Special Report No 10/2000 on the public contracts awarded by the Joint Research Centre, together with the Commission's replies
Date: 2000-04-07
Institutions: European Court of Auditors
Subjects: Community body, application of EU law, management, public contract

21.6.2000

EN

Official Journal of the European Communities

C 172/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 10/2000

on the public contracts awarded by the Joint Research Centre, together with the Commission(cid:146)s
replies

(pursuant to Article 284(4), second subparagraph, EC)

(2000/C 172/01)

CONTENTS

Paragraph

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The objectives and scope of the audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The legal framework and the volume of finance involved . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY OF THE MAIN OBSERVATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE JRC(cid:146)S MANAGEMENT SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

An unusual framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A special operating system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decentralised management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management tools and procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The weaknesses of the system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The consequences of the special system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quality of the information system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONTROL OF THE CONTRACT PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The preparation of the contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The identification of requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The quality of the specifications and the technical annexes . . . . . . . . . . . . . . . . . . . . . . .

The description of the contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The awarding of contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Excessive use of private treaty contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The splitting of contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other procedures for awarding contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-7

1-5

6-7

8-18

19-51

20-24

21

22-24

25-35

25-33

34-35

36-51

36-42

43-51

52-89

53-64

53-57

58-60

61-64

65-83

65-75

76-80

81-83

3

3

4

5

6

6

6

6

6

6

7

7

7

8

9

9

9

9

9

10

10

11

12

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Paragraph

Page

Monitoring implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The management of contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Checking services rendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS/RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84-89

84-85

86-89

90-96

ANNEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission(cid:146)s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

12

12

13

15

16

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INTRODUCTION

The objectives and scope of the audit

1. This report by the Court follows on from its previous reports
on the implementation of the fourth research framework pro-
gramme (fourth FP) for the period 1994 to 1998. However, in
contrast with the previous reports, which were devoted to an
examination of the management of the programmes of indirect
research, this one sets out to analyse the management of the pub-
lic contracts that the Joint Research Centre (hereinafter referred to
as the Centre or the JRC) must award in order to procure the
resources it needs to pursue its activities (1).

2. The JRC, which was given Directorate-General status by a
Commission Decision of 10 April 1996, is made up of several sci-
entific institutes and horizontal management departments which
are responsible for planning the Centre(cid:146)s work and managing its
logistical resources. The distinctive feature of this Directorate-
General, which is the main tool at the Community(cid:146)s disposal for
the successful achievement of its direct research tasks, is that, pur-
suant to the Decision of 10 April 1996, it has a managing board
made up of representatives of the Member States, to which the
Director-General must submit the most important management
decisions.

3. The regulations concerning the awarding of public contracts
aim to achieve two basic objectives:

(a) to enable public bodies to procure the work, supplies and ser-
vices which they require at the best quality/price ratio, and

(b) to ensure equal access to public contracts for all enterprises
with the necessary skills and which can supply the required
guarantees.

4. The Court took these two aspects as the criteria for its opin-
ion on the legality/regularity and the quality of the financial man-
agement of all the JRC(cid:146)s activities in so far as these activities
involved the awarding of contracts to third parties. The contracts
obtained by the Centre for services rendered by its various insti-
tutes for the benefit of third parties, which are subject to different
management criteria, were not covered by this audit.

5. The Court(cid:146)s work focused on the JRC(cid:146)s system of management
and on its supervision of the contracts at all stages. The manage-
ment tools and procedures and a sample of 90 contracts (see
Table 1), accounting for a total of EUR 81,5 million, were analy-
sed. The latter amount covered 43 transactions in connection
with files which had been submitted to the Advisory Committee
on Procurements and Contracts (ACPC) and 47 others which were
not submitted to this Committee. These files involved EUR 79
million and EUR 2,5 million respectively.

Table 1

Sample examined during the audit

Contracts selected for the sample

Ispra

Seville

Geel

Karlsruhe

Petten

Total

(EUR)

Number of ACPC/JRC contracts
Number of non-ACPC/JRC con-
tracts
Total

Analysis of ACPC/JRC con-
tracts
Total amount approved
Total amount committed
Total amount paid
Number of contracts selected by
private treaty
Number of contracts selected by
formal invitation to tender

Analysis of non-ACPC/JRC
contracts
Total amount committed
Number of contracts selected by
private treaty
Number of contracts selected by
informal invitation to tender
Number of contracts selected by
formal invitation to tender

Overall value of the contracts
selected (a) + (b)

Source: European Court of Auditors.

23

11
34

2

5
7

6

9
15

5

9
14

7

13
20

43

47
90

37 069 199
8 528 424
7 331 267

9 340 324
4 287 058
2 608 937

10 819 651
4 353 362
3 031 784

9 758 881
5 548 489
3 961 827

12 006 320
5 051 114
4 029 313

78 994 375(a)
27 768 447
20 963 128

10

13

0

2

1

5

0

5

0

7

11

32

539 075

207 844

247 311

994 013

570 056

2 558 299(b)

10

1

4

1

0

6

3

7

2

9

1

3

36

2

9

81 552 674

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The legal framework and the volume of finance involved

6. The area covered by the audit is governed by a number of
texts of varying type and scope:

(a) Council Decisions 94/918/EC and 94/919/Euratom of
15 December 1994 (2), adopting the special research pro-
grammes which set out the objectives of the JRC for the
implementation of the fourth FP;

(c) the European Directives concerning public service (92/50/
EEC of 18 June 1992), supplies and work (93/36/EEC and
93/37/EEC of 14 June 1993) contracts, as amended by Direc-
tive 97/52/EC of 13 October 1997 (3), which are binding on
the Commission as on all contracting authorities in the Mem-
ber States.

(b) the general provisions of the Financial Regulation, which lay
down the procedures for the implementation of the budget of
the European Community (EC). These provisions are comple-
mented by the special provisions applicable to research appro-
priations, which are set out in Title VII of the same Regula-
tion;

7. Over the period covered by the special research programmes
(1995 to 1998), the JRC had an overall budget of EUR 1 413 mil-
lion at its disposal. Of this total, EUR 494 million (excluding
reused appropriations) were used to finance the contracts. The
allocation of the budgetary funds and the files examined by the
ACPC are shown, by financial year, in, respectively, Tables 2 and 3.

Table 2

Allocation of budgetary funds

1995

1996

1997

1998

Total 1995 to 1998

Appropriations
available

Appropriations
utilised

Appropriations
available

Appropriations
utilised

Appropriations
available

Appropriations
utilised

Appropriations
available

Appropriations
utilised

Appropriations
available

Appropriations
utilised

(x 1 000 EUR)

156 312
51 850
322
3 386
3 575
18 471
4 536
645
1 270
2 566
4 850
8 020
1 570
2 052
0
262
0
0
33 836
n.e.
9 334
212

n.e.
n.e.
1 119
n.e.
304 188

154 512
51 551
322
3 385
3 575
18 466
4 534
645
1 237
52
14
8 018
1 570
0
0
261
0
0
5 986
n.e.
3 265
11

303

257 707

170 455
57 394
400
1 397
2 928
17 771
4 095
360
2 130
8 907
8 970
6 594
1 840
3 998
0
0
0
0
40 967
n.e.
n.e.
4 848
1 218
1 660
0
1 139
337 071

158 495
57 384
400
1 393
2 928
17 731
4 095
350
2 129
1 607
3 788
6 582
1 840
339
0
0
0
0
8 995
n.e.
n.e.
4 768
0
0
0
115
272 939

171 692
62 430
400
2 079
2 974
20 353
4 640
437
3 537
18 615
19 017
5 645
1 445
4 747
115
0
160
0
29 939
9 508
n.e.

239
3 395
3 325
960
1 029
366 681

170 811
58 219
390
2 076
2 876
20 252
4 638
436
3 435
2 508
4 419
5 628
1 442
824
115
0
160
0
11 194
2 382
n.e.

66
150
344
960
742
294 067

183 727
64 856
507
2 097
2 982
23 094
4 966
516
3 677
29 693
25 110
7 903
1 605
3 705
0
0
0
0
28 587
11 631
n.e.

177
4 949
4 877
0
310
404 969

183 483
64 827
507
2 097
2 982
23 093
4 966
516
3 677
3 061
7 794
7 811
1 590
417
0
0
0
0
4 523
1 284
n.e.

