The tariff of financial corrections determines what part of the expenditure may be deemed ineligible if the beneficiary breaches the contract award rules in a funded project. Depending on the type and significance of the breach, the correction may range from a few per cent to as much as 100% of the expenditure related to the given contract. However, there is no single tariff that applies automatically in all programmes.
Before starting purchases, check the call rules, the grant agreement, the guidelines on the eligibility of expenditure and the annexes relevant to the specific project.
What is a financial correction in an EU project?
A financial correction is a mechanism for excluding from funding expenditure incurred in breach of the applicable rules. It should not be equated with a classic contractual penalty. Its basic effect is a reduction in the value of eligible expenditure and, consequently, a reduction in the amount of funding due.
A correction may be applied, among other things, when the beneficiary:
- did not publish a request for quotation even though it was obliged to do so,
- published the request in the wrong place or for too short a period,
- restricted competition through an incorrect description of the subject of the contract,
- applied discriminatory conditions for participation or offer assessment criteria,
- selected a contractor in breach of previously defined rules,
- awarded a contract to an entity with personal or capital links,
- made an impermissible amendment to the contract with the contractor,
- did not keep documentation making it possible to reconstruct the course of the procedure.
The applicable rules on correcting irregularities are described, among other things, in the official Guidelines on the correction of irregularities for 2021-2027. The Guidelines set out how institutions should proceed when irregularities are found and the rules for determining the amount of corrections.
Is the tariff of financial corrections the same in all programmes?
No. The categories of breaches are largely similar, as they derive from the common principles of transparency, fair competition, equal treatment of contractors and sound management of public funds. However, the specific correction rates may depend on the documentation applicable to the given programme.
The amount of the correction and the way it is determined may be affected by:
- the programme from which the project is financed,
- the type of beneficiary,
- the value and subject of the contract,
- whether or not the Public Procurement Law applies,
- the obligation to apply the competitiveness principle,
- additional procurement procedures introduced by the grant provider,
- the content of the call rules,
- the content of the grant agreement or the grant award agreement,
- the nature, scope and effects of the specific breach.
This means that a tariff found in the documentation of one project should not be automatically applied to purchases made under another programme.
How is a financial correction calculated?
The simplest way to calculate a correction is to multiply the value of the eligible expenditure affected by the breach by the appropriate percentage rate.
Correction amount = value of expenditure affected by the breach × correction rate
The correction most often relates to the expenditure associated with a specific contract, not automatically to the entire project budget. However, the scope of the basis for calculating the correction should follow from the programme documentation and the position of the competent institution.
Example 1 – incorrect publication of the request
The beneficiary purchased a device worth PLN 100,000. The request was published in breach of the rules set out in the agreement, and the institution set a correction of 25%.
PLN 100,000 × 25% = PLN 25,000
The amount of PLN 25,000 may be deemed ineligible expenditure. If the funding covered 100% of the cost, the beneficiary should finance this part of the contract from its own funds. With a lower funding rate, the impact of the correction will depend on the rules of the specific programme.
Example 2 – imprecise description of the subject of the contract
The contract value is PLN 240,000. The description of the subject of the contract did not contain all the relevant parameters, which may have made it difficult to prepare comparable offers. The institution applied a correction of 10%.
PLN 240,000 × 10% = PLN 24,000
As a result, PLN 24,000 may be excluded from eligible expenditure.
Example 3 – conditions restricting competition
The beneficiary required contractors to have experience disproportionate to the scale of the contract. The purchase value was PLN 80,000. With a correction of 50%, the reduction will amount to:
PLN 80,000 × 50% = PLN 40,000
Even if the purchase was actually made, properly accepted and is being used as intended, a breach of the contractor selection rules may result in a significant part of the cost losing its eligibility.
Example 4 – conflict of interest
A contract worth PLN 150,000 was awarded to an entity linked to the beneficiary, and the link affected the outcome of the procedure. If the applicable tariff provides for a 100% correction, the entire contract may be deemed ineligible.
