Annual Activity Report

Transcription

1 Ref. Ares(2017) /04/ Annual Activity Report 1. Report Directorate-General for Research and Innovation

2 Foreword Dear Reader, I am delighted to present this report on the work of DG Research and Innovation (DG RTD) during the last year. In 2016, following our strategy set for , we focussed our efforts on those priorities of President Juncker where research and innovation can have the highest impact: creating jobs and growth and leveraging investment; moving towards a digital single market; achieving a sustainable energy union; and making Europe a stronger global actor. Furthermore, DG RTD has taken forward Commissioner Moedas priorities for Open Science, Open Innovation, and Open to the World in many areas, including the design of a preparatory phase for a possible European Innovation Council, the Fund of Funds, the Scientific Advice Mechanism, the PRIMA initiative and the Communication on Accelerating Clean Energy Innovation. At the end of the year DG RTD also received the excellent news of the Swiss acceptance of free movement and therefore its return to full participation in Horizon 2020 programmes. The implementation of the biggest ever Research and Innovation Framework Programme, Horizon 2020, reached its cruising speed, benefitting from a mature support system and simplified rules. The final evaluation of the Seventh Framework Programme demonstrated the huge added value and leverage effect of this programme towards the achievement of the Europe 2020 objectives, and the benefits it brought for the lives of Europe's citizens in general. These achievements have been made possible by the continued support and cooperation of all our partners in and beyond Europe: the Member States, the partner institutions, the experts contributing to selecting the best projects to fund, and last but not least the beneficiaries of the research grants that are constantly making progress towards innovative responses to the societal, environmental and industrial challenges we face. Without them, research and innovation does not happen. Without them, the budget does not achieve its results. This detailed narrative of our operational and administrative efforts and results, with their strengths and challenges, sets out the state of play of this collective undertaking. Robert-Jan Smits Director-General DG RTD DG RTD AAR 2016 Page 2 of 84

3 Table of Contents Foreword 2 Table of Contents 3 EXECUTIVE SUMMARY 5 A) KEY RESULTS AND PROGRESS TOWARDS THE ACHIEVEMENT OF GENERAL AND SPECIFIC OBJECTIVES OF THE DG... 5 B) KEY PERFORMANCE INDICATORS (KPIS)... 9 C) KEY CONCLUSIONS ON FINANCIAL MANAGEMENT AND INTERNAL CONTROL (EXECUTIVE SUMMARY OF SECTION 2.1) D) INFORMATION TO THE COMMISSIONER(S) KEY RESULTS AND PROGRESS TOWARDS THE ACHIEVEMENT OF GENERAL AND SPECIFIC OBJECTIVES OF THE DG THE IMPACT OF THE SEVENTH FRAMEWORK PROGRAMME ( ) Growth and jobs 15 Industrial competitiveness 15 Energy and climate change 15 The digital single market 16 The innovation union Achievement of the programme s specific objectives ANNUAL ACHIEVEMENTS PER SPECIFIC OBJECTIVES Commission priority - A New Boost for Jobs, Growth and Investment 18 DG RTD Specific objective 1.1: To strengthen Europe's R&I systems and achieve the European Research Area through working with Member States 18 DG RTD Specific objective 1.2: To establish the right framework conditions to capitalise on the results of European research and innovation by involving all actors in the innovation process ("Open Innovation") 20 Boosting investment and innovation 23 Circular economy Supporting the Commission with scientific advice DG RTD Specific objective 1.3: To ensure an effective and efficient implementation of Horizon 2020 and other RTD programmes and maximise synergies Commission objective - A Connected Digital Single Market DG RTD Specific objective 2.1: To increase impact and excellent science through openness ("Open Science") 31 DG RTD Specific objective 2.2: Embedding digital into the grand societal challenges 32 Commission Objective - A Resilient Energy Union with a Forward-Looking Climate Change Policy 33 DG RTD Specific objective 3.1: To implement the Research, Innovation and Competitiveness dimension of the Energy Union, together with a forward-looking climate-change policy 33 Commission Objective - A Stronger Global Actor 37 DG RTD Specific objective 4.1: To translate Europe's strengths in science and technology into a leading global voice ("Open to the World") ORGANISATIONAL MANAGEMENT AND INTERNAL CONTROL 40 DG RTD and the Research and Innovation family 40 "New" management modes for the programmes' implementation 40 DG RTD coordinates the Research and Innovation family 41 The Common Support Centre FINANCIAL MANAGEMENT AND INTERNAL CONTROL DG RTD's overall responsibilities for the budget "Research and Innovation" 45 Budget implemented by DG RTD in Control results Control effectiveness as regards legality and regularity 49 Control results for grant management (direct and indirect) 49 Expenditure under indirect management (other than grants) 56 Overall assessment of the legality and regularity of operations under RTD expenditure 58 Efficiency of the controls 60 Efficiency of the expenditure under direct management 60 Cost-effectiveness of the controls 67 Direct grant management 67 Overall assessment of the cost effectiveness in direct grant management 68 Indirect grant management 69 Overall assessment of the cost effectiveness in indirect grant management 70 Indirect management of the financial instruments Fraud prevention and detection DG RTD AAR 2016 Page 3 of 84

4 Other control objectives: safeguarding of assets and information, reliability of reporting Audit observations and recommendations IAS European Court of Auditors Assessment of the effectiveness of the internal control systems Conclusions as regards assurance Declaration of Assurance and reservations Declaration of Assurance 78 Reservation FP7 Reservation Coal and Steel OTHER ORGANISATIONAL MANAGEMENT DIMENSIONS Human resource management Information management aspects External communication activities Examples of specific efforts to improve economy and efficiency of financial and non-financial activities 83 DG RTD AAR 2016 Page 4 of 84

5 EXECUTIVE SUMMARY The Annual Activity Report is a report of the Director-General of DG RTD (the Authorising Officer by Delegation) to the College of Commissioners (the Authorising Officer). Annual Activity Reports are the main instrument of management accountability within the Commission and constitute the basis on which the College takes political responsibility for the decisions it takes as well as for the coordinating, executive and management functions it exercises, as laid down in the Treaties 1. a) Key results and progress towards the achievement of general and specific objectives of the DG The Directorate-General for Research and Innovation defines and implements European Research and Innovation (R&I) policy with a view to reinforcing the science and technology base, spurring innovation, and turning societal challenges into innovation opportunities that will help deliver on the European Commission's priorities and provide solutions to European citizens. The DG contributes particularly to the Commission's priorities for Growth, Jobs and Investment, the Digital Single Market, the Energy Union, and the EU as a global actor. Figure 1 summarises the general and specific objectives defined in its Strategic Plan for the period of Figure 1 Summary of DG RTD's Strategic Plan for Article 17(1) of the Treaty on European Union. DG RTD AAR 2016 Page 5 of 84

6 Consistent with the Strategic Plan's focus areas, DG RTD contributes to the Europe 2020 objectives was the first year of implementation of the Strategic Plan. The main achievements of the year are summarised below and detailed, per objective, in section 1.2 of the report. Making Research and Innovation a central part of policy-making at national and EU level These efforts include working with the Member States to improve the level and quality of public investment in research and innovation, through the European Semester, the Policy Support Facility and the continuing development of the European Research Area. In 2016, 13 R&I policy-related Country Specific Recommendations were issued, highlighting the need to boost innovation, strengthen governance for research and innovation, enhance productivity and private investment, etc. The H2020 Policy Support Facility helps the Member States and Associated Countries to enhance national R&I policies. Reports on Moldova, Hungary, Malta and Ukraine were published, and three mutual learning exercises completed. The Progress report on the European Research Area, published in January 2017, confirms that ERA has made strong progress over the last years. All headline indicators show progress over time according to the EU-28 averages, although large disparities persist, both in performance levels and in growth rates between countries. Creating the right framework conditions for science and innovation in Europe to flourish The work undertaken in this chapter is organised following the three priorities established by Commissioner Moedas: "Open Innovation, Open Science and Open to the world". Open Innovation Helping Europe to capitalise on the results of research and innovation and create shared economic and social value by bringing more stakeholders into the innovation process, boosting investment, maximising the impact of innovation and creating the right innovation ecosystems The design of a preparatory phase for a possible European Innovation Council progressed substantially through, inter alia, the identification and preparation of instruments able to support breakthrough, market-creating innovation (SME instrument, FET Open, Fast Track to Innovation, Prizes). A call for managers of the European Fund of Funds was launched and the selection of the promoters started. Access to finance for risky innovative projects was developed with the EIB through the InnovFin Advisory activities. The EIC coupled with easier access to risk finance and financial advice, should boost support to Europe's most promising innovators. Important coordination and communication work was carried out in 2016 in order to enhance the synergies between the different funding mechanisms, and particularly with the structural funds. The "Seal of excellence" initiative was received favourably in the Member States, and 15 "seal friendly" alternative funding mechanisms were launched, for excellent proposals which did not receive Horizon 2020 funding. As a result of the Seal, more than 260 SMEs have succeeded in receiving funding, while a substantial number received other types of support, such as mentoring, coaching, and targeted advice. DG RTD AAR 2016 Page 6 of 84

7 The Council adopted Conclusions calling for the application of the innovation principle. In this context DG RTD revised the 'Better Regulation' R&I tool that should allow for the application of the innovation principle when developing new policy proposals or revising existing ones, to ensure that the choice, design and regulatory tools foster innovation, rather than hamper it. Open Science Supporting new ways of doing research and spreading knowledge by using digital technologies and new collaborative tools, to ensure excellent science and open access to data and results, so that Europe benefits from digital technologies to drive innovation DG RTD contributed to the drafting of the European Cloud Initiative and continued its efforts in promoting Open Access and Open Data to ensure that science, business and public services reap benefits of the big data revolution. The new Scientific Advice Mechanism, charged with providing independent scientific advice for policy making issued its first contributions to the Commission's policy work in the domain of plant protection and CO 2 emissions of vehicles. Open to the World Fostering international cooperation so that the EU's strengths in research and innovation help us tackle global societal challenges effectively, create business opportunities in new and emerging markets, and use science diplomacy as an influential instrument of external policy The second progress report on the implementation of the strategy for EU international cooperation in R&I was issued in October The Competitiveness Council held a public debate on the report and the Ministers agreed that the most appropriate way to boost international cooperation in R&I would be to mainstream actions to help tackle European and global societal challenges and promote mobility. The Common Research Area between the EU and the Community of Latin American and Caribbean States (CELAC countries), set up in March 2016, and the progress made on the South-Atlantic Research Alliance, contributed to bringing into reality a Global Research Area where the EU plays an important role. The Partnership for Research and Innovation in the Mediterranean Area (PRIMA), for which the legislative proposal was adopted, will help to address the lack of clean water and nutritious food, which has a severe impact on the health and the stability of the population in this region. The Synchrotron-light for Experimental Science and Applications in the Middle East (SESAME) project, as an important science diplomacy tool, also got support from the Commission. In 2016, an Agreement for scientific and technological cooperation between the European Atomic Energy Community and the Government of Ukraine associating Ukraine to the Euratom Research and Training Programme ( ) was signed. This agreement will enhance scientific cooperation and contribute to the nuclear safety and security. The European Commission represented by DG RTD took the rotating chair of Mission Innovation which is and international initiative comprising 22 Members from across the world united by the goal of doubling their governments clean energy research and development (R&D) investments over five years, thereby making clean energy more affordable and accessible to all. DG RTD AAR 2016 Page 7 of 84

8 Funding Research and Innovation through Horizon 2020 and other Framework Programmes DG RTD implements the Horizon 2020 Research and Innovation Framework Programme, the Euratom Research and Training Programme (EURATOM) and the Research Fund for Coal and Steel. These programmes, and Horizon 2020 in particular, make an important contribution to the overall research agenda. Firstly they support financially many of the different objectives of DG RTD and the Commission by funding of EU researchers and innovators. Secondly and more generally they bring valuable support to the European Research Area, such as enhancing research capacity and researcher mobility. Thirdly, increasingly, calls are designed so that funded projects provide scientific evidence to support other policies of DG RTD and of the Commission as a whole. DG RTD coordinates the implementation of the research framework programmes across the Research and Innovation Family, composed of eight DGs and a number of delegated bodies like Executive Agencies (REA, ERCEA, INEA and EASME), Joint Undertakings (BBI, Cleansky, IMI, FCH, ECSEL, SESAR, Sift2Rail) and 'Article 185 initiatives' saw the publication of the ex-post evaluation report of the Seventh Framework programme. The overall positive conclusions of this document, very important in demonstrating the overall impact of this multiannual programme, are summarised in section 1.1. The implementation of the Horizon 2020 framework programme reached cruising speed in The implementation of the is on track and the draft work programmes are under preparation and will be published in The Annual Monitoring Report of the programme was published in November, detailing the state of play of the indicators as set out in the legal basis. Some figures are highlighted in this report, under the KPI's section (below) and in the second part, dedicated to internal control issues. A second wave of simplification in Horizon 2020 was launched and should be completed in 2017 aiming at improving funding conditions for EU researchers, offering easier access to the programme for start-ups and using simplified forms of funding. The Circular Economy has been identified by the Commission as a priority area. The initiatives DG RTD took in this field offer a good demonstration of the support that R&I can bring to grand societal challenges and of the openness of the DG's intervention mechanisms to overall priorities: The pilot initiative of the Innovation Deals aiming at addressing the regulatory barriers to innovation was launched in the area of Circular Economy. The Horizon 2020 WP includes a Cross-cutting call on "Industry 2020 in the Circular Economy", in order to demonstrate the economic and environmental outputs of the Circular Economy in the Industry. The contractual public private partnerships (cppps) launched calls on "Factories of the Future" and on "Sustainable Process Industries". DG RTD made a significant contribution to the "Clean Energy for All Europeans" package, adopted in November The package includes a number of legislative proposals on renewables, energy efficiency, electricity market design and governance. It also contains a Commission Communication, written by RTD, on "Accelerating Clean Energy 2 All the Joint Undertakings and Article 185 bodies are listed in Annex 6. DG RTD AAR 2016 Page 8 of 84

9 Innovation". This Communication identifies 20 actions aiming at accelerating Europe's transition to competitive low carbon economy and contributing to the completion of the Energy Union. The implementation of these actions has already started or will start in the near future. b) Key Performance Indicators (KPIs) In its Strategic plan for , DG RTD identified five main indicators to report on its achievements. Four of them are related to policy priorities of the Horizon 2020 framework programme and one concerns the administrative performance of the programme management. Figure 2 KPI 1 Share of funds allocated to SMEs in the Horizon 2020 societal challenges and in the enabling and industrial technologies (LEIT)*, of which share of the EU financial contribution allocated through to SME instrument** 3 22,80% 23,70% 23,90% 20,00% 5,04% 5,07% 5,57% 7,00% Target (2020) Share of the EU financial contribution to LEIT and Societal challenges going to SME's (cumulative from 2014-) of which share of the EU financial contribution allocated through to SME instrument (cumulative from 2014-) The level of SME participation in the programme continued to rise in By the end of December 2016, SMEs had received over EUR 3.3 billion in Horizon 2020 grant funding; the target set by the EU Council and Parliament for at least 20% of the budgets of the Horizon 2020 Societal Challenges and the specific objective Leadership in Enabling and Industrial Technologies to go to SMEs was exceeded by close to 8 percentage points. Mainstreamed support for SMEs continued to be provided through the SME instrument. 900 new actions 698 for feasibility assessment (phase 1) and 202 for innovation, development & demonstration purposes (phase 2) were selected for funding. The target for 2020 should be achieved. The number of applicants continues to increase, 3 * Results based on data extracted from CORDA; compilation of budgets allocated to SMEs in the framework of Horizon 2020 grant agreements signed in 2014, 2015 and ** Results based on financial commitments under the different parts of the Horizon 2020 Work Programmes and contributing to the budget for the SME instrument call. DG RTD AAR 2016 Page 9 of 84

10 demonstrating the attractiveness of the scheme, although this leads to decrease of the success rates. In 2016, only 5.5% of all phase 2 proposals could be funded, even though 40.5% of proposals passed all evaluation thresholds. This makes it difficult to achieve one of the instrument s policy objectives, which is to provide seamless business innovation support from mature idea to market. However, budgets will increase in the coming years, and efforts will be made to improve the likelihood for high-quality proposals to be selected for funding, including by refining the evaluation process. Figure 3 KPI 2 Share of newcomers among the successful applicants (H2020) * provisional data 70% 42,70% 49,00% 52,10% 55% * Milestone 2018 Target 2020 The Regulation establishing Horizon 2020 states that the programme should aim to attract the strong participation of universities, research centres, industry and specifically SMEs and be open to new participants, as it brings together the full range of research and innovation support in one common strategic framework. For the previous framework programme, the share of newcomers among the beneficiaries was estimated at 70%. Thus, the target for Horizon 2020 was set at the same level. As shown by the diagram, the programme is on track with respect to the openness to new participants. Accordingly to the Horizon 2020 Monitoring report 2015, 70% of the new participants are private for profit companies, out of which two thirds are SME's. Most of the innovative, close-to-the-market projects are expected from this segment of the programme's beneficiaries. DG RTD AAR 2016 Page 10 of 84

