Exceeding the grant period: When is there a risk of funding being reclaimed?

The typical case is characterized by delays in the planned course of the project, caused for example by delivery problems or a lengthy procurement procedure. In such cases, the entire funding amount is often called up and paid out within the set grant period, even though the parties involved were aware or should have been aware that the completion of the funded project would be delayed. In this case, it is not a question of a delayed drawdown of funding, but of a delayed use of the funds. At first glance, these cases entail a risk that the funds granted will be reclaimed due to a breach of the notice of grants.

In these cases, there are various different types of grant notices and facts. Consequently, there are various approaches to the legal classification of the funded measure’s continuation and its legal consequences. In many cases, practical and interest-oriented solutions are possible, some of which are outlined below.

Grant period

The administrative regulations for Art. 44 of the federal and state budget regulations declare the “grant period” to be a necessary content of a notice of grants, without explaining the term in more detail.

The regular addition “it may extend beyond the current financial year in the case of grants for project funding, to the extent there is a corresponding budgetary authorization” gives an indication of this requirement’s main purpose: On the one hand, it is intended to ensure that the binding funding commitment is backed by sufficient state funds and, on the other hand, to enable proper financial planning for the public funding body and thus also compliance with budget law.

Grant period establishes a temporal connection between the funding purpose, expenditure and covering funds

The grant period is therefore essentially the period of time for which the public funding provider makes a binding funding commitment to the funding recipient, defines a specific time frame for the funding measure and thus establishes a temporal connection between the funding purpose, expenditure and covering funds.

Consequently, the maximum term of the grant period is mainly determined by the expiration date of the respective public grant’s underlying budgetary authorization. This is because no more budget funds are available for funding after this date. The grant period thus limits the recipient’s entitlement to payment of a specific grant in terms of time and at the same time sets a time limit for the recipient’s ability to enter into payment obligations eligible for funding.

The term of the grant period to be specified in the notice of grants is generally based on the period required for the measures’ implementation. Thus, both periods are generally congruent.

Determination of grant period does not constitute a limitation or condition as defined in the German Administrative Procedures Act

In light of the above, the (mere) determination of a grant period regularly neither constitutes a limitation pursuant to Art. 36 (2) no. 1 German Administrative Procedures Act (“VwVfG”) nor a condition pursuant to Art. 36 (2) No. 4 VwVfG, but rather one of the main provisions of a notice of grants which, in this function, is (among other things) the basis for ancillary provisions such as the deadline for the reporting on the expenditure of funds.

However, it is at the granting organization’s due discretion to give the grant period’s general content additional binding force and legal certainty by adding supplementary requirements. This is often done by expressly obliging the grant recipient to complete his project within the grant period, including all expenditures. These specific supplementing provisions are considered by case law as a condition pursuant to Art. 36 (2) No. 4 VwVfG, the non-compliance with which is associated with own legal consequences. 

Legal consequences of exceeding the grant period

If the notice of grants lacks such determinations, it is often possible in specific individual cases to justify that the grant is unobjectionable or at least has no consequences under grant law, despite the grant period being exceeded.

On the one hand, the grant recipients are granted a so-called utilization period of two months after the funding has been called up for appropriate due payments in accordance with the notice of grants’ provisions, namely in accordance with the general ancillary provisions regularly declared binding in such notice (e.g., No. 1.4 ANBest-P). In the administrative regulations for Art. 44 HO, this period is even longer in some cases.

Appropriate use of funding outside the grant period—no direct claim for repayment without supplementary requirements

On the other hand, the mere fact that called-up and disbursed funds have not been used for the intended purpose within the specified grant period due to the course of the project does not render the notice of grants invalid. Consequently, under the aforementioned conditions, such delay does not result in a direct claim for repayment under Art. 49a (1) sentence 1 VwVfG; rather, the notice of grants remains the basis for the entire grant procedure and its implementation.

Likewise, in our legal opinion, it is not possible to revoke the grant due to misuse or to reduce the funding amount accordingly in the context of a final decision in cases such as the one discussed here, provided that the funds drawn down have been or will be used for the purpose specified in the notice of grants.

General regulatory content of a grant period generally only entitles the beneficiary to funding for this period

The literature and case law generally consider expenses incurred by the grant recipient after the end of the grant period to be a subset of improper use of the grant funds—usually without further justification. In our opinion, however, such a classification can at best be justified by the general regulatory content of a grant period as described above, which entitles the beneficiary to funding only for such period; expenses after the end of the grant period are generally not (or no longer) covered by budgetary law and are therefore not eligible for funding.

However, in our opinion, this can—irrespective of and beyond a utilization period granted in the notice—not apply if the cause and legal basis of the (subsequent) expenditure have already bindingly occurred within the grant period; in such case, the purpose of the grant and the budgetary provision coincide, only the actual use of the funds is (partly delayed) in the future.

Pursuant to Art. 49 (3) sentence 1 No. 1 VwVfG, however, it is generally possible to revoke the notice of grants because “the funding […] is not used for the purpose specified in the administrative act […] shortly after it is provided.” “Shortly” means that the funds must be used within a reasonable period of time; in subsidy law, the usual two-month period of the administrative regulations for Art. 44 of the Budgetary Regulations serves as reference for such “reasonable period”.

The reasons for the untimely use of the funds are not relevant, nor is any fault on the part of the grant recipient. However, the decision to revoke the grant is at the due discretion of the grantor. In the case of funds merely not being used for the intended purpose within the defined reasonable period, there are generally no explicit administrative regulations guiding discretionary decisions.

Interest-based, balancing solution: Interest claim instead of revocation with (partial) reclaiming of grants

In many cases, especially if there are no doubts as to whether the funds were used for the intended purpose, demanding interest (so-called interim or anticipatory interest) for the period until the funds are used for the intended purpose instead of revoking the notice and (partially) reclaiming the funds that were used late in accordance with the special provision of Art. 49 a (4) sentence 1 VwVfG might be a reasonable discretionary decision in view of the principle of proportionality. 
Such an approach often provides a solution that balances interests: the recipient of the grant, who is basically acting in accordance with the law, retains the funds used for the intended purpose, while the grantor skims off any unjustified interest profits generated by the grant recipient.

Many thanks to Dr. Peter Czermak for his valuable support in writing this article.