Special Report No 1/2004 on the management of indirect RTD actions under the fifth framework programme (FP5) for research and technological development (1998 to 2002), together with the Commission's replies
Date: 2004-02-12
Institutions: European Court of Auditors
Subjects: EU programme, report, research and development

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 1/2004

on the management of indirect RTD actions under the fifth framework programme (FP5) for
research and technological development (1998 to 2002), together with the Commission’s replies

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

(2004/C 99/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

AUDIT OBJECTIVES AND APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDIT OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intervention mechanisms and rules for the Community’s financial participation . . . . . . . .

Intervention mechanisms for FP5 indirect RTD actions . . . . . . . . . . . . . . . . . . . . . . .

Rules for the Community’s financial participation . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes introduced for FP6 (2002 to 2006)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management structure, procedures and methods for the implementation of FP5 . . . . . . . .

Coherence between programme and organisational structure . . . . . . . . . . . . . . . . . .

Contract caseload, duration of procedures and resources allocated to FP5 . . . . . . . . .

IT support for proposal, contract and project management . . . . . . . . . . . . . . . . . . . . . . . .

FP5 IT systems: integration, availability of functions, quality and costs . . . . . . . . . . .

Development of an integrated IT system for FP6 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-XI

1-5

6-8

9-110

9-45

9-20

21-35

36-45

46-81

46-57

58-81

82-86

82-85

86

Internal control procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87-100

Control procedures at Commission level

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87-95

Compliance with contractual provisions at beneficiary level

. . . . . . . . . . . . . . . . . . .

96-100

Reporting on programme implementation and internal controls . . . . . . . . . . . . . . . . . . . .

101-110

Adequacy and appropriateness of FP5 reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101-109

Compliance of reporting with Internal Control Standards . . . . . . . . . . . . . . . . . . . . .

110

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111-139

List of abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

3

4

5

5

5

9

11

14

14

17

25

25

26

26

26

28

29

29

30

30

36

37

44

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SUMMARY

I.
The European Community (EC) fifth framework programme covering research, technological develop-
ment and demonstration activities (FP5) was adopted by the European Parliament and Council in December
1998 with a total budget of 13 700 million euro. The annual funding provided for the seven thematic and
horizontal programmes in the period up to 2002 accounts for approximately a quarter of the public funding
for research projects in the European Union (paragraphs 1 to 5).

II.
Research activities financed under FP5 are carried out through contracts with third parties and partly
financed by the Community budget. Both the implementing regulation and the model contracts were adopted
late. The large number of different model contracts unnecessarily increased the complexity of the contract
management processes (paragraphs 9 to 20).

Financial contributions from the Community budget are based on the reimbursement of costs actually
III.
incurred and duly justified. The complexity of the rules for fixing the financial participation of the Community
hinders the effective management of financial and administrative aspects by the Commission and is an unnec-
essary complication for participants. The introduction of the flat rate cost reimbursement system in FP5, which
aimed at simplification, provided an incentive for participants to change to a more advantageous funding
mechanism (paragraphs 21 to 35).

IV.
A Commission proposal to simplify cost systems for FP6 (2002 to 2006) in line with previous recom-
mendations by the Court was rejected by the Council and the Parliament. The rules for setting the financial
contribution of the Community, that were subsequently adopted by the Council and the European Parliament,
only partially address the Court’s concerns. The Court welcomes the introduction of visible and dissuasive
sanctions and the requirement for the certification of financial statements by an external auditor in FP6 (para-
graphs 36 to 45).

V.
The seven specific programmes of FP5 are managed jointly by five Directorates-General. The fragmenta-
tion of programmes results in dilution of responsibilities, duplication of functions and increased need for coor-
dination and consultation. Moreover the basic concept of programmes composed of key actions is not
adequately reflected in the Commission’s organisational structure (paragraphs 46 to 57).

FP5 experienced significant organisational problems and delays in the starting phase, beginning with
VI.
the late adoption of the Decision by the Council and Parliament. Because of legal requirements, the Commis-
sion’s internal rules and certain administrative practices, it took eight to nine months from the reception of
proposals to the Commission’s signing of a contract for indirect RTD actions. The Commission continued to
face difficulties in employing staff with the required profiles as well as problems in recruiting permanent offi-
cials. By the end of 2001 approximately 2 000 staff members were employed on FP5-related activities, about
a third of them for the administration of proposals, contracts and projects for indirect RTD actions. On aver-
age only four to five working days per year were available for the scientific monitoring of each indirect RTD
action. The procedures and administrative practices for the selection of indirect RTD actions, together with
the cyclical nature of the submission of project deliverables defined in the model contracts, led to an uneven
caseload at Commission level. The resulting bottlenecks were not conducive to an efficient operation of the
management system and also contributed to administrative delays and deficiencies in internal controls (para-
graphs 58 to 77).

VII.
The Council Decisions adopting the specific programmes set upper ceilings for administrative expen-
diture between 6,5 % and 9,8 % of the total expenditure for each specific programme. These ceilings were
respected for all programmes. An alternative method of measurement, comparing the expenditure devoted to
indirect RTD actions to the total budget, indicates that 837,4 million euro (6,4 % of the total expenditure for
FP5) was spent for the management of RTD Framework Programmes over the entire duration of FP5. The
Commission monitors its resource allocation through the Activity Based Budgeting (ABB) system. Both for
methodological reasons and due to the Commission’s implementation of the Activity Based Budgeting system
this is not the most appropriate way of measuring the operating cost of the RTD framework programmes
(paragraphs 78 to 81).

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The Commission did not develop a common or integrated IT system despite the management system
VIII.
being essentially the same for all the services implementing indirect RTD actions. The IT systems deployed by
the Commission for the proposal, contract and project management were inadequate, not least because of
insufficient investment. Improvements were noted towards the end of the FP5 programme period, but techni-
cal and operational problems persisted in most Directorates-General (paragraphs 82 to 86).

IX.
Whilst the RTD Framework Programmes need to be implemented using a common set of principles
and procedures, the Commission’s administrative reform aims at the decentralisation and empowerment of
services. The contradictions between these approaches lie at the root of many of the difficulties experienced
by the Directorates-General in their joint management of FP5. The complexity of the intervention mechanisms
and rules for the Community’s financial participation makes efficient coordination within the Framework
Programme even more important. The tests of the most important controls for a sample of contracts for indi-
rect RTD actions showed that not all had been operated effectively. Other controls were found to be lacking.
Overall the level of control differed considerably between the different Directorates-General operating FP5
(paragraphs 87 to 95).

X.
The testing of the legality and regularity of cost claim based payments for FP5 indirect RTD actions at
beneficiary level revealed a significant incidence of errors, mainly due to an overdeclaration of costs by final
beneficiaries. No overall improvement was noted as compared with audit work related to previous framework
programmes (paragraphs 96 to 100).

XI.
The management information systems and reporting to Directors and (deputy) Directors-General still
need to be improved. In none of the five Research Directorates-General were there procedures and practices to
ensure that management-level information was prepared on time or accessible in a standardised format. In
2002 the management reporting for the framework programmes did not yet fully comply with the require-
ments defined in the Commission’s internal control standards (paragraphs 101 to 110).

INTRODUCTION

— ‘Quality of life and management of living resources’ (QoL),

FP5 comprises four thematic and three horizontal
programmes

— ‘User-friendly information society’ (IST),

1.
The fifth framework programme covering research, tech-
nological development and demonstration activities (FP5) was
adopted by Decision No 182/1999/EC of the European Parliament
and of the Council of 22 December 1998 for the period 1998 to
2002 (1).

— ‘Competitive and sustainable growth’ (Growth),

— ‘Environment, energy and sustainable development’ (EESD):
Environment (EESD-ENV) and non-nuclear energy (EESD-
NNE);

2.
FP5 consists of seven programmes, all of which were
adopted by the Council on 25 January 1999 (2). It comprises the
following four thematic programmes:

(1) Decision No 182/1999/EC of the European Parliament and the Coun-
cil of 22 December 1998 concerning the fifth framework programme
of the European Community for research, technological development
and demonstration activities (1998 to 2002) (OJ L 26, 1.2.1999).
(2) Council Decisions of 25 January 1999 adopting specific programmes
for research, technological development and demonstration on:
— quality of life and management of living resources (1999/167/

EC),

— user-friendly information society (1999/168/EC),

— competitive and sustainable growth (1999/169/EC),
— energy, environment and sustainable development (1999/170/

EC),

— international role of Community research (1999/171/EC),
— promotion of innovation and the encouragement of the partici-

pation of small and medium-sized enterprises (1999/172/EC),

— improving human research potential and the socioeconomic

knowledge base (1999/173/EC) (OJ L 64, 12.3.1999).

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and three horizontal programmes for activities involving all research areas:

99 % of the commitment appropriations available for FP5 had
been utilised (see Annex 2A). FP6, which covers the period 2002
to 2006, has seen a further increase of 17 %.

— ‘Confirming the International role of Community research’ (INCO),

— ‘Promotion of innovation and encouragement of small and medium-

sized enterprises participation’ (SME),

— ‘Improving the human research potential and the socioeconomic

knowledge base’ (IHP).

3.

Research activities financed under FP5 consist of:

— indirect actions within the thematic and horizontal pro-
grammes carried out through contracts with third parties
and co-financed by the Community budget, and

— direct actions financed entirely from the Community budget
and carried out by the Commission’s Joint Research Centre.

The European Community (EC) section of FP5 is jointly managed
by five Directorates-General, namely Directorates-General for
Research, Information Society, Energy and Transport, Enterprise
and Fisheries.

Increasing importance of a European research policy in
budgetary terms

4.
Community research policy has been implemented through
framework programmes since the early 1980s. The growing
importance of these programmes is reflected in the successive
budgets allocated to them. FP5, with a total budget of 14 960 mil-
lion euro, is 13 % bigger in monetary terms than its predecessor
FP4 (1994 to 1998). 13 700 million euro of the total budget was
allocated to the EC section, with 12 961 million (95 %) earmarked
for indirect RTD actions (see Annex 1) (1). As of the end of 2002,

(1)

In 2001, following the adjustment of the financial perspective, the
appropriations for FP5 were increased in accordance with Article 2
of Decision No 182/1999/EC of the European Parliament and the
Council (see Decision 2001/692/EC, OJ L 246, 15.9.2001). This
adjustment increased the appropriations of 10 650 million euro for
the financial years 2000 to 2002 to 11 510 million euro, resulting in
total appropriations for FP5 of 14 650 million euro (including direct
actions).

5.
FP5 represents only 6 % of the non-military governmental
RTD expenditure of 61 809 million euro per year in the 15 Mem-
ber States of the European Union. However, if institutional fund-
ing is deducted, the budget for FP5 indirect RTD actions amounts
to approximately a quarter of total funding for publicly financed
research projects in the European Union (2). Overall annual FP5
expenditure amounts to less than 10 euro per citizen in the Euro-
pean Union.

AUDIT OBJECTIVES AND APPROACH

6.
The Court’s audit assessed the design of the administration
and control system, evaluated its contribution to the economic,
efficient and effective implementation of FP5 and verified the con-
sistent, continuous and effective operation of internal controls (3).
The audit paid particular attention to the consistent application
of these internal controls throughout the services examined.
Account was thereby taken of the Commission’s 24 Standards for
Internal Control, adopted in December 2000, which must be fol-
lowed by all Commission services in the management of their
resources (4).

(3)

(2) Koordinierungsstelle EG der Wissenschaftsorganisationen (KOWI),
‘R & D project funding in the European Union — governmental
investments in EU Member States in the year 2000’, April 2002.
‘Internal control covers the globality of the policies and procedures
conceived and put in place by an entity’s management to ensure the
economic, efficient and effective achievement of the entity’s objec-
tives, the adherence to external rules and to management policies and
regulations, the safeguarding of assets and information, the preven-
tion and detection of fraud and error, and the timely production of
reliable financial and management information.’ (White Paper on
Commission reform, COM(2000) 200, 1 March 2000, Part II, Chap-
ter V, Section XXVII, paragraph 1).

(4) European Commission, ‘Standards for Internal Control within the
Commission’s services’ (SEC(2000) 2203), 2 February 2001 (second
version dated 18 December 2001).

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7.

The specific audit objectives were to ascertain:

AUDIT OBSERVATIONS

— whether the intervention mechanisms and the rules appli-
cable to the financial participation of the Community permit
an economic and efficient implementation of FP5,

— whether, and to what extent, recommendations made by the
Court, in its Annual Reports 2000 and 2001 and in its Spe-
cial Reports on specific programmes of FP4 (1994 to 1998)
were taken into account when defining the rules applicable
to the Community’s financial participation in FP6 (2002 to
2006) (1),

— whether the management structure, procedures and meth-
ods for FP5 are conceived in a way which ensures the eco-
nomic, efficient and effective administration of indirect RTD
actions,

— whether the information technology (IT) systems deployed
by the Commission adequately support the administration
of FP5 proposals, contracts and projects,

— on the basis of tests of control, for a sample of contracts for
FP5 indirect RTD actions, whether a sufficient level of assur-
ance on the legality and regularity of transactions can be
obtained from the Commission’s internal controls, also as
regards the reality and eligibility of costs claimed by final
beneficiaries, and

— whether management reporting allows an appropriate moni-
toring of the overall programme implementation for FP5
and the effective and efficient functioning of internal controls.

8.
The audit covered all procedures, from the submission of
the proposal to the submission of project deliverables and, where
applicable, the closure of the contract. A total of 53 contracts for
FP5 indirect RTD actions were sampled by the Court for compli-
ance and conformity testing of the internal controls operated by
the Commission,
identified on the basis of a comprehensive
description of the FP5 management system. This sample provided
coverage of all five Directorates-General as well as all thematic
and horizontal programmes and was intended to allow broad
conclusions to be drawn. The audit also comprised the review of
the FP5 legal bases and model contracts adopted by the Commis-
sion. Furthermore the Court carried out surveys of staff resources
employed by the Commission services operating FP5 and analy-
sed statistics on contracts for indirect RTD actions. Additional
surveys were carried out for IT-related aspects and management
reporting for FP5.

Intervention mechanisms and rules for the Community’s
financial participation

Intervention mechanisms for FP5 indirect RTD actions

9.
FP5 offers five different types of action for thematic and
horizontal programmes (2): shared-cost actions (type 1); training
fellowships (type 2); support to (research training and thematic)
networks (type 3); concerted actions (type 4); and accompanying
measures (type 5). All action types are implemented by means of
contracts, signed by the Commission with third parties. Propos-
als for indirect RTD actions are submitted by a participant, or a
consortium of participants, in response to calls for proposals
published in the Official Journal of the European Union. These pro-
posals are evaluated and ranked by external experts according to
the criteria defined in the legal bases. The highest ranked propos-
als are then retained for negotiation by the Commission subject
to the availability of funds specified in the call for proposals. Dur-
ing the negotiations the scientific and financial aspects of the pro-
posals are discussed between the services of the Commission and
the consortium of participants, based on the results of the evalu-
ations. The successfully negotiated proposals are then selected by
Commission Decision and contracts for indirect RTD actions are
signed by the participants and the Commission.

10.
Figure 1 and Annex 3A show that during the period 1999
to 2003, 15 223 contracts for indirect RTD actions were signed
by the Commission. Shared-cost actions (type 1), with 7 212
signed contracts, represent 47 % of all contracts, followed by
training fellowships (type 2) and accompanying measures (type
5), with 3 698 and 3 286 contracts respectively. In addition, 857
contracts were signed for support to networks (type 3) and 170
contracts for concerted actions (type 4). With the exception of the
programme ‘Improving the human research potential and the
socioeconomic knowledge base’ and the programme ‘Promotion
of innovation and encouragement of small and medium sized
enterprises participation’, all programmes have signed contracts
of all the action types.

(1) Special Report ‘Joule-Thermie’ No 17/98 (OJ C 356, 20.11.1998,
pp. 39-68); Special Report ‘Fisheries, agricultural and agro-industry
research’ No 9/99 (OJ C 92, 30.3.2000); Special Report ‘Training and
mobility of researchers’ No 9/01 (OJ C 349, 10.12.2001).

(2) Decision No 182/1999/EC of the European Parliament and the Coun-
cil, Annex IV ‘Rules for the financial participation by the Community’,
point 1 Indirect RTD actions.

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Number of contracts and European Union financial contribution per action type

Figure 1

Source: European Commission, January 1999 to July 2003 (unaudited).

Implementing regulation and model contracts adopted late

implementing regulation being adopted only in May 1999, these
general principles became available only after the publication of
the first FP5 calls for proposals in April 1999.

Council Decision 1999/65/EC and the implementing Com-
11.
mission Regulation (EC) No 996/1999 lay down the general prin-
ciples governing contracts for indirect RTD actions (1). With the

(1) Council Decision 1999/65/EC of 22 December 1998 concerning the
rules for the participation of undertakings, research centres and uni-
versities and for the dissemination of research results for the imple-
mentation of the fifth framework programme of the European Com-
munity (1998 to 2002), Article 12(2) (OJ L 26, 1.2.1999); Commission

Regulation (EC) No 996/1999 of 11 May 1999 on the implementa-
tion of Council Decision 1999/65/EC concerning the rules for the
participation of undertakings, research centres and universities and
for the dissemination of research results for the implementation of
the fifth framework programme of the European Community (1998
to 2002), Article 2(c) (OJ L 122, 12.5.1999).

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As in previous framework programmes, more specific
12.
rules for the different RTD actions were defined at a later stage in
standardised model contracts. Whereas FP5 officially started in
December 1998, model contracts were adopted by Commission
decision as late as September 1999. Subsequently, further ‘derived’
model contracts were agreed at a working level, and some of
them only became available in October 1999. As a consequence,
the exact wording of the contractual provisions, specifying in fur-
ther detail the general principles laid down in the rules for par-
ticipation and in the implementing Commission Regulation, were
not known in time for the June 1999 submission deadline for the
first calls for proposals and only became available during the
negotiation phase for the first FP5 contracts. This caused addi-
tional difficulties for participants when preparing and negotiat-
ing the budget of estimated costs for their proposals for indirect
RTD actions in the first year of FP5.

Unlike for FP4, the Commission defined model contracts
13.
for all types of indirect RTD actions. In total the Commission has
deployed twenty different model contracts for the five types of
FP5 indirect RTD actions, not taking into account different sub-
types of scientific conferences or distinct versions for single or
multi-partner actions and for one or several contractors (see Fig-
ure 2). The model contracts are drafted in a precise, clear and
unambiguous manner. With the exception of the Commission-
wide model contract for the type-5 ‘Grant agreements’, the main
structure and content of FP5 model contracts is similar. The main
differences are in the general conditions which define the provi-
sions applicable to the respective financial contributions.

Figure 2

Types of model contracts for FP5 indirect RTD actions

Source: Cordis.
(1) Euroconference, Euro Summer School, Euro Lab Course, Euro Workshop, Large Conference PhD, Euro Conference, Eurotron Conference.

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However, not all FP5 model contracts were available in all
14.
official languages, some being published only in French, English
and German. In addition, the bulk of the information material, in
particular the material published on the Commission’s website
Cordis (www.cordis.lu), is available only in English. Due to the
specialised nature of many technical and financial terms employed
in the contractual provisions this could have created an additional
difficulty for non-English speakers, especially for participants
without previous exposure to the European RTD framework pro-
grammes (see paragraph 29).

some due to the de facto veto right of all the members of any con-
sortium carrying out an indirect RTD action. For future frame-
work programmes, a simplified set-up could be envisaged, with
the Commission concluding contracts with the coordinators of
indirect RTD actions only. The contract signed with the Commis-
sion would then oblige the coordinator to carry out the indirect
RTD action with the research partners stated in the proposal (or
entities with an equivalent scientific or technical profile). This
would considerably strengthen the coordinator’s role and respon-
sibility also in the scientific management of indirect RTD actions.

Some model contracts and their derivatives were only sel-
15.
dom used (see Annex 3A). As regards the contract for type-1
‘Combined RTD and demonstration projects’, its implementation
was considered difficult, due to different rates of co-financing for
activities related to research and demonstration, which led in some
cases to separate contracts being signed for each strand of activi-
ties. The large number of model contracts unnecessarily increased
the complexity of the contract management processes and entailed
additional costs for their integration in the Commission’s central
and local IT systems (see paragraph 82).

Increase in participants in shared-cost actions

16.
Between 1999 and 2003, the Commission signed con-
tracts with more than 77 000 contractors (1). An entity partici-
pating in several indirect RTD actions is hereby counted sepa-
rately for each contract signed (2). Approximately 67 % of all
contractors were participating in shared-cost actions (type 1).
Type-1 ‘RTD projects’, which account for the major part of the
total European Union financial contribution contractually agreed,
feature an average of 7,2 contractors per contract (see Annex 3A).

Accompanying Measures can be both indirect RTD actions and public
procurement

During the period 1999 to 2003, Accompanying Mea-
18.
sures (type 5) accounted for a European Union financial contribu-
tion of 1 080 million euro (9 % of the total) (3). Compared to
other types of indirect RTD actions, accompanying measures fol-
low different procedures for submission, evaluation and selection.
Proposals for accompanying measures are the subject of calls for
proposals or calls for tender, but in certain cases they may also be
submitted spontaneously in the form of applications for subsi-
dies, mostly not evaluated by external experts. Accompanying
Measures provide for a reimbursement of 100 % of eligible addi-
tional costs plus a flat rate reimbursement of indirect costs of up
to 80 % of direct personnel costs (4). They are often used for mea-
sures that are on the borderline between indirect RTD actions and
public procurement by the Commission. This may carry the risk
that normal public procurement procedures are circumvented by
the use of indirect RTD actions. This, in turn, could also make it
difficult to verify the Commission’s compliance with the ceiling
imposed on the administrative expenditure for each programme
(see paragraph 78).

17.
Unlike in previous framework programmes, an FP5 con-
tract is signed not only by the principal contractors, but by the
associated contractors as well. This modification generated a sig-
nificantly higher administrative burden both for the Commission
and within the consortium. For instance, activities related to the
negotiation and contract signature procedure and amendments to
the contract, such as the reallocation of budgets (which requires
the signature of all contractors) or the termination of the partici-
pation for a given contractor, became more complex and cumber-

(1) Council Decision 1999/65/EC and Commission Regulation (EC)
No 966/1999 define the principles regarding the participation of legal
entities in contracts for indirect RTD actions. Participants in indirect
RTD actions may be different types of legal entities in Member States
and associated countries, such as governmental organisations, inter-
national organisations, public commercial organisations, private com-
mercial organisations, European Economic Interest Groups (EEIG),
private non-profit organisations, natural persons or the Commis-
sion’s Joint Research Centre.

(2) The term ‘contractor’ refers only to legal entities having signed a con-
tract with the Commission, i.e. grant holders, host institutes, principal
contractors and assistant contractors. It excludes members and sub-
contractors to contracts for FP5 indirect RTD actions.

The legal basis specifies that the Community financial
19.
participation consists of the reimbursement, in part or in whole,
of the costs incurred for the indirect RTD action (see para-
graph 22). However, all mechanisms which provide for a reim-
bursement of 100 % of eligible additional costs plus a flat rate
reimbursement of indirect costs allow the possibility of profit
being made on overheads if the flat rate exceeds actual costs.
Apart from accompanying measures (type 5) such provisions can
be found for support to networks (type 3) or concerted actions
(type 4). The predominant use of these contract types by a par-
ticipant may lead to situations where participants become finan-
cially dependent on the Commission.

(3) Decision No 182/1999/EC of the European Parliament and the Coun-
cil, Annex IV, point 1(e): ‘Accompanying measures will contribute to
the implementation of the specific programmes or the preparation of
future activities, with a view to enabling them to achieve their strate-
gic objectives. They will also seek to prepare for or to support other
indirect RTD actions. Measures devoted to the commercialisation of
products, processes or services, marketing activities and sales promo-
tion are excluded […]’.

(4) With the exception of type-5 ‘Grant agreements’ which specifies a rate

of indirect costs of only 7 % of eligible direct costs.

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Subsidies granted to associations in which the Commission participates

stipulates that in general the Community will reimburse up to
50 % of the eligible cost for shared cost actions (type 1) (4).

Accompanying Measures were also employed to award
20.
grants to associations in which the Commission actively partici-
pates. One example is the International Association for the Pro-
motion of Cooperation with Scientists from the newly indepen-
dent States of the former Soviet Union (INTAS), which was set up
in June 1993 as an independent international association under
Belgian law (1). Although it was requested by the Council to do so,
the Commission did not, in fact, have the authority to set up an
external entity and to participate as a member in its operation.
The Commission’s delegation of responsibilities to INTAS also
went beyond the limits set out in the Treaties. Furthermore the
Commission did not comply with key aspects of its administra-
tive procedures for Accompanying Measures when awarding the
grant to INTAS and authorising payments (2).

Rules for the Community’s financial participation

International agreements on State aid limit public aid in the research
domain

Council Decision 1999/65/EC and Commission Regula-
22.
tion (EC) No 996/1999 define the rules applicable to the financial
participation of the Community and the definition of eligible
costs in FP5. Financial contributions are based on costs actually
incurred which are necessary and provided for in the contract.
The costs actually incurred must be substantiated by the final ben-
eficiary.

Three systems for substantiation of costs incurred

23.
For shared-cost RTD projects, demonstration projects
and combined RTD and demonstration projects, contractors can
choose between three different cost reimbursement systems (5):

— the additional cost (AC) system, providing for a 100 % reim-
bursement of costs additional to the recurring costs,

— the full cost (FC) system, providing for a 50 % reimburse-

ment of total eligible costs, and

21.
The Community framework for State aid for research and
development establishes that, as a general rule, the gross aid
intensity for industrial research must not exceed 50 % of the eli-
the project (3). Annex IV to Decision No
gible costs of
the European Parliament and the Council
182/1999/EC of

— the full cost flat rate (FF) system, providing for a 50 % reim-
bursement of total eligible direct costs with a flat rate for
indirect costs corresponding to 80 % of the eligible person-
nel costs (see paragraphs 30 to 32).

