Contract

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Contract Financial management
Budapest 18th October 2004
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Content

• Contract structure
• Role of contractors and EC
• Reporting
• Financial management

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Contract Structure

• Core contractstandard text (completed with
  project data)
• Annex Ithe project (technical tasks - work to
  be carried out)
• Annex IIgeneral conditions (standard, applicable
  to every instrument)
• Annex IIIinstrument specific provisions
• Annex IVform A consent of contractors to
  accede the contract
• Annex Vform B accession of new entities
• Annex VIform C financial statement

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Role of contractors and EC

• Contract structure
• Role of contractors and EC
• Reporting
• Financial management

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Role of contractors and EC

• Takes all measures to ensure that the project is
  carried out.
• Informs the EC of any event which may affect
  projects implementation and of any circumstances
  affecting
• the conditions of participation,
• the financial regulations,
• the requirements of the contract.

Consortium
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Role of contractors and EC

• Collaborate with coordinator
• Provide reports in due time to coordinator
• Follow coordinators instructions
• All information to EC sent via the coordinator
• Take part in supervision, monitoring and
  evaluation meetings
• Take part in the steering committee
• Carry out the project in accordance with
  fundamental ethical principles

Each contractor
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Role of contractors and EC

• Coordinator Administrative and financial
  management
• Intermediary, contact with the Commission
• Submits all documents
• Informs the Commission
• Reports on use of financial resources
• Receives all payments and transfers the
  appropriate amounts to each contractor
• Chairs the Steering Committee
• Oversees the project progress, makes proposals to
  adapt the project plan
• Technical manager
• Oversees the work executed by RTD performers
• Consolidate WP technical reports

Coordinator and technical manager
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Role of contractors and EC

• Monitors the scientific, technological and
  financial execution of the project
• Carries out review, analysis and approval of
  project deliverables
• Offers assistance

Role of the EC
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Reporting

• Contract structure
• Role of contractors and EC
• Reporting
• Financial management

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Reporting

• The duration of the project is divided in
• 3 reporting periods
• P1 M1 M12
• P2 M13 M24
• P3 M25 end of the project
• Audit certificates must be submitted at the end
  of the project

(art. II.7 Annex II)
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Reporting

• To be submitted within 45 calendar days following
  the end of each reporting period.
• Containing
• a periodic activity report (including
  dissemination and exploitation plan)
• 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) provided by each
  contractor for that period
• a summary comprehensive periodic financial
  report (Coordinator)
• a report on the distribution made between
  contractors of the Community financial
  contribution during that period (Coordinator)
• any supplementary reports required by any Annex
  to the contract, especially Annex I (technical
  annex).
• if requested, an audit certificate per contractor

Periodic reports
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Reporting
To be submitted by the consortium within 45
calendar days following the end of each six
months.

• Monitoring of the project
• No more than 8 pages
• There will be optional guidelines
• No financial report

Supplementary six-monthly reports
Each contractor send 2/3 pages report to Task
leader
Each Task leader send 2 pages summary report to
Coordinator
The Coordinator send a summary six monthly report
to EC
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Final report
Reporting

• To be submitted by the consortium within 45
  calendar days
• a final activity report
• a final management report covering full project
  duration
• any supplementary reports required by any Annex
  to this contract, especially Annex I (technical
  annex)
• an audit certificate per contractor
• a report on the distribution of the Community
  financial contribution between contractors made
  after the end of the project (Coordinator)

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Reporting
Reports 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 (45
  days) but

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Reporting

• all concerning documents must be sent by each
  Contractor to the Coordinator electronically and
  in original by 15 calendar days after the end of
  each reporting period!!

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Financial management

• Contract structure
• Role of contractors and EC
• Reporting
• Financial management

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Financial management

• The Community financial contribution is a
  maximum that can never be exceeded
• Community financial contribution is paid to the
  consortium through the coordinator
• A system of periodic pre-financing (advances)
  and periodic payments
• Payments are based on the approval of periodic
  reports and/or reviews
• and are subject to the submission of audit
  certificate(s)

Payment modalities of the EC contribution
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Financial management

• The EC financial contribution is paid
• Within 45 days of the entry into force of the
  Contract as a first prefinancing equal to 80 of
  the estimated costs of the first 18 months
• Within 45 days following the approval by the
  Commission of the requested reports and if an
  audit certificate has been submitted
• as a payment to settle the amounts justified and
  accepted
• as an intermediate pre-financing of 80 of the
  estimated EC contribution corresponding to the
  subsequent period.
• Within 45 days following the approval by the
  Commission of the final reports a final payment.

