3.2.1. Notional approach
The use of the notional approach allows the EU to jointly co-finance an action although some of the costs of this action are not eligible for EU funding.
Budget and EDF contributions are subject to a number of specific requirements regarding ineligibility of costs which do not necessarily apply to the other donors pooling funds together under a jointly co-financed action. Since complying with these requirements would require a degree of traceability, it would be difficult to reconcile these requirements with the nature of jointly co-financed actions and would make it difficult for the Commission to take part in this type of actions.
However, it is possible for the EU to contribute to multi-donor actions using the notional approach. Under this approach, the EU cost eligibility requirements are met as long as the amount contributed by other donors is sufficient to cover the costs which are ineligible under EU rules.
For instance, if the EU finances 40 of a given project of total costs 100 under a basic act which does not permit the funding of taxes, and the managing entity estimates that it will use 5 of its funds to reimburse local taxes, the Commission is allowed to assume that this 5 (ineligible under EU rules) will be funded from the 60 contributed by other donors. Equally, if for instance the Commission finances 20 of the project of total costs 100 under the EDF and, say, 60 of the estimated expenditure is allocated to African, Caribbean and Pacific (ACP) States, the Commission is allowed to assume that all its contribution will go exclusively to ACP countries.
In this manner, the Commission can participate in jointly co-financed actions without actually earmarking its contribution (as such earmarking would be contrary to the very idea of joint co-financing).
While the notional approach is normally used to contribute to jointly co-financed, i.e. multi-donor actions, it needs to be applied carefully:
- Before deciding to participate in a jointly co-financed action, the responsible authorising officer needs to get a good understanding of the nature of the costs in the budget, whether such costs can be regarded as eligible under EU rules, the number and amount of contributions from other donors which can finance the non-eligible costs, etc. The amount contributed to multi-donor actions should be limited as to avoid the EU contribution exceeding eligible costs.
- The Commission services will then monitor the action through the financial and narrative reports. In case any substantial deviation is identified, such that the other donors' contributions may not cover the ineligible costs under EU rules, appropriate measures will be adopted (such as amending or terminating the delegation agreement).
- At the end of the implementation period of the delegation agreement, the fund-managing entity will be requested to provide a declaration that ineligible costs for the EU contribution are covered by other donors' contributions. Such declaration shall be included within the final financial report. If an amount of ineligible costs cannot be covered by other donor's contributions, it implies that that there are not enough eligible costs to cover the EU contribution, which will then be reduced by such amount, as to only cover eligible costs. The inclusion of a provision in the special conditions of the agreement to ensure the receipt of sufficient funds from other donors covering the costs that are not eligible under the agreement is highly recommended.
- Indirect costs cannot be covered by this approach.
- The use of the notional approach is allowed even if no specific provision has been inserted in the special conditions of the delegation agreement concerned.