In 2009 the EU adopted Directive 2009/81/EC harmonising procurement procedures and creating a common European market in defence and national security-related contracts. This Directive is due to be implemented across the EU by 21 August 2011.

In view of this the Ministry of Defence (MoD) has recently published an extensive consultation document (including draft laws) on the proposed UK approach to adopting the necessary laws to implement the Directive in the UK in time. If the MoD’s proposals are carried through, the new rules will only apply to procurement commenced after 21 August 2011.

The EU estimates that the total amount spent on defence in the EU exceeds some EUR 170 billion per annum and most of that is not made available to bidders from other Member States at present on account of Member States claiming the national security exception.

Article 346 of the TFEU Treaty (formerly Article 296 EC Treaty) allows Member States to take exceptional measures (ie. bypass the procurement Directives) for measures connected to the protection of essential national security interests (trade in arms, munitions and war material).

There has long been a concern that different Member States handle this in different ways, with the result that many contracts that could be subject to open competition are not, for example because the military link is more tenuous.

The new rules allow a certain amount of flexibility (which the MoD proposals take advantage of) but either way require all Member States to adopt a common system for dealing with defence and sensitive security procurements (NB. the scope goes beyond military and encompasses many other facets of sensitive national security issues including anti-terrorist measures).

The new defence rules are a lighter version of the standard public contracts rules but nevertheless entail a common framework of a similar type backed up with similar remedy options to enable disgruntled bidders to have effective challenge procedures available.

The most important difference is that the new defence rules will allow use of the negotiated procedure with prior publication of an advert as standard and without any need for special justification.

The new Directive does not prevent Member States from invoking Article 346 TFEU and bypassing open procurements in cases that are so sensitive that not even the new rules can satisfy their security needs. In most cases however the procedures set out in the new Directive should suffice.

Separately the European Commission is trying to crack down on inappropriate use of the Article 346 TFEU exception (even under current law) and may be expected to prosecute failures to abide by the new Directive in future without good cause.