A project modification after signing the funding agreement may become necessary for business, technical or organisational reasons. Problems arise where the funding recipient introduces the change without first obtaining the funding institution\u2019s approval and it later turns out that the funding agreement or project documentation required a specific procedure to be followed. Project modifications made without the funding institution\u2019s formal approval may become a problem even where they were commercially reasonable and did not affect the project\u2019s objective.<\/p>\n\n
Changes during project implementation are entirely normal. Prices, equipment availability, work schedules, contractors, technical solutions or the way in which the project is organised may all change. The issue arises when a commercially justified decision also affects an element of the project that was previously described in the application for funding, the schedule, the budget or the funding agreement. <\/p>\n\n
In practice, particular attention should be paid to changes concerning the scope of the project, the specifications of the infrastructure being purchased, the manner in which tasks are carried out, the schedule, location, allocation of costs or the results that the funding recipient undertook to achieve.<\/p>\n\n
The mere fact that a new solution is cheaper, faster or technically superior does not in itself determine whether it may be introduced without consulting the funding institution. It is first necessary to check how the funding agreement and the documentation for the particular call for proposals regulate project modifications and whether the proposed change affects any elements that formed the basis for the award of funding. <\/p>\n\n
In one judgment, the Voivodeship Administrative Court in Gda\u0144sk accepted the funding institution\u2019s position that the application for funding and the project\u2019s material and financial schedule formed an integral part of the funding agreement and defined the scope of the funding recipient\u2019s obligations. The Court found that the project had not been implemented in its full approved scope and that some activities departed from the approved configuration. The Court rejected the argument that the dispute should be reduced to the interpretation of the project title or its general purpose. The relevant points of reference were the content of the application for funding and the provisions of the funding agreement. <\/p>\n\n
Importantly, the Court accepted that changes to the project\u2019s material and financial scope made without the funding institution\u2019s approval, where such approval was required, constituted a breach of the procedures laid down in the funding agreement. The approved project scope was therefore not treated as a flexible framework, but as a binding element of the funding recipient\u2019s obligations. <\/p>\n\n
A similar approach was taken by the Voivodeship Administrative Court in Kielce. In that case, during project implementation, the funding recipient modified the scope of construction works, changed the type and quantity of equipment and carried out some procurement activities differently from the assumptions originally approved, without first obtaining the funding institution\u2019s consent. The institution concluded that this constituted a breach of the obligation to implement the project in accordance with the application for funding and the provisions of the funding agreement governing project modifications and, consequently, amounted to the use of funds in breach of the applicable procedures within the meaning of Article 207(1)(1) of the Public Finance Act<\/a>. <\/p>\n\n The Court dismissed the funding recipient\u2019s complaint. Arguments concerning price increases, difficulties caused by the pandemic, problems with contractors or the business rationale for dividing the works were not considered sufficient to set aside the repayment decision. The decisive factor was that the modifications had been introduced without following the procedure laid down in the funding agreement and the applicable guidelines. <\/p>\n\n A judgment of the Supreme Administrative Court is particularly important in this context. The Court expressly held that the concept of \u201cother procedures applicable to the use of funds\u201d also includes procedures laid down in the funding agreement, and that failure to comply with the terms of the agreement requires the authority to issue a decision determining the amount to be repaid<\/a>. <\/p>\n\n This ruling has fundamental practical significance. It means that provisions of a funding agreement governing the procedure for introducing project modifications, documenting expenditure or implementing the project are not merely elements of the contractual relationship. They may also fall within the category of \u201cprocedures\u201d within the meaning of the Public Finance Act. A breach of such procedures may therefore constitute an independent legal basis for determining the amount to be repaid. <\/p>\n\n The Supreme Administrative Court also noted that where a funding agreement is terminated, the funding recipient may be required to repay the entire amount of funding received, rather than only the part corresponding to the element of the project that was implemented incorrectly. In certain circumstances, a project modification introduced without the required approval may therefore lead not merely to a financial correction affecting particular expenditure, but to substantially more serious consequences. <\/p>\n\n Before making a modification, it