(1) The Commission, representing the European Community, is a mem-
ber of INTAS, chairs its Assembly and provides the Secretariat of the
Association. During FP5 the Community has contributed 70 million
euro to INTAS, representing approximately 95 % of the total financial
contributions received by INTAS for the period 1998 to 2002. Finan-
cial contributions for the years 2001 and 2002 were authorised by
means of Commission Decisions.

(2) The Commission did not carry out a formal evaluation of the applica-
tion for subsidy submitted by INTAS; overall monitoring and evalu-
ation on INTAS activities were carried out by its Assembly and not
by the Commission’s services; payments to INTAS were authorised
without operational verification (e.g. scientific approval); the grant
agreements with INTAS did not contain the mandatory standard ele-
ments stated in the Vade-mecum on grant management; and the
information on the grant awarded to INTAS was not subject to ex post
publicity.

(3) Community Framework for State Aids for Research and Development
(OJ C 83, 11. 4.1986) revised in 1996 (OJ C 45, 17.2.1996) and
amended in 1998 (OJ C 48, 13.12.1998), and whose applicability has
been extended to 30 June 2002 and 31 December 2005, by Commis-
sion Communications 2001/C 78/15 and 2002/C 111/03, respec-
tively; Article 8 of the Agreement on Subsidies and Countervailing
Measures with the World Trade Organisation (WTO) limits the fund-
ing for research activities conducted by private entities or by higher
education or research establishments on a contract basis with private
entities to no more than 75 % of the costs of industrial research or
50 % of the costs of pre-competitive development activity (OJ L 336,
23.12.1994).

24.
Additional complexity arises from the fact that FP5 pro-
vides for other types of additional cost systems, the detailed speci-
fication of which depends on the action types and model con-
tracts used (6). For support to networks (type 3) and concerted
actions (type 4), all participants have to use additional cost sys-
tems, irrespective of their accounting methods. For the contract
for type-1 ‘Support to trans-national access to major research

(4) For type-1 ‘RTD projects’ and ‘Demonstration projects’, the rate for
financial participation of the Community is limited to 50 % and 35 %
of the total eligible cost respectively. For type-1 ‘Combined RTD and
demonstration projects’, the EU contribution for the different work
packages is either 35 % or 50 %, according to the character of the
work. For type-1 ‘Support to trans-national access to major research
infrastructures’ the rate for financial participation of the Community
is limited to 100 % of eligible additional costs, whereas the maximum
rates of participation are 50 % of the total eligible cost for type-1
‘Cooperative research’ contracts and 75 % of the total eligible cost for
type-1 ‘Exploratory awards’ (see Decision No 182/1999/EC, Annex IV,
point 3).

(5) Council Decision 1999/65/EC, Article 11; Commission Regulation

(EC) No 996/1999, Article 11 and Article 14.

(6) Commission Regulation (EC) No 996/1999, Article 11(2): ‘Partici-
pants in indirect RTD actions shall charge additional eligible cost to
the Commission when Annex IV […] expressly provides for that prin-
ciple, […]’.

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infrastructures’ two different regimes, namely additional costs and
user fees, are proposed. In all these cases, the definition of eligible
costs is not the same as the definition used for the Additional Cost
(AC) system for type-1 ‘RTD projects’.

Additional cost systems do not permit verification of beneficiaries’ share
of co-financing

25.
For all additional cost systems, including the Additional
Cost (AC) system for type-1 ‘RTD projects’, only costs additional
to the recurring costs have to be substantiated and justified to the
Commission. In the case of contractors applying this cost reim-
bursement system (mostly universities and public research insti-
tutes) a verification of the reality and the extent of their co-financing
of indirect RTD actions is therefore, by definition, not possible (1).

Council Decision 1999/65/EC specifies that the cost reim-
26.
bursement system used should be in line with the accounting
capabilities of the contractor. In particular only if, in the Com-
mission’s view, the accounting system does not enable the full
costs of an indirect RTD action to be established with sufficient
precision or does not permit the share of direct and indirect costs
related to the project to be distinguished can the Additional Cost
(AC) system be used (2). The Commission however does not sys-
tematically verify the capacity of each participant’s accounting
system, despite relevant information being collected in the nego-
tiation phase in some cases (3) (see paragraph 92).

Detailed conditions for eligibility of costs complicate administration of
indirect RTD actions

27.
Based on Articles 12 to 14 of Commission Regulation
(EC) No 996/1999, contracts for FP5 indirect RTD actions specify
both eligible and ineligible costs. There are eight different cost cat-
egories for direct costs (4), one cost category for indirect costs
(overheads) and a specific category for ‘coordination cost’ for the
declaration of eligible costs incurred. These ten categories com-

(1) Annual report concerning the financial year 2001, paragraph 4.46

(OJ C 295, 28.11. 2002).

(2) Council Decision 1999/65/EC, Article 11(3) and Commission Regula-
tion (EC) No 996/1999, Article 11(1). A similar condition is also con-
tained in Annex IV of Decision No 182/1999/EC of the European Par-
liament and the Council where it is stated that ‘in the special case of
legal entities which do not keep analytical accounts, the additional
costs generated as a result of the research will be financed at a rate of
100 %’.

(3) Certain aspects (such as existence of analytical cost accounting sys-
tem, use of time recording system, IT system used, overhead rates
applied internally, etc.) could have been verified during the negotia-
tion. In fact, the contract preparation forms (CPF) used by the Com-
mission in principle already included some relevant information.
(4) The direct cost categories are ‘personnel’, ‘durable equipment’, ‘con-
sumables’, ‘travel and subsistence’, ‘computing’, ‘subcontracting’, ‘pro-
tection of knowledge’, ‘other specific cost’.

pare to eight categories in FP4, with the categories ‘protection of
knowledge’ and ‘coordination’ being newly introduced for FP5.
The cost category ‘coordination’ which is reserved for financial
and administrative coordinators includes all cost categories men-
tioned above, other than subcontracting (5). Overall, the large
number of different cost categories did not increase the transpar-
ency of financial reporting to the Commission. It did, however,
complicate the administration of FP5 indirect RTD actions.

28.
Contracts for indirect RTD actions define in the table
‘Indicative breakdown of eligible costs’ ceilings on cost categories
for each contractor. No costs can be reimbursed in excess of the
overall amount allocated to the beneficiaries and the transfer of
budget between contractors and cost categories needs to be
approved by the Commission if above certain thresholds. Given
the difficulties of correctly forecasting the estimated costs per cat-
egory, per year and per contractor for an indirect RTD action run-
ning over several years, the strict ceilings stated in the ‘Indicative
breakdown of eligible costs’ require contract amendments for
budget transfers in a significant number of cases, generating addi-
tional caseload both for contractors and the Commission services.

29.
Participants were often uncertain about the interpreta-
tion of the financial and administrative obligations defined in the
contracts. For example many contractors incorrectly thought that
budgeted rates (for personnel costs or indirect costs), negotiated
when defining the maximum Community financial contribution,
should or could also be charged in subsequent periods. Similarly,
contractors applying average rates, e.g. for hourly personnel rates,
did not understand that these rates have to be substantiated as
being in line with actual costs incurred. In these circumstances
more detailed guidance from the Commission would have been
useful.

Full cost flat rate (FF) system provides an incentive for all participants to
change to a more advantageous funding mechanism

30.
One of the main initiatives for simplification in FP5 was
the introduction of a flat rate option under the full cost system
for shared cost actions (type 1). Flat rates such as the overhead
rate of 20 % on direct costs (excluding subcontracting) for the tra-
ditional additional cost system, or the overhead rate of (a maxi-
mum of) 7 % on direct costs for type 5 ‘grant agreements’ had
already been used in previous framework programmes. In FP5,
the Commission introduced in addition the option of a full cost
flat rate (FF) system which allows for a flat rate for indirect costs

(5) The exception is for type-1 ‘Cooperative research’ contracts where

subcontracting of coordination is possible.

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at a rate of 80 % of direct personnel costs (see paragraph 23) (1).
Although the Commission attempted to establish an objective
basis to support the flat rate for overheads under the new cost
reimbursement system, the methodology used by the Commis-
sion justified neither the 70 % rate initially proposed by a work-
ing group preparing FP5 nor the 80 % finally retained. This was
implicitly recognised by the Commission when defining the flat
rate for FP6 (see paragraph 38).

While the stated intention of the Commission was to
31.
offer the full cost flat rate (FF) system as an alternative for entities
participating under the additional cost (AC) system, the former
was in practice available to all entities participating in shared cost
actions. By opening the full cost flat rate (FF) system to all types
of participants, the Commission allowed entities which had previ-
ously participated under the full cost (FC) system with an actual
overhead rate lower than 80 % to obtain an increased Community
financial participation for the same underlying costs. As of the
end of 2002, the Commission had not carried out any detailed
analysis of the type of entity opting for the full cost flat rate (FF)
system (see paragraph 40).

When negotiating contracts for indirect RTD actions,
32.
some Commission services agreed rates below the 80 % of direct
eligible personnel costs for participants using the full cost flat rate
(FF) system. Under the FP5 implementing regulation, such an
approach was only acceptable if the lower rates had been requested
by the participants on the basis of their internal rules (2). A more
efficient use of Community funds would have been achieved had
the legal base provided for a general practice whereby rates were
negotiated (up to a certain threshold) on the basis of the substan-
tiated average rates of the participating entity (see paragraph 36).

33.
Similarly for Accompanying Measures (type 5), the flat
rates for indirect cost, which can go up to 80 % of eligible person-
nel costs (except for type-5 ‘grant agreements’) were generally
negotiated at lower levels. These flat rates were, however, mostly
average rates set for the consortium, independent of the actual
cost structure of individual participants. Furthermore the rate set-
ting appeared to be driven mainly by the availability of budgetary
appropriations, rather than by an assessment of the underlying
cost structure. In general, no justification was provided by the
Commission about the reason why a certain level had been
retained as an outcome of the negotiation process.

Additional administrative burden and operational problems due to over-
lap of different framework programmes

34.
It is in the nature of the RTD framework programmes
that there will inevitably be overlap between implementation
phases of subsequent framework programmes. Most of the con-
tracts for indirect RTD actions cover a period of 36 to 48 months.
Other contracts have a duration of up to 60 months or even
longer. Indirect RTD actions signed in the last year of the FP5
programme period (1998 to 2002) may therefore run until 2007.
Up to the end of 2002 only 51,5 % of the total appropriations
committed were actually paid (see Annexes 2A and 2B). As a con-
sequence the contract management of FP5 indirect RTD actions
will continue during the FP6 programme period (2002 to 2006).
This also occurred with FP4 (1994 to 1998), which had to be
managed alongside FP5 and is still not fully completed. One of the
main implications of this overlap of framework programmes is
that both the Commission and those participants concerned have
to operate parallel systems regarding administrative and financial
provisions and contractual obligations. Thus, when changing the
underlying rules from one programme period to the next, the leg-
islator and the Commission should give more consideration to
the impact of those changes for the Commission’s management
of indirect RTD actions and the participant’s administrative bur-
den (see paragraph 50).

Continued divergences in legal interpretation of provisions contained in
implementing regulation throughout FP5

The Commission has already recognised deficiencies
35.
regarding the management and control of indirect RTD actions
under FP5 in its Annual Activity Reports (3). Procedures and pro-
visions defined in the implementing regulation and in the model
contracts, for instance on the contractual obligation to keep certi-
fied time records, the handling of contract amendments, the use
of cost reimbursement systems and the reimbursement of value
added tax, were applied inconsistently by the Commission ser-
vices (see also paragraphs 32 and 51). This inconsistent applica-
tion persisted throughout the FP5 programme period. The diver-
gences in the legal interpretation of contractual obligations and
eligibility rules were exacerbated by the absence of a centralised
support function ‘Procedural and legal advice’ (see paragraph 122).

Changes introduced for FP6 (2002 to 2006)

Proposals for simplifying cost systems rejected by Council and Parliament

In order to reduce the risk of ineligible expenditure being
36.
unintentionally or intentionally declared by final beneficiaries,
and to allow for a more accurate and effective financial manage-
ment of indirect RTD actions, the Court, in its Annual Report
2001, recommended fundamental simplification of the cost sys-
tems. The three main types of cost reimbursement systems (AC,

(1) Commission Regulation (EC) No 996/1999, Article 14.
(2) Council Decision 1999/65/EC, Article 12; Commission Regulation
(EC) No 996/1999, Article 14; Model contract for type-1 ‘RTD projects’,
Article 24(1)(b).

(3) European Commission, ‘Synthesis of Annual Activity Reports 2002
of Directorates-General and Services’, paragraph 5.3.4, COM(2003)
391 final, 9 July 2003.

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FC, and FF) should be replaced by a single system and the ten cost
categories reduced to three (i.e. personnel costs, coordination
costs and specific costs), making more extensive use of flat rates (1).
Subject to an upper ceiling, those rates should be negotiated on
the basis of the substantiated average rates of the participating
entity (see paragraph 32).

Elimination of cost categories reduces potential for an effective protection
of the Community’s financial interests

39.
Apart from a differentiation between direct and indirect
costs, the FP6 model contract eliminates individual cost catego-
ries (4). As a result direct costs are no longer justified by nature
(i.e.
‘durable equipment’, etc.) (5).
Although this appears to be a simplification, the complete sup-
pression of cost categories has in the Court’s view the following
drawbacks:

‘subcontracting’,

‘personnel’,

37.
The Commission confirmed in its reply that such a drasti-
cally simplified cost reimbursement system would have had ‘[…]
the merit of genuinely simplifying procedures and at the same
time offering greater legal and financial certainty to the Commu-
nity and to contractors alike’. Such a system was proposed by the
Commission to the legislator when preparing the rules on par-
ticipation and dissemination of results for FP6 (2002 to 2006),
but the proposal was rejected by the Council and the European
Parliament.

38.
Based on the provisions contained in Annex III of Deci-
sion No 1513/2002/EC of the European Parliament and of the
Council concerning FP6, the Commission in the end retained as
in FP5 three models for reporting costs: full cost with actual indi-
rect costs (FC) reporting model, full cost with indirect flat rate
costs (FCF) reporting model and additional costs with indirect flat
rate costs (AC) reporting model (2). Compared to FP5, the main
change is the reduction of the flat rate for indirect costs under the
full cost with indirect flat rate costs (FCF) reporting model from
80 % of eligible personnel costs to 20 % of all direct costs exclud-
ing subcontracting. Furthermore the model contract now imposes
conditions on which type of entity may or must use specific cost
reporting models (3). In terms of the number of different systems,
however, no major simplification has been achieved for FP6.

— it makes the presentation of financial information by the
contractor less clear and comparable, and thereby compli-
cates the verification work by the external auditor required
for the provision of an audit certificate accompanying finan-
cial statements (see also paragraphs 44 and 45),

— it significantly reduces the scope for effective plausibility
checks on the completeness and accuracy of data when pro-
cessing financial statements and payments. Since the key
information on personnel costs or hours spent is no longer
reported, it further complicates the reconciliation and moni-
toring of scientific progress achieved by the project in rela-
tion to costs incurred, for scientific coordinators, external
experts and the Commission.

Compared to the simplified cost reimbursement model initially
proposed, the complete elimination of categories thus reduces the
scope for the effective protection of the financial interests of the
Community as required by Article 20 of Regulation (EC) No 2321/
2002.

Reimbursement of costs already financed by public authorities

40.
The legal bases for FP5, its implementing regulation and
its model contracts do not explicitly state that recurrent costs
already financed through national budgets are ineligible. This
contrasts for instance with the provisions applicable to the

(1) Annual report concerning the financial year 2001, paragraph 4.47.
(2) Decision No 1513/2002/EC of the European Parliament and of the
Council concerning of 27 June 2002 concerning the sixth framework
programme of the European Community for research, technological
development and demonstration activities, contributing to the cre-
ation of the European Research Area and to innovation (2002-2006),
in particular Annex III, point 2, table ‘RTD activities and Community
financial contribution according to type of instrument’, footnotes 1
and 3 (OJ L 232, 29.8.2002).
In FP6, the criterion of the capacity of the participants accounting
system is maintained, but linked to specific types of legal entities. Par-
ticipants are allowed to move from one cost reporting model to
another (AC to FCF or FC and FCF to FC) subject to this new model
being consistently used in subsequent contracts.

(3)

(4) Commission Decision (C(2003) 3834, 23 October 2003) modifying
Commission Decision C(2003) 799 of 17 March 2003, establishing
a model contract for the implementation of the sixth framework pro-
gramme of the European Community and the European Atomic
Energy Community (2002 to 2006), and the Commission Decision
C(2003) 2567 of 18 July 2003, establishing a derived model contract
for the actions aiming at the promotion and development of human
resources and mobility for the implementation of the sixth frame-
work programme of the European Community (2002 to 2006).
(5) FP6 only requires that direct costs must be attributed directly to the
project and identified by the contractor in accordance with its account-
ing system. Similarly, no specific conditions are imposed for the eli-
gibility of costs (such as for instance in Article 13 of Commission
Regulation (EC) No 996/1999 under FP5).

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Structural Funds (1). The Commission reimbursed for a number of
indirect RTD actions costs already covered by a Member State or
one of its public bodies. This problem has been aggravated with
the Commission opening the full cost (FC) and full cost flat rate
(FF) systems to public bodies and actively promoting their appli-
cation during FP5 (see also paragraph 31). Under these systems it
was possible for public entities to claim personnel costs for civil
servants or public officials, even in cases where the people con-
cerned had not been explicitly seconded to the project, which is
what would have been required by national law. Those costs were
not directly borne by the participant and therefore should not be
eligible for Community support.

action (with the exception of participants such as public universi-
ties, which cannot for legal reasons be held jointly and severally
liable) (3). The principle of joint and several liability of partici-
pants was explicitly contained in Article 13 of the Commission’s
amended proposal for rules on participation and dissemination of
results for FP6. The liability was then limited at the request of the
Council and Parliament. As in FP5, the technical implementation
of the indirect RTD action remains the collective responsibility of
the participants under FP6 and the financial liability is limited to
each participant’s share up to a maximum of the total payments
received (4).

41.
In FP6 costs already financed through national budgets
may be reimbursed as eligible costs if these resources are at the
free disposal of the participating legal entity (2). In the long term
the risk of reimbursing costs already funded by a Member State is
that the Community financial contribution replaces rather than
complements national research funding.

Principle of joint and several liability as initially proposed by the Com-
mission limited by Council and Parliament

Court’s recommendation on sanctions retained by Council and Parlia-
ment

43.
FP6 fully implements the Court’s recommendation for
strengthening the protection of the Community’s financial inter-
ests by providing for the possibility of imposing sanctions accord-
ing to Council Regulation No 2988/95 (5). Article 20 of Regula-
tion (EC) No 2321/2002 entitles the Commission to recover the
amount unduly paid, and, in addition, to fine a contractor who is
found to have overstated costs and who has consequently received
an unjustified financial contribution.

42.
The Court also recommended that each participant in a
consortium should bear joint and several liability for the use made
of the Community financial contribution to the indirect RTD

Key problems related to audit certificates remain to be solved

(1) Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down
general provisions on the Structural Funds (OJ L 161, 26.6.1999);
Commission Regulation (EC) No 1685/2000 of 28 July 2000 laying
down detailed rules for the implementation of Council Regulation
(EC) No 1260/1999 as regards eligibility of expenditure of operations
co-financed by the Structural Funds (OJ L 193, 29.7.2000): in par-
ticular Eligibility rules No 1 ‘Expenditure actually paid out’ and No 11
‘Costs incurred in managing and implementing the Structural Funds’.
(2) Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on
the Financial Regulation applicable to the general budget of the Euro-
pean Communities (OJ L 248, 16.9.2002); Commission Regulation
(EC, Euratom) No 2342/2002 of 23 December 2002 laying down
detailed rules for the implementation of Council Regulation (EC,
Euratom) No 1605/2002 of 25 June 2002 on the Financial Regula-
tion applicable to the general budget of the European Communities
(OJ L 357, 31.12.2002): Article 165 ‘No profit rule’ (Article 109(2) of
the Financial Regulation); Regulation (EC) No 2321/2002 of the Euro-
pean Parliament and of the Council of 16 December 2002 concern-
ing the rules for the participation of undertakings, research centres
and universities in, and for the dissemination of research results for,
the implementation of the European Community Sixth Framework
Programme (2002 to 2006), in particular Articles 8 and 14 (OJ L 355,
30.12.2002); Commission Decision (C(2003) 3834, 23 October 2003)
modifying Commission Decision C(2003) 799 of 17 March 2003,
establishing a model contract for the implementation of the sixth
framework programme of the European Community and the Euro-
pean Atomic Energy Community (2002 to 2006), and the Commis-
sion Decision C(2003) 2567 of 18 July 2003, establishing a derived
model contract for the actions aiming at the promotion and develop-
ment of human resources and mobility for the implementation of the
sixth framework programme of the European Community (2002 to
2006).

Article 14 of Regulation (EC) No 2321/2002 follows pre-
44.
vious Court recommendations by requiring the certification of
financial statements for FP6 indirect RTD actions by an external
auditor or, in the case of public bodies, by a competent public
officer (6). The model contract for FP6 defines the scope of this
audit as the certification that ‘[…] the costs incurred during that
period meet the conditions required by the contract’. The audi-
tors are selected and paid for by the contractor, and the resulting
audit certificate is subsequently submitted to the Commission.
The cost of these audit certificates is entirely reimbursed by the
Community (within the limits established by the contract). The
Commission carried out two pilot actions on audit certificates
during FP5. However, the effectiveness and reliability of audit cer-
tificates were not assessed in time for the Commission to identify
lessons to be learnt in preparation for FP6.

(3) Annual report concerning the financial year 2001, paragraph 4.50;
Special Report ‘Fisheries, agricultural and agro-industry research’
No 9/99, paragraph 117.

(4) Article 13.2 ‘Execution of indirect actions’ of Regulation (EC) No 2321/
2002 provides only for each participant being ‘[…] liable for the use
of the Community financial contribution in proportion to his share
of the project up to a maximum of the total payments he has received’.
(5) Annual report concerning the financial year 2001, paragraph 4.51;
Annual report concerning the financial year 2000, paragraph 4.40
(OJ C 359, 15.12.2001); Special Report ‘Fisheries, Agricultural and
Agro-Industry Research’ No 9/99, paragraph 117.

(6) Special Report ‘Joule-Thermie’ No 17/98; Annual report concerning

the financial year 2001, paragraph 4.48.

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Unlike in FP5, participants in FP6 indirect RTD actions
45.
are only required to report total costs incurred by activity, with-
out giving any further details on the nature of the expenditure (for
instance on personnel costs and hours spent). As a consequence,
the Commission will need to rely almost exclusively on audit cer-
tificates for assessing the reality, eligibility and accuracy of costs
claimed under FP6. However, this reliance is currently compro-
mised as several essential conditions have not yet been met:

in charge of Directorate-General for Enterprise. This compares to
seven Directorates-General co-managing indirect RTD actions
under FP4 (3). Historically this joint management reflects the aim
of supporting the Commission’s policy objectives within the dif-
ferent areas and generating input from the research activities for
future Community initiatives.

— the FP6 model contract only specifies the basic level of quali-
fication of the auditor (1). However, the Commission has not
yet clearly defined the scope and extent of the audit work to
be done (2). Without the definition of those essential aspects
by the Commission there remains a considerable risk that
the audit certificates will be insufficient to ensure effective
control over payments based on financial statements,

— for audit certificates to become an effective control mecha-
nism, the Commission must also assure itself that external
auditors are carrying out their verifications in an indepen-
dent manner. In particular the Commission should define a
strategy on how to verify, on a case-by-case basis, that the
audit certificates submitted were produced in compliance
with these minimum requirements and generally applicable
professional standards.

Management structure, procedures and methods for the
implementation of FP5

Coherence of programme and organisational structure

Joint management of the seven FP5 programmes by five Directorates-
General

Except for the programme ‘User-friendly information soci-
47.
ety’ and the environment part of the programme ‘Environment,
energy and sustainable development’, all thematic programmes
are operated by more than one Directorate-General (4). When pre-
paring FP5, the Commission intended that two Directorates-
General, Research and Information Society, should be in charge of
FP5 implementation, but with parts of the thematic programmes
being co-managed by other Directorates-General. Thematic pro-
grammes were thus fragmented across Commission services.
While the partition of contract and project administration for a
programme between Directorates-General resulted in a multipli-
cation of support functions, no evidence was found that this
organisational structure added value to the management of the
scientific aspects of these programmes.

48.
The Commission justified the creation of a second, largely
independent ‘pole’ at Directorate-General for Information Society
by the rapid evolution of information and communication tech-
nologies and their linkage to associated norms, standards and
regulations which are also dealt with by this department. How-
ever the argument of scientific specificity and link to a specific
regulatory framework also applies to other research fields, such as
life sciences. Furthermore, the management requirements of
research programmes are largely independent of the scientific
area covered.

46.
Indirect actions of FP5 are administered by five
Directorates-General, excluding the Commission’s Joint Research
Centre (see paragraph 3). These five Directorates-General report
to four Members of the Commission, with the Commissioner in
charge of Directorate-General for Information Society also being

(1) Under FP6 each contractor is free to choose its auditor provided that
the external auditor is independent from the contractor and that the
auditor is qualified to carry out statutory audits of accounting docu-
ments in accordance with the eighth Council Directive 84/253/EEC
of 10 April 1984 or similar national regulations.

(2) For instance minimal requirements on materiality and confidence
level, type of audit work, documentation of audit work, format and
content of contradictory report between auditor and auditee, right of
access by the Commission to auditor’s working papers.

(3) This reduction is due to the merger of Directorates-General for Energy
and Transport as at 1 January 2000 and the transfer of agricultural
research activities (which were managed by Directorate-General for
Agriculture under the FP4 programme ‘Fisheries, agricultural and
agro-industry research’) to Directorate-General for Research.

(4) While the programme ‘Quality of life and management of living
resources’ is operated by Directorates-General for Research and Fish-
eries, the programmes ‘Competitive and sustainable growth’ and the
non-nuclear energy strand of the programme ‘Environment, energy
and sustainable development’ are managed by Directorates-General
for Research and Energy and Transport. In addition, as regards the
three horizontal programmes, also the programme ‘Promotion of
innovation and encouragement of small and medium-sized enter-
prises participation’ is operated by Directorates-General for Research
and Enterprise. The programmes ‘Improving the human research
potential and the socioeconomic knowledge base’ and ‘Confirming
the International role of Community research’ are carried out within
Directorate-General for Research only.

