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DG Regio Mailing 17 March 2008: Retention of Funds from Projects
Clarification on the non-retention of funds from projects for the programming periods 2000-2006 and 2007-2013.
The Commission is aware that a number of INTERREG III programmes have operated a system whereby 5% of a project's ERDF funding is withheld at the end of the project. The 5% will be paid at the time of the programme closure. This is usually justified by the programme with reference to the 5% of ERDF funds withheld at the end of the programme by the Commission until programme closure is completed (Article 32(3) last sub-paragraph).
However, Article 32(1) of Regulation 1260/1999 states clearly that "The paying authority shall ensure that final beneficiaries receive payment of their contribution from the Funds as quickly as possible and in full. No deduction, retention or further specific charge which would reduce these amounts shall be paid." This clause imposes a duty on the paying authority of a "full payment obligation". This means that programmes are not allowed to retain 5% (or any other percentage) of funding from projects.
Where 2000-2006 programmes have retained funding from projects in the past, this should be rectified as soon as possible. This may require contract modifications, or it may simply mean transferring the withheld percentage of funding to the project's lead partner.
It is clear that this regulatory requirement may create some difficulties for managing authorities. Programmes can make use of the advance payment they have received from the Commission; they can also use interest earned on this advance, where interest has been generated. Managing authorities who still face difficulties in complying should contact their programme desk officer to discuss the matter further.
It is important to stress that this "full payment obligation" only applies when the programme has received payment from the Commission – there is no obligation upon a programme to pay projects if the programme itself has not received payments. Once a programme has received 95% of its ERDF allocation, the Commission will withhold the final 5% until programme closure. There is a risk that later projects may find that the programme will not be able to pay a significant percentage of their ERDF funding until programme closure (i.e. until the programme receives the final 5% which will allow it to make payments to later projects). Programmes should assess which projects could be affected – and how badly – and inform their desk officer of potential problems.
As the same clause exists in the new general regulation (1083/2006), the same rules apply for the 2007-2013 period. Consequently, contracts issued within the framework of the 2007-2013 programmes must not include any retention of funding from projects.