PLN 150,000 × 100% = PLN 150,000
A conflict of interest is one of the most serious breaches, as it undermines the impartiality of the procedure and may indicate that the competition was only apparent.
Example 5 – impermissible contract amendment
The beneficiary concluded a contract for the supply of equipment worth PLN 300,000. After the contractor was selected, the parameters of the device and the scope of delivery were changed, even though the possibility of such a change had not been provided for in the request for quotation. With a correction of 25%, the calculation will be as follows:
PLN 300,000 × 25% = PLN 75,000
In such a case, PLN 75,000 may be deemed ineligible expenditure.
Do corrections for several breaches add up?
Not always. The analysed tariff states that if several breaches are found within one contract, the highest of the assigned percentage rates should be adopted when determining the amount of the correction.
For example, the following were found in one procedure:
- failure to meet a time limit, corresponding to a correction of up to 20%,
- incorrect selection of an offer, corresponding to a correction of up to 25%,
- an ambiguous description of the contract, corresponding to a correction of up to 10%.
Under the rules of the analysed document, the highest rate would be applied, i.e. up to 25%, instead of the sum of 55%.
However, this rule should not be automatically transferred to every project. The approach in the case of several breaches should follow from the tariff, guidelines and agreement applicable to the given funding.
The most common reasons for financial corrections
Failure to publish a request for quotation
One of the most serious mistakes is failing to publish the request in the required place. This may concern, among other things, the Baza Konkurencyjności, the beneficiary's website, a system indicated by the institution or another channel specified in the rules.
Merely sending a request to a few known contractors does not always fulfil the publication obligation. If the documentation requires open publication, using a restricted procedure may be considered a breach of competition.
Incorrect publication of the request
A breach may consist not only in a complete failure to publish. A risk also arises when the request was:
- published in the wrong place,
- published after the collection of offers had begun,
- made available for a shorter period than required,
- published without a full set of attachments,
- amended without informing all potential contractors,
- removed before the deadline for submitting offers.
Too short a time limit for submitting offers
The time limit should allow contractors to genuinely familiarise themselves with the documentation and prepare an offer. Its length may depend on the value, complexity and subject of the contract.
The risk arises in particular when:
- the time limit is shorter than the minimum period indicated in the guidelines,
- a significant part of the time limit falls on public holidays,
- the documentation was amended without an appropriate extension of the time limit,
- the contract requires a site visit, but the time limit does not allow one to be organised,
- contractors must obtain additional documents, certificates or cost estimates.
A description pointing to a single manufacturer
The description of the subject of the contract should not, without objective justification, lead to the selection of a specific brand, model, technology or manufacturer.
If the use of a trade name is necessary, equivalent solutions should usually be allowed and the method of assessing this equivalence specified.
Merely adding the phrase “or equivalent” may be insufficient, if the beneficiary does not specify the parameters on the basis of which an equivalent solution will be accepted.
Disproportionate conditions for participation
Conditions concerning experience, turnover, staff, licences or the number of supplies made should be proportionate to the subject of the contract.
An example of a risky requirement would be to require a contractor to demonstrate five supplies worth PLN 500,000 each for a contract worth PLN 100,000, if there are no special circumstances justifying such a level of experience.
Conditions for participation should not be formulated in a way that eliminates small or medium-sized contractors without justification.
Changing the criteria after publication
Offers should be assessed in accordance with the criteria and scoring method announced before the deadline for submitting offers.
After opening the offers, the beneficiary should not:
- add new criteria,
- change the weights assigned to the criteria,
- apply undisclosed preferences,
- award points on the basis of grounds not indicated in the request,
- overlook errors in one contractor's offer while rejecting another offer for a similar reason,
- negotiate with only one contractor if the procedure did not provide for this.
