Fawelisation of law – or the ‘new-old’ implementation act

Which areas have been improved in the new implementation law, or read differently, which changes should beneficiaries be particularly concerned about?

Firstly, project inspections. In the bill, the authors 'clarify’ the provisions on inspections. The draft includes such provisions as:

• the obligation to make available documents not related to the project (Article 24(9)) ;
• the obligation of third parties (project participants, beneficiaries, final recipients, contractors or subcontractors) to make available documents and give explanations in connection with projects carried out by the beneficiaries (Article 24(10));
• the possibility of requesting assistance from the local Police Chief, if this is necessary to carry out checks (Article 24(14));
• the possibility to verify the factual state of project implementation with the use of new technologies, including satellite data (Article 24(15)).

However, as the authors of the aforementioned amendments point out in the explanatory memorandum:

’In relation to the 2014-2020 perspective, an extension has been made to the possibility of carrying out an inspection in the absence of the beneficiary or the person representing the beneficiary, in a situation where the institution has information indicating the possibility of fraud or where the beneficiary did not appear at the inspection activity despite being notified or where the beneficiary agreed to carry out the inspection without his/her participation. (…) In addition, the possibility was introduced in the Act for the controlling institution to request the assistance of the Chief of Police in carrying out the inspection. This is because it has been taken into account that the inspection may entail the necessity to enter private property also in the absence of the inspected entity, so it has been decided to provide for the accompaniment/assistance of an authorised entity when taking such a step. This possibility was also envisaged in view of exceptionally emerging circumstances involving the need to ensure the security of the inspectors or the efficient identification of persons suspected of carrying out activities at the project (or at the project site) in violation of the applicable law (Article 25(14)). Article 25(15) regulates the possibility of using new technologies during inspections. This will allow efficient collection of evidence, for example during the construction of motorways (drone flight over the built road section) or when confirming by means of historical satellite images the moment of appearance of an element of infrastructure, which is declared for settlement as newly built.

The above changes and their justification indicate that the authors of the draft do not so much want to strengthen the powers of the controllers as to introduce outright police powers. In my opinion, such changes are unnecessary from the perspective of the management and control system and lead to unnecessary duplication of powers of various institutions. It is worth pointing out that law enforcement authorities and the public prosecutor’s office are entitled to determine whether an irregularity is also fraud (i.e. a qualified irregularity constituting a prohibited act). Currently, the activity of both the prosecutor’s offices, the police and the CBA in the area of grant extortion is high – these entities often carry out their own inspections of projects and entire programmes; moreover, within the framework of operational activities, they cooperate with institutions providing subsidies.

Despite the extension of the powers of controllers, they do not have (and should not have) such evidentiary instruments as law enforcement bodies. In my opinion, it is unreasonable to strive to ensure that auditors not only find irregularities as part of EU project audits, but also their qualified form, i.e. fraud. Just as it is up to the relevant institution providing funding to determine whether an irregularity has occurred in a given project, it is only the public prosecutor and the court that can determine whether a given irregularity constitutes fraud in a conviction.

It is worth recalling in this context the apt view of the NSA , which pointed out that the Managing Authority, solely on the basis of a 'suspicion’ could not, after all, terminate the agreement with [A], as this would constitute a significant breach of the civil-law relationship linking the beneficiary with the institution, undermine trust in the institution, which, guided by unconfirmed allegations, takes inadequate steps in the implementation of the agreement, at the same time exposing the voivodeship budget to losses related to possible compensation proceedings (NSA judgment of 7 December 2018, ref. no. I GSK 3191/18).

It is worth adding in this context that additional powers for controllers are unnecessary. Already within the framework of the existing instruments and provisions of the co-financing agreements, obstructing control by the beneficiary or refusal to provide information may constitute an independent premise for termination of the co-financing agreement. In addition, the obligation, proposed in the draft act, to provide explanations by third parties who are not bound to the institution by the co-financing agreement will, in my opinion, be ineffective. These entities, unlike the beneficiary, do not have any legal relationship with the institution providing co-financing, so it is difficult to imagine effective enforcement of this obligation.

