Legal and Financial Framework FP6 Miriam Driessen Reilly Legal Unit, DG INFSO

1. Legal and Financial FrameworkFP6Miriam Driessen ReillyLegal Unit, DG INFSO Open Day - Brussels 30 May 2005

2. Overview – 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. Legal Framework EC TREATY INTERNATIONAL AGREEMENTS PARTICIPATIONAND DISSEMINATION RULES FRAMEWORK PROGRAMME CONTRACTS SPECIFICPROGRAMMES GUIDELINES ON EVALUATION AND SELECTION PROCEDURES Other relevant EC Regulations FINANCIAL REGULATION WORK PROGRAMMES & Calls for proposals

4. Contract structure • 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)

5. Contract 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 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 & instruments Core contract Annex II Annex III IP Yes NoE Yes STReP CA Common Common None SSA SME Yes I3 Yes

8. Contractors • 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

9. Co-ordinator • A contractor among other contractors • No additional rights BUT • Additional obligations • Administrative tasks: single entry point for communication, payments, reporting etc.

10. Conclusion of the contract 1/2 • 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 2/2 • 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 1/3 • 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 2/3 • 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 3/3 • 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 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 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 1/2 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 2/2 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 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. Amendments • 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. Sanctions • 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. The Consortium Agreement 1/2 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

23. The Consortium Agreement 2/2 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) 1/2 • 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) 2/2 • 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 Rights Access rights to Access rights to pre-existing know-how knowledge 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 knowledge For 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 Aspects • Introduction • New concepts introduced in FP6 • Financial Reporting

28. Introduction • 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 • 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. IntroductionGrant 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. IntroductionPrinciples 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. IntroductionPrinciples 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. IntroductionPrinciples 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. IntroductionCost 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 Cost 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. IntroductionCost 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. IntroductionCost 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 Activities • The project includes, ... one or more of the following activities • Research and technological development or innovation activities • Demonstration activities • Training activities • 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 … • Other specific support activities

39. IntroductionMaximum reimbursement rates of eligible costs per instrument, activity and cost model

40. New concepts introduced in FP6 • Collective Financial Responsibility • Third party costs • Receipts • Interests • Subcontracting • Prefinancing, renewal of prefinancing and settled payment

41. New ConceptsCollective 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. ExceptionsCollective Financial Responsibility 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

43. New conceptsThird 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 conceptsReceipts • 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 conceptsInterests • 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. New conceptsSubcontracting • 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

47. IntroductionRenewal 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 Reporting • Submission of financial statement reports • Form C • Audit certifications • Justification of major resources and costs

49. Financial ReportingSubmission of financial statement reports • Article II.7.2(b) • A periodic management including • A justification of the resources deployed by each contractor, linking them to activities implemented and justifying their necessity; • The Form C Financial statement set out in Annex VI, provided by each contractor for that period • 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 Submission of financial statement reports • Article II.7.3The 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.