DG Research - Directorate B - Unit 02: Strengthening cooperation in research and European scientific...

DG Research - Directorate B - Unit 02: “Strengthening cooperation in research and European scientific base ”

Jean-David MALO - Brussels, 30th of September 2004 - NOT LEGALLY BINDING - Page n°1Presentation made by Bertrand MICHAUD – Unit B-04

ERA-NET – Financial aspects

Financial Guidelines

for ERA-NET instruments




EC financial support : Public procurement or Grant

Introduction: General principles





EC FP6 financial support : Both Public procurements and Grants





Form depends of the type of instrument concerned

ERA-NET Coordination Actions

ERA-NET Specific Support Actions

Grant tothe Budget

Costs reimbursement

Grants




1- Grant to the Budget1.1- Calculation of the EC contribution

When it is in the form of a grant to the budget, the Community financial contribution is calculated according to:

a provisional budget of estimated eligible costs and receipts broken-down per type of activity and per participant ;

the type of cost reporting model used by the participants ;

the maximum reimbursement rates of eligible costs per type of activity and cost model according to the instrument concerned;

and within the limits of public funding established for research and technological or innovation activities and demonstration activities by the Community framework for State aid for research and development ;






1.1.1- Eligible costs

Notion of eligible costs is defined by four cumulative levels:

The definition of eligible costs itself; [Art. II.19]

The restrictions introduced by the definitions of direct and indirect eligible costs; [Art. II.20 and II.21]

The restrictions introduced by the type of activities proposed per type of instruments; [Art. II.2]

The restrictions introduced by the cost reporting models used by the participants. [Art II.22]





1.1.1- Eligible costs1.1.1.1- Definition of eligible costs (Level 1)

An eligible cost is cost which is not part of the list of non-eligible costs [Art II.19.2]:

The following non-eligible costs may not be charged to the project: any identifiable indirect taxes, including VAT or duties; interest owed; provisions for possible future losses or charges; exchange losses; costs declared, incurred or reimbursed in respect of another Community project; cost related to return on capital; debt and debt service charges; excessive or reckless expenditure; any cost which does not meet the conditions of an eligible cost.






Eligible costs incurred for the implementation of the project must fulfil all of the following conditions (1/3):

they must be actual, economic and necessary for the implementation of the project; [Art II.19.1.a)] and they must be determined in accordance with the usual

accounting principles of the contractor; [Art II.19.1.b)] and

they must be incurred during the duration of the project except for the costs incurred in drawing up the final reports which may be incurred during the period of up to 45 calendar days after the end of the project or the date of termination whichever is earlier; [Art

II.19.1.c)] and







they must be recorded in the accounts of the contractor that incurred them , no later than at the date of the establishment of the audit certificate. The accounting procedures used in the recording of costs and receipts shall respect the accounting rules of the State in which the contractor is established as well as permit the direct reconciliation between the costs and receipts incurred for the implementation of the project and the overall statement of accounts relating to the overall business activity of the contractor, [Art II.19.1.d)] and







• In the case of contributions made by third parties established on the basis of an agreement between the contractor and the third party existing prior to the participation of the contractor in the contract, and for which the tasks and their execution by such a third party are clearly identified in the technical Annex (Annex I), the costs must be [Art. II.19.1.e)]:

incurred in accordance with the usual accounting principles of such third parties and the principles set out for any contractor; and meet the other provisions of the eligible costs definition and of Annex ; and be recorded in the accounts of the third party no later than the date of the establishment of the audit certificate.





1.1.1- Eligible costs1.1.1.2- Definition of direct and indirect eligible costs

(Level 2)

Direct eligible costs are all costs that fall under the definition of eligible costs which can be charged directly to the project, and are determined by the contractor in accordance with its usual accounting practices [Art II.20.1].

Two particular cases:

For AC contractors, only additional direct costs are eligible (see point 1.1.1.4); Subcontracts may be, by definition, a form of direct eligible costs.

However, as a general rule, contractors must have the capacity to carry out the work themselves. Subcontracting is a derogation !






