This users’ guide is designed to support staff of the European Commission when implementing grant contracts in the context of External Actions. It is neither an official interpretation of the contract documents nor does it create any rights or obligations. It is not legally binding, nor can it be relied upon to challenge a contracting authority’s decision, judicially or otherwise.

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Guidelines

1(1)  The beneficiary(ies) and the contracting authority are the only parties to this contract. Where the European Commission is not the contracting authority, it is not party to this contract, which confers on the European Commission only the rights and obligations explicitly mentioned in this contract.

This provision refers particularly to indirect management with partner countries, where the contracting authority is not the European Commission but instead, for instance, the national authorising officer or the regional authorising officers or a line ministry of the partner country. This provision is also relevant where this standard grant contract is signed by a contracting authority from a partner country within programme estimates.

1(2)  This contract and the payments attached to it may not be assigned to a third party in any manner whatsoever without the prior written consent of the contracting authority.

Third parties may not receive funds directly from the contracting authority under the contract instead of the beneficiaries and/or affiliated entities without the prior written consent of the contracting authority.

Article 1(2) does not restrict the internal division of labour between several beneficiaries or the payments provided for in the contract (i.e. the payments by the coordinator to co-beneficiaries or affiliated entities or payments to contractors or recipients of financial support).

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Guidelines

1(3)  Any personal data included in the grant contract must be processed by the European Commission in accordance with Regulation (EU) No 2018/1725.

Such data must be processed by the data controller identified in the special conditions solely for implementing, managing and monitoring the grant contract or to protect the financial interests of the EU, including checks, audits and investigations in accordance with Article 16 of these general conditions.

The beneficiaries have the right to access, rectify or erase their own personal data and the right to restrict the processing of their personal data or, where applicable, the right to data portability or the right to object to data processing in accordance with Regulation (EU) No 2018/1725. For this purpose, they must send any queries about the processing of their personal data to the data controller identified in the special conditions.

The beneficiaries may have recourse at any time to the European Data Protection Supervisor.

1(4)  The beneficiary(ies) must process personal data under this contract in compliance with applicable EU and national law on data protection (including authorisations or notification requirements). The beneficiaries may grant their personnel access only to data that is strictly necessary for implementing, managing and monitoring the grant contract. The beneficiary must ensure that the personnel authorised to process personal data has committed itself to confidentiality or is under appropriate statutory obligation of confidentiality.

The beneficiaries must adopt appropriate technical and organisational security measures having regard to the risks inherent in the processing and to the nature, scope, context and purposes of processing of the personal data concerned. This is in order to ensure, as appropriate:

a)  the pseudonymisation and encryption of personal data;

b)  the ability to ensure the ongoing confidentiality, integrity, availability and resilience of processing systems and services;

c)  the ability to restore the availability and access to personal data in a timely manner in the event of a physical or technical incident;

d)  a process for regularly testing, assessing and evaluating the effectiveness of technical and organisational measures for ensuring the security of the processing;

e)  measures to protect personal data from accidental or unlawful destruction, loss, alteration, unauthorised disclosure of or access to personal data transmitted, stored or otherwise processed.

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Guidelines

1(5) The beneficiary(ies) shall:

a) carry out the action jointly and severally vis-a-vis the contracting authority taking all necessary and reasonable measures to ensure that the action is carried out in accordance with the description of the action in Annex I and the terms and conditions of this contract.

To this purpose, the beneficiary(ies) shall implement the action with the requisite care, efficiency, transparency and diligence, in line with the principle of sound financial management and with the best practices in the field.

b) be responsible for complying with any obligation incumbent on them from this contract jointly or individually;

c) forward to the coordinator the data needed to draw up the reports, financial statements and other information or documents required by this contract and the annexes thereto, as well as any information needed in the event of audits, checks, monitoring or evaluations, as described in Article 16;

d) ensure that all information to be provided and requests made to the contracting authority are sent via the coordinator;

e) agree upon appropriate internal arrangements for the internal coordination and representation of the beneficiary(ies) vis-à-vis the contracting authority for any matter concerning this contract, consistent with the provisions of this contract and in compliance with the applicable legislation(s).

This standard grant contract is used for:

(i) all modalities of action grants: mono-beneficiary with/without affiliated entities and multi-beneficiary with/without affiliated entities,

(ii) in case of operating grants.

As of 2015 this standard grant contract is not used where the coordinator (or the only beneficiary) is an organisation (in particular international organisation or EU Member State agency) whose pillars have been positively assessed by the Commission. The organisation will instead sign a Contribution Agreement (previously Pillar Assessment Grant Agreement based on the PAGoDA template). For EU external actions, this applies both to direct awards and grants awarded through calls for proposals. Note that the Contribution Agreement only caters for action grants. Operating grants are generally not awarded to pillar-assessed organisations.

For further information on grants with pillar assessed organisations, see Chapter 5 of the INTPA Companion.

The term ‘beneficiaries’ refers collectively to all beneficiaries of the action, i.e. all entities signatory to the contract (either because they signed the contract directly or because the coordinator signed the contract also on their behalf, as provided in the mandate attached to the application form. By default, the coordinator signs on behalf of all beneficiaries. However, the contract may instead be signed by all beneficiaries if they request so (without the need for a derogation). This has no impact whatsoever on the rights and obligations of the beneficiaries under the contract.

All beneficiaries must be listed in the special conditions (Annex e3h1).

a) All beneficiaries are jointly responsible to ensure that the action is carried out in accordance with the description of the action in Annex I and the terms and conditions of the contract (operational responsibility). However, vis-à-vis the contracting authority, the financial responsibility for the implementation of the entire action including the parts implemented by co-beneficiaries and affiliated entities rests with the coordinator (see Article 1(7)(g)). This means that the contracting authority will, where necessary, recover funds only from the coordinator.

Definition of sound financial management is provided in the INTPA Companion.

e) This provision does not refer to the mandate conferred to the coordinator included in the application form (Annex e3b) that needs to be submitted to the contracting authority during the application phase. These arrangements are an internal agreement between the beneficiaries and, as such, do not need to be submitted to the contracting authority. The European Commission does not provide a template for such internal arrangements.

1(6) The beneficiary(ies) must ensure that no funds or economic resources are made available directly or indirectly to, or for the benefit of, any entities, individuals or groups of individuals designated by the EU as subject to the EU Restrictive measures. This includes, but it is not limited to, contractors, subcontractors, all natural persons linked to this contract, recipients of financial support to third parties.

The beneficiary(ies) must ensure the application of any relevant measure pursuant to Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget.

For the purpose of the verification of the EU restrictive measures, it must be checked that subcontractors and all natural persons linked to the contract, including participants to workshops and/or trainings and recipients of financial support to third parties are not included in the list of EU restrictive measures.

This check needs to be performed prior to contract signature and prior to every payment.

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Guidelines

1(7)  The coordinator shall:

a) monitor that the action is implemented in accordance with this contract and ensure coordination with all beneficiary(ies) in the implementation of the action;

b) be the intermediary for all communications between the beneficiary(ies) and the contracting authority;

c) be responsible for supplying all documents and information to the contracting authority which may be required under this contract, in particular in relation to the narrative reports and the requests for payment. Where information from the beneficiary(ies) is required, the coordinator shall be responsible for obtaining, verifying and consolidating this information before passing it on to the contracting authority.

Any information given, as well as any request made by the coordinator to the contracting authority, shall be deemed to have been given in agreement with all beneficiary(ies);

d) inform the contracting authority of any event likely to affect or delay the implementation of the action;

e) inform the contracting authority of any change in the legal, financial, technical, organisational or ownership situation of any of the beneficiary(ies), as well as, of any change in the name, legal representative, or postal and electronic address of any of the beneficiary(ies); this last obligation shall continue to apply in the period of five years following the payment of the balance or in the absence of such payment, the transaction. This period shall be three years where the funding is of an amount lower than or equal to EUR 60 000;

f) be responsible in the event of audits, checks, monitoring or evaluations, third party assessment, as described in Article 16 for providing all the necessary documents, including the accounts of the beneficiary(ies), copies of the most relevant supporting documents and signed copies of any contract concluded according to Article 10;

g) have full financial responsibility for ensuring that the action is implemented in accordance with this contract;

h) make the appropriate arrangements for providing the financial guarantee, when requested, under the provisions of Article 4(2) of the special conditions;

i) establish the payment requests in accordance with this contract;

j) be the sole recipient, on behalf of all of the beneficiary(ies), of the payments of the contracting authority. The coordinator shall ensure that the appropriate payments are then made to the beneficiary(ies) without unjustified delay;

k) not delegate or subcontract any, or part of, these tasks to the beneficiary(ies) or other entities.

Where there is only one beneficiary, this beneficiary will assume — by nature — the role of the coordinator.

h) Given that the financial responsibility vis-à-vis the contracting authority is on the coordinator, any eventual financial guarantee must therefore be made on the name of the coordinator.

k) This only relates to the obligations vis-à-vis the contracting authority and is without prejudice to the internal arrangements between the beneficiaries.

1(8) Where the special conditions contain a provision on entities affiliated to a beneficiary, costs incurred or results achieved by such entity may be eligible, provided that they satisfy the same conditions under Articles 14, 14bis, and that the beneficiary ensures that Articles 3, 4, 5, 6, 7, 8, 10 and 16 are also applicable to the entity. References in Articles 11 and 12 to the beneficiary(ies) are to be understood as referring to affiliated entity(ies) too.

Only the lead applicant and co-applicants will become beneficiaries and parties to the contract.

For further information on the notion of affiliated entities see Section 6.1.2 of the Practical Guide.

‘Family organisations’

Family organisations comprise a network of entities operating within a confederation, federation or alliance, such as an international NGO family, with shared systems, structure and expertise and an integrated operational presence (field offices/ country offices). Examples are PLAN International, WWF or CARE.

Whether or not the members of the relevant network have a link that would allow them to apply as affiliated entities has to be assessed on a case-by-case basis. Whereas the field offices of some family organisations lack legal personality (that means that the field office could neither participate in an action as affiliated entity nor as beneficiary) organisations such as Médecins Sans Frontiers (where 24 associations are members of MSF International) have a structure that would allow for their members to participate as affiliated entities.

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Guidelines

2(1) The beneficiary(ies) shall provide the contracting authority with all required information on the implementation of the action, both during its implementation and at the end. The report shall describe the implementation of the action according to the activities envisaged, difficulties encountered and measures taken to overcome problems, eventual changes introduced, as well as the degree of achievement of its results (impact, outcomes or outputs) as measured by corresponding indicators. The report shall be laid out in such a way as to allow monitoring of the objective(s), the means envisaged or employed and the budget details for the action. The level of detail in any report should match that of the description of the action and of the budget for the action. The coordinator shall collect all the necessary information and draw up consolidated interim and final reports. These reports shall consist of a narrative and a financial report drafted using the templates provided in Annex VI that shall:

a) cover the action as a whole, regardless of which part of it is financed by the contracting authority;

b) provide a full account of all aspects of the action’s implementation for the period covered, including in case of simplified cost options or financing not linked to costs, the qualitative and quantitative information needed to demonstrate the fulfilment of the conditions and/or results established in this contract;

c) include the current results within an updated table based on the logical framework matrix, including the results achieved by the action (impact, outcomes or outputs) as measured by their corresponding indicators; agreed baselines and targets, and relevant sources of verification;

d) determine if the intervention logic is still valid and propose any relevant modification including regarding the logical framework matrix, without prejudice to Article 9;

e) be drafted in the currency and language of this contract. In case of expenditure in other currencies, it shall detail the rates used in accordance with Articles 2.5 to 2.7 or any derogation set in the special conditions;

f) include any update on the communication plan, if such a plan has been requested by the European Commission, as provided by Article 6(2);

g) include any relevant reports, publications, press releases and updates related to the action;

h) include any update on the self-evaluation questionnaire on sexual exploitation, abuse and harassment (SEA-H) or on the related list of envisaged measures indicated therein and submitted before contract signature.

The coordinator is the sole interlocutor of the contracting authority and is responsible for collecting all the necessary information for drawing up consolidated reports. The coordinator is therefore responsible for obtaining, verifying and consolidating this information before passing it on to the contracting authority. All beneficiaries agree that any information given, as well as any request made by the coordinator to the contracting authority, must be deemed in agreement with all beneficiaries. The coordinator may not justify shortcomings in reporting by invoking mistakes of co-beneficiaries and has full responsibility for the reports or information submitted to the contracting authority (ref. Article (1)(7)(c)).

The reporting templates (narrative & financial, interim & final) attached to the contract as Annex VI have to be used.

The period covered by the narrative report must match with the period covered by the financial report. The period must be clearly stated in the reports.

These reports, both narrative and financial, (as well as audits, expenditure verifications, detailed breakdown of expenditure and third party assessments, where applicable) must cover the whole action as it was presented in the application and accepted by the contracting authority, not only the share financed by the EU contribution.

The final agreed and binding version of the action is described in Annexes I and III that form an integral part of the contract.

The purpose of reports is to explain:

- the results achieved and the related costs identified in the financial report or, in case of financing not linked to costs, only the results achieved;

- the deviations that may have occurred (possibly subject to an amendment in accordance with Article 9) as compared to the initial proposal with regards to results and to means and costs.

As per template, each narrative (interim and final) report has to include an updated logical framework matrix. Taking as basis the Logframe attached to Annex I of the grant contract, at each reporting the beneficiary will update the values of each indicator to date.

Any necessary update/modification of the targets, baselines, sources of verification related to the indicators should be made in the same logframe matrix with due consideration to the rules for amendments.

The contracting authority might ask to provide additional information and background documents as evidence of the  results as reported achieved and/or of the activities reported as performed.

As per templates, it is important the beneficiary keeps in mind the ‘focus on results’ when preparing the reports, in order to provide information on the type of eligible costs incurred and to understand their relation with the results/activities of the action [example: (i) to justify significant amounts featuring in the financial report, (ii) to demonstrate the fulfilment of the conditions for reimbursement in case of simplified cost options, (iii) to provide evidence to the results/indicators achieved featured in the budget in the case of financing not linked to costs].

The narrative report may contain sensitive information, for instance on the beneficiaries’ evaluation of the collaboration with local authorities. When the contracting authority is not the European Commission and if some information needs to be kept confidential, the coordinator must request it as soon as possible and come to an arrangement with the contracting authority on the parts concerned.

Moreover, with regard to the self-evaluation questionnaire on sexual exploitation, abuse and harassment (SEA-H), there is no obligation to submit the updated report if no changes occurred in the state-of-play of SEA-H policy or the envisaged measures of the entity since contract signature. 

The financial reports must have at least the same level of detail as the budget annexed to the contract. Any relevant variation from the budget initially submitted must be explained. Minor changes do not necessarily need to be systematically explained, but beneficiaries must be able to justify them upon request.

The financial reports must be consistent with the records, accounts, and ledgers of the beneficiaries and affiliated entities.

A detailed breakdown of expenditure (for example a nominal ledger) or an expenditure verification report has to be attached, where required in accordance with Article 2(8).

Language and supporting documents.

The reports need to be presented in the language in which the contract was drawn up.

The coordinator may, prior to the signature of the contract, ask for a derogation to be inserted in the special conditions. If justified it may be granted on a case-by-case basis by the contracting authority.

As a general rule, in the case of local languages, no systematic translation of supporting documents (purchase orders, invoices, etc.) is needed. Nevertheless, the intelligibility and translation of key parts of relevant documents should be envisaged to ensure comprehensive internal control and supervision at Commission headquarters or coordination level, as the case may be.

For reporting purposes, when the headings of the financial tables or statements originating directly from the internal reporting are written in another language than the one of the contract (i.e. the language in which the contract was drawn up), a translation in the language of the contract should be provided. This can be done globally in an annex, if it is more convenient for the beneficiaries or improves the readability of the report or document.

No originals or copies of invoices, contracts or order forms have to be attached to the reports. The only exceptions are copies of studies, evaluation or audit reports, or press releases etc. in case the respective costs are being claimed under the direct costs. However, when deemed necessary for assessing the eligibility of costs, the contracting authority may always ask for more specific information (for example copies of supporting documents — no certified copies are usually needed, however originals may be requested during audits or expenditure verifications).

2(2) The report shall include a declaration on honour by the coordinator that the information is full, reliable and true and that the costs declared have been incurred and can be considered as eligible in accordance with this contract.

This provision applies to every grant, regardless of the type of EU contribution (reimbursement of costs or financing not linked to costs).

2(3)  Additionally the final report shall:

a)  cover any period not covered by the previous reports

b)  include the proofs of the transfers of ownership as referred to in Article 7(6).

The final report has to give an overview of last year’s implementation and of the action as a whole for all its duration.

The information on transfers of ownership (where applicable) has to be provided using the template in Annex IX. The copies of the proofs of transfers have to be attached according to Article 7(6).

2(4)  The special conditions may set out additional reporting requirements.

The standard reporting period is intended as a 12-month period, unless specified otherwise.

According to the nature of the action, different reporting requirements (financial or narrative) may be requested by the contracting authority at contract preparation stage. Once agreed upon, they are included in Article 7(2) of the special conditions.

If the different reporting requirements are already known at an earlier stage, the relevant requirements should be included in the special conditions template published with the guidelines for applicants.

2(5) Reports shall be submitted in the currency set out in the special conditions and may be drawn from financial statements denominated in other currencies, on the basis of the beneficiary(ies)'s applicable legislation and applicable accounting standards. In such case and for the purpose of reporting, conversion into the currency set in the special conditions shall be made using the rate of exchange at which each contracting authority's contribution was recorded in the beneficiary(ies)'s accounts, unless otherwise provided for in the special conditions. If at the end of the action, a part of the expenses is pre-financed by the beneficiary(ies) (or by other donors), the conversion rate to be applied to this balance is the one set in the special condition according to the beneficiary(ies)'s usual accounting practice. If no specific provision is foreseen in the special conditions, the exchange rate of the last instalment received from the contracting authority will be applied.

Exchange rate for reporting

This provision applies only to beneficiaries having their accounting in a currency different from the one of the contract (usually EUR, but not in all cases: refer to the special conditions). In the other cases, there is no need to convert currencies as the books of account and the financial report are already in the currency of the contract.

Costs incurred in other currencies than the one used in the beneficiary(ies)’s accounts shall be converted using the monthly InforEuro on the date of payment or according to its usual accounting practices if so provided for in the special conditions. This rule has to be applied to record costs in the beneficiary(ies) accounts. The beneficiary(ies) may request to use a different rate (other than the monthly InforEuro), according to its usual accounting practices, but this has to be agreed with the contracting authority and it has to be provided for in the special conditions. The monthly InforEuro rates are the market rates on the penultimate working day of the previous month quoted by the European Central Bank or, depending on availability, provided by the EU delegations or by other appropriate sources.

The rates are available on the InforEuro website at:

https://commission.europa.eu/funding-tenders/procedures-guidelines-tenders/information-contractors-and-beneficiaries/exchange-rate-inforeuro_en

In order to reduce exchange rate differences and for reporting purposes only, in the case of books of account in a currency other than the one of the contract,  the costs have to be converted using the same exchange rate as that used when each of the contracting authority’s pre-financing payment was recorded in the beneficiary’s(ies’) accounts. This means that when the EU’s contribution is paid in several pre-financing payments, the expenditure incurred will be reported using the exchange rate at which each pre-financing payment was recorded, using the First In First Out (FIFO) method.

There are cases in which the beneficiary, working with a local currency, holds two accounts: one in the currency of the pre-financing (into which the payment of the pre-financing instalment is executed) and one in local currency.

Throughout the general conditions, the term ‘beneficiary(ies)’ refers to the coordinator, the co-beneficiaries and the affiliated entities. The same approach should thus apply when interpreting Article 2(5).

-  The logic that applies when the coordinator receives funds from the EU also applies to the co-beneficiaries and the affiliated entities when they receive funds from the coordinator. In case where the coordinator and the co-beneficiaries use different currencies, there will be a double conversion using the same rule. For example:

  1) EUR are converted in e.g. USD by the coordinator's bank, and reported back in EUR using the rate of exchange at which the EUR transfer was recorded in the coordinator's account.

  2) USD are converted in e.g. RUB or DKK by the co-beneficiaries’ bank and reported back using the rate of exchange at which the USD transfer was recorded in the bank accounts.

For 2) there are two possibilities for reporting, with exactly the same effect:

-  Co-beneficiaries report back to the coordinator in their own accounting currency (RUB or DKK) and the coordinator converts them in USD using the rate at which the funds initially transferred by the coordinator were recorded in the co-beneficiaries accounts. Co-beneficiaries report back to the coordinator in the coordinator accounting currency (USD) after having converted in USD their expenditure incurred in their own accounting currency (RUB or DKK), using the rate at which the USD received from the coordinator were recorded in their accounts.

- The coordinator remains responsible for the financial report and must ensure that conversions are done according to the rules.

Article 2(5) does not oblige the beneficiaries to convert the whole amount of pre-financing received in one go into the local currency account.

Therefore, as long as this can be regarded as the beneficiary’s normal practice (and as long as it would not contradict any applicable legislation), the beneficiary could transfer the amount received and recorded in the EUR account to the account held in local currency in bits, in relation to the level of implementation of the action.

Where the local currency is volatile, proceeding this way could be, in fact, considered more appropriate.

When the pre-financing instalments are converted in bits into local currency, FIFO remains the method to be used for reporting in EUR. The rate of exchange at which each bit of contribution was converted into local currency will have to be used for the application of the FIFO method.

In the case described, there will be several different exchange rates, corresponding to the exchange rate of conversion of each bit of the EUR pre-financing into local currency.

The reporting for the expenditure incurred in local currency should thus use those successive different exchange rates following the FIFO method.

In other terms, more flexibility for coping with e.g. volatility of currencies is ‘paid’ by a more complex financial reporting due to several successive exchange rates.

If the coordinator prefers to apply another currency approach, this must be agreed during contract preparation stage and reflected in the special conditions.

At the time of reporting, this exchange rate will then be used to convert all expenses in the reporting period into the currency of the contract.

The conversion does not have to be done individually for each foreign currency in the accounting nor directly from the currency of expenditure. The rate is applied to the total of each budget line as resulting by the balance of the accounts, and the unit values may be derived accordingly.

Example: pre-financing payment of EUR 100 000 recorded as USD 120 000 in the beneficiary’s accounts.

At the end of the reporting period, the financial report drawn from financial statements denominated in USD amounts to USD 90 000. The report sent to the contracting authority will amount to EUR 75 000.

If there is a carry-over balance from a prior pre-financing, the expenditure is first converted into Euro using the exchange rate used when this prior pre-financing was recorded, until exhaustion of this balance. Then, the exchange rate of the following instalment will be used.

Toward the end of the action it often happens that the beneficiary(ies) incurs costs with its own money i.e. not related to any of the instalment of pre-financing received by the EC (that have been already fully used). When converting this amount (amount pre-financed by the beneficiary(ies)) into EUR for reporting, the beneficiary(ies) will use a conversion rate previously established in the special conditions according to its accounting practice. If no specific provision has been established, the exchange rate of the last instalment received from the contracting authority will be applied also to the amount pre-financed by the beneficiary(ies).

2(6) Unless otherwise provided for in the special conditions, costs incurred in other currencies than the one used in the beneficiary(ies)'s accounts for the action shall be converted according to its usual accounting practices, provided they respect the following basic requirements: (i) they are written down as an accounting rule, i.e. they are a standard practice of the beneficiary, (ii) they are applied consistently, (iii) they give equal treatment to all types of transactions and funding sources, (iv) the system can be demonstrated and the exchange rates are easily accessible for verifications.

Exchange rate for accounting

This rule has to be applied to convert costs incurred in other currencies than the one used in the beneficiaries’ or affiliated entities’ accounts for the action.

In order to further reduce exchange rate differences and to align as much as possible to the beneficiaries and/or affiliated entity(ies)’s accounting practices, they may use their usual accounting practices, provided they respect the conditions listed in Article 2(6). As a general rule, the accounting practices of the beneficiaries for the conversion have to respect the following basic requirements:

- they are written down as an accounting rule, i.e. they are a standard practice of the beneficiaries or affiliated entities;

- they are applied consistently;

- they give equal treatment to all types of transactions and funding sources;

- the system can be demonstrated and the exchange rates are easily accessible for verifications.

For verification purposes, the exchange rate used for recording expenses in the accounts, together with the generated value, should be stamped on the original documents. In any case the beneficiaries must be able to demonstrate it and the accounting system allow for easy verification of the rates used and how the conversion is operated.

In case the accounting practices of any of the beneficiaries or affiliated entities do not comply with the above conditions (Article 2(6)), a conversion rate has to be established using the specific clause in the special conditions.

There is no specific definition of an exceptional exchange rate fluctuation.

Depending on the impact of the fluctuation on the implementation of the action, different remedial actions may be envisaged:

a) restructuring of the action — for example, one project component could be removed/modified

b) suspension or termination of the contract

c) use of the contingency reserve

Refer also to Article 14(5) for the use of the contingency reserve

2(7) If the costs were contracted, invoiced or paid directly in the currency set in the special conditions, the beneficiary(ies) declare them as such irrespective of the currency in which it keeps its accounts.

2(8) The coordinator must submit a contractual expenditure verification report and/or detailed breakdown of expenditure in accordance with the following provisions. This obligation does not apply to the part of the action supported by way of financing not linked to costs. For the purposes of application of the thresholds laid down in Articles 3.6 and 3.7, where the grant takes the form of reimbursement of costs and financing not linked to costs, the threshold is to be applied to the part of the action taking the form of reimbursement of costs.