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Split of programmes goes against the intended design of single research
programmes

grammes). This problem was compounded by the additional need
to carry out the activities related to the completion of previous
framework programmes within these directorates (4) (see para-
graph 34).

49.
Each thematic programme was designed as a single entity
around which appropriate management structures were to be
constructed. However, as pointed out above, almost all thematic
programmes were co-managed by different Directorates-General,
thus effectively creating separate management structures. More-
over, at Directorates-General for Research (1), Information Soci-
ety (2) and Energy and Transport (3), specific programmes were
also split between directorates.

50.
The split of programmes goes against the intended design
of single research programmes. Its main drawback is inefficien-
cies caused by duplication of effort. For instance, the reorganisa-
tion of Directorate-General for Research in 2001, by creating
largely autonomous directorates operating parts of specific pro-
grammes increased the number of administrative and financial
units from five to nine. This meant that available officials at
Directorate-General for Research with the necessary capacities in
administrative and financial matters were spread between nearly
twice the number of units. In addition the partition of pro-
grammes created an additional need for coordinating common
areas of interest for the programme as a whole (such as pro-
gramme committees, external advisory groups or work pro-

(1) The organisation of Directorate-General for Research at the outset of
FP5 until the end of 2000 was structured in three thematic groups
(consisting of two operational directorates in addition to a coordinat-
ing directorate) for each of the thematic programmes. Activities
related to programme committees and advisory groups were del-
egated to the coordinating directorate, as well as the administrative
and financial management of indirect RTD actions. The two horizon-
tal programmes were each managed within one directorate. Follow-
ing a reorganisation in January 2001 the three thematic programmes
(which were previously regrouped and coordinated in three ‘thematic
groups’ covering nine directorates) were separated between six autono-
mous directorates. In particular this is the case for the programme
‘Quality of life and management of living resources’, the programme
‘Competitive and sustainable growth’ and the programme ‘Environ-
ment, energy and sustainable development’. The management of the
horizontal programme ‘Improving the human research potential and
the socioeconomic knowledge base’ (which was previously carried
out within one directorate) was decentralised and shared between
four autonomous directorates. The policy aspects and administrative
and financial management of the programme ‘Confirming the Inter-
national role of Community research’ were directly attached to the
deputy Director-General whereas for most indirect RTD actions the
scientific follow-up was delegated to the operational directorates.
(2) The Directorate-General for Information Society was organised by key
actions of the programme ‘User-friendly information society’. With
the exception of one out of five operational directorates, each direc-
torate managed one of the four key actions of the thematic pro-
gramme.

(3) At Directorate-General for Energy and Transport, the non-nuclear
energy strand of the programme ‘Environment, energy and sustain-
able development’ is simultaneously carried out by three directorates
and the programme ‘Competitive and sustainable growth’ by four
directorates, with one directorate providing a coordination function
to either programme.

51.
The joint management of FP5 by five Directorates-General
and the split of programmes between largely autonomous direc-
torates make the Commission’s communication with the entities
participating in the RTD framework programmes more difficult
and less coherent. Within the same programme participants have
to communicate on similar issues with officials from different
units or directorates. Several examples were found, where Com-
mission services gave diverging interpretations and unclear (or
even contradictory) instructions to participants. This demon-
strates the insufficiencies of internal guidelines and highlights the
need for additional training on the administrative and financial
aspects of management of indirect RTD actions (see paragraph 35).
This problem is aggravated by the high dependency on non-
permanent staff in the research area and the resulting turnover
(see paragraphs 72 and 73).

Key actions are not sufficiently reflected in the Commission’s organisa-
tional structure

52.
Compared to FP4, a major innovation in FP5 was the
structuring of the thematic (and to a more limited extent of the
horizontal) programmes in key actions (see Figure 3) (5). These key
actions are targeted at RTD priorities and the Community’s policy
objectives, whereas activities of a generic nature and support to
research infrastructures aim to build up knowledge in specific
areas in the longer term. This concentration of effort was intended
to maximise the impact of the resources deployed within each
area where RTD activities were initiated (6). However, with the
exception of the ‘User-friendly information society’ operated by
Directorate-General for Information Society, the management
responsibility for key actions was not clearly assigned to an
organisational entity such as a directorate or a specific unit within
a directorate. For jointly managed programmes, some key actions
were even split between Directorates-General.

(4) The project management as well as the administrative and financial
follow-up including the closure of indirect RTD actions of previous
framework programmes is carried out by the management structures
of the successor programmes.

(5) Annex II to Decision No 182/1999/EC of the European Parliament

and of the Council.

(6) European Commission, ‘Working paper on the specific programmes:
Starting points for discussion’, point 11 (COM(97) 553 final, 5 Novem-
ber 1997).

Structuring of thematic and horizontal programmes in key actions

Figure 3

C
9
9
/
1
6

E
N

O

f
f
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c
i
a
l

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n
a
l

o
f

t
h
e

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r
o
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e
a
n
U
n
o
n

i

Source: Decision No 182/1999/EC, Annex II.

.

.

2
3
4
2
0
0
4

23.4.2004

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Official Journal of the European Union

C 99/17

Other research activities which focus on specific socio-
53.
economic issues and target groups, such as the programmes ‘Con-
firming the International role of Community research’ and ‘Pro-
motion of innovation and encouragement of small and medium
sized enterprises participation’, could be integrated into the the-
matic programmes, further streamlining the framework pro-
gramme. In fact, actions regarding small and medium sized enter-
prises were part of
the ‘User-friendly information society’
programme from the start of FP5. Moreover, in the reorganisation
of Directorate-General for Research in January 2001, the scientific
aspects of the programme ‘Confirming the International role of
Community research’ were given to the operational directorates
implementing the thematic programmes closest to the scientific
area of the indirect RTD actions concerned.

Insufficient coordination mechanisms in place for FP5

54.
The Commission had originally intended to implement a
horizontal consultation forum and coordination structure through
a ‘Board of Directors’, bringing together representatives of all five
Directorates-General (1). However, no such group was set up until
the end of the FP5 programme period (1998 to 2002). Consulta-
tion and coordination of management aspects, such as the com-
mon evaluation platform, the handling of contract amendments
or the audit strategy followed for FP5, were dealt with on an ad
hoc basis mainly at a technical level that lacked the necessary
authority for these kinds of arrangements.

55.
For all programmes, including those managed jointly by
different Directorates-General, specific ‘Groups of Directors’ were
set up as an additional coordination mechanism. Some of these
groups, for example the group of directors for the programme
‘Competitive and sustainable growth’, met for the first time as late
as the end of 2001, the third year of the FP5 programme period.
These groups were convened in addition to the regular manage-
ment meetings of directors within each of the Directorates-
General. It was foreseen by the Commission that the meetings of

(1) Commission reply to Annual Report concerning the financial year
1999 (OJ C 343, 1.12.2000), paragraph 4.51; European Commission,
‘Working paper on the specific programmes: Starting points for dis-
cussion’, see section Implementation and management, p. 8 (COM(97)
553 final, 5 November 1997).

these groups would replace the interdepartmental consulta-
tions (2). However, the interdepartmental consultation remained
in place, resulting in a duplication of consultation procedures.

56.
A review of the minutes of the management meetings of
directors at Directorate-General for Research showed that these
weekly meetings largely addressed issues other than those of the
day-to-day management problems of the operational programmes,
except for budget planning and follow-up of its implementa-
tion. In particular from mid-2000 onwards, the planning and
preparation of FP6 gained in importance. For no meeting did the
minutes refer to any discussions on activities related to the comple-
tion of previous programmes or the scientific results of indirect
RTD actions co-funded by the Commission.

The deficiencies in the coordination of FP5 activities, even
57.
within Directorates-General, were recognised by the Commis-
sion. In 2001, Directorate-General for Research centralised the
management responsibility for the (parts of) programmes under
its control with the deputy Director-General, following a recom-
mendation made by the Court. The same year, the corresponding
post at Directorate-General for Information Society, which until
then had been vacant, was filled.

Contract caseload, duration of procedures and resources
allocated to FP5

Large majority of contracts administered by Directorates-General for
Research and Information Society

58.
Of the 15 223 contracts for FP5 indirect RTD actions
(representing approximately 91 % of the financial participation of
the Community), 92 % are managed by Directorates-General for
Research and Information Society, the remainder being managed
by Directorates-General for Energy and Transport, Enterprise and
Fisheries (see Figure 4).

(2) Under Article 21 of the procedures implementing the Commission’s
rules of procedure the services responsible may set up inter-service
coordination groups in the interest of good coordination. The work
done by these groups is the equivalent of formal inter-service consul-
tation, provided that the services most concerned have representa-
tives in the group and that the minutes of the group meeting contain
a record of their agreement (see Annex 3 of SEC(2001) 1860 dated
13 November 2001; adopted by the Commission on 28 Novem-
ber 2001).

C 99/18

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Official Journal of the European Union

23.4.2004

Number of contracts signed and European Union financial contribution per Directorate-General

Figure 4

Source: European Commission, January 1999 to July 2003 (unaudited).

59.
The most important programme, in terms of the con-
tractually agreed European Union financial contribution, is the
programme ‘User-friendly information society’ with 3 428 mil-
lion euro, followed by the programme ‘Competitive and sustain-
able growth’ with 2 673 million euro and the programme ‘Qual-
ity of life and management of living resources’ with 2 339 million
euro. The programme ‘Environment, energy and sustainable devel-
opment’ accounts for 944 million euro in its non-nuclear energy
section and for 1 046 million euro in the environment section.
The horizontal programmes ‘Improving the human research
potential and the socioeconomic knowledge base’, ‘Confirming
the International role of the Community research’ and ‘Promo-
tion of innovation and encouragement of small and medium sized
enterprises participation’ account for 1 235 million euro, 403
million euro and 236 million euro respectively (see Annex 3A and
3B and Figure 5).

Nearly twelve months for contract signature as a result of FP5 procedures

60.
Based on the sample of contracts for indirect RTD actions
audited, the ‘time-to-contract’ from the publication of a call for
proposal to the signature of a contract by the Commission aver-
aged 348 calendar days. The average duration between the recep-
tion of a proposal to the signature of a contract by the Commis-
sion for the indirect RTD actions was 263 calendar days (1) (see
Figure 6).

(1) This finding is in agreement with a Commission survey prepared for
the 2000 Framework Programme monitoring panel, indicating an
average of 268 working days as ‘time-to-contract’ from the closing of
the call until the contract signature across programmes and action
types.

European Union financial contribution committed per programme

Figure 5

Note: Size of circle corresponds to total EU-contribution committed for indirect RTD actions under each programme.

Source: European Commission, January 1999 to July 2003 (unaudited).

.

.

2
3
4
2
0
0
4

E
N

O

f
f
i
c
i
a
l

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o
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a
l

o
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a
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C
9
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1
9

C 99/20

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Official Journal of the European Union

23.4.2004

The lengthy duration of the procedures leading up to
61.
contract signature is partly a consequence of requirements imposed
by the legal bases of FP5 (e.g. fixed date for submission of propos-
als, mandatory consultation of Programme Committees), the Com-
mission’s Rules of Procedure (e.g. the time limit of 10 working
days for interdepartmental consultation prior to the submission
of the selected and negotiated proposals to the Secretariat-General)
or the Financial Regulation (e.g. annuality of the budget). Others
are due to administrative practices that are at the discretion of the
Commission’s services (such as selection and adoption by batches
of proposals (1) or frequency of interdepartmental consultation).
For
information society’ programme,
Directorate-General for Information Society succeeded in decreas-
ing (subject to the same procedures) the average ‘time-to-contract’
from 274 calendar days after the closure of the call (for the first

‘User-friendly

the

to the fifth call) to 138 calendar days (for the sixth to the eighth
call in 2001 and 2002). This demonstrates that the scope for
improvement for other programmes remains significant (2).

62.
When preparing FP5, the Commission initially proposed
that the consultation of Programme Committees should be lim-
ited to strategic matters, such as drawing up work programmes,
calls for proposals or approving adjustments to the indicative
breakdown of funding within each programme (3). However, the
legislator gave a more prominent role to the Programme Com-
mittees since the Commission is required to obtain a positive
opinion before each Commission Decision on the selection of
indirect RTD actions proposed for funding (subject to programme

Figure 6

‘Time to contract’ duration

Note: Based on sample of indirect RTD actions audited.

Source: Court of Auditors.

(1) Proposals for indirect RTD actions are processed as part of one or
several batches (linked to a specific call and its evaluation). As a con-
sequence, proposals of a specific call are only submitted for the selec-
tion decision when the negotiations of all proposals of a batch are
finalised (or, in the case of several batches, when an internal deadline
has been reached). Therefore, the required time until Commission
Decision is always the time of the longest negotiation (or a pre-defined
deadline) of a given batch. It should be noted, however, that it is
mostly Programme Committees that request that batches comprise all
proposals retained after evaluation.

(2) Council Decision 1999/65/EC; Article 9.4: ‘Subject to legal constraints
and the need to respect requirements of transparency and equal treat-
ment, the Commission shall keep the procedures for the submission,
selection and adoption of proposals as short as reasonably achievable
and keep the administrative cost of the applicants and of the Com-
mission to the minimum level necessary.’

(3) European Commission, ‘Working Paper on the specific programmes:
Starting Points for Discussion’, see section III Implementation and
management, p. 7 (COM(97) 553 final, 5 November 1997).

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C 99/21

specific thresholds) (1). Cutting out programme committees could
reduce the average ‘time-to-contract’ duration for indirect RTD
actions by up to one month, without compromising the quality
of the selection procedure.

experts, before the Commission’s formal adoption (3). This modi-
fication of procedures made it possible to agree on a definite esti-
mate of necessary costs and the Community’s maximum financial
contribution for a project before the Commission decision, thereby
strengthening significantly the negotiating position of the Com-
mission services (see paragraph 92).

Delays in setting up the common evaluation platform

63.
The Commission also attempted in various ways to
enhance the efficiency and effectiveness of the FP5 management
structure, namely by setting up jointly used support functions,
such as a common evaluation platform and outsourcing admin-
istrative and logistical services for evaluating the proposals sub-
mitted for consideration under the thematic and horizontal pro-
grammes of FP5. The external service provider operating the
evaluation platform supplied assistance with the evaluation of
proposals. This took the form of document receipt, registration
and handling, facility management and logistical organisation.
Conflicting views between different Commission services resulted
in significant delays in setting-up the evaluation platform. These
delays contributed to organisational problems throughout the
first year of the FP5 programme period (2). Despite these weak-
nesses in the initial phase, the common evaluation platform sig-
nificantly improved the efficiency and effectiveness of FP5 man-
agement.

Apart from the common evaluation platform and Cordis
64.
(www.cordis.lu), an externalised information service managed by
Directorate-General for Enterprise, no other common service
functions were deployed by the Commission for FP5, despite there
being significant potential for doing so. The Court identified four
main areas where existing support functions could be centralised
and so allow more efficient and effective management of the
framework programme as a whole (see paragraph 122).

66.
The Commission has started to streamline its procedures
in line with recommendations made by the Court. In the first
three years of FP5 proposals for indirect RTD actions were adopted
by written procedure. In 2002, the Commission started to take its
decisions by delegating the necessary powers to the Member of
the Commission, with further subdelegation to the Director-
General in line with Article 13 of the Rules of Procedure of the
Commission (4). This change in procedures potentially allows
more frequent selections of proposals, thus further reducing the
duration of procedures.

Late start of FP5 and highly fluctuating case load revealed by contract
statistics

67.
The Decisions establishing the legal basis of FP5 were
approved with significant delay. The European Parliament and
Council Decision on FP5 was delayed until December 1998 and
the Council Decisions on the specific programmes were only
adopted at the end of February 1999. Nevertheless, the political
commitment was made by the Commission to implement the
budget for 1999 as planned. Hence the first calls for proposals
were launched in April 1999, with the great majority having a
deadline of June 1999. Given the average ‘time-to-contract’ dura-
tion, the signature procedure could only be completed in the fol-
lowing year (see Figure 7).

Redesign and streamlining of procedures for FP5

65.
Unlike in previous framework programmes, scientific,
administrative and financial aspects of indirect RTD actions were
negotiated, on the basis of the results of an evaluation by external

(1) For instance Council Decision 1999/167/EC of 25 January 1999
adopting a specific programme for RTD on quality of life and man-
agement of living resources (1998 to 2002):
— Article 7.1 ‘[…] The Commission shall be assisted by a pro-
gramme committee (hereinafter referred to as “the committee”)
composed of representatives of the Member states and chaired
by the representative of the Commission’,

— Article 7.3 (a) ‘[…] The Commission shall adopt the measures
envisaged if they are in accordance with the opinion of the com-
mittee […]’.

(2) Directorate-General for Financial Control, ‘Special financial audit of
the service contract with WANG Global (Belgium) b.v.b.a. No FP5-
Evaluation Service Provider (ESP)/1’, final audit report, 18 January
2001.

68.
In addition to the late start of FP5, the statistics on con-
tract signature also show a cyclical pattern where a large propor-
tion of contracts are signed in the fourth quarter of each year. In
2001, for instance, the last quarter represented 47 % of all con-
tracts signed in that year and 49 % of the European Union finan-
cial contribution contractually agreed (see Figure 7). This cyclical
pattern, with peaks of contract signature towards the end of the
year, is similar for all seven programmes of FP5.

(3) Special Report ‘Fisheries, agricultural and agro-industry research’

No 9/99, paragraph 39.

(4) Article 13 of Rules of Procedure of the Commission (C(2000) 3614,
OJ L 308, 18.12.2000): ‘The Commission may, provided the principle
of collective responsibility is fully respected, empower one or more
of its Members to take management or administrative measures on its
behalf and subject to such restrictions and conditions as it shall
impose. […] Powers conferred in this way may be subdelegated to the
Directors-General… unless this is expressly prohibited in the em-
powering decision. […]’; SEC (2000) 2071 (final), ‘La simplification
du processus décisionnel à la Commission’, communication de M. le
Président, 28 November 2000, p. 12.

C 99/22

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Official Journal of the European Union

23.4.2004

Contract signature and committed European Union financial contribution per quarter (1999 to 2003)

Figure 7

Source: European Commission, January 1999 to July 2003 (unaudited).

69.
The procedures for the selection of indirect RTD actions,
together with the cyclical pattern of the work planning, give rise
to peaks of activity for the evaluation and negotiation of pro-
posal (1). In addition, the yearly pattern of the contracts, with
regard to the submission for approval of project deliverables (in
particular cost statements and periodic reports containing infor-
mation about the progress of scientific work), prolongs these

activity peaks after contract signature (2). Thus, unless projects are
delayed, a peak in contract signature always causes a peak in the
reception and verification of project deliverables, as well as in
payments, in subsequent years. These peaks for specific functions
result in bottlenecks and increase the risk of error and irregular-
ity as the time spent on each transaction reduces. In the Court’s
view excessive caseloads in peak times contributed to administra-
tive delays and to the deficiencies detected in the Court’s tests of
the Commission’s operation of its internal controls (see para-
graphs 90 to 95).

(1) The budget timetable in the annual work programmes was the start-
ing point for the timing of calls for proposals and the setting of the
indicative funding for the periodic, open or dedicated (i.e. with a fixed
deadline) calls. Most periodic and dedicated calls were published with
a closing date in the first or fourth quarter of a given year, which
should have left sufficient time to complete the administrative pro-
cedures (leading to a commitment and contract signature) within the
current or following budgetary year. However, this planning was based
on the assumption of an average duration of six months from the
closing of a call to the signature of a contract as initially planned by
the Commission (and sometimes referred to in work programmes).
The actual ‘time-to-contract’ was however eight to nine months from
the closing date of the call and eleven to twelve months starting from
the publication of a call for proposals (see paragraph 60), thus mak-
ing it difficult to complete the contract signature within the planned
timeframe. This was reinforced by the annuality of the budget.

Above average vacancy rates and high dependency on non-permanent
staff

70.
Since the early 1970s the human resources allocated to
the management of research activities have been financed from
both the administrative part (part A) and the research part (part B)

(2) The FP5 model contracts provide for a periodic submission of project
deliverables. In most cases the period covered is twelve months,
exceptionally also six months, starting from the contract signature
date.

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of the general budget (1). Due to the limited duration of RTD
framework programmes, staff employed on research appropria-
tions are usually given fixed term contracts (2). The Commission
communications of 1994 and 1996 aimed to rebalance the struc-
ture of research personnel over the period 1996 to 2005, so as to
achieve a ratio of 40 % civil servants, 35 % temporary staff and
25 % other staff (3). Six years after this decision the correspond-
ing rates are 28 %, 50 % and 22 % respectively; indicating that
further efforts are necessary to achieve this objective (4).

also found that vacancy rates have increased slightly compared to
1999 (6). In order to improve the situation, the Commission in
December 2001 adopted a new personnel policy for research staff,
in line with recommendations made in the White Paper on Com-
mission Reform (7).

71.
As at November 2001, the equivalent of 1 935 full-time
staff carried out activities related to FP5 within the Directorates-
General implementing RTD framework programmes (5). This fig-
ure does not include those staff allocated to the management of
previous framework programmes, the preparation of FP6 (2002
to 2006) or, at Directorates-General for Energy and Transport,
Enterprise and Fisheries in particular, other non-research activi-
ties.

72.
During FP5 the five Directorates-General operating the
RTD Framework Programmes continued to face difficulties in
finding staff with specific profiles (for instance in IT or general
management) as well as problems in recruiting permanent offi-
cials (i.e. people who had passed open competitions) to tempo-
rary research posts. In 2001 vacancy rates were 8 % to 12 % of
total posts. This is nearly double the Commission-wide average
vacancy rate of 5 % to 6 % of total posts and four to six times
higher than the 2 % target stated by the Commission. The audit

(1) The Council noted the following statement by the Commission at its
245th session on 4 June1973: ‘As regards occupying vacant posts
involving research and investment appropriations, and in particular
the recruitment of nationals from the new Member States, the Com-
mission undertakes […] to recruit staff under fixed-term contracts’.
(2) Annual report concerning the financial year 1999, paragraph 4.41

(OJ C 342, 1.12.2000).

(3) Communications COM(94) 671, 22 December1994 and SEC(96) 48

of 19 January 1996.

(4) Annual report concerning the financial year 1999, paragraphs 4.46

and 4.47.

(5) Comprising officials, temporary agents (including contracts with
indefinite duration, renewable definite duration or three-year con-
tract), auxiliary, interim and contract staff as well as seconded national
experts financed from part A and the administrative expenditure
financed from part B of the general budget.

More than one in four staff members employed were
73.
interim staff, auxiliaries, experts seconded from national admin-
istrations or contract staff providing IT-related support. A high
dependency on non-permanent staff, especially in administrative
and financial units and in the IT departments, is detrimental to
the quality and continuity of operations, due to the regular changes
in staff and the corresponding loss of knowledge. In contrast, for
those staff managing the scientific aspects of research programmes,
the Court considers that fixed-term contracts are appropriate.
This form of contract provides the Commission with the neces-
sary flexibility in its use of staff resources in a constantly evolv-
ing domain.

One third of staff employed on administration of proposals, contracts
and projects

74.
Out of the equivalent of 1 935 full-time staff members,
35 % of staff resources were allocated to proposal, contract and
project management (see Figure 8) (8). Some differences in distri-
bution can be observed between Commission departments and
programmes, notably in Directorate-General for Research, which
allocated significantly less staff resources to the administration of
proposals, contracts and projects.

(6) Annual report concerning the financial year 1999, paragraph 4.43

and table 7.

(8)

(7) Communication from the Commission to the Council and the Euro-
pean Parliament, ‘Research staff policy changes in the context of the
reform of the Commission’s human resources’ (COM(2001) 792 final,
27 December 2001).
In addition, 17 % of FP5 staff resources were assigned to programme
management. Policy support, i.e. relations with the Council, Parlia-
ment and Member States, accounts for 4 % of staff resources. Senior
management corresponds to a further 6 % of staff resources. The
equivalent of 26 % of staff resources were allocated to administrative
support in addition to 7 % for IT support and a further 5 % for data
management.

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Official Journal of the European Union

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FP5 — distribution of staff resources by administrative activities

Figure 8

Source: European Commission, statistics on staff resources, November 2001 (unaudited).

Heavy caseload in terms of number of contracts managed per member of
staff

Ceilings on administrative expenditure respected

75.
Across FP5 a total of 15 223 contracts had been signed
up to July 2003 (see Annex 3A and 3B). Given the equivalent of
1 935 full-time staff members employed on FP5, this implied an
overall ratio of 7,9 contracts per member of staff. Taking the fig-
ure for the number of staff directly allocated to the proposal, con-
tract and project management function, however, increases the
average ratio to 20 to 25 contracts per member of staff.

76.
Assuming that scientific follow-up and project manage-
ment account for half of the staff resources related to these activi-
ties, scientific project officers will have to manage on average
some 40 to 50 projects simultaneously. With 200 working days
per year, this leaves on average a maximum of four to five work-
ing days per project per year. In the Court’s view this is insuffi-
cient for adequate scientific monitoring of highly complex mul-
tinational research and demonstration projects.

78.
The Commission’s management of the RTD framework
programmes is financed from both the administrative (part A)
and the operating parts (part B) of the general budget (1). For the
resources coming from part B of the budget, Article 2 of each
Council Decision adopting a specific programme imposed a ceil-
ing on the Commission’s administrative expenditure as a propor-
tion of the total budget (2). These ceilings are set to cover the
administrative expenditure for both current and previous frame-
work programmes. They are set at 9,8 % of the total expenditure
for the horizontal programmes ‘Confirming the International role
of Community research’ and ‘Improving the human research
potential and the socioeconomic knowledge base’, 7,5 % for the
thematic programme ‘User-friendly information society’, 7,4 % for
the horizontal programme ‘Promotion of innovation and encour-
agement of small and medium sized enterprises participation’ and
6,5 % for the thematic programmes ‘Quality of life and manage-
ment of living resources’, ‘Competitive and sustainable growth’
and ‘Environment, energy and sustainable development’. The ceil-
ings were respected for each programme. The Court notes,

77.
There was also an unbalanced distribution of staff between
programmes, comparison being made on the basis of number of
contracts signed. For the ‘User-friendly information society’ pro-
gramme, for example, total staff numbers allocated to the pro-
gramme are significantly higher than for other FP5 programmes,
despite the project’s being no more complex. The Court found
that internal controls performed more effectively in those Com-
mission services which allocated a comparatively higher share of
staff resources to the administration of proposals, contracts, and
projects (see paragraphs 90 to 95).