(Level 2)

The specific conditions for subcontracting (1/3) [Art. II.6]:

a sub-contract relates to the production of a service. It should be clear then that any intellectual property results from any subcontracted work belongs to the contractor and must be at the entire disposal of the contractor;

any subcontract must be selected: in full compliance with the national legislation of the contractor concerned. the selection criteria of the subcontractor(s) must be based on the best value for money given the quality of the service proposed (best price-quality ratio) and must assure transparency and equality of treatment; => quotes ; public procurements ; …)

Subcontracts may relate only to a limited part of the project.Therefore, core elements of the project can not be subcontracted.






(Level 2)

The specific conditions for subcontracting (2/3) [Art. II.6]:

As a general rule, the tasks to be subcontracted need the prior agreement of the Commission and are identified in Annex I. By derogation to this general rule, contractors are free to subcontract tasks that are not identified as such in the technical annex but with the additional obligation to justify the necessity of those subcontracts at the relevant periodic justification.

Even though certain subcontracted services may be performed by a subcontractor, the contractor maintains full responsibility for its actions and must ensure that certain the provisions of the model contract are reflected in the agreement with the subcontractor.






(Level 2) The specific conditions for subcontracting (3/3) [Art. II.6]:

In its agreement with the subcontractor (the subcontract), the contractor must ensure that:

the subcontractor waives all rights in respect of the Commission under the contract ; the following provisions of Annex II (General conditions) to the FP6 model contract applies also to the subcontractor:

Confidentiality (Article II.9); Communication of data for evaluation, impact assessment, standardisation purposes and communication of information beyond the research community (Article II.10); Information to be provided to Member States or Associated States (Article II.11); Publicity (Article II.12); Payment modalities (suspension of payments) (Article II.28.8); Controls and audits (Article II.29);






(Level 2)

Indirect eligible costs are all eligible costs determined by the contractor, in accordance with its usual accounting practices, which are not directly attributable to the project but are incurred in direct relation to the direct eligible costs of the project. [Article II.21]

A particular case in ERA-NET : any indirect eligible costs are deemed to be covered by a flat rate (see point 1.1.1.4)





1.1.1- Eligible costs1.1.1.3- Type of activities (Level 3)

Type of activities provided depends of the type of instrument concerned






Management of the consortium activities cover actions that can be carried out by every contractor or in some cases are limited to only a few contractors (except for the audit certificates) include the following task (1/2) [Art. II.2.4]:

obtaining audit certificates by each of the contractors.

implementation of competitive calls by the consortium for the participation of new contractors, in accordance with the provisions of the contract (not applicable for ERA-NET).

maintenance of the consortium agreement if it is obligatory

obtaining any financial security such as bank guarantees when requested by the Commission;






Management of the consortium activities cover actions that can be carried out by every contractor or in some cases are limited to only a few contractors (except for the audit certificates) include the following task (2/2) [Art. II.2.4]:

any other management activities at the consortium level not covered by any other activity, such as:

coordination of the technical activities of the project; the overall legal, contractual, ethical, financial and administrative management; coordination of knowledge management and other innovation-related activities; overseeing the promotion of gender equality in the project; overseeing science and society issues related to the research activities conducted within the project;

any other management activities foreseen by the annexes.






The costs of the management of the consortium activities are reimbursed at a rate of 100% to all contractors regardless of their cost model, up to a limit of 7% of the Community financial contribution to the project.

Once the limit of 7% of the Community financial contribution is reached, a management activity that is linked to another activity of the project can be charged under this activity.

The limitation of 7% of the Community financial contribution does not apply to each individual contractor but to the project as a whole. [Art. II.25] For training activities, the salary costs of those being trained are not eligible under this activity [Art. II.25].

Under a Coordination Action, other specific activities relate to Coordination.





1.1.1- Eligible costs1.1.1.4- Cost reporting models (Level 4)

Three cost models are suggested for participants under FP6:

Full Cost with actual indirect costs (FC)

Full Cost with indirect Flat rate costs (FCF)

Additional Cost with indirect flat rate costs (AC)






Full Cost with actual indirect costs (FC)In this model, eligible direct and indirect costs are charged by the contractors.

Full Cost with indirect Flat rate costs (FCF)In this model, eligible direct costs and a flat rate for indirect costs are charged by the contractors. This flat rate applied is 20% of all eligible direct costs minus the eligible direct costs of sub-contracts.

