Eligible costs must be based on real costs verifiable by supporting documents (except for subsistence costs and indirect costs where a flat-rate applies).
The use of lump sums, flat-rate financing or a combination of both is highly ill-judged in budget proposals. It is always advisable to use scale of unit costs when drafting a budget for EuropeAid-funded projects.
Eligible costs are costs actually incurred by the beneficiary of a Grant Contract which meet all of the following criteria:
- Costs are incurred within the eligibility period (with 1 exception)
All expenses charged to the project (regardless of the source of funding) must be incurred and should refer to specific activities implemented within the eligibility period of the action (as specified in Article 2 of the Special Conditions. There is only one exception to this rule and this refers to costs relating to final reports, expenditure verification and final (external) evaluation which shall be committed during the eligibility period, but might take place after the end date (but before the presentation of the final report).
- Costs are indicated in the estimated overall budget
Any expenditure shall be foreseen in advance, analysed in terms of economy and efficiency and shall be included in the initial budget or any approved modification of the latter (see How to prepare a budget. In addition to respecting the limits imposed by EuropeAid (the Grant Beneficiary is allowed to reallocate up to 15% per each budget heading during implementation, see the section Dealing with changes), caution should always be used in making any modification to the human resources allocated in the project. In this case, any change (even minimal) should be discussed and (if possible) formally agreed upon with the Contracting Authority.
- Costs shall be necessary to carry out the project
Each expenditure (i.e. any resources) should be identified as “necessary to carry out the activity”. This means that the activity itself is necessary to achieve the desirable outcome and that no better options exist. Care should be given in explaining clearly the identified resource, the reason why it is included in the budget and, if this is the case, why the proposed option is believed to be necessary.
- Costs shall be identifiable and verifiable in the accounting records of the beneficiary
All project costs must correspond to real and actual costs sustained by the Grant Beneficiary (or its implementing partner) and determined according to the applicable accounting standards of the country where the beneficiary is established and according to the usual cost accounting practices of the Beneficiary. The Commission also assumes (and requires) that all Grant Beneficiaries have minimal accounting capacity. In this regard, Article 16 of the General Conditions states that Grant Beneficiaries shall keep “accurate and regular accounts of the implementation of the action using an appropriate accounting and double-entry book-keeping system”. This system may either be an integrated part of the Beneficiary’s regular system or an adjunct to that system. In any case this system shall be run in accordance with the accounting and bookkeeping policies and rules that apply in the country concerned. Accounts and expenditure relating to the project must be easily identifiable and verifiable.
- costs shall be “actual costs”, reasonable and compliant with sound financial management – value for money
In order to be considered eligible, costs must be based on real (actual) expenses sustained by the organisations. Each cost must be reasonable and satisfy the so-called principle of the value for money. This principle establishes that when analysing a specific cost, both the quality required (e.g. time, technical specifications, expertise required) and the cost of the item should be considered. This means that all items proposed (identified) at the proposal stage and later purchased (as well as all staff recruited) must satisfy the best price-quality ratio.
Subject to the above and to the provisions of Annex IV, the following direct costs incurred by the beneficiary and its implementing partners shall be eligible:
- the cost of staff assigned to the Action, corresponding to actual gross salaries including social security charges and other remuneration-related costs. Salaries and other-related costs must not exceed those normally borne by the Beneficiary or its partners, as the case may be, unless it is justified by showing that it is essential to carry out the action;
- travel and subsistence costs for staff and other persons taking part in the Action, provided they do not exceed those normally borne by the Beneficiary or its partners, as the case may be. Any flat-rate reimbursement of the subsistence costs must not exceed the rates set out and published by the European Commission (see current perdiem rate) at the time of the Contract's signature;
- purchase or rental costs for equipment and supplies (new or used) incurred specifically for the Action, and costs of services, provided they correspond to market rates;
- costs of consumables;
- costs entailed by contracts;
- costs deriving directly from the requirements of the Contract (dissemination of information, evaluation specific to the Action, audits, translation, reproduction, insurance, etc.) including costs of financial services (in particular the cost of transfers and financial guarantees).
A contingency reserve not exceeding 5% of the direct eligible costs may be included in the Budget of the Action. It can be used only with the prior written authorisation of the Contracting Authority and solely to face unforeseen events.
A fixed percentage not exceeding 7% of the total amount of direct eligible costs of the Action may be claimed as indirect costs to cover the administrative expenses incurred by the Beneficiary during the Action.
The Grant Beneficiary does not need to provide supporting documents for costs covered under the 7%. Indirect costs are eligible provided that they do not include costs that could be covered by other budget headings.
If the applicant is in receipt of an operating grant financed from the EU budget no indirect costs may be claimed within the proposed budget for the action.
Contributions in-kind are accepted very rarely. When the Guidelines for applicants foresee the usage of such in-kind contributions, for these items the Grant Beneficiary should provide an official document attesting its monetary value. The cost of staff assigned to the Action is not a contribution in kind and may be considered as co-financing in the Budget of the Action when paid by the Beneficiary or its partners.
See non eligible costs under an EC-funded external action.
Sources and useful links: