REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on transposition of directive 2009/81/EC on Defence and Security Procurement
Date: 2012-10-02
Institutions: European Commission
Subjects: approximation of laws, defence expenditure, military equipment, national implementing measure, public contract, single market

EUROPEAN 
COMMISSION 

Brussels, 2.10.2012  
COM(2012) 565 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on transposition of directive 2009/81/EC on Defence and Security Procurement 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on transposition of directive 2009/81/EC on Defence and Security Procurement 

I. Executive Summary 

Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009 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/EC1  is  an  important  element  of  the 
Commission's policy to create a truly European Defence Equipment Market and a European 
level playing field for defence procurement. For the first time it subjects defence and sensitive 
procurement  to  the  specific  rules  of  the  Internal  Market,  fostering  transparency  and 
competition and ensuring the satisfaction of procurement needs in an ever tightening financial 
framework. 

Most of the 23 Member States who have transposed the Directive as of July 2012 have prima 
facie  done  so  correctly.  The  vast  majority  of  Member  States  have  also  transposed  the  non-
mandatory provisions on sub-contracting which aim in particular at enhancing competition in 
the supply chains of successful tenderers. The Commission will continue to monitor the state 
of  transposition  and  the  content  of  the  national  implementing  measures  to  ensure  full 
compliance with European law. In particular it will take action to accomplish the phasing out 
of offsets which diverge from the basic principles of the Treaty. 

Following the transposition of the Directive, the Commission will focus as a matter of high 
priority  on  its  correct  application  in  the  Member  States.  The  challenge  will  be  different  in 
each  Member  State,  depending  in  particular  on  its  national  defence  industrial  capabilities. 
However,  ensuring  fair  and  open  competition  throughout  the  Union  is  a  prerequisite  for 
establishing  a  level  playing  field  for  European  industry  and  an  efficient  European  defence 
market.  

At  the  same  time,  the  Commission  is  continuing  to  explore  how  to  reinforce  the  internal 
market in this sector, which is of strategic importance for the Union, with the Member States 
and the European Defence Agency. 

II. Introduction 

Together with Directive 2009/43/EC of the European Parliament and of the Council of 6 May 
2009  simplifying  terms  and  conditions  of  transfers  of  defence-related  products  within  the 
Community  on  intra-EU  transfers  of  defence  products2,  the  Directive is  an  important 
contribution  toward  the  creation  of  a  truly  European  Defence  Equipment  Market  and  at 
strengthening the European Defence Technological and Industry Base. 

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2 

OJ L 216 of 20 August 2009, p. 76 (the "Directive"). 
OJ L 146 of 10 June 2009, p. 1. 

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Defence and (to a lesser degree) security markets are very specific markets. The customer side 
is  primarily  (for  defence  exclusively)  public,  and  both  defence  and  security  are  national 
prerogatives.  Moreover,  defence  spending  and  defence  industrial  capabilities  are  highly 
concentrated in a few Member States. Due to the nature of the products, markets are highly 
regulated,  certain  companies  of  strategic  importance,  and  procurement  decisions  often  also 
determined by political and strategic considerations.  

The  Directive  provides  procurement  rules  tailor-made  for  the  uniqueness  of  defence  and 
security  equipment,  namely  sensitivity  and  complexity.  It  includes  specific  provisions  on 
security of supply and security of information, and it allows for unrestricted use of the most 
flexible award procedure. Member States now have at their disposal EU-wide rules they can 
apply to complex and sensitive transactions without putting their legitimate security interests 
at risk.  Defence  contracts should  therefore,  as a rule, no longer be awarded outside Internal 
Market rules by invoking the exception clause of Article 346 TFEU. This should lead to more 
transparency  and  competition,  which  in  turn  should  foster  the  competitiveness  and 
innovativeness  of  European  industries  and  help  Member  States  to  satisfy  their  procurement 
needs despite ever-shrinking budgets. 

