Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2013, together with the Joint Undertaking’s replies
Date: 2014-10-21
Institutions: European Court of Auditors
Subjects: European Joint Undertaking, administration of the Institutions, auditing, budgetary control, financial control, nuclear fusion, powers of the institutions (EU), research and development








C_2014452EN.01004401.xml










16.12.2014   


EN


Official Journal of the European Union


C 452/44





REPORT
on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2013, together with the Joint Undertaking’s replies
(2014/C 452/06)

CONTENTS








 



Paragraph




Page





Introduction


1-3


45




Information in support of the statement of assurance


4


45




Statement of assurance


5-15


45




Opinion on the reliability of the accounts


10


46




Opinion on the legality and regularity of the transactions underlying the accounts


11


46




Emphasis of Matter


12-14


46




Comments on budgetary and financial management


16-17


47




Presentation of the accounts


16


47




Implementation of the budget


17


47




Comments on key controls of the joint undertaking’s supervisory and control systems


18-22


47




Operational procurement and grants


19-20


48




Overall control and monitoring of operational procurement contracts and grants


21-22


49




Other matters


23-32


49




Late payment of membership contributions


23


49




Legal framework


24


49




Intellectual property rights and industrial policy


25-27


49




Conflicts of interest


28


50




Annual activity report


29-30


50




Follow-up of previous observations


31-32


50




Host State agreement


31


50




Rules implementing the Staff Regulations


32


50





INTRODUCTION









1.


The European Joint Undertaking for ITER (1) and the Development of Fusion Energy (F4E) was set up in March 2007 (2) for a period of 35 years. While the main fusion facilities are to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona.












2.


The tasks of the Joint Undertaking are (3):






(a)


to provide the contribution of Euratom to the ITER International Fusion Energy Organisation (4);










(b)


to provide the contribution of Euratom to ‘Broader Approach’ (complementary joint fusion research) activities with Japan for the rapid development of fusion energy;










(c)


to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility.
















3.


The members of the Joint Undertaking are Euratom, represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion and have expressed their wish to become members (as at 31 December 2013: Switzerland).





INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE









4.


The audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations.










STATEMENT OF ASSURANCE









5.


Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:






(a)


the annual accounts of the Joint Undertaking for ITER and the Development of Fusion Energy, which comprise the financial statements (5) and the reports on the implementation of the budget (6) for the financial year ended 31 December 2013; and










(b)


the legality and regularity of the transactions underlying those accounts.









The management’s responsibility









6.


In accordance with Articles 39 and 50 of Commission Delegated Regulation (EU) No 1271/2013 (7), the management is responsible for the preparation and fair presentation of the annual accounts of the Joint Undertaking and the legality and regularity of the underlying transactions.






(a)


The management’s responsibilities in respect of the Joint Undertaking's annual accounts include designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies on the basis of the accounting rules adopted by the Commission’s accounting officer (8), and making accounting estimates that are reasonable in the circumstances. The Director approves the annual accounts of the Joint Undertaking after its accounting officer has prepared them on the basis of all available information and established a note to accompany the accounts in which he declares, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the Joint Undertaking in all material respects.










(b)


The management’s responsibilities in respect of the legality and regularity of the underlying transactions and compliance with the principle of sound financial management consist of designing, implementing and maintaining an effective and efficient internal control system comprising adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used.









The auditor’s responsibility









7.


The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council (9) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Joint Undertaking are free from material misstatement and the underlying transactions are legal and regular.












8.


The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts.












9.


The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below.






Opinion on the reliability of the accounts










10.


In the Court’s opinion, the Joint Undertaking’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2013 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its financial rules and the accounting rules adopted by the Commission’s accounting officer.






Opinion on the legality and regularity of the transactions underlying the accounts










11.


In the Court’s opinion, the transactions underlying the annual accounts of the Joint Undertaking for the year ended 31 December 2013 are, in all material respects, legal and regular.






Emphasis of Matter










12.


Without calling into question the opinions expressed in paragraphs 10 and 11, the Court draws attention to the following. The Council conclusions adopted on 7 July 2010 (10) approved 6,6 billion euro (in 2008 values) for the Joint Undertaking contribution to the ITER construction phase of the project. This figure, which doubled the initial budgeted costs for this phase of the project, did not include an amount of 663 million euro proposed by the European Commission in 2010 to cover potential contingencies (11).












13.


