Special Report No 4 // 2016#The European Institute of Innovation and Technology must modify its delivery mechanisms and elements of its design to achieve the expected impact #(pursuant to Article 287(4), second subparagraph, TFEU)
Date: 2016-02-03
Institutions: European Court of Auditors
Subjects: EU aid, European Institute of Innovation and Technology, audit, financial control, higher education, innovation, management audit, research and development, scientific cooperation, technical cooperation

EN 

2016 

NO 04

Special Report  The European Institute of 

Innovation and Technology 
must modify its delivery 
mechanisms and elements 
of its design to achieve the 
expected impact

EUROPEAN
COURT
OF AUDITORS

 
EUROPEAN COURT OF AUDITORS 
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Luxembourg: Publications Office of the European Union, 2016

Print 
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ISBN 978-92-872-4224-2 
ISBN 978-92-872-4269-3 
ISBN 978-92-872-4267-9 

ISSN 1831-0834 
ISSN 1977-5679 
ISSN 1977-5679 

doi:10.2865/1032 
doi:10.2865/606788 
doi:10.2865/77336 

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EN 

2016 

NO 04

Special Report

The European Institute of 
Innovation and Technology 
must modify its delivery 
mechanisms and elements 
of its design to achieve the 
expected impact

(pursuant to Article 287(4), second subparagraph, TFEU)

Audit team

02

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or 
management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks 
to performance or compliance, the level of income or spending involved, forthcoming developments and political and 
public interest.

This performance audit was produced by Audit Chamber IV — headed by ECA Member Milan Martin Cvikl — which spe‑
cialises in auditing revenue, research and internal policies, financial and economic governance and the European Union’s 
institutions and bodies. The audit was led by ECA Member Alex Brenninkmeijer, supported by the Head of his private  
office, Antonius Moonen, Raphael Debets, Attaché, and Michael Schuppan, Trainee; Paul Stafford, Principal Manager;  
Maria Echanove, Head of Task; Alexandre Hugé, Eddy Struyvelt and Juan Vazquez Rivera, auditors.

From left to right: R. Debets, A. Hugé, M. Schuppan, A. Brenninkmeijer, P. Stafford, M. Echanove, A. Moonen.

Contents

03

Paragraph

Glossary and abbreviations

I-IX 

Executive summary

1-13 

1-2 

3-6 

Introduction

Europe is lagging behind in innovation

Shift in EU policy focus towards innovation

7-13 

The European Institute of Innovation and Technology

7-8 

The EIT’s mission and objective

9-13 

How does it work?

14-18  Audit scope and approach

19-103  Observations

19-23 

The EIT is based on a valid rationale

24-68 

Some key elements have not been appropriately designed

25-26 

The knowledge triangle is not adequately reflected at Commission level

27-33 

EIT funding based on complementary activities a poorly defined concept

34-37 

The claimed leverage effect is undemonstrated and implausible

38-39 

KICs are unlikely to reach financial sustainability

40 

The EIT Foundation (EITF) failed to attract additional funds

41-50 

The annual grant agreement process does not adequately encourage KIC innovation activities

 
Contents 

04

51-54 

The existing key performance indicators are not suited for effective monitoring

55-57 

Business participation could be improved

58-62 

The EIT model does not sufficiently set targets to support existing SMEs

63-64 

There are not enough concrete synergies and complementarities

65-68 

Some EIT elements are well appreciated: focus on the market, long-term perspective, autonomy of the KICs 
and the co-location centres

69-95 

The implementation of the EIT model needs to improve

69 

The EIT is not yet fully autonomous

70-72 

The EIT has not fulfilled its role as an impact investor

73 

The competitive funding mechanism undervalues performance

74-79 

There are significant administrative and audit burdens on KIC partners

80-84 

The EIT is under-resourced and has in the past been poorly managed

85-86 

The EIT financial support is concentrated

87-88 

The KICs lack transparency

89-95 

The KICs have stimulated an innovation network and entrepreneurial culture but with little evidence of 
tangible results or impact to date

96-103 

The future

97-98 

Financial sustainability principles have been introduced

99-100 

The definition of KIC complementary activities has been revised

101 

102 

103 

More meaningful key performance indicators will be developed

The EIT is trying to involve more countries

New framework partnership agreements are currently being discussed

Contents 

05

104-111  Conclusions and recommendations

105 

Rationale

106-107  Design

108-109 

Implementation and impact

Annex I  —  Regional co-location centres across Europe

Annex II  —  Objectives of the EIT

Reply of the Commission

 
 
 
Glossary and  
abbreviations

06

Basic research: Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge 
of the underlying foundation of phenomena and observable facts, without any particular application or use in view.

Business incubator: A business incubator is an organisation designed to support the successful establishment and 
further development of enterprises. It often offers access to physical business infrastructure, individually tailored 
business support services and networking opportunities.

Co-location centre: Set up and managed by the KIC, a co‑location centre is a geographical hub for the practical 
integration of the knowledge triangle. Co‑location centres provide office space where innovators can physically 
meet and work together.

DG Education and Culture: The Directorate‑General for Education and Culture of the European Commission is the 
executive branch of the European Union responsible for policy on education, culture, youth, languages and sport. 
DG Education and Culture is the supervisory body of the EIT.

DG Internal Market, Industry, Entrepreneurship and SMEs: The Directorate‑General for Internal Market, 
Industry, Entrepreneurship and SMEs of the European Commission has the mission to promote a growth‑friendly 
framework for EU enterprises. DG Internal Market, Industry, Entrepreneurship and SMEs is responsible for a number 
of actions to improve the business environment, notably for SMEs, and to support the development of a strong and 
sustainable industrial base able to compete globally.

DG Research and Innovation: The Directorate‑General for Research and Innovation of the European Commission 
is responsible for the European Union’s research and innovation policy and the coordination of related activities. It 
funds innovative activities through the framework programmes, the current one being Horizon 2020.

ECA: The European Court of Auditors.

EIT: The European Institute of Innovation and Technology.

Europe 2020: Europe 2020 is the EU’s growth strategy for the coming years and aims to make the EU a smart, 
sustainable and inclusive economy.

FP7: The seventh framework programme for research, technological development and demonstration activities was 
the European Union’s main instrument for supporting research and innovation over the 2007‑2013 period. The EIT 
was not part of FP7.

H2020: Horizon 2020 is the successor to FP7. With an original budget of 77 billion euro over the 2014 ‑2020 period, 
its main objective is to ensure the EU produces world‑class science, removes barriers to innovation and makes it 
easier for the public and private sectors to work together in delivering innovation. The EIT is part of H2020.

Impact: Long‑term socioeconomic consequences that can be observed after a certain period following the 
completion of an intervention, which may affect either direct addressees of the intervention or indirect addressees 
falling outside the boundary of the intervention.

Glossary and abbreviations 

07

KIC: A knowledge and innovation community is a highly autonomous partnership of leading higher education 
institutions, research organisations, companies and other stakeholders in the innovation process that tackles 
societal challenges through the development of products, services and processes and by nurturing innovative, 
entrepreneurial people.

Knowledge triangle: The contribution of higher education to jobs and growth can be enhanced through close, 
effective links between education, research, and innovation — the three sides of the knowledge triangle.

KPIs: Key performance indicators are used to measure the factors which are crucial for the success of an 
organisation.

Result: Immediate changes that arise for direct addressees at the end of the participation in an intervention.

Executive  
summary

08

I
Weak links between the worlds of education, science and business is often cited as one of the main reasons why the 
EU is falling short in innovation performance compared to its competitors. Created in 2008, the European Insti‑
tute of Innovation and Technology (EIT) has the ambitious objective of overcoming this barrier. The EIT’s mission 
is to reinforce the EU’s innovation capacity ‘by promoting synergies and cooperation among … higher education, 
research and innovation of the highest standards, including by fostering entrepreneurship’.

II
With an original budget of 3 billion euro over the 2008 ‑2020 period, the EIT has a prominent role to play in the 
Europe 2020 strategy for smart, sustainable and inclusive growth. Covering the entire innovation cycle at EU level, 
from laboratory to market, the EIT aims to bring the best creative and innovative partners from academia, research 
and business to work together on major societal challenges such as climate change, energy efficiency, digital inno‑
vation, health and raw materials.

III
The EIT is not a research centre and does not directly contribute to financing individual projects. Instead, it provides 
grants to the knowledge and innovation communities (KICs). Selected on a competitive basis, the KICs are autono‑
mous partnerships of existing businesses, research institutes and universities. They mainly carry out: (1) training 
and education activities; (2) collaborative innovation‑driven research; and (3) innovative business creation and 
development.

IV
We examined whether the EIT is an effective tool to foster innovation in the EU. We considered whether the EIT’s 
rationale and design address the needs of the innovation communities and assessed the implementation and moni‑
toring of the EIT’s activities. We conclude that, despite a valid raison d’être, the EIT’s complex operational framework 
and management problems have impeded its overall effectiveness.

V
The main reasons for setting up the EIT are well founded and generally supported by its stakeholders: weak links 
between business, research institutes and higher education, little success in bringing research outcomes to market 
and a lack of entrepreneurial culture were arguments to justify its creation to address these specific issues. Thanks 
to the EIT, the three KICs launched in 2010 have brought more than 500 partners together across disciplines, coun‑
tries and sectors. KICs are autonomous, an EIT feature particularly valued by the KIC partners. Through the EIT, 
the KICs have offered new opportunities to carry out innovative activities and have promoted an entrepreneurial 
culture.

Executive summary 

09

VI
However, the audit has identified several weaknesses in key concepts and operational processes, as detailed below.

(a)  The funding model of the EIT includes the concept of KIC complementary activities, which are not funded by 

the EIT. There is little or no added value to this funding condition, which unnecessarily complicates the monitor‑
ing and reporting of the EIT’s financial contribution.

(b)  The practical arrangements between the EIT and the KICs, such as the procedures for EIT grants to the KICs, are 

ill suited given the nature of the innovation activities the EIT aims to support.

(c)  The financial sustainability of the KICs is doubtful. Businesses are not involved enough in the KIC activities even 
though their participation was a prerequisite for the EIT to be successful. EIT funding is concentrated within 
a few countries and a limited number of KIC partners.

(d)  The performance indicators and the monitoring and reporting processes do not provide an informative picture 

of results and impacts.

VII
Seven years after its inception, the EIT is not yet fully operationally independent from the European Commission. 
This has hampered its decision‑making. The EIT is not the impact‑driven institute envisaged. The performance 
of the KICs is not sufficiently taken into account when the final payment of the grant is processed. The EIT rarely 
rejected costs based on the lack of performance prior to 2015.

VIII
The impact of the remedial actions undertaken by the Commission and the EIT in 2015 remains to be seen. The fol‑
lowing conclusions and recommendations are pertinent and need to be followed up.

IX
If the EIT wants to become the groundbreaking innovative institute it was originally conceived to be, significant 
legislative and operational adjustments are required to better foster the EU’s innovation potential. We recommend 
the following.

(1)  The Commission should propose an amended EIT legal basis to the European Parliament and the Council, revis‑

ing the EIT’s funding model.

(2)  The EIT grant agreement (a) should cover a longer period than the calendar year and (b) should be signed be‑

fore the start of the activities.

(3)  The EIT should refocus its approach to delivering impact. To that end, it should seek greater autonomy and 

make use of the flexibility in the legal basis of Horizon 2020. In particular, it should adopt specific rules tailored 
to the needs of the KIC partners. The EIT should resolve its staffing issues to enable it to continuously monitor 
KICs’ performance.

(4)  The EIT should develop impact‑based analysis. The EIT should also streamline its monitoring and reporting 

processes.

Introduction

10

Europe is lagging behind in innovation

01 
Commission research has shown that the EU lacks an innovation culture where 
good ideas can be easily transformed into new products and services. It has 
failed to convert its excellence in basic research to market‑driven innovation. 
Box 1 gives an example of this failure, which has been termed the ‘European 
paradox’1.

1 

Theory developed in the 
Green Paper on innovation, 
European Commission, 1995.

1
x
o
B

The European paradox — the example of graphene

Graphene is a structure material based on carbon which was discovered in 2004 by Andre Geim, a physics 
professor at the University of Manchester. Because of its many extraordinary properties (it is lighter than steel 
but nevertheless stronger and holds high heat and electricity conduction capacity), graphene has enormous 
potential for wide‑ranging applications from high‑performance electronic devices to energy storage.

Source: http://www.sketchport.com, ©Magicalhobo, 2014. Licensed under CC‑BY.

Since its discovery, more than 11 000 graphene‑related patents and patent applications have been filed 
worldwide. But the United Kingdom has accounted for less than 1 % of these, with Asian organisations taking 
out nearly two thirds according to Cambridge IP, a UK‑based technology strategy company.

Source: Sarah Gordon ‘Red tape and cost lie behind Europe’s poor patent performance’, Financial Times, December 2014.

 
Introduction 

11

02 
To tackle this problem, the EU is striving to become a knowledge‑based economy 
centred on an ambitious research and innovation agenda. The European Union 
strategy is ‘to create an innovation‑friendly environment that makes it easier for 
great ideas to be turned into products and services that will bring … economy 
growth and jobs’2. Box 2 defines innovation, which is indeed a key driver of eco‑
nomic growth and job creation.

2 

Innovation union, 
a Europe 2020 Initiative 
(http://ec.europa.eu/research/
innovation‑union/
index_en.cfm).

2
x
o
B

The definition of innovation

An innovation is the implementation of a new or significantly improved product (good or service) or process, 
a new marketing method or a new organisational method in business practices, workplace organisation or ex‑
ternal relations. The minimum requirement for an innovation is that the product, process, marketing method 
or organisational method must be new to the firm, or significantly improved.

Innovation activities are all scientific, technological, organisational, financial and commercial steps which 
actually, or are intended to, lead to the implementation of innovations. Innovation activities also include R & D 
that is not directly related to the development of a specific innovation.

Source: OECD/European Communities, Oslo manual — Guidelines for collecting and interpreting innovation data, 2005.

Shift in EU policy focus towards innovation

03 
Europe’s inability to turn inventions into saleable goods and services has led the 
EU to rethink its research policies. EU public policies traditionally concentrated 
on basic research3, which is driven more by curiosity than by any potential market 
application. The underlying assumption was that basic research would spur ap‑
plied research, which would in turn lead to innovation and commercialisation. 
However, these policies often neglected the absorption capacity of the market 
and the need for innovation support required by the private sector.

3 

The major beneficiaries under 
the previous European R & D 
framework programmes were 
researchers outside the 
business sector (Interim 
evaluation of the seventh 
framework programme – report 
of the expert group, 
12 November 2012).