The  Directive  had  to  be  transposed  by  Member  States  by  21  August  2011.  This  report 
implements  Article  73  of  the  Directive,  which  requests  the  Commission  to  present  a  report 
"on the measures taken by Member States with a view to the transposition of this Directive, 
and in particular Article 21 and Articles 50 to 54 thereof”".  

The  Report  assesses  the  general  state  of  transposition  of  the  Directive  by  Member  States, 
before  addressing  the  crucial  provisions  for  the  creation  of  a  European  Defence  Equipment 
Market:  the  scope  of  application  (Article 2);  the  exclusions  from  the  application  of  the 
Directive (Articles 12 and 13); the subcontracting provisions (Articles 21 and 50-54); and the 
review procedures (Articles 55-64). It also highlights the situation concerning offsets whose 
continuing existence is a major risk to the correct application of the Directive. 

III. State of play of the transposition of Directive 2009/81/EC 

Three 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 TFUE)  by  sending  letters  of  formal  notice.  As  a  result,  by 
March 2012,  15 additional  Member  States  had  notified  complete  transposition.  For  the 
remaining  eight  Member  States  the  Commission  continued  the  infringement  procedure  by 
issuing reasoned opinions to them. By June 2012, two of these Member States had completely 
transposed while two Member States had only partially transposed the Directive.  

By  July 2012,  four  Member  States  had  still  not  notified  any  transposition  measure  to  the 
Commission.  The  Commission  intends  to  refer  the  cases  of  missing  or  only  partial 
transposition to the European Court of Justice in due course.  

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Since a majority of Member States have transposed the Directive with a considerable delay, 
the  Commission  is  still  verifying  whether  the  national  implementing  measures  comply  with 
the Directive.  

IV. National implementing measures for key elements of the Directive 

A. Scope of the Directive (Article 2) 

It is crucial for the effective implementation of the Directive that the Member States' national 
implementing  measures  apply  to  all  procurements  falling  within  the  scope  of  the  Directive. 
The correct transposition of Article 2 is therefore a key element. 

According to Article 2, the Directive applies to contracts awarded "in the fields of defence and 
security  for  (a)  the  supply  of  military  equipment,  including  parts,  components  and/or 
subassemblies  thereof;  (b)  the  supply  of  sensitive  equipment,  including  parts,  components 
and/or  subassemblies  thereof;  (c)  works,  supplies  and  services  directly  related  to  the 
equipment referred to in (a) and (b) for any and all elements of its life cycle; (d) works and 
services  for  specifically  military  purposes  or  sensitive  works  and  sensitive  services".  It  is 
therefore the subject of the procurement that determines the application of the Directive. 

In the area of defence, the  scope  of  the Directive is based on that of Article 346 TFEU and 
covers,  in  principle,  all  contracts  for  the  procurement  of  military  equipment,  works  and 
services. In addition, the Directive also applies to all sensitive purchases that have a security 
purpose  and  involve  classified  information.  All  other  contracts  in  the  fields  of  defence  and 
security continue to be subject to Directives 2004/17/EC of the European Parliament and of 
the Council of 31 March 2004 coordinating the procurement procedures of entities operating 
in the water, energy,  transport  and  postal services sectors3  and 2004/18/EC  of  the  European 
Parliament  and  of  the  Council  of  31  March  2004  on  the  coordination  of  procedures  for  the 
award of public works contracts, public supply contracts and public service contracts4, which 
regulate civil public procurement.  

Sixteen  Member  States  have  transposed  Article 2  by  using  in  essence  a  similar  wording  to 
that of the Directive. However, six Member States have used a different wording. Of those, 
only some have the potential materially to change the scope of application of the Directive.  

One Member State, for example, has restricted the application of the national implementing 
measure to specific contracting authorities. Contracts awarded by other contracting authorities 
within the material scope of the Directive will therefore not be covered. Such a differentiating 
approach  constitutes  a  risk  for  a  European  level  playing  field  for  the  procurement  of  all 
contracts covered by the Directive and is incompatible with the Directive. 

