13.

In the past years F4E has been asked to implement a project with inherent technical challenges and management boundary conditions which have hardly any precedent worldwide: in the context of the already huge challenges of implementing a first-of-a-kind technically complex device like ITER, technical specifications are based on inputs largely provided by another entity, the ITER Organization (IO), and deviations to specifications, even during contract implementation, are extremely frequent. F4E has been at the receiving end of these, having to implement them mostly without any compensation.

The adoption in 2011 by the ITER Council of the so called ‘MAC-10 guidelines’, defining the responsibilities to be assumed for funding design changes and originally introduced with the objective to streamline decision making processes, has aggravated instead of improving the situation described above. This has led to a modest Systems/Value Engineering endeavour in the IO integration, with cost overruns and further tensions developing amongst IO and all Domestic Agencies (DAs). This problem is severe for all DAs, but in particular for F4E, where the impact of constant changes on components affects the buildings almost by ‘default’, as evidenced by the papers provided to the F4E Governing Board (GB) in its December 2014 meeting.

Cost clearly depends on work scope (i.e. design), and even more so when alterations are required during the very construction phase. The fact that the latter is largely under the control of IO and its governance, and the former of F4E, clearly shows a misalignment of responsibilities.

This is indeed one of the most challenging aspects of the ITER project, as well identified in the European Parliament’s 2013 study on cost effectiveness of the ITER project by Ernst and Young. Indeed the headings of the executive summary of this study state that ‘Cost increases have largely emanated from the project-level and are outside of the direct control of F4E’ and ‘F4E is a sui generis organisation operating in a complex environment, which constrains the possibilities for cost-efficiency’. In short, due to the very set up of the Agreement and its instruments, a significant fraction of the costs which F4E has to absorb are not under its direct control.

Specifically on the matter of cost control, this being a key F4E objective, under the previous MAC-10 guidelines any control system limited within F4E would have not been able to limit the influx of changes from IO (who acts as owner and integrator). Only now, with the elimination of the MAC-10 guidelines and the introduction of a system to replace them for their intended purpose (the Reserve Fund of IO), as well as with the promise by the new IO management to implement a comprehensive configuration management system, it may be well possible, through gradual integration of technical management processes, to implement a more effective cost control system.

Largely based on the above, the project stakeholders (IO and the DAs — including F4E) have come to the conclusion that the current schedule is not realistic — a fact which has been also confirmed by several independent assessments in the last 2 years (2013-14). For this reason IO/F4E, together with the other Parties’ DAs, are working on a new revised schedule which should be presented to the ITER Council in November 2015. The revised schedule shall then be assessed by the ITER Parties which should also take into account the available resources and the cost dimension, as these elements are closely related. It is therefore very probable that, as a result of the revised schedule, the overall cost estimate will have to be discussed and proposed. This will not affect the resources needed in the current MFF (Multiannual Financial Framework), but may have longer term consequences.

14.

F4E is bound to implement the requirements and the changes in design imposed by IO, even though these might have cost impact and cost risks. At the same time, F4E is vigorously pursuing a large range of cost containment measures under close supervision of its GB to ensure that the budget ceiling allocated for the current MFF until 2020 is respected. Some of these measures are:

Cost control will continue to be a priority at global project management level under the leadership of the new Director General (DG) of the ITER Organization since March 2015.

As far as costing is concerned at F4E level, a detailed Estimate at Completion at WBS (Work Breakdown Structure) level 6 for the EU in-kind contributions is being carried out by taking into account risks and uncertainties. This result will lead to the evaluation of the new contingency requirements.

15.

As reported in previous occasions by F4E, the capped budget for the current MFF was established on the assumptions of the exercise carried out in 2008 (Toschi report) which were done at WBS levels 3 (System) and 4 (PA — Procurement Arrangement). This does not mean in any way that there is no system to monitor costs. In fact there is already a fully operational system to control and monitor costs at the level of the procurement arrangement, WBS level 4, and at the level of the system, WBS level 3 (as acknowledged by the Court in its report 2013). What indeed F4E did not have yet in place at the time of the audit (March 2015) was all the data at level 6 (contracts). This does not mean that F4E did not estimate costs at individual contracts, F4E did, but in the individual project teams and not in a centralised and uniform manner.

