Exhaustion of allocation as a reason for refusal of funding

Applicants applying for European funds under competitions should not only take care to prepare their documentation carefully, but also keep their fingers crossed that the experts evaluating their application do not make mistakes in this assessment. A negative assessment, even if it is wrong and unfair at first glance, can effectively bury the chances of obtaining funding for procedural reasons.

This results from the fact that during the exhaustion by the applicant of the appeal procedure, which does not stop the signing of agreements with other applicants (Article 65 of the Implementation Act), the amount allocated for financing projects under the measure may be exhausted (the so-called exhaustion of the allocation), which will result in leaving his/her protest unprocessed (Article 66 of the Implementation Act). Also a complaint to the administrative court will not have the desired effect for the applicant – because the court in such a situation may at the most state that the project assessment was carried out in a manner infringing the law – it does not, however, have the right to refer the case for reconsideration (and consequently open the possibility for the applicant to obtain a grant). Thus, a possible appeal and court-administrative procedure in the case of exhaustion of the allocation may end at most only in a moral victory for the applicant. This issue, in my opinion, is one of the more significant and glaring legislative flaws of the Implementation Act.

What is more, the fact that this topic is of major practical importance is convinced by the situation that occurred at the end of the previous programming period, when a significant number of projects were closed off from funding in this way. Statistics show that of the more than 68 000 appeals processed between 2008 and 2014, as many as 7% were left unprocessed. Even assuming that only 1% of appeals were left unprocessed due to exhaustion of the allocation, we are talking about almost 700 appeals left unprocessed for reasons completely beyond the applicants’ control. The problem of leaving appeals unprocessed due to exhausting the allocation can therefore be called systemic.

Such a regulation, which leads to depriving applicants of an effective remedy, in my (and not only) opinion grossly contradicts the basic principles of the legal order that can be derived from the Constitution of the Republic of Poland, first and foremost the principle of a democratic state of law and the right to a court of law, and what is more, it leads to the detriment of the main public purpose of the funds, i.e. the selection of the best projects for funding. This was also recognised by the Supreme Administrative Court in one of its rulings, indicating that:

Significantly, this judgment (the rapporteur was the President of the Supreme Administrative Court himself, Janusz Trzciński) was delivered in a case concerning aid granted by the Agency for the Restructuring and Modernisation of Agriculture under funds from the European Agricultural Guidance and Guarantee Fund. In the complainant’s case, a situation occurred in which the lapse of time – caused by the recognition by the administrative authorities and the WSA of the appeals that the complainant had filed in the case – led to the impossibility of granting the structural pension due to the exhaustion of the limit of funds earmarked for structural pensions and the exceeding of the statutory deadline for granting financial aid. The provisions of the Implementation Act, meanwhile, contain regulations that can lead to identical consequences….

Where did the provisions in the Implementation Act come from that thwart effective and efficient appeal control of project evaluations? Well, they are not new, as they were introduced for the first time to the Act on the Principles of Development Policy by the amendment of 19.4.2013. (It should be clearly noted that the introduction of these provisions was in no way related to the need to adjust the law due to the above-mentioned judgment, but was made by the legislator „by the way” of the amendment. Instead, it resulted indirectly from the interpretation of the notion of a negative assessment of a project adopted by administrative courts (which was not clearly defined at that time). According to the administrative courts, a negative assessment was to be understood as all decisions which made it impossible to obtain a grant, including those motivated by exhaustion of funds. Such an interpretation is, in my opinion, fully logical – after all, from the applicant’s point of view, it is the final effect that counts.
This is how the legislator motivated the introduction of these changes: in the case when exhausting the allocation for a competition is at the same time connected with exhausting the allocation for a measure or priority, enabling the applicant to lodge an appeal misses the point and does not provide any added value for him, since even in the case of a positive result of the appeal procedure, he could not receive a grant. Hence, further consideration of appeals in such a case is also pointless.
Interestingly, already in the period of works on the amendment, there was no shortage of voices coming from the very institutions involved in implementation, questioning the proposed solution. E.g. as the Minister of Administration and Digitisation pointed out during the legislative procedure: exclusion of the applicant’s right to appeal and then the right to file a complaint to the WSA in the event of exhaustion of means for action or priority will constitute a violation of the right to a court. The right to a court is independent of the available allocation agreed with the European Commission or the possibility to conclude a grant agreement, as it follows directly from the provisions of the Constitution of the Republic of Poland. State authorities should ensure the possibility to conclude a contract for co-financing in the event of a positive conclusion of the court-administrative procedure for the applicant (letter of the Minister of Administration and Digitisation of 22.8.2012, ref. DP-MAC-0232-771/2012/ML).
Despite these reservations, which were also raised in the course of works on the Implementation Act, the editing of the above provisions was not changed in the end.

