A business constitution for beneficiaries or just another law?

The Business Constitution announced by Prime Minister Morawiecki a few weeks ago is undoubtedly a commendable initiative. Nevertheless, it is reasonable to ask whether in all areas it improves the business environment enough to give the proposed changes such a soaring title. The package of laws making up the Constitution for Business also includes a proposal for a law amending the Implementation Act. As I have already devoted some time to the topics related to this law, and even allowed myself some time ago to make a few demands to the legislator, I reviewed this part of the constitution with great curiosity. After reading the Implementation Amendment Bill, as well as its Explanatory Memorandum, a few conclusions came to mind that I must share.

With clapping having swollen right hands…
First of all, I would like to start with the very justification of the bill, which is currently at the consultation stage between and basically with the seemingly negligible statement that the proposed changes were a response to requests and demands made by institutions and entities involved in the implementation and disbursement of the 2014-2020 financial perspective. I do not know if I read this communication correctly, but it implies that the bill was consulted primarily with the institutions themselves – the question, however, is whether and to what extent representatives of beneficiaries and applicants were also consulted extensively. It may well be that this is what is meant by 'those involved in the spending’, but the explanatory memorandum itself does not quite confirm this. Meanwhile, in my opinion, both the beneficiaries and the applicants should be an obligatory partner in talks about any changes in the implementation system, because no one knows its shortcomings and deficiencies as well as they do.

Discussing the assumptions of the Act, I would like to focus primarily on the changes that are important from the point of view of applicants and beneficiaries, and I must admit at once that several of the proposed changes are indeed changes that may prove to be important from the perspective of this group of entities. It is worth noting that apart from such changes as the division of competitions into rounds, as well as exclusion from the criteria, the so-called formal criteria and treating them as conditions of participation in the competition, or the possibility of withdrawing a protest;) one of the changes is the one allowing the possibility of introducing changes in projects during the call for proposals (Article 45, paragraph 3) at the request of a relevant institution. In the justification of the amending act it is clearly indicated that the point is to allow applicants to make such changes that will lead to better compliance with the criteria for project selection, which is supposed to translate into the quality of projects selected for funding. This proposal is certainly a positive one and is in line with the postulated liberalisation of the application assessment process, which is currently highly formalised and, in principle, results in even high-quality projects ultimately not receiving funding due to minor errors. Such excessive formalism is certainly not conducive to selecting the best projects for funding. It is worth noting, however, that the procedure for introducing changes in projects was left by the legislator for the individual institutions to regulate in the regulations of competitions – thus, it is the individual institutions that will decide in practice whether and what changes can be introduced in projects during the evaluation process.

Another change that should be welcomed is the introduction of a mode of verification of experts participating in the evaluation of applications. The amending act proposes the mode of evaluation of the expert himself – who, after two negative evaluations by the institution, may be removed from the list of experts (Article 49, paragraph 6a). By the way, a very positive change in another act – on the principles of financing science – should be noted, consisting in the amendment of the provision of Article 24, paragraph 2, as a result of which the possibility of disclosing the data of experts evaluating applications for funding by NCBR is to be restored. As rightly pointed out in the justification to the draft: „the regulation currently in force contradicts the principle of transparency of the procedure for applying for EU funding, as defined in EU regulations.”
An important change reducing the administrative burden on the part of applicants is the exemption from the obligation to attach to the application documentation certificates and documents to which the institution will have ex officio access through its own registers or registers kept by other entities (Article 50a).
A very big plus is the shortening of the deadlines in the appeal procedure against negative project assessments – something I have been advocating for a long time. Among other things, the total time limit for considering a protest has been cut by as much as half from 60 to 30 days.

Shaken not stirred…
In addition to the proposals discussed above, which I perceive positively, there are also several changes in the Amending Act which arouse mixed feelings.

Firstly, the Amendment Bill proposes to introduce the institution of an European Funds Ombudsman (Article 14a). The Ombudsman is to be appointed within a given managing authority from among its employees – which means that he does not acquire the status of a body separate from it. His tasks are to receive reports of shortcomings and proposals for improvements in the implementation of the operational programme, review procedures and formulate proposals for improvements. I have to admit that, as an opponent of the artificial multiplication of various bodies, I personally approach this institution with a lot of scepticism – it seems to me that currently, signals about irregularities or shortcomings can and are successfully collected by managing authorities themselves – in addition, both beneficiaries and applicants successfully use other institutions to signal problems in the area of EU funds. Suffice it to say that the Ombudsman has played, and continues to play, a very important role in receiving reports and signalling various shortcomings in the implementation system. Finally, the implementation system provides for a number of institutions whose task is to oversee the correctness of spending, including receiving signals of potential irregularities. It is possible, however, that there is indeed a legitimate need for such an institution.

