The funding recipient is implementing the project, incurring expenditure and submitting payment applications, but the next instalment of funding is not paid. The funding institution may refer to an ongoing project control, concerns about particular expenditure or a breach of the grant agreement. In such a situation, it is necessary to determine why the payment has been suspended and whether the institution had grounds to do so in the circumstances of the particular case. <\/p>\n\n
For a business, being informed that the next payment has been suspended has very practical consequences. The project is still under way, obligations to contractors have already been incurred or paid, while the funds provided for in the project\u2019s implementation and financial schedule are not being credited to the company\u2019s account. <\/p>\n\n
There may be various reasons for such action by the funding institution. It may be conducting a project control, verifying the eligibility of expenditure, examining the procedure used to select a contractor, awaiting additional documents, or taking the view that the funding recipient has failed to comply with a particular obligation under the funding agreement. It may also happen that a problem only becomes apparent when a subsequent payment application is reviewed, even though earlier applications were approved and the corresponding funds were paid. <\/p>\n\n
Suspension of funding payments, in itself, says little about the funding recipient\u2019s situation. It is necessary to determine exactly what action the funding institution has taken. It may have deferred the payment until certain activities are completed, reduced the amount claimed in the payment application by the expenditure challenged, refused to pay a particular part of the funding, or already taken steps to recover funds previously disbursed. <\/p>\n\n
A funding agreement for a project financed from EU funds specifies the amount of support awarded and the conditions governing its payment. Subsequent instalments are paid after the funding recipient submits a payment application and the funding institution verifies it. <\/p>\n\n
If, before approving a payment application, the funding institution identifies an individual irregularity<\/a>, the implementation legislation<\/a> provides for a reduction in the amount of eligible expenditure included in the application by the amount of expenditure affected by the irregularity. The funding recipient may challenge such a finding in accordance with the procedure provided for by law. <\/p>\n\n The case law also recognises that payment of funding remains conditional on the funding recipient\u2019s compliance with the conditions on which the support was granted. The courts therefore pay particular attention to the terms of the funding agreement and the obligations imposed on the funding recipient. In cases involving the suspension of subsequent payments, the assessment has included, among other things, compliance with post-control recommendations, observance of project implementation procedures and fulfilment of the conditions laid down in the funding agreement itself. <\/p>\n\n Suspension of payment, refusal of payment and reduction of expenditure included in a payment application are three different situations. For a business, each of them means that less money than expected is credited to its account, but the reason, stage of the case and available response may differ. <\/p>\n\n Suspension of payment means that the funds are temporarily not paid, usually until the issue identified by the funding institution has been clarified.<\/strong> The funding institution has not yet necessarily concluded that the funding recipient has definitively lost its entitlement to the funds, but it is withholding payment until a particular issue has been clarified. This may be connected, for example, with an ongoing project control, the need to verify documents, compliance with post-control recommendations or fulfilment of a condition laid down in the funding agreement. <\/p>\n\n In practice, suspension of funding payments may have very serious consequences for a business. In one case considered by the courts, payment of the next instalment was suspended while a project control was being carried out. Only after the control had been completed, the funding recipient\u2019s objections had been considered and the findings concerning irregularities had been upheld did the funding institution decide not to pay the remaining funding and, at the same time, demand repayment of funds previously disbursed. In another case, payment of the fourth instalment was suspended, and the institution\u2019s subsequent actions involved a requirement to provide additional security for performance of the funding agreement. <\/p>\n\n Refusal of payment reflects a more definitive position on the part of the funding institution.<\/strong> The institution takes the view that, in relation to a particular payment or part of it, the conditions for payment have not been met. This may result, for example, from a challenge to the eligibility of expenditure, a finding that the funding agreement has been breached, or a determination that a particular cost cannot be financed under the project. <\/p>\n\n It is therefore important to determine whether the letter received by the funding recipient actually constitutes a refusal of payment or merely a temporary suspension. The wording of the letter, the legal or contractual basis cited by the institution, and the next steps provided for under the funding agreement and applicable rules are all relevant. <\/p>\n\n A reduction in the amount of eligible expenditure included in a payment application, by contrast, is a mechanism provided for under the rules governing EU funds.