New year – new opportunities for EU funds? Let’s hope so.

We open 2020 with a new – old – Ministry of EU Funds, and a new Minister, Małgorzata Jarosińska-Jedynak.

How will these changes affect the distribution of EU funds? I hope positively, because there is a lot of work to be done – the system of management and implementation of EU funds requires comprehensive changes which will really bring it much closer to the model set out in EU legislation and will finally ensure respect for the rights of all participants in the system, led by the beneficiaries. Of course, on paper, the data related to so-called absorption look very good. Contracting, or the amount of funds allocated to signed funding agreements, is very high in the case of Poland, and one of the highest in the entire Union. Unfortunately, apart from the fact that funds manage to be spent quickly, this is not always done in an optimal way and with respect for the rights of all participants in the system. In addition to efficient spending, effective recovery is also important, as well as proper implementation of projects by beneficiaries, and here the current implementation system is not always up to the task.
I have already written about some of the necessary changes to the implementation system on several occasions, and recently also had the opportunity to comment in material for the Newseria agency.

https://biznes.newseria.pl/news/polska-szybko-i-skutecznie,p1093858090

It is an open secret that one of the major problems of the EU funds is the lack of qualified staff, necessary both at the stage of organising competitions and later, at the stage of verifying and settling projects. According to reports on the administrative potential of the management of EU funds, in the entities covered by the Partnership Agreement, there are currently more than 15,000 employees in total, of which approximately 300 are lawyers, about 250 are responsible for detecting and correcting irregularities, about 1,500 employees are responsible for the selection and evaluation of projects, and about 1,300 for handling projects . When one relates these numbers firstly to the total value of the projects implemented (PLN 1 trillion) and secondly to their number (50 000), one cannot help but feel that the number of employees does not correspond to the number of projects implemented. For the sake of comparison, it would be worthwhile to consult relevant data of applicants and beneficiaries, possibly also consulting companies, which could show what kind of human resources the private sector dedicates to EU projects.
In my opinion, which is also supported by practice, although the number of employees might be sufficient, the quality of human resources leaves a lot to be desired. This, in turn, is shown by objective processes such as the organisation of competitions, their average length, the day-to-day running of projects and, finally, the detection and correction of irregularities. In all these elements, a typical phenomenon is the excessive length (protraction) of proceedings, which, in my opinion, is caused primarily by the lack of appropriate personnel and, of course, the number of competitions. In my opinion, this is due primarily to the lack of appropriate staff and, of course, the number of competitions.
Over 11 years have passed since 2008, when the appeal procedure appeared in the then implementation law as a result of the Ombudsman’s actions. Unfortunately, the legal framework for the funds is far from perfect and needs to be radically improved.
The draft EU regulations for the new perspective envisage further simplification of management systems, as well as the removal of administrative burdens on beneficiaries. At the same time, the European Commission points out that the management systems should make use of the already existing legal framework, while the treatment of beneficiaries and applicants must not be worse than the treatment of other entities in a similar legal situation under other branches of law – the so-called assimilation principle.
Meanwhile, the legal framework regulating both the selection of projects and their subsequent implementation has left much to be desired from this perspective for many years. This is best illustrated by the fact that the provisions of implementation acts have already been subject to control by the Constitutional Tribunal several times, which has twice declared them to be inconsistent with the Constitution of the Republic of Poland.
Special attention is certainly required with regard to issues that are crucial from the perspective of the correct operation of the entire implementation system:
– firstly, a common legal framework for distribution and implementation for all institutions,
– secondly, a clear decision on the form in which projects are distributed and implemented,
– thirdly, a single place for the publication of legal acts concerning the rights and obligations of applicants and beneficiaries.

The first of the postulates is a reflection of what Prime Minister Morawiecki himself spoke about when he announced a few years ago a single institution that would coordinate the work of all central institutions involved in implementation. The distribution of public funds currently takes place under so many programmes and through so many institutions that only a specific procedure for allocating funds can be distinguished for practically each of them. At this point in time, we have basically ended up with announcements and a framing solution reflected in the so-called PFR group and the Development Institutions System Act. This solution is not satisfactory and work certainly needs to be continued towards greater integration of the institutions currently distributing EU money, particularly at the level of a uniform legal framework – for at present almost each of the central institutions involved in implementation has its own act and its own specific procedures, which modify or supplement the provisions of the Implementation Act . The distribution of public funds is now carried out 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 distinguished. 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 within the framework of the Rural Development Programme 2014-2020.
[Read more in the post: The Constitution of Business for Beneficiaries or an Ordinary Act?]