 
12

4 

5 

6 

7 

Joint technology initiatives 
were introduced to better 
address the needs of industry 
in dedicated fields of research. 
They are independent EU 
bodies with the participation 
of industry and, in some 
instances, of Member States.

The Risk Sharing Finance 
Facility was launched to 
improve access to debt 
financing for research 
performers, especially for 
higher risk investment in 
research, technological 
development and innovation.

The High Growth and 
Innovative SMEs Facility under 
the competitiveness and 
innovation programme 
provides risk capital for 
innovative SMEs and SMEs 
with high growth potential.

The low commitment of 
business to expenditure on 
R & D is often cited as one 
reason why the EU is 
underperforming. According 
to Eurostat, the R & D 
conducted within the business 
enterprise sector was 
equivalent to 1.30 % of the 
EU‑28’s GDP in 2012, 
compared with 2.49 % in 
Japan (2010 data) and 1.83 % 
in the United States (2011 
data). 

Introduction 

04 
The European Commission has put greater emphasis on the end of the innovation 
cycle with the aim of bringing research results to the market. Unlike its predeces‑
sors, Horizon 2020 (the current framework programme for research and innova‑
tion) explicitly funds innovation. New EU public instruments such as public– 
private partnerships (e.g. JTIs4), loan and guarantee schemes (e.g. the RSFF5) and 
venture capital (e.g. the GIF6) have been introduced to strengthen EU innovation 
and to further encourage business participation in innovation activities7.

05 
However, these innovative EU initiatives took little account of the links between 
the main stakeholders involved in the ‘knowledge triangle’— the interaction 
between research, education and innovation (see Figure 1). Economic growth is 
founded on a broader, well‑functioning ‘knowledge and innovation system’ in 
which productive interactions between all innovative actors is crucial. A better 
understanding of these relationships within the knowledge triangle has encour‑
aged the development of a new public scheme designed to support the whole 
innovation ecosystem.

1 The knowledge triangle
e
r
u
g
i
F

Innovation

New markets

New skills

New knowledge

Education

Source: ECA.

Research

 
13

8  COM(2005) 24 final of 

2 February 2005 ‘Working 
together for growth and jobs: 
a new start for the Lisbon 
strategy’.

9  Decision No 1312/2013 of the 
European Parliament and 
Council of 11 December 2013 
on the strategic innovation 
agenda of the EIT the 
contribution of the EIT to 
a more innovative Europe 
(OJ L 347, 20.12.2013, p. 892).

10  Article 3 of Regulation (EU) 

No 1292/2013 of the European 
Parliament and of the Council 
of 11 December 2013 
amending Regulation (EC) 
No 294/2008 establishing the 
European Institute of 
Innovation and Technology 
(OJ L 347, 20.12.2013, p. 174).

11  Horizon 2020 was established 
by Regulation No 1291/2013 of 
the European Parliament and 
the Council of 11 December 
2013 (OJ L 347, 20.12.2013, 
p. 104). It is FP7’s successor 
programme and will run from 
2014 to 2020 with a budget of 
77 billion euro.

Introduction 

06 
The Commission presented ‘a broad‑based innovation strategy for the EU, aimed 
at translating investments in knowledge into products and services’ and pro‑
posed the creation of a specific body to ‘act as a pole of attraction for the best 
minds, ideas and companies from around the world’8. The EIT came into being in 
2008.

Initial logo of the EIT

The European Institute of Innovation and Technology

The EIT’s mission and objective

07 
The EIT aims to bridge the gap between the research‑focused universities and 
market‑oriented companies. The EIT’s concept of an integrated approach to the 
knowledge triangle is a unique way for an EU public scheme to promote innova‑
tion and entrepreneurship. Moreover, the EIT has the explicit objective of clearly 
focusing on tangible results and concrete benefits to society by ‘converting 
outputs from research into high‑value products and services’9.

08 
With a budget of over 300 million euro for the 2008 ‑2013 period and 2.7 bil‑
lion euro originally planned for 2014‑2020, the EIT has a prominent role to play 
in the Europe 2020 strategy ‘to contribute to sustainable European economic 
growth and competitiveness by reinforcing the innovation capacity of the Mem‑
ber States and the Union in order to address major challenges faced by European 
society. It shall do this by promoting synergies and cooperation among, and 
integrating, higher education, research and innovation of the highest standards, 
including by fostering entrepreneurship’10. The EIT has now been incorporated 
into the current framework programme for research and innovation, Horizon 
202011.

Introduction 

14

How does it work?

09 
Under the supervision of the European Commission’s DG Education and Cul‑
ture, the EIT operates as a decentralised EU body. Its headquarters are located 
in Budapest. The EIT is not a research centre and does not directly contribute to 
financing individual projects. Instead it provides grants to the KICs, structured 
partnerships of existing businesses, research institutes and universities (the KIC 
partners). The KICs are at the core of the EIT’s activities and are the principal 
means by which the EIT is expected to deliver its objectives (see Figure 2 for an 
overview of the model of the EIT).

2 Overview of the EIT model
e
r
u
g
i
F

n
a
l
p
s
s
e
n
i
s
u
B

t
r
o
p
e
R
e
c
n
a
m
r
o
f
r
e
P

EIT
Budapest

KIC
Network from:
- Business
- Research
  - Education

o
r
u
E

€

€

€

KIC partner

KIC partner

KIC partner

The KIC partners work together on innovation activities

Source: ECA.

 
 
 
Introduction 

15

10 
The KICs should ensure that the EIT’s vision and policies are translated into ef‑
fective actions. The KICs are selected by means of a competitive call based on 
priority topics with high societal impact. Five KICs have been selected by the EIT 
for financial support — see Figure 3. Each KIC is represented by an autonomous 
organisation, the KIC legal entity, to conclude the contractual agreements with 
the EIT.

3 The five KICs selected and funded by the EIT
e
r
u
g
i
F

Mission

KIC

EIT Digital

Climate-KIC

KIC InnoEnergy

EIT Health

EIT Raw Materials 

Source: ECA/EIT.

To drive European leadership in ICT innovation
for economic growth and quality of life

To create opportunities for innovators to address climate 
change and shape the world’s economy

To become the leading engine for innovation and 
entrepreneurship in sustainable energy

To accelerate entrepreneurship and innovation in healthy 
living and active ageing, providing Europe’s top talents with 
new opportunities and resources for the beneﬁt of all citizens

To boost the competitiveness, growth and attractiveness of 
the European raw materials sector via radical innovation 
and entrepreneurship

Numbers of KIC
partners

115

209

242

209

115

Launched in 2010

Launched in 2015

 
Introduction 

16

11 
The EIT grant agreement specifies the maximum annual financial contribution 
and defines the portfolio of activities to be undertaken by the KIC for the cal‑
endar year the grant is signed. The planned portfolio of all KIC activities must 
be included in a KIC business plan, annexed to the grant agreement. These KIC 
activities can be subdivided into four main action lines:

12  The focus on business 

applications is the main 
difference with traditional 
collaborative research projects 
such as those proposed 
through FP7 competitive calls.

(i)  education,

(ii)  innovation projects,

(iii)  entrepreneurship, and

(iv)  management and other KIC operating costs.

12 
Under the education action line, the EIT funds education and training activities at 
master’s and doctoral level, focusing on the delivery of entrepreneurship and in‑
novation skills. Under the second action line, innovation‑driven projects are car‑
ried out by a consortium of KIC partners selected through an internal competi‑
tive call organised and managed by the KIC legal entity. The aim is to bridge the 
innovation gap between research and the market by funding projects connected 
to business development activities12. The entrepreneurship action line aims to 
foster business creation through incubators and to accelerate business develop‑
ment via financial and technical support for the growth of start‑ups. One of its 
principal objectives is to reduce the ‘time‑to‑market’ for new businesses through 
demonstration actions, facilitating experience labs and market studies.

13 
The fourth action line covers costs related to the management of the KIC and 
its co‑location centres. Each KIC has regional co‑location centres across the EU 
(see Annex I). They are physical meeting and collaboration spaces, conceived to 
deliver innovation locally.

Audit scope and approach

17

13  Located in Grenoble 

(KIC InnoEnergy), London 
(Climate‑KIC and EIT Digital) 
and Stockholm (EIT Digital and 
KIC InnoEnergy).

14  The KICs only provided valid 
email addresses for 298 KIC 
partners (out of 546), of which 
113 answered the survey fully, 
representing a response rate 
of 38 %.

14 
The aim of the Court’s audit was to assess whether the EIT is an effective tool to 
foster innovation in the EU. In particular, the rationale, design and implementa‑
tion of the EIT were examined to assess whether this new instrument is on the 
right path to achieve its general objective of boosting EU innovation by integrat‑
ing the knowledge triangle.

15 
The audit was carried out between December 2014 and June 2015 and covered 
KIC and EIT activities from 2010 to 2014. The EIT undertook several initiatives in 
2015 which are described in paragraphs 96 to 103. We met representatives of the 
following:

 ο DG Education and Culture of the European Commission,
 ο
 ο
 ο
 ο

the EIT’s headquarters,
the three KIC legal entities,
seven KIC partners, and
five co‑location centres13.

16 
The KIC partners were selected based on the amount of EIT funding they have re‑
ceived. A second criterion was used to ensure that the sampled KIC partners cov‑
ered all KICs launched in 2010 and all types of organisation representing the three 
sides of the knowledge triangle (i.e. universities, research institutes and business‑
es). On a sample basis, KIC activities funded by the EIT were also reviewed.

17 
The audit approach was complemented by:

 ο
 ο

 ο
 ο

a web‑based survey to collect the views of the KIC partners14;
a quantitative analysis of the costs reported of the KICs covering the 2010‑
2014 period;
a review of the academic literature on innovation and EIT; and
an analysis of the initiatives taken by the EIT and the Commission during and 
since our audit.

18 
Prior to the audit, a panel of key stakeholders was organised to better under‑
stand the main challenges the EIT has to face. Data and conclusions from the 
Court’s annual audit of the EIT’s financial accounts have also been used as 
a source of information.

Observations

18

The EIT is based on a valid rationale

19 
The stakeholders and the majority of the KIC partners who responded to the 
survey are of the opinion that the main barriers to innovation are, by order of 
importance for the respondents to the survey (see Figure 4):

4 Main barriers to innovation according to respondents
e
r
u
g
i
F

Percentage of respondents agreeing

Administrative and legal barriers

Pressure to obtain immediate financial return

Difficult access to finance

Limited involvement of business in the development
of educational courses offered by higher education

Insufficient investments in innovative activities
by higher education and by the private sector

Source: ECA.

90 %

83 %

79 %

77 %

64 %

0 %

20 %

40 %

60 %

80 %

100 %

20 
Other barriers to innovation in the EU were reported to be: too many different 
public funding mechanisms with their own rules which weaken the overall effi‑
ciency of public support schemes; too much fragmentation of the research effort 
across the EU leading to costly duplication; a lack of common strategies and/or 
synergies in the EU programmes with other EU, national and local programmes 
which support innovation; the existence of different legal systems at the national 
level, restricting cross‑border innovation; lack of an effective EU internal market, 
which increases the difficulty of commercialising new products/services in other 
EU countries.

 
Observations 

19

21 
Almost 80 % of the survey respondents agreed that public schemes supporting 
innovation are not sufficiently geared towards market applications. This view was 
also confirmed during the interviews. According to 66 % of the respondents to 
the survey, the objectives of the EIT are relevant to addressing the main barriers 
impeding innovation in the EU — see Annex II for the EIT’s objectives. All those 
consulted confirmed the reasons and the need to set up a new EU instrument 
(the EIT) which differed from the existing ones.

22 
The market failures the EIT aims to address (see Figure 5) are the structural 
weaknesses that hamper innovation and consequently constitute an obstacle to 
economic growth and job creation. There is insufficient development of an entre‑
preneurial culture. The lack of commercialisation of the results and the low level 
of cooperation between the research‑focused universities and market‑oriented 
companies are often cited as main reasons for the EU falling short in innovation 
performance. Higher education has not focused sufficiently on fostering innova‑
tors and entrepreneurs. There is a need for higher education to embed innova‑
tion and entrepreneurial skills into educational programmes.

5 The market failures the EIT aims to address
e
r
u
g
i
F

Weak economic growth and job creation

Inability to deliver new services, products and processes

STRUCTURAL WEAKNESSES

Lack of
entrepreneurial
culture

Poor research records in
terms of creating social
or economic value

Research results
not brought to
the markets

Too low private
investment in
R&D

Low scale of resources
including human
resources

Poor talent
Attraction/
Retention

Barriers to
collaboration 
within the
knowledge
triangle

Source: ECA.

 
20

15  Over the 2010‑2014 period, the 
innovation projects action line 
accounted for 42 % of 
EIT‑funded activities costs, 
22 % of entrepreneurship 
costs, 14 % of education costs 
and 22 % of other costs (see 
paragraphs 11 to 13). It should 
be noted that there is 
a significant misalignment in 
methodologies among KICs 
when measuring other costs 
which are mainly made up of 
administrative and overhead 
costs.

Observations 

23 
Thus the EIT aims to give priority to the transfer of its higher education, research 
and innovation activities to the business context and their commercial applica‑
tion. However, whilst the EIT concept is based on a valid rationale, it has yet to 
have the desired effect.

Some key elements have not been appropriately 
designed

24 
The EIT was originally conceived to be an innovative public scheme. The EIT 
model introduced specific features which are not found in any other EU instru‑
ment fostering innovation. For example, its ability to support the entire innova‑
tion ecosystem from education to start‑up through innovation‑driven projects 
run by multiple KIC partners is unique. The autonomy given to the KICs is another 
characteristic of the EIT’s model particularly appreciated by its partners. However, 
some key elements of the EIT model have not been appropriately designed to 
ensure that it is an effective and groundbreaking public scheme.

The knowledge triangle is not adequately reflected at 
Commission level

25 
The initial drive to establish the EIT was based on the assumption that the weak‑
est link in the integration of the knowledge triangle was between the higher 
education sector and the business community. The EIT was therefore placed 
 under the responsibility of DG Education and Culture, which has a large amount 
of experience with educational programmes. DG Education and Culture has thus 
taken the lead role within the Commission, for example as its observer on the EIT 
Governing Board.

26 
The innovation and entrepreneurship action lines which now take up the major‑
ity of EIT funding need to have expertise directly available15. To do this, the EIT 
should have regular access to the expertise of DG Research and Innovation and 
DG Internal Market, Industry, Entrepreneurship and SMEs. DG Research and In‑
novation has valuable experience in managing research and innovation projects 
and DG Internal Market, Industry, Entrepreneurship and SMEs has expertise in 
new business creation. However, these DGs have no units responsible for EIT mat‑
ters, and the Court found little evidence of their active involvement.

Observations 

21

EIT funding based on complementary activities a poorly 
defined concept

27 
The innovation activities carried out by the KIC partners have been split into two 
categories:

(a)  activities funded up to 100 % by the EIT; and

(b)  KIC complementary activities which are not funded by the EIT.

The distinction between these two types of activities is fundamental to the EIT’s 
funding model as it determines the ceiling of the EIT’s contribution. EIT funding may 
only cover a maximum of 25 % of a KIC’s overall costs (i.e. the sum of the costs of ac‑
tivities funded by the EIT and of those not funded by the EIT — this complex model is 
set out in Figure 6).

6 EIT funding model
e
r
u
g
i
F

KIC activities

s
e
i
t
i
v
i
t
c
A

i

g
n
d
n
u
F

EIT funded activities

KIC complementary activities

Max. 25 %

Min. 75 %

EIT funding
(max. 25 % of all costs)

Co-funding

Complementary funding (incl. other EU)

Non-EIT funding (min. 75 % of all costs)

Source: ECA.

KIC budget

 
Observations 

22

28 
Over the 2010‑2014 period the EIT contributed 460 million euro to the three KICs. 
This has helped to fund innovation activities of 540 million euro. KIC comple ‑
mentary activities have been declared for 2 043 million euro (of which 10 % were 
funded by EU programmes other than EIT such as FP7 collaborative projects, ERC 
funding schemes, JTI projects etc., and 23 % by other national or regional public 
schemes) — see Figure 7.

period

7 EIT contribution to the KICs activities over the 2010-2014 
e
r
u
g
i
F

EIT contribution (2010-2014)

460 million euro

Invested

EIT Funded Activities
540 million euro 
(21 %)

KIC Complementary Activities
2 043 million euro (79 %)

Source: EIT.

 
Observations 

23

29 
The KIC complementary activities were poorly defined. This lack of clear defi‑
nition led to operational difficulties for the KIC partners who had a different 
understanding from the EIT of what could be reported as KIC complementary 
activities and how to report them. This issue was raised by one KIC in 2012 in its 
performance report: ‘pending definition of complementary funding is causing 
problems in full engagement of some partners, and full declaration of the com‑
plementary sourcing they are really bringing’.

16  Checks and audits are 

performed by the EIT, private 
external auditors and ECA.

30 
The KIC complementary activities were not legally defined until the 2014 grant 
agreements were signed between the KICs and the EIT, at the start of the fourth 
year of KIC operations. However, even this definition was of little help as the 
complementary activities are merely described as ‘activities … carried out by … 
KIC partners … primarily focused on activities [the KIC has to carry out to fulfil its 
mission]’. The 2014 EIT guidance document Principles for financing, monitoring and 
evaluating KIC activities specified that such activities must have ‘a clear link with 
a least one [activity funded by the EIT] and not be financed from the EIT contribu‑
tion’. It also stated that the costs of these activities must be ‘proportionate to the 
cost of [the activity funded by the EIT] and/or to the expected impact in further‑
ing the mission of a KIC’.

31 
The proportionality principle was introduced in 2014 by the EIT to address and 
prevent the occurrence of inflated KIC complementary activities. Nevertheless, 
assessing whether the ‘proportionality’ criterion is respected for a specific KIC 
complementary activity remains challenging as no further guidance has been 
 issued and the EIT did not put in place any specific mechanism to systemically 
test proportionality. As a result, no cost has been rejected by the EIT on the 
grounds of being ‘disproportionate’ during its review of the KIC complementary 
activities for the 2010‑2014 period.

32 
Prior to the 2016 business plan cycle, the criteria of ‘having a clear link’ and 
‘being proportionate’ were subject to different interpretations. This has led to 
uncertainties between KIC partners, the EIT and those checking cost statements16 
as to whether the associated costs should be accepted or not in the calculation 
of the maximum EIT contribution (see Box 3 for an example). This is prejudicial 
for the KIC partners as rejected costs lead to a decrease in the EIT’s financial 
contribution.

Observations 

24

3
x
o
B

Example of a KIC complementary activity with a less than ‘clear link’ to an EIT-
funded activity

A KIC partner reported in 2013 one KIC complementary activity valued at 188 million euro. According to the 
financial reporting, this activity was linked to an EIT‑funded innovation project of 4.5 million euro — the im ‑
plied cost ratio is 42:1. The amount of this KIC complementary activity would be enough to support the whole 
2013 EIT contribution to the KIC concerned. To justify the link, a short document was provided explaining that 
the partner is involved in many KIC activities including educational and business creation programmes.

However, there is no convincing evidence of a ‘clear link’ between the purpose of the 188 million euro in 
 incurred costs and the innovation project valued at 4.5 million euro undertaken by other KIC partners.

33 
The measuring and reporting of KIC complementary activities are not essential 
to the achievements of the EIT’s objectives; only the activities funded by the EIT 
‘are the activities that make a KIC a KIC’17. The purpose of the grant is to finance 
EIT‑funded activities, not 25 % of the KIC overall’s costs. Excluding the KIC com‑
plementary activities as a funding condition would not affect the outcome; the 
KICs would still carry out the EIT‑funded activities.

17 

‘FAQ about KICs’ — EIT (2010).

The claimed leverage effect is undemonstrated and 
implausible

34 
The inclusion of the KIC complementary activities in the EIT’s funding model is 
used to demonstrate its leverage effect. Horizon 2020 states that ‘the EIT ap‑
proach to funding will be firmly based on a strong leverage effect …’ The 2013 
EIT annual report states ‘Leverage factor of 4: more than 80 % of the KIC’s overall 
budget comes from external sources and for every euro invested from the EU 
budget, a higher investment is triggered from other sources.’ The Commission 
reported in 2013 as a performance indicator the ‘enhanced leverage effect of the 
EIT on private and other public financial sources’.

 
Observations 

25

35 
The claimed EIT leverage effect of four is based on the assumption that all KIC 
complementary activities declared by the KIC partners are additional, i.e. trig‑
gered by the EIT’s intervention. This is an unrealistic hypothesis, because the EIT 
has permitted the KICs to declare the KIC complementary activities retroactive‑
ly — costs from a past KIC complementary activity can be declared in the current 
reporting year of the associated activity funded by the EIT.

36 
These retroactive KIC complementary activities are not additional as they were 
undertaken by the KIC partners without the EIT support (see Box 4 for an exam‑
ple). The retroactive KIC complementary activities account for 450 million euro 
(22 %) of the overall KIC complementary activities declared over the 2010‑2014 
period.

4
x
o
B

A financial leverage effect cannot stem from a retroactive activity

The costs incurred of a previous EU collaborative project running from 2010 to 2013 can be declared by a KIC 
partner as a KIC complementary activity to an EIT‑funded activity occurring in 2014. But the decision to under‑
take the FP7 project in 2010 was independent of the 2014 EIT’s approval to fund the associated activity, thus 
there is no leverage effect in this specific case.

37 
Furthermore, the KIC partners mainly contribute to the KICs’ budgets ‘in kind’ and 
not in cash. The inherent risk is thus high that the KIC partners are doing what 
they would have been doing anyway (deadweight) and declaring the costs as 
a KIC complementary activity’s contribution to the EIT. The KIC partners and the 
three KIC legal entities interviewed during the course of this audit confirmed that 
most of the KIC complementary activities are not additional — they would have 
been carried out without the existence of the EIT. Our review of each KIC comple‑
mentary activity greater than 2 million euro showed this to be the case.

5
x
o
B

Example of non-additional KIC complementary activities

KIC partners have reported as a KIC complementary activity the cost of non‑EIT students attending courses 
in which EIT students also participate. These costs are not additional as the courses are part of the standard 
educational programme of the university.

 
 
26

18  Article 6(2) of the amended EIT 
founding regulation states: 
‘KICs shall have substantial 
overall autonomy to define 
their internal organisation and 
composition, as well as their 
precise agenda and working 
methods. In particular, KICs 
shall … develop strategies for 
financial sustainability.’

19  Article 7b of the amended EIT 
founding regulation states: ‘… 
a KIC shall normally have 
a time‑frame of seven to 
fifteen years.’ 

20  This was explicitly 

communicated by the EIT to 
the KICs in 2015.

Observations 

KICs are unlikely to reach financial sustainability

38 
KICs are to develop strategies to become financially sustainable18, although this 
objective in the long term is not compatible with the expected lifespan of a KIC 
(7 to 15 years) as described in the EIT’s founding regulation19. Due to this legisla‑
tive incoherence, it is commonly understood20 that the EIT’s financial contribution 
should end, in principle, after a maximum period of 15 years, but that the KICs 
should live on.

39 
KIC partners and the three KIC legal entities interviewed stated that the KICs are 
unlikely to become financially independent after 15 years. Over the 2010‑2014 
period, only one KIC declared any income (400 000 euro), while the EIT injected 
over 460 million euro into the KICs. Two thirds of the respondents to the ECA’s 
survey do not think that in the long term the KICs are likely to become financially 
independent.

The EIT Foundation (EITF) failed to attract additional funds

40 
The EIT’s 2010 annual report announced the creation of the EITF, which ‘will 
be used as a vehicle to attract and channel funding for EIT activities which fall 
outside the scope of its regular funding … In this way, the foundation will play 
a crucial role in both safeguarding the EIT’s financial sustainability and autonomy, 
as well as enhancing its social outreach.’ The foundation never attracted any 
significant funds and was closed down in 2014.

The annual grant agreement process does not adequately 
encourage KIC innovation activities

41 
The KIC business plan, annexed to the grant agreement, is a comprehensive 
document setting out the selection, description and management of the KIC’s 
portfolio of planned activities for the calendar year. The EIT issues guidelines to 
clarify the requirements of the business plan in terms of structure, content and 
level of detail.

Observations 

27

42 
The business plan of a KIC is more like an annual work programme with a strong 
emphasis on the short term. The draft business plan for the coming year must be 
submitted to the EIT at the latest at the end of September of the year N‑1 — see 
Figure 8 for the timeline of the grant agreement and related business plan. In 
order for the KIC to meet this deadline, KIC partners must identify and cost all 
innovation activities they wish to carry out in the following year by the end of the 
second quarter. The KIC partners therefore have to anticipate at least 6 months 
in advance the exact innovation activities they will carry out in the following 
calendar year. Under the innovation project action lines, an additional period of 
3 months is needed to launch a competitive call for project proposals. Neverthe‑
less, the KICs can amend the business plans during the year in order to include 
new innovation projects, which is formalised by way of an amendment to the 
annual grant agreement.

KIC performance report

8 Timeline of the grant agreement, related KIC business plan and assessment of 
e
r
u
g
i
F

Q1

Q2

Q3

Q4

Year
N-1

Start

EIT criteria
for funding
for Year N

Submission of
proposal for KIC
BP for year N

EIT decision on
the amount of EIT
funding for year N

Year N

Year
N+1

Conclusion of GA 
for year N

Implementation of KIC BP for year N

Submission of
KIC Report for
Year N

EIT assessment of KIC
Report for Year N

Ex-post audit of KIC Report of Year N

End

Source: EIT, Principles for financing, monitoring and evaluating KIC activities.

 
Observations 

43 
The strategy of a KIC should be ‘based on joint mid‑ to long‑term innovation 
planning to achieve the EIT challenges …’21. Nevertheless, the grant agreement 
signed between the EIT and the KIC legal entity only determines the EIT financial 
contribution for 1 calendar year. The EIT funding is thus only secured to cover 
costs declared on an annual basis. Future funding depends on the availability of 
the EIT budget, which is subject to the effect of the introduction of EFSI — see 
Box 6 — and on the results of the competitive funding between KICs22.

44 
Whilst the Court supports competitive funding, there is a problem of timing. As 
the competitive funding allocation is decided by the EIT Governing Board in its 
December meeting, the results of the competitive funding are not known before 
the end of the year. This creates uncertainty for the KIC partners, as some pro‑
jects are put on hold until it is clear whether the funding will be available or not.

28

21  Regulation (EC) No 294/2008 

of the European Parliament 
and of the Council of 
11 March 2008 establishing 
the European Institute of 
Innovation and Technology 
(OJ L 97, 9.4.2008, p. 1).

22  Part of the annual grant is 
decided on a competitive 
basis between KICs. 40 % of 
the total 2015 EIT contribution 
to the KICs has been allocated 
that way. This share should 
increase over the years.

6
x
o
B

The European Fund for Strategic Investments23 and its impact on the EIT budget

In November 2014, the European Commission launched an investment plan for Europe in order to relaunch 
growth and investment in the EU. It proposed to create the European Fund for Strategic Investments (EFSI), set 
up within the EIB and jointly funded by the EU and the EIB.

The EFSI regulation reduced the EU contribution to the EIT by 12 %, from 2 711 to 2 383 million euro over the 
7‑year period from 2014 to 2020. The EIT budget for 2016 will be reduced from 336 million (as initially foreseen 
in Horizon 2020) to as low as 285 million euro (– 15 %). This will lead to fewer EIT‑funded innovation activities. 
In combination with the competitive funding, this creates additional uncertainty for the KICs, who have to 
select projects and draft their business plans without having any clear idea about the funding available for the 
following year(s).

KICs may indirectly benefit from the EFSI funds, which will compensate for some of the decrease in the EIT 
budget.

23  Opinion No 4/2015 concerning the proposal for a regulation of the European Parliament and of the Council on the European Fund for Strategic 

Investments and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013 (http://eca.europa.eu).

 
Observations 

29

45 
This short‑term vision in terms of operational and financial planning does not 
match the time horizon of the innovation activities the KICs are undertaking. All 
the KIC partners the ECA visited cited the principle of annuality as a major handi‑
cap to fostering innovation in the long run.

46 
The education action line is mainly composed of master’s and doctoral pro‑
grammes. These education programmes have an expected time frame of, 
respect ively, 2 and 4 years. It is therefore risky for the higher education KIC 
partners to sign a multiannual contract with EIT students because there is legal 
uncertainty over the funding they will receive in future years. This is particu‑
larly a problem for public organisations (mainly universities and research insti‑
tutes), which have to apply strict financial rules under their respective national 
legislation.