11 Figure 4 KPI 3 Climate-related and sustainability-related expenditure (H2020) * provisional data 52,00% 52,00% 54,90% 60,00% 35,00% 26,00% 27,00% 26,00% * Target ( ) Share of the EU financial contribution that is climate related in H2020 Share of the EU financial contribution that is sustainability related in H2020 Sustainable development and climate in particular, are important cross-cutting priorities of the Horizon 2020 Programme. The Regulation establishing Horizon 2020 states that at least 60 % of the overall Horizon 2020 budget should be related to sustainable development. It is also expected that climate-related expenditure should exceed 35 % of the overall Horizon 2020 budget. The indicators above shows the share of Horizon 2020 expenditure allocated to climate and sustainability related projects. The figures are cumulative for the indicated periods and cover all the projects signed under Horizon Climate-related expenditure is a sub-set of sustainability related expenditure. According to the "Rio Markers" methodology, Horizon 2020 has invested EUR 4.2 billion on climate change and EUR 8.5 billion on sustainable development. Despite their magnitude, these investments do not reach the targets yet. To do so, particular attention - and budget will be devoted to them in the Work Programme Also, additional efforts will be made to ensure the effective application of the tracking methodology, to ensure that all climate-related efforts are properly recorded. DG RTD AAR 2016 Page 11 of 84

12 Figure 5 KPI 4 The share of third-country participations in Horizon 2020 (DG RTD) 4,73% 3,77% 3,59% 2,82% Target Target 2020 The participation of third countries is another important cross-cutting priority of the Horizon 2020 Programme. The Regulation establishing the programme states that it should promote cooperation with third countries based on common interest and mutual benefit. International cooperation in science, technology and innovation should be targeted to contribute to achieving the objectives of the Europe 2020 strategy to strengthen competitiveness, contribute to tackling societal challenges and support Union external and development policies, including by developing synergies with external programmes and contributing to the Union's international commitments, such as the achievement of the United Nations' Millennium Development Goals. International cooperation activities should be maintained at least at the level of the Seventh Framework Programme. The share of third countries participations in the Seventh Framework programme represented 4.73%. For Horizon 2020, and for DG RTD only, the participation of third-country beneficiaries has decreased when compared to FP7. This is mainly due to the change in the eligibility conditions for funding of participants from Brazil, Russia, India, China, and Mexico. Corrective actions include the International Cooperation Flagships of Work programme , i.e. topics of sufficient scale and scope that are specifically devoted to international cooperation. DG RTD AAR 2016 Page 12 of 84

13 Figure 6 KPI 5 Share of grants signed with a time-to-grant within 245 days 95,00% 93,00% 91,00% 100,00% Target 2020 The time spent between the submission of a proposal and the signature of a grant agreement, the "Time-to-Grant", is an important indicator or the administrative performance. Since 2013, the Commission has committed itself to respect a Time-to- Grant of maximum 245 days, by including this requirement in the Financial Regulation. For the 744 grants signed in DG RTD until the 31/12/2016, 91% were signed in time, with an average Time-to-Grant of days, against a target of 245 days. Compared to FP7, which had an average Time-to-Grant of 354 days, this is a clear demonstration of the improvements achieved in the Horizon 2020 management system. The trend of the indicator is explained by the signature of a number of Research Infrastructure grants, where the complexity of the consortia triggered delays in the finalisation of the grant agreements, often on the request of the beneficiaries. c) Key conclusions on Financial management and Internal control (executive summary of section 2.1) In accordance with the governance statement of the European Commission, DG RTD conducts its operations in compliance with the applicable laws and regulations, working in an open and transparent manner and meeting the expected high level of professional and ethical standards. The Commission has adopted a set of internal control standards, based on international good practice, aimed to ensure the achievement of policy and operational objectives. The financial regulation requires that the organisational structure and the internal control systems used for the implementation of the budget are set up in accordance with these standards. DG RTD has assessed the internal control systems during the reporting year and has concluded that the internal control standards are implemented and function as intended. Please refer to AAR section for further details. In addition, DG RTD has systematically examined the available control results and indicators, including those aimed to supervise entities to which it has entrusted budget implementation tasks, as well as the observations and recommendations issued by internal auditors and the European Court of DG RTD AAR 2016 Page 13 of 84

14 Auditors. These elements have been assessed to determine their impact on the management's assurance as regards the achievement of control objectives. Please refer to Section for further details. In conclusion, management has reasonable assurance that, overall, suitable controls are in place and working as intended; risks are being appropriately monitored and mitigated; and necessary improvements and reinforcements are being implemented. The Director- General, in his capacity as Authorising Officer by Delegation has signed the Declaration of Assurance albeit qualified by a reservation concerning FP7 and the Coal and Steel research funding programmes. d) Information to the Commissioner(s) In the context of the regular meetings during the year between the DG and the Commissioner on management matters, also the main elements of this report and assurance declaration, including the reservation(s) envisaged, have been brought to the attention of Commissioner C. Moedas, responsible for Research, Science and Innovation. DG RTD AAR 2016 Page 14 of 84

15 1. KEY RESULTS AND PROGRESS TOWARDS THE ACHIEVEMENT OF GENERAL AND SPECIFIC OBJECTIVES OF THE DG This section reports on the progress the DG made towards its general and specific objectives. The effect of research and innovation policy is generally seen on the long term. Therefore, an important narrative on the impact of the previous Framework Programme (1.1) precedes the details on the reporting year's detailed achievements (1.2). The state of play of the impact and result indicators related to the general and specific objectives are mentioned in the text and attached in the performance tables of Annex 12, together with the output indicators. 1.1 The impact of the Seventh Framework Programme ( ) The Seventh Framework Programme, launched in 2007 is now close to completion. The ex-post evaluation, undertaken by an independent, high level expert group, 4 demonstrates the contribution of a research framework programme to the general objectives of the Commission and DG RTD. The section below summarizes the main conclusions of this evaluation. Growth and jobs It was estimated that FP7 will increase economic growth by around EUR 20 billion a year over 25 years (EUR 500 billion in total), including indirect economic effects. It was also estimated that it will create over research jobs over 10 years and additional jobs indirectly over 25 years. Each euro invested by FP7 generated around 11 euros in direct and indirect economic effects through innovation and new technologies and products, according to the independent high level expert group. Industrial competitiveness Five Joint Technology Initiatives were set up, bringing together private partners and the Commission, in key areas such as innovative medicine and hydrogen and fuel cells. They implement dedicated work programmes and calls for proposals. In all, 25% of funding in open calls went to the private sector. Econometric analysis shows that SMEs participating in FP7 scored significantly higher than the control group on employment growth and operating revenue. Energy and climate change The "energy" part of the programme supported 374 projects (total EUR 1.9 billion) on 4 Brussels, COM(2016) 5 : COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS On the Response to the Report of the High Level Expert Group on the Ex Post Evaluation of the Seventh Framework Programme DG RTD AAR 2016 Page 15 of 84

16 renewable energy technologies such as wind, solar and biomass, and researching the performance of materials and hydrogen storage to help improve energy efficiency and security of supply and reduce pollution. It helped implement the Strategic Energy Technology (SET) Plan, the technology pillar of the EU s energy and climate policy. The environment programme (including climate change) supported 494 projects (total EUR 1.7 billion) addressing environmental, climate change and resource efficiency issues. Results from FP6 and FP7 environment projects were cited at least 728 times in the Fifth Report of the International Panel on Climate Change The digital single market Information and communication technology (ICT) was the most funded topic in the FP7 cooperation programme, with projects and investment of EUR 7.9 billion. ICT projects have directly or indirectly contributed to policy-making and supported policy objectives beyond research. For instance, in radio spectrum, EU projects pioneered technologies to exploit TV white spaces, supporting their application under future spectrum regulations and in cloud computing. FP7 collaboration between academia and the private sector was highest in ICT, where it was above EU, US and world averages, with 6% of publications being joint academia-industry research. Independent experts pointed out that scientific impact is particularly strong for the ICT programme. Areas such as artificial intelligence, internet of things, media, and quantum computing were cited as good examples for advancing the state of the art. The innovation union FP7 projects have resulted in patent applications and more than commercial exploitations. With many projects still ongoing, these numbers were expected to rise. The Community Innovation Survey shows that companies supported by FP7 were more likely to introduce product, process or service innovations new to the market and to obtain a higher proportion of turnover from innovation than those not supported by FP7. Similarly, the average number of patent applications per researcher suggests that researchers in organisations participating in FP7 apply for patents more than researchers in organisations that do not take part in EU framework programmes. Achievement of the programme s specific objectives The FP7 ex-post evaluation assessed the different specific objectives of the programme: Contribute to the EU becoming the world s leading research area On average, 3.6% of FP7 publications are among the world s most highly cited 1% of publications. This is 2.8 times as many as the EU average, and twice the US average. Similarly, FP7 s average field-weighted citation index is 2.6, which is 1.9, 1.5 and 2.3 times higher than the EU, US and world averages respectively. FP7 was open to international cooperation, and attracted participants from 170 countries. On average, 11 organisations, 6 countries and 9 regions participated in each collaborative FP7 funded project, and 20.5% of collaborative projects had at least one partner from non-eu countries. Support progress towards the target of spending 3% of Europe s GDP on R&D by 2020 The Europe 2020 Strategy has a target of improving the conditions for innovation, research and development, with the aim of increasing combined public and private investment in R&D to 3% of GDP by FP7 accounted for just 7% of total public DG RTD AAR 2016 Page 16 of 84

17 investment in R&D in Europe, so its impact is primarily catalytic; the 3% must mostly come from investment by the Member States and the private sector. However, even in difficult economic times, investment in R&D grew slightly throughout the period covered by FP7 ( ), to 2.02% in 2013 from a baseline of 1.94 in Private spending on research and innovation increased more than public spending. Support the creation of the European Research Area Over fellowships were granted to researchers (including PhD candidates) in the Marie Curie programme. The fellows represented 148 different nationalities located in 86 countries around the globe, making the Marie Curie Actions (MCAs) the most international part of FP7. MCAs contributed to keeping the best researchers in Europe, as nearly 34% of fellows were nationals of non-eu countries and 46% of researchers coming to the EU from industrialised countries stayed in Europe after their MCA fellowship. FP7 participation increased the number of women and international researchers in research teams. It contributed to permanent recruitment, as 43% of temporary researchers hired for FP7 projects stayed on in the winning research teams after they ended. Contribute to the development of a knowledge-based economy and society in Europe FP7 work programmes were designed to accompany EU policies such as climate change, environment, energy, health, common agricultural policy, and common fisheries policies. Final project reports note that results have so far been used in EU policies in 374 cases, producing 588 standards. Generated EU added value (ex-post) The independent, high level expert group that evaluated FP7 concluded that it had shown improvements in: developing a culture of networking and cooperation; facilitating European excellence and capacity building; developing critical mass; fostering mutual learning and harmonisation in Europe; preventing redundancies and acting economically and effectively; fostering a strategic approach to participants research and innovation; and fostering a culture of competition, capability and excellence. Impact on society The high level expert group found FP7 increased the EU s commitment to funding research that could help solve challenges to society. FP7 addressed pan-european challenges e.g. in energy, environment, health, food safety, climate change, security, employment, poverty and exclusion, and helped to set up a common scientific base in these areas, which Member States could not have done alone. Although its total impact on society in general is not yet clear, the expert group concluded that addressing certain issues through research, technology and innovation was a key achievement. Creating networks and attracting more research to the EU FP7 helped to create lasting cross-border, cross-sectoral, inter-disciplinary networks. Research & innovation projects led to well-structured and sustainable teams, well integrated into global innovation networks. The expert group agreed that FP7 s collaborative approach built comprehensive networks to address thematic challenges and lists this among its key achievements. It also pointed to the People-specific programme s influence in boosting employability and mobility among researchers in Europe and beyond, contributing to the free movement of knowledge and opening the ERA to the DG RTD AAR 2016 Page 17 of 84

18 world, and increasing the number of researchers in Europe. 1.2 Annual achievements per specific objectives This section presents the work achieved in 2016 by DG RTD's services, by specific objectives. Annex 12 reports the indicators that summarise the DG's 2016 outputs, following the 2016 Management Plan. Commission priority - A New Boost for Jobs, Growth and Investment The main impact indicator in DG RTD for this objective is the "percentage of EU GDP invested in R&D", with a target of 3% for (Europe 2020 target). From 1.94% in 2009, and a baseline of 2.01% in 2012, the indicator progressed to 2.04% in The provisional value for 2015 is 2.03% (latest known value). It must be underlined that the 3% should come from combined public and private investment. The EU research framework programmes do not represent the major part of public investment. It is foremost their leverage effect, together with the EC's different policy initiatives to boost Member State and regional investment in R&I, that should contribute to getting closer to the target that has proved to be ambitious. However, given the challenging economic environment in Europe, the target is not likely to be met by This situation shows the increasing importance of the DG's work with the Member States and in creating the right conditions for research and innovation to flourish in Europe. DG RTD Specific objective 1.1: To strengthen Europe's R&I systems and achieve the European Research Area through working with Member States DG RTD continued to undertake in 2016 a number of actions towards improving national efficiency and effectiveness of Member States' R&l systems and policies. State of play of the result indicators NUMBER OF PSF ACTIVITIES (PEER-REVIEWS, MUTUAL LEARNING EXERCISES, SPECIFIC SUPPORT) Baseline (2015): 5 Interim Milestone (2018):10 Target (2020): : 14 European Semester For the annual European Semester exercise of economic policy coordination, the Commission released the country reports with substantial and pertinent R&l content. The Council then adopted the 13 Country-Specific Recommendations directly addressing R&l (BE, CZ, DE, DK, EE, ES, FR, IE, LT, LU, LV, NL and PT) and a set of others covering issues of DG RTD's interest. The recommendations focus on what can realistically be achieved over the next months and adapt priorities identified at EU level (in the Commission's Annual Growth Survey) to the national level. They are related to, for example, highlighting the need to boost the capacity to innovate, to strengthen governance in the R&D system and facilitate the links between academia and enterprises, to foster investment in knowledge- DG RTD AAR 2016 Page 18 of 84

19 based capital, to enhance productivity and private sector investment, to remove barriers to activities in the different sectors. Further details on the recommendations can be found at the following link: Horizon 2020 Policy Support Facility The Horizon 2020 Policy Support Facility (PSF) is the policy instrument that provides practical support in the design, implementation and evaluation of reforms that enhance the quality of national R&l investments, policies and systems. The following activities were implemented in 2016: PSF reports (including specific recommendations) for Moldova, Hungary, and Ukraine were published; Specific support was provided to Slovakia and Malta, and the three completed PSF mutual learning exercises were completed in 2016 (i.e. on administration of tax incentives; evaluation of business R&D grants; evaluation of complex public private partnerships); Several additional PSF activities were launched in 2016: mutual learning exercises (MLEs) on performance-based funding of public research; and interoperability of national research programmes and specific support to Slovenia and Romania. European Research Area As set out in Article 179 of the TFEU, the Union has the objective of achieving a European Research Area (ERA) in which researchers, scientific knowledge and technology circulate freely. DG Research and Innovation supports the efforts of Member States and research organisations to implement the policies and reforms needed to achieve this objective. The ERA concept evolves over time as new challenges and policy priorities arise, for example in relation to the Commissioner s priorities of Open Science, Open Innovation and Open to the World. This requires the Commission and the Member States to review ERA-related initiatives to take advantage of the new opportunities and remove any new barrier. A successful ERA is a prerequisite for Open Innovation, Open Science and Open to the World. The ERA progress report, adopted on the 20 January 2017, confirms that ERA has made strong progress over the last years. All headline indicators show progress over time according to the EU-28 averages, although large disparities, both in performance levels and in growth rates between countries, exist. However, there is still much room for further progress on all priorities. Developing Research Infrastructures at European level helps develop the ERA by reducing duplication, making better use of resources, and increasing links across borders. 9 topics with a budget of around EUR 350 million have been implemented for the Research Infrastructures part of the Work Programme of Horizon Around EUR 80 million have been committed to support the development and implementation of new world-class research infrastructures such as ESFRI projects, ESFRI Roadmap and European Research Infrastructure Consortia (ERIC). Nearly EUR 250 million are committed in 2016 and 2017 to support the integration and openness of key national Research Infrastructures. The framework conditions for a European Research Area also include measures relating to the career and mobility of the researchers: DG RTD contributed to the preparation of the Bratislava Declaration of Young DG RTD AAR 2016 Page 19 of 84