For the actions making use of financing not linked to costs, refer to Article 2(11) on third party assessment.

2(9) The coordinator must provide a contractual expenditure verification report as follows:

• together with the interim report(s) in case of grants of EUR 5 000 000 or more;

a)  together with the final report in the case of a grant of more than EUR 100 000.

The contractual expenditure verification report shall conform to the model in Annex VII-A and shall be produced by a practitioner approved by the contracting authority. The practitioner shall meet the requirements set out in the terms of reference for the contractual expenditure verification in Annex VII-A.

The practitioner shall examine whether the costs declared by the beneficiary(ies) and the revenue of the action are real, accurately recorded and eligible under this contract. The contractual expenditure verification report shall cover all expenditure not covered by any previous contractual expenditure verification report.

Where the coordinator is a government department or a public body, the contracting authority may accept to substitute the contractual expenditure verification with a detailed breakdown of expenditure.

The contractual expenditure verification report shall not be provided by the coordinator if the verification is directly done by the contracting authority's own staff, by the European Commission or by a body authorised to do so on their behalf, according to Article of 5.2 of the special conditions.

The contracting authority may decide to perform the expenditure verification by its own means or by commissioning a third party. In such case this shall be indicated in Article 5 of the special conditions.

Expenditure verification report (EVR)

The terms of reference and template for the expenditure verification report set out in Annex VII-A of the contract are compulsory for all actions, where an EVR is requested.

When the grant is more than EUR 5 000 000, an expenditure verification report, covering the entire project accounts (EU, other donors and the beneficiaries' contributions) and produced by an approved practitioner, must be submitted together with each interim and final report . When the grant is less than EUR 5 000 000 but above EUR 100 000, then the EVR must be submitted only with the final report.

Each expenditure verification report must cover all expenses incurred since the end of the previous reporting period and not covered by the previous expenditure verification report.

For the avoidance of doubt, ‘grant’ refers to the amount of the EU contribution and not to the total eligible costs of the action.

As a general rule, it is up to the Coordinator to contract the audit firm (in accordance with Annex IV), which must be a member of an internationally recognised supervisory body of statutory auditors (for more details refer to Annex VII-A). The name of the auditor is indicated in Article 5 of the special conditions of the contract and may be changed through a written notification only pursuant to Article 9(4). Therefore the name of the auditor should be communicated prior to contract signature, during contract preparation stage.

However, in some cases the contracting authority might have its own audit and/or verification system, in order to ensure an appropriate degree of quality and reliability of the verification. For instance, for the EVR they could require the coordinator to use one specific audit firm (or one out of a pool) that has been previously selected in conformity with the applicable procurement rules. If this is the case, specific instructions are inserted in Section 2.1.4 of the guidelines for applicants (e.g. name or list of auditors, pre-negotiated prices, details for the verification etc.).

When the expenditure verification is required by the contract, the related expenditure constitutes an eligible cost of the action.

The verification may also be done directly by the contracting authority's own staff, by the Commission, or by a body authorised to do so on their behalf. This option is specified in Section 2.1.4 of the guidelines for applicants and formalised in Article of 5(2) of the special conditions.

The auditors should not limit themselves to vague declarations that they have verified the eligibility of the costs, they have to declare explicitly that they certify that these costs are ‘real, accurate and eligible’, i.e. adopt a stricter, specific and not ambiguous formulation.

Where the coordinator is a government department or a public body, the contracting authority may accept to substitute the EVR with a DBE, though it must ensure conformity with the same frequency prescribed above for the EVR.

Example: Public body and grant of EUR 6 000 000: the DBE has to be presented with every interim report and with the final report.

Where a co-beneficiary is an international organisation that has successfully passed a pillar assessment it may decide to substitute the expenditure verification report and/or the detailed breakdown of expenditure for the part of incurred expenditure of the action that is implemented by it by a management declaration confirming that during the period covered by the report the contribution has been used and accounted for in compliance with the systems and rules positively assessed in the pillar assessment and with the obligations laid down in the contract (see Annex e3h11).

In case an expenditure verification report is required by the contractual conditions (Contractual Expenditure Verification-CEV), this is to be performed on the basis of Agreed-Upon Procedures (AUP). Its objective is to provide the Contracting Authority with factual findings to be able to assess that the costs and revenue declared by the Coordinator in the financial report on which the payment request is based are real, accurately recorded and eligible in accordance with the grant agreement.

2(10) For grants of more than EUR 100 000 but less than EUR 5 000 000, a detailed breakdown of expenditure covering the preceding reporting periods not already covered, shall be provided with every report. The detailed breakdown of expenditure shall provide the following information for each cost heading in the financial report and for all underlying entries and transactions: amount of the entry or transaction, any conversion in the currency of the contract and exchange rate used, accounting reference (e.g. ledger, journal or other relevant reference) description of the entry or transaction (detailing the nature of the expenditure) and reference to underlying documents (e.g. invoice number, salary slip or other relevant reference), as well as to the budget line concerned, in line with Articles 16.2 and 16.3. It shall be provided in electronic form and spreadsheet format (excel).

The final report shall in all cases include a detailed breakdown of expenditure covering the whole action.

Detailed breakdown of expenditure (DBE)

For grants up to EUR 5 000 000 and above EUR 100 000, an expenditure verification report covering the entire implementation period and project accounts (EU, other donors and the beneficiary's contributions) is only required to be submitted along with the final report but a detailed breakdown of expenditure has to be provided with every report.

There is no standard template for the detailed breakdown of expenditure. However, the information should be  detailed enough for the underlying transaction to be easily understood. In addition, it should be presented per budget line and allow an easy traceability of the related documents (audit trail). The addition of the amounts for each line should be equal to the related amount in the financial report presented. The total addition of the transaction list should be equal to the total direct cost claimed.

The coordinator has the obligation to provide a transaction list unified. She/he must present a single transaction list in cases where each co-beneficiary keeps the accounts for the expenditure related to the actions or activities under their responsibility.

This information should be easily derived from the accounting documents (ex. nominal ledger or T accounts). Therefore, when derived directly from the accountancy, amounts may be in the currency of the accountancy. When the amounts are expressed in a currency other than EUR the exchange rate has to be specified. It must be provided in electronic form and spread sheet format (excel or similar) whenever possible.

The DBE is submitted by the beneficiary together with the financial report and not anymore with the payment request.

The declaration on honour supporting the DBE is already included in the narrative and financial reports. By signing them, the coordinator declares on its honour that all the information provided is full, reliable and true and that the costs declared have been incurred and can be considered as eligible in accordance with the provisions of the contract.

Grant

> EUR 5 Mil

EVR

covering the preceding reporting periods not already covered

EVR

covering the preceding reporting periods not already covered

EVR

covering the preceding reporting periods not already covered

EVR

covering the preceding reporting periods not already covered

EVR

covering the preceding reporting periods not already covered

EVR

covering the preceding reporting periods not already covered

+ DBE

 covering entire action

Grant

<= EUR 5 Mil

and

> EUR 100 k

- DBE

covering the preceding reporting periods not already covered

DBE

covering the preceding reporting periods not already covered

- DBE

covering the preceding reporting periods not already covered

DBE

covering the preceding reporting periods not already covered

- DBE

covering the preceding reporting periods not already covered

EVR covering entire Action

DBE covering entire Action

Grant

<= EUR 100 k

-

-

-

-

-

DBE covering entire Action

2(11) Unless otherwise agreed in the special conditions, for the part of the action supported by way of financing not linked to costs, the coordinator must submit a third party assessment validating the achievement of results reported along with:

a)  the interim report(s) in case of grants of EUR 5 000 000 or more;

b)  the final report in the case of a grant of more than EUR 100 000.

For the purposes of application of these thresholds, where the grant takes the form of reimbursement of costs and financing not linked to costs, the threshold is to be applied only to the part of the action taking the form of financing not linked to costs.

Please refer to Section 6.5.11 of the practical guide.

Note that, in case the special conditions derogate to the obligation of submitting a third-party assessment, progress and final reports will form the evidence against which payments will be validated.

2(12) The third party assessment shall be contracted by the coordinator to validate the achievement of the results and corresponding pre-agreed indicators based on the specifications indicated in Annex I and III, and shall conform to the ad hoc model in Annex VII-B.

2(13) The contracting authority may decide to perform an assessment of the results by its own means or by commissioning a third party.

2(14) The reporting period is intended as a twelve-month period unless otherwise provided for in the special conditions. When the remaining period to the end of the action is up to 18 months, the reporting period shall cover it entirely.

2(15) Within 60 days following the end of the reporting period, the coordinator shall present an interim report or, if unable to do so, it shall inform the contracting authority of the reasons and provide a summary of progress of the action. This is without prejudice to the possibility to submit a report earlier in accordance with the provisions laid down in Articles 15.1, 15.1bis and 15.1ter.

2(16) The coordinator shall submit the final report to the contracting authority no later than three months after the implementation period as defined in Article 2 of the special conditions. The deadline for submission of the final report is extended to six months where the coordinator does not have its headquarters in the country where the action is implemented.

In multi-country/regional actions managed by a coordinator that has its headquarters in one of the countries of operation, the coordinator may request the deadline of the final report to be extended to 6 months. This should be agreed at the contracting phase or, as a general rule, at the latest 1 month prior to the end of the implementation period, upon request by the coordinator.

2(17) The contracting authority may request additional information at any time. The coordinator shall provide this information within 30 days of the request, in the language of this contract.

The contracting authority has the right to ask for more information on the basis of a justified request, for instance if the submitted reports are not detailed enough.

The contracting authority is entitled to request any additional information it considers necessary throughout the execution period.

Following receipt of such a request the coordinator has 30 days to collect all the necessary information and draw up a consolidated reply.

The additional information, explanations, and contextual information, has to be presented in the language of the contract (i.e. the language in which the contract was drawn up), or in another language accepted by the contracting authority, but the original supporting documents may be in the local language. In the latter case, a translation of the main elements in the language of the contract must be provided upon request of the contracting authority, globally in an annex or in the documents, whichever is more convenient for the beneficiaries and improves the readability of the document.

Article 2(17) should not be used to impose additional reporting obligations on beneficiaries.

2(18) If the coordinator fails to provide any report (including contractual expenditure verification, detailed breakdown of expenditure, and/or third party assessment) or fails to provide any additional information requested by the contracting authority within the set deadline without an acceptable and written explanation of the reasons, the contracting authority may terminate this contract according to Article 12.2 (a) and (f).

The coordinator has to inform the contracting authority of any delay it may have in submitting the reports. If a report is submitted late without justification, the contracting authority has the right to terminate the contract and ask for the reimbursement of the amounts unduly paid.

Bear in mind that the special conditions may also set out additional reporting requirements.

2(19) The contracting authority shall approve the report within 60 days of receipt. However, approval shall be made within 90 days of receipt of the report by the contracting authority in any of the following cases:

a)  one beneficiary with affiliated entity(ies);

b)  if more than one beneficiary is party to this contract;

c)  if the European Commission is not the contracting authority;

d)  for grants of EUR 5 000 000 or more;

e)  for grants taking the form (partly or entirely) of financing not linked to costs as per Article 14bis.

The reports are deemed to be approved if there is no written reply by the contracting authority within the deadlines set above.

Text of the article

Guidelines

3(1)  The contracting authority cannot under any circumstances or for any reason whatsoever be held liable for damage or injury sustained by the staff or property of the beneficiary(ies) while the action is being carried out or as a consequence of the action. The contracting authority cannot, therefore, accept any claim for compensation or increases in payment in connection with such damage or injury.

The fact that the EU (via the contracting authority from the partner country in indirect management) is financially supporting the action does not transfer any responsibility for circumstances resulting from the implementation of the action to the EU or the contracting authority (where the EU is not the contracting authority). This responsibility rests entirely on the beneficiaries.

Where a beneficiary is an international organisation, the liability under Article 3 is subject to the rules governing the organisation's privileges and immunities (see annex e3h11).

Beneficiaries have to ensure that Articles 3(1) and 3(2) also apply to affiliated entities (see Article 1(8)).

3(2)  The beneficiary(ies) shall assume sole liability towards third parties, including liability for damage or injury of any kind sustained by them while the action is being carried out or as a consequence of the action. The beneficiary(ies) shall discharge the contracting authority of all liability arising from any claim or action brought as a result of an infringement of rules or regulations by the beneficiary(ies) or the beneficiary(ies)’s employees or individuals for whom those employees are responsible, or as a result of violation of a third party’s rights. For the purpose of this Article 3 employees of the beneficiary(ies) shall be considered third parties.

The beneficiaries must indemnify and hold harmless the contracting authority against claims, damages, losses and expenses arising out of or resulting from the negligence or misconduct of the beneficiaries in the context of the implementation of the action. Where the rights of employees of the beneficiaries are violated the beneficiaries must be obliged to discharge the contracting authority as well.

Text of the article

Guidelines

4(1)  The beneficiary(ies) shall take all necessary measures to prevent or end any situation that could compromise the impartial and objective performance of this contract. Such conflict of interests may arise in particular as a result of economic interest, political or national affinity, family or emotional ties, or any other relevant connection or shared interest.

A conflict of interest arises where the beneficiary(ies) has the opportunity to put private interests before his professional duties, or merely any event influencing the capacity of the beneficiaries to give an objective and impartial professional opinion.

The rules on prevention and prohibition of conflicts of interest are entirely applicable to implementation contracts and to financial support awarded within the grant.

Beneficiaries have to ensure that Articles 4(1) to 4(11) also apply to affiliated entities (see Article 1(8)).

Regarding the applicability of this article to contractors see also Article 10(2).

4(2)  Any conflict of interests which may arise during performance of this contract must be notified in writing to the contracting authority without delay. In the event of such conflict, the coordinator shall immediately take all necessary steps to resolve it.

During the performance of the contract, the beneficiary(ies) must immediately inform the contracting authority of any arising conflict of interests and measures should be adopted to address situations that may objectively be perceived as a conflict of interest. These measures may include the termination of the contract.

4(3)  The contracting authority reserves the right to verify that the measures taken are appropriate and may require additional measures to be taken if necessary.

Where a co-beneficiary is an international organisation whose pillars have been positively assessed, Articles 4(3) and 4(4) must be applied according to the organisation's rules and regulations positively assessed in the pillar assessment (see Annex e3h11).

4(4)  The beneficiary(ies) shall ensure that its staff, including its management, is not placed in a situation which could give rise to conflict of interests. Without prejudice to its obligation under this contract, the beneficiary(ies) shall replace, immediately and without compensation from the contracting authority, any member of its staff in such a situation.

4(5) The beneficiary(ies) shall at all-time act impartially and as a faithful adviser in accordance with the code of conduct of its profession as well as with appropriate discretion. It shall refrain from making any public statements concerning the action or the services without the prior approval of the contracting authority. It shall not commit the contracting authority in any way whatsoever without its prior consent, and shall make this obligation clear to third parties.

4(6) Physical abuse or punishment, or threats of physical abuse, sexual abuse or exploitation, harassment and verbal abuse, as well as other forms of intimidation shall be prohibited. The beneficiary(ies) shall also inform the contracting authority of any breach of ethical standards or code of conduct as set in the present article. In case the beneficiary(ies) is aware of any violations (including any allegation) of the abovementioned standards, as well as any other violation of human rights (including any allegation), it shall report in writing within 30 days to the contracting authority.

The European Commission applies a zero-tolerance policy regarding all forms of misconduct including sexual exploitation, abuse and harassment by its staff and those of partner organisations receiving EU funds.

In this respect, Article 4(6) covers any form of physical, sexual and psychological conduct as well as any form of verbal abuse and intimidation, including harassment and sexual harassment.

Beneficiary(ies) must immediately report to the contracting authority any allegation of misconduct involving sexual exploitation, abuse and harassment. If the contracting authority is an EU delegation, it must also inform the relevant ‘Finance and Contracts’ unit as well as the central contact point in Headquarters (DG INTPA Directorate R. Security Coordinator).

As a minimum this notification should include the following information about the report/allegation e.g. misconduct category, type and short description. It is for the contracting authority to assess the gravity of the misconduct, taking into account possible remedial measures taken.

These remedial measures may include for instance:

-  the active collaboration with the investigating authorities;

-  the implementation of safeguarding procedures to prevent, respond and manage the harassment/sexual harassment and sexual exploitation and abuse situations, such as: creating internal procedures to address the risk of sexual exploitation and abuse in the beneficiary staff programme, developing a code of conduct with standards that include the sexual exploitation and abuse principles, developing complaints procedures for the staff and other personnel to report incidents, developing internal investigation procedures, ensuring disciplinary actions and sanctions, establishing and implementing a victim assistance mechanism;

-  the evidence of appropriate staff reorganisation measures following the misconduct, such as the dismissal of the employee responsible of the infringement.

Investigations should be completed within an acceptable time frame and the contracting authority should update DG INTPA Directorate R and the appropriate geographical directorate on outcomes and actions taken.

If the contracting authority considers the remedial measures to be not sufficient, it must inform the beneficiary.

These procedures should take into consideration all relevant data protection and confidentiality related requirements. The contracting authorities must treat the related information as ‘special categories of personal data’ and in doing so ensure appropriate confidential storage and handling. To this end, the contracting authorities must have in place appropriate safeguards for the rights of the data subjects concerned, in particular adequate technical and organisational measures to ensure the security and confidentiality of such categories of data, to prevent accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to personal data transmitted stored or otherwise processed. Where the contracting authority is an EU Delegation the measures may, among other, take the form of secure transmission of data via Secure Electronic Mail (SECEM), definition of access rights strictly on a need to know basis, secure storage of paper files in locked cupboards, restricted access to relevant Ares files, secured electronic documents stored in common drives.

4(7) The beneficiary(ies) (including for the avoidance of doubt, its/their staff) must commit to and ensure the respect of basic EU values, such as respect for human dignity, freedom, democracy, equality, the rule of law and human rights, including the rights of minorities.

They shall respect applicable data protection rules and environmental legislation applicable in the country(ies) where the action is taking place and internationally agreed core labour standards, e.g., the ILO core labour standards, conventions on freedom of association and collective bargaining, elimination of forced and compulsory labour, elimination of discrimination in respect of employment and occupation, and the abolition of child labour.

Beneficiaries must respect the values on which the Union is founded, and which are set out in Article 2 of the Treaty on European Union. Furthermore, the Union institutions, bodies, offices and agencies as well as the Member States, when implementing Union law, must respect the fundamental rights enshrined in the Charter of Fundamental Rights of the European Union.

EU values are:

-  Respect for human dignity

-  Freedom

-  Democracy

-  Equality, including women and men, non-discrimination

-  Rule of law

-  Respect for human rights, including rights of persons belonging to minorities

-  Pluralism, tolerance, justice, solidarity.

Accordingly, there can be no discrimination based on sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation during the implementation of the action or work programme.

4(8) The beneficiary(ies) or any related person shall not abuse of its entrusted power for private gain. The beneficiary(ies) or any of its (sub)contractors, agents or staff shall not receive or agree to receive from any person or offer or agree to give to any person or procure for any person, gift, gratuity, commission or consideration of any kind as an inducement or reward for performing or refraining from performing any act relating to the performance of this contract or for showing favour or disfavour to any person in relation to this contract. The beneficiary(ies) shall comply with all applicable laws and regulations and codes relating to anti-bribery and anti-corruption.

4(9) The payments to the beneficiary(ies) under this contract shall constitute the only income or benefit it may derive in connection with this contract, with the exception of revenue generating activities. The beneficiary(ies) and its/their staff must not exercise any activity or receive any advantage inconsistent with their obligations under this contract.

4(10) The execution of this contract shall not give rise to unusual commercial expenses. Unusual commercial expenses are commissions not mentioned in this contract or not stemming from a properly concluded contract referring to this contract, commissions not paid in return for any actual and legitimate service, commissions remitted to a tax haven, commissions paid to a recipient who is not clearly identified or commission paid to a company which has every appearance of being a front company. The contracting authority and the European Commission may carry out documentary or on-the-spot checks they deem necessary to find evidence in case of suspected unusual commercial expenses.

The contracting authority could declare ineligible any abnormal high price charged to the action while buying goods or contracting services. In this situation, the overprice paid could be considered ineligible if the beneficiaries does not provide an acceptable justification.

4(11) The respect of the code of conduct set out in the present Article constitutes a contractual obligation. Failure to comply with the code of conduct is always deemed to be a breach of the contract under Article 12 of the general conditions. In addition, failure to comply with the provision set out in the present Article can be qualified as grave professional misconduct that may lead either to suspension or termination of this contract, without prejudice to the adoption of administrative measures, including exclusion from participation in future contract award procedures. In case of breach of Article 4.6, the contracting authority will take into consideration, amongst others, the information contained in the self-evaluation questionnaire on sexual exploitation, abuse and harassment (SEA-H) and in the related list of envisaged measures indicated therein and submitted before contract signature and any updates included in the reports.

The grave professional misconduct covers not only the misconduct related to offensive behaviours as defined in the ‘zero tolerance’ clause (Article 4(6)), but also any wrongful conduct that has an impact on the professional credibility of the contractor and denoting a wrongful intent or gross negligence.  

Text of the article

Guidelines

5(1)  Subject to Article 16, the contracting authority and the beneficiary(ies) undertake to preserve the confidentiality of any information, notwithstanding its form, disclosed in writing or orally in relation to the implementation of this contract and identified in writing as confidential until at least 5 years after the payment of the balance.

Beneficiaries have to ensure that articles 5(1) to 5(3) also apply to affiliated entities (see Article 1(8)).

5(2)  The beneficiary(ies) shall not use confidential information for any aim other than fulfilling their obligations under this contract unless otherwise agreed with the contracting authority.

5(3)  Where the European Commission is not the contracting authority it shall still have access to all documents communicated to the contracting authority and shall maintain the same level of confidentiality.

Text of the article

Guidelines

6(1)  Unless the European Commission agrees or requests otherwise, the beneficiary(ies) shall take all necessary steps to publicise the fact that the European Union has financed or co-financed the action. Such measures shall comply with the latest Communication and Visibility requirements for EU-funded external action, laid down and published by the European Commission or with any other guidelines agreed between the European Commission and the beneficiary(ies).

The general purpose of these Requirements for Visibility and Communication is to ensure that any communication on EU-funded external actions is consistent with the Union’s values and political priorities and with other EU-related communication activities and events.

The Requirements for Visibility and Communication can be found at: Communication and Visibility Requirements for EU External Actions | International Partnerships (europa.eu). This document describes the partners’ legal obligations and the mandatory elements of the communication and visibility measures that must accompany all EU-financed external actions. Unless the agreements and contracts concerned explicitly provide otherwise, it therefore constitutes a contractually binding framework applicable to all contracts (including those concluded with subcontractors) that refer to the Requirements, irrespective of the contracting authority.The text includes links to accompanying documents that provide additional guidance.

Beneficiaries can request a derogation from the visibility and, if applicable, communication obligations in special circumstances and notably in situations where a high profile could put the staff employed in the action at risk. Any request for derogation from the visibility obligations listed in Article 6 must be agreed with the contracting authority in the special conditions and included in the communication plan, where the latter has been requested by the European Commission.

For indirect management: In order to apply a derogation the contracting authority has to obtain the European Commission’s prior authorisation. This authorisation is generally granted by endorsing the respective contract including the special conditions with the modifications.

Different guidelines have, for example, been agreed with the UN and the World Bank.

Where a beneficiary is an international organisation, additional rules on the use of logos and emblems apply (see Annex e3h11).

Beneficiaries have to ensure that Articles 6(1) to 6(5) also apply to affiliated entities (see Article 1(8)).

6(2)  Upon request of the European Commission, the coordinator shall submit a communication plan for the approval of the European Commission and report on its implementation in accordance with Article 2.

It is worth noting that the provision of a communication plan has become the exception, while unless otherwise provided in the special conditions, ensuring visibility remains the norm. The visibility and communication plan has to be submitted for the approval of the project manager at the latest during the inception phase. Guidance can be found in Section 2(3) of the Communication and Visibility Requirements or, where applicable, in other guidelines agreed upon between the beneficiaries and the European Commission.

The communication plan has to contain a budget for the visibility, even for small projects.

A section on the visibility and communication activities has to be included in all interim and final reports.

6(3)  In particular, the beneficiary(ies) shall mention the action and the European Union’s financial contribution in information given to the final recipients of the action, in its internal and annual reports, and in any dealings with the media. It shall display the European Union logo wherever appropriate.

The use of the EU’s logo is encouraged as often as possible. The EU’s contribution should also be mentioned in internal reports, annual reports, and to the media, where appropriate.

The logo and the sentence mentioned in Article 6(4) must be included in all publications produced in the framework of the action supported by the EU: that is to say both if the publications are paid with the EU grant money or if they are produced using the beneficiary’s own funds or co-financing funds provided by third parties.

The logo information can be found at the Communication and Visibility Requirements website: Communication and Visibility Requirements for EU External Actions | International Partnerships (europa.eu)

6(4)  Any notice or publication by the beneficiary(ies) concerning the action, including those given at conferences or seminars, shall specify that the action has received European Union funding. Any publication by the beneficiary(ies), in whatever form and by whatever medium, including the internet, shall include the following statement: ‘This document has been produced with the financial assistance of the European Union. The contents of this document are the sole responsibility of < beneficiary(ies)’s name > and can under no circumstances be regarded as reflecting the position of the European Union.

All publications financed by the EU must contain the standard disclaimer set out in Article 6(4). More details can be found in Section 5.3 of the Communication and Visibility Requirements or, where applicable, in other guidelines agreed upon between the beneficiaries and the European Commission.

