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Subcontracting vs. Purchasing Costs
Knowing the difference between subcontracting and purchasing costs in EU-funded projects can be confusing! Understanding how to classify these costs correctly is essential for ensuring compliance with EU funding rules.
Our experienced EU Project Delivery team is here to help you navigate the requirements and avoid common pitfalls. Below, we explain the key differences and what you need to know.
Subcontracting costs
Often you do not have all the necessary resources, expertise or capacity to complete your project inhouse, delivering specific work, goods or services required for the task/s Therefore, when you, e.g., outsource all or a significant part the execution/implementation of a project task described in Annex 1 to a third-party entity, it is referred to a subcontracting cost.
Such costs are eligible under Horizon Europe (HE) programme if the costs meet the eligibility criteria as per article 6 – “Eligible and ineligible costs and contributions of the grant agreement (GA)”.
Subcontracting costs should be based on actual incurred costs and only cover a specific and limited portion of the project, aligning with the “best value for money” principle (or if appropriate the lowest price), as well ensuring there is no conflict of interest.
Subcontracting costs do not include any indirect costs for the beneficiary, so the 25% indirect costs cannot be added to the subcontracting expenses.
It is required to outline the subcontracted work, goods or services and their corresponding estimated costs under respective tasks in Annex 2 of the GA during GAP (Grant Agreement Preparation) stage. This part of GA serves as a roadmap during the project reporting.
Unforeseen subcontracting costs (new costs not foreseen at the GA) need to be approved by the EC/EIC Project Officer via Amendment to GA or based on simplified approval procedure during periodic reporting.
Note, completion of project deliverables and milestones cannot be outsourced to subcontractors.
Purchasing costs
Purchasing costs refer to the expenses when acquiring goods or services from external suppliers like travel, equipment, other goods, works and services.
These contracted costs are valuable in assisting the project's progress but do not constitute an entire defined task outsourced to a third party (i.e. purchase of small project consumables, depreciation costs of or renting/leasing of equipment, organisation/participation in project related events and meetings, certification and translation costs, etc.).
These costs should be budgeted and reported under the budget category "C. Purchase costs" and 25% flat rate indirect costs are applied to this category.
These contracts do not cover the implementation of the project task(s), but they are necessary to implement the project task(s).