20 Researchers, which aims to identify solutions to obstacles to a career in research. The Declaration was presented in July 2016 under the Slovak Presidency and followed by the adoption of the Council Conclusions on 29 November In 2016, DG RTD established the RESAVER Pension Fund, which will help researcher employees to remain with the same pension arrangement when moving between countries and when changing jobs, and the pension fund became operational early Working with Member States on thematic issues In addition to the achievements linked to the overall research framework, DG RTD coordinated research with and between Member States in different research areas, like health, energy and bioeconomy. Joint Programming brings together efforts across Member States, and adds a European dimension to common research efforts. In 2016, the Joint Programming Instrument on anti-microbial resistance launched a major co-funded call for Proposals to unravel the dynamics of transmission and selection of antimicrobial resistance (AMR) at genetic, bacterial, animal, human, societal, and environmental levels, in order to design and evaluate preventive and intervening measures for controlling resistance, mobilising EUR 24 million from Member States and a EUR 6 million top-up from the Commission. The International Consortium on Personalised Medicine (IC PerMed), launched in 2016, provides a framework to the European countries to coordinate health research policy to advance the implementation of personalised medicine. It brings together health research funders and policy making organisations from 28 countries, five regions and the European Commission (EC). Concretely The Human Biomonitoring initiative (HBM4EU), launched on 8 December 2016 is a joint European programme for monitoring and providing scientific assessment of human exposures to chemicals and the potential health impacts. It is expected to deliver EU wide evidence for better EU regulations. The HBM4EU gathers 26 countries (22 EU MS + CH, IL, IS, NO) & EEA, and is coordinated by the Umweltsbundesamt (Germany). The Commission is supporting the HBM4EU with EUR 49.9 million (from a total budget of EUR 73.9 million). A strong engagement with Member States' representatives from ministries dealing with agriculture and food, forestry, marine and fisheries, (bio-based) industries through the representatives of the Standing Committee on Agricultural Research (SCAR) helped to strengthen the European Research Area in the bioeconomy by better aligning EU and MS R&D activities (see also specific objective 1.2). DG RTD Specific objective 1.2: To establish the right framework conditions to capitalise on the results of European research and innovation by involving all actors in the innovation process ("Open Innovation") DG RTD work in this field aims to create and support an Open Innovation ecosystem that encourages dynamic knowledge circulation and facilitates the translation of that knowledge into socio-economic value. Five pillars for intervention are identified under DG RTD AAR 2016 Page 20 of 84

21 this Specific Objective: Identifying regulatory obstacles to investment in innovation, in order to ensure that regulation is not an unjustified obstacle to innovation and that, wherever possible, it favours it; Encouraging effective innovation and investment in thematic areas and across different sectors for all types of innovative actors; Boosting investment and innovation, especially ensuring access to finance and advice for innovators; Circular economy, in order to implement innovative business models for sustainably boosting economic growth and renewing Europe's industrial capacities in a world of resource constraints; Supporting the Commission with high quality, timely and independent scientific advice for its policy-making activities State of play of the result indicators EU INNOVATION OUTPUT INDICATOR Baseline (2010): Target (as from 2017): positive trend Latest known result (2014): NUMBER OF SUPPORT SCHEMES MADE AVAILABLE BY THE COUNTRIES/REGIONS REPRESENTED IN THE COMMUNITY OF PRACTICE TO SUPPORT PROPOSALS AWARDED THE SEAL OF EXCELLENCE Baseline (2014): 3 Interim Milestone (2017): 10 Target (2017): : 15 Identifying obstacles to investment in innovation Innovation principle In 2016, steps were taken by the Council (with the adoption of conclusions in the Competitiveness Council) to develop an innovation principle in EU legislation and policymaking. DG RTD has proposed amendments to the R&I tool within the Better Regulation "Toolbox" so as to provide further improved practical guidance on the evaluation and assessment of all relevant innovation aspects, including the potential use of experimental techniques such as sunset clauses or regulatory sandboxes, etc. The R&I tool is aimed at assessing the impacts on innovation when preparing new initiatives and evaluating existing policies and legislation. The tool needs to be applied to each impact assessment for initiatives likely to affect innovation. DG RTD plays a key role in ensuring its effective application in the inter-service steering groups. The ambition is to have a systematic assessment of the impact on innovation of new Commission initiatives and where needed built-in flexibility clauses to ensure that all new Commission initiatives are supporting innovation in Europe. Access to finance for innovative projects "Innovfin Advisory", an EIB/EC common initiative under Horizon 2020 assists eligible public and private organisations to improve the bankability and investment-readiness of large, complex, innovative projects that need substantial long-term investments. DG RTD AAR 2016 Page 21 of 84

22 A 2016 study on Access to Finance for Key Enabling Technology (KET) companies highlighted that, despite exceptionally good conditions in the financial markets, many dynamic innovators and research-driven newcomers find it hard to raise much needed growth capital to develop and scale-up their businesses. The study also shows that many KETs companies need expert financial advice to become investor-ready and that bankers often lack the understanding of new technologies and of their market potential, and hence shy away from such investments. A Stakeholder workshop organised in June 2016 worked on solutions for better technological and market risk assessment. As a follow up, a study on due diligence and risk assessment will provide insight on how to fill the information gap. Innovation Deals DG RTD launched the Innovation Deals initiative which aims at identifying the potential regulatory barriers to innovation. Out of thirty-two submitted projects, the European Commission has selected the following two Innovation Deals: "From E-mobility to recycling: the virtuous loop of electric vehicle": the main objective is to increase access to electric mobility by reducing the total cost of electric vehicles. "Sustainable wastewater treatment using innovative anaerobic membrane bioreactors technology": this Innovation Deal addresses legislative barriers to make use of the value of waste water. This is about a paradigm shift from the urban waste water conventional treatment into a water resource facility. Encouraging effective innovation and investment in thematic areas Knowledge Exchange Platform between EU and the Regions The Knowledge Exchange Platform (KEP) is a co-operation between the Commission s DG Research and Innovation (DG RTD) and the Committee of the Regions (CoR) that was launched in October 2015 by Commissioner Carlos Moedas and CoR President Markku Markkula. It aims to present new R&I solutions, innovative products and best practices achieved in the area of research and innovation in response to the numerous societal challenges faced by local and regional authorities in Europe today; to add value to the new knowledge created through Horizon 2020 projects and increasing its take-up and impact on innovation at local and regional level and maximising synergies between Horizon 2020 and the ESIF at regional level. Concretely from Agenda to actions A revision of the Strategic Innovation Agenda of the Bio-based Initiative took place in 2016, based on workshops involving new actors from cities, food and fisheries industries and the marine sector. This will help to establish and support new value chains based on municipal and food processing bio waste, as well as new marine biological resources through the BBI initiative. In addition, two contracts have been finalised to launch two large scale algae bio-refineries. The areas of cooperation and knowledge exchange that have been identified jointly for the KEP for the years are: DG RTD AAR 2016 Page 22 of 84

23 Bioeconomy; Key Enabling Technologies; Energy; and Public Sector Innovation. In the domain of bioeconomy, thematic conferences held in 2016 fed into the conclusions from the AGRI-FISH and COMP Council, helped pave the way for exploiting the potential of the bioeconomy for regional and rural development, innovation, growth and jobs, and marked the starting point for a development of a Stakeholder Bioeconomy Manifesto, which will guide stakeholder actions in the coming years. Workshops held throughout the year on topics such as personalised nutrition and food cities supported the launch of the FOOD 2030 policy initiative. A staff working document on "European Research and Innovation for Food and Nutrition Security" (SWD (2016)319, published on 21 September 2016)provides the "state of the art" of how research and innovation is currently contributing to food and nutrition security in Europe. In the field of health, a particular effort was made to design and implement the necessary frameworks to involve all potential actors in the healthcare research and innovation process. The collaborative research Concretely... The loan scheme "InnovFin Infectious Diseases" is a specific pilot financial instrument to facilitate the development of novel interventions for infectious diseases. It provides loans to help develop new solutions in the area of infectious diseases. After just 1.5 years since its launch in June 2015 altogether 67 proposals have been submitted, mostly from SMEs. Three loans have so far been given to 2 SMEs and one midcap with a total value of EUR 45 million. These have been for a HIV monitoring device, a diagnostic tool for infectious diseases, and clinical trials of treatments for hepatitis B, virus-induced cancers, and tuberculosis. InnovFin ID can be considered as a success in providing Open Innovation and a good example of how we can identify a need and design a tailor-made solution for it. It has also demonstrated the importance of SMEs in this area. programme, through 13 research or coordination topics published in 2016, had personalised medicine as an overarching objective. The SME instrument was used through a strategic focus on cell technology. An inducement prize offered one million Euros 'for better use of antibiotics'. Boosting investment and innovation The investment situation in R&I domain in the EU remains difficult, particularly for innovative SMEs and mid-caps with a high potential for growth. DG RTD is carrying out a number of activities which may improve the access to finance for innovative projects. Maximizing the use of the European Fund for Strategic Investment 'Research, development and innovation' is one of the priority sectors targeted by the European Fund for Strategic Investments (EFSI) under the Innovation & Infrastructure window. DG Research and Innovation has set a target of EUR 50 billion of investments, via EFSI, for the benefit of the RDI sector, including the improvement of Research Infrastructures (RI). DG RTD AAR 2016 Page 23 of 84

24 In its Communication of 1 June , the Commission announced that, given its success, the EFSI SME-window will be scaled up quickly. This includes shifting up to EUR 500 million of the EU guarantee from the Infrastructure and Innovation window to the SME window and using the EFSI guarantee to top up the InnovFin EU Finance for Innovators initiative and the EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) loan guarantee instruments. Implementation should begin in spring The top-up for InnovFin loan guarantee instruments should reach an amount of EUR 880 million. Concretely... More than 5700 innovative companies, mainly SMEs and small midcaps, have received funding for more than EUR 8 billion from H2020 financial instruments. This financial support has triggered more than EUR 20 billion of additional investment across the European Union and Associated Countries. The quick ramp up of the H2020 financial instruments has been made possible due to a strong demand from innovative companies and through synergies with the Investment Plan for Europe/ EFSI providing earlier additional resources. It should also be recalled that, out of the EFSI transactions approved by the European Investment Bank (EIB) so far, 21% are in the RDI sector and two thirds of all projects have a strong RDI element. Relevant examples can be found on the latest EFSI infosheet DG Research and Innovation oversees the implementation of the InnovFin suite of financial instruments by the European Investment Bank and the European Investment Fund, to support research areas with specific needs. Synergies with the Structural funds The development of synergies between Horizon 2020 and the European Structural and Investment Funds (ESIF²) continued during A major highlight was the presentation by Commissioner Moedas of a statement on synergies to the Plenary Session of the European Parliament in Strasbourg on 5 July, followed by the adoption by the Parliament of a resolution on the subject 6. The issue of synergies will be incorporated into the already planned Communication on Smart Specialisation (with DG REGIO as chef de file) to be adopted in May The Council also actively considered the issue of synergies and the importance of the subject, at the Competitiveness Council in May 7 and the General Affairs Council (cohesion formation) in June COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS - Europe investing again Taking stock of the Investment Plan for Europe and next steps Brussels, COM(2016) 359 B8-0851/2016 (Synergies between Structural Funds and Horizon 2020) Conclusions adopted at Competitiveness Council of 27 May 2016 on Research and innovation friendly regulation Conclusions adopted at General Affairs Council (cohesion formation) on 24 June on A more R&I friendly, smart and simple Cohesion Policy and the European Structural and Investment Funds more generally DG RTD AAR 2016 Page 24 of 84

25 Concretely The Seal of Excellence is a quality label awarded to projects submitted to Horizon 2020 which were deemed to deserve funding but did not receive it due to budget limits. It recognises the value of the proposal and supports the search for alternative funding. This initiative, launched in 2015, is a practical manifestation of synergies. Since 2015, more than certificates have been delivered to proposals in all 28 Member States and some Horizon 2020 Associated Countries, and almost 200 funding bodies have joined the Community of Practice working on the design and implementation of measures to support Seal proposals. First results have shown that countries and regions are keen to take the necessary steps to benefit fully from this opportunity, taking advantage of Horizon 2020 s ready-made high quality evaluation process in the implementation of their operational programmes. By the end of 2016, 15 seal friendly funding schemes were launched at national and/or regional level in Sweden, Norway, Czech Republic, Hungary, Slovenia, Finland, France, Cyprus, Spain and Italy, and more schemes are currently under preparation. As a result of the Seal, more than 260 SMEs have succeeded in receiving funding, a number that steadily increases. In addition, a substantial number of Seal SMEs received other types of support, such as mentoring, coaching, and targeted advice, while private funders expressed their interest in exploring possibilities to look at Seal proposals. In order to simplify the procedure for the Managing Authorities and reduce their administrative burden in verifying compliance of Seal proposals with state aid rules, DG REGIO, in close collaboration with DG RTD and DG COMP, prepared during 2016 a guidance for Managing Authorities on state aid issues related to the Seal of Excellence initiative. The publication entitled EU Funds working together for Jobs and Growth gathers examples of synergies. European Fund of Funds The Commission's Communication of 1 June 2016 announced also that EFSI will contribute to the Horizon 2020 InnovFin Pan-European Venture Capital Fund-of-Funds, which will combine public finance with greater volumes of private capital to bring additional scale and stimulus for the support of the most promising new innovative enterprises. Its contribution is up to EUR 100 million. EFSI is also contributing EUR 270 million, alongside EUR 290 million from the European Investment Fund (EIF), to the early-stage side of InnovFin, the Equity financial instrument (IFE) of Horizon The call for managers interested to run the Pan-European VC Fund-of-Funds was published in The European Commission and the European Investment Fund (EIF) have started selecting promoters amongst the 17 applications that were submitted. A European Innovation Council The preparatory phase of the potential European Innovation Council substantially progressed in 2016, with respect to the underlying design and organisation questions. DG RTD AAR 2016 Page 25 of 84

26 A dedicated part of the Horizon 2020 Work Programme will present a set of complementary funding instruments providing bottom-up support for breakthrough, market-creating innovation. The necessary business process changes will be made in RTD and the agencies concerned, i.e., the Executive Agency for Small and Medium-sized Enterprises (EASME) and the Research Executive Agency (REA) so that innovators seeking support at EU level will have easy access to funding. The funding instruments concerned (the SME instrument, the Future and Emerging Technologies Open programme (FET Open), the Fast Track to Innovation (FTI) pilot) will be reoriented where needed to support breakthrough, market-creating innovations with a potential to scale up. In addition, inducement prizes will become part of the set of instruments under the umbrella of the EIC. Around EUR 2.5 billion will be available for these funding instruments in the period Further reflections will take place to establish the precise form of a possible EIC under the next framework programme. Circular economy In 2016, two new calls were opened under the Horizon 2020 focus area "Industry 2020 in the circular economy" dedicated to large-scale projects for eco-innovation and to water in the circular economy. The concept of circular economy has also been addressed in the framework of contractual public private partnerships (cppps). On 20 September 2016 calls were launched under the PPPs on "Factories of the Future" (FoF) and on "Sustainable Process Industries" (SPIRE). Topics include the assessment of the potential of industrial symbiosis in Europe, technologies to valorise waste, standardisation to enable the use of waste and side products as raw materials, technologies for converting CO2 into added value chemicals, and new technologies and life cycle management for reconfigurable and reusable customised products stepping stones for deploying the circular economy in the industrial sector. Supporting the Commission with scientific advice After the appointment of the High Level Group (HLG) of Scientific Advisors, the organisational set up of the Scientific Advice Mechanism (SAM) has been completed, and work has started in a number of areas. In 2016, the SAM held 5 plenary meetings. Two scientific workshops and one stakeholder meeting were organised and attended by members of the HLG, relating to CO 2 issues and cybersecurity. The HLG has adopted an explanatory note on scientific advice for the regulatory assessment of glyphosate in plant protection products and a scientific opinion on closing the gap between light-duty vehicle real-world CO 2 emissions and laboratory testing. DG RTD Specific objective 1.3: To ensure an effective and efficient implementation of Horizon 2020 and other RTD programmes and maximise synergies Horizon 2020 is the EU Framework Programme for Research and Innovation. With a total budget of EUR 76.4 billion (in current prices) for the period (EUR 74.8 billion for Horizon 2020 ( ) and EUR 1.6 billion for Euratom ( )), it provides a major opportunity for boosting innovation and growth in the EU. According to the Programme Statement (for the draft budget 2018), the first three-year programme ( ) was fully implemented, with a budget of EUR 28,1billion, which represents almost 37.5 % of the total for By the end of 2016, over eligible proposals had been submitted to Horizon 2020 calls. Over grant agreements with participations had been signed, committing an EU investment in DG RTD AAR 2016 Page 26 of 84

27 research and innovation of around EUR 20.5 billion. The proposal success rate remained low at about 12% (compared to 19% in FP7), only a little more than a quarter of the proposals evaluated as good could be selected for funding, which demonstrates the great interest in the programme and the competitiveness of the selection process. Horizon 2020 is a programme implemented by several Commission DG's, Executive Agencies and other bodies (extensive details to be found in the introduction of Part 2). DG RTD has therefore a double role in the programme implementation: it implements certain parts directly and, as the lead DG of the Research and Innovation family, it coordinates and monitors the overall budgetary and operational aspects of the programme and provides support to the members of the family by hosting the Common Support Centre (see more under Part 2). State of play of the result indicators Share of grants signed with a time-to-grant within 245 days; Share of newcomers' applications among the successful applications; Share of EU financial contribution to SME's - see Key Performance Indicators in the Executive Summary SHARE OF EU FINANCIAL CONTRIBUTION GOING TO PRIVATE FOR PROFIT ENTITIES (DG RTD) Baseline (FP7 2013): 29.2% Interim Milestone (2016): 33% Target (2020): 33% 2016: 21.35% SHARE OF RFCS FINANCIAL CONTRIBUTION GOING TO PRIVATE FOR PROFIT ENTITIES Baseline (2013): 38.9% Interim Milestone (2016): 40% Target (2020): 40% 2016: 43% TOTAL INVESTMENTS MOBILISED VIA DEBT FINANCING AND VENTURE CAPITAL INVESTMENTS Baseline: new approach Interim Milestone (2017): 8 b Target (2020): 25 b 2016: b TOTAL AMOUNT OF FUNDS LEVERAGED THROUGH ARTICLE 187 INITIATIVES MANAGED BY DG RTD Baseline (2013): 1 Interim Milestone (2016): 0.84 Target (2020): : 1.22 (1 397,31 m for 1 148,90 m EU contribution) Publications in peer-reviewed high impact journals in the areas of the different Societal Challenges; Patent applications and patents awarded; Share of publications from ERC-funded projects which are among the top 1% highly cited per field of science; Growth and job creation in participating SME's; no information available yet Horizon 2020 is complemented by two other spending programmes, which will also contribute to the EU research and innovation policy in specific fields: the Research Fund for Coal and Steel (RFCS) and the Euratom Research and Training Programme ( ). Planning and implementing the work programmes The 2016 part of the work programmes have been implemented following the plans for DG RTD AAR 2016 Page 27 of 84