Additional Cost with indirect flat rate costs (AC)In this model, eligible direct additional costs and a flat rate for indirect costs are charged by the contractors. The flat rate is equal to 20% of all eligible direct additional costs minus the eligible direct additional costs of sub-contracts.

General definition [Art.22.1]






ERA-NET definition [Art.22.1 + Art. II.25]

Full Cost with actual indirect costs (FC)Derogation to the general definition: eligible direct costs and a flat rate for indirect costs are charged by the contractors. This flat rate applied is 20% of all eligible direct costs minus the eligible direct costs of sub-contracts.=> definition identical to FCF

Full Cost with indirect Flat rate costs (FCF)General definition

Additional Cost with indirect flat rate costs (AC)General definition






Direct additional costs [Art. II.20.2] are direct costs additional to the normal recurring costs of the contractor and not covered by any other sources of funding. For direct additional costs of personnel, there are three possibilities to charge these costs to the contract:

personnel with a temporary contract for working under the Community contract concerned ; personnel with a temporary contract with a view to completing a doctorate ; personnel whose employment contract depends wholly or in part on additional external financing. In this case, costs charged to the project must exclude all costs covered by normal recurring financing.

One derogation to the definition of eligible costs, relates to the costs incurred for management of the consortium activities by contractors using the AC model. They may charge their eligible direct costs (especially of permanent personnel) to this activity, on condition that they can to identify and justify them precisely. The flat rate for indirect costs also applies to these eligible direct costs [Art. II.25].

Particularities






Access to a cost model depends on the type of legal entity concerned [Art. II.22.2 and II.22.3]:

All legal entities can use the FC model with the exception of physical persons ;

Physical persons are obliged to use the AC model ;

Non-commercial or non-profit organisations established either under public law or private law and international organisations may choose one of the AC, FCF or FC models. However, only those non-commercial or non-profit organisations which do not have an accounting system that allows the share of their direct and indirect costs relating to the project to be distinguished may opt for the AC model.

Legal entities defined as SMEs have the choice between the FC and FCF model.











General rule : Each contractor shall apply the same cost reporting model in all contracts established under the Sixth Framework Programme [Art. II.22.4].

As a derogation to this principle [Art. II.22.4]: any legal entity which is eligible to opt for the AC model in a first contract can change to the FCF or the FC model in a later contract. If it does so, it must then use the new cost reporting model in subsequent contracts; any legal entity which is eligible to opt for the FCF model in a first contract can change to the FC model in a later contract. If it does so, it must then use the new cost reporting model in subsequent contracts.

AC FCF FCYES FCF FC

AC FC

FC FCF ACNO FC FCF

FCF AC




1- Grant to the Budget1.1- Calculation of the EC contribution1.1.2- Maximum reimbursement rates

General rules for the maximum reimbursement rates of eligible costs [Art. II.25]

The type of cost model, the type of activity and the type of instrument determine the maximum reimbursement rates of eligible costs:

For contractors using the AC model: 100% of their additional costs whatever those activities might be. (Exception is for management activities which may include the costs of permanent personnel if they can be calculated and proven to be real).

For contractors using the FC or FCF models: for research and technological development or innovation activities: 50% of eligible costs; for demonstration activities : 35% of eligible costs ; for training activities : 100% of eligible costs; for management of the consortium activities : 100% of eligible costs for other specific activities : 100% of eligible costs.





ERA-NET rules for the maximum reimbursement rates of eligible costs [Art. II.25]

For contractors using the AC model: 100% of their additional costs whatever those activities might be both for Coordination Actions (CA) and Specific Support Actions (SSA). (Exception is for management activities which may include the costs of permanent personnel if they can be calculated and proven to be real).

For contractors using the FC or FCF models: for training activities: 100% of eligible costs (for CA only); for management of the consortium activities: 100% of eligible costs for other specific activities (coordination): 100% of eligible costs.








The reimbursement rate is a possible maximum rate because:

the receipts of the project must be taken into consideration in determining the total amount of the Community financial contribution [Art. II.23];

the limits of public funding established by international regulations and in particular by the Community framework for State aid for research and development for certain activities and legal entities must also be taken into account in determining the total amount of the Community financial contribution [Art. II.24.3]. (Does not apply for ERA-NET, as RTD and demonstration activities are not proposed under ERA-NET instruments).






