.7. ERDF and ESF specific: cross-financing 18

2.7.1. Declaring the actions falling under Article 98(2) CPR in relation to the simplified cost options 18

2.7.2. Examples 18

2.8. EAFRD and ETC specific rules 19

Chapter 3 – Types of Simplified Cost Options 19

3.1. Flat rate financing 19

3.1.1. Defining the categories of costs 19

3.1.2. Specific flat rate financing systems to calculate categories of costs detailed in the CPR and the Fund-specific Regulations 20

3.1.2.1. Calculation methods for indirect costs 21

3.1.2.2. Flat rate for determining direct staff costs 21

3.1.2.3. Flat rate for determining all other costs of the operation other than direct staff costs 22

3.1.2.4. Justification of flat rates set in the CPR 23

3.1.2.5. Application in time 23

3.2. Standard scales of unit costs 25

3.2.1. General principles 25

3.2.2. Staff costs calculated at an hourly rate (Article 68a(2) to (4) CPR) 26

3.2.3. The determination of eligible staff costs using the calculated hourly rate 27

3.2.4. Staff working part-time on the operation with fixed time per month 28

3.2.5. Application in time 28

3.3. Lump sums 29

3.3.1. General principles 29

3.3.2. Changes introduced by the Omnibus Regulation and application in time 29

3.3.3. Examples of lump sums 29

3.4. The specific case of flat rates for technical assistance 30

3.4.1. Scope 30

3.4.2. Payment applications and reimbursements 31

3.4.3. Impact of the flat rate on TA allocation within the OP/Rural Development Programme 32

3.4.4. Audit trail & impact of corrections 32

Chapter 4 – Setting up Simplified Cost Options 32

4.1. Simplified cost options must be established in advance 33

4.2. A fair, equitable and verifiable calculation method 33

4.2.1. General principles 33

4.2.1.1. It must be fair 33

4.2.1.2. It must be equitable 33

4.2.1.3. It must be verifiable 33

4.2.2. Methodologies in practice 34

4.2.2.1. The use of ‘statistical’ data, an expert judgement or other objective information (Article 67(5)(a)(i). 34

4.2.2.2. The use of individual beneficiary-specific data(Article 67(5)(a)(ii) and (iii) (CPR) 34

4.3. Draft budget 35

4.3.1. Use of a draft budget by other Funds as a method to establish unit costs, lump sums and flat rates before the entry into force of Omnibus Regulation 37

4.4. Using standard scales of unit costs, lump sums and flat rates from other areas 37

From other Union policies 37

Article 67(5)(b) CPR 37

Article 68, first subparagraph, point (c) CPR 38

From schemes for grants funded entirely by Member States 38

Flat rates from 2007-2013 period 39

How to assess if types of operations and beneficiaries are similar? 39

4.5. Using rates established by the CPR or the Fund-specific rules 39

4.6. Adaptation of flat rates, lump sums and standard scales of unit costs in time 39

4.7. Specific methods for determining amounts established in accordance with the Fund-specific rules 39

Chapter 5 – Consequences for audit and control 40

5.1. The need for a common audit and control approach 40

5.2. The audit authority’s role in SCO design 40

5.3. General management verifications and audit approach 40

5.3.1. Verification of the correct establishment of the calculation method for the simplified cost option 41

5.3.2. Verification of the correct application of the method 41

5.3.2.1. Verification of the correct application of flat rates 42

5.3.2.2. Verification of the correct application of standard scales of unit cost 42

5.3.2.3. Verification of the correct application of lump sums 43

5.3.2.4. Verification in the case of a combination of options within the same operation 43

5.3.3. Potential errors or irregularities linked to the use of SCOs 43

Annex I – Examples of simplified cost options 45

Annex II – Example of SCOs’ compatibility with State aid rules 51

Annex III – SCO and EAFRD specific measures 54

Annex IV – SCO and EMFF-specific measures 60

CHAPTER 1

Introduction

1.1. Purpose

This document provides technical guidance on costs declared on the basis of a flat rate, lump sums and standard scales of unit costs (hereinafter referred to as Simplified Cost Options) applicable to the ESI Funds and aims at sharing good practices with a view to encouraging Member States to use them. It covers the possibilities offered by the legal framework of the ESI Funds for the 2014-2020 programming period.

Following the entry into force of Regulation (EU, Euratom) 2018/1046 (1) (the ‘Omnibus Regulation’) on 2 August 2018, this revised edition of the guidance takes account of the amendments to Regulation (EU) No 1303/2013 (2) (Common Provisions Regulation – ‘CPR’) and Regulation (EU) No 1304/2013 (3) (European Social Fund Regulation – ‘ESF Regulation’) introduced by the Omnibus Regulation. These amendments build on and extend the possibilities introduced in 2014, taking into account the recommendations of the High-Level Group on Simplification (4). They also extend a number of options that had previously been provided for in Fund-specific regulations only to all ESI Funds.

This revision of the guidance also includes further clarifications based on questions posed by Member States and stakeholders during the current programming period.

This guidance does not cover joint action plans, simplified cost options used in the framework of Article 14(1) of the ESF Regulation (5), or financing not linked to costs as referred to in Article 67(1)(e) CPR.

1.2. Why use simplified cost options?

Where simplified cost options (SCOs) are used, the eligible costs of an operation are calculated according to a predefined method based on outputs, results or some other costs clearly identified in advance either by reference to an amount per unit or by applying a percentage. Simplified cost options are, thus, an alternative method for calculating the eligible costs of an operation opposed to the traditional method: calculation on the basis of the costs actually incurred and paid (Article 67(1)(a) of the CPR, hereinafter referred to as ‘real costs’). With simplified cost options, the tracing of every euro of co-financed expenditure to individual supporting documents is no longer required: this is the key point of simplified cost options as it significantly alleviates the administrative burden.

Using simplified cost options also means that the human resources and administrative efforts involved in the management of the ESI Funds can focus on the achievement of policy objectives as less resources are needed for collecting and verifying (financial) documents.

It will also facilitate access of small beneficiaries to the ESI Funds (6) (ESF, ERDF, EAFRD, EMFF, CF) thanks to the simplification of the management process.

Finally, simplified cost options contribute to a more efficient and correct use of the ESI Funds (lower error rate). For many years, the European Court of Auditors has repeatedly recommended to the Commission to encourage and extend the use of simplified cost options, especially as they are less prone to errors. In its 2017 Annual report (7) the Court noted that, over the previous five years, 135 transactions out of the 1 437 audited used SCOs. From these, no quantifiable errors were found, leading the Court to conclude that projects using SCOs are less error-prone than projects using real costs (8). In addition, following the 2018 Special Report on ‘New options for financing rural development projects’, the Court concluded that SCOs bring significant simplification and decrease the administrative burden for both beneficiaries and Member State authorities (9).

CHAPTER 2

Horizontal principles and scope

2.1. When to use simplified costs

Simplified costs may only be used in the case of operations financed through grants and repayable assistance (Article 67(1) CPR).

Beyond the cases where the use of simplified cost options is mandatory, it is recommended that simplified costs are used when one or more of the following circumstances exist:

— if Member States want ESI Funds management to focus more on outputs and moving towards the achievement of results instead of inputs;

— real costs are difficult to verify (many supportive documents for small amounts with little or no singular impact on the expected output of the operations, complex apportionment keys, etc.);

— reliable data on financial and quantitative implementation of operations are available (10);

— simpler document management;

— the operations belong to a standard framework;

— SCO methods already exist for similar types of operations and beneficiaries under a nationally funded scheme or under another EU instrument.

N.B. Simplified cost options cannot be used in case the support to an operation is provided in the form of a financial instrument or a prize. However, in case the form of support to an operation is a combination of a grant or repayable assistance with a financial instrument or prize , simplified cost options can be used for the part of the support which is provided in the form of a grant or repayable assistance. Subject to certain exceptions, simplified cost options are not relevant for operations which the beneficiaries implement via procurement.

2.2. Use of Simplified Cost Options

2.2.1. The principle

With the exception of operations falling within the scope of Article 67(2a) CPR (11), the use of simplified cost options is not mandatory for the Member States. The managing authority or, the Monitoring Committee of ETC programmes, may decide to make such use optional or compulsory for all or certain categories of projects and activities and for all or part of an operation. In order to ensure respect of the principles of transparency and equal treatment of beneficiaries, the scope of the simplified cost options to be applied, i.e. the category of projects and activities for which they will be available, should be specified and published in the call for proposals.

2.2.2. The exception: cases where the use of simplified cost options is mandatory [section revised following the Omnibus Regulation]

Article 67(2a) CPR determines that for ESF and ERDF operations for which the public support does not exceed EUR 100 000 shall take the form of unit costs, lump sums or flat rate financing. The use of simplified cost options is thus mandatory.

The purpose of this provision is to limit controls on real costs that, taking into account the low value of these operations, would not be cost efficient.

The amount of EUR 100 000 has to be considered as the maximum public support to be paid to the beneficiary, as specified in the document setting out the conditions for support to the beneficiary (ERDF and ESF + corresponding public national funding to be paid to the beneficiary as the maximum amount set in the funding agreement or decision if applicable). It includes neither the public contribution provided by the beneficiary, if any, nor the allowances or salaries disbursed by a third party for the benefits of the participants in an operation. It is only the programmed public support that determines whether Article 67(2a) has to be applied.

In case an operation receives support from both the ERDF and the ESF, the amount of support provided by both Funds is taken into account for the calculation of the ‘public support’ to the operation. Moreover, in case the total amount of public support is not higher than EUR 100 000 the obligation to use simplified cost options applies to the support provided by each Fund (i.e. by both the ERDF and the ESF).

