kom (2016) 0762 (forslag) - COMMISSION STAFF WORKING DOCUMENT Evaluation of Directive 2009/81/EC on public procurement in the fields of defence and security Accompanying the document Report from the Commission to the European Parliament and the Council on the implementation of Directive 2009/81/EC on public procurement in the fields of defence and security, to comply with Article 73(2) of that Directive

Europaudvalget 2016
KOM (2016) 0762
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EUROPEAN

COMMISSION

Brussels, 30.11.2016

SWD(2016) 407 final

COMMISSION STAFF WORKING DOCUMENT

Evaluation of Directive 2009/81/EC on public procurement in the fields of defence and

security

Accompanying the document

Report from the Commission to the European Parliament and the Council on the

implementation of Directive 2009/81/EC on public procurement in the fields of defence

and security, to comply with Article 73(2) of that Directive

{COM(2016) 762 final}

kom (2016) 0762 (forslag) - COMMISSION STAFF WORKING DOCUMENT Evaluation of Directive 2009/81/EC on public procurement in the fields of defence and security Accompanying the document Report from the Commission to the European Parliament and the Council on the implementation of Directive 2009/81/EC on public procurement in the fields of defence and security, to comply with Article 73(2) of that Directive

CONTENTS

INTRODUCTION ....................................................................................................... 6

BACKGROUND ......................................................................................................... 6

2.1. Government expenditure on defence and security ............................................ 6

2.1.1.

2.1.2.

2.1.3.

2.2.1.

2.2.2.

2.2.3.

Estimate of defence procurement expenditure .................................... 9

Procurement of defence equipment ................................................... 11

Outlook in defence and security expenditure .................................... 13

The specific problem to be addressed by Directive

2009/81/EC ........................................................................................ 14

General and specific objectives ......................................................... 15

The operational objective and the main features of the

Directive ............................................................................................ 16

Regulatory patchwork ....................................................................... 19

EU-wide publication of business opportunities ................................. 19

Cross-border awards .......................................................................... 20

2.2. The rationale for Directive 2009/81/EC .......................................................... 14

2.3. Baseline: the situation before Directive 2009/81/EC ...................................... 19

2.3.1.

2.3.2.

2.3.3.

EVALUATION QUESTIONS .................................................................................. 20

METHOD .................................................................................................................. 21

4.1. OJ/TED data .................................................................................................... 22

4.2. Other data sources ........................................................................................... 23

4.3. Stakeholders consultations .............................................................................. 23

4.4. Methodological issues and data availability .................................................... 23

IMPLEMENTATION STATE OF PLAY ................................................................ 24

5.1. Transposition ................................................................................................... 25

5.1.1.

5.1.2.

5.1.3.

The transposition process (August 2011-May 2013) ........................ 25

Technical analysis of transposition measures.................................... 25

Offsets / industrial return regulations in the context of

transposition ...................................................................................... 29

5.2. Compliance activities concerning individual procurement cases .................... 30

5.3. Uptake of the Directive ................................................................................... 31

5.3.1.

5.3.2.

Defence and security procurement under the Directive .................... 31

Defence and security procurement under the civil

procurement Directives ..................................................................... 46

ANSWERS TO THE EVALUATION QUESTIONS............................................... 49

6.1. Effectiveness.................................................................................................... 49

6.1.1.

6.1.2.

6.1.3.

6.1.4.

6.1.5.

6.2.1.

6.2.2.

6.2.3.

6.2.4.

6.3.1.

6.3.2.

6.3.3.

6.4.1.

6.4.2.

6.4.3.

6.4.4.

6.4.5.

Competition, transparency and non-discrimination .......................... 49

Use of exemptions ............................................................................. 70

Member States security concerns ...................................................... 77

Changes in the industrial base (EDTIB) ............................................ 80

Conclusions on effectiveness ............................................................ 96

Costs of procedures ........................................................................... 98

Costs compared to benefits .............................................................. 102

Administrative burden ..................................................................... 104

Conclusions on efficiency ............................................................... 104

The objectives of the Directive........................................................ 105

New developments after the adoption of the Directive ................... 106

Conclusions on relevance ................................................................ 108

Internal coherence ........................................................................... 108

Coherence with the framework of EU public procurement law ...... 108

Directive 2009/43/EC ...................................................................... 113

CSDP and a European capabilities and armaments policy .............. 114

Cooperation in defence procurement............................................... 114

Conclusions on coherence ............................................................... 117

6.2. Efficiency ........................................................................................................ 97

6.3. Relevance ...................................................................................................... 105

6.4. Coherence ...................................................................................................... 108

6.5. EU added value.............................................................................................. 117

CONCLUSIONS ..................................................................................................... 118

ANNEXES .............................................................................................................. 121

Annex I – Procedural information ........................................................................... 121

Annex II – Stakeholder consultations ..................................................................... 121

Annex III – Methods and analytical models ........................................................... 125

Annex IV – Complementary data ............................................................................ 125

BIBLIOGRAPHY ................................................................................................... 125

Glossary

ASD

Baseline

Study

BIS

civil

procurement

Directives

CPV

AeroSpace and Defence Industries Association of Europe (http://www.asd-

europe.org/home/

)

“Openness

of Member States’ defence markets”

by Europe Economics for the

Commission services in November 2012

Bureau of Industry and Security of the U.S. Department of Commerce,

(https://www.bis.doc.gov/)

Directive 2004/18/EC on the coordination of procedures for the award of

public works contracts, public supply contracts and public service contracts

and Directive 2004/17/EC coordinating the procurement procedures of

entities operating in the water, energy, transport and postal services sectors

Common Procurement Vocabulary; Commission Regulation (EC) No

213/2008 of 28 November 2007 amending Regulation (EC) No 2195/2002 of

the European Parliament and of the Council on the Common Procurement

Vocabulary (CPV) and Directives 2004/17/EC and 2004/18/EC of the

European Parliament and of the Council on public procurement procedures,

as regards the revision of the CPV

Common Security and Defence Policy

Directive 2009/81/EC on the coordination of procedures for the award of

certain works contracts, supply contracts and service contracts by contracting

authorities or entities in the fields of defence and security, and amending

Directives 2004/17/EC and 2004/18/EC

Directorate-General for Internal Market, Industry, Entrepreneurship and

SMEs (http://ec.europa.eu/growth/index_en)

European Defence Agency (https://www.eda.europa.eu/ )

European Defence Equipment Market

European Defence Technological and Industrial Base

Roadmap

the

Evaluation

Directive

2009/81/EC

(http://ec.europa.eu/smart-

regulation/roadmaps/docs/2016_grow_031_evaluation_defence_procurement

_en.pdf)

Foreign Military Sales (http://www.dsca.mil/programs/foreign-military-sales-

fms)

Commission Staff Working Document Annex to the Proposal for a Directive

of the European Parliament and of the Council on the coordination of

procedures for the award of certain public works contracts, public supply

CSDP

Directive

DG GROW

EDA

EDEM

EDTIB

Evaluation

Roadmap

FMS

Impact

Assessment

contracts and public service contracts in the fields of defence and security

(http://ec.europa.eu/internal_market/publicprocurement/docs/defence/impact_

assessment_en.pdf

)

M&A

NATO

OCCAR

OJ/TED

Mergers and acquisitions

North Atlantic Treaty Organization (http://www.nato.int/ )

Organisation Conjointe de

(http://www.occar.int/185)

Coopération

matière

d'Armement

Tenders Electronic Daily is the online version of the 'Supplement to the

Official Journal of the EU, dedicated to European public procurement

(http://ted.europa.eu/ ).

“Public

procurement in Europe, Cost and effectiveness”

done by PwC,

Ecorys and London Economics, for the Commission services in March 2011

http://bookshop.europa.eu/en/public-procurement-in-europe-pbKM3113708/

“Support

to the implementation of the Supply Chain Action Plan”

by IHS

Global Limited for EDA

Structural Business Statistics

“Evaluation

of Directive 2009/43/EC on the Transfers of Defence-Related

Products within the Community”

by Technopolis group for the European

Commission

Voluntary ex-ante transparency notice

PwC Study

SCAP Study

SBS

Technopolis

Study

VEAT

NTRODUCTION

The legal basis for this evaluation is Article 73(2) of Directive 2009/81/EC (the

Directive), which states that “the

Commission shall review the implementation of this

Directive and report thereon to the European Parliament and the Council by 21 August

2016. It shall evaluate in particular whether, and to what extent, the objectives of this

Directive have been achieved with regard to the functioning of the internal market and

the development of a European defence equipment market and a European Defence

Technological and Industrial Base, having regard, inter alia, to the situation of small

and medium-sized enterprises. Where appropriate, the report shall be accompanied by a

legislative proposal”.

The purpose of the evaluation is, therefore, to assess the functioning of the Directive and,

to the extent possible, its impact on the market and on the industrial base. As to the

scope, the whole of the Directive is subject to evaluation. Time-wise, the evaluation

covers the period from the transposition of the Directive (2011) until the end of 2015.

The situation before the transposition of the Directive is taken into account as baseline.

Given the short time that has elapsed since the transposition deadline, and even more

since its actual transposition by Member States, it can be expected that the conclusions

about the Directive’s impact on the European Defence Equipment Market (EDEM) and,

especially, on the European Defence Technological and Industrial Base (EDTIB) would

be very difficult to reach

. In that context, the evaluation assesses whether we are on

track to meet the objectives set by the Directive. From a geographical point of view, the

evaluation focuses on the 28 Member States of the EU and 2 EEA

countries (Norway

and Iceland).

ACKGROUND

This section seeks to provide background information that is essential for the evaluation

of the Directive. This includes, first and foremost, data on Member States’ expenditure

on defence and security and, in particular, on procurement. It also provides a brief

description of the Directive and its different components, its objectives and the problems

it was intended to solve; the key source in this respect is the Impact Assessment that

accompanied the Commission’s proposal (the Impact Assessment)

. The background

section also includes a description of the baseline, i.e. what the situation was like before

the adoption of the Directive.

2.1.

Government expenditure on defence and security

Government expenditure on defence and security in Europe accounts for a significant

share of the nations’ GDP and the total public spending. For example, the guideline

As required by Article 73(2) of the Directive, the evaluation mainly focuses on the defence market and

industrial base, although the Directive also applies to sensitive security procurement.

The Decision of the EEA Joint Committee 129/2013 of 14 June 2013 provided for the incorporation of

the Directive into the EEA Agreement, by amending its Annex XVI. Point 5c of Annex XVI provides

that the Directive does not apply to Liechtenstein.

Impact Assessment, Commission Staff Working Document accompanying document to the Proposal

for a Directive of the European Parliament and of the Council on the coordination of procedures for

the award of certain public works contracts, public supply contracts and public service contracts in the

fields of defence and security, SEC(2007) 1598, 5.12.2007.

agreed by NATO Allies state that at least 2% of GDP should be allocated to defence

spending. Meanwhile, according to the recent data for the European NATO countries

defence expenditure in 2015 accounted for 1.45% of their GDP

. Similar range of

estimates is provided by the European Defence Agency (EDA), which reports that

defence expenditure of the 27 EDA Member States

in 2014 was around 1.42% of their

GDP

and equalled roughly 195 billion EUR

According to Eurostat COFOG classification, defence expenditure (GF02)

equalled

1.3% of GDP for the EU-28 and amounted to roughly 187.4 billion EUR in 2014 (or

192.8 billion EUR, if the EEA countries were included). The highest levels of total

expenditure on defence were found in Greece (2.7% of GDP), followed by the United

Kingdom (2.2 % of GDP) and Estonia (1.8% of GDP), whereas Luxembourg (0.3 % of

GDP), Ireland (0.4 % of GDP) as well as Austria and Hungary (both 0.6 % of GDP)

reported comparatively low expenditure on defence

Albania, Belgium, Bulgaria, Croatia, the Czech Republic, Denmark, Estonia, France, Germany,

Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal,

Romania, Slovak Republic, Slovenia, Spain, Turkey and the United Kingdom; the detailed data on

defence expenditure by NATO countries as a percentage of GDP is provided in Table 45 of Annex IV.

Defence Expenditures of NATO Countries (2009-2016), COMMUNIQUE PR/CP(2016)116, 4 July

2016,

http://www.nato.int/nato_static_fl2014/assets/pdf/pdf_2016_07/20160704_160704-pr2016-

116.pdf.

EDA 27 Member States include all EU Member States except for Denmark.

Defence Data 2014, EDA,

http://www.eda.europa.eu/docs/default-source/documents/eda-defencedata-

2014-final,

Figure 3.5, p. 14.

Idem

Figure 3.1, p. 10; the total reported by EDA differs from Eurostat COFOG data probably due to

different assignments of retirement pensions in some countries; a similar discrepancy occurred in the

past and was mentioned in the Impact Assessment, p. 10.

http://ec.europa.eu/eurostat/statistics-explained/index.php/Government_expenditure_on_defence

More data is provided in Table 46, Annex IV.

Figure 1: General government expenditure on defence in 2014 [% of GDP]

Source: Eurostat, http://ec.europa.eu/eurostat/statistics-

explained/index.php/Government_expenditure_on_defence

As presented on the graph above, in all countries except for Romania, the major part of

the total general government expenditure on defence (GF02) in 2014 was spent under

military defence (GF0201)

. Eurostat estimates that military defence expenditure in the

EU accounted for around 1.2 % of GDP of EU-28 in 2014, which in monetary terms

equalled roughly 165.7 billion EUR (Table 1). If the EEA counties were added, the total

would increase to roughly 170.6 billion EUR.

Table 1: Government expenditure on military defence [value in million EUR]

Belgium

Bulgaria

Czech Republic

Denmark

Germany

Estonia

Ireland

Greece

Spain

France

2010

3 402.8

630.9

1 332.0

3 006.7

24 720.0

240.3

476.6

6 069.0

10 133.0

31 349.0

2011

3 425.4

447.0

1 272.5

3 184.0

25 771.0

234.3

475.4

4 955.0

9 622.0

30 874.0

2012

3 444.8

420.6

1 139.1

3 422.8

27 145.0

306.6

463.1

4 610.0

8 546.0

32 020.0

2013

3 550.3

491.1

1 031.1

3 248.5

27 064.0

327.5

459.1

3 878.0

8 721.0

32 309.0

2014

3 445.9

525.2

950.9

2 752.3

26 639.0

337.9

468.0

4 758.0

7 889.0

31 341.0

The 'military defence' is one of five groups under the 'defence' division in COFOG; the remaining

groups are: 'civil defence', 'foreign military aid', 'R&D defence' and 'defence n.e.c.'.

Croatia

Italy

Cyprus

Latvia

Lithuania

Luxembourg

Hungary

Malta

Netherlands

Austria

Poland

Portugal

Romania

Slovenia

Slovakia

Finland

Sweden

United Kingdom

Total EU-28

Iceland

Norway

Total EEA

618.5

20 668.0

401.1

168.1

233.6

185.8

1 113.0

50.4

6 047.0

1 727.8

5 381.9

3 521.9

952.7

452.7

573.3

2 459.0

4 398.3

38 265.9

168 579.3

0.0

4 249.5

663.2

21 299.0

356.8

186.1

242.3

149.8

1 008.9

56.0

6 368.0

1 749.2

5 628.1

2 237.7

52.8

357.6

601.7

2 470.0

4 879.4

38 035.2

166 602.4

0.0

4 900.3

620.8

19 816.0

338.1

174.9

254.5

135.1

677.1

50.6

5 715.0

1 708.5

5 421.7

1 606.5

48.5

315.6

601.6

2 745.0

4 987.2

41 427.1

168 161.8

0.0

4 879.0

566.3

18 486.0

282.7

185.8

261.2

124.7

628.6

49.1

5 875.0

1 828.8

6 258.2

1 648.6

53.6

261.7

626.6

2 768.0

5 482.6

39 341.3

165 808.4

0.0

4 842.6

573.5

19 009.0

246.2

189.4

296.9

121.7

570.9

62.9

5 613.0

1 727.8

5 872.1

1 532.4

66.7

242.8

650.0

2 640.0

4 874.0

42 295.2

165 691.7

0.0

4 867.6

EU-28 and EEA

172 828.8 171 502.7 173 040.8 170 651.0 170 559.3

Source: Eurostat, general government expenditure by function (COFOG) [gov_10a_exp]

The total general government expenditure on military defence can be further

disaggregated into specific national accounts components (ESA 2010), such as personnel

costs (e.g. wages, salaries as well as employers' social contributions) and, among other,

the cost items that can serve as a proxy for the estimate of the value of public

procurement linked to the military defence function of the general government, as

presented in the following section.

2.1.1. Estimate of defence procurement expenditure

The estimates of the military defence procurement expenditure by general government of

EU-28 and EEA countries are presented in Table 2 below. This is the closest possible

proxy of the maximum potential value of defence procurement expenditure, irrespective

of whether the Directive is legally applicable to specific purchases. It is, therefore, the

main expenditure estimate used in this evaluation, to assess the extent of application of

the Directive, including the volume of exempted procurement (see in particular Sections

5.3.1.1., 6.1.1.1., and 6.1.2.1.).

In line with the methodology applied to calculate the total expenditure on works, goods

and services for the general government in civil procurement

, the estimate was based

“2014

Public

Procurement

Indicators”,

procurement/studies-networks/index_en.htm

http://ec.europa.eu/growth/single-market/public-

on the following aggregates extracted from COFOG classification for military defence

(GF0201) by the general government: ‘gross fixed capital formation’

and ‘intermediate

consumption’

. ‘Social transfers in kind – purchased market production’

, which are

added to the estimate of government procurement expenditure in the civil sector were

equal to zero in all countries in the military defence sector

Table 2: Government procurement expenditure on military defence [value in

million EUR]

Belgium

Bulgaria

Czech Republic

Denmark

Germany

Estonia

Ireland

Greece

Spain

France

Croatia

Italy

Cyprus

Latvia

Lithuania

Luxembourg

Hungary

Malta

Netherlands

Austria

Poland

Portugal

Romania

Slovenia

Slovakia

Finland

Sweden

United Kingdom

Total EU-28

2010

768.0

294.2

762.3

1 601.2

12 114.0

158.7

91.8

2 591.0

3 698.0

14 376.0

181.9

6 388.0

177.3

97.4

71.4

0.0

417.4

12.0

2 363.0

528.4

2 064.0

1 809.0

8.0

197.2

198.7

1 490.0

2 876.0

23 554.5

78 889.4

2011

771.6

119.6

693.4

1 709.5

13 229.0

146.1

85.8

1 564.0

3 425.0

13 696.0

233.0

6 597.0

122.1

95.6

82.0

79.4

305.5

18.0

2 715.0

564.4

2 420.0

673.7

6.3

107.4

218.6

1 467.0

3 222.2

23 193.3

77 560.5

2012

745.9

108.1

563.0

1 960.5

15 044.0

208.7

79.0

1 302.0

2 421.0

14 504.0

215.6

5 239.0

102.9

68.0

87.4

60.9

336.5

14.1

1 961.0

538.7

2 130.4

401.6

5.4

78.4

207.8

1 719.0

3 261.5

26 003.0

79 367.4

2013

812.1

123.9

483.9

1 835.1

14 919.0

217.0

78.3

1 012.0

2 618.0

15 040.0

197.8

4 061.0

43.8

77.9

89.4

47.3

307.9

11.4

2 078.0

671.2

2 738.7

378.5

5.3

58.3

208.9

1 759.0

3 576.0

25 322.0

78 771.7

2014

828.7

164.6

408.2

1 478.8

14 582.0

217.0

86.1

1 571.0

1 892.0

13 910.0

234.0

4 889.0

36.0

94.3

115.7

44.0

258.9

24.3

1 783.0

582.3

2 249.5

364.3

4.7

51.8

223.2

1 622.0

3 058.0

28 200.6

78 974.0

P.51g, 'gross fixed capital formation': consists of acquisitions, less disposals, of fixed assets during a

given period plus certain additions to the value of non-produced assets realised by the productive

activity of producer or institutional units; fixed assets are tangible or intangible assets produced as

outputs from processes of production that are themselves used repeatedly, or continuously, in

processes of production for more than one year.

P.2, 'intermediate consumption': the purchase of goods and services by government.

D.632, 'social transfers in kind - purchased market production'.

This is to be expected as ‘social transfers in kind purchased via market producers’ are for example the

provision, paid by government, of medical services by health care providers classified outside the

general government sector and which is typically an activity occurring outside of the defence sector.

Iceland

Norway

Total EEA

0.0

2 493.6

0.0

3 012.4

0.0

2 830.6

0.0

2 819.0

0.0

2 761.2

EU-28 and EEA

81 383.0 80 572.9 82 198.0 81 590.7 81 735.2

Source: Eurostat, general government expenditure by function (COFOG) [gov_10a_exp]

As presented in Table 2, in 2014 the largest budgets were at the disposal of the UK

military sector (around 28 billion EUR), followed by Germany and then France (14.5

billion EUR and 13.9 billion EUR per year respectively). The disproportionately low

value of military defence expenditure for Romania can be most probably explained by

the fact that, in contrast to other countries, significant amounts relating to civil defence

were reported by Romania (e.g. 0.8% of GDP in 2014).

The overall value of defence procurement expenditure by general government by the

28 EU Member States and EEA countries remained stable over the investigated period of

time, ranging between 81 to 82 billion EUR per year. Neither has it changed significantly

since the same analysis was carried out in the Impact Assessment - the average annual

defence procurement expenditure in 2000-2004 calculated for EU-25 Member States was

estimated at roughly 79 billion EUR

(not adjusted for inflation).

2.1.2. Procurement of defence equipment

The overall value of military defence procurement expenditure, as presented in Section

2.1.1 above, was estimated based on the data provided by Eurostat (COFOG).

Unfortunately, this source of data does not allow obtaining more detailed breakdowns

within the selected functions of government. In particular, components which could serve

as comparators of the three procurement contract types (i.e. works, goods and service

contracts) are not available in COFOG.

However, the expenditure on military equipment, which constitutes a fraction of the total

defence procurement expenditure, is estimated by EDA and NATO. NATO divides

defence expenditure into four main categories: equipment

, personnel

, infrastructure

and other

, while the EDA recognises the following breakdowns under the total defence

expenditure: personnel, investment (equipment procurement and R&D), other

expenditure (including infrastructure/construction), operation and maintenance. The EDA

estimate of the value of defence equipment procurement, as presented in below, covers:

the national defence equipment procurement, European collaborative defence equipment

procurement and other collaborative defence equipment procurement.

The Impact Assessment, p. 10 and p. 62.

Equipment expenditures include major equipment expenditures and R&D devoted to major equipment.

Personnel expenditures include military and civilian expenditures and pensions.

Infrastructure expenditures include NATO common infrastructure and national military construction.

Other expenditures include operations and maintenance expenditures, other R&D expenditures and

expenditures not allocated among above-mentioned categories.

Figure 2: Defence equipment procurement [value in billion EUR]

Source: EDA, Defence Data 2014,

http://www.eda.europa.eu/docs/default-source/documents/eda-

defencedata-2014-final

The total defence equipment procurement expenditure reported by 27 EDA countries,

accounted for nearly 30 billion EUR in 2013 and roughly 25.9 billion EUR in 2014.

National defence equipment procurement was equal to around 20.2 billion EUR in the

last year for which data was available (2014). As previously explained, the value of

military equipment acquired in a given year constitutes a fraction of the total defence

procurement expenditure, but it also constitutes the part of public spending that would be

the most appropriate to serve as a denominator when evaluating the publication rate for

the procurement of goods under the Directive.

2.1.3. Outlook in defence and security expenditure

Although defence spending has generally been decreasing since the end of the Cold War,

there are multiple indications that due to recent changes in the geopolitical climate

mainly driven by the terrorist threat, and deteriorating relations with Russia following the

annexation of Crimea, the downward trend may reverse in the nearest future. In the

NATO Annual Report 2015, it was noted that ‘in

2015, there was real progress toward

fulfilling the commitment made in Wales. The first aim of the Wales pledge is to stop the

cuts to defence spending: 19 countries are expected to have met this aspect of their

commitment in 2015’

and ‘In

2015, 16 NATO members not only stopped the cuts to their

defence budgets but increased their defence spending in real terms. Twelve of these

countries are forecast to have increased their defence spending as a percentage of GDP

in 2015’.

As far as year 2016 is concerned, the signs of the new trend have recently also

appeared via media coverage: according to Jens Stoltenberg NATO Secretary General

‘The

forecast for 2016, based on figures from allied nations, indicates that 2016 will be

the first year with increased defence spending among European allies for the first time in

many, many years’.

The latter was confirmed in a NATO Press Release of 4 July 2016

This trend may have an impact on the amount of defence procurement expenditure and,

therefore, on the application of the Directive in the future.

2.2.

The rationale for Directive 2009/81/EC

This section seeks to set out, on the basis of the Impact Assessment, the rationale for the

EU intervention, i.e. the adoption of the Directive 2009/81/EC. The Directive regulates

public procurement procedures for the award of certain works, supply and service

contracts in the fields of defence and security. In essence, it provides that defence and

sensitive security contracts, which fall within its scope of application, are not excluded,

and whose value is above certain thresholds

, have to be awarded following competitive

tendering procedures based on the principles of transparency and equal treatment.

Prior to the Directive, the award of such public contracts fell within the scope of

Directives 2004/18/EC or 2004/17/EC (the civil procurement Directives), subject to the

relevant Treaty-based derogations, in particular Article 346 TFEU (Article 296 TEC

before 2009)

, and to the “secrecy” exclusions

2.2.1. The specific problem to be addressed by Directive 2009/81/EC

The specific problem identified in the Impact Assessment

– was that many Member

States used Article 296(1)(b) TEC (now Article 346 (1)(b) TFEU

) extensively,

exempting almost automatically the procurement of military equipment from EU public

procurement rules. Similarly, Member States exempted sensitive security contracts

systematically on the basis of Article 296(1)(a) and/or Article 14 of Directive

2004/18/EC

. Derogations which should have been the exception according to the

Treaty and the case law of the Court of Justice were, in practice, the rule

http://www.nato.int/nato_static_fl2014/assets/pdf/pdf_2016_07/20160704_160704-pr2016-116.pdf

and Table 47 in Annex IV.

The thresholds are established by Article 8 of the Directive; an overview of the threshold amounts over

the years since the adoption of the Directive is provided in Table 59 in Annex IV.

Article 10 of Directive 2004/18/EC.

Article 14 of Directive 2004/18/EC and Article 21 of Directive 2004/17/EC, with almost identical

wording, provided for the exclusion of contracts “when

they are declared to be secret, when their

performance must be accompanied by special security measures in accordance with the laws,

regulations or administrative provisions in force in the Member State concerned, or when the

protection of the essential interests of that Member State so requires”.

The Impact Assessment, p. 13.

Article 346 (1)(b) allows EU Member States to take measures that are necessary for the protection of

their essential security interests in connection with the production of/ trade in arms, munitions and war

material (specified in the 1958 list). Measures taken under Article 346 (1)(b) may not adversely affect

competition on the common market for products not specifically intended for military purposes.

According to Article 346(1)(a), “no

Member State shall be obliged to supply information the

disclosure of which it considers contrary to the essential interests of its security”.

Article 14 of

Directive 2004/18/EC excluded contracts “when

they are declared to be secret, when their

performance must be accompanied by special security measures in accordance with the laws,

regulations or administrative provisions in force in the Member State concerned, or when the

protection of the essential interests of that Member State so requires”.

The Impact Assessment, p. 14.

In the fields of defence and security, EU public procurement rules (Directives

2004/18/EC and 2004/17/EC) were rarely applied in practice. As result, most defence

and security contracts were awarded on the basis of diverse national rules and

administrative practices. This often led to a regulatory patchwork which was hindering

the establishment of a common European defence equipment market and to non-

compliance with the principles of the Treaty, in particular the fundamental freedoms of

the internal market and the principles of non-discrimination and transparency, including

the development of “buy-national practices”.

The main cause of the problem was deemed to lie in the general structure of EU civil

public procurement rules (Directives 2004/18/EC and 2004/17/EC), which failed to

address the specificities of defence and sensitive security procurement. These

specificities were: the high degree of complexity, which calls for flexibility, and the

special needs to ensure security of supply and the protection of classified information

(security of information)

2.2.2. General and specific objectives

Together with the other elements of the so-called “defence package” that was proposed in

2007

, the Directive seeks to support the establishment of an open and competitive

EDEM. This is expected to benefit both the supply and the demand side: European

companies should obtain a larger “home” market, and competition should help public

purchasers to get best value for money, thus saving scarce financial resources

A more open, competitive and efficient market should help suppliers to achieve

economies of scale, optimise production capacity and lower unit production costs, thus

making European products more competitive on the global market. This should, in turn,

strengthen the competitiveness of European defence industry, by fostering consolidation

across national boundaries, helping to reduce duplication, and enhancing industrial

specialisation. Indeed, the gradual establishment of the EDEM is essential for a strong

EDTIB that can provide the military capabilities that Member States need

. The Impact

Assessment made it clear that the Commission can play a role in this area via the

establishment of a more coherent regulatory framework, but emphasised that, “as

sole

customers of defence equipment, it is for Member States to reform the demand side of the

market”

(i.e. via harmonisation of requirements and consolidation of demand).

Finally, the specific objective of the Directive, as defined in the Impact Assessment,

implied “a

properly functioning regulatory framework at the EU level for the award of

contracts in the field of defence and security. This means that EU procurement law must

The Impact Assessment, pp. 16-20; Commission’s proposal for a Directive of the European Parliament

and of the Council on the coordination of procedures for the award of certain public works contracts,

public supply contracts, and public service contracts in the fields of defence and security (the

Commission’s proposal), 5.12.2007, COM(2007) 766 final, p. 3.

The 2007 “Defence Package” included a Communication entitled “Strategy for a stronger and more

competitive European defence industry” (COM(2007)764, and the legislative proposals for two

Directives: Directive 2009/43/EC on transfers of defence-related products within the EU; and

Directive 2009/81/EC on defence and security procurement (the Directive).

The Impact Assessment, p. 32.

Recital 2 of the Directive.

The Impact Assessment, p. 32.

effectively implement the principles of the Treaty for the Internal Market in the field of

defence and security and, at the same time, ensure Member States security interests.”

2.2.3. The operational objective and the main features of the Directive

The operational objective of the Directive is to limit the use of the exemptions, in

particular under Article 346 TFEU, to exceptional cases, in accordance with the case law

of the EU Court of Justice. The majority of contracts in the field of defence and security,

including those for the procurement of arms, munitions and war material, should thus be

awarded on the basis of the rules of the Directive in order to foster the application of the

principles of the Treaty. At the same time, Member States' security interests must be

respected

The Directive seeks to achieve this operational objective by coordinating the different

national rules and laying down provisions tailor-made to the specificities of the defence

and security sectors. Key elements of the Directive addressing such specificities include:

–

Defence-specific exclusions:

the Directive contains exclusions that have been adapted

or newly created in order to accommodate the specific situation of the defence and

security sectors. These are the exclusions on international rules, disclosure of

information, intelligence activities, cooperative programmes, contract awards in third

countries, and government to government sales. Some of the exclusions laid down in

the Directive can relate to defence cooperation in procurement.

–

Flexible procedures:

use of the negotiated procedure with publication of a contract

notice is authorised without the need for specific justification in order to allow the

flexibility required to award sensitive defence and security contracts;

–

Security of Supply:

the particular importance of this issue for defence and security

procurement and the specific needs of the Member States justify specific provisions.

The Directive allows contracting authorities to address Security of Supply needs

through criteria for the selection of suitable candidates and tenderers, contract

performance conditions, and award criteria;

–

Security of Information:

protection of classified information is crucial for the award

and execution of many defence and sensitive security contracts. The Directive

addresses Security of Information in several provisions: as requirement for the

tendering and contracting phase (Article 7), as cause for exclusion (Article 13), as

contract performance condition (Articles 20 and 22), and as selection criterion

(Articles 39 and 42).