Some of the changes should be regarded as mere embellishments, e.g. conducting control with the use of modern technologies. It is difficult to assume that without this provision their use for control would currently be impossible. On the contrary, controllers not only can, but should, make use of such instruments, as well as other generally available data, to verify whether a project is being implemented correctly. On the other hand, in the case of suspected fraud, further action should be left by the competent institution to the law enforcement agencies, which will be able to establish the facts much more extensively than the auditors would be able to do, even after their powers have been increased.

I have written about the exhaustion of allocations many times before. Of course, it is a topic – a river and one of the favourite areas for „improvement” of the Fund Act. Also in the draft of the new Implementation Act, the authors are tempted to improve the provisions. This time the improvement is to consist in defining the notion of 'exhaustion of allocations’ and, at the same time, in extending it.

Thus, according to the draft (Article 77(3)), exhaustion of the allocation should be understood as a situation in which funds earmarked for this purpose have been allocated to projects covered by cofinancing, i.e. projects with the applicants for which agreements on project cofinancing have been signed or decisions on project cofinancing have been made and selected for cofinancing.

The principle that the appeal procedure does not stop the conclusion of funding agreements with applicants whose projects have been selected for funding (Article 78) was also maintained.

In the justification to the project, in turn, the authors indicated that the changes are a result of „numerous doubts” and „the necessity for the minister in charge of regional development to repeatedly take a stand, as well as in connection with the appearing administrative court rulings concerning this issue, resolving it in a manner contrary to the assumptions of the implementation of EU funds, it was decided to resolve the aforementioned doubts and regulate this issue directly in the Act.”

Thus, the authors of the amendments do not even hide their intentions and explicitly indicate that the Act is intended to straighten out case law. Of course, this is not the first time this has happened, for many times in the past in the area of EU funds I have pointed to provisions whose task was precisely to „straighten out” inconvenient case law, e.g. concerning the concept of material assessment of a project, statute of limitations or durability. For the first time since I can remember, however, it has been written directly into the law that the authors 'know better’ than the administrative courts how the exhaustion of allocations should look like, and the minister, tired of straightening out, decided to cut the Gordian knot.

The question remains as to what specific views of the courts require rectification. I will cite here the most recent NSA judgment (I GSK 93/21) with our, i.e. our law firm’s, participation, in which the NSA indicated how the exhaustion of allocations should be understood – with reference to older case law.

„The following views are furthermore subject to „rectification”:

The phrase „exhaustion” used in Article 66(2) of the Implementation Act with regard to the funds earmarked for the co-financing of projects means their actual consumption, and not only the potential possibility of their disbursement. Such an understanding of the exhaustion of the amount allocated for project co-financing is supported by the content of Article 52(2) of the Implementation Act. This provision states that a project co-financing agreement can be signed and the decision on project co-financing can be taken if the project meets all the criteria, on the basis of which it was selected for co-financing. It follows that placing the project on the list of projects selected for cofinancing does not itself constitute a binding promise (commitment) to conclude a cofinancing agreement. The applicant does not obtain at this stage of project selection a claim to conclude a grant agreement. This is because competent institutions have the possibility to change their decision if circumstances preventing the transfer of aid occur in the period between the acceptance of the ranking list and the date of concluding the agreement. (Judgment of the NSA of 16 July 2020, ref. no. I GSK 309/20)

„The fact that the appeal procedure, pursuant to Article 65 of the Implementation Act, does notsuspend the conclusion of agreements with applicants whose projects have been selected for co-financing does not relieve national authorities from shaping and observing competition procedures in such a way that proving by a party its rationale regarding the original faulty assessment of its project would allow it to actually obtain the requested co-financing. Otherwise, the appeal procedure and, in particular, the judicial control of the authorities’ actions would become apparent and illusory” (Judgment of the Supreme Administrative Court of 11 April 2019, ref. no. I GSK 378/19).

I regard the conduct of the authors of the bill as a misunderstanding. The aforementioned views of the courts (not individual, but quoted many times in other rulings as well) are not only consistent, but fully justified. At the same time, as I wrote many times in earlier posts, the very concept of 'exhaustion of the allocation’ appeared in the 2006 amendment to the Implementation Act as a result of the jurisprudence of administrative courts, which rightly recognised that the appeal process against negative project assessments cannot be illusory, and a refusal to grant a project on the grounds of exhaustion of funds should also be subject to appeal before the court.

