What does the new perspective hold? – EU funding in the 2014-2020 financial perspective.

I would like to devote this entry to the issue of selecting projects to be co-financed from EU funds in the new financial perspective for 2014-2020, as well as the issue of reimbursement. According to the Ministry of Infrastructure and Development, the amount allocated to Poland from the cohesion policy budget exceeds EUR 82 billion. This amount is indeed significant, but when providing information on the amount of funds, it should also be noted that these are potential funds, as the actual amount that will be used for EU funding will only become clear after the end of the 2014-2020 programming period.

Whether these funds will be spent effectively will largely depend on the effectiveness of the fund management system, including the method of selecting projects for co-financing. This issue is addressed, among others, in the Act of 11 July 2014 on the principles for the implementation of cohesion policy programmes financed under the 2014-2020 financial perspective, published on 29 August 2014 in the Journal of Laws (the ‘Act’). This Act is intended to replace, in the 2014-2020 financial perspective, the Act of 6 December 2006 on the principles of development policy (the ‘UZPPR’), which regulated, among other things, the selection and evaluation of projects co-financed by European funds in the 2007-2013 financial perspective.

The new Act contains a number of new solutions compared to its predecessor. In addition to regulations concerning planning, programming of funds and coordination of programme implementation, there are also new regulations concerning, for example, the designation, control and audit of projects, monitoring of the material progress of projects and financial instruments. From the point of view of potential beneficiaries, however, the most important are the regulations relating to the selection and implementation of projects, the granting of co-financing, as well as the appeal and administrative court procedures against negative results of competitions. In this respect, unfortunately, the Act largely corresponds to its predecessor, the UZPPR.

The Act is intended to align national law with the provisions of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund covered by the Common Strategic Framework and laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, and repealing Council Regulation (EC) No 1083/2006 (‘General Regulation’) governing the operation of EU funds in the new perspective. As emphasised by the EU legislator, „Member States and the entities they designate for this purpose should be responsible for preparing and implementing programmes at the appropriate territorial level, in accordance with the institutional, legal and financial framework of the Member State concerned. These provisions should also take into account the need to ensure the complementarity and consistency of relevant Union interventions, respect the principle of proportionality and take into account the general objective of reducing administrative burdens” (point 10 of the preamble to the General Regulation). Does the new law actually contribute to the achievement of these objectives? I dare to doubt it…

The Act, as was the case in the previous perspective, maintains the so-called implementation system, which refers to the conditions and procedures applicable to institutions participating in the implementation of operational programmes, including in particular management, monitoring, reporting, control and evaluation, as well as the coordination of activities undertaken by institutions. At the same time, the legislator stipulates that the implementation system is based in particular on generally applicable law, horizontal guidelines and programme guidelines, a detailed description of the operational programme’s priorities, a description of the management and control systems and implementing instructions (Article 6 of the Act). In addition, as in the previous Act, the possibility of issuing both horizontal guidelines (covering more than one operational programme) and programme guidelines (covering a single operational programme) has been retained.
The project selection procedure is set out in Chapter 13 of the Act. Projects will be selected for co-financing both through a competitive procedure and a non-competitive procedure, the latter being used for projects of strategic importance for the socio-economic development of the country or region, or projects concerning public tasks for which the applicants, , due to the nature or purpose of the project, can be clearly identified (Article 38 of the Act). As regards the competitive procedure, which will apply to the vast majority of projects, its course will be similar to the previously applicable procedure, i.e. first, the competent institution will publish a competition announcement on its website (Article 40 of the Act). The competition will be conducted on the basis of rules laid down by the competent institution, which shall include, inter alia, the deadline, place and form for submitting applications for project funding, a model application form for project funding, a model project funding agreement and the criteria for selecting projects (Article 41 of the Act). The legal form of the rules has not been specified, which means that they may be adopted in the form of a document that is not generally binding. The provision of the Act is clearly contrary to the content of the judgment of the Constitutional Tribunal, which questioned the admissibility of regulating the rights and obligations of participants in competitions (not only rights and obligations relating to the appeal procedure) applying for European funding in legal acts other than those generally applicable (judgment of the Tribunal of 12 December 2011, ref. no. P 1/11). Furthermore, the issue of the lack of limitation of the effects of the Tribunal’s judgment solely to the appeal procedure has been repeatedly raised in the literature. It is therefore all the more incomprehensible that the legislator did not even make an effort to ensure that the new act fully respected the directives resulting from the Tribunal’s judgment.

The Act sets out several basic principles governing the competition procedure, which also apply under the UZPPR, including the principles of transparency, fairness and impartiality in the selection of projects (Article 37 of the Act). However, the principle of equal access to assistance for different categories of beneficiaries (Article 26(2) of the UZPPR) has been abandoned and replaced by the principle of equal access to information on the conditions and method of selecting projects for co-financing (Article 37 of the Act).

As was the case under the UZPPR, the Code of Administrative Procedure (Article 50 of the Act) will not apply to the competition procedure. This exclusion was also strongly criticised in the previous perspective, inter alia by the Ombudsman, and does not seem to be a good solution in a situation where, at the same time, basic procedural guarantees and elements of the competition procedure are regulated outside the generally applicable law – in the competition rules and other acts.