6(5)  The beneficiary(ies) acknowledges that the contracting authority and the European Commission (where it is not the contracting authority) may publish: (i) whether the beneficiary(ies) is a natural or legal person; (ii) the full legal name in case of legal person and their VAT identification number or tax identification number where available or another unique identifier established at country level, the first and last name of the recipient in the case of a natural person; (iii) the locality of the beneficiary(ies), namely the address in case of legal persons or region on NUTS2 level or third country for natural persons; (iv) the amount of the grant (split per beneficiary); (v) the nature and purpose of the contract.  This publication may be waived where disclosure would risk threatening the rights of the beneficiary(ies) or harming their commercial interests.

In order to obtain a derogation from the publication of this information, the coordinator must submit a justified written request to the contracting authority before the signature of the contract.

6(6)  The Parties will consult immediately and endeavour to remedy any detected shortcomings in implementing the visibility and, if applicable, communication requirements set out in this Article and in the special conditions. Failure to perform the obligations set out in this Article and in the special conditions can constitute a breach of contractual obligations and can lead to corresponding measures taken by the Contracting Authority, including suspension of payment as stated in Article 15.5. and/or a reduction of the final payment as stated in Article 17.2.

Failure to follow the contractual provisions on visibility and, if applicable, communication may be a ground for termination according to Article 12.2, suspension of the period for payments in accordance with Article 15.5(h) or reduction of the grant in accordance with Article 17.3.

Text of the article

Guidelines

7(1)  Unless otherwise stipulated in the special conditions, ownership of, and title and intellectual and industrial property rights to, the action's results, reports and other documents relating to it will be vested in the beneficiary(ies).

By default, the beneficiaries own any intellectual or industrial right developed in the course of the action such as patents, trademarks, copyright etc. However, the contracting authority and the Commission must be granted a non-exclusive right to use, free of charge, all of the results, reports and other documents produced in the course of the action.

7(2)  Without prejudice to Article 7(1), the beneficiary(ies) grant the contracting authority (and the European Commission or the Partner country where it is not this contracting authority) the right to use freely and as it sees fit, and in particular, to store, modify, translate, display, reproduce by any technical procedure, publish or communicate by any medium all documents deriving from the action whatever their form, provided it does not thereby breach existing industrial and intellectual property rights.

Where material includes existing rights of third parties that might limit the contracting authority’s (and, where applicable, the European Commission’s and the Partner country’s) right to use the material, the coordinator must inform the contracting authority without delay. Notwithstanding the foregoing, beneficiaries have to ensure that they have the necessary rights to implement the action (see Article 7(3) below).

7(3)  The beneficiary(ies) shall ensure that it has all rights to use any pre-existing intellectual property rights necessary to implement this contract.

7(4)  In case natural, recognisable persons are depicted in a photograph or film, the coordinator shall, in the final report to the contracting authority, submit a statement of these persons giving their permissions for the described use of their images. The above does not refer to photographs taken or films shot in public places where random members of the public are identifiable only hypothetically and to public persons acting in their public activities.

7(5) Unless otherwise clearly specified in the description of the action in Annex I, the equipment, vehicles and supplies paid for by the budget for the action shall be transferred to the final beneficiaries of the action, at the latest when submitting the final report.

If there are no final beneficiaries of the action to whom the equipment, vehicles and supplies can be transferred, the beneficiary(ies) may transfer these items to:

-  local authorities

-  local beneficiary(ies)

-  local affiliated entiy(ies)

-  another action funded by the European Union

-  or, exceptionally, retain ownership of these items.

In such cases, the coordinator shall submit a justified written request for authorisation to the contracting authority, with an inventory listing the items concerned and a proposal concerning their use, in due time and at the latest with the submission of the final report.

In no event may the end use jeopardise the sustainability of the action or result in a profit for the beneficiary(ies).

In every circumstance, the final owner shall use the equipment, vehicles and supplies paid for by the budget for the action in compliance with EU values referred to in Article 4.

The principle to keep in mind is to transfer the items procured with the budget of the action (and therefore also with co-financing funds) to the entities that are in the best position to use them efficiently for the sustainability of the action once it ends, or for any other purpose agreed with the contracting authority.

The preferred option is a transfer to the final beneficiaries of the action who, as a requisite, must be identifiable and have legal personality (as for example a school or a hospital).

If the above option is not feasible, the items may be transferred to the other entities mentioned in the second paragraph of Article 7(5) or to another action funded by the EU. There is no order of preference in this regard. The transfer must occur at the latest when submitting the final report.

Only where none of the aforementioned options is available, may the items exceptionally be kept by non-local beneficiaries or non-local affiliated entities themselves.

Any item that is not transferred by the beneficiaries before the end of the action must be considered as ineligible expenditure.

The information on transferring ownership of the aforementioned items must be provided in accordance with the templates provided for in Annex IX of the special conditions. Where the items are transferred to another action funded by the EU the beneficiaries must provide the relevant information in the final report.

If a transfer of the items is not possible or feasible and the further use of the items by the concerned beneficiary does not help to achieve a EU policy objective, the eligible expenses to be reimbursed must be reduced pro rata taking into account the depreciation of the items in the course of the implementation of the action (see also Article 14(4)(d)).

If the beneficiaries and the contracting authority agree to transfer the items to another action supported by EU funds the beneficiaries must be reimbursed all costs incurred for the transfer.

When the equipment is transferred to another project financed by the EU, two options are possible in terms of costs:

1) The full cost is supported by the 1st project and no cost of purchase can be charged on the 2nd project;

2) The cost for the purchase is reduced under the 1st project (depreciation cost only) and the residual is charged on the 2nd project.

Where the description of the action already foresees that items will be transferred to other entities than final beneficiaries or may be kept by the beneficiaries/affiliated entities the contracting authority has approved this approach by signing the contract and a separate written request is not necessary. In this case also, if the further use of the items does not help to achieve a EU policy objective, the eligible expenses to be reimbursed must be reduced pro rata taking into account the depreciation of the items in the course of the implementation of the action.

If the need for modification arises later (i.e. after the signature of the contract it turns out that a transfer to the final beneficiaries is not feasible), a justified written request for prior authorisation has to be submitted to the contracting authority. An amendment to the contract is not necessary in this case.

Where a beneficiary is an international organisation, and the action funded by the EU contributes to a larger action, the organisation may transfer the equipment, vehicles and supplies paid by the budget of the action to this larger action. In such case, the organisation must submit an inventory listing the items concerned and their use with the submission of the final report. The visibility requirements regarding the equipment, vehicles and supplies must continue to apply at least until the end of the larger action (see Annex e3h11).

Where a beneficiary is an international organisation, proofs of transfer of any equipment and goods transferred by the organisation must not be attached to the final report but kept for verification according to Article 16 (see Annex e3h11).

Where a beneficiary may retain ownership of the items, the beneficiary must apply the visibility obligations under the contract as long as the items are used.

7(6) Beneficiaries shall substantiate transfer of any equipment, vehicles and supplies through the form in Annex IX and in accordance with national law. The beneficiaries shall submit together with the final report part A of Annex IX for items with a purchase cost equal to or exceeding EUR 5 000. Part B of Annex IX listing items with a purchase cost below EUR 5 000 shall be kept by the beneficiary(ies) for control purposes in accordance with the record keeping obligations laid down in Article 16.

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Guidelines

8(1) The beneficiary(ies) shall execute the planned activities regarding monitoring and evaluation as described in the description of the action in Annex I. Representatives of the European Commission shall be invited to participate in the main monitoring and in the evaluation exercises relating to the performance of the action performed by the beneficiary(ies). The European Commission shall be invited to comment the evaluation(s) terms of reference before the exercise is launched as well as the draft report(s) before they are finalised.

The beneficiary has to include all the monitoring and evaluation arrangements in Annex I: Description of the action.

8(2) If the European Commission carries out an interim or ex post evaluation or a monitoring exercise, the coordinator shall undertake to provide it and/or the persons authorised by it with the documents or information necessary for the evaluation, monitoring exercise or third-party assessment.

The beneficiaries must provide access to the European Commission or its external monitors to any documents or information relating to the action. This can also be requested after the end of the implementation period.

8(3) If either the beneficiary(ies) or the European Commission carries out or commissions an evaluation or monitoring exercise in the course of the action, including a third-party assessment of the results achieved, it shall provide the other with a copy of the related report. All the evaluation and monitoring reports, including final values for each of the indicators in the logical framework, shall be submitted to the European Commission with the final narrative report (annex VI).

All mid-term and final evaluation reports produced by the beneficiaries throughout the action have to be shared with the European Commission.

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Guidelines

9(1)  Any amendment to this contract, including the annexes thereto, shall be set out in writing. This contract can be modified only before the final payment .

Any amendment of the contract must be done in writing according to the procedures provided for in Articles 9(3) and 9(4). Oral arrangements or an exchange of emails must never legally bind the parties in this regard.

In case of exchanges of emails having contractual implications, staff of the contracting authority should use systematically a disclaimer indicating that the contract can only be modified through an addendum duly signed by both parties.

9(2)  The amendment may not have the purpose or the effect of making changes to this contract that would call into question the grant award decision or be contrary to the equal treatment of applicants. The maximum grant referred to in Article 3(2) of the special conditions shall not be increased.

9(3) If an amendment is requested by the beneficiary(ies), the coordinator shall submit a duly justified request to the contracting authority thirty days before the date on which the amendment should enter into force, unless there are special circumstances duly substantiated and accepted by the contracting authority.

Amendment by addendum

The beneficiary bears the financial risk of any costs incurred before the addendum has been issued, because the contracting authority has the right to refuse to sign the addendum. Only once the addendum enters into force may the beneficiary claim payment for the costs. See PRAG 2.11.4. for more details on the preparation of an amendment. The coordinator must present together with its request, or in response to a demand for clarification by the contracting authority, any document available relating to the proposed amendment.

An amendment must be requested at least 30 days before its planned entry into force. However, whenever possible, as the contracting authority may take longer to assess the amendment, it is recommended to send a request for amendment as early as possible.

The amendment to the contract must be signed by the same parties who signed the initial contract, i.e. the coordinator and the contracting authority.

Extension of the implementation period (see Article 11(1))

This applies when the duration of the Action is extended. A request extending the implementation period of the action may not entail an increase of the EU contribution (no cost extension) and always requires an addendum, in accordance with Article 9(1), and a proper justification, which must not be limited to using the unspent budget balance.

9(4) Where the amendment to the budget does not affect the expected results of the action (i.e. impact, outcomes, outputs), and the financial impact is limited to a transfer between items within the same main budget heading including cancellation or introduction of an item, or a transfer between main budget headings involving a variation of 25% or less of the amount originally entered (or as modified by addendum) in relation to each concerned main heading for eligible costs, the coordinator may amend the budget and must inform the contracting authority accordingly, in writing and at the latest in the next report. This method may not be used to amend any of the following: (i) the amounts for indirect costs, contingency reserve, in-kind contributions, or volunteers’ work; (ii) the amounts or rates of simplified cost options; (iii) the amounts of financing not linked to costs defined in this contract.

Subject to the subparagraph below, changes in the description of the action and the logical framework in Annex I that affect the expected results (impact, outcomes, outputs), or in the budget regarding the global amount for financial support to third parties (within the limit laid down in Article 10.6), shall be agreed with the contracting authority before the modification takes place. Approved changes must be explained in the next report.

Where the grant takes the form of financing not linked to costs, changes in expected results (impact, outcomes, outputs), indicators and targets related to the financing not linked to costs component as reflected in Annex III shall be made pursuant to Article 9.3.

Changes of address or practitioner for the contractual expenditure verification or the entity or person commissioned to carry out the assessment of results referred to in Article 2 may simply be notified by the coordinator. However, in duly substantiated circumstances, the contracting authority may oppose the coordinator’s choice of the practitioner or third party for the assessment of results.

Changes of the bank account require an amendment pursuant to Article 9.3.

Unilateral amendments

The coordinator must inform in writing the contracting authority of any amendment according to Article 9(4) in writing and at the latest in the next report.

However, it is in the interest of the coordinator who bears the financial responsibility for changes that the contracting authority might refuse (see below paragraph) to inform the contracting authority as soon as the need for amendment is identified and if possible prior to any intended changes taking effect to avoid incurring ineligible costs.

Where the amendment to the budget is fully compliant with the conditions listed in Article 9(4), the letter /report sent by the coordinator informing the contracting authority of the amendment is, in itself, sufficient for amending the budget. A specific approval from the Contracting Authority is therefore not necessary.

However, if the contracting authority finds that the conditions listed in Article 9(4) have not been respected, it must inform the coordinator by letter (possibly within 30 days from the receipt of the letter or report of the coordinator) of its decision to refuse the amendment. In such cases the proposed amendment must have no effect and any cost relating to this amendment must be considered as ineligible.

There are generally two kinds of unilateral amendments:

1) Unilateral amendment: budget amendment

The budget attached to the contract must be respected. However, beneficiaries can benefit from a certain flexibility within the budget, as long as the ‘expected results of the action’ are not affected and the change does not call into question the initial award of the grant or the equal treatment of applicants.

The term ‘results’ includes: overall objective (impact), specific objective (outcome), other outcomes and outputs.

In case of doubt, it is strongly recommended to check beforehand with the contracting authority that the proposed modifications do not impact the expected results of the action. As long as the expected results of the action is not affected, beneficiaries can:

- make transfers between items or cancel or introduce new items within the same main budget heading. The term ‘main budget heading’ has to be understood as the numbered budget headings, i.e. the headings number 1 (human resources), 2 (travel), 3 (equipment and supplies), 4 (local offices), 5 (other costs, services) and 6 (other).

- transfer part of the budget from one main budget heading to another (from 1 to 6 for instance) as long as this transfer does not imply a variation (both increase and decrease) of more than 25% of the headings concerned by such transfer.

Unilateral amendments cannot be used to amend the indirect costs, the contingency reserve, in-kind contributions, or the amounts or rates of simplified cost options.

To calculate the amount of the variation it should be noted that:

- the 25% variation is calculated on both the original value of the heading where the funds are taken from and the original value of the heading where the funds are to be added. If a main budget heading has a provision of 100, and it is sought to transfer the maximum allowed amount to another heading, i.e. 25, this will only be possible if the other heading had also a provision of 100 or more. If this other heading had only a provision of 90, it cannot receive a transfer of 25 as this would constitute an increase of more than 25%. In other words, the limit of 25% applies not only to the heading where the money is taken from, but also to the heading intended to receive the transferred amount.

- successive unilateral modifications to the budget must be taken into account in a cumulative way. This means for instance that, if a budget heading was already increased with an unilateral modification by 20% of its initial value (as set out in the original budget of the action or as modified by an addendum), that heading can be further increased by no more than 5% of its initial value (thus reaching in total the limit of 25% of its initial value).

When the cumulative variations of a given budget heading exceed 25% of the budget heading’s value, it is necessary to process a formal budget revision (through an addendum according to Article 9(3)). Without such addendum (to regularize the modification that leads to exceeding the 25%) all costs exceeding the threshold related to that modification would be ineligible.

When informing the contracting authority, a comparative version of the budget with the cumulative changes already made must also be submitted.

Caution should always be used in making any modification to the human resources allocated to the action. In this case and in all doubtful cases, it is advisable to discuss and, if possible, agree in writing with the contracting authority beforehand.

2) Unilateral amendment: changes in the description of the action

Again, unilateral changes in the description of the action and the logical framework that do not affect the expected results (impact, outcomes, outputs) are allowed as long as they do not call into question the initial award of the grant or the equal treatment of applicants.

Unilateral amendments affecting the Description of the Action and the Logical Framework that affect the expected results (impact, outcomes, outputs) are not possible and may lead to a termination of the contract by the contracting authority in accordance with Article 12(2). To avoid termination on this ground an amendment can be agreed on, but only as long as such amendment would not call into question the award decision or violate the principle of equal treatment (see above).

The notification concerning the changes of address or practitioner must be done in writing. A confirmation letter from the contracting authority is not necessary to officialise a change of address, bank account, or auditor. The contracting authority may however oppose the coordinator’s choice for justified reasons notified to the coordinator (where possible) within 30 days from the receipt of the letter of the coordinator.

Unilateral amendments are never possible for grants making use of financing not linked to costs.

Changes related to the bank account are  no longer done through simple notification to the contracting authority, but require a formal amendment.

9(5)  The contracting authority reserves the right to require that the practitioner for the contractual expenditure verification or the third party for the assessment of results referred to in Article 5 of the special conditions will be replaced if considerations which were unknown when this contract was signed cast doubt on their  independence or professional standards.

9(6) In the event of an exceptional exchange-rate fluctuation, the parties shall consult each other with a view to amending the action in order to lessen the impact of such a fluctuation. Where necessary, the contracting authority may take additional measures such as terminating this contract.

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Guidelines

10(1) If the implementation of the action requires the beneficiary(ies) to procure goods, works or services, it shall respect the contract-award rules and rules of nationality and origin set out in Annex IV of this contract.

10(2)  To the extent relevant, the beneficiary(ies) shall ensure that the conditions applicable to them under Articles 3, 4, 6 and 16 of the general conditions are also applicable to the contractors awarded an implementation contract.

In all the implementation contracts awarded, it is important for beneficiaries to insert the relevant clauses to ensure the respect of the obligations stemming from these articles (liability, conflict of interest and code of conduct, confidentiality, visibility and, if applicable, communication, accounts and technical and financial checks).

These obligations for the contractors concerns only the implementation contracts concluded with beneficiaries in the context of the grant contract.

The ‘visibility obligation’ is to be intended as a reminder for the beneficiary — when needed — to insert the necessary requirements in the terms of reference of the contract.

Example: in the framework of a contract for the printing of 1 000 booklets to be distributed, the beneficiary has to require that they display the appropriate visibility.

‘To the extent relevant’ means that not all of the listed articles of the general conditions will be transferred to the contracts with the contractors.

Article 3 applies in full, which means that the contractor must indemnify and hold harmless the contracting authority against claims, damages, losses and expenses arising out of or resulting from the contractor's involvement in the action.

Article 4 applies in full. Where the contractor has to provide information it will provide this information to the beneficiaries who must then forward it to the contracting authority.

For contractors, Article 6(1) means that they have to comply with the rules applicable to contractors as stipulated in latest Communication and Visibility Requirements (Communication and Visibility Requirements for EU External Actions | International Partnerships (europa.eu)) Article 6(2): the contractors do not have to provide a communication plan but they have to assist — where this forms part of the services to be provided — the beneficiary to produce its communication plan, if such a plan has been requested by the European Commission.

Article 6(3) applies in full.

Article 6(4) only applies to contracts for services and supplies.

Article 6(5) applies except for the references to the purpose and amount of the grant.

Articles 16(1) to 16(9) apply in full.

10(3)  The coordinator shall provide in its narrative report to the contracting authority a comprehensive and detailed report on the award and implementation of the contracts awarded under Article 10(1), in accordance with the reporting requirements in Section 2 of Annex VI.

In each interim narrative report and in the final narrative report, beneficiaries have to list all contracts (works, supplies, services) above EUR 60 000 awarded for the implementation of the action during the reporting period, giving for each contract the amount, the name of the contractor and a brief description on how the contractor was selected.

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Guidelines

10(4) Beneficiary(ies) may subcontract tasks forming part of the action. In that case, beneficiary(ies) shall ensure that, in addition to the conditions specified in Article 10(1) to 10(3), the following conditions are also complied with:

- subcontracting does not cover core tasks of the action;

- recourse to subcontracting is justified because of the nature of the action and what is necessary for its implementation;

- the estimated costs of the subcontracting are clearly identifiable in the estimated budget set out in Annex III;

- any recourse to subcontracting, if not provided for in Annex I, is communicated by the beneficiary and approved in advance by the contracting authority.

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Guidelines

10(5) In order to support the achievement of the objectives of the action, and in particular where the implementation of the action requires financial support to be given to third parties, the beneficiary(ies) may award financial support if so provided by the special conditions.

It increasingly happens that the implementation of the action involves the award by beneficiaries of financial support to third parties (FSTP).

Financial support to third parties may be given to natural persons (e.g. allowance, scholarship, fellowship) or legal persons (e.g. non-repayable financial assistance to local NGOs), seed money to start-ups or microcredit, or other forms.

FSTP may be a ‘grant in cascade’ not necessarily following a call for proposals, or a financial contribution of a different nature (see further details below). The persons/entities receiving FSTP are the final recipients of the EU funds. See PRAG 6.8.2.for more details.

For FSTP, the beneficiaries are fully responsible for the implementation of the action in compliance with the contract. This does not mean however that the beneficiaries must recover funds unduly paid to a third party recipient. Nor does it mean that the FS to third parties must take the form of reimbursement of certain costs (with associated eligibility conditions). It is possible, but not compulsory.

It only means that if the conditions set out in the contract for FSTP are not fulfilled, the corresponding costs incurred by the beneficiaries will not be eligible.

• Example: FS is, in accordance with the contract, to be given to local NGOs for teaching activities. The funds received as FS are used by local NGOs for their own promotion. The FS given by the beneficiary is ineligible, the funds incorrectly used will be recovered by the contracting authority from the coordinator (regardless of who is at fault and of whether the coordinator decides to recover that money from the local NGOs or not).

Finally, beneficiaries cannot be exempted from their responsibility on the basis of the argument that the action was not properly implemented due to a failure by the recipients of FS.

As for the visibility obligations, the financial support scheme itself is not an EU action; the beneficiaries are providing the financial support in their own name and under their own responsibility. Therefore the funding should not be presented as directly provided by the EU.

10(6) The maximum amount of financial support shall be limited to EUR 60 000 per each third party, unless otherwise stated in the special conditions, because achieving the objectives of the actions would otherwise be impossible or overly difficult.

The threshold of EUR 60 000 may be exceeded where achieving the objectives of the actions would otherwise be impossible or overly difficult. If, for justified reasons, the threshold of EUR 60 000 is exceeded, this needs to be encoded as an event to be reported.

FSTP is an activity carried out within the contract, and may be implemented by all beneficiaries, as well as affiliated entities, provided that the mandatory conditions stated in the contract are fulfilled. Indeed, the cost eligibility conditions applicable to affiliated entities are the same as those applicable to the beneficiaries. So they may award FS to third parties under the same conditions as beneficiaries (i.e. on the condition that all the minimum elements required in the Description of the Action are respected).

When a beneficiary pays FS on the basis of a ‘global amount’ this amount is not to be considered as simplified cost options in the contract (for the beneficiaries vis-à-vis the contracting authority it is just like any other actual cost incurred — see Article 10(6)).

The guidelines for applicants of the call for proposals may further restrict the conditions for providing FSTP, for instance setting a lower maximum amount.

The guidelines may also foresee limitations or requirements (such as principles for the award procedures for FSTP) that will apply to FSTP under the specific call. For further information, see Section 6.8.2 of the practical guide.

10(7) The beneficiary(ies) shall provide this financial support in accordance with the modalities laid down in the description of the action in Annex I, namely: (i) the persons or categories of persons which may receive financial support; (ii) the criteria for the selection of the third parties recipient of this financial support; (iii) the fixed list of types of activities which may receive financial support; (iv)  criteria for determining the exact amount of financial support.

It is essential for the eligibility of FS, that all these mandatory conditions are strictly defined in the contract (notably in Annex I), in compliance with the guidelines for applicants and with any conditions or restrictions set out.

The eligible categories of persons/entities are not necessarily those eligible under the call for proposals with regard to beneficiaries and affiliated entities: usually the basic acts do not impose any specific nationality rule on recipients of FS. In fact it is the guidelines for a specific call for proposals and/or the contract that will set the relevant criteria, if needed.

The modalities through which the FSTP is granted (e.g. following a call for proposals, direct award, etc.) must also be specified.

It is advised to agree with the beneficiaries in the description of the action on unit or lump sum amounts, together with the criteria for payment of those amounts, rather than on reimbursement of costs, unless justified by the nature of the FSTP (e.g. where the financial support targets a specific activity to be implemented by the third party). Thus, unless otherwise specified in the Grant Agreement, the financial support provided by the beneficiaries may take any form (e.g. a lump sum or the reimbursement of the costs incurred by the recipients when implementing the action. This cost category can only cover financial support. By contrast, cost for non-financial support or support given in-kind (e.g. vouchers) must be declared under other categories (e.g. as cost for purchases of vouchers).

The FSTP may take the form of ‘unconditional cash transfer’ where no specific activities are supported: this should be set forth in the guidelines for applicants.

‘Unconditional’, means that FSTP is given without anything in return, i.e. without any specific result other than helping the final recipients, e.g. support to human right defenders, scholarships to facilitate mobility, allowances to refugees, unemployed, etc. FSTP may even be the primary aim of the action and represent the core activity per se. It is not an issue provided the objective of the action clearly requires this type of financial support to third parties. Cash transfers are allowed provided the beneficiaries can prove payment (for example a paper from the recipient acknowledging receipt of the cash amount), since the costs must be verifiable to be eligible.

NB. ‘Unconditional’ does not mean that the conditions for giving financial support are not established in the contract. This would not be acceptable.

‘Conditional’ transfers are also possible (e.g. seed money to a micro-enterprise subject to establishment of favourable working conditions or recruitment of women). If a call allows financial support to third parties, directly or via implementing partners, in repayable form such as (micro)loans or other financial instruments with a long-term character that exceed by their nature the duration of the action and the grant contract, Annex 1 must provide for specific conditions on cost eligibility and acceptance.