The amount of the Joint Undertaking contribution to the construction phase of the ITER project is exposed to significant risks of increase, mainly resulting from changes in the scope of the project deliverables and due to the current schedule which is considered unrealistic (12). In November 2013, the Joint Undertaking estimated the shortfall (‘negative contingency’) until the finalisation of the construction phase of the project to be 290 million euro (13). The slippage for the construction phase of the project was estimated by the Joint Undertaking at the time of the audit (April 2014) to be at least 30 months.












14.


In relation to these risks, the Joint Undertaking has not yet implemented a system at contract level to regularly monitor the cost deviations, and has not updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase (14).














15.


The comments which follow do not call the Court’s opinions into question.





COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT



Presentation of the accounts










16.


In the notes to the financial statements, the table and the information included under Heading 4.3.1.1. ‘ITER Procurement Arrangement (ITER IO)’, reflect the Procurement Arrangements signed (Column 3) and the Procurement Arrangements credited so far (Column 4). However, the table does not show the degree of advancement of the works in progress and it only contains a limited estimate of the advancement of the work in progress. This information is essential to reflect the status of the activities carried out so far by the Joint Undertaking as regards the procurement arrangements signed with the ITER International Organisation.






Implementation of the budget










17.


The final 2013 budget available for implementation included commitment appropriations of 1  297 million euro and payment appropriations of 432,4 million euro. The utilisation rates for commitment and payment appropriations were 100 % and 89,8 % respectively. However, the implementation rate for the payment appropriations with respect to the 2013 initial budget was only 57,8 % (15). Regarding commitment appropriations, of the 1  254 million euro available for operational activities, 61,7 % were implemented through direct individual commitments while the remaining 38,3 % were implemented through global commitments.





COMMENTS ON KEY CONTROLS OF THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS









18.


The Court of Auditors has previously reported that the Joint Undertaking’s internal control systems had not been fully established. Although significant progress was achieved during 2013, a number of actions still need to be implemented:






—


as a result of the exercise carried out in 2013 to update the cost estimate of the EU contribution for the construction phase of the project, the process for managing the cost estimate at system level is now in place. However, the process for managing the cost estimate at contract level requires further development work (16);










—


the audit results arising from the implementation of the F4E overall control and monitoring strategy for grants and operational contracts (17) were not available at the time of the audit;










—


except for the action plan in response to the internal audit on management of experts’ contracts, the other action plans adopted by the Joint Undertaking in response to internal audits (18) had not been fully implemented at the time of the audit. The European Commission Internal Audit Service review of the competitive dialogue procedure for the procurement of tender batch 03 (Tokamak Buildings) concluded that progress had been made towards the application of the basic principles of public procurement but pointed out that the contract tender batch audited included considerable cost uncertainties, mainly associated with the possible evolution of ITER project design and planning. It also mentioned that a substantial part of the requested input data from the ITER Organisation, to be used by the Joint Undertaking for drafting the technical tender specifications, was not available in due time;










—


the corporate risk management system did not identify new risks in 2013. As regards the actions adopted in response to the main risks identified previously (19), 12 were implemented, 19 were in progress and 6 had not started by November 2013 (20).










Operational procurement and grants










19.


Negotiated procedures constituted 44 % of the 41 operational tendering procedures launched in 2013 (40 % in 2012). The Joint Undertaking needs to increase the competitiveness of procurement procedures and reduce the use of negotiated procedures. Regarding grants, the average number of proposals received was only one per call.












20.


Five operational procurement procedures were audited. The following weaknesses were identified:






—


in one procurement procedure the Joint Undertaking did not advertise the contract by means of a pre-information notice in order to increase visibility and competition,










—


in one procurement procedure there was an increase of 32 % with respect to the initial cost estimate. In two other procurement procedures the reconciliation of the difference between the final contract value with the initial estimated value was complicated given the nature of the information available in the files (21),










—


in one procurement procedure the Joint Undertaking did not have specific guidelines and procedures to ensure that the deliverables from the third parties used as input documents for the tendering procedures were uniformly and systematically reviewed and formally accepted by the Joint Undertaking (22),










—


in one procurement procedure the amendments to the original contracts increased the value of the contract by 15 % compared with the initial amount. The information available in the file was not sufficient to conclude that the assessment of the materiality of the amendments was performed as required by the Joint Undertaking’s internal procedures (23),










—


the Joint Undertaking has not developed a procedure for the members of staff involved in the tendering procedures; in two procurement procedures the Joint Undertaking staff members providing technical advice during the evaluation of the offers upon request of the evaluation committee had not therefore been formally nominated by the Appointing Authority, either as members of the evaluation committee or as experts providing technical advice to the committee (24),










—


in one tendering procedure, the Authorising Officer appointed a team to conduct a dialogue with the candidates selected following the call for expressions of interest. However, there was no formal mandate for this team setting out the dialogue strategy, the objectives to be achieved and the technical, financial and contractual parameters for the negotiations (25),










—


in another procedure, the dialogue phase finished four months later than planned and the final conditions of the contract and the updated technical version of the tender specifications were only sent in February 2013. The deadline to send the final tenders was April 2013 (whereas October 2012 was initially planned). The contract was signed four months after the target date.