Pre-financing and payments
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Financial management

• Grant to the budget
• (As a rule, reimbursement of costs calculated as
  a of the project budget) based on
• provisional budget of estimated eligible costs
  and receipts broken-down per type of activity and
  per participant
• type of cost reporting model
• maximum reimbursement rates per type of activity
  and cost model

How the EC contribution is calculated
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Financial management

• AC actual additional direct costs flat rate
  for indirect costs (20)
• optional for non-commercial or non-profit
  organisations, international organisations that
  cannot distinguish the share of their direct and
  indirect costs to the project
• FC actual direct and indirect costs
• contractors calculate indirect costs according to
  their own accounting rules
• New - FCF (variant of FC) actual direct costs
  flat rate for indirect costs (20)
• limited to SMEs and non-commercial or non-profit
  organisations

Cost Reporting Models
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Financial management

• The type of cost model and the type of activity
  determine the maximum reimbursement rates of
  eligible costs
• For contractors using the AC model 100 of
  their additional costs whatever those activities
  might be.
• For contractors using the FC or FCF models
• Supprt activities up to 100 of eligible costs
• for management of the consortium activities up
  to 100 of eligible costs (these must not exceed
  7 of total EC contribution)

Type of activities and maximum reimbursement rates
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Receipts
Financial management

• Financial transfers or contributions in kind made
  available to a contractor by a third party
  specifically for the Project.
• The receipts shall be deduced by the amount of
  the costs, in order to calculate the grant

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Eligible costs
Financial management

• To be eligible costs incurred for the
  implementation of the project shall be
• Actual
• Economic
• Necessary
• Determined in accordance with the usual
  accounting principles of the contractor
• Incurred during the duration of the project
• Recorded in the accounts of the contractor

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Principles of Eligibility Actual
Financial management

• Costs must be
• actually incurred
• real and not estimated
• recorded in the accounts or tax documents and be
  identifiable and controllable.
• The fictitious costs (i.e. internal invoices,
  subjective estimations, etc.) are forbidden.

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Principles of Eligibility Economic
Financial management
Economy can be understood as minimizing the costs
of resources used for an activity (input), having
regard to the appropriate quality.
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Principles of Eligibility Necessary
Financial management

• The costs must be
• necessary for carrying out the project and
• directly linked to the subject matter and scope
  foreseen in it
• coherent with the terms of reference
• present in the budget included in the contract or
  in the description of activities (Annex I to the
  Contract)

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Principles of Eligibility Determined in
accordance with the usual accounting principles
of the contractor
Financial management
The eligibility of the cost depends on the
principles established by the contractors own
accounting system Therefore, although the
participants have the freedom to use their usual
accounting principles, it does not mean that they
have the freedom to create specific accounting
principles for FP6 indirect actions.
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Principles of Eligibility Incurred during the
duration of the project
Financial management
(TNF from 1st May 2004 to 30th April 2007)
The costs must be incurred during the lifetime of
the project (not before the beginning or after
the end of 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 days after the end of the project or
the date of termination whichever is earlier.
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Financial management

• 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
• 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

Definition of direct and indirect eligible costs
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Financial management

• Note! Costs must be reported in EURO on the basis
  of
• The conversion rate that would have applied on
  the date that the actual costs were incurred
• The rate applicable on the first day of the month
  following the end of reporting period
• Conversion rates available on http//www.ecb.int/s
  tats/eurofxref
• or
• in the relevant OJ of the EU

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Eligible Costs
Financial management
Activities
Costs
Management
Direct cost
Specific activities
Indirect costs
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Personnel Costs
Financial management

• Personnel may include
• "Permanent employees", who have permanent
  working contracts with the contractor.
• "Temporary employees", who have temporary working
  contracts with the contractor.

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Personnel costs
Financial management

• The total costs of personnel that can be charged
  to the project are determined as follows
• Cost for remuneration of salary should be taken
  from the payroll account and should reflect the
  total gross remuneration plus the employers
  portion of social charges (e.g. holiday pay,
  pension contributions, health insurance and
  social security payments). Remuneration costs
  must be calculated individually for each
  researcher.
• Working time to be charged must be recorded
  throughout the duration of the project by any
  reasonable but reliable means (including time
  sheets). The person in charge of the work
  designated by the contractor should certify the
  records. A simple estimation of hours worked is
  not sufficient. There must be a system that
  allows the time of anyone working on the project
  to be followed and audited. Productive hours must
  be calculated according to the contractors
  normal practices (taking into account
  particularly national holidays, absenteeism,
  etc.).

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Time Sheet 1
Financial management

• TNF Project
• Month ..

Signature of Person in Charge ..
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Durable Equipment
Financial management

• DEFINITION
• Durable Equipments are those
• equipments which
• - are registered in the inventory of durable
  equipment of the contractor
• - have a life expectancy, greater than the
  duration of the work under the contract
• Costs for equipment can include all those costs
  necessary to bring the asset to
• working condition for its intended use original
  purchase price, costs of site preparation,
  delivery and handling, installation, related
  professional fees for architects and engineers,
  if these are necessary for the project and can be
  justified.

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Subcontracts
Financial management

• DEFINITION
• Subcontract means an agreement to provide
  services relating to tasks required for the
  project and which cannot be carried out by the
  contractor itself, concluded between a contractor
  and one or more subcontractors for the specific
  needs of the project.

