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Legal and Financial FrameworkLegal and Financial Framework
FP6FP6 Miriam Driessen ReillyMiriam Driessen Reilly
Legal Unit, DG INFSOLegal Unit, DG INFSO
Open Day - BrusselsOpen Day - Brussels
30 May 200530 May 2005
2
Overview – Legal AspectsOverview – Legal Aspects
Legal framework and general principles
Contract structure
Conclusion of the contract
Evolution of the consortium
Reporting
Amendments
Controls and sanctions
Consortium agreement
Intellectual property rights
3
EC
TREATY
FRAMEWORK PROGRAMME
SPECIFIC PROGRAMMES
PARTICIPATION AND DISSEMINATION RULES
CONTRACTSOther relevant EC Regulations
FINANCIAL REGULATION
INTERNATIONAL AGREEMENTS
WORK PROGRAMMES &
Calls for proposals
GUIDELINES ON EVALUATION AND
SELECTION PROCEDURES
Legal FrameworkLegal Framework
4
Core contract (standard with specifics of project)(possibly including special clauses)
Annex I (technical tasks - the “project”)
Annex II General Conditions(applicable to every instrument)
Annex III Instrument specific provisions (specific to instrument)
Contract structureContract structure
5
Contract structureContract structure
Annex IV - Form A Consent of contractors identified in the core-contract
(article 1.2) to accede to the contract. To be signed by the contractor concerned and by the coordinator.
Annex V - Form B Accession of new legal entities to the contract. To be
signed by the new contractor concerned and by the co-ordinator
Annex VI - Form C Financial statement per activity. Specific to each
Instrument and/or type of action. To be filled periodically by each contractor
6
Annex II – General ConditionsAnnex II – General Conditions
Part A Implementation of the Project
Section 1 Implementation and deliverables
Section 2 Termination of the contract and responsibility
Part B Financial Provisions
Section 1 General financial provisions
Section 2 Controls, recoveries and sanctions
Part C Intellectual Property Rights
7
Contract structure & instrumentsContract structure & instruments
Core contract Annex II Annex III
IP Yes
NoE Yes
STReP
CA Common Common None
SSA
SME Yes
I3 Yes
8
General Rule:
Participant = contractor
Every legal entity contributing to a project must have a
contractual link with the Community
Exceptional cases: subject to very restrictive rules
Third parties identified in Annex I
Subcontractors
ContractorsContractors
9
A contractor among other contractors
No additional rights
BUT
Additional obligations
Administrative tasks: single entry point for
communication, payments, reporting etc.
Co-ordinatorCo-ordinator
10
Conclusion of the contract Conclusion of the contract 1/21/2
The contract will be concluded between the Commission and all participants in an indirect action (the ‘Consortium’).
It will enter into force upon signature by the Commission and the contractor acting as ‘Co-ordinator’ of the project.
The other participants identified in the contract will accede to it in accordance with Article 2, assuming the rights and obligations of the contract with effect from the date on which it enters into force.
11
Conclusion of the contract Conclusion of the contract 2/22/2
Within a fixed time-limit after the entry into force of the contract, the Coordinator must send to the Commission the Accession Form A to be obtained from each of the participating contractors.
Should any named participant fail or refuse to accede to the contract within the deadline, the Commission is no longer bound by its offer. It may terminate the contract.
The Consortium may propose appropriate solutions to the Commission to ensure the implementation of the project, including the accession of other alternative legal entities.
12
Evolution of the Consortium Evolution of the Consortium 1/31/3
The Consortium may be enlarged to include other legal entities, which shall accede to the contract by means of Accession Form B.
The Commission is deemed to have accepted this legal entity as a contractor to the Consortium if it does not object within six weeks of receipt of Form B (Tacit Approval).
Any acceding participant shall assume the rights and obligations of the contractors as established by the contract with effect from the date of its accession to the contract.
13
Evolution of the Consortium Evolution of the Consortium 2/32/3
Any contractor may request the termination of its participation in the contract.
The consortium may request the termination of any contractor.