Overall control and monitoring of operational procurement contracts and grants










21.


The Joint Undertaking has a system for performing audits (26) at the level of contractors with the aim of checking compliance with the quality assurance requirements (27).












22.


The results of ex post audits on grants and of financial and compliance verifications on contract implementation arising from the implementation of the overall monitoring and control strategy were not available at the time of the Court's audit (April 2014).





OTHER MATTERS



Late payment of membership contributions










23.


The payment of the 2013 annual membership contributions (28) by seven members, totalling 2,2 million euro, was subject to delays ranging from three to forty-eight days.






Legal framework










24.


The new Financial Regulation applicable to the general budget of the Union (29) was adopted on 25 October 2012 and took effect on 1 January 2013 (30). However, the framework financial regulation for the bodies referred to in Article 208 of the new Financial Regulation entered into force on 8 December 2013 (31). The financial rules of the Joint Undertaking have not yet been amended to reflect these changes.






Intellectual property rights and industrial policy










25.


The Decision on the implementation of the Fusion for Energy Industrial Policy and the Policy on Intellectual Property Rights and dissemination of information was adopted by the Joint Undertaking's Governing Board on 27 June 2013. However, the Joint Undertaking still has to adopt and implement specific measures to mitigate certain risks related to the protection of the Intellectual Property Rights and the dissemination of research results.












26.


The Joint Undertaking is offering the contractors exclusive rights to the exploitation of the Intellectual Property they produce in fields outside fusion, and non-exclusive rights in the field of fusion. This may expose the Joint Undertaking to a risk as regards the obligation for the Joint Undertaking to retain the right to access the full Intellectual Property Rights (background and foreground) involved in the European in-kind contributions and to be able to transfer this access right to the ITER Organisation, if needed.












27.


The Joint Undertaking should monitor the application of the clause of the contracts obliging the contractors to refrain from carrying out any dissemination of research results until a decision about their possible protection is made. .






Conflicts of interest










28.


The Joint Undertaking has adopted specific rules preventing potential conflicts of interest of the members of its Governing Board, Executive Committee, Audit Committee and experts. However, it still has to adopt rules regarding staff members and to set up a database for the general declarations of interest.






Annual activity report










29.


The Chair of the Governing Board of the Joint Undertaking refers in the 2013 annual activity report to the project delays and to the need to seek cost savings; in this report, the Executive Director refers to the risks associated with a potential budget shortfall by 2020, mainly related to the increased scope in relation to the ITER buildings, and to the current schedule, which is under revision (see emphasis of matter in paragraphs 12-14).












30.


The Executive Director’s declaration of assurance makes reference to the progress achieved in 2013 at the level of the overall control environment of the Joint Undertaking, although it acknowledges that some parts still have to reach full maturity (see paragraph 18).






Follow-up of previous observations



Host state agreement









31.


According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010. At the time of the audit (April 2014), this was still not the case.





Rules implementing the staff regulations









32.


The Joint Undertaking has not yet adopted all the rules implementing (32) the Staff Regulations.





This Report was adopted by Chamber IV, headed by Mr Milan Martin CVIKL, Member of the Court of Auditors, in Luxembourg at its meeting of 21 October 2014.


For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President





(1)  ITER: International Thermonuclear Experimental Reactor.

(2)  Council Decision 2007/198/Euratom of 27 March 2007 establishing the European Joint Undertaking for ITER and the Development of Fusion Energy and conferring advantages upon it (OJ L 90, 30.3.2007, p. 58).

(3)  The Annex summarises the Joint Undertaking’s competences, activities and available resources. It is presented for information purposes.

(4)  The ITER International Fusion Energy Organisation was set up in October 2007 for an initial period of 35 years to implement the ITER project, which aims to demonstrate the scientific and technological feasibility of fusion energy. The Members are Euratom, the People's Republic of China, the Republic of India, Japan, the Republic of Korea, the Russian Federation and the United States of America.

(5)  These include the balance sheet and the economic outturn account, the cash flow table, the statement of changes in net assets, a summary of the significant accounting policies and other explanatory notes.

(6)  These comprise the reports on implementation of the budget, a summary of budgetary principles and other explanatory notes.

(7)  OJ L 328, 7.12.2013, p. 42.