–

Review:

in order to ensure compliance with transparency and competition obligations,

the Directive establishes a specific review system. This system is largely based on the

rules applicable to civil procurement

, but contains some provisions adapted to the

domains of defence and sensitive security.

The Impact Assessment, p. 31.

The Impact Assessment, p. 32.

Council Directives 89/665/EEC and 92/13/EEC, as amended by Directive 2007/66/EC of the European

Parliament and of the Council.

–

Subcontracting:

in contrast with the civil procurement Directives that provide only

very limited obligations with regard to subcontracting, the (defence procurement)

Directive contains a detailed set of provisions laid down in Articles 21 and Title III

(Articles 50-54). These provisions, in particular, allow contracting authorities to

require that successful tenderers subcontract a certain share of the main contract

and/or put proposed subcontracts out to competition. At the same time, these

provisions, set basic rules for the fair and transparent awarding of such subcontracts.

This approach is built on the assumption that competitive subcontracting would give

to sub-suppliers, and especially SMEs, a fair chance of gaining access to the supply

chains of big system integrators located in other Member States.

To summarise, the Directive aims at addressing the problems identified (extensive

application of exemptions and non-application of competitive procurement procedures)

through a set of rules specifically adapted for the defence and security sectors. The

increased application of competitive procurement procedures based on transparency and

equal treatment is expected to lead to more openness and transparency in defence

procurement, as well as more clarity and legal certainty. This should bring about cost-

savings for public authorities and a more open and efficient market and, in turn, be a

contributing factor towards a stronger and more competitive industrial base in Europe.

The intervention logic is presented in Figure 3 overleaf.

Figure 3: Intervention logic

2.3.

Baseline: the situation before Directive 2009/81/EC

This description of the situation before the Directive is based on the analysis contained in

the Impact Assessment and a study “Openness

of Member State’s defence markets”

Europe Economics of November 2012 (the Baseline Study). The baseline situation was

also reported in the Staff Working Document accompanying the 2013 Communication

“Towards a more competitive and efficient defence and security sector”

2.3.1. Regulatory patchwork

As explained above in Section 2.2., before transposition of the Directive, exemptions

were used extensively and EU public procurement rules (Directives 2004/18/EC and

2004/17/EC) were rarely applied in practice in the defence and security sector. Most

procurement contracts were awarded on the basis of different national rules

. Each

Member State followed different rules as regards publication, technical specifications,

and procedures.

With particular regard to publication, the extent to which contract notices were published

(either at the EU or national level) differed widely. The frequency of publication and

accessibility of contract notices also varied greatly across Member States

2.3.2. EU-wide publication of business opportunities

The Impact Assessment found that, in the reference period 2000-2004, the publication in

the field of defence was relatively rare, even with regards to non-military and non-

sensitive procurement such as uniforms or certain services. The publication levels

appeared to be even lower, if not marginal, for military procurement; in these cases,

publication seemed to concern mainly procurement of “simple”, low value equipment, as

well as non-sensitive works and services

According to the Baseline Study, more than 1 500 notices for defence contracts

of a

value of roughly 4 billion EUR were published on Tenders Electronic Daily (OJ/TED)

from 2008 to 2010 included. On top of that, nearly 300 notices for contracts of roughly

4.76 billion EUR were published on the Electronic Bulletin Board (EBB) of the EDA

Commission Staff Working Document on Defence, accompanying the Communication “Towards

more competitive and efficient defence and security sector”

{COM(2013) 542 final}SWD of 2013,

Brussels, 24.7.2013 SWD(2013) 279 final.

The Impact Assessment, p. 21: some Member States had specific legislative rules, while others relied

on non-legislative/administrative guidance for project managers.

The Impact Assessment, p. 21. For a description of diverging rules on technical specifications,

procedures, selection of suppliers, security of supply, etc., see: the Impact Assessment, Section 3.4, pp.

21-25.

The Impact Assessment, p. 14.

Contracts for the purchase of arms, munitions and war material, plus related services and works.

Tenders Electronic Daily is the online version of the 'Supplement to the Official Journal of the EU,

dedicated to European public procurement (http://ted.europa.eu/ ).

The EBB was an online portal operated by the EDA to publish defence contract opportunities

submitted by subscribing Member States. The EBB supported the voluntary Code of Conduct on

Defence Procurement which covered procurement procedures that Member States considered covered

by Article 346 TFEU. The Code of Conduct and the EBB were launched on 1 July 2006 and have been

abolished in May 2014.

Table 3: Contracts advertised on OJ/TED and EBB in 2008-2010 [number of

contracts, value in million EUR]

Publication

Number

source

2008

2009

2010

415

447

686

TED

126

EBB

Total

541

537

766

Source: The Baseline Study, p. 30

Total

1 548

296

1 844

2008

513

2 518

3 031

Value

2009

2010

2 626

885

1 348

900

3 974

1 785

Total

4 024

4 766

8 790

Hence, in the period 2008-2010, 1 844 defence contract notices were published EU-wide.

The total value of these contracts was estimated to be nearly 8.8 billion EUR

, which

was

equivalent to 3.3%

of the EU’s total defence procurement expenditure

in the

same period (263.23 billion

EUR, 2008-2010). In the context of comparisons with the

baseline which will be made later in this evaluation, it shall be noted that the Baseline

Study referred to defence procurement expenditure as reported by the EDA, while in this

report, the main source of data used to determine defence procurement expenditure is

Eurostat COFOG database

(see: Section 2.1.1.). If the baseline OJ/TED and EBB data

were compared with the 2008-2010 COFOG defence procurement expenditure, the share

would increase to 3.6%. Nonetheless, if the filtering OJ/TED of notices would be more

conservative (as the one applied in this report, see: Section 5.3) the percentage would

probably decrease, potentially to a figure close to the baseline estimate of 3.3%. For the

above explained reasons, the share of 3.3%, despite its caveats, has been maintained as

the reference figure for the baseline period.

2.3.3. Cross-border awards

According to the Baseline Study, cross-border contracts published in OJ/TED and EBB

in 2008-2010 amounted to 2.26 billion EUR

. Consequently, the share of cross-border

awards published through the above channels in the reference years equalled 0.86%

the total defence procurement expenditure.

VALUATION QUESTIONS

The following table contains a list of questions that will be addressed in the course of this

evaluation, to guide the analysis of the performance of the Directive. The questions are

grouped under the five evaluation criteria that will look into the effectiveness, efficiency,

relevance, coherence and EU added value of the Directive.

From a legal standpoint, publication in OJ/TED and on the EBB were mutually exclusive, as OJ/TED

was to be used for contracts award procedures under the civil procurement Directive (Directive

2004/18/EC) and the EBB was to be used for procurement under Article 346 TFEU. The issue of

duplication of data has, however, been thoroughly checked in the Baseline Study, and no duplication

has been found, paragraphs 3.13 and 3.14, pp. 29-30.

8.8 billion EUR/263.2 billion EUR, in 2008-2010.

The Baseline Study, Table 3.1. p. 27.

The latter has been judged to be more complete, as it also covers Denmark and the EEA countries.

The Baseline Study, Table 4.4. p. 57.

2.26 billion EUR/263.2 billion EUR, in 2008-2010.

Table 4: Evaluation questions

Main evaluation

questions

Evaluation questions detailed

Effectiveness

what extent

have the objectives

of the Directive

been achieved?

To what extent the

observed changes

can be attributed to

the Directive?

What

are

the

factors, if any,

affecting

the

implementation of

the Directive?

1. To what extent have competition, transparency and

non-discrimination in the defence procurement

market in Europe changed as a result of the

Directive?

2. To what extent has the use of exemptions, in

particular Article 346 TFEU, changed as a result of

the Directive?

3. To what extent are the provisions of the Directive

appropriate to guarantee competition, transparency

and equal treatment, while safeguarding Member

States security concerns?

4. Have there been any major structural changes in the

European Defence Technological and Industrial

Base (EDTIB), including with regards to SMEs, and

to what extent are they linked to the Directive?

5. To what extent are the costs proportionate to the

benefits achieved?

Efficiency

To what extent has

the

intervention

been

cost

effective?

To what extent is

the intervention still

relevant?

Relevance

6. To what extent are the objectives of the Directive still

relevant?

7. In what way has the initial problem evolved? Have

any new issues that need to be taken into account

emerged since the adoption of the Directive and

what are they?

Coherence

To what extent is

this

intervention

coherent with other

interventions which

have

similar

objectives?

8. To what extent is the Directive coherent with the

framework of EU Public Procurement law and of

internal market legislation and policies related to

defence (e.g. Directive 2009/43/EC)?

9. How does the Directive fit into the framework of

other EU instruments and policies in particular in the

area of CSDP?

10. What has been the EU added value of the Directive

compared to what could have been achieved by

Member States at national (or regional) level (is the

principle of subsidiarity respected)?

added

To what extent do

the

issues

value

addressed

continue to require

action at EU level?

ETHOD

The analysis presented in this document was based on several data sources, in particular:

notices published in OJ/TED, data published by EDA and NATO, IHS Jane’s Defence &

Security Intelligence database and Eurostat, as well as consultations with Member States

and stakeholders (including a public on-line survey). The findings of this evaluation are

compared with the situation before the entry into the force of the Directive, as analysed

in the Baseline Study.

As mentioned in the introduction, the evaluation covers years 2011-2015. Given the short

time that has elapsed since the entry into force of the provisions, it can be expected that

the conclusions about the Directive’s impact on the EDEM and, especially, the EDTIB

would be very difficult to reach. Therefore the present evaluation assesses whether we

are on track to meeting the objectives it sets and the expectations made at the time of its

adoption. The problem of insufficient time lag of this evaluation has been already pointed

out in the Baseline Study: “A

comparison in 2016 of, say, 2013-2015 with 2008-2010

might not capture much of the Directive’s impacts: 2013 is only one year later than the

end of the transposition phase. Comparisons in 2017 of 2014-2016 (or possibly 2015-

2016) with 2008-2010 would offer a better chance of capturing impacts.”

Similarly, it

has been also pointed out in the Impact Assessment that ”Given

the life cycle of defence

equipment (and their related services, especially maintenance), an evaluation of the

economic impact should be contemplated in the long term (no sooner than 10 years).”

4.1.

OJ/TED data

The main source of data used in this evaluation was extracted from OJ/TED, which is the

online version of the Supplement to the Official Journal of the EU dedicated to European

public procurement. The OJ/TED dataset contains information provided by national

contracting authorities about procurement procedures they implement(ed) and includes

for instance the Common Procurement Vocabulary (CPV)

chosen to describe the

subject-matter of the contract, the price of awarded contracts, the name of the winning

firm and the legal regime applied (the Directive or the civil procurement Directives).

Procurement transactions which were of particular pertinence in the context of this

evaluation were those published on notices dedicated to defence and security

procurement

. Additionally, the analysis also covered a subset of publications on

voluntary ex-ante transparency notices (VEATs) when the contracting authority indicated

that the publication falls under the Directive and notices published under the civil

procurement Directives, if their subject matter was linked to defence or/and security. The

latter was established by retaining notices which referred to CPV codes listed in Table 42

and Table 43 in Annex III.

From the analytical point of view, the most valuable information about procurement

comes from the contract award notices, as they refer to procedures that have been

concluded (i.e. contracts which were attributed to a particular company for an agreed

price). For this reason, the following

analysis is mainly based on the contract award

notices.

The Baseline Study, p.154.

The Impact Assessment, p.58.

The common procurement vocabulary (CPV) establishes a single classification system for public

procurement aimed at standardising the references used by contracting authorities and entities to

describe procurement contracts.

Annexes XV to XVIII of Commission Implementing Regulation (EU) No 842/2011 of 19 August 2011

establishing standard form for the publication of notices in the field of public procurement and

repealing Regulation (EC) No 1564/2005.

Before launching any descriptive analysis of OJ/TED publications, the raw dataset was

subject to manual scrutiny in order to verify its quality. The analysis of OJ/TED data

included in this evaluation is based on the manually corrected datasets, unless specified

otherwise. The scope of manual corrections is explained in detail in Annex III.

4.2.

Other data sources

In addition to OJ/TED data, data from other sources were also used, in particular:



Eurostat: COFOG data (http://ec.europa.eu/eurostat/web/government-

finance-statistics/data/database)

and Structural business statistics (SBS)

data

(http://ec.europa.eu/eurostat/web/structural-business-

statistics/data/database),



IHS Jane’s (http://www.janes.com/), especially the following modules:

Jane's Defence Procurement, Jane’s Defence Industry & Markets,



The European Defence Agency (EDA) (https://www.eda.europa.eu/ ),



Stockholm

International

(https://www.sipri.org/),

Peace

Research

Institute

(SIPRI)



North Atlantic Treaty Organization (NATO) (http://www.nato.int/),



AeroSpace and Defence Industries Association of Europe (ASD)

(http://www.asd-europe.org/home/ ).

The extent to which each of the above data was used and the limitations linked to its

scope or availability, if any, are described in Annex III (Method). This Annex contains

also references to other ancillary data sources used to underpin this evaluation.

4.3.

Stakeholders consultations

The stakeholders consultation methods for this evaluation have been designed to reach all

potential stakeholders as well as the general public, and to gather detailed technical

feedback from more directly involved stakeholders and experts. In the light of this, the

consultations included an internet-based public consultation (online survey) and several

complementary consultation meetings with key stakeholders. More information is

provided in Annex II.

4.4.

Methodological issues and data availability

The current evaluation has been carried out without encountering major unexpected

problems linked to methodological and/or data analysis issues. The economic research

underpinning this evaluation relied heavily on descriptive statistics of the OJ/TED dataset

which was available in a structured format and fit for automated processing. The raw

OJ/TED was subject to manual scrutiny to ensure its adequacy and corrected for basic

errors or missing information. Additionally, examination of the data, especially with

regards to the contract award values, has also been performed by the representatives of

two Member States who volunteered to complete the missing information for their

countries. As such, the manual corrections affected less than 5% of the observations,

which suggest that the original dataset was of a relatively good quality.

Some data availability issues where encountered in areas where such problems could

have been expected (e.g. procurement exempt from the application of the Directive). This

part of the market was analysed using data from a private provider (IHS Jane’s), which as

such was not technically demanding, but rather raised questions about its

coverage/completeness and potential overlaps with OJ/TED. The estimation of

compliance costs under the Directive also included “business as usual” costs and costs

deriving from national legislation. It was impossible to disentangle the above

components of the cost estimate due to technical limitations in the raw dataset used.

More information about the methodology used is provided in Annex III.

As far as the EDTIB impact is concerned, it was noted that definite conclusions are

difficult to draw at this stage, as insufficient time has elapsed since the adoption of the

Directive and potential impact on the industry would need more time to materialise. In

parallel, there were also issues with the unavailability of recent data about the industry

(e.g. beyond 2014) in Eurostat and/or ASD. Additionally, the main Eurostat database

which is typically used to describe patterns across chosen industries – the Structural

business statistics (SBS) - is not well adapted to the defence sector, as it partially covers

non-defence activities (e.g. civil aerospace and shipbuilding). This problem is known and

has been mentioned in several previous publications about the defence sector, including

the Baseline Study: “The

‘defence industry’ is not an industry in a statistical sense. There

is no classification ‘defence equipment’ in the EU’s Nomenclature générale des Activités

économiques dans les Communautés Européennes (NACE).”

Notwithstanding those limitations, the evaluation is based on a review of best available

quantitative and qualitative evidence of causality between actions and effected changes.

It made extensive use of stakeholders' and experts' view on the functioning of the

different provisions of the Directive.

MPLEMENTATION STATE OF PLAY

This section includes an overview of the process that led Member States to convert the

Directive into their national legal orders with some significant delays for some Member

States, a summary of the results of the technical analysis of the transposition measures

adopted by Member States process, a brief description of developments concerning the

related issue of offsets regulations, some background information on the Commission

departments’ activities to ensure compliance with the Directive, and, finally, a

quantitative analysis of the uptake of the Directive.

Cont. “The

bulk of the equipment supplied for defence purposes resides within three NACE industries

that supply both and civil and military markets – weapons and ammunition, shipbuilding, and

aerospace. The weapons and ammunition industry, for example, is not exclusively a supplier of

military equipment: it also produces recreational guns and their ammunition. A fourth, and smaller,

defence industry category emerged from a recent revision of NACE (“NACE Rev.2”), which then

defined, for the first time, a manufacturing industry that is wholly related to defence - NACE Rev.2

C304, Military fighting vehicles.”,

the Baseline Study, p. 89.

5.1.

Transposition

5.1.1. The transposition process (August 2011-May 2013)

Under Article 72 of the Directive, Member States had to “adopt

and publish the laws,

regulations and administrative provisions necessary to comply with the Directive”

(i.e.

transpose it in their national legal orders) by 21 August 2011. Only 3 Member States had

notified complete transposition of the Directive to the Commission by 21 August 2011,

and a fourth Member State notified complete transposition in September 2011.

The Commission therefore opened infringement procedures against 23 Member States

(Article 258 TFEU) by sending letters of formal notice. As a result, by March 2012, 15

additional Member States had notified complete transposition. For the remaining 8

Member States (Austria, Bulgaria, Germany, Luxembourg, the Netherlands, Poland, the

United Kingdom, and Slovenia) the Commission continued the infringement procedures

for non-communication of transposition measures and issued reasoned opinions

. By

September 2012, Austria, Bulgaria, Germany and the United Kingdom notified complete

transposition and the Commission closed the infringement procedures relating to them.

In September 2012, the Commission decided to refer Poland, the Netherlands,

Luxembourg and Slovenia to the Court of Justice since these Member States had not

notified the complete transposition of the Directive

. By April 2013, these four Member

States did so and the Commission closed the infringements procedures. The Commission

did not consider the transposition measures notified by Portugal to be complete and

issued a reasoned opinion in March 2013

. Following the reply of the Portuguese

authorities and notification of further transposition measures in April 2013, this

infringement procedure was also closed.

It is, therefore, only from May 2013 that the provisions of the Directive have been fully

transposed in the national legal orders of all Member States.

5.1.2. Technical analysis of transposition measures

The Commission departments have analysed Member States’ transposition measures to

verify their conformity with the provisions of the Directive. The Commission

departments have not identified fundamental problems in terms of conformity of national

transposition measures, i.e. problems that would jeopardise the overall functioning of the

Directive. However, this analysis has shown that, in several Member States, there are

certain issues to be clarified on the transposition in national legislation of some specific

provisions of the Directive.

This Section of the SWD is based on a preliminary analysis conducted in the context of

the evaluation of the Directive. It is without prejudice to the Commission’ position

concerning possible breaches of Union law.

See

press

releases:

http://europa.eu/rapid/press-release_IP-12-76_en.htm?locale=en;

http://europa.eu/rapid/press-release_IP-12-290_en.htm?locale=en;

http://europa.eu/rapid/press-

release_IP-12-416_en.htm?locale=en;

http://europa.eu/rapid/press-release_IP-12-

533_en.htm?locale=en; http://europa.eu/rapid/press-release_IP-12-664_en.htm?locale=en;

See press release:

http://europa.eu/rapid/press-release_IP-12-1020_en.htm?locale=en.

See press release:

http://europa.eu/rapid/press-release_MEMO-13-261_en.htm.

5.1.2.1.Scope, thresholds and exclusions

The correct transposition of the provisions defining the scope of the Directive (Articles 1

and 2), and the exclusions (Article 12 and 13) is an essential pre-requisite for the uptake

of the Directive, and compliance with the principles of competition, transparency and

equal treatment. These provisions have been broadly transposed in a correct manner. One

Member State seems to have transposed Article 2(c) broadening the scope with regard to

the award of contracts for non-military security. Similarly, another Member State seems

to have broadened the scope of Article 2(a) by referring to military “and

law enforcement

purposes”.

Article 9(5) third subparagraph provides that the application of the Directive to each lot

may be waived if the lots are below a certain value. In one Member State, a small change

in the wording of the corresponding national provision could allow contracting

authorities/entities to waive such application in cases different than those provided for in

the Directive.

Two Member States have transposed Article 12(c) without including the words

“purchasing

for its purposes”.

One Member State seems to have broadened the scope of

Article 13(b) by referring to the purposes of the bodies pertaining to the intelligence

system rather than to intelligence activities.

5.1.2.2.Negotiated procedure without publication

Since it allows contracting authorities to derogate from the fundamental requirements on

transparency and EU-wide competition, the correct transposition of Article 28 on the use

of the negotiated procedure without publication of a contract notice is also essential.

Only very few and particular issues have been identified with the transposition of this

provision. In one Member State, the time limit of five years in Article 28(3)(a) does not

refer to “recurrent

contract”.

Another Member State did not transpose the provision in

Article 28(4)(b) obliging contracting authorities/entities to disclose the possible use of

the procedure as soon as the first project is put up for tender. Four Member States seem

not to have transposed the second part of the same provision laying down an obligation

to take into account the cost of subsequent works or services to calculate the estimated

value of the contract for the purposes of the thresholds under Article 8.

5.1.2.3.Exclusion grounds (Article 39)

Four Member States did not transpose Article 39(1) fourth subparagraph or at least the

reference that clarifies that contracting authorities/entities’ requests of evidence about the

personal situation of a candidate or tenderer have to relate, where needed, to natural

persons such as company directors. One Member State seems to have extended the scope

of mandatory exclusion grounds of Article 39(1) to economic operators submitting

multiple offers and to those involved in the preparation of procurement documents. Two

Member States broadened the possibility for contracting authorities/entities to waive

mandatory exclusion grounds provided for in Article 39(1) third subparagraph.

Two Member States have not transposed Article 39(2)(d) providing for the exclusion for

grave professional misconduct, and another Member State has not transposed Article

39(2)(e) on the exclusion of economic operators which lack the reliability to exclude

security risks. Two Member States have not transposed Article 39(2)(h) on the exclusion

of economic operators who are guilty of serious misrepresentation in supplying the

information on their personal situation or who have not supplied such information; in one

Member State, the corresponding national provision narrows the scope of this exclusion

ground.

5.1.2.4.Time limits (Articles 33 and 34)

Two Member States transposed Article 33(3) by referring directly to the time limit of 22

days, instead of making it clear that the normal time limit is 36 days and 22 days is the

absolute minimum that cannot be in any way shortened further.

Article 34(4) provides time limits for the contracting authorities/entities to send to

economic operators additional information on the contracts documents. Five Member

States have either not transposed this provision, or slightly reduced through different

mechanisms the time available to economic operators.

5.1.2.5.Other issues related to the rules on contracts

According to Article 5(2), groups of economic operators may submit tenders or put

themselves forward as candidates. In one Member State, the corresponding national

provision allows contracting authorities/entities to exclude groups of undertakings if

based on objective reasons.

Article 18(3)(a) second subparagraph provides that contracting authorities/entities, when

drafting the technical specifications, have to accompany every reference to standards

with the expression “or

equivalent”.

One Member State seems to have converted this

provision into national law without including this wording.

Article 22, third subparagraph provides that Member States have to recognise the security

clearances which they consider equivalent to those issued in accordance with their

national law. This means that, where there are bilateral security agreements or

arrangements concerning the equivalence of security classifications and security

requirements, contracting authorities/entities have to recognise security clearances

granted by the national security authority of the other Member State party to this

agreement or arrangement

. In two Member States national legislation do not explicitly

provide for this obligation to recognise security clearances in the above-mentioned

circumstances.

In two Member States, the national provisions corresponding to Article 29(3) allow

contracting authorities/entities to conclude framework agreements with a single

economic operator without defining all the terms for the award of specific contracts

based on the agreement.

Article 32(1) provides for the minimum content to be included in the notices for

publication at EU level; one Member State has not transposed this provision in its

national legislation. In addition, Article 32(5) prohibits contracting authorities/entities to

publish notices at national level before the date on which they are sent to the Commission

for publication at EU level. It also provides that notices published at national level cannot

include information other than that contained in the notices sent for publication at EU

Guidance note on Security of Information, paragraph 12,

http://ec.europa.eu/DocsRoom/documents/15411/attachments/1/translations/.

level. In two Member States, the relevant national provisions do not contain the explicit

prohibitions lay down in Article 32(5).

Article 37(1) lays down an obligation on contracting authorities/entities to draw up a

written report on the selection procedure, and provides for mandatory elements to be

included in the report. In two Member States, the national provisions do not mention all

these elements.

Article 38 regulates various aspects of the conduct of procedures. Two Member States

appear not to have expressly transposed Article 38(1), which sets out the sequencing of

procedures from the application of exclusion grounds to the qualitative selection and the

award of the contract. In two Member States, the provisions transposing Article 38(3)

third subparagraph do not lay down the obligation, in case of re-publication of contract

notice, to invite the candidates selected upon the first publication.

Article 38(5) regulates the situation where the contracting authorities/entities exercise the

option of reducing the number of solutions or of tenders. In three Member States, this

provision has not been transposed.

One Member State appears not to have transposed in national legislation Article 49(1)

and Article 49(2) on abnormally low tenders. According to these provisions, where

tenders appear to be abnormally low, contracting authorities/entities have to request in

writing details of the constituent elements of the tender and to verify these elements by

consulting the tenderer.

5.1.2.6. Subcontracting

Article 21(1) lays down i.a. a prohibition to require successful tenderers to discriminate

against potential subcontractors on grounds of nationality. Two Member States seem not

to have explicitly transposed this provision. One Member State appears not to have

transposed any of the provisions on subcontracting (Articles 21 and 50 to 53).

5.1.2.7. Rules to be applied to reviews

According to Article 56(3), Member States are obliged to ensure that contracting

authorities/entities cannot conclude the contract before the review body’s decision. One

Member State seems not to have transposed this provision, and another has introduced

changes that make the prohibition less stringent.

Article 57(2), fourth subparagraph, imposes an obligation on contracting

authorities/entities to include in the communication of the award decision a summary of

the relevant reasons and a precise statement of the exact standstill period applicable. Two

Member States have not transposed this provision in national legislation, and one has not

included the reference to the statement of the applicable standstill period.

Article 58 allows Member States to provide for specific derogations from the standstill

period. One of these derogations concerns contracts based on a framework agreement.

However, according to Article 58(c), Member State which decide to use this option have

to ensure, in two specific cases, that such contracts based on a framework agreement are

ineffective. Four Member States seem to have used the option, but not explicitly

transposed these provisions on ineffectiveness. In one Member State, the national

provision provides for ineffectiveness only in one of the two cases.

Article 60(1) imposes on Member States the obligation to provide for ineffectiveness of

contracts in specific cases. It seems that two Member States have not transposed this

provision, while three Member States appear not to have included in the relevant national

provisions all the cases for ineffectiveness. Article 60(3) provides that Member States

may enable review bodies not to declare contracts ineffective when this is required by

overriding reasons relating to a general interest; the same provision clarifies that

economic interests directly related to the contract do not constitute such overriding

reasons. In one Member State, the national provision transposing Article 60(3) admits

such economic reasons to be overriding reasons. In addition, six Member States have not

transposed either Article 60(4) or Article 60(5), which provide for mandatory non-

application of ineffectiveness in given cases.

5.1.3. Offsets / industrial return regulations in the context of transposition

This section addresses the issue of offsets regulations, which is highly relevant in the

context of the process of transposition of the Directive. The practice of concrete offsets

or industrial return requirements in specific public procurement procedures is covered

below in Section 6.1.1.4.

Offsets are compensations that many governments in the world require when they

procure defence equipment from non-national suppliers. This is often to ensure an

economic/industrial return on defence investment. Offsets can take various forms: they

can be directly related to the subject-matter of the contract, indirect but limited to the

military sphere, or indirect non-military.

Whatever their form, offsets requirements are, from an EU law standpoint, restrictive

measures which go against the basic principles of the Treaty, because they discriminate

against economic operators, goods and services from other Member States and impede

the free movement of goods and services. They can only be justified on the basis of one

of the Treaty-based derogations, in particular Article 346 TFEU. However, these

derogations must be limited to exceptional and clearly defined cases, and the measures

taken must not go beyond the limits of such cases. They have to be interpreted strictly,

and the burden of proof that the derogation is justified lies with the Member State which

invokes it

The Impact Assessment highlighted the negative and discriminatory effects of offsets

upon procurement procedures. It noted that offsets “give

a considerable advantage to big

prime contractors, which normally have better means than smaller competitors to

arrange offsets deals”;

“if

military offsets are required, prime contractors have to sub-

contract to companies located in the buying country. Consequently, they cannot use the

most competitive sub-contractors to organise their supply chain, but must give

preference to sub-suppliers of a certain nationality”;

“if

non-military offsets are

required, the same effect spills over into civil markets: non-military contracts are

awarded on the basis of nationality than competitiveness”

The Impact Assessment assessed a number of options with regard to offsets, and

concluded that not mentioning them in the proposal for the Directive was the best-suited

Guidance note on Offsets,

http://ec.europa.eu/DocsRoom/documents/15413/attachments/1/translations/

The Impact Assessment, p. 28.

one

. In fact, since offsets requirements violate basis rules and principles of primary EU

law, a secondary law instrument like the Directive cannot allow, tolerate, or regulate

them. The Impact Assessment added that the issue of compatibility of offsets with EC

law had to be addressed in the light of the Treaty and the Commission’s Interpretative

Communication

Before the adoption of the Directive, 18 Member States maintained offsets regulations

requiring compensation from non-national suppliers when they procured defence

equipment abroad

. These regulations obliged contracting authorities to systematically

(i.e. for all contracts or for all contracts above a certain value) require offsets when

purchasing defence equipment from foreign suppliers abroad. They were clearly

incompatible with EU primary law as well as the correct transposition and application of

the Directive.

Consistently with the option selected with the Impact Assessment, the Commission

departments therefore engaged, since 2010, with Member States to make sure that these

offsets regulations were abolished or revised in the context of the process of transposition

of the Directive. Member States have indeed either abolished or revised their offsets

regulations. The content of revised offsets regulations varies significantly across Member

States, but they have one key feature in common. Under the revised regulations, offsets

are no longer required systematically (i.e. for all contracts or for all contracts above a

certain value) in connection with defence purchases from abroad based on grounds of

clear economic nature. The revised rules provide that offsets can only be required,

following a case-by-case analysis, where the conditions of Article 346 TFEU are met.

The revised offsets regulations of those Member States that have chosen to maintain

them in place do not seem

per se

incompatible with EU law. The question remains,

however, of whether - and to what extent - the concrete application of these revised rules

in procurement practice in individual cases is compliant with EU law, and in particular

with the strict conditions for the use of Article 346 TFEU.

5.2.

Compliance activities concerning individual procurement cases

Section 5.1. above describes the Commission activities concerning the transposition of

the Directive, and the related issue of offsets/industrial return regulations. This paragraph

seeks to explain the Commission departments’ work so far about compliance of Member

States’ concrete individual procurements with the rules of the Directive.

It should be pointed out that, in the period 2011-2015 (and also until September 2016),

the Commission departments have received only 1 complaint from an economic operator

involved in a specific defence procurement procedure, and no complaint from economic

operators involved in procedures for the procurement of high-value, complex military

equipment. As it emerged in the stakeholders' consultations with regard to access to

review procedures, defence companies only usually have one customer in each country,

and therefore try not to antagonise them. This may also help explain the absence of

The Impact Assessment, p. 49.

The Impact Assessment, p. 49; Interpretative Communication on the application of Article 296 of the

Treaty in the field of defence procurement, 7.12.2006, COM(2006) 779 final.

Report from the Commission to the European Parliament and the Council on transposition of Directive

2009/81/EC on Defence and Security Procurement, COM/2012/0565 final.

complaints to the Commission. It should be pointed out, however, that the absence of

complaints from competitors, which have the potential of providing comprehensive and

well-substantiated information, severely affects the compliance activities of Commission

departments, due to the difficulties of gathering ex officio such information about

concrete defence procurement procedures. Other relevant factors in this context are the

relative novelty of the rules, and the sensitivity of the sector.