While since years F4E employs a number of data management tools to maintain/manage its operational and financial data (e.g. ABAC, ABAC Contracts, Primavera, IDM, etc.) integrated by a core ‘Integrated Reporting System’, F4E confirms that work is progressing to improve its system to manage cost data and deviations. The first part, the system and methodology to monitor cost estimates and deviations at contract level, has been presented in September 2015 to the Internal Audit Service (IAS) of the Commission during their visit on the PA Preparation follow up audit. The second phase will be the implementation of a fully integrated Enterprise Resource Planning (ERP) system which will integrate data and processes: from budgeting, through procurement, all the way to deviation management and delivery. The implementation of the ERP has been agreed at GB level together with the establishment of a dedicated fourth Department within the F4E organisation whose focus will be project management (cost, scope, quality, schedule, and risk) and its infrastructure (data models, tools, processes).

F4E confirms that an update, taking into account the past scope changes deriving from IO, of the cost baseline, as developed by the Toschi group in 2008, at level 4 was carried out and it is updated whenever changes to the baseline are approved (mainly through Project Change Requests) by the ITER Council. As the cost baseline at level 6 is concerned, the reconstruction of the Toschi cost estimates at such level has been possible only for some systems (e.g. the Magnet) as there are not enough data from the Toschi group results to allow a comprehensive (i.e. summing up to the whole scope) splitting of the level 4 values down to level 6.

Therefore the focus of the work has been to rebuild a new Cost Baseline altogether, not only including risks affecting prices (as done during the Toschi analysis) but also taking into account the Estimate at Completion process for all planned level 6 activities.

To that end, the F4E Director established a Task Force to define and apply a structured and traceable process to attain an Estimate At Completion at level 6 for the entire work to be completed by F4E to fulfil its obligations under the ITER Project. This also addresses the need to establish and maintain credibility of the cost estimates and the factors (e.g. risks and uncertainties) that affect the results and their reliability. The system and methodology has been already presented to the IAS during their follow up visit in September 2015.

An update of the EU contribution to the ITER project beyond its construction phase has not been carried out and it is not planned until relevant information will be provided by the project to allow such analysis.

16.

F4E would like to point out that these two Action Plans aim, as far as is possible within the legal framework of the ITER Project, at measures that compensate for some of the weaknesses identified above.

Firstly, on 5 March 2015 the ITER Council (at which Europe is represented by the Commission), appointed the new DG of IO and endorsed an Action Plan which he had prepared in response, among other things, to the ITER 2013 Management Assessment. In addition to the release of a new ITER Project baseline (scope, schedule and cost) the IO’s Action Plan proposed a number of specific measures such as:

Secondly, the new F4E Acting Director prepared an Action Plan and presented it to F4E GB on 24 March 2015, where it was fully endorsed. F4E’s Action Plan complements the ITER Action Plan in a number of respects but also identifies further improvements in F4E’s own operations. The main elements are:

Since March 2015 these Action Plans are being implemented by IO and F4E and are expected to bring about improvements related to many of the observations raised by the ECA and the European Parliament in their report on the 2013 discharge. The implementation of these action plans is being closely followed at the highest levels of governance of the ITER Project, both in the IO and in F4E.

18.

F4E provides, on behalf of Europe, the in-kind contribution to the ITER project in the form of components. Once the design of a component is sufficiently mature, a so called Procurement Arrangement is concluded between F4E and the ITER Organization setting out what has to be provided, by when. As work is executed to the satisfaction of the ITER Organization, F4E is gradually awarded ITER credit in recognition of the progress of work associated to specific milestones agreed in advance. This is the system agreed by the ITER partners in proving the right level of information for the ITER Council, hence ensuring an integrated reporting from all DAs and being the proper measure of the project progress.

In the financial statements 2014 (included in the F4E 2014 Annual Accounts) F4E included a table showing the value of procurement arrangements signed and the amounts of credits received from the IO so far, the latter being really low. The reason behind this is that the initial ITER Organization (IO) management distributed credits within PAs predominantly towards the end and this shortcoming induces some ‘pessimism’ in reports. This has been identified as a problem that needs to be solved and work has already started with IO to review credit distributions along the life of the PAs in a way that reflects more accurately the progress achieved by each DA. This is expected to be solved during the course of 2015.

It is for that reason that F4E included in the financial statements 2014 an estimate of the percentage of works completed, based on the amount of expenses related to PA’s incurred in 2014 and comparing them to the estimated value of the contribution in kind to the project.