I have written about it many times, that exhausting the allocation while agreeing to sign agreements is a sanctioning of procedural injustice, in which – due to the wrongly chosen priority of the principle of speed of proceedings – the key principle of selecting the best projects for co-financing was omitted.

Exhaustion of allocations as a reason for refusal of funding – EU funding – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

Exhaustion of allocations before the Constitutional Tribunal – EU funding – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

Contrary to the position of the authors of the project – such rules do not at all result from the „system of implementation of measures”, which the Ministry would have to know better than the courts. Ultimately, it is unacceptable to me that applicants do not have an effective avenue of appeal because funds have run out in the so-called meantime. The state is obliged to provide funds to finance the best projects, including those that received a high number of points after an appeal procedure. There is no axiological justification for a contrary view, other than that the funds „must be spent quickly”.

Moreover, support for this view can also be found in the EU’s so-called 'Conditionality Regulation’, which explicitly places an obligation on the Member State to finance beneficiaries’ projects from its own resources in the event of established breaches of the rule of law (Article 4(2) of the Conditionality Regulation). The consequences of the Member State’s incorrect actions in the case of irregularities cannot be borne by the beneficiaries, which also follows from the provisions of the General Regulation. Why, then, should the consequences of irregular actions (faulty assessment of projects?) be borne by the applicants at the assessment stage?

Within the framework of project selection, one wording from the project justification caught my eye:

'The solutions adopted with regard to the appeal procedure are mostly based on those in force on the basis of the Act of 11 July 2014 on the principles of implementation of programmes within the scope of cohesion policy financed in the financial perspective 2014-2020 (Journal of Laws of 2020, item 818) (hereinafter: Implementation Act 2014-2020). By design, it was decided not to interfere with regulations that have proven to work well in practice to date.

I have already written quite a lot about the shortcomings of the existing solutions in previous posts. At this point I would like to draw attention to the newly drafted provisions which raise my doubts:

Thus, Article 58 introduces the possibility of cancelling the call for proposals also for reasons such as „a substantial change resulting in the selection of projects not being in the public interest”.

The provisions on the exclusion of the application of the Code of Administrative Procedure to the project selection procedure (Article 59) were also retained, as well as the definition of a negative assessment (Article 56) which does not take into account the body of court rulings which pointed to the substantive understanding of the notion of 'negative assessment’.

On the other hand, I have to positively assess the changes in the scope of the possibility to supplement or correct the application while maintaining equal rights of the applicants (the question is how this will look in practice), as well as the changes in the electronic form of communication with the institution, also in the case of lodging protests. However, these are certainly not key changes in the area of project selection.

Significant changes are already introduced by the authors of the bill after the project selection process has been completed before the contract is signed. Here, an extensive provision appears, which gives the institution the right to refuse to sign a grant agreement:

„In justified cases, the competent institution may refuse to conclude a project co-financing agreement or refuse to take a decision on project co-financing if there is a fear of causing damage to public property as a result of concluding a project co-financing agreement or taking a decision on project co-financing, in particular when criminal or fiscal criminal proceedings are in progress against an applicant who is a natural person or a member of the applicant’s management bodies who is not a natural person for the crime of making false statements, bribery, bribery against property, credibility of documents, money and securities trading, economic turnover, the banking system, or any other offence connected with the performance of economic activity or committed for the purpose of achieving material benefits, in relation to a grant which has been granted from public funds for the implementation of a project to that applicant, an entity related to it personally or by capital, or a member of the management bodies of that applicant or entity.” (Article 61(4)).