1.1.3- Receipts

When it is a grant to reimburse eligible costs, the Community financial contribution may not have the purpose or effect of producing a profit for the beneficiaries (the participants). [Art. II.24.2]

The notion of profit is defined as “the surplus of receipts over the costs of the action in question (…)”

As a consequence, since the Community financial contribution for a Grant to the Budget is calculated, among other criteria, on the basis of a provisional budget and according to maximum reimbursement rates of eligible costs, this provisional budget must be composed of estimated eligible costs as well as of estimated receipts (cf CPF A3.1).





1.1.3- Receipts

Taking into account the notion of receipts, the maximum reimbursement rates of eligible costs must be understood as limited by the difference between the total eligible costs and the receipts.

Three kinds of receipts must be taken into consideration [Art. II.23]: Financial transfers or their equivalent to the contractor from third parties ; Contributions in kind from third parties; Income generated by the project.

In the first two cases (financial transfers or contributions in kind), these endowments are considered as receipts of the project if the third party has provided them specifically to be use in the project.If, on the other hand, these endowments are at the discretion of the contractor they are not to be considered as receipts.





1.1.3- Receipts

In the second case, where contributions from third parties are used for the project by the contractor, the latter is required to inform the third party of this use and in accordance with the national legislation or practice in force.

In the case of income generated by the project itself: any income generated by the project itself, including the sale of assets bought for the project (limited to the initial cost of purchase) are considered as income to the project (eg : admission fee to a conference carried out by the consortium ; sale of the proceedings of the aforementioned conference ; sale of an equipment bought for the project…) ; by derogation to the above mentioned principle, income generated by the use of the knowledge resulting from the project is not considered as a receipt. Indeed, the use of the knowledge resulting from the project is the main objective of any project supported by an FP6 Community financial contribution.




Participants using a full cost model (FC or FCF) must declare all their eligible costs and all types of receipts.

Participants using the additional cost model (AC) [Art. II.20.2]:

May only charge their additional direct eligible costs that are not covered by any other contribution;

Must only declare their receipts taking the form of income generated by the project itself.

At the level of the calculation of the grant (proposal/negotiation), provide only information relating to “assured” receipts.


1.1.3- Receipts





1.1.4- Examples

Example 1: CA with no receipts

Example 2: CA with receipts




1- Grant to the Budget1.2- Payment modalities of the EC contribution

1.2.1- General overview

The Community financial contribution mentioned in the second paragraph of article 5 of the core-contract is a maximum that can never be exceeded [Art. II.28.2].

Community financial contribution is paid to the consortium through the coordinator [Art. 8.1].

A system of periodic pre-financing (advances) and periodic payments [Art. 8].

Payments are based on the approval of periodic reports and/or reviews [Art. 7 and Art. II.7].





1.2.1- General overview

When it is in the form of a grant to the budget, the Community financial contribution is made to the consortium under the following cumulative conditions [Art. II.24.1]:

is based on the same modalities than those used for its calculation (eligible costs, receipts, cost reporting models, maximum reimbursement rates);

plus: according to the assessment of requested reports provided by the consortium (see 1.2.2.1 and 1.2.2.2); subject to the submission of audit certificate(s) (see 1.2.2.3) [Art.II.26]; taking into consideration the interests (or any equivalent benefit) yielded by prefinancing (only for the coordinator) [Art. II.27]





1.2.2- Detailed modalities1.2.2.1- Reporting Periods

The duration of each project is divided in reporting periods [Art. 6].