28 all the research funding programmes. The contribution of the Executive Agencies REA, ERCEA, INEA and EASME to the Horizon 2020 work programme was achieved with high standards, as reported in their own Annual Activity Reports. In the course of 2016, the strategic programming exercise for the Work Programmes has also been successfully concluded with the publication of the relevant papers on the web as the last step. Monitoring the research framework programmes After the adoption of the Commission Communication on the ex-post evaluation of the 7th Framework Programme in January 2016, work on a Commission Staff Working Document on the interim evaluation of Horizon 2020 was launched (due for May 2017). A Commission Communication will then present the key findings and make recommendations for the future and report on the implementation of the recommendations of the FP7 Ex-Post Evaluation report. The Interim Evaluation is also an important opportunity to debate internally and externally on future R&l in Europe. The Horizon 2020 monitoring report is published yearly and provides detailed information on the programme's progress. It gives the outputs and the results of the programme as a whole, resulting from the work done by all the implementing bodies. A second wave of simplification Simplification is a central priority of Horizon 2020 and is fully reflected in its design, rules, financial management and implementation. The aim is to make the programme more attractive, particularly for newcomers. The success of simplification in Horizon 2020 has been confirmed by the overall positive results of a survey addressed to participants in Horizon 2020 projects. Of those respondents who expressed an opinion, 75% confirmed that, overall, the processes in H2020 are simpler than in FP7. Only 20% indicated that they know other funding programmes that are simpler than Horizon Nevertheless, further simplification of Horizon 2020 remains a priority to ensure the programme is attractive to the best researchers and innovators, to reduce the administrative costs for participation, and to contribute to the prevention and reduction of financial errors. The Commission will also consider the scope for further simplification as part of the ongoing interim evaluation and as a priority for the next Framework Programme. New funding rules, to be applied as from 2017, will reduce administrative costs to participants and help prevent accounting errors. Also, they allow for improving the funding conditions for EU-funded researchers in those countries where the disparity between EU and national projects had created an obstacle for researchers to participate in Horizon The changes comprise: 1) a new definition of additional remuneration of researchers, and a simplification of the charging of other costs in Horizon 2020 grants. This will allow the broadest possible acceptance of beneficiaries' own usual accounting and management practices; 2) streamlining the Horizon 2020 work programme for More than ever before, the final work programme of Horizon 2020 will focus on key priorities. There will be fewer topics and fewer calls. The aim is both to maximise impact, and to ensure that stakeholders can easily find topics of interest; 3) making the programme more relevant and easier to access for start-ups and innovators. The Commission intends to make changes for the remaining period of Horizon 2020 in order to improve support for breakthrough, market-creating DG RTD AAR 2016 Page 28 of 84

29 innovation with the potential for scaling up and will consider reinforcing this approach in the future through a potential European Innovation Council; 4) a wider use of lump-sum project funding, which has the potential to considerably reduce the administrative burden on participants - keeping the project focus firmly on research and innovation, enhancing impacts and lowering the financial error rate. This is also in line with the Commission's priority on Budget Focused on Results. Lump-sum funding aims to shift the focus from checking inputs (i.e. costs incurred) to monitoring performance and outputs, covering the entire project life cycle, including new ways of ex-post audits. Interaction with the European Cooperation in Science and Technology Efforts were made to explore and enhance synergies between the European Cooperation in Science and Technology (COST) actions 9 and Horizon 2020 projects. Working with Member states and Regions The ERA-NET Cofund scheme under Horizon 2020 is designed to support public-public partnerships, including joint programming initiatives between Member States, in their design, implementation and coordination of joint activities as well as Union topping-up of a trans-national call for proposals. An "Evaluation of joint programming to address grand societal challenges" was published in The factual analysis shows broad participation of Member States and associated countries in the JPIs. While it is still too early to evaluate the impact of the JPIs on their particular societal challenges, the evaluation highlighted that the process does not yet have sufficient commitment from national stakeholders to achieve its potential. Under the Joint Programming Initiative (JPI) More Years, Better Lives - The Potential and Challenges of Demographic Change, the Joint Transnational Call 2016 was launched, with the objective of enabling a better coordination of national, European and Canadian R&D programmes and activities relevant to Demographic Change in order to address the most urgent and demanding challenges. The call is to support research which will improve the understanding of how different approaches to welfare, across Europe and Canada, secure the quality of life, especially on older people. A better understanding of these Concretely The project CARBAZYMES, with participants from Germany, Spain, Netherlands, Croatia and UK aims to turn cheap starting materials such as organic waste leftover from farming or food processing into recyclable components for the chemical industry, with the nature's own chemical cell factories. The total cost of the project is EUR 9 million, with an EC contribution of EUR 8 million. differences can help policymakers to identify potential ways of meeting needs, as their own models evolve in response to changing demographic pressures and circumstances. Because welfare models involve a complex interaction of public, private and voluntary activity, understanding them, their impact and the ways in which they are changing, will draw on expertise from many academic disciplines. Horizon 2020 focusing on global priorities The 2016 Work Programme focused on contributions to the Energy Union, to climate 9 COST is an intergovernmental framework, created in 1971, consisting in 36 Member Countries and a Cooperating State. This allows researchers from these countries to embark upon networking opportunities by participating in science and technology networks called 'COST Actions'. DG RTD AAR 2016 Page 29 of 84

30 action following COP21 (through the decarbonisation of industry) and to the circular economy. A notable feature of the 2016 calls was a significant contribution, EUR 183 million, to a focus area on 'Industry 2020 in the Circular Economy', demonstrating how Horizon 2020 can renew Europe's industrial capacities and boost growth in a world of finite resources. Bringing together Public and Private sectors In 2016, DG RTD moved ahead with the research and innovation partnerships between the public and private sector. These partnerships take different forms, like Joint Technological Initiatives (JTI's) or Contractual Public-Private Partnerships (cppp's). The Joint Technological Initiatives issue their own annual activity report, therefore this report does not detail their achievements. Contractual Public-Private Partnerships (cppps) of strategic importance for the European industry will leverage more than EUR 6 billion of investments to be allocated through calls for proposals. Each euro of public funding is expected to trigger additional investments of between 3 and 10 euros to develop new technologies, products and services. Under the partnerships on Factories of the Future (FoF), Energy-efficient Buildings (EeB), Sustainable Process Industries and Resource Efficiency (SPIRE) and Green vehicles (EGVI), a total of 67 projects representing an investment of EUR 419 million have been launched. In the case of cppps, further industrial investments beyond the projects arose from the explicit commitments made by the private side. The respective cppps show leverage factors between 1.5 and 3.5. Counting on the fact that larger investments are not forthcoming at the very early stage of technology development, a leverage factor of 4-5 could be expected. Horizon a quick intervention tool DG RTD swiftly responded to the Zika outbreak, which was declared in 2016 by WHO as a Public Health Emergency of International Concern, by launching a specific call for urgent Zika research. Three actions with a total EU contribution of 30 million EUR were signed in 2016 that established multinational and multidisciplinary research consortia across Latin America and other affected or at risk regions. Research Fund for Coal and Steel RFCS In February the Commission adopted a proposal for a revision of the legal base in order to better align with Horizon 2020 and to comply with the Commission horizontal guidelines on expert groups. The outlook is to have the new legal base in place during the first quarter of The 2015 call resulted in the launch of 38 projects, with a budget of approximately EUR 42 million. The funding for private for profit entities reached 43%, above the AMP target of 40%. The 2016 call received 200 applications of which 38 projects were retained for funding. Following decisions inter alia on a simplified internal decision making process (delegation of powers), the time to grant for the 2016 call is expected to be shortened to 7 months, compared to 9 months in previous years. Commission objective - A Connected Digital Single Market The Digital Single Market Strategy of the Commission is built on three pillars: Access: better access for consumers and businesses to digital goods and services across Europe; DG RTD AAR 2016 Page 30 of 84

31 Environment: creating the right conditions and a level playing field for digital networks and innovative services to flourish; Economy & Society: maximising the growth potential of the digital economy. DG RTD contributes to all three pillars of the Digital Single Market strategy. DG RTD Specific objective 2.1: To increase impact and excellent science through openness ("Open Science") To establish the role of Open and data-driven Science as an enabler for scientific discovery, open innovation, trust and societal impact, an important action in April 2016 was the creation of the Policy Platform with representatives of the main stakeholders of Open Science. After the adoption of the Communication on a European Cloud Initiative (EOSC), which was jointly prepared by DG RTD and DG CNECT the implementation roadmap is under preparation and due for adoption in October The launch of the European Open Science Cloud pilot ('EOSC pilot) will start on 1 January 2017 for a duration of 2 years and is supported by a 10 million EUR grant from the Horizon 2020 Work-Programme It will support the first phase of development, notably the governance framework, pilots integrating services and infrastructures in a number of scientific domains, and engagement with a broad range of stakeholders to build the trust and skills required. State of play of the result indicators % OF RESEARCHERS BASED IN EUROPE CONNECT/USE THE UPCOMING EUROPEAN SCIENCE CLOUD Interim Milestone (2020): 30% Target (2025): 80% No relevant information available yet SHARE OF OPEN ACCESS ARTICLES (RESULTING FROM H2020 FUNDED RESEARCH) PUBLISHED IN PEER REVIEWED JOURNALS Interim Milestone (2017): 100% Target (2020): 100% 2016: 60% (estimated result) The proposal adopted by the Commission for reforming the copyright framework includes a mandatory exception for text and data by public interest research organisations, which corresponds to one of the two options supported by DG RTD in the ex-ante impact assessment. DG RTD AAR 2016 Page 31 of 84

32 Concretely DG RTD, together with DG CNECT, DG SANTE, JRC, and EUROSTAT worked in 2016 on the implementation of a health data sharing framework in Programme-Level international consortia, mainly the International Rare Diseases Research Consortium (IRDIRC) and the International Human Epigenome Consortium (IHEC). There was also a progress in the coordination of the global data sharing in the field of brain research, through contributing to the Human Brain Project (led by DG CNECT), the International Traumatic Brain Injury Research consortium (InTBIR), as well as in the area of Global Research Collaboration for Infectious Disease Preparedness (GLOPID-R). DG RTD is actively pushing the role of Open Science in the context of Digital as Driver for Growth. The launch of the European Open Science Cloud pilot will demonstrate how the wide availability of scientific data and data analysis services for European researchers can be ensured through a cloud infrastructure; it will also contribute to ensuring that European stakeholders reap the full benefits of data-driven science and services for the digital economy and wider society. The call for the EOSC (European Open Science Cloud) pilot was launched by DG RTD in One project, which will start in January 2017, was selected. The consortium is composed of 33 key partners coming from the research infrastructures and e- infrastructures communities. They will establish the governance framework for the EOSC and develop a number of pilots that integrate services and infrastructures to demonstrate interoperability in a number of scientific domains. Complementary calls for a total budget of EUR 40 million will be launched by DG CNECT in DG RTD Specific objective 2.2: Embedding digital into the grand societal challenges EU science, research and innovation policy plays an important part in merging the physical and digital worlds by maximising the synergies between digital technologies and innovative solutions to societal challenges in areas like health, food, energy and water. Many synergies are already in place, but there are growing opportunities and challenges. DGs CNECT, GROW and RTD launched a Round Table for Digitising European Industry on 20 September. Two workshop tracks, on Digital Innovation Hubs and on Leadership in Digital industry Platforms, have collected information on national and stakeholder activities, and endeavoured to identify common threads and a basis for future collaboration. DG RTD collaborated with DG CNECT in embedding digital aspects into Horizon 2020 work programmes. The links between digital and biological aspects were stressed in the scope of several topics published in the Horizon 2020 Work programmes: 2 out of the 4 priorities have a strong digital component (Priority 3 on "Digital transformation in Health and Care" and Priority 4 on "Trusted Big Data solutions and Cybersecurity for Health and Care"). The GEAR 2030 Working Group on "connected and highly automated vehicles" was another opportunity to involve DG RTD in 2 project teams: Policy and regulatory issues. The aim is to deliver recommendations for the adaptation of the policy and regulatory EU framework for automated and connected vehicles. This will include possible recommended actions/regulatory cooperation at international level. DG RTD AAR 2016 Page 32 of 84

33 Financing instruments for implementation. The aim is to define priorities to be addressed by financing instruments to support the fast development and deployment of connected and automated vehicles. Concretely DG RTD aims to increase impact and excellent science through openness with its action to develop a GEOSS European data hub to facilitate open access to European Earth Observation data. The NextGEOSS project will implement a data hub for access and exploitation of Earth Observation data, including user-friendly tools for data mining, discovery, access and exploitation. This data hub will be supported by a strong commitment to the engagement of Earth Observation and related communities, with the view of supporting the creation of innovative and business oriented applications. NextGEOSS focuses on a fundamental change to facilitate the connectivity to the European and global data centres. It will leverage Web and Cloud technologies, offering seamless and user-friendly access to all the relevant data repositories, as well as providing efficient operations for search, retrieval, processing/re-processing, visualization, analysis and combination of products from federated sources. The total cost of the project is EUR 10 million with an EC contribution of EUR 9 million. Commission Objective - A Resilient Energy Union with a Forward-Looking Climate Change Policy The impact indicators chosen by DG RTD for this objective are: the "greenhouse gas emissions" (baseline 2013:80.2, latest known result 2014: 77.1, target 2020: 20% reduction ( 80) the "share of renewable energy in gross final energy consumption" (baseline 2013:15%, latest known result 2014: 16%, target 2020: 20% with a milestone 2015/2016 of 13.6%), the "increase in energy efficiency primary energy consumption" (baseline 2013: million tonnes of oil equivalent (Mtoe), latest known result 2014: Mtoe, target 2020: 1483 Mtoe) and the "increase in energy efficiency final energy consumption" (baseline 2013: Mtoe, latest known result 2014: Mtoe, target 2020: 1086 Mtoe.) These indicators seem on track towards the targets set for DG RTD contributes to meeting them through both policy and spending efforts. DG RTD Specific objective 3.1: To implement the Research, Innovation and Competitiveness dimension of the Energy Union, together with a forward-looking climate-change policy The goal of creating a resilient Energy Union with an ambitious climate policy at its core is to give EU consumers households and businesses secure, sustainable, competitive and affordable energy. Energy research and innovation is a key building block of the emerging Energy Union. DG RTD AAR 2016 Page 33 of 84

34 The Horizon 2020 and Euratom programmes support this Specific Objective by addressing important issues of European public interest (e.g. decarbonisation, creation of jobs and sustainable economic growth, industrial leadership, technological development) and providing a framework for European countries to engage in collaboration. State of play of the result indicators (Horizon 2020) CLIMATE-RELATED EXPENDITURE (HORIZON 2020) EU FINANCIAL CONTRIBUTION THAT IS CLIMATE RELATED IN H2020 see Key Performance Indicators in the Executive Summary CLIMATE-RELATED EXPENDITURE (HORIZON 2020) EU FINANCIAL CONTRIBUTION THAT IS SUSTAINABILITY RELATED IN H2020 see Key Performance Indicators in the Executive Summary SHARE OF THE OVERALL CHALLENGE FUNDS ALLOCATED TO THE FOLLOWING RESEARCH ACTIVITIES: RENEWABLE ENERGY, EN-USER ENERGY-EFFICIENCY, SMART GRIDS AND ENERGY STORAGE ACTIVITIES Interim Milestone (2016): 85% Target (2020): 85% 2016: 94% LEVEL OF INVESTMENT IN ENGERGY RESEARCH AND INNOVATION; TRENDS IN PATENTS; NUMBER OF RESEARCHERS ACTIVE IN THE SECTOR: no significant information available yet Communication "Accelerating Clean Energy Innovation" DG RTD drafted the Commission communication on Accelerating Clean Energy Innovation (ACEI) 10, adopted on 30 November 2016 as part of the Energy Union's 'Clean Energy for all Europeans' package that also comprises a number of legislative proposals on renewables, energy efficiency, electricity market design and governance. The Communication identifies 20 actions concerning research, innovation and competitiveness aspects of the Energy Union, and the implementation phase has been started. The strategy builds on the progress achieved so far under the Strategic Energy Technology Plan. It focuses on those low-carbon solutions that have the highest potential for delivering cost reductions and improving performance quickly. In addition, the strategy connects a number of ongoing and new policy initiatives focused on accelerating the energy transition, such as the Strategic Transport Research and Innovation Agenda (STRIA) and Mission Innovation. Strategic Energy Technology Plan (SET-Plan) Implementation The SET-Plan promotes research and innovation efforts that will support the EU's transformation to a low-carbon energy system. The SET Plan Communication of September 2015 defined ten key priority actions to accelerate the transformation of the energy system. Ambitious targets have been set for all ten priority actions in the course of 2016, which aim to maintain (or regain in some cases) EU's global leadership on low-carbon technologies and solutions with a particular emphasis on driving their costs down and improving their performance. The process for setting these targets has been highly participative and transparent, engaging countries and a large number of stakeholders 10 Appearing in AMP 2016 as Energy Union Integrated Strategy on Research, Innovation and Competitiveness (EURICS /RTD+/001). DG RTD AAR 2016 Page 34 of 84