Tacit approval of such termination after six weeks.
Contractors leaving the Consortium shall be bound by the provisions of the contract regarding the terms and conditions applicable to the termination of their participation.
14
Particular cases of NoE and IP Particular cases of NoE and IP 3/33/3
For some changes in the composition of the consortium, requirement of prior publication of a competitive call (see Annex III)
Specifications of the changes in the joint programme of activities for a NoE and in the implementation plan for IP
The competitive call shall be published by the consortium and advertised widely using specific information support (Internet sites of FP6, specialist press and brochures, national contact points)
Offers shall be evaluated by the consortium according to the evaluation and selection criteria of the indirect action (Article 10.4 and 10.5 of RFP), and with the assistance of independent experts appointed by the consortium
15
Entry into force and durationEntry into force and duration
Contract enters into force upon signature of Co-ordinator and Commission
Project begins on date established in the contract
Implementation and payment phases relating to the project must be completed by the final implementation date of the contract
Contract completed when the rights and obligations of all parties to the contract have been met
Some provisions continue to apply after the final implementation date
16
Controls and AuditsControls and Audits
Controls
Periodic activity reports (including plan for dissemination and use)
Periodic financial reports
Supplementary reports if foreseen (in Annex I or III)
Final reports covering the whole project duration
Audits
Scientific, technological and financial audits
Annual monitoring by Commission with external experts (particularly for IP and NoE)
Ethical or other reviews
Contractors right to refuse particular expert
17
Reporting Reporting 1/21/2
Submission of periodic reports and deliverables within 45 days of the end of the reporting period
periodic activity report
periodic management report (including justification of resources deployed, Form C “Financial Statement”, consolidated summary financial report)
report on distribution between contractors
supplementary reports required by Annex I
audit certificate when required
c
Amendments - tacit for approval of project activity reports and for consortium changes
Special conditions*
* under development
18
Reporting Reporting 2/22/2
Submission of final reports within 45 days after the end of the project. Delay may be increased by 45 days at the request of the consortium
final activity report
final management report
supplementary reports
report on the distribution of the Community financial contribution between contractors made after the end of the project
19
Submission and approval of reportsSubmission and approval of reports
Electronic submission of reports and deliverables. In
addition, submission of originals of these documents
and of audit certificates by registered mail with
acknowledgement of receipt.
Reception date of submission by mail prevails
Approval of any report does not imply exemption
from any audit or review
20
AmendmentsAmendments
Requests for amendments shall be submitted by registered mail with acknowledgement of receipt
Requests for amendments are submitted by the Coordinator on behalf of the consortium
Commission undertakes to approve or reject any amendment request within 45 days of receipt
No tacit approval of amendment request, except for modification or evolution of the consortium
All amendments shall be in writing
21
SanctionsSanctions
Recovery of unjustified financial contribution
Liquidated damages for overstated expenditure
Administrative or financial sanctions foreseen in the Financial Regulation
False declarations
Exclusion from selection for 2-3 years, without prejudice to financial penalty of 2-10% of value of contract
Fraud, criminal activity, money laundering, bankruptcy, professional misconduct, tax offences, corruption
Exclusion from selection for 1-5 years
* Without prejudice to any civil remedies or criminal proceedings
22
Characteristics:
Private Contract between the contractors
Provides for internal operation and management of the consortium
Commission does not review it or approve it
However, provisions must not conflict with provisions of EC Contract
May be modified/amended after entry into force