It is also worth noting that, despite the valid arguments raised during the consultation of the draft, the Minister of Infrastructure and Development decided not to specify, even as a guideline, the deadline by which the competent institution should evaluate the applications. This omission should undoubtedly be viewed negatively, especially considering that under the previous financial perspective, applicants had to wait up to a year for their projects to be evaluated. There are also known cases where, after several appeals and administrative court proceedings, the evaluation of a project was completed after several years (!).

The above-mentioned shortcomings mean that the Act does not fulfil the EU legislator’s requirement to establish effective and transparent systems ensuring the selection of high-quality operations and the effective implementation of those operations. (point 2.2.3 of the proposal of 14 March 2012 for the adoption of the General Regulation. Simplification – reduction of administrative costs and risk of error No COM(2011) 615 final/2 2011/0276 (COD).

A significant change compared to the previous programming period is the consolidation of the division into financial corrections and decisions on the recovery of funds (Article 9(8) and (9) of the Act). In addition, the legislator has decided that in the event of an individual irregularity being identified before the approval of a payment claim, the financial correction will be made in such a way the institution will reduce future payments to the beneficiary by the amount of expenditure incurred irregularly, which will not be decided by an administrative decision but will constitute a specific act against which no appeal may be lodged (Article 25(11) in conjunction with Article 24(9)(1) of the Draft Act). What is characteristic is that, in relation to financial corrections in the form of a reduction of future payments, the legislator carefully avoids the term ‘financial correction’, even though the reduction of future payments clearly falls within the concept of financial correction. This solution should be assessed negatively, especially in view of the latest position of the Supreme Administrative Court, which pointed out that the concept of financial correction falls within the scope of proceedings for the recovery of funds and does not constitute a separate institution from the recovery of funds. (see judgments of the Supreme Administrative Court of 25 March 2014, II GSK 79/13, of 8 May 2014, II GSK 249/13, of 12 June 2014, II GSK 2080/13), which means that even in the event of a reduction in future payments, such proceedings should end with a decision and not with an unspecified specific act.
Maintaining an artificial division between proceedings concerning financial correction and proceedings concerning the recovery of funds is unjustified, especially since such dualism is not provided for by the EU legislator, who treats recovery proceedings as a single procedure. The General Regulation uses the term ‘single recovery procedure’, which includes ‘investigating irregularities’, ‘making the financial corrections required’ and ‘recovering amounts’ (Article 146 of the General Regulation).
The amount of the correction will, as a rule, correspond to the amount of expenditure incurred irregularly (Article 24(5) of the Act), although in certain circumstances this amount may be reduced. In other cases, i.e. where it is not possible to determine the amount of irregular expenditure, the rules for determining the amount of the correction will be laid down in a regulation issued on the basis of Article 24(13). The statutory delegation concerning the possibility of determining, by way of a regulation, the conditions for reducing the value of financial corrections and the value of irregular expenditure, as well as the percentage rates of corrections taking into account the nature and gravity of irregularities, is, in my opinion, a step in the right direction (Article 24(13)). Until now, the amount of corrections was determined on the basis of the so-called Tariff, which is also not a source of generally applicable law, which meant that determining the amount of corrections on the basis of this document was often, in my opinion rightly, questioned. Of course, the question of how this delegation will be implemented remains open, as no draft regulation on corrections has been presented so far. It is worth recalling that, in accordance with the General Regulation, the directive binding on the Commission should be the overriding directive when determining the amount of the correction, according to which, when deciding on the amount of the correction, the Commission shall comply with the principle of proportionality, taking into account the nature and gravity of the irregularities and the extent and financial impact of the deficiencies found in the management and control systems of the operational programme concerned (Article 144(2) of the General Regulation).

The EU legislator has clearly stated that the implementation system should be as simple as possible and free from typical administrative barriers in order to ensure effective implementation and reduce the administrative burden on beneficiaries. In my opinion, however, the regulation in question does not meet these criteria. Importantly, all of the above comments were brought to the attention of the legislator during the legislative work on the Act. The quality of the original draft is evident from the number of comments submitted during external consultations (almost 1,500). Despite this, it was decided to retain these flawed solutions. In my opinion, further intervention by the legislator in the recently adopted Act will be necessary in the near future. The above-mentioned shortcomings, the most serious of which is the inclusion of some of the rights and obligations of competition participants in the rules and regulations, i.e. outside the generally applicable provisions, may be classified by the European Commission as serious defects in the management system and may result in the irrevocable cancellation of support granted under individual programmes (Article 143(4) of the General Regulation (Contributions cancelled as a result of a financial correction imposed by the Commission may not be reused for operations that were the subject of the correction or, where the financial correction relates to a systemic irregularity, for operations affected by the systemic irregularity). Above, I have outlined the potential legal problems associated with the Act. Those particularly interested in the nuances of the ‘legal kitchen’ are referred to my article entitled ‘The project evaluation and selection system in the 2014-2020 financial perspective’ published in Przegląd Prawa Publicznego (Public Law Review) No. 10/2014.