35 from research organisations and industry. Strategic Transport R&I Agenda The development of a Strategic Transport R&l Agenda - STRIA, in cooperation with DG MOVE, builds on an extensive consultation process, involving a wide range of transport stakeholders and experts. The consultation took place in 2016, through thematic and cross-thematic workshops on main areas: Electrified transport system Alternative fuels Vehicle design & manufacturing Connectivity & automation of transport Transport infrastructure Network and traffic management systems Smart transport and mobility services (including urban) Roadmaps covering the 7 thematic areas defining policy options to achieve the Energy Union goals were developed and finalised in Association of Ukraine to the EURATOM Research and Training Programme The Agreement for scientific and technological cooperation between the European Atomic Energy Community and the Government of Ukraine associating Ukraine to the Euratom Research and Training Programme ( ) was signed in Brussels on 27 June 2016 and entered into force on 28 October It will further widen mutually beneficial co-operation between the EU and Ukraine and contribute to achieving a high level of nuclear safety and security. State of play of the result indicators (Euratom Fission) NUMBER OF PROJECTS CONTRIBUTING TO THE DEVELOPMENT OF SAFE LONG-TERM SOLUTIONS FOR THE MANAGEMENT OF ULTIMATE NUCLEAR WASTE (EURATOM FISSION) Baseline ( ): 15 Interim Milestone (2016): 5 Target (2020): : 5 SHARE OF THE OVERALL CHALLENGE FUNDS ALLOCATED TO THE FOLLOWING RESEARCH ACTIVITIES: RENEWABLE ENERGY, EN-USER ENERGY-EFFICIENCY, SMART GRIDS AND ENERGY STORAGE ACTIVITIES Interim Milestone (2016): 85% Target (2020): 85% NUMBER OF PUBLICATIONS IN PEER-REVIEWED HIGH IMPACT JOURNALS (EURATOM-FUSION) Baseline (2010): 800 (FP7) Interim Milestone (2016): 600 Target (2018): : 450 PATENT APPLICATIONS ON THE BASIS OF RESEARCH ACTIVITIES SUPPORTED BY THE EURATOM PROGRAMME Baseline ( ): 2-3 Interim Milestone (2016): 2-3 Target (2018): : 2 DG RTD AAR 2016 Page 35 of 84

36 Dedicated Horizon 2020 and Euratom funding Calls for proposals were launched under Societal Challenges "Energy" and "Climate" in the Horizon 2020 Work-Programme Projects selected for funding will: provide support to the European Technology and Innovation Platforms in the fields of bioenergy, photovoltaics, ocean energy and zero emission power plants; deal with ocean energy, geothermal energy and geoscience; provide a support action for the establishment of a platform in the field of social sciences and humanities focusing on energy- related questions; be pilot projects for the European Common Research and Innovation Agendas; look into the pathways to decarbonisation, the resilience of the European economy in the timeframe and beyond or on the assessment of the global mitigation efforts in the perspective of the long-term climate goals; support First-Of-A-Kind (FOAK) commercial-scale demonstration projects. Three Horizon 2020 Prizes in energy were announced during the European Sustainable Energy Week (13-17 June) and launched on 5 July. Worth a total of EUR 3.25 million, the prizes aim to stimulate innovation and come up with solutions to problems that matter to European citizens. A call for proposals under the EURATOM Work-Programme was also launched in the field of nuclear fission. Concretely A pilot action was launched in 2016 on Nature-Based Solutions (NBS) to demonstrate the benefits and cost-efficiency of Nature-Based Solutions for climate and water resilient cities (2016) and hydro-meteorological risks reduction at watershed/landscape scale (2017). The pilot action received a positive response including from new actors, notably many city authorities. Four proposals for large demonstrators have been retained for funding. Efforts and investments in nature-based solutions for urban decarbonisation, air quality, health and climate-related disasters risk reduction will continue in The aim is to create a strong community of cities deploying NBS to address their societal and notably climate and energy related challenges. DG RTD AAR 2016 Page 36 of 84

37 Commission Objective - A Stronger Global Actor DG RTD Specific objective 4.1: To translate Europe's strengths in science and technology into a leading global voice ("Open to the World") EU international cooperation in research and innovation contributes to the new Commission priorities as well as to the broader policies of the Union, as reflected in the Europe 2020 strategy. Specifically, EU international cooperation in research and innovation aims to strengthen EU's excellence and attractiveness in research and innovation as well as its economic and industrial competitiveness, to tackle global societal challenges more effectively, and to support the EU's external policies. State of play of the result indicators SHARE OF THIRD-COUNTRY PARTICIPANTS IN HORIZON 2020 (DG RTD) see Key Performance Indicators in the Executive Summary PROPORTION OF EU CO-PUBLICATIONS WITH AT LEAST ONE INTERNATIONAL PARTNER COUNTRY TO THE TOTAL OF EU PUBLICATIONS Baseline (2013): 36% Interim Milestone (2018): 38% Target (2020): 40% 2015: 38% (source: SCOPUS/Scival; it includes intra-eu co-publications) "Global research area" Different initiatives put forward the vision of Commissioner Moedas of developing a Global Research Area aiming to tackle global challenges. A Common Research Area with the Community of Latin American and Caribbean States (CELAC) The EU-CELAC Common Research Area (CRA) was officially set in motion in March 2016 and built on three strategic strands: increased bi-regional mobility of researchers; international outreach of research infrastructures; and strengthened thematic cooperation on global challenges. All Atlantic Research Alliance Commissioner Moedas has identified South Atlantic research and innovation cooperation as one of the priorities of his mandate. In parallel with DG RTD's successful implementation work in the North Atlantic, the South Atlantic Cooperation has gathered momentum, notably through the signature of bilateral Declarations of Intent with Brazil (November 2015) and South Africa (October 2016). With DG RTD's support, Brazil and South Africa initiated a South Atlantic Science Plan, along with other countries of their regions such as Angola, Namibia, Argentina and Uruguay. The South Atlantic Science Plan will reflect the scientific challenges in the South Atlantic which are interconnected with what happens on our shores of the Atlantic Ocean. DG RTD AAR 2016 Page 37 of 84

38 Science diplomacy EU-Iran During the April 2016 EU mission to Iran, led by HR/VP Mogherini, in which Commissioner Moedas participated, a Joint Statement on Science, Research, Technology and Innovation was endorsed. It foresaw the establishment of a joint Working Group to exchange and cooperate on issues of common interest and strengthen EU-Iran science, technology, research and innovation cooperation. The first meeting of the Working Group took place in Brussels on 7 September. International fora DG RTD represents the EU in global multilateral a such as the G7 STI Ministerial, G20 STI Ministerial, the Carnegie Group (biannual informal meeting of science Ministers / advisors of the G8, the EC and Brazil, China, India, Mexico, South Africa), the Belmont Forum (international partnership of research funding organisations to inform human action and adaptation to global environmental change, co-chaired by DG RTD until 31 December 2016) and the Group of Earth Observation (GEO, intergovernmental partnership of 102 nations and the EC plus 103 Participating Organisations with a mandate in Earth observation, co-chaired by DG RTD). Research and Innovation to help manage migration The 2017 work programme included topics on migration (with a budget of EUR 11 million) after consultations with DG HOME, JUST, ECHO, DEVCO, and EMPL. Relating to third-country innovators, a design study to prepare a support scheme to attract non-eu resident highly skilled entrepreneurial innovators from abroad was launched in June 2016, to be adopted in early Specific international cooperation activities Association Agreements Horizon 2020 Association Agreements with Armenia and Georgia were signed and entered into force respectively on 7 November and 22 December As regards Kosovo 11, a Framework Agreement on Kosovo's participation in Union Programmes was signed on 24 November 2016 and a Council Decision on conclusion of the Agreement is expected to be adopted in The entry into force of the latter Agreement will allow for the start of negotiations and signature of a Horizon 2020 association Agreement, possibly in the course of Science and Technology cooperation dialogues DG RTD continued to hold regular Science and Technology cooperation dialogues and high level policy dialogues with its main international partners. These dialogues allow a systematic identification of opportunities for cooperation in a range of thematic areas. The priorities have also been reflected in the updating of the multi-annual roadmaps for targeted international cooperation with twelve countries and six regions, issued on 13 October 2016 as part of the second progress report on the international cooperation strategy. Euro-Mediterranean cooperation The Commission proposed a Partnership for Research and Innovation in the 11 This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Declaration of Independence. DG RTD AAR 2016 Page 38 of 84

39 Mediterranean Area (PRIMA), which will help address the lack of clean water and nutritious food, which has a severe impact on the health and stability of the populations in this region. The partnership will be set up jointly by the EU and the participating countries. Initially, 11 EU Member States (Croatia, Cyprus, Czech Republic, France, Greece, Italy, Luxembourg, Malta, Portugal, Slovenia and Spain) and eight non-eu Mediterranean countries (Israel, Tunisia, Turkey, Algeria, Egypt, Jordan, Lebanon and Morocco) committed to the partnership. The countries are funding the initiative with around EUR 200 million, matched by a EUR 200 million contribution from the EU. The partnership is scheduled to run for 10 years, starting in The Commission's proposal is currently being discussed at Council and European Parliament. EU-Africa A roadmap towards a jointly funded EU-Africa Research and Innovation Partnership on food, nutrition security and agriculture was adopted on 5 April in Addis Ababa, complemented by a stakeholder event. On 3 October, the Commissioner, together with the South African Minister, also signed a declaration of intent with South Africa on marine research and cooperation. Mission Innovation Mission Innovation was launched at COP21 to reinvigorate and accelerate public and private global clean energy innovation, with the objective of making clean energy widely affordable. 20 major world economies, representing 80% of global energy research and development budgets, committed to doubling their public investment in clean energy R&D over five years. The European Commission joined the initiative in June In September 2016 Mission Innovation members agreed seven Innovation Challenges. The Commission (DG RTD and DG ENER) was instrumental in the elaboration of the Innovation Challenges. Horizon 2020 as a support to the "A Stronger Global Actor" priority Work programme Dedicated RTD specific calls for proposals were launched in the work programme , leading to the selection of project proposals and signatures of contracts. Over the programming period , Horizon 2020 contributes up to EUR 25 million to PRIMA: the cooperation should focus on industrial technologies in the area of water resources. International flagship initiatives DG RTD contributed to the preparation of international cooperation flagship initiatives for the work programme of Horizon This involved groundwork through international S&T cooperation dialogues and the drawing up of roadmaps. DG RTD also helped broaden the international participation of multilateral initiatives addressing global challenges. DG RTD AAR 2016 Page 39 of 84

40 2. ORGANISATIONAL MANAGEMENT AND INTERNAL CONTROL This section answers to the question how the achievements described in the previous section were delivered by the DG. This section is divided in three subsections. A first subsection (DG RTD and the Research and Innovation family) explains the role DG RTD plays as the head of the Research and Innovation family and the achievements related to this role. The second subsection (2.1) reports the control results and all other relevant information that support management's assurance on the achievement of the financial management and internal control objectives. It includes any additional information necessary to establish that the available evidence is reliable, complete and comprehensive; appropriately covering all activities, programmes and management modes relevant for the DG. The third subsection (2.2) deals with the other components of organisational management: human resources, better regulation principles, information management and external communication. Annex 2 contains the performance tables summarising the state of play of the output indicators planned in the Annual Management Plan DG RTD and the Research and Innovation family The control framework presented in this report should be seen in the overall context of responsibilities of DG RTD in implementing FP7 and Horizon DG RTD's responsibilities have increased as the budget for research and innovation has grown from the FP7 to Horizon 2020, prompting also the move to new management structures. "New" management modes for the programmes' implementation The responsibility to implement the Research FPs is shared amongst different Directorates-General. In order to focus on core institutional tasks, these Directorates- General have delegated parts of the programme implementation to Executive Agencies, Joint Undertakings and so called Article 185 bodies (partnerships with the Member States). This multitude of actors involved in the implementation of the research FPs is referred to as the "Research and Innovation Family", and requires a governance model that ensures: coordination and coherence in the setting up of the research agenda to be supported under the FPs (in particular strategic programming and work programmes); focus on core activities, i.e. policy-making, for the Directorates-General by delegating grant management tasks to Executive Agencies and other "external bodies"; coherent implementation of the grant management process across all the bodies involved in Horizon 2020 grant management. In its 2011 Communication on the MFF, the Commission announced a target of 66% for the share of the Horizon 2020 budget to be managed externally, and this may be extended to 75% over the lifetime of Horizon DG RTD AAR 2016 Page 40 of 84

41 Figure 7 H2020 budget share by implementing body The yearly progress of the budget figures demonstrates the continuous shift towards an increased implementation by the external bodies. DG RTD coordinates the Research and Innovation family Given the multitude of implementing bodies, effective coordination within the Research and Innovation family is essential. DG RTD, as the lead DG of the family, invests important resources in this coordination. Figure 8 summarises the current organisation of Horizon 2020 implementation 12. It differentiates the stages of the grant management system that are organised and managed mostly at family level (programming, calls, audits with blue shadow), and the others, involving the concrete financial transactions, that are implemented under the responsibility of each Authorising officer (DG's and other services, taken individually with grey shadow). DG RTD has the overall coordination responsibility in the management of the whole of H2020, even for those parts that are not in its own budget appropriations and which are not included in the assurance given at the end of this report. 12 Exception made of JRC, which implements direct research activity under the programme. DG RTD AAR 2016 Page 41 of 84

42 Figure 8 Horizon 2020 organisational set up Horizon 2020 programme implementation by the Research Family: DGs: RTD, CNECT, ENER-MOVE, GROW, AGRI, EAC & HOME Executive Agencies: REA, ERCEA, INEA & EASME, Joint Undertakings: Cleansky2, IMI2, FCH, BBI, ECSEL, Shift2Rail 8-11 months Call's publication proposals evaluated 3 months 36 months: average project 2 years after the final payment 6-12 months Programming, calls and evaluation Work programme H2020; Calls' organisation; Evaluation experts management in common Grant preparation The operational service prepares and signs the grant Monitoring the project implementation Monitoring the project implementation; scientific and financial reports' analysis, payments by the responsible service Ex-post audits Common audit service; Common Representative Audit Sample ; Common Representative Error Rate, common Anti-Fraud strategy Implementing the audit results Implementation of the audit results by the responsible service: recovery orders, offsetting, extrapolation Common business processes, IT tools, Participant portal by Common Support Centre located in DG RTD Research Family level Individual financial transactions by DG/Service Research Family level Individual financial transactions by DG/Service The Common Support Centre The implementation of FP7 through different Directorate-Generals and other actors led to some divergent practices across different parts of the programme. For a consistent and uniform treatment of all beneficiaries and the coherent implementation of Horizon 2020, the Commission developed a single set of simplified rules for participation and dissemination and created a Common Support Centre (CSC). The CSC provides common services in legal support, ex-post audit, IT systems and operations, business processes, programme information and data to all research DGs, executive agencies and Joint Undertakings implementing Horizon It helps to coordinate and deliver the programme across eight Commission Directorates-General, four Executive Agencies, and six Joint Undertakings 13, through streamlined, harmonised and rationalised business processes; trainings and improved documentation linked to the programme and project implementation; a single set of common IT tools to be used by all implementing services and all participants; a common interpretation of the single set of rules and a common control strategy; the consolidation and dissemination of results and data generated by projects managed by different actors. Highlights of CSC's achievements in 2016 The main achievements of 2016 are detailed under this section. 13 The operating rules of the CSC were adopted by Commission Decision C(2014)2656, these include information on the CSC governance, the responsibilities of the various parties involved, the missions and tasks of each service as well as staff and budgetary issues: the CSC is part of RTD, as one of its directorates. For administrative and day-to-day operational matters, the CSC is accountable to the Director- General of RTD. It is overseen by a Steering Board made up of all Directors-General with authorising officer responsibility for Horizon DG RTD AAR 2016 Page 42 of 84

