When preparing your proposal for a Horizon Europe grant, one of the most important steps in the process is the project budget. To well establish the budget, one must be aware of the detailed workflow, timeline, activities, and the volume of work to be engaged. But you also should know which categories of costs you can allocate to your Horizon Europe project funded by the European Commission.
In this special series of posts carefully prepared by NETO Innovation team, we will detail the categories of eligible costs in Horizon Europe as well as the calculation methods whenever needed. In this post, we will focus on the subcontracting costs.
What are the eligible costs in Horizon Europe?
Your estimated budget is based on the estimated eligible costs and must be annexed to the Grant Agreement. The estimated eligible costs are of high importance to define the maximum possible grant amount of the action. All allocated costs must be identifiable and verifiable. To be eligible, all costs must meet the eligibility conditions of Article 6.1 of the Annotated Grant Agreement. Under Horizon Europe, 5 categories are considered as eligible costs:
After a first article focusing on personnel costs, and a second one focusing on 2 types of purchase costs – Travel and Equipment, this post will describe subcontracting costs, the related eligibility criteria, the selection procedure, and the specific cases.
Subcontracting costs are eligible under all programs including Horizon Europe. Thus, beneficiaries can affect “subcontracting costs” to the project budget. Subcontracting consists of delegating the realization of one or multiple operations (design, manufacture, maintenance, etc.) to another entity called the “subcontractor”. The costs of subcontracting change usually depending on the type and difficulty of the task and/or activity carried out by the subcontractor. Also, it is related to the expertise and resources engaged by the subcontracting organization.
Subcontracting must be declared as actual costs. In the Horizon Europe program, actual costs are related to the actual expenses sustained by a project to carry out the activities proposed in the grant agreement.
The following eligibility conditions must be checked for subcontracting costs:
Costs must be used in the action (project) duration. The costs must be necessary and related to the project.
Costs must be based either on the “best value for money” or the lowest price. Best value for money should consider the quality of the subcontractor’s services and proposed work, the level of expertise, etc. In short, the best price-quality ratio must be taken into consideration.
The incurred costs must not lead to conflict of interest.
How to select a subcontractor
So, a competitive approach is recommended to select the subcontractors. Indeed, asking for several offers or quotations from multiple “service providers” is important to avoid conflict of interest, and ensure the obtention of the best value for money or the lowest price. However, the competitive selection is not an eligibility criterion. If this procedure is not followed, the beneficiary must be able to prove compliance with the quality-price ratio and the non-conflict of interest. In case of audit, review, or check, the beneficiary must be able to prove and/or justify one or more of the following criteria:
The market value from a previous tender or collaboration on a similar project.
A realized and concrete market consultation (quotations, brochures, etc.).
That no suitable offers have been proposed in answer to a previous competitive selection procedure.
A monopoly situation of the selected subcontractor due to technical reasons or exclusive rights (intellectual property).
That the tasks can only be performed by an international organization unable to participate in competitive procedures according to its statutes.
Acquisition of a unique work of art or artistic performance.
That the subcontractor had ready win a previous competitive design contest under the same action or another related action.
The need for special security measures to protect the essential interests of the Union in accordance with the call conditions.
Some specific cases are identified in the Annotated Grant Agreement of the European Commission in Article 6.2.B - Subcontracting costs .
Simplified approval procedure (entrance of new subcontracts)
If the requirement of a subcontractor was not known during the proposal preparation and the before the Grant agreement signature, the project’s coordinator must request a Grant Agreement amendment. The latest will allow to introduce the new subcontractor in Annex 1 of the Grant Agreement.
Subcontracting between beneficiaries
Subcontracting between beneficiaries is not allowed under the same grant. All collaborators participate to and are interested in the action. If one beneficiary needs the services of another to perform its part of the work, the second beneficiary should declare its own costs for that work under the project’s budget.
Subcontracting to affiliates
It is only allowed under the following conditions:
There is a framework contract between the beneficiary and the affiliated organization.
Or the affiliate is the usual provider of the beneficiary.
And the subcontract is priced at the market conditions.
If the above conditions are not met, the affiliate can work under the action and must be identified as affiliated entity under Article 8 of the Grant Agreement1. In this case, the affiliated entity can declare their own costs.
Coordination tasks of the coordinator
These tasks cannot be subcontracted. These tasks are related to the budget’s distribution, the reports and deliverables’ review, etc. More information about the tasks of the coordinator can be found under the Article 7 of the Annotated Grant Agreement.
NETO Innovation team will prepare a future post about the beneficiaries – Coordinator and Partners – roles in the implementation of the project.
Framework contracts or subcontracts
A framework contract is a legal agreement that establishes the terms and conditions under which a company or organization will enter future contracts for the purchase of goods or services. They are typically used when a company foresees a need for a large volume of goods or services over a period but does not want to enter individual contracts for each purchase. Instead, the framework contract establishes the general terms and conditions that will apply to all future purchases, including pricing, delivery, and other terms. This allows the organization to reorganize its procurement process and make future purchases more efficiently.
This type of agreement can be used for choosing a provider if this is the usual practice of the beneficiary for a specific type of service or product provision. To be eligible, the framework contract must be awarded based on the best value for money or the lowest price and without any conflict of interest. The framework contract does not necessarily have to be concluded before the start of the action.
Are you interested in project financial management topics? We are preparing a series of posts about eligible costs in Horizon Europe. Subscribe to the NETO Innovation website to receive these posts directly in your inbox.
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References  Annotated Model Grant Agreement – EU Funding Programmes 2021 – 2027 / Pre-Draft November 30th, 2021