Non-binding guidelines published by the Commission
The Consortium Agreement The Consortium Agreement 1/21/2
23
The Consortium Agreement The Consortium Agreement 2/22/2
Mandatory unless excluded by the call for proposals Internal Organisation
Designation of co-ordinator Management structure Technical implementation Organisation of work to be carried out (sub-projects) Allocation of funds paid to consortium Changes in consortium’s composition (modification)
Intellectual Property Rights ensure that agreements necessary for the implementation of the project have
been reached - Eg exclusion of background/sideground/Financial issues
initiate common strategy on dissemination/use/ protection + search for industrial partners
*See Suggested Consortium Agreement Checklist
http://europa.eu.int/comm/research/fp6/working-groups/model-contract/index-en.html
Settlement of Internal Disputes Applicable law Arbitration procedure Penalties
24
Intellectual Property Rights (IPR) Intellectual Property Rights (IPR) 1/21/2
General concepts:
Ownership
Grants - contractor carrying out work owns the results
Joint work between contractors – joint ownership
Agreement re allocation & terms of exercising it
public procurement - Commission owns results
transfer of ownership
prior notice to other participants + Commission (possible objection within 30 days)
Obligation to pass on obligations AR/dis/use to assignee
Personnel Agreements
Protection
where there is commercial application and subject to legitimate interests, it is a requirement to protect (include in PUDK)
where there is no protection, Commission may protect
25
Intellectual Property Rights (IPR) Intellectual Property Rights (IPR) 2/22/2
General concepts:
Publication allowed if not detrimental to protection
prior notice to Commission + other contractors (possible objection within 30 days)
Use/dissemination obligation to use and disseminate knowledge
St protection/use w/in 2 yrs of end of project
Commission may disseminate itself if needed
Access Rights – PEKH & Knowledge Granted to other contractors upon written request
On a need to use basis
May exclude specific PEKH by written agreement prior to EC contract signature
No automatic entitlement to grant sublicences
26
FP6 System of Access RightsFP6 System of Access Rights
Access rights topre-existing know-how
Access rights toknowledge
If a contractor needs them for carrying out its own work under the project
For carrying out the project
Royalty-free unless otherwise agreed
before signing the contract
Royalty-free
If a contractor needs them for using its own knowledgeFor use
(exploitation + further research)
Non-discriminatory conditions to be agreed
Royalty-free unless otherwise agreed
before signing the contract
Possibility for participants to agree on exclusion of specific pre-existing know-how before signature of the contract (or
before entry of a new participant)
27
Overview – Financial AspectsOverview – Financial Aspects
Introduction
New concepts introduced in FP6
Financial Reporting
28
IntroductionIntroduction
Award principles
Grant to budget and grant for integration
Eligibility of costs /ineligibility of costs
Principle of cost reimbursement
Cost reporting models
Activities
Maximum reimbursement
29
Award Principles Award Principles
CO-FINANCING
The award of grants shall be subject to the principles of transparency and equal treatment. They may not be cumulative or awarded retrospectively and they must involve co-financing.
NO PROFIT
The grant may not have the purpose or the effect of producing a profit for the beneficiary
Financial Regulation Art. 109 Implementing Rules Art. 165
30
IntroductionIntroductionGrant to budget – grant for integrationGrant to budget – grant for integration
Grant to budget – IP and other instruments calculated as a percentage of the budget established by
the participants to carry out the work the expense needed to implement the work shall be
certified by an external auditor or, in the case of public bodies or competent public officer
Grant for integration – NoE calculated taking into account the degree of integration,
the number of researchers that all participants intend to integrate, the characteristics of the field of research concerned and the joint programme activities
paid on the basis of results, … and on condition its expenses, which are to be certified….. are greater then the grant itself.