43 Simplification Simplification is a continuous endeavour and has been kept high under the priorities of the CSC. The most significant achievements in 2016 have been: further simplified time recording requirements revised guidance on depreciation costs for equipment new option for personnel costs/hourly rates for periods outside closed financial years simpler rules for handling documentation on ethics requirements The CSC agreed these changes with the H2020 stakeholders and updated the Model Grant Agreement accordingly. Moreover, the CSC produced a new model contract for experts. The CSC also prepared and coordinated a second wave of simplification. This is a package of simplification measures to be implemented in 2017 and finalised with the adoption of the work programme. It is based on systematically collected user feedback and the opportunities that arise from the revised Financial Regulation and the Budget Focussed on Results priority. More details have been given in the first part of this report, under the policy achievements of the specific objective 1.3. Delivery of high level services The CSC offers quality services to each member of the R&I family and, at the same time, provides added value through harmonisation and further efficiency gains where possible. Legal and IT helpdesks In 2016, the CSC provided practical and clear advice to nearly 1500 internal and external legal questions addressed to the legal helpdesk facility and replied to more than 2000 specific and complex legal cases addressed to it via ARES. The Common back Office IT Service Desk (RDG IT Applications helpdesk) created 33,822 incidents and was able to handle 30,235 incidents with critical, high or medium priority (90%) within the target timeframe. In addition, the front office Service Desk (operated by DIGIT) created 55,086 tickets. Business processes During 2016, the CSC has completed the design and documentation of the full life cycle of grants with the exception of the audit implementation and grants termination planned in As regarding the Horizon 2020 Vademecum, the chapters on payments and amendments have been completed and several other chapters on evaluation, grant preparation and reporting and monitoring have been updated. In addition, it is worth mentioning the preparation of a guidance document on ex-ante control, good example of collaboration among services that once implemented in the IT systems will pave the way for a harmonized and efficient way of processing costs statements in H2020. Communication campaign on Horizon 2020 rules and procedures With the aim to avoid recurrent errors, the CSC organised or participated in 15 Horizon 2020 communication campaign events targeting both applicants and beneficiaries. This way it provided direct support regarding the correct implementation of the Horizon 2020 legal and financial rules and procedures. DG RTD AAR 2016 Page 43 of 84

44 Support and feedback to policy making, dissemination & exploitation The "Dissemination and Exploitation Strategy" of the R&I family defines how data and results generated by the framework programmes can be accessed and optimally utilised. It supports policy making and achieving better impact. The CSC implemented the pilot initiative "Projects for Policy". It produces recommendations for thematic and R&I policies based on project results and thereby contribute to the policy work of the DG. For external users, CORDIS has been improved with new features such as the "Results Packs" and "Enhanced Results in brief" for targeted audiences. A new "Partnership Agreement" between DG RTD and the Publication Office for CORDIS services entered into force in August Audit campaign The Common Audit Service (CAS) achieved its main priority for 2016 related to the implementation of the FP7 audit strategy. In parallel, the practical implementation of the Horizon 2020 audit strategy was further developed: the CAS completed the design of the Horizon 2020 audit and control procedures, notably the Indicative Audit Programme, and ensuring the readiness of the IT tools supporting the ex-post audit business process. More details on ex-post audits are discussed under the section IT developments and deliverables Beyond the normal maintenance of the IT systems and day-to-day services, the CSC worked on several specific IT developments. The corporate IT systems have been improved and completed for expert management and the grant management. It includes new document templates and workflows available and the launch of the reporting and monitoring modules. Regarding the ex-post audit function, so far managed in a separate IT system, its integration into Horizon 2020 corporate IT tools (SyGMa, COMPASS) has been launched. This will offer a better overview of the grant management control system. DG RTD's collaboration with DIGIT to serve jointly the interests of the Commission in the domains of Grant and Procurement management was further strengthened in DG RTD was nominated as the business owner of the corporate SEDIA and egrants projects for the whole Commission. Another important collaboration with DIGIT has the aim to develop the eworkflow/compass core into a corporate component. 2.1 Financial management and internal control This section reports the control results and other relevant elements that support management's assurance. It is structured into (2.1.1) Control results, (2.1.2) Audit observations and recommendations, (2.1.3) Effectiveness of the internal control system, and resulting in (2.1.4) Conclusions as regards assurance with the (2.1.5) Declaration of assurance accompanied by the reservations. Assurance is an objective examination of evidence for the purpose of providing an assessment of the effectiveness of risk management, control and governance processes. This examination is carried out by management, who monitors the functioning of the internal control systems on a continuous basis, and by internal and external auditors. Its results are explicitly documented and reported to the Director-General. The reports produced are: DG RTD AAR 2016 Page 44 of 84

45 the reports submitted by the Directors, which include the outcome of the internal control monitoring taking place in each Directorate; the reports from Authorising Officers in other Directorates-General managing budget appropriations in cross-delegation; the reports on control results from entrusted entities in direct management as well as the results of the Commission supervisory controls on the activities of these bodies; the contribution of the Director responsible for Internal Control, including the results of internal control monitoring at Directorate-General level; the annual report on the ex-post audit function; the observations and recommendations reported by the Internal Audit Service (IAS); the observations and recommendations reported by the ECA. These reports result from a systematic analysis of the evidence available. This approach provides sufficient guarantees as to the completeness and reliability of the information reported and results in a complete coverage of the budget delegated to the Director-General of DG RTD. DG RTD's overall responsibilities for the budget "Research and Innovation" DG RTD negotiates the Title 08 "Research and Innovation" of the budget of the European Commission and coordinates and monitors its implementation, in fine entrusted to the whole Research and Innovation family. DG's and Executive Agencies receive delegation directly from the College, Joint undertakings and other bodies receive their budget from DG RTD (see "subsidies" in the following tables). The Title 08 contains expenditure related to Administrative charges dedicated to Research and innovation; Research FPs 14 ; Euratom research and Training Programme; Coal and Steel. Amongst these items, the Framework Programmes represent the most important part, in quantitative terms. This explains that this report will mostly focus on this part of the budget. In 2016, under the Budget Title Research and Innovation (Title 08), a total amount of EUR Million was implemented, in terms of payments. Out of this, DG RTD was responsible for EUR Million, or 54.91% of the Title (against 60.59% in 2015) % (against 39.41% in 2015) of the Title 08 budget in payment in 2016 was authorized by other entities. 14 Nota bene: The current Horizon 2020 FP is not exclusively funded by the budget line 08. Other Titles are also contributing (02, 09 etc.). DG RTD AAR 2016 Page 45 of 84

46 Figure 9 Payments implemented for Title 08 in 2016 (Credits C1) Payments implemented for Title R&I in 2016 (5.502 M ) DIGIT 0,01% EASME 7,99% ERCEA 25,72% DIGIT EASME RTD 54,91% ERCEA GROW INEA MOVE GROW 0,40% INEA 6,39% PMO REA RTD REA 4,34% MOVE PMO 0,09% 0,16% The previous figure demonstrates the role DG RTD plays as the head of the Research and Innovation family: its coordination responsibilities go beyond the directly implemented budget amounts. DG RTD's payment appropriations (EUR Million) under Title 08 and fund source C1 15 were implemented for the following main items. Table 1 Payment Appropriations 2016 for DG Research and Innovation (voted budget and EFTA contribution) - Title 08 Title 08 - Payment Approprations 2016 for DG Research and Innovation (voted budget and efta contribution) AOD Management mode Execution amount (in million) % part RTD Co-delegated or Sub-delegated to other DGs 161,20 5,34% RTD DG RTD directly 1.878,28 62,17% RTD DG RTD to Art 185 bodies 86,40 2,86% RTD DG RTD to EIB 312,72 10,35% RTD DG RTD to JU's 582,37 19,28% Total Title 08 - DG RTD 3.020,97 100,00% 15 Credits voted for the year and EFTA contributions. Nota bene: the budget implementation figures are not to be directly compared to the payment figures (later tables), as the context and the parameters of the related database queries are both different. DG RTD AAR 2016 Page 46 of 84

47 Budget implemented by DG RTD in 2016 The Table 2 gives an overview of the payments authorized by DG RTD in 2016 under different programmes (legal base) and management modes (direct/indirect) 16. Table 2 Payments authorized in 2016 per programmes/management modes Authorized payments in DG RTD in 2016 (M ) (Cross-subdelegations given included, received excluded) Credit type ADMIN ADMIN Total OPERATIONAL OPERATIONAL Total Grand Total % Legal base H-2020 ITER RCFS FP7 H2020 Previous FPs RFCS Management mode / implementing body Total Direct 46,71 0,39 0,05 47,15 687, ,01 1,29 44, , ,37 60,67% RTD 46,71 0,39 0,05 47,15 687, ,01 1,29 44, , ,37 60,67% Total Indirect 101,80 0,00 0,00 101,80 253,41 858,35 0,00 0, , ,56 39,33% Art 185 bodies 0,00 0,00 0,00 0,00 37,34 49,05 0,00 0,00 86,40 86,40 2,80% EIB/EIF 0,00 0,00 0,00 0,00 0,00 436,05 0,00 0,00 436,05 436,05 14,13% Executive Agencies 101,80 0,00 0,00 101,80 0,00 0,00 0,00 0,00 0,00 101,80 3,30% Joint Undertakings 0,00 0,00 0,00 0,00 213,36 369,01 0,00 0,00 582,37 582,37 18,87% Other DG's 0,00 0,00 0,00 0,00 2,71 4,24 0,00 0,00 6,94 6,94 0,23% Grand Total 148,50 0,39 0,05 148,95 940, ,36 1,29 44, , ,93 100,00% % 4,81% 0,01% 0,00% 4,83% 30,48% 63,20% 0,04% 1,45% 95,17% 100,00% In 2016, DG RTD managed directly 60.67% (against 67.40% in 2015) of its budget expressed in terms of payments % of the payments went to other entrusted bodies, to be finally implemented by them. Table 3 below gives another overview of the implemented budget, following the different control systems under which the payments were authorized. The controls applied for a payment are different for commercial invoices (procurement), reimbursements of cost claims (grants), reimbursement of the cost of experts or payments of the amounts entrusted to other implementing bodies. Table 3 Payments authorized in DG RTD by control system Credit type ADMIN OPERATIONAL ALL % Ctrl system Amount (M ) Amount (M ) otal Amount (M ) Administrative 3,91 0,00 3,91 0,13% Experts contracts 0,00 5,26 5,26 0,17% Financial instruments 0,00 443,94 443,94 14,39% Grants 0, , ,79 58,00% Other 0,00 1,64 1,64 0,05% Prizes 0,00 0,09 0,09 0,00% Procurement 43,24 20,55 63,79 2,07% Subsidies entrusted entities 101,80 668,77 770,56 24,97% Cross-subdelegations 0,00 6,94 6,94 0,23% Grand Total ( ) 148, , ,93 % 4,83% 95,17% These figures confirm that, although it is decreasing in importance, the main management mode for the budget implemented by DG RTD in 2016 is still direct grant management (Grants), with 58.00% (against 65.24% in 2015). Directly managed administrative, experts, procurement and prizes (+other) related payments amount to a total of 2.42% of the expenditure % (against 28,14% in 2015) was entrusted to other entities outside the Commission, mostly to implement parts of the framework programmes under (indirect) grant management and financial instruments control systems. 16 The total amount paid in Tables 2, 3 and 4 1. is greater than the payment appropriations implemented in 2016 (Table 1), because all the fund sources are included, not only C1; 2. shows a difference with the Annex 3 of this report, because this latter includes co-delegated funds for which payments were not authorized in RTD (mainly RTD:PMO). DG RTD AAR 2016 Page 47 of 84

48 0.23% of the 2016 payments have been authorized under cross-subdelegations by other Commission DG's. This part is considered as implemented in direct grant management by other DG's. As a consequence, this report focuses on (direct and indirect) grant management and presents the financial instruments (covering 97.58% of the 2016 payments) but does not detail the other control systems. Assurance on this expenditure is provided by DG RTD directly or through its supervisory arrangements on the variety of delegated bodies that implement a part of the budget on its behalf. Grant management control system In order to achieve both operational (research-related) and financial objectives DG RTD has established a control framework to mitigate the inherent risks at the different stages of the direct grant management process and the indirect grant management. 17 This control framework must, however, be cost-effective and not cause excessive administrative burdens to researchers and participants. DG RTD therefore operates a system of targeted controls before payment. It bases its main assurance on in-depth checks carried out on-the-spot after costs have been incurred and declared. The Research Directorate-Generals have defined and implemented a common control strategy for FP7, the key elements of which are the ex-post audit strategy and the recovery process. The control system for Horizon 2020 has further improved the overall efficiency and coherence of the FP's implementation: the CSC develops for Horizon 2020 corporate processes and tools. This leads to a streamlined control environment with embedded automatic controls whenever possible. In 2016, DG RTD adopted its Horizon 2020 Control strategy 18, which is considered as a reference document for the other implementing bodies. As part of the overall common control approach, the Common H2020 Ex-post Audit Strategy was also adopted in Concerning ex-ante controls, a first common guidance document has been issued by the CSC. Financial instruments control system DG RTD has delegated the implementation of its financial instruments to two international bodies; the EIB and the EIF. As delegated bodies, EIB and EIF have a responsibility for how they carry out their tasks. However, RTD in its role as delegating body and AOR, also has a responsibility to supervise these bodies' implementation of the funds they receive. Therefore, RTD has established a supervision strategy for these instruments. This strategy aims to ensure that the financial as well as the research-related objectives are achieved. The general strategy chosen is supervision based on the establishment of clear rules, the examination of reports and the approval of key documents, but with a hands-off approach to detailed management issues, leaving the EIB and EIF a reasonable freedom to implement the programmes. Nevertheless, in the event that seriously adverse 17 For further details of the control systems, see Annex Ares(2016) /01/ Ares(2016) /02/2016 DG RTD AAR 2016 Page 48 of 84

49 information about the non-achievement of a key control objective should come to DG RTD's knowledge, the delegating acts give the Commission the right to intervene more deeply in the operations of the EIB and EIF. Budget cross-subdelegated/co-delegated to other services As in previous years, DG RTD has delegated a number of activities to different services within the Commission. In 2016, DG RTD cross-subdelegated EUR 6.94 million of its payment appropriations (operational credits) to other DG's. Being a Commission service itself, the AOR of services receiving delegation is required to implement the appropriations subject to the same rules, responsibilities and accountability arrangements. The cross-delegation agreements require the AODs of cross-delegated services to report on the use of these appropriations. The reports on the sub-delegations received from other DGs and offices did not provide any indication of any particular unfavourable observation with regard to the regularity and legality of the transactions concerned Control results This section reports and assesses the elements identified by management that support the assurance on the achievement of the internal control objectives 21. The DG's assurance building and materiality criteria are outlined in the AAR Annex 4. Annex 5 outlines the main risks together with the control processes aimed to mitigate them and the indicators used to measure the performance of the control systems. Control effectiveness as regards legality and regularity DG RTD has set up internal control processes aimed to ensure the adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments concerned. At point 2.1 of this report it was explained that DG RTD's budget is implemented under two main control systems, namely direct and indirect grant management. Innovfin financial instruments represent the second most important control system, and the rest less than 2.5% altogether. Consequently, this section discusses the controls and their results for the main expenditure items. For the other expenditure items, if no other indication is given, the estimated level of legality and regularity is to be found in the conclusion of the section entitled "overall assessment of the legality and regularity of operations". Control results for grant management (direct and indirect) This section covers all the expenditure implemented under direct or indirect grant management, the cross-subdelegations included 22, with the exception of the expenditure 20 The amounts subdelegated to other authorizing officers by DG RTD in order to implement FP7 projects (RTD/ENER; RTD/MOVE, amounts in red) will be included in the scope of DG RTD reservation. 21 Effectiveness, efficiency and economy of operations; reliability of reporting; safeguarding of assets and information; prevention, detection, correction and follow-up of fraud and irregularities; and adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments (FR Art 32). 22 For the 2016 reporting year, the cross-delegated AORs have signalled no serious control issues. DG RTD AAR 2016 Page 49 of 84

50 managed by the Article 185 and 187 bodies, discussed further. For the Research framework programmes, the main legality and regularity indicator is the error rate detected by ex-post audits. Because of its multi-annual nature, the effectiveness of the control strategy of the Research Directorates-General can only be fully measured and assessed in the final stages of the FP, once the ex-post control strategy has been fully implemented and systematic errors have been detected and corrected. The general control objective for the Research services, as stated in Annex 4 to this report is to ensure for the Seventh Framework Programme (and the Research Fund for Coal and Steel in DG RTD) that the residual error rate, i.e. the level of errors which remain undetected and uncorrected, does not exceed 2% by the end of the FP's management cycle. As for Horizon 2020, the final control objective is to get a residual error rate as close as possible to 2%, without necessarily expecting it to get under 2%. The question of being on track towards this objective is (re)assessed annually, in view of the results of the implementation of the ex-post audit strategy and taking into account both the frequency and importance of the errors found as well as a cost-benefit analysis of the effort needed to detect and correct them. Control results for FP7 and H2020 For FP7, the Common Audit Strategy and its results cover the DG's and the Executive Agencies. Joint Undertakings and Article 185 bodies report to DG RTD about their own audit results. For Horizon 2020, the Common Audit Strategy, adopted on covers all the implementing bodies. Ex-post audit methodology (FP7 and Horizon 2020) The Common Representative Sample (CRS) provides an estimate, via a representative sample of cost claims across the Research and Innovation family, of the overall level of error in the Research Framework programmes, across all services involved in its management. The 'representative audits' performed cover collaborative grants (given to consortia with participants from different Member States) as well as those granted under different schemes IDEAS (ERCEA), Marie Skłodowska-Curie (REA), infrastructure, etc. All of these grants follow the same homogeneous control system set out in this report. However, they may have differences in the details of the schemes and eligibility criteria which may, after taking into account all the available evidence, lead to different conclusions on the error rate of a particular scheme. The CRS is complemented by 'risk-based' audits; audits selected according to one or more risk criteria. These audits are intended to detect and correct as many errors as possible for instance by targeting the larger beneficiaries and identification of possibly fraudulent operators. These audits are also referred to as 'corrective' audits. Different indicators are calculated to provide a comprehensive view of legality and regularity: Overall Detected Error Rate: this is the error rate derived from the results of all audits, whether audits on a representative sample of beneficiaries or audits implemented for other reasons (large beneficiaries, preventive audits, risk factors, etc). Its value is cumulative and can be calculated for a specific implementing body or for the whole Research and Innovation family. Representative Error Rate: this is the error rate derived solely from the results of the CRS, extrapolated to the overall population and calculated for each FP as a DG RTD AAR 2016 Page 50 of 84