• (Art. II.1, Annex II, EC Contract)

!EC Better avoid if possible..
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Subcontract typologies
Financial management

• Subcontract Major
• activity related to the core work of the project
• shall be clearly identified in Annex I
• 2. Subcontract Minor
• contractors may subcontract other minor services,
  which do not represent core elements of the
  project work

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Subcontracts
Financial management
Any subcontract must be awarded to the bid
offering best value for money (best price-quality
ratio), under conditions of transparency and
equal treatment. The following aspects must be
taken into consideration in awarding
subcontracts (a) they may only cover the
execution of a limited part of the project (b)
recourse to the award of subcontracts must be
justified having regard to the nature of the
action and what is necessary for its
implementation (c) the tasks concerned must be
set out in Annex I (d) the contractor shall
retain sole responsibility for carrying out the
action and for compliance with the provisions of
the contract. The contractor must undertake to
make the necessary arrangements to ensure that
the subcontractor waives all rights in respect of
the Commission under the contract (e) the
contractor must undertake to ensure that the
conditions applicable to it under Articles II.9,
II.10, II.11, II.12, II.28.8 and II.29 of the
contract are also applicable to the subcontractor.
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Travel and Subsistence
Financial management

• DEFINITION
• Actual travel and related subsistence costs
  relating to the project if they comply with the
  contractors internal rules
• If such costs are incurred by the contractors
  person working on the project and are reimbursed
  by the (the contractor) on the basis of a lump
  sum/ or per diem payment,
• it is the lump sum/or per diem and not the actual
  costs that are
• considered to be the eligible cost.

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Consumables
Financial management

• DEFINITION
• Any consumables necessary for the implementation
  of the project may be
• considered as direct eligible costs.
• Consumables usually relate to the purchase,
  fabrication, repair or use of any materials,
  goods or equipment and software which
• are not placed in the inventory of durable
  equipment of the contractor
• are not treated as capital expenditure in
  accordance with the accounting conventions and
  policies of the contractor.
• have a short life expectancy, certainly not
  greater
• than the duration of the work under the contract

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Not Eligible Costs
Financial management

• The following non-eligible costs may not be
  charged to the project
• a) any identifiable indirect taxes, including VAT
  or duties
• b) interest owed
• c) provisions for possible future losses or
  charges
• d) exchange losses
• e) costs declared, incurred or reimbursed in
  respect of another Community project
• f) costs related to return on capital
• g) debt and debt service charges
• h) excessive or reckless expenditure
• i) any cost which does not meet the eligibility
  principles

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Example of documentation required during the
audit ofEuropean Commission (EC) RTD Contracts
Financial management
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Financial management
i. List of personnel indicating - period
(s) they worked for the project, - position
classification / category. ii. Copies of
employment/work contracts (temporary and
permanent). iii. Copies of certified time
sheets including summary records for all
personnel charged to the project. iv. Copies of
payrolls for all personnel charged to the
project. v. Copy of bank transfers/payment
receipts
Personnel Costs
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Financial management
i. Copy of the contractor's guidelines for
procurement of services (if available).  ii.
Original invoices for external assistance and
evidence of delivery  iii. Copies of
subcontracts
Subcontracts
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Financial management
i. Copy of the contractor's guidelines for
procurement of durable equipment (if
available).  ii. Original invoices for purchase
of equipment.  iii. Copies of the equipment
(related to the project) inventory register.  iv.
Copies of the equipment's usage diary/register
(for equipment used by different projects)
Durable equipment
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Financial management
i. Copy of the contractor's guidelines for
procurement of consumables (if available) ii.
Original invoices for consumables
Consumables
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Financial management
i. Copy of the contractor's guidelines for
reimbursement of travel expenses.  ii. Copy of
authorized travel request forms  iii. Original
invoices for travel and accommodation
expenses  iv. Copy of EC agreement for travel
outside Western Europe (if applicable).  v.
Copies of mission reports (if available)
Travel and Subsistence
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Financial management
i. Copy of the contractor's relevant
guidelines  ii. Original invoices for the
relevant expenditure  iii. Copy of EC agreement
for the relevant expenditure
Other costs
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The Audit Certificates
Financial management

• For each period for which an audit certificate is
  required, each contractor shall provide an audit
  certificate prepared and certified by an external
  auditor
• certifying that the costs incurred during that
  period meet the conditions required by this
  contract.
• The certificate should expressly state the
  amounts that were subject to verification.
• Where third parties costs are claimed under the
  contract, such costs shall be audited.
• The cost of this certification is an eligible
  cost under the activity relating to Management of
  the consortium

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The Audit Certificates
Financial management
Art. II.25 Contract
Each contractor is free to choose any qualified
external auditor, including its usual external
auditor, provided that it meets the cumulative
following professional requirements a) the
external auditor must be independent from the
contractor b) the external auditor must be
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.
A contractor that is a public body may opt for a
competent public officer to provide an audit
certificate, provided that the relevant national
authorities have established the legal capacity
of that competent public officer to audit that
public body.
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The Audit Certificates
Financial management
A list of independent auditors and information
about audits in Member States and candidate
countries can be found at the following internet
address www.fee.be/members/countries.htm
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• Thank you!
• Monique Bossi
• APRE Agenzia per la Promozione della Ricerca
  Europea
• bossi_at_apre.it
• tel. [phone]