(1) Decision No 182/1999/EC of the European Parliament and of the

Council; Article 2.4.

(2) The administrative expenditure charged to the operating part of the
budget covers research and external staff, missions and administra-
tion (including technical evaluation assistance), infrastructure, move-
able property and data processing and communication activities (see
for instance European Parliament, ‘Final adoption of the general bud-
get of the EU for the financial year 2001’ (2001/110/EC, ECSC, Eu-
ratom; OJ L 56, 26.2.2001): subsection B6-RTD, Title B6-6).

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however, that these ceilings were set without an independent
external analysis of the actual resources needed by the Commis-
sion to manage the RTD framework programmes.

An alternative measure of the proportion of the budget
79.
that went to the administration of the RTD framework pro-
grammes between 1999 and 2002 is to look at the percentage of
the total budget which was allocated to indirect RTD actions.
Given that the contracts for indirect RTD actions signed between
1999 and 2002 covered a maximum financial contribution of
12 303,6 million euro, and a total amount of 13 141,0 million
euro was committed (see Annexes 2A and 3A), 837,4 million euro
(6,4 % of the total budget) went to the administration of the RTD
framework programmes. However, this figure does not take into
account the administrative expenditure allocated to the manage-
ment of the RTD framework programmes that was financed from
part A of the general budget.

The Commission does not yet operate an analytical cost
81.
accounting system sufficient to determine the actual cost for the
management of a specific programme or RTD framework pro-
gramme. Such a system would require, inter alia, a time recording
system to register the staff resources employed on specific admin-
istrative activities. It could help the Commission to identify where
staff resources could be used more efficiently. As currently used,
the Activity Based Budgeting system can measure the expenditure
from the part B of the general budget for RTD framework pro-
grammes as a whole, but it cannot measure the operating cost of
a thematic or horizontal programme or a specific RTD Frame-
work Programme.

IT support for proposal, contract and project management

FP5 IT systems: integration, availability of functions, quality
and costs

Inadequate tools to monitor actual resource allocation

No integration of management information systems across FP5

80.
The Commission monitors the allocation of resources,
including staff resources, in its Activity Based Budgeting (ABB)
system. The general budget for the financial year 2004 will be the
first budget officially based on this structure. For monitoring the
real cost of implementing specific programmes, or an RTD Frame-
work Programme as a whole, the Activity Based Budgeting system
has, however, the following deficiencies:

— it measures budgetary expenditure rather than actual costs
incurred for the Commission’s operation of a programme,

82.
The inadequacy of IT support for the RTD framework
programmes has been repeatedly criticised by the Court, and also
by external experts (1). The main structural weakness of the FP5
IT architecture is the insufficient integration of management infor-
mation systems with each other and with the SINCOM account-
ing system. This lack of integration between the IT systems oper-
ated by the five Directorates-General prevents automatic and
efficient consolidation of information, for example on the finan-
cial and legal situation of participants, cost reimbursement sys-
tems used by one contractor under different contracts, hourly
rates stated in the contract preparation forms or the audit history
of the contractors. As a consequence the efficiency and effective-
ness of internal controls were reduced when negotiating contracts
for indirect RTD actions, verifying cost statements or authorising
payments (see paragraphs 92, 93 and 95).

— staff resources allocated to the programme, but financed
from the administrative part of the budget (part A), are not
included in this measure, but are recorded separately,

Inadequate IT support also due to insufficient investment

— Activity Based Budgeting records budgetary expenditure for
activities which, in the case of the RTD framework pro-
grammes, do not necessarily relate to specific programmes.
In addition, costs incurred for the completion of a pro-
gramme after the end of the official programme period are
accounted for under the subsequent framework programme
(see paragraph 34). With the current specifications these
activities cannot be used to identify the expenditure related
to the complete life cycle of a specific programme or a
framework programme as a whole.

83.
The level and quality of the IT support for the administra-
tion of FP5 proposals, contracts and projects showed inadequa-
cies throughout the period covered by this audit. While the details
differ from system to system and from component to component,

(1) Annual report concerning the financial year 2000 (OJ C 359,
15.12.2001), paragraph 4.36; Special Report ‘Fisheries, agricultural
and agro-industry research’ No 9/99, paragraph 114; External Frame-
work Programme Monitoring Panel (FPMP), ‘2001 Monitoring Report
on the EU framework programme for RDT’, 2002: point 4.1 Central
Management Issues, p. 24.

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the large majority of IT problems encountered in FP5 were due to
the unavailability or unreliability of certain functions. The central
management information systems in most Directorates-General
were either made available late or, if available at the start of FP5,
were incomplete or considered inadequate by users. In 1999
operational directorates at Directorate-General for Research started
local IT development projects to compensate for the lack of an
efficient and reliable central IT system for proposal and contract
management. Such IT development activities, addressing specific
weaknesses of central systems as well as the development of addi-
tional local applications, continued throughout FP5. Up until the
end of the FP5 programme period the central IT systems in some
Directorates-General were still only being partly used (e.g. con-
tract and project management in the Directorate-General for
Enterprise), incomplete (e.g. support for all model contracts),
duplicated by local applications without interface to central IT
systems or lacking important functions (e.g. the recording of
project deliverables).

Development of an integrated IT system for FP6

86.
In line with recommendations made by the Court, the
Commission committed itself to implementing a common IT sys-
tem for electronic proposal submission, identification and selec-
tion of experts, proposal evaluation and the selection of propos-
als for funding from the start of FP6 (2002-2006) (3). According
to the Commission, this new IT system will allow computerised
transaction processing at every stage of the procedure, including
contract negotiation, the transmission of contracts, the receipt of
project deliverables (such as reports and financial statements) and
communication with participants. In the Court’s view there should
also be a centralised support function ‘Information technology’
operating this common IT system (see paragraph 122).

84.
The Commission indicated that the late adoption of the
legal bases (Decision No 182/1999/EC, Council decisions adopt-
ing specific programmes and rules for participation) left insuffi-
cient time for the development of adequate IT systems, since the
detailed requirements specific to each programme could not be
determined before the formal adoption by the Council and the
Parliament (1). The weaknesses identified were, however, also due
to the absence of an overall IT strategy for FP5 and insufficient
coordination between Directorates-General in IT planning, acqui-
sitions, systems development and data management. These prob-
lems were compounded by the additional need to maintain dif-
ferent IT systems for the management of indirect RTD actions
relating to previous framework programmes (see paragraph 34).

The Commission estimated the total cost related to IT
85.
support for the period 1999 to 2002 at less than 0,2 % of the
total budget of FP5, excluding the costs related to the Commis-
sion’s website CORDIS. This level of investment is insufficient,
given the size and complexity of FP5. The reformed Financial
Regulation promotes a more extensive use of electronic exchange
and storage of data (2). An IT system based on electronic data
exchange at all stages of the procedure would offer the potential
for significantly increasing the cost efficiency of the framework
programme management.

Internal control procedures

Control procedures at Commission level

Lack of documentation of operational procedures

87.
The Commission’s administrative reform launched in
1999 aims at decentralisation and giving increased responsibility
to managing departments. On the other hand, implementation of
a framework programme must be based on a common set of
principles and procedures. The tension between these orienta-
tions is at the root of the difficulties experienced by the
Directorates-General in their joint management of FP5.

88.
The need for a harmonised set of procedures for all
Directorates-General operating FP5 was addressed by the Council
and the European Parliament in their Decision 182/1999/EC
requiring the Commission to establish and publish a detailed
manual of operational procedures from the submission of a pro-
posal to the selection of indirect RTD actions. In response the
Commission adopted an Evaluation Manual at the beginning of
FP5. This Evaluation Manual was however insufficiently detailed
for use as a manual of operational procedures. Furthermore the
manual was incomplete in that some procedures leading to the
selection of RTD actions, especially the procedure for the negotia-
tion of proposals, were only partially covered (4). The inadequate
coverage of the negotiation phase was partly due to the redesign
of procedures in FP5 which resulted in the negotiation phase
being moved to precede the formal adoption by Commission
decision (see paragraph 65).

(1) Commission reply to Annual report concerning the financial year

2000, paragraph 4.36 (OJ C 359, 15.12. 2001).

(2) Article 84 of the new Financial Regulation states that ‘where revenue
and expenditure operations are managed by means of computer sys-
tems, documents may be signed by a computerised or electronic pro-
cedure’.

(3) Annual report concerning the financial year 2000, paragraph 4.27

(OJ C 359, 15.12. 2001).

(4) Annual report concerning the financial year 2000, paragraphs 4.23

and 4.24.

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In some instances more detailed manuals or comprehen-
89.
sive guidelines were prepared and used at the level of operational
units and programmes or within a Directorate-General. For
example Directorates-General for Information Society and Energy
and Transport started their documentation of financial circuits
and procedures as early as 2000. The development of manuals
was continued in 2001 or, as in the case of Directorate-General
for Research, only started in that year (1). For Directorate-General
for Research, with the exception of the financial circuits, the
operational manual was still largely incomplete as at December
2002. Moreover, no initiative was taken by the Commission to
standardise the form and content of these manuals as recom-
mended by the Court (2). As a result, for FP5 as a whole, the docu-
mentation of operational procedures was still insufficient to com-
ply with the minimum requirement of the Commission’s Internal
Control Standards (3). This deficiency contributed to continued
differences in procedures and working practices between the
Commission services (see paragraph 51).

Differences in the extent of internal control across FP5

90.
Based on the sample of indirect RTD actions audited by
the Court, differences in the type and extent of controls operated
by the different Commission services implementing FP5 were
found. Some of the deficiencies in internal control can be attrib-
uted to differences in the procedures applied, the absence of cer-
tain controls or inconsistent interpretations given to procedures
in place and controls foreseen (see paragraph 35).

There were specific weaknesses in internal control for the
92.
negotiation of the scientific, administrative and financial aspects
of indirect RTD actions (see paragraph 65):

— for most of the audited proposals, the scientific, administra-
tive and financial aspects to be modified as a result of the
evaluation by external experts were not sufficiently well
documented when the selected proposals were adopted after
the evaluation. At the end of the negotiation phase most
Commission services neither documented its outcome (except
for the contract itself), with details of the extent to which the
negotiation mandate was respected, nor subjected the nego-
tiation outcome to formal authorisation by the official respon-
sible for the programme in advance of its adoption by Com-
mission decision. In one case an indirect RTD action was
included in a draft Commission decision despite the contract
negotiation not being adequately completed,

— the Commission services did not check the adequacy of con-
tractors’ accounting systems during the negotiation. Such a
control could have provided additional assurance of the par-
ticipant’s compliance with the contractual requirements
regarding the recording of time actually spent. Nor did the
Commission services verify whether participants used a uni-
form cost reimbursement system (see paragraph 26). Simi-
larly the legal and financial viability of contractors was not
verified for all participants in FP5 indirect RTD actions. At
Directorate-General for Research, a preliminary check of
contractors’ legal and financial viability was implemented
only from the end of 2001 onwards. When this control was
carried out, it was not based on standardised rules and cri-
teria. Similarly actions aiming to protect the Community’s
financial interest were not harmonised across FP5. These
controls could have been facilitated by a centralised ‘registra-
tion and clearing’ support function for registering proposals
and verifying the legal and financial viability of contractors
(see paragraph 122).

91.
The tests of the most important controls for the sample
of 53 contracts for indirect RTD actions revealed that some were
not being operated effectively and consistently. For example, not
all of the controls explicitly provided for in the Evaluation Manual,
such as the verification of formal administrative eligibility of pro-
posals received, the prior authorisation of the experts carrying
out evaluations, the participation rule for evaluators or the veri-
fication of no conflict of interest for all experts, were being fully
implemented across FP5. In several cases the controls carried out
were not evidenced in the form of a document or a record indicat-
ing what controls had been carried out, and by whom.

93.
There were other deficiencies with regard to the commit-
ment procedure and contract signature as well as the authorisa-
tion of advance payments. In particular persistent difficulties were
encountered in the management of contract amendments, from
the timely identification of contracts where amendments were
required to the excessive duration of the amendment procedure.
In several instances this resulted in a build-up of modifications in
the set-up of the consortium and the project before the contract
had finally been amended.

(1) Directorate-General for Energy and Transport published on 1 Janu-
ary 2003 a fully revised version of its internal operational procedures,
covering both research and non-research activities. However, this
manual does not specifically cover the management of the FP5, since
its programming period has been completed in December 2002. The
procedures for FP6, although foreseen in the manual, were not yet
documented.

(2) Annual report concerning the financial year 2000, paragraph 4.38.
(3) Communication SEC(2003) 1287 of 26 November 2003.

94.
In some cases the Commission did not terminate con-
tracts, although the original scientific objectives could clearly not
be attained by the consortium at all or could not be attained
within the period defined in the contract. It would be easier to
avoid such cases, and the Commission’s scientific monitoring of
indirect RTD actions could be significantly enhanced, if periodic
(or at least mid-term) evaluations, where appropriate with the
support of external experts, were to be carried out for ongoing

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23.4.2004

projects within all programmes. For FP5 only the programme
‘User-friendly information society’ systematically required these
periodic evaluations during the project duration.

ment costs or hourly overhead rates) with national administra-
tions in charge of public research funding were not offered to the
Commission. Similarly, cases were found where procedures that
were applied within the participating organisations (and which
would have resulted in a lower financial contribution by the Com-
munity) were not applied to projects funded by the Commission.

As regards the verification of the eligibility and accuracy
95.
of costs claimed by final beneficiaries and the processing of cost
claim based payments, there were various cases where the scope
and rigour of the controls carried out by the Commission were
insufficient, leading to overpayments by the Commission, although
not of a material level. Examples include the acceptance of cost
statements that used cost reimbursement systems other than those
stated in the contract, the processing of cost statements contain-
ing insufficient details of the costs incurred or prepared in unac-
ceptable formats (for instance not detailing all the information
required by the standard model) as well as cost statements con-
taining clearly ineligible costs. In one case the Commission con-
tinued to accept the budgeted hourly rates for personnel claimed
by a participant, although the Commission had previously been
informed that a financial audit of the same contractor by the
Court had found these rates to be overcharged (see paragraph 98).
This indicates that procedures for following-up of audit findings
are not yet sufficiently well developed (see paragraph 100).

Compliance with contractual provisions at beneficiary level

Prevalence of irregularities at final beneficiary level

96.
Up to September 2001, the Commission services autho-
rised payments related to project deliverables received and accepted
for a total of 28 out of the 53 indirect RTD actions sampled by
the Court. All these contracts were audited by the Court at the
final beneficiary level. The objective of these financial audits was
to verify that costs declared by the beneficiary and accepted by
the Commission were incurred in reality, eligible and claimed in
compliance with the contractual obligations.

Impact of errors found by the Court

98.
When evaluating the impact of its audit findings the
Court applied a strict interpretation of the legal base and the con-
tractual provisions for determining the Community’s financial
contribution. Within the sample of contracts audited at final ben-
eficiary level there were two cases where the contractor was not
eligible for co-financing. In all but one of the remaining 26 con-
tracts for FP5 indirect RTD actions, relating to 33 cost statements,
the beneficiaries had overstated the eligible costs. The rate of over-
declaration for this sample of 26 contracts was material. For 25
out of the 26 audits considered as closed by the Directorates-
General as of January 2004, the Commission services proceeded
with financial adjustments averaging 21,6 % of the costs declared
by the beneficiaries. This adjustment rate is an average for the
sample of indirect RTD actions audited by the Court. In the Court’s
view, this rate cannot be extrapolated to the total budget of FP5.
Although most of the irregularities could only be detected during
on-the-spot audits, there were a number of errors which could
and should have been detected by the Commission services when
verifying cost statements before the authorisation of payments.
The errors were not detected because checks were either non-
existent or inadequate (see paragraph 95).

Late payments caused by coordinators and the Commission

97.
In a significant number of cases beneficiaries did not
comply with the contractual provisions, particularly in respect of
the calculation methodology applied to determine the costs
declared or the justification of the costs incurred. In other cases
claims for costs outside the eligibility period or for ineligible
expenditure were submitted to and reimbursed by the Commis-
sion. In some cases agreements (for example on average employ

99.
The contract for FP5 indirect RTD actions specifies maxi-
mum periods for payments, both for the Commission (60 days
after contract signature for advance payments and, for periodic
payments, after approval of project deliverables) and for the coor-
dinator who distributes the Community contribution to all par-
ticipants (30 days after receipt of the funds paid by the Commis-
sion). In several cases the coordinator had delayed the transfer of
the European Union contribution to the other participants in the
consortium. In addition there were some instances of late pay-
ments by the Commission.

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Inadequacies in the follow-up of audit findings by the Commission

100.
For a significant number of contracts audited by the
Court, the Commission had accepted the factual findings but not
taken the appropriate corrective action in due time (1). Also, in
many cases where corrective action was taken, the recovery of
funds unduly paid was delayed. Moreover, in the case of system
related audit findings (such as incorrect calculation methodology
used by a beneficiary), the Commission’s follow-up procedures
should provide for verification of the extent to which other con-
tracts with the participant are subject to similar problems.

Reporting on programme implementation and internal
controls

In most cases the reports were statistical tables without
103.
any explanation, comment or analysis. Evidence that the reports
were regularly submitted to, and used by, management was pro-
vided for only a small number of reports. No report brought
together management information for FP5 as a whole. The form,
but also the content, of reports to management varied between
parts of programmes jointly operated by different Commission
services.

104.
Organisational responsibilities for reporting within the
Commission are unclear and the absence of a centralised ‘control-
ling and reporting’ support function for FP5 leads to a duplica-
tion of reports for the same aspects (see paragraph 122). In none
of the five Research Directorates-General were there procedures
and practices to ensure that management-level information is pre-
pared and communicated on time, and is accessible in a standar-
dised format. With the exception of Internal Control Standard 12
‘Adequate Management Information’, there are no guidelines that
define minimum requirements for management reports in terms
of form, frequency, content or level of detail. Many of the Court’s
findings in this area are supported by external experts (2).

Adequacy and appropriateness of FP5 reporting

FP5 reporting is mainly oriented towards operational and financial
aspects

Reporting as a tool for monitoring programme implementation and
internal controls still under development

105.
The main elements of budgetary and financial monitor-
ing were adequately covered in the reporting to management for
FP5. In particular, nearly all targets and performance indicators
defined up until the end of 2002 related to budgetary execution
or financial management.

101.
Reporting should support Directors and Directors-
General as (sub-delegated) authorising officers in their tasks of
monitoring programme implementation and ensuring that inter-
nal controls are functioning effectively and efficiently. To be of
use in day-to-day programme management reports should cover
all relevant operational, financial and compliance-related infor-
mation. Information should also be presented on time and man-
agers must have confidence in its accuracy.

106.
As far as reporting on operational aspects of FP5 is con-
cerned, more than half of the reports cover the procedures up to
the signature of the contract for an indirect RTD action. However
no report is generated on the actual implementation of projects
after contract signature, in terms of project deliverables received,
project status against objectives and previously defined milestones
or results of scientific evaluations of ongoing projects.

102.
Although there are a large number of different reports,
shortcomings remain as regards the reports on programme imple-
mentation and the internal control system. In 2002 many pro-
grammes and directorates were still developing reporting tools for
FP5, and other Commission services had yet to provide reports
containing anything more than statistics on budgetary implemen-
tation.

107.
Only a limited number of reports cover compliance-
related aspects of programme implementation. Except for those
indicators suggested by the Internal Control Standards or specific
‘White Paper’ actions, such as the reduction of payment times, the
five Directorates-General have not agreed any performance indi-
for monitoring the non-financial aspects of FP5.
cators

(1) Annual report concerning the financial year 2002 (OJ C 286,

28.11.2003), paragraphs 6.61 to 6.64.

(2) External Framework Programme Monitoring Panel (FPMP),

‘2001
Monitoring report on the European Union framework programme
for RDT’, 2002.

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Innovative operational, financial and compliance-related targets
or indicators, such as the ‘time-to-contract’ indicator used by
Directorate-General for Information Society, are limited to some
parts of FP5 only. Due to the absence of such information, com-
prehensive monitoring of programme implementation is hin-
dered.

108.
The audit did not identify any report that brought
together information on the input into FP5 programmes and their
deliverables. Such a report would be very useful for assessing the
efficiency and effectiveness of Community financing. It appeared
that the assessment of scientific results and of the impact of indi-
rect RTD actions is not yet covered by formal reporting to man-
agement.

Reporting affected by weaknesses of IT systems

109.
The central IT systems did not provide sufficiently reli-
able statistics, mainly because of differences in data structure and
level of detail
in local applications, encoding errors and the
absence of reconciliation procedures verifying the consistency
and integrity of data following up-loads from local applications
or IT systems used under previous framework programmes. Most
reports were produced on the basis of data contained in the dif-
ferent, often local, IT applications. Since reporting relies on infor-
mation from a large variety of different sources there is a signifi-
cant risk of inconsistencies in the data reported (see paragraph 82).

Compliance of reporting with Internal Control Standards

110.
The key principles of the Commission’s administrative
reform are decentralisation and the taking of responsibility by
management departments, accompanied by increased transpar-
ency and accountability of the Commission services (1). Report-
ing to senior management on programme implementation and
the efficient and effective functioning of internal controls are
essential in creating this transparency and accountability. Four of
the Commission’s internal control standards, adopted in 2001,
are of particular relevance for management reporting (2):

(1) European Commission, ‘A new framework for resource management
and internal auditing in the Commission’, 22 February 2000: Chap-
ter 4.

(2) European Commission,

‘Standards for internal control within the
Commission’s services’ (SEC(2000) 2203 of 2 February 2001 (second
version dated 18 December 2001).

— Standard 7: ‘Objective setting’: each Directorate-General has
to identify and, since 2001, publish general policy objectives
in its mission statement and its Annual Activity Report. In
addition, the Directorates-General operating the RTD frame-
work programmes have defined specific objectives within
the framework of Activity Based Management (ABM). In
respect of FP5, the objectives for 2002 documented in their
annual management plans or work plans, were, however,
neither uniform nor comparable (3). Perhaps surprisingly,
the five Directorates-General did not all refer explicitly to the
RTD framework programmes when setting their objectives.
Unless the Directorates-General jointly agree on harmonised
objectives, it is unlikely that common performance indica-
tors can be defined for the RTD framework programmes,

— Standard 10: ‘Monitoring performance against objectives and
indicators’: except for the indicators provided for in the legal
bases, or those which are mandatory according to the inter-
nal control standards, no indicators have been agreed, nei-
ther by the five Directorates-General operating the RTD
framework programmes, nor within the
individual
Directorates-General. Efficient and effective programme
supervision for the RTD framework programmes would
require the definition of such indicators (see paragraph 107),

— Standard 12: ‘Adequate management information’: none of
the five Directorates-General operating the RTD framework
programmes compiled a ‘scoreboard’ report, as required in
this standard, by December 2001, the deadline set by the
Commission. The ‘scoreboard’ reports introduced in 2002
still did not comply fully with the requirement of the stan-
dard,

— Standard 18 ‘Recording of exceptions’: none of the reports
examined by the Court provides for compliance-related infor-
mation on management intervention involving potential
deviations from established policies, procedures or controls.
The lack of centralised recording and standardised reporting
makes it difficult for the Directors-General and their internal
audit capabilities to monitor whether internal controls are
functioning.

CONCLUSIONS AND RECOMMENDATIONS

Intervention mechanisms and rules for the Community’s
financial contribution

111.
In the Court’s view, the large number of different model
contracts deployed by the Commission for the five types of indi-
rect RTD actions unnecessarily increased the complexity of the
administrative processes and entailed additional costs for the

(3)

In addition, most of the objectives stated were not specifically linked
to FP5 or time dependent, referred to other documents, were difficult
to measure or described activities rather than actual objectives.

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implementation of FP5. Both the implementing regulation and
the model contracts were adopted late. Accompanying measures
were found to be a particular risk area, due to their being used for
measures that are on the borderline between subsidies and public
procurement (see paragraphs 9 to 20).

112.
The high level of detail and the complexity resulting
from the rules for the Community’s financial participation require
an excessive administrative effort from both contractors and
Commission in their management of proposals, contracts and
projects. The newly introduced full cost flat rate (FF) system was
aimed at simplification, but in fact provided an incentive for par-
ticipants to change to a more advantageous funding mechanism.
Differences between Commission services in the legal interpreta-
tion of the provisions contained in the implementing regulation
persisted throughout the FP5 programme period (see para-
graphs 21 to 35).

113.
The Court considers that the cost reimbursement sys-
tems provided for FP6 constitute an improvement compared with
FP5, especially as regards the correction of the excessive flat rate
for indirect costs under the full cost with indirect flat rate costs
(FCF) reporting model. However, since there are still three differ-
ent cost reporting models, there has been no major simplification.
Furthermore, the complete elimination of cost categories in FP6
reduces the transparency of the financial statements required for
the declaration of eligible costs incurred and reduces the potential
for analytical checks (see paragraphs 36 to 41).

The European RTD framework programmes are becom-
115.
ing ever more complex, both for participants and for the Com-
mission services in charge of their administration. For future
framework programmes, a simplified set-up could be envisaged,
with the Commission concluding contracts with the coordinators
of indirect RTD actions only. The Commission should also review
from first principles the rules for setting the Community’s par-
ticipation, aiming for significant simplification whilst allowing
adequate control over expenditure in a future FP7. The Court’s
previous recommendation of a single cost reimbursement system
with three main categories of costs should be one of the main ele-
ments to be considered.