The real problem of the ombudsman, on the other hand, may turn out to be something else – namely the very narrow scope of regulation concerning it, firstly as to its nature (an employee of the managing institution), secondly in the scope of its competences, and thirdly the lack of regulation of cooperation with other institutions and bodies. All these issues combined may result in the institution having a facade character in practice. Unlike, for example, in the case of the Ombudsman, other institutions will not be obliged to cooperate with the Ombudsman or to respond to his speeches. In practice, in my opinion, the appointment of an ombudsman from among the employees of a given managing authority with the competences indicated in the draft amending act could be successfully carried out without the need for amendments to the Implementation Act itself. Therefore, if the ombudsman institution was to play an important role in the system, it should be equipped with real competencies and a stronger position in relation to other institutions.
The second change – beneficial for beneficiaries – is the amendment of the provisions of the Code of Civil Procedure and the provisions of the Act on enforcement proceedings in administration consisting in shortening the period of exclusion from enforcement of subsidies paid to beneficiaries and of assets created under the project (Articles 2 and 3 of the amending act) exclusively to the period of implementation of a given project, and not – as it was previously – to the end of the durability period. These changes are motivated by the need to ensure easier access to external funding for applicants and are the result of arrangements with the Polish Bank Association. These changes, undoubtedly beneficial for beneficiaries, are at the same time a perfect illustration of how instrumental the provisions of the General Regulation are treated by the legislator. The introduction of these restrictions on enforcement, which I wrote about in the previous post, was after all motivated by the wording of the provisions of the general regulation – meanwhile, it turns out that despite the lack of amendments to the provisions of this regulation, the legislator decided to liberalise the above-mentioned restrictions. Such an approach confirms instrumental treatment of the EU regulations, which – as in the discussed case – become a pretext for imposing additional, unjustified burdens on beneficiaries. At the same time, the proposed change, although in itself beneficial for the beneficiaries, should go further – as there is no justification for excluding EU assets and funds from enforcement also during the project implementation period.

The changes proposed in the Public Finance Act are also worth noting. Namely, the draft includes a proposal to regulate the – currently artificial – approach to targeted subsidies provided to beneficiaries from the state budget. Currently, the unused part of these subsidies is returned at the end of the financial year only to be paid to the beneficiary again in the next financial year. The proposed changes aim to ensure that the part of the grant in the form of a targeted grant is accounted for in the same way as European funds, i.e. that it is accounted for in accordance with the grant agreement. In addition, the approach to untimely applications for payment has been liberalised by introducing an additional 14-day deadline from the dates specified in the agreement for submitting such applications. This is an important change, as untimely submission of such applications results in very severe consequences for beneficiaries in the form of the obligation to pay interest on the transferred payments calculated from the moment of transferring the funds. It is a pity, however, that the legislator did not decide to take a closer look at the very problematic issue of the beginning of the period for calculating interest (both in the case of settling advance payments and amounts subject to reimbursement), which in all cases begins at the moment of transferring the payment. It is worth noting that in the case of irregularities that occur much later than after the payment of funds, e.g. in the period of durability of the project – the interest is calculated from the moment of transfer of the payment and not, for example, from the moment of disbursement of these funds or the occurrence of irregularity, which causes additional and, in my opinion, unfair burdening of the beneficiary with the consequences of irregularity, also for the period before its occurrence. It should also be noted that there is a proposal to clearly define the period of limitation of the obligation to repay the funds – namely, according to the proposed Article 66a of the Public Finance Act, the limitation of the claim established by the decision on the repayment of funds occurs within 5 years from the date on which the decision on the repayment of funds became final or on the date of the closure of a given operational programme, whichever occurs later. When juxtaposing these two institutions, i.e. interest on payments and limitation of claims, it can be seen that the legislator in both cases decided to adopt an extremely unfavourable interpretation for beneficiaries, on the one hand assuming that interest should be calculated from the moment of transfer of funds, and on the other hand assuming that the limitation period starts to run only from the moment the decision on reimbursement becomes final. It is worth noting, however, that under Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests (referred to, incidentally, in the explanatory memorandum to the amending bill), the starting point for the limitation period (which is four years) is the moment at which an irregularity is deemed to have occurred – in my view, this moment should be both the starting point for calculating interest and for determining the beginning of the limitation period. It is incomprehensible why, in the framework of the announced simplifications, such extremely unfavourable solutions for the beneficiaries were decided upon.

Interestingly, these proposals, in my opinion, contradict the draft provisions of the flagship project of the Business Constitution package, i.e. the Entrepreneurs’ Law. Namely, pursuant to Article 67 of the Entrepreneurs’ Law, when drafting a bill, the Council of Ministers seeks to limit the public and legal burdens imposed by this law, including in particular the implementation of European Union law and international law to avoid over-regulation of the areas covered by the implemented provisions.

