Published on 20 August 2009, the new Directive on Defence Procurement (Directive 2009/81/ EC) has now entered into force with the objective of establishing a single market for European defence and security equipment and services. Following the adoption of Directive 2009/43/EC on intra-Community Transfers of Defence Products last December, the European Union has taken an additional step of creating a unique regime for defence and security markets.

The new Defence Directive aims to enhance transparency and openness in the European defence and security procurement market, a market with an estimated value of over €90 billion. It will apply to contracts for the supply of military and sensitive equipment (ie, arms, munitions and war material, including sensitive security equipment) and to works, supplies and services directly related to them.

Why is the Defence Directive needed?

Defence and security contracts currently fall within the scope of the general procurement regime, which applies to all public sector contracts (Directive 2004/18/EC). This situation was unsatisfactory because Directive 2004/18/EC is ill-suited for the special features of many of the defence contracts, which tend to be particularly sensitive and complex. As a result, Member States tended to rely on the exemption provided under Article 296 EC Treaty (which is intended to be applied in strictly defined circumstances), resulting in the procurement regime rarely being applied in a defence procurement context. The European Commission has been concerned that the exemptions were being applied in circumstances that did not justify the disapplication of the procurement regime which, in turn, resulted in infringement proceedings being brought against Member States on related grounds.

Against this backdrop, the Defence Directive aims to address these concerns and provide a bespoke procurement regime for contracts in the defence and security sector which should, it is hoped, limit the circumstances in which contracts are awarded without a competitive tender. This should, accordingly, increase the transparency of the market and provide greater insight for companies to understand the opportunities that are available to them on the defence and security market.

Key features of the Defence Directive

There are a number of new features in the Defence Directive that are tailored to address specific issues and, in so doing, aim to provide a more appropriate framework for the procurement of defence and security contracts than that provided under the general procurement regime.

Security of Information - Under the new Defence Directive, a contracting authority can impose certain requirements on a tenderer that are aimed at protecting the confidentiality of information communicated during the tender procedure. Further, the contract documentation can specify requirements and measures that are needed to safeguard the confidentiality of the information. These may include, for example, commitments from the tenderer and requirements on the tenderer to provide certain assurances regarding sub-contractors.

Security of Supply - In a similar way, a contracting authority can specify in the contract documentation its requirements relating to security of supply. Again, this recognises the unique nature of defence and security contracts and, specifically, the degree of reliance that Member States are likely to place on the fulfilment and delivery of such contracts in protecting national security interests. The Defence Directive sets out certain measures that may be required by acontracting authority to demonstrate security of supply. These include certification regarding the ability of the tenderer to export, transfer and transit the goods, information regarding the tenderer’s supply chain and/or strategy and commitments from the tenderer relating to carrying out maintenance, modernisation or adaption of supplies under the contract.

Flexible procedures - The procurement procedures under the Defence Directive are largely comparable to those under the general procurement regime with the exception that the negotiated procedure (with prior publication of a contract notice) is freely available under the Defence Directive (ie, without the need for special justification). There is also provision for the use of framework agreements, although the duration is more flexible than under the general procurement rules. In addition, the Defence Directive specifies certain circumstances that would justify the use of the negotiated procedure without the publication of a contract notice, for example, in relation to air or maritime services for the forces of a Member State deployed abroad.

Research and Development - provisions on R&D have been included (in addition to those existing under the public sector rules) and allow, to a certain extent, for the award of R&D contracts on the basis of the negotiated procedure without prior advertisement of a contract notice. This exemption could be used, for example, when contacts are awarded as part of a cooperative programme between two or more Member States.

Outlook

The Defence Directive does not introduce a new and radical regime that departs dramatically from the general procurement regime. It does, however, provide a specialised and bespoke set of provisions, based on the general procurement framework. This should provide an opportunity for greater transparency and an inducement for contracting authorities to use competitive tendering more readily. This may, in turn, create significant opportunities for companies (including, for example, American based defence and security companies that already have a significant penetration in the EU market) to engage in competitive tendering processes for defence and security contracts that might previously have been awarded without a call for competition. Whilst the practical implications of the Defence Directive remain to be seen, the opportunities for companies to engage in this market should increase as a result.

The full text of the Defence Directive is available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:216:0076:0136:EN:PDF