47 
The annual grant process is also a major obstacle to planning and coordinating 
multiannual innovation projects under the innovation action lines. Some KICs 
have set up specific activities dedicated to longer‑term projects with, in princi‑
ple, financing guaranteed over their lifetime (with an interim evaluation process 
to ascertain that the funded project is viable and likely to generate commercial 
impact — a negative interim evaluation would stop the financing of the venture). 
However, because the EIT financial contribution is only fixed for 1 year, the finan‑
cial risks related to future years are borne by the KIC partners. Some KIC projects 
might have to be discontinued or abandoned due to a lack of funding.

48 
In contrast, EU grants for collaborative research projects are signed for a multi‑
annual period, for example, grants under the Marie Sklodowska‑Curie pro‑
gramme offer secured funding to researchers for periods longer than 12 months.

49 
On average, over the 2011‑2014 period, the grant agreements were signed 
3 months after the start of the calendar year. The signatures of the 2015 grant 
agreements were delayed until June 2015. The activities undertaken by the KICs 
after 1 January are not covered by a legal contract until the new annual grant 
agreement is signed. Late signature causes a hiatus in the innovation process as 
some KIC partners do not want to take the legal and financial risks of committing 
resources until the grant agreement is signed.

Observations 

30

50 
The late signature of the annual grant agreements also delays the payment by 
the EIT of the pre‑financing to the KICs, which should take place within 30 days of 
the entry into force of the grant agreement. Only then can the KICs distribute the 
money to the individual partners. All expenses made before then must there‑
fore be met by the partners themselves. All costs exceeding the amount of the 
pre‑financing (up to 50%) received will only be reimbursed by the EIT through 
the final payment made in the second half of the following year.

24  Decision No 1312/2013.

The existing key performance indicators are not suited for 
effective monitoring

51 
According to the SIA24, the EIT should ‘establish, in cooperation with the Commis‑
sion and the KICs, a comprehensive system to monitor: the EIT’s contribution to 
Horizon 2020; the EIT’s impact via its own and KIC activities; and KIC results.’ This 
system is not yet in place.

52 
The EIT’s core KPIs (see Box 7) are not clearly defined and have not been consist‑
ent over time (definition of graduates, the concept of technology transfer and 
knowledge adoption, the notion of ideas incubated, etc.). Box 8 shows an ex‑
ample of the unclear definition of KPIs. This complicates performance reporting, 
especially when the definitions of the KPIs change in the middle of the calendar 
year, requiring retroactive adaptation.

7
x
o
B

KPIs

There are three types of KPI.

(1)  EIT core KPIs. There are six EIT core KPIs: attractiveness of educational programmes; number of new grad‑
uates; number of business ideas incubated; number of start‑ups or spin‑offs created; knowledge transfer/
adoption; and new or improved products/services/processes launched into the market. Progress against 
these KPIs is measured for the purposes of the competitive funding.

(2)  EIT‑specific KPIs measure EIT’s own activities, monitoring its operational performance using indicators 
such as due dates for grant agreement completion, report acceptance and payment execution, percent‑
age of processes formalised and level of satisfaction with EIT.

(3)  KIC‑specific KPIs are developed by the KICs themselves.

 
Observations 

31

8
x
o
B

Unclear KPI definition of start-ups created

For a start‑up to be recognised, the KIC needs to provide ‘proof (e.g. letter of intent or an order form/invoice) 
demonstrating that this start‑up has won its first customer or the existence of a potential first customer or 
other document demonstrating that the start‑up has commenced commercial operations.’ Because of the 
vagueness of the criteria (what is a ‘potential first customer’?), the KICs interpret this rule in different ways.

53 
It is difficult to compare the three KICs through these core KPIs. Considerations 
such as the size of the start‑up, the duration of the course, etc. are not taken into 
account in the core KPIs. Moreover, the KICs operate in different sectors, with 
different levels of maturity, making it more or less difficult to create start‑ups, in‑
cubate business ideas, etc. Mere quantitative analysis does not take into account 
the different environments in which the three KICs operate. Progress in develop‑
ing KIC‑specific KPIs is limited.

54 
Several shortcomings which were identified by an external evaluation in 2011 
have not yet been remedied. The core indicators continue to focus on input or 
output rather than on results or impacts, and on absolute values rather than on 
the increase in activity as a consequence of the KICs25 (see also paragraph 99).

25  Paragraph 6.31 Monitoring 
progress and outcomes, 
External evaluation of the 
European Institute of Innovation 
and Technology- Framework 
Contract on evaluation and 
related services (EAC 03/06), 
May 2011.

26  COM(2006) 77 final of 
22 February 2006 
‘Implementing the renewed 
partnership for growth and 
jobs — Developing 
a knowledge flagship: the 
European Institute of 
Technology’.

27 

‘The Commission details its 
plan for a European Institute 
of Technology’, European 
Commission press release 
(IP/06/751), 8 June 2006.

Business participation could be improved

55 
The business community should be strongly involved at the strategic and oper‑
ational levels for the EIT to be a success. This would ensure that the KICs’ activi‑
ties are driven by market needs and further steered in directions useful to the 
economy and society26. In 2006, the Commissioner for Education, Training and 
Culture emphasised the importance of the business community in the proposal: 
‘Businesses will be core partners at the Institute’s strategic and operational levels. 
Companies will be directly involved in research and education activities, thereby 
helping to nurture an entrepreneurial mind‑set among graduates and research‑
ers’27. Businesses thus have a crucial role to play in bridging the gap between 
research and innovation.

 
Observations 

32

56 
Despite the importance of business organisations, they have only received 24 % 
of the EIT’s financial support (see Figure 9), whilst making up 56 % of the KIC 
partners. Although the level of financial contribution is not the only indicator of 
participation28, the involvement of the business community in the EIT and KICs 
could be improved. Over the 2010‑2014 period, only two of the top 40 benefici‑
aries by EIT funding are businesses.

28  Businesses also have 

non‑financial grounds to join 
the KICs, such as a way to have 
access to talented students 
coming out of the EIT‑labelled 
education programmes).

9 Split by organisation type over the 2010-2014 period
e
r
u
g
i
F

60 %

50 %

40 %

30 %

20 %

10 %

 0 %

as % of the KIC partners

as % of the EIT’s funding

Commercial 
companies

Universities

Research
institutes

Others (NGOs, 
local authorities, etc.)

Source: EIT.

 
Observations 

33

57 
Business stakeholders have expressed their concern that the KICs’ agendas are 
mainly driven by the needs of higher education, while universities interviewed 
in the course of this audit regret that the business community is not sufficiently 
involved in the development of educational courses. In the first 3 years, collabo‑
rative projects undertaken by KICs were abandoned or did not lead to tangible 
results because they did not sufficiently focus on a market application. One 
cause of this was the selection of topics for the projects to be funded by the 
EIT, which was mainly guided by the needs of higher education rather than the 
business community. KICs have since remedied this by ensuring that a project to 
be funded by the EIT should lead to a potential market application and thereby 
generate future revenues.

The EIT model does not sufficiently set targets to support 
existing SMEs

58 
SMEs are typically more agile and better than large‑scale organisations at devel‑
oping and applying new technologies. Many EU policies recognise the important 
role of SMEs. Although Horizon 2020 has a specific objective of allocating at least 
20 % of its budget to SMEs, the EIT has not set any target in this context.

59 
Whereas the respondents to the survey ranked ‘promoting and supporting SMEs’ 
participation in innovation activities’ as the third most important objective the 
EIT should achieve in order to foster innovation in the EU, the EIT did not imple‑
ment specific measures beyond those of other EU schemes to better support 
existing SMEs. While start‑up and newly created business are supported through 
the business incubators of the KICs, existing SMEs with high growth potential 
have greater difficulty in taking full advantage of the support offered by the EIT. 
In particular, the participation of SMEs in the innovation‑driven project action 
line is very limited.

Observations 

34

60 
Moreover, all KIC partners interviewed stated that the grant payment cycle is 
an obstacle because it does not meet the financial needs of SMEs. The payment 
cycle of the KIC is a significant constraint for financially weaker partners, such 
as SMEs which do not have the financial capacity to cover the funding gap (see 
paragraph 50).

29  Data on SMEs is only available 

for one KIC.

61 
The data gathered by the EIT is piecemeal because SME reporting is not manda‑
tory. However, over the 2010‑2014 period, SMEs received less than 5 % of the EIT’s 
financial support29.

62 
Because SMEs are indirect recipients and are not accounted for, the wider picture 
may not be so bleak. Survey respondents stated that the KIC partnerships have 
created an environment in which start‑ups, spin‑offs and SMEs can grow. KICs 
do provide support to start‑ups/SMEs, especially via their business incubators. 
However, creating better conditions to favour SMEs by setting clear strategies 
and objectives can only increase the SMEs’ participation in the KICs — see Box 9 
for examples of criticisms of the lack of effective EIT support for SMEs.

9
x
o
B

Examples of criticisms of SMEs’ participation

‘[The] EIT has continuously lacked a clear message towards SMEs …’

‘SMEs are critical for innovation in the EU and they should be involved, but now the focus is on start‑ups and 
the heavy bureaucracy and inefficient communications are only for large companies.’

‘SMEs are not sufficiently represented in KIC governance, preventing their constraints and interests from 
 being taken into account.’

Source: Audit survey.

 
Observations 

35

There are not enough concrete synergies and 
complementarities

63 
Until the business plans of 2016, there were few effective incentives for a KIC to 
seek synergies with another KIC. Competitive funding between KICs provides 
a stimulus for a KIC to perform better. However, it discourages cooperation be‑
tween them because any benefits would be shared with a funding rival. Although 
some scientific topics may be common to different KICs, in particular between 
KIC InnoEnergy and KIC Climate, there is no evidence of concrete output resulting 
from inter‑KIC collaboration over the period under review (2010‑2014).

64 
The plethora of EU research and innovation programmes makes the creation of 
synergies between them difficult. Interaction between KICs and other EU initia‑
tives is growing but needs to be further developed.

Some EIT elements are well appreciated: focus on the 
market, long-term perspective, autonomy of the KICs and the 
co-location centres

65 
A key difference from other existing research and innovation public schemes 
is the main objective of the EIT to focus on the market. The main objective of 
the EIT, ‘to transfer higher education, research and innovation knowledge into 
a business context and their commercial application’, has been ranked by the 
respondents to the survey as the most important objective the EIT should strive 
to achieve.

66 
The long‑term perspective of the EIT’s financial support for the KIC partnership is 
a unique feature appreciated by the beneficiaries. In principle, the EIT instrument 
allows mid‑ to long‑term planning of innovation activities which no other public 
scheme can offer. However the use by EIT of annual grants has undermined this 
at KIC partner level (see also paragraphs 42 to 45).

36

30  Annual activity report of DG 
Education and Culture 2013.

Observations 

67 
As stipulated in the EIT’s legal basis, the KICs ‘shall have substantial overall 
autonomy to define their internal organisation and composition, as well as their 
precise agenda and working methods’. This level of autonomy is valued by the 
KIC partners. It has facilitated the bottom‑up approach sought by the innova‑
tion community. In contrast with traditional public schemes, where research and 
innovation topics are developed using a top‑down approach dictated by budget 
requirements, the KIC concept allows more flexibility in the selection of the ac‑
tivities, a feature particularly welcomed by the partners.

68 
Co‑location centres (see Annex I) constitute another specificity of the EIT model 
the KIC partners have appreciated. A co‑location centre is where the integration 
of the innovation triangle can take place. Articulated around thematic or re‑
gional areas, the co‑location centres lead projects, develop ideas, bring regional 
partners together and design strategies. They coordinate and execute partners’ 
administrative tasks related to the KIC and offer a common space for discuss‑
ing partners’ concerns. In some cases, they also offer working premises for the 
start‑ups.

The implementation of the EIT model needs to 
improve

The EIT is not yet fully autonomous

69 
The EIT has not yet obtained its own full autonomy. This delay is longer than 
usual: other EU bodies such as the JTIs (also created in 2008) took no more than 
3 years to obtain full financial autonomy. According to DG Education and Cul‑
ture, this was due to ‘the limited leadership and managerial abilities of the EIT 
management’30. The high turnover in senior management has been a continuing 
cause of this (see paragraph 84).

Observations 

37

The EIT has not fulfilled its role as an impact investor

70 
The EIT is often presented as an ‘entrepreneurial‑driven innovation impact invest‑
ment institute’. The legal basis of H2020 states ‘the EIT … takes a results‑oriented 
approach.’ In its 2012‑2014 triennial work programme, the EIT highlighted its 
objective to become an ‘engaged impact investor’.

71 
Although conceived and presented as an impact‑oriented institute, the EIT most‑
ly focuses on compliance with the rules and on its own budgetary absorption. In 
September 2014, several EIT board members emphasised the need to reorient the 
EIT towards being an impact‑driven institute. The EIT rarely rejected costs based 
on lack of performance prior to 2015.

72 
Until 2015, the assessment of the annual performance of the KICs by the EIT had 
little or no impact on the level of the final grant payment. The annual assess‑
ments often report that several objectives set in the planning stage are not or 
only partially met, but the final amount of the grant was nevertheless paid (see 
Box 10).

0
1
x
o
B

Example of a lack of performance of a KIC

The assessment of the business plan of a KIC in 2013, carried out by the EIT project officers with the help of 
external experts, stated that ‘when it comes to the key highlights mentioned in the 2013 business plan, Cli‑
mate‑KIC achieved only moderate progress … Concerning the 18 strategic objectives specified in the 2013 BP, 
Climate‑KIC has managed to fully meet eight of them, while seven of them have been addressed only partially 
and three of them have not been met so far’.

 
Observations 

38

The competitive funding mechanism undervalues 
performance

73 
Competitive funding should be geared to rewarding performance. 40 % of the to‑
tal grant to the KICs for 2015 was allocated via a competitive process, based on an 
assessment of three pillars: (1) the past — performance in 2013; (2) the future — 
the 2015 business plan; and (3) implementation of the KIC multiannual strategy, 
via an EIT Governing Board hearing. Each of the three pillars had equal weight‑
ing. As the third pillar is both forward and backward looking, past performance 
and plans for the future receive, in reality, equal weighting. The EIT’s competitive 
funding thus only partially rewards performance.

There are significant administrative and audit burdens on 
KIC partners

74 
The EIT largely copied its operational framework and processes from traditional 
EU research programmes, although it was not legally bound to do so. Whereas 
most EU programmes fund single projects, the EIT funds a portfolio of activities 
through the KICs. However, the related processes have not been adjusted to take 
into account this fundamental difference. For example, using the same threshold 
of 325 000 euro is likely to trigger the need for more certificates because activ‑
ities (as opposed to single projects) will often exceed it (see paragraph 79).

75 
The costs declared by the KIC partners are subject to many financial checks under 
this operational framework. Several KIC partners interviewed or surveyed by the 
Court complained that they sometimes need to provide the same information 
more than once.