The song-thirsty people are crying out for action…
The changes proposed under the business constitution cannot be called purely cosmetic. As I have indicated above, in at least a few cases, they can contribute to significantly streamlining procedures and making them friendlier. Nevertheless, I cannot consider them groundbreaking either, and some of the proposals discussed above should be regarded as disappointing. Personally, I would have expected a far more comprehensive approach from a piece of legislation that is supposed to significantly improve the legal environment for business and not only in the area of distributing EU funds and public funds more broadly. First and foremost, the discussion on changes should begin with a review of the procedures for the allocation of funds and the various laws regulating these procedures, because unfortunately – as the draft itself shows – the rules for the distribution of EU funds are currently scattered in many legal acts. The distribution of public funds currently takes place within the framework of so many programmes and through so many institutions that, for practically each of them, only a specific procedure for allocating funds can be identified. For example, apart from the Act on Implementation, which regulates the granting of EU funds, we have the Act on the Principles of Science Financing, the Act on the National Centre for Research and Development, the Act on the Polish Agency for Enterprise Development or the Act on Certain Forms of Support for Innovative Activity. It is also impossible not to mention the Act on supporting rural development with the participation of the European Agricultural Fund for Rural Development under the Rural Development Programme 2014-2020.

The sheer number of laws and regulations regulating a substantially similar matter (the granting of public funds) raises the question about the sense and purpose of regulating the procedures for the granting of funds in each of these acts separately – and there is no justification for the differences in these procedures, which result in such flowers as the secrecy of expert data by one of the institutions in a situation when this data is open in all other programmes.

The inadequacies of the two programmes were pointed out by the Supreme Audit Office, stating, inter alia, that when comparing the way in which the two projects under scrutiny, 'Bridge Alpha’ and 'Demonstrator+’, were established, the Supreme Audit Office notes that the procedure for their establishment was not defined. There was no legal obligation to establish them. However, according to NIK, the creation of procedures for the establishment of projects would also be justified by their significant financial value. In the period covered by the audit, such procedures were in force in NCBiR for the establishment of programmes and, according to the audit research, were complied with. Additionally, within the framework of the audit, NIK found that for the Bridge Alpha project, the Director of NCBiR did not establish and announce the rules of competition for project contractors.

As a consequence of the above shortcomings, an entity applying for public funds must take into account the fact that its rights and obligations will be different if the funds – granted by the same institution – come from the EU budget and different if it obtains funding from national funds. What is more, in some cases, these rights and obligations may change in the course of the procedure, or may not even be specified explicitly at all – such pathologies should be eliminated once and for all.

By the way, the issue of regulating the rights and obligations of participants in such competitions should be resolved. In my opinion, the new implementation act disregarded the directives stemming from the Constitutional Tribunal’s verdict P 1/11, as a result of which, many rights and obligations of the contest participants are still regulated directly in the contest documents (mostly regulations). This problem seems to be noticed by the designer himself – in the justification of the draft act he indicates that the resignation from the institution of programme guidelines is dictated, among others, by the desire to avoid the risk of imposing this type of documented obligations on the beneficiaries.

Finally, an example of a complete misunderstanding is the refusal to apply the KPA to the residual application assessment procedures adopted by individual institutions, which I mentioned some time ago. The above issue and the approach of institutions have also been strongly criticised by other practitioners.
I also cannot agree with the issue of justifying the refusal to grant a subsidy by the mythical exhaustion of allocations – not only has this problem, about which I wrote in detail, inter alia, here, not been resolved, but it has even worsened the situation of beneficiaries – because the bill extends the right to refuse financing also to the exhaustion of allocations within a sub-measure.

The last issue which, in my opinion, deserves a thorough discussion is the question of availability of certain information related to the implemented projects, e.g. data of experts, information on identified irregularities, terminated contracts, etc. Here, the proposal deserves praise. – However, it should be noted that the availability of experts’ data is not the only problem; several other institutions also seem to refuse access to apparently public information, such as terminated contracts or imposed financial corrections. Meanwhile, the principle of transparency in the procedure for assessing applications for and granting public support should, in my opinion, be the same for everyone.

Proposals
The long-announced business constitution in the area of distribution of public funds turned out to be just an ordinary law. Meanwhile, changes and comprehensive ones are certainly needed. Według mnie, aby mówić o systemowym podejściu do problemu warto byłoby przeprowadzić co najmniej następujące działania:
ujednolicenie procedur ocen wniosków (w tym określenie statusu dokumentów konkursowych i przyjęcie jednego standardu postępowania odwoławczego);
ujednolicenie podejścia do ekspertów (sposób ich powoływania, udział w ocenie, kwestie bezstronności itp.);
resolution of the issue of exhausting the allocation as a justification for refusal to grant aid;
unambiguous settlement of the issue of the breadth of application of the Code of Administrative Procedure (KPA) to the application selection and appeal proceedings;
review of the procedures concerning the reimbursement of funds and their harmonisation in the context, inter alia, of the appropriate court procedure, deadlines for calculating interest or the limitation period;

Only such a comprehensive approach and the resulting development of a coherent piece of legislation could justify calling any regulation a business constitution in the area of distribution of public funds. The current proposal of the legislator to amend the Implementation Act, due to its nevertheless narrow scope, does not, in my opinion, deserve this name.