In this context, it is worth observing a certain evolution in the provisions of the successive Acts:

Implementation Act 2006:

A project co-financing agreement is concluded in accordance with the operational programme implementation system, for a project: 1) which has successfully passed all stages of its evaluation and has been qualified for co-financing, and 2) whose co-financing is possible within the available allocation for the implementation of individual measures and priorities under the operational programme. (Article 30a(1))

It is impossible not to notice that the successive changes constitute an attempt to dilute the responsibility of the institution and create an obligation on the part of the public institution to sign a contract in the situation of a positive project assessment. First, minor semantic changes in successive laws and now the emerging right to refuse to sign a contract 'in justified cases’ constitute an unjustified change introducing unjustified arbitrariness into the process of an already positively assessed project.

Particularly objectionable is the formulation that a refusal to sign a contract can already occur only in the situation of a pre-trial investigation of a case. After all, a pre-trial investigation, even one in which charges are brought, does not necessarily have to result in a conviction. It is completely incomprehensible to connect negative consequences for beneficiaries with the mere fact of conducting such proceedings, especially in the light of the above-cited judgment of the Supreme Administrative Court in which it was clearly indicated that an institution may not refuse to sign a contract only due to the existence of „suspicions”.

Significant changes for beneficiaries (or rather for members of their management boards) appear in the area of amendments to the Public Finance Act and intertemporal provisions related to them.

First of all, the bill changes the rules on the statute of limitations for liabilities of members of beneficiaries’ management boards by adding Article 66b to the Public Finance Act, which reads:

• Third parties responsible for the repayment obligations referred to in Article 60(6 ) shall be determined according to the state at the time when the infringements referred to in Article 189(3) or Article 207(1) occurred.
• An obligation arising from a decision towards a third party shall be time-barred after a period of 5 years, counting from the date: (1) when that decision became final or (2) from the date referred to in Article 66a(1)(2) – whichever is later.” (Article 112(4) of the Bill).

In addition, Article 135 of the draft Act (intertemporal provisions) indicates that the already amended provisions of the Public Finance Act will apply to third-party liability proceedings initiated and not completed at the time of entry into force of the new Act, as well as to the limitation periods of the repayment obligation resulting from a decision against a third party.

As indicated by the authors of these amendments in the explanatory memorandum to the bill:

’The said decisions shall be issued before the expiry of five years from the end of the calendar year in which the decision referred to in Article 189(3b) or the decision referred to in 207(9) becomes final, and the third parties responsible for the liabilities incurred shall be determined according to the state at the time when the specified infringements occurred.’ In addition, in paragraph 1 of Article 66a, provisions have been introduced specifying the limitation periods for the obligation to repay funds under the 2021-2027 perspective. Whereas paragraph 3 of the introduced Article 66b regulates the issue of the limitation period of obligations resulting from decisions issued towards third parties by referring to the limitation periods for the obligation to repay funds referred to in Article 60, point 6, specified in Article 66a ufp. The introduction of Article 66b into the ufp, which regulates the liability of third parties, has also resulted in a consequential change in the form of the repeal of the existing paragraph 2 in Article 66a ufp.

(…) Due to the organising and clarifying nature of the amended provisions of ufp concerning the statute of limitations of liabilities for the repayment of funds intended for the implementation of programmes financed with European funds and other receivables related to the implementation of projects financed with those funds, as well as interest on those funds and on those receivables, it is proposed that the provisions of the amended ufp in this regard should already apply to proceedings initiated and not concluded before the date of entry into force of this Act concerning liability of third parties for liabilities to repay those funds. An analogous rule will apply to the limitation periods for the liability to repay the aforementioned funds.

Underneath the inconspicuous justification of these provisions, there is a fundamental issue – namely that the limitation period for claims against members of management boards of beneficiaries has been extended – and significantly so – in relation to the previously applicable one. Significantly, the limitation periods are to be changed even for pending cases. I have already written about the fact that the provisions on the limitation period for restitution obligations are both unconstitutional and incompatible with EU rules.

At this point, it is worth recalling again the view of the CJEU, which took the view that the limitation period begins to run when both the act or omission of the economic operator which constitutes an infringement of Union law and the damage to the Union budget or budgets managed by it have occurred. Further, in a subsequent decision, the CJEU analysing the facts stated that: „The date on which the national authorities became aware of the irregularity in question is therefore irrelevant for the start of the limitation period. Even apart from the fact that there is nothing in the wording of Article 3(1) of Regulation No 2988/95 itself from which a contrary interpretation can be deduced, it must be stressed that it is the national authorities’ general duty to exercise due diligence in investigating the regularity of the payments they make which are chargeable to the Union budget, an obligation which entails that they must take immediate measures to remedy the consequences of the infringements (see, similarly, the judgments: Ze Fu Fleischhandel and Vion Trading, C-201/10 and C-202/10, EU:C:2011:282, paragraph 44; and Cruz & Companhia, C-341/13, EU:C:2014:2230, paragraph 62). In those circumstances, allowing the possibility that the time-limit provided for in the fourth subparagraph of Article 3(1) of Regulation No 2988/95 begins to run only from the time when the administrative authorities identify the irregularity could, in a way, encourage the administrative authorities not to pursue the irregularity, while at the same time exposing economic operators, firstly, to a long period of legal uncertainty and, secondly, to the risk that, after such a period has elapsed, they will no longer be able to provide evidence of the legality of the transactions in question

(Judgment of the Court of Justice of the European Union of 6 October 2015, in Case C-59/14, Firma Ernst Kollmer Fleischimport und -export v Hauptzollamt Hamburg-Jonas, ECLI:EU:C:2015:660.)

However, it is also impossible to pass over the blatant violation of the intertemporal rules in the proposed law.

Here, too, it is worth citing the judgment of the WSA in Warsaw issued still in the context of the previous amendment to the Implementation Act of 2014: „The aforementioned provision of Article 66a of the A.f.p. was added by Article 11(4) of the Act of 7 July 2017 amending the Act on the principles of implementation of programmes within the scope of cohesion policy financed within the financial perspective 2014-2020 and certain other acts (Journal of Laws of 2017, item 1475), amending the Public Finance Act as of 2 September 2017. As the aforementioned provision regulating the statute of limitations is of a substantive legal nature, it cannot be applied to the assessment of events prior to its entry into force, particularly given that, pursuant to Article 28(2) of the amending Act, the previous provisions shall apply to proceedings for the reimbursement of funds referred to in the Act amended by Article 11, initiated and not concluded before the date of entry into force of this Act. In this case, the proceedings were initiated by a decision of 14 February 2017, so there is no doubt that Article 66a of the A.f.p. could not apply.„

[Judgment of the Voivodship Administrative Court in Gliwice of 17 April 2019, ref. no.: III SA/Gl 1173/18, LEX no. 2653179].

As can be seen, meanwhile, in the proposed provisions the authors ostentatiously disregard the basic rules of intertemporal law, headed by the principle of non-retroactivity of the law.

On many occasions on my blog I have already touched upon the subject of the constant deflation of the law in the area of EU funds.

What does the new perspective hide? – EU funding in the 2014-2020 financial perspective – EU funding – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

Business constitution for beneficiaries or a simple law? – EU Measures – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

Glass houses of the Ministry of Development – EU funds – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

New year – new opening in EU funds? Let’s hope so – Krzysztof Brysiewicz Blog (kbrysiewicz.pl)

The deepening problems of applicants and beneficiaries, as well as the institutions themselves, in the management of EU funds are largely due to inadequate legislation and partly to shortcomings in administrative capacity. I have already written about which areas require improvement on the occasion of the previous implementation act – and also about the loud announcements of significant changes in the area of implementation of EU funds with the announced great review of regulations, which, as it turned out, were only announcements.

Of course, the new implementation law addresses practically none of the problems I have written about, which we have also recently had the opportunity to examine within our law firm in the report„Efficiency of procedures for spending EU funds„, instead it „streamlines” but mainly those areas that cause problems for the officials themselves.

The Minister has to work on answers related to the lack of allocation? We are amending the Act. Officials can’t keep up with corrections? We are extending the limitation period. We have doubts when signing funding agreements? Let us give the power that we can always refuse to sign them. The inspectors cannot enter the beneficiary? Let the local police chief help them. And finally – the court rulings are not to our liking? Let’s correct them by law….

This type of 'streamlining’ will certainly not improve the implementation system of EU projects, but will only lead to the further creation of more 'legal favelas’.