51 whole. This error rate provides an estimate of the level of error in the given framework programme at the time of the audits, but does not factor in the follow-up and corrections/recoveries undertaken by Commission services after the audit, nor does it provide information on the net final financial impact of errors. Residual Error Rate: the residual error rate, on a multi-annual basis, is the extrapolated level of error remaining after corrections/recoveries undertaken by Commission services following the audits that have been made. The calculation of the residual error rate, as shown in Annex 4, is based on the following assumptions: 1. all errors detected will be corrected; 2. all non-audited expenditure subject to extension of audit findings is clean from systematic material errors so that the residual error rate can be estimated to be equal to the non-systematic error rate. The residual error rate develops over time and depends on the assumptions set out above. DG RTD would like to underline that this indicator is reliable and acceptable for the purposes for which it was intended, i.e. as a legality and regularity indicator on the progress made, through its ex-post audit strategy, in dealing with errors over a multi-annual basis. However, it remains an estimate as long as not all cost claims have been received and not all cases of extension of audit findings have been fully implemented yet. Results of the ex-post audits for FP7 The error rates resulting from DG RTD FP7 audit work are: Overall Detected Error Rate: based on audited DG RTD participations, this error rate amounts to 4.42% 23. Common Representative Error Rate: based on 398 cost statements for which the audit is completed (82% out of a sample of 486), this error rate is 5.03%. The remaining cases are still subject to contradictory procedures with the beneficiaries; consequently, the Common Representative Error Rate may still develop. Residual Error Rate: at this point in time, this error rate amounts to 3.07%. This rate may increase slightly following the development of the Common Representative Error Rate. These results already include the partial results of the third and last Common Representative Audit Sample (launched in 2016). They are concordant with the general expectation that the Common Representative Error Rate resulting from audits of FP7 will be around 5% at the end of the programme. The residual error rate for DG Research and Innovation is expected at around 3%. These amounts do not necessarily mean that there is a loss to the Community budget. Many of the projects spend more than the capped budget, and so the real loss to the Community budget will be lower than when estimating the financial impact by using the error rates above. Results of the ex-post audits and expectations for Horizon 2020 Given the stage of the programme lifecycle, very few cost claims were received by the services before the second half of Consequently, the first significant sampling for the Horizon 2020 Audit campaigns was made at the end of 2016: a Common 23 This is lower than the representative rate as it includes a number of preventive audits carried out at the beginning of FP7 DG RTD AAR 2016 Page 51 of 84

52 Representative Sample (CRS), a Common Risk Sample and an Additional Sample 24 have been selected. Together with some minor sampling in May 2016, this represents, overall, 557 participations being audited. The first indications for the error rates (detected, representative and residual) are expected for the next annual report. For the purpose of the current report, the error rate affecting the payments made under Horizon 2020 programme can only be a preliminary estimation. The Financial statement accompanying the Commission's proposal to the legislative authority for the Horizon 2020 regulation states: "The Commission considers therefore that, for research spending under Horizon 2020, a risk of error, on an annual basis, within a range between 2-5 % is a realistic objective taking into account the costs of controls, the simplification measures proposed to reduce the complexity of rules and the related inherent risk associated to the reimbursement of costs of the research project. The ultimate aim for the residual level of error at the closure of the programmes after the financial impact of all audits, correction and recovery measures will have been taken into account is to achieve a level as close as possible to 2 %." Without other elements allowing an assessment of the level of errors, the detected error rate will be estimated to a range of 2-5%. The residual error rate cannot either be calculated following the formula set in Annex 4, as the no information is yet available relating to the level of systemic errors. Taking into account the FP7 experience, it is likely that with the usual correction mechanisms, this residual error rate will be close to 2%. Comments on the control results DG Research and Innovation makes continuous efforts to mitigate the risk of error in FP7 expenditure, however it seems clear that the 2% residual error target for FP7 will not be attained. This programme is now in its final stage of implementation, with a decreasing number of open projects and decreasing amounts of payment still to come. After the closure of the last Common Representative Audit Sample, no new information is expected relating to the Error Rates, and their financial impact on the yearly expenditure will be limited. Nevertheless, the lessons learned from FP7 have been used in the development of Horizon 2020 programme's general framework. In the Financial Statement accompanying the proposal for Horizon 2020, the Commission set out its analysis of the likely future trend of error rates. It stated that the simplifications introduced in Horizon 2020 could be expected to lower the representative error rate, with the Residual Error Rate being as close as possible to 2% (but without necessarily being below 2%). This analysis still holds true, as the simplifications proposed were generally accepted. However, some elements have been introduced in the legislation that will increase the risks in the programme. Firstly, there is the target for an increased participation of Small and Medium- Sized Enterprises (SMEs). As was noted in the 2012 AAR, SMEs have an error rate more than twice the rate for non-smes (6.61% as opposed to 3.07%). This is not entirely surprising, but the involvement of SMEs is vital to increasing innovation and boosting jobs in the EU. However, it does mean that an increased participation of SMEs increases risk. Secondly, Horizon 2020 includes a commitment to involving new participants in the 24 This last sampling accommodates special needs of certain stakeholders with regard to audit coverage and selection method. DG RTD AAR 2016 Page 52 of 84

53 Programme. However, as shown in 2012, new participants have an error rate nearly three times as high as recurrent participants (8.32% as opposed to 2.94%). New participants, though representing a positive element for the European research landscape, increase risk. Furthermore, during the discussions on the legislative package for Horizon 2020, provision was made for support to participants with large research infrastructures. This provision should support some of the major European research organisations, who might otherwise have had difficulty funding their advanced research infrastructure, but does insert an additional complication into the rules, and with it an increased risk. The limitation of additional remuneration to EUR 8000 per annum also brings an increased level of risk of error. The Commission takes actions to try to mitigate the risk arising from these four new elements (guidance, training, ex-ante assessments for large infrastructures, limits on additional remuneration) but these only mitigate, not avoid, the risks. Overall, DG RTD still believes that residual error rates should be reduced under Horizon 2020 as a result of the simplifications introduced in the legislation. Nevertheless, it underlines that the level of reduction in Horizon 2020 is subject to the effect of elements introduced during the legislation which, although perfectly understandable in terms of improving support for European research and innovation, may have the effect of increasing risks. In addition, attempts in the past to achieve the 2% target caused a number of unexpected and/or undesirable side-effects. Among beneficiaries and the legislative authorities, the feeling became strong that the control burden has become excessive. This increases the risk of lowering the attractiveness of the Union's Research programme, thereby negatively affecting Union research and innovation. There is, however, an acceptance among stakeholders and institutions that an approach solely focussed on the achievement of a 2% target for legality and regularity may not be appropriate. 25 There are other objectives and interests, especially the success of the Union's research policy, international competitiveness, and scientific excellence, which should also be considered. At the same time, there is a clear need to manage the budget in an efficient and effective manner, and to prevent fraud and waste. Taking these elements in balance, and in the light of the results of the FP7 audit campaign, DG RTD considers that its overall control strategy ensures that trust, control and other policy objectives are kept in balance. Aiming to achieve a residual error rate of 2% at all costs is not a viable approach. For this reason, Article 23 of the Horizon 2020 Regulation explicitly states that: "The control system shall ensure an appropriate balance between trust and control, taking into account administrative and other costs of controls at all levels, so that the objectives of Horizon 2020 can be achieved and the most excellent researchers and the most innovative enterprises can be attracted to it". It also states that audits of expenditure on indirect actions shall be carried out in a coherent manner "to minimize the audit burden for participants". The reserve in the declaration of assurance for the FP7 expenditure is addressed in Section This point has been widely discussed in the 2014 annual report. DG RTD AAR 2016 Page 53 of 84

54 Control results for Research Fund for Coal and Steel The Research Fund for Coal and Steel (RFCS) is managed under the provisions of the Council Decision (2008/376/EC). The rules for participation are close to those applied for Research Framework Programmes. Most of the beneficiaries are also participating in FP7/H2020 projects. The number of the projects is small compared to the FPs: a total of 663 for the period Control strategy The control strategy is based on ex-ante controls, most notably Certificates on Financial Statements, and ex-post audits at a rhythm of 5 audits per year. In addition the programme benefits from the results of the control strategy of the FP. The sample aims to have a maximum coverage and also to avoid repeated audits at the same beneficiary's within a 5-year period. The audit intensity is higher than in the FP. Because of the low number of projects, the audit sample is not designed to produce a result that is statistically representative of the population. Nevertheless, the coverage means that the errors detected give a reasonable estimate of the overall error rate. Corrections are implemented following the audit results, and systematic errors are corrected by extrapolation. Control results So far 45 audits (131 participations) have been undertaken, covering 9.7% of total expenditure. In 2016, the audit of 6 more participations was closed. As a result of all the audits completed so far, the detected error rate is 4.51%. Recoveries and corrections including extrapolations that have followed will lead to a lower residual error rate, estimated at around 3%. Conclusions In order to be close to the current FP's rules, and allow for simplification, which aims to reduce the error rates as well as administrative expenditure, a new H2020 inspired model grant agreement 26 is used for all grants signed after 1 January The financial management for RFCS is integrated within a unit that handles the FP, this allows to promote best practices and to review the ex-ante controls. In line with the audit strategy reviewed for H2020, the FP common audit service is providing advice on adjusting the RFCS audit strategy. Control results for Joint Undertakings The Joint Undertakings BBI, IMI2, FCH2, Clean Sky2 implement parts of FP7 and Horizon 2020, under the supervision of DG RTD. They received from DG RTD in 2016 payments for operational and running costs for a total amount of EUR million. Further details can be found in the Annex 6 of this report. Supervision arrangements The monitoring, supervisory and accountability arrangements include the following: - the Commission is a member of the Governing Board. Arrangements are in place 26 C(2015) 5757 final COMMISSION DECISION of on the multi-beneficiary model grant agreement for the Research Programme of the Research Fund for Coal and Steel. DG RTD AAR 2016 Page 54 of 84

55 within the DG to ensure that all proposals to the Governing Board are properly assessed and the Commission position agreed; - each Joint Undertaking is required to produce an AAR; - the Joint Undertaking's Director signs a declaration of assurance in line with the one used in the Commission; - the Joint Undertaking is required to inform the Commission without delay of any significant developments in the areas of risk management, control and audit; - the Joint Undertakings have harmonised their ex-post audit strategies with the Commission; DG RTD is aware of the results of the ex-post audits carried out; - DG RTD may request any additional information deemed necessary and has the right to audit the JTI Joint Undertakings' operations; - the Commission's IAS may carry out audits in the JTI Joint Undertakings, and DG RTD will receive the reports for action if necessary; - the ECA is the external auditor of the JTI Joint Undertakings, and DG RTD receives copies of the reports for action if necessary; - there are extensive informal and formal contacts regarding research matters, as well as on questions of internal control, audit (the JTIs are members of the Committee on Audit in Research), internal control, etc. Control results Neither the draft AARs, nor the regular supervision of these bodies, raised particular issues that would need to be included in this report. In addition, the Court of Auditors also gave a clear opinion on the 2015 accounts 27 of all the JU's under DG RTD's supervision, without a residual error rate above the materiality threshold. The level of legality and the regularity of this part of the expenditure is estimated to a range of %. Control results for Article 185 bodies Article 185 TFEU enables the EU to participate in research programmes undertaken jointly by several Member States, including participation in the structures created for the execution of national programmes. The actions supported may cover subjects not directly linked to the themes of the FP, as far as they have a sufficient EU added value. They will also be used to enhance the complementarity and synergy between the FP and activities carried out under intergovernmental structures. The Article 185 bodies supported in 2016 are set the following: EUROSTARS2 (Research for the benefit of SMEs) European Metrology Programme (EMRP) European Metrology Programme for Innovation and Research (EMPIR successor to EMRP) Joint Baltic Sea Research and Development Programme (BONUS) European and Developing Countries Clinical Trial Partnership (EDCTP and EDCTP2) In 2016, DG RTD paid a total of EUR million to Article 185 initiatives. Details on the 27 "In the Court s opinion, the transactions underlying the annual accounts for the year ended 31 December 2015 were legal and regular in all material respects for six Joint Undertakings (F4E, BBI, Clean Sky, IMI, FCH and SESAR)." The Court couldn't conclude on Ecsel JU's accounts. DG RTD AAR 2016 Page 55 of 84

56 legal bases and the amounts entrusted can be found in Annex 6 of this report. Monitoring arrangements The monitoring and supervisory arrangements include the following: the Commission is an observer in the boards; there is a delegation agreement between the Commission and the body setting out its obligations; the bodies are subject to an ex-ante readiness assessment; the annual work plans are approved by the Commission; the Commission receives annual reports from the bodies, including a management declaration and an audit certificate; the Commission has the right to suspend payments if the reports are considered to be inadequate; there are interim and ex-post evaluations to ensure that the bodies are achieving their policy objectives. Control results In 2016 DG RTD has not identified any particular issues that would need to be addressed in this report. The level of legality and the regularity of this part of the expenditure is estimated to a range of %. Expenditure under indirect management (other than grants) This section reports and assesses the elements that support the assurance on the achievement of the internal control objectives as regards the results of the DG's supervisory controls on the budget implementation tasks carried out by other Commission DGs and entrusted entities distinct from the Commission. As mentioned under 2.1., DG RTD has entrusted 39.58% of its 2016 budget (payments) for implementation to other Commission services, Executive Agencies 28, Joint Undertakings, other bodies linked to Article 185 initiatives, and to the EIB. Operating budget of the Executive agencies In 2016, DG RTD was the lead DG for the Executive Agencies REA and ERCEA. In Horizon 2020 some parts of the programme are implemented by the European Agency for Small and Medium-sized Enterprises (EASME) and the Innovation and Networks Executive Agency (INEA). RTD is a parent DG of these two agencies, although not the lead DG. DG RTD paid to REA and ERCEA a total amount of EUR million of administrative subsidies. The EAs have justified its use and no unused appropriations have been recovered by the parent DG. 28 The EAs receive delegation directly from the Commission, the Executive Director of an EA is the AOD, who has to provide assurance on the operational expenditure of the EA in his/her AAR. As far as the administrative/operating budget is concerned, the Director of the Executive Agency is the Authorising Officer and has the entire responsibility of the subsidies received from the European Commission. The parent DG(s) has(have) the responsibility on the subsidies given to EAs. Hence, those subsidies are part of the Commission expenditure on which the AOD of the parent DG must provide assurance in his/her DG AAR. DG RTD AAR 2016 Page 56 of 84

57 Supervision arrangements The appropriate monitoring and supervision of the EAs activities are mainly achieved by means of participation of the parent DG(s) in the Steering Committee of the EAs. The Agency's Director ensures that the members and observers of the Steering Committee receive all relevant information and reliable control results needed for the appropriate fulfilment of their mandates. The annual planning and reporting cycle forms the basis of the monitoring and supervision of the Agencies' activities by the Steering Committee. In particular, the Annual Work Programme contains an obligation of assessment of risks and risk exposure, and provides a number of key performance indicators. These constitute the benchmark against which the performance of the EAs is monitored through its interim reporting and AAR. It is complemented by other relevant sources of information such as the reports from the Discharge Authority, ECA, IAS and OLAF. Moreover, part of the management staff of these Executive Agencies is staff from DG RTD on secondment. Control results The supervision of the Executive Agencies continued throughout The preparation of the AARs of these Agencies was coordinated and reviewed by DG RTD and the Steering Committees of the Agencies. No unexpected issues arose that would need to be raised in this report. The reserves of the REA on a part of its expenditure mirror what is already reflected in this report and are well known to DG RTD. Financial instruments implemented by EIB/EIF Innovfin aims to support research and innovation through financial instruments. DG RTD has a duty to ensure proper supervision of the budget used, in accordance with the Financial Regulation and other legal acts and in line with the general principle of Sound Financial Management. To help ensure that the achievement of operational objectives is based on Sound Financial Management, the principles and details of the supervision of the budget entrusted to the EIB and EIF, and the internal control steps that apply to Innovfin have been established in It includes a supervision strategy and procedure as well as the key documents relevant to Innovfin. It is supplemented by the control strategy that EIB is required to present to us according to the Delegation Agreement. The EIB supervision strategy and control procedure was approved by written procedure after presentation to the 4th meeting of the Debt Steering Committee for Horizon 2020 financial instruments on 12 November Both sets of documents have been endorsed by the Director-General in early In accordance with the Delegation Agreement, both entrusted entities (EIB and EIF) submit to the Commission for each financial instrument: - a management declaration of assurance annexed to the financial statements in the form defined in EIF FAFA; - a summary report on audits and controls carried out in the period in question, including an analysis of the nature and extent of errors and weaknesses in systems identified if any, as well as any corrective actions taken or planned; - an independent audit opinion on the management declaration and the summary report on audits and controls. Regarding the financial instruments Innovfin, their annual reports for 2016 are currently under analysis. So far, there are no particular issues that would need to be addressed in DG RTD AAR 2016 Page 57 of 84

