Subcontracting in Horizon 2020

“Direct costs of subcontracting” is one of the budget categories in H2020. To be eligible, they must be foreseen at the proposal stage, and mentioned in the Annex 1 and budget table (column B Annex 2). However, later on only actually incurred costs will be reimbursed (principle of actual costs).

Conditions for subcontracting costs to be eligible

To be eligible, costs for subcontracting must fulfil the general conditions for actual costs, i.e. incurred during the action duration, necessary, linked to the action, etc. These conditions are defined in Article 6.1. (a) of the Model Grant Agreement.

The eligible costs are the prices charged by the subcontractor to the beneficiary (usually containing a profit margin). The beneficiary must award the subcontracts on the basis of best value-for money (or lowest price) and absence of conflict of interests.

  • The best value-for-money principle does not necessarily require a competitive selection. However, if a beneficiary did not request several offers, it must demonstrate how best value-for-money was ensured.
  • For the best price-quality ratio, price and quality are essential, but it is not automatically necessary to select the offer with the lowest price. (The beneficiary might select the lowest price in automatic award procedures where the subcontract is awarded to the company that meets the conditions and quotes the lowest price.) In order to provide a good analysis of the price-quality ratio, the criteria defining ‘quality’ must be made clear.

Upper limits for subcontracts

Specific rules may apply for subcontracts of a value higher than EUR 60 000. The Commission’s/Agency’s authorising officer will consider the principle of proportionality, i.e. taking into account the value of the contracts and the relative size of the EU contributions in relation to the total cost of the action. These rules must refer to a specific provision in the H2020 Financial Regulation. Also, the upper limit may be increased if this is justified (by a risk assessment, for example). 

Subcontractor’s rights and obligations

Subcontracts should foresee that intellectual property generated by a subcontractor will be owned by the beneficiary (so that it can meet its obligations towards the other beneficiaries). The subcontractor has no contractual relation with the Commission or other beneficiaries. However, the subcontractor can be audited by the Commission/Agency, the European Anti-Fraud Office (OLAF) and the Court of Auditors.

Subcontracts: attention with indirect costs

Indirect costs are calculated on the basis of a flat rate of 25% on the direct costs. They allow covering general overhead. Please note that budgeted subcontracting costs must be subtracted from the overall budget before calculating the indirect costs!

Subcontracts not foreseen in the Grant Agreement

In some cases, the Commission or Agency may approve subcontracts that have not been foreseen when the Grant Agreement was signed without any amendments, for example if “they are specifically justified in the periodic technical report” and “they do not entail changes to the Agreement which would call into question the decision awarding the grant or breach the principle of equal treatment of applicants”.

Delimitations to other cost categories

Two other budget categories allow having work done by external parties, each with a specific purpose. They differ from subcontracts in various ways.

  • “Contracts to purchase goods, works and services”. Subcontracts differ from “Contracts to purchase goods, works and services” which are declared as “other direct costs”. They are necessary to the project, but do not concern central action tasks. They are defined by Article 10, MGA.
  • “Implementation by linked third parties”. In this case, the beneficiaries have a legal link with or are affiliates to the “linked third party” that goes beyond the H2020 project. In this case, the eligible costs are only the costs of the linked third party, without a profit margin. This budget category is defined by Article 14, MGA.