EN Official Journal of the European Union C 100/114

Opinion of the European Economic and Social Committee on 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

COM(2007) 766 final — 2007/0280 (COD)

2009/C 100/18

On 24 January 2008 the Council decided to consult the European Economic and Social Committee, under Articles 47(2), 55 and 95 of the Treaty establishing the European Community, on 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

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 1 October 2008. The rapporteur was Mr OPRAN.

At its 448th plenary session, held on 21, 22 and 23 October 2008 (meeting of 23 October), the European Economic and Social Committee adopted the following opinion by 46 votes to 5 with 2 abstentions.

1. Conclusions

1.1. A broad dialogue between the social partners

1.1.1. The Committee notes with great satisfaction that experts from the Member States as well as representatives from the defence industry, including stakeholders and, for the first time, leaders from the social partners, played an active role in the preparation of the proposal for this Directive and were closely involved in drawing up the document adopted by the Commission on 5 December 2007. The consultations with representatives of EU Organised Civil Society — multilateral and bilateral — covered all aspects of defence procurement (demand, supply, regulatory framework and products).

1.2. Restricting the application of ‘Article 296’

1.2.1. The Committee firmly believes (1) that the Commission's solution, fully respecting the Member States’ prerogatives in the field of defence, ensures — in an innovative manner — compliance on the one hand with Article 296 of the Treaty (for defence) and Article 14 of the current procurement Directive (for security) granting to Member States the right to exempt contracts in these fields if necessary for the protection of their essential security interests, and, on the other, the Court of Justice case law and its express request to limit the exemption of defence contracts from Community rules to exceptional cases (2) only.

1.2.2. The proposed Defence Procurement Directive aims at reducing the number of cases in which Member States invoke Article 296, as existing EC procurement rules are not considered adapted to the specificities of arms, munitions and war materials.

1.2.3. Article 296 will remain in place, meaning that Member States will still have the possibility to invoke that Article if contracts are deemed so sensitive/secret that even the provisions of the new Directive are not sufficient to protect their security interests. There is thus a close link between the new Directive and Article 296.

1.2.4. In the interests of coherence between EU primary law (Treaty) and secondary law (Directive), both must have the same field of application. Otherwise it would create legal uncertainty.

1.3. The actual confusion created by the parallel existence and random use of two active ‘Military Lists’ by the contracting authorities of the MS and the industry should be eliminated as soon as possible — by selecting a common list that is valid for all procurement and trading procedures. An optimal solution could be created by the adoption and utilisation of a common Military List for the whole area of applications covered by both new Directives proposed by the Commission. For the moment, the two most important options available are:

1.3.1. Option 1: To carry on using ‘the 15 April 1958 List’ for these activities — mainly for continuity reasons, looking familiar and easily accessible for users with past experience; at the same time, it is well known that the current version of this list is too general and too broad, never updated since its adoption 50 years ago and not entirely covering the new technologies required to face up to very real and complex threats;

1.3.2. Option 2: To start using ‘the Common Military List of the EU’, adopted by the Council on 19 March 2007 and updated on 10 March 2008, including the equipment covered by the ‘EU Code of Conduct on Arms Exports’, adopted by the Council on 7 July 2000; the same Code will also be in use with the new Directive on Intra-Community Transfer of Defence-related Products.

1.4. Article 296: still valid in special cases (3)

1.4.1. The Committee is not convinced by the steps taken by the Commission not to reproduce Article 14 of the current Procurement Directive 18/2004 (secret contracts) in the new Directive and instead to make direct reference to the relevant Treaty articles on public security (in particular Articles 30 and 296) This may lead to confusion with the contracting authorities on what is, and what is not considered appropriate.

1.4.2. Because most procurement contracts for sensitive defence and security equipment contain at least some secret or confidential information, the Commission decided to include specific provisions for security of information in the new Directive. Excluding explicitly all ‘secret contracts’ and all contracts with ‘special security measures’ without defining them could reduce the field of application of the new Directive dramatically with the major risk that such a reduction would fundamentally alter the nature of the proposal.