For ERA-NET, duration of reporting periods are, as a general rule, the following ones:

SSA: one single reporting period (duration equal or inferior to 12 months) (First cut-off data: average duration: 11 months ; max: 12 ; min: 9 – 18 contracts) (Second cut-off data: average duration: 11 months ; max: 12 ; min: 9 – 5 contracts)

CA: several reporting periods: For CA of duration of 36 months : 2 reporting periods (2 x 18) For CA of duration of 48 months : 3 reporting periods (2 x 18 + 1 x 12) For CA of duration of 54 months : 3 reporting periods (3 x 18) For CA of duration of 60 months : 3 reporting periods (2 x 18 + 1x 24) or 4 reporting periods (2 x 18 + 2 x 12)(First cut-off data: average duration: 48 months ; max: 60 ; min: 36 – 14 contracts)(Second cut-off data: average duration: 46 months ; max: 60 ; min: 36 – 18 contracts)Contracts with 2 reporting periods : 7 ; contracts with 3 reporting periods: 25)




Any report must

be concise and clear

be organized by work packages and tasks

identify the contributions from the various participants

respect the reporting guidelines

respect the page limit where applicable

be submitted within the contractual delays


1.2.2- Detailed modalities1.2.2.2- Reports






Periodic reports for CAs :

The coordinator, on behalf of the consortium must submit to the Commission, by electronic means and by mail, within 45 calendar days following the end of each reporting period the following periodic reports [Art. II.7.1 and II.7.2]:

a periodic activity report ; a periodic management report including:

a justification of the resources deployed by each contractor, linking them to activities implemented and justifying their necessity; Form C (Financial statement per activity) provided by each contractor for that period; a summary periodic financial report;

a report on the distribution made between contractors of the Community financial contribution during that period; any supplementary reports required by any Annex to the contract, especially Annex I (technical annex). and if requested an audit certificate per contractor (see 1.2.2.3)






Final Reports (for CAs and SSAs) :

The coordinator, on behalf of the consortium, must submit to the Commission, by electronic means and by mail, within 45 calendar days (this delay may be increased by 45 days at the request of the consortium), following the end of the last reporting period the following final reports [Art. II.7.1, II.7.3 and II.7.4]:

a final activity report; a final management report; any supplementary reports required by any Annex to this contract, especially Annex I (technical annex) and Annex III (specific provisions) an audit certificate per contractor (see 1.2.2.3).

The coordinator, on behalf of the consortium must submit to the Commission, by electronic means and by mail, within 60 calendar days following the date of reception of the last payment of the Commission the following report:

a report on the distribution of the Community financial contribution between contractors made after the end of the project ;





1.2.2- Detailed modalities1.2.2.3- Audit certificates

Audit certificates:

An audit certificate is a certification of the costs claimed under the project (Form C). It is not an audit that the Commission may launch at any time and up to 5 five years after the end of the project.

At least one audit certificate per contractor covering the whole duration of an indirect action must be provided for projects supported through a Grant to the Budget.

Without an audit certificate, a financial statement approved by the Commission(Form C) can not lead to the requalification of the relevant part of the pre-financing as a final payment






Audit certificates:

For ERA-NET SSAs : one audit certificate per contractor at the end of the project

For ERA-NET CAs :The timing of submission of an audit certificate per contractor is at the discretion of the Commission services. In this context, as a general rule:

For contracts with 2 reporting periods : 2 audit certificates per contractor; For contracts with 3 reporting periods : 2 or 3 audit certificates per contractor; For contracts with 4 reporting periods : 3 audit certificates per contractor; Even though an audit certificate may not be required for a specific period, an audit certificate must always be provided by any contractor where the Community financial contribution requested by that contractor in its Form C exceeds € 750,000 for that period.









Audit certificates:

An audit certificate can be delivered by: an external auditor; or, for a public body a public competent officer

The auditor must be : independent from the contractor (“in appearance and in fact” or considered as independent by nature by national authorities) qualified to carry out statutory audits of accounting documents:

in accordance with the 8th Council Directive 84/253/EEC of 10 April 1984 or similar national regulations (for external auditor); recognised as such by national authorities (competent public officers).