FP5 management structure, procedures and methods

116.
The joint administration of FP5 programmes by five
Directorates-General has effectively created separate, mostly
autonomous management structures. It has resulted in dilution of
responsibilities, duplication of functions and increased need for
coordination and consultation. The separation of programmes is
contrary to the initial intention of unified research programmes
in FP5. Moreover the basic design of programmes composed of
key actions is not adequately reflected in the organisational struc-
ture of the Commission. The Court also considers that the five
Directorates-General operating the RTD Framework Programmes
did not succeed in adequately coordinating and harmonising their
approaches and procedures. In the Court’s view the concept of
five Directorates-General jointly implementing the RTD Frame-
work Programmes is not conducive to the most efficient use of
Community funds (see paragraphs 46 to 57).

114.
The Court welcomes the introduction of visible and dis-
suasive sanctions for FP6, which should provide an additional
deterrent to participants overclaiming costs. The new requirement
for the certification of financial statements for indirect RTD actions
by an external auditor is a further positive development. However
additional clarification of the audit scope, reporting obligations
and the Commission’s role in verifying the adequacy of audit cer-
tificates is required (see paragraphs 42 to 45).

117.
The procedures for FP5 and administrative practices
result in a process duration of eight to nine months from the
reception of the proposals for indirect RTD actions to the signing
of a contract. This is too long, especially if the Commission wants
to attract state-of-the-art research activities to the European RTD
framework programmes. The Commission’s administration of
FP5 suffered from a lack of sufficiently qualified staff, for admin-
istration and IT-support in particular, and from an excessive reli-
ance on non-permanent staff. Given the highly complex research
projects involving an approximate average of seven different par-
ticipants, there were insufficient staff resources available for the
scientific monitoring of indirect RTD actions. The uneven case-
load during the year contributes to administrative delays and defi-
ciencies in internal controls and reduces the overall system effi-
ciency (see paragraphs 58 to 77).

C 99/32

EN

Official Journal of the European Union

23.4.2004

The ceilings on the administrative expenditure covered
118.
by the operating part of the budget were respected by all FP5
programmes. However these ceilings were set without prior inde-
pendent analysis of the resources needed to manage the RTD
framework programmes. An alternative measure of the propor-
tion of the budget that went to the management of the RTD
framework programmes, based on the comparison of resources
allocated to indirect RTD actions with the overall budget, indi-
cates that 837,4 million euro (6,4 % of the total budget) was uti-
lised for the administration of the framework programmes for the
period 1999 to 2002. The Commission does not yet have adequate
tools for monitoring its resource allocation. The ceilings on admin-
istrative expenditure adopted by the Council, although monitored
by the Commission, are not the most effective or relevant mea-
sure of the operating cost for each of the programmes, or for an
RTD framework programme as a whole (see paragraphs 78 to
81).

The Court recommends that the structure of the frame-
119.
work programme and the organisation of the Commission ser-
vices which manage it be brought into line. The basic design of
research programmes as single programmes should be reflected
in the organisational structure of the Commission. Horizontal
aspects, such as support for small and medium-sized enterprises
or international cooperation, should be integrated as far as pos-
sible within the thematic programmes. The completion of previ-
ous framework programmes, including FP5, would also be facili-
tated if they were allocated to units specifically established for the
task.

The Commission should further improve the flexibility
120.
of the RTD framework programme and streamline its internal
procedures and practices. The Court recommends that adminis-
trative procedures be simplified, with the aim of halving the ‘time-
to-contract’ to between five and six months. The planning of calls
for proposals should aim at a balanced caseload throughout the
year, allowing a better use of staff resources. In respect of the con-
tract management for indirect RTD actions, the simplification of
procedures should be accompanied by a strengthening of the role
of administrative and scientific coordinators. In particular, the
consortium should be given the power to terminate the participa-
tion of any non-performing participant. The Commission is
encouraged to make more use of periodic scientific and technical
evaluations of ongoing projects, with the support of external
experts where necessary. In the Court’s view, the scientific excel-
lence of RTD actions funded through the Community could be

further enhanced if the Commission’s procedures provided for a
certain proportion of RTD actions to be eliminated following a
mandatory mid-term evaluation, in order to allow concentration
of funding on the RTD projects with the highest likelihood of suc-
cess.

In future the Commission should recruit staff in the
121.
research area on the same conditions and with the same career
perspectives as in other areas. For those staff managing the sci-
entific aspects of research programmes, however, the Court con-
siders that fixed-term contracts are appropriate. Particular atten-
tion should be paid to reducing the number of vacancies and
achieving an equitable allocation of staff resources, based on
actual and expected caseload figures, between Directorates-General
and between programmes. This would require the implementa-
tion of appropriate monitoring instruments in the framework of
Activity Based Budgeting (ABB). In particular the Court recom-
mends the implementation of a time recording system within the
Commission, to monitor staff resources employed on specific
management activities.

122.
Many of the Court’s audit findings highlight the need
for increased coordination and cooperation to ensure the coher-
ence of the Framework Programme. In this respect the audit iden-
tified several areas where support functions could be centralised
and services provided for the Framework Programme as a whole
(see paragraph 64). In particular the Court recommends that the
Commission considers setting-up centralised support functions
for:

— ‘procedural and legal advice’ (see paragraph 35),

— ‘information technology’ (see paragraph 86),

— ‘registration and clearing’ (see paragraph 92), and

— ‘controlling and reporting’ (see paragraph 104).

123.
Enhanced coordination and cooperation between Com-
mission services is limited by the organisational autonomy of its
Directorates-General. For centralised and clearly assigned man-
agement responsibility to be achieved, all operational framework
programme activities would have to be combined within a single
organisation. The Court recommends that the Commission analy-
ses the possibility of merging the RTD framework programmes in
a single entity. This would also promote the adoption of common
standards and procedures and facilitate budgetary control. In
addition the elimination of
(across
Directorates-General, but also within programmes) would result
in additional efficiency gains. With a view to the future design of
an FP7 from 2007 onwards, the reorganisation of the Commis-
sion services after enlargement, and the future organisation of

redundant

functions

23.4.2004

EN

Official Journal of the European Union

C 99/33

other European research programmes such as COST (1), Eureka (2)
and the European Research Fund (successor to the European Coal
and Steel Community), various options could be considered for
carrying out the framework programme activities within a single
entity, for example:

— option 1: all activities to be merged under a Directorate-
General for ‘Research’ covering the operational, framework
programme-related aspects, as well as policy-related aspects;

same for all services operating FP5, the Commission has not
developed a common or integrated IT system to handle propos-
als, contracts and projects. In the Court’s view, the level and qual-
ity of IT support for the administration of FP5 proposals, con-
tracts and projects showed serious inadequacies which impaired
the execution of the Framework Programme and diminished the
reliability of the Commission’s internal statistics. Insufficient finan-
cial and human resources were devoted to IT development and
support (see paragraphs 82 to 85).

— option 2a: an operational Directorate-General for ‘RTD frame-
work programmes’ to be set up alongside a Directorate-
General for ‘Research Policy’ dealing solely with policy aspects.
The operational activities of implementing the framework
programmes could also be performed by the Commission’s
Joint Research Centre;

— option 2b: the Directorate-General for ‘Research Policy’ could
also be complemented by an executive agency pursuant to
Council Regulation (EC) No 58/2003 (3) or a body pursuant
to Article 185 of the Financial Regulation applicable to the
general budget (4). All operational aspects of the implemen-
tation of the RTD framework programmes could then be
delegated to this executive agency or body.

IT support for proposal, contract and project management

No significant improvement in the IT support has been
124.
achieved by the Commission for FP5 compared with FP4 (1994
to 1998). Although the management system is essentially the

(1) COST (Cooperation in the field of scientific and technical research) is
a European research framework resulting from two exchanges of notes
between the Council of the European Community and the contract-
ing States in 1969 and 1970. It has been progressively extended to
several States that are not members of the European Community. Fol-
lowing the Council decision of 18 July 1978 (OJ C 100, 21.4.1979) the
Commission undertakes a significant part of the secretarial work
under delegation from the Council. Under FP5 it was funded through
the programme ‘Confirming the International role of Community
research’ (including cooperation of the States associated to FP5) and
by the non-member countries that participate in COST (through con-
tributions to the Community budget following a decision by the com-
mittee of COST senior officials dated June 1992).

(2) Eureka is a pan-European network for market-oriented, industrial
research and development, encouraging a bottom-up approach to
technological development and to strengthen the competitive posi-
tion of European companies on the world market. Eureka was estab-
lished in 1985 by 17 countries and the European Union. By the end
of 2003 it is supported by 29 countries and the European Commis-
sion. Its organisational structure is composed of four main bodies: the
Ministerial Conference, a high level group, national project coordina-
tors and the Eureka Secretariat in Brussels as central support unit
(www.eureka.be).
(3) OJ L 11, 16.1.2003.
(4) Council Regulation (EC) No 1605/2002 of 25 June 2002: Articles 54

to 56 (OJ L 248, 16.9.2002).

125.
Against the background of increasing application of IT
to the needs of the public sector, as advocated by the ‘eEurope’
initiative and the internal ‘eCommission’ strand of reform, the
Commission should continue its implementation of a common
and integrated IT system. In particular, the development of the IT
system should be based on clearly defined user requirements and
provide for comprehensive testing of the software before the pro-
grammes actually become operational.

As far as possible, paper-based transactions should be
126.
phased out during FP6, with the aim of achieving complete elec-
tronic interaction in FP7. Electronic data exchange would permit
to further reduce process times and administrative errors in the
handling of proposals, contracts and project deliverables. This
requires, however, not only technological harmonisation but also
standardised rules and operational procedures that are followed
by all Commission services across the framework programme.

Internal control procedures

127.
With regards to internal controls it appears that all five
Directorates-General operating the RTD framework programmes
have made a significant effort to fulfil the Commission’s internal
control standards (5). However, considering the requirements
defined in the legal bases of FP5 and Internal Control Standard 15,
operational procedures for FP5 were not adequately documented.
Given the continued absence of comprehensive manuals of admin-
istrative procedures, the Commission can provide no assurance as
to the degree to which internal processes and working methods
were coherently and consistently applied by all Directorates-
General and programmes for the period 1999 to 2002 (see para-
graphs 87 to 89).

(5) Annual report concerning the financial year 2000, paragraph 4.57;
Annual report concerning the financial year 2002, paragraph 6.44 to
6.46.

C 99/34

EN

Official Journal of the European Union

23.4.2004

The Court’s tests of control revealed that a number of
128.
controls have not been effectively or consistently operated by all
Directorates-General and programmes. Important elements of the
control system were either not applied systematically or, mainly
with regard to the negotiation of proposals for indirect RTD
actions, were found to be lacking in most Commission services.
Particular deficiencies were noted in the verification of cost state-
ments and the subsequent authorisation of cost claim based pay-
ments, although not of a material level (see paragraphs 90 to 95).

129.
This was borne out by the results of the Court’s finan-
cial audits of indirect RTD actions, which revealed a significant
incidence of errors. Beneficiaries had overstated the eligible costs,
in all but one of the 26 contracts audited on the spot. Given the
frequency and level of errors found, the Court has serious con-
cerns about the legality and regularity of cost claim based pay-
ments authorised by the Commission for FP5 as a whole. Accord-
ing to the audit work done, there has been no overall improvement
compared with previous framework programmes (see para-
graphs 96 to 100).

130.
Internal control activities should be harmonised and
their implementation strengthened across the framework pro-
gramme. In particular, the Commission services should jointly
define the relevant and necessary controls which address the
known risks in this budgetary area. Implementing these controls
should then be mandatory for all programmes and all Directorates-
General, in order to ensure an adequate minimum level of control
across the whole of the framework programme.

131.
The use of preventive controls should be intensified.
These include the provision of manuals and job descriptions. Most
importantly, however, the Commission should increase the finan-
cial and legal training of staff involved in control activities.

The Court urges the Commission to continue its efforts
132.
to audit a significant proportion of the contractors participating
in the RTD framework programmes. In particular it welcomes the
fact that the Commission has set a clear and measurable objec-
tive of 10 % of contractors during FP5 (1). It is recommended that
the audit strategy be further adapted to take account of the modi-
fications of the control environment in FP6.

Reporting to management

134.
The Commission’s reporting systems did not capture all
pertinent operational, financial and compliance-related informa-
tion and communicate it to the Directors and (deputy) Directors-
General in a standardised form. So far no performance indicators
have been agreed by the Commission for the non-financial man-
agement aspects of the framework programme. Similarly, stan-
dardised reporting on the scientific results of FP5 has not yet been
implemented by the Commission and no report brings together
information comparing the input and output of FP5 programmes.
Except for budgetary and financial matters, the Court considers
that the reports to management did not permit adequate monitor-
ing of the specific programmes, or of FP5 as a whole. Although
significant improvement has occurred since the beginning of FP5,
further effort is needed to comply with the requirements of the
Commission’s Internal Control Standards (see paragraphs 101 to
116).

Management reports should contain operational, finan-
135.
cial and compliance-related information that makes it possible to
monitor implementation of the framework programme and the
efficient and effective functioning of internal controls. The Court
recommends that the Commission develop a comprehensive
reporting and controlling system for the RTD framework pro-
grammes. Such a system should entail the use of indicators, which
permit benchmarking between Commission services and pro-
grammes, as well as a comparison between different framework
programmes.

In order to achieve full compliance with the Internal
136.
Control Standards, the Commission should agree on common (or
at least, harmonised) objectives for the research area and the
implementation of the RTD framework programmes, in line with
the guidelines on defining objectives and indicators established by
the Secretariat-General of the Commission. Based on these objec-
tives more operational performance indicators should be defined,
as required by the Internal Control Standards, and, if possible,
agreed jointly by all Directorates-General.

Overall conclusion

133.
Finally, the performance of internal control systems
needs to be monitored. One of the key tasks of the new Internal
Audit capabilities should be to carry out regular and programmed
reviews determining whether all relevant and necessary controls
have been instituted and whether these controls are functioning
effectively.

(1) Annual report concerning the financial year 2000, paragraph 4.57.

137.
FP5 is characterised by the complexity of the rules appli-
cable to its intervention mechanisms, which are often not fully
understood by the participants in indirect RTD actions. The con-
tradictions between the Commission’s decentralisation following
its administrative reform and the joint management of an RTD
framework programme were found to lie at the heart of many of
the deficiencies identified by this audit, and were compounded by
the inconsistent organisational structure of the five Directorates-
General operating the RTD framework programmes. Further-
more, the Commission was not able to devote a sufficient level of
human resources to the implementation of FP5, which contrib-
uted to the significant level of irregularities observed by the Court.

23.4.2004

EN

Official Journal of the European Union

C 99/35

The management tools supporting the implementation of FP5,
which were steadily improved during the period, still remained
inadequate in several areas as of 2002.

and, last but not least, an adequate level of staff resources should
be devoted to the scientific and financial administration of pro-
posals, contracts and projects.

FP6 will offer an opportunity for improving the effec-
138.
tiveness and efficiency of the Commission’s management of the
RTD framework programmes, in particular by adopting an organi-
sational structure which meets real operational needs. Common
IT systems and centralised support functions should be set up,

The rules for setting the Community’s financial partici-
139.
pation in the RTD framework programmes should however be
reviewed from first principles, with the aim of eliminating unnec-
essary complexity in the forthcoming FP7 so as not to compro-
mise effective and adequate control over expenditure.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 12 February 2004.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

C 99/36

EN

Official Journal of the European Union

23.4.2004

AAR

Annual Activity Report

LIST OF ABBREVIATIONS

ABB

AC

Activity-Based Budgeting

Additional Cost system / Additional Cost with indirect flat rate costs reporting model

Cordis

‘Community Research and Development Information Service’ — Commission research website

COST

Cooperation in the field of scientific and technical research

CPF

DG

EC

Contract Preparation Form

Directorate-General

European Community

EESD

Theme IV of FP5 — Energy, environment and sustainable development

EESD-NNE Theme IV of FP5 — Energy, environment and sustainable development — Non-nuclear energy

EESD-ENV Theme IV of FP5 — Energy, environment and sustainable development — Environment

EP

FC

European Parliament

Full cost system / Full cost with actual indirect costs reporting model

FCF

Full cost with indirect flat rate costs reporting model

FF

FP

FP4

FP5

FP6

Full cost flat rate system

Framework programme

European Community fourth framework programme covering research, technological development and dem-
onstration activities (1994 to 1998)

European Community fifth framework programme covering research, technological development and demon-
stration activities (1998 to 2002)

European Community sixth framework programme covering research, technological development and dem-
onstration activities (2002 to 2006)

GROWTH Theme III of FP5 — Competitive and sustainable growth

IHP

Fourth activity of FP5 — Horizontal theme ‘Improving human research potential and the socioeconomic
knowledge base’

INCO

Second activity of FP5 — Horizontal theme ‘Confirming the international role of Community Research’

INTAS

International Association for the Promotion of Cooperation with scientists from the new independent States of
the former Soviet Union

IST

KA

OJ

QoL

RTD

SME

Theme II of FP5 — User-friendly information society

Key actions

Official Journal

Theme I of FP5 — Quality of life and management of living resources

Research, technological development and demonstration activities

Third activity of FP5 — Horizontal theme ‘Promotion of Innovation and Small and Medium-sized Enterprises
(SME) participation’

WTO

World Trade Organisation

23.4.2004

EN

Official Journal of the European Union

C 99/37

ANNEX 1

FP5 BUDGET (1998 TO 2002)

(million euro)

FP5-EC

FP5-Euratom

FP5

Indirect actions: Thematic and horizontal
programmes

12 961

100 %

979

100 %

13 940

100 %

THEMATIC PROGRAMMES

10 843

84 %

979

100 %

11 822

85 %

Quality of life and management of living resources
Six key actions
Generic research and activities to support infrastructures
User-friendly information society
Four key actions
Generic research and activities to support infrastructures
Competitive and sustainable growth
Four key actions
Generic research and activities to support infrastructures
Environment, energy and sustainable development
Six key actions (EC)
Two key actions (Euratom)
Generic research and activities to support infrastructures (EC)
Generic research and activities to support infrastructures
(Euratom)

2 413
1 860
553
3 600
3 120
480
2 705
2 122
583
2 125
1 921

204

19 %

28 %

21 %

16 %

979

100 %

930

49

17 %

26 %

19 %

22 %

2 413
1 860
553
3 600
3 120
480
2 705
2 122
583
3 104
1 921
930
204
49

HORIZONTAL PROGRAMMES

2 118

16 %

2 118

15 %

International role of Community research
Promoting innovation and the participation of SMEs
Improving human research potential and the socio-
economic knowledge base
One key action (13 % of horizontal programme)

Direct actions: Joint Research Centre (EC and
Euratom actions)

4 %
3 %
10 %

475
363
1 280

166

739

281

3 %
3 %
9 %

475
363
1 280

166

1 020

Source: Decision No 182/1999/EC, Article 2 and Annex III; Council Decision 1999/64/Euratom, Article 2.

FP5 Grand total

13 700

1 260

14 960

C 99/38

EN

Official Journal of the European Union

23.4.2004

23.4.2004

EN

Official Journal of the European Union

FP5 COMMITMENT APPROPRIATIONS

AND OUTTURN (1999 TO 2002)

ANNEX 2A

Budget line

Description

QoL — B6-6 1 1

B6-6 1 1 0

B6-6 1 1 1

IST — B6-6 1 2

B6-6 1 2 0

B6-6 1 2 1

GROWTH — B6-6 1 3

B6-6 1 3 0
B6-6 1 3 1

EESD — B6-6 1 4

B6-6 1 4 0

B6-6 1 4 1

EESD — B6-6 1 5

B6-6 1 5 0

B6-6 1 5 1

INCO — B6-6 2 1

B6-6 2 1 0

B6-6 2 1 1

SME — B6-6 3 1

B6-6 3 1 0

B6-6 3 1 1

IHP — B6-6 4 1

B6-6 4 1 0

Quality of life and
management of living
resources
Administrative
expenditure
Operating expenditure
User-friendly informa-
tion society
Administrative
expenditure
Operating expenditure
Competitive and
sustainable growth
Aministrative expenditure
Operating expenditure
Environment, energy
and sustainable develop-
ment — Environment
Administrative
expenditure
Operating expenditure
Environment, energy
and sustainable develop-
ment — Energy
Administrative
expenditure
Operating expenditure (in
1999: B6-6 1 4 2)
Confirming the
international role of
Community research
Administrative
expenditure
Operating expenditure
Promotion of innova-
tion and encouragement
of participation of SMEs
Administrative
expenditure
Operating expenditure
Improving the human
research potential and
the socioeconomic
knowledge base
Administrative
expenditure
Operating expenditure

budget (1)

1999
outturn (2)

539,9

537,2

539,9

858,5

858,5

630,6

630,6

217,7

217,7

217,7

537,2

857,6

857,6

629,5

629,5

217,5

217,5

215,8

217,7

215,8

74,4

74,3

74,4

54,0

74,3

37,1

54,0

37,1

298,7

298,5

%

99,5

n/a

99,5

99,9

n/a

99,9

99,8

n/a
99,8

99,9

n/a

99,9

99,1

n/a

99,1

99,8

n/a

99,8

68,7

n/a

68,7

99,9

n/a

budget (1)

2000
outturn (2)

581,6

579,0

28,3

553,3

894,1

67,9

826,2

667,0

28,3
638,7

256,6

17,2

239,4

242,1

14,1

228,0

27,0

552,1

892,4

66,2

826,1

658,0

27,0
630,9

253,7

15,9

237,8

236,1

13,2

222,8

118,1

117,8

11,4

106,7

121,8

7,9

114,0

11,2

106,6

105,7

5,5

100,3

315,7

314,9

%

99,6

95,3

99,8

99,8

97,5

100,0

98,6

95,5
98,8

98,9

92,5

99,3

97,5

93,8

97,7

99,8

98,3

99,9

86,8

69,7

88,0

99,8

16,5

15,8

95,6

B6-6 4 1 1

100,0
98,8
(1) Commitment appropriations taking into account supplementary budgets and transfers as well as appropriations carried over, re-use of revenue and revenue made available as a
participation of third parties (see Decision No 182/1999/EC, Article 2 and Annex III, published in OJ L 26, 1.2.1999, p. 4 and 28 as amended by Decision 2001/692/EC on the
adjustment of the financial perspective to take account of the conditions of implementation, published in OJ L 246, 15.9.2001, p. 29, footnote (1).

298,7
2 891,6

299,2
3 196,9

298,5
2 867,5

299,1
3 157,6

99,9
99,2

Total FP5

(2) Appropriations utilised, including appropriations carried over from the previous year, re-use of revenue and revenue made available as a result of participation of third parties, other

earmarked revenue and appropriations made available again.

(3) Total commitment appropriations taking into account supplementary budgets and transfers as well as re-use of revenue and revenue made available as a participation of third parties

(see Decision No 182/1999/EC, Article 2 and Annex III). Appropriations carried over have not been taken into account.

(4) Appropriations utilised, including re-use of revenue and revenue made available as a result of participation of third parties, other earmarked revenue and appropriations made avail-

able again. Appropriations carried over have not been taken into account.

Source: European Commission, Revenue and expenditure accounts 1999 and 2000, Annual accounts 2001 and 2002.

budget (1)

2001
outturn (2)

647,4

642,9

31,6

615,8

954,2

69,6

884,6

722,5

34,3
688,2

298,6

15,5

283,1

283,8

15,9

268,0

29,5

613,4

952,5

68,5

884,0

717,5

32,1
685,4

292,2

14,8

277,4

280,5

15,4

265,1

138,5

138,0

12,2

126,3

125,7

6,3

119,3

11,8

126,2

99,6

6,0

93,6

331,4

330,3

20,2

311,2
3 502,1

19,3

311,1
3 453,5

%

99,3

93,3

99,6

99,8

98,3

99,9

99,3

93,6
99,6

97,8

95,6

98,0

98,8

97,0

98,9

99,7

96,9

99,9

79,3

95,6

78,4

99,7

95,3

99,9
98,6

budget (1)

2002
outturn (2)

694,1

692,2

35,3

658,8

964,2

71,3

892,9

748,0

38,3
709,7

338,1

19,2

318,9

319,6

17,7

301,9

33,56

658,7

963,5

71,22

892,3

747,4

37,80

709,6

335,6

16,9

318,7

318,5

16,6

301,9

%

99,7

95,1

100,0

99,9

99,9

99,9

99,9

98,6
100,0

99,2

87,7

99,9

99,7

94,1

budget (3)

1999-2002
outturn (4)

2 460,9

2 451,4

95,2

2 365,7

3 670,9

208,9

3 462,1

2 768,1

101,0
2 667,2

90,0

2 361,4

3 666,0

205,9

3 460,0

2 752,4

97,0
2 655,4

1 111,0

1 099,0

52,0

47,7

1 052,3

1 051,4

1 063,2

1 050,8

47,7

45,3

100,0

1 014,7

1 005,5

153,3

153,0

99,8

484,4

483,2

12,7

140,7

96,1

7,7

88,4

12,4

140,6

94,7

7,0

87,7

359,2

357,5

24,0

335,2
3 672,6

23,0

334,5
3 662,3

97,9

100,0

98,6

91,6

99,2

99,5

95,7

99,8
99,7

36,3

448,1

397,6

21,8

347,3

35,5

447,7

337,2

18,5

318,7

1 305,1

1 301,2

60,7

58,0

1 244,3
13 261,1

1 243,2
13 141,0

C 99/39

(million euro)

%

99,6

94,5

99,8

99,9

98,6

99,9

99,4

96,0
99,6

98,9

91,7

99,9

98,8

95,0

99,1

99,8

97,7

99,9

84,8

84,9

91,8

99,7

95,6

99,9
99,1

C 99/40

EN

Official Journal of the European Union

23.4.2004

23.4.2004

EN

Official Journal of the European Union

ANNEX 2B

FP5 PAYMENT APPROPRIATIONS

AND OUTTURN (1999 TO 2002)

Budget line

Description

QoL — B6-6 1 1

B6-6 1 1 0

B6-6 1 1 1

IST — B6-6 1 2

B6-6 1 2 0

B6-6 1 2 1

GROWTH — B6-6 1 3

B6-6 1 3 0

B6-6 1 3 1

EESD — B6-6 1 4

B6-6 1 4 0

B6-6 1 4 1

EESD — B6-6 1 5

B6-6 1 5 0

B6-6 1 5 1

INCO — B6-6 2 1

B6-6 2 1 0

B6-6 2 1 1

SME — B6-6 3 1

B6-6 3 1 0

B6-6 3 1 1

IHP — B6-6 4 1

B6-6 4 1 0

B6-6 4 1 1

Quality of life and
management of living
resources
Administrative
expenditure
Operating expenditure
User-friendly informa-
tion society
Administrative
expenditure
Operating expenditure
Competitive and
sustainable growth
Administrative
expenditure
Operating expenditure
Environment, energy
and sustainable develop-
ment — Environment
Administrative
expenditure
Operating expenditure
Environment, energy
and sustainable develop-
ment — Energy
Administrative
expenditure
Operating expenditure (in
1999: B6-6 1 4 2)
Confirming the
international role of
Community research
Administrative
expenditure
Operating expenditure
Promotion of innova-
tion and encouragement
of participation of SMEs
Administrative
expenditure
Operating expenditure
Improving the human
research potential and
the socioeconomic
knowledge base
Administrative
expenditure
Operating expenditure

Total FP5

budget (1)

1999
outturn (2)

70,1

30,1

70,1

175,4

175,4

118,4

118,4

33,6

33,6

21,7

21,7

20,4

20,4

14,3

14,3

72,4

30,1

163,0

163,0

40,5

40,5

10,6

10,6

10,5

10,5

15,5

15,5

4,7

4,7

13,0

72,4
526,3

13,0
287,9

%

42,9

n/a

42,9

93,0

n/a

93,0

34,2

n/a

34,2

31,6

n/a

31,6

48,4

n/a

48,4

75,9

n/a

75,9

33,0

n/a

33,0

18,0

n/a

18,0
54,7

budget (1)

2000
outturn (2)

355,6

351,7

27,6

327,9

554,0

69,2

484,7

451,1

28,5

422,6

166,9

16,8

150,2

141,9

14,6

127,2

70,6

11,9

58,7

66,9

7,9

59,1

25,2

326,5

507,6

64,5

443,1

324,0

25,3

298,7

135,2

14,0

121,2

92,3

11,5

80,8

69,5

10,9

58,6

39,3

4,9

34,4

213,3

203,7

16,7

196,6
2 020,3

15,0

188,6
1 723,3

%

98,9

91,2

99,6

91,6

93,2

91,4

71,8

88,7

70,7

81,0

83,5

80,7

65,0

78,5

63,5

98,5

92,3

99,8

58,7

62,3

58,2

95,5

89,6

96,0
85,3

(1) Payment appropriations taking into account supplementary budgets and transfers as well as appropriations carried over, re-use of revenue and revenue made available as a participa-
tion of third parties (see Decision No 182/1999/EC, Article 2 and Annex III, OJ L 26, 1.2.1999, p. 4 and 28 as amended by Decision 2001/692/EC on the adjustment of the financial
perspective to take account of the conditions of implementation, OJ L 246, 15.9.2001, p. 29, footnote (1).