1.4.3. On the one hand, the Committee accepts the Commission's two-step approach to solving this sensitive matter:

— secret contracts should not be excluded per se from the field of application of the new Directive, but …

— if necessary, the Member States can exempt them

and considers the procedure proposed by the Commission to be a not unreasonable solution for all involved, but on the other, also recommends including the appropriate elements of Article 14 of the general procurement directive in the Defence Procurement Directive, as a suitable component.

1.5. A legal framework for the award of public contracts

1.5.1. According to the Committee's evaluation, the new Directive is perfectly suited to the specificities of the procedures for the award of public contracts (for works, supply and services) (4) in the fields of defence and security — because:

1.5.1.1. contracts relating to arms, munitions and war material awarded by contracting authorities are excluded from the scope of the Government Procurement Agreement concluded at the World Trade Organisation (WTO);

1.5.1.2. a single contractor exists in each Member State — the Government (5);

1.5.1.3. there is the requirement that long-term security of supplies must be guaranteed (6);

1.5.1.4. there is the need to secure a high level of freedom of the procurement process at the level of the Member States.

1.5.2. Concerning R&D, the Committee agrees that market mechanisms and public tendering may not always be realistic as MS themselves carry out part of this work and often conclude long-term relationships with research and technology establishments and industry in order to develop the systems needed by the armed forces.

— These relationships can take the form of spiral development or other mechanisms to ensure continuity and growth in the development process.

— The Committee is not convinced that the current wording in the draft directive reflects these realities sufficiently and fears negative effects for MS as well as industry if artificial cuts would have to be made between the R&D and production process.

1.6. ‘Buy European’ — an individual Member State's decision

1.6.1. Regarding the proposal to avoid the principle of ‘buy European’/‘European preference’ or a ‘reciprocity’ clause, the Committee considers the Commission's approach to be acceptable for the Member States, taking into account the following aspects:

1.6.1.1. The Directive will set rules on how to procure defence equipment, but will not determine which equipment should be procured. This is the decision of the customers, i.e. Member States.

1.6.1.2. It remains the prerogative of individual Member States to decide whether to open competition to non-EU suppliers, in compliance with the Government Procurement Agreement (GPA).

1.6.1.3. Awarding authorities will still be free to invite EU companies exclusively, or to include non-EU companies.

1.6.2. In conclusion, the Committee believes that stating a European preference is not synonymous with protectionism, but rather a necessary step in ‘rebalancing’ international defence industrial and technological cooperation, especially in relation to the United States.

1.7. Trading with non-EU countries

1.7.1. Regarding the trade in defence products with third countries, the Committee considers that the new Directive will not change the current situation and represents a correct solution.

1.7.2. The sector will remain governed generally by WTO rules and in particular by the Government Procurement Agreement (GPA).

1.8. Establishing EDEM — the European Defence Equipments Market

1.8.1. The Committee believes that the new Directive represents a major step towards the establishment of the much-sought-after EDEM, because:

1.8.1.1. Opening the internal market to defence products will improve the competitiveness of the EDEM.

1.8.1.2. The Committee considers that introducing transparent and competitive procurement rules applicable throughout the Union is crucial for the successful setting up of the EDEM. This will lead to a greater openness of defence markets between Member States to the benefit of all: armed forces, taxpayers and industries.

1.9. Offset Policy (7)

1.9.1. The Commission has avoided concrete and direct proposals covering offset as it considers this to be non-productive, and disruptive to market mechanisms, but also the Commission recognises that there are different views on this matter.

1.9.2. Indeed, Member States and Industry have varying experience with this instrument and do not have a homogeneous view on it. Currently the European Defence Agency (EDA) is studying ways to cope with this practice, turning it to the advantage of developing the European Defence Technological and Industrial Base (EDTIB) as long as offset is around, recognising at the same time that in a well-functioning EDEM this practice is no longer needed.

2. Proposals

2.1. The Committee strongly recommends that all the initiatives of the EU in the defence and security domains be undertaken at the highest political level: the European Council, the High Representative for the Common Foreign and Security Policy (CFSP) and the EDA Steering Board — in the ministerial configuration (EDA-SBMF).

