Question #1.  Payment of all the invoices by the coordinator only.

Can the coordinator of the project keep the responsibility for paying all the RTD invoices? Results are to be shared according to the Consortium agreement, but he would like to keep the advance payments, receive the invoices, and pay for them.
                                     
Answer: it is not possible that the coordinator pays the invoices on behalf of the SMEs. This is clearly stated in the Work Programme and in the financial guidelines: the SMEs have to pay the invoices. However the coordinator can distribute the money before the SMEs have to pay. In this case the coordinator will have to pay to REA the interest yielded by the prefinancing it keeps on its account.
                            

Question #2. VAT issues in the European R&D projects.

A Swiss SME is subcontracting Research work to a German RTD performer. The invoice of the RTD performer includes the VAT. The SME can not charge the VAT under eligible cost. Who pays the VAT? Best practice of sharing the VAT between SME and RTD? Examples?
                                             
                                                        
Answer: It is correct that the RTD-performer includes VAT in their invoice to the SMEs (or SME-Associations). For most SMEs that should not be a problem because they make a VAT balance against their financial authorities. In particular SMEs receive VAT when they sell products or services. They have to pay VAT on the other hand when they buy something. Usually on a monthly basis they calculate the difference between received and paid VAT and either (in case of positive result) they have to pay the difference to the financial authority or (in case of a negative result) they receive money back from the authority. Negative results often occur when companies export goods to countries outside the EU.
                                                                        
In a case of cross-border VAT (a company receives an invoice from an RTD-performer from another country):
• If the company has a VAT ID number then the invoice from the RTD-performer does not include VAT. The company should declare the incoming net-invoice to it's own national tax authorities and pay then the VAT to them
• If the company has no VAT number then the RTD-performer should include the VAT of his country in the invoice.
                                            

Question #3. SME definition.

1) Company A has 240 employees and less than 50 MEUR turnover and less than 43 MEUR balance sheet. Company B has the same situation. Both companies are owned by the same (physical) person.

Are these two companies linked now and thus exceeding the criterion on employees or are they not?

2) 100% of a small company C is owned by a institutional investor. Obviously these two companies are linked. But the investor owns some more companies. The investor is linked with all his affiliates. If in total (over all companies) the SME criteria are exceeded, what is then the status of company C? Is it an SME or not?
                                                                      
Answer: According to the EC recommendation , "Enterprises which have one or other of such relationships (talking about linkage) through a natural person or group of natural persons acting jointly are also considered linked enterprises if they engage in their activity or in part of their activity in the same relevant market or in adjacent markets.
An ‘adjacent market’ is considered to be the market for a product or service situated directly upstream or downstream of the relevant market."
                                                   
So, if both enterprises are in the same or adjacent market, they will be considered to be linked but, if they operate in different ones, they would be independent, with the same relationship of ownership.

Question #4. Large enterprises.

Can large enterprises join a consortium and apply for the FP7-‘Research for SMEs’ calls?
                                         
Answer: As the name says 'Research for SMEs' is generally for – SMEs.
The participants in a project can fall under the categories of either SME or RTD (research performer). But - in order to let certain projects (and SMEs) reach their objectives in a better way it is allowed that end-users and non-SME companies are involved. It is evident that they should neither have a big share (of budget) nor dominate the SMEs.
                                       
Cite from the Workprogramme (which is the primary source of information): “Other enterprises and end-users may participate by making a particular contribution to the project and in solving specific problems or needs of the SME participants involved, though not in a dominant role. They must be independent from any other participant.”
                                             
                              

 Question #5. RTD Performers

  
Who can be an RTD performer in ‘Research for SMEs” calls?
In the work program there is the following information: “Universities, research centres or research performing SMEs. Other enterprises and end-users, which belong to the same value chains as the participating SMEs, can participate, if it is in the interest of the project.”
Does it mean that a large enterprise can count as an RTD performer?
                     
Answer:  Indeed every organisation with sufficient research competence can act as an RTD-performer in 'Research for SMEs'. Usually these are universities and research institutes. Sometimes there are SMEs or big companies who act as research performers for the SMEs in the consortium. It should be explained, like for any other RTD performer, why they were selected to carry out the work; the RTD work should also clearly benefit to the SMEs, including in terms of results and IP.

Question #6. Can a RTD-performer have a subcontractor?
A consortium has four RTD-performers (what is already quite a lot). The RTD-subcontract is about 1 MEUR, the overall budget close to 1.5 MEUR (RTD-subcontract is at 66% of total costs which looks normal). Now they have the need to carry out some testing. None of the four RTD-performer is capable to fulfill that task. Is it possible that one RTD-performer puts the testing into a subcontract to a governmental measurement and standards institute?
                                      
Answer: Yes.
 The subcontracting is about 5% of RTD-subcontract, which is not a significant amount.
 The testing is an activity which is not at the project's core. One cannot necessarily expect that the RTD-performers are able to conduct that job.
 This kind of implementation seems to be optimal regarding the resources because no equipment needs to be purchased, no personal needs to be qualified etc. One can just take the organisation which offers the best service conditions.
                            
To be mentioned in the proposal: the name of the testing institute and the sum of subcontracting in the proposal in the beginning in order to avoid launching a tender at project start!

Question #7. Financial support for SMEs.
There is a criteria at the NMP call for proposals: at least 35 % of the EC financial support should go to SMEs. Is there a rule like that in the calls “Research for SMEs” as well?

Answer: The financial regime in the programme "Research for SMEs" deviates significantly from the rest of the Framework Programme. No, there is no minimum contribution to SMEs.
               
Only the SMEs declare their R&D costs to the Commission. The RTD-performers are hidden in the SMEs' cost statement as RTD-subcontract. Two rules apply generally to the project:
- 75% funding for SMEs in the activity R&D, and
- the maximum EU-contribution to the project is 110% of RTD-subcontract.
                      
If you combine these two rules then you typically end up with an RTD-subcontract being around 70% of the total project cost. Maximum cost of a project in "Research for SMEs" is 1.5 MEUR.
                   
You'll find a detailed description of the financial regime in the Commission's brochure "Research for SMEs at a Glance":
ec.europa.eu/research/sme-techweb.

Question #8. Symmetrical or asymmetrical distribution of RTD-subcontract (RTD results and costs) between the SMEs.
If you have SME A, B and C and RTD Y and RTD Z. The RTD-subcontract would be split 50/50 between those two RTD-Performers. Should each of these two RTD-performers write invoices with identical amounts to SME A, B and C or should the amounts differ? What seems to be more logical?

              
Answer: Usually the SME-consortium does not consist of direct competitors because it is unlikely that they share strategically important R&D issues. If the SME consortium is composed mainly of companies along the value chain (i.e. a supplier, a company and the business customer of that company) then these different companies should have different interests regarding the outcome of the researcher's work, i.e. the results. If the results from the researchers differ from company to company there is no rationale behind the fact that several companies would pay the same price for different results.
Conclusion: the results (and the payment in accordance) should be unevenly distributed between the SMEs (unless there are serious reasons to deviate from this rule).

Question #9. Distribution of the pre-financing in the “Research for SMEs” projects.
In the Coordinators meeting the Commission said that the prefinancing is to be sent to SMEs and then the RTD performers should bill the SMEs. Recently I have heard from some larger RTD performers who are coordinating projects in the same programme that they are sending the prefinancing directly to the RTD performers who would then send a proforma bill to the SMEs. This would all be defined in the Consortium agreement. Is this process also correct? 
                                                  
Answer:  It might work under the following circumstances:
The SME(s) and the RTD performer(s) agree up-front in writing, before the Coordinator distributes any money to the partners, on the work to be done and the price to be paid. In effect this means a fixed-price contract.
The SME(s) then request(s) the Coordinator in writing - “in order to avoid unneccessary bureaucracy, bank charges, etc.” - to transfer the corresponding sum to the RTD performer(s) directly.

                             
                               
Question 10. FP7 negociation.
Could you please advise me a good checklist items for the negotiation of FP7 , “Research for SMEs” projects?
                          
Answer: The Negotiation Guidance Notes contains a checklist (Appx 5), yet not specific to Research for the Benefit of SMEs.
The critical issue is to get all documents to prove the status of the SMEs. They need to provide P&L, balance sheet, the number of employees for their own entity, plus for all their upstream and downstream companies (i.e. where they have a controlling share or >25% of the shares). For instance, in some countries it may be very common that owners of SMEs have their own management/holding companies. Participating companies should understand that it is necessary to provide such details, in order to prove the status of Small and Medium Enterprise.
                     

                              
Question 11. Are the bank charges eligible costs?
If in a SME action for the general interest of the project the SME pays the RTD performer before schedule, and this results in penalties to the SME - can this bank penalties be declared as eligible costs?

                            
Answer: There is no official list of ineligible costs, but the principles of the eligible costs in FP7, and experience of previous Framework Programmes, indicate that bank charges are not accepted. These costs could be avoided, paying on schedule or by taking into account wider liquidity/bank account issues. The auditors may view this as an excessive cost. I don’t see that the RTD Performer should share this cost.