73
382
4 795
0
304
318 182

682 186
236 530
1 629
8 959
12 459
79 688
18 237
1 958
10 614
59 781
57 947
28 161
6 460
14 502
115
262
160
0
133 329
21 139
9 334
5 476
9 562
9 863
2 079
2 477
1 412 907

667 300
231 982
1 619
8 952
12 360
79 542
18 232
1 947
10 478
7 227
16 016
28 039
6 442
1 581
115
261
160
0
30 698
3 666
3 265
4 917
531
5 139
1 263
1 161
1 142 893

B6-1 1 1 0 (a)
B6-1 2 1 0 (a)
B6-2 1 1 3
B6-2 1 2 1
B6-2 1 2 2
B6-2 1 3 1
B6-2 1 4 3
B6-2 1 5 1
B6-2 1 7 1
B6-2 9 1 0
B6-2 9 2 0
B6-3 1 1 1
B6-3 1 2 1
B6-3 9 1 0
B6-4 1 1 0
B6-4 1 2 0
B6-4 1 3 0
B6-4 2 1 0
B6-4 3 1 0
B6-4 3 2 0
B6-4 4 1 0
B6-4 4 2 0
B6-4 4 2 1
B6-4 5 1 0
B6-5 3 1 1
B6-5 4 1 0
Total

Available for the
contracts
Total -/- (a) =

(a)= expenses relating to staff.
Source: Commission.

96 026

51 644

109 222

57 060

132 559

65 037

156 386

69 872

494 191

243 611

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Table 3

ACP contracts by type of decision-making procedure

1995

1996

1997

1998 (1)

Number of
contracts

%

Overall
amount
EUR

%

Number of
contracts

%

Overall amount
EUR

%

Number of
contracts

%

%

Number of
contracts

%

Overall
amount
EUR

%

64

26

50 230 631

40,6

10 210 648 20,3

70

23

131 975 015

32,9 58 416 096 (2) 44,3

56

14

25,0

3 816 934

6,1

30

15

65 226 022

50

49 990 053 76,64

Overall
amount
EUR

62 526 981

38

59,4 40 019 983 79,7

47

67,1

73 558 919 55,7

42

75,0 58 710 047 93,9

15

50

15 235 969 23,36

Total

By private treaty

By invitation to
tender

(1) The data concerning the 1998 financial year were not sent to the ACPC(cid:146)s secretariat until after the Court had adopted this report.
(2) 41 000 000: final stockage of all highly radioactive waste produced at the HFR reactor at Petten (Netherlands) during its 30 year life in the sole Dutch stockage centre approved by the Dutch authorities

for this type of waste.
3 400 000: supply of radioactive fuel rods for the HFR reactor at Petten.

Source: JRC.

SUMMARY OF THE MAIN OBSERVATIONS

8. The management system used by the JRC cannot generate
data of a type which could provide, in a usable form, a compre-
hensive and accurate overview of the contracts awarded. The
explanation for this situation is to be found in the combined effect
of the inadequacy of the computer tools, which do not permit a
link to be established between a specific contract and the project
to which it is connected or the production of management charts,
and by the loss of the history of the operations when the opera-
tions are transferred from the Sibeca accounting software (4) to
the Sincom II software (5) (see paragraphs 19, 25 to 31, 43 to 51).

9. The salient features of a system which is an exception to ordi-
nary law are the existence of a special Advisory Committee on
Procurements and Contracts (ACPC-JRC) and the drawing-up of a
document known as an (cid:145)administrative arrangement(cid:146), according
to which the Commission is in the position of having to conclude
an agreement with itself (see paragraphs 20 to 24, 36 to 41).

10. Supervision of the contract procedures at all stages, from
identification of the requirements to the monitoring, by the autho-
rising officer, of the service provided, is generally inadequate due
to the absence of a genuinely estimate-based form of management
of requirements and on account of failings in the application of
the rules on competition and, finally, because of the poor quality
of the controls carried out on the services rendered (see para-
graphs 52 to 64).

11.
In addition, these shortcomings are aggravated by the absence
of a text defining the composition of the committees responsible
for the preparation of the contracts and setting out their working
methods. The contracts(cid:146) entire preparatory phase suffers, as a
consequence, from a lack of transparency (see paragraphs 34, 35,
54).

12. The JRC also granted contracts by private treaty which did
not comply with the relevant rules as interpreted by the Court of
Justice. The audit also confirmed the possibility of fraudulent
agreements between service companies (see paragraphs 65 to 75).

13. The JRC managed the differentiated appropriations as if they
were non-differentiated, disregarding the characteristic features of
the two different types of appropriation, a practice frequently
combined with various techniques for splitting up the contracts
(see paragraphs 76 to 80).

14. The files do not always supply objective facts in support of
the descriptions of the contracts and the drawing-up of the cost
estimates. This lack of clarity leaves some doubt, in certain cases,
as to the validity of the decision not to submit these cases to the
ACPC-JRC (see paragraphs 61 and 62).

15. What is more, under cover of service contracts, the Centre
was, in reality, recruiting staff in an irregular manner (see para-
graphs 63 and 64).

16.
In two cases it was observed that the entire contract had
been subcontracted. This is open to criticism from a legal point
of view: the Directives relating to public contracts make no men-
tion of the possibility of subcontracting except in terms of parts
of the contracts. Subcontracting entire contracts is not acceptable
because it is not in accordance with the legal philosophy underly-
ing the entire public contracts procedure. In addition, from the
point of view of sound financial management, the successful ten-
derer becomes an intermediary and this leads to additional costs
(see paragraphs 81 and 82).

17. The shortcomings discovered during checks on the services
actually provided and their quality raise the problem of to what
extent the authorising officer is actually discharging his respon-
sibilities (see paragraphs 86 to 89).

18. However, the Court notes with satisfaction the speed and the
scale of the reforms initiated by the Commission in order to deal
with the weaknesses identified during the Court(cid:146)s audits. These
reforms, which were announced by the Commission in response
to the observations set out in this report, are intended to give the
JRC the tools it needs for high-performing management and
improved control of contracts.

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THE JRC(cid:146)S MANAGEMENT SYSTEM

19. The management system operates within an unusual and
constricting framework constructed around annual work pro-
grammes, accounting systems and a body of procedures. An
analysis of the component parts of this system and an examina-
tion of the sample selected revealed weaknesses which had encour-
aged the development of debatable practices.

An unusual framework

20. Two fundamental features highlight the unusualness of the
framework within which the Centre is pursuing its activities. Both
of them influence, in varying degrees, the management of the
contracts. The first concerns the special body (6) of Community
institutional law which applies to the JRC, the second concerns its
decentralised structure.

A special operating system

21. The JRC(cid:146)s system of operation is unique in more than one
way:

(a) on the one hand, at the level of the budget, where, in contrast
with the other departments of the Commission, the entire
appropriations at its disposal (including expenditure on staff
and operating expenditure), are operating appropriations
entered under Part B of the budget;

(b) at the legal level, on the other hand, the JRC can obtain
financing from budget headings devoted to various Commu-
nity policies managed by other Commission Directorates-
General, such as, for example, Phare, Tacis or even MEDA, by
a procedure where it competes with third parties but accord-
ing to different procedures. The Centre only submits one esti-
mate while the third parties are subject to all the provisions
stipulated by the Directives concerning public contracts. Where
the Directorate-General in charge considers that the JRC(cid:146)s esti-
mate is more favourable than the bids submitted by the exter-
nal operators, the latter are notified, without any compara-
tive examination by the ACPC, that their offers have not been
selected. In such cases, the Commission is in the situation of
having to conclude an agreement with itself. As this is legally
impossible, the Commission bypasses this difficulty by draw-
ing up a document called an (cid:145)administrative arrangement(cid:146);

(c) finally, at the administrative level, there is a double idiosyn-
cracy in the existence of a management board and, since 1971,
of a special ACPC (hereinafter the ACPC-JRC).

Decentralised management

22. The siting of the eight JRC institutes, each distinguished by
scientific responsibilities in special areas of research, at five dif-
ferent locations (Geel, Ispra, Karlsruhe, Petten and Seville) and the
existence of horizontal management departments situated either
in Brussels or in Ispra has made considerable delegation of
decision-making powers to the directors unavoidable. The latter,

whose responsibility it is to monitor the scientific quality of the
results of the projects of which they are in charge, act, at the same
time, as authorising officers. This combination of tasks and the
numerous journeys they are forced to make because of the dis-
tance from Brussels have led them to subdelegate a large number
of these latter responsibilities (7).

23. The volume of logistical operations managed by the resources
unit alone had become so great that it was difficult for this struc-
ture to manage them on its own. This situation led the JRC to
decide, during the summer of 1998, to divide the responsibilities
of the resources unit between two new units, one being given the
task of managing infrastructures and the other that of managing
the administration.

24.
In practice, this decentralised management resulted in the
existence of approximately 60 managers and 80 subdelegate
authorising officers for some 50 000 transactions per year.

Management tools and procedures

The tools

The annual work programmes

25. Each year the management of the JRC programmes, located
in Brussels at the Director-General(cid:146)s office, draws up the annual
work programme in consultation with the various research insti-
tutes. This document constitutes the key tool by means of which
the JRC translates the objectives set for it by the European legis-
lature into a coherent body of programmes. The work pro-
gramme, which is approved by the Centre(cid:146)s Management Board
prior to its implementation, has two parts, one concerning research
activities, the other supporting activities. It presents, in the form
of synoptic sheets, a description of the projects adopted, high-
lighting their main features, their objectives and the human and
budgetary resources allocated to them.