2.2. The Committee considers that the European institutions should concentrate their support on the following main goals of the defence industry:

2.2.1. To sustain the performances and the competitiveness of the EDTIB in a global context, to guarantee the early identification of the real industrial and military targets of major interest — both for major companies and for SMEs;

2.2.2. To give international visibility to the main programmes of this important sector of industry;

2.2.3. To support present and future investments in developing innovative technologies;

2.2.4. To guarantee jobs in the defence industry at EU level, because maintaining human resources, i.e. the professional corps of skilled sector employees, represents a major condition for sustainable growth of the sector and for the development and implementation of state-of-the-art technologies;

2.2.5. To give a boost to the sector, creating identical competition conditions for all players, not least by eliminating state interference in the activities of the enterprises;

2.2.6. To encourage the initiatives of the European Defence Agency, which must be able to play the role of catalyst of the initiatives taken by one or several Member States. The EDA can help to widen the circle of Member States participating in the programmes — as, for example, in the case of the future European heavy transport helicopter, UAVs, software tactical radio, etc.

2.3. The Committee recommends to the European Council, the High Representative for CFSP and the EDA-SBMF — that they evaluate, select and make public the final decision on the list of the defence equipments and products to be used by all EU participants to EDEM and EDTIB — choosing between:

2.3.1. Continued use of ‘the 1958 List’, mainly for continuity reasons, even though it is too general and too broad, and has never been updated since its adoption 50 years ago;

2.3.2. Replacement of the existing old list still in use with ‘the Common Military List of the EU’, adopted by the Council on 19 March 2007 and updated on 10 March 2008, including the equipment covered by the ‘EU Code of Conduct on Arms Exports’ adopted by the Council on 7 July 2000 — renamed as: ‘the EU Common Military List’. The same EU Code was already adopted to serve with the new Directive on Intra-Community Transfer of Defence-related Products.

2.3.2.1. The Committee considers the fusion of the updated ‘1958 List’, identifying the equipment and technology subject to the derogation, with ‘The European Union Common Military List’, as defined in ‘The EU Code of Conduct on Arms Exports’, to be a possible solution.

2.3.3. The Committee believes the European Defence Agency should be a major driving force in the sector, acting as the forum for intergovernmental discussion on the future of the defence industry, defence R&D and expansion of the European Defence Technological and Industrial Base (EDTIB).

2.3.4. At the same time, the Committee recognises the European Commission's competence and the salient role which it plays in the area of Public Procurement, and in activating and strengthening the European Defence Technological and Industrial Base, and believes that the European Commission's experience will be useful to its effort to restructure and develop Member States’ defence industry.

2.3.5. The Committee recognises the importance of taking the interests and proposals of the defence industry itself into account in the process of developing a European defence equipment policy. Nevertheless, the Committee believes that EDA activities can be greatly improved by accepting official, closer involvement of defence industry representatives and non-governmental professional experts in the EDA Directorates’ work. These representatives and experts (members of organised civil society) should be represented in the Agency Steering Board, subject to arrangements yet to be defined in terms of status, right to speak, vote and the like.

2.3.6. Regarding, once more, the application of the Code of Conduct on Defence Procurements, the Committee acknowledges that all EU and European NATO Member States should be able to take part in cooperation programmes in so far as their financial, industrial and technological capability allows them to do so, and that due respect should also be paid to the interests of ‘small-medium’ states.

2.4. For statistical evaluation and correct benchmarking, the Committee considers that the Commission should periodically present a Progress Report on the implementation progress of the Directive — structured both on country bases and at the Community level.

2.5. The Committee considers that the proposed Directive should be extended to the entire European Economic Area (EEA).

3. General information

3.1. Current situation

3.1.1. Many Member States have used Article 296 TEC (8) and Article 14 of the Public Procurement Directive (2004/18) extensively, exempting from EC rules almost automatically the procurement of military and security equipment. In other words: ‘What should be the exception is, de facto, often the rule’.