Some  Member  States  use  specific  national  lists  to  define  the  field  of  application  of  the 
Directive in the area of defence. In principle, these lists constitute legitimate references for the 

3 
4 

OJ L 134 of 30 April 2044, p. 1. 
OJ L 134 of 30 April 2004, P. 114. 

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interpretation  of  Article  2  provided  that  they  reflect  the  list  of  19585.  It  will  be  subject  to 
further detailed assessment, whether this is the case.  

One Member State explicitly subjects the so-called "dual use products" to the application of 
the Directive. However, according to the case-law of the European Court of Justice (Case C-
615/10,  Judgment  of  7 June 2012),  such  products  are  subject  to  the  more  stringent  rules  of 
Directives 2004/17/EC and 2004/18/EC and not to those of the Directive.  

On  the  whole,  the  Commission  is  nonetheless  satisfied  that  most  Member  States  have 
correctly transposed Article 2. It will have to review carefully what action will be required in 
order to ensure the complete application of this particular provision in all Member States. 

B. Exclusions from the application of the Directive (Articles 12 and 13). 

The  Directive  provides  for  specific  exclusions  from  its  scope  in  Articles 12  and 13,  In 
accordance with Article 11 and the ECJ case law, these exclusions from the application of EU 
law  have  to  be  interpreted  restrictively.  It  is  therefore  of  major  importance  for  the 
effectiveness of the Directive that the Member States transpose those provisions correctly. 

According to Article 12 certain contracts awarded pursuant to international rules are excluded 
from  the  Directive.  While  these  exclusions  are  based  on  the  respective  exclusions  of 
Directives 2004/17/EC  and 2004/18/EC,  they  have  been  adapted  to  the  specific  situation  of 
defence.  Article 12 (c)  in  particular  specifies  that  a  procurement  pursuant  to  the  specific 
procedural  rules  of  an  international  organisation  is  excluded  from  the  Directive  if  this 
organisation purchases for its purposes, or if a Member State is obliged to award the contracts 
in accordance with such rules.  

The  national  implementing  measures  of  ten  Member  States  use  the  same  wording  as 
Article 12  of  the  Directive.  Thirteen  Member  States,  however,  have  adopted  a  different 
wording  which  does  not  seem  to  change  the  material  scope  of  the  exclusions.  At  least  one 
Member  State,  however,  has  broadened  the  scope  of  the  exclusion  of  Article 12 (c).  Its 
national  implementing  measure  does  not  restrict  the  exclusion  to  purchases  for  an 
international organisation's purposes.  

Article 13 contains all other specific exclusions, some of which are identical to the exclusions 
of  Directives 2004/17/EC  and 2004/18/EC.  Defence  specific  exclusions  concern  principally 
contracts  involving  the  disclosure  of  information  (Article 13(a));  for  the  purposes  of 
intelligence  activities  (Article 13(b)); 
the  framework  of  cooperative  programmes 
(Article 13(c));  and  awarded  in  third  countries  (Article 13(d)).  A  final  exclusion  concerns 
government to government sales (Article 13(f)).  

in 

The  national  implementing  measures  of  nine  Member  States  use  the  same  wording  as 
Article 13  of  the  Directive.  Fourteen  Member  States  adopted  a  different  wording.  As  for 
Article 12, most of these differences do not seem to change the material scope of this Article.  

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Decision  defining  the  list  of  products  (arms,  munitions  and  war  material)  to  which  the  provisions  of 
Article 223 (1)(b) – now Article 346 (1)(b) TFUE – of the Trieaty apply (doc. 255/58). Minutes of 15 
April 1958: doc. 368/58. 

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The few material changes mainly concern the exclusion in cases of disclosure of information, 
Article 13 (a), and the exclusion in the framework of cooperative programmes, Article 13 (c). 

According  to  Article 13 (a),  the  Directive  does  not  apply  to  contracts  for  which  the 
application of the rules of this Directive would oblige a Member State to supply information 
the  disclosure  of  which  it  considers  contrary  to  the  essential  interests  of  its  security.  This 
exclusion is based on Article 346 (1)(a) TFEU according to which "no Member State shall be 
obliged  to  supply  information  the  disclosure  of  which  it  considers  contrary  to  the  essential 
interests of its security". The Directive clarifies that where a Member State is not obliged to 
supply information within the meaning of Article 346 (1)(a) TFEU, it is not obliged to apply 
the Directive.  

All but two Member States have transposed this exclusion correctly. One Member State has 
not transposed it; the other Member State excludes all contracts where publication would lead 
to  disclosure  of  classified  information,  which  goes  beyond  the  wording  of  Article 13 (a). 
Contracts involving classified information are covered by the Directive and can be subject to 
specific provisions guaranteeing the security of information. 

Other material changes in the scope of a specific exclusion concern Article 13 (c). It excludes 
certain  contracts  in  the  framework  of  cooperative  programmes  from  the  Directive.  The 
exclusion as such appears to have been correctly transposed by all Member States. This is not 
the  case,  however,  for  the  obligation  to  inform  the  Commission  upon  the  conclusion  of  the 
respective  agreement  foreseen  under  Article 13 (c).  In  one  Member  State  there  is  no 
obligation to inform the Commission and in another the Commission has to be informed only 
when the cooperative programme ends. All other exclusions foreseen under Article 13 seem 
to have been transposed correctly. 

Since exclusions have to be interpreted strictly, the Commission will monitor closely the use 
of exclusions by Member States and verify that none of them, especially the exclusions under 
Article  12  and  the  exclusion  of  government  to  government  sales,  Article 13 (f),  is  used  to 
circumvent the rules of the Directive. 

C. Provisions relating to subcontracting (Articles 21 and 50 to 54 – title III). 

The  Directive  lays  down  extensive  rules  on  subcontracting.  Their  aim  is  to  enhance 
competition  within  the  supply  chains  of  successful  tenderers.  The  more  systematically  they 
are used by contracting authorities the more they will improve market access in particular for 
SMEs  and  economic  operators  established  in  smaller  countries  and  thereby  contribute  to  a 
truly  European  Defence  Equipment  Market.  The  subcontracting  rules  are  therefore  a 
cornerstone of the Commission's policy. 

Article 73 requires the Commission to report specifically on their transposition. Such rules are 
new to European public procurement legislation. Directive 2004/17/EC and 2004/18/EC only 
state that "the contracting authority may ask or may be required by a Member State to ask the 
tenderer to indicate in his tender any share of the contract he may intend to subcontract to 
third parties and any proposed subcontractors". Contracting authorities have no further rights 

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under Directives 2004/17/EC and 2004/18/EC to intervene in the choice of subcontractors by 
the main contractor.  

While  reiterating  this  basic  principle  in  Article 21 (2),  the  rules  of  the  Directive  provide 
important additional tools for the Member States and their contracting authorities.  

Firstly, according to Article 21 (3), contracting authorities can oblige the successful tenderer 
to  award  all  or  certain  of  its  proposed  subcontracts  through  the  competitive  procedure 
described in Title III of the Directive. While Member States had to transpose this provision, 
they  could  decide  whether  contracting  authorities  are  free  to  impose  to  award  subcontracts 
through such a competitive procedure or whether they are obliged to do so. 

Twenty-two Member States have given their contracting authorities the option to oblige the 
successful tenderer to award their subcontracts using the competitive procedure. No Member 
State  obliges  its  contracting  authorities  to  so  oblige  the  successful  tenderer.  One  Member 
State seems to have omitted to transpose Article 21 (3) at all. 