The accounting systems

26. The budget accounts, inventory and analytical accounts are
computerised and they are monitored with the help of various
kinds of software, which were being used consecutively and
sometimes simultaneously during the period under consideration.

The budget accounts

27. Until November 1997, the use of the appropriations allo-
cated to the Centre was monitored using Sibeca software. The
drawback to this system was that it could not be consulted directly
by departments other than those of the JRC. On the other hand,
it had the advantage, in addition to allowing the implementation
of the budget to be monitored, of permitting expenditure to be
linked to the relevant contracts in those cases where the latter had
been submitted to the ACPC for an opinion and had received an
identification number in the process. It was replaced by Sincom
II at the end of 1997.

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28. Sincom II is built around three modules which are intended
to monitor the managers(cid:146) and authorising officers(cid:146) operations, to
monitor approvals by the financial controller and the accounting
officer and to monitor the generation of statistics and reports.
This third module had still not been installed at the time of the
Court(cid:146)s audit in June 1998.

ments may, depending on their requirements, purchase goods by
simply issuing an order voucher. In addition, the signature of such
a contract does not require the appropriations to be tied up in
advance, as they are committed as and when the order vouchers
are issued.

A n alyti cal acc ount s

The procedures

29. As the Centre works on the basis of operating appropria-
tions but is also in a position to acquire external financing in
return for the services it provides for third party accounts, it has
an analytical accounting system which allows it to identify the
operating costs of each unit of its various institutes on the basis
of a breakdown of the overall costs, which are additional to direct
expenditure. It allows the Centre, in addition, to monitor the use
of appropriations according to the type of activity. Finally, it pro-
vides the Centre with information on the utilisation of reused
appropriations.

30. A document entitled (cid:145)Table of equivalence(cid:146) provides a link
between the analytical accounts and the budgetary accounts. This
allows the implementation of the fourth framework programme
to be monitored and, in the synoptic tables, the budgetary esti-
mates and their implementation to be compared. An additional
advantage of this document is that it allows the management of
the Centre to carry out regular audits. On the other hand, it does
not allow the contract awarded, to which the expenditure is con-
nected, to be identified directly nor, a fortiori, the establishment of
a connection between this contract and the project under which
it was financed.

Inventor y accounting

31. The sites have different software for the inventory of goods
and the administrative management of procurement. The soft-
ware used at Ispra, Seville and Petten ensures monitoring of the
itemised goods; the one at Karlsruhe, which is older, records the
data but is not able to group them according to the type of goods.

A contract database

32. The (cid:145)Contracts(cid:146) unit of the former Resource Management
unit has progressively built up a contracts database containing the
contracts awarded by the Centre. During the audit carried out in
June 1998 on the contracts obtained by one particular contrac-
tor, an appreciable difference appeared between the amounts
entered in the accounts and those supplied by the database. This
anomaly was subsequently corrected.

34. The management procedures applied by the Centre have
been codified in a document for internal use which includes, on
the one hand, the provisions of the Financial Regulation and the
rules for their application, which are binding on all the Commis-
sion(cid:146)s departments, and, on the other, the JRC(cid:146)s own rules. Fol-
lowing the example of the Commission(cid:146)s other departments, the
Centre makes use of the ACPC(cid:146)s guidelines for public contracts.

35. However, the procedures necessary at the different stages of
a contract and the monitoring of its implementation have not
been formalised. The Centre has created various internal commit-
tees, such as for the preparation of operations relating to the
acquisition of large quantities of equipment, but no text mentions
them or defines their composition or lays down their responsibili-
ties and their working procedures.

The weaknesses of the system

The consequences of the special system

The JRC(cid:146)s special ACPC

In contrast to the Commission(cid:146)s other scientific Directorates-
36.
General (the Research, Information society and Energy DGs), the
JRC files concerning public contracts were not submitted to the
Commission(cid:146)s ACPC between 1971 and July 1998 but to a special
ACPC on the grounds that the Centre(cid:146)s operations were scientific
in nature.

37. During its preliminary controls the Court found that the
existence of such an ACPC was neither justified nor desirable. In
fact, the role of the ACPC is not to give an opinion on the scien-
tific content of a file but to ensure compliance with the rules con-
cerning competition, to guarantee equality of treatment for the
tenderers and to check the quality of the specifications, in par-
ticular with regard to the definition of objective criteria which
enable a comparison of the offers to be carried out. In addition,
in contrast to the Commission(cid:146)s ACPC, which meets every three
weeks, the very large number of JRC staff on this ACPC means
that only four or five meetings per year are possible and this cir-
cumstance is also detrimental to its independent and neutral
image.

The framework contracts

33. The framework contracts are used for supply contracts and,
more particularly, for the purchase of computer equipment. They
are concluded for a period of two or three years, as a rule, and
give the Centre(cid:146)s purchasing departments considerable flexibility.
Once the framework contract has been concluded, these depart-

38. The absence of written procedures has naturally favoured
the development of heterogeneous management practices and it
was not possible to check whether the committees mentioned in
paragraph 35 intervene systematically.

Dealing efficiently with decentralisation

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39. The geographical distribution of the installations over sev-
eral sites and the effective decentralisation of the Centre mean
that the Directors are obliged to make frequent trips, which limits
the time they can devote to supervision and controls of their sub-
ordinates(cid:146) management. Combined with the failure to adapt the
JRC(cid:146)s accounting tools, this situation has led to the weakening of
the management hierarchy(cid:146)s control. The checks carried out by
the Court on the sample selected confirmed the existence of these
weaknesses at all the stages of the management of the contracts.

Services rendered on behalf of other Commission DGs

40. The JRC may be required to compete with third parties in
respect of the implementation of Community policies managed
by other DGs, which places the Commission in a difficult situa-
tion. Not being able, from a legal standpoint, to reply to its own
calls for tenders or, a fortiori, to conclude contracts with itself, the
Commission has had to adopt a parallel procedure. According to
the terms of this procedure, the JRC submits an estimate. If this
estimate appears more favourable than those submitted by third
parties the relevant operation is the subject of a document called
an (cid:145)administrative arrangement(cid:146) between the DG concerned and
the JRC. The ACPC is not consulted. In the contrary case the
ACPC only receives bids received from third parties for its opin-
ion.

41. The Court(cid:146)s examination of the two transactions in the
sample connected with work carried out by the JRC within the
framework of the implementation of two administrative arrange-
ments revealed that the Centre had had recourse to this procedure
to subcontract a part of the contracts, a minor part in one case
but considerable in the other, without any recourse to competi-
tive procedures.

42. Moreover, from the point of view of sound management,
criticism must be levelled at a public body which, having the sci-
entific, technical and administrative means at its disposal to enable
it to meet its requirements, nevertheless imposes on itself the
deadlines and additional costs entailed by the launching of an
invitation to tender and the JRC(cid:146)s drawing up of a file for submis-
sion.

The quality of the information system

The generation of data

In contrast with Sibeca, the previous accounting system, Sin-
44.
com II is a simple budget implementation software which does
not offer the possibility of identifying contracts by means of the
corresponding commitments.

45.
In addition, the Sincom II third-party data file planned origi-
nally was still not operational at the time of the audit in June
1998. The creation of such a file would however allow the man-
agement to carry out cross-checks with the contract database.

46. On top of this, the transfer of Sibeca data to Sincom II was
only partially completed. The records of the operations for which
the commitments had been paid were thus not recorded in the
new system. In effect, they had disappeared, rendering impossible
the production of a comprehensive and reliable table of the con-
tracts awarded. In an attempt to produce this information, the JRC
tried to reactivate Sibeca. In spite of considerable effort the result
was not satisfactory.

47. As a result of this the Centre is deprived of any genuine
knowledge of all the contracts which it has awarded, and does not
possess management charts allowing it to monitor, on the basis
of the implementation of the contracts, their connection to a spe-
cific project. A tool of this kind would be all the more valuable as
an aid as the number of projects started, approximately 700 for
the 1995 to 1998 period, is considerable.

48.
In addition to the weaknesses of some inventory software,
such as that in Karlsruhe, the checks carried out at Ispra showed
that the efficiency of the software was impaired by the absence,
for years now, of a physical inventory and by the application of
an administrative procedure which does not require the physical
withdrawal of downgraded items and items that have been removed
from the inventory.

49. Following the recommendations made by the Court during
the audit, the responsible departments of the JRC undertook to
draw up an inventory of equipment in February 1999. During
checks carried out afterwards the Court ascertained that for
approximately 20 000 articles recorded, this inventory revealed a
discrepancy of 14 % between the physical reality and the records
entered in the accounts.

