Last updated September 2006

Subcontracting may prove useful to contractors on projects funded under the Sixth Framework Programme when – due to capacity or expertise requirements – they decide to outsource parts of their work.

Art. II.6.1 of Annex II to the EC contract1 obliges contractors to ensure that the work, as described in the technical annex (Annex I), can be carried out by them. Subcontracting is an exception to this primary responsibility of the contractors. Therefore only certain elements, i.e. a limited part of the project work, to be clearly defined in the technical annex before the beginning of the project can be subcontracted, or – during the implementation of the project – other minor services2, which do not represent core elements of the work as defined under Annex I. The latter can be subcontracted if they cannot be directly assumed by the contractors if this proves necessary for proper project implementation.

Only in exceptional cases, and upon prior approval by the Commission, can a core element of a project be subcontracted.

This differentiation is due to the fact that the Commission needs to approve subcontracted work as an exception to the rule of contractor own capacity. To the extent that subcontracted tasks are specified in Annex I, these tasks and the related budget are an exception approved by the Commission as noted in the EC contract (including Annex I).

In the event that major tasks are removed from the direct responsibility of a contractor and written into a subcontract during the project, an amendment of the EC contract would be required to receive the consent of the Commission.

Subcontracted work is commissioned through a subcontract. The parties are free to agree upon contractual provisions. Nevertheless, their autonomy is limited as art. II.6.3 stipulates that subcontracts need to reflect the provisions of the EC contract.

In particular, subcontracts cannot exempt contractors from their primary responsibility toward the Commission. The contractor remains responsible for the diligent performance and quality of the subcontracted work, as for any other work on the project.

Subcontracted tasks are considered services provided to the contractor. The subcontractor does not have any rights or obligations vis-à-vis the Commission or the other contractors. The contractor retains all rights and obligations under the EC contract regarding project results generated by the subcontractor. It remains responsible to protect any knowledge generated within the subcontracted task, to grant access rights to the other contractors, and to use and disseminate the knowledge. Moreover, according to art. II.6.2 (d), the contractor shall ensure that the subcontractor waives all rights with respect to the Commission under the EC contract.

For the contractual provisions related to intellectual property, this generally means that ownership of all results generated by the subcontractor, including intellectual property rights, have to be transferred to the contractor.

If a subcontractor is interested in using the results for its own activities, it must request a licence from the contractor. The contractor is free to grant a licence to the extent that its obligations – as set forth in the EC contract, in the consortium agreement and other arrangements with other contractors, e.g. confidentiality agreements – are not infringed.

Other provisions of Annex II have to be extended to the subcontractor, such as confidentiality (art.II.9), communication of data (art.II.10), information to Member States or Associated States (art.II.11), publicity (art.II.12), payment modalities (art.II.28.8), and controls and audits (art.II.29).

It is not necessary to conduct a full competitive tender for all subcontracts. However, contractors are required to select subcontractors on the basis of the bid offering best value for money (best price-quality ratio). Each contractor has to abide by its relevant national legislation; a public legal entity will follow its usual practices (public call for a tender) while a private entity will have to ask for several quotes (usually a minimum of three), unless it has already signed a framework contract for the provision of such services.

These procedures, the evaluation of the quotes presented and the final decision for awarding the subcontract shall be made under conditions of transparency and equal treatment, avoiding conflicts of interest in the selection. The Commission may of course examine whether this is the case during its audits (see below).

Finally, the Commission shall be informed in advance of any plans to subcontract and consent to subcontracting (unless this information is already provided in Annex I). Such notification should identify (as a minimum), the name of the subcontractor, its official address, the exact tasks to be subcontracted and the contractual arrangements that enable the contractor to fulfil its obligations under the EC contract.

As a third party3 without any contractual relation vis-à-vis the Commission, a subcontractor is not reimbursed by the Commission but by the contractor on the basis of the subcontract. The contractor can claim reimbursement of subcontracting expense from the Commission as direct eligible costs, excluding VAT. The reimbursement rate depends on the kind of project and the type of activities under which the subcontracted work has been identified. The relevant costs incurred by the contractor need to be clearly identified as part of its project tasks, justified by its accounting rules and principles (art.II.20.1) and included in its Financial Statement, while subcontractors do not submit their own Financial Statements.

As for controls and audits, the contractor must extend the right of the Commission to arrange for audits with the subcontractor, up to five years after the end of the project, carried out either by outside auditors or by the Commission departments including the European Anti-Fraud Office. Furthermore, access for the purpose of checks and audits need to be provided also for the European Court of Auditors.

For further reading on subcontracting costs please see the FP6 Guide to Financial Issues – Section 2.2.1.