Part C ‑ Financial Management

Article 18‑ Allowable Costs

18.1	Allowable costs are those actual costs defined in Articles 19 and 20 which are necessary for the Project, can be substantiated, and are incurred during the period specified in Article 2.1 of the contract.  Allowable costs after this period shall be limited to those relating to the reporting, review or evaluation requirements of this contract.

	For Contractors whose actual costs are limited to their additional costs (those higher education establishments and research centres which are unable to substantiate through their cost accounting systems, with sufficient precision to the satisfaction of the Commission, the full costs relating to their research activities), these costs are (i) those direct costs specified in Article 19 incurred for the Project and to which the Contractor is not otherwise committed, and (ii) indirect costs in accordance with Article 20.

	Costs shall exclude any profit and be determined in accordance with accounting principles relating to historic costs, and the internal rules of the Contractor.

18.2	The estimated costs for the work by categories shall be indicative only.  Contractors may transfer the estimated budget between themselves and between categories provided the scope of the Project is not fundamentally affected.

18.3	No Contractor shall incur unnecessarily high or extravagant cost on the Project.  No costs may be charged in respect of marketing, sales, distribution costs for products and services, interest, return on capital employed, provisions for future losses or liabilities, and any costs related to other projects.

Article 19 ‑ Direct Costs

19.1	Personnel

19.1.1	The costs of actual hours worked on the Project only by scientific professional, post-graduate or technical staff directly employed by the Contractor may be charged.

	For Contractors using full costs, personnel costs shall be:

	-	the actual employment costs (salary, wages, social charges and pension costs), or

	-	the average employment costs (rates) conforming to the relevant Contractor's normal practices if there is no significant deviation between the average and actual employment costs.

	For Contractors using additional costs, personnel costs shall be limited to the actual employment costs (salary, wages, social charges and pension costs) of  scientific professional, postgraduate or technical staff engaged in research and their registration, tuition or bench fees where such staff are employed under:

	(a)	temporary contracts on Community RTD Projects (permanent employees paid for working fulltime for the Contractor are excluded from charging their costs under any such arrangements), or

	(b)	temporary contracts for completing doctorates, or

	(c)	contracts which are dependent upon external funding additional to the normal recurrent funding of the Contractor (the costs charged to the Project shall exclude any costs supported from such recurrent funding.

19.1.2	All personnel time charged must be recorded and certified.  This requirement will be satisfied by, at the minimum, the maintenance of time records, certified at least monthly by the designated project manager, or an authorised senior employee of the Contractor.

19.2	Equipment

	Equipment purchased, or leased may be charged as a direct cost.  The allowable costs for leased equipment shall not exceed any allowable costs for its purchase.  The Community contribution to the allowable costs shall be reimbursed in a single amount.

	The allowable costs shall be calculated according to the following formula:

				 A
				___ x C x D
			
				 B

	A	=	the period in months for which the equipment is to be used for the Project after its delivery.
	B		=	depreciation period of 60 months (36 months for data processing equipment costing less than 25,000 ECU).
	C	=	cost of equipment.
	D	= 	percentage usage of equipment on the Project.

	By way of an exception to Article 18.1, allowable costs include equipment purchased or leased within the preceding six months of the Commencement Date or under a previous Commission RTD contract provided the depreciation period has not been exceeded (only the unexpired depreciation period may be charged to this contract).

19.3	Third Party Assistance

	Costs of Subcontracts and external services shall be allowable costs in accordance with Article 3 of Annex II.

19.4	Travel and Subsistence

	Travel and subsistence costs may be charged, but written approval of the Commission is required for charging travel and subsistence outside Europe or an Associated State.  Such approval is not required for work or collaboration with organisations, outside Europe, specified in Annex I. 

19.5	Consumables and Computing

	Consumables and computing (on the basis of recorded computer usage) may be charged as direct costs.

	However, where reasonably practical and in accordance with the normal accounting conventions of the Contractor, these costs shall be included in indirect overhead costs for Contractors using full costs.