(8)  The accounting rules adopted by the Commission’s accounting officer are derived from the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, where relevant, the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

(9)  Article 107 of Regulation (EU) No 1271/2013.

(10)  Council conclusions on ITER status of 7 July 2010 (Ref.11902/10).

(11)  Communication from the Commission to the European Parliament and the Council of 4 May 2010 on ITER status and possible way forward (COM(2010) 226 final).

(12)  Conclusions of the European Commission Internal Audit Service as regards the competitive dialogue procedure for the procurement of Tender Batch 03 (Tokamak Buildings). See also the observations included in the report ‘Potential for Reorganization within the ITER project’ of 2013, carried out by Ernst & Young upon request of the European Parliament, as regards the significant risk for the Joint Undertaking contribution to the project with the current levels of contingencies (http://www.europarl.europa.eu/meetdocs/2009_2014/documents/cont/dv/study_geier/study_geieren.pdf); and the Commission communication to the Council of the European Union of 14 February 2013 (5852/13 RECH 21 ATO 19) stressing the existing concerns on the progress of the project, in particular on cost containment and schedule slippage.

(13)  This represents a deviation of 4,39 % over the figure approved by the Council in 2010 (Fusion for Energy Progress Report to the European Competitiveness Council of November 2013).

(14)  The indicative total resources deemed necessary for the Joint Undertaking for the 35 years of its duration were determined, in accordance with Article 4(1) of F4E Decision 2007/198/Euratom, and set at 9  653 million euro. Only the Joint Undertaking contribution to the construction phase of the project, initially estimated at 2,7 billion euro, was subject to a revision in 2008 which resulted in the doubling of the initial estimate.

(15)  The initial budget available for payment appropriations adopted on 11 December 2012 was 677,2 million euro. It was then reduced to 432,4 million euro in the amending budgets of 27 June and 10 December 2013, mainly because of delays in the implementation of the activities related to the ITER construction budget chapter.

(16)  Until this process is in place, the local integrated reporting portal (DWH) cannot provide an effective reconciliation between the accounting system and the project management system. It thus does not provide the information necessary to the regular monitoring of cost deviations (see also footnote 12 of the Court's 2012 report, OJ C 369, 17.12.2013, p. 35).

(17)  Paragraphs 15 and 23 of the Court’s 2012 report.

(18)  Action plans in response to the internal audits on financial circuits, grant management, expert contracts, operational pre-procurement activities, procurement in the area of ITER buildings, selection and recruitment and review of the competitive dialogue procedure for the procurement of Tender Batch 03 (Tokamak Buildings). The internal audit reports on the budgetary process of the Joint Undertaking (Annual audit plan of the Internal Audit Capability for 2012) and on the monitoring of contract implementation in the area of ITER buildings (Annual audit plan of the Internal Audit Capability for 2013) were not yet available at the time of the Court's audit.

(19)  The corporate risk management system was presented to the Governing Board in July 2012.

(20)  Some of the main risks classified as very high by the Joint Undertaking had particular impact in the 2013 budget implementation exercise, namely: the low budget implementation for payments appropriations as compared with the initial planning; the lack of competition or very low competition for some operational procedures and for grants; uncertainties about the final scope of the procurement arrangements during the definition of the technical specifications for procurement procedures or during the implementation of the contract; delays in the reception of technical data from the ITER Organisation during the implementation of the procurement arrangements.

(21)  This was particularly relevant in the Tender Batch 04 for Supply and Installation for Tokamak Complex and Surrounding buildings. The initial cost estimate at 2008 values amounted 186,6 million euro. The contract signed amounted to 537,3 million euro. The difference was partly due to significant design change requests from the ITER Organisation, additional items and contingencies, evolution in the scope of the works, and the transfer of activities from other batches.

(22)  This observation was also raised by the European Commission Internal Audit Service in its report on Tender Batch 03 (Competitive dialogue procedure for Tokamak buildings).

(23)  The information available did not include the formal decisions on whether the amendments were classified as non-significant and the justifications thereof.

(24)  However, all staff members involved had signed, however, declarations of confidentiality and of absence of conflict of interest.

(25)  This observation was also raised by the European Commission Internal Audit Service in its report on Tender Batch 03 (Competitive dialogue procedure for Tokamak buildings).

(26)  Of the 26 quality audits carried out during 2013, 22 were closed by April 2014. The audits identified 35 situations of non-conformity with the procedures and 201 areas for improvement.

(27)  The audits covered the quality plan, situations of non-conformity, purchase control and subcontracting management, documentation and data management, changes and deviations management, the civil works quality control plan, the detailed project schedule, contract risk management and the technical works quality control plan.