In addition to this, F4E prepares an Annual Progress Report and an Annual Activity Report which provide detailed information on the overall progress of the European contribution to the ITER Project, together with the achievement of the annual KPI’s and Corporate Objectives. Moreover, F4E is subject to annual External Assessments where independent experts assess the project progress on the basis of existing reports to provide the GB and the European Council with an overview on the progress of the ITER Project.

19.

The long delays accumulated by the project with respect to the current baseline (First Plasma in November 2020) have caused a shift in the commitments for many of the systems.

In fact, the multiple change requests coming from IO have slowed down the project and induced delays, caused countless deviations to existing contracts, and induced global project delays. Although these events were mostly out of F4E’s control, it was asked to implement such deviations in accordance with the MAC-10 guidelines approved at the ITER Council (where Europe is represented by the Commission and not by F4E). Due to this frequent occurrence of changes F4E has also often decided to refrain from proceeding with some procurement actions that is until the specifications were deemed as relatively stable. Deviations applied to open contracts represent in fact a significant cause of cost increases and hence must be limited to the minimum in order to combat those issues regarding cost containment which the Court reports in other findings.

In addition, the rigidity of the budget profile under the multiannual financial framework is difficult to reconcile with the evolution observed in an innovative project of this nature that needs a more realistic schedule. As a result, the implementation of F4E’s commitment appropriation was under pressure in the recent years. The plan for a European Strategic Fund for Investments allowed a shift of 500 million euro commitment appropriations from 2015 to 2018-20. This shift matches the implementation profile better and is more in line with the new realistic schedule.

As for the payment appropriations, such delays in the project have slowed down the signature of contracts and consequently have not allowed for the planned pre-financings and other foreseen payments.

The change of management in IO and the now ongoing rebaselining of the project should be the basis for an improvement of this problem in the future.

20.

F4E welcomes that the Court recognises the significant progress made and considers the ongoing actions as part of the continuous improvement and development of its control systems.

In relation to the central system to monitor costs: we refer to our reply to paragraph 15. F4E has now put in place a central system to monitor and control cost data at contract level.

In relation to the action plans in response to internal audits: F4E is actively pursuing the implementation of the open actions according to the priorities set up by the Director and agreed by the Audit Committee and the Governing Board, addressing as a matter of urgency the recommendations rated as Critical and Very Important. Substantial progress has been made in the implementation of these action plans:

IAC review of the monitoring of contract implementation in the area of the ITER buildings: the action plan in response to this audit was adopted in February 2015 and significant progress has been achieved: out of the 24 actions proposed, 20 have been implemented, 1 has been cancelled and 3 are in progress.

IAS review on the contract management: the action plan was adopted in November 2014 and the current status is as follows: out of the 19 actions proposed, 12 have been implemented and 7 are in progress.

Corporate Risks: The update of the 2015 high level risks will be carried out in view of the next AC in November including setting an appropriate risk appetite so as to improve F4E’s agility and sound financial management.

21.

F4E would like to stress that the relative large fraction of negotiated procedures is the consequence of the complex and innovative context in which it operates. This results often in a limited competition or (in extreme cases) to monopoly or even lack of participation to calls for tender. In particular, in 15 out of the 39 negotiated procedures concluded in 2014, the particular circumstances of the market and/or the services/works to be procured made the negotiated procedure the best procurement option, in accordance with Article 100.2 of F4E Implementing Rules.

The remaining 24 negotiated procedures correspond to low value contracts in accordance with Article 100.1 of F4E IR. It should be noted that these 24 contracts amount to 36 % of the total number of contracts signed (all type of procurement procedures) but only to 0,3 % in terms of value awarded. The low value negotiated procedures entail a much lower use of internal resources than the open, restricted or competitive dialogue ones (due to the procedural simplification), and therefore its use is considered by F4E as a valuable tool to be able to focus the limited internal resources on the high-value/high-risk procurements.

F4E would like to recall that the nature of the activities related to the scope of the ITER Project are such that limited competition is regrettably a matter of fact for which F4E can have only a modest impact. Most opportunities that were in F4E’s hands in order to increase competition have been pursued (i.e. wide dissemination to industry in all member states through Industrial Liaison Officers (ILOs) and dedicated meetings, targeted and general purpose information days for industry in different locations around Europe, reinforcing efforts in relation to the stabilisation and better understanding of our supply chain, an internal policy about pre-information notices, intensification of market surveys, industry-standard Intellectual Property Rights (IPR) and liability provisions, etc.). F4E activities should be compared with similar first of a kind high-tech frontier projects worldwide. One cannot deny that even more effort to increase competition could be invested by F4E but this would clearly consume more internal resources and therefore impact negatively other areas.