3.1.2. In the field of public procurement there is a lack of European legislation properly suited to the award of sensitive public contracts in the fields of defence and security.

3.1.3. The use of non-harmonised standards hampers cooperation in R&D, procurement and production programmes.

3.1.4. On the demand side, 27 national customers have great difficulties in harmonising their military requirements and pooling their purchasing power into common procurement projects.

3.1.5. At EU level the regulatory framework containing 27 different sets of national rules and procedures for all relevant areas (exports, transfers, procurement etc.), becomes a major obstacle to both competition and cooperation and creates considerable extra costs (9).

3.1.6. The creation of an EDEM is a key factor supporting European Security and Defence Policy goals.

3.2. ‘Defence-Security’ convergence

3.2.1. The Committee welcomes the Commission initiative including sensitive non-military security procurements in the area of application of the new Directive — considering that:

3.2.1.1. In today's strategic environment, threats have become transnational and asymmetric (10); the dividing line between military and non-military, internal and external security is increasingly blurred and calls for a comprehensive response;

3.2.1.2. Armed forces and security forces often work closely together and use similar equipment which is developed using the same technologies and produced by the same companies;

3.2.1.3. Non-military procurement in certain areas — such as the fight against terrorism — can be as sensitive as military procurement and requires the same or higher security safeguards during the award process;

3.2.1.4. In cases where security and defence procurement have the same specificities, it seems only logical to make the same procurement rules applicable;

3.2.2. The Committee also believes that offering equal treatment to all European institutions with responsibilities in the area of defence, homeland security and intelligence, represents the optimal solution.

3.3. Introducing innovative solutions

3.3.1. In order to satisfy the unique requirements of the sector, the new Directive proposes three competitive procedures, as well as a pragmatic way forward:

— the negotiated procedure with publication of a contract notice (11) is authorised without the need for specific justification,

— the restricted procedure (12) and the competitive dialogue may also be used (13),

— the open procedure, however, which involves distributing the specifications to any economic operator that wants to see them, was felt to be inappropriate in view of the confidentiality and security of information requirements attached to these contracts.

3.3.1.1. Specific provisions on security of information (14) are included in the procedures, to ensure that sensitive information remains protected against unauthorised access.

3.3.1.2. The inclusion in the procedure of special clauses on security of supply will ensure that the armed forces are supplied on time, particularly in times of crisis or armed conflict:

(a) The procedure sets up a common regime of proper guarantees, assisted by a clear benchmarking method;

(b) the Committee considers the Commission Decision that the new Directive will only cover specific contracts in the fields of security and defence, to which the current public procurement Directive is ill-suited, as appropriate;

(c) these contracts concern the procurement of military equipment (i.e. arms, ammunitions and war equipment) and security equipment particularly sensitive and similar in nature to defence equipment;

(d) procurement of non-sensitive and non-military equipment remains covered by the current Public Procurement Directive (2004/18), even if it is procured by the awarding authorities in the field of defence and security.

3.4. The legal basis of the draft Directive are:

3.4.1. The contributory principle: the requirement to put an end to infringement situations originating from the lack of Community provisions to coordinate the public procurement procedures that currently apply.

3.4.2. The proportionality principle: as long as the provisions of the Directive are fully applied, their transposition into national law will allow each Member State to take into account the specific features and characteristics of the sensitive purchases they make in the fields of defence and security.

3.5. Choice of instruments

3.5.1. When transposing the Directive, the Member States may, if they so desire, provide for legislation that applies to all their public procurements, including sensitive contracts in the fields of defence and security.

3.5.2. The new instrument should offer a high degree of flexibility, guarantee the right level of transparency and improve market access for non-national suppliers and SMEs in particular.

3.5.3. To be fully operational, the Directive needs the support of standardisation and an appropriate regime for intra-EU circulation.

3.6. SMEs and the European Defence Industry

3.6.1. Regarding the practical implementation of the Code of Conduct on Defence Procurements, the Committee underlines the essential role played by small and medium-sized suppliers of defence equipment and technologies, both as contributors to research and as providers of employment, in developing national and European military capabilities.