(28)  Members’ contributions other than the European Commission and France as host Member State.

(29)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1)..

(30)  Article 214 of Regulation No 966/2012 with the exemptions referred to.

(31)  Commission Delegated Regulation (EU) No 1271/2013 of 30 September 2013 on the framework financial regulation for the bodies referred to in Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 328, 7.12.2013, p. 42).

(32)  Inter alia on recruitment of temporary agents, classification in grade and step upon engagement, part-time work, appraisal of the Director and modified provisions on family leave, parental leave and pension rights.


ANNEX
European Joint Undertaking for ITER and the Development of Fusion Energy (Barcelona)
Competences and activities







Areas of Union competence deriving from the Treaty


(Articles 45 and 49 of the Treaty establishing the European Atomic Energy Community)



Chapter 5, on ‘Joint Undertakings’, of the Treaty establishing the European Atomic Energy Community, and in particular:
Article 45

‘Undertakings which are of fundamental importance to the development of the nuclear industry in the Community may be established as Joint Undertakings within the meaning of this Treaty, in accordance with the following Articles ...’

Article 49

‘Joint Undertakings shall be established by Council decision. Each Joint Undertaking shall have legal personality.’






Competences of the Joint Undertaking


(Council Decision 2007/198/Euratom)




Objectives







—


To provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation;










—


to provide the contribution of Euratom to Broader Approach activities with Japan for the rapid realisation of fusion energy;










—


to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility (IFMIF).





Tasks







—


Oversee preparation of the ITER project site;










—


provide components, equipment, materials and other resources to the ITER Organisation;










—


manage procurement arrangements vis-à-vis the ITER Organisation and, in particular associated quality assurance procedures;










—


prepare and coordinate Euratom's participation in the scientific and technical exploitation of the ITER project;










—


coordinate scientific and technological research and development activities in support of Euratom's contribution to the ITER Organisation;










—


provide Euratom's financial contribution to the ITER Organisation;










—


arrange to make human resources available for the ITER Organisation;










—


interface with the ITER Organisation and carry out any other activities in furtherance of the ITER Agreement.









Governance




Governing Board, Director and other bodies

The Governing Board is responsible for the supervision of the Joint Undertaking in the pursuit of its objectives and ensures close collaboration between the Joint Undertaking and its members in the implementation of its activities. Together with the Governing Board and the Director, who is the chief executive officer responsible for the day-to-day management of the Joint Undertaking and its legal representative, the Joint Undertaking has several bodies:
Bureau, Technical Advisory Panel, Executive Committee, Administration & Finance Committee, Audit Committee.

Internal auditor: internal audit capability and the European Commission’s Internal Audit Service (IAS) since 1 January 2012.

External auditor: European Court of Auditors.

Discharge authority: the European Parliament, on a recommendation from the Council.





Resources available to the Joint Undertaking in 2013




Budget

431,6 million euro final revenue (payment appropriations) of which 69 % funded by Community contribution.

Staff at 31 December 2013

262 EU official and temporary agent posts provided for in the establishment plan, of which 234 posts were occupied;
142 contract agent posts occupied.





Activities and services provided in 2013



For detailed information concerning the activities and services provided in 2013, please consult the F4E website at http://www.fusionforenergy.europa.eu/





Source: European Joint Undertaking for ITER and the Development of Fusion Energy.







THE JOINT UNDERTAKING’S REPLIES






16.


The tables referred to reflect credit earned by F4E based on the achieved Credit Allocation Scheme (CAS) milestones agreed upon with ITER IO (International Organisation) on the way to the completion of the specific procurement. This is what ITER IO officially acknowledges as far as the progress is concerned. However, the profile of the CAS milestones value doesn’t represent correctly the real progress of the work (i.e. it is peaked towards the end of the procurement and therefore the acknowledgment through credits is skewed). F4E has started in 2014 the required actions to put in place an Earned Value Reporting that will enable F4E to provide the right information on the progress of the work. It is worth mentioning that every year F4E prepares an Annual Progress Report which together with the F4E Annual Activity Report provides additional information in terms of overall progress of the European contribution to the ITER Project. Furthermore, F4E has included in the 2013 Annual accounts a raw preliminary estimation of the percentage of works completed, based on the amount of expenses related to procurement arrangements incurred up to date and comparing them to the estimated value of the contribution in kind to the project.










17.


With regards to the implementation rates for payment appropriations, the ITER project has experienced further schedule slippage with a consequent delay in the signature of important contracts, which has not allowed for the execution of the planned pre-financing. The main causes were delays in the provision of data by ITER IO and longer than planned negotiations with companies in order to decrease cost in favour of a better cost containment.