10(8) The coordinator shall provide in its narrative and financial report to the contracting authority a comprehensive and detailed description of the award and implementation of any financial support given, including: (i) the selection procedure, (ii) the recipients (categories of recipients in case of natural persons, or full legal name of recipients in case of legal persons); (iii) the amount of the legal commitments signed and payments made (detailing any pre-financing or advance made); (iv) the results achieved; (v) the problems encountered and solutions found; (vi) the activities carried out as well as a timetable of the activities which still need to be carried out.

Keep in mind that the FSTP is justified if given to support the achievement of the objectives of the action.

The FSTP has to be necessary for the implementation of the action and embedded in its design.

Refer to Article 16(3) on supporting documents.

The FSTP must be clearly identifiable in the budget under heading 6 ‘Other’, sub-heading ‘FSTP’.

For costs eligibility purpose:

The costs must be incurred in the period set in the Special conditions. The generating event that triggers the costs must take place during the action duration. This applies to both the action that is taken by the beneficiary or by third parties.

If costs are invoiced or paid later than the end date, they are eligible only if the debt existed already during the action duration (supported by documentary evidence) and the final cost are known at the moment of the final report.  this sentence should be cautiously understood at FSTP level, given the financial consequences of eventual recoveries that the beneficiary might apply to the third party in case the activities under FSTP are not finalised or correctly implemented in the end. You should try to avoid these risks and ensure that the FSTP costs are real costs for the activities implemented, by making sure that these activities are rather taking place during the implementation period of the main grant contract.

10(9)  To the extent relevant, the beneficiary(ies) shall ensure that the conditions applicable to them under Articles 3, 4 (except for 4.5, 4.9, 4.10), 6 and 16 of these general conditions are also applicable to third parties awarded financial support.

The third parties receiving financial support from the beneficiaries are not subject to the same eligibility criteria as those applicable to beneficiaries and affiliated entities under the call for proposals.

Likewise, the FS granted to those third parties is not subject to the general principles applicable to grants, and the conditions for calculating the exact amount do not necessarily encompass the no-profit principle (i.e. there may be a case where the no-profit check is appropriate, or it may be not: this has to be specified in the call for proposals and/or the contract).

FSTP should be conceived in such a way as to be an efficient and easy tool for the achievement of the purpose of the action.

This does not exempt the need to define in the contract the categories of persons or entities who may receive FS from the beneficiaries and the maximum amount of FS together with the way the exact amount is calculated (see above Article 10(5)).

‘To the extent relevant’ in Article 10(9) means that not all of the listed Articles of the general conditions will be transferred exactly to the contracts with all recipients. The beneficiaries must ensure that their contractual obligations regarding liability, conflict of interest, confidentiality and security, ethics, visibility, specific rules for carrying out the action, information, record-keeping also apply to the third parties receiving the support (recipients) when they deem it necessary depending on the nature of the FSTP.

The beneficiaries must however ensure that the bodies mentioned in Article 16.6 to 16.9 can exercise their rights also towards the recipients.

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Guidelines

11(1)  The coordinator shall inform the contracting authority without delay of any circumstances likely to hamper or delay the implementation of the action. The coordinator may request an extension of the action’s implementation period as laid down in Article 2 of the special conditions in accordance with Article 9. The request shall be accompanied by all the supporting evidence needed for its appraisal.

The implementation period of an action is defined in the special conditions. As a general rule, any extension of the implementation period must be requested before the final payment and must be the subject of a contract addendum according to Article 9(3). It must not entail any increase in the EU contribution. In exceptional circumstances, the extension of the implementation period can be requested after the implementation period provided the execution period has not expired.

This extension may also exceed the maximum planned duration as allowed by the guidelines for applicants:

The coordinator may request an extension of the implementation period in accordance with Article 9. In Article 9(2) it is stated that the amendment may not have the purpose or the effect of making changes to the contract that would call into question the grant award decision or be contrary to the equal treatment of applicants.

A violation of the principle that such an extension/amendment may not affect the award decision could only be assumed if the applicant was already aware of the circumstances that necessitated the extension when she/he submitted the application, i.e. she/he submitted the application with a shorter implementation period (to be compliant with the guidelines) — knowing that an extension (beyond the allowed maximum duration) would then be necessary at a later stage.

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Guidelines

11(2)  The coordinator may suspend implementation of the action, or any part thereof, if exceptional circumstances as referred to in Article 11.8, make such implementation excessively difficult or dangerous. The coordinator shall inform the contracting authority without delay, stating the nature, probable duration and foreseeable effects of the suspension.

The implementation of the action may become temporarily impossible or undesirable due to exceptional circumstances, most notably of force majeure.

In order to qualify as exceptional the event or situation in question must not be part of or be attributable to the usual risks accompanying the beneficiaries’ activities. What is considered as exceptional circumstances depends on a case by case assessment. A definition of exceptional circumstances is provided in Article 11(8).

Under exceptional circumstances, the coordinator is entitled to suspend the implementation of the action or parts thereof unilaterally. The suspension of the implementation of the action implies that the beneficiaries stop carrying out the action for a specific period of time.

During the suspension period the beneficiaries may only request the reimbursement of the minimum costs necessary for a possible resumption of the action. The coordinator and the contracting authority must agree in writing on such costs, including the reimbursement of legal commitments entered into for implementing the contract before the notification of the suspension was received that the beneficiaries cannot reasonably suspend, reallocate or terminate on legal grounds. This is without prejudice to any amendments to the contract that may be necessary to adapt the action to the new implementing conditions, including, if possible, the extension of the implementation period.

The coordinator must inform the contracting authority as soon as possible without unjustified delays in case it intends to suspend the implementation of the action or a part hereof. The coordinator must provide to the contracting authority all information necessary for taking an informed decision on this matter including but not limited to: a detailed description of the circumstances in question and their impact on the implementation of the action, the measures taken to minimise damages (including their nature, probable duration etc.) and the foreseeable date of resumption of the implementation of the action, etc.

Such information should be submitted in writing through a registered letter with an acknowledgement of receipt or an equivalent. Using such a means of communication ensures there is evidence of the receipt by the other party, and thus a certainty regarding the period within which beneficiaries are entitled to incur eligible costs.

In case of doubts, the contracting authority must request any proof deemed necessary to show that such exceptional circumstances indeed exist. Nevertheless, the suspension of the implementation period of the action takes effect from the moment the contracting authority is informed about the suspension and not after such a verification exercise has been completed.

11(3)  The coordinator or the contracting authority may then terminate this contract in accordance with Article 12(1). If this contract is not terminated, the beneficiary(ies) shall endeavour to minimise the time of its suspension and any possible damage and shall resume implementation once circumstances allow, informing the contracting authority accordingly.

During the suspension, beneficiaries must take all possible measures for minimising the damage due to the exceptional circumstances.

When an exceptional circumstance stops hindering the implementation of the action, and therefore it is possible for the beneficiaries to resume implementation, the coordinator must inform the contracting authority as soon as possible, without any unjustified delay.

If it is practically impossible to resume the implementation of the action as initially planned, then the possibility to modify the action in light of the new implementing conditions must be explored. In this assessment, it must be carefully checked to what extent an amendment of the contract is possible without putting into question the award decision or the equality of treatment. If an amendment goes against the main principles for amendments, the contract should be terminated.

If the implementation can no longer be resumed or it cannot be resumed effectively or appropriately, then the contract should be terminated in accordance with Article 12(1).

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Guidelines

11(4)  The contracting authority may request the beneficiary(ies) to suspend implementation of the action, or any part thereof, if exceptional circumstances as referred to in Article 11.8, make such implementation excessively difficult or dangerous. To this purpose, the contracting authority shall inform the coordinator stating the nature and probable duration of the suspension.

The contracting authority may suspend this contract or the participation of a beneficiary(ies) in this contract in application of Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget.

In exceptional circumstances, the contracting authority must decide whether to request the coordinator to suspend the implementation of the action.

The suspension of the implementation of the action implies that the beneficiaries will stop carrying out the action for a specific period of time.

Regarding the eligibility of costs incurred during the suspension period, see comments on Article 11(2).

11(5)  The coordinator or the contracting authority may then terminate this contract in accordance with Article 12(1). If this contract is not terminated, the beneficiary(ies) shall endeavour to minimise the time of its suspension and any possible damage and shall resume implementation once circumstances allow and after having obtained the approval of the contracting authority.

During the suspension, the beneficiaries must take all possible measures for minimising the damage due to exceptional circumstances.

Beneficiaries must resume timely the implementation of the action, as soon as the exceptional circumstances allow it. The coordinator must, however, first have received a written prior approval by the contracting authority for resuming the implementation of the action.

If it is practically impossible to resume the implementation of the action as initially planned then the possibility to modify the action in light of the new implementing conditions must be explored. In this assessment, it must be carefully checked to what extent an amendment of the contract is possible without putting into question the award decision or the equality of treatment. If an amendment goes against these main principles for amendments, the contract should be terminated.

If the implementation can no longer be resumed or it cannot be resumed effectively or appropriately, then the contract should be terminated in accordance with Article 12(1).

11(6)  The contracting authority may also suspend this contract or the participation of a beneficiary(ies) in this contract if the contracting authority has evidence that, or if, for objective and well justified reasons, the contracting authority deems necessary to verify whether presumably:

a) the grant award procedure or the implementation of the action have been subject to breach of obligations, irregularities or fraud;

b) the beneficiary(ies) have breached any substantial obligation under this contract.

The contracting authority may suspend the contract or the participation of a beneficiary in the contract if it has evidence that the circumstances in points a) or b) have occurred.

In addition, the contracting authority may suspend the contract if, for objective and well justified reasons, it deems necessary to verify whether, presumably, the circumstances in points a) or b) have occurred.

In this latter case, however, in light of the burdensome consequences of a suspension, the contracting authority must preferably, whenever possible, first give notice to the coordinator indicating its intention to suspend the contract, as well as, of the specific grounds/reasons motivating the suspension. The contracting authority must then leave the coordinator a reasonable time (30 days) to react and present its comments/objections to the intended suspension. Without prejudice to the right of the contracting authority to confirm its intention to suspend, the coordinator’s observations must be given a thorough consideration before taking the final decision for suspension.

Such pre-information should not however impact the need for a timely suspension of the contract.

The means of communication used must provide clear evidence of the fact that the coordinator was informed and the date on which this happened (a registered letter with acknowledgment of receipt or equivalent).

Costs incurred during a suspension in accordance with Article 11(6) are not eligible.

However, if after verification the contracting authority finds out that the circumstances in a) and b) have not occurred, the costs incurred during the suspension and for the resumption of the action will become eligible.

11(7)  The coordinator shall provide any requested information, clarification or document within 30 days of receipt of the requests sent by the contracting authority. If, notwithstanding the information, clarification or document provided by the coordinator, the award procedure or the implementation of the grant prove to have been subject to breach of obligations, irregularities, fraud, or breach of obligations, then the contracting authority may terminate this contract according to Article 12(2)(h).

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11(8)  The term exceptional circumstances, as used herein covers any unforeseeable events and exceptional situation or event beyond the parties control which prevents either of them from fulfilling any of their obligations under this contract, which may not be attributed to error or negligence on either part and which could not have been avoided by the exercise of due diligence, such as acts of God, strikes, lock-outs or other industrial disturbances, acts of the public enemy, wars whether declared or not, blockades, insurrection, riots, epidemics, landslides, earthquakes, storms, lightning, floods, washouts, civil disturbances, explosion. Defects in equipment or material or delays in making them available cannot be invoked unless they stem directly from an exceptional circumstance. Financial problems of the beneficiary(ies) cannot be invoked either. A decision of the European Union to suspend the cooperation with the partner country or a change of EU policy in case of a crisis situation are considered to be an exceptional circumstance when it implies suspending funding under this contract.

This article defines the elements necessary for circumstances to be considered as ‘exceptional circumstances’: i.e. the event could not have been foreseen by the concerned party, it is beyond its control, it is not attributable to error or negligence on its part and it could not have been avoided even with all due diligence by the concerned party.

In most cases, such circumstances are related to natural disasters like: flooding, mass fire, volcanic eruption, earthquake, hurricane, etc. However not every external event could lead to exceptional circumstances: a heavy rain that prevented an outdoor activity might have been foreseeable or might not have had a significant impact on the implementation of the action as a whole. Exceptional circumstances may also be man-made, e.g. war, revolution, rebellion, terrorist activities, etc.

Note that exceptional circumstances must also have an impact on the implementation of the action by preventing, at least for a given period of time, the beneficiaries from fulfilling their obligations as initially envisaged. Without such impact, any circumstances, even if they are per se exceptional, unforeseeable, insurmountable, and beyond the control of the concerned party, must not qualify as relevant for the suspension of the implementation.

Defects in equipment or material or delays in making them available, or financial difficulties cannot be invoked as exceptional circumstance.

Strikes or labour disputes may be invoked if they are beyond the control of the party concerned. E.g. if the employees of a contracting party go on strike that will in most cases not be considered as exceptional circumstance as this strike is directly linked to the contracting party. However, if e.g. the employees of the national railway agency go on strike and this strike hinders the implementation of the action, such strike could be invoked as an exceptional circumstance.

11(9)  The parties shall not be held in breach of their contractual obligations if it is prevented from fulfilling them by circumstances of force majeure.

If prevented from fulfilling its obligations due to exceptional circumstances, the beneficiaries will not be considered in breach of their obligations, thus excluding any of the possible negative consequences from such breach (such as termination of the contract on this ground and/or reduction of the amount of the grant due to breach of contract).

The beneficiaries must therefore not be held responsible for not completing the action due to such circumstances.

In any event, if the action is only partially implemented, the contracting authority must reduce the grant in line with its actual implementation and the specific costs incurred.

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11(10)  In case of suspension according to Articles 11(2), 11(4) and 11(6), the implementation period of the action shall be extended by a period equivalent to the length of suspension, without prejudice to any amendment to this contract that may be necessary to adapt the action to the new implementing conditions. This Article 11(10) does not apply in case of an operating grant.

Suspension according to Articles 11(2), 11(4), and 11(6), must lead to an extension of the duration of the action of a period equivalent to the length of the suspension (provided that the implementation can be resumed).

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12(1)  In the cases foreseen in Article 11(2) and 11(4), if the coordinator or the contracting authority believes that this contract can no longer be executed effectively or appropriately, it shall duly consult the other. Failing agreement on a solution, the coordinator or the contracting authority may terminate this contract by serving two months written notice, without being required to pay indemnity.

The exceptional circumstances can make it impossible to continue with the implementation of the action. This could be established immediately after the exceptional circumstances occurred or also at a later stage during or after the suspension of the implementation of the action.

If either the coordinator or the contracting authority believes that the implementation of the action can no longer be executed effectively or appropriately they must consult each other in order to determine whether and how to continue the implementation of the action. Failing an agreement, the coordinator or the contracting authority may unilaterally terminate the contract by serving two months written notice, without being required to pay indemnity.

In this case, as stated in Article 11(9), neither the beneficiaries nor the contracting authority are responsible for not finalising the implementation of the action and therefore must not be considered in breach of their contractual obligations under the contract.

In case the action is only partially implemented, the contracting authority will reduce the grant in line with its actual implementation and the costs incurred by the beneficiaries.

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12(2) Without prejudice to Article 12(1), in the following circumstances the contracting authority may, after having duly consulted the coordinator, terminate this contract or the participation of any beneficiary(ies) in this contract without any indemnity on its part when:

a) a beneficiary(ies) fails, without justification, to fulfil any substantial obligation incumbent on them individually or collectively by this contract and, after being given notice by letter to comply with those obligations, still fails to do so or to furnish a satisfactory explanation within 30 days of receipt of the letter;

b) a beneficiary(ies) or any person that assumes unlimited liability for the debts of the beneficiary(ies) is bankrupt, subject to insolvency or winding up procedures, is having its assets administered by a liquidator or by the courts, has entered into an arrangement with creditors, has suspended business activities, or is in any analogous situation arising from a similar procedure provided for under any national law or regulations relevant to the beneficiary(ies);

c) a beneficiary(ies), or any related entity or person, have been found guilty of grave professional misconduct proven by any means which the contracting authority can justify;

d) it has been established by a final judgment or a final administrative decision or by proof in possession of the contracting authority that the beneficiary(ies) has been guilty of fraud, corruption, involvement in a criminal organisation, money laundering or terrorist financing, terrorist related offences, child labour or other forms of trafficking in human beings or circumventing fiscal, social or any other applicable legal obligations, including through the creation of an entity for this purpose;

 e) a change to a beneficiary(ies)’s legal, financial, technical, organisational or ownership situation or the termination of the participation of a beneficiary(ies) substantially affects the implementation of this contract or calls into question the decision awarding the grant;

 f) a beneficiary(ies) or any related person, are guilty of misrepresentation in supplying the information required in the award procedure or in the implementation of the action or fail to supply – or fail to supply within the deadlines set under this contract - any information related to the action required by the contracting authority;

 g) a beneficiary(ies) has not fulfilled obligations relating to the payment of social security contributions or the payment of taxes in accordance with the legal provisions of the country in which it is established;

h) the contracting authority has evidence that a beneficiary(ies) has resisted an investigation, check or audit or has evidence that a beneficiary(ies), or any related entity or person, has committed breach of obligations, irregularities or fraud in the award procedure or in the implementation of the action;

i) a beneficiary(ies) is subject to an administrative measure referred to in Article 12(8);

j) the contracting authority has evidence that a beneficiary(ies) is subject to a conflict of interests;

k) the European Commission has evidence that a beneficiary(ies) has committed systemic or recurrent errors or irregularities, fraud, or serious breach of obligations under other grants financed by the European Union and awarded to that specific beneficiary(ies) under similar conditions, provided that those errors, irregularities, fraud or serious breach of obligations have a material impact on this grant;

l) in application of Regulation (EU, Euratom) No 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget;

m) where the coordinator fails to provide an acceptable financial guarantee when requested in the special conditions or to replace it under Article 15.

The cases of termination under points (b), (c), (d), (h), (j) and (k) may refer also to persons who are members of the administrative, management or supervisory body of the beneficiary(ies) and/or to persons having powers of representation, decision or control with regard to the beneficiary(ies).

The contracting authority will terminate the contract or the participation of a beneficiary in any of the cases foreseen in Article 12(2).

However, whenever possible, the termination of the contract should be preceded by an adversarial procedure. In such a case, the contracting authority must first send a pre-information letter explaining its intention to terminate the contract and the specific grounds and reasons for the termination and must leave the coordinator a reasonable time to react and present its comments/objections to the termination (30 days).

The contracting authority must use a method of communication that provides clear evidence of the fact that the coordinator was informed and the date of receipt of the information (a registered letter with acknowledgment of receipt or its equivalent). Without prejudice to the right of the contracting authority to confirm its intention to suspend, the coordinator’s observations must be given a thorough consideration before taking the final decision on termination.

In light of the impact of the termination of a contract, the contracting authority must decide in full consideration of all the facts and might send a further request for clarification and/or information. In deciding whether to terminate the contract or only the participation of certain beneficiaries, the contracting authority must make a case by case analysis, taking into account the specific role of the beneficiaries involved, the gravity/extent of the circumstances/behaviour, the need to ensure the full and timely implementation of the action as described in the description of action, and the respect for the principle of proportionality, good financial management and equality of treatment of the beneficiaries.

a) A breach of the contract is committed where beneficiaries individually or collectively fail to properly discharge any substantial obligations under the contract. As a general rule, the contracting authority should first give notice – through a pre-information letter — to the coordinator indicating the reasons why it believes that the beneficiaries have failed to carry out their tasks in accordance with the contract and must leave the beneficiaries (via the coordinator) a reasonable time to react and present comments/objections or to correct this neglect or failure.

If the beneficiaries (via the coordinator) still fail to comply or to furnish a satisfactory explanation within 30 days of receipt of the letter, the contracting authority will terminate the contract or the participation of the relevant beneficiaries in the contract.

A breach of the visibility and, if applicable, communication obligations under Article 6 will generally be considered a substantial breach of the contract and trigger the right to terminate in accordance with point a).

12(3)  In the cases referred to in points (c), (f) (h) and (k) above, any related person means any physical person with powers of representation, decision-making or control in relation to the beneficiary(ies). Any related entity means, in particular, any entity which meets the criteria laid down by Article 1 of the Seventh Council Directive No 83/349/EEC of 13 June 1983.

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12(4) In duly justified cases, the participation of a beneficiary(ies) in this contract may be also terminated by the coordinator. To this purpose, the coordinator shall communicate to the contracting authority the reasons for the termination of its participation and the date on which the termination shall take effect, as well as a proposal on the reallocation of the tasks of the beneficiary(ies) whose participation is terminated, or on its possible replacement. The proposal shall be sent in good time before the termination is due to take effect. If this change does not call into question the grant award decision or be contrary to the equal treatment of applicants, and the contracting authority agrees, this contract shall be amended accordingly in conformity with Article 9.

Such requests must be very well justified, and the contracting authority must be provided with any information and/ or any supporting documents proving, justifying, and supporting the request.

It is not possible to provide an exhaustive list of cases, which might lead the coordinator to request the termination of the participation of a beneficiary. In circumstances where such termination is requested, due account should be taken to ensure the full and timely implementation of the action as outlined in the description of the action, as well as the respect of the principles of proportionality and sound financial management, the respect of the award decision, and the equality of treatment of beneficiaries.

If the contracting authority agrees to the coordinator’s request and if the change does not call into question the award decision or not imply any breach of the equal treatment of applicants, then an amendment to the contract according to Article 9(3) introducing the necessary modifications must be made in order to officialise the termination of the participation of the beneficiaries concerned. The general limitations to amendments as set forth in Article 9(2) apply.

Any termination of a beneficiary’s participation in the contract by the coordinator without the prior consent of the contracting authority constitutes a breach of the contract and may result in the termination by the contracting authority of the whole contract according to Article 12(2)(a).

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12(5) The payment obligations of the contracting authority or of the European Commission under this contract shall end 18 months after the implementation period laid down in Article 2 of the special conditions, unless this contract is terminated according to Article 12. For actions comprising reimbursement of costs and financing not linked to costs, where the special conditions lay down two implementation periods, and one is longer than the other, the longest one shall be taken into consideration for the purpose of determining the end date.

The contracting authority shall postpone this end date, so as to be able to fulfil its payment obligations, in all cases where the coordinator has submitted a payment request in accordance with contractual provisions or, in case of dispute, until completion of the dispute settlement procedure provided for in Article 13. The contracting authority shall notify the coordinator of any postponement of the end date.

It is therefore imperative that the coordinator submits the final payment request in a timely fashion.

12(6) This contract will be terminated automatically if it has not given rise to any payment by the contracting authority within two years of its signature.

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12(7)  Upon termination of this contract the coordinator shall take all immediate steps to bring the action to a close in a prompt and orderly manner and to reduce further expenditure to a minimum.

Without prejudice to Article 14, the beneficiary(ies) shall be entitled to payment only for the part of the action carried out or for the part of the results achieved in case of financing not linked to costs, excluding costs relating to current commitments that are due to be executed after termination.

To this purpose, the coordinator shall submit to the contracting authority a final report (including contractual expenditure verification report, expenditure verification report, third party assessment as applicable) together with the payment request to the contracting authority within the time limit set by Article 2(16) starting from the date of termination.  

In the event of termination according to Article 12(1), and only for grants based on reimbursement of costs, the contracting authority may agree to reimburse the unavoidable residual expenditures incurred during the notice period, provided, the first paragraph of this Article 12(7) has been properly executed.

In the cases of termination in Article 12(2) a), c), d), f), h) and k) the contracting authority may, after having properly consulted the coordinator and depending on the gravity of the failings, request full or partial repayment of amounts unduly paid for the action.

In case of termination in accordance with Article 12(1), provided the first paragraph of Article 12(7) has been properly executed, the contracting authority will in principle accept to reimburse the unavoidable residual expenditures (i.e. costs related to the closure of the action) incurred during the notice period, meaning the costs necessary for the closure of the activities financed under the contract claimed by the beneficiaries. This provision applies only to grants (or to the component of grants) in the form of reimbursement of costs.

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12(8) Without prejudice to the application of other remedies laid down in this contract, a decision on exclusion from all contracts and grants financed by the EU, may be adopted, after an adversarial procedure in line with the applicable Financial Regulation, upon the beneficiary(ies) who, in particular,

a) is guilty of grave professional misconduct, has committed irregularities or has shown significant deficiencies in complying with the main obligations in the performance of this contract or has been circumventing fiscal, social or any other applicable legal obligations (including those related to working rights, employment and labour conditions), including through the creation of an entity for this purpose. The duration of the exclusion shall not exceed the duration set by final judgement or final administrative decision or, in the absence thereof, three years;

b) is guilty of fraud, corruption, participation in a criminal organisation, money laundering, terrorist-related offences, child labour or trafficking in human beings or has resisted an investigation, check or audit. The duration of the exclusion shall not exceed the duration set by final judgement or final administrative decision or, in the absence thereof, five years;

12(9) In the situations mentioned in Article 12(8), in addition or in alternative to the decision of exclusion, the beneficiary(ies) may also be subject to financial penalties up to 10% of the contract value.

12(10) Where the contracting authority is entitled to impose financial penalties, it may deduct such financial penalties from any sums due to the beneficiary(ies) or call on the appropriate guarantee.

12(11) The decision to impose these administrative measures may be published on a dedicated internet-site, explicitly naming the beneficiary(ies).