In the period 2011-2015, the Commission departments contacted Member States

authorities to seek clarifications on 11 individual procurements. In 2016, further contacts

concerning other 17 individual procurements have been undertaken. The main focus of

these exchanges has been clarifications about the legal grounds for the non-application of

the Directive and, in some cases, for the use of offsets/industrial return requirements.

5.3.

Uptake of the Directive

As explained in Section 2.3., before the entry into force of the Directive, the publication

of defence and security procurement was relatively limited and took place mainly

through OJ/TED publications under the civil procurement Directives and on the EBB run

by the EDA. According to the Baseline Study, in the period 2008-2010, 1 844 defence

contract notices were published EU-wide for the estimated total value of around 8.8

billion EUR. The following sections discuss how the situation has changed in the EU

since the adoption of a legal instrument dedicated to defence and security procurement.

5.3.1. Defence and security procurement under the Directive

Since the entry into force of the Directive, more than 8 700 notices have been published

in OJ/TED under the standard forms dedicated to defence and security procurement

. As

explained in Section 4 and Annex III, following a manual scrutiny of the raw OJ/TED

data, around 250 notices have been removed from the original dataset, mainly because

their subject matter was judged as not being related to defence and security procurement.

Additionally, contract award notices from Belgium and the Netherlands have also been

manually corrected by the representatives of the respective Member States. All analysis

of OJ/TED data included in this document is based on the manually corrected dataset.

The retained dataset related to publications under the Directive contained 8 526 notices

(Table 5).

Table 5: Notices published under the Directive, by year and type [number of

notices]

Prior

information

notice

100

160

166

513

Contract

notice

739

896

1 226

1 343

4 299

Contract

award notice

348

820

1 165

1 333

3 682

Subcontract

notice

Year

2011

2012

2013

2014

2015

Total

113

1 174

1 832

2 556

2 851

8 526

Standard form types 16 to 19, as defined in Annexes XV to XVIII of Commission Implementing

Regulation (EU) No 842/2011 of 19 August 2011 establishing standard form for the publication of

notices in the field of public procurement and repealing Regulation (EC) No 1564/2005.

Source: OJ/TED, manual corrections by DG GROW

Upon entry into force, the uptake of the Directive was almost immediate and has shown a

clear upward trend. As presented in Figure 4, the use of procurement notices available

under the Directive has been increasing each year, with the exception of the subcontract

notices

which clearly stagnated at barely a few publications per year.

Figure 4: Notices published under the Directive, by year and type [number of

notices]

Prior information notice

Contract notice

1343

1226

896

739

1,000 1,500

500

100

160

166

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

1,000 1,500

Contract award notice

1333

1165

820

Subcontract notice

500

348

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Graphs by notice types

Source: OJ/TED, manual corrections by DG GROW

A total of 3 682 contract award notices has been published in OJ/TED over the analysed

period of time, containing 7 145 distinct contract awards

. The difference stems from the

fact that a single contract award notice may refer to the award of one or many contracts

(contract awards). Out of the total number of contract awards notices published in 2011-

2015, 3 121 contained just one contract. The remaining 15% of notices featured many

awards – the largest number in the sample was a notice containing 365 separate awards.

The subcontracting notices refer to the cases, where the contracting authority asked the successful

tenderer to subcontract a share of the contract to third parties.

The concept of a single award is more closely related to a contract signed with a bidder (or bidders) at

the end of the procurement process.

Figure 5: Contract award notices and awards published under the Directive, by

year [number of notices and awards]

2931

2057

1625

1333

1165

820

514

348

2011

2012

2013

2014

number of awards

2015

number of notices

Source: OJ/TED, manual corrections by DG GROW

The number of awards (awarded contracts) published under the Directive was in a steady

increase over the last five years, rising from only 18 in 2011 to 2 931 awards in 2015

(Figure 5). The total number of awarded contracts equalled, after manual corrections,

7 145 in 2011-2015.

5.3.1.1. Use of the Directive by countries

The total value of 3 682 contract award notices published under the Directive accounted

for nearly

30.85 billion EUR over the five years which are covered by the current

analysis (2011-2015).

However, the extent to which Members States implemented the

Directive remained uneven. In terms of the number of notices published, more than 70%

of the publications concerning awarded contracts were made by authorities from five

Member States: Germany, France, Italy, Poland and the United Kingdom (Table 6).

Table 6: Contract award notices published under the Directive, by country and year

[number of notices]

2011

Austria

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

2012

2013

2014

2015

Total

137

112

146

France

Germany

Hungary

Italy

106

Latvia

Lithuania

Netherlands

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Sweden

United Kingdom

Total

348

Source: OJ/TED, manual corrections by DG GROW

230

202

820

225

251

105

171

1 165

246

271

185

1 333

740

814

406

391

127

259

3 682

Between 2011 and 2015 there were no publications of contract award notices by

contracting authorities from six countries: Cyprus, Greece, Ireland, Malta, Luxembourg

and Spain

. It shall be noted however that these countries have published a number of

contract award notices with a defence-related subject-matter under the civil procurement

Directives. Spain for example, kept on publishing under the civil regime even after

transposition of the Directive.

In terms of the contract value, an overview of publications by Member States also shows

significant differences across the EU, as presented in Table 7. More than a half of the

value of published contracts has been awarded by authorities from the United Kingdom

(nearly 17 billion EUR over the analysed five years, albeit this result was heavily

influenced by one contract award notice valued at around 6 billion GBP

). France,

Poland, Germany and Italy followed in the ranking (with publications estimated at

approximately 5 to 1 billion EUR).

Table 7: Contract award notices published under the Directive, by country and year

[value in million EUR]

2011

Austria

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

France

Germany

Hungary

2012

0.62

4.34

0.70

20.03

34.02

25.48

45.64

280.92

52.40

2013

3.79

145.58

90.14

23.25

42.74

16.15

84.82

817.71

344.99

23.23

2014

2.03

106.20

15.60

43.71

55.15

15.95

23.79

143.35

2 000.91

409.46

57.96

2015

17.23

19.83

46.51

75.82

94.33

844.69

104.34

91.45

2 105.16

664.58

49.06

0.58

2.15

0.57

Total

23.68

275.95

153.54

119.53

192.75

937.39

144.28

345.10

4 969.42

1 702.11

183.23

The removal of notices from the working dataset due to manual quality checks did not concerned

contract award notices published by contracting authorities from these Member States.

http://ted.europa.eu/udl?uri=TED:NOTICE:162335-2015:TEXT:EN:HTML&src=0.

Italy

18.73

144.68

389.79

Latvia

4.38

Lithuania

1.41

37.26

Netherlands

2.27

6.73

Norway

Poland

4.37

123.30

Portugal

Romania

11.50

Slovakia

6.39

1.75

Slovenia

17.00

Sweden

1.15

0.18

United Kingdom

820.29

592.59

Total

22.03

1 444.72

2 776.88

Source: OJ/TED, manual corrections by DG GROW

395.11

8.84

22.85

26.58

3.69

700.20

216.64

286.26

4.95

0.18

2 811.81

7 351.24

116.55

25.72

75.52

81.25

191.47

1 181.23

34.04

136.56

13.67

9.17

17.68

13 259.46

19 255.31

1 064.86

38.94

137.04

116.84

195.16

2 009.11

34.04

364.70

308.07

31.13

19.19

17 484.14

30 850.19

The contracting authorities from the United Kingdom not only published the largest

contract under the Directive, but also as much as 20 out of 44 contract award notices

featuring the total value exceeding 100 million EUR (Table 8).

Table 8: Contract award notices with values above 100 million EUR published

under the Directive in 2011-2015, by country [number of notices]

Country

Freq.

United Kingdom

France

Germany

Denmark

Italy

Poland

Slovakia

Total

Source: OJ/TED, manual corrections by DG GROW

Percent

45.45

31.82

6.82

4.55

2.27

100.00

Cum.

45.45

77.27

84.09

88.64

93.18

97.73

100

The differences between countries were also significant for contracts below 100 million

EUR. The box and whisker plots for each country presented in Figure 6 illustrate the

median, quartiles, the range of data and its outliers.

Figure 6: Distribution of contract award notices with values below 100 million EUR

published under the Directive in 2011-2015, by country [value in million EUR]

Austria

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

France

Germany

Hungary

Italy

Latvia

Lithuania

Netherlands

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Sweden

United Kingdom

value of notices [million EUR]

100

Source: OJ/TED, manual corrections by DG GROW

As seen on the graph, most observations are concentrated around the low value contracts

with the right tail of the distribution being considerably longer. The majority of high

value observations / outliers (marked by dots) were noted for the United Kingdom and

France.

When analysing the awarded contracts in more detail, it appears that

high value

contracts carried out under the Directive were rather few.

The reported contracts

frequently concerned various auxiliary defence activities e.g. repair and maintenance

services, building management services, logistic services, etc.

The examples of selected high value published under the Directive are provided in Table

9 overleaf.

Table 9: Examples of high value contracts published under the Directive [value in million EUR]

Country

United

Kingdom

United

Kingdom

United

Kingdom

United

Kingdom

United

Kingdom

United

Kingdom

France

Denmark

United

Kingdom

United

Kingdom

Subject matter of procurement

Complex of logistic services (warehousing services and warehouse management system; procurement

consultancy; air, railway, road, water services; parcel transport; relocation services; medical equipment;

pharmaceuticals and personal care products; clothing, footwear, luggage articles and accessories; food,

beverages, tobacco and related products; lubricants).

Repair and maintenance services of weapons and weapon systems, firearms and ammunition, military

vehicles; fleet management.

Technical support services

Delivery initial in-service support of Specialist (Reconnaissance) Vehicles (common base platform).

Defence Infrastructure management support in the fields of real estate, construction project management,

building and facilities management, organisational issue.

Building and facilities management services.

Maintaining in the operational conditions of CASA airplanes.

Acquisition and sustainment of 309 Armoured Personnel Carriers. The total number of units adjustable

between 206 and 450.

Pipeline transport services: transportation of military fuel, maintenance of the related assets.

Construction works: military buildings and installations, construction and civil engineering, dismantling works

for military installations, engineering works, construction work for pipelines, communication and power lines,

architectural and engineering design for mechanical and electrical installations for buildings, demolitions,

site preparation and clearance work.

Value

8 266

Procedure

Negotiated

publication

Negotiated

publication

Restricted

procedure

with

Contractor

Leidos Supply Europe Limited (UK)

Contract

award

16.4.2015

1 934

678

537

496

396

380

350

344

with

Babcock International Group Plc (UK)

Not published

General Dynamics United Kingdom

Capita Business Services Ltd (UK)

Landmarc Security Services Limited

(UK)

Airbus Mitary (France) [2 lots]

General Dynamics European Land

Systems (Switzerland)

Compañía

Logística

Hidrocarburos CLH, S.A. (Spain)

Henry Brothers (Magherafelt) Ltd,

Interserve Construction Ltd, Lend

Lease Construction (EMEA) Ltd, Kier

Graham Defence Ltd, Miller

Construction (UK) Ltd (UK) [5 lots]

NSE Les Seignes (France)

5.12.2014

6.4.2012

22.7.2015

22.5.2014

9.5.2014

24.6.2014

27.8.2014

30.4.2015

19.3.2015

9.12.2014

Negotiated

with

publication

Negotiated

with

publication

Competitive

dialogue

Negotiated

with

publication

Negotiated

with

publication

Negotiated

without

publication

Restricted

France

Delivery and logistics of electronic equipment, optical, optronic, accessories and infantryman integrated

300 Negotiated

with

4.9.2015

equipment.

publication

Source: Source: OJ/TED

Note: Negotiated with publication – negotiated procedure following the publication of a contract notice; Negotiated without publication – negotiated procedure without the publication

of a contract notice; Restricted - restricted procedure.

In line with the methodology of this evaluation, Table 9 only includes contracts that have

been awarded until 31 December 2015.

However, by looking at contracts that have been advertised under the Directive (via the

publication of a contract notice) but have not yet been awarded, it is possible to identify

signs of an increasing use of the Directive for major military equipment contracts. The

most prominent example is the contract notice published under the Directive by the

German authorities for the design, construction and delivery of 4 multi-purpose combat

ships (with option for 2 additional vessels), including the integration of all systems,

equipment and materials provided, and the training of relevant staff

. The Danish

authorities published under the Directive contract notices for the procurement of new

armoured patrol vehicles and of new artillery systems

. Although it does not concern

highly complex systems, another example of a significant procurement of military

equipment launched under the Directive is the acquisition of around 90 000 assault rifles

by the French authorities

5.3.1.2. Reported and estimated value of contract award notices

As explained in Section 4.1 and in Annex III, the original dataset contained around 17%

of contract award notices which were published without the final price of awarded

contracts. Following a round of manual corrections carried out by the Member States

representatives

, this ratio has dropped to 15%. The overview of missing values by

country, after the implementing corrections by Member States, is provided in Table 48 in

Annex IV. The table shows that in some Member States the share of missing values was

still significant, notably in Sweden where it reaches as much as 85% of all observations,

followed by Denmark (48% of the contract award notices did not contained information

on the contract value) and Germany (41%). In order to compensate the above information

gaps, the missing information on values was imputed using average contract values

The result of such estimation is presented in Figure 10 below. The total value of contract

award notices published under the Directive in 2011-2015 increased from 30.85 billion

EUR to an estimated value of roughly 34.55 billion EUR.

Contract notice 2015/S 137-252505 of 18 July 2015.

Contract notice 2015/S 234-425025 of 3 December 2015; contract notice 2015/S 242-439446 of 15

December 2015.

Contract notice 2014/S 094-164662 of 16 May 2014.

As explained in Section 4.1.1 and in Annex III, the Government representatives of Belgium and the

Netherlands have provided the Commission with a revised dataset, where majority of the missing

values were completed.

The estimation of missing values was based on the average values by Member State for: (i) works

contracts and (ii) service and supplies contracts. The obtained average values were then used to replace

the missing observations in the corresponding Member State and sector.

Figure 7: Reported and estimated value of contract award notices published under

the Directive, by year [value in million EUR]

20,000

20,217

19,255

10,000

15,000

8,527

7,351

5,000

3,764

2,777

1,445

2,016

2011

2012

2013

2014

2015

Value of notices - reported

Source: OJ/TED, manual corrections by DG GROW

Value of notices - estimated

An overview of the raw and estimated values at country level is presented in Table 10

below. For countries where the occurrence of missing values was relatively high, the

difference between the raw and estimated data is substantial, notably in Sweden (an

increase from 19.2 to 130.5 million EUR over the analysed period of time).

Table 10: Reported and estimated value of contract award notices published under

the Directive in 2011-2015, by country [value in million EUR]

Reported

23.68

275.95

153.54

119.53

192.75

937.39

144.28

345.10

4 969.42

1 702.11

183.23

1 064.86

38.94

137.04

116.84

195.16

Estimated

23.68

275.95

167.62

119.53

211.26

1 818.53

144.28

349.89

5 879.50

2 977.26

196.29

1 067.49

38.94

137.04

116.84

195.16

Austria

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

France

Germany

Hungary

Italy

Latvia

Lithuania

Netherlands

Norway

Poland

2 009.11

Portugal

34.04

Romania

364.70

Slovakia

308.07

Slovenia

31.13

Sweden

19.19

United Kingdom

17 484.14

Total

30 850.19

Source: OJ/TED, manual corrections by DG GROW

2 061.43

34.04

364.70

308.07

31.13

130.50

17 900.83

34 549.96

To summarize, the total value of

defence and security procurement published under

the Directives accounted for around 30.85 billion EUR in 2011-2015

(based on the

raw dataset),

or around 34.55 billion EUR if the missing values were imputed.

The

imputed figure gives a rough projection of the additional value of procurement that has

probably been carried out under the Directives, but which cannot be effectively analysed

due to the incomplete fulfilment of reporting obligations. To avoid estimation

uncertainties

, this report is mainly based on the raw dataset, unless clearly specified.

5.3.1.3. Use of procedures

The Directive foresees six types of procedures that can be used in order to award defence

and security contracts: restricted procedure, negotiated with publication of a contract

notice, negotiated without publication of a contract notice, competitive dialogue and two

types of accelerated procedures (restricted and negotiated).

The procedures with prior advertising and call for competition accounted together for

60% of the number of contract award notices and 76% in terms of value of notices (see:

Section 6.1.1.3). The negotiated procedure without publication of a contract notice is the

most used one in terms of the number of contract award notices published (nearly 38%),

while the highest value of contract was awarded following the negotiated procedure with

publication of a contract notice (55%). The restricted procedure was the second most

frequently used (nearly 29% of contract award notices), but it accounted for just 18% of

their value. The use of the competitive dialogues as well as of the two types of

accelerated procedures was relatively marginal.

The significant use of the negotiated procedure without publication of a contract notice

may also be due to the award of follow-on contracts related to original contracts awarded

in previous years (as part of on-going defence equipment programmes).

The missing observations are clearly biased towards selected countries, hence are not missing at

random.

Figure 8: Contract award notices published under the Directive in 2011-2015, by

type of procedure [%]

Number of notices

1.6%

2.0%

3.2%

26.9%

37.6%

28.5%

Negotiated without publication

Negotiated with publication

Missing

Competitive dialogue

Restricted

Accelerated restricted

Accelerated negotiated

Value of notices

1.3%

1.5%

17.9%

55.2%

23.4%

Negotiated with publication

Restricted

Competitive dialogue

Missing

Negotiated without publication

Accelerated restricted

Accelerated negotiated

Source: OJ/TED, manual corrections by DG GROW

The average and median values of contracts by procedure type are provided in Table 11.

The procedure with the highest average value was the competitive dialogue, which is not

unexpected since this procedure was conceived for large and complex projects.

Table 11: Contract award notices published under the Directive in 2011-2015, by

type of procedure [value in million EUR]

Procedure

Accelerated negotiated

Accelerated restricted

Competitive dialogue

Negotiated with publication

Negotiated without publication

Restricted

Missing

All types of procedures

Source: OJ/TED, manual corrections by DG GROW

Average

3.42

4.01

40.81

24.04

5.76

5.65

2.08

9.89

Median

0.64

1.15

0.48

1.24

1.05

0.81

1.15

1.01

The table above also shows what could have been derived from the pie charts in Figure 8,

namely that the negotiated procedure with publication has been used for procurement of a

much higher average value than the negotiated procedure not open to competition (24

million EUR to 5.7 million EUR respectively). This significant difference was mainly

driven by the previously mentioned high value contract awarded by the UK through the

negotiated procedure with competition. The table also confirms that

the average

contract value was relatively small (around 10 million EUR)

and the median was

around 1 million EUR.

5.3.1.4. Contract types

As far as contract types are concerned, more than a half of published contract award

notices related to service contracts (56%), followed by supply and works contracts

(roughly 40% and 4% respectively). In value terms, the dominance of services is even

more apparent – three quarters of all contracts concerned services (Figure 9). This again

was due to the fact that the largest awarded contract, worth nearly 6 billion GBP, was

related to services. The remaining two categories followed with the shares of roughly

20% (supplies) and 4% (works contracts).

Figure 9: Contract award notices published under the Directive in 2011-2015, by

type of contract [%]

Number of notices

3.9%

39.7%

56.4%

Services

Works

Supplies

Value of notices

4.1%

20.3%

75.6%

Services

Works

Supplies

Source: OJ/TED, manual corrections by DG GROW

The above patterns are confirmed when looking at average and median contract values by

contract type presented below (Table 12).

Table 12: Contract award notices published under the Directive in 2011-2015, by

type of contract [value in million EUR]

Contract type

Average

Service

13.67

Supplies

4.89

Works

9.62

All contract types

9.89

Source: OJ/TED, manual corrections by DG GROW

Median

1.07

0.97

0.82

1.01

As previously explained, the average value of service contracts has been heavily

influenced by a single high value contract, therefore the value of median is probably

more telling in this context. Finally, the presented data reiterate what has been already

mentioned i.e. that average and median contract values have been rather small, especially

in the framework of the defence sector.

The following two tables (Table 13 and Table 14) present the most frequently purchased

items according to the CPV divisions under which the contracts were advertised. CPV-50

(repair and maintenance services) top the list in terms of the number of observations,

followed by CPV-35 (equipment for security, fire-fighting, police and defence), CPV-34

(transport equipment) and CPV-45 (construction works)

After a more detailed scrutiny of the dataset it was also noted that the number of notices published

under CPV division 45 (construction work) is different from the number of contract award notices

identified as works contracts (144). It appears that some authorities published their work contracts

under the CPV divisions other than 45, such as CPV-44 (construction structures and materials;

auxiliary products to construction) or CPV-71 (architectural, construction, engineering and inspection

services), etc. Yet, some CPV-45 (construction work) contracts were published as services, or

surprisingly a few of them as goods contracts.

Table 13: Top 10 CPV divisions by number of contract award notices published

under the Directive in 2011-2015 [number of notices]

CPV Division

50 Repair and maintenance services

35 Security, fire-fighting, police and defence equipment

34 Transport equipment and auxiliary products to transportation

45 Construction work

72 IT services: consulting, software development, Internet and support

79 Business services: law, marketing, consulting, recruitment, printing and

security

32 Radio, television, communication, telecommunication and related

equipment

38 Laboratory, optical and precision equipment (excl. glasses)

71 Architectural, construction, engineering and inspection services

73 Research and development services and related consultancy services

Source: OJ/TED, manual corrections by DG GROW

Freq.

1 053

914

254

161

149

133

103

As far as the value of contracts is concerned (Table 14), CPV-75 (administration, defence

and social security services) was the division which featured the highest value of

contracts, followed by divisions CPV-50 and CPV-35 (i.e. the two divisions, which open

the list sorted by the number of observations).

Table 14: Top 10 CPV divisions by value of contract award notices published under

the Directive in 2011-2015 [value in million EUR]

CPV Division

75 Administration, defence and social security services

50 Repair and maintenance services

35 Security, fire-fighting, police and defence equipment

79 Business services: law, marketing, consulting, recruitment, printing and

security

71 Architectural, construction, engineering and inspection services

60 Transport services (excl. waste transport)

34 Transport equipment and auxiliary products to transportation

45 Construction work

70 Real estate services

80 Education and training services

Source: OJ/TED, manual corrections by DG GROW

Value

8 392.25

7 569.80

4 675.39

1 544.51

1 359.13

1 305.23

1 225.01

841.94

496.20

414.42

5.3.1.5. Division into defence and security contracts

As explained in the earlier sections, the Directive covers not only the defence, but also

the sensitive security procurement. For this reason, the extent to which it is actually used

for purchases in one of the two domains has been subject to scrutiny within the

framework of this evaluation. As the OJ/TED database contains no field that would

enable filtering contracts against this criterion in an automated way, the affiliation of the

awarded contracts to either of the domains was carried out manually - contracts awarded

under the Directive have been classified as belonging to either defence or security

domain, based on common knowledge and/or desk research aimed at determining the

profile of the contracting authority/entity (the details of the work undertaken are

presented in Annex III).

Figure 10: Share of defence and security procurement under the Directive in 2011-

2015, by number and value [%]

Number of notices

Value of notices

93%

97%

Defence

Security

Defence

Security

Source: OJ/TED, manual corrections by DG GROW, without corrections received from Belgium and the

Netherlands

As it can be seen from the graph above, the defence purchases dominated by far the

procurement carried out under the Directive with more than 9 out of 10 contracts

referring to this category. The

security contracts accounted for just 7% of the number

of notices and 3% of their value.

5.3.1.6.Use of Voluntary ex ante transparency notices

Voluntary ex-ante transparency notices (VEAT) may be published if a contracting

authority/entity considers that the award of a contract does not require prior publication

of a contract notice in OJ/TED. This may be the case, for example, if the conditions

justifying use of the negotiated procedure without publication of a contract notice, set out

in Article 28 of the Directive, are met.

In completing the VEAT notice, the contracting authorities/entities express their intention

to conclude a contract and provide, among others, the justification for the award of a

contract without prior publication of a contract notice in OJ/TED. They will then observe

a standstill period before the contract is concluded. This gives economic operators the

opportunity to challenge the decision of the contracting authority and obtain pre-

contractual remedies should a challenge be upheld. The advantage to the contracting

authority is that the penalty of mandatory ineffectiveness does not apply in the event of a

challenge to a contract awarded after the standstill period has elapsed.

Since the entry into force of the Directive,

1 272 VEATs related to defence or security

procurement have been published in OJ/TED.

The uptake of this tool for ex-ante

transparency was fairly imminent – it rose from 19 notices in 2011 (published only by

France and Denmark) to nearly 250 in the following year and then remained fairly static

at ca. 320-340 notices per year.

Table 15: Voluntary ex-ante transparency notices published under the Directive, by

country and year [number of notices]

Country

Belgium

Bulgaria

Croatia

2011

2012

2013

2014

2015

Total

Denmark

Finland

France

Germany

Greece

Italy

Latvia

Lithuania

Netherlands

Norway

Poland

Slovakia

Slovenia

Spain

Sweden

United Kingdom

150

Total

244

Source: OJ/TED, manual corrections by DG GROW

168

321

134

346

150

342

189

139

126

128

602

1 272

The implementation of this legal instrument was uneven across countries, with

authorities from the UK, Denmark, Finland, Poland and France being the most frequent

users. At the same time, the following 11 countries did not publish any VEATs related to

the Directive in 2011-2015: Austria, Cyprus, the Czech Republic, Estonia, Hungary,

Ireland, Iceland, Luxembourg, Malta, Portugal and Romania.

5.3.2. Defence and security procurement under the civil procurement

Directives

As mentioned in Section 2.3, before the adoption of the Directive, defence and security

procurement open to competition was carried under the civil procurement Directive and

published on OJ/TED or, as foreseen in the Code of Conduct, advertised through the

EBB. Despite the adoption of a sector–specific legal act in 2009, the publications of

contracts covered by defence and security-related CPVs under the civil regime still occur,

albeit to a lesser extent than in the past.

A total of 4 084 contract award notices, related to defence procurement was published

under the civil procurement Directives between 2004 and 2015. As presented in Figure

11, such publications have been increasing since 2006 (with just 94 contract award

notices) to reach a peak in 2012 (610 notices) and then decrease slightly.

Figure 11: Contract award notices covered by defence-related CPVs and published

under the civil procurement Directives, by year [number of notices]

600

610

522

491

455

491

400

370

346

301

200

205

113

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: OJ/TED, manual corrections by DG GROW

This overall rising trend could be interpreted as if the mere discussion about the proposal

of the Directive had translated into higher levels of publications of defence related

purchases under the legal instruments available at that time. After 2012 the publication

numbers started to fall, probably due to the fact that authorities had at their disposal a

sector-specific Directive that was better fit for the procurement of defence related goods

and services.

With regards to data corresponding to years 2008-2010, the totals provided in Figure 11

above differ from those presented in the Baseline Study for the same years (415, 447 and

686 in 2008-2010)

. The observed discrepancies can be explained by the fact that the

selection of notices identified as defence contracts was based on different assumptions.

The list of CPV codes (provided in Annex III) which have been used to filter notices was

the same as the one used in the Baseline Study, but the data manipulations that followed

diverged significantly

. At the same time, the current methodology aims at being more

The Baseline Study, p.30.

Firstly, the unit of measure in the Baseline Study was a contract while above the number of contract

award notices are used. Secondly, the Baseline Study considered as defence contracts those for which

any CPV (main or secondary) codes matched codes used to define the defence contracts, while in this

evaluation only notices with the defence CPV codes mentioned as the main description of procurement

were used. In cases where the CPV code was missing from the contract award notice, the Baseline

Study identified as defence contracts those which contained in their definition the most commonly

used defence terms. No matching of text fields was carried out under the current evaluation. Finally,

for OJ/TED contracts which did not contain the value of the contract the Baseline Study used a variety

of imputation methods to estimate an expected contract value, based on similar but more complete

records. No imputation of missing values was performed at this stage of the evaluation.

rigorous and leaves less room for interpretations that non-defence contracts could have

been erroneously captured.

An overview of publications across countries is provided below (Figure 12). As can be

seen from the graph, out of the total of 4 084 notices, the highest number of defence-

related contracts published under the civil procurement Directives originated from the

French contracting authorities and entities (780 notices in total), followed by Germany

(651), Italy (462), Poland (431) and the UK (345).

Figure 12: Contract award notices covered by defence-related CPVs and published

under the civil procurement Directives in 2004-2015, by country [number of notices]

800

780

651

600

462

431

400

345

277

200

166

109

43 28

20 19

23 20

1 5

78 71

159

40 34

Source: OJ/TED, manual corrections by DG GROW

Interestingly, all countries which have not awarded contracts under the Directive since

2011 (see: Section 5.3.1.1), did so under the civil regime i.e.: Cyprus, Greece, Ireland,

Malta, Luxembourg and Spain, also in the years following its adoption (Table 49 in

Annex IV). In fact, many of the remaining countries have also continued to publish some

of their defence and security procurement under the civil rules after the Directive has

been effectively transposed to their legal systems.

Finally, the value of the above publications of contracts in OJ/TED under the civil

procurement Directives with CPVs related to defence or security accounted for nearly 13

billion EUR over the last decade (Table 16 below).

Table 16: Contract award notices covered by defence-related CPVs and published

under the civil procurement Directives, by year [value in million EUR]

Year

2004

2005

Sum

92.20

299.27

Be str

l ia

Bu giu

lg m

C aria

ch C atia

R ypr

e u

D pub s

en li

m c

Es ar

t k

Fi onia

Fr and

G an

er c

m e

G an

r y

H ee

un ce

Ic ar

el y

Ire and

Ita d

L ly

Lu Lith atv

xe ua ia

m ni

bo a

et M rg

he a

rla lta

N nd

or s

Po way

Po lan

R rtug d

om a

Sl an l

o i

Sl vak a

ov ia

Sp ia

te Sw a

d e in

Ki d

ng en

2006

325.88

2007

233.07

2008

874.37

2009

2 444.41

2010

709.05

2011

685.03

2012

1 394.88

2013

2 906.21

2014

1 161.69

2015

1 830.74

Total

12 956.79

Source: OJ/TED, manual corrections by DG GROW

During the last five years when the

civil procurement Directives

co-existed with the

newly enacted (defence procurement) Directive, the value of publications concerning

these contracts was

roughly 8 billion EUR (hence nearly 1.6 billion EUR annually).

The scope of application of the (defence procurement) Directive and that of the civil

procurement Directives are mutually exclusive. Contracts that fall within the scope of the

Directive according to Article 2 have to be awarded under it, and cannot be awarded

under the civil procurement Directives. This means that contracting authorities/entities

have, in each individual procurement case, to make a decision on whether a given

contract fall within the scope of the Directive or within that one of the civil procurement

Directives. As pointed out by certain Member States’ authorities in the consultations,

there may be at times borderline cases where the identification of the applicable regime is

not straightforward (see: Section 6.4.1.1).

The significant number of procurement still published under the civil procurement

Directives may be explained by a combination of two factors: first, procurement with

defence or security related CPV may still, from a legal point of view, fall within the

scope of the civil procurement Directives; second, contracting authorities / entities may

have erroneously decided (especially in “borderline cases”) to publish under the civil

procurement Directives contracts that would have actually fallen within the scope of the

(defence procurement) Directive. Recognising that both legal regimes (civil and defence)

are based on the same Treaty principles of transparency and equal treatment, the

available data on publications in OJ/TED shall be interpreted, for the purposes of this

evaluation, as complementary information - altogether they account for procurement

governed by open and competitive EU rules.

NSWERS TO THE EVALUATION QUESTIONS

6.1.

Effectiveness

The evaluation questions related to the effectiveness of the Directive, as defined in

Section 3, will be analysed based on the data on its use and on the results of the online

survey and of the meetings with stakeholders.

6.1.1. Competition, transparency and non-discrimination

Evaluation question (1):

To what extent have competition, transparency and non-discrimination in the

defence procurement market in Europe changed as a result of the Directive?

In order to address the first evaluation question the report will start with referring to the

baseline situation and data referring to the period before the adoption of the Directive.

6.1.1.1.