18.


Significant progress has been made during 2013 in the internal control system and further actions are being taken in order to strengthen the F4E Control environment. As explained below in more detail, the implementation of the actions identified by the auditor is already well advanced:






 



Cost estimates

F4E has completed an update of its cost baseline at Level 4 (Procurement Arrangement — PA Level) of the Work Breakdown Structure (WBS) and of a preliminary Estimate at Completion (EAC) also at WBS-L4 considering the currently available project dates. The data will be updated, especially once the realistic schedule exercise at project level will be completed. The top-down approach in costing adopted by F4E is now allowing the organisation to propagate the costing exercise to the WBS-L6 (contract level). The exercise is a lengthy one and it is requiring some time due also to the need of constantly refining the already gathered information by considering the project evolution. This will allow the organisation to have a more detailed basis for the cost analysis, although the data already available at WBS-L4 allow a good level of monitoring and cost containment which is reported annually to the European Council through the F4E Progress report.










 



Audit results

Please refer to our reply to paragraph 22.










 



Action Plans

The overall status of implementation has significantly improved since the Audit Committee of November 2013 and is now 80 % (information shared with the Audit Committee of May 2014).
Without taking into account the 2 most recent audit reports issued towards the end of 2013 (Selection and Recruitment and Review of the Competitive Dialogue procedure for the procurement of tender batch 03 — TB03), the implementation rate is 89 %. The actions plans related to the Financial Circuits, Grants management and Expert contracts audits have been fully implemented.










 



Corporate Risk

F4E presented the updated corporate risk to the Audit Committee in May 2014. It has to be noted that due to the lack of resources, the GB agreed that F4E would only monitor regularly and in detail the risks classified as very high. The action plan proposed in response to such risks are prioritised, keeping in mind that some of the actions are proposed in a continuous improvement spirit and may never be considered as completed.














19.


F4E partly agrees with the comment as most of the negotiated procedures reported by the auditor is below the 50  000 euro threshold indicated by the JU’s regulations and therefore should not be regarded as exceptional. Furthermore, due to their low average value, negotiated procedures correspond to 44 % of yearly operational procurement procedures but only to less than 15 % of the JU’s yearly commitment. In this respect the use of low-value negotiated procedures allows the JU to focus the limited internal resources on the high value/high risk procurements, with a beneficial risk mitigating effect. In relation to the very low number of proposals received for the grant calls, this fact is mainly due to 2 factors. On the one hand the extremely specialised nature of F4E’s grants entails that the nature of the work is only of interest to a small number of applicants in Europe. On the other hand the success of the European fusion programme in creating a European research area in fusion with minimal duplication of efforts and close collaboration among teams active in one field results in pan-European consortia being behind most proposals in response to F4E calls.










20.


In relation to the weaknesses identified, F4E would like to state that measures are already being taken in order to remediate them, as detailed below.






 



Use of pre-information notice

A guideline document stipulating the obligation to publish a pre-information notice for high value contracts (estimated contract value above 10 million euro) and for contracts which are considered by the Authorising Officer to be critical has been approved by F4E in September 2012. The procurement procedure referred to by the auditor was launched before the approval of this procedure.










 



Estimation of contract values

In respect of the procurement procedure for which there was an increase of 32 % with respect to the initial cost estimate, F4E has provided to the auditors with the detailed reconciliation of the increase, mainly due to two factors: the time required for performing the initial scope was re-evaluated and this resulted in an increase of time, and additionally some additional scope was included in the contract.
In respect to the two other procurement procedures all the details concerning the differences in cost have been provided to the auditors. In the case of the other procedures, and in particular in relation to the tender batch 04 (TB04) contract, F4E agrees that the reconciliation was made complex on the basis of the documents contained in the procurement file. This is mainly the result of the nature, complexity and amounts involved in such contract, which in its turn result in huge amounts of documents contained in the file rather than to missing or incomplete information.










 



Deliverables of third parties used in tendering procedures

In order to ensure adequate acceptance of deliverables contributed by third parties assisting the procurement and to secure coherence and compliance with the regulatory framework, F4E will prepare a checklist regarding the formal and quality aspects which need to be fulfilled in order to ensure the appropriate use of third-party information.










 



Amendments to contracts

The fact that the F4E Authorising Officer (AO) approved the contractual amendment without launching the new procurement procedure under Art.100(2)(f) or (g) of F4E Implementing Rules proves that the contractual modifications have been considered as not substantial. However for the avoidance of doubt F4E will include in the Request for Amendment form, accompanying the actual contract amendment request to the AO: (i) a description of the history of the contract with special regard to previous amendments; and (ii) a specific assessment of the substantiality of the proposed change to the initial contract with view to previous amendments, if any.