Incorrect selection of an offer
A correction may be imposed if the beneficiary selected an offer that did not meet the requirements set out in the request, or rejected an offer that should have been considered.
Typical problems include:
- selecting an offer submitted after the deadline,
- selecting an incomplete offer,
- unjustified rejection of a cheaper offer,
- incorrect calculation of points,
- changing the price after the deadline for submitting offers,
- no justification for the choice of contractor,
- selecting a contractor that does not meet the conditions for participation.
Impermissible amendment of the contract with the contractor
After the contractor has been selected, the terms of performance of the contract cannot be changed at will. A material amendment to the contract may be considered a breach if it was not provided for in advance in the request for quotation.
The risk concerns in particular changes to:
- the scope of the supply or service,
- the contractor's remuneration,
- the parameters of the subject of the contract,
- the performance deadline,
- the method of payment,
- the acceptance conditions,
- the contractor's liability.
Incomplete documentation
The documentation should enable the auditor to reconstruct the entire course of the procedure. The lack of an audit trail may make it impossible to confirm that the contractor was selected correctly.
It is worth keeping the following in the documentation:
- the request for quotation and all its versions,
- confirmation of the date and place of publication,
- contractors' questions and the answers given,
- information on changes to the request,
- confirmation of the extension of the deadline for submitting offers,
- the offers submitted together with attachments,
- declarations of no conflict of interest,
- the offer assessment record,
- the assessment sheets of individual committee members,
- the justification for rejecting offers,
- information on the selection of the contractor,
- the contract with the contractor,
- annexes to the contract,
- acceptance reports,
- invoices and proof of payment,
- correspondence with the contractor.
How to avoid a financial correction?
The most effective way to reduce risk is to prepare the procurement procedure before publishing the request. Checking documents only after concluding the contract with the contractor often no longer makes it possible to remedy a breach.
Before starting the procedure, you should determine:
- which provisions, guidelines and contractual provisions apply,
- whether the beneficiary is subject to the Public Procurement Law,
- whether the purchase is subject to the competitiveness principle,
- whether the grant agreement introduces an additional procedure,
- what the correct contract value is,
- whether similar purchases should be combined,
- where the request should be published,
- for how long the request should be available,
- which conditions for participation are genuinely necessary,
- which criteria will allow offers to be compared objectively,
- how the assessment of offers will be documented,
- which documents should be kept for audit purposes.
It is also worth preparing an internal checklist and verifying the request before it is published. For high-value contracts, the cost of prior consultation is usually much lower than a potential financial correction.
Information on funding opportunities and the rules of individual programmes can be found in the Knowledge base and on Mapa Dotacji. Entities preparing or implementing a project can also use our grant advisory services, which include, among other things, an analysis of documentation and support in preparing procurement procedures.
What to do after a breach has been found?
The mere detection of an error does not yet mean that the beneficiary should accept the maximum correction rate without analysis. First of all, you should determine:
- which document is the basis for applying the correction,
- whether the indicated breach actually occurred,
- which expenditure it concerns,
- whether the breach had an actual or potential financial impact,
- whether it restricted contractors' access to the contract,
- whether it affected the selection of the winning offer,
- whether the institution correctly determined the basis for calculating the correction,
- whether the rate applied is proportionate,
- whether the rate can be reduced,
- whether it is possible to submit explanations, objections or an appeal.
The following may be relevant, among other things:
- the number of offers received,
- the extent to which the procedure was made public,
- the possibility for contractors from other regions to participate,
- the proportionality of the requirements,
- the price difference between offers,
- the impact of the breach on the outcome of the procedure,
- the completeness of the documentation,
- remedial action taken by the beneficiary.
Each case requires a separate assessment. The arguments should refer to the procedure documentation, the content of the agreement and the principle of proportionality. The mere fact that the subject of the contract was properly delivered and is being used as intended may not be enough to avoid a correction.
Author: Dariusz Kozakiewicz
EU funding expert