In addition to the remedies that have their origin in the contract, the European Commission may also impose statutory measures on beneficiaries who have been found to have seriously failed to meet their contractual obligations or who have made false declarations, substantial errors, irregularities and fraud. These statutory measures may consist of:

- administrative measures: exclusion from future contract award procedures financed by the EU for a maximum period of 5 years,

- financial measures: fines representing up to 10% of the total value of the contract.

Contract value in this context means the maximum amount of EU contribution set forth under Article 3(2) of the special conditions.

Such financial measures are to be distinguished from the damages, liquidated or general, which are intended to be a compensation for the injury caused to a party by a contract breach committed by the other party. They are the expression of the administrative powers of the European Commission in the execution of the budget to sanction the conduct of economic operators detrimental to the EU financial interests.

According to the current Internal Rules on the implementation of the EU budget, the decision to impose regulatory measures is to be adopted by the authorising officer by delegation after prior adversarial proceedings with the affected beneficiaries in which they are allowed to present their observations vis-à-vis the alleged facts and intended measure. The authorising officer by delegation must also take a decision on the duration of the exclusion and/or the amount of the financial measure in accordance with the principle of proportionality.

In contracts under indirect management, where the European Commission is not the contracting authority, the contracting authority must inform the European Commission when a beneficiary has been guilty of making false declarations, has made substantial errors or committed irregularities and fraud, or has been found in serious breach of its contractual obligations. This information might be used by the European Commission to exclude an entity from participation in procurement procedures or calls for proposals according to the Financial Regulation or the corresponding EDF provisions.

Without prejudice to the European Commission’s right to impose the aforementioned penalties, financial penalties may also be imposed on beneficiaries by the contracting authority if this is allowed by its national law.

For international organisations, the application of Articles 12(8) and 12(11) is subject to the privileges and immunities of the organisation (see Annex e3h11).

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13(1) This contract shall be governed by the law of the country of the contracting authority or, where the contracting authority is the European Commission, by the applicable European Union law complemented where necessary by the law of Belgium.

13(2) The parties to this contract shall do everything possible to settle amicably any dispute arising between them during the implementation of this contract. To that end, they shall communicate their positions in writing, and meet each other at either's request. The coordinator and the contracting authority shall reply to a request sent for an amicable settlement within 30 days. Once this period has expired, or if the attempt to reach amicable settlement has not produced an agreement within 120 days of the first request, the coordinator or the contracting authority may notify the other part that it considers the procedure to have failed.

In cases where disputes between the beneficiaries and the contracting authority cannot be settled amicably (see template S1 and – as a follow-up – template S2), they may be brought to court.

Where the contracting authority is the EC headquarters in Brussels or an EU delegation, the dispute has to be settled before the Brussels courts in Belgium.

On the other hand, where the contracting authority is the national authorising officer (for instance in case of EDF funds) or another entity from the partner country the case has to be brought to court in the country of the contracting authority and is governed by the laws of that country.

However, before bringing the case to court, the Commission should do its utmost to settle amicably any dispute that arises between it and beneficiaries of a grant contract, including by holding meetings with the beneficiaries, if they so request. The Commission should also reply to requests for meetings, made with a view to settling disputes, promptly, according to the procedure provided for in Article 13(2).

Other available legal remedies in the context of contracts are listed in Section 2.12 of the Practical Guide.

Where the beneficiary concerned is an international organisation, Article 13 does not apply. Instead, in default of amicable settlement, the parties may refer the matter to arbitration in accordance with the Permanent Court of Arbitration Optional Rules for Arbitration Involving International Organisations and States in force at the date of conclusion of the Agreement. The appointing authority must be the Secretary General of the Permanent Court of Arbitration following a written request submitted by either Party. The arbitrator’s decision must be binding on all parties and there must be no appeal (see Annex e3h11).

13(3) In the event of failure to reach an amicable agreement, the dispute may by common agreement of the coordinator and the contracting authority be submitted for conciliation by the European Commission if it is not the contracting authority. If no settlement is reached within 120 days of the opening of the conciliation procedure, each party may notify the other that it considers the procedure to have failed.

13(4) In the event of failure of the above procedures, each party to this contract may submit the dispute to the courts of the country of the contracting authority, or to the Brussels courts where the contracting authority is the European Commission.

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14(1)  In order to be eligible, costs must meet the eligibility conditions laid down in Article 14.2 and 14.3.

14(2) Actual costs are eligible if:

a) they are actually incurred - as per the definition below - by the beneficiary(ies) as defined in b);

b) they are incurred during the implementation of the action as specified in Article 2 of the special conditions. In particular:

(i) costs relating to services and works shall relate to activities performed and accepted during the implementation period. Costs relating to supplies and works shall relate to delivery and installation of items during the implementation period confirmed by provisional acceptance. Signature of a contract, placing of an order, making an advance payment or entering into any commitment for expenditure within the implementation period for future delivery of services, works or supplies after expiry of the implementation period do not meet this requirement. Cash transfers between the coordinator and/or the other beneficiary(ies) and/or affiliated entity(ies) may not be considered as costs incurred;

(ii) costs incurred should be paid before the submission of the final reports. They may be paid afterwards, provided they are listed in the final report together with the estimated date of payment;

(iii) an exception is made for costs relating to final reports, including contractual expenditure verification, third party assessment, audit and final evaluation of the action, which may be incurred and paid after the implementation period of the action;

(iv) procedures to award contracts, as referred to in Article 10, may have been initiated and contracts may be concluded by the beneficiary(ies) before the start of the implementation period of the action, provided the provisions of Annex IV have been respected.

Eligible costs are actual costs incurred by the beneficiaries, which meet all the eligibility criteria at the same time, and do not fall under the category of ineligible costs in Article 14(9). Furthermore, they must be in line with the specifications included in the call for proposals, which may provide for specific instructions and/or limitations to the general rules set in the general conditions (if appropriate, specific clauses will also be included in the special conditions).

Costs (direct and indirect) have to be related to and generated by activities carried out, and  accepted by the contracting authority, within the implementation period of the action (as defined in Article 2 of the special conditions).

To be considered eligible, costs must be actually incurred by the beneficiaries, and must have generated a debt to be paid directly by an entity, which is party to the contract with the contracting authority (i.e. the coordinator or a co-beneficiary).

Costs incurred by affiliated entities that are identified in the special conditions will also be accepted as eligible. In this case, the affiliated entities concerned have to abide by the same rules applicable to the beneficiaries under the contract with regard to the eligibility of costs and the rights of checks and audit by the Commission, the European Anti-Fraud Office (OLAF), the European Public Prosecutor’s Office, the European Court of Auditors and any external auditor.

The coordinator is responsible for monitoring the correct implementation of the contract and for verifying and consolidating the information that will be provided to the contracting authority; therefore the coordinator should also make sure that the conditions for the eligibility of costs are met, through accurate supervision of the co-beneficiaries and the affiliated entities, and appropriate internal arrangements.

It is worth reminding that costs that might have been deemed eligible at a first glance in the reports may be declared ineligible following an audit or verification carried out according to Article 16.

The coordinator should keep in mind that it bears the ultimate responsibility (including financial) for the entire action and must reimburse to the contracting authority any cost declared ineligible (see Article 18(4)).

As a rule, payments after the implementation period would typically relate to costs that by their nature would only be paid after the implementation period and possibly after the submission of the final report. This could for example include:

- payments for activities carried out towards the end of the implementation period but where payment takes place later, e.g. because of warranty periods;

- payments linked to costs for the closure of the action (audit, third party assessment, reports and publications, dissemination of results etc.).

NB. Any amount above EUR 500 that is unpaid on the date of submission of the final reports has to be clearly listed in the ‘List of Pending payments’ in the final financial report (Annex e3h7a or e3h7b - worksheet ‘Final sources of funding’). The following details should be provided: Name of the provider, subject of the contract, amount in EUR, due date, reference document (date and number of invoice/contract), explanation and comments (why still not paid?).

(iii) Costs related to the submission of final reports (including the costs of the staff preparing the final report) and the winding up of the action, including expenditure verification, audit, third party assessment and the final evaluation of the action, may be incurred after the implementation period of the action, but in any event before the submission of the final reports.

These costs may be considered eligible to the extent that these costs are reasonable and necessary for the action, and that it was not possible to incur them during the implementation period. They may not consist of a mere extension of the activities of the action. The closing up activities and related costs must be finally accepted by the contracting authority in order to be eligible; therefore it is suggested to present them clearly in the budget (including the ‘justification sheet’) or, as appropriate, in the description of the action. If these costs were not foreseeable at proposal stage, it is advisable that the coordinator agrees them beforehand with the contracting authority, insofar as possible.

 (iv) Contract-award procedures may be initiated before the start of the implementation period, in accordance with the rules set forth in Annex IV. This allows for instance for the signature of a procurement contract before the start of the action in order to be already operational when the action starts. However, the respective costs will have to be generated (i.e. incurred) during the implementation period of the action in order to be eligible.

Example: signature of a rental contract on 15/12/n-1. Action starts 01/01/n. The rental will be eligible only for the period starting as of 01/01/n, but the contract can be signed beforehand.

Stocks are not eligible costs as such. Any procurement under the contract must follow Annex IV and costs must be in line with Article 14.

In case of stringent operational needs of initiating the procurement of goods, services or works before the start of the implementation period of the action, where significant amounts are involved, it is advisable to clearly explain and substantiate it in the description of the action.

This is without prejudice to the fact that, in any event, the beneficiaries bear the risk for any contract signed or commitment entered into before the signature of the contract (exceptional case), or during the implementation period. This means that they will not be entitled to any compensation or indemnity if — for whatever reason — the contract does not materialise.

c)  they are indicated in the estimated overall budget for the action;

In principle, only those cost items that have been approved in the budget and the description of the action are eligible, although it is possible to remove a budget item or introduce a new one. A request for amendment to the contract may have to be submitted by the coordinator according to Article 9.

Caution should always be used in making any modification to increase the human resources allocated to the action. In this case and in all doubtful cases, it is advisable to discuss and, if possible, agree in writing with the contracting authority beforehand.

d)  they are necessary for the implementation of the action;

It is important to pay particular attention to explain which specific resources and related costs are needed for the implementation of the action, in order to justify their link with the action (activities, results and objectives) and therefore their funding. Costs for items charged that were not necessary for the project purposes are a frequent source of cost ineligibility.

This can be implicitly done in the description of the action, but more specifically it also has to be included in the budget, in Worksheet 2, in the column ‘Clarification of the budget items’.

This condition is also strictly linked with letter f) below.

e)  they are identifiable and verifiable, in particular being recorded in the accounting records of the beneficiary(ies) and determined according to the applicable accounting standards and the usual cost accounting practices applicable to the beneficiary(ies);

All the costs incurred – corresponding to the entire budget of the action and not only to the EU grant — must be recorded in the accounts of the beneficiaries or, as the case may be, of the affiliated entities. The supporting documents (tenders, orders, vouchers, invoices, receipts etc.) must be in place and tally with the recorded costs. (see also Article 16 for more details)

The coordinator is responsible for verifying and consolidating the information that will be provided to the contracting authority; therefore it should as well make sure that the conditions for the eligibility of costs are met, through accurate supervision of the other beneficiaries and affiliated entities and appropriate internal arrangements.

It is strongly advisable for the coordinator to keep (electronic) copies of all relevant documents and accounts and to carry out ex ante and constant checks to ensure that supporting and accounting documents are available, correct, and duly filed and recorded.

The coordinator should keep in mind that it bears the ultimate responsibility (especially financial) for the entire action and must reimburse to the contracting authority any cost declared ineligible. (see Article 18(4))

The applicable accounting standards and the usual cost accounting practices applicable to the beneficiaries’ refer either to International accounting standards or to the rules to which the beneficiaries or affiliated entities are subject to by law. If the concerned beneficiary or affiliated entity is not governed by any national accounting rules, the usual accounting practices of the beneficiary are applied provided that they conform to international accounting standards.

f)  they comply with the requirements of applicable tax and social legislation;

The beneficiaries and the affiliated entities are fully responsible for the coordination and execution of all activities and have to ensure compliance with local, national and other applicable legislation.

g)  they are reasonable, justified and comply with the requirements of sound financial management, in particular regarding economy and efficiency.

It is important to pay particular attention to explain how costs are calculated and budgeted.

This is particularly true for those costs that are not easily justifiable because, for instance, they are especially high (compared to other similar items) and/or are purchased in high quantity.

The explanation has to be provided at proposal stage in the budget, worksheet 2, in the column ‘justification of the estimated costs’, and/or as appropriate in the description of the action and the reports to understand their relationship with the results/activities of the action.

14(3) Costs declared under simplified cost options shall satisfy the following criteria:

• they are indicated in the estimated overall budget for the action and for the same value;

a)  the activities must be properly implemented in accordance with the description of the action in Annex I;

b)  in case of lump sums, the work must be properly implemented by the beneficiary(ies) in accordance with the description of the action in Annex I and results/outputs must be achieved during the implementation of the action as specified in Article 2 of the special conditions;

c)  in case of unit costs, units shall be necessary for the implementation of the action and the number of units must be identifiable and verifiable, in particular supported by records and documentation;

d)  in case of flat rates, the costs to which the flat-rate is applied must be eligible and relate to the implementation period of the action as specified in Article 2 of the special conditions (except for costs related to final reports, including contractual expenditure verification, third party assessment, audit and final evaluation of the action, which may be incurred and paid after the implementation period of the action).

Refer to section 6.3.3 of the practical guide for further information on simplified cost options.

14(4)  In addition to the general eligibility conditions, and, where relevant, to the provisions of Annex IV being respected, the following direct costs of the beneficiary(ies) shall be eligible:

Article 14(4) lists some categories of direct eligible costs that may be eligible subject to specific conditions, without prejudice to the general criteria set out in Article 14(2).

The eligibility of costs is also determined by compliance with the procurement principles set out in Annex IV. If the beneficiaries or the affiliated entities do not follow these principles, the EU will not approve the costs incurred and may reduce the final amount of the grant accordingly.

NB. Lack of documentation in tendering procedures, i.e. insufficient evidence that the procurement process managed by the beneficiaries conforms to the requirements of the legal framework, is one of the most recurrent sources of ineligibility of costs.

a)  the cost of staff assigned to the action, corresponding to actual gross salaries including social security charges and other remuneration-related costs (excluding bonuses); salaries and costs shall not exceed those normally borne by the beneficiary(ies), unless it is justified by showing that it is essential to carry out the action;

Staff costs are eligible provided that the staff are essential to the implementation of the action and are explicitly mentioned in the project proposal.

The eligible costs are constituted by gross salaries or wages in respect of the actual time devoted to the project and include income taxes, social security etc., and other statutory costs included in the remuneration, provided they are standard human resources policy of the beneficiary and can be proved by supporting documents of the beneficiary (or affiliated entity).

For example, medical insurance, repatriation, relocation, visa costs, housing allowance, salary adjustments, other benefits etc. may only be eligible if they respect all applicable legislation, constitute a standard practice of the organisation and are actually paid.

As a general rule ‘provisions’ in the beneficiary’s accounting cannot be considered as actual costs, but some exceptions can be agreed on a case-by-case basis where they constitute an obligation under applicable law and a certain future disbursement (refer to Article 14(2)(a) ii) for the requirement of costs not yet paid at the submission of the final report).

They should be traceable to payroll records (e.g. salary slips), and to human resources records (e.g. employment contracts).  

NB. An apportionment (pro-rata system based on calculation/apportionment keys) can be used to declare direct costs, since such a system represents actual costs shared based on a reasonable and justifiable method described in an extra sheet of the budget. See Companion Users guide on Article 14.4 k)

Headquarters staff

As a starting point, costs of Headquarters staff should be covered by indirect costs.

However, with due consideration to the description and the functional organisation of the action and of the beneficiaries, they may be charged as direct costs in the following circumstances:

- they relate to the achievement of the action’s operational results and have accordingly been identified as an operational activity in the description of the action; and/or

- they cover the actual presence of Headquarters staff in the field (e.g. specific monitoring missions, needs assessment, etc.).

They must be well justified in the framework of the action and accepted by the contracting authority.

In all other cases, the related Headquarters staff costs cannot be charged to the action as direct costs either in whole or on a pro rata basis.

Consultants (v. employees)

As a general rule, tasks performed by consultants, experts and/or other service providers (e.g. accountants, lawyers, translators, external IT staff, etc…) are to be considered as resulting from implementation contracts (Article 10). Consequently, beneficiaries must award these contracts in accordance with Annex IV.

These costs are thus not considered as human resources (budget heading 1) but as other costs/services (notably budget heading 5 or 6).

Specific case: ‘in-house consultants’

In house / ‘intra muros’ consultants are natural persons working on the basis of a service contract as opposed to employees hired on the basis of a labour contract. They join a beneficiary's project team and deliver ‘external services’. The costs arising from these in-house consultants are in principle to be considered as costs relevant to implementing contracts.

However, as an exception to the rule, these costs may be considered as personnel costs regardless of whether the consultants are self-employed or employed by a third party, if the following cumulative conditions are fulfilled in accordance with the terms of the call for proposals and subject to the eligibility of costs:

(a) a beneficiary has a contract to engage the consultant to work for it and (some of) that work involves tasks to be carried out under the action funded by the grant;

(b) the consultant must work under the instructions/supervision of the beneficiary;

(c) the consultant must work in the premises of the beneficiary as a member of the project team;

(d) the output of the work belongs to the beneficiary;

(e) the costs of employing the consultant are reasonable, are in accordance with the normal practices of the beneficiary and are not significantly different from the personnel costs of employees of the same category working under a labour contract for the beneficiary;

(f) travel and subsistence costs related to such consultants' participation in project meetings or other travel relating to the action is directly paid by the beneficiary or in any case according to the beneficiary’s own staff procedures.

(g) the consultant uses the beneficiary's infrastructure (i.e. user of the ‘indirect costs’).

These conditions describe a de facto situation of subordination, as in a traditional labour contract (regardless of the legal form). Therefore in these cases, if the national applicable legislation allows for a de facto employee to be hired under a service contract, and provided that all the conditions stated above (similar costs, property of results, subordination, etc.) are satisfied, these service contracts may be assimilated to staff costs in the budget and for all useful purposes (for instance procurement principles set out in Annex IV would not apply).

This is to be evaluated by the contracting authority on a case by case basis, so it is strongly suggested to discuss it as soon as possible with the contracting authority to avoid any problems.

Note also that if these conditions are not met, a service contract may still be awarded through the applicable procurement rules.

Unless otherwise specified in the guidelines for applicants, service contracts meeting these criteria may be charged to heading 1 - human resources.

b) travel and subsistence costs for staff and other persons taking part in the action, provided they do not exceed those normally borne by the beneficiary(ies) according to its rules and regulations. In addition, the rates published by the European Commission at the time of contract signature may never be exceeded;

Travel and subsistence costs of any person taking part in the action are eligible, including staff of the beneficiaries, associates, affiliated entities and the final beneficiary(ies). Travel and subsistence costs should not exceed:

- those costs normally borne by the beneficiary(ies) according to its rules and regulations

- the per diem rates published by the European Commission at the time of contract signature.

Per diem rates published by the European Commission cover accommodation, meals, tips, local travel, and sundry expenses. The European Commission per diem rates are published at Per diem rates (europa.eu).

Per diems should be traceable to supporting schedules (number and names of staff, number of times the per diem was paid, per diem rates and countries concerned) and in the beneficiaries' records (accounting, payroll, human resources).

In the budget of the action:

1.3.1 Abroad (staff engaged in the action): the per diem for staff based in the country where the beneficiary is based, going to another country for the action;

1.3.2 Local (staff engaged in the action): the per diem for staff who move within their country of assignment (e.g. based in Nairobi and going to Mombasa for the action);

1.3.3 Participants in seminars/conferences: the per diems for any participant in the project activities who is not part of the project staff (including associates), independently of where they come from.

The budget must indicate the countries where the per diems have taken place, the applicable amounts, the number of participants, and the number of nights spent at the event.

Beneficiaries must reimburse these costs (accommodation, meals, tips, local travel, and sundry expenses) to their staff according to their rules and regulations. These rules and regulations may state that the reimbursement is based on any of the following options:

- on the basis of real costs incurred by the staff,

- on the basis of per diems (daily allowances).

There may be different rates even within the same country, depending for instance on the profile of the person receiving the per diems or, in any case, according to the rules and procedures of the beneficiaries. Therefore, a student accommodated in a hostel would possibly receive a lower compensation than a person who is supposed to be accommodated in a hotel.

In any case, if according to the rules and regulations of the beneficiary, the reimbursement of travel and subsistence exceeds the per diem rates published by the European Commission, the amount exceeding the European Commission per diem rates will be considered ineligible.

‘Per diems’ are not considered a simplified cost option for the purposes of EU financing when a beneficiary reimburses a fixed amount to its staff in accordance with its staff rules and requests the reimbursement of that same amount in the budget of the action. Such per diems are considered actual costs.

When according to its rules and regulations, a beneficiary reimburses a fixed amount for travel and subsistence costs, not all supporting documents are required (restaurant’s bills, taxi slips…), but only those to prove that the travel actually took place, for instance. The beneficiary should indicate these per diems (daily allowances) in the budget of the action which the contracting authority will reimburse according to procedures and conditions set out in the contract.

Expenses

Unit

# of units

Unit cost (in EUR)

Cost (in EUR)

Seminar No1 (France): 7 nights x 12 persons = 84 nights

Per diem

84

130

10 920

c) purchase costs for equipment and supplies (new or used) specifically dedicated to the purposes of the action, provided that ownership is transferred at the end of the action when required in Article 7(5);

d) depreciation, rental or leasing costs for equipment (new or used) and supplies specifically dedicated to the purposes of the action;

Where the beneficiaries’ own equipment (proof of property and payment may be requested) is provided for an action, the running costs may be charged as direct costs, but the cost of use is normally considered to be covered within indirect costs.

The cost of use (in the form of depreciation) can be accepted by the contracting authority as direct cost, when at least these basic conditions have been considered:

- It is so accepted by the contracting authority because justified by the concrete situation and type of equipment.

- No transfer to the final beneficiaries, local beneficiaries or local affiliated entities at the end of the action is foreseen: the equipment is not necessary for the sustainability of the action or the transfer will not be possible.

- Such use is more effective than the rental or purchase of new equipment.

- The costs are not higher than the corresponding costs on the local market.

- The equipment is in good condition and suitable for the proper implementation of the action.

- It does not imply double-financing or profit for the beneficiary (the equipment must not have been paid entirely by the EU in a previous project or by any other donor. Depreciation is never eligible when the equipment is a contribution in kind).

- The value of the equipment must have a price-tag entered in the beneficiary’s accounting system.

- The costs pass the test for direct eligible costs (with special attention to the direct link with the implementation of the action), except for the specific procurement rules of Annex IV.

Only the portion of the equipment’s depreciation, rental or lease costs corresponding to the implementation period and the rate of actual use for the purposes of the action may be taken into account.

Only the costs relating to the unexpired depreciation period and to the implementation period of the action can be charged. Once fully depreciated, no costs can be charged or reimbursed, other than running costs.

e) costs of consumables specifically dedicated to the action;

f) costs of service, supply and work contracts awarded by the beneficiary(ies) for the purposes of the action referred to in Article 10; this includes the costs for mobilising expertise to improve the quality of the logical framework (e.g. accuracy of baselines, monitoring systems, etc.), both at the beginning and during the implementation of the action;

This refers to the costs of supply, service or work contracts awarded in line with the procurement rules set out in Annex IV. Financial support given to third parties does not have to follow the rules of Annex IV.

g) costs deriving directly from the requirements of this contract (dissemination of information, evaluation specific to the action, contractual expenditure verification, third party assessment of results, translation, reproduction, insurance, etc.) including financial service costs (in particular the cost of transfers and financial guarantees where required according to this contract);

h) duties, taxes and charges, including VAT, related to the purposes of the action,  paid and not recoverable by the beneficiary(ies), unless otherwise provided in the special conditions:

As a general rule beneficiaries have to apply for tax (including VAT) exemption whenever possible.

This clause refers to indirect taxes such as VAT and customs/import duties and not to direct taxes such as the income tax of staff working on the project, which are part of the gross salary. The rules on taxes apply to affiliated entities as well as to the beneficiaries.

The call for proposals, notably in the guidelines for applicants and its Annex J (Annex e3a1 of the practical guide), addresses the eligibility of taxes. Charging of VAT or taxes is a frequent source of cost ineligibility; therefore particular attention has to be paid to understand the correct treatment of taxes.

When duties, taxes and charges are eligible under a call for proposals (refer to the guidelines for applicants and its Annex J, Annex e3a1 to the practical guide) they may be treated as any other cost, and may be included in the relevant budget heading.

NB. Note that VAT is not eligible where it is paid by a public body (i.e. a body governed by public law) of a Member State in relation to activities it carries out as a public authority of a Member State. These activities are strictly limited to the exercise of sovereign powers or prerogatives of a Member State (for instance police, justice and public domain management). Therefore in principle, VAT on activities such as training, capacity building, technical assistance, policy support etc. is usually eligible.

Specific rules stemming from applicable basic acts and other regulations may apply, but in this case this information has to be provided by the contracting authority in the call for proposals or directly to the organisation, and must be reflected in the special conditions.

Accepted cost system

As concerns taxes, the call for proposals might state the non-eligibility of taxes, particularly when basic acts or other regulations or financing agreements with partner countries exclude the financing of taxes (including VAT), even if the beneficiary cannot reclaim them. These costs would therefore be ineligible for EU-financing, and may not be included in the eligible costs of the action.