EU-wide publication of business opportunities

As discussed in Section 5.3, the total value of contract award notices published in

OJ/TED since the entry into force of the Directive was around 30.85 billion EUR (2011-

2015). The value of these notices equalled just 22 million EUR in 2011 and increased

more than ten times between 2012 and 2015, from 1.4 billion EUR to 19 billion EUR per

year (Section 5.3.1.1 and Figure 13 below). As noted in the previous sections, the

increase in 2015 as compared to 2014 was mainly driven by one large contract awarded

by the UK. However, significant year-to-year changes in the total value of defence

contracts are somehow inherent in the sector, as purchases of major items usually occur

irregularly and over longer time-spans.

Figure 13: Contract award notices published under the Directive, by year [number

of notices, value in million EUR]

20,000

19,255

10,000

15,000

7,351

5,000

2,777

1,445

348

820

1,165

1,333

2011

2012

number of notices

2013

2014

2015

value of notices [million EUR]

Source: OJ/TED, manual corrections by DG GROW

The increasing number of publications in OJ/TED confirms that the Directive has been

gradually adopted by the public buyers as a tool for addressing their needs in defence and

security procurement. Additionally, as described in Section 5.3.2, an important number

of publications related to defence and security purchases has been also observed under

the civil procurement Directives.

Recognising that both legal regimes (civil and defence) are based on the same Treaty

principles of transparency and equal treatment, the total value of defence related contract

award notices published under the civil procurement Directives is presented alongside the

contract award notices published under the Directive (Figure 14 below), as the total

procurement governed by EU rules.

Figure 14: Comparison between the contract award notices published under the

civil procurement Directives and the Directive [value in million EUR]

20,000

19,255

10,000

15,000

7,351

5,000

2,906 2,777

685

1,395 1,445

1,162

1,831

2011

2012

2013

2014

Source: OJ/TED, manual corrections by DG GROW

As illustrated by the graph above, in 2011-2015,

the value of procurement carried out

under the two EU legal instruments accounted for roughly 38.85 billion EUR in

total.

The decrease in the value publication contracts awarded under the civil

procurement Directives after 2013 could mean a simple substitution of some publications

under the civil procurement Directive by the (defence procurement) Directive without a

net gain in transparency. It is however is impossible to verify the above conjunction only

by analysing the available dataset. Nevertheless, these hypothetical “transfers” between

the civil and defence legal instruments, if any, have happened in the general context of

increasing publication rates and improved transparency in the defence and security

procuring using all available EU legal instruments.

To conclude, a significant increase in the value of publications in OJ/TED (using civil

and defence legal instruments) has been observed over the last years. A rise from 700

million EUR in 2011 to 21 billion EUR in 2015 confirms that

more and more defence

procurement has been awarded following open and transparent EU rules.

However, as far as the Directive is concerned (and as discussed in Section 5.3.1), the

majority of contract award notices published under the defence legislation were of

relatively small values. Overall, nearly 90% of observations related to procurement of

less than 10 million EUR, 95% to less than 21 million EUR. The average contract value

was around 10 million EUR while the median was around 1 million EUR. An overview

of contracts below 10 million EUR is presented in Figure 15 below.

2015

Figure 15: Contract award notices with values below 10 million EUR published

under the Directive in 2011-2015 [frequency by value of notices]

Frequency

value of notices [million EUR]

Source: OJ/TED, manual corrections by DG GROW

As shown on the graph, the distribution of the contract award notices is positively

skewed, showing high concentration around low-value contracts and a long tail as the

value increases. The red lines on the figure mark the threshold values

above which the

Directive shall apply – 414 thousand EUR and 5.186 million EUR. It is clear that many

of the published contract award notices have reported total contract values even falling

under the lower threshold for supplies and services of 414 thousand EUR.

Along with the relatively small average contract values being advertised under the

Directive, an overview of publications by Member States (as detailed in Section 5.3.1)

shows also significant differences across the EU, which cannot be easily explained by

such factors as the available defence budgets or the size of economy. Several countries

have not published any contract award notices under the Directive in the analysed period

of time

(notably Cyprus, Greece, Ireland, Malta, Luxembourg and Spain). For the

countries which have used the Directive, the difference in the value of contracts

published, especially when compared with the available budgets, as presented in Table

17 below, were also significant.

As mentioned in the introduction, the threshold above which the Directive shall apply is set in Art.8

at 412 000 EUR for supply and service contracts and 5.15 million EUR for works contracts. The

thresholds are updated every two years. The threshold values valid at the end of the evaluated period

were those for 2014-2015, hence 414 000 EUR and 5.186 million EUR (for service/ supply contracts

and works contracts respectively).

However, all these countries have published a number of contract award notices with a defence-related

subject-matter under the civil Directives in 2011-2015.

Table 17: Comparison between the average annual

values of contract award

notices published under the Directive (OJ/TED) and general government

procurement expenditure on military defence (COFOG), by country [value in

million EUR, %]

Percentage

COFOG

Reported Estimated

Austria

577.00

1.0%

Belgium

785.26

8.8%

Bulgaria

162.08

18.9%

20.7%

Croatia

212.46

28.1%

Cyprus

96.42

0.0%

Czech Republic

48.19

52.81

582.16

8.3%

9.1%

Denmark

234.35

454.63

1 717.02

13.6%

26.5%

Estonia

48.09

189.50

25.4%

Finland

86.27

87.47

1 611.40

5.4%

France

1 242.35

1 469.88

14 305.20

8.7%

10.3%

Germany

340.42

595.45

13 977.60

2.4%

4.3%

Greece

1 608.00

0.0%

Hungary

36.65

39.26

325.24

11.3%

12.1%

Iceland

n.a

Ireland

84.20

0.0%

Italy

212.97

213.50

5 434.80

3.9%

Latvia

12.98

86.64

15.0%

Lithuania

34.26

89.18

38.4%

Luxembourg

49.88

0.0%

Malta

15.96

0.0%

Netherlands

29.21

2 180.00

1.3%

Norway

97.58

2 783.36

3.5%

Poland

502.28

515.36

2 320.52

21.6%

22.2%

Portugal

34.04

725.42

4.7%

Romania

121.57

5.94 n.a.

n.a.

Slovakia

77.02

211.44

36.4%

Slovenia

10.38

98.62

10.5%

Spain

2 810.80

0.0%

Sweden

4.80

32.62

3 198.74

0.1%

1.0%

United Kingdom

4 371.03

4 475.21

25 254.68

17.3%

17.7%

EU-28 and EEA-2

6 170.03

6 909.99

81 499.52

7.6%

8.5%

Source: OJ/TED, manual corrections by DG GROW; Eurostat, general government expenditure by

function (COFOG) [gov_10a_exp]

Note: the annual averages are based on the number of years since the first publication in OJ/TED e.g. the

total value of contract award notices published by Austrian authorities was 23.68 million EUR, but the first

publication occurred in 2012, therefore the average is calculated based on four year time span (23.68

million EUR /4=5.92 million EUR); to compare, the first publication from Bulgaria occurred in 2011 hence

153.54 million EUR/5=30.71 million EUR while Norway started publishing in 2014 and the average is

calculated as follows: 195.16 million EUR/2=97.58 million EUR; the percentage for Romania was not

provided due to the ambiguity of data available in COFOG.

OJ/TED

Reported Estimated

5.92

68.99

30.71

33.52

59.77

OJ/TED data refer to average annual values in 2011-2015 unless the publication period was shorter

(see: explanation in the note); Eurostat COFOG data refer to 2010-2014.

As presented in the Table above, the

average yearly value of contracts awarded under

the Directive would therefore be between 6.2

and 6.9 billion EUR

which equalled

roughly

between 7.6%

to 8.5% of the total value of

general government procurement

expenditure on military defence

of EU-28 and EEA-2 countries (81.5 billion EUR on

average). If the value of defence and security procurement carried out under the civil

procurement Directives (around 8 billion EUR in total in 2011-2015, hence circa 1.6

billion EUR annually) was to be added to the procurement under the Directive, the

reported percentage of procurement covered by transparent EU rules would

increase to 9.5%

To compare, the publication rate in terms of percentage of total

expenditure in the civil sector ranged between and 16.5% and 17.8% from 2012 to

2014

Looking at the data from a different perspective, the procurement of goods under the

Directive can be also compared with the budgets spent on defence equipment discussed

in Section 2.1.2 (

As explained in Section 4.1 and 5.3.1.1, the original dataset contained many contract award notices

published without the final price of awarded contracts. Following a round of manual corrections and

estimation based on average contract values the missing values were imputed. As a result of the above,

the total value of contract award notices published under the Directive in 2011-2015 increased from

30.85 billion EUR to an estimated value of roughly 34.55 billion EUR.

7.8 billion EUR/81.5 billion EUR annually.

Estimated value of tenders published in OJ/TED (excluding utilities and defence) compared with the

estimate of total public procurement expenditure by general government on works, goods and services

(excluding utilities and defence): 17.5% in 2012 (326.69 billion EUR/1866.8 billion EUR), 17.8% in

2013 (334.56 billion EUR/1880 billion EUR), 16.5% in 2014 (319.64 billion EUR/1931.5 billion

EUR) - Public Procurement Indicators 2014

(http://ec.europa.eu/DocsRoom/documents/15421/attachments/1/translations )

Figure 2). According to EDA, the national and collaborative defence equipment

procurement in 2014 for the Agency participating countries

was estimated at 25.9

billion EUR. The total value of supply contracts awarded under the Directive in 2011-

2015 was 6.2 billion EUR, hence roughly 1.3 billion EUR per year. This would indicate

that not more than 4.8 % of the value of equipment procurement reported by EDA was

carried out through the Directive.

To conclude, although the general trend in the publication of defence and security

contracts is unquestionably positive,

the value of procurement awarded under the

Directives

(in both cases - raw and imputed totals) still seems to be

relatively small

when compared to overall defence procurement expenditure

which was at the

discretion of Member States in the analysed period of time.

The relatively small overall volume of procurement carried out under the Directive

(when compared with the available defence budgets) as well as the dominance of small

value contracts, may suggest that

the Directive was used to a very limited extent for

the procurement of strategic equipment

(i.e. complex systems) which would be

manifested by much higher average or median contract values and by a larger share in

procurement expenditure.

A recent study had come to a similar conclusion: “The

Directive 2009/81/EC is today

favoured for contracts dealing with services, the acquisition of equipment deemed to be

of a low strategic value, and sub-systems. Over the past three years, all of the major

military equipment contracts, thus those that have had a structural effect on the DTIB,

were notified without going via the Directive.”

However, the conclusions of this

evaluation are more nuanced on this point since some significant military equipment

contracts have been awarded under the Directive.

This situation contrasts with the operational objective of the Directive, as set out in the

Impact Assessment, that the majority of contracts in the fields of defence and security

should be awarded on the basis of EU procurement rules.

In the perception of industry, the Directive improved market access and business

opportunities only to a limited extent. 36% of companies or business associations that

replied to the online survey considered there is “no difference” compared to the situation

before, 21% deemed that the situation “improved”, and 12% responded that it

“deteriorated” or “significantly deteriorated”.

In its reply to the online survey, ASD

noted the “increase

in publications of contract

notices in recent years, but also huge differences in publication rates between Member

States”

and emphasised that “such

uneven application of the Directive throughout the EU

clearly has a negative impact on the level playing field”.

Similar comments were made

by several other companies and businesses associations responding to the online survey.

Overall, these stakeholders emphasised the importance of focusing on consistent

application of the Directive and achieving more effective enforcement of its provisions.

EU Member States except for Denmark.

“The

impact of the 'defence package' Directives on European defence”

Dr Hélène Masson, Kévin

Martin, requested by the European Parliament's Subcommittee on security and defence, 20 April 2015.

The AeroSpace and Defence Industries Association of Europe (ASD).

Industry representatives made the same points during stakeholder consultation

meetings

Transparency International emphasised that the publication of longer-term purchasing

plans by Member States, beyond the obligations under the Directive, would be an

important contribution to a more transparent market.

To summarise, the value of defence and security contracts published EU-wide and

awarded, in competition, under rules based on transparency and equal treatment has

significantly increased. However, a very significant share of defence procurement

expenditure is still done outside the Directive, especially for the procurement of high-

value, strategic, complex equipment. This is in line with the feedback received from

stakeholders.

This is probably due to a number of factors such as the relatively short time (2-3 years)

between actual transposition by Member States and the last year covered in the

evaluation (2015) and a still too broad interpretation of possible exemptions, including

under Article 346 TFEU, which are probably relied on especially for the procurement of

strategic equipment.

6.1.1.2.

Cross-border awards

In the analysed period of time (2011-2015),

direct cross-border procurement

(i.e.

contract won by companies located in a country different from the one of the contracting

authority and bidding directly from abroad)

accounted for approximately 10% of

awarded contracts in terms of their number, as well as value.

The total value of

contracts awarded directly to foreign economic operators accounted for 3.1 billion EUR

(hence around 620 million EUR annually) out of the total of 30.36 billion EUR

which

was extracted from contract award notices that included total final values of procurement

at the level of separate awards.

Figure 16: Contracts awarded directly to foreign companies under the Directive in

2011-2015 [%]

Minutes of 22 February and 3 May 2016 meetings with industry organised by ASD.

The total value of procurement calculated on the basis of separate awards (30.36 billion EUR) is

different from the same indicator calculated on the basis of contract award notices (30.85 million

EUR); this is due to the fact that many contracting authorities, despite providing the total value of all

awarded contracts at the level of a notice, have not disaggregated this value by each unique contract

award (if there was more than one); in order to calculate the share of cross-border procurement the

values of separate contract awards must be used, therefore the above calculation is based on a larger

number of missing observations and the sum of all observations is lower.

Number of contracts

2% 6%

88%

Intra-EU cross border

Domestic

Non-EU cross border

Missing

Value of contracts

87%

Intra-EU cross border

Domestic

Non-EU cross border

Missing

Source: OJ/TED, manual corrections by DG GROW

As shown in Figure 16, 6% of direct cross-border contract awarded under the Directive

were won by companies from other EU Member States and 4% by companies located

outside the EU. The levels of cross-border procurement were roughly the same in terms

of the value of all awards. In civil procurement in 2007-2009, the level of direct cross-

border equalled 3.5% of the contract value and 1.6% in terms of the number of

contracts

The differences in the percentage of contracts awarded directly to foreign companies

(intra-EU and non-EU combined) across Member States are shown in Figure 17.

„Cross-border

procurement above EU thresholds”

Ramboll Management, HTW Chur, for the

European

Commission,

Internal

Market

and

Services

March

2011,

http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cross-border-

procurement_en.pdf.

Figure 17: Contracts awarded directly to foreign companies under the Directive in

2011-2015, by country in number and value [fraction]

Austria

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

Estonia

Finland

France

Germany

Hungary

Italy

Latvia

Lithuania

Netherlands

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Sweden

United Kingdom

number of contracts

Source: OJ/TED, manual corrections by DG GROW

value of contracts

The graph above marks significant differences between countries that can, from an

economic viewpoint, be partially explained by the size of the industrial base in respective

countries and their need (or not) to source procurement from abroad. A detailed overview

of cross-border penetration by country in terms of value, number and their respective

shares is provided in Table 50 in Annex IV.

Table 18: Contracts awarded directly to foreign companies under the Directive in

2011-2015, by contract type [%]

Number

Intra-EU Non-EU

cross

border

Domestic Missing

Supplies

84%

Services

91%

Works

99%

Total

88%

Source: OJ/TED, manual corrections by DG GROW

Intra-EU

cross

border

18%

Value

Non-EU

cross

border

16%

Domestic

65%

93%

99%

87%

Missing

An overview of cross-border procurement by contract types (Table 18) shows that supply

contracts have been more frequently won by foreign bidders than service or works

contracts. The percentage of supply cross-border awards was 14% in terms of number

and 34% in value. This is to be expected, given the fact that goods are typically more

tradable than services (or works). The shares of cross-border procurement by selected

categories of CPV nomenclature are provided in

Table 51 in Annex IV. Finally, a detailed overview of contracts awarded under the

Directive in 2011-2015 and broken down by the country of contracting authorities and

economic operators is provided in Table 52 (the number of contracts) and Table 53 (in

value terms) in Annex IV.

The Impact Assessment noted that, in general terms, EU-wide publication of contract

opportunities should enhance companies’ chances to win cross-border contracts

. When

comparing the above findings with the baseline (despite some methodological

discrepancies), it appears that the level of direct cross-border procurement in EU has

remained at similar levels since the entry into force of the Directive. According to the

Baseline Study, the value of cross-border procurement advertised in OJ/TED and EBB

was estimated at around 2.26 billion EUR in 2008-2010

, hence roughly 753 million

EUR per year. Since the entry into force of the Directive, contracts worth roughly 3.1

billion EUR were awarded directly to firms located in a country other than the one of the

contracting authority (circa 620 million EUR per year). Additionally, defence and

security contracts worth around 692 million EUR

were awarded to foreign bidders

under the civil procurement Directives in 2011-2015 (hence roughly 138 million EUR

annually on average). The two figures combined would equal around

758 million EUR

annually, representing the mean average value of defence and security procurement

covered by transparent EU rules and awarded directly cross-border in 2011-2015.

When comparing the above totals with the value of defence procurement expenditure

which was at the disposal of EU governments in the respective periods of time, it seems

that,

since the Directive became applicable, direct cross-border procurement in EU

has remained at similar levels -

according to the Baseline Study, the cross-border

procurement announced via OJ/TED and EBB equalled roughly 0.85%

while the same

percentage in the evaluated time span would account for 0.93%

of the defence

procurement expenditure. Although both figures are very close (on average around 750

million EUR annually and both accounting for less than 1% of defence procurement

expenditure), it should be underlined that the two estimates are difficult to compare, as

they are based on different methodologies (e.g. the Baseline Study used a broader

definition of defence procurement than the current evaluation, hence the current estimate

would have been probably higher if it was calculated using the baseline methodology).

The above estimates all referred to the so-called direct cross-border procurement which

occurs when firms operating from their home market bid and win contracts for invitations

to tender launched in another Member State. However,

cross-border procurement can

also occur indirectly through subsidiaries

(e.g. a foreign affiliate bids for tenders

launched by authorities of a country different from the home country of the firm’s

headquarters or where the parent company is located).

In order to provide an estimate of the second form of cross-border procurement, the firms

that have won contracts under the Directive were compared with the names of companies

The Impact Assessment, p. 54.

The Baseline Study, p. 57.

Without taking into account manual corrections received for Belgium.

753 million EUR/87.73 billion EUR, annual average in 2008-2010.

758 million EUR/81.49 billion EUR, annual average in 2011-2015.

listed in the SIPRI Top100-arms producing and military services

ranking. As the SIPRI

list includes the country of the parent company, the approximate share of indirect cross-

border procurement could be estimated.

As shown in Table 19, which provides an overview of indirect cross-border procurement

calculated for a sample of large firms, amongst all contracts awarded under the Directive,

474 were won by the foreign subsidiaries of firms listed in SIPRI Top 100 ranking.

Around 66% of these contracts were awarded to the European companies, while the

following 26% have been won by companies from the US. Companies captured by the

above method could have acted as stand-alone businesses or in consortia.

Table 19: Contracts published under the Directive in 2011-2015 and awarded to

foreign subsidiaries of companies listed on the SIPRI Top 100 ranking, by country

[number of contracts, value in million EUR]

Country of the

headquarters

Freq.

Sum

Australia

0.76

312

2 279.61

India

0.00

Israel

17.12

Norway

1.24

South Korea

5.00

Switzerland

37.27

USA

122

10 099.52

Total

474

12 440.52

Source: OJ/TED, manual corrections by DG GROW; The SIPRI Top 100 arms-producing and military

services companies in the world excluding China, December 2015.

The total value of

indirect cross-border awards in 2011-2015 equalled 12.44 billion

EUR, hence roughly 40% of the total value of contracts awarded under the

Directive.

The contracts won by companies originating from the US accounted for the highest share

of the total value of awarded contracts (81%). However it is important to underline that

this result was to a large extent influenced by the previously mentioned service contract

worth 6 billion GBP awarded by the UK Government to a subsidiary of a US company.

If this outlier was removed from the dataset, the order on the list would have changed

with the winning firms from the EU moving at the top (the share of intra-EU awards in

the value of contract would increase to 55% of the remaining observations and the US

would follow with 44%).

Finally, the main drawback of the above estimation is the fact that it is solely based on

the list of 100 largest companies worldwide (i.e. refers only to a subset of contracts won

by these largest companies) while the subsidiaries of companies with lower value of arms

sales are not included in the ranking. As a result, the number and value of indirect cross-

The SIPRI Top 100 arms-producing and military services companies in the world excluding China,

December 2015,

http://books.sipri.org/files/FS/SIPRIFS1512.pdf

border contracts in practice could be larger as the indirect cross-border wins of smaller

international companies were not captured by the above estimation method.

Based on the replies to the online survey, stakeholders’ perception of the impact of the

Directive on cross-border access to defence and security procurement in EU countries is

rather positive (39% of respondents among both contracting authorities and businesses),

but with a significant share of respondents seeing no impact (30% among contracting

authorities, and 24% among businesses). The respondents seeing a negative impact are a

sizeable minority among businesses (21%) and a rather marginal share among

contracting authorities (6%).

An additional factor, which is relevant in connection with the issue of cross-border

awards, is whether the Directive increases the number of cross-border bids, including

from new entrants in the market. To assess this aspect, contracting authorities were asked

in the online survey how often the Directive resulted in offers/expression of interests

coming from a more diverse, wider range of suppliers from other EU Member States.

The replies were rather mixed: 33% consider this has been the case “occasionally” or

“frequently”, whilst 30% think it happened “rarely” or “never”.

In a stakeholder’s consultation meeting

, a defence company explained that before

making a decision to bid they make a case-by-case assessment. They need to be confident

that they are well-placed to win and that it is worth preparing an offer.

To conclude, the increased use of EU public procurement rules based on transparency,

competition and equal treatment naturally leads to enhanced cross-border opportunities

for companies. However, it has not resulted in an increase in direct cross-border awards.

As stakeholders pointed out, an important contributing factor is that cross-border bidding

is by nature more difficult due to language and other non-regulatory barriers, higher costs

and insufficient knowledge of the foreign market.

6.1.1.3.

Competition

The average number of offers received when launching procurement under the Directive

was 3.4, which is somehow lower than what is observed in the civil sector (5.4

bids per

procedure), but can be explained by the structure of the defence sector with fewer but

more specialised suppliers. However, nearly 33% of contract awards published in

OJ/TED and containing information about the number of bids

received just one offer

(Figure 18). This means that for 1/3 of the calls for tender there was actually no

competition

100

Figure 18: Number of offers per contracts awarded under the Directive in 2011-

2015 [fraction]

100

Minutes of 22 February 2016 meeting with industry organised by ASD.

“Public

procurement in Europe, Cost and effectiveness”

http://bookshop.europa.eu/en/public-

procurement-in-europe-pbKM3113708/,

p. 93.

5 700 contract award out of 7 145 contained information about the number of bids received. 1 922 bids

received one offer.

Out of the observations that contained information about the number of bids submitted.

Fraction

Number of offers per contract award

Source: OJ/TED, manual corrections by DG GROW

The same analysis can be carried out at a country level, showing that there are significant

differences in the levels of competition across Member States.

Figure 19: Number of offers per contracts awarded under the Directive in 2011-

2015, by country

101

[fraction]

Austria

.2 .4 .6 .8

Belgium

Bulgaria

Croatia

Czech Republic

Denmark

.2 .4 .6 .8

Estonia

Finland

France

Germany

Hungary

Italy

Latvia

Lithuania

Netherlands

Fraction

.2 .4 .6 .8

Norway

.2 .4 .6 .8

Poland

Romania

Slovakia

Slovenia

Sweden

.2 .4 .6 .8

United Kingdom

Number of offers per contract award

Graphs by country

Source: OJ/TED, manual corrections by DG GROW

In particular in countries such as Bulgaria, Finland, Hungary, Italy, the Netherlands,

Romania and Slovenia (with spikes after “0”) nearly 60% of contracts or more were

awarded following the reception of a single offer.

Finally, the competition levels can also be broken down by the type of contract that was

used for procurement (Figure 20). The histogram below clearly shows that 40% of

service contracts received just one offer, while single-bidder awards accounted for nearly

30% of supply contracts. In contrast, works procurement shows a much more balanced

picture with less than 1/10 of such awards, it should be however kept in mind that the

latter was based on a much smaller dataset

102

101

102

Portugal is not included on the graph as none of the contract awards from Portugal contained

information about the number of bidders.

Only 123 awards for works contained information on the number of bidders, compared to roughly

3 000 awards concerning supplies and 2 500 for services.

Figure 20: Number of offers per contracts awarded under the Directive in 2011-

2015, by contract type [fraction]

Services

Supplies

Fraction

Works

Number of offers per contract award

Graphs by contract type

Source: OJ/TED, manual corrections by DG GROW

The number of offers received is closely linked with the type of procedure chosen by the

contracting authority. Non-transparent procedures, such as the negotiated procedure

without publication of a contract notice will typically involve just one bidder.

Table 20: Contract award notices published under the Directive in 2011-2015, by

transparency

103

of procedures [number of notices, %]

Non-transparent

Transparent

Missing

Total

Source: OJ/TED, manual corrections by DG GROW

Freq.

1 384

2 226

3 682

Percent

38%

60%

100%

As presented in Table 20, the fraction of contract award notices where the procedures

used in procurement were not transparent was almost 2/5. However, contracts awarded

without publishing a call for tender accounted for lower share in terms of the total value

of awards (23%), meaning that high value contracts were more frequently awarded

following transparent procedures (Table 21).

103

Non-transparent procedures understood as: the negotiated procedure without publication of a contract

notice.

Table 21: Contract award notices published under the Directive in 2011-2015, by

transparency

104

of procedures [value in million EUR, %]

Non-transparent

Transparent

Missing

Total

Source: OJ/TED, manual corrections by DG GROW

Sum

7 234.25

23 565.96

49.98

30 850.19

Percent

23%

76%

0.2%

100%

As it can be seen from the graph below, the differences across countries in the use of

non-transparent procedures were significant, also exposing different proportions

depending on whether the share in terms of number or value is analysed. These

differences may be due to some extent to different practices of contracting authorities in

the application of the conditions for the use of the negotiated procedure without

publication of a contract notice.

Figure 21: Contract award notices published under the Directive where non-

transparent procedures were used, by country

105

[fraction]

Bu ium

C ri a

ch r

R oat

ep ia

D ub

en lic

Es ark

Fi nia

Fr nd

G an

er ce

H an

un y

Li Ita

N thu ly

et a

he n

rla ia

N nds

Po ay

Po lan

r d

R tug

om a

Sl an

ov ia

Sl ak

o ia

ni S ven

te w i a

d e

Ki de

ng n

Number of notices

Value of notices

Source: OJ/TED, manual corrections by DG GROW

Austria and Latvia are not shown on the graph, as in these countries all awards were

based on transparent procedures. In Portugal the opposite was true (although in the latter

case, the calculation was based on only eight contract award notices reported by Portugal

in 2011-2015). Obtaining a corresponding result for Sweden in terms of the value of

contracts was impossible due to lack of price data.

104

105

Ibidem.

There were no contract award notices where non-transparent procedures were used in: Austria and

Latvia.

The results of the online survey show that the perception of contracting authorities about

the impact of the Directive on competition (in terms of number of offers received) is

positive. 45% of contracting authorities’ respondents considered that the situation

“improved” with the Directive. 15% see no difference, and only 6% replied that the

situation “deteriorated” or “significantly deteriorated” compared to before the Directive.

Similarly positive are the contracting authorities’ responses on a related aspect, i.e. the

impact of the Directive on their capacity to achieve best value for money. 33% of

contracting authorities that replied to the survey consider that this aspect improved

compared to the situation before the Directive, while 18% see no difference. Only 6%

think that the situation deteriorated.

At a meeting on the evaluation

106

, some Member States’ experts confirmed the

perception that the Directive helped achieving best value for money, while many

affirmed that it is still too early to draw definite conclusions. They pointed out that

getting best value for money does not only depend on the rules of the Directive, but also

on the degree of competition and the structure of the market. Some Member States

experts clarified that even before the Directive some form of competitive procurement

aimed at best value for money was normally used.

In conclusion, the fact that the average number of offers is somehow lower than in civil

procurement can probably be explained by the structure of the defence sector with fewer

but more specialised suppliers. Overall, as it is confirmed by stakeholders’ feedback, the

Directive had a generally positive impact on competition.

6.1.1.4. The practice of industrial return requirements

The Impact Assessment addressed the issue of offsets/industrial return requirements. It

concluded that this issue should/could not be explicitly regulated by the Directive, but

needed to be addressed in the light of Treaty principles. As explained in Section 5, the

Commission departments therefore engaged, since 2010, with Member States to make

sure that offsets regulations were abolished or revised in the context of the process of

transposition of the Directive. In addition to the revision of offsets regulations, it is

appropriate to assess whether changes concerning offsets/industrial return requirements

have taken place in the concrete public procurement practice of Member States.

No official data on Member States’ practices concerning offsets/industrial return

requirements exist at EU level. If some individual Member States collect such data in

relation to their own national defence procurement or defence exports, they have no

reporting obligation towards the Commission. No such data were obtained via

consultation activities either.

The Bureau of Industry and Security (BIS) of the US Department of Commerce publishes

an annual report on “Offsets

in Defense Trade”

107

. The BIS collects data annually from

the US firms involved in defence exports with associated offset agreements. These

annual report provide data on offsets agreements and transactions reported by US firms

106

107

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

https://www.bis.doc.gov/index.php/other-areas/strategic-industries-and-economic-security-sies/offsets-

in-defense-trade.

exporting defence equipment abroad; only the globally aggregated data are provided,

with no breakdown by (offset recipient) country or geographical area. The twentieth

report, published in March 2016, provides, for the first time, data concerning the EU. In

2014, the US firms reported entering into nine new offsets agreements with EU Member

States. The value of these agreements is 1.68 billion USD. As proportion of all the new

offsets agreements entered into by the US firms in the same year, those with EU Member

States represent 18% by number and 12.9% by value

108

This data confirms that

Member States in 2014 still used offsets requirements when

purchasing defence equipment from abroad, presumably based on Article 346

TFEU.

However, since similar BIS data from previous or later years is not available, it is

impossible to make a comparison in order to assess whether – and to what extent –

changes in the practice of offsets/industrial return requirements have taken place.

An element to assess this issue is the perception of stakeholders, and in particular of

defence companies which are confronted with such requirements.

Businesses’ replies to the online survey show that the perception is that of a reduction,

albeit to a very limited degree, in the frequency of industrial return requirements after the

Directive. While the amount of businesses replying that they have been confronted “very

often” or “often” with these requirements before or after the Directive is the same (48%),

the proportion of those replying “very often” goes from 33% (before the Directive) to

24% (after the Directive). In the same direction, the percentage of companies that replied

“never” goes from 9% (before the Directive) to 12% (after the Directive).

In its reply to the online survey, ASD pointed out that “the

uncertainties concerning the

use of offset requirements that came along with the Directive is a particular concern for

defence industries in smaller Member States”

and that these uncertainties also create

legal and financial risks “for

bidders for contracts where such offsets are required”. In

this context, they argued that “legal certainty would benefit from further clarification of

the conditions for requests for industrial participation”.

One defence company that

responded to the online survey also confirmed that there are still uncertainties in terms of

offsets practices, and argued that the situation is more unclear and less transparent than

before the Directive. This point was also made by another industry representative in a

stakeholder consultation meeting

109

At the same meeting, another industry representative mentioned that formal offsets

requirements have definitely changed or are now removed. However, there are still cases

of offsets requirements based on essential security interests under Article 346 TFEU. He

added that there remains a significant informal desire and expectation in customer

countries to build industrial links with supplier companies and for them to establish local

collaboration.