76 
The yearly reporting of the KIC complementary activities, both in the business 
plans and in the financial reports submitted by the KICs, is EIT‑specific and adds 
a considerable burden with limited added value (see paragraph 33). The yearly 
statements submitted by the KICs include a detailed breakdown of the KIC com‑
plementary activities costs. The audit certificates obtained on KIC complemen‑
tary activities in 2015 covered the 2010‑2014 period.

Observations 

39

77 
Checks on the costs reported by the KIC partners are required by the legal frame‑
work applicable to all EU bodies (agencies and joint undertakings) awarding 
grants. These checks are carried out both before (ex ante) and after (ex post) the 
KICs receive the final grant payment from the EIT.

78 
Ex ante checks include the certification of the cost statements by an independ‑
ent auditor contracted by the KIC partner and some desk checks carried out by 
the financial officers in the EIT. Ex post checks are carried out by a private audit 
firm contracted by the EIT which checks a sample of KIC partners on the spot. The 
Court carries out an annual audit on the basis of which it issues an opinion on the 
reliability of the EIT annual accounts and the legality and regularity of the trans‑
actions underlying these accounts. It issued qualified opinions on the transac‑
tions underlying the EIT’s 2012 and 2013 accounts on the basis of a material level 
of error. The 2014 accounts were not qualified.

79 
Both the legal provisions and the material level of error found by the Court con‑
firm the need for effective financial checks. However, there are various options 
which would increase the efficiency of the check and reporting requirements, 
such as:

 ο

 ο

 ο

using a simpler funding model through a greater use of lump‑sum payments 
and fixed rates;
requiring a financial certificate by an independent auditor on selected costs 
by single KIC partner based upon an appropriate threshold for each activity 
(see paragraph 74); and
increasing the threshold, currently set at 325 000 euro, triggering the need 
for certification of the cost statements.

40

31  The three themes linked to 

the three first KICs launched 
by the EIT.

32  Special Report No 2/2013, ‘Has 
the Commission ensured 
efficient implementation of 
the seventh framework 
programme for research?’ 
(http://eca.europa.eu).

33  The remuneration of the staff 
of EU institutions, agencies 
and other EU bodies is 
multiplied by a correction 
coefficient depending on cost 
of living in the place of 
employment. For Hungary this 
coefficient was set at 71.4 % for 
2014‑15, which means that 
agents working for the EIT 
earn almost 30 % less than 
their colleagues employed in 
Brussels.

Observations 

The EIT is under-resourced and has in the past been poorly 
managed

80 
The EIT’s headquarters had between 40 and 50 staff over the 2011‑2014 period. 
The number of project officers compared to the grant budget is much lower than 
for most other EU research grant programmes (the budget managed per staff 
member under FP7 in the themes of ICT, Energy and Environment31 varied from 
12.5 to 20.4 million euro 32). The EIT has one dedicated project officer for each KIC, 
whose annual budget may be up to 400 million euro. In addition there are three 
cross‑KIC officers responsible for the action lines of education, innovation and 
entrepreneurship.

81 
As they do not always have sufficient technical knowledge in the related do‑
mains, the EIT outsources part of the assessment of projects to external experts. 
For the assessment of the 2013 performance reports, the EIT had no senior official 
in charge of innovation. The in‑house capacity of the EIT to assess the operational 
performance of the KICs is therefore limited.

82 
Despite the large increase in the budget from 309 million euro (2008 ‑2013) to 
2.7 billion euro (2014 ‑2020) and the fact that the number of KICs has grown from 
three to five as from late 2014, no significant increase in the number of posts is 
provided for. There is a risk that the EIT will not have sufficient capacity to deal 
with the expanded workload.

83 
The high staff turnover and many vacancies at the EIT has been a problem: 25 
of the 40 staff members who were working with the EIT at the end of 2011 left 
within 3 years and 30 % of the posts were vacant at the end of 2013 (see Figure 
10). This fell to 16 % in 2015. However, staff turnover remains high at 17 % in 2015. 
Several vacant posts are in the unit responsible for the technical and financial 
assessment of the KIC’s reports. The salary package the EIT can offer is lower 
than that of most other EU bodies, which is a factor contributing to the high staff 
turnover and vacancy rate33.

Observations 

41

0 Actual vs planned EIT staff complement
1
e
r
u
g
i
F

60

55

50

45

40

35

2011

2012

2013

2014

Actual staff complement

Planned staff complement

Source: EIT.

84 
Since its creation the EIT has been managed by five different Executive Directors/
Acting Directors (see Table 1). Two of these left after less than a year in office. 
Three high‑ranking EIT staff were dismissed in 2013. As at 1 January 2015, one 
Head of Unit post was vacant and another had been occupied ad interim since 
2013. The rapid turnover at senior management level is disruptive and impairs 
leadership and strategic continuity.

 
Observations 

42

1 Executive Director of the EIT
e
l
b
a
T

Executive Director

Start of mandate

End of mandate

Duration of mandate

1st Director Resources of  
DG Education and Culture 
(ad interim)

2nd Director

3rd Director

4th Director

5th Acting Director

Source: EIT.

April 2008

October 2009

1.5 years

1.11.2009

1.9.2010

1.7.2011

1.8.2014

31.8.2010

30.6.2011

31.7.2014

Ongoing

10 months

10 months

3 years

Ongoing

The EIT financial support is concentrated

85 
In each KIC the bulk of the EIT financial contribution is concentrated in a core of 
KIC partners: the top 10 partners received between 49 % and 65 % of the EIT’s 
financial support to each KIC (see Table 2). In KIC InnoEnergy, the top 10 partners 
account for almost two thirds of the EIT’s contribution, with the rest spread be‑
tween the other 220 KIC partners. In addition to the significant role played by the 
universities in all action lines, this concentration can be explained by the domi‑
nant role of the core KIC partners, which have been heavily involved since the 
inception of the KICs. At the other end of the scale, most KIC partners received 
less than 500 000 euro over the 2010‑2014 period, and between 20 % and 58 % of 
them received less than 100 000 euro over that period.

 
Observations 

43

2 Distribution among KIC partners of the EIT’s financial contribution
e
l
b
a
T

Climate-KIC

KIC InnoEnergy

EIT Digital

2010-2014

Top 10 beneficiaries as a percentage of 
total EIT funding

Number of KIC partners active in EIT-
funded activities

Number of active KIC partners 
receiving less than 500 000 euro, as a 
percentage

Number of active KIC partners 
receiving less than 100 000 euro

Number of active KIC partners 
receiving less than 100 000 euro, as a 
percentage

Source: EIT.

55 %

205

76 %

83

40 %

65 %

230

85 %

133

58 %

49 %

114

52 %

23

20 %

86 
The EIT financial contribution is highly concentrated in five Member States (73 %) 
while only two Member States of the EU‑1234 have received EIT financial support 
(6 %) (see Table 3). A two‑speed Europe risks being further engrained, with EIT 
expenditure concentrated in Member States with developed research infrastruc‑
ture (see also paragraph 102).

34  The EU‑12 refers to the 12 

Member States that joined the 
EU between 2004 and 2007.

3 The EIT’s financial contribution for each KIC split by countries 
e
l
b
a
T

(2010-2014)

As a percentage of total 
EIT contribution

Top five countries

EU-12

Others

Climate-KIC

KIC InnoEnergy

EIT Digital

ALL EIT1

88 %

4 %

8 %

85 %

10 %

5 %

79 %

2 %

19 %

73 %2

6 %3

21 %

1 

2 

3 

 The top five Member States differ from one KIC to another, explaining why the aggregated top five is 
lower than the individual KIC.

 The top five countries receiving EIT support are the Netherlands (24 %), Germany (15 %),  
France (13 %), Sweden (12 %) and United Kingdom (9 %).

 Poland (4 %) and Hungary (2 %) are the two EU‑12 Member States benefiting from EIT financial 
support.

Source: EIT.

 
 
Observations 

44

The KICs lack transparency

87 
This concentration of EIT financial support among a limited number of partners 
should be monitored to ensure that it is not the result of an unfair allocation of 
public funding within the KIC — see Box 11. In some cases, a partner is a mem‑
ber of the committee that reviews proposals and selects the projects. This risks 
creating a conflict of interest and generating a lack of trust in the KIC. Moreover, 
although in general the selection process is well documented, when the part‑
ners submit their proposals they do not always know to whom the grants are 
eventually allocated. Almost half of the respondents to the survey do not believe 
that the selection of the activities to be funded by EIT within the KIC is fair and 
transparent.

88 
Despite the existence of many communication channels, some KIC partners have 
little knowledge of the progress and specific results of projects for which they 
did not take the lead. In some joint projects, each partner executes its part, but is 
not aware of further developments. This lack of communication can hamper the 
dissemination of knowledge.

1
1
x
o
B

Concerns over the concentration of EIT financial support and the lack of 
transparency

Some KIC partners have expressed their concerns by stating that: ‘there are a couple of influential partners 
and they distribute the funds among themselves. The processes to select proposals for activities are highly 
[opaque]’ and ‘in theory the EIT is a good idea, but in practice it just serves to fund initial … partners which 
are mainly large organisations … Moreover the assessment of the projects [is] made by the partners them‑
selves which is a conflict of interest …’

 
Observations 

45

The KICs have stimulated an innovation network and 
entrepreneurial culture but with little evidence of tangible 
results or impact to date

35  Defined as KIC partners that 

have declared KIC 
activityiescosts during the 
period 2010‑2014.

89 
Through the EIT, the KICs have brought together over 500 partners across disci‑
plines, Member States and sectors. The number of partners of the first three KICs 
created in 2010 has increased considerably: Climate‑KIC grew from 24 partners at 
the start in 2010 to 209 active partners at the end of 2014, EIT Digital from 31 to 
115 and KIC InnoEnergy from 27 to 242 35. The list of partners includes several top 
European companies, as well as top European universities and research institutes. 
Businesses account for 56 % of all KIC partners, universities 19 % and research 
institutes 13 % (see Figure 9).

90 
The KIC partnership has offered new opportunities to innovate (as agreed by 
86 % of the respondents to the survey). These include some of the biggest names 
in business. Working with them are prestigious higher education institutions and 
research centres together with cities, regions and non‑governmental organisa‑
tions. This contributes to reducing the fragmentation of the European innovation 
landscape in the areas of operations of the KICs. No other EU programme has 
such a pan‑European network.

91 
KIC partners generally agree that through the EIT a number of education activi‑
ties have been launched successfully: around 75 % of the respondents to the 
survey confirmed that the KIC partnership has generated education programmes 
that create new profiles of entrepreneurial and skilled talents (see Box 12).

2
1
x
o
B

EIT Digital Master School programme

The EIT Digital Master School programme offers eight technical majors and a minor in innovation and entre‑
preneurship. Twenty top EU universities, renowned researchers and leading businesses are in partnership to 
provide cutting‑edge ICT excellence in combination with innovation and entrepreneurship training, leading 
to a double degree and an EIT‑labelled certificate.

 
Observations 

46

92 
All persons interviewed and almost 80 % of the respondents to the survey agreed 
that KIC partnerships have promoted an entrepreneurial, creative‑thinking cul‑
ture. However, there is as yet no assessment of the impact of the EIT on business 
creation and whether there has been a real increase in the level of risk accept‑
ance in Europe. The indicator ’number of start‑ups or new businesses created’ is 
not informative without context or a benchmark.

36  European added value is the 

additional value which the EIT 
creates for the EU or its 
Member States. It is additional 
and has a European dimension 
because it could not have 
been created by Member 
States acting alone.

93 
Using the EIT’s core KPIs, in 2014 the three KICs together reported the creation of 
90 start‑ups, the incubation of more than 400 business ideas, 52 new and 19 im‑
proved products, services or processes, 126 cases of knowledge transfers and 159 
cases of knowledge adoption. These are output‑based indicators (see paragraph 
54). For example, the EIT’s assessment report for EIT Digital points out that ‘the 
innovation activities have produced few tangible results in terms of products that 
are close to the market’.

94 
The 2014 results in the area of education are mixed. The number of master’s and 
PhD students enrolled in EIT‑labelled programmes in 2014‑2015 rose to almost 
1 000, but the enrolment for the master’s and doctoral schools organised by two 
of the three KICs remained below expectations. The drop‑out rate at registra‑
tion of students who have been accepted to the programmes is reported to be 
particularly high. Furthermore, without proper monitoring, the low intake of EU 
students in KIC master’s and PhD programmes further raises the question of the 
EIT’s European added value36 because it is unknown if non‑EU students will stay 
in the EU or work for an EU organisation.

95 
According to the assessment of the 2014 KIC reports by the EIT, EIT Digital and KIC 
InnoEnergy have achieved only modest progress towards the integration of the 
KIC knowledge triangle actors during the 5 years since their creation.

Observations 

The future

New logo (2015)

47

37  Decision 4/2015 of the 

Governing Board of the EIT, 
‘Principles on KIC’s financial 
sustainability’.

96 
During 2015, the EIT took several measures to address many of the shortcomings 
highlighted in this report. Their impact remains to be seen.

Financial sustainability principles have been introduced

97 
In 2015 the EIT adopted the financial sustainability principles37. This document 
sets definitions, funding principles and incentives for the KICs to achieve financial 
sustainability.

98 
After 10 years of a KIC’s existence, the maximum EIT contribution to a KIC will be 
gradually reduced from up to 100 % of the EIT‑funded activities costs to a maxi‑
mum of 10 % in year 15. After year 15, a pre‑defined minimum level of EIT funding 
to a KIC can be decided (see Figure 11). The sustainability principles do not indi‑
cate how the KICs will replace the EIT funding. It is considered the responsibility 
of the KICs to develop and implement their sustainability strategies. Detailed 
strategies are not yet in place. By 2015, the KICs had made little progress in this 
area and the EIT continued to fund close to 90% of the EIT‑funded activities costs.

Observations 

48

1 Scaling down of the EIT co-funding rate
1
e
r
u
g
i
F

Gradual decrease in the EIT co-funding rate

100 %
90 %

80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0 %

Year 1

Source: ECA.

Maximum EIT co-funding rate

?
after 

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

The definition of KIC complementary activities has been 
revised

99 
In 2015 the EIT amended the definition of KIC complementary activities and pro‑
vided additional guidance to the KICs. It also reviewed, for the first time, the KIC 
complementary activities over the 2010‑2014 period. The review was limited in 
scope and consisted of two parts: a certification by independent auditors of the 
KIC complementary activities expenditure reported in the financial statements; 
and a review by the EIT project officers of the proportionality and the existence 
of a clear link between the EIT‑funded activities and the KIC complementary 
activities.