Example: The draft budget of a public body for an operation with a total eligible cost of EUR 105 000 is as follows: (EUR) Public national funding 20 000 ESF 22 500 ERDF 22 500 Self-financing 25 000 Allowances to the participants paid by the Public Employment Service 15 000 Total financing plan 105 000 Despite total eligible costs of EUR 105 000, this operation still falls in the category of operations for which simplified costs are mandatory. The support provided by both Funds and the public national funding are counted for calculating the public support to the operation. The self-financing (EUR 25 000) of a public body is not taken into account to determine the public support paid to the beneficiary. The allowances of the trainees paid by the Public Employment Service (EUR 15 000) are not counted either as they are paid by a third party to the participants. Therefore, the public support equals EUR 45 000 (ERDF+ESF) + EUR 20 000 = EUR 65 000, which is below the EUR 100 000 threshold.

There are two exceptions to this obligation:

— Operations or a project forming a part of an operation implemented exclusively through the public procurement of works, goods or services. (see first sentence of Article 67(4) CPR).

— Operations receiving support within the framework of State aid, which does not constitute de minimis aid (12) (see the first subparagraph of Article 67(2a)).

When the obligation to use SCOs applies, it relates to the totality of the eligible expenditure of the operation, with two exceptions on the basis of the second and third subparagraphs of Article 67(2a) CPR:

(1) The categories of costs to which a flat rate is applied. These categories of costs to which a flat rate is applied may be calculated on the basis of real costs (e.g. in case the flat rate of up to 15 % for indirect costs set out in point (b) of the first subparagraph of Article 68 CPR is used, the eligible direct staff costs may be declared on the basis of real costs).

(2) Allowances and salaries paid to participants in case the flat rate of up to 40 % set out in Article 68b(1) CPR is used (13).

If the flat rate of up to 40 % set out in Article 68b(1) CPR is used, allowances and salaries paid to participants (which are additional eligible costs that are not included in the flat rate) may also be reimbursed on the basis of real costs.

N.B. For the ESF: Before the entry into force of the Omnibus Regulation, the use of simplified cost options was already mandatory for small operations supported by the ESF. Former Article 14(4) ESF Regulation determined that grants or repayable assistance to operations for which the public support did not exceed EUR 50 000 were obliged to use simplified cost options except for operations receiving support within the framework of a State aid scheme.

Although this provision was deleted by the Omnibus Regulation, this provision continues to apply to operations supported under calls for proposals launched before the entry into force of the Omnibus Regulation (14).

The obligation under Article 14(4) differs from Article 67(2a) CPR in the following areas:

(1) operations for which the support constitutes de minimis aid are exempted from the obligation to use simplified cost options (15);

(2) Salaries and allowances paid to participants cannot be declared on the basis of real costs when the 40 % flat rate set out in Article 14(2) ESF is used (as they cannot be declared in addition to those costs);

(3) only the ESF support and the corresponding national funding to be paid to the beneficiary as specified in the agreement is taken into account for the calculation of the EUR 50 000 threshold (as Article 14(4) ESF only applies to the ESF).

Snapshot: key changes on mandatory use of SCOs introduced by the Omnibus Regulation:

(1) The obligation to use SCOs is extended to the support provided by the ERDF. With the introduction of a new paragraph 2a in Article 67 CPR applying to both ERDF and ESF, Article 14(4) of the ESF Regulation was not needed any more and therefore deleted.

(2) The threshold is increased from EUR 50 000 to EUR 100 000.

(3) Operations for which the support constitutes de minimis aid is now covered by the obligation to use simplified cost options.

2.2.3. Application in time and transitional provisions

Article 67(2a) CPR only applies to operations supported under calls for proposals published as from the date when the Omnibus Regulation entered into force (i.e. from 2 August 2018). It does not apply to operations supported under calls published before this date, even if the document setting out the conditions for support (e.g. the financing decision/grant agreement) is issued after the entry into force of the Omnibus Regulation. Operations that are supported outside the scope of a call for proposals (e.g. direct award) need to comply with the requirements of Article 67(2a) CPR if the grant agreement or the document setting out the conditions for support was signed as of 2 August 2018.

In accordance with Article 152(7) CPR, the managing authority, or the monitoring committee of the ETC programme, may decide not to apply mandatory SCOs for a maximum period of 12 months starting from 2 August 2018. This period may be extended for a period that seems appropriate to the managing authority (monitoring committee for ETC programmes) in case the mandatory application of SCOs is considered to create disproportionate administrative burden.

These transitional provisions set out in Article 152(7) CPR do not apply to grants (and repayable assistance) supported by the ESF for which the public support does not exceed EUR 50 000. This is because operations supported by the ESF with a public support not exceeding EUR 50 000 were already subject to the obligation of using simplified cost options before the entry into force of the Omnibus Regulation (Article 14(4) ESF Regulation).

Therefore, for ESF supported operations where the public support does not exceed EUR 50 000, Article 67(2a) CPR applies as from the entry into force of the Omnibus Regulation (i.e. to calls for proposals launched as from the entry into force of the Omnibus Regulation).

This has key implications in case the support by the ESF constitutes de minimis aid.

According to Article 14(4) ESF Regulation, operations for which the support constituted de minimis aid were not covered by the obligation to use simplified cost options. However, Article 67(2a) CPR only contains an exception for operations receiving support within the framework of State aid that does not constitute de minimis aid. This means that ESF supported operations for which the public support did not exceed EUR 50 000 before 2 August 2018 and since 2 August 2018 does not exceed EUR 100 000 and constitutes de minimis aid are no longer excluded from the obligation to use SCOs. Finally, the possibility to postpone the application of Article 67(2a) CPR cannot be used for ESF operations with a public support not exceeding EUR 50 000 in line with the last subparagraph of Article 152(7) CPR.

For operations and projects selected under calls for proposals launched before the entry into force of the Omnibus Regulation Article 14(4) ESF Regulation applies. ESF supported operations receiving public support (not exceeding EUR 50 000) are subject to the obligation to use SCOs but operations receiving support that constitutes State aid, including de minimis aid, are excluded from this obligation.

Other implications of the Omnibus Regulation Joint support by the ESF and ERDF In case an operation is supported by both the ESF and the ERDF and this operation is selected under a call for proposals launched before the entry into force of the Omnibus Regulation: the support by the ERDF is not taken into account for determining the attainment of the threshold for the obligation to use SCOs, but only the support by the ESF as well as the corresponding public national support. It is only the part of the operation supported by the ESF (and the corresponding national public support) that is subject to the obligation to use SCOs, as Article 14(4) ESF Regulation only applied to the ESF and there was no provision requiring that the ERDF support to such an operation to take the form of SCOs. For operations and projects under calls for proposals launched after the entry into force of the Omnibus Regulation, the support by both the ESF and the ERDF is taken into account for the calculation of the public support, unless the managing authority (or the monitoring committee of the ETC programmes) makes use of the transitional provisions. Cross-financing In cases of cross-financing in accordance with Article 98(2) CPR, for example for operations supported by the ESF – i.e. the ESF is used to also provide support to expenditure eligible under the ERDF – the whole amount of support by the ESF as well as the corresponding public national support is considered for determining whether the amount of public support is covered by the obligation to use SCOs (as it is public support to an operation that is not supported by the ERDF, but only by the ESF.). Operations and projects under calls for proposals launched before the entry into force of the Omnibus Regulation, need to be assessed in the light of Article 14(4) of the ESF Regulation (16). Although the entire amount provided from the ESF as well as the corresponding public national funding is taken into account for determining whether the operation is subject to the obligation to use SCOs under this provision, the obligation only applies to the part of the support subject to the rules of the ESF, i.e. the part of support subject to the rules applicable to the ERDF is not subject to the obligation to use SCOs. In the case of operations and projects supported under a call for proposals launched after the entry into force of the Omnibus Regulation, the part of support subject to rules applicable to the ERDF is also subject to the mandatory use of simplified cost options, in case the managing authority (or the monitoring committee for ETC programmes) has not made use of the transitional provisions in Article 152(7) CPR.

2.3. Combination of options

2.3.1. General principles

Article 67(1) CPR creates the possibility for the managing authority to choose between five options to manage grants and repayable assistance co-financed by the ESI Funds.

In accordance with Article 67(3) CPR, these options may be combined only in the following cases, in order to prevent any double financing of the same expenditure:

(1) They must each cover different categories of eligible costs; or

(2) they must be used for different projects in the same operation; or

(3) they must be used for successive phases of an operation.

2.3.2. Examples of combinations

Example 1: Funding of different projects forming part of the same operation (ESF) Example of an operation involving a training project for young unemployed people, followed by a seminar for potential employers of the region: The costs related to the training could be paid on the basis of standard scales of unit costs (for example EUR 1 000/day of training). The seminar would be paid on the basis of lump sums. Given that there are two different projects forming part of the same operation, there is no risk of double financing as each project’s costs are clearly separated.

Example 2: Successive phases of an operation (ESF) – in line with Article 67(3) CPR Example of an already started operation managed on the basis of real costs that the managing authority wants to continue to manage on the basis of simplified costs. Two phases will have to be clearly defined. The first phase could be calculated on the basis of real costs until a given date. The second phase, for future expenditure, could be calculated on the basis of a standard scales of unit cost provided that the unit cost does not cover any of the previously supported expenditure. If such a possibility is applied, it should concern all the beneficiaries in the same situation (transparency & equal treatment). It could create some administrative burden because of the need to amend the document setting out the conditions for support, if this was not anticipated. A detailed description of the operation must be clearly drawn up by the Member State’s authorities for each phase. The operation should be divided into at least two distinct, identifiable financial and ideally physical or development stages corresponding to the phases concerned. This is to be done with the aim of ensuring transparent implementation and monitoring and to facilitate controls.