When taxes are not eligible, the call for proposals may provide for the ‘accepted cost system’, introducing a second percentage to be respected when determining EU funding. This allows the acknowledgment of the payment by beneficiaries of ineligible and non-recoverable taxes: the EU-contribution to the eligible costs may be increased while at the same time the co-financing requirement will be fulfilled by the beneficiaries’ payment of such taxes.

To be able to do this, two (maximum) co-financing rates must be specified in the guidelines for applicants:

- One percentage applicable to eligible costs. This is used to calculate the actual amount of the EU-contribution as usual; and

- One percentage applicable to the total accepted costs = total eligible costs (including volunteers’ work) + in kind contributions (other than volunteers 'work) + non-eligible taxes, etc.

This is used to calculate the required amount of co-financing by the beneficiaries. If the amount of co-financing does not reach the minimum percentage fixed in the contract, then the EU-contribution will be reduced proportionately.

Note that the guidelines for applicants will specify the maximum rates. The rates that will be fixed in the contracts will depend on the contribution asked by the applicant(s). Refer to worksheet 3 of Annex e3c (budget) for the calculation of the two co-financing rates (eligible costs and accepted costs).

The final amount of the grant will be subject to the maximum amount laid down in the contract, and the co-financing rates will be based on actual costs that are only known at the time of the approval of the final report.

Provided they are necessary, directly related to the action and incurred during the implementation period, these costs can therefore be considered as part of the co-financing of the beneficiaries. The taxes can only be considered to fall within the share of co-financing of the beneficiaries if they have been clearly identified in the budget of the action following the submission of the proposal and if the beneficiaries can prove that they cannot recover them, unless one of the exceptions in Annex J/e3a1 applies.

They are ineligible costs, to be entered in the budget under heading 12 ‘taxes’ and form part of the total accepted costs.

However, if a beneficiary fails to show that it cannot reclaim such taxes, these taxes will be declared simple ineligible costs, which are ignored when checking the co-financing by the beneficiary.

Evidence that taxes may not be recovered

Taxes that can be reclaimed or refunded in full or in part (even some years later) may not be considered either as eligible or accepted costs.

Refer to Annex J/e3a1 ‘Information on the tax regime applicable to grant contracts’ for guidelines on the evidence that the beneficiaries and affiliated entities are not tax-exempt and cannot recover taxes. Additionally, Annex J sets out clearly situations in which beneficiaries may report taxes as project expenditure but do not need to prove that they cannot get tax exemption or recover the taxes. It is advisable to seek the advice of the contracting authority if unsure whether a particular situation of exemption applies to a specific action.

In some countries the tax authorities do not operate efficiently or simply do not reply to correspondence. In such cases, beneficiaries are recommended to seek advice from the contracting authority and keep as much evidence as possible of the steps undertaken to recover VAT.

This proof does not have to be submitted to the contracting authority but must be available upon request or to auditors during the expenditure verification reports/audits.

i) overheads, in the case of an operating grant.

In fact, the purpose of an operating grant is to cover the running costs of the beneficiary based on an approved work programme, including its general administrative costs.

j) costs for providing support to third parties in accordance with Article 10;

 k) costs actually incurred in relation to a project office used for the action or a portion of these costs may be accepted as eligible direct costs if:

(i)  the need for setting up or using a project office is recognised by the contracting authority in the special conditions;

(ii)  the description of the project office, including the services or resources dedicated to its general maintenance, its overall capacity and (where applicable) the distribution key are provided in the description of the action in Annex I and the budget;

(iii)  (where applicable) the distribution key reasonably reflects the portion of the resources or services needed by and actually used for the action, is fair and not fluctuant;

(iv)  the costs concerned comply with the cost eligibility criteria referred to in Article 14.1;

(v)  they fall within one of the following categories:

  - costs of ancillary staff directly assigned to the general maintenance of the project office (e.g. cleaning, IT maintenance);

  - depreciation costs, rental costs or lease of building, equipment and assets;

  - costs of maintenance and repair contracts;

  - costs of consumables and supplies specifically dedicated to the action;

  - costs of IT and telecommunication services;

  - costs of facility management contracts including security fees and insurance costs;

  - duties, taxes and charges, including VAT, related to the purposes of the action, paid and not recoverable by the beneficiary(ies), unless otherwise provided in the special conditions.

Eligible direct costs for a project office can be shared actual costs.

Costs actually incurred in relation to a project office must comply with the cost eligibility criteria referred to in Article 14.1. They must be identifiable and verifiable based on supporting documents.

Please note that the distribution key used as method for the cost apportionment approach must be fair and not fluctuant. For example, distribution keys based on the number of projects, on monthly basis-fluctuation or by applying weighting criteria are not acceptable and therefore cannot be proposed to the contracting authority.

NB. Shared costs are not necessarily considered as direct costs. Depending on the link they have with the action, they may be direct or indirect.

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Guidelines

14(5) If the budget in Annex III contains a reserve for contingencies and/or possible fluctuations in exchange rates it can only be used with the prior written authorisation of the contracting authority, upon duly justified request by the coordinator for adjustments necessary in the light of unforeseeable changes of circumstances on the ground. This reserve may not exceed 5% of the direct eligible costs.

A reserve for contingencies and/or exchange rate fluctuations, not exceeding 5% of the direct eligible costs, may be included in the budget for EU External Actions given the specificity and the higher level of unpredictability of external actions.

As a consequence, the contingency reserve should only be included in the initial total budget, and not budgeted in the requests for pre-financing.

This is meant to provide some flexibility if there are unforeseen circumstances, as the contracting authority‘s contribution to the action may never be increased (neither the maximum amount nor the percentage of co-financing).

NB: note that the use of the contingency reserve is subject to the prior written authorisation of the contracting authority, who will make an evaluation and take a decision on a case-by-case basis.

The budget template has been modified following the logic that in normal conditions the reserve is not used and stands aside of the total estimated cost of the action.

When the use of the reserve is authorised, the corresponding amount will be split and allocated to the concerned budget headings according to the specific needs of the action. As the total amount of direct costs will be higher, the indirect costs will also consequently increase. This should be kept into consideration when using the contingency reserve because in any case the maximum amount of the grant as set in Article 3 of the special conditions cannot be changed.

Exchange rate fluctuation

This case would just be one of the possible reasons justifying the use of the contingency reserve, for which the beneficiaries are not responsible and have already adopted all the possible risk mitigating measures according to the best practices in the sector.

There is no clear-cut definition of ‘unforeseeable’ circumstances: this would entail a sudden, completely unforeseen and drastic change in the situation — for example a sharp devaluation decided by the government unexpectedly or uncommon cases of hyperinflation, etc.

For exchange rates, the historical fluctuation of the currency could be a prime baseline indicator. The performance of the economy is also an element taken into consideration when drawing up a budget and estimating the possible fluctuation of a currency. All these elements have to be taken into consideration at proposal stage, and during the implementation of the action the conversion of funds into local currencies (or a currency other than the contract’s currency) has to be handled according to the principle of sound financial management.

Situations produced by poor management by the beneficiaries may not be accepted as a reason to justify the use of the contingency reserve.

An exchange rate fluctuation (that has a similar effect to inflation) has to be distinguished from an exchange rate difference (losses or gains, as determined in the accounting), the latter not being eligible as per Article 14(9). An unfavourable exchange rate fluctuation will basically result in ‘increased’ cost of the activities of the action that will be reflected in various budget lines.

Additionally, in the case of exceptional exchange rate fluctuations, Article 2(6) states that the action may have to be restructured to lessen the impact of such fluctuations or – if it will no longer be possible to implement the action in view of the missing funds — the contract may even be terminated.

In considering whether the action should be restructured or whether the contract should be terminated, the contracting authority must make a case-by-case assessment taking into account the options provided by the contract, and considering aspects like sound financial management, the interest of the action and final beneficiaries, and the capacity of the beneficiaries to raise additional funding etc. If the decision will be to allow the use of contingencies, these will not finance an ‘exchange rate difference’ per se. They will finance eligible costs that have increased compared to the original estimate (because of the currency exchange). Therefore, the funds will be distributed to the concerned eligible costs heading(s) of the budget.

Beneficiaries should — as a rule — or are at least strongly advised to submit requests to use the contingency reserve in advance to avoid the risk that its use will be considered as non-eligible by the contracting authority.

However, especially in cases where sudden, unforeseeable events lead to an increase in costs beneficiaries may not be able to formally request the prior authorisation from the contracting authority before taking action. However, if they act and incur extra costs they do so at their own risk.

Furthermore, the fact that beneficiaries incur additional costs does not imply a ‘use’ of the contingency reserve. The contingency reserve may only be ‘used’, i.e. the relevant funds may be used to cover the additional costs after the contracting authority has issued a prior written  authorisation.

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Guidelines

14(6) The indirect costs for the action are those eligible costs which may not be identified as specific costs directly linked to the implementation of the action and may not be booked to it directly according to the general conditions of eligibility laid down in Article 14. However, they are incurred by the beneficiary(ies) in connection with the eligible direct costs for the action.

They may not include ineligible costs as referred to in Article 14(9) or costs already declared under another costs item or heading of the budget of this contract.

To the extent that it would not generate a profit within the framework of the action, a fixed percentage of the total amount of direct eligible costs of the action (except the value of volunteers’ work and project office costs) not exceeding the percentage laid down in Article 3.3 of the special conditions may be claimed to cover indirect costs for the action.

Indirect costs shall not be eligible under a grant for an action awarded to a beneficiary who already receives an operating grant financed from the European Union budget during the period in question.

Article 14(6) does not apply in the case of an operating grant. If any of the beneficiary(ies) is in receipt of an operating grant financed by the EU, it may not claim indirect costs on its incurred costs within the budget for the action.

Direct eligible costs v. indirect eligible costs

As regards action grants, a distinction is made between direct and indirect eligible costs:

- Direct eligible costs: direct costs are action-specific costs directly linked to the performance of the action and that can therefore be booked to it directly. Direct costs are identifiable and verifiable costs, for which concrete supporting documents can be submitted as evidence. They are expenses strictly related to the implementation of the action, and exist only by consequence of its implementation. The eligibility of direct costs is mainly defined in Article 14(2): the listed criteria have to be respected at all times for all costs.

- Indirect eligible costs: these are not identifiable as specific costs directly linked to the performance of the action. Indirect costs may not include any eligible direct costs included in other headings of the budget. They mainly represent a small proportion of the beneficiary’s overheads. Overheads are all the structural and support costs of an administrative, technical and logistical nature that are cross cutting for the operation of the beneficiary’s various activities and cannot therefore be booked in full to the action for which the contract is awarded because this action is only one part of the beneficiary's activities.

Example: costs connected with infrastructure and the general operation of the beneficiary at headquarter level and costs such as administrative and financial management, training, legal advice, documentation, IT, maintenance of buildings, water, gas, electricity, insurance, office supplies, communications, human resources, accounting fees, depreciation, telephone bills, travel and other utilities costs, etc.

Indirect eligible costs relate to the functioning and general activities of the beneficiary: they cannot be attributed entirely to the action but are still partially generated by it.

Given the difficulty of justifying each of these costs separately, the flat-rate funding of indirect costs is meant to simplify the administrative charge of the beneficiaries by facilitating the management and reporting of these indirect costs since no supporting documents are required for these costs once agreed in the contract.

The applicants may be asked to justify the percentage requested before the contract is signed.

Example: total direct eligible costs: EUR 100 000 + 7% = EUR 7 000 indirect costs = EUR 107 000 total costs. Note that 7% is a maximum, i.e. if it is not justified a smaller percentage has to be envisaged.

The basis for the calculation of the indirect costs does not include value of volunteers’ work and project office costs, ineligible (but accepted) taxes and in kind contributions (heading 12).

The final amount of indirect costs that can be claimed depends on the amount of total direct costs reported in the final financial report and approved by the contracting authority (the unused contingency reserve is therefore not included in the direct costs).

Depending on the characteristics of the action and the organisational and cost structure of the beneficiary, it may happen that some costs can be considered either direct or indirect costs (e.g. depreciation costs, consumables, Headquarters staff), but in all events costs cannot be taken into account twice as a direct cost and an indirect cost.

The distinction between direct and indirect costs is also based on the capacity of the beneficiaries’ accounting system to assign costs to specific activities when they are incurred.

Example: if the costs of printing and copying are assigned to a particular action: when this copying and printing occurs, these costs are direct. If, by contrast, these costs are assigned ex post using an approximation (or an indicative cost driver) (e.g. the number of hours worked for each action during the year), these costs are indirect.

NB. If a beneficiary of an action grant is also in receipt of an operating grant financed from the EU, no indirect costs may be claimed on its share of incurred costs. This applies only to the costs incurred by the beneficiaries or affiliated entities in receipt of the operating grant. The other beneficiaries and affiliated entities may still claim indirect costs on their incurred costs under the same contract.

Shared costs

If the beneficiary shares out certain costs to different actions according to a cost allocation system, the related costs may be eligible provided that they are linked to the action and comply with Article 14.

In terms of allocation of staff, the staff specifically assigned by the labour contract to spend a defined share of its working time on a project may be considered as a shared direct cost actually incurred. Assignment of a cost share on the basis of daily or weekly timesheets can be accepted as a shared direct cost actually incurred; by contrast, assignment on the basis of annual timesheets or estimation cannot be realistic and verifiable and cannot be accepted as an actually incurred cost.

The implementation of the action may require significant deployment of staff to manage operations in the field or set up an office at another location. Reimbursement of those costs may be justified.

Where an office is used for several projects in parallel, shared office costs (such as cost of staff working on different projects, rent, electricity, security etc.) can be declared as following:

a)  Costs that can be directly attributed to an action (e.g. local staff working part time on a project and providing time sheets or shared office costs) can be declared as costs actually incurred without invoking a simplified cost option by applying the apportionment for office costs. Office apportionment costs, if to be applied, must be agreed by the contracting authority at the contracting phase. They must be duly reflected in the action and budget documents.

b)  As part of the indirect costs (7%)

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Guidelines

14(7) Any contributions in kind, which shall be listed separately in the budget in Annex III, do not represent actual expenditure and are not eligible costs. Unless otherwise specified in the special conditions, contributions in kind may not be treated as co-financing by the beneficiary(ies).

If contributions in kind are accepted as co-financing, the beneficiary(ies) shall ensure they comply with national tax and social security rules.

Notwithstanding the above, if the description of the action in Annex I provides for contributions in kind, such contributions have to be provided.

In-kind contributions are constituted by non-financial resources (such as goods, equipment or services) provided to the beneficiaries or affiliated entities free of charge by a third party. Contributions in kind do not involve any expenditure for the beneficiaries during the implementation of the Action and are not entered in their accounts as a cost for reporting purposes related to the action. Consequently, contributions in kind can never appear in the budget of the action as an eligible cost, except in the case of volunteers’ work.

Example: medicines or a car donated to an action by another donor.

However they may be accepted as co-financing when considered necessary or appropriate (e.g.: small grants targeted for community based organisations that have no possibility to provide financial contributions).

Contributions in kind may only be treated as co-financing if the guidelines of the particular call for proposals allow contributions in kind and the contributions in kind are explicitly mentioned in the special conditions.

In such a case, the call for proposals will have to provide for the ‘accepted cost system’, in order to take into account the co-financing provided in kind or adapt accordingly the co-financing percentage of eligible costs, except in the case of volunteers ‘work that are considered eligible cost.

It may be difficult to calculate the financial value of such contributions and to assess whether they have effectively been provided.

The unit rate or the global amount of contributions in kind is evaluated as proposed in the budget (heading 12 and expected sources of funding) and, once approved, it may not be subject to subsequent changes.

In case of variable numbers of units, the fixed unit rate together with the estimated number of units must be defined in the justification sheet of the budget.

Example: rough figures may be generated by calculating volunteering time and allocating to this, the value stablished for the country in question.

Example: in the case of the use of free venues, figures may be calculated according to the equivalent market cost.

When in-kind contributions are necessary and accepted for the action, if the beneficiaries incur actual costs in relation to their distribution, handling, use or acceptance the related costs may be eligible (subject to the respect of the eligibility criteria laid down in Article 14). These costs can therefore be entered in the budget of the action.

Example: the fuel and maintenance costs for a car given as an in-kind contribution for use in an action.

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Guidelines

14(8) The work of volunteers for the action (i.e. persons who freely work for an organisation, on a non-compulsory basis and without being paid by the beneficiary(ies)) may be declared as costs of staff, if and as declared eligible in the award procedure, if they fulfil the general eligibility conditions and are calculated as unit costs approved by the European Commission. In all cases, work of volunteers:

a)  may not exceed the maximum amount for volunteers for the action (which corresponds to 50% of the estimated eligible costs other than the costs for volunteers' work); and

b)  may not make the maximum EU contribution to costs higher than the total eligible costs without volunteers.

This type of costs must be presented separately from other eligible costs in the budget. The value of the volunteers’ work must always be excluded from the calculation of indirect costs.

Where the relevant call for proposals allows for the work performed by volunteers to be considered as acceptable co-financing, such co-financing must be considered as eligible personnel costs in accordance with articles 184, 189 and 193 FR, and must take the form of unit costs.

These unit costs will be fixed by the contracting authority and provided in the call for proposal.

As volunteers’ work is a work provided by third parties without a remuneration being paid to them by the beneficiary, the limitation avoids reimbursing costs that the beneficiary did not incur. In addition, the value of the volunteers’ work may comprise up to 50% of all sources of financing, that is the Union grant, in-kind contributions and other sources of financing.

This type of costs must be presented separately from other eligible costs in the estimated budget. The value of the volunteer’s work must always be excluded from the calculation of indirect costs.

This will not have an adverse impact on the beneficiary since the unit costs are not reimbursing costs incurred. Any eligible costs incurred by the beneficiary linked to the work of the volunteer, for example travel and accommodation, may be claimed separately as eligible costs.

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Guidelines

14(9) Costs that do not comply with the conditions set out above are not eligible. In addition, the following costs shall not be considered eligible:

a) debts and debt service charges (interest);

b) provisions for losses, debts or potential future liabilities;

c) costs declared by the beneficiary(ies) and financed by another action or work programme receiving a European Union grant (including through the European Development Fund);

d) purchases of land or buildings, except where necessary for the direct implementation of the action and according to the conditions specified in the special conditions; in all cases the ownership shall be transferred in accordance with Article 7.5, at the latest at the end of the action;

e) currency exchange losses;

f) credits to third parties, unless otherwise specified in the special conditions;

g) in kind contributions;

h) salary costs of the personnel of national administrations, unless otherwise specified in the special conditions and only to the extent that they relate to the cost of activities which the relevant public authority would not carry out if the action were not undertaken;

i)  bonuses included in costs of staff;

j) negative interest charged by banks or other financial institutions.

This article identifies the costs that, even if satisfying the above mentioned criteria, cannot be considered eligible.

e)  Exchange rate losses are not eligible costs and will not be compensated. It is confirmed that just as exchange rate losses are not eligible costs, exchange rate gains are not considered as action revenue and will not be deducted in the final liquidation process (nor do they have to be reported for). These rules also apply for the gains/losses resulting from currency conversion at the reporting stage and those resulting from conversion between accounting currency and other currencies used for the action (see Article 2(5)).

h) Salary costs of personnel of national administrations may only be considered as eligible costs, to the extent that they relate to the cost of activities that the relevant public authority would not carry out if the action was not undertaken. However, EU funding of salary costs corresponding to activities that the public administration had already undertaken before the launching of the action, is not possible. Indeed, it would generate a profit for the beneficiary since these costs are already funded by the budget of the member state/partner country (or the regional or local authorities) in the framework of their normal activities.

Salary costs of personnel of national administrations cannot be considered an in-kind contribution since they are not provided by a third party to the beneficiary free of charge (see comments to Article 14(6)).

i)  For the avoidance of doubt, a bonus is to be understood as a payment of an amount triggered by the participation of a staff member in the EU funded Action or that is in any way linked to the performance of the person in the Action or the performance of the Action itself; as such it is not an eligible cost. However, there are payments that might be called in a similar way and which could still be considered as a part of the normal salary package and therefore eligible (i.e. variable parts of the salary). Those payments have to be paid independently of the participation of the staff member in the EU funded action and have to be part of the general salary policy of the beneficiary irrespective of the source of funding.

j) Negative interests are not eligible unless there is an avoidance strategy in place. INTPA contracts by definition do not include avoidance strategies.

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Guidelines

14-bis(1) Where the grant takes the form, entirely or partly, of financing not linked to costs, the grant is subject to the achievement of results measured by reference to previously set milestones or through performance indicators.

Refer to financing not linked to costs guidelines embedded in Chapter 8A of this Users guide.

14-bis(2) Results must be achieved during the implementation period of the action. The relevant results and the means to measure their achievement are laid down in the description of the action in Annex I. The EU contribution shall be paid in accordance with the achieved result set out in the budget in Annex III.

14-bis(3) The part of the action that takes the form of financing not linked to costs is not subject to Article 14. The beneficiary(ies) do not have to report on costs incurred linked to the achievement of results. However, the beneficiary(ies) shall submit any necessary supporting documents, including where relevant accounting documents, to prove that the results triggering the payment as defined in the description of the action in Annex I and the budget in Annex III have been achieved.

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Guidelines

15(1) For actions where the grant only takes the form of reimbursement of costs, the grant shall be paid to the coordinator following one of the payment procedures below, as set out in Article 4 of the special conditions.

Option 1: Actions with an implementation period of 12 months or less or grant of EUR 100 000 or less

(i)  an initial pre-financing payment of 80% of the maximum amount referred to in Article 3(1) of the special conditions (excluding the reserve for contingencies);

(ii) the balance of the final amount of the grant.

Option 2: Actions with an implementation period of more than 12 months and grant of more than EUR 100 000:

(i)  an initial pre-financing payment of 100% of the part of the estimated budget financed by the contracting authority for the first reporting period (excluding the reserve for contingencies). The part of the budget financed by the contracting authority is calculated by applying the percentage set out in Article 3(2) of the special conditions;

(ii) one or more further pre-financing payments which in no event shall, in total, exceed 90 % of the amount referred to in Article 3.2 of the special conditions, excluding the reserve for contingencies. The further pre-financing for the following reporting period as defined in Article 2.14 shall be calculated as follows:

• if at the end of the reporting period the part financed by the contracting authority composed of (i) the expenditure actually incurred for actual costs, or incurred for simplified cost options, (ii) advance payments, and, (iii) for financial support to third parties, legal commitments entered into between the coordinator (or its co-beneficiaries and affiliated entities) and third parties, is equal to or more than 70 % of the previous payment (and 100 % of any previous payments), the pre-financing shall amount to 100 % of the part of the estimated budget financed by the contracting authority (excluding the reserve for contingencies).

• if at the end of the reporting period the part of the expenditure financed by the contracting authority composed of (i) the expenditure actually incurred for actual costs, or incurred for simplified cost options, (ii) advance payments, and, (iii) for financial support to third parties, legal commitments entered into between the coordinator (or its co-beneficiaries and affiliated entities) and third parties, is less than 70 % of the previous payment (and 100 % of any previous payments), the maximum pre-financing (100 % of the part of the estimated budget financed by the contracting authority excluding the reserve for contingencies) shall be reduced by the amount corresponding to the difference between 70% of the previous pre-financing payment and the part of expenditure as described above which is financed by the contracting authority.

The coordinator may submit a payment request for further pre-financing before the end of the reporting period as soon as the part of the expenditure  financed by the contracting authority and composed of the expenditure actually incurred for actual costs, or incurred for simplified cost options (thus excluding advance payments, and, for financial support to third parties, legal commitments)  is more than 70 % of the previous payment (and 100 % of any previous payments). In this case, the following reporting period starts anew from the end date of the period covered by this payment request.

In addition, for grants of EUR 5 000 000 or more, a further pre-financing payment may be made only if the amount of the eligible expenditure incurred and approved by the contracting authority is at least equal to the total amount of all the previous payments excluding the last one;

• the balance of the final amount of the grant.

Option 3: all actions

(i) the final amount of the grant.

This provision applies to grants in the form of reimbursement of costs only.

The frequency with which pre-financing payments are made depends on the duration of the action and on the total amount of the grant. The option applicable to the action in question will therefore be stated in Article 4 of the special conditions of the contract.

The contingency reserve is not considered in the payments until, and unless, approved, as it will not be disbursed if not needed. This means that it should not be budgeted in the requests for pre-financing. Once approved it will be reflected in the budget lines (headings 1 to 6) and therefore treated like the other budgeted/eligible costs.

Option 2

For actions that last more than 12 months and where the contracting authority‘s contribution is more than EUR 100 000, the pre-financing will be split on the basis of several reporting periods (by default 12 months, unless otherwise provided for in the special conditions).

An initial pre-financing payment will be prepared in parallel with the Contract signature and it should be processed as soon as the contract is signed by both parties (and after a financial guarantee has been submitted, if required). This payment will cover 100% of the EU contribution to budgeted costs for the first year. For the payment of the first pre-financing it is not necessary to receive a request for payment as the signed contract serves as payment request.

Example: the EU is contributing to 50% of the total eligible costs of a project. The budget for the first year is EUR 100 000, after deduction of the contingency reserve. The first instalment will be EUR 50 000, which is 100% of the foreseen EU contribution.

Further pre-financing payments are intended to be split among the reporting periods. However, they are presented as a single global amount in the special conditions, as the actual pre-financing payments are based on the updated budget forecast for the following reporting period, presented using the Forecast Budget and Follow-up template in Annex VI (financial reporting formats).