Several participants at the above-mentioned meeting stated that there is a clear trend to

move away from indirect non-military offsets. It was pointed out, however, that direct

military offsets can also have detrimental effects as they can lead to defence industrial

duplications in Europe.

108

109

Twentieth Offset Report to Congress 3/16, p. 20.

Minutes of 22 February 2016 meeting with industry organised by ASD.

To conclude, it seems that Member States still use to some extent (presumably relying on

Article 346 TFEU) offsets/industrial return requirements. However, the frequency of

these requirements appears to have marginally decreased. Finally, there seems to be a

trend to move away from indirect non-military offsets.

6.1.1.5. Other aspects of procurement procedures

By introducing coordinated procurement rules based on competition, transparency and

equal treatment, the Directive sought to improve a number of aspects such as: fairness or

procedures, legal certainty, and bidders’ access to review procedures.

The Directive lays down a detailed set of provisions designed to ensure that the principle

of equal treatment is respected throughout the contract award procedure. In addition, it

establishes a specific review system that constitutes an additional guarantee to ensure

compliance with the rules. Finally, it coordinates national rules thereby reducing

regulatory fragmentation across Member States and improving legal certainty.

As to the effects of the Directive on fairness of procedures, businesses’ replies to the

online survey indicate a mixed perception, with moderately positive signs. 30% of

companies’ respondents do not see any difference compared to the situation before the

Directive, 21% consider that it “improved”, and 15% think that the situation

“deteriorated” or “significantly deteriorated”. 42% have “some doubts” that a contracting

authority in another Member State would give fair consideration to their bid under the

Directive, while 21% are “reasonably confident”, “confident” or “very confident” that

this would be the case.

One defence and security company, in its written contribution to the open public

consultation, mentioned that discriminatory technical specifications, tailor-made

requirements, as well as national standards, are used in some Member States. This

company argued that this constitutes a major problem in the application of the Directive

and a barrier to the functioning of the internal market.

Another aspect related to the fair and non-discriminatory conduct of procedures, is the

proper application of exclusion grounds. In this respect, Transparency International

considers that the mandatory exclusion of tenderers takes place extremely rarely.

Furthermore, the derogation from the mandatory exclusion is too broad and vague. A

self-cleaning mechanism (currently not foreseen in the Directive) could encourage

companies to implement effective anti-corruption policies. The application of

discretionary exclusions is also too rare. They suggest a coordination of the exclusion

systems of the Member States so as to follow a uniform approach and avoid the granting

of special advantages to companies with political influence. Implementation guidance on

the topic would also be welcome. In that context, Transparency International points at the

electronic databases of the US government and of the World Bank which contain a list of

excluded entities. These databases must be checked by the procurement authorities and

are also to a certain extent publicly available. They recommend a similar mechanism for

the EU.

With regard to legal certainty, contracting authorities consider that the Directive had

a positive impact, while businesses’ perception is rather mixed. Among the contracting

authorities that replied to the online survey, 48% think that the Directive “improved” or

“significantly improved” legal certainty, 12% see no difference, and 12% think that the

situation “deteriorated” or “significantly deteriorated”. The relative majority (30%) of

businesses see no difference with regard to legal certainty, while 21% considers that the

situation “deteriorated” and 15% that it “improved” or “significantly improved”. With

one exception, all Member States experts who intervened on this issue pointed out that

the Directive improved legal certainty

110

In terms of access to review procedures, 36% of businesses’ respondents think that the

Directive made no difference, 15% consider that it “improved” or “significantly

improved” the situation, and 9% see a negative impact (“deteriorated” or “significantly

deteriorated”).

The significant rate of businesses’ replies indicating that the Directive has made no

difference on these aspects is consistent with their feedback about the still limited uptake

of the Directive and the need for more widespread and consistent application.

In a stakeholders’ consultation meeting

111

, a number of defence companies pointed out

there should not be high expectations that they would use access to review procedures in

the defence sector. Since they only have one customer in each country, they prefer not to

antagonise them if it can be avoided. Other factors that discourage the use of legal

challenges in front of national courts are costs and time-limits. In this context, they

emphasised that enforcement to ensure the correct application of the Directive cannot

rely only on complaints from economic operators.

Transparency International, in its reply to the online survey, notes that in some situations

the oversight institutions, such as the parliaments or the courts of audit, might be lacking

the necessary information about specific defence and security procurement procedures,

due to e.g. strict data secrecy laws. Transparency International also pointed out that the

appeal or complaints mechanisms might be ineffective or insufficiently proactive in some

Member States which makes it more difficult to report irregularities or corruption. Very

often national legislations also fall short of offering adequate sanctions for corruption. In

addition, the levels of prosecutions for corruption are very low and the proceedings often

last very long and result in court settlements.

Transparency International also called for the application of an anti-corruption policy for

subcontractors and third parties as well as the use of appropriate contract clauses. In this

context, they specifically mention integrity pacts.

To conclude, when contracts are awarded under the Directive, aspects such as the

fairness of procedures and access to reviews are improved. However, the extent to which

these improvements take place depends on the degree of application of the Directive. The

mixed stakeholders’ perception on some of these aspects appears to be due to the still

limited uptake of the Directive.

6.1.2. Use of exemptions

Evaluation question (2):

To what extent has the use of exemptions, in particular Article 346 TFEU,

changed as a result of the Directive?

110

111

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

Minutes of 22 February 2016 meeting with industry organised by ASD.

As recalled in Section 2.2.3 above, according to the Impact Assessment, the operational

objective of the Directive was to limit the use of exemptions, in particular Article 346

TFEU, to exceptional cases. This implied that “the

majority of contracts in the fields of

defence and security, including those for the procurement of arms, munitions and war

material, should thus be awarded on the basis of EU rules”

112

Member States have no notification or reporting obligations concerning their decisions to

rely on Article 346 TFEU, on other Treaty-based exemptions, or on one of the exclusions

from the Directive (Articles 12 and 13) in order to conduct procurement outside the

Directive. There are, therefore, no official statistical data or information on the extent to

which these exemptions have been applied.

Under these circumstances, four elements have been relied upon in order to address this

issue:

(a)

changes in the extent to which EU procurement rules (defence and civil)

are used for the award of defence and security contracts, as compared to

the defence procurement expenditure;

the volume of defence equipment procurement (upper/lower range) carried

out outside the Directive;

examples of major excluded contracts;

Member States and stakeholders’ perceptions about the use of exemptions.

(b)

(c)

(d)

The results of analysis carried out under the four above mentioned approaches, along

with methodological constraints (e.g. caused by limited access to comparable data), are

presented in the following sections.

6.1.2.1. Comparison with defence procurement budgets

The first and most important element to look at in order to understand whether changes in

the use of exemptions have occurred, are the changes in the use of the Directive. An

increase in the application of EU procurement rules would be in itself clear, albeit

indirect, evidence of a decrease in the use of exemptions.

As presented in Section 6.1.1.1 above, after the deadline for transposition, the uptake of

the Directive was almost immediate and has shown a clear upward trend.

The comparison with the baseline situation shows an increase in the use of EU

procurement rules for the award of defence and security contracts. As explained in

Section 2.3.2 above, the total value of contracts published EU-wide (OJ/TED and EBB)

in the period 2008-2010 amounted to an average yearly value of 2.9 billion EUR. The

total value of these contracts was equivalent to 3.3% of the EU’s total defence

procurement expenditure in the same period.

The reported value of contract award notices published under the Directive in 2011-2015

was around 6.2 billion EUR annually, hence circa 7.6% of the total value of general

112

Impact Assessment, p. 32.

government procurement expenditure on military defence of EU-28 and EEA-2 countries

(or 6.9 billion EUR and 8.5% respectively, if the estimated value was used, see: Table

17). Additionally, defence and security contracts were awarded under the civil

procurement Directives in 2011-2015 (on average 1.6 billion EUR annually).

Consequently, on average circa 7.8 billion EUR was published annually under

transparent EU rules in 2011-2015, equalling 9.5% of the defence procurement

expenditure available to EU governments in the reference period.

This shows that, compared with the baseline situation, there has been a

more than

twofold increase in the award of defence and security contracts under transparent

and competitive procurement rules

(from 3.3% to at least 7.6%) in terms of the

average yearly value of awarded contracts and as the proportion of defence and security

procurement compared to defence procurement expenditure.

Despite this improvement, it is also clear that a very significant share of defence

procurement expenditure is still done outside the Directive and, more in general, outside

EU public procurement rules. This share is likely to include procurement in which

exemptions (Article 346 TFEU or exclusions provided for in the Directive) are used -

whether or not in a legally correct manner – as well as procurement whose value is below

the thresholds for the application of the Directive.

6.1.2.2. Major defence equipment procurement outside of the Directives –

quantitative description

As already noted in Section 6.1.1.1 above, the total value of contract award notices

published under the Directive in 2011-2015 ranged between 30.85 billion EUR and 34.55

billion EUR (reported and estimated value, respectively). However, when compared with

the defence procurement budgets the share of procurement carried out under the

Directive seems to be relatively small. Similarly, the dominance of relatively small value

contracts (Figure 15), may suggest that the Directive was not used to a significant degree

for the procurement of strategic equipment (i.e. complex systems).

In this context, an attempt has been made to provide an indication of the value of major

defence equipment programmes procured outside the Directive. For this specific

exercise, IHS Jane’s defence procurement database has been used. In order to arrive at a

rough estimate, procurement programmes conducted by EU and EEA countries have

been shortlisted, where it could be inferred that award decisions have taken place

between 2011 and 2015. Only programmes committed and/or completed have been

considered. Finally, 128 defence procurement programmes, operated by 26 countries, has

been included in the sample. More details about the methodology used are provided in

Annex III.

Table 22: Estimate of the total value of defence equipment procurement

programmes included in IHS Jane’s database, by year [value in million EUR]

Year

Lower bound

Mid-point

Upper bound

2011

2 271.26

3 283.60

4 295.95

2012

3 157.07

3 317.76

3 478.46

2013

14 587.51

18 440.08

22 292.64

2014

3 972.65

4 346.40

4 720.14

2015

11 574.57

15 048.34

18 522.11

Total

35 563.05

44 436.18

53 309.30

Source: IHS Jane’s procurement database.

Note: IHS Jane’s database offers estimates of minimum and maximum values of the programme. The

middle estimate corresponds to the average value between the upper and the low ranges. The sample

includes 128 programmes. Only "committed" and/or "completed" programmes have been considered.

As explained in the methodological section (Annex III), comparisons between the two

sets of data (OJ/TED and IHS Jane’s) are difficult, due to potential differences in the

scope, unit of observation and in the time dimension. Nevertheless in order to make an

attempt at providing an indication of the value of major defence equipment programmes

procured outside the Directive, the following two methods have been used: (i) estimating

the value of programmes which have been awarded without starting competitive

tendering process and (ii) capturing programmes which were awarded with a competitive

tendering process, but which were presumably not published in OJ/TED.

The first approach (i) consisted of estimating the value of programmes which have been

awarded without starting competitive tendering process

113

. IHS Jane’s database offers

information about the request of proposal date of a programme (i.e. the date when the

procuring country requests the submission of offers from potential suppliers for a

procurement programme). It can be assumed that this date corresponds to the start of a

competitive tendering procedure. Table 23 below summarises the value of programmes

included in IHS Jane’s database which have been awarded between 2011 and 2015, but

which did not have a request of proposal date.

Table 23: Estimate of the total value of defence equipment procurement

programmes without a request of proposal date – by year [value in million EUR]

Year

Lower bound

Mid-point

Upper bound

2011

160.04

558.79

957.55

2012

518.36

605.18

692.01

2013

1 106.57

1 351.80

1 597.03

2014

1 268.28

1 402.10

1 535.92

2015

1 413.99

2 199.98

2 985.98

Total

4 467.23

6 117.86

7 768.49

Source: IHS Jane’s procurement database.

Note: See note in Table 22. The sample includes 47 programmes. Only committed or completed

programmes have been considered.

According to IHS Jane’s data, approximately 37% (47 out of 128) programmes awarded

between 2011 and 2015 did not report the start of a competitive tendering process. Table

23 shows that between 2011 and 2015, the 47 programmes without a request of proposal

113

Competitive tendering is understood here as any form of bidding process, whether under EU

procurement rules or not, whereby different offers are solicited and compared before awarding

a contract.

date accounted for between 4.4 billion EUR and 7.7 billion EUR (which equalled

approximately

13%

114

- 15%

115

of the total value of programmes

recorded in the IHS

Jane’s database as committed or completed during the same period). Based on the

assumption that the absence of a request of proposal date indicates that no competitive

tendering procedure was launched, this estimate offers an overview of major defence

equipment procurement programmes awarded

outside the Directive and without any

form of competitive tendering.

Additionally, the data in Table 23 also presents an

increasing trend in the year-to-year values, which is difficult to explain, but can also be

linked with IHS Jane's data collection methods.

As briefly explained above, the second approach (ii) consisted of trying to capture the

programmes which were awarded with a competitive tendering process (i.e. where a

request of proposal date was included in the database), but which were not published in

OJ/TED. In order to do so, the lists of companies winning between 2011 and 2015 have

been extracted from OJ/TED and IHS Jane’s and compared. The idea behind this

exercise was to capture a low estimate of projects listed in the IHS Jane’s database,

which have been awarded to companies whose business name has not appeared in the

OJ/TED during the same period.

As a result of the matching process, it has been found that the majority of firms which,

according to IHS Jane’s database, won a defence procurement bid in 2011-2015 have not

been listed in OJ/TED during the same period of time. Only 12.5% of the procurement

projects reported in IHS Jane’s and awarded with a competitive tendering process during

2011 and 2015 have been won by companies which appeared in OJ/TED. The remaining

subset of programmes could provide an estimate of major defence equipment

procurement programmes most likely conducted outside the Directive, even if awarded

through some form of competitive tendering.

Table 24: Estimate of the value of defence equipment procurement programmes

with a competitive tendering process and likely conducted outside the Directive

[value in million EUR]

Year

Lower bound

Mid-point

Upper bound

2011

2 111.22

2 724.81

3 338.40

2012

2 513.35

2 587.22

2 661.09

2013

12 653.61

16 215.77

19 777.93

2014

2 676.97

2 914.57

3 152.16

2015

6 323.29

8 571.21

10 819.13

Total

26 278.44

33 013.58

39 748.71

Source: IHS Jane’s procurement database.

Note: please see the note in Table 23. The sample includes 70 programmes. Only committed or completed

programmes have been considered. Companies from Bulgaria have not been included in the analysis due to

matching impossibilities.

Consequently, the value of programmes awarded to companies which have not been

listed in OJ/TED is presented in (Table 24) The total estimate of this subset

corresponds

to approximately between 84%

116

and 87%

117

of the total value of defence

114

115

116

117

4.47 billion EUR/35.56 billion EUR in 2011-2015.

7.77 billion EUR/53.31 billion EUR in 2011-2015.

26.28 billion EUR/(35.56 billion EUR – 4.47 billion EUR) in 2011-2015.

39.75 billion EUR/(53.31 billion EUR – 7.77 billion EUR) in 2011-2015.

equipment programmes

reported in IHS Jane’s and awarded with a competitive

tendering process during the same period.

6.1.2.3. Major defence equipment procurement outside of the Directives –

qualitative description

In order to complement the quantitative indications presented above with qualitative

description, it seems appropriate to provide a list of examples of major defence

equipment programmes or contracts that have most likely been awarded outside the

Directive. This exercise can be useful to illustrate the notions of major defence

equipment programmes, strategic military procurement, or procurement of complex

weapon systems that have been referred to in this evaluation.

It should be emphasised that the compilation of this list is not based on a legal

assessment of compliance with the rules of the Directive, and in no way implies a

position of the Commission departments on the existence of breaches of EU law. In fact,

there may have been different legal reasons for awarding the defence

programmes/contracts mentioned below outside the Directive. These include the possible

application of Article 346 TFEU or of the exclusions provided for in Articles 12 and 13

of the Directive. Although great care has been taken to try and identify procurement

cases awarded after the transposition deadline of the Directive, some of these

programmes or contracts may have fallen outside the scope of application of the

Directive

ratione temporis

118

. Finally, in some cases the application of non-competitive

procurement procedures – albeit not necessarily outside the Directive – may have been

justified (e.g. sole supplier or supplementary supplies).

Table 25: Examples of major defence equipment programmes/contracts outside the

Directive - purchases over 200 million EUR in alphabetic order of Member States

[value in million EUR]

Member

State

Description of the procurement

(probable contractor in brackets)

Maximum

estimated

contract

value

750

Estimated

year of

contract

award

2014

Czech

Republic

Denmark

At least 14 multirole aircraft fighters Saab Gripen

(Saab Gripen), (extension of lease agreement)

27 F-35 air jet-fighters (Lockheed Martin), (The

stage of government recommendation approved by

the Parliament - no contract yet)

12 Aircraft Tankers based on Airbus A330 (Airbus)

The SCORPION programme for the preparation of

future land combat systems. It includes i.a.

procurement of 110 Jaguar 6x6 reconnaissance

vehicles, 780 Griffon 6x6 armoured personnel

carriers, and renovation of 200 Leclerc tanks.

3 000

2016

France

3 000

550

2015

2013

118

Especially since the Court of Justice established that the rules applicable

ratione temporis

are those

applicable at the point in time when the contracting authority chose the type of procedure to be

followed, C-337/98 Commission v France, para. 40; C-576/10 Commission v Netherlands, para. 53.

France

4 C-130J Hercules transport aircrafts (Lockheed

Martin) - two with helicopter in-flight refuelling

capability, two gunships with precision-guided

munitions

14 tactical patrol drones (Sagem - Safran subsidiary)

Additional delivery of 131 Boxer armoured vehicles

(Krauss-Maffei Wegmann and Rheinmetall)

Additional delivery of 9 M-346 advanced jet trainers

including logistics support (Aermacchi)

6+4 multipurpose offshore patrol ships and 1 logistic

support

ships

(consortium

Fincantieri

and

Finmeccanica)

6 Medium-altitude long-endurance unmanned aerial

vehicles - MALE UAVs (Piaggio Aero) P.1HH

HammerHead

136 new 8x8 military light to medium territorial

defence and tactical reconnaissance vehicle, with a

120 mm gun (Centauro 2 programme)

14 Boeing CH-47F Chinook heavy lift helicopters

(Boeing)

24 used multirole aircraft F-16 (Lockheed Martin)

from Portugal including in-service support and

training

64 self-propelled 120 mm mortars RAK and 32

command vehicles

16 medium

(Sikorsky)

transport

helicopters

Black

Hawk

330

2016

France

Germany

300

470

2016

2015

Italy

300

2016

Italy

4 300

2015

Italy

490

2015

Italy

200

2014

Netherlands

838

2016

Romania

630

2013

Poland

230

2016

Slovakia

290

2015

Sweden

Design and construction of 4 new (A26) submarines

(Saab Kockums)

50 Apache attack helicopters (Boeing)

2 295

2015

United

Kingdom

United

Kingdom

United

Kingdom

2 105

2016

Continuation of design work, demonstration and

construction of 8 global combat Ships (BAE Systems)

5 helicopter-capable offshore patrol vessels (BAE

Systems)

6 916

2016

732

2013

Source: DG GROW, based on IHS Jane’s procurement database and publicly available information (i.e.

announcements in companies’ and government authorities’ websites, as well as press articles).

Note: the examples have been selected to maximise the illustrative potential of the list. Other criteria were:

high value, estimated year of contract award after the transposition deadline of the Directive, balance

across sectors (air, naval and land) and Member States.

The examples in Table 25 confirm that

several major defence equipment programmes

have been awarded in recent years outside the Directive.

These are all complex

weapons systems and some of them represent the highest end of military capabilities such

as fighter jets, attack helicopters, combat ships and submarines. Despite an effort to keep

a balance across sectors (air, naval and land) the programmes in the air sector represent

the majority (11 out of 19 examples), simply due to the much higher value of these

programmes.

6.1.2.4. Member States and stakeholders views on the use of exemptions

According to the replies to the online survey, public authorities and businesses have

rather divergent views about the impact of the Directive on the use of the essential

security interest exemption (Article 346 TFEU). While a majority of public authorities’

respondents (52%) “strongly agree” or “agree” that the Directive has reduced the need to

use this exemption, only 27% businesses hold the same view. 39% of businesses actually

“disagree” or “strongly disagree” with this statement.

In a meeting on the evaluation, the vast majority of Member States’ experts stated that

the Directive significantly decreased the need for using Article 346 TFEU.

The Federation of German Industries (BDI), in its reply to the online survey, pointed out

that “Article

346 TFEU is often referred to in order to justify a non-application of the

Directive”.

BAE Systems noted that the frequency of use of this provision has reduced,

but their perception is that it represents a significant proportion of the overall

procurement value. Similar remarks have been made by one defence company and one

business association that responded to the online survey.

One respondent to the online survey among contracting authorities mentioned that it is

sometimes difficult to understand whether Article 346 TFEU can be applied to an

individual procurement case.

It has been possible to test the stakeholders’ perceptions (on both ends of the

procurement procedure, i.e. contracting authorities and businesses) through the online-

survey. Respondents that declared to be involved in public procurement in the fields of

defence and security were asked to rate how often different legal grounds (Article 346

TFEU, exclusions, under thresholds) were used “as

a justification NOT to carry out

defence or security procurement procedures under Directive 2009/81/EC”.

Among

exemptions/exclusions

119

, Article 346 TFEU is seen as the most frequently used legal

basis not to apply the Directive; 33% of businesses and 12% of public authorities that

replied to these questions consider that this Treaty provision has been used “very

frequently” or “frequently”.

6.1.3. Member States security concerns

To what extent are the provisions of the Directive appropriate to guarantee

competition, transparency and equal treatment, while safeguarding Member

States security concerns?

Evaluation question (3):

As explained in Section 2, the Directive seeks to lay down provisions that are tailor-made

to the specificities of the defence and security sectors. This means, in particular, that the

119

“Below thresholds procurement” is seen as the most frequently used justification by contracting

authorities. This indication is less relevant in this context.

Directive’s rules aim at ensuring competition, transparency and equal treatment, while at

the same time safeguarding Member States security concerns. The main features of the

Directive that are relevant in this context are the defence-specific exclusions, and the

provisions on security of information and security of supply.

The online survey and the meetings with stakeholders have been used to gather

stakeholders’ views on these provisions of the Directive (on exclusions, security of

information, and security of supply), and assess whether they are still fit for purpose.

6.1.3.1. Defence-specific exclusions

Roughly 45% of contracting authorities respondents and 36% of businesses respondents

“strongly agree” or “agree” that the exclusions (Article 12 and 13) are appropriate.

However, a non-negligible proportion of businesses respondents (27%) “disagree” or

“strongly disagree”. This is consistent with inputs received from some defence

companies and business associations, which raised a few issues with certain exclusions

from the Directive.

Some business associations and defence companies, who participated in the online

survey, expressed concerns about the application of the exclusions on government-to-

government sales (Article 13(f)) and International Organisations (Article 12(c)). They

specifically referred in this context to the Global-FMS

120

concept, because this

mechanism might amplify the potentially negative effects on the internal market. These

stakeholders called for further guidance to clarify in particular these provisions of the

Directive. Similar points were made, especially with regard to the exclusion on

government-to-government sales (Article 13(f)) by a number of industry representatives

during two stakeholder consultation meetings

121

On the other hand, one business association that responded to the online survey pointed

out that the US FMS programme does not cause market distortions in Europe. In the

above-mentioned stakeholders' consultation meetings, certain industry representatives

said they are rather supportive of the use of government-to-government and FMS.

The Federation of German Industries (BDI), in its reply to the online survey, argued

more generally that the interpretation of the exclusions (Articles 12 and 13) is partly

diverging in practice, and that a clarification – through non-legislative instruments -

would be necessary to establish a fair and competitive market.

One Member State, in its written contribution to the open public consultation, supported

the idea of guidance on the application of the exclusions on government-to-government

sales (Article 13(f)) and International Organisations (Article 12(c)). Several other

Member States’ experts also argued that some clarifications – through non-legislative

guidance - on Article 12(c) of the Directive would be useful

122

120

121

122

FMS (Foreign Military Sales) is a US program under US Arm Export Control Act (AECA) within

which US defence articles and services are sold to foreign countries and international organisations

through government-to-government agreements.

Minutes of 22 February and 3 May 2016 meetings with industry organised by ASD.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

Most of the Directive’s provisions on exclusions (Articles 12 and 13) were not included

in the original Commission’s proposal and were, therefore, not subject to the Impact

Assessment. These provisions have been inserted by the co-legislators as they were

deemed necessary to address the specificities of defence procurement and to safeguard

Member States security interests. On the other hand, as established in the case law of the

Court of Justice, exclusions must be interpreted restrictively

123

. They cannot be used to

circumvent the provisions of the Directive and to undermine its

effet utile.

For

contracting authorities to correctly take these limitations into account when applying

exclusions in individual procurement cases may not always be straightforward.

6.1.3.2. Security of information

61% of contracting authorities' respondents strongly agreed or agreed that the Directive’s

provisions on security of information are sufficient to ensure the protection of classified

information. Among businesses respondents, the relative majority (33%) also agreed and

only 9% disagreed.

One Member State and two defence companies stated, in their replies to the online

survey, that the lack of a harmonisation of national security clearance systems can create

problems and market access barriers. However, the issue of diverse national security

clearance systems goes well beyond the regulation of public procurement and the

security of information provisions of the Directive.

The broad consensus of stakeholders on the fact that the security of information

provisions of the Directive are appropriate confirms the Commission departments’

analysis that has not identified particular problems in this area.

6.1.3.3. Security of supply

On the security of supply provisions, contracting authorities and businesses hold

somewhat different views. 30% of business respondents “agree” or “strongly agree” that

the Directive’s provisions on security of supply are sufficient to limit the risks of supply

disruptions and ensure operational autonomy. Among contracting authorities respondents

only 15% agree with that statement, while 33% are neutral and 18% disagree or strongly

disagree.

One national defence industry association pointed out that security of supply cannot be

fully guaranteed by political declarations or contractual commitments, but it is ensured

primarily through national control of domestic industrial infrastructures.

One Member State’s expert stressed, during the meeting on the evaluation

124

, that the

provisions of the Directive cannot be sufficient to guarantee security of supply;

contractual obligations are not sufficient in this context. In some cases, key technologies

and industrial facilities are needed, for security of supply reasons, in the national

territory.

123

124

See,

inter alia,

Case C-337/06 Bayerischer Rundfunk, paragraph 64.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

This feedback from Member States and stakeholders reflect the complexity of security of

supply issues. These issues include, but are not limited to, transfer licenses and export

control authorisations, contractual arrangements with suppliers and their industrial

capacity to meet additional or urgent requests, availability in the medium-long term of

industrial and technological capabilities, ownership and capital participation in key

defence and security companies. Under these circumstances, the provisions of the

Directive, which concern contractual arrangements with suppliers, address only part of

the problem. The link with Directive 2009/43/EC on Intra-EU transfers of defence

products is particularly important in this context (see below Section 6.4.3.).

6.1.4. Changes in the industrial base (EDTIB)

Have there been any major structural changes in the European Defence

Technological and Industrial Base (EDTIB), including with regard to SMEs

and to what extent can they be attributed to the Directive?

Evaluation question (4):

This section seeks to provide a broad picture of the main characteristics of the EDTIB

and of major changes that have occurred in recent years. However, as mentioned in

Section 4.4., it should be stressed at the outset that the limited availability of statistics for

this sector, as well as a relatively short time that elapsed since the adoption of the

Directive, restrict the extent to which changes affecting Europe’s defence industry in the

reference period (2011-2015) and the impacts of the Directive can be assessed.

As recalled in Section 2.2.2 above, and as argued in the Impact Assessment, the general

objective of the Directive is to support the establishment of an open and competitive

EDEM. This is expected to be, in turn, a contributing factor to strengthen the

competitiveness of the EDTIB.

The Impact Assessment included a fairly short description of the main characteristics of

Europe’s defence industrial base. It indicated that, in 2005, the turnover of companies

operating in the areas of land and naval defence and military aerospace was just over 52

billion EUR and that these companies employed around 614 000 people

125

. It also

presented the list of the top 20 defence companies world-wide and highlighted that 7 out

of these were based in Europe

126

Since the Impact Assessment and Article 73(2) of the Directive focus on the EDTIB, this

Section looks at the situation of the defence industrial base. This is also justified by the

fact that the overwhelming majority of contracts awarded under the Directive have been

found to concern the defence, rather than the security, sector (see above Section 5.3.1.5.).

For this reasons, this evaluation did not need to address the specific challenges related to

data availability on the European security technological and industrial base

127

125

126

127

The Impact Assessment, p. 10 and pp. 70-71.

The Impact Assessment, p. 20.

Since developing a clear picture of the security sector was hampered by the absence of reliable data, a

recent study done by Ecorys for the Commission, DG Migration and Home Affairs, aimed at

establishing the aggregate size (turnover and employment) of the security industry. The study excluded

firms that supply security products to the defence sector only, but covers firms active in both the civil

security and defence markets. The study contains a mapping of the European security sector with

6.1.4.1. The industry’s size

According to ASD data, the total turnover of aerospace and defence industries in 2014

was estimated to be 199 billion EUR, out of which 97 billion EUR from military

activities (in aeronautics, naval, land and space). The turnover levels have grown

between 2009 and 2014, with the exception of 2013 when a slight downturn could have

been noticed. Also with regards to employment, ASD data show a gradual but steady

increase in the aerospace and defence industries.

Table 26: Turnover and employment of European aerospace and defence industries,

by year [turnover in billion EUR, employment in thousands of employees]

Year

Turnover

Employment

2009

155

681

2010

163

705

2011

171

733

2012

187

753

2013

172

778

2014

199

795

Source: ASD - Aerospace and defence industries, Facts & Figures, 2014

In comparison, according to Eurostat SBS data, the turnover of defence-related industries

(including civil aeronautics and shipbuilding) passed from nearly 130 billion EUR in

2010 to 162.5 billion EUR in 2014 (Table 57 in Annex IV). In terms of employment, the

available Eurostat data show an increase from nearly 453 000 employees in 2010 to 550

000 in 2014

128

(Table 58 in Annex IV). It is, however, impossible to assess the extent to

which the increase occurred in the defence or in the civil (aeronautics and shipbuilding)

industries.

The changes in turnover and employment levels across Member States, calculated as a

difference between 2014 and 2010 levels with 2010 being the base year

129

, are presented

in Figure 22. Changes in Slovenia and Sweden were calculated between 2010 and 2013,

because of the lack or incompleteness of data for 2014. Similarly, as there was no data

available for 2010 on turnover in the manufacture of air and spacecraft in Belgium, the

base year used for this country was 2009. Countries with no data reported for 2010 or

with significant incompleteness of data in at least one of the variables (employment or

turnover) were omitted (i.e. Estonia, Iceland, Ireland, Latvia, Luxembourg, Malta,

Netherlands, Slovakia and the UK).

128

129

estimates indicating that the security industry in the EU generates a total turnover of as much as € 191

bn and employs as many as 2.3. mio people,

http://ec.europa.eu/dgs/home-affairs/e-

library/documents/policies/security/reference-documents/docs/security_statistics_-

_final_report_en.pdf.

Some annual fluctuations (e.g. a slight decrease in 2011), were rather due to the absence of data for

some countries.

Difference for a country

would be then: Diffj = (value

2014j

- value

2010j

)/value

2010j

Figure 22: Changes in turnover and employment levels between 2010 and 2014

130

by country [fraction]

-.2

PT PL

-.4

-.5

Change in turnover

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2)

As seen on the graph, changes in employment and turnover levels between 2010 and

2014 seem to be fairly balanced across the EU and EEA - seven countries reported a

decrease in employment and turnover levels and the same number of countries observed

changes in the opposite direction. In five Member States the turnover has increased,

despite a reduction in the headcount (Belgium, Italy, Portugal, Poland and Sweden – the

latter with almost negligible negative change in employment levels) which might signal

some efficiency gains in the industry. The employment has increased in Romania and

Lithuania although it has not translated into higher turnover levels between 2014 and

2010

131

. To conclude, changes occurred in all directions and there is no clear pattern

concerning the evolution of the industry that could be identified based on the available

data.