Secondly, under Article 21 (4), Member States may provide for compulsory subcontracting by 
the successful tender. However, the transposition of these provisions is left to the discretion of 
the  Member  States.  If  a  Member  State  introduces  compulsory  subcontracting,  it  has  two 
options: It can either give its contracting authorities the possibility to require subcontracting 
from the successful tenderer or it can oblige its contracting authorities to do so. Both options, 
if exercised, create additional business opportunities for potential subcontractors. 

It has to be noted that the successful tenderer can only be obliged to subcontract up to 30% of 
the  main  contract  and  that  the  subcontracts  have  to  be  awarded  using  the  competitive 
procedure of Title III.  

Only two Member States have chosen not to provide for compulsory subcontracting. All other 
Member  States  have  given 
to  require 
their  contracting  authorities 
subcontracting without obliging them to require it. 

the  possibility 

A  preliminary  assessment  suggests  that  Member  States'  transpositions  of  the  subcontracting 
provisions  are  generally  compatible  with  the  Directive.  The  Commission  is  satisfied  that  a 
majority  of  Member  States  have  seized  these  opportunities  to  enhance  competition  in  the 
supply  chains  and  is  confident  that  this  will  have  a  positive  impact  on  the  internal  market. 
Since the subcontracting provisions are an important tool for the creation of a European level 
playing  field  in  the  defence  market,  the  Commission  will  closely  monitor  their  use  by 
Member States. 

D. Review mechanism, Articles 55-64 

The Directive includes a comprehensive set of provisions aimed at making effective means of 
redress  available  to  aggrieved  bidders.  These  provisions  are  based  on  those  coordinating 
national  review  systems  for  civil  procurementsDirective2007/66/EC  of  the  European 
Parliament  and  of  the  Council  of  11  December  2007  amending  Council  Directives 

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89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures 
concerning the award of public contracts6.  

Approximately  half  the  Member  States  have  transposed  the  provisions  on  review  in  the 
national  implementing  measures  of  the  Directive,  the  other  half  have  chosen  to  transpose 
these provisions within their general rules on remedies. 

The  Directive  foresees  some  adaptations  to  the  general  review  system  to  take  the  special 
characteristics of defence into account. This report will highlight the two most important ones. 

First, Article 56 (10)  foresees that "Member States may  decide that a specific  body  has sole 
jurisdiction  for  the  review  of  contracts  in  the  fields  of  defence  and  security"  in  order  to 
guarantee  an  adequate  level  of  confidentiality  of  classified  information.  The  provision  also 
contains specific rules on how "to reconcile the confidentiality of classified information with 
respect for the rights of the defence". 

It seems that no Member has used the option to endow a specific body with jurisdiction. Only 
a few Member States have included specific rules on  security clearance  for  the members of 
the review body. These rules deal with the capacity of a member of the review body to sit on a 
case  but  do  not  contain  specific  provisions  for  granting  or  requesting  security  clearance.  It 
seems,  therefore,  that  the  Member  States  did  not  share  some  of  the  concerns  voiced  in  the 
legislative process, which had given rise to the specific rules of the Directive on that point. 

Second,  Article 60 (3)  foresees  that  a  review  body  may  not  consider  a  contract  ineffective, 
even though it has been awarded illegally, "if the review body finds that overriding reasons 
relating  to  a  general  interest,  first  and  foremost  in  connection  with  defence  and/or  security 
interests,  require  that  the  effects  of  the  contract  should  be  maintained  (…)  In  any  event,  a 
contract  may  not  be  considered  ineffective  if  the  consequences  of  this  ineffectiveness  would 
seriously  endanger  the  very  existence  of  a  wider  defence  or  security  programme  which  is 
essential for Member State's security interests." 

All Member States but two have included this specific possibility to abstain from declaring a 
contract ineffective. 

A  preliminary  assessment  suggests  that  Member  States'  transpositions  of  the  review 
provisions in general are compatible with the Directive. The Commission, therefore, expects 
that  procurement  in  the  field  of  defence  and  security  will  be  subject  to  effective  national 
review. 