Regardless of the difficulties associated with the proper documentation of the so-called exhaustion of the allocation, i.e. who, how and on what date is to determine its exhaustion (cf. e.g. judgment of the Supreme Administrative Court II GSK 2450/14), contrary to the claims raised by the proponent in the course of legislative work on the draft law, the exhaustion of the allocation is not objective in nature, and at the same time, what is important, it is variable in time and completely dependent on the institutions, which have the possibility of reallocating funds between individual measures or priorities, and even the so-called overcontracting. This type of situation occurred many times in the previous programming period.
This was pointed out by the institutions themselves. For example, the Minister of Economy, when giving his opinion on the draft implementation law, formulated the following reservation:

At the end of the day, what is crucial, in my opinion, is something else, i.e. the fact that the exhaustion of the allocation is completely beyond the applicant, and, in addition, at the stage of submitting an application and then an appeal, he or she has no way of predicting whether such exhaustion may occur, both during the competition procedure and later, during the appeal procedure. In this situation, in my opinion, the responsibility for providing funds, including for projects that have received a positive assessment in the appeal procedure, should rest entirely with the institution organising the competition. After all, it is they who are ultimately responsible for the correctness of the evaluation process (as part of the management and control of the funds), and the flaws in this process cannot be passed on to the applicants. Moreover, as mentioned above, there is also a wide range of possibilities for securing funds. A different interpretation is, in my view, unacceptable in view of the principle of the citizen’s trust in the state, which is significantly affected in a situation of this kind of uncertainty.

What can the applicant do now in a situation in which – due to the exhaustion of the allocation – in the course of court-administrative proceedings, the court has found only the illegality of the project assessment without referring the case for reconsideration (pursuant to Article 66 of the Implementation Act)? In practice, the only means of legal protection remains an action for damages before a common court for compensation in connection with failure to obtain co-financing. The decision of the administrative court stating the unlawfulness of the assessment plays the role of the so-called „prejudicature” in such a claim – which means that in the course of civil proceedings there is no need to prove the unlawfulness of the action of the respondent institution. Nevertheless, the applicant should demonstrate the remaining prerequisites of liability for damages, i.e. the damage and the adequate causal link between the event (negative assessment) and the damage (failure to obtain funding). This is where the stumbling blocks appear – proving these two conditions is difficult – in practice, it boils down to proving that if it had not been for the negative assessment, the applicant (with a high probability) would have signed the agreement and would have received funding in a given amount (the question of future profits to be generated by the implemented project remains debatable as an element of the claim). When looking at the timeline of such a project, there is a long way to go from the completion of its evaluation to actually receiving the funding. Nevertheless, there are judgments which allow us to be cautiously optimistic about the possibility of successfully constructing such a claim. I have written about this issue, among others, here.

Notwithstanding the uncertainty as to the final outcome of the case, applicants must also take into account the significant costs of such proceedings. The court fee for a lawsuit for a property claim in civil proceedings is 5% of the value of the claim (but not more than PLN 100,000). Such an amount in practice discourages a significant number of claimants from pursuing their claims in court. As a result of all these factors, a court ruling, in a situation where the allocation has been exhausted, stating only the illegality of the assessment, without referring the case back to the institution, is usually of only symbolic value to applicants. Indeed, while the costs of an appeal and judicial-administrative procedure are small, the costs of compensation proceedings, combined with their uncertain outcome, constitute in practice an insurmountable barrier for many applicants, preventing them from effectively protecting their rights.

In my opinion, the commented regulations are a classic expression of procedural injustice, and indication in the course of the legislative procedure by the author of the project, i.e. the Ministry of Infrastructure and Development, of the civil law way (response to comment No. 43) as an alternative means of legal protection in the case of termination of the project evaluation procedures due to exhaustion of the allocation should be perceived, at best, as a misunderstanding.

In addition, the solution adopted by the legislator is harmful also, or even primarily, from the point of view of the public interest. Here, in a situation where two principles collide, i.e. the speed of the procedure and the effectiveness of spending funds (selection of the best projects for funding), the primacy is given to the former. The introduction of the rule that the appeal procedure does not hold up the signing of agreements, while allowing the possibility of ending this procedure as a result of exhausting the allocation can lead to a situation in which projects that are better in terms of their content do not receive funding as a result of a flawed assessment, which at the same time does not hold up the signing of agreements with applicants who may have prepared projects that contribute less to achieving public objectives. In this context, with the conflict of two principles of proceedings, i.e. the principle of effectiveness and selection of the best projects for co-financing, as well as the principle of speed, the latter should give way – the more so as, as the Constitutional Tribunal has stressed on many occasions, speed of proceedings is not a value indicated in Article 31 of the Constitution of the Republic of Poland, justifying restriction of rights and freedoms.
It is also possible that maintaining the current wording of the provisions will result in intensification of pathologies that could have been observed at the end of the previous programming period, consisting for example in gross violation of time limits for examination of appeals, and then leaving them unprocessed due to exhaustion of the allocation. This was noticed, among others, by the Voivodeship Administrative Court in Warsaw, which pointed out that: according to the response to the complaint, the formal resolution of the case took place within 233 days from the day of receiving the protest. The blatant exceeding of the 70-day time limit deprived the Appellant of substantive assessment of the protest by the Minister and, in the case of a negative decision, by the Court. This situation constitutes a gross violation of the constitutional principle of the rule of law, as well as an offence against common decency.
I think that the legislative solution commented on here will have to be changed sooner or later – if not as a result of reflection on the part of the legislator, then perhaps as a result of interference from the Constitutional Tribunal. As the recent years have shown, the Constitutional Tribunal has very often taken a critical stance towards legislative solutions functioning in the area of structural funds….