100 
The EIT also introduced new guidance for the preparation of business plans. 
Starting from the 2016 grant agreements, KIC complementary activities will be 
reviewed at the business plan assessment stage to ensure a clear link between 
planned EIT‑funded activities and the KIC complementary activities.

 
Observations 

49

More meaningful key performance indicators will be 
developed

101 
In the 2015‑2017 triennial work programme the EIT stated that a refined monitor‑
ing system will be put in place ‘geared towards results and impacts’. In 2015, it 
launched a tender procedure to design impact‑based KPIs and created a working 
group to address this particular issue. In addition, it intends to draw up specific 
KPI measurement results in knowledge‑triangle integration.

The EIT is trying to involve more countries

102 
The guiding principle of the EIT to date has been technical excellence, thereby 
favouring partners in Member States with advanced research and innovation in‑
frastructure. The EIT has realised that this has led to a high geographical concen‑
tration of KIC partners in a limited number of EU Member States (see paragraph 
86) and has created the regional innovation scheme, an outreach mechanism to 
better promote innovation in specific regions, to spread its support more widely. 
In order to achieve this, 10 % of the annual competitive EIT contribution to the 
KICs will be allocated from 2016 to support and mainstream the regional innova‑
tion scheme.

New framework partnership agreements are currently being 
discussed

103 
To align its framework with that of H2020, the EIT endeavoured to make the KIC 
partners sign new framework partnership agreements in 2015. The governance 
principles to be introduced through a code of conduct, as well as the proposed 
rules on intellectual property rights, met a lot of resistance. The signature of the 
new framework partnership agreements has therefore been postponed.

Conclusions and 
recommendations

50

104 
We conclude that, despite a valid raison d’être, the EIT’s complex operational 
framework and management problems have impeded its overall effectiveness. 
The impact of the actions undertaken by the Commission and EIT in 2015 (see 
paragraphs 96 to 103) remains to be seen. The following conclusions and recom‑
mendations are pertinent and need to be followed up.

Rationale

105 
The establishment of the EIT in 2008 was built on an ambitious and groundbreak‑
ing idea: promoting innovation through the integration of the three sides of the 
knowledge triangle. The reasons to build such an instrument were valid: weak 
links between the worlds of education, science and business; a lack of entrepre‑
neurial culture; and little success in bringing EU research results to the market 
(see paragraphs 19 to 23). The EIT is the first EU initiative to cover the entire 
innovation cycle at EU level, from laboratory to market, bringing together over 
500 partners across disciplines ranging from academia to research and business, 
allowing a critical mass required to tackle major societal challenges to be built up 
(see paragraphs 89 and 90).

Design

106 
While some unique features of the EIT have been successfully designed (see para‑
graphs 65 to 68), some key concepts and strategic elements were not sufficiently 
considered from the outset (see paragraphs 24 to 64). Because the activities not 
funded by the EIT are included in the calculation of the amount to be paid, the 
funding model is overly complex. The ‘strong leverage effect’ asserted by the EIT 
has not yet been demonstrated.

Conclusions and recommendations 

51

Recommendation 1 — The Commission should propose an 
amended EIT legal basis to the European Parliament and 
Council, revising the EIT’s funding model.

The KIC activities not funded by the EIT should not be included in the calculation 
basis when determining the EIT’S financial contribution to the KICs, as was the 
case in the original 2008 legal basis establishing the EIT. Removing the 25 % fund‑
ing condition would alleviate much of the operational and financial reporting 
burden of the KIC partners. The leverage effect should be measured to demon‑
strate the EIT’s success in attracting additional funding for innovation.

Target implementation date. As soon as possible after the 2017 evaluation.

107 
There are weaknesses in the design of the core operational processes. The means 
of granting the EIT financial support are ill suited given the needs of the KIC part‑
ners; the annuality of the grant and its systematic late signing make the smooth 
implementation of the innovation activities the EIT is aiming to promote difficult 
(see paragraphs 41 to 50). The grant payment cycle is a significant constraint for 
financially weaker partners such as SMEs, which do not have the financial capa‑
city to pre‑finance expenditure (see paragraph 59).

Recommendation 2 — The EIT grant agreement (a) should 
cover a longer period than the calendar year and (b) should 
be signed before the start of the activities.

A longer time perspective would not only offer greater legal and financial secur‑
ity for the KIC partners but would also further consolidate the innovation activ‑
ities in line with the multiannual strategy adopted by the KICs. It would also ease 
the administrative burden by reducing the annual reporting of the KIC partners 
and would facilitate the assessment of the KICs’ performance over a longer 
period of time. Signing the grant agreement in due time would allow the legal 
and financial continuity of the KICs’ innovation activities, thereby preventing 
a ‘stop‑go’ situation.

Target implementation date. Grant agreement for the period starting 
1 January 2017.

Conclusions and recommendations 

52

Implementation and impact

108 
Seven years after inception, the EIT is still not fully operationally independent 
from the European Commission. It is not the impact‑driven institute that was 
envisaged (see paragraphs 70 to 71). The performance of a KIC is not sufficiently 
taken into account when the final payment of the grant is made (see paragraph 
72). The EIT is a unique instrument within the EU’s initiatives but follows the 
general EU research and innovation framework too strictly (see paragraph 74). 
The EIT is  under‑resourced and has in the past been poorly managed (see para‑
graphs 80 to 84).

Recommendation 3 — The EIT should refocus its approach 
to delivering impact. To that end, it should seek greater 
autonomy and make use of the flexibility in Horizon 2020’s 
legal basis. In particular, it should adopt specific rules 
tailored to the needs of the KIC partners. The EIT should 
resolve its staffing issues to enable it to continuously monitor 
KICs’ performances.

The EIT should urgently obtain its financial autonomy, as the original target set 
by the European Commission was 2010. Granting more autonomy to the EIT can 
only boost its leadership capacity, a prerequisite for this public scheme to be suc‑
cessful. Moreover, the EIT should better reflect its mission statement and become 
an impact‑driven institute by tailoring its own rules. Filling vacant posts and 
stability in senior management are essential.

Target implementation date. During 2016.

109 
The EIT has contributed to the integration of the knowledge triangle and has en‑
couraged a culture of entrepreneurship. However, it is difficult to assess the per‑
formance of the EIT since the start of operations in 2010. There is a lack of robust 
and relevant reporting and monitoring processes and few impacts are visible (see 
paragraphs 51 to 53). The KICs lack transparency in the selection of the activities 
to be financed by the EIT (see paragraphs 87 to 88)

Conclusions and recommendations 

53

Recommendation 4 — The EIT should develop impact-based 
analysis. The EIT should also streamline its monitoring and 
reporting processes.

The Court welcomes the EIT’s decision to review its indicators in 2015 by imple‑
menting a new key performance indicator management system. This should be 
aimed at measuring the impact of each KIC as the current processes do not allow 
a detailed analysis of the achievements of the activities financed by the EIT. In 
particular, the impact of the innovation activities is currently undemonstrated. 
Furthermore, to enhance the monitoring process and to better fine‑tune finan‑
cial analysis (especially for SMEs and the management costs of the KICs), the EIT 
should consider standardising the financial reporting processes across all KICs.

Target implementation date. During 2016.

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 3 February 2016.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA
President

 
 
 
Annexes

54

Regional co-location centres across Europe

I
x
e
n
n
A

Source: Based on Eurostat data.

 
Annexes 

55

I Objectives of the EIT
I
x
e
n
n
A

The general objective of the EIT is ‘to contribute to sustainable European economic growth and competitiveness 
by reinforcing the innovation capacity of the Member States and the Union in order to address major challenges 
faced by European society. It shall do this by promoting synergies and cooperation among, and integrating, 
higher education, research and innovation of the highest standards, including by fostering entrepreneurship’1.

This general objective has been fine‑tuned by Horizon 2020’s legal basis into four specific objectives for the 
2014‑2020 period2:

 ο

 ο

 ο

 ο

create links by integrating education and entrepreneurship with research and innovation;

adopt a business logic and a results‑oriented approach;

overcome fragmentation with the aid of long‑term integrated partnerships; and

nurture the EU’s main innovation asset — its highly talented people.

See Figure below for an overview of the objectives of the EIT.

Overview of the objectives of the EIT

General objective

Speciﬁc objectives

Integrating
the knowledge triangle

Creating links

Innovation

Education

Commercialisation

Partnership

Human capital

Research

Source: ECA.

1  Article 3 of Regulation (EU) No 1292/2013.
2  Horizon 2020, the framework programme for research and innovation.

 
Annexes 

56

I
I
x
e
n
n
A

Other sub‑objectives of the EIT include:

 ο

 ο

 ο

the development of an EIT label to attract and retain the best innovators from the knowledge triangle;

the sustainability of the KICs; and

the promotion of SME participation.

Thus the EIT aims to pool the best minds and ideas from universities, research centres and private companies to 
reach a critical mass ‘to reinforce the innovation capacity of the Union and its Member States in order to boost 
their capacity to convert outputs from research into high‑value products and services’3. It is this ‘boosting’ 
which the EIT should be able to demonstrate.

3  As set out in Section 1.1 of Decision 1312/2013/EU.

 
Reply of the  
Commission

Executive summary

57

IV
The EIT has adopted a series of measures to address shortcomings in effectiveness. The EIT has addressed the com‑
plexities in the operational framework through the Task Force for Simplification, the EIT monitoring strategy and the 
good governance and financial sustainability principles. Finally, the EIT has strengthened its leadership, manage‑
ment and governance structures.

VI (a)
The KIC complementary activities are essential for the joining together of private and public innovation efforts. 
They also measure the building of innovation capacity on top of existing structures and capacities.

The Commission and the EIT acknowledge that the reporting and monitoring of the KIC complementary activities 
need further reflection and improvement. To improve the way KIC complementary activities are used as part of the 
EIT funding model, the EIT in 2015 carried out a review to provide assurance that the amounts accepted in the 2010‑
2014 period were proportionate and duly linked to the KAVA and that the rule of financing a maximum 25% of the 
total expenditure of the KICs was respected. Furthermore, additional guidance was provided in 2015 to strengthen 
the link between KAVA and the KIC complementary activities.

KAVA are EIT‑funded activities carried out by partner organisations or KIC legal entities, if applicable, contributing 
to the integration of the knowledge triangle of higher education, research and innovation, including the establish‑
ment, administrative and coordination activities of the KICs, and contributing to the overall objectives of the EIT.

VI (b)
The long‑term relations between the KICs and the EIT are governed by the FPA and developed contractually 
through the grant agreements, largely based on the Horizon 2020 model. In order to allow for long‑term planning 
and assessment of KIC strategies and activities, a strategic agenda for the KIC is annexed to the FPA. The document 
presents the strategy of the KIC, its objectives, its expected impact and its activities under the framework partner‑
ship together with a multiannual business model and financial plan for achieving market targets and strategic 
milestones. The EIT awards specific annual grants under the umbrella of the FPAs. The fact that grants are awarded 
on annual basis reflects the need to adapt quickly to the changing environment in which innovation happens.

Furthermore, the success and results of many EIT activities that have created entrepreneurial students, start‑ups and 
business ideas that are being developed show that the EIT model is suitable to deliver innovation activities. A Task 
Force for Simplification is working to further enhance the efficiency of the delivery and has already adopted a series 
of concrete measures with a roadmap for further simplifications under way.

VI (c)
The achievement of financial sustainability is one of the most challenging aspects of the EIT’s mission. Progress 
towards financial sustainability has been made since the financial sustainability principles were adopted by the EIT 
in March 2015. The two KICs designated in 2014 have substantial own funding — one of them is able to fully finance 
all management and overhead costs of the KIC legal entity in its first year of operation. See the reply to paragraph 
38.

The level of business interest in the EIT‑KIC innovation model is high, as indicated by businesses comprising 56% of 
total KIC partners. This creates an outstanding potential to strengthen the level of business involvement in the KICs, 
as detailed in replies to paragraphs 56 to 58.

Reply of the Commission 

58

Pursuant to the EIT founding regulation, the EIT should operate through excellence‑driven, autonomous partner‑
ships of higher education institutions, research organisations, companies and other stakeholders. The principle of 
excellence implies a certain level of concentration in Member States with high innovation capacity. Nevertheless, 
the EIT has taken robust initiatives to spread the support of the EIT to a higher number of beneficiary Member 
States by way of the EIT regional innovation scheme (EIT RIS). The new EIT RIS guidance, issued by the EIT in 2015, is 
being implemented in the 2016 business plans of the KICs, ensuring a widening of participation. Finally, the growth 
of KIC partners to over 800 in recent months and the opening of new co‑location centres across the EU by new KICs 
demonstrates that funding is no longer so concentrated in a few Member States or partners.

VI (d)
The EIT performs exhaustive performance assessments of the KICs. The EIT analyses the implementation of the KIC 
business plan annually, both through quantitative performance indicators and through qualitative reviews done by 
external experts and the EIT’s staff. More widely, the EIT also conducts on‑site monitoring and topical reviews of the 
KICs’ activities. These tools, taken together, provide a very informative picture of KIC performance.

The EIT Governing Board adopted a comprehensive monitoring strategy on 3 December 2015, which will measure 
results and impact.

VII
By design, the EIT balances between being an impact‑driven institute and a responsible provider of Community 
funds. The EIT cannot provide funds without assurance any more than it can fund underperformance. The EIT has 
been consistently improving its verification of the KICs’ performance. Most recently, the EIT rejected more than 
1.5 million euros of activity costs from one KIC as a result of the EIT’s assessment of the KIC’s performance. The EIT 
has been further strengthening its impact assessment: the latest spring review between the EIT Governing Board 
and the KICs focused on impact; the revision of the key performance indicators aims to increase impact; the adop‑
tion of financial sustainability principles and the ongoing feasibility study for an impact fund are all evidence of the 
EIT’s continuing focus on the impact and performance of the KICs (please also see replies to paragraphs 71 to 73).

VIII
The Commission and the EIT are confident that the measures launched in 2015, including those covered in para‑
graphs 97 to 105, address the main problems identified by the Court.

IX (1) 
The Commission and the EIT accept the recommendation. 

IX (2) a)
The Commission and the EIT partially accept the recommendation and will explore to what extent it is possible to 
further extend multiannuality.

IX (2) b)
The Commission and the EIT accept the recommendation.

Reply of the Commission 

59

IX (3)
The EIT and Commission accept this recommendation.

IX (4)
The Commission and the EIT accept the recommendation. The EIT will continue to develop focus on impact as 
already launched during 2015.

