WRITTEN QUESTION P-3483/02

by Eryl McNally (PSE) to the Commission

(29 November 2002)

Subject: The requirement of bank guarantees from small organisations taking part in SAVE/Altener projects

I have received complaints from small organisations wishing to take part in Save/Altener projects.

Even though their project proposals have been accepted by the Commission and their contracts approved, these small organisations are not given an advance payment (40 % of granted EU support), which larger organisations can benefit from. If small organisations wish to receive an advance payment from the Commission, they are required to provide a bank guarantee, which puts a heavy administrative and financial burden on them. It seems unreasonable to ask for bank guarantees from them precisely because they are small, since banks charge highly for such services and tend to require the blocking of funds. Moreover, the banks have similar financial tests for loans as the EU applies for advance payments and have no reason, per se, to support the contracted work. Without the advance payment, such small organisations are obliged to provide the funds beforehand and thus cover a very large part of contract expenditure and staff cost themselves in order to carry out the work for the EU.

Is this the new policy of the Commission to support SMEs? Or is it that the Commission rejects these proposals by imposing inacceptable financial requirements in order to simplify EU bureaucracy? Is the Commission aware of the fact that providing such a guarantee obliges small organisations to block funds in the bank and to face a heavy additional financial burden? Is the Commission merely aiming to sustain itself and those who have sufficient financial soundness not to require such support?

Answer given by Mrs de Palacio on behalf of the Commission

(7 January 2003)

In reply to the Honorable Member, the Commission is of course very much aware of the problems and burdens facing small and medium-sized enterprises (SMEs) such as those raised in the written question. However, sound financial management of Commission programmes requires the application of strict rules and effective measures to safeguard public funds. In doing so, Commission staff are under an obligation to act in accordance with the demands of the budgetary authority, and thus also of the Parliament. In addition, the Court of Auditors has regularly called for more rigorous protection for Community funds including by the use of bank guarantees.

The requirement for financial viability and in case of unsatisfactory results the request for bank guarantees is one of the rules, which is now implemented consistently, without discrimination between contractors, regardless whether they are big companies or SMEs, and on the basis of objective criteria which are applied to the balance sheets of all proposers.

The Commission is aware that banks assess the financial status of organisations using similar criteria when asked to provide a bank guarantee. The provision of a bank guarantee is subject to charges and can limit the financial availability of a company up to the amount

of the advance payment for the project in question. Hence, although the costs of the bank guarantee may be considered by the Commission as eligible costs for the contract, it may in some cases not be attractive to some SMEs to obtain one. In consequence, such organisations are in these cases unable to benefit from the improved cash flow which is offered via the advance payment to other contractors.

The Commission has encountered in the past the problem that projects had failed already at an early stage, sometimes because of problems within the consortium that had been contracted to carry out the project.

In some of these cases there have been problems to recover the part of the advance payment that has not been substantiated under the terms of the contract or as for example in the case of bankruptcy of one of contractors the Commission has even been faced with the impossibility to recover these parts of the advance payments.

It is therefore necessary to take appropriate precautions in order to prevent the loss of these public funds. In case of unsatisfactory financial viability of a contractor a bank guarantee is the only safe measure that can prevent such a loss.