Example 3: Different categories of eligible costs (ESF) Example of a training session combining: — a standard scale of unit cost for the wages of the trainers, e.g. EUR 450/day; — real costs: room rented = EUR 800/month as per rental contract during 12 months — a flat rate for the indirect costs, for example 10 % of direct costs. At the end of the training, if 200 days of trainers were justified the grant will be paid on the following basis: Direct costs (type 1 (17)): — wages of the trainers 200 days × EUR 450 = EUR 90 000 — training room: 12 months × EUR 800 = EUR 9 600 — subtotal direct costs: EUR 99 600 Indirect costs (type 2): 10 % of direct costs = 10 % × EUR 99 600 = EUR 9 960 Eligible expenditure: (EUR 90 000 + EUR 9 600) + EUR 9 960 = EUR 109 560 In that case, different categories of costs are concerned: wages of trainers, rent costs for the room, indirect costs. However, in order to verify the absence of double financing the authorities must ensure that the standard scale of unit cost does not relate to any costs linked to the renting of the room or to the indirect costs (salary of administrative staff or of the accountant, for example). Reciprocally the same applies for the definition of indirect costs that should not relate to costs covered by the standard scales of unit costs or real costs of renting the room. If there is a risk of overlap or it is impossible to demonstrate that there are no overlaps, the managing authority will have to choose the more appropriate option in order to avoid any (risk of) double financing.

2.4. Public procurement & the use of simplified cost options

2.4.1. Use of simplified cost options in the case of public procurement

Pursuant to the first sentence of Article 67(4) CPR where an operation as defined in Article 2(9) CPR or a project forming part of an operation (which in itself is supported in form of a grant or repayable assistance) is implemented by the beneficiary exclusively through the procurement of works, goods or services, simplified cost options may not be used. However, in accordance with the second sentence of Article 67(4), where, the public procurement within an operation or a project forming part of an operation is limited to certain categories of costs, simplified cost options may be applied ‘for the whole operation or project forming part of an operation’. This sentence was introduced by the Omnibus Regulation to clarify the previous text of Article 67(4) CPR. It clarifies that for cases where within a project or operation, some goods or services have been outsourced via public procurement, SCOs can be used to calculate all the costs of the operation, including for the costs that were subject to public procurement.

Operations subject to public procurement contracts are considered by the Commission as being operations implemented through the award of public contracts in accordance with Directive 2004/18/EC (including its annexes), Directive 2009/81/EC and Directive 2014/24/EU, which repealed Directive 2004/18/EC, or through the award of public contracts below the thresholds of the same Directives.

Whether an operation or project is implemented exclusively by public procurement or not depends on the scope of an operation or project, as defined by Member States.

In order to assess this, it is necessary to define the projects constituting the operation at the lowest possible level. If the public procurement covers all categories of costs of a project, the simplified cost options cannot be applied to that project.

In some cases, a beneficiary might outsource via public procurement almost all or the vast majority of an operation or project with perhaps only activities related to ‘project management’ or ‘communications’ remaining with the beneficiary. In such cases, it is clear that the operation or project is not ‘exclusively’ implemented through public procurement and simplified costs could be applied to the whole project or operation. However, in practice, when most of the project is implemented through public procurement, devising a SCO for categories of costs covered by a procurement may not be an efficient use of resources, as the majority of costs are already covered by the procurement. Although not recommended, it is, however, for the managing authorities to assess whether to make use of simplified costs for the entire project if it is not implemented exclusively through public procurement.

Example (ESF): A grant of EUR 20 000 000 is allocated to a public employment service (‘beneficiary’) to organise, during two years, the reintegration of 5 000 long-term unemployed people (‘the operation’): this operation will be implemented via several projects: EUR 7 000 000 of personalised support projects implemented in-house, training projects implemented in-house by the beneficiary for EUR 5 000 000 and outsourced exclusively via public procurement contracts for the remaining part (EUR 8 000 000). Since the beneficiary is a public entity, training institutions for the projects outsourced will have to be chosen exclusively through public procurement procedures, and simplified cost options cannot be used for these projects forming part of the operation. Simplified cost options can only be used for an amount of EUR 12 000 000. For the training projects that the beneficiary implements by his own means, it is accepted that some of the expenditure items are outsourced through public procurement and included in the simplified cost options (external experts, cleaning services, etc.).

Example (ERDF): A municipality receives a grant for a maximum amount of EUR 1 000 000 of eligible costs for the construction of a road. For this, the municipality has to award a public works contract of an estimated value of EUR 700 000. In addition, the municipality incurs certain related costs of EUR 300 000 (expropriations, litigation (18) costs, monitoring of the progress on the ground, environmental studies carried out by its own staff, campaigns, tests for the acceptance of the road, etc.). For the amount of EUR 300 000 of direct costs and insofar as these costs are eligible under the national and Union provisions, simplified costs (e.g. indirect costs on a flat rate basis) can apply.

Example (ERDF): A beneficiary (municipality) receives a grant for a maximum amount of EUR 1 000 000 of eligible costs for the construction of a road.

For this operation which is not fully publicly procured, the managing authority wants to make use of Article 68(1)(b) CPR to calculate the indirect costs. However, the managing authority wants to mitigate the impact of the use of subcontracted staff on the level of indirect costs. It decides to exclude the subcontracted direct staff costs from the direct staff costs to which the flat rate is applied.

The draft budget for the operation is as follows:

Project 1: work (public procurement procedure) EUR 700 000 Project 2: other costs: EUR 298 500 Direct staff costs EUR 50 000 Out of which subcontracted direct staff costs EUR 10 000 Other direct costs EUR 242 500 Indirect costs (Direct staff costs – subcontracted direct staff costs) × 15 % = EUR 40 000 × 15 % = EUR 6 000 Total costs declared EUR 998 500

When operations are implemented through public procurement procedures, the price in the contract notice is by definition a unit cost or lump sum constituting the basis of the payments by the beneficiary to the contractor. However, for the purposes of Article 67 CPR, costs determined and paid by the beneficiary based on amounts established through public procurement procedures constitute real costs actually incurred and paid under Article 67(1)(a) CPR (19).

Example (ESF): If a beneficiary implements a training course via public procurement, it is possible that in the call for tenders the beneficiary will ask the bidders to make a price offer per trainee gaining certification at the end of the course. The terms of the contract can therefore be: one trainee certified = EUR 1 000. If, at the end of the course, 10 trainees are certified, the beneficiary can declare EUR 10 000 of eligible expenditure to the managing authority. This EUR 10 000 will be considered as real cost based. Therefore, a control or audit of this expenditure will consist in a check of the public procurement procedure and observance of the terms of the contract (in this example, that there is proof of a trainee certified for each unit cost paid). The underlying costs of the training (renting of facilities, staff costs…) will not be checked as the contract does not provide for reimbursement on this basis.

2.4.2. Use of the flat rate for calculation of direct staff costs in operations implemented through public procurement

As provided in Article 68a CPR, the calculation of direct staff costs of an operation at a flat rate of up to 20 % of the direct costs other than staff costs will not require a calculation to determine the methodology unless the operation includes public works contracts which exceed the threshold set out in point (a) of Article 4 of Directive 2014/24/EU. This means, that if the direct costs of the operation are even partially covered by such a public works contract which exceeds the threshold set out in point (a) of Article 4 of Directive 2014/24/EU, the use of the 20 % flat rate defined in the Regulation is possible but will require the establishment of a methodology to determine the applicable rate.

2.5. Compatibility of simplified cost options with State aid rules

It should be emphasised that the State aid rules laid down in the Treaty are of general application. Moreover, in accordance with Article 6 CPR operations shall comply with applicable Union law and the national law relating to its application. This includes compliance with rules on State aid. Therefore, whenever funding constitutes State aid within the meaning of Article 107 TFEU, those rules must be complied with in the calculation and administration of simplified cost options as provided for in Article 67 CPR. Managing authorities must therefore ensure that the categories of costs for which simplified cost options are established are eligible both under the ESI Funds rules and under State aid rules. They must also ensure that the maximum aid intensities set out in State aid rules are respected.

Block exemption regulations, i.e. the General Block Exemption Commission Regulation (EU) No 651/2014 (20) (GBER), the Agricultural Block Exemption Regulation (EU) No 702/2014 (ABER) and the Fisheries Block Exemption Regulation (EU) No 1388/2014 (FBER) provide for exemptions from the obligation of Member States to notify aid schemes and ad hoc aid fulfilling the conditions stipulated therein.

However, it should be noted that not all support granted by public authorities is subject to State aid rules. First, it should be assessed whether the support granted to an operation is considered State aid within the meaning of Article 107(1) TFEU. More information on the notion of State aid can be found in the Commission notice (21) which clarifies the Commission's understanding of Article 107(1) of the Treaty, as interpreted by the Court of Justice and the General Court. The provisions of the Regulations (22) on ‘de minimis’ aid should also be taken into account. Aid that constitutes ‘de minimis’ aid does not constitute State aid within the meaning of Article 107 of the Treaty. Therefore, in case an operation funded by the ESI Funds falls within the scope of the relevant de minimis Regulation, it means that the contribution by the ESI Funds does not constitute State aid. Therefore, in the case of de minimis aid there is no need to assess compliance with State aid rules, only those relating to the ESI Funds and the conditions for considering the support as de minimis aid.

In order for an operation to benefit from the relevant de minimis Regulation, the conditions (set out in that regulation) are to be met.