(2) Appropriations utilised, including appropriations carried over from the previous year, re-use of revenue and revenue made available as a result of participation of third parties, other

earmarked revenue and appropriations made available again.

(3) Total payment appropriations taking into account supplementary budgets and transfers as well as re-use of revenue and revenue made available as a participation of third parties (see

Decision No 182/1999/EC, Article 2 and Annex III). Appropriations carried over have not been taken into account.

(4) Appropriations utilised, including re-use of revenue and revenue made available as a result of participation of third parties, other earmarked revenue and appropriations made avail-

able again. Appropriations carried over have not been taken into account.

Source: European Commission, Revenue and expenditure accounts 1999 and 2000, Annual accounts 2001 and 2002.

budget (1)

2001
outturn (2)

392,8

383,5

30,2

362,6

613,2

69,6

543,5

491,2

34,1

457,1

148,8

14,4

134,4

177,6

17,0

160,6

91,7

12,4

79,3

77,7

6,3

71,3

25,3

358,1

590,8

64,3

526,5

471,7

27,8

443,9

146,6

13,1

133,5

145,5

13,0

132,4

90,2

11,2

79,0

41,2

5,6

35,7

186,2

164,6

20,2

166,0
2 179,2

16,6

148,0
2 034,1

%

97,6

84,0

98,8

96,4

92,4

96,9

96,0

81,4

97,1

98,5

90,8

99,4

81,9

76,6

82,5

98,3

89,9

99,7

53,1

88,1

50,0

88,4

82,1

89,1
93,3

budget (1)

2002
outturn (2)

487,8

443,9

35,3

452,5

840,4

71,3

769,1

616,8

38,3

578,5

264,7

19,2

245,4

215,3

17,7

197,6

29,2

414,6

815,2

69,7

745,5

587,7

32,6

555,1

259,8

15,2

244,6

151,6

14,9

136,7

121,4

108,5

12,7

108,8

79,9

8,7

71,3

11,6

96,9

71,2

6,1

65,1

292,1

285,8

24,0

268,1
2 918,4

19,4

266,4
2 723,7

%

91,0

82,9

91,6

97,0

97,8

96,9

95,3

85,2

95,9

98,2

78,9

99,7

70,4

84,0

69,2

89,4

91,9

89,1

89,1

70,7

91,4

97,8

80,8

99,4
93,3

budget (3)

1999-2002
outturn (4)

1 306,3

1 209,1

93,1

1 213,2

2 182,9

210,2

1 972,7

1 677,5

101,0

1 576,5

79,8

1 129,4

2 076,7

198,6

1 878,1

1 423,9

85,7

1 338,2

614,0

552,1

50,4

563,6

556,5

49,3

507,2

42,2

509,9

399,8

39,4

360,4

304,1

283,7

36,9

267,2

238,8

22,9

216,0

33,7

250,0

156,5

16,6

139,9

764,1

667,1

61,0

703,1
7 644,1

51,0

616,1
6 769,0

C 99/41

(million euro)

%

92,6

85,7

93,1

95,1

94,5

95,2

84,9

84,9

84,9

89,9

83,8

90,5

71,8

79,8

71,1

93,3

91,3

93,6

65,5

72,6

64,8

87,3

83,7

87,6
88,6

C 99/42

EN

Official Journal of the European Union

23.4.2004

FP5 CONTRACTS FOR INDIRECT RTD ACTIONS (1999 TO 2003) — BY TYPE OF ACTION

ANNEX 3A

Action type

Number of
contracts
signed in
the period

%

Number of
contractors

%

Total FP5

Type-1 SHARED-COST ACTIONS

RTD projects

Demonstration projects

Combined RTD and demonstration project

Support for transnational access to major
research infrastructures

Cooperative research

Exploratory awards

Type-2 TRAINING FELLOWSHIPS

Marie Curie Individual Fellowships

INCO Individual Fellowships for Young
researchers from developing countries

Fellowships for Community Researchers

Fellowship to Japan

Marie Curie Development Host Fellowships

Marie Curie Industry Host Fellowships

Marie Curie stays at training sites

Type-3 SUPPORT TO NETWORK

Research training network

Thematic network (one or several contrac-
tors)

Type-4 CONCERTED ACTIONS

Concerted actions (single and multi-partner)

Type-5 ACCOMPANYING MEASURES

Accompanying measures (single and multi-
partner)

Accompanying measures specific to technol-
ogy take-up measures (single and multi-
partner)

High level scientific conference

Grant agreements

15 223

7 212

5 045

162

221

187

646

951

3 698

2 569

45

—

22

120

429

513

857

332

525

170

170

3 286

1 311

325

727

923

Source: European Commission, January 1999 to July 2003 (unaudited).

100

47

70

2

3

3

9

13

24

69

1

0

1

3

12

14

6

39

61

1

100

22

40

10

22

28

77 065

51 799

40 908

1 213

2 174

188

5 416

1 900

3 617

2 520

61

—

19

108

420

489

10 832

2 641

8 191

1 887

1 887

8 930

5 437

1 883

727

883

100

67

79

2

4

0

10

4

5

70

2

0

1

3

12

14

14

24

76

2

100

12

61

21

8

10

Total
eligible cost
as stated in
the
contracts
(million
euro)

19 979,0

16 839,0

14 200,2

1 058,6

709,7

125,1

717,6

27,9

512,8

284,4

1,1

—

2,7

29,4

89,7

105,5

942,6

456,7

485,9

115,7

115,7

1 568,9

900,4

418,1

95,4

155,1

%

100

84

84

6

4

1

4

0

3

55

0

0

1

6

18

21

5

48

52

1

100

8

57

27

6

10

EU-contri-
bution
contractu-
ally agreed
(million
euro)

12 303,6

9 689,4

8 554,8

313,8

322,5

120,8

356,4

21,0

512,8

284,4

1,1

—

2,7

29,4

89,7

105,5

910,6

444,0

466,5

110,6

110,6

1 080,3

688,3

256,6

35,6

99,9

%

100

79

88

3

3

1

4

0

4

55

0

0

1

6

18

21

7

49

51

1

100

9

64

24

3

9

23.4.2004

EN

Official Journal of the European Union

C 99/43

FP5 CONTRACTS FOR INDIRECT RTD ACTIONS (1999 TO 2003) — BY DIRECTORATE-GENERAL

ANNEX 3B

Directorate-General

Number of
contracts
signed in
the period

%

Number of
contractors

%

Total
eligible cost
as stated in
the
contracts
(million
euro)

%

EU-contri-
bution
contractu-
ally agreed
(million
euro)

%

Total FP5

DG Research

Type-1 Shared-cost actions

Type-2 Training fellowships

Type-3 Support to network

Type-4 Concerted actions

Type-5 Accompanying measures

DG Information society

Type-1 Shared-cost actions

Type-2 Training fellowships

Type-3 Support to network

Type-4 Concerted actions

Type-5 Accompanying measures

DG Energy and transport

Type-1 Shared-cost actions

Type-2 Training fellowships

Type-3 Support to network

Type-4 Concerted actions

Type-5 Accompanying measures

DG Enterprise

Type-1 Shared-cost actions

Type-2 Training fellowships

Type-3 Support to network

Type-4 Concerted actions

Type-5 Accompanying measures

DG Fisheries

Type-1 Shared-cost actions

Type-2 Training fellowships

Type-3 Support to network

Type-4 Concerted actions

Type-5 Accompanying measures

15 223

100

77 065

100

19 979,0

100

12 303,7

100

11 473

4 962

3 610

644

152

2 105

2 664

1 694

56

148

2

764

595

334

—

36

6

219

299

104

—

27

—

168

192

118

32

2

10

30

75

43

31

6

1

18

17

64

2

6

0

29

4

56

0

6

1

37

2

35

0

9

0

56

1

61

17

1

5

16

52 859

35 586

3 529

8 563

1 661

3 520

17 399

11 867

56

1 810

8

3 658

4 387

2 888

—

359

56

1 084

1 475

752

—

89

—

634

945

706

32

11

162

34

69

67

7

16

3

7

23

68

0

10

0

21

6

66

0

8

1

25

2

51

0

6

0

43

1

75

3

1

17

4

11 531,1

9 763,0

495,0

756,5

101,6

415,0

5 934,7

5 104,6

14,0

111,1

0,8

704,3

1 907,5

1 659,3

—

46,4

5,8

196,0

417,1

140,3

—

27,4

—

249,4

188,5

171,7

3,8

1,2

7,5

4,3

58

85

4

7

1

4

30

86

0

2

0

12

10

87

0

2

0

10

2

34

0

7

0

60

1

91

2

1

4

2

7 731,6

6 114,3

495,0

732,0

97,2

293,0

3 427,8

2 817,8

14,0

106,7

0,8

488,5

784,7

575,0

—

43,3

5,1

161,3

236,2

73,9

—

27,3

—

134,9

123,4

108,4

3,8

1,2

7,5

2,5

63

79

6

9

1

4

28

82

0

3

0

14

6

73

0

6

1

21

2

31

0

12

0

57

1

88

3

1

6

2

Source: European Commission, January 1999 to July 2003 (unaudited).

C 99/44

EN

Official Journal of the European Union

23.4.2004

THE COMMISSION’S REPLIES

SUMMARY

The schedule for adopting FP6 and its specific programmes

VI.
was treated as a priority and was complied with.

Community research policy andthe support of the Euro-
I.
pean research capacities have been considerably strengthened
through the successive framework programmes. In 2003 the
European Union set itself the objective of creating a European
Research Area (ERA) and to boost investment in research to 3 %
of the EU’s gross domestic product (GDP).

II.
Some delays have occurred, mainly in connection with the
adoption of a legal basis for FP5. However, most of the documen-
tation has been produced, thus enabling negotiations with par-
ticipants to be started. The number of different model contracts
has been reduced significantly in FP6, with only one model con-
tract for all indirect RTD actions (except for Marie Curie actions).
Specific annexes take account of the specificities required for the
main instruments.

III.
FP5 cost reimbursement systems reflect the provisions of
the legal basis. The Commission has initiated an in-depth reform
of the contractual and financial arrangements for Community
research programmes as part of FP6.

IV.
FP6 has resulted in major simplification as regards imple-
mentation of research actions. The Commission proposals were
essentially based on Court recommendations. However, they were
amended by the Council and Parliament.

The cost reimbursement system set up for FP6 is easier to imple-
ment from the perspective of participants and Commission depart-
ments alike. As such, it should protect the financial interests of
the Community more effectively. In addition to the sanctions pro-
vided for in the model contract and the FP6 participation rules,
the penalties laid down in Article 114 of the Communities’ new
Financial Regulation can be applied.

V.
The structure set up by the Commission has enabled syn-
ergies to be developed between research and other Community
policies. Responsibilities have been attributed accordingly and
common instruments have gradually been made available. Fur-
thermore, the joint management of programmes by different
Directorates-General is facilitated by a number of coordination
mechanisms.

All management procedures were set up in accordance with the
rules and objectives set out in the framework programme. The
time which elapsed before contracts were signed was used to
guarantee the quality of the crucial selection and negotiation
phases. Despite the European framework programmes being the
world’s largest research cooperation programmes, the length of
time-to-contract is shorter than in similar national and interna-
tional programmes.

Measures to reduce the length of procedures will be extended
under FP6 and will complement the new arrangements govern-
ing the entry into force of contracts introduced by the FP6 par-
ticipation rules.

In line with recommendations in the White Paper on Commis-
sion Reform, the Commission has addressed the specific difficul-
ties as regards staff policy in the research domain.

Simplified procedures and better planning should permit to even
out the caseload under FP6, improving internal control and speed-
ing up processes.

VII.
The Commission has implemented FP5 within the bud-
get adopted by the European Parliament and the Council. The
alternative measure proposed by the Court is not the one required
by the rules.

The staff allocation is presented in the Annual Management Plan
in accordance with the newly introduced Activity-Based Budget-
ing (ABB) since 2002, but 2004 will be the first year where the
General Budget will be officially based on this new system. The
Activity-Based Budgeting methodology further increases the trans-
parency of the Commission’s budgetary management.

VIII.
The progressive integration of IT systems has improved
significantly throughout the FP5 programme period. Moreover,
IT-support in FP5 compares favourably to that in FP4.

For FP6, deployment of management instruments, including cen-
tralised support functions, reflects the Commission’s policy of
increased coordination between departments.

Specific deficiencies identified by the Court are addressed by the
Commission in the development of a common IT system for FP6.
This system will be deployed in 2004.

23.4.2004

EN

Official Journal of the European Union

C 99/45

The Commission takes the view that there is no contra-
IX.
diction between the administrative reform aims and the need for
the different research directorates-general to use common prin-
ciples and procedures. Greater decentralisation of responsibilities
does not mean that they are not properly defined or create bar-
riers to effective cooperation.

Further to the Court audit, with a view to FP6 and the ongoing
financial reform, the Commission has already improved several
aspects of its internal control mechanisms. The Commission
established a joint action plan for the directorates-general con-
cerned in 2003.

X.
The Commission acknowledges the problem, which is due
to the fact that the Community’s financial contribution is paid on
the basis of eligible costs incurred, as declared by the final ben-
eficiaries. The accuracy of these costs and their conformity with
the contractual provisions cannot be completely and accurately
verified by the Commission prior to the authorisation of pay-
ments. Only a financial audit at the beneficiary level can deter-
mine with certainty and accuracy the correctness of the costs
claimed and their conformity to the contractual provisions.

With a view to reducing the incidence of errors, the Commission
increased the ex post controls and drew up an action plan based
on the synthesis of the 2001 Annual Activity Reports which has
been implemented and is monitored on a regular basis. In addi-
tion in FP6, audit certificates from beneficiaries will be required.

The Commission’s internal reporting to Directors and
XI.
(deputy) Directors-General is characterised by the different roles
and responsibilities of decentralised and centralised management
functions within the Directorates-General and FP5 programmes.
Within each Directorate-General, senior management meetings
are the engine of the management and supervision information
system.

INTRODUCTION

Since it was launched in the 1960s, significant changes
4.
have occurred in Community research policy. In particular as a
result of the successive framework programmes, the European
research capacity has been considerably strengthened. The Single
Act, followed by the Treaties of Maastricht, Amsterdam and Nice,
has confirmed the importance of research policy in the European
Union. At the Lisbon Summit the European Union has launched
the initiatives known as ‘Towards a European research area (ERA)’
and ‘eEurope’, thereby underlining the fundamental role that
research must continue to play in the move towards a knowledge-
based European Union.

5.
The European Union has set itself the task, in the RTD
field, of creating a European Research Area, which will be a ‘single
market’ and a coordination centre for the Member States’ research
activities and policies.

The budgets allocated to the European RTD framework pro-
grammes are still significantly smaller, both in absolute terms and
per capita, than those allocated to non-European research pro-
grammes such as the National Science Foundation (NSF), the
United States Federal Agency for the Promotion of Basic Research
and Education.

As back-up for national efforts, the RDT framework programmes
are designed to boost research investments. In addition, private
investment has been significantly increased and covers two thirds
of the expenditure necessary to reach an investment level equiva-
lent to 3 % of the EU’s gross domestic product (GDP).

AUDIT OBSERVATIONS

In addition to the formal internal reporting to management, the
Commission produces, as required by the legal base, an extensive
reporting to external users such as programme committees, exter-
nal advisory groups or monitoring panels.

12.
The Commission confirms that some delays in contract
negotiation and signature occurred in the first year of the FP5
programme period.

The Commission’s Internal Control Standards were in effect only
for part of the period covered by the Court’s audit. This has to be
taken into consideration when assessing the findings presented by
the Court. The deployment of the common IT system for FP6 will
help to improve management reporting.

The late availability of the model contracts should not have posed
major problems to potential contractors. The relevant informa-
tion with respect to determining their estimated budgets was
available in the implementing regulation and the model contracts
merely put this into contractual form, along with other contrac-
tual details.

C 99/46

EN

Official Journal of the European Union

23.4.2004

The main model contracts were available in all official
14.
languages and translations were always possible when required.
Given the variety of nationalities and languages involved, most
research consortia use English as the language of their own choice
for communication. As a result the overwhelming majority of FP5
contracts were signed in English. Unless the contract is signed in
a language other than English, only the English version is legally
binding.

The administrative burden associated with the implemen-
17.
tation of these provisions results from the financial and legal cer-
tainty required in order to manage contracts of this type. Under
the legal provisions governing FP5, all contracting parties enter
into a legal commitment by signing contracts individually. The
purpose of these arrangements is to clarify the existence of a
direct relationship between the Community and participants, not-
withstanding differences in terms of the rights and obligations
resulting from their investment in the indirect action.

As far as the availability of key documents in different languages
is concerned, it is important to note that the research website
Cordis has been developed with an explicit multilinguistic
approach which provides different language versions of relevant
information to the possible extent.

15.
The complexity of the contract management processes
has been addressed in FP6. The approach chosen for FP6 is based
on two principles:

— differences between instruments are primarily differences
between aims and not legal differences, and should therefore
be treated as such,

— a modular approach whereby instruments’ legal peculiarities
— e.g. additional obligations — must be distinguished from
general and common provisions.

By dint of these principles, for seven of the eight instruments, the
contract includes:

— a ‘core contract’ common to these instruments,

— an Annex II
instruments.

(general conditions) common to these

Three instruments (STREP, CA and SSA) use only these two docu-
ments. For four instruments, four Annexes III, each less than five
pages long, complement the two aforementioned documents.

For the eighth instrument, ‘actions for the promotion and devel-
opment of human resources and mobility’, covering 14 activities
or ‘sub-instruments’ based on different financing mechanisms and
the same principles, the contract consists of the following:

— a core contract,

— a common Annex II (general conditions),

— 10 or so Annexes III.

Lastly, there is the particular case of letters of contract for experts
and the use of Commission standard contracts for public procure-
ment.

The amendment policy initially proposed for FP5 was rather cum-
bersome and did indeed lead to certain cases of a de facto veto
right where all signatories were required to sign each and every
amendment. However, this has been addressed still in FP5 and
simpler processes for contract amendments (including mandates
to the coordinator for signature) have been drawn up. The re-
allocation of budgets does not necessarily require the signature of
all contractors.

Under FP6, the legal liability of the various parties is governed by
simplified arrangements (signature and entry into force, amend-
ments) which should enable Commission management proce-
dures to be reduced to the strict minimum without sacrificing
protection of the Community’s financial
interests (see para-
graph 42).

18.
Indirect actions as defined by the relevant legal basis may
well be implemented by both grants and procurement according
to the specific legal provisions. The Commission has implemented
the different types of actions according to the provisions in the
legal basis and by use of the model contracts as foreseen.

The grant agreement contract was used for ad hoc applications
for subventions for actions like workshops, seminars and confer-
ences. For this type of grants, the Commission standard foresees
to limit overheads to 7 % of direct costs. The use of the type of
contract depends on the nature of the action.

For FP6, the distinction between actions to be implemented by
grants or by public procurement has been clarified through the
rules of participation.

Given the nature of these types of indirect RTD actions,
19.
the Commission considers that flat rates for the reimbursement
of indirect costs are appropriate. The use of flat rates is a major
element of simplification, in particular for the consideration of
indirect cost or overheads. This is also recognised by the Court
(see paragraph 36).

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For Thematic Networks (type-3) and Concerted Actions (type-4)
the flat rate for indirect costs, which is set at 20 % of direct costs
excluding subcontracting, is considered sufficiently low to make
it unlikely that profits can be made on overheads.

20.
INTAS was not created by the Commission but by the
Community represented by the Commission at the request of the
Council, its Member States and third countries, all members of
that association. INTAS competencies are not the ones of the
Commission or of the Community, but missions commonly estab-
lished by those abovementioned public bodies member of INTAS.
The Community retains its full competencies with regard to inter-
national cooperation in the field of science and technology with
newly independent States.

Under FP6, taking into account the new rules for participation
(Article 9.2.a) and the new Financial Regulations (in particular
Article 160(3) of the implementing rules of the Financial Regula-
tion), the Community’s financial contribution will be made as a
membership fee to INTAS. The rest shall be considered as a grant
and subject to rules and procedures defined in the rules for par-
ticipation and the Financial Regulation.

Indeed, contractors using the Additional Cost (AC) system usu-
ally cannot determine with sufficient accuracy the actual costs of
their recurring resources contributed to the indirect RTD action.
However, the estimate of permanent personnel hours contributed
to the project must be indicated in the contract preparation form
(CPF) and the results of the work contributed are indicated in the
periodic progress reports submitted. In some cases, the number
of person-hours contributed by these people is specifically men-
tioned in the progress reports submitted to the Commission.

Under FP6 projects, in view of the new Financial Regulation,
Additional Costs (AC) contractors will be required to identify the
other resources contributed to the Community funded project
and to provide an estimate of the costs of those other resources.

The Commission does not systematically verify the capac-
26.
ity of the accounting system of each participant prior to signing
a contract. It is expected that the contractors can understand and
apply these underlying rules and requirements of the contract
correctly.

The quality assessment of the account system is initially based on
declarations made by the participants themselves, inter alia, on the
contract preparation form. This information cannot be checked
until an ex post audit is carried out on the final recipient.

Further to an audit carried out by the Commission’s own internal
audit capabilities, new procedures for monitoring and payment
have been defined and INTAS’ statutes have been amended at the
request of the Commission representing the Community in order
to avoid future potential conflicts of interests.

Under FP6 this assessment is one of the elements which must be
certified by the recipient’s external auditor (see paragraphs 44 and
45).

21.
The Community framework for State aid provides that in
case of a combination of research State aid with Community
financing, the Commission must take into account the effect on
competition and trade. Thus, where Community financing and
State aids are combined, total public support may not exceed
75 % in the case of industrial research and 50 % in the case of pre-
competitive development activities.

The use of the two cost categories newly introduced in

27.
FP5 was optional.

Under FP6, costs have to be calculated in accordance with the
normal and legal accounting rules and practices, and no longer
based on contractually imposed cost categories that can be con-
sidered artificial in comparison with the accounting principle of
final beneficiaries (see paragraph 39).

24.
When setting up FP6, the Commission took account of
the somewhat complex nature of the FP5 cost reimbursement
systems. In principle, the same cost reporting model has to be
used by one contractor in all actions carried out under FP6, except
in some justified cases (see paragraph 38).

The FP5 model contracts allow contractors to move up
28.
to 20 % of their budget between categories without any amend-
ment to the contract and to move between themselves up to 20 %
of their budgets without any prior Commission’s approval.

As indicated by the Court, the determination of the exact
25.
cost of these resources is not necessary, as the framework pro-
gramme allows the financing of 100 % of additional costs for
those contractors permitted to use this system for substantiating
and justifying costs incurred. The principle of funding all addi-
tional cost is that it is a proxy for funding half the full costs.

This provides a certain level of flexibility for the execution of
Community funded research projects. More important move-
ments are possible by means of amendments to the contract.

The simplification in FP6 provides for substantially increased flex-
ibility for the consortia as no pre-defined cost categories exist
anymore (see paragraph 39).

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Recipients must meet their contractual obligations. The
29.
FP5 model contract allows the use of average rates for personnel
cost as long as they do not significantly differ from the general
principle of a reimbursement of actual costs incurred.