58 this report. From monitoring work done, which includes regular contacts/representation and/or the desk reviews of relevant management reports and audit reports, we have no indications that their reporting would not be reliable. It is considered that this part of the 2016 expenditure is not affected by errors in legality and regularity. Overall assessment of the legality and regularity of operations under RTD expenditure In the context of the protection of the EU budget, at the Commission's corporate level, the DGs' estimated overall amounts at risk and their estimated future corrections are consolidated. For DG RTD, the estimated overall amount at risk at payment 29 for the 2016 payments made is in a range of EUR million. This is the AOD's best, conservative estimation of the amount of relevant expenditure 30 during the year (overall EUR million) not in conformity with the applicable contractual and regulatory provisions at the time the payment is made. This expenditure will be subsequently subject to ex-post controls and a sizeable proportion of the underlying error will be detected and corrected in successive years. The conservatively estimated future corrections 31 for those 2016 payments made are EUR million. This is the amount of errors that the DG conservatively estimates to identify and correct from controls that it will implement in successive years. The difference between those two amounts leads to the estimated overall amount at risk at closure of EUR million (1.92% % of total expenditure) In order to calculate the weighted average error rate (AER) for the total relevant expenditure in the reporting year, the detected or estimated error rates have been used. "relevant expenditure" during the year = payments made, minus new pre-financing paid out, plus previous pre-financing cleared. Based on the 7-year historic average of recoveries and financial corrections (ARC). DG RTD AAR 2016 Page 58 of 84

59 Table 4 Estimated overall amount at risk at closure (minimum and maximum) DG RTD Payments made Prefinancing paid Prefinancing cleared Relevant expenditure Minimum Detected/ estimated Error Rate Maximum Detected/e stimated Error Rate Minimum Estimated overall amount at risk at payment Maximum Estimated overall amount at risk at payment Average Recoveries and Corrections Estimated future corrections Mimimum Estimated overall amount at risk at closure Maximum Estimated overall amount at risk at closure in 2016 ( ) in 2016 ( ) in 2016 ( ) in 2016 ( ) (weighted AER; %) (weighted AER; %) in 2016 ( ) in 2016 ( ) (adjusted ARC; %) in 2016 ( ) in 2016 ( ) in 2016 ( ) = a 5b 6a=4*5a 6b=4*5b 7 8=4*7 9a=6a-8 9b=6b-8 Administrative exp. Administrative H , ,45 0,00% 2,00% ,27 ITER , ,33 0,00% 2,00% ,39 RFCS , ,96 0,00% 2,00% ,58 Procurement - H , ,23 0,00% 2,00% ,84 ITER , ,30 0,00% 2,00% ,07 Subsidies entrusted entities - H , , , ,12 0,00% 2,00% ,84 Operational exp. - Cross-subdelegations - FP , ,76 5,03% 5,03% , ,84 H , ,54 2,00% 5,00% , ,13 Experts contracts - H , ,91 0,00% 2,00% ,52 RFCS , ,12 0,00% 2,00% ,90 Financial instruments - H , , ,54 0,00% 0,00% - - Grants - FP , , , ,81 5,03% 5,03% , ,19 H , , , ,13 2,00% 5,00% , ,86 Previous FPs , ,85 0,00% 2,00% ,98 RFCS , , , ,48 4,58% 4,58% , ,07 Other - FP , ,88 0,00% 2,00% - 766,28 H , ,74 0,00% 2,00% ,99 Prizes - H , ,00 0,00% 2,00% ,00 Procurement - FP , ,90 0,00% 2,00% ,02 H , , ,80 0,00% 2,00% ,82 Previous FPs , ,52 0,00% 2,00% ,99 RFCS , ,40 0,00% 2,00% - 256,05 Subsidies entrusted entities - FP , ,00 0,00% 2,00% ,78 H , , ,00 2,00% 5,00% , ,05 Grand Total , , , ,77 3,32% 4,11% , ,45 1,40% , , ,59 Share of the minimum/maximum amount at risk at closure of the total relevant expenditure: 1,92% 2,71% Segments affected by a reservation (see 2.1.5) DG RTD AAR 2016 Page 59 of 84

60 Table 4 above shows that 97.29% % of the expenditure implemented in DG RTD in is considered as complying with all the legality and regularity requirements. The remaining % is the part of the expenditure impacted by the risk that the underlying transactions were not compliant with the legal or contractual provisions. Despite this overall positive position, DG RTD makes a reservation for the Coal and Steel Research Programme and the directly managed part of FP7, because the estimated residual error rate for these items is beyond the materiality threshold of 2%, which is applied for these programmes. Further details follow under point of this report. Efficiency of the controls Based on an assessment of the most relevant key indicators and control results, DG RTD has assessed the cost-effectiveness and the efficiency of the control system and reached a positive conclusion. The following chapter gives details firstly on the efficiency related indicators, and secondly on the overall cost-effectiveness of the control system. Efficiency of the expenditure under direct management This section presents the main efficiency performance indicators for the activities carried out in DG RTD: grant management for FP7 and H2020 (and the Coal and Steel Research Funds) programmes. The report does not detail the part of the budget implemented under other control systems, as they are not significant compared to the grants. Grant management control results for FP7 and Horizon 2020 In 2016, two FPs were implemented in DG RTD. The management of these programmes is presented by control stages, with a varying scope depending on the stage and the programme. Table 5 Scope of the efficiency/performance indicators in this report Scope of the indicators for 2016 (data available) FP7 H2020 Stage R&I Family RTD only R&I Family RTD only 1. Programming and evaluation NO NO YES YES 2. Grant preparation NO NO YES YES 3. Monitoring of the projects NO YES YES YES 4. Ex-post audit YES YES YES YES FP7 represents in DG RTD, at the end of 2016, 3786 completed and closed grant agreements out of 4950 and 1147 outstanding projects, with up to EUR 945 million still to be paid. 751 final payments took place in Ex-post audits closed in 2016 are dedicated exclusively to FP7. H2020 audits were started but not finished FP7 projects still running in 2016, for DG RTD grant agreements with a RAL of EUR million 751 final payments in The total amount of payments authorized that appears in the above table shows a slight difference with the Annex 3 because this latter includes co-delegated funds for which payments were not authorized in RTD (mainly RTD:PMO). DG RTD AAR 2016 Page 60 of 84

61 Horizon 2020 represents 744 agreements signed in DG RTD, out of which 269 were signed in Payments authorized for H2020 projects were still mainly prefinancing. The first reporting periods were completed in 2016, and the subsequent cost claims have been received in the second semester. The first ex-post audits were launched at the end of Stage one: Programming and evaluation The first stage concerns the preparation of calls, the calls for proposals, and the evaluation of proposals. Overall control objective The overall control objective is to evaluate the project proposals in order to ensure scientific excellence (selection of the best projects) and the achievement of the operational objectives set out in the specific work programmes, as adopted by the Council and the Parliament. Proposals are reviewed by panels of external reviewers, who are experts in the scientific field. Scope Being a corporate business process for the Horizon 2020 implementing bodies, this section reports data related mainly to the Research and Innovation family. DG specific data are available for the indicator regarding the information sent to the successful projects. Risk based key controls Key controls include the screening of proposals for eligibility, the choice of independent evaluators, the evaluation by a minimum of three evaluators, and a panel review for the ranking of proposals. The list of approved proposals is checked for legal compliance by the AOSDs before it is submitted for a Commission inter-service consultation. These are key checks to ensure the excellence of the science to be funded and the legality and regularity of operations, since a compliance deficiency in the selection process would affect the regularity of all the ensuing grants. A corporate approach for more efficiency The planning of the work programmes and of the calls is organized in common for the Research and Innovation family. DG RTD coordinated the establishment of the H2020 work programme for and followed its implementation. For a better efficiency of the whole system some sub-processes of this stage are entrusted to REA (validation of the beneficiaries, SME qualification, experts' management, etc.); a corporate technical support is provided by the Participant Portal for the publication of all the calls and the dissemination of the related reference documents, and by the common IT tools for the evaluation phase. Control results Between the launch of Horizon 2020 and the end of 2016, 308 calls were published and 158 out of them were concluded for the whole family 33. A total of proposals were received in response to these calls. Of those, proposals requesting in total an EU financial contribution of EUR 465,6 billion - were eligible. 33 DG's, Executive Agencies, Joint Undertakings. All type of calls included. DG RTD AAR 2016 Page 61 of 84

62 Family Picture H2020 calls' competitiveness Around 1 in 8 eligible proposals retained for funding the objective of a maximum of 5 months spent between the call's deadline and the moment the applicants are informed of the results of the evaluation. Stage two: Grant preparation (contracting) The second stage concerns the preparation and award of contracts. Overall control objective For the concluded calls one proposal was retained for funding for, on average, about eight eligible proposals. This ratio, decreasing from 1/7 to 1/8 since 2014, demonstrates the attractiveness of the H2020 programme and the competitiveness of the call process. It also underlines the importance of a good evaluation process, as the most excellent projects need to be chosen from a large number of proposals. The main efficiency indicator of this stage is the Time-to- Inform. For the grants that were signed in 2016, DG RTD succeeded to respect, in 99% of the cases, Family Picture Time-to-Inform in 2016 H % on time The overall objective of this stage is the translation of each of the retained scientific research proposals into a legally binding contract allowing for the management of both the scientific and financial aspects of the project. Scope In 2016 this stage concerned Horizon Risk based key controls As well as the first stage, the second relies on corporate business process and IT tools, with the aim to ensure equal treatment of the beneficiaries and an efficient use of the scarce time dedicated to the finalization of the contracts. In addition to the basic checks of the participants, risk based checks are undertaken in order to prevent or mitigate fraud and other risks (operational capacity, financial capacity). A corporate approach for more efficiency IT tools, business processes and some checks are organized at Research and Innovation family level. The new legal entities undergo the validation process in REA, no matter which is the implementing body finalizing the contract. Control results In RTD, 269 grant agreements were signed in 2016 for H2020, for a total EC contribution of EUR million. The total of the budgeted costs of these projects is EUR million. DG RTD AAR 2016 Page 62 of 84 Family Picture Time-to-Grant in 2016 H % on time The main performance indicator is the Time-to-Grant (TTG). This is important as participants, especially Small-and-Medium-Sized Enterprises, want a quick answer to their proposals. Nevertheless, it needs to be noted that a shorter TTG does bring some

63 risks as it reduces the time available for the Commission to carry out extensive checks before signing grants. In 2016 the TTG was respected in 88% of cases against the H2020 target of 8 months, with an average TTG of 206 days. The same indicator, taken for the whole period of , shows a value of 91%. DG RTD signed a number of Research Infrastructure grants in 2016, where the complexity of the consortia triggered delays in the finalisation of the grant Picture for DG RTD Time-to-Grant in 2016 H % of grants signed on time 206 days on average Time-to-Grant (cumulative) H % of grants signed on time days on average agreements, often on the request of the beneficiaries. This explains the lower 2016 performance in terms of compliance with the deadline, while the average number of days taken for the granting is only 206, compared to a cumulative total of Concerning the results for the whole Research and Innovation family, and the whole period, % of grants were signed within the deadline 34. Stage three: Monitoring the projects' implementation The third stage concerns the management of the project and the contract, from the prefinancing and the final payment. Overall control objective The overall objective of the stage is to ensure the successful implementation of the granted projects mostly by timely and regular payments to the beneficiaries. Regular preventive controls as kick-off meetings and information sessions, trainings, communication campaigns etc. take place in order to prevent errors or fraud in the reimbursement of the costs claimed. Monitoring the results of the projects contributes to the overall evaluation of the programme's impact. For FP7, the ex-post evaluation was published in January Scope In 2016, prefinancing was paid for H2020 projects, and costs claims reimbursed for mostly FP7 projects. Risk based key controls This stage covers the normal management of the contract over its lifetime: the monitoring of the project implementation and the payments against the cost claims with all the necessary ex-ante checks. These ex-ante checks include audit certificates on cost statements established by external auditors, and the processing of transactions through Commission financial circuits. For Horizon 2020, common ex-ante control guidance was adopted in December 2016 by the Steering Board of the Common Support Centre. This guidance, deriving from the overall control strategy for Horizon 2020, streamlines the control practices related to the treatment of the cost-claims. The guidance is linked to dedicated features in the corporate grant management IT system (Sygma), where a particular attention was paid to the differentiation of the controls following the risks. 34 Without taking into account the grants signed by ERCEA, as the 8-month deadline is not binding in its case. 35 For details, see part 1 of the AAR. DG RTD AAR 2016 Page 63 of 84

64 Control results DG RTD managed 1891 ongoing projects in 2016: 1147 open contracts for FP7 at the end of December 2016; 744 contracts for H2020, signed before the end of December. For the 2229 payments that were done in 2016 for grants 36, details are in Tables 6 and 7 below. The efficiency of this stage is measured by the indicator 'Time-To-Pay' (TTP), which is defined as the percentage of payments made within the binding deadlines. Regarding grants, 97.6% of the payments authorized in 2016 by DG RTD were done in time. This confirms a good trend since 2013, and highlights the good performance of the payment workflows and the evolving IT environment. Table 6 Evolution of the TTP for grants in DG RTD (%) Expenditure type Research grants payments 93% 94% 95% 97.6% Table 7 Average net and gross TTP for grants in DG RTD in 2016 Payments Payment type Average time (calendar days) Nr Net Suspension Gross RTD H2020 payments PreFin RTD FP7 payments RTD Other grants not FP Gross = Beneficiary's point of view, ie Net + Suspensions As shown in Table 7 the average total time taken to pay is within the payment time limits imposed by the Financial Regulation and the respective contracts. However, DG RTD is aware that, in some cases, the total ('gross') time to pay is longer, because of the possibility, set out in the Financial Regulation, to suspend the payment deadline if information is missing or incomplete. DG RTD is committed to smoothing the process by further simplification of internal procedures and better IT tools and guidance to beneficiaries. Stage four: Ex-post controls and recoveries The fourth stage includes the ex-post audits as well as the recovery of any amounts found to have been paid in excess of the amount due. This section focuses on the audit work carried out in 2016 and its follow-up actions. The results of the audits, namely the error rates, are detailed in the section dedicated to the control results in terms of effectiveness as regards legality and regularity. Overall control objective Detailed ex-ante controls represent a considerable administrative burden on beneficiaries and the Commission, as they require the transfer of large amounts of information and its detailed checking. This has a seriously negative impact on the time to grant and the time 36 Under all the programmes (H2020, FP7, Euratom). DG RTD AAR 2016 Page 64 of 84

65 to pay beneficiaries. For this reason the Research and Innovation family has decided to obtain most of its assurance from ex-post controls. In addition, the implementation of the ex-post audit results has an important 'cleaning' effect on the budget. It is expected for FP7, that the Representative Detected Error Rate around 5% is to be reduced to 3%, after the corrections are applied. Scope For 2016 this stage covers mostly expenditure under FP7, with a small proportion the Coal and Steel Fund and Horizon As mentioned at the beginning of the chapter 2 of this report, the ex-post control stage for the research grant management is, largely, centralised in RTD, in a Common Audit Service (CAS). Therefore, the activity exposed here have to be read as related to the whole Research and Innovation family. Corporate approach for more efficiency and less burden In order to limit the audit burden on the beneficiaries and to ensure a consistent audit approach through the Commission services, the Common Audit Service undertook audits for the DGs that fund research grants (DG CNECT, DG ENTR (now DG GROW), DG MOVE and DG ENER) 37 ; when relevant, carries out joint audits with the Court of Auditors. As a consequence, overall 3991 different participations have been audited in audits carried out since the start of FP7, for a total audited amount of EUR million. For Horizon 2020 the CAS undertakes all (representative and complementary) audits, including for Executive Agencies and Joint Undertakings. It is a major step forward in ensuring a harmonised approach and also in ensuring that audit burden on beneficiaries is minimised. Controls and methodology Since 2007, the Research Directorates-General and the Executive Agencies have adopted a common audit strategy intended to ensure the legality and regularity of expenditure on a multi-annual basis, including detection and correction of systematic errors. The audits examine only interim and final claims by beneficiaries. Transactions relating to prefinancing are not included in the population subject to audit. In 2015, the Common Audit Service conducted audits for the Common Representative Audit Sample and others initiated on a risk based approach. 38 Controls results Ex-post audits carried out in 2016 With regard to the FP7 third 'common representative sample' (CRS3), which was initiated at the beginning of 2016, the CAS accounted for 99 FP7 audits in order to reach a common target (together with ERCEA and REA) of 162 FP7 audit coverage (cumulative figures) representative audit 1831 audits closed by DG RTD (1098 legacy RTD results. 451 FP7 audits CAS RTD) were closed by audited FP7 beneficiaries (by DG RTD) December 2016, 10,1 % of the RTD beneficiaries in FP7 audited 62,9% of the FP7 budget covered (DG RTD) 37 FP7 audits started in these DGs will be (9,1% completed direct by coverage the same DGs. and Executive 53,8% Agencies by extrapolation) remain responsible for their FP7 audits. Full details can be found in the AARs of these other services. 38 More details on the methodology can be found in the control effectiveness section (2.2.2). DG RTD AAR 2016 Page 65 of 84