Publication - Advice and guidance

European Structural and Investment Funds: Challenge Fund principles

Guidance for lead partners wishing to distribute European Structural and Investment Funds (ESIFs) funding through a Challenge Fund.
16 Oct 2017
European Structural and Investment Funds: Challenge Fund principles


A Challenge Fund is an open and competitive application process for disbursing funding. It is one of three delivery methods for Lead Partners in the 2014-20 Programmes. Lead Partners can either deliver activity themselves, contract the services of a third party through a procurement process or run a Challenge Fund. The Lead Partner should have clearly detailed their intention to run a Challenge Fund in the approved Strategic Intervention application.

Challenge Fund versus procurement

Procurement of a contract is when the Lead Partner awards a contract for the provision of goods, services or works from an external source. Procurement involves advertising the opportunity, selecting bidders establishing payment terms, strategic vetting, selection and the negotiation of contracts.

A Challenge Fund focuses on the skills of the bidder to provide the service required, but also their ability to provide match funding. In certain circumstances however, the Lead Partner may not require the bidder to provide match. The Challenge Fund selection process while open and transparent, involves an Advisory Group or similar set up, to decide the successful bidder.

Call for funding

The Challenge Fund must operate on an open, fair and transparent process. Any advertisements inviting applications for funding, either through the media or online should be of sufficient scope that applicants from the relevant sectors are aware of the opportunity. In order to satisfy this objective, Lead Partners should be able to demonstrate that they announced the European funding on their own websites, the local/national press and on websites relevant to the sector they target. Lead Partners should ensure relevant logos are used in accordance with the Publicity Requirements accessible from the Managing Authority website:

No potential applicant should be precluded from the process simply because they have not previously worked with the Lead Partner or other public sector body.

Aims and activity

A Challenge Fund should set out the aims of the fund, eligible activity and expected outputs, detailing the importance of the ambitions of the relevant 2014-2020 Operational Programme.

Guidance and eligibility rules

The European Structural Funds Guidance and Eligibility Rules can be found on the Scottish Government website see the link:

Cost model

The most appropriate cost model for a Challenge Fund is either staff costs + 15% or Staff Costs + 40%.

Application and approval stage (including selection criteria)

The application process should be structured to ensure that the applicant can fully explain the added value their project can bring not just with additional activity, but also with specialist knowledge or skills to address a gap in service delivery. All applicants should be given the same version of the application form and have access to the same guidance. Applicants should also be clearly advised that they will be expected to bring match funding, the expected extent of this funding, and they must confirm where their match funding has come from. They must ensure that any match funding they bring does not comprise of European funding.

Applications should be assessed by a group/panel whose membership does not include anyone with any personal/professional interest in the applications. Ideally, the group would have internal and external members to assess the applications. An example of an assessment group could be a selection of the Community Planning Partnership members such as those from local authorities and the NHS.

Criteria to consider when assessing:

  • has the applicant justified the need for the activity in relation to the beneficiaries/organisations being targeted?
  • does the applicant provide evidence that there is a demand?
  • does the application show how the project fits with the objectives of the Strategic Intervention (SI)?
  • are the actions and targets in line with the approved SI and Operational Programme?
  • have they read and understood the National Rules?
  • is there a need for grant?
  • what is their track record in delivering the activity and achieving results?
  • does the activity meet state aid tests?
  • has the applicant conformed with Procurement Rules?


Unlike previous programmes, the 2014-2020 programme focuses on outcomes and the Managing Authority has adopted simplified costs to support this. It is important that applicants clearly identify their client group, are clear about the gap in service they intend to address, and can provide realistic and achievable targets.

Document retention

Lead Partners should certify that procedures are in place to ensure that the Challenge Fund recipients adhere to the same document retention requirements link:

Lead Partners must ensure that they have taken advice from their own legal sources before proceeding.