3.7. Concluding question

3.7.1. As with all reforms, the risk is that everyone agrees in principle on the need to do ‘something’, but fails to approve any practical measure or sign any document or agreement pushing forward the sector.

3.7.2. Main question: how long can the European Defence Technological and Industrial Base survive if Europe continues to postpone reforms which are accepted as unavoidable?

Brussels, 23 October 2008. The President of the European Economic and Social Committee Mario SEPI

(1) In the opinion, the Committee sets out its position and notes that: 1) the countries representing the central core of Europe’s defence economic, industrial and technological capability are in favour of maintaining the national security derogation under Article 296 of the Treaty establishing the European Community (TEC); 2) the application of Article 296 TEC is restricted by European Court of Justice case-law.

(2) Public contracts awarded in the fields of defence and security currently fall within the scope of Directive 2004/18/EC, apart from the exceptions arising in the situations provided for by Articles 30, 45, 46, 55 and 296 of the Treaty. The Court of Justice has consistently ruled in its case law that recourse to derogations from Community law, including those covered by Article 296 of the Treaty, should be restricted to exceptional and clearly defined cases.

(3) According to the Court, this exemption is limited to ‘exceptional and clearly defined cases’ and does ‘not lend itself to a wide interpretation’.

(4) A contract can be considered to be a public works contract only if its subject matter specifically covers the execution of activities under Division 45 of the ‘Common Procurement Vocabulary’ (CPV).

(5) Except for acquisitions in insignificant quantities by private security companies and local governments.

(6) Security of supply: the specific needs of the Member States with respect to security of supply for sensitive public contracts in the fields of defence and security justify specific provisions, in terms of both contractual requirements and the criteria for selecting candidates.

(7) A procedure that requires the foreign vendor of defence equipments, in the case of deliveries with an estimated value higher than an amount established by the government of the country of the awarding entity, to commit himself to a global obligation of industrial benefit expressed in terms of a minimum percentage of the awarding country added value, in proportion to the total value of the contract. Offset orders placed by the vendor (the offsetor) with the national industry of the awarding country, have to be of a high technological standard and must create new or additional business flow for the local companies benefiting from the offset (the offsetee). The vendor shall deliver on that economic commitment within a well determined and reasonable time period, and will be bound to pay a penalty for economic commitments that have not been met within that period. Industrial benefit will be considered as having been achieved once the orders have been invoiced by the offsetee companies, within the period.

(8) Article 296 TEC reads as follows — Quote: ‘(1) The provisions of this Treaty shall not preclude the application of the following rules: (a) no MS shall be obliged to supply information the disclosure of which it considers contrary to the essential interests of its security; (b) any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes. (2) The Council may, acting unanimously on a proposal from the Commission, make changes to the list, which it drew up on April 1958, of the products to which the provisions of paragraph 1(b) apply’.

(9) For example, the extra costs created in 2003 by obstacles to intra-Community transfers alone were estimated at EUR 3,16 billion. Unisys, Intra-Community Transfers of Defence Products, European Commission, Brussels, 2005, p. 6.

(10) European Commission Communication: ‘Towards a EU Defence Equipment Policy’, COM(2003) 113 final of 11.3.2003; EESC Opinion OJ C 10, p. 1 of 10/01/2004, rapporteur: Mr WILKINSON.

(11) Those procedures in which the contracting authority consults the economic operators of its choice and negotiates the terms of the contract with them.

(12) Those procedures in which any economic operator may ask to participate and whereby only those economic operators invited by the contracting authority may submit a tender.

(13) A contracting authority may limit the number of candidates in the restricted and negotiated procedures with publication of a contract notice, and in the competitive dialogue. Any reduction in the number of candidates should be performed on the basis of objective criteria indicated in the contract notice.

(14) Security of information: the often confidential nature of the information relating to sensitive public defence and security contracts calls for: (1) safeguards applying to the award procedure itself; (2) criteria for selecting candidates; (3) contractual requirements imposed by the contracting authorities.