Audit certificates:

An audit certificate will certify (model provided in FP6 Financial Guidelines):

that the total eligible costs declared by the contractor in Box 2 of one (or several) Form(s) C comply with the following cumulative conditions:

they are determined according to the relevant cost reporting model for which this type of legal entity is eligible; they fulfill the definition of eligible costs, except for the requirement of necessity in the allocation of resources by the contractor.

the total amount of receipts declared by the contractor in Box 3 of one (or several) Form(s) C; the total amount of interest yielded by the pre-financing declared for the relevant period by the coordinator in Box 4 of one (or several) Form(s) C; the relevant basis for the conversion rate used of EURO (if relevant)





1.2.2- Detailed modalities1.2.2.4- Prefinancing and payments

SSAs

A first prefinancing equal to 80% of the estimated maximum Community financial contribution within 45 calendar days following the date of entry into force of the contract. [Art. 8.2.(a)]

Within 45 calendar days following the approval by the Commission of the requested reports and no later than 90 calendar days following the receipt of the complete requested reports:

Payment of the outstanding balance (if any) [Art. 8.2.(b) and Art.8.2.(e)]; or Request for reimbursement. [Art. II.28.6]

Reminders: Co-financing is an obligation for SSAs (see footnote n°1 of table of Section 2 of Annex III of FP6) => Total eligible costs justified and accepted must be superior to EC contribution; For SSAs, where the total eligible costs claimed are lower than the grant foreseen in the contract, the reimbursement rate shall be 95% of the eligible costs [Art. II.25].






CAs

A first prefinancing equal to 80% of the estimated Community financial contribution for the first reporting period (P1) and the first six months of the second reporting period, within 45 calendar days following the date of entry into force of the contract. [Art. 8.2.(a)]

Example:

=> First prefinancing equal to: 80% x (830.000 +290.000) = € 896.000






CAs

Within 45 calendar days following the approval by the Commission of the requested periodic reports and no later than 90 calendar days following the receipt of the complete requested periodic reports:

if audit certificate:• a payment settles the amounts justified and accepted for the relevant reporting period (example: P1);• an intermediary prefinancing equal to a maximum of 80% of the estimated Community financial contribution for the subsequent reporting period (example: P2) and the first six months of the reporting period following (example: P3), within the limit of 80% of the difference between the maximum Community financial contribution and the payment(s) accepted.






CAs

Within 45 calendar days following the approval by the Commission of the requested periodic reports and no later than 90 calendar days following the receipt of the complete requested periodic reports:

if no audit certificate:• an intermediary prefinancing equal to a maximum of 80% of the estimated Community financial contribution for the subsequent reporting period (example: P2) and the first six months of the reporting period following (example: P3):

within the limit of 80% of the difference between the maximum Community financial contribution and the payment(s) accepted. and if at least 70% of the initial prefinancing has been consumed






CAs

Example related to the impact of audit certificate (for a CA)

Hypothesis

The periodic justified and accepted eligible costs are considered as equal to the estimated Community financial contribution per reporting period.






CAs

Example related to the impact of audit certificate (for a CA)

Case n°1

Case n°2Difference: €157.000




PREFINANCING CALCULATION METHOD USED IN EXAMPLE ON SLIDE 52 English Version: 2 prefinancings paid: The 1st: 896.000€ (80% x [830.000+290.000]) The 2nd: (80% x [785.000+315.000]) - (896.000-830.000) = 814.000€ ie a total prefinancing equal to 1.710.000€ A part of this prefinancing is already requalified as: 830.000€ The balance of prefinancing actually available for the consortium is equal to 880.000€. Here comes the justification of the second reporting period and the third prefinancing. According to the hypothesis the accepted costs lead to a financial contribution from the Community amounting to 785 000 €. Consequently, with or without an audit certificate, the prefinancing actually at the disposal of the Consortium decrease from 880.000€ to 95.000€.






The third prefinancing will therefore be:

If there is an audit certificate: (80% x 785.00) - (880.000-785.000) within the limit of [80% x (2.400.000 - 830.000 - 785.000)] - 95.000 = 533.000 within the limit of 533.000 = 533.000€

If there is NO audit certificate: (80% x 785.00) - (880.000-785.000) within the limit of [80% x (2.400.000 - 830.000)] - 880.000 = 533.000 within the limit of 376.000 = 376.000€







1.2.2- Detailed modalities1.2.2.5- Example




Two kinds of controls may be distinguished: Ex-ante controls (before the signature of the contract) ; Ex-post controls (during and after the implementation of the project)

Reimbursements to the Commission.

Sanctions: Liquidated damages; Financial penalties; Exclusion for irregularity Other sanctions

1- Grant to the Budget1.3- Recoveries and sanctions




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