Failure to achieve the indicators does not always mean that the entire amount of funding must be repaid. The fact that an R&D project did not result in the development of the intended product, technology or process does not in itself lead to an obligation to repay the funds. <\/p>\n\n
I discuss more broadly how to assess the consequences of failing to achieve project indicators, regardless of the type of project, in the article Failure to achieve project indicators \u2013 must the grant be repaid?<\/a><\/strong><\/p>\n\n As Poland\u2019s National Centre for Research and Development (NCBR) explains in its Applicant Guide<\/a>, the risk of failure is inherent in R&D activities and is inseparably linked to projects of this kind, while public funding is intended, among other things, to share that risk with the business carrying out the project. This does not mean, however, that every project failure will be accepted by the funding institution. What matters is what was actually not achieved and why. <\/p>\n\n An R&D project differs from an ordinary investment because, as a rule, it is a highly innovative undertaking whose outcome is difficult to predict when the grant agreement is signed. Only the research itself may demonstrate that the technological concept adopted was incorrect, that a particular parameter cannot be achieved, or that further development of the solution is no longer technically or economically justified. Such an outcome does not necessarily mean that the project has not been implemented. The experience of many funding recipients shows that research may produce a negative result even where it has been carried out diligently and in accordance with the planned schedule. Knowledge that a particular solution does not work or cannot be developed in the intended direction is itself a result of research activity. <\/p>\n\n The situation is different where the expected results were not achieved because the work was not carried out, was performed only to a limited extent, or the project was implemented differently from what the grant agreement required and the resulting deviations were not agreed with the funding institution in accordance with the procedure laid down in the agreement. In such a case, the issue is not the inherent research risk but the way in which the project was implemented. Consequently, the statement that \u201cthe project did not produce the intended result<\/em>\u201d is too general, by itself, to determine whether there is an obligation to repay funding<\/a>. <\/p>\n\n In publicly funded projects, the concepts of \u201cR&D results\u201d, the \u201cproject objective\u201d, and the \u201clevel of achievement of project indicators\u201d are often \u2014 incorrectly \u2014 used interchangeably. Although they are related, they may represent separate obligations and have different consequences.<\/p>\n\n The result of R&D activities may consist, for example, in achieving specified technical parameters, developing a prototype, or demonstrating that a particular technology can be applied. The project objective may be formulated more broadly and may include creating an innovative solution, increasing the competitiveness of the business, or preparing a product for implementation. Project indicators, by contrast, are used to measure project implementation and may relate to completed stages, developed solutions, implemented innovations, new products, or revenue generated after the work has been completed. <\/p>\n\n This distinction is important for the financial consequences of the project. Failure to achieve one technical parameter does not necessarily mean that the project objective has not been achieved. Conversely, completion of all planned work may not be sufficient where the grant agreement expressly makes the amount of funding dependent on the achievement of specific indicators. <\/p>\n\n Recent judgments of the Supreme Administrative Court indicate that failure to achieve project indicators may result in a proportionate reduction in funding where such a mechanism is provided for in the grant agreement.<\/p>\n\n In one case, the Supreme Administrative Court accepted a settlement mechanism based on the degree to which individual indicators had been achieved. At the same time, the Court emphasised that each result indicator had an independent significance and that over-performance in one area could not automatically compensate for under-performance in another. The consequence was not repayment of the entire amount of funding, but a reduction in funding in accordance with the principle of proportionality. <\/p>\n\n Similarly, in another recent judgment, although delivered in a tax context, the Court described a contractual mechanism under which achievement of the project objective combined with only partial achievement of output or result indicators led to a proportionate reduction in funding. The financial settlement of the project therefore depended on the degree to which its substantive objectives had been achieved, rather than on a simple distinction between complete success and complete failure. <\/p>\n\n The risk is greater where failure to achieve the expected results occurs together with other breaches.<\/p>\n\n In one case, the funding institution alleged not only a failure to achieve output and result indicators, but also failure to implement the intended application, failure to demonstrate possession of certain equipment, and the transfer of fixed assets to another entity. The dispute therefore concerned more than the mere fact that the project had failed to produce the intended result: the institution alleged that the project had not been implemented to the extent and on the terms required by the grant agreement. The Supreme Administrative Court held that such a case could not be assessed solely through the prism of a single breach. The overall implementation of the project had to be taken into account, including failure to achieve the project objective, failure to meet the indicators, and the other allegations concerning the use of the funding. <\/p>\n\n This distinction is important because a negative research outcome is not the same as a situation in which the funding institution challenges whether the project was actually implemented, how acquired assets were used, or whether the intended solution was genuinely implemented.<\/p>\n\n During project implementation, it may become apparent that further research will not lead to the intended parameters or would require unjustified expenditure. In such circumstances, continuing the work solely in order to use the remaining budget will not change the negative results obtained at earlier stages. <\/p>\n\n However, the fact that further work is no longer justified does not give the funding recipient complete discretion to terminate the project. The consequences depend on the wording of the grant agreement, the work already performed, and whether the results obtained at earlier stages genuinely demonstrate that continuing the project is no longer justified. The key question is therefore whether the lack of justification for further work results from research that was actually carried out or merely from a business decision by the funding recipient to terminate the project before completing the planned scope of work. <\/p>\n\n Depending on the circumstances, termination of the project may result in acceptance and financial settlement of the work already performed, a proportionate reduction in funding, or the disallowance of particular expenditure. Repayment of the entire amount of funding received should be distinguished from a settlement reflecting the scope of the project that was actually completed. <\/p>\n\n There is no single answer that applies to every such case.<\/p>\n\n Failure to achieve the intended technological result does not automatically require repayment of the entire amount of funding. <\/strong>R&D projects inherently involve the risk that the hypothesis underlying the project will not be confirmed or that the solution envisaged in the funding application will prove impossible to develop.<\/p>\n\n If the problem with achieving the indicators only becomes apparent after completion of the project, a separate assessment may also be required as to whether it affects the funding recipient\u2019s obligations during the project sustainability period. I discuss this issue in more detail in the article Breach of project sustainability \u2013 does the entire grant have to be repaid?<\/a> <\/p>\n\n The risk of repayment increases, however, where the lack of results also means that the project objective has not been achieved, key stages have not been completed, or other obligations under the grant agreement have been breached. Ultimately, what matters is not simply the statement that \u201cthe project failed\u201d, but the legal characterisation of that failure. It may represent the outcome of properly conducted R&D activities, justify a proportionate financial settlement of the project, or form part of a broader allegation that the funding was used contrary to the grant agreement. <\/p>\n\nR&D failure is not the same as failure to implement the project<\/strong><\/h2>\n\n
R&D results, the project objective and project indicators are not the same<\/strong><\/h2>\n\n
Failure to achieve the intended result does not always mean repayment of funding<\/strong><\/h2>\n\n
When is the risk of full repayment of funding greater?<\/strong><\/h2>\n\n
When further R&D work is no longer justified<\/strong><\/h2>\n\n
Must funding be repaid if an R&D project fails?<\/strong><\/h2>\n\n
\n