31
IntroductionIntroductionPrinciples of cost reimbursementPrinciples of cost reimbursement
CONCEPT OF ELIGIBLE COSTS
Actual, economic and necessary
In accordance with the usual accounting principles of the contractor
During the duration of the project … except … drawing up the final reports … which may be incurred during the period of up to 45 days after the end of the project
Recorded in the accounts …
In case of contributions made by third parties … be recorded in the accounts of the third party
32
IntroductionIntroductionPrinciples of cost reimbursementPrinciples of cost reimbursement
CONCEPT OF NON-ELIGIBLE COSTS. 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; Costs related to the return on capital; Debt and debt related charges; Excessive or reckless expenditure; Any cost which does not meet the conditions
established in Article II.19.1
33
IntroductionIntroductionPrinciples of costs reimbursementPrinciples of costs reimbursement
Reimbursement of eligible costs claimed by contractors
In accordance with the cost reporting models used by each contractor
Maximum reimbursement rates of eligible costs per type of activity
Approval of requested periodic reports
Subject – if required in the contract - to the submission of an audit certificate
Taking into account the receipts of the project
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
34
IntroductionIntroductionCost reporting modelsCost reporting models
FC: actual direct and indirect costs all instruments, however in case of Co-ordination
Actions and Specific Support Actions flat rate for indirect costs (20% of direct costs minus subcontracting) reimbursed
FCF (variant of FC): actual direct costs + flat rate for indirect costs (20% of direct costs minus subcontracting)
all instruments
AC: actual additional non-recurring direct costs + flat rate for indirect costs (20% of direct costs minus subcontracting)
all instruments
35
Introduction Introduction Cost reporting models – Max. reimbursement rate per activityCost reporting models – Max. reimbursement rate per activity
SMEs, non-commercial or non-profit organisations established either under public or private law, international organisations: FC/FCF
Physical persons: AC mandatory
Private companies (other than above): FC
AC: only for those non-commercial or non-profit organisations established either under public or private law or international organisations that do not have an accounting system that allows the share of their direct and indirect costs relating to the project to be distinguished.
36
IntroductionIntroductionCost reporting models- Max. reimbursement rate per activityCost reporting models- Max. reimbursement rate per activity
Access to a cost reporting model depends on the type of legal entity and its accounting system
General rule: a legal entity applies the same cost reporting model in ALL contracts established under FP6 except may move from AC to FCF/FC or from FCF to FC (“one way ticket”) – a contractor however cannot change midway in a project
Note: special clause 22 “Different cost reporting models within the same legal entity” – in case legal entity uses AC and one of its departments uses FC
37
IntroductionIntroductionCost reporting models - reminderCost reporting models - reminder
Direct costs for contractors using the Additional Cost model
direct costs of personnel shall be limited to the actual costs of the personnel assigned to the project where the contractor has concluded with the personnel
a temporary contract for working on Community RTD projects
a temporary contract for completing a doctorate
a contract which depends, in full or in part, upon external funding additional to the normal recurring funding of the contractor. In that case, the costs charged to this contract must exclude any costs borne by the normal recurring funding
38
Introduction Introduction ActivitiesActivities
The project includes, ... one or more of the following activities1. Research and technological development or innovation
activities
2. Demonstration activities
3. Training activities
4. Management of the consortium activities- Audit certificates
- Implementing of competitive calls
- Maintenance of consortium agreement
- Financial security … when requested by the Commission
- Any other management activities …
5. Other specific support activities
39
IntroductionIntroductionMaximum reimbursement rates of eligible costs Maximum reimbursement rates of eligible costs
per instrument, activity and cost modelper instrument, activity and cost modelMaximum
reimbursement rates of eligible costs
Research and technological
development or innovation activities
Demonstration activities Training activitiesManagement of the
consortium activitiesOther specific activities
(*)
Network of excellence100%
(up to 7% of the contribution)(AC : eligible direct costs)
100%
Integrated projectFC/FCF : 50%
AC : 100%FC/FCF : 35%
AC : 100%100%
100%(up to 7% of the contribution)
(AC : eligible direct costs)
Specific targeted research or innovation project
FC/FCF : 50%AC : 100%
FC/FCF : 35%AC : 100%
100%(up to 7% of the contribution)
(AC : eligible direct costs)
Specific research project for SMEs
FC/FCF : 50%AC : 100%
100%(for collective research only)
100%(up to 7% of the contribution)
(AC : eligible direct costs)
Integrated infrastructures initiative
FC/FCF : 50%AC : 100%
FC/FCF : 35%AC : 100%
100%(up to 7% of the contribution)
(AC : eligible direct costs)100%
Coordination action 100%(FC indirect costs : f lat rate(**))
100%(up to 7% of the contribution)
(AC : eligible direct costs)(FC indirect costs : f lat rate(**))
100%(FC indirect costs : f lat rate(**))
Specific support action
100%(up to 7% of the contribution)
(AC : eligible direct costs)(FC indirect costs : f lat rate(**))
100%(FC indirect costs : f lat rate(**))
(*): Other specif ic activities means: - for Netw ork of Excellence : Joint Programme of Activities, except management of the consortium activities.- for Integrated infrastructures initiative: any "specif ic activity" covered by Annex I, including transnational access to infrastructures- for Coordination Action: Coordination activities, except management of the consortium activities- for Specif ic support action: any "specif ic activity" covered by Annex I, including transnational access to infrastructures
(**): Flat rate for FC indirect costs : 20% of all their eligible direct costs minus the eligible direct costs of sub-contracts.