Similar picture emerges when the list of top producing counties by sector are compiled

and compared over time in EU and EEA (see: Tables 27 to 30

132

Table 27: Countries with the highest share of turnover in the manufacture of

weapons and ammunition, NACE C25.4 (sorted by 2010) [%]

United Kingdom

Germany

130

131

2010

26.1

21.9

2011

29.8

22.0

2012

33.1

22.7

2013

25.6

19.7

2014

31.0

23.1

132

2013-2010 for Slovenia and Sweden; 2014-2009 for Belgium.

It is however unclear to what extent such change could have been caused by incomplete reporting to

Eurostat.

The "highest share" in Tables 27 to 30 was defined as more than 5% in any of the analysed years.

Italy

France

Norway

Sweden

16.6

14.6

12.7

6.9

17.0

11.7

6.9

18.0

9.9

7.4

13.7

17.5

7.5

4.9

18.2

7.9

4.4

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2);

Note: the data for France in 2010 were missing and are replaced by its share in 2009.

Table 28: Countries with the highest share of turnover in the building of ships and

floating structures, NACE C30.11 (sorted by 2010) [%]

Norway

Italy

Germany

Spain

United Kingdom

France

2010

22.7

15.4

15.1

11.2

11.0

10.6

2011

27.8

12.7

11.9

9.2

13.0

12.7

2012

32.0

9.9

11.1

7.3

14.5

13.5

2013

35.9

8.6

10.1

6.1

13.9

14.0

2014

31.4

10.7

16.7

4.5

14.9

12.6

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2)

Table 29: Countries with the highest share of turnover in the manufacture of air

and spacecraft and related machinery, NACE C30.3 (sorted by 2010) [%]

France

United Kingdom

Germany

Italy

Spain

2010

32.7

28.8

22.1

9.2

5.3

2011

33.8

27.6

22.3

8.6

5.5

2012

33.9

27.3

22.1

8.2

5.1

2013

34.6

26.6

22.4

6.7

6.0

2014

34.8

25.6

21.3

8.1

6.2

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2)

Table 30: Countries with the highest share of turnover in the manufacture of

military fighting vehicles, NACE C30.4 (sorted by 2010) [%]

France

United Kingdom

Poland

2010

79.9

40.5

20.1

2011

64.9

30.4

2012

64.3

35.7

2013

50.4

35.2

12.5

2014

66.9

33.1

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2);

Note: the data for the UK in 2010 were missing and are replaced by its share in 2009.

Overall no important changes over time can be noted in the tables. Although certain

annual volatility over time can be observed for some countries, it is mainly caused by the

lack of data or incompleteness in time-series (e.g. the United Kingdom share in the

manufacture of military fighting vehicles has dropped from 64.3% in 2012 to 35.2% in

2013 because of the lack of data from France in 2012). In general, as it can be seen from

the tables above, the

main producing countries with market shares of more than 5%

in each sector remained relatively stable between 2010 and 2014.

6.1.4.2. Global competitiveness

Europe’s defence industry includes some of the world’s leading system designers and

integrators. SIPRI’s list of top-100 arms producing and military services companies in

the world (excluding China), based on the annual value of arms sales, can be referred to

in order to position these leading European defence companies vis-à-vis the global

market. As presented in Table 31, the latest SIPRI list includes 25 European companies,

which are based in the UK (8), France (6) Germany (3), Italy (2), Finland, Norway,

Poland and Sweden (1 each), as well as two transnational European companies.

Table 31: Top European arms-producing and military services companies in 2014

[value in million EUR, %, number of employees]

Rank

Company

BAE Systems

Airbus Group

Finmeccanica

Thales

Rolls-Royce

SAFRAN

DCNS

Babcock International Group

Rheinmetall

Saab

ThyssenKrupp

CEA

Serco

Cobham

Fincantieri

Nexter

Dassault Aviation Groupe

Polish Armaments Group

QinetiQ

GKN

Krauss-Maffei Wegmann

Kongsberg Gruppen

Meggitt

CNH Industrial

Patria Industries

Country

Trans-EU

Italy

France

Germany

Sweden

Germany

France

Italy

France

Poland

Germany

Norway

Trans-EU

Finland

Arms sales value

23 672

13 331

9 697

7 912

4 996

4 720

3 606

3 275

2 732

2 493

2 125

2 107

2 006

1 711

1 297

1 214

1 168

1 049

911

865

846

819

754

736

95 257

% of total

sales

100

Employment

83 400

138 620

54 380

61 710

2 025

68 950

13 130

10 840

20 170

14 720

160 740

15 770

118 620

12 710

21 690

3 320

11 750

17 500

6 250

21 400

2 770

7 730

10 820

69 210

2 450

950 675

Top 25 European

Source: SIPRI Arms production database

The picture of the leading European defence companies has been rather stable over the

years. As noted by the Technopolis study on the evaluation of Directive 2009/43/EC (the

Technopolis Study), most changes, additions or removals to the list are a result of

mergers or group reorganisations

133

. It is particularly remarkable that the number of

133

“Evaluation

of Directive 2009/43/EC on the Transfers of Defence-Related Products within the

Community”

by Technopolis group for the European Commission in June 2016, p. 20.

European companies in the global top 20 list in 2014 is the same (7) as it was in 2005 at

the time of the Impact Assessment.

The international dimension is a key aspect of the competitiveness of Europe’s defence

industry. As noted in the Report of the Group of Personalities on Defence Research,

“beyond

the domestic European market(s), international market access and defence

export activity are essential components of the business models used by Europe’s defence

industry. From an industrial viewpoint, access to international markets is a necessity, but

not only as a means to compensate for a declining domestic market: export growth

significantly contributed to sustaining the critical mass of European defence companies

and highlights the competitiveness, capability, performance and reliability of European

export products”

134

Table 32: Share of total global defence exports [%]

2005

2006

2007

2008

2009

2010

2011

2012

2013

33.51

36.35

37.74

32.65

34.59

26.38

26.49

21.18

25.09

34.85

30.48

29.54

28.15

28.06

31.87

30.26

31.20

26.45

China

2.98

2.61

1.81

2.44

4.68

5.69

4.44

5.76

7.41

Russia

23.68

20.72

20.97

25.88

20.99

23.38

28.42

29.07

30.31

Rest of the world

7.95

12.46

11.75

13.32

16.36

18.37

14.83

18.55

18.15

Source: Report of the Group of Personalities on European Defence Research, based on SIPRI Arms

Transfer Database

2014

27.89

36.01

3.83

21.09

15.01

Table 32 shows that the share of global defence exports from EU Member States

declined from 33.5% in 2005 to 27.9% in 2014. The share significantly decreased in

2010, and started to pick up again in 2013. Besides this, no clear pattern in the evolutions

of the export shares over the years seems to be discernible.

6.1.4.3. The industry’s structure

The biggest defence companies in Europe (system integrators and prime contractors),

which include the top 25 mentioned above, work with smaller companies in broad and

complex supply chains to deliver their products and provide services.

A recent study commissioned by the EDA (the SCAP Study) identified about 9 000

companies supplying various capabilities across the European defence industry supply

chain. Tier 1 companies (prime contractors, system integrators) constitute only 2% of the

overall industry supply chain, but represent the dominant share of the defence

expenditure revenues. Tier 2 companies account for around 15% of the supply chain. Tier

3 to Tier 5 companies are mostly suppliers catering to end-user and industry primes

needs for components and associated support services

135

. According to ASD data on

Europe’s aerospace and defence industries, the supply chain is estimated to represent one

third of total revenues (i.e. 66.5 billion EUR).

134

135

Report of the Group of Personalities on the Preparatory Action for CSDP-related research, 23 February

2016, p. 44,

http://www.iss.europa.eu/publications/detail/article/report-of-the-group-of-personalities-

on-the-preparatory-action-for-csdp-related-research.

“Support

to the implementation of the Supply Chain Action Plan”

by IHS Global Limited for EDA; the

executive summary has been published online:

https://www.eda.europa.eu/docs/default-

source/procurement-library/15-esi-op-029_eda-support-for-implementation-of-scap-executive-

summarye39d983fa4d264cfa776ff000087ef0f.pdf.

To complete the picture, Eurostat statistics on the number of enterprises can also be a

relevant source to assess possible changes in the structure of the industrial base.

However, these statistics are incomplete for a number of years and countries (no data are

reported), and appear to underestimate the number of enterprises specifically active in the

defence sector

136

Table 33: Enterprises in Europe’s aerospace, defence and shipbuilding industries,

by country and year [number of enterprises]

2010

2011

2012

2013

2014

Austria

Belgium

Bulgaria

Croatia

215

217

208

192

Cyprus

Czech Republic

167

165

157

155

Denmark

Estonia

Finland

158

142

131

132

130

France

486

496

485

535

416

Germany

391

436

450

517

516

Greece

333

358

184

137

Hungary

Iceland

Ireland

Italy

1 320

1 305

1 236

1 181

1 114

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Netherlands

268

294

305

351

360

Norway

318

320

325

304

317

Poland

631

670

630

528

714

Portugal

136

118

107

101

Romania

293

278

275

308

343

Slovakia

Slovenia

Spain

586

566

442

464

382

Sweden

243

246

251

255

United Kingdom

1 056

1 045

1 084

1 158

1 261

Total

7 010

7 044

6 678

6 736

6 522

Source: Eurostat, Structural Business Statistics (SBS), annual detailed enterprise statistics for industry

(NACE Rev. 2, B-E) (sbs_na_ind_r2)

Although a general decrease in the number of enterprises can be noted – a change from

around 7 000 in 2010 to 6 500 in 2014 – due to inconsistencies in data for specific years

136

This is particularly evident when looking at the very few enterprises reported in NACE C30.4

(manufacture of military fighting vehicles). For Germany, where two of the leading defence companies

in the land segment are located, no enterprise in this NACE is reported.

or countries, no conclusive pattern in the number of enterprises over the analysed years

can be identified in a reliable manner.

Finally, mergers and acquisitions (M&A) concerning companies in the sector are another

potential source of information about changes in the industrial base, in particular with

regards to consolidation. IHS Jane’s study for the EDA tracked, between January 2011

and June 2015, 197 M&A transactions involving the purchase of a controlling stake in

defence companies in EU Member States and EEA countries

137

. The above mentioned

SCAP Study points out that there has been limited evidence of meaningful consolidation

efforts by individual companies, although there has been extensive bolt-on activity

138

tier 2-3 companies.

According to the same database, the number of M&A transactions for an earlier reference

period of similar duration (2006-2010) is 126

139

The sheer number of M&A transactions tracked in the last years (2011-2015) is

significant and appears to have increased. However, the more significant M&A or

company restructuring operations involving defence companies based in Europe appear

to be much fewer. Table 34 presents some examples of these operations that have

occurred in the reference period (2011-2015).

Table 34: Examples of recent M&A or other corporate operations

Operation

Following a reorganisation, Leonardo-Finmeccanica has become a

single company by integrating the activities of the group’s companies

(AgustaWestland, Alenia Aermacchi, Selex ES, Oto Melara, WASS and

Finmeccanica).

2015

Nexter and Krauss Maffei Wegmann set up a joint holding company,

called KMW and Nexter Defence Systems (KNDS).

2015

GKN, a UK-based global engineering company operating in the

automotive, land systems and aerospace markets, acquired Dutch

aerospace component and systems manufacturer Fokker Technologies.

2014

Nexter agreed to acquire Mecar Belgium (energetics subsystems such

as fuzes) and Simmel Difesa of Italy (medium and large calibre

ammunition) from Chemring of the UK.

2014

The Finnish government acquired Airbus Group’s stake (26.8%) in

Patria.

2013

Following company restructuring, EADS has become Airbus Group,

which was reorganised into three divisions. At the core of the

reorganisation is the integration of three businesses (Airbus Military;

space systems business Astrium; and defence and security systems

business Cassidian) into the newly created Airbus Defense & Space.

Source: DG GROW based on IHS Jane’s industry and market database, and other publicly available

sources

Year

2016

137

138

139

The SCAP study, p. 46.

A bolt-on acquisition is when a private equity-backed company acquires another company as a "bolt

on" to enhance the private equity-backed company's value. It refers to an acquisition that fits naturally

within the buyer's existing business lines or strategy.

This figure refers to transactions targeting companies based in EU Member States and EEA countries.

Elaboration by DG GROW, on the basis of IHS Jane’s Defence Industry and Markets M&A database,

which reports transactions that occurred until 2013.

6.1.4.4. No evidence of fundamental change in the industrial base

Given the encountered limitations in data availability and the relatively short time that

elapsed since the adoption of the Directive, it seems difficult to conclude that the overall

size, structure, and shape of the EDTIB has fundamentally changed in the period 2011-

2015. It would be even more difficult, if not impossible, to establish any causal link

between the effects of the Directive and developments in the EDTIB.

This is fully consistent with the feedback received by Member States and stakeholders in

the consultations for this evaluation. In fact, 55% of respondents among contracting

authorities and 58% of respondents among businesses see no impact of the Directive on

the competitiveness of EDTIB or have no opinion on the matter.

In its reply to the online survey, ASD stressed that “the

Directive should be assessed

against realistic expectations and in a broader context. European procurement rules are

an important part of the internal market for defence but by themselves they are not

sufficient to ensure the proper functioning of the market (…) even more important from

an industrial perspective is the size and structure of the market”.

In addition, several

respondents to the online survey among businesses stated that, given the long cycle of

defence markets, it is difficult to assess after only five years the impact of the Directive

on the market and, even more so, on the industrial base.

One Member State also stressed, in its written contribution to the open public

consultation, it is impossible at this stage to establish a causal link between the changes

occurring in the market and in the industrial base and the application of the Directive.

Member States’ experts expressed very similar views in a meeting on the evaluation

140

there have been some changes in the EDTIB, but it is impossible to establish a link with

the Directive; there is no evidence that would allow to do so. In addition, these changes

are often the result of industry’s reaction to long-term general market and technological

developments.

Some industry representatives, in a stakeholder consultation meeting, pointed out that

the

objective of making Europe’s industrial base more competitive is very hard to

achieve in the absence of truly common security and defence policy (CSDP), no

common armaments policy and no harmonisation of requirements

141

. In general, at

this meeting there was broad agreement that at this stage, after only five years, there is no

evidence of impact of the Directive on the industrial base.

There are a number of factors that have the potential to affect the EDTIB, such as

changes in Member States’ budgets, degree of competition and emergence of new

competitors on third countries markets, technological developments, with a more

efficient European market (which the Directive can help achieve) being one of them.

Given the long life-cycle of defence markets, all these factors are likely to take several

years to bring about changes in the EDTIB. Under these circumstances, it would already

be very difficult to attribute to the Directive changes taking place in the EDTIB after a

longer period of time. It is, in fact, impossible to draw any conclusions on the impact of

140

141

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

Minutes of 22 February 2016 meeting with industry organised by ASD.

the Directive on the EDTIB five years after the deadline for transposition, also given the

significant delays in transposition and the still partial uptake by Member States.

Finally, the lack of significant impact on the industry is undoubtedly related with the fact

that major strategic purchases have not been carried out under the Directive, hence the

causal link between the two (the Directive and the industry) is difficult to intercept.

6.1.4.5. Winning firms and SMEs presence

As far as the winning firms are concerned, out of 7 145 contracts awarded under the

Directive in 2011-2015, 867 contracts were won by companies listed on SIPRI Top100-

arms producing and military services companies

142

in 2014, hence accounted for circa

12% of the contracts. The list of winning companies, acting as stand-alone contractors or

winning in consortia, is provided in Table 35 below.

Table 35: Companies listed on the SIPRI list and winning contracts under the

Directive in 2011-2015 [number of contract awards]

SIPRI

ranking

142

Company

Lockheed Martin

Boeing

BAE Systems

Raytheon

Northrop Grumman

General Dynamics

Airbus Group incl. EADS, Eurocopter

Finmeccanica

L-3 Communications

Thales

Rolls-Royce

SAFRAN

Honeywell International

DCNS

Booz Allen Hamilton

Babcock International Group

Leidos

General Electric

Harris

AECOM Technology Corp.

Rheinmetall

Israel Aerospace Industries

Elbit Systems

Saab

Alliant Techsystems

ThyssenKrupp

Hewlett-Packard

CEA

Freq.

112

The SIPRI Top 100 arms-producing and military services companies in the world excluding China,

December 2015,

http://books.sipri.org/files/FS/SIPRIFS1512.pdf.

Rockwell Collins

Exelis

Serco

Cobham

Indian Ordnance Factories

Fincantieri

Nexter

Dassault Aviation Groupe

Polish Armaments Group

Jacobs Engineering Group

QinetiQ

GKN

Pilatus Aircraft

Krauss-Maffei Wegmann

ASC

Kongsberg Gruppen

Meggitt

Moog

RUAG

CNH Industrial incl. Iveco, Fiat

Patria Industries

Hyundai Rotem

Pratt & Whitney - United Technologies C

AgustaWestland – Finmeccanica

MBDA - BAE Systems UK/EADS W. Eur./Finmeccanica Italy

Selex ES SpA – Finmeccanica

Alenia Aermacchi – Finmeccanica

Total

867

Source: OJ/TED, manual corrections by DG GROW; The SIPRI Top 100 arms-producing and military

services companies in the world excluding China, December 2015.

The winners included firms with headquarters in the EU, US, Switzerland, Australia,

Israel, Norway, India and South Korea. The value of the above mentioned 867 contracts

was equal to roughly

16.5 billion EUR,

accounting for a much higher share of the total

value of procurement carried out under the Directive (53%) than its share in terms of the

number of contracts (12%). However it is important to underline that this relatively high

result in terms of value was to a large extent influenced by a previously mentioned

service contract worth 6 billion GBP awarded by the UK Government to a subsidiary of a

US company.

The remaining dataset of contracts won by firms not listed on the SIPRI ranking has been

further scrutinised in order to identify most frequent winners and, to the extent possible,

determine their size classes. The top 10 winners amongst companies which were not

listed on the latest SIPRI Top100 ranking won 1 473 contracts under the Directive in

2011-2015. The list of these companies is provided below (Table 36).

Table 36: Top 10 companies not listed on the SIPRI list and winning contracts

under the Directive [number of contract awards]

Company

WOJSKOWE ZAKŁADY LOTNICZE Nr 1 S.A.

ANKOL Sp. z o.o.

CENZIN Sp. z o.o.

Country

Freq

292

255

210

FIN Sp. z o.o.

STV GROUP a.s.

PPHU NAVCOM SYSTEMS s.c.

MEGMAR LOGISTICS & CONSULTING

FFG FLENSBURGER FAHRZEUGBAU GESELLSCHAFT MBH

DIEHL GRUPPE

DRABPOL Sp. z o.o.

Total

Source: OJ/TED, manual corrections by DG GROW;

201

125

112

1 473

As it can be seen from the table, the top-winners most frequently included firms from

Poland, followed by Germany. The clear dominance of firms from Poland can be

explained by the fact that Polish authorities are among those that have published the

largest number of contract awards (2 188), while the cross-border procurement in this

country remains relatively low (3% in number).

In order to assess the SMEs presence among the most frequent winners, the profiles of

firms which were not included in the SIPRI list, but have won more than 10 contracts

under the Directive (50 firms in total) were analysed. As a result, it appeared that

27.9%

of contracts included in this sample have been awarded to SMEs.

In terms of market

share, the contracts identified as awarded to SMEs accounted for 6.1% of the total value

of contracts in the sample

143

. When compared to the overall share of contracts won by

SMEs in civil procurement (56% in number of contracts and 29% by value)

144

, SMEs

appear to be less successful in winning contracts under the Directive than in EU public

procurement in general. This difference may be explained by the specificities of the

defence procurement market.

Based on the replies to the online survey, stakeholders’ perception on the impact of the

Directive on the access of SMEs to defence and security procurement is rather mixed,

with a strong proportion seeing no impact or having no opinion on the matter among both

contracting authorities (33% no impact and 27% no opinion) and businesses (30% no

impact and 15% no opinion). Among those seeing an impact, the views of business

respondents are more critical (33% replied that the impact was negative, compared to

21% that think it was positive). Among contracting authorities respondents, 18% see a

negative impact and 15% a positive one.

A Member State participating in the open public consultation stressed that there are

multiple factors affecting the situation of SMEs in the defence sector, such as new

competitors, technological developments, and shrinking markets, so that it is impossible

to identify if the Directive had any specific impact on their situation.

One national defence industry association argued, in its reply to the online survey, that

the Directive did not help increasing the competitiveness of SMEs and did not facilitate

their penetration in the supply chains of major defence companies.

143

144

The figures provided above only correspond to the top 50 firms which won more than 10 contract

according to data provided in OJ/TED. This sample might be not representative for the entire

population, although it illustrates the relatively low degree of participation of SMEs in the public

procurement defence market.

"SMEs'

access to public procurement markets and aggregation of demand in the EU"

by PwC, ICF

GHK and Ecorys, for the European Commission DG Internal Market and Services in February 2014,

http://ec.europa.eu/DocsRoom/documents/15459/attachments/1/translations , pp. 28-29.

The issue was discussed, as part of the stakeholder consultation process, in the

Commission’s Advisory Expert Group on cross-border access for SMEs to defence and

security contracts

145

. All participants agreed that there are no hard data available on the

situation of SMEs in the defence sector and on how that may have changed after the

Directive. Their perception broadly was that there have been no major changes in the

situation of SMEs in the defence sector in recent years. They may face some additional

difficulties, but these are most likely due to other factors such as reductions in national

defence budgets than directly to the effects of the Directive.

To summarise, SMEs appear to be less successful in winning contracts under the

Directive than in EU public procurement in general. This difference may be explained by

the specific nature of the defence procurement market. More in general, it seems, as

broadly confirmed by stakeholders’ feedback, that the Directive did not have a significant

impact (positive or negative) on the situation of SMEs in the defence sector.

6.1.4.6. Subcontracting and SMEs' market access

In order to evaluate the presence of SMEs and their access to the procurement market,

one should also look at how subcontracting is being used, since this form of participation

in procurement is typically perceived as a key method to facilitate market access for

smaller companies.

Under a traditional approach to subcontracting, the successful tenderer is in principle free

to decide whether and to what extent some part of contracted work is let to other firms, as

well as to select its subcontractors

146

. In such case, information on potential

subcontracting is contained in the contract award notice. An overview of such

publications is provided below.

Table 37: Contract awards published under the Directive in 2011-2015, where

subcontracting was declared as likely [number of contract awards, %]

Yes

Missing

Total

Source: OJ/TED, manual corrections by DG GROW

Freq.

709

4 535

1 901

7 145

Percent

10%

63%

27%

100%

As presented in Table 37, in around 10% of contract awards the contracting authorities

reported that a certain share of the awarded contract is likely to be subcontracted to third

parties. In terms of value of these same contracts they accounted for a much higher

proportion of the overall procurement carried out under the Directive (42%), accounting

for nearly 13 billion EUR in 2011-2015, as shown in Table 38. However, it is important

to notice that the results are influenced by an outlier (the previously mentioned UK

145

146

Minutes of 26 April 2016 meeting of the Commission’s advisory expert group on cross-border access

for SMEs to defence and security contracts.

Pursuant to Article 21(1) of the Directive “the successful tenderer shall be free to select its

subcontractors for all subcontracts that are not covered by the requirement referred to in paragraphs 3

and 4 and shall in particular not be required to discriminate against potential subcontractors on grounds

of nationality”.

service contract estimated at nearly 6 billion GBP, which is also likely to be partially

subcontracted).

Table 38: Contract awards published under the Directive in 2011-2015, where

subcontracting was declared as likely [value in million EUR, %]

Yes

Missing

Total

Source: OJ/TED, manual corrections by DG GROW

Sum

12 715.56

12 757.87

4 889.22

30 362.65

Percent

42%

16%

100%

When interpreting the total value of 12.7 billion EUR mentioned above, it is also

important to underline that the presented proportion in terms of value does not represent

the value of subcontracting as such, but only the value of contracts which are expected to

be contracted out (i.e. in some proportion of it). If a share of 30% would be used as the

proxy, the

total value of subcontracting would be around 3.8 billion EUR

representing an estimated value of business opportunities for SMEs. A country-by-

country overview of contract awards where subcontracting was likely, is presented in

Figure 23 below.

Figure 23: Contract awards published under the Directive, where subcontracting

was declared as likely compared to total awards, by country

147

[fraction]

ch l g

R aria

D bli

en c

Fi rk

Fr d

G nc

er e

H any

Ita

N thua y

he nia

rla

N ds

Po ay

R land

Sl nia

Sl kia

ni Sw nia

d ed

Ki en

Number of contract awards

Value of contract awards

Source: OJ/TED, manual corrections by DG GROW

Finally, under the specific subcontracting provisions of the Directive, the contracting

authority may require the successful tenderer to subcontract a share of the contract to

third parties via competitive tendering, following the rules specified in Articles 50 to 53.

147

There were no awards where subcontracting was reported in: Austria, Belgium, Croatia, Estonia,

Latvia and Portugal.

The aim of these specific subcontracting provisions is to inject competition into the

supply chains of prime contractors, thereby fostering market access opportunities for sub-

suppliers and SMEs. These provisions have clearly not been adopted by the market. As

mentioned in Section 5.3.1.1, the use of subcontracting notices was very limited with as

little as 32 notices of such type published over the last five years in Europe (2011-2015).

Based on manual checks of these notices, it seems that most of them were not defence

subcontracts or have likely been published by mistake under the subcontracting standard

form.

The negative assessment of the Directive’s provisions on subcontracting is confirmed by

the replies to the online survey. The relative majority of respondents “disagree” or

“strongly disagree” that these provisions “foster cross-border access to defence and

security supply chains” among both businesses (39%) and contracting authorities (27%).

The proportion of these respondents that agreed with the statement was, respectively,

15% and 21%.

The Belgian Defence Staff, in its contribution to the open public consultation, stressed

that “the

current subcontracting provisions are not interesting for the Member States”

and suggested that “Member

States should have the possibility to define specific parts of

the main contract for subcontracting”,

and/or contracting authorities should be allowed

“to

use subcontracting as an award criterion”.

The Dutch Ministry of Economic Affairs

replied that the subcontracting provisions do not foster cross-border access to supply

chains, but added that legal obligations in this area would in any case not be an

appropriate solution. Another Member States argued that these provisions are not used

since “they

do not guarantee subcontracting in the Member State of the contracting

authority”

and are therefore “ineffective

to gain additional value”.

Other Member States

stressed that the subcontracting provisions “are

of no use”

or “difficult

to apply in

practice”.

Several Member States’ experts expressed, in a meeting on the evaluation

148

similar views on the ineffectiveness of the subcontracting provisions.

ASD replied that the subcontracting provisions of the Directive are not workable in

practice. BAE Systems emphasised that “within

the defence industry, supply chains are

long term and for the most part are established during product development, well in

advance of sales contracts being tendered. Therefore, the (subcontracting) provisions do

not correlate with this environment”.

A similar view was expressed by another

respondent from a big defence company. NDIV (the Netherlands Industries for Defence

and Security) stressed that the subcontracting provisions have “no

benefit for cross

border access to the supply chains”,

and argued that “the

Directive has had no positive

impact on cross-border access to defence and security supply chains”.

Similarly, another

defence company pointed out that since the majority of supply chains have already been

established, the Directive will not stimulate cross-border access to defence and security

supply chains.

The EDA developed, in discussions with Member States and stakeholders, a document

setting out the challenges for contracting authorities and defence industry in using the

subcontracting provisions of the Directive. EDA provided this document to the

148

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

Commission’s departments, also as input for this evaluation

149

. The main issues

identified by this document are:

– If smaller Member States use the subcontracting provisions of Directive, it does not

necessarily mean that companies from their own countries will be awarded

subcontracts, although they will have the opportunity to compete. These Member

States therefore do not have strong incentive to use them.

– The fact that the existing Commission departments guidance note states that

contracting authorities cannot define up-front which part of the contract the main

contractor has to subcontract in competition is a disincentive for smaller Member

States to apply the subcontracting provisions.

– The ability of contracting authorities to supervise prime contractors subcontracting

activities (organising the subcontracting competition and running it fairly, including

with regard to the definition of award criteria, execution of subcontracts) is very

limited.

– Supply chains are formed well before the contract award procedure. It would be

difficult, if not impossible, to change subcontractors in an existing system after the

development phase without major costs, technical risks, delays and security of supply

risks. In fact, large contractors have long lasting relationships with most of their

subcontractors, which are normally involved early in the bidding process to assure a

reliable evaluation and assessment of both price and performance. The subcontracting

provisions are not in line with how industry manages supply chains.

– The potential use of subcontracting provisions would entail major questions in terms

of liability for the contracting authority. These include, for example, cases such as: if a

claim is made that the prime contractor has not complied with the provisions, a

subcontract fails, or execution problems (additional costs or delays) arise due to

performance issues related to subcontracts awarded in competition. Similar questions

arise in terms of liability for the main contractor, which would be held responsible for

problems in the execution of the main contract due to non-performance of new

subcontractors selected on the basis of the provisions of the Directive.

To summarise, according to the traditional approach to subcontracting, business

opportunities for SMEs and sub-suppliers to be freely selected by the successful tenderer

(main contractor) can be estimated to amount to around EUR 3.8 billion EUR.

The specific provisions of the Directive on subcontracting, instead, have not been used

for the reasons mentioned above. Since the subcontracting provisions merely lay down

options for Member States and contracting authorities, the fact that they have not been

used does not prevent the use of the Directive or undermine its functioning. It does,

however, mean that the aim of providing additional opportunities to sub-suppliers and

SMEs by injecting competition into the supply chains of prime contractors is not

achieved.

149

“Challenges for Member States contracting authorities and defence industry in using/implementing

Directive 2009/81/EC subcontracting provisions – an EDA assessment”, 8 April 2016.

6.1.5. Conclusions on effectiveness

In reference to Evaluation Question 1, this evaluation has demonstrated that competition,

transparency and non-discrimination in the defence procurement market in Europe have

started to improve as a result of the Directive, even if implemented recently. The

value of

defence and security contracts awarded under EU rules

and based on transparency

and equal treatment

increased

more than tenfold times within the reference period

(2011-2015) as a result of the Directive. However, the

degree of application of the

Directive, and therefore of the increase in competition, transparency and non-

discrimination, remains uneven across Member States,

which in turn impacts

negatively the effectiveness of the Directive.

According to the Baseline Study, the total value of contracts published EU-wide

(OJ/TED and EBB) in the period 2008-2010 was equivalent to 3.3% of the EU’s total

defence procurement expenditure in the same period. The total value of contract award

notices published under the Directive in 2011-2015 equalled 7.6% (or 9.5% if defence

and security procurement under the civil procurement Directive was also taken into

account) of the total value of general government procurement expenditure on military

defence of EU-28 and EEA-2 countries. This shows that

there has been a more than

twofold increase in the share of defence and security contracts awarded under the

EU rules.

Despite this improvement,

a very significant share of defence procurement

expenditure is still done outside the Directive

and, generally, outside EU public

procurement rules. In addition, the overall volume of procurement carried out under the

Directive as well as the dominance of small value contracts seems to suggest that

the

Directive was used to a limited extent for the procurement of strategic equipment

(i.e. complex defence systems). This finding is further reinforced by examples of major

defence equipment programmes for complex defence systems that have been presumably

awarded in recent years outside the Directive in 2010-2015.

The increased use of EU public procurement rules based on transparency, competition

and equal treatment, while bringing about more cross-border opportunities, did not result

in an increase in direct cross-border awards. This can be partly explained by the fact that

cross-border bidding is, by nature, more difficult for companies due to language and

other non-regulatory barriers, higher costs and insufficient knowledge of the foreign

market.