43. For the annual work programme a provisional budget is
drawn up by project and the accounting systems allows monitor-
ing of the use of the appropriations and the cost of the Centre(cid:146)s
activities. Nevertheless, in the absence of auxiliary accounting for
the projects, these two factors together mean that no links can be
established between contracts and specific projects and, as a con-
sequence, with the work programme, nor can comprehensive and
reliable information on the contracts concluded be generated,
nor, finally, can charts for the Centre(cid:146)s management be produced.

The contract database

50. The lack of user-friendliness of the database installed by the
Contracts unit often meant that, in spite of the reliability it had
acquired, the departments did not use it and preferred parallel
monitoring on the basis of a spreadsheet.

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The monitoring of the framework contract order slips

51. While the implementation of the framework contracts inevi-
tably involved the issuing of a large number of order slips by the
various departments of the JRC, the latter had no computerised
system with which to carry out general and centralised monitor-
ing of these departments.

57. Finally, in one case, laboratory equipment, the installation of
which was not scheduled until the year 2000, was ordered in
1997 and delivered in 1998 with the sole objective of using up the
appropriations for that financial year. Apart from the fact that it
conceals the real cost of the creation of the laboratory from the
budgetary authority, this procedure entails premature expendi-
ture.

CONTROL OF THE CONTRACT PROCEDURES

The quality of the specifications and the technical annexes

52. The contract procedures are divided into three key stages:
the preparation of the operation, the award of the contract and
the monitoring of its implementation. The Court(cid:146)s main findings
are presented in this order. Prominence has been given to cases
which are particularly serious because of the existence of, either,
anomalies at various stages of the contract, or of doubtful prac-
tices.

The preparation of the contracts

The identification of requirements

53. With the notable exception of computer equipment require-
ments, which are the subject of formalised planning, examination
of the files did not produce evidence of the existence of a genu-
inely estimate-based form of management of requirements. In
addition, the checks carried out showed that the planned evalu-
ation of computer equipment requirements was incomplete, inas-
much as the requirements of departments other than those of the
JRC administration were not itemised.

54. Moreover, the opacity of the conditions under which the
preparatory committees work, in the absence of pre-established
rules, written agendas and minutes of the meetings, makes it dif-
ficult to express an opinion on the quality of the process of iden-
tifying requirements.

55. The audits also revealed that, for two of the transactions in
the sample relating to scientific services, the contract originated
not with the JRC but with the successful contractors concerned.
The documents in fact contained no information on the existence
of a genuine need on the part of the Centre apart from the pro-
posals submitted by the contractors. The first of these contracts,
submitted to the ACPC-JRC for its opinion, led to the signature of
two contracts for a combined amount of EUR 871 638. The sec-
ond, for EUR 89 000, gave rise to the drafting of several lines to
serve as specifications after reception of the bid submitted. In this
case, the contract was not only awarded by private treaty but the
period between submission of the bid and the signature of the
contract letter was not more than one week.

58. The comparison of the specifications drawn up within the
framework of the contracts which were examined by the ACPC-
JRC and those for contracts which may be awarded without its
prior opinion shows that no comparison of the quality of the
former with that of the latter is possible.

59. The quality of the specifications submitted to this commit-
tee for its opinion is, on the whole, acceptable. Weaknesses were
nevertheless revealed by the checks such as, for example, the
incompleteness of some specifications and, in one case, the use of
the price lists of a supplier who is very much in evidence at the
Ispra location to draw up the specifications.

60. The quality of the technical annexes, which are the equiva-
lent for non-ACPC contracts of the specifications, is, on the other
hand, frequently poor, in particular at the Ispra location. It is
sometimes so poor that it is impossible for someone working in
the relevant sector to submit a tender without obtaining addi-
tional information from the manager responsible for the opera-
tion. Of the 47 transactions in the sample involving the award of
contracts outside the ACPC-JRC procedure, seven, accounting for
EUR 302 550 and more than 14 % of the total population con-
cerned, are in this category.

The description of the contracts

The description of the scientific contracts and the amount involved

61. The thresholds for submission of contracts to the ACPC-JRC
depend on whether they are scientific or not. In the case of an
award by private treaty, the contract threshold at and above which
submission is required is EUR 46 000 if the contract concerns a
non-scientific/technical subject but rises to EUR 98 700 if this is
not the case.

62. The Court(cid:146)s audit shows that six contracts in the sample
described as scientific/technical, for amounts close to the ACPC-
JRC submission threshold, were awarded by private treaty. Exami-
nation of the relevant files does not always permit an understand-
ing of the method used, either to determine the provisional price
of the contract or to confirm the scientific nature of the opera-
tion.

56. Two other study contracts in the field of transport, for
amounts of EUR 11 400 and EUR 10 000 respectively, which
were awarded by private treaty, were also awarded on the basis of
a bid by the beneficiary, although the JRC(cid:146)s files do not contain
the least trace of a requirement or of specifications.

The description of service contracts

63. Checks on one transaction revealed the awarding of work
contracts by the JRC under cover of service contracts. This

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practice allowed it either to prolong the presence within the JRC
of persons who should have left, according to the rules on staff
management, or to finance the recruitment of new staff with dif-
ferent budgetary resources. By doing so, apart from misusing the
description, the JRC infringed the budgetary rule of specification
of appropriations.

67. This inability on the part of the JRC(cid:146)s management system to
identify, to collate and to present to the higher authorities of the
JRC information relating to this type of operation in an appropri-
ate form, and also the lack of attention given to these transactions
on account of the small amounts they involved, favoured the high
incidence of recourse to private treaty contracts.

64. Having become aware of what was going on, the highest
authorities at the JRC rectified the situation. Apart from the
sample examined by the Court, 47 contracts of this type were
thus identified, of which 39 were rectified with immediate effect

The awarding of contracts

Excessive use of private treaty contracts

The extent of the phenomenon

65.
It appears from the ACPC-JRC(cid:146)s implementation reports that
the percentage of contracts awarded by private treaty fell between
1995 and 1997, both in terms of numbers and of the volume of
budgetary funding. Whereas in 1995, 26 contracts were con-
cluded by this procedure for a total amount of EUR 10,2 million,
in 1997 only 14 contracts accounting for EUR 3,8 million were
concluded by private treaty (see Table 3).

66. As the management system of the JRC was not capable of
providing reliable information in respect of the contracts awarded
outside of the ACPC-JRC procedure, it was only on the basis of
the sample examined that the Court was able to form an opinion.
The Court thus ascertained that the downward trend in contracts
by private treaty was much less pronounced. Thus, of the 34
transactions relating to the contracts in the sample awarded in
1997, 24, representing EUR 885 000 of a total of EUR 1 955 000
were still awarded by this procedure (see Table 4).

The irregularity of the practice

68. The Court of Justice(cid:146)s case law restricts the reasons (8) a con-
tracting authority may invoke to have recourse to the private
treaty procedure to three. The first is the protection of exclusive
rights, the second rests on technical considerations and the last
one, finally, is justification by a situation of urgency.

69. The evaluation by the Court of Justice of the technical and
urgency criteria is extremely restrictive. As far as the technical
grounds are concerned, the contracting authority must prove that
no tenderer other than the successful tenderer is capable of car-
rying out the contract. The criterion of urgency is only accepted
where the event was unforeseeable and the urgency extreme and
incompatible with the deadlines required by other procedures.
The Court of Justice demands, in addition, that there must be a
causal connection between the unforeseeable event and the result-
ant extreme urgency.

In the light of the information available in the files, some of
70.
the contracts in the sample which were awarded by private treaty
did not comply with the rules laid down in the Court of Justice(cid:146)s
case-law for justifying the use of the private treaty procedure.
However, in the main, this case-law was laid down during pro-
ceedings brought by the Commission against Member States which
were making unjustified use of this procedure in the awarding of
public sector contracts.

71. The findings of the audit in respect of several transactions in
the sample show that the conditions under which several con-
tracts of very diverse volume were prepared, awarded and moni-
tored constitute a body of evidence which, at the very least, reveals
serious management errors.

Table 4

Non-ACP contracts on the basis of the sample

1995

1996

1997

Number of
contracts

%

%

Number of
contracts

%

%

Number of
contracts

%

Overall
amount
EUR

227 024

100

227 024

100

Overall
amount
EUR

332 057

%

Overall
amount
EUR

1 954 218

7

6

1

85,7

243 215

73,2

14,3

88 842

26,8

70,6

884 560

45,3

30,4

1 069 658

54,7

34

24

10

Total

By private
treaty

By invitation
to tender

6

6

0

Source: European Court of Auditors.

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Existence of a de facto monopoly

72. One of the cases discussed in the preceding paragraph
deserves to be given special prominence on account of the vol-
ume of finance involved (approximately EUR 1 million/per year)
and of the length of time concerned. Since 1979, one company
has held the contract for the supply of vehicles to the Ispra site.
Between 1979 and 1991 the contract was systematically renewed
by private treaty. In 1991, following a public invitation to tender
published in the Official Journal of the European Communities, the
contract was awarded once again to the same company for a
maximum of five years. On the expiry of this latter contract, an
amendment was nevertheless signed to extend the contract for
three months on the grounds that the JRC had not had time to
organise a new invitation to tender. In April 1996, following an
invitation to tender, a new contract for a period of three years but
which could be extended by 24 additional months was awarded
to the company.

73. The checks carried out revealed a whole series of both fac-
tual and legal factors which indicate that the JRC allowed this
company to create an exclusive position for itself. The JRC accepted
amendments to the initial contractual conditions which ran
counter to the Community(cid:146)s interests and to equality of access to
publicly financed operations. Lastly, it also refused to assume the
responsibilities incumbent on authorising officers by failing to
check diligently the actual services invoiced.

74. The following was established:

(a) the three-month extension to the contract, signed as a result
of the contract awarded in 1991, on the inadmissable grounds
of lack of time, was contrary to the terms of the contract,
which stipulated a maximum duration of five years, and the
cause of extra costs which can be estimated at EUR 380 000;

(b) by the terms of this amendment, signed on 27 March 1996,
the prices charged for the supply of a vehicle and the kilome-
tre charge came to EUR 3 922/month and EUR 0,3331/km
respectively. The bid in connection with these same services,
submitted at the same time in response to the invitation to
tender launched by the JRC, was 27 % less for the former ser-
vice and 52 % less for the second;

(c) the date of receipt on the confirmation of receipt for the bid

mentioned was altered;

(d) the address of the information meeting in respect of the con-
ditions of the tender was erroneous, with the result that one
interested enterprise arrived too late, which reduced the num-
ber of tenderers to two;

(f) pleading that, owing to the lack of staff, it was impossible to
check each and every invoice submitted in respect of this con-
tract, the authorising officer, as from 1993, merely verified
that the service was provided on the basis of a sample of
invoices. Such a practice is in contravention of the provisions
of Articles 40 and 41 of the Financial Regulation;

(g) finally, the average number of kilometres invoiced annually
came to 194 223 km per vehicle, i.e. almost 540 km per cal-
endar day.

The possible existence of illicit agreements

75. The Court noted that the weaknesses in the management
system made it impossible for the Centre(cid:146)s management to pre-
vent the formation of a group of tenderers who were often to be
found on the same contracts of the same institute of the JRC. In
one case, the successful tenderer for a contract for the supply of
services identified himself as the sales manager of a computer-
equipment supplier which was also tendering for the same con-
tract. Examination of the bids revealed, in addition, that two ten-
dering companies were managed by members of one and the
same family.

The splitting of contracts

The use of differentiated appropriations (splitting contracts in the accounts)

76. Examination of the financial tables produced by the account-
ing system revealed irregular utilisation of differentiated appro-
priations. It was ascertained that the financial cover for one and
the same contract was not guaranteed by a single commitment,
as the rule requires, but that the JRC often raised several succes-
sive commitments which, in the majority of cases, corresponded
to the annual instalments of the contracts.

77. The Court must point out that the existence of differentiated
appropriations is due to the desire on the part of the legislator to
guarantee the manager financial cover for operations where it can
be foreseen that they will last longer than the financial year, and
to facilitate controls, in particular by the budgetary authority, in
accordance with Article 1(4) of the Financial Regulation, by attach-
ing the entire expenditure relating to one operation to a specific
commitment.

78. The primary advantage of diligent observance of this rule is
that it allows the rate of implementation of a contract to be
checked by simply reading off, at the end of every financial year,
the amounts remaining to be settled for the relevant commit-
ment, and it requires explanations of the persons in charge when
the level of utilisation of the appropriations does not match the
contractual obligations. The second advantage is that it obliges
the manager to state the reasons why any commitment of addi-
tional appropriations proves necessary to successfully conclude
the contract, while clearly identifying the cause of this increase.

(e) the prices which formed the basis on which the contract was
awarded were never applied. A first endorsement authorised
the contractor to invoice the higher prices agreed in the pre-
ceding contract then a second increased the price fixed in the
contract concluded following the call for tenders;

Legal splitting (contracts in the form of 1+x years)

79. This practice consists of awarding the entire contract to the
same contractor while signing a contract with him that only

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covers the first year of implementation. Each successive annual
instalment is the subject of a new contract awarded automatically
to the same contractor. This practice, when used in combination
with the preceding one, therefore allows the budgetary commit-
ment to coincide with the legal commitment but at the price of a
budgetary irregularity to the detriment of an overall view of the
contract and of the quality of the monitoring of implementation.
Fourteen of the 43 transactions in the sample concerning the
contracts submitted to the ACPC-JRC, i.e. more than 32 %, were
in this form.

Internal splitting of contracts

80.
In the case of one transaction in the sample, it was found
that the contract was artificially divided up into two separate
phases with the sole intention of getting around the obstacle of
inadequte commitment appropriations available at the time the
contract was signed, in order to cover the whole of the legal com-
mitment.

Other procedures for awarding contracts

Subcontracting the entire contract

81. The audit revealed that two contracts for the supply of vari-
ous items of computer equipment had been subcontracted in their
entirety by the successful tenderers to the same company, a regu-
lar partner of long standing of the Centre and already beneficiary
of approximately 30 contracts.

82. From the point of view of both legality/regularity and sound
financial management, this subcontracting of an entire contract
must be condemned. On the legal level, it should be noted, first
of all, that the Directives relating to public contracts make no
mention of the subcontracting of a contract except in parts. When
it is total, this subcontracting breaks the intuitu personae nature of
the contractual relationship and turns the legal contractor into a
mere intermediary, whose middle-man role necessarily entails an
increase in the cost borne by the contracting authority.

Awarding of contracts in the absence of sufficient appropriations

83.
It appears from the invitation-to-tender file of a contract
concerning the setting up of the European Observatory of Science
and Technology that the final bid submitted by the tenderer for
the first year of implementation of the contract came, after nego-
tiations authorised by the ACPC-JRC, to EUR 1,6 million. As this
amount was more than the budgetary appropriations available,
the Centre should have declared the invitation to tender void. A
contract for EUR 993 560 was nevertheless concluded. Some
months after its signature this contract was the subject of an
amendment covered by new appropriations opened in respect of
the new financial year in order to make the cost of the operation
match the amount of the bid after negotiation with the Centre(cid:146)s
management (see paragraph 85).

Monitoring implementation

The management of contracts

84. The audit showed that the various authorising officers of the
JRC frequently signed contracts without first obtaining the signa-
ture of the successful tenderer. This practice entails the risk that
services will be rendered before the actual signing of the contract
by the contractor, with no legal cover, or that amendments may
be made to the terms of the contract. The Court also found, on
several occasions, that the implementation reports had been drawn
up before any signature had been placed on the relevant con-
tracts.

In contrast, considerable delays in the supply of the services
85.
and the drawing up of the reports did not give rise to any penalty,
or even a warning. The ease with which the Centre grants advan-
tageous amendments is another illustration of the lack of rigour
of the management of contracts. Apart from the case already
mentioned (see paragraphs 64 to 66) concerning the car fleet
contracts, it was found that, in connection with the creation of
the European Observatory of Science and Technology, that, in
spite of the inadequacy of the successul tenderer(cid:146)s services in
respect of his contractual obligations, the Centre granted him,
nine months after the signing of the contract, an increase in the
overall price of more than 60 %, even though the utilisation of
appropriations was extremely poor. At the time only EUR 230 005
had been invoiced, i.e. only 23 % of the initial commitment (see
paragraph 83).

Checking services rendered

86.
In numerous cases delays in implementation on the part of
the suppliers were not the subject of any reminder on the part of
the Centre. The controls thus revealed a contract for computer
maintenance which, 18 months after the expiry of the contract
(the planned duration of which was 120 days), had not led to any
proven service. A single invoice, dated 20 March 1997 and con-
cerning 30 % of the contract, had been drawn up and was still
unpaid 15 months after expiry of the contract, while the file con-
tained no trace of any reaction of any kind on the part of the
accounting officer or of the service supplier. Apart from the obvi-
ous absence of monitoring, one can only wonder about how real
the needs covered by this contract were and whether the services
invoiced were really performed.

87.
In another case, the data mentioned in the invoices submit-
ted did not allow the authorising officer to identify who had sup-
plied the services, offered no real description of these services and
did not allow him to check the dates and duration of the work
carried out or even ascertain what kind of work it was. As a
result, he was not able to check whether the amounts invoiced
were justified. In addition, the audit revealed that an amount had
been paid in error by the Centre for this contract, which actually
concerned an operation carried out in Sicily within the frame-
work of the Envireg European initiative.

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In another case concerning a contract of a duration of 18
88.
months, the service had still not been completed six months after
expiry and the Centre had not even sent a reminder. Furthermore,
the file did not contain any supporting document for the pay-
ments made.