The implementing regulation gave no authority to the
32.
Commission services to negotiate at their own initiative the flat
rate of overheads with contractors proposing to use the FF sys-
tem. It clearly indicates that the flat rate for indirect costs to be
applied is 80 % of personnel costs.

The Commission shares the Court’s concern regarding simplifica-
tion and has initiated an in-depth reform of the contractual and
financial arrangements for Community research as part of FP6.
For FP6, the Commission — further to the clear provisions of the
model contract in this respect — made available on its model
contract website a ‘Guide to financial issues’ relating to FP6 indi-
rect RTD actions in order to give more detailed guidance.

30.
The use of flat rates can be seen as a major element of
simplification in particular for the consideration of indirect cost
or overheads. This is also recognised by the Court (see para-
graph 36).

As far as the appropriate level of such flat rates is concerned, it is
important to take into account the type of action and therefore
the relevance of such cost, as well as the base on which this flat
rate is applied.

The initial proposal of the Commission for the flat rate option
was increased to 80 % following discussions with the Member
States’ representatives.

The fact that the flat rate changed from 80 % of personnel costs
under FP5 to 20 % of all direct costs under FP6 does not imply
recognition by the Commission that the rate in itself was inap-
propriate in FP5 (see paragraph 38).

31.
In this case also, the opening of the full cost flat rate (FF)
system to all types of participants was requested by representa-
tives of the Member States.

For FP6, the new full cost flat rate reporting model (FCF) that
replaces the FP5 Full cost flat rate (FF) system, includes a flat rate
for indirect costs established at a level of 20 % of the direct costs
excluding the costs for subcontracting. This is the same rate used
for the Additional cost (AC) model (see paragraph 38).

The model contract for shared-cost actions for FP5 indicates also
that the rate shall be 80 % of personnel costs but ‘a contractor
may request a lower percentage when this is required, for instance,
by his internal rules.’

The Commission does not share the Court’s view that a more effi-
cient use of Community funds would have been achieved by
negotiating rates on a case-by-case basis.

33.
For accompanying measures, in some programmes spe-
cific negotiation guidance was provided to determine the rates of
overheads proposed, depending on the nature of the action being
carried out by the accompanying measure.

Even if negotiation of overhead rates had budgetary constraints as
their raison d’être in some cases, the alternative would have been
to lower the percentage rate of the Community financial contri-
bution in these contracts (Community contribution can be up to
100 %) and to use a higher overhead rate. The end result would
be the same.

The RTD framework programmes need to be updated,
34.
both in terms of contents and implementation mechanisms. When
proposing such modifications to the European Parliament and the
Council, the Commission takes into account the lessons learnt
from previous programmes.

A significant effort has been made in FP6 to simplify the admin-
istration of indirect RTD actions both for participants and the
Commission services implementing the RTD framework pro-
grammes (see paragraphs 36 to 45).

The Commission has made a concerted effort to ensure
35.
consistency and uniformity of legal interpretation and application
by means of the Action Plan established further to the Commis-
sion’s synthesis of the 2001 Annual Activity Reports (Communi-
cation from the Commission to the European Parliament and the
Council. Synthesis of the Annual Activity Reports and Declara-
tions of the Directors-General and Heads of Service. COM(2002)
426 final, Brussels, 24.7.2002).

In addition, the possibility to opt for the full Cost flat rate report-
ing model (FCF) is limited to small and medium-sized enterprises
and to legal entities eligible for the Additional cost (AC) model
(except for natural persons).

The inter-services group established in January 2003 pursuant to
this Action Plan (C(2002) 5558) will continue its work on the
coordination and application by different Directorates-General of
similar approaches in their contract management.

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Amongst other actions, the Commission has prepared financial
guidelines for participants in FP6 indirect RTD actions to clarify
the contractual obligations of beneficiaries (see paragraph 45).

Community research policy is not founded on the same level of
integration and funding as, for instance, Structural Funds policies.
To date, it reflects coordination rather than integration of national
policies.

38.
Major simplification has been achieved concerning the
rules governing the different cost categories and related issues like
budget transfers between categories and between contractors.

Maintaining three different cost reporting models has the added
benefit to contractors that the basic principles for determining the
costs incurred for an indirect RTD action, initially established
under FP5, have continued into FP6 (see paragraph 34).

In its initial proposals for FP6, the Commission took up
39.
the recommendations of the Court’s Annual Report 2001. Coun-
cil and Parliament introduced modifications to the Commission
proposal on the Rules for Participation, which did not allow align-
ing fully to the Court’s recommendations.

The arrangements for FP6 are based on the five following prin-
ciples:

— definition of a strict cost eligibility framework,

The cost reimbursement models allowed by the legal framework
do not reflect the legal status of bodies participating in research
projects but their capacity to identify the real costs incurred for
the project. However, the principles of complementarity and addi-
tionality are used in the contract negotiation phase.

41.
Under FP6, resources made available by third parties may
be claimed as eligible cost, subject to a prior agreement and on
proper justification.

In addition, the FP6 model contract deals with the concerns
expressed by the Court by obliging recipients of Community funds
to notify the donor body of the use made of the resources it pro-
vided for the project funded by the Community. This public body
will therefore be able either to cancel the corresponding commit-
ments or to redeploy them to other objectives.

— participants will apply their own accounting principles and

rules,

The principle selected for FP6 places greater responsibil-
42.
ity on a consortium’s members than in the past and provides
increased protection for the Community’s financial interests.

— since the Commission cannot be fully conversant with these
rules, audit certificates will be used systematically (see para-
graphs 44 and 45),

The new mechanism provides better guarantees than was previ-
ously the case:

— an obligation for consortia to hand in a management report
demonstrating the link between resources input and work
carried out/findings,

— it forces contractors to continue indirect research action even

if one of them goes bankrupt,

— redeployment of resources to monitor the scientific quality
of projects, with the help of external experts, using simpli-
fied procedures (see paragraphs 94 and 121) and to ex post
checks (see paragraph 133).

— where contractors refuse to continue work on the project,
the mechanism provides for them to be penalised by recover-
ing all or part of the amounts owed by a defaulting contrac-
tor, without prejudice to the proceedings instituted in respect
of the contractor.

On that basis the Commission takes the view that the system set
up for FP6 is more rational and easier to implement for partici-
pants and Commission departments alike. It should therefore
protect the Community’s financial interests more effectively.

40.
The Commission has, in line with the reinforced require-
ments of the new Financial Regulation as of 2003, addressed this
issue with a new set of explicit rules in the model contract for
FP6.

43.
The penalties provided for in the participation rules and
in Article 114 of the Community’s new Financial Regulation
complement the provisions on ‘liquidated damages’ in the FP6
model contract. Hence any contractor responsible for an irregu-
larity will no longer be able to take part in FP6 activities. This
means that not only any proposal submitted by these contractors
for indirect RDT action will be ineligible but also that the contrac-
tors will be excluded from any other outstanding contracts in
which they are involved, irrespective of whether they have com-
mitted irregularities in connection with those contracts.

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Running pilot actions in FP5 helped the Commission in

44.
the further development of the audit certificate system in FP6.

The certification of cost statements by independent qualified
auditors should provide for a reasonable assurance as far as the
required reliability of cost claims of contractors in terms of legal-
ity and regularity is concerned.

The Commission has launched in 2003 an evaluation of the FP5
pilot action on audit certificates.

In the light of the new conditions governing this
45.
co-financing, which are based partly on audit certificates, the type
of checks to be carried out by the Commission for FP6 indirect
actions is different to the checks carried out for FP5 actions.

Information on personnel hours spent has to be reported in the
technical reports and the reconciliation of the scientific work and
the financial aspects should be easier as the justifications for the
latter are confirmed by audit certificate.

The external auditor must certify that the expenditure is eligible
and that it has actually been effected. For their part, the Commis-
sion departments must decide whether it is necessary to carry out
the RDT indirect action. This distinction makes the role of the
external auditor clearer.

In view of ensuring the effective use of this new instrument, the
Commission has prepared Financial Guidelines for participants in
FP6 indirect RTD actions, including a model for audit certificates.
These guidelines cover a number of relevant provisions to assure
consistency and quality of audit certificates (see paragraph 35).

The Commission will take the necessary steps to ensure quality
and overall consistency with the use of audit certificates.

46.
The main overall principle of the Commission’s organisa-
tion of the management of European research programmes is the
optimisation of support to and synergy with high priority policy
objectives, whilst respecting at the same time cost-efficiency con-
siderations. The organisational set-up evolves therefore necessar-
ily along changes in policy priorities. The volume and scientific
diversity of the framework programme as such and the need for
manageable bodies imply an organisational structure with specia-
lised entities. This requires both the provision of adequate sup-
port functions and appropriate coordination.

The Commission’s choice for the management structure of the
FP5 was motivated both by the aim of a certain concentration of
management responsibilities (seven Directorates-General were
involved in the FP4 compared to five Directorates-General in the
FP5) and by keeping and further strengthening of synergies with
and support to high priority policy areas.

In the case of the Directorate-General Information Soci-
48.
ety, synergies and mutual benefits between IST Research, the
policy to generate competition in the communication market and
initiatives to promote the effective deployment of applications
and content are widely recognised by key stakeholders across
Europe.

Independent from the organisational set-up for particular
49.
thematic research areas, the Commission pays much attention to
horizontal coordination between different inter-linked policy
domains, both within and across Directorates-General. With
respect to the coordination of the management of FP5 contracts,
an inter-service group was set up by the College further to the
Synthesis Report of the AAR 2001 reports, to cover issues relat-
ing to the management of FP5 and FP6 research contracts.

50.
The design of a specific programme as one entity does
not necessarily mean that it must be managed by one service in
the Commission.

The reorganisation of the Directorate-General for Research in
2001 needs also to be considered in the context of the reform that
is being implemented at the Commission’s level; in particular, the
objective of reinforcing the financial management of the opera-
tional services. Subsequently, the number of administrative and
financial units has been increased as a result of the reorganisation
of the corresponding responsibilities.

51.
Instruments such as the Cordis website provide access to
general, coordinated information. Regular meetings between the
research directorates are designed to harmonise the standpoints
of the Commission services. All the significant interpretation
questions are agreed in these meetings.

A helpdesk for each programme and for the framework pro-
gramme as a whole has been set up for FP6. Research operators
can also refer to a network of national contact points.

Partly with a view to assisting participants more effectively, the
Commission has set up — within the framework of Action 1 of
the action plan on follow-up to annual activity reports — an
interdepartmental group and a network of correspondents whose

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purpose is to ensure that contracts are interpreted in a more
cohesive fashion and to apply and exchange examples of good
practice. This action plan was adopted in January 2003 (see para-
graph 35).

The completion of earlier programmes was followed up through
close and regular monitoring of the budgetary execution at the
level of Directors.

Key actions have proved to be very successful in structur-

52.
ing the specific programmes.

53.
A significant participation of small and medium-sized
enterprises (SMEs) in the RTD framework programmes is set as an
explicit cross programme objective by the legislator in the legal
basis by means of a target percentage of 15 % across the board for
all programmes, as well as the specific horizontal programme and
‘Promotion of innovation and encouragement of small and
medium-sized enterprises participation’. Specific measures across
the different thematic programme are clearly necessary to achieve
this objective.

For FP6, the objectives relating to participation of legal entities in
accordance with the international cooperation interests have also
been integrated into the thematic priorities. In addition, there is a
special action for promoting the participation of SMEs. The target
of achieving 15 % participation from SMEs has also been inte-
grated into the whole framework programme and there is a par-
ticular action specifically for SMEs.

54.
Overall coordination is provided partly at Director-
General level and by specific interdepartmental structures set up
to ensure the necessary coordination. Examples include the inter-
departmental groups for evaluation matters and legal/contractual
issues and the external audit network.

55.
‘Groups of Directors’ were set up to ensure coordination
between thematic programmes and linked policy domains. In
November 2001 these groups were in addition assigned to exer-
cise the inter departmental consultation, according to the Com-
mission Empowerment Decision for FP5, which constituted an
important simplification of the decision-making process of FP5.

57.
The decentralised management approach used in FP5 has
in general been efficient and effective, with a balance between
adapting approaches to local needs and specific requirements.
Where needed coordination across FP5 was assured by appropri-
ate means.

For FP6 this approach will be continued, with more coordination
for the support functions but keeping the benefits of managing
the programme at the level of individual Directorates-General.

60.
The Commission agrees that the time from publication
of calls to contract signature as observed in the first phase of FP5
throughout the different programmes managed by different
Directorates-General was too long.

The Commission has made efforts to decrease ‘time to contract’,
in particular for Directorate-General Information Society, which
significantly reduced the average time-to-contract for the pro-
gramme ‘User-friendly information society’ (see paragraph 61).

Nevertheless, the ‘time-to-contract’ indicator has to be put into
context and used with care. The average of 263 calendar days
hides a considerable variety between types of actions and does
not take into account important constraints for contractors as
well as the Commission. Furthermore, the Commission’s perfor-
mance of the ‘time-to-contract’ compares favourably with other
research programmes.

As far as Directorate-General Information Society is concerned
internal coordination between different Directorates is assured by
weekly meetings of directors, whereas coordination between
Directorates-General at the level of work programmes, call for
proposals and project selection was assured by written interde-
partmental consultation.

61.
Since 2001 the Commission has attempted to tackle the
problem by simplifying its own internal procedures, for example
by decentralising decision-making in accordance with its own
internal rules (see paragraph 66), but also by requesting the req-
uisite information at an early stage and by collecting contractors’
signatures without awaiting finalisation of its internal procedures.

56.
Although the Directors-General and Directors assure the
overall responsibility, many of these issues are dealt with prima-
rily at the level of administration and finance units rather than at
the level of Directors.

These arrangements will be renewed under FP6 and will comple-
ment the new arrangements governing the entry into force of
contracts as established by that framework programme’s partici-
pating rules.

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The Commission agrees that the step of the consultation
62.
of the Programme Committee, as indicated by the Court, increases
the ‘time-to-contract’. Nevertheless, as pointed out by the Court,
the legislator insisted on this aspect when adopting the legal base
for FP5.

The target was raised to between 60 and 90 % with the decision
on the new research staff policy adopted on 27 December 2001
(COM(2001) 792 final).

63.
The Commission agrees that the delays in the establish-
ment of the evaluation platform caused problems, in particular
for the evaluations related to the first calls for proposals in 1999.
These problems were overcome in the following evaluations and
the Commission considers that the service worked satisfactorily.

A common evaluation platform is also used for FP6.

64.
A centralisation of support functions will not necessarily
increase efficiency. The Commission’s reform is about giving
responsibility for an action to those who have actual control over
the action. This requires proper coordination and supervision, but
is not in contradiction with the latter. Moreover it is important to
ensure proximity between the support functions and operational
services.

67.
The first calls for proposals could not be published until
all the elements forming the legal basis had been adopted. The
situation in 1999 was somewhat unusual in that the specific pro-
grammes were not adopted until February, i.e. in the course of the
year of implementation. All the calls were then published simul-
taneously and procedures had to be completed within the same
limited time frame.

Decisive action has since been taken to meet this new target,
including:

— conversion of ‘research’ temporary staff posts to be contin-

ued and intensified,

— recruitment of successful candidates in open competitions to

‘research’ posts since April 2002,

— launch of the first research competition with a view to

recruiting scientists as officials as from 2004,

— stop to recruitment of temporary staff as from November

2003.

71.
As a rule, the same staff deal with work left over from the
previous framework programme, current framework programme
projects and preparations for the next framework programme. As
a result, the data for the respective shares are estimates.

72.
The Commission shares the Court’s concern as regards
the assignment of external staff to essential financial or IT duties.

Aware that in some areas publishing calls for proposals at unduly
close intervals is unlikely to yield good results, departments
ensured that the deadlines of calls for proposals for subsequent
years were staggered over time.

It is true that the vacancy rate was very high in 2001. This was
partly due to the lack of successful candidates available. Lists of
successful candidates for research posts did not become available
until mid-2000 and the effects were felt gradually: by 2003, the
vacancy rate was around 7 %.

On the basis of that experience the schedule for adopting FP6 and
its specific programmes was prioritised and respected.

70.
Since 1973 permanent posts paid from the research bud-
get had been filled exclusively by temporary staff with, in most
cases, renewable five-year or permanent contracts. The length of
their contracts was therefore unrelated to the length of the frame-
work programmes, which did not exist at the time.

The Commission is currently developing a mobility policy based
on the guidelines on mobility adopted by the Commission in
2002. This will include a policy on posts that remain vacant after
publication and systematic verification of laureate lists. Decisions
on the (re-)allocation of such vacant posts will be dealt with at
senior management level. Efforts to appoint staff to permanent
posts and the possibility of recruiting new officials for vacant
research posts should improve the situation.

The target set in 1996 (40 % of officials) was to have been reached
after an estimated transition period of about 10 years. So it is not
abnormal that the rate in 2001 should be only 28 %.

73.
Personnel and vacancy management should enable the
risks identified by the Court, and shared by the Commission, to
be limited and external staff as a percentage of the total to be
reduced in the longer term. The Commission aims to reduce the

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proportion of external staff with a corresponding increase in per-
manent staff. This approach takes on board the Court’s concerns
regarding the assignment of external staff to essential financial or
IT duties (see paragraph 70).

The ceilings on administrative expenditure defined by the
78.
legislator for the management of the RTD framework programmes
were respected by the Commission.

The project officer’s profile has an increasing political and hori-
zontal dimension and carries greater responsibilities. That is why
the Commission regards it as more appropriate to recruit them to
permanent posts. It has therefore been decided, partly with a view
to promoting mobility, to recruit as project officers successful
candidates with a scientific background (who could, if necessary,
be given specialist assistance throughout the duration of the
project). The first research competition has been launched with
that aim.

These personnel and vacancy management measures on the part
of the Commission should enable the risks observed by the Court
to be reduced (see point 72).

74.
Resources of the other categories are supporting the work
of those allocated to proposal, contract and project management.
Their importance illustrates amongst other things the efforts
made for coordination and programme management.

As for the differences observed by the Court, these may also be
due to differences in the organisational profile of services or due
to differences in the types of indirect RTD actions administrated
(see paragraph 77). In Directorate-General Research, for instance,
the emphasis put on the creation of the European Research Area
(ERA), the design and planning of FP6 and the reorganisation of
the services, which led to the creation of the units responsible for
political coordination and strategic issues, might explain a lower
rate. For 2002, however, in a similar exercise carried out within
the Directorate-General for Research, it was estimated that 56 %
of all the staff of the Directorate-General were involved in project
management (32 % for the selection and the scientific follow-up
of indirect RTD actions and 24 % for the financial and administra-
tive tasks).

76.
It is true that the number of projects managed by project
officers is high. However, it should be borne in mind that scien-
tific follow-up for projects often relies partly on the assistance of
external experts.

The Commission’s proposals regarding the framework pro-
gramme’s forecast requirements are based on a detailed analysis
of necessary resources.

79.
The alternative measure of the proportion of the budget
that went to the administration of the RTD framework pro-
grammes presented by the Court is not the one required by the
relevant legal bases or consistent with the budgetary structure.

The staff allocation is presented in the Annual Manage-
80.
ment Plan in accordance with Activity-Based Budgeting (ABB)
since 2002, but 2004 will be the first year where the General
Budget will be officially based on this new system.

81.
In the Commission’s view, a time recording system would
mainly increase the administrative burden for its services. The
information provided by such a system is not considered as suf-
ficiently relevant to make its implementation a cost-efficient mea-
sure.

82.
The Commission accepts that system integration would
have improved the efficiency of the FP5 management system and
agrees that a central management information system would have
been desirable. Given the constraints at the start of FP5, it would
however not have been feasible to embark immediately on the
development of a single global and integrated IT system.

Nevertheless, compared with FP4, there was a greater sharing of
IT systems. Since the beginning of FP5, the Directorates-General
operating the RTD framework programmes have used a common
database for experts and single system for the electronic submis-
sion of proposals (Protool). They also shared the Evaluation Ser-
vice Provider (ESP) who, inter alia, was charged with introducing
the entire contents of all proposals into a common database and
tracking them during evaluations. Recognising the importance of
sharing information on contracts and contractors, a common FP5
contract data warehouse (DWH) was established from 2002
onwards.

Following an evolutionary approach, the Commission has decided
to integrate its IT systems gradually over time and to launch a
fully integrated system for FP6 (see paragraph 86).

A variable relationship exists between the various pro-
77.
grammes and personnel expenditure. The rate set for the ‘User-
friendly information society’ (IST) programme reflects the needs
identified in the course of the legislative process, taking particular
account of the involvement of a large number of small and
medium-sized enterprises.

83.
Although the situation differed from one Directorate-
General to another, central IT systems were operated by all Com-
mission services by the end of FP5. The Directorate-General Infor-
mation Society and Directorate-General Research developed IT
support for checking of legal and financial viability of potential

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contractors, these being integrated with the early warning system
of Sincom as well as their contract databases. Both Directorates-
General also integrated their contract and payment systems directly
with Sincom. Directorate-General Enterprise also used a version
of this IT system for systematic control of the financial viability
of potential contractors. Directorate-General Energy and Trans-
port applied the same principles in its workflow, also using cen-
tralised IT support.

Given the complexity of introducing such a system capable of
meeting the needs of a programme as diverse as FP6, it was decided
to introduce it gradually. This was done progressively from Novem-
ber 2002 onwards, with full deployment of the system being
achieved in 2004. The Commission acknowledges that the degree
of utilisation of the common IT system has varied between
Directorates-General
in the first year of the FP6 programme
period.

Furthermore the situation has been improved at various intensity
in different parts of the framework programme throughout the
FP5 programming period, but also as compared to FP4 (see para-
graph 82). Overall, the Commission considers that the level and
quality of IT support was sufficient to guarantee the legality and
regularity of operations.

84.
The performance of the IT support has to be seen in the
context of the complexity of the RTD framework programmes.
The delays in the adoption of FP5 and the definition of the pro-
gramme requirements contributed to some of the problems expe-
rienced (see paragraph 67).

For FP6, in line with the Court’s recommendations, the Commis-
sion has defined a strategy of providing central IT support for all
aspects of the RTD framework programmes (see paragraph 86).
This common FP6 system, which is a highly modular system that
can be used for future framework programmes with the neces-
sary modifications, entered into service progressively throughout
2003.

The Commission agrees with the Court that such a common IT
system requires the establishment of a centralised support func-
tion (see paragraph 123). To this end a separate unit is being
established in Directorate-General for Research, charged with pro-
viding services to all Commission services operating the RTD
framework programmes. To ensure that the needs of all Commis-
sion services continue to be taken into account, the IT Manage-
ment Office will report directly to an IT Management Board with
members at director level from all Directorates-General. It now
remains for each Directorates-General to define and schedule its
migration to the common IT system for FP6.

87.
The organisational principle of the Commission reform is
to ensure that responsibility for an action is taken by those who
actually have control over the action, which implies decentralisa-
tion and empowerment. Needs for adequate coordination is a
logical consequence of any decentralisation, but not a contradic-
tion to it. The Commission is aware of the challenges and is
deploying great efforts to address them appropriately.

The creation of common management instruments for FP6 is a
further reflection of the Commission’s concern to provide for
increased interdepartmental coordination following the decen-
tralisation resulting from the reform.

85.
The Commission recognised for FP6 that a greater and
earlier level of investment is required and has made the necessary
resources available for the development and maintenance of a
fully integrated system for FP6. Higher investment cannot how-
ever compensate for the late availability of specifications against
which to build a system or frequent changes to these specifica-
tions.

The Commission agrees that the RTD framework pro-
88.
grammes must be implemented according to a common set of
principles and procedures. However, in line with the basic orien-
tation of the administrative reform of the Commission, each
Directorate-General and programme is to remain responsible for
its detailed design and implementation of internal control.

The Commission shares the Court’s view concerning the potential
efficiency gains resulting from electronic data exchange and data
storage. In fact, the new FP6 IT system is capable of fully com-
puterised operation from the preparation of proposals to the clo-
sure of projects. It also provides means for participants to submit
project deliverables and to communicate with the Commission
electronically, as well as for electronic archiving.

The Evaluation Manual has been adopted by the Commission in
order to make the process from the pre-proposal checks to the
preparation and finalisation of the contract more transparent and
harmonised. On the basis of this manual, the specific programmes
derived more detailed documents relevant to the preparation and
finalisation of the contracts for the use of both the Commission
and the contractors (see paragraph 89).

86.
When designing the common FP6 IT system, the Court’s
recommendations have been fully taken into account (see, for
instance, paragraph 85 on electronic transaction processing and
data exchange).

89.
In application of the Commission’s Standard 15 for inter-
nal control ‘Documentation of procedures’, significant efforts
have been undertaken since 2001 to remedy the shortcomings
identified. The system description produced by the Court in the
framework of this audit constituted a valuable input to this work.

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Further efforts will be undertaken to guarantee that the Commis-
sion’s procedures are sufficiently standardised within the frame-
work programme, and adequately documented within each
Directorate-General and programme.

The Commission aims to perform its contract amend-
93.
ment procedures as timely as possible given the limited resources
at its disposal. These amendments have to be based on well rea-
soned requests by coordinators of the indirect RTD action, includ-
ing written agreements by all contractors concerned.

In order to standardise the form and content of the operational
manuals, as recommended by the Court, the Commission will
examine in the existing interdepartmental group established after
the 2001 AAR, the possibilities of identifying best practices in the
existing operational manuals, in particular for FP6, with a view to
adapting them accordingly.

The Commission acknowledges some difficulties in the manage-
ment of contract amendments. Actions to remedy the situation
include the development of new guidelines and improvement of
the IT support tools (see paragraph 86).

90 and 91.
Further to the audit of the FP5 management sys-
tem by the Court, both with a view to FP6 and within the frame-
work of the current financial reform, the Commission has already
improved several aspects of its internal control mechanisms.

94.
External experts are used to assist the Commission for
the evaluation of ongoing projects. The generalised use of exter-
nal experts for the purpose of project monitoring is considered as
a positive experience. Amendments are adopted where monitor-
ing shows that this is necessary.

An action plan common to the Directorates-General was adopted
in January 2003 (see paragraph 35).