(1) the aid granted falls within the scope of Article 1 of the relevant ‘de minimis’ Regulation;

(2) the aid granted complies with the ceilings as set out in Article 3 of the relevant ‘de minimis’ Regulation;

(3) the aid granted complies with the requirements on the calculation of gross grant equivalent as set out in Article 4 of the relevant ‘de minimis’ Regulation;

(4) the aid granted complies with the cumulation rules set out in Article 5 of the relevant ‘de minimis’ Regulation;

(5) the aid granted complies with the monitoring requirement set out in Article 6 of the relevant ‘de minimis’ Regulation.

2.5.1. Compatibility of simplified cost options with the General Block Exemption Regulation and the Agricultural Block Exemption Regulation

The check of the compliance of ESI Funds operations with the GBER or the ABER should include the following steps:

— Eligibility of costs under the GBER or the ABER and the rules on the ESI Funds First, when the managing authority wants to grant support that is considered to constitute State aid, the conditions for granting the aid should be checked according to the relevant category of aid/exemption provision under the GBER or the ABER. Then, the managing authority should verify whether, in the framework of this category of aid, the costs envisaged for an operation are eligible, both on the basis of the relevant exemption provisions under the GBER or the ABER and the ESI Funds rules. In this respect, Article 7(1) of the GBER and Article 7 (1) of the ABER, both as amended by Regulation (EU) 2017/1084 of 14 June 2017, allow for eligible costs under the GBER and ABER to be calculated in accordance with the simplified cost options set out in the CPR, provided that the operation is at least partly financed through a Union fund that allows for the use of those simplified cost options and that the category of costs is eligible according to the exemption in the relevant GBER or ABER. This means that where a simplified cost option has been established in accordance with the CPR or the Fund-specific regulations, this amount will as a rule be used for the purposes of the control of compliance with State aid rules, provided that the category of costs as such is eligible under State aid rules and that the aid fulfils all conditions of the GBER or the ABER. Where simplified cost options are used, the categories of costs calculated on the basis of SCOs should be identified in the methodology used to arrive at the simplified cost amount. Where simplified cost options defined in the CPR or other fund specific rules are used, this should be ensured by the managing authority, when issuing calls for proposals for operations which may be subject to State aid rules, by stipulating the categories of costs which will be funded by the ESI Funds for that operation and which are also compliant with the GBER or the ABER. It should be further stated in the document setting out the conditions for support for the operation which categories of costs are considered eligible for that operation. For the purpose of checking whether indirect costs (in the context of the ESI Funds) are eligible under the GBER, it should be noted that indirect costs will often constitute operating costs as defined in Article 2(39) GBER (‘The operating costs include costs such as personnel costs, materials, contracted services, communications, energy, maintenance, rent, administration’). Therefore, in case operating costs are eligible under the GBER, this means that also the indirect costs in the context of the ESI Funds can be considered as GBER eligible costs. For the flat rate of 40 % (Article 68b(1) CPR), the document setting out the conditions for support should clearly state the categories of costs which are covered by the 40 %.

— Verifying maximum aid intensity Where a simplified cost option has been established in accordance with the provisions of Article 67, 68, 68a and 68b CPR or the relevant provisions in the Fund-specific regulations, this amount may be used for the purposes of the control of compliance with the GBER or the ABER, including aid intensity. Therefore, similarly to what should be done when using real costs under the GBER (or the ABER), the amount resulting from the methodology used for calculating the SCOs may be used for verifying compliance with the maximum aid intensity under the relevant State aid category. Since the methodology used must comply with sound financial management, managing authorities must use a reasonable and prudent hypothesis in order to ensure that simplified costs represent a reliable proxy for the real costs. This allows the amount set in the simplified cost to be used to facilitate demonstration of compliance with maximum aid intensity, maximum aid amounts or notification thresholds under the GBER or the ABER. The methodology will be subject to audit to ensure that it is in line with the applicable ESI Funds and State aid rules. For an example, please refer to Annex II.

2.6. Use of simplified costs in operations generating net revenue

Simplified cost options are a way to calculate the costs, the ‘expenditure side’ of an operation. Therefore, in theory the use of simplified cost options should be independent of whether an operation generates revenue or not. However, in order to preserve the simplification impact, the CPR introduces some specificity for an operation generating revenue that uses lump sums or standard scales of unit costs.

2.6.1. Operations generating net revenue after completion (Article 61 CPR)

Article 61 CPR applies to operations, which generate net revenue:

a) after their completion only or

b) during their implementation and after their completion.

In accordance with Article 61(7)(f) CPR, for operations generating net revenue after completion which have used lump sums or standard scales of unit costs, paragraphs 1 to 6 of Article 61 CPR do not apply. In case operations generate net revenue during implementation and after completion i.e., where Article 61 CPR applies, as stated in Article 61(7)(f) CPR the net revenue does not have to be taken into account in case of operations for which the public support takes the form of lump sums or standard scales of unit costs. In case of the use of flat rates the net revenue generated by the operation should be determined in advance and deducted from the eligible expenditure of the project.

2.6.2. Operations generating net revenue during implementation and to which paragraphs 1 to 6 of Article 61 CPR do not apply (23)

For lump sums or standard scales of unit costs used in operations generating net revenue during their implementation, that net revenue does not have to be deducted from eligible expenditure so long as it has been taken into account ex-ante in the calculation of the lump sum or standard scale of unit costs (according to Article 65(8)(f) CPR).

If the net revenue was not taken into account ex-ante in the calculation of the lump sums or standard scales of unit costs, then the eligible expenditure co-financed by the ESI Funds will have to be reduced by the net revenue generated during implementation not later than at the final payment claim submitted by the beneficiary, pro rata of the eligible and non-eligible parts of the costs (second subparagraph of Article 65(8) CPR.

Where flat rate financing is chosen, any net revenue not taken into account at the time of approval of the operation and directly generated during the implementation of the operation has to be deducted from the eligible expenditure co-financed by the ESI Funds (having applied the flat rate) not later than at the final payment claim submitted by the beneficiary, pro rata of the eligible and non-eligible parts of the costs (second subparagraph of Article 65(8) CPR).

Example (ESF) A conference is organised to promote entrepreneurship. A draft budget is submitted by the beneficiary stating that the total eligible costs should amount to EUR 70 000. The conference will charge an entrance fee of EUR 3. The organiser expects to attract 200 visitors. The expected revenue to be generated is EUR 3 × 200 = EUR 600. The conference proves to be a great success and the number of visitors exceeds the expectations (300 people). As this operation is only ESF co-financed and the net revenue is not generated after completion, Article 61 CPR does not apply, because the net revenue is not generated after completion. However, Article 65(8) CPR applies. — Option 1: the revenue generated is taken into account ex-ante The lump sum defined is that if the conference takes place, the total eligible cost of the operation will be EUR 70 000 – EUR 600 = EUR 69 400. The public support of this operation takes the form of a lump sum and revenue has been taken into account in the definition of the lump sum. The actual number of visitors does not impact the eligible amount (lump sum). The audit trail will require proof of implementation of the conference and the price of the entrance ticket. — Option 2: the revenue generated is taken into account ex-ante but the conditions change during implementation The lump sum defined is that if the conference takes place, the total eligible cost of the operation will be EUR 70 000 – EUR 600 = EUR 69 400. The public support of this operation takes the form of a lump sum and revenue has been taken into account in the definition of the lump sum. However, the organiser decides in the end to set the price of the entrance ticket at EUR 5 instead of EUR 3. In this case, the funding gap should be deducted ((EUR 5 × 300) – EUR 600 = EUR 900). The total eligible costs will be EUR 69 400 – EUR 900 = EUR 68 500 — Option 3: the revenue generated is not taken into account ex-ante The lump sum defined is that if the conference takes place, the total eligible cost of the operation will be EUR 70 000. The public support of this operation takes the form of a lump sum and revenue has not been taken into account in the definition of the lump sum. Once the beneficiary claims for reimbursement (EUR 70 000), it will need to provide evidence that the conference took place. It will also need to deduct the real revenue generated during implementation (EUR 3 × 300 = EUR 900). In this case, the lump sum will be EUR 70 000 – EUR 900 = EUR 69 100.

2.7. ERDF and ESF specific: cross-financing

2.7.1. Declaring the actions falling under Article 98(2) CPR in relation to the simplified cost options

Pursuant to Article 98(2) CPR, when the ERDF or the ESF provide support to a part of an operation for which the costs are eligible under the other fund (‘cross-financing’), the rules (24) of the other Fund apply to that part of the operation. Cross-financing may be used up to a limit of 10 % of Union funding for each priority axis.

With the exception of flat rates, a single SCO may be used in relation to expenditure eligible under one or the other Fund.

The application of the simplified cost options still requires that Member States respect the 10 % ceiling for each priority axis (by Fund and category of region where relevant). The ‘cross-financed’ amount should be recorded and monitored, operation by operation, on the basis of the data used to define the simplified cost options.

Specifically, for flat rate financing in cases of cross-financing, separate flat rates should apply to each ‘ESF’ and ‘ERDF’ part of the operation. The ESF and ERDF flat rates for similar operations will be applied respectively to the ESF and ERDF parts. Using an average of the two rates is not possible as expenditure needs to be traceable to ensure respect of the overall 10 % ceiling for cross-financing. Where no rate exists for the other Fund for a similar type of operation (for example because the rule is not applied for the other Fund (25) or because there are no similar operations funded by the other Fund), the managing authority has to decide on the applicable rate according to the general legal principles established in Articles 67(5) and the first subparagraph of Article 68 CPR.

2.7.2. Examples

Example of ESF-ERDF cross-financing with unit costs or lump sums If, for an ESF operation, the standard scale of EUR 6/hour × trainee includes purchase of infrastructure for EUR 0,50/hour eligible under the ERDF, the cross-financed amount will be EUR 0,50 × number of ‘hours × trainee’ realised. The same principle applies for lump sums: if the draft detailed budget includes some ‘cross-financed expenditure’, it will be accounted and monitored separately. For example, within a EUR 20 000 lump sum funded by an ESF programme, ERDF type expenditure represents EUR 5 000. At the end of the operation the cross-financed amount will be the amount defined ex-ante (EUR 5 000 out of the EUR 20 000) or ‘zero’ if the grant is not paid because the predefined output has not been reached. The binary principle of lump sums, if not mitigated by setting milestones, will also apply to cross-financed expenditure.

Example of ESF-ERDF cross-financing with flat rate financing In the case of a flat rate for indirect costs, the cross-financed amount will be the amount of ‘cross-financed direct costs’, added to indirect costs calculated by the flat rate applicable to these ‘cross-financed direct costs’. For example, within a EUR 15 000 operation funded by an ERDF programme, the ‘ESF type’ direct costs represent EUR 3 000 and indirect costs are calculated as 10 % of direct costs (EUR 300). The cross-financed amount would thus be EUR 3 300. If at the end of the operation the direct costs were reduced, the cross-financed amount (including for indirect costs) would be reduced according to the same formula.

2.8. EAFRD and ETC specific rules

EAFRD specific

Please refer to Annex III of this guidance for a list of EAFRD measures that fall under the scope of SCOs.

ETC specific Specific rules on eligibility of expenditure for cooperation programmes with regard to staff costs, office and administrative expenditure, travel and accommodation costs, external expertise and service costs, and equipment expenditure are established at EU level. Without prejudice to the eligibility rules laid down in the CPR, in the ETC regulation and in the specific eligibility rules for the cooperation programme, the Monitoring Committee establishes additional rules on eligibility of expenditure for the cooperation programme as a whole. For matters not covered by the above-mentioned rules, the national rules of the Member State in which the expenditure is incurred apply.

CHAPTER 3

Types of Simplified Cost Options

3.1. Flat rate financing

In the case of flat rate financing, specific categories of eligible costs that are clearly identified in advance are calculated by applying a percentage, fixed ex-ante to one or several other categories of eligible costs.

3.1.1. Defining the categories of costs

In a flat rate financing system, there is a maximum of three types of categories of costs:

— Type 1: categories of eligible costs on the basis of which the flat rate is to be applied to calculate the eligible amounts;

— Type 2: categories of eligible costs that will be calculated with the flat rate;

— Type 3: where relevant, other categories of eligible costs: the rate is not applied to them and they are not calculated with the flat rate.

When using a flat rate financing system, the managing authority must define the categories of costs falling under each type: any category of expenditure is clearly included in one — and only one — of the three types. Note that in some cases, one type can be defined by opposition to another type or the other types (for instance, in a system where there are only direct (type 1) and indirect costs (type 2), indirect costs could be considered as all the eligible costs that are not eligible direct costs).

The CPR does not put any restriction on categories of eligible costs that might be used for flat rate financing. However, the main objective of using flat rates should be simplification and reduction of the error rate. Hence, flat rates are best suited to costs that are relatively low and for which verification is costly.

When an operation (26) covers more than one project, the flat rate may apply at the level of a project, provided that the activities and costs between the projects are clearly distinct.

3.1.2. Specific flat rate financing systems to calculate categories of costs detailed in the CPR and the Fund-specific Regulations

Certain specific flat rate financing systems are defined at legislative level. Most of them can be used without requiring the managing authority to establish a calculation method to determine the applicable rate. These flat rates are set out in Articles 68 (with the exception of point (a) where no national method for similar operations is available), 68a and 68b. Under these provisions, a flat rate is applied to a certain category of costs (direct costs, direct costs other than staff costs or direct staff costs), to calculate other categories of costs (indirect costs, direct staff costs and remaining eligible costs of an operation, respectively).

Using any of these systems set out above, requires the managing authority (or the monitoring committee for the ETC programme) to define the categories of costs covered by the flat rate, i.e. the direct and indirect costs and the direct staff costs. It is the sole responsibility of the Member States to define the different categories of costs in a consistent, non-equivocal and non-discriminatory way. This is particularly relevant for the definition of direct staff costs to which a flat rate for other costs is applied.

This should be clearly set out in the national eligibility rules or programme rules in ETC programmes.

As general guidance, the following definitions are given below:

— Direct costs are those costs that are directly related to the implementation of the operation or project where the direct link with this individual operation or project can be demonstrated.

— Indirect costs, on the other hand, are usually costs, which are not or cannot be connected directly to the implementation of the operation in question. Such costs could include administrative expenses, for which it is difficult to determine precisely the amount attributable to a specific operation or project (typical administrative/staff expenditure, such as: management costs, recruitment expenses, costs for the accountant or the cleaner, etc.; telephone, water or electricity expenses, and so on).

— Staff costs (27) are defined in national rules and normally the costs deriving from an agreement between employer and employee or service contracts for external staff (provided that these costs are clearly identifiable). For example, if a beneficiary contracts the services of an external trainer for its in-house training sessions, the invoice needs to identify the different types of costs. The salary of the trainer will be considered an external staff cost. If the staff cost of the trainer is not identifiable as a distinct category from other categories of costs, for example teaching materials, then they cannot be used as the basis of flat rates, for example the 40 % flat rate as set out in Article 68b(1) CPR. Staff costs are defined by national rules and normally include the total remuneration, including in-kind benefits in line with collective agreements, paid to people in return for work related to the operation. They also include taxes and employees’ social security contributions (first and second pillar, third pillar only if set out in a collective agreement or in the employment agreement) as well as the employer’s compulsory and voluntary social contributions. Staff costs can be direct or indirect costs, depending on a case-by case analysis.

Therefore, for the purpose of applying the flat rates of point (b) of the first subparagraph of Article 68 CPR and of Article 68b(1) CPR (or other flat rate established by the managing authority on the basis of Article 67(5) CPR which is to be applied to direct staff costs), the total value of the remuneration as defined by national rules can be considered as staff costs as they represent the actual remuneration for the work of that person in the operation and therefore should be taken into account for determining other types of costs of the operation (which are calculated by applying a flat rate to the direct staff costs). This applies also to cases where the salary is (partly) reimbursed or funded by third parties (e.g. direct staff was recruited with a recruitment subsidy; the flat rate is applied to the total value of the remuneration even if a part of it is paid by a third party).

Travel costs are, however, not considered to be staff costs, apart from expenses for commuting to the workplace if national rules determine that they were part of the gross employment costs. Allowances or salaries disbursed for the benefit of participants in ESF operations are not considered to be staff costs either.

3.1.2.1. Calculation methods for indirect costs

The first subparagraph of Article 68 CPR determines that where the implementation of an operation gives rise to indirect costs, they may be calculated on the basis of one of the flat rates set out in points (a), (b) and (c). The use of these flat rates for calculating indirect costs is optional, i.e. it is up to the managing authority to decide whether to use these flat rates, use real costs or other simplified cost options, established on the basis of Article 67(5) CPR (for instance the indirect costs can be included in a lump sum or a unit cost established on the basis of one of the methods set out in Article 67(5) CPR).

— Point (a) sets out the general system of flat rate financing for indirect costs with a rate of up to 25 % of eligible direct costs. The aim of this provision is to introduce a capping to the amount of indirect costs that can be calculated on the basis of a flat rate. Unlike the case of point (b) of the first subparagraph of Article 68 CPR, the rate to be used has to be justified according to one of the calculation methods under Article 67(5)(a) or (c) CPR (i.e. a fair, verifiable and equitable calculation method or a method applied under schemes for grants entirely funded by the Member State for a similar type of operation). This system is flexible. It could be based: — only on two types of costs — type 1: direct costs, type 2: indirect costs; or — on three types of costs: type 1: ‘limited’ direct costs (i.e. a sub-category of the direct costs), type 2: indirect costs calculated on the basis of type 1 and type 3: direct costs other than the ‘limited’ ones (type 1). For instance, it is possible to establish a flat rate that will be applied to the eligible direct staff costs (which is a sub-category of the eligible direct costs). That flat rate applied to the eligible direct staff costs can be higher than 15 % provided for in Article 68(b) CPR on the condition that this flat rate is not higher than 25 % of the eligible direct costs (to respect the capping set in Article 68(a) CPR). Therefore, whatever sub-category/-ies of direct costs the managing authority uses to establish a flat rate to calculate the indirect costs, it will always need to check whether that amount (i.e. the amount calculated on the basis of that flat rate) is not higher than 25 % of the eligible direct costs.

— Point (b) introduces a flat rate of up to 15 % of the direct staff costs to calculate the indirect costs. This flat rate may be used directly by the managing authority, without any justification. This is an example of a system where there will be three categories of costs: (Type 1) direct staff costs, (Type 2) indirect costs, (Type 3) direct costs other than staff costs (see Annex I for an example).

— Under point (c) it is possible to use a flat rate for indirect cost schemes existing in Union policies, like those used under Horizon 2020, LIFE, etc. Articles 20 and 21 of the Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 (28) provide for supplementary provisions regarding applicable flat rates for indirect cost methods applied in other Union policies and the scope for their application to the ESI Funds (see section 4.4).

3.1.2.2. Flat rate for determining direct staff costs

Article 68a(1) CPR states that the direct staff costs of an operation may be calculated at a flat rate of up to 20 % of the direct costs other than the staff costs of that operation. This means that only the direct staff costs may be calculated as a flat rate (applied to the direct costs other than staff costs) without there being a requirement for the Member State to perform a calculation to determine the applicable rate.

However, where the direct costs of that operation include public works contracts which exceed the threshold set out in point (a) of Article 4 of Directive 2014/24/EU, the application of the above flat rate requires to perform a calculation to determine the applicable rate.