 



Staff members participating in tendering procedures and negotiation mandate

While it is correct that some staff members provided their input during the evaluation of offers upon request of the Evaluation Committee without being nominated by the Appointing Authority, either as the members of the Evaluation Committee or as experts providing advice on particular aspects of the offers, this has no negative impact. As mentioned by the Court all staff members involved signed the declarations on confidentiality and absence of conflict of interest, are subject to the Staff Regulations and provided only factual input based on the Evaluation Committee request. All staff members involved were identified in the contract adjudication file.
F4E is currently developing: (i) a procedure and a template concerning the involvement of internal experts; and (ii) for the definition of a negotiation mandate from the AO to the Negotiation Committee defining the boundaries which can be explored.










 



Delays in concluding competitive dialogue

As acknowledged by the IAS in the Review of the Competitive Dialogue procedure for the procurement of tender batch 03 — TB03, F4E is pioneering within the European Institutions in the use of this type of procurement procedures, which are better suited for complex markets such as the TB04 one. The delay to finalise and publicise the tender specifications after completion of the negotiations reflects the internal decision making procedure required given the scope of the contract in terms of complexity and price; it has to be taken into account as well the fact that the Christmas break was included in the period. Concerning the time to contract, it may be a result of the above but is more generally a result of the delay accumulated concerning the other ITER Building contracts.














21.


F4E has no additional comment.










22.


In the case of grants there are indeed final audit results in 2013 which have been already implemented.
Even if it was a single audit, it covered 21 % of the total amount of contributions paid by F4E for grants for the period 2010-2013. The final report of the external audit firm was communicated to the beneficiary and the results have been already implemented. Regarding the 3 audits being performed in 2014, the external audit firm has an important backlog of work and F4E has not yet received any report (not even the preliminary report which is contractually due after the completion of the fieldwork).
For procurement contracts, in 2013 the IAC assessed financial, compliance, quality and performance aspects of five contracts managed by Site Buildings and Power Supplies Project Team. The 1st Draft version of the report was issued to the Director on 28 March 2014. Following the contradictory procedure and considering the high technical and legal complexity of some of the issues identified by the IAC, a Final Draft was provided to the Director on 30 September 2014. Nevertheless we would like to note that several weaknesses identified by the IAC are already being remedied.










23.


F4E is pleased to note the progress in the time to pay for the Membership contribution, despite the incidents pointed out by the Court. This is reflected by the fact that out of the 2,2 million euro contribution subject to delays, 1,7 million euro, corresponding to the contribution of 2 members, was received with only one working day delay.










24.


F4E would like to note that no undue delays took place. The new Framework Financial Regulation entered into force on 8 December 2013. F4E assessed the changes brought about by the new Framework Financial Regulation and the need for derogations which are vital to the organisation due to its specific operating needs. Based on that assessment F4E developed and presented a proposal for amendment/recast of F4E Financial Regulation and its Implementing rules with key deviations to the Governing Board at its meeting of June 2014, which endorsed the key deviations. The Governing Board meets twice a year and this was the first meeting following the entry into force of the Framework Financial Regulation to which a proposal could be submitted by F4E. In accordance with Article 5 of Council Decision 2007/198/Euratom, F4E is now dependent on the Commission to issue a prior opinion on the F4E Financial Regulation, since only after assessment of the Commission opinion can the final version of the rules be submitted to the Governing Board for its next meeting in December 2014.










25.


F4E has sought for the widest possible understanding and support from the industry for the implementation of such policy. As a result a consultation process was carried out during 2013 to get the input and, were possible, the agreement of the industry on a number of practical solutions. It is worth highlighting that when adopting the measures for the functional implementation of the Intellectual Property (IP) policy, the contractual clauses to be used in F4E’s contractual activities were also adopted. This was made on purpose to allow F4E applying the policy without the need of any further implementing or regulatory measures. Anyhow, to facilitate that the new policy fits smoothly with F4E’s practices and to guarantee its observance some adjustment were made in F4E’s decision making process.










26.


F4E would like to emphasise that the residual risk associated with the exclusive rights to exploitation outside fusion offered to F4E’s contractors is effectively mitigated by the fact that F4E retains as an uncompromised rule the non-exclusive, transferrable right of use of the developed IP in the fusion domain. No conflict exists between the exclusivity granted for non-fusion applications and the shared rights requested for fusion applications; therefore no additional risk is brought in by this differentiation. F4E will take special care in defining the boundaries of what would be considered as fusion application (which will as a minimum include all the systems, subsystem and components covered by the ITER Agreement scope), in order to ensure vis-à-vis contractors the maximum clarity and transparency.
In addition, F4E considers that this approach to Intellectual Property Rights increases competition as the contractual conditions are more attractive to contractors, which both contributes to cost containment and to spreading our presence throughout Europe.










