13.

As far as the ITER Procurement Arrangements are concerned, the official progress of the work is given, from the value point of view, by the Credit Allocation Scheme (CAS) milestones that F4E earn yearly on the way to the completion of the specific procurement. This is what ITER IO officially acknowledges as far as the progress is concerned. However, the value of the CAS milestones is peaked towards the end of the procurement and therefore the acknowledgment through credits is skewed. Therefore indeed the PA progress is directly monitored through the CAS milestones, but also indirectly through the achievement of the milestones of the associated contracts.

14.

It should be noted that the ratio of individual commitments has increased by 13 % since 2012 and that the plan for implementation of the 2013 budget indicates that the percentage of individual commitment should be up to 80 % at the end of 2013. F4E is therefore progressively recovering its delays in the actual implementation of the contracts linked to specific annual budget/work programme. In addition the forecast of implementation confirms the use in 2013 of the full amount available on 2012 Global commitments.

15.

F4E considers that the overall internal control system is in place and evolves with the organisational needs. The establishment and implementation of an internal control system evolves with the organisational changes and should be considered as a continuous ongoing process.

Since its establishment, F4E has taken the development of its overall control strategies as one of its key priorities. Various control systems have already been put in place and are providing management with the necessary assurance. In addition, in 2012, a team directly reporting to the Director was established dedicated to develop and implement the overall control strategy of F4E, to monitor the effectiveness of the internal control environment and to follow up all internal and external audit recommendations.

Aside from the overall conclusion and without significant impact on the validation, the independent consulting firm indeed identified several exceptions and/or areas for improvement. It needs to be noted that a number of these areas had been previously detected in other audits and/or assessments and have already been addressed in those action plans. The main issue addressed by the independent audit firm and requiring immediate action referred to operational asset. This recommendation has immediately been brought to the attention of F4E management and corrective measures have been formulated within an action plan.

Since its set up, the Joint Undertaking has placed extensive effort in the development of an integrated management and control Information System which allows the close monitoring of cost estimates and deviations (see paragraph 29).

In relation to the follow up of internal and external audits, it should be noted that despite the observation made by the ECA, the Audit Committee, in its meeting of 14 June 2013, recognised the improvements and expressed their appreciation for the progress made in the implementation of the action plans.

Risk Management has been established and is systematically embedded at project level. A Risk Manager has been assigned to follow up the risk register and its mitigating actions. The risk log is being updated for each GB meeting.

16.

Due to their low average value, negotiated procedures correspond to 40 % of yearly operational procurement procedures but only to less than 10 % of the JU's yearly commitment: in this respect the use of low-value negotiated procedures allows the JU to focus the limited internal resources on the high value/high risk procurements, with a beneficial risk mitigating effect.

In relation to the very low number of proposals received for the grant calls, the JU acknowledges the issue: so far all the attempts to improve and widen participation to the calls for proposals were unsuccessful. This is deemed to be due to the extremely specialist nature of F4E's grants, which are only of interest to a small number of applicants in Europe.

It should be noted that in its study ‘Potential for reorganization within the ITER project to improve cost-effectiveness’ ordered by the Budgetary Control Committee of the European Parliament, Ernst & Young agreed that the regulations imposed on F4E are not well adapted to F4E's very particular objectives and constrain F4E's capacity to innovatively approach cost-effectiveness.

17.

With respect to the first conclusion, F4E agrees with the statement that penalties are not foreseen in its Model Grant Agreement (MGA). The draft of the F4E Financial Regulation approved by the F4E Governing Board in 2007 foresaw the possibility for F4E to impose such penalties. This possibility has been removed from the text following a specific request from the European Commission submitted during a consultation process under Article 5 of the Statutes.

However F4E believes that absence of such provision in the MGA does not expose significantly F4E to the risk of not receiving essential deliverables in due course, or receiving deliverables which do not meet quality standards. Under the MGA F4E may always terminate the grant agreement and require in case of non-performance or poor performance, breach of substantial obligations and other circumstances specified in the MGA reimbursement of all or part of F4E's financial contribution.

With respect to the second conclusion, it should be pointed out that following the scope limitation of the Audit Certificate, F4E requested the beneficiary clarifications regarding indirect costs and subsequently requested the audit firm to present an amendment to the audit certificate. The payment was authorised based on the additional evidence received.

18.

F4E would like to confirm that in the reorganisation of its financial circuits in June 2013, it took into account the preliminary finding of the auditors. To this extent, additional controls have been put in place at the level of the Technical Acceptance Report (TAR) whereby request for payments can only be passed if there are no outstanding non-conformities. In addition, the financial agents now also perform a review of the TAR, ensuring that technical report and the invoice are in conformity with the contractual conditions.

19.

F4E verifies the equivalency of the other contracting party procurement rules with F4E procurement rules for each joint procurement for which the other party rules are used as required under Article 83 of F4E IR. F4E agrees with the Court that it may be appropriate to establish common standards upon which such equivalence will be verified by F4E on uniformed basis in the future joint procurements although it is not strictly required under Article 83 IR.