89. The scale of the delays sometimes cast doubt on the desir-
ability of certain contracts at the time they were granted. A con-
tract concerning an amount of EUR 2,58 million illustrates this
finding. Awarded in January 1997, this contract for the installa-
tion of a computer system for the management of documents
only gave rise to the issuing of one invoice for EUR 25 628, 16
months after the signing of the contract.

CONCLUSIONS/RECOMMENDATIONS

90. The aim of the rules governing the awarding of public con-
tracts is to ensure equal access for all enterprises to publicly
financed contracts and to assure the best service at the best price.
However, it appears from the audit that the management system
in place at the JRC at the time of the Court(cid:146)s audit did not guar-
antee the achievement of this aim.

91. The reasons for this situation can be found both in the weak-
nesses of this system, which is not even capable of providing reli-
able information in summary form, and in the irregular use of dif-
ferentiated appropriations favouring the current practice of
splitting contracts and the use of dubious procedures.

92. Finally, the special arrangements applied to the JRC with, in
particular, the existence of a special ACPC and recourse to (cid:145)admin-
istrative arrangements(cid:146) between the Commission(cid:146)s departments
also had a negative impact on the management of contracts.

93. The JRC, having become aware of the seriousness of the situ-
ation, has started a process of reform. It has thus, in particular,

suspended the operations of the ACPC-JRC, restructured its organi-
sation chart, created an internal control unit and conducted a
physical inventory of its goods. These measures, taken as a whole,
must be approved and consolidated. The suspension of the ACPC-
JRC must, above all, be the prelude to its abolition and the physi-
cal inventory now in progress should not remain an isolated exer-
cise but must be repeated on a regular basis. These measures
must, nevertheless, be complemented by an improvement in the
management system and vigorous action in respect of monitor-
ing the various stages of the contract procedures.

94. The JRC should adopt auxiliary accounting for the projects,
thus allowing contracts to be linked to specific projects or actions
and also permitting advance planning of its requirements in order
to optimise the allocation of the budgetary resources available.

95. For all that, nothing will be achieved unless all the irregular,
questionable and dubious practices which have been identified in
the course of this audit are terminated by appropriate means. In
order to do this, the Court reiterates (9) that, if disciplinary or even
legal measures need to be implemented, any lasting solution must
lie in the effective shouldering of the financial responsibility by
the authorising and accounting officers, as laid down in
Articles 73 ff., of the Financial Regulation.

96. The Court would like to observe, in this connection, that the
Financial Regulation has been in existence for more than 20 years
but the Community legislature has still not codified the condi-
tions of this responsibility and the financial penalties which may
be applied to the authorising and accounting officers. It must be
stressed that the approval given by the Financial Controller does
not constitute an exoneration of the authorising officer in respect
of his own failings when he wrongly confirms that a service has
been rendered and that expenditure has been settled correctly, any
more than it exonerates the accounting officer when he enters the
cost, in his accounts, of an operation the regularity of which he
must verify beforehand. When the Financial Controller gives his
approval that merely means that he takes on part of the respon-
sibility for any untoward consequences.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 6 and 7 April 2000.

For the Court of Auditors

Jan O. KARLSSON

President

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NOTES

(1) See Special Report No 17/98 on renewable energy sources
(OJ C 356, 20.11.1998) the FAIR Special Report No 9/99 (not yet
published) and the Annual Report concerning the financial year 1996,
in particular paragraph 10.2b, (cid:145)The participation of small and medium-
sized enterprises in research, technological development and demon-
stration programmes(cid:146) (OJ C 348, 18.11.1997).

(2) OJ L 361, 30.12.1994, pp. 114 and 132.
(3) OJ L 209, 24.7.1992, p. 1; OJ L 199, 9.8.1993, pp. 1 and 54; and

OJ L 328, 28.11.1997, p. 1.

(4) Sibeca: Automatic budgetary and accounting information system
(5) Sincom II: Computerised accounting system
(6) The management system to which the JRC is subject differs from the

normal legal framework on more than one account.
As regards financial and accounting law:
(a) its administrative expenditure is entirely covered by administra-
tive appropriations entered under Chapter B6 and not by Part A
of the budget;

(b) the resources obtained within the framework of its competituive
activities are allocated to the JRC. This allocation constitutes an
exception to the budgetary principle of universality, according to
which all resources from the general budget must be used to cover
all expenditure;

(c) by the terms of its rules of procedure for the implementation of
the budget, it has a system of analytical accounting which allows
it to spread its general charges across its various institutes/
managements and an imprest account;

(d) it has the possibility of keeping part of its appropriations in reserve
to use them as its contribution to actions involving shared costs.

As regards administration:
(a) it is quite exceptional for a Commission DG to have a body such
as the Management Board of the JRC, a body made up, in addi-
tion, of people from outside the institution;

(b) it should be noted that the Director-General of the JRC may not
submit any proposal for a decision to the Commission unless this
is accompanied by a preliminary opinion from the Management
Board.

As regards its legal status in general:
(a) within the framework of its (cid:145)competitive activities(cid:146), the JRC may
be placed in a competitive situation vis-(cid:224)-vis third parties to obtain
contracts managed by other Commission DGs. From a legal point
of view it is not possible to conclude a contract with oneself. The
Commission has bypassed the problem by baptising the docu-
ment concluded between the two administrative structures an
(cid:145)arrangement(cid:146);

(b) from a legal point of view this solution is (cid:145)shaky(cid:146). This is undoubt-
edly what led the Management Board to ponder the advantages
there would be in giving the JRC a legal personality distinct from
that of the Community.
(7) See the organisation chart at annex.
(8) See in particular:

(cid:151) Judgment Commission/Italy of 10 March 1987, Case 199/85 ECR
1039, paragraphs 12 to 14 of the legal grounds (on the right to
exclusive agreements),

(cid:151) Judgment Commission/Spain of 11 November 1993, Case 71/92
ECR I-5923, paragraphs 36 and 37 of the legal grounds; con-
firmed by the judgment in respect of pharmaceutical products of
3 May 1994, Case 328/92 ECR I-1569, paragraphs 14 to 16 of the
legal grounds,

(cid:151) Judgment Universidad Complutenza de Madrid of 18 March 1992,

Case 24/91 ECR I-1989.

(9) See Opinion No 4/97 on the proposal for a Council Regulation (Eura-
tom, ECSC, EC) amending the Financial Regulation of 21 December
1977 applicable to the general budget of the European Communities
(OJ C 57, 23.2.1998) see in particular paragraph 5.20.

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SIMPLIFIED ORGANISATION CHART (cid:151) DISTRIBUTION OF THE INSTITUTES BY SITE

ANNEX

JRC(cid:13)
Joint Research Centre

General-Directorate(cid:13)
Brussels

IRMM(cid:13)
Institute for(cid:13)
reference materials(cid:13)
and measurements(cid:13)
Geel (B)

ITU(cid:13)
Institute for(cid:13)
transuranium(cid:13)
elements(cid:13)
Karlsruhe (D)

IAM(cid:13)
Institute for(cid:13)
advanced materials(cid:13)
Petten (NL)

ISPRA (I)

IPTS(cid:13)
Institute for(cid:13)
prospective(cid:13)
technological studies(cid:13)
Seville (E)

ISIS(cid:13)
Institute for systems,(cid:13)
informatics and safety

EI(cid:13)
Environment(cid:13)
Institute

SAI(cid:13)
Space applications(cid:13)
Institute

IHCP(cid:13)
Institute for health(cid:13)
and(cid:13)
consumer protection

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THE COMMISSION(cid:146)S REPLIES

The preliminary observations of the Court for the special report
on the public contracts awarded by the Joint Research Centre are
the product of audit visits in 1998. The audit covered the transac-
tions over the period 1995 to 1998. Since then the JRC has under-
gone significant changes, regarding both its mission and the strat-
egy relating to its methods and organisation. The Court took note
of this at meetings following the audit visits and it is partly
reflected in its observations.

Throughout the Court(cid:146)s audit of this matter the JRC has reacted
positively to the Court(cid:146)s recommendations. The organisation and
procedures were adapted and improved without waiting for the
final report. Here are some examples:

(cid:151) the ACPC-JRC has been abolished,

(cid:151) contracts are sent first to contractors before signature by the

Commission,

(cid:151) the contract database has been improved,

(cid:151) open invitations to tender are issued in the transport field at

Ispra,

(cid:151) the number of projects in the work programme has been
reduced from 700 to 100 and a system set up to monitor and
assess these projects in close cooperation with the DG bene-
fiting from the project,

(cid:151) monitoring systems have been reinforced by establishing finan-
cial units in institutes (MSU) and setting up a system of double
signatures,

(cid:151) management procedures are now documented and intranet

site on these procedures is being developed.

activities carried out by the JCR on behalf of other Commission
departments, including contracts by private treaty in duly justi-
fied cases.

10. The Commission accepts that in certain cases there were
weaknesses in the management of estimated requirements, the
application of competition rules and monitoring of the services
provided.