The contracting authority’s percentage contribution to the forecast budget corresponds to its percentage contribution to the eligible costs as set out in Article 3(2) of the special conditions. Note that for actions where the ‘accepted cost system’ is used, the contracting authority’s percentage contribution to total ‘accepted costs’ and total ‘eligible costs’ will be different. The adjustment to ensure co-financing will be done at the end of the action, with the final payment, in accordance with Article 17.

Example: the maximum EU contribution under a particular call is 80% of accepted costs. The total 3-year project budget is EUR 300 000. Indirect taxes, which are accepted but not eligible costs, account for 5% of the total budget - EUR 15 000 – so total eligible costs are EUR 285 000. The EU is contributing EUR 240 000 to the project, which is 80% of total accepted costs but 84.21% of total eligible costs. If for instance, the total second year budget estimate is EUR 112 000, including EUR 4 480 (4%) indirect taxes, which are not an eligible cost, the EU will pay 84.21% of eligible costs i.e. EUR 112 000 - EUR 4 480 = EUR 107 520 x 84.21% = EUR 90 543. The adjustment to ensure co-financing will be done at the end of the action. At this moment, the EU contribution will be limited to the lowest amount obtained by respectively applying the percentages to the final total eligible and accepted costs.

The coordinator has 60 days following the end of the reporting period to present an interim report (narrative and financial, covering the elapsed reporting period).

If at the end of the reporting period the expenditure financed by the contracting authority (which is composed of (i) the expenditure actually incurred, (ii) advance payments, and, (iii) for financial support to third parties, legal commitments) are less than 70% of the last payment (and 100% of the preceding payments), the further pre-financing payment may not be paid in full. If the coordinator presents a payment request, the payment is reduced by the amount corresponding to the difference between the 70% of the last pre-financing payment (and 100% of the preceding payments) and the part of the eligible costs incurred that is financed by the contracting authority.

Not reaching the threshold of 70% cannot be considered as a justification for the coordinator to not submit a complete narrative report but only a summary of the progress of the action.

Example: an NGO has received an initial instalment of EUR 96 000 and submits a first interim report stating that EUR 60 000 of this – 62.5% - has been incurred. The forecast budget for the following period for the second year of the project is EUR 87 000. However, the difference between the 70% threshold – (EUR 96 000 x 70%) = EUR 67 200 and the amount actually incurred - EUR 60 000 – is EUR 7 200. So the second instalment will be reduced by EUR 7 200 to EUR 79 800.

For grants of more than EUR 5 000 000, there is an additional condition (beyond the 70% rule) to be respected to be able to make a further pre-financing payment: The part of the total amount of eligible costs approved that is financed by the contracting authority must be at least equal to the total amount of all the previous payments except the last one. Therefore, in order to make a further pre-financing payment, all the previous payments, except the last one, must be matched by an equivalent amount of eligible expenditure approved by the contracting authority. In other terms, all previous pre-financing payments must have been cleared, except, the last one which can still be (partially) open (i.e. not entirely backed by approved expenditure). In principle, this situation should not materialize, given the presence of the 70% rule. In the substance, it is therefore a precautionary clause for exceptional extreme situations that should not have a substantial impact on payments.

As a general rule, when the remaining period to the end of the action is less than 18 months, the forecast budget (and the pre-financing payment) will cover that remaining period; the next report will be the final report covering the whole action.

The total sum of pre-financing payments may not exceed 90% of the amount in Article 3(2) of the special conditions excluding non-authorised contingencies. Therefore, the pre-financing payments must be limited consequently when approaching the end of the action.

The balance of the final amount of the grant will only be payable after the end of the implementation period, when the final report together with a request for payment has been approved by the contracting authority (refer to Article 15(4) for payment delays). As a reminder, in case a beneficiary needs to borrow money,  interests due for a bank loan are not eligible for EU funding (see Article 14(9)(a)).

If total final approved expenditure is less than originally foreseen and/or the reserve has not been used, the balance to be paid will be less than the amount stated in Article 4 of the special conditions, as the contracting authority’s contribution is limited to the percentage of eligible or accepted costs, as stated in Article 3 of the special conditions (see also Article 7(1) of the special conditions and Article 17(1) of the general conditions).

The maximum EU contribution and percentage of eligible or accepted costs financed by the contracting authority may never be increased, i.e. a new grant contract would have to be signed instead.

Option 3. The final amount of the grant is paid at the end of the implementation period in one single final payment. This option is used for very short actions fully pre-financed by the beneficiary.

15.1-bis For actions where the grant only takes the form of financing not linked to costs, the grant shall be paid to the coordinator following the payment procedures below:

Option 1:  Actions with an implementation period of 12 months or less or grant of EUR 100 000 or less:

(i)  an initial pre-financing payment of 80 % of the maximum amount referred to in Article 3.1 of the special conditions;

(ii)  the balance of the final amount of the grant.

Option 2:  Actions with an implementation period of more than 12 months and grant of more than EUR 100 000:

(i)  an initial pre-financing payment of 100% of the value of the indicators planned to be achieved during the first reporting period in accordance with the values set in the description of the action in Annex I and budget in Annex III.

(ii)  one or more further pre-financing payments which in no event shall, in total, exceed 90 % of the amount referred to in Article 3.1 of the special conditions. The further pre-financing for the following reporting period as defined in Article 2.14 shall be calculated as follows:

-  if at the end of the reporting period the value of the indicators achieved is equal to or more than 70 % of the previous payment (and 100 % of any previous payments), the pre-financing shall amount to 100 % of the value of the indicators planned to be achieved during the following reporting period in accordance with the values set in the description of the action in Annex I and budget in Annex III;

-  if at the end of the reporting period the value of the of the indicators achieved is less than 70 % of the previous payment (and 100 % of any previous payments), the maximum pre-financing (100 % of the of value of the indicators planned to be achieved during the following reporting period) shall be reduced by the amount corresponding to the difference between 70% of the previous pre-financing payment and the part of the value of the indicators achieved.

The coordinator may submit a payment request for further pre-financing before the end of the reporting period, as soon as the value of the indicators achieved is more than 70 % of the previous payment (and 100 % of any previous payments). In this case, the following reporting period starts anew from the end date of the period covered by this payment request.

In addition, for grants of EUR 5 000 000 or more, a further pre-financing payment may be made only if the amount of the value of the results achieved approved by the contracting authority is at least equal to the total amount of all the previous payments excluding the last one.

(iii)  the balance of the final amount of the grant.

Option 3: All actions

(i)  the final amount of the grant.

This provision applies to grants in the form of financing not linked to costs only.

The same logic and same thresholds of Article 15.1 apply with the only difference that, instead of taking into account the estimated budget or the expenses incurred, we calculate:

• the amount of the initial pre-financing, with reference to the value of the indicators planned to be achieved;

• the amount of the further pre-financings, with reference to the value of the indicators achieved.

15.1-ter For actions where the grant takes the form of financing not linked to costs and reimbursement of costs, the grant shall be paid to the coordinator following the payment procedures below:

Option 1:  Actions with an implementation period of 12 months or less or grant of EUR 100 00 or less:

(i)  an initial pre-financing payment of 80% of the maximum amounts referred to in second subparagraph of Article 3.2 (excluding the reserve for contingencies) and Article 3.3 of the special conditions;

(ii)  the balance of the final amount of the grant calculated for each part of the action.

Option 2:  Actions with an implementation period of more than 12 months and grant of more than EUR 100 000:

• an initial pre-financing payment covering:

- for the part of the action taking the form of reimbursement of costs: 100 % of the part of the estimated budget financed by the contracting authority for the first reporting period (excluding the reserve for contingencies). The part of the budget financed by the contracting authority is calculated by applying the percentage set out in third sub-paragraph of Article 3.2 of the special conditions;

-  for the part of the action taking the form of financing not linked to costs: 100% of the value of the indicators planned to be achieved during the first reporting period in accordance with the values set in the description of the action in Annex I and budget in Annex III.

(ii) one or more further pre-financing payments which in no event shall, in total, exceed 90 % of the amounts referred to in second subparagraph of Article 3.2 (excluding the reserve for contingencies) and Article 3.3 of the special conditions. The further pre-financing for the following reporting period as defined in Article 2.14 shall be calculated as follows:

- if at the end of the reporting period the addition of the value of the indicators achieved (for the part of the action taking the form of financing not linked to costs) and the part financed by the contracting authority composed of (i) the expenditure actually incurred for actual costs, or incurred for simplified cost options, (ii) advance payments, and, (iii) for financial support to third parties, legal commitments entered into between the coordinator (or its co-beneficiaries and affiliated entities) and third parties (for the part of the action taking the form of reimbursement of costs) is equal to or more than 70 % of the previous payment (and 100 % of any previous payments), the pre-financing shall amount to 100 % of the value of the indicators planned to be achieved during the following reporting period in accordance with the values set in the description of the action in Annex I and budget in Annex III (for the part of the action taking the form of financing not linked to costs) and 100% of the part of the estimated budget financed by the contracting authority (excluding the reserve for contingencies) (for the part of the action taking the form of reimbursement of costs);

- if at the end of the reporting period the addition of the value of the indicators achieved (for the part of the action taking the form of financing not linked to costs) and the part of the expenditure (actually) incurred financed by the contracting authority (for the part of the action taking the form of reimbursement of costs) is less than 70 % of the previous payment (and 100 % of any previous payments), the maximum pre-financing (as described in previous indent) shall be reduced by the amount corresponding to the difference between 70% of the previous pre-financing payment and the addition of the part of the value of the indicators achieved (for the part of the action taking the form of financing not linked to costs) and the part of expenditure (actually) incurred which is financed by the contracting authority (for the part of the action taking the form of reimbursement of costs).

The coordinator may submit a payment request for further pre-financing before the end of the reporting period, as soon as the addition of the value of the indicators achieved (for the part of the action taking the form of financing not linked to costs) and the part financed by the contracting authority composed of (i) the expenditure actually incurred for actual costs, or incurred for simplified cost options, (ii) advance payments, and, (iii) for financial support to third parties, legal commitments entered into between the coordinator (or its co-beneficiaries and affiliated entities) and third parties (for the part of the action taking the form of reimbursement of costs) is more than 70 % of the previous payment (and 100 % of any previous payments). In this case, the following reporting period starts anew from the end date of the period covered by this payment request.

In addition, for grants of EUR 5 000 000 or more, a further pre-financing payment may be made only if the amount resulting from the addition of the value of the results achieved approved by the contracting authority (for the part of the action taking the form of financing not linked to costs) and of the eligible expenditure incurred and approved by the contracting authority is at least equal to the total amount of all the previous payments excluding the last one.

• the balance of the final amount of the grant calculated for each part of the action.

Option 3:  All actions

(i)  the final amount of the grant calculated for each part of the action.

This provision applies to grants in the form of both reimbursement of costs and financing not linked to costs (hybrid actions).

The same logic and same thresholds of Article 15.1 and Article 15.1bis apply. Article 15.1ter specifies what are the provisions applying only to the cost-based component and those applying only to the FNLC component.

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Guidelines

15(2)  The payment request shall be drafted using the model in Annex V and shall be accompanied by:

a)  a narrative and financial report in line with Article 2;

b)  a forecast budget for the following reporting period in case of request of further pre-financing;

c)  in case of grants taking the form of reimbursement of costs, a contractual expenditure verification report and/or a detailed breakdown of expenditure in line with Article 2;

d)  in case of financing not linked to costs, a third-party assessment of the achievement of the results, unless otherwise provided in the special conditions and in line with Article 2.

For the purposes of the initial pre-financing payment, the signed contract serves as payment request. If so required by the special conditions, a financial guarantee shall be submitted by the coordinator prior to the payment of the initial pre-financing in accordance with Article 15.7.

The initial pre-financing payment will be made after the contracting authority has received the signed contract accompanied by a financial guarantee, if required in the special conditions. It is no longer necessary to submit a payment request with the signed contract.

The further pre-financing payments will only be made if the payment request is accompanied by a narrative and financial report, a forecast budget for the following reporting period, and a detailed breakdown of expenditure or an expenditure verification report if required (in case of cost-based grants) and/or a third party assessment (in case of financing not linked to costs) (see Articles 2(8) and 2(11)).

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Guidelines

15(3) Payments shall be made to the coordinator to the bank account referred to in the special conditions, which shall allow the identification of the funds paid by the contracting authority. Payment shall not imply recognition of the regularity or of the authenticity, completeness and correctness of the declarations and information provided. The contracting authority shall make payments in the currency set in the special conditions.

The coordinator has to provide details of the bank account or sub-account into which the EU funds will be paid in the special conditions and in the application form (with the exception of cases of indirect management where the Partner Country makes the payments, cases in which the applicant has to submit an identification form – Annex D, with its financial information).

It is not necessary to open a project-specific account provided the contracting authority’s contribution and the project financial flows can be traced. There is no obligation to open interest-bearing accounts for projects financed by the EU budget and the EDF, nor to report on or repay any interest earned.

Payments must not imply recognition of the authenticity, completeness and correctness of the declarations and information provided. Audits or verifications of actions and accounts may be done after the final payment was made and may entail a reimbursement of a part of the grant, if some costs are found to be ineligible (see Article 18).

See guidance for exchange rates.

15(4)  The initial pre-financing payment shall be made within 30 days of receipt of the payment request by the contracting authority.

Further pre-financing payments and payments of the balance shall be made within 60 days of receipt of the payment request by the contracting authority.

However, further pre-financing payments and payments of the balance shall be made within 90 days of receipt of the payment request by the contracting authority in any of the following cases:

a)  one beneficiary with affiliated entity(ies);

b)  if more than one beneficiary is party to this contract;

c)  if the European commission is not the contracting authority;

d)  for grants of EUR 5 000 000 or more;

e)  for grants taking the form (partly or entirely) of financing not linked to costs as per Article 14bis.

The payment request is deemed accepted if there is no written reply by the contracting authority within the deadlines set above.

The initial pre-financing will be paid in all cases within 30 days after the contracting authority has received a signed contract accompanied by a financial guarantee, if required (or within 45 days for grant contracts under the 11^th EDF). No especial payment request is demanded for the first pre-financing. The further pre-financing payments and payments of the balance will be made according to the cases set, with no distinction between further pre-financing payments and payments of the balance.

As a general rule there are no separate periods for the approval of the report and for the payment, unless otherwise specified in Article 7 of the special conditions.

The payment is due at the end of the time-limit for payment if there hasn’t been any written reaction by the contracting authority, notifying the suspension of the payment deadline.

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Guidelines

15(5) Without prejudice to Article 12, the time-limits for payments may be suspended by notifying the coordinator that:

a) the amount indicated in its request of payments is not due, or;

b) proper supporting documents have not been provided, or;

c) the financial guarantee where required by the special conditions has not been submitted or the coordinator fails to replace it when requested by the contracting authority;

d) clarifications, modifications or additional information to the narrative or financial reports are needed, or;

e) in case of actions financed by way of reimbursement of eligible costs, there are doubts on the eligibility of expenditure and it is necessary to carry out additional checks, including on-the-spot checks or an audit to make sure that the expenditure is eligible; in case of actions financed by way of financing not linked to costs, there are doubts on the achievement of the results and it is necessary to carry out additional checks, including a third party assessment or;

f) it is necessary to verify, including through an OLAF or EPPO investigation, whether presumed breach of obligations, irregularities or fraud have occurred in the grant award procedure or the implementation of the action, or;

g) it is necessary to verify whether the beneficiary(ies) have breached any substantial obligations under this contract, or;

h) the visibility and, if applicable, communication  obligations set out in Article 6 or in the special conditions are not complied with;

i) in application of Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget.

The suspension of the time-limits for payments starts when the above notification is sent to the coordinator. The time-limit starts running again on the date on which a correctly formulated request for payment is recorded. The coordinator shall provide any requested information, clarification or document within 30 days of the request.

If, notwithstanding the information, clarification or document provided by the coordinator, the payment request is still inadmissible, or if the award procedure or the implementation of the grant proves to have been subject to irregularities, fraud, or breach of obligations, then the contracting may suspend payments, and in the cases foreseen in Article 12, terminate accordingly this contract.

In addition, the contracting authority may also suspend payments as a precautionary measure without prior notice, prior to, or instead of, terminating this contract as provided for in Article 12.

The suspension is stopped on the day the reply/clarification is recorded, i.e. the payment period starts running again as normal, even if the contracting authority does not look into the reply/clarification immediately (on the day of the recording). If this reply/clarification is not sufficient, the suspension can be prolonged or started again, but it has to be explicitly notified to the coordinator.

The suspension by the contracting authority and the submission of new clarifications/documents can be done via exchange of e-mails (no formal exchange of letters is necessary in the majority of the cases).

Note that since 2014 it is clarified that a breach of the visibility obligations under Article 6 constitutes a substantial breach of the contract allowing for a suspension in accordance with Article 15(5).

Note that the last two paragraphs of Article 15(5) refer to the suspension of payments and not to the suspension of the time-limit for a specific payment. The suspension of the time-limit for payments notably might be needed where it was decided to request e-copies of relevant supporting documents in line with the instructions on sample checks under grants (see annex I20i).

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Guidelines

15(6) If the coordinator is paid after the time limit, it shall be entitled to default interest calculated as follows:

a) at the rediscount rate applied by the central bank of the country of the contracting authority if payments are in the currency of that country;

b) at the rate applied by the European Central Bank to its main refinancing transactions in euro, as published in the Official Journal of the European Union, C series, if payments are in euro;

c) on the first day of the month in which the time-limit expired, plus three and a half percentage points. The interest will be payable for the time elapsed between the expiry of the payment deadline and the date on which the contracting authority’s account is debited.

By way of exception, when the interest calculated in accordance with this provision is lower than or equal to EUR 200, it will be paid to the coordinator only upon demand submitted within two months of receiving late payment.

The default interest is not considered as income for the purposes of Article 17.

This Article 15(6) does not apply if the coordinator is a European Union member state, including regional and local government authorities or other public body acting in the name and on behalf of the member state for the purpose of this contract.

Interest on late payment is paid usually by default by the contracting authority, if it amounts to more than EUR 200. Where the contracting authority is not the European Commission but from a partner country (i.e. under indirect management), the coordinator has to submit a claim within two months of receiving late payment.

The coordinator makes the calculation and presents the request, and the contracting authority at that point will then verify the calculation and pay the appropriate amount. Note that the interest is payable for the time elapsed between the expiry of the payment deadline and the date on which the contracting authority’s account is debited.

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Guidelines

15(7) If the grant exceeds EUR 60 000 the contracting authority may request an original financial guarantee for the amount of the initial pre-financing payment.

The guarantee shall be denominated in euro or in the currency of the contracting authority, conforming to the model in Annex VIII. The guarantee shall be provided by an approved bank or financial institution established in one of the Member States of the European Union. Where the coordinator is established in a third country, the contracting authority may agree that a bank or financial institution established in that third country may provide the guarantee if the contracting authority considers that the bank or financial institution offers equivalent security and characteristics as those offered by a bank or financial institution established in a Member State of the European Union. This guarantee shall remain in force until its release by the contracting authority when the payment of the balance is made.

The coordinator shall replace the guarantee if during the execution of the contract, the entity providing the guarantee (i) is not able or willing to abide by its commitments, (ii) is not authorised to issue guarantees to contracting authorities, or (iii) appears not to be financially reliable, or if the financial guarantee ceases to be valid. If the coordinator fails to do so, the contracting authority shall apply a deduction equal to the amount of the guarantee from future payments due to the coordinator under this contract. It shall also give formal notice to the coordinator to provide a new guarantee on the same terms as the previous one. Should the coordinator fail to provide a new guarantee, the contracting authority may terminate this contract.

This provision shall not apply if the coordinator is a non-profit organisation, an organisation which has signed a framework partnership agreement with the European Commission, a government department or public body, unless otherwise stipulated in the special conditions.

In most cases a financial guarantee will no longer be required, unless it brings a clear added value to the protection of the EU budget.

The contracting authority may, if it considers it appropriate on the basis of its risk assessment require the coordinator to lodge a guarantee to limit the risks linked with the payment of pre-financing.

In such a case, when the guarantee is not required in the call for proposals, and it is requested only before signature of the contract by the contracting authority, the related estimated costs are to be added as estimated direct eligible cost in the budget (as they were not included in the budget as submitted by the applicants).

The amount of the guarantee is at most equal to the amount of the initial pre-financing payment and will not be adjusted during the action, although the contracting authority may decide to reduce it, or release it, pursuant to its risk assessment. Otherwise, as a general rule it will remain in force until its release by the contracting authority when the payment of the balance is made.

A financial guarantee may not be requested for grants up to EUR 60 000.

When the financial guarantee is required by the contract, the related expenditure constitutes an eligible cost of the action. The cost for issuing and maintaining a bank guarantee complying with the requirements of the contract is considered to be incurred with relation to the implementation period of the contract, even if maintained in place after the end of the implementation period.

In some cases a bank guarantee may be avoided by agreeing with the contracting authority at the contract preparation stage to adjust the amount of pre-financing.

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Guidelines

16(1)  Beneficiary(ies) must, for at least five years following the payment of the balance or, in the absence of such payment, the transaction, and for three years in case of grants not exceeding EUR 60 000, and in any case until any on-going audit, check, verification, assessment, appeal, litigation or pursuit of claim has been disposed of, keep records and other supporting documents to prove the proper implementation of the action in line with the accepted standards in the respective field (if any).

All the relevant information has to be kept for 5 (or 3 if the grant amount is up to EUR 60 000) years after the payment of the balance, the repayment (Article 18(4)), or the offsetting (Article 18(6)), whichever occurs last, and even if it’s not a requirement of the country where the activities are implemented.

This applies to the beneficiaries, affiliated entities, contractors, and recipients of financial support that participate in the action or receive funds from the EU-funded action.

The beneficiaries have to ensure that affiliated entities, contractors, and recipients of financial support are made aware of this obligation by including in the relevant agreements provisions for the record-keeping which also authorise audits and verifications in accordance with Article 16.

Location of supporting documents

This is often an important issue in audits/verifications, particularly in cases where activities are dispersed over various and sometimes remote locations within the same country or in various countries.

Many national regulations may require any legal entity to maintain originals of accounting documents (e.g. invoices and tax documentation) in the country where the entity is registered.

The coordinator bears the financial responsibility towards the contracting authority in case adequate supporting documents are not provided (in a timely manner) and/or costs are declared ineligible, including with regards to co-beneficiaries, affiliated entities, contractors, and/or recipients of financial support. The coordinator has to put in place control systems to ensure that costs are eligible according to the contract.

It is thus recommended that copies of the supporting documentation related to disperse activities be kept by the coordinator at a central location (without prejudice to the fact that the contracting authority or auditors may request to consult the original documentation). Data stored in electronic form in computerised information systems should be accessible from this location.

The coordinator must inform the contracting authority in the final report (Annex VI, point 5) of the location(s) of the above-mentioned systems and documents. This is to plan and carry out efficiently subsequent audits or verifications, and to avoid costs being declared ineligible simply because the documentation is not available in a reasonable time.

The coordinator should inform the contracting authority of any changes in the location(s) at a later stage, and must update this information if necessary, as soon a request for audit is sent. The unavailability of the supporting documents at the declared location(s) may per se entail the ineligibility of costs.

Where local legislation requires beneficiaries, affiliated entities, contractors, or recipients of financial support to retain original documentation on their premises, the coordinator must be able to check this, and should ensure in advance the existence of established internal control systems to ensure that costs are eligible according to the contract.

The coordinator remains responsible for the eligibility of all project expenditure reported in the financial report(s).

If necessary, the contracting authority may request the coordinator to make the above mentioned systems and documents available for inspection at one central location (for example the coordinator's headquarters) inside or outside the country where the action is implemented. The coordinator should duly inform the contracting authority about any legal or other restrictions that apply or may apply to the transfer of the above mentioned systems and documents.

16(2)  In addition, beneficiary(ies) must, for the same period, keep the following to justify the amounts declared:

a)  for actual costs: adequate records and supporting documents to prove the costs declared (see Article 16.3). In addition, the beneficiaries’ usual accounting and internal control procedures must enable direct reconciliation between the amounts declared in the financial reports, the amounts recorded in their accounts and the amounts stated in the supporting documents;

b)  for the following simplified costs options: the beneficiary(ies) do not need to keep specific records on the actual costs incurred, but must keep:

(i)  for unit costs: adequate records and supporting documents to prove the number of units declared;

(ii)  for lump sum costs: adequate records and supporting documents to prove proper implementation of the action as described in the description of the action in Annex I;

c)  for simplified cost options in the form of flat rates: adequate records and supporting documents to prove the eligibility of the costs to which the flat-rate is applied;

d)  for financing not linked to costs: adequate records and supporting documents to prove the achievement of the results as described in the description of the action in Annex I and budget in Annex III.

16(3) Moreover, for actions financed by way of reimbursement of actual costs, the following is needed:

a)  accounting records (computerised or manual) from the beneficiary(ies)’s accounting system such as general ledger, sub-ledgers and payroll accounts, fixed assets registers and other relevant accounting information;

b)  proof of procurement procedures such as tendering documents, bids from tenderers and evaluation reports;

c)  proof of commitments such as contracts and order forms;

d)  proof of delivery of services such as approved reports, time sheets, transport tickets, proof of attending seminars, conferences and training courses (including relevant documentation and material obtained, certificates) etc.;

e)  proof of receipt of goods such as delivery slips from suppliers;

f)  proof of completion of works, such as acceptance certificates;

g)  proof of purchase such as invoices and receipts;

h)  proof of payment such as bank statements, debit notices, proof of settlement by the contractor;

i)  proof that taxes and/or VAT that have been paid cannot actually be reclaimed;

j)  for fuel and oil expenses, a summary list of the distance covered, the average consumption of the vehicles used, fuel costs and maintenance costs;

k)  for staff costs: as contracts, payroll records and salary statements. Time worked for the beneficiary under the action must be supported by declarations signed monthly by the person and their supervisor, unless another reliable time-record system is in place; the contracting authority may accept alternative evidence supporting the time worked for the action declared, if it considers that it offers an adequate level of assurance. For local staff recruited on fixed-term contracts, details of remuneration paid, duly substantiated by the person in charge locally, broken down into gross salary, social security charges, insurance and net salary. For expatriate and/or European-based staff (if the action is implemented in Europe) analyses and breakdowns of expenditure per month of actual work, assessed on the basis of unit prices per verifiable block of time worked and broken down into gross salary, social security charges, insurance and net salary.