19.6	Significant Specific Project Costs

	Significant specific Project costs, including prototypes or equipment fabricated, and conference or seminar fees, may be charged with the prior written approval of the Commission (approval is deemed granted if the cost item has been specified in Annex I to the contract, or if no objections are raised by the Commission within two months of the receipt of the written request).

Article 20 ‑ Indirect Costs: Overheads

20.1	For Contractors using full costs, overheads (indirect general costs) calculated in accordance with their normal accounting conventions, policies and principles considered by the Commission to be reasonable, may be charged for items such as internal own funded research (subject to a maximum of 10% of the personnel costs), administration, support personnel, office supplies, infrastructure, utilities and services.

	Such overheads may be based on those used for similar research for Member States, public funding agencies, or international organisations, subject to necessary adjustments being made to reflect Articles 18 to 20 of this Annex and to access being granted to the Commission to appropriate documentation, or to the provision to the Commisson of such documentation, for their establishment and justification.

	Subject to Article 19.5, overheads shall exclude items readily capable of being charged directly in accordance with Article 19 and the normal accounting conventions of the Contractor, and costs recovered from other parties.

20.2	For Contractors using additional costs, a contribution up to 20% of the actual allowable costs in respect of all direct costs under Article 19 (except 19.3), may be charged in respect of such overheads.

Article 21 ‑ Cost Statements

21.1	Cost statement summaries shall be expressed in national currency and in European Currency Units (ECU) unless otherwise specified in the contract.  The conversion rate to ECU for cost statements and payments shall be the rate published by the Commission for budget execution and valid for the first working day of the month following the end of the period for the relevant cost statement.  No account shall be taken of exchange gains or losses between the issue of the cost statement and the receipt of any payment.

21.2	The Coordinator, Contractors and Associated Contractors shall submit cost statements in the format specified in Part D or in any similar format notified or approved in writing by the Commission.  Unless otherwise specified in the contract, these statements shall cover the same period and be appended to each corresponding periodic progress report.

	Cost statements are not required from Third Country Project Undertakings, but the Commission may require statements of effort and resources devoted to performing the Project, namely any significant input in accordance with Annex I, to be submitted.

21.3	If any cost statement is not submitted as required, the Commission may withhold part, or exceptionally all, of its payment for the Project until the next financial reporting period.

21.4	The Commission may determine not to take account of any further costs or not to make any further reimbursement after giving one month's notice in writing of the non receipt of the final cost statement.

21.5	The Contractors shall provide any details reasonably required by the Commission for its management of the contract.

Article 22 ‑ Justification of Costs

Each Contractor shall maintain, on a regular basis and in accordance with the normal accounting conventions of the State in which it is established, proper books of account and appropriate documentation to support and justify the costs and the hours reported.  These shall be made available for audits.

Article 23 ‑ Payment of Commission Contribution

23.1	Where the Project has not effectively commenced within three months of the payment of the advance, the Commission may:

	-	determine to add interest on the advance from its payment until the effective Commencement Date at the monthly rate applied by the European Monetary Institute for its operations in ECU, or

	-	require the reimbursement of the advance together with such interest.

	The Commission shall make interim payments in full against accepted cost statements up to the limit specified in Article 4 of the contract.  If the actual level of costs reported is considerably less than foreseen, the Commission may exceptionally adjust the advance by reducing the interim payment due.

23.2	Subject to Article 24, all payments shall be treated as advances until acceptance of the appropriate Project Deliverables, or, if none are specified, until acceptance of the final report.

23.3	Where the total financial contribution due for the Project, including the result of any audit, is less than the payments made for the Project, the Contractors shall immediately reimburse the difference, in ECU, to the Commission.

Article 24 ‑ Auditing

24.1	The Commission, or persons authorised by it, shall be entitled to carry out audits up to two years after the Completion Date or the termination of the contract.  They shall have complete on-site access at all reasonable times to personnel engaged on the Project and all documents, computer records, and equipment relating to the Project, or, when necessary, be entitled to require the submission of any such documentary evidence.

24.2	The European Court of Auditors shall be entitled to the same rights, under the same terms and conditions, as the Commission in respect of auditing.