Introduction

Box 2 — The definition of innovation
The EIT has, since it was established in 2008 (Regulation (EC) No 294/2008), been operating under a definition of 
innovation which includes the creation of new markets and of value to society. The definition used here has been 
updated by the OECD to reflect this broader concept of innovation in its 2010 and 2015 innovation strategies1.

The EIT’s mission, and thereby also its objectives, rests on the definition of innovation, which includes societal goals.

Observations

25
Placing the EIT under the lead responsibility of DG Education and Culture (which also fully participates in Horizon 
2020 via its Marie Skłodowska‑Curie actions) was indeed a way to ensure that the higher education sector is well 
reflected within the knowledge‑triangle integration which is essential to the EIT. The primary mechanism to ensure 
this is the EIT Governing Board, where the balanced participation of the different sides of the triangle has always 
been assured. The Commission (DG Education and Culture) takes the necessary steps to ensure that there is good 
coordination between the relevant services of the Commission.

1  OECD 2015 innovation strategy, page 15 (http://www.oecd.org/sti/OECD‑Innovation‑Strategy‑2015‑CMIN2015‑7.pdf), ‘A scope beyond science and 
technology, involving investments in a wide range of knowledge based assets that extend beyond R & D. Social and organisational innovations, 
including new business models, are increasingly important to complement technological innovation.’ 

OECD 2010 innovation strategy, page 20 (http://www.oecdbookshop.org/browse.asp?pid=title‑detail&lang=en&ds=&ISB=9789264084704), 
‘Innovation, thus defined, is clearly a much broader notion than R & D and is influenced by a wide range of factors, some of which can be affected 
by policy. Innovation can occur in any sector of the economy, including government services such as health or education.’ 

The Horizon 2020 reference (https://ec.europa.eu/research/participants/portal/desktop/en/support/reference_terms.html).

 
 
Reply of the Commission 

60

26
The coordination of the different Commission services is ensured by DG Education and Culture and takes the form 
of direct interaction between the KICs and the EIT with the relevant Commission services. DG Education and Culture 
has developed different formats to facilitate this, from the operational level to the strategic level. DG Education and 
Culture organises every year a 1‑day conference with workshops where KICs and EIT meet the Commission services 
from various DGs. Informal ad hoc meetings — EIT with Commission services or KICs with Commission services — 
are also organised when needed to facilitate collaboration. DG Education and Culture also coordinates the inter‑ 
service consultation prior to the adoption of the triennial work programme in which all DGs are formally involved. 
All concerned Commission services take part in the Inter‑Service Steering Group for the mid‑term EIT evaluation.

The EIT also regularly and directly interacts with the Commission services, notably but not exclusively with DG 
Research and Innovation and DG Internal Market, Industry, Entrepreneurship and SMEs. For example, the EIT is in 
direct contact with the services of DG Research and Innovation concerning the next KIC call or concerning access to 
Horizon 2020 IT tools. As part of the annual meeting, DG Education and Culture supports bilateral EIT services meet‑
ings to coordinate the year’s work on specific initiatives.

Significant contacts have been established during 2015 between DG Education and Culture, the EIT and DG 
Regional and Urban Policy in regard to the shared objectives of the EIT’s regional integration scheme and smart 
specialisation strategies.

27
The presence of both types of activities is essential for the EIT’s innovation model. It reflects the objective to build 
innovation (EIT‑funded activities) on top of existing structures and capacities (complementary activities). The Com‑
mission and the EIT consider that the KIC added‑value activities and the KIC complementary activities form a coher‑
ent set of innovation activities.

29
The KIC complementary activities concept was initially not sufficiently defined in detail, but it has been strength‑
ened over time (see also paragraphs 100 and 101).

The weakness of the link between EIT‑funded activities and the complementary activities addressed here by the 
Court has been recognised and the EIT has put in place changes in the first half of 2015 that will strengthen the 
verification of this link at the business planning stage.

31
The EIT has significantly strengthened the link between EIT‑funded activities and KIC complementary activities. The 
2015 business plan and grant agreements first introduced the principle of proportionality between the two. As of 
2016, this link is further strengthened: the KIC complementary activities are now reviewed by the EIT at the KICs’ 
annual business plan assessment stage. The results of these changes will be visible in 2016.

The EIT also takes into account the results and outcomes of each particular complementary activity. If there is 
a strong result, a relatively high cost of a KIC complementary activity can be accepted. The cost of KIC complemen‑
tary activities must be proportionate to the cost of the EIT‑funded activity and/or to the expected impact. There‑
fore, a relatively high KIC complementary activity can also be accepted if that activity has high impact in furthering 
the mission of the KIC.

Reply of the Commission 

61

32
The EIT is strengthening the verification of the EIT‑funded activities and KIC complementary activities links at 
programming stage, i.e. when assessing the business plans, as from the 2016 business plan cycle. Consequently, the 
KICs will no longer be able to replace planned KIC complementary activities at the reporting stage without the EIT’s 
approval, and there will no longer be uncertainty as to whether the costs of KIC complementary activities will be 
accepted at the reporting stage.

Box 3 — Example of a KIC complementary activity with a less than ‘clear link’ to an EIT-
funded activity
Complementary activities contribute in two ways to the achievement of KIC goals. They may either build on 
EIT‑funded activities or form the basis from which the EIT can fund further innovation. Using the KIC complemen‑
tary activities as only a funding lever takes too narrow an approach to innovation.

Furthermore, the EIT has further refined its guidance on KIC complementary activities to KICs as part of the annual 
business plan guidelines.

33
Innovation does not occur in isolation and requires complementary activities and ecosystems in which EIT‑financed 
activities can be embedded.

However, the Commission and the EIT agree that the definition of complementary activities and how to measure 
more accurately the leverage from EIT funding requires further attention. The Commission and EIT therefore wel‑
come the suggestions of the Court. The EIT has as a consequence already taken steps in this direction.

35
KIC complementary activities that provide the knowledge base for new added‑value activities will logically always 
be ‘retroactive’ in the sense that the KIC complementary activities in question are completed before the EIT‑funded 
activities start.

Some KIC complementary activities will be, by definition, non‑additional. Instead, they will be the foundation for 
EIT‑funded activities. These EIT‑funded activities can lead to further leverage later in the process as they create 
products, processes or services which bring returns. If an original KIC complementary activity had not been in place, 
then the outcomes from an EIT‑funded activity that relied on it could not appear either. For this reason, retroactive 
KIC complementary activities are needed in the EIT innovation model.

At the same time, the Commission and the EIT accept that such KIC complementary activities cannot be directly 
taken into account when calculating the financial leverage effect of EIT‑funded activities.

As explained above, complementary activities are essential for innovation systems to function effectively, and are in 
line with a multiannual perspective.

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62

Box 4 — A financial leverage effect cannot stem from a retroactive activity
Complementary activities are necessary to provide the basis for or complement EIT financed activities. Not all com‑
plementary activities can be considered as providing leverage and improved definitions are needed to measure the 
leverage effect.

37
In kind contributions as complementary activities or cash contributions to complementary activities are essential for 
functioning innovation systems.

Box 5 - Example of non-additional KIC complementary activities
The inclusion of new students does always involve more costs in terms of time of teachers to attend tutorials, lab 
equipment (notably in courses with a high practical component), management of internships in companies (which 
requires attention on the one‑to‑one basis) and the use of university services. That is why non‑EIT‑funded student 
costs can be justified as differentiated KIC complementary activity costs for an EIT‑funded course.

38
The financial sustainability should not be understood as a complete halt in the EIT funding to KICs, but the EIT 
funding will decrease to a ‘pre‑defined minimum level’ as defined in the Principles on KICs’ financial sustainability 
adopted by the EIT Governing Board on 5 March 2015.

It is still to be demonstrated that 15 years are insufficient to develop and successfully implement a strategy towards 
financial sustainability.

The EIT Foundation was established to function on a different level and with a different purpose than the KICs. The 
KICs raise and secure funds with a possible return on investment in mind, and can generate income from their own 
activities, which was never the case for the EITF.

39
While it is accepted that achieving financial sustainability will be challenging, it is too early to pass judgment. OECD 
emphasises in its 2015 innovation strategy that a long‑term perspective needs to be taken when measuring returns 
on investments in innovation. As a result, the data from the first 5 years of KIC operations are not enough to draw 
conclusions about long‑term financial sustainability.

The EIT has been strengthening its efforts in this field. In line with the Principles on KICs’ financial sustainability, the 
EIT is currently developing a template for reporting on KICs’ financial sustainability that will be introduced in the 
reporting guidelines to ensure the proper reporting of income by KICs. The 2016 business plans and their assess‑
ments by EIT experts already show significant progress. All KICs have made this one of their priority objectives and 
activities are reviewed accordingly to create a return of income from activities. For example, one of the new KICs 
fully finances its management and overhead costs from own funds, which is a strong starting point to become 
financially sustainable.

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63

The progress made by KICs towards financial sustainability will be assessed in 2016, after the reception of the first 
reports. In line with the principles for financial sustainability, the KICs will be reviewed more thoroughly on the pro‑
gress made by the EIT after 7 years. The EIT has also set up a working group, hired an expert and launched a series 
of initiatives to support the KICs in their drive towards financial sustainability.

For all these reasons, it is too early to make a judgment about the KICs’ financial sustainability in 10 years’ time.

42
The amendment of business plans during implementation is a regular process that provides a high degree of flexi‑
bility for including innovation projects even in the last months of the duration of the grant agreements. This possi‑
bility was used extensively by KICs in the years 2010‑2014. In 2014, five amendments that included new KIC activities 
were approved by the EIT.

Furthermore, the 2014 guidelines for the preparation of KIC business plans allowed KICs to include in the business 
plan KIC added‑value activities not fully specified up to 15 % of the budget. The approach is being followed in an 
analogous manner in 2015, i.e. business plans include a description of the process for the selection of new activities 
and the precise definition of activities is provided when details are available.

In addition, KICs have the possibility to transfer up to 100 % of their budget between activities within the same 
budget heading, and up to 20 % across budget headings without any prior approval by the EIT. This provision is 
much more flexible and advantageous than in any other EU programme and further demonstrates that specific 
mechanisms were designed to support changes in a fast‑reacting environment, which responds to the needs of 
innovation projects.

43
The annual budget of the EIT depends on the amount voted in the annual EU budget, typically in December of year 
n‑1. The budgetary commitments of the EIT cannot be higher than the funds approved in the EU budget. This is 
the reason why the EIT signs annual grant agreements with KICs. However, additional measures aiming to take into 
account the multiannual dimension of some activities are being explored, in particular through the Task Force for 
Simplification.

44
The EIT’s competitive funding allocation approach is based on performance‑based budgeting, which has an in‑built 
uncertainty and rewards excellence and impact. Providing long‑term certainty on funding may be detrimental for 
a result‑ and impact‑driven approach.

In addition, as indicated in replies to paragraphs 41 and 44, the KICs have a number of instruments at their disposal 
to provide insurance against short‑term funding fluctuations. These include general financial market instruments, 
as well as flexibility in business plan design.

Box 6 — The European Fund for Strategic Investments2 and its impact on the EIT budget 
— Second paragraph
While funding for the KICs in 2016 has indeed been reduced, it is nevertheless sufficient for the three mature KICs to 
maintain substantial business plans and for the two newly established KICs to have a rapid growth path. More than 
€233 million was allocated to the three mature KICs, while €41 million went to the two new KICs in 2016.

2  Opinion No 4/2015 concerning the proposal for a regulation of the European Parliament and of the Council on the European Fund for Strategic 

Investments and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013.

Reply of the Commission 

64

45
The arguments presented on the inappropriateness of the annual grant agreements should be balanced by taking 
into account the initiatives the EIT takes to combine the annual with the multiannual perspectives. It is important to 
note that the multiannual perspective is taken into consideration in the framework of the annual competitive fund‑
ing allocation. Furthermore, in addition to the competitive funding there is a support funding element in the annual 
funding allocation to KICs. The support funding is distributed equally among the KICs and provides high‑level 
secur ity of funding. Also, it is important to note that the FPA provides the legal basis and ‘commitment’ from the 
EIT to support the KICs over a long‑term period. As outlined above, there is also in‑built flexibility within the annual 
grant cycle to stop and introduce innovative projects during the year, i.e. the annual cycle does not prevent flexibil‑
ity for individual activities but provides an overall planning framework.

46
Education is one of the EIT’s major pillars of activity. The EIT takes special care that its education programmes are 
adequately funded. The provision of guaranteed support funding for each KIC for a significant proportion of the 
budget reduces uncertainty for multiannual priority activities such as the education programmes.

47
The provision of support funding reduces the risk of discontinuity for a large share of the programme.

See Commission and EIT reply to paragraphs 41 and 44.

48
The significant support funding element of the EIT funding model provides a certain amount of long‑term planning 
security.

See Commission and EIT reply to paragraphs 41 and 44.

49
Due to the annual nature of the EIT’s budget, and the fact that the EU budget is generally not adopted before mid 
December, grant agreements for a given year cannot be signed before 1 January of that particular year. This issue 
was first addressed by the European Court of Auditors in the specific annual report for the 2011 financial year and 
the EIT provided its comments. The EIT committed itself to decreasing the gap between the starting date of the 
action, as defined in the KICs’ business plans, and the date of signature of the grant agreements. As a result of 
this effort, the grant agreements for 2013 and 2014 were signed with the three KICs in February 2013 and 2014, 
respectively.

The year 2015 was exceptional, as KICs asked for a delay in applying the new FPA in order to further clarify the impli‑
cations of specific provisions between the EIT, the KICs and the European Commission in the context of the align‑
ment with Horizon 2020 rules. Furthermore, due to the legal consultations needed, the ex ante approval of the new 
grant agreements by the Commission took longer than usual. The EIT expects timely signature of grant agreements 
from 2016, when the new FPAs will already be in place, i.e. the late signature in 2015 was a one‑off event.

Reply of the Commission 

65

50
While this was the usual practice until 2015, the KICs could, under certain conditions such as the consumption of 
the previous pre‑financings, and subject to some interim reporting obligations, request additional pre‑financing 
payments.

While the EIT would like to provide pre‑financing up to 70 % of the grant awarded in order to help KICs in managing 
their cash position, it is important to note that the level of pre‑financing is subject to availability of payment credits, 
which is beyond the EIT’s control. The pre‑financing for the GA 2016 is foreseen to be around 60 %.

The KICs as powerful innovation networks, including strong industrial partners and universities, are in a position to 
resolve cash flows, for example, via loans taken from a bank, as some KICs have already demonstrated. This allows 
them to increase pre‑financing rates to partners or beneficiaries (e.g. students or start‑ups) where the cash flow 
otherwise creates a problem.