<\/strong> Under the 2021\u20132027 financial perspective, if the funding institution identifies an individual irregularity before approving a payment application, it reduces the amount of eligible expenditure declared in the application by the amount of expenditure affected by the irregularity. If the funding recipient disagrees both with the finding of an irregularity and with the resulting reduction, it may submit reasoned objections. <\/p>\n\n In such a case, the issue may therefore concern one specific item of expenditure, while the remainder of the payment application may still be capable of approval. This distinguishes a reduction from a situation in which the institution suspends the entire instalment until a project control has been completed or doubts concerning the project have been resolved. <\/p>\n\n The funding recipient\u2019s first question after being informed that payment will not be made should therefore be: what exactly has happened to the payment application? Determining whether the funds have been temporarily suspended, particular items of expenditure have been reduced, or the institution has definitively refused payment makes it possible to assess the basis for the institution\u2019s action and choose the appropriate response. <\/p>\n\n The legal basis for suspending funding payments should be sought in the funding agreement, the rules applicable to the relevant programme and the documents incorporated into or referred to by the agreement.<\/p>\n\n The mere award of funding does not mean that subsequent instalments will be paid regardless of how the project is implemented. The courts emphasise that the conditions laid down in the funding agreement are fundamental when assessing whether the funding recipient has retained its entitlement to further funding. <\/p>\n\n This is well illustrated by a case in which payment of the next instalment was conditional on a positive assessment of the implementation of a particular stage of the project. The funding institution challenged the way in which a procurement procedure had been conducted because the funding recipient had failed to follow the required procedures. As a result, payment of the next instalment was suspended. The Supreme Administrative Court held that reimbursement of eligible expenditure declared in a payment application was conditional on compliance with the requirements laid down in the funding agreement, including proper conduct of the procurement procedure. <\/p>\n\n A similar mechanism may operate in connection with a project control. In one case, the funding institution suspended the final payments while a control was under way and, after the control procedure had been completed and a number of irregularities had been identified, refused to pay the remaining funding. The Supreme Administrative Court emphasised that the funding agreement expressly required the funding recipient to implement post-control recommendations or inform the institution of the steps taken to implement them. Failure to provide such information resulted in suspension of the transfer of funds and could ultimately lead to termination of the funding agreement. <\/p>\n\n Administrative court case law also includes cases in which payments were suspended after irregularities had been identified and post-control recommendations issued. Where the funding recipient failed to remedy the identified problems, the matter subsequently led to termination of the funding agreement and a demand for repayment of funds previously paid. <\/p>\n\n The answer to why a subsequent instalment has not been paid will rarely be found in a single provision of the funding agreement. The conditions governing payment itself may be regulated separately from the rules on project controls, the consequences of identified irregularities or the grounds for suspending further funding. <\/p>\n\n For example, in a funding agreement for a project implemented under the Smart Growth Operational Programme (POIR), the conditions for payment of funding were set out separately. The starting point was the submission of a correctly completed and complete payment application and its verification by the funding institution. The same part of the agreement also regulated circumstances affecting the course of the payment procedure, including issues relating to security for performance of the agreement, the manner in which the project was implemented and suspected irregularities. <\/p>\n\n A project control may have separate significance in this context. The same funding agreement may provide for the suspension of payment where there are doubts as to whether eligible expenditure has been incurred correctly, until those doubts are resolved. Only by reading such a provision together with the findings of a particular control can it be determined why payment was suspended, how long the suspension may continue and what must happen before payment can resume. <\/p>\n\n Payment may be suspended even before the funding institution has finally established that an irregularity occurred. Current NCBR funding agreements under the European Funds for a Modern Economy programme (FENG) provide, among other things, for the possibility of suspending funding where the institution has taken action in connection with possible irregularities in the project. The mere receipt of information indicating a suspected irregularity may also lead to an ad hoc project control. <\/p>\n\n \u201cThe institution may suspend payment of funding […] in connection with possible irregularities in the Project.