20.

In relation to the use of pre-information notices, it was not the intention of the JU to use the pre-information notice for shortening the minimum time limit for receipt of tenders therefore it was considered more useful for visibility and competition purposes to hold information days with European industry before the publication of the contract notice, giving to economic operator the possibility to raise questions on general technical and administrative aspect of the call and also to liaise with possible business partners.

In relation with the non-compliance with Article 85 FR, the JU agrees with the findings by the Court; it must be pointed out that in the meanwhile the JU has been granted access to the EWS and the check is now performed for all awards.

At the time of the signature of a contract in December 2012, F4E was provided with a guarantee from a bank) which did not fulfil the rating requirements of the contract (to be at least BBB rated). This situation was detected by the Finance Team, at the time of the validation of the pre-financing payment, and the guarantee was consequently rejected. The Contractor was requested to provide a valid guarantee from a bank with the required rating. However, closing of the accounts was approaching and the Contractor provided sufficient assurance concerning the ongoing negotiations with another bank, the AD decided to proceed and authorise the pre-financing payment. This decision was based on the assessment that the damages caused to F4E by the loss of the payment appropriations would be much bigger than the risk of not being provided with a new guarantee, taking into account that pre-financing payment was still guaranteed by the initial bond. Finally the new bank guarantee was provided in the first week of February.

For what concerns one of the referenced procedures the cost estimate was indeed not correct, as it was not properly updated during the evolution of the design (before the call publication).

However for what concerns the second procedure, the large difference between the initial estimate and the first offer received is understood to be the result of a monopoly situation existing at the time in the European market.

The JU cancelled the first call and republished the same scope breaking it up into lots to allow for a wider competition. This resulted in a total price much closer to the JU's original estimate, in particular considering that the division in lots had detrimental effects on economies of scale and caused an increase in the non-recurring costs.

21-23.

In 2013, F4E continued the further implementation of its overall control and monitoring strategy and the ex post and verification strategy which had been presented to its Governing Board in December 2012.

As regard the ex post, a pilot exercise was launched with an external audit firm to assess the eligibility of cost claimed by contractors in the frame of grant agreements. The outcome of the pilot exercise will permit F4E to fine-tune and further harmonise its ex post control processes.

Meanwhile, the annual planning of the Quality Assurance audits continues to be implemented as scheduled. Based on comments made by the Court of Auditors in previous annual reports, the scope of the QA audits is presently being re-assessed through a pilot exercise in order to extend with financially oriented checks on operational contracts, the so called ‘lion ex post financial verifications of procurement contracts’.

It needs to be mentioned however, that the Audit Committee of F4E's Governing Board formulated its opinion against the proposed actions in response to the Court's observations on ex post financial verifications of procurement contracts in its 2011 annual report, as it goes against the principle of contracts agreed upon price. The Audit Committee requested to the Court to reassess their position in that regard. As a result, F4E redesigned its financial verifications of operational contracts as mentioned by the Court.

24.

On 26 and 27 June 2013 the Governing Board adopted the document on the ‘Implementation of the Industrial Policy’ with the agreement of the European Commission. Such Policy together with the ones previously adopted establishes the policy and framework for the management of the Intellectual Property within Fusion for Energy.

The practical implementation of our obligations for the management of IP can be summarised as follows:

Finally, to guarantee the confidentiality of the IP related information managed in our contracts an Information Security Policy is being implemented. The policy, will foresee the electronic storage on a dedicated server of IP confidential information. The adoption of such policy is imminent and its implementation for the management of IP related information should be ready by January 2014.

25.

Although F4E agrees with the factual conclusion of the Court of Auditors, it would need to stress that since the observation was first made by the auditors in 2008, F4E has taken all necessary actions to redress the situation. The Governing Board has taken its responsibility to address the issue, while systematic reminders are sent to the late contributor and Member States that do not pay on time are requested to pay late interest according to Article 48 of the IR. Unfortunately, the internal procedures of some of the Member States make it sometimes impossible for them the respect the deadlines established by F4E's Financial Regulation.

As concerns the budgetary impact, it is important to underline that the membership contributions subject to the Court's observation represents 0,6 % of F4E's budget and in consequence; the delays a fraction of this percentage.

Finally, by the end of the budget year 2012, only an amount of 1 085 euro remained due.

Therefore late payments of membership contributions in 2012 had no measureable impact on the implementation of the budget and F4E.

Meanwhile, F4E will continue to ensure that the membership contributions will be paid within the shortest delay.

26.

F4E agrees with the comment. It is correct that at the time of the audit, the implementing rules mentioned had not been formally adopted. However, we would like to underline that in order to avoid legal vacuum, the Director of Fusion for Energy had adopted decisions stating that the model implementing rules applicable to agencies or the Commission rules were applying to the Joint Undertaking by analogy (except if otherwise mentioned). In this respect, Fusion for Energy provided itself with a proper and transparent reference framework, which was consistently applied by the organisation until the formal rules adopted by the Governing Board were in place.