Similarly, in relation to the very low number of proposals received for the grant calls, this fact is mainly due to two factors: on the one hand the extremely specialised nature of F4E’s grants entails that the nature of the work is only of interest to a small number of applicants in Europe and on the other hand the success of the European fusion programme in creating a European research area in fusion with minimal duplication of efforts and close collaboration among teams active in one field. The latter manifests itself in pan-European consortia being behind most proposals in response to F4E calls.

22.

In relation to the 5 procurement procedures, F4E would like to provide the following comments:

Amount allocated to the different contracts:

The Court notes that at the time of launching the procurement procedures (2013 and 2014) F4E had not allocated a value from the 6,6 billion euro to the different contracts. As reported previously by F4E, the 6,6 billion euro capped budget was established on the assumptions of the Toschi report which were done at WBS levels 3 (System) and 4 (PA) and not at level 6 (Contracts). This was because, at that time, the level of detail on how the total scope would have been split among different contracts was not homogeneous across the different systems. Hence, the necessity of monitoring the evolution of the scope and its related cost at levels 3 and 4 which allowed a direct comparison with the Toschi baseline and so against the 6,6 billion euro.

Deviation of the awarded value over the cost baseline:

The case reported by the ECA corresponds to a procurement procedure in the area of buildings, where the low level of definition of the design (at functional specification level) and the continuously changing requirements posed by IO, also due to the new requests from the French Safety Authority, caused an escalation of the costs in this area going beyond the initial assigned share of the budget.

To address the cost risks and minimise the cost impact resulting mainly from constant changes in the scope of the project deliverables which F4E has suffered in some areas under its responsibility, in particular for the buildings, a detailed analysis of the causes and the lessons learned was presented to F4E’s Governing Board in December 2014. It has been shown that delays in the delivery of input data and continuous change requests by IO and the increase of Safety requirements after Fukushima accident slows down the progress of work by F4E and leads to countless deviations with huge cost impact.

Even if mitigation actions have been put in place by F4E to contain the costs, in many cases the implementation of changes imposed to the project, with their associated costs, has been unavoidable.

Deficiencies in the assessment of the financial offers:

F4E considers that there were no deficiencies in the assessment of the financial offers.

It has to be kept in mind that at the time of those procurement procedures the tracking and control of the evolution of the scope and its related cost was done at levels 3 and 4. It should also be emphasised that, whenever F4E has awarded a major contract, on top of the mandatory recommendation by the Executive Committee, specific meetings have always been carried out with the Authorising Officer in order to provide a complete picture, prior to the contract award, on both costing and risk aspects. When these procurement procedures were launched, the Project Team Manager had already estimated the possible cost of the procurement (i.e. through own assessment, expert’s input or industrial estimate) and made sure that the original scope was covered and at a cost which would allow to keep the overall cost at WBS level 4 within the allocated ceiling. The now executed work, at central level, to define an EAC at WBS level 6 provides an improved approach for controlling and containing further the costs.

In the case of the contract containing options amounting to 32 million euro and additional costs, it has to be noted that such options are intended to cover potential risks for the whole procurement arrangement (TF Coils). The financial impact of risks was managed at the level of Procurement Arrangement (so at WBS level 4). Indeed in this specific system a total saving was achieved by F4E: the total financial value of the 3 contracts placed for manufacture the TF coils is actually ~50 million euro below the financial value allocated to the TF coils level 4 (corresponding to the 6,6 billion euro capped budget. This amount is well above the 32 million euro associated to the options of this contract, and it is therefore more than adequate to cover risks not only to this contract but also the other 2 contracts. It is also important to note that, thanks to the risk mitigation strategy adopted by F4E for these 3 contracts, these risks have presently a low probability (presently below 5 %).

Delays in procurement procedures:

F4E considers that these delays do not constitute a weakness in the procurement procedures as in fact they respond to the exceptional environment in which F4E operates (lack of competition and contractual complexities) and to the needs to seek cost savings by ensuring that the specifications are mature enough before launching the procurement procedures.

Unforeseen activity:

F4E had to introduce in the 2014 Work Programme a material procurement activity, which indeed was not originally foreseen in the baseline for the JT60SA Broader Approach project. This was launched following experts opinion, in order to overcome an unforeseen technical difficulty. The activity, and the potential risks and reputational damage associated with avoiding it, was discussed at the December 2013 Governing Board who agreed to proceed with this material procurement as a matter of urgency. This additional activity was anyhow carried out within the contingency allocated to this specific project and that notwithstanding the urgency, F4E managed to maintain reasonable competition and to obtain an economical price.