40
New concepts introduced in FP6New concepts introduced in FP6
Collective Financial Responsibility
Third party costs
Receipts
Interests
Subcontracting
Prefinancing, renewal of prefinancing and settled
payment
41
New ConceptsNew ConceptsCollective Financial Responsibility Collective Financial Responsibility
Definition Art. II.18.1/2 – Termination of one contractor = rest
of consortium responsible for reimbursement on pro-rata basis.
“Should the contract be terminated or the participation of a contractor be terminated in accordance with Art. II.16, and any contractor does not honour the reimbursement of the amount due by that contractor, the consortium will reimburse the amount due to the Commission.The amount due to the Commission may not exceed the value of the contribution due to the consortium in accordance with Art. 5.”
42
In some cases the rule of financial collective responsibility is not applicable – see Art. II.18.3 & 4:
a) The contractor is: a public body an international organisation a contractor whose participation is guaranteed by a Member or
Associated State
These type of contractors shall be solely responsible for their budget.
Other contractors are not responsible for these contractors.
b) The consortium is not responsible for: any amount owed by a defaulting contractor for any contractual
breach discovered after the end of the contract liquidated damages due by a defaulting contractor other financial penalties and other sanctions imposed on a
defaulting contractor
ExceptionsExceptionsCollective Financial ResponsibilityCollective Financial Responsibility
43
New conceptsNew conceptsThird party costsThird party costs
Resources made available by third parties on the basis of prior agreement are eligible as costs for the project
The tasks and their execution by such third parties are clearly identified in the Annex I
Costs will have to be recorded in the accounts of this third party - to be covered by audit certificates
Contractors shall ensure that third parties whose resources are made available to the project are informed on the use of their resources
44
New conceptsNew conceptsReceipts Receipts
Three kinds of receipts financial transfers or their equivalent to the contractor from
third parties, contributions in kind from third parties, income generated by the project
Financial transfers or contributions in kind considered as receipts of the project if the third party has
provided them specifically to be used in the project
If at the discretion of the contractor they are not to be considered as receipts.
Income generated by the project General rule: any income generated by the project itself,
including the sale of assets bought for the project, are considered as income to the project
Derogation: income generated by the use of the knowledge resulting from the project is not considered as a receipt
45
New conceptsNew conceptsInterestsInterests
Article II.24.5 The Community contribution shall be offset by any
interest or equivalent benefits yielded by the pre-financing of the project, as referred to in Article II.27
Article II.27 In accordance with the provisions of the Financial
Regulation, pre-financing granted to the coordinator on behalf of the consortium remains the property of the Community
The coordinator shall inform the Commission of the amount of any interest or equivalent benefits yielded by the pre-financing it has received from the Commission. …
46
• Subcontracting is a derogation from the general rule and limited to situations where the work cannot be carried out by the contractor itself.
• Subcontracts should normally not concern “core” parts of the project work.
• Subcontracting may only cover the execution of a limited part of the project where this is necessary for its implementation.
• Tasks to be subcontracted must be identified in Annex I. Minor services not representing core elements of the projects may be subcontracted during the implementation of the project.
• Project management must always be considered to be a core element of the project and may not be the subject of a subcontract.
• As a general rule, subcontracting between contractors should not be accepted.