Direct staff costs determined in such a way may form the basis to apply a flat rate under point (b) of the first subparagraph of Article 68 CPR (a flat rate of up to 15 % of eligible direct staff costs to calculate indirect costs). Conversely, direct staff costs calculated on the basis of this flat rate cannot serve as a basis for the flat rate under Article 68b(1) CPR (a flat rate of up to 40 % of eligible direct staff costs to calculate the remaining eligible costs of the operation), see Article 68b(2) CPR.

The use of this flat rate for calculating direct staff costs is optional, i.e. it is up to the managing authority to decide whether to use this flat rate, use real costs or other simplified cost options, established on the basis of Article 67(5) CPR.

3.1.2.3. Flat rate for determining all other costs of the operation other than direct staff costs

Article 68b(1) CPR allows that direct staff costs may be used to calculate all the other remaining eligible costs of the operation, on the basis of a flat rate of up to 40 % of eligible direct staff costs. ‘All the other remaining eligible costs’ of the operation include all other eligible direct costs (except direct staff costs), indirect costs and, for the ERDF, ESF and EAFRD, costs mentioned in the second subparagraph of Article 68b(1) CPR.

— Remaining eligible costs and allowances and salaries paid to participants Article 68b, introduced by the Omnibus Regulation, is inspired by Article 14(2) ESF Regulation (before being amended by the Omnibus Regulation), which already provided this flat rate for operations supported by the ESF. The Omnibus Regulation extends the use of this flat rate to all the ESI Funds. There is, however, an important difference between the two provisions. Article 14(2) ESF Regulation did not contain an exception for salaries and allowances paid to participants. Therefore, they were considered part of the ‘remaining eligible costs of the operations’. This means that Article 14(2) ESF Regulation did not allow beneficiaries to declare salaries and allowances paid to participants in addition to costs calculated on the basis of the flat rate and the direct staff costs. This made the use of Article 14(2) ESF Regulation unattractive as applying a flat rate of 40 % to the eligible direct staff costs would often be insufficient to cover the costs of allowances and salaries paid to participants. Therefore, the Omnibus Regulation, besides extending this flat rate to all ESI Funds, also allows, in the case of operations implemented under the ESF, the ERDF or the EAFRD, that salaries and allowances paid to participants are considered additional eligible costs not included in the flat rate (second subparagraph of Article 68b(1) CPR). This means that following the entry into force of the Omnibus Regulation, such salaries (i.e. (monthly) gross salaries of employees) and allowances (like unemployment benefits; not subsistence or travel allowances) can be claimed in addition to the direct staff costs and the flat rate applied for operations making use of Article 68b(1) CPR. It should be noted that ‘allowances and salaries paid to participants’ include not only the case of salaries and allowances paid by the beneficiary but also the cases when these salaries or allowances are paid by a third party, when they are considered an eligible cost. This is the case, for instance, for the ESF, when they meet the conditions set out in Article 13(5) ESF Regulation (29).

— Using the 40 % flat rate This provision allows the managing authority to use a flat rate of up to 40 % without a requirement to execute any calculation to determine the applicable rate. This means that the managing authority may use any rate that is not higher than 40 % without any requirement to justify it. This is without prejudice of the need to ensure equal treatment between beneficiaries. However, the managing authority may establish a higher rate than 40 % on the basis of one of the methods set out in Article 67(5) CPR (i.e. outside of the scope of Article 68b). Finally, as explained in section 3.1.2.2., in accordance with Article 68b(2), this flat rate of up to 40 % cannot be used in an operation when the total direct staff costs of that operation are calculated on the basis of a flat rate (for example the flat rate under Article 68a(1) CPR).

Example The estimated costs of a training course are: Total Direct costs 55 000 Direct Staff costs 30 000 Room costs 4 000 Travel costs 5 000 Meals 1 000 Information/Publicity 5 000 Allowances paid to the trainees by the PES 10 000 Total Indirect costs 5 000 Indirect staff costs 4 000 Electricity, phone. 1 000 The managing authority can decide to apply Article 68b(1) CPR to this project. In this case, the grant agreement would have as a maximum allocation: Direct staff costs: EUR 30 000 Other costs: 30 000 × 40 % = EUR 12 000 As the allowances paid to the trainee by the Public Employment Services can be declared in addition to the direct staff costs and the flat rate, the total eligible costs would be: Total costs: 30 000 + 12 000 + 10 000 = EUR 52 000

3.1.2.4. Justification of flat rates set in the CPR

The flat rates mentioned in point (b) of the first subparagraph of Article 68, Article 68b(1) and Article 68a(1) CPR allow that a rate ‘up to’ the rate set in the relevant article may be used without the need for the Member State to perform a calculation to determine that rate. This means that the managing authority may use any rate up to the rate mentioned in the relevant article, and it will not have to justify why this rate was chosen, even if it is below the rate specified in the Regulation. If a lower rate is chosen, there is no requirement to perform any calculation.

When deciding on the flat rate to be applied, the principle of equal treatment of beneficiaries needs to be respected.

3.1.2.5. Application in time

The changes introduced by the Omnibus Regulation to Article 68 CPR and the new Article 68a CPR and Article 68b CPR are applicable from the entry into force of the regulation, i.e. as from 2 August 2018 (30).

These provisions can be used for operations in which the potential beneficiaries have not been selected yet (i.e. the call is still open or a new call is launched). As these provisions bring more benefits to beneficiaries, they may also be used for operations that are already being implemented, subject to the following cumulative conditions:

— The conditions for support (on the basis of the new provisions) are introduced for the future, i.e. for future implementation of the operation.

— The principle of equal treatment between beneficiaries is respected.

— For operations that are already being implemented, that the beneficiary agrees that the conditions are changed and that reimbursement will be done on the basis of an SCO.

— There is a clear separation between the period of reimbursement based on real costs (or previous provisions linked to SCOs) and the period based on SCOs introduced with the Omnibus Regulation. For instance, in case a flat rate of 15 % for indirect costs is introduced based on the eligible direct staff costs (point (b) of the first subparagraph of Article 68 CPR), then it should be determined that as from a certain date (‘date x’, not before 2 August 2018) the indirect costs will be calculated and reimbursed on the basis of that flat rate, i.e. this flat rate for indirect costs will be applied to all staff costs incurred as from the same date (‘date x’). The same principle applies to the 40 % flat rate set out in Article 68b(1) CPR, including to the possibility to declare allowances and salaries paid to participants. For instance, for ESF operations, which have received support on the basis of Article 14(2) ESF Regulation before entry into force of the Omnibus Regulation, only allowances and salaries paid to participants as from ‘date x’ could be declared as additional eligible costs).

Example A managing authority wishes to calculate all the remaining eligible costs of an operation by applying a flat rate to the eligible direct staff costs of the operation of EUR 150 000. In accordance with Article 68b(1) CPR, the managing authority decides to apply a rate of 35 %. This means that the total eligible costs of the operation will be EUR 150 000 + (EUR 150 000 × 0.35) = EUR 202 500.

Example (ESI Funds): Community-Led Local Development (CLLD) The managing authority has assessed, based on past experience, the typical share of the running costs and animation of a given Local Action Group (LAG) compared to the expenditure incurred for the implementation of local operations under the CLLD strategy, and the preparation and implementation of the LAG’s cooperation activities. Even though support from ESI Funds for running and animation costs cannot go above the ceiling of 25 % of the total public expenditure incurred within the CLLD strategy according to Article 35(2) CPR, experience shows that this percentage is actually lower in most cases. The managing authority establishes a flat rate of 17 % of the implementation costs (based on a fair, equitable and verifiable methodology in accordance with Article 67(1)(d) and 67(5)(a) CPR but not Article 68(a) CPR as the flat rate under Article 35(2) CPR is not only covering indirect costs) of the expenditure incurred for the implementation of operations under the CLLD strategy and the preparation and implementation of the LAG’s cooperation activities, to cover the following costs: — Running costs (operating costs, personnel costs, training costs, costs linked to public relations, financial costs, costs linked to the monitoring and evaluation of the strategy, see Article 35(1)(d) CPR); — Costs linked to the animation of the CLLD strategy (in order to facilitate exchange between stakeholders to provide information and to promote the strategy and to support potential beneficiaries with a view to developing operations and preparing applications, see Article 35(1)(e) CPR). Therefore, if the budget allocated to the LAG for the implementation of operations under the CLLD strategy and the preparation and implementation of the LAG’s cooperation activities for the 2014-2020 period is EUR 1,5 million (type 1), the maximum budget corresponding to running and animation costs would be EUR 1,5 million × 17 % = EUR 255 000 (type 2). Consequently, the total budget allocation for the LAG is EUR 1,755 million. In the implementation phase, it means that whenever a beneficiary claims for reimbursement of the expenditure incurred on a project, the LAG will also be able to claim 17 % of that sum for its running and animation costs. For example, if the incurred expenditure of a project equals EUR 1 000 (type 1), the LAG can declare to the managing authority EUR 1 000 × 17 % = EUR 170 (type 2) for its running and animation costs. The LAG will not need to provide supporting documents for its running and animation costs declared on the basis of the flat rate, but the methodology for determining the 17 % has to be verifiable. It should be noted that the flat rate may be established separately for running or animation costs only. N.B. Please bear in mind that, like in the example above, the methodology of establishing the flat rate does not necessarily have to follow the one applied for establishing the maximum ceiling of 25 %. However, whatever methodology used to set the flat rate, the provisions on the maximum ceiling of running costs and animation provided in Article 35(2) CPR have to be respected.

3.2. Standard scales of unit costs

3.2.1. General principles

In the case of standard scales of unit costs, all or part of the eligible costs of an operation will be calculated on the basis of quantified activities, input, outputs or results multiplied by standard scales of unit costs established in advance. This possibility can be used for any type of operation, project or part of a project, when it is possible to define quantities related to an activity and standard scales of unit costs. Standard scales of unit costs apply typically to easily identifiable quantities.

The unit costs can be process-based, aiming at covering through a best approximation the real costs of delivering an operation. It can also be outcome-based (output or result/deliverable) or defined on both the process and outcome. Furthermore, different unit costs may be defined for different activities within an operation.

Managing authorities should take into consideration the audit trail when choosing between process and output-based unit costs.

Example (ESF) a) Process-based: For advanced IT training of 1 000 hours provided for 20 trainees, the eligible costs may be calculated based on a cost per hour of training × number of hours of trainees. The cost per hour has been defined in advance by the managing authority and is shown in the document setting out the conditions for support. Assuming, for example, that the managing authority sets the training cost at EUR 7 per hour of training per trainee, the maximum grant allocated to the project would be capped at 1 000 hours × 20 trainees × EUR 7/hr./trainee = EUR 140 000. At the end of the operation the final eligible costs will be set on the basis of the real number of hours for each trainee (that could include some justified absences), according to actual participation of trainees and delivered courses. There will still be a need for accurate attendance sheets of trainees detailing the training activities and certifying the actual presence of trainees. If, finally, only 18 people participated in the training, 6 of them for 900 hours, 5 of them for 950 hours, 5 of them for 980 hours and the remaining 2 for 1 000 hours, the number of total hours × trainees will be equal to: 900 × 6 + 950 × 5 + 980 × 5 + 1 000 × 2 = 17 050 total hours of training × trainees. The eligible expenditure will be: 17 050 hours of training × EUR 7 = EUR 119 350. b) Result-based: The advanced IT training of 1 000 hours consists of 5 modules of 200 hours each. A fair, equitable and verifiable methodology according to Article 67(5)(a) CPR was used to establish the total costs of delivering this IT training for 25 participants. The total costs, EUR 140 000, is then attributed to the successful participants. Taking into account a historic failure rate of 20 % (i.e. 5 participants) the unit costs per participant and successfully completed module would be EUR 140 000/20 participants/5 modules = EUR 1 400 (unit cost per participant per successful completed module). The audit trail would entail a document proving the eligibility of the participant and a certificate per successfully complete module or complete course. No timesheets would be required.

Example (ERDF output-based): The beneficiary, a regional Chamber, organises an advisory service for the SMEs of the region. This service is supplied by the advisors of the regional Chamber. Based on past accounts of the ‘advisory’ department of the Chamber, a day of advice is estimated at EUR 350/day. The assistance will be calculated on the basis of the following formula: number of days × EUR 350. There will still be a need for accurate timesheets detailing the advisory activity and the presence of advisors.

Example (ESF result-based): a job-search assistance programme lasting 6 months (‘the operation’) could be financed on the basis of standard scales of unit costs (for example EUR 2 000/person) for each of the 20 participants in the operation who gets a job and retains it for a pre-established period, for example six months. The unit cost of EUR 2 000 per successful participant was established taking into account costs for all participants. The amount therefore also covers expenses for un-successful participants.

Calculation of the maximum grant allocated to the operation: 20 persons × EUR 2 000/placement = EUR 40 000.

The final eligible costs are calculated on the basis of the real output of the operation: if only 17 persons were placed on the labour market and retained their jobs for the requested period, the final eligible costs on the basis of which the grant will be paid to the beneficiary would be 17 × EUR 2 000 = EUR 34 000.

Example (EAFRD output-based):‘Investments in forest area development and improvement of the viability of forests’ (Article 21 of Regulation (EU) No 1305/2013)

A forest holder will receive support for the afforestation and maintenance of 3 hectares of forest for 7 years. The costs (afforestation and maintenance) have been defined in advance by the managing authority depending on the type of forest. This methodology will be included in the Rural Development Programme. The unit costs are as follows: 2 000 EUR/ha for the establishment of the forest and, for the maintenance, 600 EUR/ha for the first year and 500 EUR/ha for the subsequent years.

Therefore, the total eligible costs would be:

3ha × 2 000 EUR/ha + 3ha × 600 EUR/ha + (3ha × 500 EUR/ha) × 6years= EUR 16 800

Example (EMFF process-based): Data collection (vessel costs)

Daily rates for vessel usage are calculated on the basis of historical data (averages from past years). The number of days allocated to the project are then evidenced through logbooks.

3.2.2. Staff costs calculated at an hourly rate (Article 68a(2) to (4) CPR)

The calculation of the hourly rate

Article 68a(2) to (4) CPR provides for a specific method to calculate staff costs (31). In line with this Article, staff costs may be determined by calculating an hourly rate calculated as follows:

Before the Omnibus Regulation entered into force, this method for calculating staff costs was already provided for in Article 68(2) CPR. The Omnibus Regulation, however, introduced further changes to this provision (now moved to the new Article 68a(2) to (4) CPR) in order to clarify its application and to allow for its utilisation for persons working part-time.

Calculated staff costs as above relate to the implementation of an operation. ‘Implementation of an operation’ has to be understood as covering all the steps of an operation. There is no intention to exclude some staff costs related to specific steps of an operation.

The denominator i.e. 1 720 hours is a standard annual ‘working time’ that can be used directly, without there being a requirement for the Member State to perform any calculation. This figure is based on Member States’ average weekly working hours multiplied by 52 weeks and from which annual paid leave and average annual public holidays were deducted.

The numerator, however, needs to be justified. The CPR refers to the ‘latest documented annual gross employment cost’. However, gross employment cost is not defined in the CPR. In accordance with Article 65(1), CPR national eligibility rules will need to define what is covered by annual gross employment costs, taking into account the usual accounting practices (see section 4.2.2.) (32) and national rules (e.g. the national rules may determine that expenses for commuting to the workplace are part of the gross employment costs).

The Regulation refers to the calculation of the hourly rate using the ‘latest’ documented annual gross employment cost. This means that the data used need to be the most recently available. Thus, a calculation method based on historical data of the beneficiary is normally not relevant. The intention behind the term ‘latest’ in Article 68a(2) CPR is to make sure that the data used are recent enough, thus indicative of real staff costs.

Annual gross employment cost does not have to relate to a calendar or financial year (for example, it could be data relating to the period October 2015 to September 2016). What is important is that the gross employment cost covers a full 12-month period. It can be the 12-month period preceding the end of a reporting period (of the operation or the programme), 12 months before the grant agreement or 12 months of the previous calendar year. In accordance with Article 68a CPR, where data for a full 12-month period is not available, they

— may be derived from the available documented gross employment costs (for example, a managing authority could take the data relating to an employee for whom 4 months of data exists, and extrapolate this to an annual gross employment cost, taking account, where relevant, of issues such as statutory holiday payments or so-called 13th month payments).

— may be extrapolated from the contract of employment, taking account of eligible employers’ social contributions and any other compulsory payments.

— may be derived from collective agreements.

The annual gross employment costs can be based on the real employment costs of this person. For months with incomplete data, extrapolated values may be taken to arrive at a good proxy for real costs of a 12-month period.

The annual gross employment costs may also be based on the average of the employment costs of a larger aggregate of employees, for example, those of the same grade or some similar measures, which correlate roughly to employment cost level.

The latest annual gross employment costs need to be documented: this can be done through accounts, payroll reports, referencing to publicly available agreements or documents, etc. They do not have to be audited ex-ante but have to be auditable.

Within specific situations, the amount of the hourly rate may as well be fixed after the start of the project. It can be determined, for example, when an employed person gets involved in the project (signature of the contract of employment or change of assignment for an employee) or when the beneficiary reports their costs to the managing authority. However, in this case, the document setting out the conditions for support needs to specify the use of this methodology too.

3.2.3. The determination of eligible staff costs using the calculated hourly rate

The number of hours worked needs to be determined in line with the eligibility rules of the respective operational programme. Only the hours worked should be used for calculating and declaring the eligible staff costs. Annual leave, for instance, is already included in the calculation of the hourly staff costs. Sick leave may be declared as staff costs if the related costs are borne by the beneficiary (i.e. they are incurred by the beneficiary). If the costs are covered by a third party (e.g. long-term sick leave for which the costs are covered by the social security system) or in the case of unpaid leave or absences (e.g. unjustified absences) for which there are no costs incurred by the beneficiary, the corresponding hours/days not worked should not be taken into account for determining the eligible staff costs that can be declared. This is because in these cases, there are no costs incurred by the beneficiary. However, in case there are staff costs for additional staff replacing the person on sick leave (or other type of leave) these staff costs are eligible (i.e. the corresponding hours worked are counted for calculating then eligible staff costs).

In accordance with Article 68a(3) CPR, when declaring the hours actually worked, these cannot exceed the hours used in the calculation method based on Article 68a(2) CPR. This means that, where 1 720 has been used as the denominator, the hours declared cannot exceed 1 720. 1 720 hours, thus, constitute a maximum of hours that can be declared for working in an operation for a period of 12 months. If a pro-rata of 1 720 was used as a denominator, the same principle applies (e.g. for staff with a part-time contract of 50 % the denominator would be 860 hours; thus, 860 is the maximum number of hours that can be declared for the concerned staff. For staff assigned to several operations, the capping applies pro-rata for each operation, respectively).

As specifically stated in the second subparagraph of Article 68a(3), this does not apply to the ETC for part time assignments on an operation where the hourly rate can be multiplied by the hours actually worked and thus, the 1 720 hours may be exceeded.

When the 1 720-hour rule is used, the resulting amount for the hourly rate is to be considered a unit cost. This unit cost can be used for reimbursing expenditure for staff costs, or it can also be used to calculate all indirect costs (for example by applying the 15 % flat rate in accordance with point (b) of the first subparagraph of Article 68) or even for calculating all the other remaining eligible costs (by applying the 40 % flat rate in accordance with Article 68b(1)). The overall amount defined after applying such flat rates shall also be considered a unit cost.

In the case of a project implemented over several years, the managing authority may choose to update the hourly rate for staff cost once new data are available or to use the same ones for the entire implementing period. If the implementation period is particularly long, a good practice would be to set out intermediary steps when and how the hourly rate for staff cost could be revised.

3.2.4. Staff working part-time on the operation with fixed time per month

Where employees work part-time on an assignment but with a fixed percentage of time per month, Article 68a(5) CPR provides that there is no requirement for a working time registration system in order to verify the number of hours worked. However, the employer should issue a document setting out the fixed percentage of time worked on the operation per month and this percentage can be used to calculate the eligible staff costs. This percentage may also be fixed in the employment contract. For example, if a person works 60 % of their time on a project, the eligible direct staff costs for that person can be calculated by multiplying the gross employment costs (based either on real costs or a calculated unit cost) by 60 %.

3.2.5. Application in time

The changes introduced by the Omnibus Regulation to the 1 720 hours methodology are applicable as from the date of the entry into force of the Regulation, i.e. 2 August 2018. However, the managing authority may apply it to ongoing operations provided that certain conditions are respected (see 3.1.2.5).

Example (ERDF): Certain types of projects targeted at SMEs in the field of R&D and innovation often involve personnel costs as a key element. The application of standard scales of unit costs as an option is a welcome simplification for these SMEs. The unit cost for activities is expressed in this case as an hourly rate applied to hours effectively worked by the staff. It is defined in advance in the document setting out the conditions for support that fixes the maximum amount of financial assistance as the maximum worked hours allowed multiplied by the unit cost (the calculated costs of the staff involved).

Aiming at covering the real costs through a best approximation and in order to take into account distinctions among regions and branches, the cost for a standard unit is defined as an hourly staff cost according to the following formula:

Hourly staff cost = gross annual salary (including legal charges) divided by average legal working hours (taking annual leave into account).

For example: Hourly staff cost = EUR 60 000/(1 980 hours – 190 hours of annual leave) = 60 000/1 790 = 33,52 EUR/hr.

The financial assistance given to the operation is calculated as the hourly rate multiplied by the real and verified number of hours worked. This requires SMEs to keep all supporting documents for hours worked by staff on the project and the managing authority must keep all the documents justifying the hourly staff cost. In principle, a reduction in the verified hours worked results in a reduction in the final amount to be paid.

Alternative example: Same as above but the hourly staff cost is based on Article 68a(2) CPR.

Hourly staff cost = latest documented gross annual salary (including legal charges) divided by 1 720 hours.

For example: Hourly rate = EUR 60 000/1 720 hours = 60 000/1 720 = 34,88 EUR/hr.

3.3. Lump sums

3.3.1. General principles

In the case of lump sums, all eligible costs or part of eligible costs of an operation or project are calculated on the basis of a pre-established amount duly justified by the managing authority (33), which is paid if predefined activities and/or outputs are completed.

Lump sums can be suitable in the case of grants where standard scales of unit costs are not an appropriate solution, for example the production of a toolkit, the organisation of a small local seminar, etc.

In some cases, managing authorities might be dissuaded from using lump sums due to the fact that the deliverable is usually considered as achieved or not achieved, leading to a binary situation of payment or no payment depending on full achievement. However, this can be mitigated by including staged payments related to the achievement of certain pre-defined milestones.

3.3.2. Changes introduced by the Omnibus Regulation and application in time

Before the Omnibus Regulation, the use of lump sums was restricted to amounts below EUR 100 000 of public contribution. In order to facilitate the use of lump sums, the Omnibus Regulation deleted this limitation. This means that as from the entry into force of the Omnibus Regulation, the managing authority may establish lump sums where the public support is above EUR 100 000.

3.3.3. Examples of lump sums

Example (ERDF): In order to promote local products, a group of small enterprises wishes to participate jointly in a commercial fair.

Due to the low cost of the operation, the managing authority decides to use a lump sum for calculation of the public support. For this, the group of enterprises is invited to propose a budget for the costs of renting, setting up and running the stand. On the basis of this proposal, a lump sum of EUR 20 000 is established. The payment to the beneficiary will be made on the basis of proof of participation at the fair. The agreed budget of EUR 20 000 should be kept for audits (verification of the ex-ante calculation of the lump sum).

Example (ESF): An NGO managing childcare services requires support to launch a new activity. It includes a lump sum in its proposal by submitting a draft detailed budget to start the activity and run it over a period of one year. The activity would be maintained independently after the initial year. For example, the lump sum would cover expenditure related to the salary of one person in charge of looking after the children during one year, depreciation of new equipment, publicity costs linked to this new activity and indirect costs related to its management and accounting costs, water, electricity, heating, rental costs, etc.).

On the basis of a draft detailed budget, the managing authority grants a lump sum of EUR 47 500 covering all these costs. At the end of the operation, this amount would be paid to the NGO on the basis of the output; if a conventional number of additional (10) children were looked after. It would therefore not be necessary to justify the real costs incurred in relation to this activity.

It means however that if only 9 children were looked after, the eligible costs would be zero and the lump sum amount would not be paid. To mitigate this, a milestone could be stated in the document setting out the conditions for support that if 5 children are taken care of, half of the total amount (EUR 23 750) will be paid out.

Example (ESF): An NGO seeks to organise a local seminar and to produce a toolkit on the socio-economic condition of the Roma community in a region of a Member State. The document setting out the conditions for support will contain a draft detailed budget and the objectives of the grant, (1) the organisation of the seminar and (2) the production of a toolkit to draw the attention of employers in the region to the specific problems faced by the Roma.

Due to the size and objective of the operation (small operation with costs not easily quantifiable via standard scales of unit costs) and the nature of the beneficiary (local NGO), the managing authority decides to use the lump sum arrangement.

In order to calculate the amount of the lump sum, the managing authority will require a draft detailed budget for each of the operations: after negotiation on the draft detailed budget, the lump sum is established at: EUR 45 000 split into two projects requiring EUR 25 000 for the seminar and EUR 20 000 for the toolkit.

If the conditions of the document setting out the conditions for support are respected (organisation of the seminar, production of the toolkit), EUR 45 000 will be considered as eligible costs at closure. The supporting document required to pay the grant (and then to be archived) will be the proof that the seminar was organised and the final complete toolkit produced.

If only one of the projects (for example the seminar) is carried out, the grant will be reduced to this part (EUR 25 000), depending on what was agreed in the document setting out the conditions for support.

Example (EAFRD):‘Quality schemes for agricultural products, and foodstuffs’ (Article 16 of Regulation (EU) No 1305/2013)

A group of farmers who have received support to cover new participation in a recognised quality scheme wants to organise a promotional activity for their products. The managing authority has calculated the cost of the activity as a lump sum (e.g. EUR 15 000/seminar min. 50 participants). The group of farmers has to provide evidence of carrying out the activity and the number of participants (at least equal to 50).

Example (EMFF): Support for the preparation of production and marketing plans of Producer Organisations (POs).

The lump sum (payable when the plan is approved) is based on historical data (POs’ recent submissions of hours and other costs). Programme preparation is divided into various activities to produce an average cost, which is then multiplied by the applicable aid intensity.

3.4. The specific case of flat rates for technical assistance

3.4.1. Scope

Following the entry into force of the Omnibus Regulation, the Commission made use of the new empowerment under Article 67(5a) CPR to define flat-rate financing for the reimbursement by the managing authorities to one or more beneficiaries of costs of operations financed under the priority axis of technical assistance (TA). The respective Commission Delegated Regulation (EU) 2019/1867 (34) entered into force on 9 November 2019.

For the ESF, the ERDF, the Cohesion Fund and the EAFRD the flat rate to calculate expenditure related to technical assistance is set at 4 % of the other types of expenditure. For ERDF programmes under the ETC and the EMFF the flat rate is set at 6 %. These flat rates may be applied only to expenditure of operations under the priority axes of a programme other than technical assistance, which has been subject to management verifications or, in the case of the EAFRD, on the basis of expenditure of operations under the rural development measures other than technical assistance, which has been subject to the relevant administrative checks and is declared as from the agricultural financial year starting on 16 October 2019 or as from any subsequent agricultural financial year. Consequently, operational programmes consisting exclusively of technical assistance are excluded from the scope of that Delegated Regulation.

It should be noted that the expenditure which may be included in the basis for the calculation of the flat rate refers to the total value of eligible payment claims even if not all invoices were covered by the administrative verifications, in line with point 1.7 of the Guidance for MS on Management Verifications (EGESIF 14-0012_02) which allows for verification of an application for reimbursement by beneficiary on the basis of a sample of expenditure items.

The flat rate may be applied from the accounting year starting on 1 July 2019 onwards or, in the case of the EAFRD, in the agricultural financial year starting on 16 October 2019 or any subsequent agricultural financial year. The application of the flat rate does not require a programme amendment, except in the case of EAFRD, where this information is to be included in any subsequent programme modification

The choice to use the flat-rate financing is at the discretion of the Member State. Nevertheless, to avoid the risk of double financing of the same expenditure, once applied, this method shall be the only form to reimburse technical assistance until closure of the programme (35). Member States should therefore notify the Commission about their choice to use this form of reimbursement together, where relevant, with their first payment application where this flat rate is applied.

3.4.2. Payment applications and reimbursements

The basis fo