Sub-granting. 1. Background
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- Magdalen Francis
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1 Sub-granting 1. Background The European Commission (EC) re-introduced in May 2007 the option of sub-granting in its grant contracts 1. Sub-granting is an indirect financial contribution through an EC grant Beneficiary to a sub-grant Beneficiary for an action intended helping to achieve an objective of the EC grant contract. In other words, it is a payment of a non-commercial nature to implement an activity by sub-granting for an operation whose immediate objective is noncommercial. Under no circumstances may the grant give rise to profits i.e. it must be restricted to the amount required to balance income and expenditure for the action. Subgranting, which is a "donation" for expenses incurred are not to be confused with microfinance lending were amounts are provided as loans for repayment. This document 2 aims at providing guidance on good practices as how to deal with the implementation of sub-granting. Finally, it should be noted that the EC grant Beneficiary shall assume the sole responsibility for the management of the EC funds and that there is no contractual link between the EC and the sub-grant Beneficiary. 2. Guidelines for grant Applicants Guidance on "re-granting" or "sub-granting" is provided in the Call for Proposals Guidelines for Applicants point The main purpose of sub-granting is to allow small, new non-stateactors to contribute to community based development and to better respond to their needs. The proposal should: justify sub-granting by providing context and objectives, indicate the total amount and the maximum and minimum amount per sub-grant Beneficiary, and the criteria that will be applied to identify the potential sub-grant Beneficiaries. The Calls for Proposal Guidelines specify that the Applicant must set out the following in the proposal on sub-granting: The exact total amount to be awarded in the form of sub-granting as well as specifying the minimum and maximum amounts that may be allocated to third parties. In addition, the applicant must specify the criteria to be used to select the beneficiary third parties and to determine the exact amount to be awarded and include a fixed list of the different types of activity that may receive such financial support. The maximum amount is limited to EUR 10,000 per third party of the sub-grant while the total amount which can be awarded as sub-grants to third parties is limited to EUR 100,000. In no circumstances may re-granting be the principal activity of the proposed action. 1 Refer to the relevant call for proposals guidelines for applicants to identify if this option applies. 2 This document is not an official communication of the European Commission or the EU Delegation to Yemen. The latter does not accept legal responsibility for its contents, unless confirmed in writing by an Authorized Signatory. 1
2 The list containing the types of activities which may be eligible for sub-grants under the published Call for proposals have to be submitted by the Applicant together with the submission of its proposal. 3. Eligible activities The Call for Proposals Guidelines for Applicants point and Article 14 of the General Conditions of the EC grant contact specifies the eligible and ineligible cost of the activities. As sub-granting does not imply the transfer of responsibility, the Beneficiary of the EC grant needs to take into consideration the eligibility of all expenditure and that cost related to the following actions are considered to be ineligible: Actions concerned only or mainly with individual sponsorships for participation in workshops, seminars, conferences, congresses; Actions concerned only or mainly with individual scholarships for studies or training courses; Actions supporting political parties; Core funding of the applicant or (where relevant) its partners. 4. EC grant contract The afore-mentioned elements (exact amounts, award criteria) are to be included in the EC grant contract and for each activity assigned by sub-granting a specific narrative and financial report annexed to the grant contract activity reports will be required. The following Articles in the EC grant contract refer specifically to sub-granting: Article 3.3 In order to support the achievement of the objectives of the action, as specified in Annex I of this Contract, the Beneficiary may award sub-grants. The sub-grants awarded by the Beneficiary are subject to the nationality rules as referred to in Annex IV. The minimum amount per sub-grant is xx EURO while the maximum amount per such subgrant is xx EURO. Article 3.4 Only the types of activities as mentioned in the Description of the Action in Annex I are allowed to receive sub-grants. Article 3.5 The total amount of sub-grants to be awarded by the Beneficiary within this grant contract is xx EURO. Article 3.6 The sub-grant awarded by the Beneficiary as part of this contract is subject to the Contracting Authority prior approval. 2