51
The EIT Governing Board adopted the EIT monitoring strategy on 3 December 2015, which will measure data for 
Horizon 2020, for the EIT’s impact via its own and KIC activities and for KIC results. Further, the EIT is an active con‑
tributor to the Horizon 2020 annual monitoring report for 2014, and will have a section in the report.

52
Past changes in the core KPIs were done in order to fine‑tune their concept/meaning to ensure a level playing field 
between the different KICs and to respond to the evolving nature of the KICs. The changes were made after consult‑
ation with the KICs in order to address, among others, the differences in the KICs’ sectors of operation and wider 
environments.

The changes in KPIs over time therefore directly address the finding in paragraph 52.

53
The EIT performs comprehensive analyses to compare the KICs based on several factors, not simply on the basis 
of the core KPIs. The implementation of KICs’ business plans is assessed both through quantitative performance 
indicators and through qualitative reviews done by external experts and the EIT’s staff. More widely, the EIT also 
conducts on‑site monitoring and topical reviews of the KICs’ activities. These tools, taken together, provide a very 
informative picture of the differences between the KICs.

54
The EIT recognises that outcomes and impacts can only be measured with a combination of qualitative and quan‑
titative indicators. This is comprehensively addressed in the EIT monitoring strategy, adopted by the EIT Governing 
Board in December 2015, and through the ongoing KPI review, as reported in paragraph 102.

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66

55
The business community is strongly represented in the governance of KICs, playing a leading role in the formation 
of the KIC strategies. A non‑exhaustive list of representatives of the respective industries in KICs’ Governing Boards 
is as follows:

—  EIT Digital: Deutsche Telekom AG, Philips, Nokia, British Telecom, Alcatel‑Lucent, Ericsson;

—  Climate KIC: Bayer Technology Services GmbH, GDF Suez, South Pole Carbon, Velux A/S;

—  KIC InnoEnergy: Total SA, Gas Natural Fenosa, Electricité de France, ABB AB, Areva SA.

56
The level of EIT grant funding is not a sufficient measure of the level of involvement in KICs. For example, funding 
provided to higher education is geared towards supporting more entrepreneurial curricula and students graduat‑
ing from university, which directly benefits business. A measurement of involvement ought to take into account 
the number of partners, since it is the direct measure of the attractiveness of a KIC, as well as the nature of activities 
supported, rather than the type of institution which implements it.

57
The EIT and the KICs have been designed to address the EU‑wide problem of a low level of university–business 
cooperation. This is why the business community is strongly represented in the governance of KICs, playing a lead‑
ing role in the formation of the KIC strategies. It was, nevertheless, to be expected that there would be initial prob‑
lems in achieving the desired level of university–business cooperation. In order to address this, the EIT has been 
changing the guidelines for the business plans and providing strategic suggestions to the KICs. The KICs have also 
been changing their internal rules and procedures as well.

The progress made by the EIT and the KICs in this field shows that the KIC model is the right one for the develop‑
ment of long‑term university–research–business cooperation, and we are convinced that, in future, results will 
continue to improve.

58
While the EIT does not have a target for the share of the budget going to SMEs, it does have quantified targets for 
SME creation. SME start‑up companies created by the EIT are one of the EIT’s KPIs and are therefore highly incen‑
tivised. For 2014, the three first wave KICs reported that 90 new start‑ups had been created, all of which are SMEs 
according to the definition of the Commission recommendation (C(2003) 1422). Furthermore, many other existing 
small enterprises were supported by sub‑grants or through the provision of services in the KICs’ accelerators.

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59
The EIT has achieved exceptional results in promoting and supporting SMEs’ participation in innovation activities.

Many EIT activities specifically target SMEs. As a financial incentive for SMEs, the EIT even had a specific derogation 
from the EU financial regulation in the 2010‑2013 period that allowed SMEs, as KIC partners, to claim 40 % indirect 
costs on top of their direct costs, as opposed to the 20 % allowed for non‑SME companies.

As regards targeted support for existing SMEs, the KIC partnerships provide a strong ecosystem in which they can 
receive support. Existing SMEs with exceptional innovation potential would therefore be ideally placed to join a KIC 
partnership and take full advantage of the support offered by the EIT. As a result, an increasing number of SMEs 
participate both as partners in KICs and as beneficiaries of KIC sub‑grants and recipients of business creation and 
acceleration services.

60
As KICs are aiming to become financially sustainable and are able to use financial instruments (e.g. bank loans) and 
sources of income other than EIT funding, they are able to ensure that payments to SMEs are made in a timely man‑
ner regardless of when EIT funding is received. The EIT is not in a position to impose payment conditions on KICs 
with respect to the contractual relations which they have with partners as the KICs are autonomous in this respect. 
However, as support payments to SMEs are limited in size compared to the programme as a whole, KICs have the 
possibility to increase the advance payments to SMEs through adequate cash flow management (Commission and 
EIT replies to paragraphs 41 and 44 provide further examples of the flexibility of KIC funding).

61
The EIT systematically gathers information on the status of new KIC partners upon their joining the KICs. Therefore, 
the EIT has up‑to‑date information on the number of KIC partners that are SMEs.

Furthermore, larger organisations are in the majority in the first years of a KIC’s life, as they have the capacity to pre‑
pare a solid strategic agenda and a winning proposal to be selected as a KIC in the first place. SMEs typically join the 
KICs at a later stage when their participation can add value to the activities of the established partnerships.

As an example, KIC InnoEnergy had 25 SMEs as KIC partners in the 2010‑2013 period. However, 55 and 50 new SMEs 
joined KIC InnoEnergy in 2014 and 2015 respectively, thereby increasing the number of SME partners to 130.

Many SMEs participate in the EIT‑KIC programme, and are final recipients of EIT grants, by way of sub‑contracting or 
sub‑granting arrangements with other KIC partners such as universities, research centres or industrial companies. 
The acceleration and incubation programmes of KICs particularly target start‑up SMEs and the EIT has a KPI that 
tracks the establishment of new SMEs. The growing number of SMEs in the KIC partnerships, as well as through EIT 
grants, will naturally lead to a higher share of grant absorbed by SMEs as well.

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62
The EIT is actively supporting SMEs. Clear objectives for the creation of start‑ups exist, and it is one of the EIT’s core 
key performance indicators.

See Commission and EIT reply to paragraph 57.

64
The promotion of synergies and complementarities with other EU initiatives is a priority for the EIT and for DG Edu‑
cation and Culture. The aim is embedded in the EIT’s strategic innovation agenda and regulation.

Synergies and complementarities are facilitated by DG Education and Culture and the EIT (e.g. annual meeting with 
Commission services, EIT and KICs, as well as selection criteria for new KICs) and are built into the KIC model, ele‑
ments of which reflect objectives and lessons learned from other EU programmes (e.g. the knowledge triangle con‑
cept echoes aspects of Erasmus+ and the university–business dialogue; the co‑location centre concept echoes EU 
regional policy; the societal challenges approach is shared across Horizon 2020; the EIT funding model builds on les‑
sons learned across other programmes). There are concrete examples of synergies within the thematic areas of the 
KICs such as EIT Digital: Future Internet and Big Data PPPs; KIC InnoEnergy: SET Plan; and Climate‑KIC: cooper ation 
with DG Climate Action in the preparation of the United Nations Climate Change Conference in Paris in December 
2015.

The EIT continues to foster synergies at the level of concrete projects, more recently in the context of the European 
Fund for Strategic Investments (EFSI), with European Cooperation in Science and Technology (COST) and the Euro‑
pean Space Agency (ESA).

69
The EIT has already requested to launch the process to reach the full financial autonomy. This process is expected to 
be finished before the end of 2016.

71
In addition to ensuring compliance with the rules, the EIT also increasingly rewards performance and incentivises 
impact. For example, poor performance will have an increasingly negative effect on a KIC’s budget. As part of the 
principles for the KICs’ financial sustainability, the KICs’ EIT budget will have an increasing share of competitive 
funding. As this share — which rewards performance — increases over time, a KIC with poor performance will have 
an ever stronger financial incentive to improve.

72
The EIT reinforced, in 2015, the direct impact of low performance on the amounts to be paid — parts of a KIC’s 
expenditure claim will not be accepted by the EIT when the implementation of the activity was insufficient. See 
Commission and EIT reply to paragraph VII of the executive summary.

Following the Court’s intervention, the EIT has continued to strengthen its verification of costs in the annual audit 
reports. EIT is strongly rewarding performance while at the same time ensuring a high level of assurance for the 
eligibility of costs incurred.

Reply of the Commission 

69

74
The EIT and the Commission consider the threshold according to Article 34 of the Horizon 2020 rules for participa‑
tion as appropriate for EIT grants paid to KICs. We consider it proportionate to require an audit certificate from 
a beneficiary of EU/EIT funds who claims an annual grant in excess of 325 000 euro. In any case, the EIT would need 
a specific derogation from Article 34 of the Horizon 2020 rules for participation in order to use a different or higher 
threshold than 325 000 euro for grants claimed by participants.

See also Commission and EIT replies to paragraphs 79 and 80.

76
It is important to note that the ‘financial reports’ are not EIT‑specific any more, as the cost reports have been fully 
aligned with the Horizon 2020 templates starting from the 2016 grant agreements.

79 Second indent
This recommendation would require a specific derogation from the Horizon 2020 rules for participation and the 
financial regulation3.

79 Third indent
This recommendation is beyond the control of the EIT, as it would require a specific derogation from the Horizon 
2020 rules for participation and the financial regulation4.

81
Outsourcing the technical assessment of projects is a common practice in R & D programmes. This happens in 
particular in the case of very complex projects covering, and integrating, several domains of activity, like education, 
innovations and business.

83
It is important to note that the EIT has improved the trend of staff turnover since 2013. The low country coefficient 
for Hungary (currently 69 %) is a significant factor contributing to staff turnover. However, this is beyond the EIT’s 
control.

84
In the meantime, significant improvements in the EIT’s management capacity took place. The vacant Head of Unit 
post has been filled and the selection of the other Head of Unit is ongoing. Furthermore, the selection of the EIT 
Director is also ongoing.

3  https://myintracomm.ec.europa.eu/budgweb/EN/leg/finreg/Pages/leg‑020‑08_finreg2012.aspx#fr135

4  https://myintracomm.ec.europa.eu/budgweb/EN/leg/finreg/Pages/leg‑020‑08_finreg2012.aspx#fr135

Reply of the Commission 

70

86
The EIT’s focus on excellence makes it natural that Member States with higher innovation capacity are more strongly 
represented in KICs. While it is a clear goal for the EIT to strengthen existing capabilities and centres of excellence in 
the EU, the EIT also ensures that it delivers benefits to areas of the EU not directly participating in KICs by way of the 
EIT RIS.

Box 11 — Concerns over the concentration of EIT financial support and the lack of 
transparency
There is a reasonable balance between the sides of the knowledge triangle, in the distribution of both partners and 
funding. Clear procedures exist for the selection of projects by KICs, which ensure quality control and transparency.

89
Evidence of the EIT’s results is beginning to emerge. The EIT has produced over 1 000 entrepreneurial graduates, 
numerous start‑ups, a series of success stories and a strong pan‑EU network of co‑location centres and business 
accelerators and has promoted an entrepreneurial culture.

92
The business creation review completed in November 2015 provides strong evidence of the added value provided 
by EIT/KIC accelerator programmes, and term sheets exist for supported ventures which demonstrate significant 
results from EIT support into business creation.

93
The KPIs show that significant outputs have been provided, many of which have by now translated into tangible 
results (see the examples mentioned in paragraph 90).

94
It is worth highlighting that non‑EU students also integrate into EU companies or to start their own ventures after 
finishing their studies, thus creating an impact on and added value for our society. The EIT’s KICs have created an 
environment where the gap between academia and business has narrowed, and therefore such students already 
have a clearer path towards working for a KIC business partner following their studies and thus staying in the EU.

98
In line with Article 6(2)(e) of the EIT’s founding regulation, all three first‑wave KICs have established strategies for 
financial sustainability. A summary of these strategies has been presented in the KIC business plans since 2014. For 
the 2016 business plan, an EIT expert focused specifically on financial sustainability issues and assessed the plans 
for each KIC.

103
The new framework partnership agreements are under signature at the beginning of 2016.

Reply of the Commission 

71

Conclusions and recommendations

Recommendation 1
 The Commission and the EIT accept the recommendation.

Any proposal for amendments to legal regulations will have to be prepared in accordance with the better regulation 
principles, in particular the principle to ‘evaluate first’. The EIT’s legal basis requires the Commission to evaluate the 
EIT by the end of 2017 and an evaluation is currently being prepared with the participation of all relevant Commis‑
sion services.

The evaluation will take into consideration also the critical opinion of the audit and the independent evaluators will 
have access to this audit. Based on the evaluation results, any future steps will be decided in compliance with the 
better regulation principles.

The Commission will take a position on the change of the EIT’s legal basis on the basis of the findings of the inde‑
pendent expert evaluation and on the outcome of this audit.

107
See Commission and EIT replies to paragraphs 40 to 49 and 60, summarising their position on these issues.

Recommendation 2 (a)
The Commission and the EIT partially accept the recommendation and will explore to what extent it is possible to 
further extend multiannuality.

Recommendation 2 (b)
The Commission and the EIT accept the recommendation.

For (a): complete review by spring 2017, and implementation (conditional on that review) by 2018.

108
See Commission and EIT replies to these paragraphs, summarising their position on these issues.

Recommendation 3
The EIT and Commission accept this recommendation.

Reply of the Commission 

72

109
See Commission and EIT replies to these paragraphs, summarising their position on these issues.

Recommendation 4
The Commission and the EIT accept the recommendation.

The EIT will continue to develop focus on impact as already launched during 2015.

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The European Institute of Innovation and Technology (EIT) 
has the ambitious objective of strengthening the links 
between education, science and business, and thus being 
a driver of innovation in the EU. We conclude that, despite 
a valid raison d’être, the EIT’s complex operational 
framework and management problems have impeded its 
overall effectiveness. We identified several weaknesses in 
the EIT’s funding model, the reporting arrangements 
between the EIT and the knowledge and innovation 
communities and the financial sustainability of the latter. 
Seven years after its inception, the EIT is not yet fully 
operationally independent from the European 
Commission. This has hampered its decision-making. We 
conclude that if the EIT wants to become the ground-
breaking innovative institute it was originally conceived to 
be, legislative and operational adjustments are required to 
better foster the EU’s innovation potential.

EUROPEAN
COURT
OF AUDITORS