The Secret to Successful Implementation of European Projects Lies in the Procurement Plan

Croatia recently celebrated its eleventh birthday as a full member of the European Union, and thus also eleven years of utilizing funds from structural funds. We have already made significant strides into the second financial perspective. Regardless of the activity you are engaged in, you have certainly found yourself at least once in a conversation on the topic ‘How could I draw some funds?’. Many such conversations have turned into project ideas for which quality project applications have been developed. And finally, you have reached the moment when you literally hold your project idea in your hands in the form of a grant agreement. However, no matter how poetic this sounds, in reality, your bank account, or now the project account, has not seen a single euro of grant funds.

At the center of our interest is precisely that moment when you are in a position to lay a solid foundation for the successful implementation of the project, i.e., define the path and plan on how to realize the project idea and achieve the right to co-financing of costs. And we will not beat around the bush: it is a long road paved with many reports and extensive administration.

A Good Plan Is Half the Work

One of the first obligations after signing the grant agreement is to submit the procurement plan to the control body. Although the procurement plan is legally mandatory in public sector bodies, it should also be specifically adopted at the project level, regardless of whether you are a user of grant funds from the private or public sector. Control bodies in the guidelines for users of grant funds have set the definition of the procurement plan as a tool for realizing planned investments. It encompasses all procurements that need to be executed for the implementation of the project, regardless of whether they are completed, planned, or ongoing. For this so-called tool to fulfill its function, it is important to understand its purpose and content.

The general conditions of the grant agreement define procurement as the procurement of works, goods, and/or services for the needs of the project that is the subject of the agreement, and is carried out in accordance with the provisions of the Public Procurement Act or according to the Rules on the Implementation of Procurement Procedures for Non-Obligated Public Procurement Act (NOJN), which are, if applicable, an integral part of the grant agreement. While users of grant funds from the public sector are familiar with the terms of procedures and public procurement and simple procedures, in the private sector, they often do not understand the mandatory procedures for their implementation.

Efficient Spending Is Required

It is understandable that in regular business operations, relationships between buyers and suppliers are developed, and over the years of business, some suppliers or brands become preferred. However, with the signing of the grant agreement, the buyer, i.e., the contracting authority, is also a user of public funds, which is why it is necessary to take care of the rational and efficient spending of the allocated funds so that the goods, works, and services they procure correspond to the project purpose. Rational and efficient spending implies adherence to basic principles such as avoiding conflicts of interest, proportionality, equal treatment, and prohibition of discrimination, as well as rational and economical spending of funds. In translation, in projects, it is necessary to step out of the usual frameworks of regular business and openly approach the market.

In accordance with the aforementioned principles, certain financial thresholds are set for the implementation of procedures according to the type of procurement, which differ depending on the Rules for Non-Obligated Public Procurement Act that are in force or the program from which the project is co-financed.

Procurement Thresholds

The threshold for the procurement of goods and services according to the applicable rules for NOJN is 53,100 euros excluding VAT, and for works, it is 132,700 euros excluding VAT; the thresholds in the implementation of the National Recovery and Resilience Plan (NPOO) have also been raised to 132,720 euros excluding VAT for the procurement of goods and services and 663,600 euros excluding VAT for the procurement of works. This means that goods, services, and works up to a certain threshold can be procured through a procedure with a single bidder; however, if the estimated value exceeds a certain threshold, a call for tenders must be published. Depending on the conducted procedure, the contracting authority issues a purchase order or concludes a procurement contract.

A public call for tenders defines the basic information about the subject of procurement so that bidders are provided with all necessary information such as technical specifications and/or job descriptions and all relevant technical details. Mandatory data also includes information about quantity, deadlines, and delivery parity, place of execution, and payment method. The contracting authority may set conditions of capability for potential bidders, and it is necessary to determine how the bids will be evaluated. The criterion for selecting bids may be the lowest price or the economically most favorable bid (best value for money based on quality, technical advantages, functional features, etc.). The call for tenders is published on a website that is, again depending on the program and call, defined in the Rules for NOJN and allows all potential bidders simultaneous information about the published call for tenders.

Defining the Value of the Project

Now that we understand why we conduct procurements, let’s return to the previously mentioned moment when you signed the grant agreement for your project. In the first articles of the agreement, the total value of the project is defined. When preparing the project application, you detailed this value by determining eligible and ineligible costs.

Eligible costs are elaborated according to activities and items, and for each item, the amount, type of support, and description are clearly defined. All items together form the project budget, and now it is the starting point for creating the procurement plan. Simply put, you need to know how you will spend each item of the project budget. While there are specific procedures and predetermined execution tempos for items such as salaries or depreciation, the majority of items marked as ‘actual costs’ in the budget are included in the procurement plan.

What the Procurement Plan Contains

All budget items that enter the procurement plan should be grouped into technical, technological, design, and functional units. This means that if you have multiple budget items that can be linked to each other, you procure them together, i.e., they will encompass one procurement.

The estimated value of the procurement is the total value of the subject of procurement excluding VAT and the funds that are provided in the budget item of the grant agreement for the realization of a specific action. In the implementation of procurement procedures, it is quite common for there to be deviations in the price of the contract or purchase order compared to the estimated value. Market movements change from day to day, and considering that the time gap between the preparation of the project application and the realization of project activities can be several years, it is unquestionable that price differences will arise. Savings or deficits determined after the conducted procurement procedures are the basis for changes to the grant agreement in the form of budget redistribution.

The next important component of the procurement plan is the time frame for the implementation of the procurement procedure and the duration of the procurement contract or purchase order. Time planning is necessary in any business cycle, and thus in every project. In the procurement plan, the time flow is determined for two elements. First, how much time is needed to implement the procurement procedure and, second, how much time is needed to execute the subject of procurement. The sum of both times needs to be set in the time frame of project activities. It is extremely important to prioritize procurement procedures whose subjects require more time for delivery, such as works or machines designed according to client requirements.

It is also necessary to consider interdependent procurements, i.e., those whose delivery depends on the delivery of another procurement. A common example is procurement for construction and equipping where the delivery of equipment depends on completed works. Often due to careless planning, but also unpredictable circumstances, there can be difficulties in the delivery of goods, additional storage costs, or delays of the entire project. The time flow of procurements is yet another common reason for changes to the grant agreement in the form of extending the project implementation period.

From Plan to Contract Signing

During the implementation of the project, it is mandatory to report to the control bodies on the progress of implementation. Most often, this is quarterly, as part of the request for reimbursement of funds (ZNS), when reimbursement of funds for the activities realized so far is also requested. The ZNS contains two parts: a narrative part, in which each activity in the project and the actions taken for realization are descriptively reported, and a financial part, in which the costs incurred for the execution of activities and for which reimbursement of funds can be achieved are listed.

However, behind that report is again the procurement plan. Its implementation is a list of procurement contracts or purchase orders, which is also an integral part of the report. For each contract and purchase order, it is mandatory to state when they were signed, with whom, and for what value. It is also important to report whether any amendments were signed after the signing of any of the procurement contracts that changed some element of the basic contract. Each procurement contract and purchase order contains information about the method and deadlines for payment, and from them, invoices arise that are the content of the financial part of the report.

Control bodies verify invoices by not only checking payments but also linking each issued invoice with the contract or purchase order. If the expense was incurred in accordance with the procurement plan and contractual obligation, the verification will be positive, and finally, the reimbursement of funds will be credited to the project account.