\u201d<\/em><\/p><\/blockquote><\/figure>\n\n A suspicion of an irregularity and a final finding that an irregularity occurred are therefore two different stages. Suspension of payment while the matter is being clarified does not in itself determine that particular expenditure will ultimately be declared ineligible<\/a> or that the funding recipient will lose its entitlement to further funding. <\/p>\n\n A similar mechanism appears in funding agreements for projects implemented under the Smart Growth Operational Programme (POIR). By way of example, such agreements allowed payment to be suspended where there were doubts as to whether eligible expenditure had been incurred correctly, until those doubts were resolved. <\/p>\n\n What therefore matters is what the doubts concern and what powers the funding agreement attaches to them at the particular stage of project implementation. This is illustrated by a case involving a project funded through PARP, in which the funding agreement allowed additional security to be required where there were \u201creasonable doubts\u201d as to the amount or form of the funding. After payment of another instalment had been suspended, PARP first requested a bank guarantee exceeding PLN 9 million and then additional security exceeding PLN 30 million. The court of first instance examined whether the circumstances relied on by PARP actually justified such a requirement and found that they did not. It also held that requiring security in an amount almost corresponding to the funds committed to the project infringed the principles of fairness and due regard for the interests of the other party. <\/p>\n\n The case shows that the expression \u201creasonable doubts\u201d does not give the funding institution unlimited discretion. Both the basis for those doubts and the manner in which the institution exercises the powers arising from them are relevant. <\/p>\n\n The first step should be to determine exactly what the funding institution has done and on what basis<\/strong>. A temporary suspension of payment for the duration of a project control requires a different response from a challenge to expenditure included in a payment application, and both differ from a definitive refusal to pay the remaining amount of funding. <\/p>\n\n If the funding institution relies on the funding agreement, the relevant provision and the conditions for its application should be examined. The documents preceding the suspension of payment are also important, including requests for explanations, control findings, correspondence concerning the payment application and post-control recommendations. These documents should show what problem the institution identified and why it considered that problem relevant to the payment. <\/p>\n\n If the institution\u2019s action is based on findings from a project control, the position presented while the control is still under way may be particularly important. In one of the cases analysed, the funding recipient submitted objections to the post-control report, after which the institution presented its final position and only then refused to pay the remaining amount of funding and demanded repayment of funds<\/a> already paid. This shows that a dispute concerning payment may develop in stages and that the arguments presented earlier may affect the subsequent course of the case. <\/p>\n\n The funding recipient should also determine whether the problem concerns entitlement to a particular payment or whether the institution is challenging the proper implementation of the project as a whole<\/strong>. If the dispute concerns a single item of expenditure or a specific obligation, the basis for extending the consequences to the entire instalment should be examined. If, however, the institution links the suspension to failure to implement the project, failure to achieve its objectives or breach of the funding agreement, an analysis of the entire sequence of events and documents becomes necessary. <\/p>\n\n The appropriate course of action depends on the stage of the case and the nature of the institution\u2019s position. Where suspension or refusal of payment has a direct impact on the funding recipient\u2019s ability to continue implementing the project, it is particularly important to determine quickly the basis for the institution\u2019s action, the stage of the proceedings and the available means of challenging its position. In such cases, the time available to respond may be almost as important as the legal arguments themselves. <\/p>\n\nHow does suspension of payment differ from refusal of payment and reduction of a payment application?<\/strong><\/h2>\n\n
When may a funding institution suspend payment of funding?<\/strong><\/h2>\n\n
What should be checked in the funding agreement when the funding institution suspends payment?<\/strong><\/h2>\n\n
Is a mere suspicion of an irregularity sufficient to suspend payment?<\/strong><\/h2>\n\n
What can a funding recipient do if it considers the suspension or refusal of payment unjustified?<\/strong><\/h2>\n\n
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