What's New in the EU: Defense and security directive enters into force

Move could open up the Internal Market for defense and security products.

By ARI SYRQUIN
EU 88 (photo credit: )
EU 88
(photo credit: )
The new directive on defense and security procurement, which came into force on 21 August 2009, is claimed to be the cornerstone of a European defense market supporting the development of the European defense-related supplier base. Up until now, the vast majority of defense and sensitive security procurement contracts have been exempted from the Internal Market rules. One of the reasons for this is that the existing EU procurement rules are considered to be ill-suited for most defense- and security-related purchases. The new directive is hoped to improve this situation by providing tailor-made procurement rules for defense and security contracts. Member states now have at their disposal European Community rules they can apply to complex and sensitive transactions without putting at risk their legitimate security interests. Until now, most defense and sensitive security equipment has been procured on the basis of uncoordinated national rules, which differ greatly in terms of publication, tendering procedures, selection and award criteria, etc. This regulatory patchwork is a major obstacle on the way towards a common European defense equipment market and opens the door to non-compliance with the Internal Market principles. The new directive could open up the Internal Market for defense and security products by introducing transparent and competitive procurement rules specifically adapted to the needs of these highly sensitive sectors. The new rules apply to the procurement of arms, munitions and war material and also to sensitive non-military contracts in areas such as protection against terrorism which often have similar features to defense contracts. The directive contains a number of innovations tailored to the specific needs of procurement in defense and security markets. The directive awards authorities with the power to use the negotiated procedure with prior publication as a standard procedure, which gives them flexibility to fine-tune all details of the contract. Moreover, candidates may be required to submit specific guarantees ensuring security of information (safeguarding of classified information) and security of supply (timely and reliable contract execution, especially in crisis situations). In accordance with the new directive, awarding authorities may oblige contractors to award subcontracts in a competitive manner, opening-up supply chains and creating business opportunities for small and medium-sized businesses, in the defense and security sector. A set of national review procedures will provide effective remedies protecting the rights of businesses taking part in the award procedure. The new directive comes after the European Commission adopted in March 2003 a communication which launched seven initiatives aimed at establishing a European Defense Equipment Market. In the area of defense procurement, this led in September 2004 to the publication of a Green Paper. The following consultation confirmed in particular a widespread misuse of Article 296 of the Treaty, whereas the application of the latter should be limited to exceptional and clearly defined cases, many member states have used Article 296 systematically to exempt almost all defense procurement contracts from EC rules. According to stakeholders, the reason for this was two-fold: The conditions for the use of Article 296 were not clear, and the existing Public Procurement Directive was considered ill-suited to the complexity and sensitivity of most defense procurement contracts. Based on these findings, the EC announced in December 2005 two initiatives to improve the situation. In 2008, the EC's proposal was negotiated at the European Council Working Group on Public Procurement and the Internal Market Committee of the European Parliament. During these negotiations, specific provisions on subcontracting and remedies were added to the initial text. At the end of the French Presidency, EC and Parliament achieved a compromise on a final text modifying the EC's proposal. In January 2009, the European Parliament's plenary approved the compromise. The EC gave its final approval in July 2009. The text was thus adopted in first reading and subsequently published as Directive 2009/81/EC in the Official Journal of the EU on 20 August 2009. From that day on, member states have two years to transpose the directive into national law. Member states still have the possibility to use Article 296 EC Treaty to exempt defense and security procurement contracts which are so sensitive that even the new rules cannot satisfy their security needs. In most cases, however, member states should be able to use the new directive without any risk for their security. syrquin@013.net Ari Syrquin is the head of the International Department at GSCB Law Firm.