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