The second postulate is the necessity, repeated for years by many representatives of science, to clearly resolve the form in which EU funds are granted and paid. The issue here is first and foremost, but not only, a clear decision as to whether the contract for co-financing is a civil law contract or an administrative law contract. A lot has already been said about the fact that the procedure of awarding funds has a quasi-administrative character (although the legislator avoids as much as possible a clear reference to the Code of Administrative Procedure), while the formula in which projects are implemented is still not entirely clear. The Public Finance Act stipulates that the institution signs a grant agreement with the beneficiary, singling out its key provisions. The contract itself is an adhesion contract, its template prepared by the institutions is extremely formalised and one-sided, imposing a number of far-reaching obligations on the beneficiary. At the same time, in the event of irregularities, the institution may carry out both administrative proceedings and make use of typically civil institutions to secure the contract, such as bills of exchange, guarantees, sureties or mortgages. This results in the same case being heard in parallel by both a civil court and an administrative court. Needless to say, such a situation is not conducive to the certainty of trading and raises a great many problems, not only for the beneficiaries, but also for the implementation system itself. As practice shows, the administrative procedure is inefficient and can take years. It would certainly be a good idea to clearly define the form in which the state distributes EU funds and to adhere to it consistently. In doing so, I am in favour of an entirely civil law-based way of distributing funds. However, whichever solution is ultimately chosen, an effective recovery procedure in one form or another will require much greater emphasis on the quality of staff; in my view, it is primarily staff shortages, both quantitative and qualitative, that are the cause of an ineffective recovery system.

The new ministry should also look into the still unresolved problem of the rules under which competitions for EU grants are conducted. Despite the fact that already in 2012. Despite the fact that already in 2012 the Constitutional Tribunal questioned the possibility of conducting competitions on the basis of documents which do not have the form of universally binding regulations, the indications of this judgment are still ignored by the legislator. At the same time, this issue has a significant practical dimension – still an entrepreneur who applies for a grant in the Łódzkie Voivodeship and at the same time in the Śląskie Voivodeship has to take into account the fact that his basic rights and obligations in these competitions, specified in regulations, instructions and guides adopted by the institutions, may look different. For example, the scope of possible supplements and amendments to the application may be different, the mode of submitting the application itself may be different, or there may be other requirements for the applicant as to how the application should be completed. At present, there is a prosthesis in which some documents, such as guidelines issued by the ministry are published in the Polish Monitor, but they are still not given the form of any generally binding law.

Although the appeal procedure has its place in the current implementation law, both the rules and the practice of resolving protests have been steadily eroding for several years. At first glance, when one considers the figures in the current financial perspective, several thousand protests were lodged, as well as 1.7 thousand complaints to administrative courts. However, the position of applicants in the appeal procedure is weakened by, for example, the introduction of the so-called formal conditions (Article 43 of the Implementation Act), the non-fulfilment of which is not examined in the appeal procedure (as opposed to a negative assessment of the criteria), or the so-called exhaustion of the allocation, i.e. lack of funds for a measure. exhaustion of allocations, i.e. lack of funds in the measure, which allows institutions to leave appeals unprocessed (Article 66 of the Implementation Act).
Based on my own experience, I also pose a question about the sense of the current model of judicial-administrative control of projects. Currently, the control of project appraisals is carried out by administrative courts, which, firstly, do not have the possibility of independent control of complex issues which are the subject of applications (the court is not an expert) and, secondly, do not decide the cases on their merits (lack of competence to issue the so-called reformatory decision, prejudging the outcome of the appraisal). As a result, the appellate control is often of an illusory nature (e.g. when the court refrains from recognising the disputed expert assessments or when, as a result of successive court rulings in the appellate procedure, the same case is circulated several times, the measures are exhausted). In one of the cases I am handling, the administrative court is dealing with my client’s project for the fourth time in a year, while – in theory – cases concerning project assessments should be resolved within a few months at the most. This is no exception. Certainly, if judicial-administrative control is to be maintained, it will be necessary to consider solutions to make it more effective.

These processes, from the perspective of the institutions, usually boil down to (passive) supervision of beneficiaries’ activities. The number of project supervisors very often does not translate into the quality of supervision of project implementation. Above all, the interface between project supervisors and beneficiaries clearly shows the inadequacy of the administrative apparatus for business and a poor understanding of market processes. Project supervisors in individual institutions are, at best, limited to perfunctory contacts with beneficiaries, at worst they are not even appointed in individual institutions, because there is a risk that they „could become friends with the beneficiaries”. Poor contact with institutions means that beneficiaries implementing projects are basically on their own, which sometimes, given the scale of problems and complexity of projects, causes many projects to fail.
The changes concerning the basic element of project implementation, i.e. procurement, look relatively good. Here, in addition to the competitiveness base, the guidelines on eligibility can be regarded as a big plus, as they provide quite clear directives allowing the beneficiaries to organise contracts correctly.
Unfortunately, the same cannot be said about other areas of project implementation; there are problems with both the subject-matter and subject-matter changes of projects, changes in the status of a company, issues related to state aid, which is particularly important in the case of consortium projects, and finally the implementation of indicators and the consequences of failing to meet them. In all of these and many other areas, it would be highly desirable to have ongoing contact with qualified staff of the institutions responsible for implementation. Currently, these processes are treated as a necessary evil. Deficiencies in the process of overseeing the day-to-day implementation of projects are being replaced by a large number of checks and audits, which do indeed detect many errors, it is just a pity that this happens after they have already been committed when the only cure is financial correction.