Assessment of technical award criteria:

The technical specifications were prepared on the basis of the outcome of the expert review and the requirements contained in the specs were fully defining the material requirements. The explicit acceptance of all the requirements by each of the two bidders (in the form of a duly filled ‘Compliance Matrix’) together with the description of the proposed manufacturing process and the risk assessment attached to the offers, were giving full assurance of the technical quality of the bids. On this ground the evaluation committee unanimously agreed that the assignment of the maximum technical ranking to both the offers was justified.

Use of pre-information notice:

F4E considers that this did not constitute a weakness in the procurement procedure as mitigating actions were taken in order to increase competition.

Indeed, in the 3 procedures identified by the ECA there was no publication of the pre-information notice, as this was not foreseen by internal procedures at the time (this changed in the meanwhile in order to address risks highlighted by other audits and now the use of pre-information notices is mandatory for procurements above 10 million euro). F4E considers to have mitigated the risk of poor competition by carrying out targeted actions (info days, events such as business forum, market surveys, use of ILO network, etc.). Such dissemination strategy is deemed to be more effective than the simple publication of a pre-information notice through the OJEU, as it is more directly addressing the concerned economic operators.

25.

Of the 3 audits conducted in 2014, 2 final audit reports were received in December 2014 and have been shared with the Court. The preliminary audit report of the 3rd audit was received in December 2014 and discussions with the auditor and the beneficiary are currently ongoing.

The planning of the 2015 ex-post audit exercise on F4E grants started in September 2014 with the selection of 3 beneficiaries and the signature in February 2015 of the specific contracts with the external audit firms. The corresponding 3 preliminary audit reports have been received and are currently being analysed.

26.

The F4E Financial Regulation (F4E FR) has to be amended to reflect the changes introduced by the revised Framework Financial Regulation (FFR) and the General Financial Regulation (GFR), in accordance with the observations made by the Court of Auditors.

The F4E FR and its Implementing Rules (F4E IR) were submitted to the Commission by F4E on 25 July 2014 and since then, discussions are ongoing. The Commission would like to provide a global opinion on the F4E FR and IR once the provisions of the procurement rules of the new Directive 2014/24/EU of 26 February 2014 are transposed to the GFR and its IR and to the FFR and its IR.

In order not to further delay the amendment of the F4E FR/IR, the GB agreed to follow a two-step procedure in this file at its last meeting of June 2015:

In the meantime on 3 July 2015 the Commission submitted to F4E the new draft procurement rules for considerations so depending on their approval process by the Council/EP (GFR) and by the Commission (RAP — Rules of Application of the GFR), a one-step procedure may still be possible.

29.

The relevant GB decision establishes the means for implementing the obligations as regards Intellectual Property (IP) in relation to the availability of technologies and the granting of user rights: both of these aspects are addressed through the wording of F4E’s model IP clauses. For what concerns the implementation of the other actions regarding industrial policy, it must be remarked that F4E had implemented, by the end of 2014, 24 out of the 32 actions foreseen.

F4E considers that its approach to Intellectual Property Rights increases competition as the contractual conditions are more attractive to contractors, which both contributes to cost containment and to spreading our presence throughout Europe.

33.

In March 2015, the Spanish Government offered new premises to F4E in a building to be shared with the Comisión Nacional de los Mercados y la Competencia (CNMC). This offer was welcomed by F4E and its approval was subject to a detailed inspection and expert analysis.

In June 2015 an independent external architect performed an analysis in order to try to match the offer with the requirements. The result showed that there are still critical concerns, particularly concerning the available space in the short-to-mid-term, that need to be addressed by the Host State before the proposal can fully suit F4E needs.

F4E and the Host state are assessing the way to move forward to address these critical issues to be able to find a final solution in the short term.

34.

In order to avoid a legal vacuum pending the formal adoption of outstanding Implementing Rules (IRs) to its Staff Regulations, F4E relied on two transitory measures as follows:

Significant progress has been made and the number of IRs formally adopted by or applying by analogy to the Joint Undertaking currently stands at 26. A further 4 implementing rules are currently in the process of being adopted by Fusion for Energy by written procedure and are expected to be formally adopted by November 2015.

Regarding the remaining IRs to be adopted, following the 2014 EU Staff Reform: