Failure to achieve project indicators usually becomes an issue when the funding institution compares the values declared in the application for funding with what the funding recipient has actually achieved and is able to document. A difference between the target value and the value actually achieved does not in itself determine whether the funding must be repaid. It is necessary to establish which indicator is concerned, when it was to be achieved, how it was measured and what consequences of failing to achieve it follow from the agreement and the documentation for the particular project.
If the issue concerns maintaining the investment or project results after project completion, it should be assessed separately from the perspective of project sustainability. I discuss this issue in the article Breach of project sustainability – does the entire grant have to be repaid?
In R&D projects, failure to achieve indicators may be related to the outcome of research work and technological risk. I discuss this situation separately in the article R&D project without achieved indicators – must the funding be repaid?
Project indicators as an obligation of the funding recipient
The indicators specified in the application for funding define the measurable outcomes that the funding recipient undertook to achieve in accordance with the rules and within the deadlines set out in the project documentation. They may relate both to the direct outputs of the project and to its results, economic effects or revenues generated after project completion.
The significance of a particular indicator must be assessed in the context of its definition, baseline and target values, the deadline for achieving it and the method of measurement. In some projects, the result is demonstrated already at the project settlement stage, while in others it is demonstrated only after a specified period following project completion.
Where project indicators have not been achieved, comparing only two figures is insufficient. It is necessary to return to the application for funding, the agreement and the documents applicable to the particular call for proposals, and determine precisely what the funding recipient undertook to achieve and what consequences the documentation provides for failure to fulfil that obligation.
Failure to achieve project indicators – when does it become a problem?
In practice, the funding recipient often becomes aware of a problem with an indicator long before receiving a letter from the institution, for example because sales are growing more slowly than expected, a product reaches the market later than planned, implementation is delayed, the number of recipients is lower than forecast, or the project result achieves a value lower than that declared in the application.
Failure to achieve project indicators may take different forms. Sometimes, several months before the deadline, it is already clear that the planned revenue, number of recipients or another target value will not be achieved. In other projects, the difficulty only becomes apparent when preparing the report, when it turns out that the result achieved is lower than expected or that the available data do not allow the indicator to be demonstrated in the manner adopted in the application. It may also happen that the result itself has been achieved, but the institution challenges the method used to calculate it or the documents submitted to confirm the indicator value. This is a different issue from a simple difference between the target value and the value actually achieved.
If such a situation arises, the worst approach is to treat the indicator as an issue that can be addressed only in the next report. From the perspective of a later assessment of the project, what happened earlier is important: whether the institution was aware of the changes, whether the timetable or implementation method was updated, what information was provided in subsequent payment applications and reports, and whether the project documentation had already indicated a risk that the target value would not be achieved.
A result below 100% does not yet determine the consequences
The percentage of indicator achievement does not in itself determine the financial consequences. Achieving 60% of the target value does not automatically mean that 40% of the funding must be repaid. To assess the consequences, it is necessary to determine what the particular indicator was intended to measure and how it was defined in the project documentation.
An output indicator directly linked to the completion of a specific task should be assessed differently from a project result indicator, and differently again from an economic indicator whose value also depends on market conditions after project completion.
It is also important whether the documentation provides for a specific consequence of only partial achievement of an indicator. In some projects, the approach to be taken where a lower value is achieved is expressly defined. In others, it is first necessary to determine the significance of the particular indicator for the award of funding and the achievement of the project objective. There is no single mechanism for dealing with all indicators that have not been fully achieved. The assessment depends on the rules applicable to the particular programme and project.
What should be checked once it is clear that an indicator may not be achieved?
Before discussing the matter with the funding institution, it is worth establishing in particular:
- the exact value that was declared and the deadline for achieving it,
- how the project documentation defines the manner in which the indicator is to be achieved and measured,
- what data can actually be demonstrated as at the reporting date,
- whether any changes occurred during the project that affected the possibility of achieving the indicator,
- what information about those changes had previously been provided to the funding institution,
- whether the programme documentation specifies the consequences of partial or complete failure to achieve the indicator.
Only after these elements have been considered together is it possible to assess whether the issue genuinely concerns failure to achieve the indicator, or rather its measurement, the manner in which it is documented, or the deadline by which the funding institution expects the result to be demonstrated.
The timing of the response matters
Cases involving project indicators look very different depending on whether the funding recipient reports the problem before the deadline for achieving the indicators has expired or whether the funding institution itself identifies a discrepancy when reviewing a report or during a project control.
If the risk is identified at an earlier stage, it may still be possible to determine what notification obligations arise from the project documentation and whether the change can be appropriately addressed. If the deadline has already passed, the focus shifts to demonstrating the results actually achieved, the reasons for the discrepancy and the consequences that the project documentation attaches to a lower indicator value.
A different situation arises where, several months or even years later, the funding institution returns to the project and concludes that the indicator was demonstrated incorrectly. In such cases, earlier reports, correspondence and the positions taken by the institution during project implementation also become relevant.
The first response submitted to the funding institution is also important. Explanations provided at this stage will later be read together with reports, payment applications and earlier correspondence relating to the project.
How can the financial consequences of failing to achieve project indicators be determined?
Failure to achieve project indicators may have financial consequences, but the mere fact that the target value was not achieved in full does not in itself determine either the legal basis or the amount of any financial correction.
The Guidelines on the eligibility of expenditure for 2021–2027 expressly state that failure to achieve or maintain indicators may constitute an irregularity and result in a financial correction. At the same time, the managing authority determines in the Detailed Description of Programme Priorities (SZOP) or the funding agreement how achievement of the indicators is to be verified and how the degree of achievement is to be assessed. This means that the financial consequence cannot be calculated solely on the basis of the percentage by which an indicator has been achieved. It is first necessary to establish the method of settlement applicable to the particular project, as only then can it be determined whether a lower indicator value gives rise to a financial consequence and, if so, how that consequence should be calculated.
Where there is an issue with an indicator, it is therefore necessary to return to the documents applicable to the particular project. What matters is not only the target value and the value actually achieved, but also the method of measuring the indicator, the deadline for achieving it and the rules according to which the funding institution is to assess the degree of its achievement.
In ESF+ projects, the mechanism is described even more explicitly. The Guidelines provide for a proportionality rule under which the funding institution may consider all expenditure, or an appropriate portion of it, ineligible depending on the extent to which the project’s substantive objectives, measured by output or result indicators, have not been achieved. The assessment is made as at the completion of project implementation, when the final payment application is verified. The Guidelines also allow the proportionality rule not to be applied when settling an ESF+ project, inter alia, in cases of force majeure or duly justified reasons for failure to achieve the objectives, particularly where those reasons are beyond the funding recipient’s control.
The proportionality rule is not, however, a universal method of settling every indicator in every project. It cannot therefore be automatically transposed from ESF+ projects to R&D, investment or implementation projects. For such projects, the rules applicable to the particular programme, the call documentation and the funding agreement must be reviewed. Only on that basis can it be determined whether partial achievement of the indicators results in a proportional reduction of funding, another method of settlement, or requires an individual assessment by the funding institution.
What should you do if an indicator has not been achieved?
The earlier the problem is identified, the greater the opportunity to address it before a project control or demand for repayment arises. If the deadline for achieving the indicator has not yet expired, it is worth reviewing the project documentation and the obligations towards the funding institution before submitting the next report or payment application.
If the deadline has already passed, the key issues are to establish the actual level of indicator achievement, how it can be documented, and the consequences arising from the documents applicable to the particular project.
In matters concerning indicators, the greatest difficulties often arise not from the result itself, but from the fact that the project was reported in a particular way for months or years and only later does someone begin to examine what the values entered in the documentation actually meant.
Failure to achieve an indicator – first determine the applicable settlement mechanism
Failure to achieve project indicators does not have a single, predetermined financial consequence. What matters is the type of indicator, the deadline for achieving it, the method of measurement and, above all, the settlement rules arising from the documentation applicable to the particular project.
Therefore, information that an indicator has been achieved, for example, at 40% or 80% does not in itself answer the question of what proportion of the funding may be at risk. This requires an examination of the rules applicable to the programme, the funding agreement and the manner in which the funding institution is to assess the performance of that particular obligation.
The best time to carry out such an assessment is when it is already clear that achievement of the target value is at risk, but before the funding recipient submits another position or report to the institution. If the institution itself has challenged the indicator, the starting point should be the substance of its objections and the documentation on the basis of which the funding recipient has so far demonstrated the results achieved.
In matters concerning project indicators, the problem often develops gradually: first there is a risk of achieving a lower value, then reporting, questions from the funding institution and only at the end an assessment of the financial consequences. As a result, the point at which the funding recipient begins to address the situation may have a real impact on how the matter develops further.
Do you already know that there is a risk of failing to achieve the project indicators, or has the funding institution challenged their achievement? The Law Firm supports funding recipients in assessing the consequences of failing to achieve indicators, preparing their position towards the funding institution and matters concerning the possible repayment of funding. See how I support recipients of public funding under Services – project controls and repayment of funding.