This is an area where statistics are difficult to come by. However, this is where the biggest problems of inadequate supervision of contracts are concentrated. Checks on projects are carried out by many institutions, but the reimbursement procedures themselves are conducted in a lengthy manner, very often leading to situations where funds cannot be recovered due to bankruptcy/liquidation of the beneficiary. Significantly, in many cases, due to the passage of time, institutions were not able to effectively pursue liability against members of the management boards of beneficiary companies, resulting in significant amounts not being effectively recovered.
Due to the inefficiencies of the system, a number of solutions were introduced in the previous perspective to help/prevent ineffective recoveries. One mechanism was the statutory exclusion from enforcement of both the amounts of subsidies transferred and the assets purchased with them (Article 831 CCP). This exemption was originally extended all the way to the period of durability, but was eventually limited to the period of project implementation. This was to allow the institution’s claims to be satisfied with priority over other creditors. The introduction of this institution was motivated by the EU rules of the so-called General Regulation, yet these rules never mandated this type of regulation. The exclusion of funds from enforcement is only an attempt to patch up the ineffective system of recovering funds, in which the institutions conduct proceedings in a protracted manner, allowing for the disposal of assets purchased from grants and thwarting effective enforcement.
The changes to the accrual of interest and the statute of limitations on the claims of the institutions should be assessed similarly. While interest on misspent funds is already accrued from the moment the funds are transferred to the beneficiaries (Article 207 of the Public Finance Act), the statute of limitations after the changes introduced last year starts only from the moment of closure of a given multi-annual programme (Article 66a of the Public Finance Act). These provisions – which are not in line with EU standards for the recovery of irregularly paid amounts – are also intended to protect the institutions themselves against the passivity of their officials and the inefficiency of procedures. At the same time, these solutions are extremely unfavourable and treat beneficiaries of EU funds much worse than, for example, taxpayers, not to mention counterparties under civil law.
At the same time, these and a number of other solutions clearly indicate that institutions have problems with effective recovery of funds. The question, however, is whether changes to the provisions of the laws that will allow recovery indefinitely will achieve the goal. A much better solution, however, would probably be to strengthen staff capacity, as well as to clearly define in which mode funds should be recovered.
[Read more in entry: Glass houses of the Ministry of Development]

The current implementation system is not conducive to the detection and elimination of pathologies, which of course have happened and will continue to happen. The mechanisms for defrauding subsidies, about which we are currently hearing so much in connection with numerous preparatory and criminal proceedings, show that both from the legal and, above all, from the human side, many irregularities are detected late, sometimes far too late. There is no limit to the creativity of entrepreneurs, and sometimes those defrauding subsidies simply take advantage of obvious loopholes in the system and shortages of experienced staff.
Nowadays, it would probably be possible to write a whole book on effective and ineffective methods of defrauding subsidies, starting with more or less sophisticated bid rigging and ordering, through artificial shaping of structures in order to „fit” a given competition, e.g. the „tailor-made” subsidies offered by the public procurement agency. still offered by many „tailor-made” SMEs, „reserving” areas by submitting a large number of applications, reserving allocations in competitions by submitting applications through other beneficiaries, or transactions involving EU entities and escaping into „non-fraudulent” bankruptcy.
Unfortunately, a typical reaction of the system to these pathologies is e.g. tightening of competition criteria or termination of contracts without a thorough explanation of the case. These types of instruments are not effective in the fight against pathologies, especially since the entities responsible for fraudulent activities have long ceased to exist or are so-called 'shells’. Therefore, it is worthwhile, in my opinion, for each institution to have a special team composed of both experienced controllers and lawyers, which could monitor such irregularities, react to such pathologies on an ongoing basis and report effective solutions.

There is still a lot of work ahead of the new Minister and her subordinate officials in the new Ministry. It is important that, apart from contracting itself, we also manage to take care of other elements of the implementation system, so that at the end we can say with a clear conscience that we have not only spent all the allocated EU funds, but that we have done it effectively and with respect for the rights of all beneficiaries. After all, it is important not only to be quick, but not to be mediocre.