27.


F4E would like to note that IP assets owners have by definition a high interest to ensure that any dissemination activity does not prevent the protection of the assets. This is particularly the case if the contractor has exclusive rights of exploitation in its primary fields of business outside fusion. The possibility to implement a watch service to claim the infringement of the contractual conditions in case a contractor makes a publication without permission does not appear proportionate to the size of the residual risk and would be difficult to implement in practice.










28.


The Rules on the management of the conflict of interests regarding staff members have been adopted by the GB and entered into force on 1 July 2014. Implementing measures (e.g. on general declarations of Interests, post-employment rules) are being adopted imminently. The dedicated database for general declarations of interests is being elaborated.










29.


F4E has no additional comment.










30.


F4E has no additional comment.










31.


The Host Agreement signed between ‘Fusion and for Energy’ and the Kingdom of Spain in 2007 does indeed foresee that Spain will provide F4E with permanent premises no later than 3 years after the signature of the agreement. The Agreement also foresees that in the meantime, and before the final premises are made available, Spain will provide temporary premises.
As Spain has not yet provided the permanent premises foreseen by the Host Agreement and has refused to provide additional space for the temporary premises, the issue was brought to the attention of the Governing Board in December 2013. In its conclusions, the F4E Governing Board:






—


Acknowledged the difficult situation faced by F4E and its staff in the current temporary premises, and the importance for the development and smooth functioning of F4E to dispose of an exclusive permanent building.










—


Urged Spain to fulfil the obligations laid down in the Host Agreement to provide a permanent premises for F4E as soon as possible and resolved to ask the GB Chair to write to the Spanish authorities to express the concerns of the GB.










—


Urged Spain to provide free of charge additional temporary office space for F4E commensurate with the agreed staff complement of F4E until such time as the permanent premises are available.




The conclusions of the Governing Board were transmitted to the Spanish authorities asking them to give this issuer their urgent attention and inform the F4E Governing Board on the actions which they planned to take to respect their obligations. The Spanish authorities replied stating that they already provide all the space foreseen by the Host Agreement and therefore no additional space can be made available. In addition to the permanent premises, they make reference to the discussions which took place in 2010-11 on a possible building in the area, which was later disregarded by both Spain and F4E, to finally say that there is currently a process underway to choose a site for the new building and that F4E would be soon informed. Despite the statements made by the Spanish authorities on possible progress on the decision for the permanent premises, it should be underlined that no news has been received by F4E for more than a year now. The Report of the Working Group, which Spain makes reference to, was finalised in September 2013 and no action has been taken since then. The recent letter of the Spanish Secretary of State does not provide any elements to believe that there is any real progress on the issue. As mentioned several times to the Spanish authorities and to the Governing Board, the working space currently made available to the Joint Undertaking is not sufficient and now results to increasing problems which impedes F4E and its staff to operate in reasonable conditions. With the significant sustained effort to fill all the available positions and reduce the vacancy rate, the situation is getting worse every month. In a recent survey amongst F4E staff, the working space conditions were cited as one of the major difficulties and concern.










32.


Fusion for Energy has already adopted most of the implementing rules mentioned by the Court — parental leave, family leave, pension rights, appraisal of the Director, classification in grade, part-time. Regarding the rules on temporary agents, they were submitted early 2013 for approval to the Commission but the latter did not provide its answer, hence making impossible the submission to the Governing Board for approval in accordance with Article 110 of the Staff Regulations. The latter was also the case for a certain number of additional draft Implementing Rules submitted to the COM for approval in 2013. In the meanwhile, the reform of the Staff Regulations entered into force on 1st January 2014, making necessary new adjustments. Fusion for Energy has already taken the necessary steps and submitted to its Governing Board several Commission rules to apply by analogy, including updated provisions on part-time and classification in grade which were necessary following the reform. In addition, the consultations with the Staff Committee on other rules are taking place in line with the new Article 110. We therefore expect to make further progress during the year, providing the Commission answers within a reasonable delay to Fusion for Energy potential requests for derogations. Finally, in respect of some rules — in particular use and engagement of temporary agents, use and engagement of contract agents, appraisal and reclassification, unpaid leave for contract and temporary agents — it was agreed with the Commission to use common model decisions that are currently being drafted by the Permanent Working Group composed of Agencies and Commission representatives.