An important number of manuals and checklists are
92.
available in each Directorate-General to support operational and
financial procedures.

— The negotiation outcome is subject to an authorisation,
sometimes implicit, as the agreement of different scientific
and financial departments within each Directorate-General is
required in order to launch the Commission decision for
each indirect RTD action. During the FP5 programme period,
further progress was made with regard to formal documen-
tation of this control step.

— With regard to the adequacy of a contractor’s accounting
system, on-the-spot financial audits are the only means of
verifying the appropriateness of the beneficiary’s choice of a
cost reimbursement system.

In this context, the Commission provided specific guidelines to
help the participants in the preparation of proposals and during
negotiations. Its consistent use was verified as part of the legal
and financial verification within each programme. This control
will be extended beyond a specific programme with the deploy-
ment of the common IT system for FP6 (see paragraph 86).

The preliminary check of contractors’ legal and financial viability
is a standardised procedure which ensures a clear and coherent
decision making process regarding the financial viability of poten-
tial contractors. As a result of the procedure, various protection
measures such as financial guarantees, refusal of coordination and
additional submissions of business plans for SMEs, were proposed.
This control procedure was facilitated by a shared support func-
tion for the financial viability and was based on a user’s manual.

The FP6 funding mechanism will ensure that the scientific approval
and payments will be better synchronised. The Commission will
also consider extending the policy of periodic reviews of indirect
RTD actions to all programmes (see paragraph 3). Such evalua-
tions of ongoing actions, carried out on an annual basis, will be
mandatory for integrated projects and networks of excellence. For
other projects, it is expected that more reliance will be made on
external experts to carry out such reviews.

The Commission has set up procedures assuring that the
95.
verification of financial deliverables and the processing of cost-
claim based payments are subject to relevant controls. Monitor-
ing the plausibility of cost rates submitted is common day-to-day
practice when verifying cost statements. A more frequent use of
check-lists has intensified this practice.

In the case referred to by the Court, the necessary adjustments
were made by the Commission.

The proposals put forward in the action plan adopted by the
Commission in January 2003 further to Action 1 of the synthesis
of the 2001 Annual Activity Reports include the creation of a per-
manent interdepartmental group to ensure better coordination
and cohesion between Commission departments (see para-
graph 35).

96.
The Commission participated in a number of the audits
carried out by the Court as observer, allowing for a valuable
exchange of experiences and working practices between the two
Institutions.

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The Commission acknowledges the problem, which is
97.
due to the fact that the Community’s financial contribution is
paid on the basis of eligible costs incurred, as declared by final
beneficiaries. The accuracy of these costs and their conformity
with the contractual provisions cannot be completely and accu-
rately verified by the Commission prior to the authorisation of
payments. Only a financial audit of the beneficiary can determine
with certainty and accuracy the correctness of the costs claimed
and their conformity to the contractual provisions.

the Commission’s responsibility, broad conclusions should be
based on the results of the audits carried out by the Commission
(or on its behalf).

The Commission’s ex post audit findings are also reported in each
Directorate-General’s Annual Activity Reports.

The Commission has put in place a number of measures to reduce
the associated risks, including awareness raising amongst benefi-
ciaries and the significant increase of financial audits during FP5
(see paragraph 98).

98.
The five Directorates-General have set up procedures
assuring that the verification of project deliverables and the pro-
cessing of cost-claim based payments are subject to relevant con-
trols.

When verifying the conformity of cost statements with the con-
tractual provisions, the obligation to substantiate personnel costs
is not only assessed on the basis of time records but also in the
light of alternative evidence provided by final beneficiaries. Other
errors evidenced by the Court are formal, such as the declaration
of costs outside the eligibility period for a given cost statement.

Nevertheless, the Commission accepts that the incidence of errors
remains an important issue. With a view to reducing the risk of
errors in connection with the complex nature of FP5’s contractual
rules, it has worked on training recipients and raising their aware-
ness. The Commission has also taken on board the lessons of
implementing FP5 in order to amend and simplify the rules for
FP6, taking its lead from the Court’s proposals (see paragraphs 36
to 45).

Furthermore, during the FP5 programme period, the Commis-
sion has intensified its ex post audit activities significantly, defin-
ing an overall audit target of 10 % of contractors during an RTD
framework programme (see reply to the questionnaire of the Bud-
getary Control Committee of the European Parliament, para-
graph 4.3, 21 December 2001).

These ex post financial audits result in less frequent errors and
lower rates of overdeclaration than resulting from the Court’s
sample (see in particular, Court of Auditors — Annual report
concerning the financial year 2002 (OJ C 286, 28.11.2003), para-
graphs 6.44 to 6.46; Court of Auditors — Annual report con-
cerning the financial year 2001 (OJ C 295, 28.11.2001), para-
graphs 4.57 to 4.61). For instance, for Directorate-General for
Research, the average overdeclaration for indirect RTD actions of
both FP4 and FP5, for audits carried out in 2002, was 4,9 %.
Given the significantly larger number of audits carried out under

99.
The Commission pays a lot of attention to the respect of
the rules and deadlines for the execution of payments. In a num-
ber of cases delays in the execution of payments are due to addi-
tional checks and requests of supporting documents, whilst these
events have not always been properly recorded as interrupting the
relevant period available for the execution of the payment in
question.

In those cases where the coordinator had incurred in excessive
delays, this is by definition beyond the control of the Commis-
sion. Nevertheless corrective action has been taken and the con-
tractors concerned were reminded of their contractual obliga-
tions.

100.
The Commission is committed to respond to the Court’s
audit findings as soon as possible. The Commission underpins the
numerous steps necessary for the preparation of the follow-up,
including the thorough analysis of the audit findings, the execu-
tion of the contradictory procedure with the final beneficiary and
proper coordination between the different Commission services
concerned.

Based on agreed audit findings, financial adjustments are applied
for the specific contracts for indirect RTD actions audited. The
Commission underlines that a number of measures has been
launched to improve and speed up these procedures.

101.
As for its internal reporting, the Commission has through
its administrative reform introduced a system of internal control
standards laying down a number of detailed requirements for the
design of management reporting schemes. As a result reporting
practices have been significantly improved and harmonised
throughout the Commission’s services.

In addition to the internal reporting to management, the Com-
mission provides, as required by the legal basis (see for instance
Council Decision 1999/65/EC of 22 December 1998; Articles 23
and 24), an extensive reporting to external users such as pro-
gramme committees, external advisory groups or monitoring
panels. Examples include the Annual reports on the RTD activi-
ties of the European Union (Article 173 report).

102.
reflected in a continuously improved reporting function.

Reporting has to respond to evolving needs. This is

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Moreover, the independent creation and maintenance of local
reporting tools and procedures serves a legitimate purpose given
that it would be difficult to create a standardised solution that
meets all expectations.

Project review and monitoring systems exist for most
106.
FP5 programmes which can provide detailed information on spe-
cific indirect RDT actions. Furthermore, impact assessments of
projects are published on the internet site Cordis.

Increased provision for better management information systems
is being made in FP6 (see also paragraph 110).

103.
Reports on main management processes like the evalu-
ation of project proposals, the implementation of contract nego-
tiations, the establishment of budgetary and legal commitments
and the execution of payments are addressed to the management
levels concerned and followed-up in regular weekly management
meetings.

The deployment of the common IT system for FP6 will contribute
to the preparation of more standardised reports (see paragraph 86).

104.
The Commission’s reporting is characterised by the dif-
ferent roles and responsibilities of decentralised and centralised
management functions within the Directorates-General and FP5
programmes. Due to the decentralisation and increase of manage-
ment responsibility of Directors of operational programmes, the
Commission reform also increased the need for reporting at the
directorate level. Also, formal reporting is just one out of several
communication tools used in the management of the framework
programme.

As regards formal reporting, the main requirements are defined
in the legal basis and in the Financial Regulation as far as budget-
ary aspects are concerned. This has been completed by the require-
ments defined in the Internal Control Standards. Further to that,
responsible managers may identify additional reporting needs for
the respective area of responsibility.

The future development and intensification of the reporting pro-
cedures further to the administrative reform of the Commission
will allow to address the issues pointed out by the Court.

Generally this information is used internally on a case-by-case
basis rather than in a consolidated and standardised reporting for-
mat. In addition it is made available for the overall programme
evaluation. Considerable work has been carried out in 2003 to
develop indicators which would be ‘result oriented’ and, ulti-
mately, could be linked to the evaluation system of FP6 which is
still under conception.

107 and 108.
As regards the overall monitoring of pro-
gramme implementation, the legal requirements defined in Deci-
sion No 182/1999/EC of the European Parliament and of the
Council of 22 December 1998 and the decisions adopting the
specific programmes are complied with by the Commission.

These issues are subject to the impact assessment and the evalu-
ation on the overall programme level. Impact studies are increas-
ingly carried out across the programmes. For certain specific pro-
grammes under FP4 such studies were produced and considered
in the latest published five-year assessment in 1999. The next five-
year assessment will take place in 2004, for which a number of
impact assessments are under way.

Within Directorate-General Information Society, the management
objective of shortening the ‘time-to-contract’ was first reported
on in a pilot phase. Following its successful completion, this per-
formance indicator was then adopted for all subsequent calls of
the IST-programme until the end of the FP5 programme period.

109.
Under FP6 the common IT system and database for the
RTD framework programme operated jointly by all Directorates-
General will counter the weaknesses indicated by the Court for
which corrective actions have already been initiated where neces-
sary (see paragraph 86).

105.
The weight and advanced quality of financial reporting
respond to the high priority of financial management issues in the
context of the Commission’s reform.

‘Scoreboard’ reports in line with the requirements defined in the
Internal Control Standard 12 ‘Adequate management information’
have been introduced in all five Directorates-General. These reports
reflect items like budgetary execution, payment delays and con-
tract statistics.

110.
The Commission’s Internal Control Standards were in
effect only for part of the period covered by the Court’s audit.
This has to be taken into consideration when assessing the find-
ings presented by the Court (see paragraphs 110 to 111).

— The overall objectives for the RTD framework programmes
as for other Community programmes are set in the relevant
programme decisions as adopted by the legislative author-
ity, i.e. Parliament and Council. These objectives are included
in the annual management plan, established within the frame-
work of activity-based management (ABM) and the strategic
system
planning and programming cycle (SPP). This

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will make it possible to evaluate, in the course of the year
and, in particular, when the annual activity report is drawn
up, whether the planned activities have been completed and,
therefore, whether the objectives to which these activities
contribute have been met. The Commission focuses on the
need for more effective management which sets clear objec-
tives and priorities, backed up by efficient management of its
human and financial resources.

The Commission has made a concerted effort to ensure consis-
tency and uniformity of legal interpretation and application by
means of the action plan established further to the Commission’s
synthesis of the 2001 Annual Activity Reports. An interdepart-
mental group has been established in order to reinforce the Com-
mission’s coordination of legal and contractual issues and to
ensure consistent interpretation and application across the differ-
ent Directorates-General.

— According to Standard 10, the definition of indicators was
not required for the year 2002. Some indicators were
employed, but not necessarily included in the reporting to
senior management.

— The Commission accepts that slight delays incurred in the
production of comprehensive scoreboard reports as required
by Standard 12. Different subreports composing these score-
board reports were however produced and submitted to
senior management in time.

— Instances of overriding of controls or deviations from estab-
lished policies and procedures are documented and justified
in the Annual Activity Reports of each Directorate-General.

CONCLUSIONS AND RECOMMENDATIONS

Commission departments are required to implement
111.
indirect FP5 actions by procedures which comply in full with the
existing rules.

The Court’s criticism as regards the large number of model con-
tracts has been addressed in FP6 where only one model contract
is established for all indirect RTD actions (except Marie Curie
actions). Specific annexes are provided for the main instruments
where deviations or additions to the standard model are required.

The delays in adoption referred to by the Court concern only the
legislative aspect. However, for FP6, the timetable was kept.

113.
The new approach adopted for FP6 cost reimbursement
systems provides greater cohesion and clarity while also protect-
ing the Community’s financial interests.

In conjunction with the general application of audit certificates,
these new arrangements should provide real protection for the
Community’s financial interests while also safeguarding the inno-
vative and dynamic character of research efforts.

114.
In addition to the sanctions provided for in the model
contract, the arrangements set out in the FP6 participation rules
and the penalties laid down in Article 114 of the Communities’
new Financial Regulation can be applied.

The external auditor must certify that the expenditure is eligible
and that it has actually been effected. The Commission depart-
ments must confirm that it is necessary.

The Commission will take the necessary steps to ensure quality
and overall consistency with the use of audit certificates.

As regards accompanying measures, the distinction within indi-
rect RTD actions between grants and public procurements has
been more clearly established under FP6, both in terms of proce-
dure and in terms of ownership of the results.

115.
The Commission has introduced significant simplifica-
tions with the introduction of FP6. It will ensure that the frame-
work programmes’ management model continues to develop,
including when the proposal is put forward for the future FP7,
focusing in particular on streamlining procedures.

112.
FP5 cost reimbursement systems are governed by the
provisions of the legal basis. However, the Commission acknowl-
edges a number of difficulties in connection with FP5 contractual
and financial arrangements.

When FP6 was drawn up, the Commission initiated an in-depth
reform of this system with a view to introducing major simplifica-
tions for participants in framework programmes. The application
of a flat rate for indirect cost reimbursements reflects the approach
recommended by the Court, most recently within the context of
preparing FP6.

116.
The main overall principle of the Commission’s organi-
sation of the management of European research programmes is
the optimisation of support to and synergy with high priority
policy objectives. The organisational set-up evolves therefore nec-
essarily along changes in policy priorities. The volume and scien-
tific diversity of the framework programme as such and the need
for manageable bodies imply an organisational structure with
specialised entities. This requires both the provision of adequate
support functions and appropriate coordination.

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Organisational aspects within the Directorates-General depend on
the type of operations to be undertaken, in particular financial
operations. Key actions have proved to be very successful in struc-
turing the specific programmes. The fact that FP5 activities are
allocated to various Directorates-General does not imply that
responsibilities are not clearly assigned or that an efficient coor-
dination is not in place.

With a view to reinforcing coordination within the framework
programme, the Commission set up, as part of Action 1 of the
action plan on follow-up to annual activity reports, an interde-
partmental group whose purpose is to ensure that contracts are
interpreted in a more cohesive, coordinated fashion and to apply
and exchange examples of good practice.

117.
The period prior to signature of contracts encompasses
the crucial selection and negotiation phases. Significant efforts
were undertaken by the Commission to shorten and simplify its
internal procedures during FP5. The process duration for contract
signature in the European RTD framework programmes is less
important than in similar non-European research programmes.

The organisational structure set up for FP6 ensures proximity
with research operators. The Court’s recommendations concern-
ing horizontal aspects have largely been adhered to.

For significant parts of the specific programmes there is a strong
continuity from one framework programme to the other, both in
terms of scientific areas and the research communities. Commis-
sion management within the same entities ensures continuity of
operations and more efficient use of resources.

120.
Building on the experience acquired during FP5, the
Commission will continue to simplify its administrative proce-
dures in accordance with the new arrangements laid down by the
FP6 participation rules. The schedule for adopting FP6 and its spe-
cific programmes has been treated as a priority and has been
complied with.

The breakdown of calls for proposals is based primarily on the
schedules established for research activities. These schedules are,
inevitably, the result of a compromise between different con-
straints.

The option, available since 2002, of recruiting officials to research
posts should enable the problem referred to by the Court to be
tackled more effectively.

The powers and responsibilities of project coordinators have also
been increased.

It is true that the number of projects managed by each project
manager is high. However, staff may be helped by external experts.

The Commission will consider extending the policy of periodic
evaluation of ongoing projects to all programmes where appro-
priate. More scientific and technical questions are referred to inde-
pendent experts.

Simplified procedures and better planning should allow to even
out the caseload under FP6, improving internal control and speed-
ing up processes. Progress will however also depend on a more
adequate level of staff resources put at the Commission’s disposal.

The Commission looks at monitoring and project/programme
evaluation results with a view to refocusing objectives. A policy
of systematic termination of indirect RTD actions would however
be against the spirit of the European RTD framework programmes.

118.
The Commission has carried out the framework pro-
gramme within budget allocated by the European Parliament and
Council. The alternative measure proposed by the Court is not the
one required by the rules.

121.
During the 1970s, in order to meet very broad but
changing scientific needs, the Commission agreed to establish a
research staff policy based on the recruitment of temporary staff.
However, since then, the Community research policy has been
considerably strengthened, in particular as a result of the succes-
sive framework programmes.

Since 2002 the staff allocation is presented in the Commission’s
Annual Management Plan in accordance with the Activity-Based
Budgeting methodology. 2004 will, however, be the first year
when the budget is presented according to the Activity-Based
Budget methodology. This new methodology will further increase
the transparency of the Commission’s budgetary management.

In line with the Court’s recommendations, the Commission has
adopted a package of measures designed to integrate its research
staff into the mainstream of the Commission’s personnel policy
and to reduce vacancy rates.

119.
The Commission attaches considerable importance to
implementation of framework programme activities and to aspects
of research policy.

The profile of ‘project officers’ has an increasing political and
horizontal dimension and their powers and responsibilities have
been increased. That is why the Commission deems it more
appropriate to recruit them to permanent posts.

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From 2002 onwards, the Commission has deployed its Activity-
Based Budgeting system in all departments. It will be applicable
to the General Budget from 2004 onwards. Implementation of
Activity-Based Budgeting will enable systematic monitoring of
resource allocations instead of the specific tools used previously.

storage of data in a common data warehouse, will allow for sig-
nificant improvements in reporting within each Directorate-
General and programme.

As regards the recommendation concerning a registration system
for the time spent working on these programmes, the Commis-
sion does not regard this measure as useful at this stage in view
of the red tape involved in setting up and maintaining it as com-
pared with the expected benefits.

122.
In FP6, efforts have been stepped up to increase coor-
dination across all specific programmes and there are common
principles that apply to the entire FP6.

The creation of the requisite centralised instruments is a key ele-
ment of any organisational structure. Contrary to FP5, one ‘Pro-
gramme Management Committee’ oversees all thematic priorities
in each specific FP6 programme. Depending on the operations to
be undertaken, coordination within FP6 is ensured by means of
appropriate arrangements:

— with regard to interpretation of the legal terminology and
notification of research operators, in addition to providing
access to the Cordis website, the Commission stepped up
cooperation and cohesion efforts in its action plan further to
the synthesis of the 2001 Annual Activity Reports,

123.
The Commission follows the principles of effectiveness
and efficiency with a view to its overall mission and policy objec-
tives. The synergy between research activities and the objectives
of the sectoral policies is the underlying principle for the Com-
mission’s organisational structure for the RTD framework pro-
grammes.

The Commission shares the Court’s view that effective coordina-
tion between the different participants in a framework pro-
gramme from the Commission (be it between units belonging to
a single Directorate-General or between units belonging to several
Directorates-General) is crucial to efficient management. It should
be noted that the various Directorates-General do not work inde-
pendently: they cooperate with a view to achieving the objectives
set by the Commission, acting collectively, and have developed
instruments enabling work to be coordinated, thus avoiding the
risks highlighted by the Court.

Therefore, the Commission considers that a centralised manage-
ment model is not appropriate. In its internal organisation the
Commission aims at the allocation of responsibilities at the appro-
priate level and delegation of powers and duties, accompanied by
appropriate coordination mechanisms.

— as regards IT back-up, a single system for FP6 covering all
project phases was decided on early in 2001. It should also
be possible to use this highly modulable system for future
framework programmes, subject to the necessary amend-
ments. The system will gradually enter into force in 2004.

The action plan adopted in January 2003 by the Commission fur-
ther to Action 1 of the synthesis of the 2001 Annual Activity
Reports includes a proposal to set up a permanent interdepart-
mental group to ensure better coordination and cohesion between
Commission departments.

A joint entity (IT Management Office) is being set up for that
purpose. It will be overseen by a Steering Group chaired by
the Director-General of Directorate-General for Research,

Nevertheless, the Commission will continue to evaluate all pos-
sible options for organising framework programmes and research
programmes with a view to achieving Community objectives and
ensuring efficient, coordinated management.

— the Commission is not likely to opt for the proposed recom-
mendation for a joint registration and verification function
in view of the varied nature of units proposing indirect RTD
actions from one programme to another and the relatively
high rate of rejected proposals,

— with regard to ‘controlling and reporting’, the rules provide
for a series of standardised reports. New reports have also
been conceived as part of the reform. This complements the
wide variety of reports in departments necessary in order to
take on board their specific objectives as well as one-off cir-
cumstances and events.

The development and deployment of an integrated IT system,
jointly used by all Directorates-General operating FP6, and the

124.
Some problems, which are identified in the Annual
Activity Reports, have been encountered in terms of IT systems
quality. Overall, however, the Commission assesses the level and
quality of IT support as sufficient for guaranteeing the legality and
regularity of operations. In particular, it considers that significant
improvement in the provision of IT support has been achieved in
many areas during FP5, but also as compared to FP4.

The Commission accepts however that further integration of its
IT systems would have improved the efficiency of the manage-
ment of FP5 indirect RTD actions. The Commission has recogn-
ised for FP6 that a greater and earlier level of investment is required
and has made the necessary resources available for the develop-
ment and maintenance of a fully integrated system for FP6.

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C 99/61

This common IT system is a highly modular system that
125.
can be used for future framework programmes with the neces-
sary modifications. It entered into service progressively through
2003 and will be fully deployed in 2004. It now remains for each
Directorate-General to define and schedule its migration to the
common IT system for FP6.

The Commission has started to apply the Court’s rec-
126.
ommendation. The new IT system conceived for FP6 provides for
electronic exchange of information between the various partners
(external participants or Commission departments). The total dis-
appearance of paper is now a technical possibility, but an appro-
priate legal framework still has to be established.

127.
The Commission agrees that the RTD framework pro-
grammes must be implemented according to a common set of
principles and procedures. However, in line with the basic orien-
tation of the administrative reform of the Commission, each
Directorate-General and programme is to remain responsible for
its detailed design and implementation of internal control.

In compliance with the Commission’s Standard 15 for internal
control ‘Documentation of procedures’, significant efforts have
been undertaken to remedy the shortcomings identified since
2001. Delays in finalising certain procedural manuals have now
been made good.

128.
The Commission underlines that the deficiencies in inter-
nal controls pointed out by the Court did not have had material
implications for the legal and regular execution of the framework
programme. Nevertheless, the audit work done by the Court is
valid since it points to specific problems which the Commission
has already addressed or will address in the future.

131.
indicated by the Court.

The Commission will continue its efforts in the areas

132.
adapting its methodology to the requirements under FP6.

The Commission will continue its ex post audit efforts,

During the FP5 programme period, the Commission has intensi-
fied its audit activities significantly, defining an overall audit target
of 10 % of contractors during an RTD framework programme.

133.
dation concerning the monitoring of internal control systems.

The Commission takes note of the Court’s recommen-

134.
In addition to the internal reporting to senior manage-
ment, the Commission provides, as required by the legal basis, an
extensive reporting to external users such as programme commit-
tees, external advisory groups or monitoring panels.

The Commission’s internal reporting to Directors and (deputy)
Directors-General is characterised by the different roles and respon-
sibilities of decentralised and centralised management functions
within the Directorates-General and FP5 programmes. Due to the
decentralisation and increase of management responsibility of
Directors of operational programmes, the Commission Reform
also increased the need for reporting at the directorate level. For-
mal reporting is however just one out of several communication
tools used in the management of the framework programme.

129.
The Commission accepts that the incidence of errors
remains an important issue. With a view to reducing the risk of
errors, an action plan drawn up following the synthesis of the
2001 Annual Activity Reports has been implemented and is
monitored on a regular basis.

The Commission’s Internal Control Standards were effective for
only part of the period covered by the Court’s audit. This has to
be taken into consideration when assessing the findings presented
by the Court. The deployment of the common IT system for FP6
will help to address the shortcomings in standardisation identi-
fied by the Court.

Nevertheless the ex post audits carried out by the Commission (or
on its behalf) result in less frequent cases of errors and determine
lower rates of overdeclaration by final beneficiaries. Given the sig-
nificantly larger number of audits carried out under the Commis-
sion’s responsibility, broad conclusions should be based on the
results of the Commission’s audits as documented in the Annual
Activity Reports.

135.
As regards the overall monitoring of programme imple-
mentation, the legal requirements defined in Decision No 182/
1999/EC (of the European Parliament and of the Council of
22 December 1998) and the decisions adopting the specific pro-
grammes are complied with by the Commission.

130.
Further efforts will be made to guarantee that the Com-
mission’s procedures are sufficiently standardised within the RTD
framework programmes and adequately documented within each
Directorate-General and programme.

The establishment of harmonised internal control standards has
contributed to the regular production of management reports in
addition to those required by the rules.

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23.4.2004

The Commission will continue to focus on ongoing
136.
improvements to management, setting clear objectives and clear
priorities, backed by efficient human and financial resources man-
agement. In particular, the Annual Management Plan (AMP) is a
management tool which the Commission established within the
framework of activity-based management (ABM) and the strategic
planning and programming cycle (SPP).

With this system it will be possible to evaluate, during the year
and in particular when the Annual Activity Report is drawn up,
whether planned actions have been completed and, accordingly,
whether the objectives to which these actions contribute have
been met.

control standards promotes greater harmonisation throughout
the Commission.

With a view to reducing the administrative burden resulting from
the FP5 rules, both for itself and, above all, for recipients, the
Commission has established an action plan based on its synthesis
of the 2001 Annual Activity Reports. The principles selected for
the purpose of defining FP6 also provide the expected simplifica-
tions.

Regular monitoring by the Commission of compliance with tar-
gets, using the instruments set up by the reform, confirms that its
efforts have been successful.

137 and 138.
The organisation of departments responsible
for research is fully in line with the principles of the Commis-
sion’s administrative reform. Hence the direct involvement of
various Directorates-General contributes to mutual enrichment
with other Community policies, whereas application of internal

139.
The Commission has made some significant simplifica-
tions with the introduction of FP6. It will ensure that the frame-
work programmes’ management model continues to develop,
including when the proposal is put forward for the future FP7,
focusing in particular on streamlining procedures.