On Evaluation Question 2, the conclusion, based on the body of evidence presented, is

that

the use of exemptions has started to decrease

as a result of the Directive. However

exemptions are still used to a significant extent especially for the procurement of

high-value, strategic, complex defence systems.

Nevertheless, there are some recent

signs that the Directive is being used for this kind of procurement.

It can also be confirmed, based on the broad consensus that emerged in the consultations

and on the Commission departments’ analysis, that

the provisions of the Directive

designed to address the specificities of defence procurement (e.g. exclusions,

security of information, and security of supply) have in general proven to be fit for

purpose

(Evaluation Question 3). It has emerged from the consultations that, given the

complexity of the issues related to security of supply, the relevant provisions of the

Directive cannot be, by themselves, sufficient to fully guarantee Member States’ security

of supply.

Given the encountered limitations in data availability and the relatively short time that

had elapsed since the adoption of the Directive,

it seems difficult to conclude that the

overall size and structure of the EDTIB has fundamentally changed in the period

2011-2015.

It would be even more difficult, if not impossible, to establish any causal link

between the effects of the Directive and developments in the EDTIB. This is fully

consistent with the feedback received by Member States and stakeholders in the

consultations for this evaluation. A definitive answer to Evaluation Question 4 cannot be

therefore provided at this stage.

As regards the situation of

SMEs, they appear to have been less successful in winning

contracts under the Directive

than in civil procurement, which can be explained by the

nature of the defence market. Additionally, stakeholders’ perception is that

SMEs in the

defence sector have faced additional difficulties in recent years;

it is also recognised

that there are multiple factors other than the directive (such as new competitors,

technological developments or shrinking markets) affecting SMEs. In any case,

the

specific subcontracting provisions of the Directive

have not been used by Member

States’ contracting authorities as they are seen by them as

ineffective.

Since the

subcontracting provisions merely lay down options for Member States and contracting

authorities, the fact that they have not been used does not prevent the use of the Directive

or undermine its functioning. However, the aim of providing additional opportunities to

sub-suppliers and SMEs by injecting competition into the supply chains of prime

contractors has not been achieved. Two Member States argued that the Commission

departments’ 2010 guidance note on subcontracting unnecessarily restricts the

subcontracting possibilities for contracting authorities, and that this is a contributing

factor to the non-use of competitive subcontracting by Member States.

There are several factors that may have affected the achievement of the Directive’s

objectives. First, only a relatively short time (2-3 years) elapsed between actual

transposition by Member States and the last year covered in the evaluation (2015). This

factor, which is especially significant due to the long cycles of the defence market, means

that if the upward trend in the use of the Directive continues, its results will become more

visible in the next few years. This may also explain the as yet limited awareness of the

rules among Member States’ contracting authorities. A second factor, somewhat related

to the first one, is that exemptions, including Article 346 TFEU, appear to be subject to

an overly broad interpretation that does not restrict their use to truly exceptional cases as

required by the case law of the Court of Justice. This factor probably is particularly

relevant to explain the very limited use of the Directive for the procurement of strategic

equipment and complex systems. Moreover, a significant share of defence procurement

expenditure may have been spent on contracts awarded in the framework of cooperative

programmes started well before the adoption of the Directive. Finally, the financial crisis

may have led to the cancellation or postponement of new major procurement projects to

be implemented under the Directive.

6.2.

Efficiency

To what extent are the costs proportionate to the benefits achieved?

Evaluation question (5):

In order to address the efficiency question, the cost of carrying out procurement

procedures under the Directive will be estimated, taking into account both sides of the

procurement transaction (i.e. the cost for contracting authorities or entities, as well as for

firms bidding). The cost estimate will be then compared to the potential savings

stemming from the Directive.

6.2.1. Costs of procedures

The overall costs of procedures carried out under the Directive accounted for

approximately 89.6 million EUR in 2011-2015 (compliance costs)

150

(Table 39). The

above estimate is a sum of two components:



the costs incurred by the contracting authorities of 27.6 million EUR, and



the costs incurred by the economic operators of nearly 62 million EUR (cost for

all participating firms, including the unsuccessful ones).

The costs incurred by the economic operators have been calculated as the average cost

for a firm bidding, multiplied by the average number of bidders participating in a call for

tender. The above overall costs of procedures was estimated following a similar approach

to the one adopted in the study “Public

procurement in Europe, Cost and effectiveness”

by PwC, Ecorys and London Economics for the services of the Commission and

completed in May 2011 (the PwC Study). The costs of the application of the Directive

was calculated based on the cost data collected in the above study, as more recent data of

this type was not available. The methodology of the estimate is explained in Annex III.

Table 39: Costs of procedures carried out under the Directive for the contracting

authorities and the economic operators [value in thousand EUR]

Costs of procedures

for

contracting

economic

authorities

operators

Sum

2011

133.7

271.3

405.0

2012

2 505.8

8 573.0

11 078.8

2013

5 988.8

12 011.0

17 999.8

2014

8 753.2

17 095.7

25 848.9

2015

10 233.7

24 054.0

34 287.7

Total

27 615.1

62 005.0

89 620.2

Source: OJ/TED, manual corrections by DG GROW, based on PwC estimates of costs.

As presented in Table 39 above, around 30% of the total cost has been borne by the

contracting authorities, while the rest by the economic operators. This proportion is due

to the fact that the costs for firms are calculated for all bidders, including the cost of

preparing offers which were not successful. It is also important to underline the above

costs of procedures are not only the costs that directly resulted from the obligations

stemming from the Directive, but it might likewise include other cost elements, such as

“business as usual cost” or costs resulting from the national legislation, etc.

150

The methodology of this estimate is presented in Annex III.

The average unitary cost of running the procurement procedures for the contracting

authority was around 7.5 thousand EUR, while the total average cost for all economic

operators was around 16.8 thousand EUR and the overall cost was 24.3 thousand EUR on

average. The medians were 6.4 thousand EUR and 13.8 thousand EUR for the

contracting authorities and all bidders, respectively.

Table 40: Mean and median costs of procedure for contracting authorities and

economic operators [value in thousand EUR]

Costs of procedures

for contracting

for economic

authorities

operators

Total

Mean

7.5

16.8

24.3

Median

6.4

13.8

21.6

Source: OJ/TED, manual corrections by DG GROW, based on PwC estimates of costs.

The relationship between the contract value and the costs of procedures for contracts

below 10 million EUR (i.e. approximately the average contract value) is presented in

Figure 24 below

151

. The red reference lines on the graph mark the threshold values for

the end of the evaluated period, hence those valid for 2014-2015 (414 thousand EUR and

5 186 million EUR).

Figure 24: Comparison between the costs of procedure and the value of awarded

contracts below 10 million EUR [share of notice value]

151

The figure is only based on observations where complete data was available e.g. notices where the

number of bidders was not available were not used in the graph although they were used in the overall

estimate of the cost presented above. The costs were also trimmed at 100% of the contract value to

remove potentially erroneous observations.

value of notices [million EUR]

95% CI

the cost of procedure as a share of notice value

predicted

Source: OJ/TED, manual corrections by DG GROW, based on PwC estimates of costs.

As shown on the graph, for high value contract the costs seem to be negligible, especially

once the upper threshold for works is passed (5 186 million EUR). The costs of

procedure as a share of the contract value are still below 5% for a majority of

observations where procurement value was below 2 million EUR. Although there are

notably some outliers with the reported costs accounting as much as almost 60% of the

contract value, for

all contracts with values above the thresholds the costs were lower

than 20% of the total value of procured goods,

works or services.

Table 41: Comparison between the costs of procedure and the value of awarded

contracts [thousand EUR]

Value of

awarded

Costs of

contracts

procedure

Percentage

Total

30 850 190

89 620.2

0.3%

Mean

9 897

24.3

0.2%

Median

1 012

21.6

2.1%

Source: OJ/TED, manual corrections by DG GROW, based on PwC estimates of costs.

When compared to total value of awarded contract (30.85 billion EUR in 2011-2015),

the costs of procedures account for around 0.3% of the contract value

(Table 41).

The comparison between the average values yields a similar result (0.2%). It is only the

median contract value and the median costs of procedure that accounts for a higher share

(i.e. around 2.1% of the typical contract value is spent on the purchasing process itself).

In order to gather stakeholders’ views concerning the cost of implementing the Directive,

the online survey included a number of questions on related to the above aspects.

According to the replies received, business respondents’ perception differs from that of

contracting authorities. 52% of business respondents consider that the costs of

participating in procurement procedures under the Directive are more or much more

resource intensive compared to the situation before. Among contracting authorities, the

views are more balanced with 33% of respondents considering that the costs have

increased and the same proportion (33%) seeing no difference with the situation before.

However, when asked to compare the costs under the Directive to those under the civil

procurement Directives, respondents expressed more positive views. 33% of respondents

among businesses see no change or a reduction in costs, whilst 27% perceive an increase.

Respondents among contracting authorities have a more positive perception, with 45%

seeing no increase or a reduction, and only 12% considering that the costs of carrying our

procedures under the Directive are more resource intensive than those under the civil

procurement Directive.

A comparison of the replies to these two questions of the online survey (one comparing

the costs of the Directive to the situation before and the other comparing them to the

costs of the civil procurement Directive) seem to suggest that respondents think that the

Directive has led to an increase in costs if compared with the costs entailed by (the

participation in or the organisation of) non-competitive procurement procedures.

One Member State, in its written contribution to the open public consultation, pointed out

that the Directive did not have a significant impact in terms of complexity and duration

of tendering procedures or in terms of costs for contracting authorities. The main reason

is that national legislation before the Directive provided for competitive procedures

inspired by broadly similar principles.

One respondent (contracting authority) to the online survey pointed out that, for the

military aeroplane market that consists of strong original equipment manufacturers with

monopolistic positions, the procedures laid down in the Directive are too complex and

take too much time.

The issue of costs was discussed at a meeting with Member States’ experts

152

. No expert

could provide quantitative data on costs stemming from the organisation of procurement

procedures under the Directive. One Member State explicitly explained that they did not

do a costing exercise, and did not intend to do so in the future. Only one Member State

expert provided an estimation for costs concerning the organisation of procedures for

simple off-the-shelf procurement (2 000 EUR), but added that for complex negotiations

the cost would be much higher but also very difficult to estimate.

At the same meeting, several Member States’ experts expressed the perception that costs

slightly increased compared to the situation before the Directive. However, as pointed

out by two experts, the response essentially depends on what the specific national

situation used to be. If defence procurement was completely excluded or unregulated,

then the procedures under the Directive will inevitably be more complex and costly. If

some form of competitive procedures were used, then there is likely no significant impact

stemming from the Directive. This is especially the case because, as one Member State

clarified, the most time consuming and resource intensive activity for the contracting

authority is the preparation of the technical specifications. The Directive as such has

marginal impact on this aspect.

152

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

The issue of costs was also discussed with industry in two stakeholder consultation

meetings

153

. The participants who intervened on this issue considered that either the

Directive did not bring about changes in costs or burden for responding to procurement

procedures or that there was a minor, marginal increase stemming from the rules of the

Directive. With regard to more detailed questions on costs

154

, they explained not to be in

a position to provide answers; there are too many differences across different kinds of

procurement and too many elements to take into account. In addition, some of the

information in this area could be commercially sensitive.

Finally, participants were asked whether “suppliers

in the EU could be given equal, open

and competitive access to the European Defence Equipment Market with a system that

imposes less regulation”.

Those who intervened on this point stated that the Directive

probably cannot be made much simpler.

6.2.2. Costs compared to benefits

As mentioned in the previous Section, the total cost of implementing the rules of the

Directive is estimated at around 89.6 million EUR over the time span of this evaluation

(2011-2015).

When compared with the total volume of works, goods and services

procured under the Directive (30.85 billion EUR), the cost level was relatively low

(0.3%).

The analysis of the cost-benefit relationship of the Directive remains particularly

challenging, also due to the limited body of literature on the particular topic of

procurement savings in defence. The study on the costs of non-Europe on defence

procurement

155

commissioned nearly three decades ago, aimed at estimating the likely

magnitude of the competition effect that would reflect the impact on costs, profits and

prices of opening up national markets to competition. The study concluded that a

common market in defence procurement restricted to EU firms only was likely to lead to

price reductions ranging from 5% to 30 % (depending on the scenario) with a median

figure of 20% reductions in prices. Opening the EU market to the rest of the world,

according to the study of 1992, would increase the median estimate by further 5% (i.e.

the median price reductions would reach 25%).

Further to the above quoted publication, its hard find studies that would estimate cost

savings in the defence equipment procurement, especially amongst more recent research.

This is mainly due to the fact the implementation of public procurement rules in the area

of defence and sensitive security constitutes a relatively new policy area. As a

consequence, there is little or no research completed on this subject. In order to

compensate for the limited evidence on competition effects in the defence sector, the

estimation of savings (benefits) resulting from the opening up of civil procurement

markets will be used.

153

154

155

Minutes of 22 February 2016 and 3 May 2016 meetings with industry organised by ASD.

“How would you evaluate the costs of participating in procurement procedures under the Directive as

compared to these costs under the Civil Directives for procurements of similar complexity?”; “Can

you provide an estimation of costs (e.g. in terms of man/hour of staff) of participating in a procurement

procedure for the award of a defence contract, including under the Directive?”; “Can you identify the

elements of the participation in a procedure contributing mostly to the overall costs and explain their

relative importance?”.

Hartley, K., and A. Cox, “The

Costs of Non-Europe in Defense Procurement”,

Brussels, European

Commission-DGIII, May 1992.

100

There is general consent in academic literature and reports that that transparency (e.g. via

the publication of a call for tender in an official journal) generates competition, which

raises the number of bids and ultimately leads to savings and/or lower prices. A study

completed in 2006

156

for the Commission services estimated that an increase in supplier

competition caused by EU procurement legislation has led to a 2.5 % to 10 % price drop.

Similar conclusions can be found in the evaluation of the public procurement directives

of 2004, which founds that "even

incremental increases in transparency or openness can

yield tangible savings. Publication of a contract notice results in a saving of 1.2%

compared to contracts where neither contract nor prior information notice was

published. Using an open procedure is associated with further 2.6 % savings. Based on

these findings, a contracting authority that publishes an invitation to tender and uses an

open procedure may expect total benefits equivalent to savings of 3.8 % on the final

contract value. For restricted procedures, the corresponding saving appears smaller at

around 2.5%."

157

If a conservative assumption of 2.5% savings was used for the cost-benefit analysis in

this evaluation (i.e. lower bound of the above mentioned expected savings resulting from

the increased market opening or the estimates savings for the restricted procedure),

the

Directive would be likely to generate savings of roughly 770 million EUR

158

This

figure would then translate into lower prices paid for the procured works, goods and

services in the defence and security sectors.

The

savings generated by the Directive are therefore likely to exceed the costs

running the procedures for public authorities and firms, nearly

by a factor of nine

(i.e.

89 million EUR of costs of procedures, compared to 770 million EUR of savings).

Finally, respondents to the online survey were also asked to give an overall assessment

on the efficiency of the Directive by comparing the costs and benefits of carrying out (for

contracting authorities) or participating in (for businesses) procurement procedures under

the Directive. Among contracting authorities, the perception is largely positive: 52% of

respondents consider that benefits outweigh costs or are proportionate, and only 12% see

the costs outweighing the benefits. The perception of business respondents is more

negative: 33% think that the costs outweigh the benefits; while 24% consider the costs

proportionate or the benefits outweighing the costs. This perception of business

respondents is probably not due to shortcomings of the Directive as such, but rather to its

limited uptake and inconsistent implementation that have been emphasised by several

industry stakeholders during the consultations.

To conclude, the above estimates show that the Directive has the potential to bring about

benefits significantly outweighing their costs. For contracting authorities, these benefits

consist in savings. For industry, benefits derive from an increase of business

opportunities and a reduction in bidding costs due to compliance with harmonised rules

instead of rules widely diverging across Member States. Based on stakeholders’

feedback, it is clear that for such benefits to fully materialise, the Directive needs to be

used by Member States more and more consistently.

156

157

158

“Evaluation

of Public Procurement Directives”

by Europe Economics, for the European Commission,

DG MARKT in September 2006.

Commission Staff Working Document, Evaluation Report Impact and Effectiveness of EU Public

Procurement Legislation , Brussels, 27.6.2011 SEC(2011) 853 final.

The total value of procurement awarded under the Directive 30.85 billion EUR * 2.5%.

101

6.2.3. Administrative burden

The concept of administrative burden refers to the costs incurred by enterprises, the

voluntary sector, public authorities and citizens in meeting legal obligations to provide

information on their action or production, either to public authorities or to private parties.

The administrative costs consist of two different cost components: the business-as-usual

costs and administrative burdens. They are different from compliance costs, assessed

above in section 6.2.1. which stem from the implementation of the Directive.

The public procurement rules impose information obligations mainly on contracting

authorities, which in most cases must provide substantial ex ante and ex post information

about the award procedures (for instance through the publication of a contract notice in

the OJ/TED). These obligations of transparency constitute the basis of the EU public

procurement rules, to the extent that those rules would be meaningless without access to

information.

Since the information obligations laid down in the Directive do not differ from those

included in the civil procurement Directives, no additional administrative burden can be

identified. A distinctive feature of the Directive that is relevant in this context is the

subcontracting provisions, according to which the contracting authority may oblige an

economic operator to organise a competitive selection of a subcontractor and therefore

publish a subcontract notice on OJ/TED. This could, in principle, be considered as

administrative burden. As noted in Section 6.1.4.6., these provisions have been

practically not used, so the resulting administrative burden is negligible.

Stakeholders indicated that the Directive did not bring about changes in burden for

responding to procurement procedures or that there was a minor, marginal increase

stemming from the rules of the Directive.

It can therefore be concluded that the administrative burden stemming from the rules of

the Directive is negligible.

6.2.4.

Conclusions on efficiency

The overall costs of procedures carried out under the Directive accounted for

approximately 89.6 million EUR in 2011-2015. The average unitary cost of running the

procurement procedures was around 7.5 thousand EUR for the contracting authority,

while the total average cost for all businesses was around 16.8 thousand EUR and the

overall average cost for all participants was 24.3 thousand EUR.

The procedure costs as a share of the contract value accounted for less than 5% for the

majority of observations where procurement value was above 2 million EUR. When

compared with the total volume of works, goods and services procured under the

Directive (30.85 billion EUR in 2011-2015), the overall cost level was relatively low

(0.3%).

The savings generated by the Directive are therefore likely to exceed the costs of running

the procedures for public authorities and firms, by almost a factor of nine (i.e. 89 million

EUR of costs of procedures, compared to 770 million EUR of savings). Finally, the

administrative burden stemming from the rules of the Directive is negligible. In response

to Evaluation Question 5, it can be concluded that overall the costs are broadly

proportionate to the benefits achieved and the

Directive is generally cost effective.

102

Further work aimed at ensuring a greater and more consistent use of the Directive by

Member States would also result in increasing the benefits for contracting authorities and

businesses and, therefore, further enhancing its efficiency.

6.3.

Relevance

The assessment in this section addresses whether the objectives (and the problem

definition) underpinning the adoption of the Directive are still valid. It also considers

developments that have occurred after 2009 and their impact on the relevance of the

Directive. This is mainly based on the open public consultation, the complementary

stakeholders’ consultation, as well as desk research.

6.3.1. The objectives of the Directive

Evaluation question (6):

To what extent are the objectives of the Directive still relevant?

The overwhelming majority of respondents to the open public consultation consider the

objectives of the Directive

159

and the needs it is supposed to address still relevant. 70% of

businesses or business associations replied that these objectives are “relevant”, and only

9% considers them “rather irrelevant”. Among Member States’ authorities, 67% of

respondents replied that the objectives of the Directive are “relevant” or “moderately

relevant”. Again, only 9% replied “rather irrelevant” and no respondent qualified the

objectives as “irrelevant”. 3 out of the 4 respondents from the general public replied

“relevant”.

Other stakeholders’ replies to the online survey confirm their support for the general

objectives and underlying principles of the Directive. 91% of respondents among

businesses and business associations agree or strongly agree that “defence and security

equipment and services acquired by Member States should be procured using fair and

competitive procedures (except where a valid exemption is properly applied)”. 89% of

the same respondents also agree or strongly agree that “defence and security contracts

should be awarded to the tenderer offering the best value for money solution, irrespective

of the Member State in which the company is located (except where a valid exemption is

properly applied)”.

On a different tone, one national defence industry association, which replied to the online

survey, argued that the Directive aims “primarily

to market liberalisation and clearly

favours the large, technologically and industrially advanced countries”.

It maintained

that Member States should rely to the greatest possible extent on existing national

industrial and technological capabilities.

The meetings with key stakeholders (Member States and industry) confirmed that there is

consensus on the fact that the objectives of the Directive are still relevant. Stakeholders

did not question the importance and relevance of establishing an open and competitive

159

These objectives (direct and indirect) were summarised in the online survey as: “to

establish an open

and competitive European Defence Equipment Market, to help strengthen the European Defence

Technological and Industrial Base, to ensure that the situation of SMEs in the defence sector is not

negatively affected”.

103

EDEM, increasing competition, transparency and equal treatment in defence

procurement, and achieving a level playing field in this area.

One defence company pointed out that the objectives of the Directive remain fully valid

since the structure of the market has not fundamentally changed in the past five years. A

Member State highlighted in particular the objectives mentioned in recital 3 of the

Directive “to

foster, develop and sustain EDTIB that is capability driven, competent and

competitive”.

Another Member State argued that the objective of establishing an open

and competitive EDEM not only remains fully valid, but is even more relevant today due

to security concerns and budget restrictions.

Statements made by the European Council and Council in recent years confirm Member

States’ support for the objectives of the Directive and their relevance. The European

Council stated, in its conclusions of December 2013, that “a

well-functioning defence

market based on openness, equal treatment and opportunities, and transparency for all

European suppliers is crucial”

and stressed the importance of ensuring the full and

correct implementation and application of the Directive (as well as of Directive

2009/43/EC)

160

. In May 2015, the Council underlined “the

importance of improving cost-

effectiveness and efficiency in the European security and defence market”

and reiterated

“the

need for the implementation and application” of the Directive “without prejudice to

Article 346 TFEU”

161

. The European Parliament also expressed support for the objectives

of the Directive in recent resolutions

162

6.3.2. New developments after the adoption of the Directive

In what way has the initial problem evolved? Have any new issues that need

to be taken into account emerged since the adoption of the Directive and what

are they?

Evaluation question (7):

A number of developments that are relevant to the Directive have been identified in

answers to the open public consultation and in meetings with stakeholders. These are:



The evolving defence and security landscape in Europe. Several Member States and

stakeholders pointed at the deterioration of the security situation “with

an increasingly

unstable neighbourhood, difficult relationships with Russia, and hybrid threats

directly targeting European territory”

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. This situation can have an impact on the

defence and security budgets of Member States, as it led to a (at least partial)

reversion of the trend of budget reductions. One Member State also maintained that

the worsening security situation can entail consequences on the application of the

Directive, as the need for urgent procurement of military equipment in crisis situation

can become more important. Another Member State highlighted in this regard that the

provisions of the Directive on exclusions and the negotiated procedure without prior

160

161

162

163

European Council conclusions of December 2013, paragraph 17.

Council conclusions on CSDP, 18 May 2015, paragraph 27.

See, for example, European Parliament resolution of 21 May 2015 on the impact of developments in

European defence markets on the security and defence capabilities in Europe, P8_TA(2015)0215,

paragraph 28,

http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P8-TA-2015-

0215&language=EN.

ASD reply to the online survey.

104

publication of a contract notice should be sufficient to allow contracting authorities to

face urgent or crisis situations.



The financial crisis which exacerbated the already existing trend towards significant

reductions of defence budgets, and especially of defence procurement budgets.

According to ASD’ reply to the online survey, “it

is fair to assume that this hampered

European cooperation and the openness of national markets to EU-wide competition”.

A similar comment was made by a Member State in a consultation meeting. Member

States and stakeholders also pointed out that budgetary constraints had a more direct

impact on the uptake of the Directive: they led to cancellation or postponement of new

defence procurement programmes. Such a trend implied a greater focus on

maintenance, overhaul, and life-extension contracts for existing equipment, which

often need to be awarded to original contractor. In general, the significant decrease in

budgets and number of procurements limited the ability of the Directive to change the

market. One Member States emphasised that, as a result of budgetary constraints, the

market for used equipment has become more important and the implications on the

functioning of the Directive should be assessed.



An emerging consensus in the EU on the need to maintain an appropriate level of

strategic autonomy. A number of stakeholders pointed out that it is in Europe’s

strategic interest to maintain technological and industrial means to develop and sustain

certain indispensable defence capabilities. No Member State can afford to sustain the

full spectrum of these means individually. Member States should therefore identify

together the key defence capabilities for which they want to maintain or develop the

necessary technological and industrial means. In order to avoid unnecessary

duplication, these decisions should be based on a common assessment of Europe’s

security interests

164

. This can also have an impact on Member States procurement

needs and strategies, and therefore on the application of the Directive.



Although concrete progress is still very limited, Member States and stakeholders see

as a relevant development that there is increasing awareness at all levels on the need

for more defence cooperation in Europe, and in particular for more cooperative

procurement. Some Member States pointed out in particular that nowadays there is a

greater focus on common/joint procurement of off-the-shelf equipment, rather than on

the establishment of new cooperative programmes for the development of new

products. This is deemed to be a consequence of budgetary constraints. The link

between cooperation and the Directive is further addressed under “Coherence” in

paragraph 6.4.5. below.



Several Member States and some stakeholders mentioned the adoption of the new

civil procurement Directives as a relevant development. For example, ADS Group, in

its reply to the online survey, stated that “best

practice in public procurement has

further developed since the adoption of the Directive”,

which “does

not allow for the

full range of procurement techniques currently available”.

They argued that the new

civil procurement Directives are more efficient and streamlined. This issue is assessed

in more details under “Coherence” in Section 6.4.2.

164

Replies to the online survey by ASD, MBDA, and ADS UK.

105

6.3.3. Conclusions on relevance

The objectives of the Directive

- i.e. to support the establishment of an open and

competitive EDEM by increasing the application of competitive tendering procedures in

defence procurement and thus limiting the use of exemptions such as Article 346 TFEU –

are still fully relevant

(Evaluation Question 6). As shown under effectiveness,

significant progress towards these objectives has been made thanks to the Directive, but

much more work on the implementation is needed. The whole rationale and needs that

led to the adoption of the Directive thus remain relevant.

All this is supported by a broad consensus among Member States and stakeholders.

Statements made by the European Council and Council in recent years also confirm

Member States’ support for the objectives of the Directive and their relevance.

In response to Evaluation Question 7, it emerged that there have been a number of

developments (deteriorating security situation, budgetary constraints, emerging

consensus on the need of strategic autonomy and more cooperation, new legal framework

for civil procurement) that needs to be taken into account. However, none of these

developments put into question the relevance of the objectives of the Directive.

6.4.

Coherence

The evaluation of coherence involves looking at how well or not different components of

an intervention (i.e. different provisions of the Directive) and different actions work

together. This part of the analysis relies on the open public consultation, the

complementary stakeholders' consultation, and desk research.

6.4.1. Internal coherence

Checking internal coherence means looking at how the various internal components of

the intervention (i.e. the different provisions of the Directive) operate together to achieve

its objectives.

The Commission departments have not identified problems related to lack of coherence

between the different provisions of the Directive. The structure of the Directive follows,

albeit with a number of specificities, the general approach of EU public procurement

legislation that has been developed and tested over several years. These findings have

been confirmed by stakeholders: no internal coherence problems have been raised in the

context of the open public consultation or the complementary stakeholders consultations.

It is widely considered that the subcontracting provisions of the Directive (Articles 21

and 50 to 53) have not achieved their objectives. This is addressed above under

effectiveness (see: Section 6.1.4.6). With this exception, a broad consensus among

Member States and stakeholders emerged on the fact that

the provisions of the Directive

are generally fit for purpose. The focus needs to be on their effective

implementation and application.

6.4.1. Coherence with the framework of EU public procurement law

To what extent is the Directive coherent with the framework of EU Public

Procurement law and of internal market legislation and policies related to

defence (e.g. Directive 2009/43/EC)?

Evaluation question (8):

106

The framework of EU public procurement law, based on the principles of the Treaties,

consists of several legislative instruments. The Directive, which lays down rules on the

coordination of procedures for the award of contracts in the fields of defence and

sensitive security, is one of these instruments. To assess coherence, it is necessary to look

at the interplay between the Directive and the other components of the EU

acquis

in the

area of public procurement. This is particularly important since the main part of the

acquis

(the civil procurement Directives) has been reformed in 2014.

6.4.1.1. Delimitation of scope

The first key issue that should be looked at with regard to the coherence of the Directive

with the other elements of EU public procurement law are the rules on the applicable

piece of legislation.

Article 2 of the Directive, jointly red with Article 1(6) to (8), defines the contracts that

fall within the scope of the Directive. These provisions are based on the notions of

military equipment (i.e. equipment specifically designed or adapted for military

purposes), works and services for specifically military purposes, and sensitive equipment,

works and services (i.e. for security purposes, and involving, requiring and/or containing

classified information). This is consistent with the overall approach underlying the

Directive: military contracts and contracts in the field of non-military security, which

have features similar to those of defence procurement and are equally sensitive, should

only be subject to the specific defence and security procurement regime. The civil

procurement Directives do not apply to such contracts

165

. All other contracts should fall

within the scope of the civil procurement Directives. Although there might be

“borderline” cases in particular circumstances, the delimitation of scope between the

different procurement regimes appear to be effective.

This question has been asked in the online survey. The majority (58%) of contracting

authorities respondents “agreed” or “strongly agreed” that the distinction between the

scope of application of the Directive and that of the civil procurement Directives is

“sufficiently clear”. The proportion of positive replies was lower among business

respondents: 36% agreed or strongly agreed, while 24% disagreed. Out of the four

citizens that replied to the online survey, only two replied to this question and both

agreed that the distinction is clear. However, it should be noted that the clarity of the

applicable piece of legislation is a more immediate concern for contracting authorities,

which have to make such a determination before launching a tendering procedure.

During a meeting on the evaluation

166

, the majority of Member States’ experts that

intervened took the view that the existing provisions on the distinction of the scope of the

Directive with that of the civil procurement Directives are satisfactory. However, one

Member State’s expert argued that identifying the applicable Directive is one of the most

complex issues they are confronted with. He argued that it would be preferable to have a

system based on scope

ratione personae:

a list of contracting authorities/entities that only

165

166

Article 15 of Directive 2014/24/EU, Article 24 of Directive 2014/25/EU.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

107

have to use the rules of the (defence procurement) Directive. This proposal was

supported by another Member State’s expert.

6.4.1.2. Choice of procedures

A relevant aspect is the choice of contract award procedures that are available under the

Directive (restricted procedure, negotiated procedure with publication of a contract

notice, competitive dialogue, and negotiated procedure without publication of a contract

notice) and the conditions for their use.

Article 25 of the Directive leaves contracting authorities free to choose whether to apply

the restricted procedure or the negotiated procedure with publication of a contract notice.

Contrary to the civil procurement Directives, the (defence procurement) Directive does

not allow for the use of the open procedure. At the time of the proposal for the Directive,

the reason for excluding the open procedure was that it involves distributing the

specifications to any economic operator that wants to see them and this was deemed to be

inappropriate in view of the confidentiality and security of information requirements

attached to the contracts in question

167

. This approach was then confirmed by the

legislator. No new elements calling into question the validity of this choice have emerged

in more recent years.

