As a general rule contractors must have the capacity to carry out the work themselves (Article II.6 of the FP6 model contract). Subcontracting is a derogation to this general rule and is limited to specific cases.
Conditions related to activities subcontracted:
1. Subcontracts may relate only to a limited part of the project (Article II.6, 2, a of the FP6 model contract): “They may only cover the execution of a limited part of the project. Therefore, generally core elements of the project can not be subcontracted”.
2. Article II.6, 2, b of Annex II of the FP6 model contract states that: “recourse to the award of subcontracts must be justified having regard to the nature of the action and what is necessary for its implementation”.
3. Even though certain services may be performed by a subcontractor, the contractor maintains fully responsibility for carrying out the project, retains the intellectual property generated, if any, and must ensure that certain of provisions of the model contract are reflected in the agreement with the subcontractor. (Article II.6, 2, a of Annex II (General conditions) to the FP6 model contract).
4. The subcontractor must be a legal entity.
5. Subcontracts are carried out only by third parties (Article II.1, 27 of Annex II of the FP6 model contract). Subcontracting between contractors is not possible, except in very particular cases (It might be the case where a different independent department of one contractor, not involved in the project, has provided a service to another contractor. However, this should be avoided to the extent possible.)
6. Any subcontractor, whose costs will be claimed under the project, must be made to the best bid based on price/quality and in compliance with the national legislation of the contractor concerned (see: Article II.6.2 of Annex II of the FP6 model contract).
7. A subcontractor is not considered as a participant. A subcontractor is a third party carrying out tasks identified in Annex I or other minor tasks not relating to the core work of the project, by means of a subcontract with one or more of the contractors. (Article II.1.27 of Annex II of the FP6 model contract).
8. As a third party, the subcontractor is not reimbursed by the Commission directly but by the contractor on the basis of the agreement concluded between the contractor and the subcontractor. Once the subcontractor is paid by the contractor, this contractor will be able to claim the reimbursement of that subcontracting expense to the Commission as a form of direct eligible cost.
9. As direct eligible costs, the reimbursement rate of subcontracting cost will depend on the type of activities under which the cost of the subcontract has been incurred and the instrument in which the contractor is participating. (See the table in part 4 of the Executive Summary and part 18.104.22.168 of the Guide to Financial issues relating to instruments of FP6)
10. VAT is a non-eligible cost. Therefore eligible costs of subcontracting exclude VAT. For example, where the total price paid for a subcontract is €1,200 (the cost of the services were €1,000 and the VAT €200), the direct eligible cost is € 1,000.
Subcontractors do not submit Financial Statements. However, the costs incurred by the contractor for subcontracting must be identified in the contractor’s Financial Statement. The contractor must ensure that its audit certificate also covers the eligible costs of the amount paid to the subcontractor.