The new EDA European defence equipment market

Publication date: 2007

For the first time ever, European countries have committed to procure defence equipment from each other if the offer is the best available, instead of automatically contracting with a national supplier.”

Javier Solana, Head of the European Defence Agency        

• New market rules for European defence: Why?
• Increased business opportunities in defence procurement
• The end result: The EDA’s Electronic Bulletin Board for “One-Stop Procurement”

The European Union’s (EU) defence sector has long been fragmented into protected national markets despite the existence of European Community (EC) procurement rules. This is now changing for the better with new European Defence Agency (EDA)-sponsored principles to help open up the most sensitive segment of the defence market. As national barriers to defence procurement begin to come down in Europe, all defence players will benefit from new levels of efficiency and economies of scale.

Why the new rules? Because the EU requires a coherent defence sector and market mechanisms to develop military capabilities in order to support its foreign and security objectives. From the taxpayer’s point of view, moreover, open and transparent procurement enables Europe’s defence ministries to stretch their limited defence resources further.

To achieve this, governments and industry need shared guidelines and goals to underpin the rapid development of a common defence equipment market and a strong European Defence Technological and Industrial Base (EDTIB). This is where the EDA has been especially active. In recent months the EDA has developed, and will continue to build upon, a set of policy tools and guidelines to help national markets achieve greater integration and transparency.

For the past year the Agency and relevant participating Member States have taken essential steps to reduce national obstacles to the development of a more open defence market for the EU. The centrepiece of this effort is the EDA’s new Intergovernmental Regime in Defence Procurement — operating within the parameters of Article 296 of the EC Treaty — and designed primarily to open up public procurement to cross-border competition. There are also important supplementary measures for establishing these principles at industry level throughout the supply chain. An open defence market will only be a success if there are opportunities for players of all sizes. Indeed, particular attention is being paid to promoting and encouraging the participation of Small and Medium-sized Enterprises (SMEs).

The Intergovernmental Regime in Defence Procurement and its associated Code of Conduct also benefit governments directly by requiring transparency and fair and equal treatment of suppliers in national tendering. By definition, this should increase fair competition in defence procurement. Indeed, it will benefit governments as much as industry by promoting economies of scale and offering all a clear view of who is buying what and also where the best prices — and best practices — are operating. Other measures agreed by EDA members also benefit governments by promoting mutual confidence between capitals on security of information and security of supply in times of crisis.

Taken together, these initiatives form an integrated and partnered approach — a regime for defence change in Europe. It now falls to national governments and industry to take full advantage of it.

A Code of Best Practice in the Supply Chain

Europe’s evolving internal defence market must be inclusive. It should not – indeed, cannot – only be for the biggest players. Lower-tier suppliers, espe- cially Small and Medium-sized Enterprises (SMEs), play an important role in the defence supply chain and, furthermore, are a source of the innovative defence technologies that Europe will need in the future. The benefits of a single defence market must accrue to the smaller suppliers by encouraging value to flow up the supply chain. This means adopting good practice within the supply chain itself. For this reason, in May 2006 the EDA and the Council of the Aerospace and Defence Industries Association of Europe (ASD) jointly agreed a “Code of Best Practice in the Supply Chain” as an integral element of the Agency’s procurement defence regime. It complements the Code of Conduct by promoting opportuni- ties in the supply chain for those who may not have the resources or capacity to bid as a Prime Contractor for contracts directly, but who could still act as subcontractors.

What is the Code of Best Practice in the Supply Chain? Its two key purposes are to identify subcontracting opportunities for prospective suppliers as soon as practicable, and to encourage their evaluation and selection as suppliers on a fair and equitable basis. The Code of Best Practice in the Supply Chain does not, however, govern the performance of contracts, nor does it specify contractual terms and conditions. What it does do, however, is reinforce the principle that buyers remain ultimately responsible for the selection and management of their supply chain.

At present, subcontracting opportunities are notified and disclosed in one of two ways: either by publication in the national “Public Contracts Bulletin” of a Member State subscribing to the EDA’s voluntary regime; or via the buyer’s web- site in cases where no national Public Contracts Bulletin exists.

The next step for the EDA will be to migrate European buyers’ advertising of their subcontracting opportunities to its existing Electronic Bulletin Board (EBB). This evolution towards “EBB2” is set to take place in early 2007 - (Update April 2007: EBB2 launched). Once accomplished, it will provide European defence suppliers with a single portal — a “one-stop shop” — for reviewing all defence procurement opportunities at both prime contractor and subcontractor levels. Consolidating such informa- tion centrally will also enable interested suppliers across EDA Member States to identify opportunities for teaming up with other potential suppliers in order to bid within advertised programmes.

The Agency’s EBB is the e-portal for bringing Code of Conduct buyers and suppliers together. As explained previously, the Intergovermental Regime promotes fair and equal opportunities for all buyers and suppliers across the subscribing Member States. Its operating principle rests on transparent and objective criteria for selecting bidders and awarding contracts. EBB on Government Contract Opportunities (EBB 1) is the vehicle for making such a process happen. The site’s second development stage, EBB on Industry Contract Opportunities (EBB 2), expands its scope by advertising subcontract opportunities. As a result, this will help establish a more open, fair and competitive defence equipment market throughout the supply chain. The Agency offers two dedicated secure networks within its EBB for each set of users. There is an extranet for government users and an internet-based commu- nications network for industry users. The EBB functions as the portal to each of these networks and offers easy-to-follow guides for each set of users, which are accessible from the relevant web pages. An intranet-based network is used by the Agency’s EBB team for management of the whole system.

Source: European Defence Agency
Publication date: 2007

To find out how your company can successfully compete for procurement opportunities in the new EDA European defence equipment market, contact Jeffrey Strategic.