V. Impact of the Directive on Member States' offset provisions  

In  the  past,  18 Member  States  maintained  offset  policies  requiring  compensation  (offsets) 
from non-national suppliers when they procured defence equipment abroad. In these Member 
States,  contracting  authorities  were  generally  obliged  to  require  such  compensation  for 
purchases above a certain value. Such offset requirements are restrictive measures which go 
against  the  basic  principles  of  the  Treaty.  They  discriminate  against  economic  operators, 

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OJ L 335 of 20 December 2007, p. 31. 

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goods and services from other Member States, and they impede the free movement of goods 
and services.  

Offsets thereby jeopardize the proper application of the Directive and hinder the creation of a 
European level playing field in defence procurement. EU law can tolerate offsets only on the 
basis  of  a  Treaty-based  derogation,  in  particular  Article 346 (1)(b) TFEU,  i.e.  if  an  offset 
requirement  is  necessary  for  the  protection  of  the  essential  security  interests  of  a  Member 
State. The use of the derogation, however, has to be justified by the Member State concerned 
on a case-by-case basis. 

The Commission has, therefore, been in close contact with the 18 Member States concerned, 
helping them to abolish or revise their offset rules. As a result, most of these Member States 
have either abolished the respective rules or revised their legislation. In this case, offsets are 
no  longer  required  systematically  but  solely  in  exceptional  cases  where  the  conditions  of 
Article 346 TFEU  are  met.  Major  legal  changes  have,  therefore,  been  implemented.  In 
addition, the European Defence Agency and its participating Member States clarified that its 
Code of Conduct on Offsets may be applied only to offsets which are justified on the basis of 
Article 346 TFEU. 

The  Commission  will  now  monitor  whether  these  changes  will  bring  about  a  change  in 
practice.  It  is  convinced  that a  rapid  phasing  out  of  the  discriminatory  practice  of  offsets  is 
necessary  to  create  a  truly  European  Defence  Equipment  Market.  The  Commission  will, 
therefore, take appropriate action where this is not the case. It will also do so where Member 
States continue to have offset rules that are clearly incompatible with EU law. 

VI. Conclusion  

The  aim  of  the  Directive  is  to  create  a  European  level  playing  field,  applying  to  large  and 
small  Member  States  and  companies  alike.  Defence  procurement  is  now  subject  to  internal 
market rules and only exceptionally exempted from them. Thus, Member States now have to 
publish business opportunities, apply harmonised procedures, and phase out offsets. 

Timely  transposition  proved  challenging  for  the  vast  majority  of  Member  States.  However, 
most of the 23 Member States who have transposed the Directive as of July 2012 have prima 
facie  done  so  correctly.  In  particular,  the  Commission  considers  it  an  encouraging  sign  that 
many Member States have also transposed the non-compulsory subcontracting provisions and 
thereby seized additional opportunities to foster competition.  

A consistent and correct application of the Directive is necessary to strengthen the European 
Defence Technological and Industrial Base. Therefore, the Commission will closely monitor 
especially  the  use  of  exclusions  and  derogations  as  well  as  the  phasing  out  of  offsets.  In 
general, this report is without prejudice to the power of the Commission to bring infringement 
proceedings against individual Member States whose national implementing measures are not 
in compliance with the provisions of the Directive. 

Moreover, the Commission will pay particular attention to the impact of the Directive on the 
openness of the Defence market and the strength of the European Defence Industrial Base. By 

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21 August 2016  the  Commission  will  report  on  this  subject  to  the  European  Parliament  and 
the Council as provided under Article 73(2). 

Further initiatives may be necessary to promote the internal market in this area, with efforts 
from all relevant actors, in particular Member States and industry. The Commission has, for 
its part, set up a Task Force to examine ways of further developing European policies in the 
defence sector.  It will do  so in association with the European Defence Agency and in close 
cooperation  with  all  other  stakeholders  in  order  to  ensure  overall  coherence  of  European 
efforts in an area which is of strategic importance for the Union as a whole.  

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