3 5. Selection of sub-grant Beneficiaries Following Article 3.4 of the Special Conditions under the EC grant contract the sub-grants awarded by the Beneficiary are subject to the nationality rules as referred to in Annex IV. In order to select the most suitable sub-grant Beneficiary, the Beneficiary has to evaluate according to the criteria set out in the Description of the Action (Annex I) and following the principles of transparency, fairness and non-discrimination, which should be reflected in the selection criteria in a justifiable and well documented manner. The evaluation process of a sub-grant Beneficiary must be well documented and is subject to prior approval by the Contracting Authority. The nationality rule in Annex IV Participation in tender procedures administered by the Beneficiary is open on equal terms to all natural and legal persons of the Member States and the States and territories of regions expressly covered and/or allowed by the Financial Regulation, the basic legislation or other instruments governing the aid programme under which the grant is being financed. This implies that the eligibility of nationality for sub-grant Beneficiaries is governed by the same criteria as for Beneficiaries and Partners as published in the Call for Proposals Guidelines for Applicants. Evaluation of sub-grant proposals For the proper evaluation of sub-grant proposals the Beneficiary may use the following evaluation grid and include the selection criteria as established in Annex I of the EC grant contract. The Beneficiary needs to ensure that the evaluation process for the sub-granting award is well documented in order to justify the selection of sub-grant holders. Once proposals for sub-granting have been assessed, a list could be established with the proposed actions ranked according to their total score. 1. Operational criteria As listed in the Description of the Action (Annex I). Score 2. Financial criteria As listed in the Description of the Action (Annex I). Total score 6. Contractual Agreement between Grant Beneficiary and Sub-grant Beneficiary Sub-granting is bound by the provisions of the Special and General Conditions of the EC grant contract. The Beneficiary shall be accountable to the Contracting Authority for the implementation of the Action. It shall undertake that the conditions applicable to it, especially under Articles 1, 3, 4, 5, 6, 7, 8, 10, 14, 16 and 17 of the General Conditions (Annex II) shall 3
4 also apply to its sub-grant Beneficiary. The Beneficiary shall include provisions to that effect as appropriate in its formal agreement with the sub-grant Beneficiary so as to ensure the proper execution of the EC grant contract. Below issues could be taken up in a formal agreement between the Beneficiary and the sub-grant Beneficiary: A. Purpose of the sub-grant: In the agreement reference should be made to the fact that the sub-grant is awarded in the context of an EC grant contract with the Beneficiary including reference to the Special and General Conditions. Moreover, a clear description of the activities expected to be carried out by the sub-grant Beneficiary should be provided. B. Implementing modalities The following issues need to be addressed: Implementation period: start and end date Maximum amount of sub-granting in Euro. Please note that reference to local currency should be avoided in order not to incur exchange rate losses, which are ineligible. Indication of eligible budget items (attach copy of the budget to the agreement with a clear reference to the budget items sub-granted.) Definition of responsibilities of the sub-grant Beneficiary regarding personal taxes, social and related benefits for the personnel working under the grant. Declaration of the sub-grant Beneficiary: see template provided in point 8 Contact addresses of the Parties. C. Payment and reporting modalities Payment arrangements: specify the amount of pre-financing and payment instalments. Payments should be based on the periodic financial reports submitted applying the percentage of EC contribution to the agreed bank account (preferable BAF could be attached to the agreement). Original documents should be sent with each request for payment and the grant Beneficiary shall return these documents after stamping them "certified as original". Beneficiary should designate authorized signatories and track the transactions related to the sub-grant Agreement on the type and frequency of narrative and financial reporting: template to be used in line with EC grant contract. Agreement on the consequences of a lower than expected EC payment as a result of the application of the maximum funding percentage under the EC grant contract: who pays the sub-grant Beneficiary in case the total eligible costs are lower than expected. D. Evaluation, audits, visibility It is advisable that both parties agree on the auditor for a consolidated audit report to the EC and that monitoring missions and checks of the sub-grant Beneficiary accounts and records are carried out by the Beneficiary of the EC grant. Any publication or information on the project should be agreed in advance between the two parties. 4