Concerning this last point, significant progress was made since the audit took place. The following implementing provisions have indeed been formally adopted by the Governing Board in December 2012: criteria of classification in grade and step upon engagement, part-time work, appraisal of the Director, family leave, parental leave and transfer of pension rights.

In relation with the provisions on the engagement and use of temporary, on appraisal, on prevention of harassment, certification and attestation, the IRs were sent to the Commission for approval between January and February 2013 (after conclusion of the internal consultation process) and F4E is expecting the Commission's approval before it can be adopted by the GB. This is expected to take place in December 2013.

The consultation of the Staff Committee is currently ongoing for the Implementing Rules on leaves and absences, sickness absences, middle management and interim occupation of management positions. These will be submitted to the Commission's approval shortly.

For implementing Rules such as the ones on engagement and use of Contract Agents, F4E is waiting for the models to be finalised by the Commission and therefore cannot yet be submitted under Article 110 of the Staff Regulations.

Finally, we would like to reiterate Fusion for Energy's commitment to increase the number of implementing rules to be adopted in the course of 2013 and beyond. With this in view, an estimated adoption calendar has been approved and internal arrangements aiming at facilitating the adoption process have been implemented. We are confident that additional progress will therefore be made.

27-31.

In 2008 a working group at F4E, supported by experts from industry and public research organisations, estimated that the expected cost of delivering the then agreed European contribution to the construction of ITER was 5 940 million euro with a need for 663 million euro in contingency. The cost of the Broader Approach cooperation with Japan and administration of F4E, was estimated in 2008 to be 650 million euro, resulting in an overall cost estimate of 7 253 million euro in 2008 euro value including the abovementioned contingency.

The Council has made 6 600 million euro in 2008 euro value available in the period 2007-2020 for F4E to fulfil the European obligations in respect of ITER and the Broader Approach and requested F4E to make all possible savings to ensure that the capped budget would be respected.

Since 2008 the ITER project has evolved significantly in response to increased safety requirements in the aftermath of the Fukushima accident, new scientific insights and maturing of the design. While some requirements have been relaxed most changes have augmented the requirements and increased the scope of what Europe is required to deliver to ITER. Such changes are decided by the ITER Organisation (IO) and its governing bodies.

Recognising that the scope of the European deliverables to ITER has changed substantially and designs matured considerably since the 2008 cost estimation, a thorough revision of the entire cost estimation was conducted by F4E during the first 6 months of 2013.

Unlike the incremental updates of the cost estimate presented in previous reports to Council, this updated cost estimate also captures changes further in the future. The expected cost of the European deliverables to ITER, the SA and running F4E is now estimated at 6 890 million euro. When compared with the capped budget of 6 600 million euro for the budgeting period till 2020 this shows a negative contingency of 290 million euro.

The change in the contingency from – 165 million euro to – 290 million euro since the F4E report to Council last year is in large measure due to a significant escalation in the expected and realised costs of buildings resulting from increase in the scope of the buildings to be provided and from the schedule pressure on construction of the buildings.

As noted in an Ernst and Young study entitled ‘Potential for reorganization within the ITER project to improve cost-effectiveness’ launched in July 2012 by the Budgetary Control Committee of the European Parliament and concluded in February 2013, F4E has little or no control over such changes, this being the remit of the ITER Council and its subsidiary bodies.

Nevertheless and to ensure that the cap on the budget is respected F4E has developed and continues to develop and implement a broad range of cost containment measures including optimising procurement strategies and contractual conditions to reduce costs, and in cooperation with IO optimising designs for cost containment. The status of past measures and the collection of current measures together with the new cost estimation was presented to the GB on 26 June 2013 (paper F4E(13)-GB27-06). These measures do offer saving opportunities in excess of 300 million euro and thus provide the necessary tools to ensure that the cap on the budget for the period until 2020 will be respected.

32.

The auditee agrees with this observation and points out that the information about the cost risks referred to in paragraph 30 was neither determined in the period that the 2012 annual report covers nor available at the time that it was being prepared and hence could not have been included in the annual report 2012 approved by the GB in June 2013. Furthermore, it has to be noted that such information is reported by F4E to the European Council and Parliament at least once a year in the F4E Progress report which presented on (a) the progress achieved in implementing the cost containment and savings plan, (b) as well as the performance and management of the Agency and the ITER project, and (c) the fulfilment of the scheduled activities within its annual budget. The 2013 report contains all the related information.

33.

The Host Agreement signed between ‘Fusion and for Energy’ and the Kingdom of Spain in 2007 does indeed foresee that Spain will provide F4E with permanent premises no later than 3 years after the signature of the agreement. The Agreement also foresees that in the meantime, and before the final premises are made available, Spain will provide temporary premises.

While Spain has not yet provided permanent premises, the Joint Undertaking occupies temporary premises free of cost, as Spain pays for the full cost of the premises (rent and maintenance as foreseen by the Host Agreement, while F4E pays for the tenant's part of the temporary premises).

In order to provide the final premises, Spain launched an informal procedure to select an appropriate site and architectural project. The selection of the site and project is foreseen to take place before the end of 2013.