11. The JRC complies with the provisions laid down in the
Financial Regulation and its implementing rules. There is no pro-
vision specifying the composition of committees responsible for
the preparation of contracts. In the case of large contracts, the
JRC will take more formal steps in the contracts(cid:146) preparatory
phase.

12. The JRC applies Article 59(a) (former Article 58(a)) of the
Financial Regulation up to the threshold provided for in the
implementing rules of the Financial Regulation (Article 105,
former Article 126) and the Directives on public contracts.

13. The Commission considers that the JRC manages the differ-
entiated appropriations correctly (see replies to paragraphs 76 to
80).

14. Although there were occasions when the decision not to
submit certain cases to the ACPC-JRC was not justified, in the
Commission(cid:146)s view the decision not to submit was justified in
most of the cases examined by the Court.

The Commission(cid:146)s answers to the Court(cid:146)s detailed observations
are given below.

15. The JRC was aware of the problem raised by the Court
regarding service contracts and it was in the course of being cor-
rected at the time of the audit.

SUMMARY OF THE MAIN OBSERVATIONS

16. The Commission will make sure this problem does not arise
in future.

8. Following the Court(cid:146)s audit and recommendations, the JRC(cid:146)s
management systems and procedures have been adapted. The
management system currently in place at the JRC is able to pro-
duce the information needed to give a comprehensive and accu-
rate overview of the contracts awarded. The computer tools now
permit a link to be established between a specific contract and the
project to which it is connected.

17. The JRC has set up improved monitoring systems. Where
cases of irregularities were noted, it has reacted positively, impos-
ing disciplinary measures where appropriate.

THE JRC(cid:146)S MANAGEMENT SYSTEM

9. The ACPC-JRC has been abolished. The Commission shares
the Court(cid:146)s view that the provisions of Title IV of the Financial
Regulation on the conclusion of public contracts are applicable to

19. The Commission recognises that in the past the JRC had dif-
ficulties in overcoming the constraints and identifying weaknesses
in the management system. In the recent past, however, the weak-
nesses have been clearly identified and the system improved.

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A special operating system

21.
(c) The Commission shares the Court(cid:146)s view regarding the
ACPC-JRC, and abolished it on 22 July 1999. The operation of the
ACPC-JRC had previously been suspended by Commission deci-
sion on 3 September 1998.

28. The JRC was the first Commission Directorate-General to
install Sincom II and as the pilot DG it encountered the start-up
difficulties of any new IT product. Sincom II comprises three
modules designed to monitor managers(cid:146) and authorising officers(cid:146)
operations, to monitor approvals by the financial controller and
the accounting officer, and to monitor the production of statistics
and reports. The third module was installed after the first two (at
the end of 1999) since the operational systems had to be up and
running first.

Decentralised management

22. The siting and specialised scientific responsibilities of the
JRC institutes demand decentralised organisation and manage-
ment, including broad delegation of powers to those in charge in
each institute, combined with a system of double signatures.

23. An administration directorate has been set up to ensure that
administrative and contract transactions are executed in a more
consistent and uniform manner.

24. The 50 000 transactions per year carried out by the JRC rep-
resent no more than 0,3 % of the Commission(cid:146)s total budget, but
8 % of total Commission transactions. The decentralised structure
will make it possible to delegate the work to over 80 subdelegate
authorising officers and some 60 managers.

Analyti cal accounts

29. The JRC has an analytical accounting system and in this
respect is a pioneer in the Commission. The system makes it pos-
sible to monitor closely costs and services. A major effort is made
continuously to improve this tool to make planning, assessment
and monitoring of projects and the programme more transpar-
ent.

30. The purpose of the table of equivalence is to establish a link
between staff and resources and the various actions (for each bud-
get item) to determine their overall cost.

Inventor y accounting

Management tools and procedures

The tools

31. Karlsruhe now has access to the new version of the Sysbien
software which is the Commission standard. This new version
can group data by type of goods. The inventory is being updated
and will be completed in June 2000.

The annual work programmes

A contract database

25. When it drafted the fifth framework programme, the JRC
radically reorganised the management of the projects. The num-
ber of projects was cut from about 700 to 100. These 100 projects
have clear objectives spread over time and determined in close
cooperation with the Commission departments which are the
prime beneficiaries.

32. The JRC(cid:146)s contract database is an example of good practice
in the Commission. The system has evolved considerably since
the Court(cid:146)s audit. In particular it has a bidirectional interface with
Sincom II enabling it to connect commitments to contracts and
gives access to the same third parties file.

The multiannual programme was drawn up along the same lines.
It was approved by the Commission after interdepartmental con-
sultation of all Commission departments. For the Commission
departments with which the JRC maintains close working rela-
tions, the methods of cooperation, interfaces, services to be pro-
vided and quality of the service are formalised in a document
signed by both parties, the Memorandum of Understanding.

The framework contracts

33. The framework contracts do not represent an obligation to
purchase but facilitate economies of scale.

The accounting systems

The bu dget ac coun ts

27. The JRC installed Sincom II at the end of 1997 with a view
to integrating into the Commission common system.

The procedures

34. The documentation for management procedures applied by
the JRC is being updated, particularly in the context of total qual-
ity management (TQM). In future the information will also be
available on the JRC(cid:146)s intranet.

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35. Regarding the different stages in the award of a contract, the
JRC complies with the provisions in the Financial Regulation and
its implementing rules, in particular the rules for issuing an invi-
tation to tender by a committee appointed for the purpose. In the
case of large contracts, however, preparatory procedures for con-
tracts will be more formalised.

The weaknesses of the system

The consequences of the special system

The JRC(cid:146)s special ACPC

36 and 37. On 1 October 1998 the Commission decided to abol-
ish the ACPC-JCR for the following reasons:

(cid:151) substantial savings could be made if all public contracts were

handled by a single ACPC,

(cid:151) the principle of the necessary separation of functions between
the post of member of the ACPC and that of authorising
officer would be better respected if JRC contracts were exam-
ined by the general ACPC,

(cid:151) JRC authorising officers would benefit from much shorter
processing times for their contracts since the general ACPC
holds more frequent meetings per year,

(cid:151) the existence of a single ACPC for all Commission depart-

ments would make management more transparent.

The decision to suspend the ACP-JRC was followed by a decision
confirming its abolition on 22 July 1999.

Dealing efficiently with decentralisation

38. The JRC complies with the Financial Regulation and its
implementing rules concerning the different stages in the award
of a contract. As stated in the reply to paragraph 35, the JRC will
formalise the preparatory procedures for large contracts, but
attention is drawn to the number of small contracts.

39. The constraints involved in research activities account for
most of the Directors(cid:146) trips. Delegation of responsibilities by the
JRC(cid:146)s Directors to their subordinates is now structured and docu-
mented: the area in which each can operate is specified, the need
for systematic monitoring by superiors is eliminated, and a sys-
tem of double signatures is applied.

Services rendered on behalf of other Commission DGs

40. With respect to procedures for the award of services/work
contracts by another Commission department to the JRC, there
are no legal provisions requiring Commission departments to
issue invitations to tender or other public procurement proce-
dures when assigning the performance of certain tasks (work or
services) to the JRC.

41. The Commission endorses the Court(cid:146)s view that the provi-
sions of Title IV of the Financial Regulation on the award of pub-
lic contracts are applicable to activities carried out by the JRC on
behalf of other Commission departments, including by private
treaty in duly justified cases.

42. See reply to paragraph 40.

The quality of the information system

The generation of data

43. The Commission endorses the Court(cid:146)s view that it is impor-
tant to have a tool for the planning, monitoring and assessment
of the JRC(cid:146)s annual work programme, the use of appropriations,
staff services and procurement. The basic elements for systems
are in place, including in particular the Court(cid:146)s recommendations.
Further action towards integration is necessary and this will be
one of the priorities for the current year.

44. The Commission has identified and put into effect the tech-
nical method of using Sincom II in such a way as to link commit-
ments to their contracts.

45. The Sincom II third-party data file referred to by the Court
came on line in September 1998 and is used by the JRC(cid:146)s contract
database.

It is true that the design difference between Sibeca and Sin-

46.
com II made a full transfer of all data impossible.

47. The number of the project to which a purchase is related can
now be obtained from the contract database. This field will become
compulsory very shortly as soon as the various projects have
been coded.

48. A full inventory exercise was launched for all sites in 1998.
It has been completed for Ispra and the other sites will be com-
pleted in September 2000.

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49. Although the physical inventory revealed a discrepancy of
14 %, it should be noted that at Ispra the discrepancy in terms of
market value on the inventory as a whole was 3 % at 31 Decem-
ber 1999.

regular management meetings with all unit heads when questions
relating to investments are raised.

The contract database

50. The contract database has been considerably improved as
regards user-friendliness and integrity. In July 1999 the JRC(cid:146)s
Directors decided to make it compulsory to use the system. This
decision is being implemented in the Petten, Geel and Karlsruhe
Institutes by means of an interface with the local system.