• Any subcontract must be awarded to the bid offering best value for money under conditions of transparency and equal treatment
New conceptsNew conceptsSubcontractingSubcontracting
47
IntroductionIntroductionRenewal of pre-financing – settled paymentsRenewal of pre-financing – settled payments
Pre-financing is calculated as % of the estimated Community financial contribution corresponding to the first/subsequent reporting period and the 6 months of the subsequent reporting period as indicated in the table of estimated breakdown of costs
Pre-financing is normally renewed at each reporting period
In case audit certificates are submitted a payment is made which settles the amounts justified and accepted during the reporting period
In case no audit certificates are submitted the amount justified and accepted is taking into account in calculating the pre-financing
48
Financial ReportingFinancial Reporting
Submission of financial statement reports
Form C
Audit certifications
Justification of major resources and costs
49
Financial ReportingFinancial ReportingSubmission of financial statement reportsSubmission of financial statement reports
Article II.7.2(b)
• A periodic management including
i. A justification of the resources deployed by each contractor, linking them to activities implemented and justifying their necessity;
ii. The Form C Financial statement set out in Annex VI, provided by each contractor for that period
iii. A summary financial report consolidating the claimed costs of all the contractors in an aggregate form, based on the information provided in Form C.
Article II.7.2(c)
• A report on the distribution between contractors made during that period of the Community financial contribution.
50
Financial Reporting Financial Reporting Submission of financial statement reportsSubmission of financial statement reports
Article II.7.3
The consortium shall submit the audit certificates provided by each contractor … for each period for which the audit certificate is required. Even though an audit certificate is not required for a specific period, an audit certificate must be provided by each contractor where the Community financial contribution requested by the contractor exceeds € 750,000 for that period.
51
Financial Reporting Financial Reporting Form CForm C
Overview
1. Resources (Third party(ies))
2. Declaration of eligible costs (in €)
3. Declaration of receipts (in €)
4. Declaration of interest generated by the pre-financing (in €) – to be completed only by the coordinator
5. Request of FP6 Financial contribution (in €)
6. Audit certificates
7. Conversion rates
8. Contractor’s Certificate
52
Financial Reporting Financial Reporting Form CForm C
53
Financial Reporting Financial Reporting Form CForm C
54
Financial Reporting Financial Reporting Audit CertificatesAudit Certificates
Provided by an external auditor – or in the case of a public body it may be provided by a competent public officer
External auditor must be independent Be qualified to carry out statutory audits
At least one audit certificate per contractor covering the whole duration must be provided
Periodicity defined in the core of the contract
Each contractor continues to be responsible to the Commission for the costs claimed
55
Financial Reporting Financial Reporting Audit certificatesAudit certificates
An audit certificate certifies that• The amount of the total eligible costs
- are actual and answers to the economic environment- ….- use of correct reporting model- ….
• The total amounts of receipts, interest, ….
An audit certificate must refer to the • audit carried out in accordance with generally accepted
auditing standards• test carried out in order to obtain reasonable assurance
An audit certificate must be signed and dated. The organisation providing the certificate must clearly identified.
It is strongly recommended that the external audit or public competent officer use the model prepared by the Commission – see financial guidelines.
56
Financial Reporting Financial Reporting Audit certificatesAudit certificates
57
Financial Reporting Financial Reporting Justification of costs/Financial StatementsJustification of costs/Financial Statements
- a brief description of the work performed by each contractor
- explanatory note or any major cost items
- a tabular overview of budgeted costs and actual costs, by contractor and by major cost item including personnel
- for AC contractors, a tabular overview of all resources employed on the project and a global estimate of all costs
- a tabular overview of budgeted person-months and actual person-months, by contractor and by work package
- for AC contractors in addition estimate the number of person-months of permanent staff working on the project
- a summary explanation of the impact of major deviation from cost budget and from person-month budget
58
End of PresentationEnd of Presentation
Thank you for your attention
The previous slides constitute an overview of the legal and financial provisions of the FP6 EC contracts. However, this should not be taken to constitute legal advice.
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