EU funds: Hungarian government concedes to EU, payments could be saved
A new Hungarian government decree significantly tightens financial controls on public and EU-funded construction projects. The move is a clear response to recent criticisms of Hungary’s public procurement system by the European Commission. The new rules aim to restore confidence in the handling of EU funds and curb uncontrolled cost increases in public works.
In April 2024, the European Commission expressed serious concerns about Hungarian public investment. The main issues identified were a lack of transparency, circumvention of public procurement rules, blurred lines around conflicts of interest, and risks associated with the use of EU funds. As a result, Brussels threatened to suspend further aid.
According to the official letter sent by the Commission, Hungarian legislation could seriously infringe EU rules on several counts, as it allowed certain projects to be exempted from public procurement obligations and failed to provide legal redress for those affected. This legal environment posed a systemic risk to the proper use of EU funds.
How does the new regulation affect the EU funds?
According to Portfolio, under the new regulation, all public or EU-funded works that meet or exceed national or EU public procurement thresholds will be subject to a detailed cost control procedure. This means, for example, that for classical contracting authorities, the lower threshold is HUF 60 million (around EUR 148,000), while the EU threshold is EUR 5.5 million (over HUF 2 billion).
However, the regulation does not only target individual projects but also considers the value of related smaller investments that fall under the same grant agreement. This measure aims to prevent contractors from “fragmenting” projects to avoid control obligations.
However, certain exceptions have been maintained. For instance, no cost control is required for emergency interventions resulting from natural disasters or industrial accidents, provided they fall below the EU procurement threshold. Projects undertaken by private companies or companies with majority municipal ownership are also exempt, if the share of public or EU funding does not exceed 50% and the total value remains under the threshold.
What’s being monitored?
The regulation covers the entire life cycle of construction projects. This includes not only implementation but also project preparation, modifications to existing contracts, execution of additional works, and the mobilisation of reserve funds. Cost controllers may therefore be involved from the planning phase and will track expenditure throughout the process.
Monitoring responsibilities are divided among several sector-specific institutions. For example:
- Rail and water projects: Institute of Transport Sciences
- Building construction: Construction Quality Control Ltd
- Road construction: Hungarian Public Roads Authority
- Agricultural projects: Hungarian State Treasury
The IT infrastructure is provided by the MÁV Service Centre, enabling the process to be administered and tracked electronically.
Applications for cost verification must be submitted online, along with various documents such as itemised budgets, technical specifications, price estimates, and supporting documentation for additional works. Based on the application, the Minister will issue an opinion, which could be pivotal for authorising procurement or contract amendments.
If the application is incomplete or incorrectly formatted, a supplementary submission is required. Failure to do so will result in the termination of the procedure and no ministerial opinion will be issued. The regulation also demands procedural flexibility—e.g., if there is a change in contractor, updated documentation must be uploaded within five days.
Regulations and the aim
A key component of the new regulation is the clarification of conflict-of-interest rules. It explicitly states that individuals who are personally or financially involved in a project may not participate in any form of cost control. This applies to project managers, designers, contractors, technical inspectors, and their subcontractors. This measure is especially important, given that one of the European Commission’s main objections was the widespread neglect of conflict-of-interest safeguards.
The regulation will come into force on 13 May 2025, and from that point onwards, all new contracts will be subject to the cost control procedure. The aim is clear: to closely monitor public investment costs, ensure the efficient use of public funds, and minimise the risk of corruption. The system is designed to maintain oversight of financial processes from project planning through to completion.
The centrally coordinated, digitally monitored control mechanism not only promotes transparency but also reinforces the rule of law and compliance with EU standards. This, in turn, may be crucial for Hungary to regain full access to EU funds and restore its international credibility in investment policy.
Stay informed! Read more about the situation of EU funds in Hungary HERE!
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