The monitoring of the framework contract order slips

51. Since 2000 order slips stemming from framework contracts
can be monitored through an interface between the contractual
database and Sincom II. In the meantime following a note from
the Director-General in February 2000, entry of other order slips
in the database system has become compulsory. The number of
the project to which the purchase relates can also be obtained on
the contract database. This field will become compulsory very
shortly as soon as the various projects have been coded.

55. Some contracts do not call for a formal specification, for
example when the service or equipment is unique. In the course
of its research activities it is not unusual for the JRC to receive
proposals for products or findings of innovatory research it might
want to acquire in order to stay at the forefront in its field.

The first case referred to followed from an invitation to tender
issued in 1988. The contractor had the unique technology and
expertise needed for the project, and this was still the case when
the contract was extended. In the second case, the JRC transferred
from a Swiss computer network to the European research net-
work, which was unique at the time, and for this reason was also
selected by other Commission departments.

56. The Director-General of the JRC called the departments(cid:146)
attention to the rules in this respect on 3 March 1998.

CONTROL OF THE CONTRACT PROCEDURES

52. The JRC is aware of the Court(cid:146)s findings and has taken
extremely rigorous measures to correct the weaknesses. Regard-
ing the practices qualified as doubtful or even irregular, the JRC
had started taking steps even before the Court(cid:146)s audit; in particu-
lar it had launched administrative inquiries and disciplinary pro-
cedures. Four staff members were disciplined.

57. The laboratory equipment in question is a hydraulic press
(valued at EUR 260 000) purchased for the installation of the
laboratory for minor actinides in the Institute for transuranian
elements. It involves overall investment of EUR 2,5 million in
cooperation with third parties. Following a policy decision by one
of the partners in the project (in this case a large nuclear labora-
tory in a Member State) all operations were suspended pending
clarification, which has now been provided. The premature expen-
diture was not intentional.

The preparation of the contracts

The identification of requirements

53. Project heads are responsible for planning specific require-
ments for specific projects. General requirements are planned
horizontally (by institute, for Ispra or for all). Wherever possible,
arrangements are made for the common use of expensive equip-
ment according to scientific topic.

The quality of the specifications and the technical annexes

58 to 60. The Court(cid:146)s attention is drawn to the fact that already
there is a marked improvement in the quality of the technical
annexes. As part of the process of stepping up decentralised man-
agement, the JRC will make sure efforts continue in this direction.

The description of the contracts

In addition, invitations to tender for computer equipment and ser-
vice requirements have recently been issued for the entire JRC.

The description of the scientific contracts and the amount involved

54. Requirements are identified mainly by project leaders who
refer them to their unit head. In each institute, the Director holds

62.
It is normal for the Court(cid:146)s samples to include contracts for
amounts close to the threshold. Further, the JRC now has a double
signature system which provides improved control.

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The description of service contracts

The possible existence of illicit agreements

63 to 64. According to the files on the award of work contracts
under cover of service contracts, the JRC had already started rec-
tifying the situation at the time of the Court(cid:146)s audit. The irregular
situation was partly due to an imbalance in the JRC(cid:146)s establish-
ment plan. The JRC(cid:146)s plan is separate from that of the rest of the
Commission. It has too many B and C posts compared with A
posts. Only in 1998 was the imbalance rectified by an increase in
the number of A posts together with a corresponding reduction
in B and C posts.

The awarding of contracts

Excessive use of private treaty contracts

The extent of the phenomenon

66 and 67. The JRC(cid:146)s management system is now capable of pro-
viding reliable information in respect of the contracts awarded
outside the ACPC procedure and incorporates the Court(cid:146)s recom-
mendations.

The irregularity of the practice

68 to 71. The Court of Justice(cid:146)s case-law in this area is relatively
limited. Current rules provide for more grounds for private treaty
than those cited (in particular for additional work). The JRC has
taken steps to increase competition and plans to take further steps
to extend competition, even below the specified thresholds. Finan-
cial control has already noted a considerable improvement in this
area.

75. The JRC had already noted possible irregularities in the award
of contracts, in particular illicit agreements, and had carried out
the appropriate administrative inquiries. Subsequently, the four
staff involved were disciplined. The files were sent to OLAF at the
beginning of 1998. Inquiries are under way and may be followed
by further disciplinary or criminal procedures. The facts noted by
the Court appear in the files of the JRC and OLAF.

The splitting of contracts

The use of differentiated appropriations (splitting contracts in the accounts)

76 to 78. Regarding the use of differentiated appropriations, in
the cases examined by the Court the JRC had obtained ACPC
authorisation for several years for the contracts in question which
were concluded for one year at a time, with an option to extend
year by year. This procedure is adopted to ensure transparency of
contracts and regular monitoring of the quality of the service pro-
vided.

The Commission takes the view that in such cases the legal and
financial commitments are limited to a single year. Therefore when
it is decided to extend the contract each year it is logical to enter
into new commitments. If the entire ceiling authorised by the
ACPC were committed it would give a false impression of budget-
ary security. In the event of problems with the contractor, appro-
priations would have to be released for the part of the contract
not to be carried out by the supplier in question, and the com-
mitment appropriations would have to be recovered to complete
the contract with another supplier, something which would be
extremely difficult, not to say impossible.

Legal splitting (contracts in the form of 1 + x years)

79. See reply to paragraphs 76 and 78.

Existence of a de facto monopoly

Internal splitting of contracts

72. A fresh invitation to tender for the supply of vehicles to Ispra
was issued and published on 4 November 1999. A significant
effort was made to notify potential suppliers (advertising sent
directly to over 300 taxi firms in the region). At the same time the
management system and monitoring of services was considerably
improved.

80. The contract in question was designed in two phases from
the outset for technical reasons and in the interests of quality con-
trol of the service offered. It was announced in the invitation to
tender. The financial commitment was made accordingly.

Other procedures for awarding contracts

Subcontracting the entire contract

73. The vehicle service was outsourced on the grounds that the
services of an outside firm would cost less than an internal ser-
vice. Until very recently, the number of taxi firms in the region
was limited in view of the distance from Milan Linate airport. In
addition, the service provided was impeccable.

81 and 82. The Commission fully agrees with the Court regard-
ing subcontracting contracts in their entirety. These are isolated
cases and the JRC will take steps to prevent any recurrence.

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Awarding of contracts in the absence of sufficient appropriations

83. The JRC entered into a legal commitment up to the level of
available appropriations, and extended the field of work when
additional appropriations were made available, but it did remain
beneath the ceiling.

Monitoring implementation

The management of contracts

risks concerning the millennium bug). Contact with the contrac-
tor was maintained throughout the installation period. The sys-
tem is now up and running.

89. The case concerned a framework contract at Commission
level worth an estimated EUR 2,58 million. The JRC was involved
only in establishing a single pilot site to test the system, and in the
light of the results decided not to extend it. The Commission sees
this as evidence of sound management.

CONCLUSIONS/RECOMMENDATIONS

84. The JRC has changed the order in which signatures must be
placed on contracts. The reports submitted before signature of the
contract by the JRC all concerned competitive projects which had
already been launched by the time the JRC(cid:146)s procedure was com-
pleted.

90 to 94. Like the Court, the Commission wants the rules gov-
erning the award of public contracts to be correctly applied, and
is determined to equip itself with efficient planning, monitoring
and assessment tools, in particular at the JRC.

85. The JRC entered into a legal commitment up to the level of
available appropriations, and extended the field of work when
additional appropriations were made available, but it did remain
beneath the ceiling.

Checking services rendered

87. The JRC has now asked contractors to prepare more detailed
invoices. Certain types of contract were also modified so that the
invoices should be accompanied by documents showing the
amount of time actually worked (acceptance form). The case in
question concerns a framework contract for which order forms
can be issued by various departments, and each is responsible for
monitoring delivery.

88. The case in question relates to the installation of a new com-
puter system for the library. Acceptance of the system was delayed
several times on technical grounds (instability of the system and

For this reason it has initiated a number of measures setting up
exemplary systems, procedures and organisation. These measures
had been launched before the Court(cid:146)s audit. The Court(cid:146)s observa-
tions and recommendations have been a great help and the Com-
mission thanks the Court for this.

The Commission believes that arrangements now in place at the
JRC are a suitable response to the Court(cid:146)s criticisms. This is not
the end of the matter, however, and priority will be given in par-
ticular to improving the auxiliary accounts projects.

95 and 96. The Commission confirms that certain cases exam-
ined by the Court have been the subject of administrative inquir-
ies, followed by disciplinary procedures in accordance with sound
international management practice. The procedures were launched
well before the Court(cid:146)s audit. Disciplinary measures have been
applied to four JRC staff members. The cases have been forwarded
to OLAF for referral to the judicial authorities if necessary. The
general problem of the financial and disciplinary liability of autho-
rising officers will be reviewed in the context of administrative
reform and the recasting of the Financial Regulation.