5 Prior approval by the Contacting Authorities should be provided upon concluding an agreement with the sub-grant Beneficiary. Should the sub-grant Beneficiary fails to implement the approved activities in accordance with the Description of the Action (Annex I) and with a view to achieving the objectives laid down therein, a recovery order of the subgranted amount should be enforced. Note that the Contracting Authority does not acknowledge any contractual link between itself and the sub-grant Beneficiary. 7. Information of the Beneficiary of sub-granting The Beneficiary of the EC grant should inform the sub-grant Beneficiary about the content of the annexes of the Special Conditions of the EC grant contract: Annex II: General Conditions applicable to European Community-financed grant contracts for external Actions; Annex III: Budget for the Action; Annex IV: Contract-award procedures; Annex V: Standard request for payment and financial identification form; Annex VI: Model narrative and financial report; Annex VII: Model report of factual findings and terms of reference for an expenditure verification of an EC financed grant contract for external actions; 8. Declaration by the Beneficiary of a sub-grant In order to provide the Beneficiary with a reasonable assurance that the sub-grant Beneficiary is able to carry out the agreed upon actions, the authorised signatory of the sub-grant Beneficiary should declare that they will be excluded from participation if: (1) they are bankrupt or being wound up, are having their affairs administered by the courts, have entered into an arrangement with creditors, have suspended business activities, are the subject of proceedings concerning those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or regulations; (2) they have been convicted of an offence concerning their professional conduct by a judgment which has the force of res judicata; (3) they have been guilty of grave professional misconduct proven by any means which the Beneficiary can justify; (4) they have not fulfilled obligations relating to the payment of social security contributions or the payment of taxes in accordance with the legal provisions of the country in which they are established or with those of the country of the Beneficiary or those of the country where the contract is to be performed; (5) they have been the subject of a judgment which has the force of res judicata for fraud, corruption, involvement in a criminal organisation or any other illegal activity detrimental to the Communities' financial interests; (6) they are currently subject to an administrative penalty referred to in section of the Practical Guide to contract procedures for EC external actions. 5
6 The authorised signatory of the sub-grant Beneficiary must certify that he is not in one of the situations listed above and signed on behalf of the sub-grant holder. At the approval stage the Contracting Authority will ensure that this declaration is provided by the sub-grant Beneficiary. Name Signature Position Date 9. VAT As is the case with EC grant Beneficiaries VAT is not eligible for sub-grant Beneficiaries. In order to insure that zero VAT is granted the Beneficiary shall inform the Ministry of Finance at an early stage of the sub-granting component of its EC grant contract. Once the names of the sub-grant Beneficiaries are finalized a list with those names and details should also be forwarded to the Ministry of Finance. If there is any problem in obtaining the zero VAT the EC office should be informed in order to facilitate the procedure. 10. Audits In case of sub-granting in the EC grant contract the auditor should be informed at an early stage. Before submitting a proposal to the EC, an auditor should be consulted for a price quote, which would take into account the sub-granting as this would entail more work for the auditor and therefore a higher audit fee. Ensure that enough funds are included in the project budget to cover this type of audit. During the audit of actions with sub-granting, the auditor should verify the expenditures of each sub-grant Beneficiary and ensure that the activities involved are in line with those of the EC grant contract. Furthermore, the auditor should verify the eligibility of the costs incurred by the sub-grant Beneficiary, the respect of the zero-vat issues and the use of the correct exchange rates as per the provisions under the EC grant contract. The Beneficiary should keep copies of all supporting documents related to sub-grants for the period as specified in the General Conditions of the EC grant contract. As for the sub-grant Beneficiaries original copies should be kept for the same period. 6
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