This article provides the minimum requirements and examples of the types of documents that need to be kept. However, it is the responsibility of the beneficiaries to provide any other necessary or relevant evidence in support of expenditure, according to applicable standards.

The list is not exhaustive, and documents referring to the proper functioning of the beneficiaries (related laws and contracts, authorisation of signatures, minutes of board meetings, accounting and staff policies etc.) may also be requested for inspection.

It is strongly advised that the coordinator verifies the compliance and completeness of these documents continuously during the implementation of the action and keeps relevant copies. The turnover of staff and the time elapsing until the end of the action or the occurrence of an audit, can make it difficult — sometimes impossible — to retrieve the necessary missing information and justify eligible expenditure.

Procurement

All paperwork related to procurement undertaken for all work, supply and service contracts (Article 10) have to be available to verify that all the purchases have been done following the applicable procurement rules.

The beneficiaries must keep sufficient and appropriate documentation with regard to the procedures applied and that justify the decision on the pre-selection of tenderers (where an open tender procedure is not used) and the award decision.

Staff costs

Make sure that clear records of all local staff and expatriate staff costs that relate to the action are kept. Information that should be kept includes the labour contract and the details of calculation from gross salary to net salary including relevant social security and insurance contributions.

All these costs must be documented for the beneficiaries and affiliated entities. Lack of documentation and/or access to payroll information is a frequent source of cost ineligibility.

Note that for expatriate (based in country) or Headquarters-based staff, and in addition to the above information, a more detailed record of how much time the person has spent working on the action per month must be kept. Signed and approved timesheets are the soundest way to demonstrate the distribution of a person along the different projects he/she worked for.

However, another paper- or computer-based reliable time recording system, to record (at least) all the time (days/hours) worked for the action can be used. Reliable time records must be dated and signed at least monthly by the person working for the action and their supervisor. If the time recording system is computer-based, the signatures may be electronic (i.e. linking the electronic identity data, e.g. a password and user-name, to the electronic validation data), with a documented and secure process for managing user rights and an auditable log of all electronic transactions.

In the case of a consultant hired for a specific period of time for the action, the contract should give all the relevant information concerning their participation in the action. NB. The hiring of consultants is usually a type of service contract and therefore, in order to recruit them, the rules described in Annex IV apply.

Taxes

In all cases (whether taxes are eligible or ineligible), beneficiaries (and their affiliated entities if applicable) must document the fact that they cannot recover taxes nor obtain an exemption under the applicable national law. This proof does not need to be submitted by default to the contracting authority but must be available on request and must be available to auditors during the expenditure verification report or audit. Refer to Annex J for further information on required evidence.

A ‘self-certification’ would not be sufficient to demonstrate impossibility to get exempted or reimbursed, an ‘external’ confirmation is needed: extract of law, notification by tax authorities, etc.

Boarding passes

Air fares must be substantiated by the passenger receipt and proof of payment. Exceptionally, for circumstances where ‘traditional’ original boarding passes are not provided by the airline company, other adequate alternative and/or corroborative evidence may be accepted (attendance list of a conference, hotel bills, credit card accounts, copy of passport entry/exit stamps, declaration on honour, etc.) provided that the person concerned declares not to have been refunded by any other means of this expense.

Financial support to third parties (including sub-granting)

The supporting documents for FS depend on the purpose of the FS, the type of FS chosen (unit costs, lump-sum, flat-rate, reimbursement of actual incurred costs etc.) as explained in the description of the action.

As a general indication this should include the agreement or contract, and proof that the funds have been received and that the activity for which the FS is given (in cases where the FS is linked to a specific activity) has been implemented.

Any other supporting document as agreed in the contract is acceptable; it does not necessarily have to be the usual ‘grant’ supporting documents (invoices, pay slips etc), since the same cost eligibility rules that cover beneficiaries do not necessarily apply (this is also why it is better to make use of the correct terminology of ‘financial support’ instead of sub-granting, when the FS does not take the form of a sub-grant). The contracting authority and the beneficiaries should determine what is more appropriate.

It is strongly recommended to describe this in detail as much as possible in the contract, so that at the end of the action or reporting period the contracting authority is satisfied and, the beneficiaries and affiliated entities, do not subsequently have problems with auditors. It is best practice, during information sessions, to suggest to potential applicants to already come up with proposals for justifying the FS given.

Example: the FS was established to pay an amount following the realisation of a specific event, or to returnees just to return to their country. In these cases, the accomplishment of the event or the settling back to the place of origin may be proved other than with invoices.

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This article indicates which type of supporting documents might be accepted in accordance with a purpose of harmonisation and clarity. If, for duly justified reasons, such documents cannot be produced, an explanation should be provided and a reasoned decision will be taken on a case-by-case basis by the contracting authority, with the advice of the auditors as appropriate.

16(4) The records and supporting documents shall be easily accessible and filed so as to facilitate their examination and the coordinator shall inform the contracting authority of their precise location.

16(5) All the supporting documents shall be available either in the original form, including in electronic form, or as a copy. Digital and digitalised documents are considered originals if they are authorised by the applicable national law.

The beneficiaries must maintain information systems and accounts and accounting records, and keep all supporting documents, both financial and technical, relating to the action.

Records, and accounting and supporting documents, must be available in documentary form, whether paper, electronic or another medium (e.g. a written record of a meeting is more reliable than an oral presentation of the matters discussed).

Electronic documents can be accepted only where:

-  the documentation was first received or created (e.g. an order form or confirmation) by the beneficiaries in electronic form; or

-  the auditor is satisfied that the beneficiary uses an electronic archiving system which meets established standards (e.g. a certified system that complies with national law).

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16(6)  The beneficiary(ies) shall allow verifications to be carried out by the European Commission, the European Anti-Fraud Office, the European Public Prosecutor’s Office, the European Court of Auditors and any external auditor, including a third party commissioned to perform an assessment of the results achieved or a contractual expenditure verification, authorised by the contracting authority.

The beneficiary(ies) has to take all steps to facilitate their work.

All beneficiaries, affiliated entities, contractors, and recipients of financial support receiving funds from the European Commission, have to allow easy access to all documents and systems used to manage the action to personnel from the European Commission, the OLAF, the European Public Prosecutor’s Office, the European Court of Auditors, any external auditor carrying out verifications/audits of the action and any third party commissioned to assess the results achieved in case of FNLC.

They will require access to documents in the country where the action is operational, and at the head office, as appropriate.

The coordinator, co-beneficiaries, affiliated entities, contractors and third parties receiving financial support have to take all measures possible to facilitate the verifications and promptly provide the required information.

16(7)  The beneficiary(ies) shall allow the above entities to:

a)  access the sites and locations at which the action is implemented;

b)  examine its accounting and information systems, documents and databases concerning the technical and financial management of the action;

c)  take copies of documents;

d)  carry out on the-spot-checks;

e)  conduct a full audit on the basis of all accounting documents and any other document, including of a technical nature, relevant to the financing of the action;

f) conduct an assessment on the results achieved.

16(8)  Additionally the European Anti-Fraud Office and the European Public Prosecutor’s Office shall be allowed to carry out on-the-spot checks and inspections in accordance with the procedures laid down by the European Union legislation for the protection of the financial interests of the European Union against fraud and other irregularities.

Where appropriate, the findings may lead to recovery by the European Commission.

16(9)  Access given to agents of the European Commission, European Anti-Fraud Office, the European Public Prosecutor’s Office and the European Court of Auditors and to any external auditor including a third party commissioned to perform an assessment to perform an assessment of the results achieved or a contractual expenditure verification,  authorised by the contracting authority carrying out verifications as provided for by this Article shall be on the basis of confidentiality with respect to third parties, without prejudice to the obligations of public law to which they are subject.

The information provided to the Commission, OLAF, the European Public Prosecutor’s Office, the Court of Auditors or authorized external auditor or third parties will be treated confidentially and not shared openly with other organisations, without prejudice to the obligations of public law to which the agents are subject to.

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16(10)  Failure to comply with the obligations set forth in Article 16.1 to 16.9 constitutes a case of breach of a substantial obligation under this contract. In this case, the contracting authority may in particular suspend this contract, payments or the time-limit for a payment, terminate this contract and/or reduce the grant.

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Guidelines

17(1) In case of actions by way of reimbursement of costs, the grant may not exceed the maximum ceiling in Article 3(2) of the special conditions either in terms of the absolute value or the percentage stated therein.

If the eligible costs of the action at the end of the action are less than the estimated eligible costs as referred to in Article 3(1) of the special conditions, the grant shall be limited to the amount obtained by applying the percentage laid down in Article 3(2) of the special conditions to the eligible costs of the action approved by the contracting authority.

The special conditions define a maximum grant amount (in absolute terms) that can never be exceeded, and a contribution (in percentage) to the eligible costs (as well as to the ‘accepted costs’ when the accepted cost system has been introduced in the guidelines for applicants and in the special conditions. The percentage contribution stems from the principle of co-financing, which requires that the resources necessary for the implementation of the action are not entirely provided by the EU.

Accordingly, these funds from other sources may take the form of:

- the beneficiaries’ or affiliated entities’ own contribution

- income generated by the action (if relevant an estimate should be provided at proposal stage; it must be confirmed when the request for payment of the balance is submitted)

- financial or in-kind contributions by other donors

In order to avoid double funding of the same costs, the coordinator must indicate the sources and amounts of EU funding received or applied for the same action or part of the action or for its functioning during the same financial year, as well as any other funding received or applied for the same action.

The coordinator has to declare the co-financing actually provided in the final report, but no evidence is needed.

The determination of the final amount of the grant is based on the final reports approved by the contracting authority.

The first step to be undertaken is the validation of these reports and the verification of the compliance with the provisions of the contract.

The final amount of the grant will depend on the approved eligible costs.

The verification of the eligibility of costs is done mainly on the basis of Article 14, but also taking into account other provisions set out in the call for proposals, the special conditions or other relevant annexes to the contract.

If applicable, for eligible costs reimbursed on the basis of simplified cost options defined in the contract, the eligible costs are determined solely on the qualitative and quantitative evidence necessary to verify compliance with the conditions for the payment defined in the contract (notably the justification sheet of the budget, but also the description of the action). In the case of partial fulfilment of the conditions, a pro rata may be applied to the final payment in accordance with the effective realisation.

When funding is determined on the basis of unit costs the adjustment is automatic, and is calculated simply by multiplying the unit cost by the number of units consumed or produced. For lump sums or flat-rates, the correction applied may be more difficult to determine.

Therefore, to avoid conflicts and litigation, it is strongly recommended to agree during the contract preparation stage and then to specify clearly in the contract:

- the conditions for the payment

- how reductions will be applied when only partial fulfilment of these conditions is attained.

It is important that the review of the narrative report and final financial statement occurs in a coordinated manner because to be eligible the costs reported must correspond to the actual implementation of the action, as provided by the contract, and notably in Annex I.

In addition, regardless of the costs incurred, the grant may be reduced in case of non-implementation or poor, partial or late execution (Article 17(2)).

The provisional final amount of EU funding is calculated by application of the set percentage of co-financing of eligible costs specified in Article 3(2) of the special conditions to the eligible costs declared with the request for payment of the balance and approved by the contracting authority.

If a clause in the special conditions (Article 7) provides for the ‘accepted cost system’, the grant is further limited to a percentage of the total accepted cost of the action and not only to a percentage of eligible costs (i.e. the smaller of the two values obtained by application of both percentages apply).

The maximum amount of the grant might also be limited to the maximum EU contribution expressed in terms of the absolute value in Article 3(2) of the special conditions. If the approved eligible costs exceed the estimated costs as referred to in Article 3(1) of the special conditions, the beneficiaries will have to bear the exceeding costs.

Example:

If the total final expenditure is less than originally foreseen, the final payment could be less than the amount stated in Article 4 of the special conditions, as the contracting authority contribution will be limited to the percentage of eligible costs (and accepted costs if applicable) stated in Article 3(2) of the special conditions (see also Article 17(2) of the general conditions).

Example: total budgeted costs are EUR 500 000 of which the contracting authority has agreed to contribute to 80% - i.e. EUR 400 000 in absolute value. It is stated in the special conditions that a final instalment of EUR 40 000 will be paid as the balance. However, at the end of the action, total reported expenditure is only EUR 475 000. The maximum EU contribution will be 80% of this, i.e. EUR 380 000. The beneficiaries have already received EUR 360 000, so the balance to be paid is only EUR 20 000.

The maximum EU contribution and percentage of eligible or accepted costs financed by the contracting authority may never be increased.

17(2) In case of financing not linked to costs, the grant may not exceed the maximum ceiling in Article 3 of the special conditions expressed as an absolute value for part of the action reimbursed by way of the financing not linked to costs.

17(3) In addition and without prejudice to its right to terminate this contract pursuant to Article 12, if the action is implemented poorly or partially - and therefore not in accordance with the description of the action in Annex I - or late, the contracting authority may, by a duly reasoned decision and after allowing the beneficiary(ies) to submit its observations, reduce the initial grant in line with the actual implementation of the action and in accordance with the terms of this contract. This applies as well with regards to the visibility and, if applicable, communication obligations set out in Article 6 and in the special conditions. In case of breach of obligations, fraud or irregularities the contracting authority may also reduce the grant in proportion of the seriousness of breach of obligations, fraud or irregularities. The measures described in the last paragraph may equally be adopted by the European Commission in pursuance of its administrative powers under the Financial Regulation (Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018, OJ-L 193/30.07.2018, p.1).

If only part of the action has been implemented, the contracting authority may reduce the grant proportionally and taking into due consideration the observations of the beneficiaries.

Proportionally does not simply and only refer to a mere financial value or execution of activities: if the missing parts of the action were crucial to its overall implementation, the contracting authority may decide to reduce its contribution beyond the mere financial value of these missing parts.

It is fundamental to set clear and realistic indicators and results in the initial proposal/ contract and to subsequently:

1 - inform the contracting authority immediately about any problems in the implementation of the action or any delays that might jeopardise the achievement of the results;

2 - make sure to get contracting authority’s approval before making changes that may affect the basic purpose of the action, and make sure that these are duly reflected in the amended contract (see also Article 9).

Continuous dialogue and pro-active feedback should take place throughout the project’s implementation. Such exchanges facilitate a better understanding of the difficulties encountered during the implementation and facilitate prompt decisions on mitigating measures (e.g. possible amendments to agreement/strategy, etc.).

Note that a breach of the visibility obligations under Article 6 may also justify a reduction of the grant.

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Guidelines

17(4) The grant may not produce a profit for the beneficiary(ies) except for the cases referred to in Article 17.8.. Profit is defined as a surplus of the receipts over the eligible costs approved by the contracting authority (actual and simplified costs options) when the request for payment of the balance is made.

The final amount of the contracting authority’s contribution must also take into account the non-profit principle, i.e. the financial contribution is limited to the amount required to balance the receipts and the approved eligible costs of the action.

The application of the no-profit principle is made globally, at action level (consolidated), and not for each beneficiary/affiliated entity in the event of a multi-beneficiary contract.

17(5) The receipts to be taken into account are the consolidated receipts on the date on which the payment request for the balance is made by the coordinator which fall within one of the two following categories:

a) EU grant;

b) income (revenue) generated by the action or work programme.

In case of an operating grant, amounts dedicated to the building up of reserves shall not be considered as a receipt.

At the time of the request for payment of the balance the coordinator must also declare all the receipts of the action.

The receipts to be taken into account for the purpose of the no-profit rule are the revenue established (revenue collected and recorded in the accounts), or the revenue generated or confirmed (revenue not yet received but for which the generating event has already occurred or for which the recipient has a commitment or a written confirmation) on the date on which the request for payment of the balance is made. Notably:

a) income generated by the action, (unless the special conditions state otherwise, i.e. where the purpose of the action is to generate an income or where the action is implemented by beneficiaries who are non-profit organisations, see Article 17(7)). NB. If revenue is generated by the action, it is not deducted from the approved eligible costs, but it is considered on the side of receipts for the purposes of the application of the non-profit rule.

Therefore, the following sources are not taken into account for the purposes of the no-profit rule:

- the beneficiaries’ or affiliated entities’ own resources, without prejudice to any provision in the call for proposals (usually deriving from the basic act) requiring a minimum financial contribution from the beneficiaries;

- the revenue generated by the action after the date of the request for payment of the balance;

- financial contributions specifically assigned by the donors to the financing of the same eligible costs declared as actual costs and financed by the contract or which the donors allow for the reassignment to similar actions or other activities in the case of surplus or non-consumption after the implementation of the initial action;

- any interest generated by pre-financing paid to the beneficiaries as well as any interest paid to the beneficiaries as a result of late payment of amounts owed by the contracting authority;

- exchange rate gains;

- in the case of operating grants, the amounts allocated to the establishment of reserves (see Article 17(5));

- in-kind contributions.

Financial contributions of other donors are not to be taken into account for the application of the no-profit rule.

At the time of submission of the request for final payment, the coordinator must comprehensively declare and certify the income generated by the action.

The certificates that may be requested in support of the request for payment of the balance and in case of controls or audits will be based on the agreements signed with the donors, and the criteria above, to check the nature of the amounts reported as receipts by the coordinator.

Beneficiaries’ own contributions

In the absence of specific provisions imposing a minimum contribution from the beneficiary’s own funds, the beneficiary retains an interest to look for other types of external financing and to promote any revenue from its operations throughout the implementation period.

Therefore, if the beneficiaries have provided in the forecast budget a certain amount of their own resources in order to balance costs and receipts, and ultimately the revenue generated by the action or the contributions provided by other donors are more than expected, it is possible to replace the amount of their own resources which have been paid in full, or partially.

Operating grants are not subject to a special treatment for the purposes of the no-profit rule.

Nevertheless, some difficulties of interpretation remain, especially when it comes to distinguishing the beneficiary’s own resources from income generated by the implementation of the Work Programme, part of its normal operation and performance of its statutory duties. To reduce the risk of dependence vis-à-vis the EU funds it is advisable to adopt a restrictive approach to the concept of ‘revenue generated by the programme of work’ and to take into account only the revenues directly attributable to activities specifically listed in the Work Programme (e.g. entrance fees at conferences organised by the beneficiary under its awareness-raising mission).

Conversely, contributions to the beneficiary by its members or supporters, and the proceeds of its fundraising campaigns may be treated as the beneficiary’s own resources and will thus fall outside the scope of the revenue to be used for the application of the principle of no-profit.

17(6) Where the final amount of the grant determined in accordance with this contract would result in a profit, it shall be reduced by the percentage of the profit corresponding to the final EU contribution to the eligible costs actually incurred approved by the contracting authority.

When the subsidised action generates a surplus (profit), the contracting authority recovers the surplus pro rata of the final EU contribution to the financing of the eligible costs actually incurred approved by the contracting authority (thus excluding other eligible costs declared on a Simplified Cost Option basis). In fact, given that the amounts used in the Simplified Cost Option should be determined on the basis of the respect a-priori of the no profit principle, they should be neutralized in the formula for calculating profit (see at this regard Chapter 7(4) of the Vademecum on Grants of DG BUDG).

The amount to be deducted from the contracting authority contribution (established according to Article 17(1)) is calculated by applying the actual rate of reimbursement of eligible costs actually incurred to the surplus, as determined at the time of payment of the balance. The rate of recovery of the profit may be less than the percentage of reimbursement of eligible costs conventionally fixed. This is also the case when the provisional grant amount, after applying double ceiling, reaches the maximum contribution in absolute value established in the special conditions.

17(7) The provisions in Article 17(4) and 17(6) shall not apply, if so specified in Article 7 of the special conditions, to the following cases:

a) actions the objective of which is the reinforcement of the financial capacity of a beneficiary;

b) actions which generate an income to ensure their continuity beyond the end of this contract,;

c) actions implemented by non-profit organisations;

d) study, research or training scholarships paid to natural persons;

e) other direct support paid to natural persons in most need, such as unemployed persons and refugees,;

f) grants of EUR 60 000 or less;

g) grants, or part thereof, in the form of financing not linked to costs. Where an action takes the form of financing not linked to costs and reimbursement of costs, this exception only applies to the part of the action reimbursed by way of financing not linked to costs, without prejudice to the application of other exceptions to the part of the action that takes the form of reimbursement of costs.

The exemptions stated in letter a) b) and e) of Article 17(7) are only applicable if clearly stated in Article 7 of the special conditions.

In the event of a non-profit organisation holding a grant contract with a for-profit entity as co-beneficiary, the exemption stated in letter c) would only apply to the non-profit organisation and, therefore, the profit made by for-profit organisations will be taken into account for applying the no-profit rule.

When the no-profit rule does not apply, the contracting authority will not check whether there is a profit or not. It will just calculate the final amount of the grant according to Articles 17(1) and 17(2).

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18(1)  If any amount is unduly paid to the coordinator, or if recovery is justified under the terms of this contract, the coordinator undertakes to repay the contracting authority these amounts.

In particular, payments made do not preclude the possibility for the contracting authority to issue a recovery order following a contractual expenditure verification report, a third-party assessment of the results achieved in case of financing not linked to costs, or further verification of the payment request.

The coordinator has the sole financial responsibility for the entire contract. The coordinator is liable for any undue funds received, even if the ineligible costs were incurred by other beneficiaries or by affiliated entities. The contracting authority will also recover from the coordinator funds that have been unduly paid to or incorrectly used by contractors and/or third parties receiving financial support irrespective of the fact that the coordinator and/or beneficiary(ies) recovered the funds from the third party recipient or not.

Although the main aim of expenditure verifications and results assessments is to enforce and obtain assurance and understanding of the control systems in place, if it is found that certain costs are not in line with the eligibility criteria that have been set, the underlying costs will be deemed ineligible, including after the final payment. In such cases the contracting authority will reduce the final amount of the grant and recover the funds unduly paid.

18(2) If a verification reveals that the methods used by the beneficiary(ies) to determine simplified costs options are not compliant with the conditions established in this contract or that the results are not achieved, the contracting authority shall be entitled to reduce the final amount of the grant proportionately up to the amount of the simplified cost options or financing not linked to costs.

18(3)  The coordinator undertakes to repay any amounts paid in excess of the final amount due to the contracting authority within 45 days of the issuing of the debit note, the latter being the letter by which the contracting authority requests the amount owed by the coordinator.

If the amount of the pre-financing payments and/or of the balance exceeds the final amount of the grant (as calculated on the basis of approved eligible costs according to Article 17) the coordinator will have to reimburse the difference. In this case a recovery order will be issued by the contracting authority, or the amount can be offset against any other pending payment due to the coordinator (see Article 18(6)).

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18(4)  Should the coordinator fail to make repayment within the deadline set by the contracting authority, the contracting authority may increase the amounts due by adding interest:

a)  at the rediscount rate applied by the central bank of the country of the contracting authority if payments are in the currency of that country;

b)  at the rate applied by the European Central Bank to its main refinancing transactions in euro, as published in the Official Journal of the European Union, C series, where payments are in euros;

on the first day of the month in which the time-limit expired, plus three and a half percentage points. The default interest shall be incurred over the time which elapses between the date of the payment deadline set by the contracting authority, and the date on which payment is actually made. Any partial payments shall first cover the interest thus established.

If the coordinator fails to reimburse amounts due to the contracting authority within the deadline set following the issue of a debit note (or recovery order), the contracting authority may add late payment interest, similarly to the case described in Article 15(6).

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18(5)  Amounts to be repaid to the contracting authority may be offset against amounts of any kind due to the coordinator, after informing it accordingly. This shall not affect the parties’ right to agree on payment in instalments.

The contracting authority may recover amounts due by offsetting them against any other payment due to the coordinator (even for another/different contract, or even under a different budget line).

The contracting authority must not do this automatically but will inform the coordinator in advance. In case of difficulties, the contracting authority may agree on re-payment or offsetting through instalments.

Text of the article

Guidelines

18(6)  The repayment under Article 18(4) or the offsetting under Article 18(5) amount to the payment of the balance.

18(7)  Bank charges incurred by the repayment of amounts due to the contracting authority shall be borne entirely by the coordinator.

Once the final amount of the grant has been established and the total pre-financed by the contracting authority is higher than the amount due, the coordinator bears the cost for returning these undue funds to the contracting authority.

18(8)  The guarantee securing the pre-financing may be invoked in order to repay any amount owed by the beneficiary(ies), and the guarantor shall not delay payment nor raise objections for any reason whatsoever.

Guarantees may be called in as a mean to recover undue funds paid to the coordinator, even if the ineligible costs were incurred by co-beneficiaries or affiliated entities.

18(9)  Without prejudice to the prerogative of the contracting authority, if necessary, the European Union may, as donor, proceed itself to the recovery by any means.

The EU reserves the right to substitute the contacting authority if it does not take action to recover amounts unduly paid.