According to Article 27 of the Directive, the competitive dialogue may be used in the

case of particularly complex contracts where the use of the restricted procedure or the

negotiated procedure with publication of a contract notice would not allow the award of

the contract. The new civil procurement Directive defined the conditions for the use of

the competitive dialogue in greater detail

168

. However, this does not seem to create

inconsistencies that would have an impact on the functioning of the Directive. Article 28

of the Directive lays down the conditions for the use of the negotiated procedure without

publication of a contract notice. These conditions appear to be fully consistent with the

case law of the Court of Justice, and they are largely similar to those defined in the new

civil procurement Directives

169

Stakeholders, according to the replies to the online survey, seem to consider rather

appropriate the existing provisions of the Directive on the choice of procedures and the

conditions for their use. 48% of respondents among contracting authorities consider that

these provisions provide them with enough flexibility, and only 12% took the opposite

view. Businesses replies on whether the rules on tendering procedures under the

Directive are appropriate to ensure equal treatment and transparency are more mixed:

27% agree, and 24% disagree. Indications based on stakeholders meetings seem to show,

however, that this businesses’ perception has more to do with the limited uptake and

application of the Directive, than with specific problems with the rules of the Directive.

During a meeting on this evaluation

170

, Member States experts expressed their full

satisfaction with the rules of the Directive on the choice of contract award procedures.

They praised in particular the possibility of using the negotiated procedure with

167

168

169

170

Commission proposal, p. 7.

Article 26(4) of Directive 2014/24/EU.

Article 32 of Directive 2014/24/EU and Article 50 of Directive 2014/25/EU.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

108

publication of a contract notice, which they consider to be particularly suited for defence

and sensitive security procurement, without the need to provide justification.

A few Member States experts, however, raised the issue of the non-availability of the

open procedure. They argued that it would be useful to have the possibility to use this

procedure for certain non-sensitive military purchases under the Directive. A similar

point was made by some Member States in the written contributions to the open public

consultation. Belgian Defence Staff argued that contracting authorities should have the

possibility to choose for an open procedure; there are exceptional cases where an open

procedure would be preferred. Another Member State also explicitly argued, in its

written contribution to the open public consultation, for the introduction of the open

procedure; this would be more appropriate for the award of non-sensitive military

contracts where the use of a two-step procedure (the restricted procedure) would be “a

waste of time”

for all parties involved in the procurement procedure.

In its reply to the online survey, Transparency International suggests that transparency of

defence and security purchases would be enhanced through the use of open procedures.

In a stakeholder consultation meeting, industry representatives took a different view on

the issue of the open procedure. They argued that the use of open procedures for

procurement in the fields of defence and sensitive security would not be appropriate.

They maintained that the existing rules on the choice of procedures are best suited for

these specific sectors.

6.4.1.3. The new civil procurement Directives

In February 2014, the European Parliament and Council adopted three new Directives in

the field of public procurement: Directive 2014/23/EU on the award of concession

contracts, Directive 2014/24/EU on public procurement, and Directive 2014/25/EU on

procurement by entities operating in the water, energy, transport and postal services

sectors. Directives 2014/24/EU and 2014/25/EU replace and repeal, respectively,

Directives 2004/18/EC and 2004/17/EC which constituted the “civil” public procurement

legislation at the time when the (defence procurement) Directive was proposed,

negotiated and adopted. Although with significant adaptations to take into account the

specificities of defence and sensitive security procurement, the content of the (defence

procurement) Directive is largely modelled after the provisions of Directive 2004/18/EC.

As explained in the Commission’s proposal for the new civil procurement Directives, the

reform had two main objectives: i) simplifying the existing rules (dating back to 2004)

and increasing their flexibility; ii) enabling procurers to make better use of public

procurement in support of common societal goals such as protection of the environment,

energy efficiency, combating climate change, promoting innovation, and employment

and social inclusion

171

The (defence procurement) Directive already provides for more flexible rules, in

particular the possibility to use the negotiated procedure with publication of contract

notice as default procedure. In addition, given the specificities of the defence sector, the

need for specific rules enabling national authorities to use public procurement in support

of broader non-defence related societal policies appear to be less relevant.

171

Commission proposal, COM(2011) 896 final, p. 2.

109

A technical issue should also be mentioned here. In order to comply with the new civil

procurement Directives, it was necessary to adapt the previous standard forms for the

publication of notices. Hence, the Commission adopted Implementing Regulation

2015/1986 establishing updated standard forms for the publication of notices in the field

of public procurement

172

. The introduced changes reflect the requirements of the new

civil procurement Directives, and also involve some improvements to the previous

standard forms. Since the (defence procurement) Directive was not amended, the

Implementing Regulation left the corresponding standard forms unchanged. It should be

added that a more substantial exercise for the revision of the standard forms, including an

overhaul of the IT system of OJ/TED, and seeking to introduce more structural changes

and improvements, is planned for later, possibly in 2018. For overall coherence, better

functioning of the system, and the ease of users, this future exercise is likely to involve

all standard forms, including those provided for by the (defence procurement) Directive.

The issue of coherence between the (defence procurement) Directive and the new civil

procurement Directives was raised and discussed in the context of the consultations.

Two Member States argued, in their reply to the online survey, that it would be

appropriate to consider amending the Directive to align it to the innovations introduced in

the civil procurement Directives. The Dutch Ministry of Economic Affairs specifically

wrote that it would be worth to investigate if the procedure of innovation partnership in

the new civil procurement Directive would have an added value for defence and security

procurement.

During a meeting on the evaluation

173

, one Member State argued that it would be useful

to consider the inclusion in the Directive of certain innovations of the new civil

procurement Directive such as: the codification of in-house and public-public exclusions,

the new exclusion on rescue services, the innovation partnership, the changes to

exclusion grounds and the introduction of self-cleaning mechanisms, the rules on

modification of contracts, and certain elements of electronic procurement. Some other

Member State argued, more generally, that any additional flexibility and simplification

stemming from the recent changes would be useful to consider. One Member State

specifically questioned the possibility to integrate in the context of defence the new

provisions on the mandatory use of electronic procurement.

In its written contribution to the open public consultation, a Member State strongly

argued that the focus should be on application of the Directive rather than its revision.

Reopening it would imply significant legislative work for only marginal improvements

of the text; in addition, it would shift the focus away from application and

implementation also at national level, with time and resources needed to draft and adopt

new implementation measures and additional time for contracting authorities/entities to

become familiar with the revised rules.

172

173

Commission Implementing Regulation (EU) 2015/1986 of 11 November 2015 establishing standard

forms for the publication of notices in the field of public procurement and repealing Implementing

Regulation

(EU)

842/2011,

http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=uriserv%3AOJ.L_.2015.296.01.0001.01.ENG.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

110

Industry stakeholders did not identify any change introduced by the new civil

procurement Directives that would be useful or appropriate in the context of defence

procurement. In their view, the new rules need be tested in the civil market before

considering if - and to what extent - some of them should be carried over to the defence

procurement framework. One national industry association also addressed this in its

written contribution to the open public consultation: they do not consider appropriate to

amend the Directive in order to integrate the novelties of the new civil procurement

Directives.

Some stakeholders also raised a more technical issue relating to the new civil

procurement Directives: the (defence procurement) Directive contains several references

to Directives 2004/18/EC and 2004/17/EC that have been repealed from 18 April 2016. It

should be pointed out that this issue is, in fact, addressed by the new civil procurement

Directives through Articles 91 of Directive 2014/24/EU and 107 of Directive

2014/25/EU. Pursuant to these provisions, references to the repealed civil procurement

Directives shall be construed as being made to the new civil procurement Directives and

shall be read in accordance with the correlation tables in Annexes XV (Directive

2014/24/EU) and XXI (Directive 2014/25/EU).

To summarise, the evaluation did not identify any inconsistency between the Directive

and the innovations introduced with the new civil procurement Directives. This is also

the case for the new civil procurement Directives’ provisions on electronic procurement;

Member States are free to use electronic procurement methods in the fields of defence

and security, but it does not seem appropriate at this stage to introduce obligations at EU-

level to do so. Furthermore, as the conclusions on effectiveness show, there is a need to

strengthen the effective implementation of the Directive in order to increase its uptake

and consistent application; this requires a stable legal framework. For these reasons, and

in line with the overall indications from Member States and stakeholders it seems that

amending the Directive in order to introduce the innovations of the new civil

procurement Directives is not necessary or appropriate at this stage.

6.4.2. Directive 2009/43/EC

Directive 2009/43/EC, which seeks to simplify the rules and procedures applicable to the

intra-EU transfer of defence-related products, was proposed, negotiated and adopted in

parallel with the (defence procurement) Directive as part of the so-called “defence

package”. These are two different legal instruments, each one with its own operational

objectives and specific sets of rules, and each one building on distinct areas of the

acquis.

There is no specific inconsistency between the legal provisions of the two Directives.

However, problems with the application of Directive 2009/43/EC can have a direct

impact on the uptake of the (defence procurement) Directive. When procuring defence

related products from suppliers established in another Member States, contracting

authorities often have to consider the risks that the authorisation for the transfer of the

purchased equipment, as well as for the supplies needed for in-service support along its

life-cycle, will be refused or excessively delayed. In this context, Member States

sometimes use risks related to the transfer authorisations as arguments for the non-

application of the (defence procurement) Directive on the basis of Article 346 TFEU.

111

A number of Member States’ experts, during a meeting on the evaluation

174

, highlighted

the importance of the link with Directive 2009/43/EC. They stressed that the effective

implementation of Directive 2009/43/EC is a key enabler for cross-border trade and for

the full uptake of the (defence procurement) Directive. The importance of the effective

implementation of Directive 2009/43/EC for cross-border procurement has been

highlighted by industry representatives as well in consultation meetings and in replies to

the online survey.

Directive 2009/43/EC has also been subject to evaluation, and a number of steps aimed at

improving its application have been taken and/or proposed.

6.4.3. CSDP and a European capabilities and armaments policy

Evaluation question (9):

How does the Directive fit into the framework of other EU instruments and

policies in particular in the area of CSDP?

According to Article 42(3) TEU, as part of the Common Security and Defence Policy

(CSDP), “Member

States shall undertake progressively to improve their military

capabilities”.

One of the tasks of the European Defence Agency is to “participate

defining a European capabilities and armaments policy”.

The Impact Assessment for the Directive presented the Commission’s initiatives to

support the establishment of an EDEM as complementing Member States’ efforts to

develop military capabilities and, through EDA, to harmonise military needs, pool

research efforts and foster European armaments cooperation

175

Several stakeholders highlighted that, without progress towards such a European

capabilities and armaments policy, the Directive can contribute only to a very limited

extent to the competitiveness of the EDTIB. ASD, in its reply to the online survey,

stressed that there is “a

fundamental and structural handicap of the Directive, which is

the weakness of CSDP and the absence of a common European armaments policy. The

more Member States agree on common capability needs and an industrial strategy to

address these needs, the more market openness will become a reality. This would also

pave the way for new cooperative projects, which we believe are the best means to

establish sustainable and competitive cross-border supply chains”.

Similar points have

been made by other industry representatives in replies to the online survey and in a

stakeholder meeting

176

6.4.4. Cooperation in defence procurement

In recent years, Member States, EU institutions and stakeholders have repeatedly and

unanimously stressed the importance of strengthening European defence cooperation,

including in the field of procurement.

174

175

176

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

The Impact Assessment, p. 5.

Minutes of 18 February 2016 meeting of the Commission’s governmental expert group on defence and

security procurement.

112

The European Council, in its conclusions of December 2013, stated that “cooperation

the area of military capability development is crucial to maintaining key capabilities,

remedying shortfalls and avoiding redundancies. Pooling demand, consolidating

requirements and realising economies of scale will allow Member States to enhance the

efficient use of resources and ensure interoperability, including with key partner

organisations such as NATO. Cooperative approaches whereby willing Member States

or groups of Member States develop capabilities based on common standards or decide

on common usage, maintenance or training arrangements, while enjoying access to such

capabilities, will allow participants to benefit from economies of scale and enhanced

military effectiveness”

177

. In June 2015, the European Council recalled the need for

“fostering

greater and more systematic European defence cooperation to deliver key

capabilities”.

The Bratislava Declaration of 16 September 2016 sets out the objective of

strengthening EU cooperation on external security and defence, and provides that the

European Council should look at how to make better use of the options in the Treaties,

especially as regards capabilities

178

In his political guidelines of July 2014, President Juncker stated: “Member

States should

also create more synergies in defence procurement. In times of scarce resources, we need

to match ambitions with resources to avoid duplication of programmes. More than 80%

of investment in defence equipment is still spent nationally today in the EU. More

cooperation in defence procurement is therefore the call of the day, and if only for fiscal

reasons”

179

. In the State of the Union speech of 14 September 2016, President Juncker

also stressed that defence cooperation should be strengthened, in particular by moving

towards common military assets, establishing a European Defence Fund and using the

permanent structured cooperation to pool Member States’ capabilities

180

Participants at a stakeholder consultation meeting

181

agreed on the importance of

cooperation and recognised that it is more necessary than ever to face increased

challenges and budgetary constraints. They recalled that there are two complementary

routes to create an integrated market: cooperation and competition, and recognised that

the approach in the Directive is consistent with this. For complex systems in particular,

cooperation is definitely the best way forward. Cooperation is also important to bring in

the industry from smaller Member States.

Some specific examples of defence cooperation in procurement are mentioned in Recital

28 of the Directive. This Recital refers to cooperative programmes managed by

international organisations such as OCCAR or NATO (via specific agencies) and by

agencies of the EU, such as the EDA. As an example of the role played by these

organisations, OCCAR currently manages 13 programmes with a total operational budget

of 3.1 billion EUR in 2016.

It follows from the above that, from the point of view of coherence, it is important that

the Directive does not hinder cooperation in defence procurement.

177

178

179

180

181

European Council conclusions of December 2013, paragraph 10.

http://www.consilium.europa.eu/en/press/press-releases/2016/09/16-bratislava-declaration-and-

roadmap/.

http://ec.europa.eu/priorities/sites/beta-political/files/juncker-political-guidelines_en.pdf.

http://ec.europa.eu/priorities/state-union-2016_en.

Minutes of 22 February 2016 meeting with industry organised by ASD.

113

Indeed, the Directive was designed to enable Member States to pursue cooperative

procurement in different forms. The main features of the Directive that are relevant in

this context are:

– According to Article 13(c), contracts awarded in the framework of multinational

cooperative programmes for the development of new products, based on Research &

Development (R&D), are excluded from the Directive. This exclusion covers both

R&D services and the purchase of the final products developed in the cooperative

programme. Cooperative programmes under this exclusion must involve at least two

Member States and can also include third countries. Member States with smaller

defence budgets can participate in cooperative programmes covered by this exclusion,

because the size of individual contributions is not a decisive factor

182

– With regard to existing products (off-the-shelf procurement), Member Stated can

organise common or joint procurement in compliance with the contract award

procedures of the Directive, either via a lead nation or through central purchasing

bodies in the sense of Article 10 of the Directive.

– The exclusions on government-to-government sales (Article 13(f)) and on

international organisations (Article 12(c)) can also be relevant in the context of

cooperation.

The Commission departments discussed this issue with Member States’ experts

183

. At

this meeting, one Member State’s expert presented his experience and explained that the

Directive offers all the flexibility that is needed to pursue cooperative projects. It is

sufficient to look carefully at all the possibilities contained in the Directive and add no

extra condition at national level. Defence cooperation requires a number of important and

challenging pre-conditions (e.g. political will, alignment of budgetary cycles, and

harmonisation of requirements). The Directive is not the problem in this context. All

Member States’ experts that intervened at the meeting essentially agreed that the

Directive is not an obstacle hindering cooperation; there are much more significant

challenges in this area.

The EDA assessed the impact of the Directive on cooperation, and discussed the issue

with Member States at expert and National Armaments Directors level. The general

result of these discussions was that no direct obstacle, nor incentive on cooperation

seems to be stemming from the Directive, especially on topics analysed in depth such as

off-the-shelf procurement and barter. EDA concluded that if Member States do not

cooperate in defence procurement, this may be due to a number of other elements (e.g.

defence budget cuts, lack of harmonisation of requirements), but not in particular to the

Directive

184

In its written contribution to the open public consultation, a Member State argued that the

provisions of the Directive that are relevant for cooperation apply to situations where

182

183

184

Guidance

note

Exclusions,

paragraph

17,

http://ec.europa.eu/DocsRoom/documents/15408/attachments/1/translations/.

Minutes of 27 May 2015 meeting of the Commission’s governmental expert group on defence and

security procurement.

EDA document, “Impact of Defence and Security Procurement Directive 2009/81/EC on

Cooperation”.

114

Member States decided to cooperate from the beginning. They do not seem to be

applicable in cases in which a Member State would envisage to start converging towards

capabilities already owned by another Member State. On this point, the contribution

concluded that a flexible application of Article 28 of the Directive could facilitate

cooperation in such scenarios.

A defence company who responded to the online survey stated that “cooperation

between

Member States should be clearly incentivised at both regulatory and financial levels.

Moreover, new genuinely European schemes of cooperation need to be considered under

the Directive beyond the classical one already covered by the Directive. More flexibility

should be introduced”.

6.4.5. Conclusions on coherence

In terms of consistency between the different provisions of the Directive,

no issue has

emerged from the consultations or from the technical analysis carried out by the

Commission departments.

The Directive’s consistency with the framework of EU public procurement law has also

been analysed (Evaluation Question 8). There are

no problems of consistency with the

other instruments of EU public procurement law,

including the new civil procurement

Directives. In this context, the question of whether (some of) the innovations introduced

by the new civil procurement Directives should be rolled over to the (defence

procurement) Directive attracted the particular attention of Member States and

stakeholders, who have rather mixed views on the issue. The evaluation concluded that

the innovations of the new civil procurement Directives do not create coherence

problems with regard to the existing text of the (defence procurement) Directive.

Finally, the evaluation found

no specific inconsistency between the legal provisions of

the Directive and those of Directive 2009/43/EC.

To answer Evaluation Question 9, the issue of cooperative procurement was assessed.

The Directive already recognises the importance of this aspect and seeks to enable

Member States to pursue cooperative procurement in different forms. Based on

discussions with Member States experts, the stakeholders consultations, and a specific

contribution from the EDA, it can be concluded that

the Directive does not hinder

cooperative procurement.

6.5.

EU added value

What has been the EU added value of the Directive compared to what could

have been achieved by Member States at national (or regional) level (is the

principle of subsidiarity respected)?

Evaluation question (10):

The Impact Assessment looked into the question of whether the EU was the best suited to

act. It stated that the widespread use of the exemption from EC law in the field of

defence and sensitive security procurement is incompatible with the Treaty and the case

115

law of the Court of Justice. It concluded the EU was not only the best suited, but the only

possible actor to address this problem

185

This assertion remains, from a legal standpoint, fully relevant today. It is clear that only

EU action can tackle the issue, i.e. the non-application of EU public procurement rules,

hindering the establishment of a common European defence equipment market and

leading to non-compliance with the Treaty’s principles. However, the analysis of the EU

added value for this evaluation can go beyond these legal arguments.

As shown above in Section 6.1.5, the Directive has led to a significant increase in the

value of defence contracts published EU-wide and awarded through fair and competitive

tendering procedures. This means that competition, transparency and non-discrimination

in the defence procurement market in Europe have all improved as a result of the

Directive. As demonstrated in Section 6.2.4, the savings generated by the Directives are

likely to exceed the costs of running the procedures for public authorities and firms,

nearly by a factor of nine (i.e. 89 million EUR of costs of procedures, compared to 770

million EUR of savings). If the uptake of the Directive further increased in the future,

these results would be even more significant.

The EU-level coordination of procedures for public procurement above certain thresholds

has proven to be an essential tool to ensure effective and equal access to public contracts

for businesses across the Single Market. This could not be achieved through Member

State action which would inevitably result in diverging requirements and possibly

conflicting procedural regimes increasing regulatory complexity and causing

unwarranted obstacles for cross-border activities.

In the absence of a specific EU regime for defence and sensitive security procurement,

the increased use of transparent, fair and competitive tendering procedures, and the

corresponding decrease in the use of exemptions, would not continue and might even be

reversed.

In reference to Evaluation Question 10, it can, therefore, be concluded that the Directive

has a

clear EU added value

and continues to comply with the principle of subsidiarity.

ONCLUSIONS

This evaluation analysed the Directive against five criteria: effectiveness, efficiency,

relevance, coherence and EU added value.

As to

effectiveness,

it can be concluded, taking into account the short time elapsed

between its actual transposition in Member States and the last year of the reference

period of this evaluation (2015), that the Directive has partially achieved its objectives

concerning the European defence equipment market. It has led to an initial increase of

competition, transparency, and non-discrimination, and to a corresponding decrease in

the use of exemptions. However, the uptake of the Directive, and therefore the degree of

increase in competition, transparency and non-discrimination, remains uneven across

Member States. Furthermore, a very significant share of defence procurement

expenditure is still done outside EU public procurement rules, which in turn, affects the

185

The Impact Assessment, p. 31.

116

efficiency of the Directive. Besides the short time since actual transposition by Member

States, the main reasons are thought to be: the fact that exemptions, including Article 346

TFEU, appear to be still subject to an overly broad interpretation that does not restrict

their use to truly exceptional cases as required by the case law of the Court of Justice.

This factor probably is especially relevant to explain the very limited use of the Directive

for the procurement of strategic equipment and complex systems. Moreover, a significant

share of defence procurement expenditure may have been spent on contracts awarded in

the framework of cooperative programmes started well before the adoption of the

Directive. Finally, the financial crisis may have led to the cancellation or postponement

of new major procurement projects to be implemented under the Directive.

The provisions of the Directive designed to address the specific needs of defence

procurement (e.g. exclusions, security of information, and security of supply) have

proven to be appropriate and do not need to be amended. The analysis conducted on the

position of Europe’s defence industry, based on the available data, shows that it is

difficult to conclude that the overall size, structure, and shape of the EDTIB has

fundamentally changed in the period 2011-2015. As confirmed by Member States and

stakeholders feedback in the consultations for this evaluation, it must be concluded that it

is impossible at this stage to establish any causal link between the effects of the Directive

and developments in the EDTIB.

The specific, optional, subcontracting provisions of the Directive have not been used by

Member States’ contracting authorities as they are seen by them as ineffective. Although

this does not undermine the application and functioning of the Directive, it does mean

that the aim of providing additional opportunities to sub-suppliers and SMEs by injecting

competition into the supply chains of prime contractors has not been achieved.

In light of the estimations of costs and savings, and given that the impact on

administrative burden is negligible, the evaluation has demonstrated that overall the

Directive is broadly

efficient.

Further work aimed at ensuring a greater and more

consistent use of the Directive by Member States would also result in increasing the

savings and, therefore, further enhancing its efficiency.

The objectives of the Directive are still fully

relevant.

So is the whole rationale that led

to the adoption of the Directive.

The evaluation has not identified any inconsistency or other

coherence

problems

between the different provisions of the Directive, with the other elements of EU public

procurement legislation, or with other EU instruments and policies (e.g. Directive

2009/43/EC).

The Directive, therefore, has a clear

EU added value

and continues to comply with the

principle of subsidiarity.

Results from the evaluation, including an overall consensus among Member States and

stakeholders, concur that the

text of the Directive is broadly fit for purpose and that

amending the Directive is not necessary.

There is

a strong need to focus on its

effective implementation.

This requires, among other things, a stable legal framework.

Follow-up actions should therefore aim at supporting the Directive’s effective

implementation, including through soft law instruments such as guidance on the

application of specific provisions, as well as ensuring compliance by Member States.

Planned actions to improve the functioning of Directive 2009/43/EC on transfers of

117

defence-related products should also have a positive impact on the effective

implementation of the Directive

186

See the Report on the evaluation of Directive 2009/43/EC simplifying terms and conditions of

transfers of defence-related products within the Community, and the accompanying SWD.

118

NNEXES

Annex I – Procedural information

The lead department for this evaluation was the Directorate-General for Internal Market,

Industry, Entrepreneurship and SMEs (DG GROW) of the European Commission. In

particular, the evaluation has been carried out by Unit G3 (Procurement Legislation and

Enforcement) and Unit 01 (Economic Analysis).

The evaluation was included in the Commission’s Agenda Planning (2016/GROW/031),

which is the programming tool for the most important policy initiatives to be adopted by

the Commission

187

As per the Better Regulation Guidelines on evaluations, an inter-service steering group

(ISG) was set up to follow and steer the whole process

188

. The ISG for this evaluation

involved people from the following Commission’s departments: Unit G3 (Procurement

Legislation and Enforcement), Unit 01 (Economic Analysis), Unit G4 (Innovative and e-

procurement) and Unit I4 (Defence, Aeronautic and Maritime Industries) of DG GROW;

Unit C1 (Evaluation, Regulatory Fitness and Performance) and Unit D2 (Internal Market

and Competitiveness) of the Secretariat-General; Unit B4 (Innovation and Industry for

Security) of the Directorate-General Migration and Home Affairs. The ISG was

established in February 2015 and was involved – through three meetings

189

and several

written exchanges – in the whole process from the drafting of the evaluation roadmap

190

to the finalisation of the Staff Working Document.

With regard to the evidence used for the evaluation, the analysis presented in this

document was based on several data sources, in particular: notices published in OJ/TED,

EDA, NATO, IHS Jane’s Defence & Security Intelligence database and Eurostat, as well

as consultations with Member States and stakeholders (including a public on-line

survey). For more details on the methodology and the use of different sources, see Annex

III.

This was an internal evaluation, i.e. it was entirely carried out by the Commission

departments and did not rely on a study from an external contractor. However, the

evaluation drew on external expertise through the use of two Commission expert

groups

191

and through specific consultation meetings with stakeholders. For more details,

please see Annex II.

Annex II – Stakeholder consultations

The consultations for the evaluation have been designed to reach all potential

stakeholders as well as the general public, and to deepen the engagement with more

directly involved stakeholders and experts. In the area at stake (defence and security

187

188

189

190

191

http://ec.europa.eu/atwork/planning-and-paring/index_en.htm

http://ec.europa.eu/smart-regulation/guidelines/ug_chap6_en.htm

9 February 2015, 19 June 2015, 2 September 2016.

http://ec.europa.eu/smart-

regulation/roadmaps/docs/2016_grow_031_evaluation_defence_procurement_en.pdf

The governmental Expert Group on Defence and Security Procurement and the Advisory Expert

Group on cross-border access for SMEs to defence and security contracts.

119

procurement), there are two key categories of stakeholders that are directly impacted by

the Directive: Member States’ contracting authorities (the buyers) operating in the

defence and security sectors, and the suppliers (defence and security companies and

business associations as their representatives). Other categories of stakeholders also

include: public authorities other than MoD and procurement authorities; other companies

and businesses associations; social partners; NGOs; consultants including lawyers;

academics; citizens.

In the light of this, the consultations included an internet-based public consultation

(online survey) and complementary consultation meetings with key stakeholders to

gather detailed inputs, expert advice, as well as data and technical information.

The below description presents summary of obtained opinions, and the detailed Factual

summary available on the web page of DG GROW

192

provides more detailed technical

information on the carried out consultations.

Online survey (public consultation)

The open public consultation has been carried out between 11 April and 8 July 2016

(13 weeks). This has been based on an online survey published on the 'Your Voice in

Europe' portal:

http://ec.europa.eu/yourvoice/consultations/.

To better target potential

respondents, the survey has been carried out through three questionnaires, separately

directed for: 1) contracting authorities/entities and other public authorities, 2) businesses

and business associations, 3) the general public (other stakeholders and citizens).

Additionally the respondents were invited to attach free text files in which may possibly

further elaborate their views. The questions of the online survey were put in English, but

answers to the open questions and uploaded contributions in any of the official languages

of the EU have been accepted and taken into account in the evaluation.

This online survey aimed at giving to all potential stakeholders an opportunity to

respond. Hence, all citizens, public authorities, businesses, and other stakeholders were

welcome to respond to it. The news about the online survey, together with the relevant

links and background information, were published with high visibility on the webpage of

the Commission department responsible for this evaluation

193

. Contributions have been

particularly sought – including via direct mailings - from respondents which have an

interest and/or expertise in public procurement in the fields of defence and security

194

In quantitative terms, the response rate to the online survey has been rather limited (70

replies), which can probably be explained by the restricted number of key stakeholders

and the technical nature of the topic. There have been thirty-three respondents among

contracting authorities/entities and other public authorities, thirty-three respondents

among businesses and business associations, and four respondents from the general

public (two academics, one NGO, and one citizen). Out of the thirty-three respondents

from industry, sixteen were business associations that presumably participated in the

online survey representing the views of several individual companies.

192

193

194

http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8675.

http://ec.europa.eu/growth/single-market/public-procurement/rules-implementation/defence_en.

Several direct mailings have been made to invite stakeholders and experts to reply to the consultation.

For more details, see: Annex II.

120

Meetings with key stakeholders

The open public consultation based on the online survey has been complemented by the

following targeted consultation activities seeking inputs by the key stakeholders

identified above:



Meetings with Member States’ experts via the Commission’s Governmental Expert

Group on defence and security procurement. This group includes experts from all 28

Member States and EEA countries, mainly but not exclusively from Ministries of

Defence

195



Meetings with industry organised by the AeroSpace and Defence Industries

Association of Europe (ASD) and involving several representatives of defence and

security companies and national business associations

196



With specific regard to the situation of SMEs, consultation with Member States and

industry experts has also taken place in the Commission’s Advisory Expert Group on

cross-border access for SMEs to defence and security contracts

197

These extensive meetings have been effective tools for in-depth discussions with a

comprehensive and balanced set of key stakeholders. The discussions, based on detailed

sets of questions prepared by the Commission departments, covered all relevant aspects

of the Directive and have been centred around the evaluation questions as set out in the

Evaluation Roadmap.

Beyond the above, the Commission departments at all the above fora declared its

openness to the direct bilateral meetings with all interested stakeholders. A will to have a

meeting related to the evaluation of the Directive was expressed by German Ministry of

Defence and the French Aerospace Industries Association (Groupement des industries

françaises aéronautiques et spatiales – GIFAS).

Summary of opinions expressed within consultations

In summary the stakeholders expressed the below views, presented in order of evaluation

questions. The most comprehensive presentation of the opinions expressed by the

stakeholders is included in the text of the

Commission Staff Working Document -

Evaluation of Directive 2009/81/EC on public procurement in the fields of defence and

security.

The technical information on consultations is summarised in the document

Stakeholder consultations - Factual summary

198



Transparency

According to the public consultation outcome, in the perception of industry, the Directive

improved to a limited extent market access and business opportunities: 36% of

195

196

197

198

The meetings dedicated to the evaluation of the Directive took place on 18 February and 14 July 2016.

The membership of ASD consists of 14 European Aerospace and Defence Companies and 26 National

Associations in 19 countries:

http://www.asd-europe.org/about-us/structure/asd-members/.

The

meetings took place on 22 February and 3 May 2016.

The meeting on the evaluation of the Directive took place on 26 April 2016.

http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8675.

121

companies or business associations that replied to the online survey considered there is

“no difference” compared to the situation before, 21% deemed that the situation

“improved”, and 12% responded that it “deteriorated” or “significantly deteriorated”.

Stakeholders stressed the increase in publications of contract notices connected with

significant differences in publication rates between Member States. The stakeholders

emphasised the importance of consistent application of the Directive.



Cross-border access to the public defence contracts

Based on the replies of online survey, the perception of the impact of the Directive on

cross-border access to defence and security procurement in EU countries is rather

positive (39% of respondents among both contracting authorities and businesses), but

with a significant share of respondents seeing no impact (30% among contracting

authorities, and 24% among businesses). The respondents seeing a negative impact are a

sizeable minority among businesses (21%) and a rather marginal share among

contracting authorities (6%).

In its written contribution to the public consultation, one Member State emphasised that

economic operators, big or small, can participate in tendering procedure via local

subsidiaries or partners. As a result, the percentages of “direct” cross-border awards

resulting from the OJ/TED database can underestimate the participation of companies

from other Member States.

In a stakeholder’s consultation meeting with industry

199

, a defence company explained

that before making a decision to bid they make a case-by-case assessment. They need to

be confident that they are well-placed to win and that it is worth preparing an offer.

Cross-border bidding is by nature more difficult due to language barriers, higher costs