is first necessary to determine how the relevant element of the project was described. A modification to a technical detail that does not affect the scope of the project may have a different significance from a change to a task, cost, infrastructure parameter or result specified in the application for funding. <\/p>\n\n It is also necessary to check what procedure is provided for in the funding agreement. The project documentation may distinguish between modifications requiring prior approval, modifications that must be notified to the funding institution and those that the funding recipient may introduce independently. What matters is not the label the business gives to the modification, but its actual impact on the approved project. <\/p>\n\n For this reason, the decision on a project modification should be made before the modification is implemented. If the funding recipient first purchases different equipment, changes the scope of works or reallocates funds and only then begins to examine the project rules, its position is already considerably more difficult. <\/p>\n\n If a project modification has already been introduced after the funding agreement was signed, the situation requires a separate assessment. The mere fact that the project is still being implemented, that the funding institution receives payment applications or that it is aware of some of the circumstances relating to the modification does not in itself amount to formal approval. It is then necessary to establish both whether the modification required the funding institution\u2019s approval and what information was provided to the institution and when, how the project was described in subsequent documents, and whether earlier correspondence may be relevant to the assessment of any later allegation. <\/p>\n\n The case law also makes clear that compliance of project implementation with the funding agreement may be assessed retrospectively. In the cases examined by the Voivodeship Administrative Courts and the Supreme Administrative Court, project controls took place after completion of a particular stage of the project and, in some cases, only after the funding agreement had been terminated. The issue examined was whether project implementation corresponded to the application for funding and the schedule as originally approved. <\/p>\n\n The funding institution\u2019s failure to react immediately to modifications as they were being introduced was not treated as tacit approval. Judicial review of the administrative decision focuses on whether the funding recipient\u2019s actions complied with the funding agreement and the applicable law, rather than on the recipient\u2019s subjective belief that the modifications were justified. <\/p>\n\n In light of the case law of the Supreme Administrative Court, in certain circumstances a breach of the terms of the funding agreement, including failure to achieve project indicators<\/a>, may even result in an obligation to repay the entire amount of funding received. I discuss this issue in more detail in the article The authority demands repayment of a grant<\/a>.<\/p>\n\n If the issue arises only during a project control, verification of a payment application or after project completion, the starting point is to establish what the approved project originally provided for and precisely how the subsequent modification differed from it.<\/p>\n\n The documentation applicable at the time the modification was introduced, earlier correspondence with the funding institution and whether the modification actually affected the scope, objective or manner of project implementation are all relevant. Only after these elements have been considered together is it possible to assess the significance of the allegation and its potential financial consequences. <\/p>\n\n A project modification after signing the funding agreement may concern either a technical detail or an element that was material to the assessment of the project and the award of funding. The case law of the administrative courts clearly indicates that the material scope of the project, its schedule and budget structure form part of the legal basis on which public funding is awarded. Procedures for introducing modifications, as laid down in the funding agreement, fall within the category of \u201cprocedures applicable to the use of funds\u201d within the meaning of the Public Finance Act. Introducing material modifications without first obtaining the funding institution\u2019s approval may therefore be classified as a breach of the conditions governing the use of the funds and may result in an obligation to repay them. <\/p>\n\n A project modification introduced after signing the funding agreement should therefore be assessed before the business begins to implement it in practice. Good faith, market pressure or commercial rationality do not eliminate the risk. Any modification affecting the scope of the project should therefore be preceded by a legal assessment of whether formal approval from the funding institution is required. Otherwise, an operational decision may later be regarded as a breach of the funding conditions, with all the financial consequences that may follow. <\/p>\n\nContractual procedures as \u201cprocedures\u201d within the meaning of the Act<\/strong><\/h2>\n\n
What should be checked before making a project modification?<\/h2>\n\n
Can the funding institution approve a project modification retrospectively?<\/strong><\/h2>\n\n
What should you do if the funding institution has already challenged the modification?<\/h2>\n\n
Practical conclusion<\/strong><\/h2>\n\n
\n