Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing the European Defence Industrial Development Programme aiming at supporting the competitiveness and innovative capacity of the EU defence industry
Date: 2017-06-07
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: EU aid, EU programme, competitiveness, defence policy, development plan, financial aid, industrial development, innovation, inter-company cooperation, research and development

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   EUROPEAN COMMISSION  Brussels, 7.6.2017  COM(2017) 294 final 2017/0125 (COD)   Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing the European Defence Industrial Development Programme aiming at supporting the competitiveness and innovative capacity of the EU defence industry {SWD(2017) 228 final}  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The European defence policy was identified as a key political priority in President Juncker's 
political guidelines of July 2014. This should be also viewed in connection with the fact that 
after  decades  of  peace  and  stability,  the  Union  is  facing  increased  instability  and  new 
emerging  security  threats.  This  changing  security  environment  demonstrated  in  a  clear  way 
that  only  through  joint  efforts  in  investing  in  security  development  and  cooperation  at  all 
levels can we deliver on the expectations of Union citizens and our partners.  For  Europe to 
take  over  more  responsibility  for  its  defence,  it  is  crucial  to  improve  competitiveness  and 
enhance innovation across the Union defence industry. 

The proposal for a "European Defence Industrial Development Programme" (hereinafter "the 
Programme")  aims  at  enhancing  the  competitiveness  and  innovation  of  the  Union  defence 
industry including cyber defence. This could be done mainly by fostering better exploitation 
of  the  results  of  defence  research,  promoting  collaboration  between  undertakings  in  the 
development of defence products and technologies and by leveraging Member States' efforts 
to cooperate so as to ensure that the European defence technological and industrial base can 
fully meet Europe’s current and future security needs. This would ultimately help to enhance 
the Union strategic autonomy and strengthen its ability to act with partners. 

• 

Consistency with existing policy provisions in the policy area 

to  achieve  greater  European  defence  cooperation  and  support 

In November 2016, the Commission adopted the European Defence Action Plan, which sets 
out  measures 
the 
competitiveness  of  the  European  defence  industry.  The  objective  of  the  European  Defence 
Action  Plan  is  for  the  European  defence  technological  and  industrial  base  to  fully  meet 
Europe’s current and future security and defence needs. The initiative was welcomed by the 
European  Council  and  the  Commission  was  invited  to  present  proposals  in  the  first  half  of 
2017. 

A  core  proposal  of  the  European  Defence  Action  Plan  is  the  establishment  of  a  European 
Defence  Fund  (hereinafter  "the  Fund")  to  support  investment  in  joint  research  and  the  joint 
development  of  defence  equipment  and  technologies.  The  Fund  consists  of  two  distinct  but 
complementary  windows  which  would  cover  the  entire  cycle  of  defence  industrial 
development  from  research  through  to  placing  products  on  the  market  i.e.  a  research  and  a 
capability window. 

Under the research window, the Commission is putting in place mechanisms to direct Union 
funding  to  joint  defence  research,  notably  by  means  of  the  recently  launched  Preparatory 
Action. 

The proposal for the Programme will complement the initiatives to fund collaborative defence 
research  and  will  ensure  that  the  results  of  defence  research  are  further  developed  thus 
contributing  to  the  innovative  capacity  of  the  European  defence  industry  and  its 
competitiveness.  

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• 

Consistency with other Union policies 

The  European  Defence  Action  Plan,  and  therefore  the  Programme,  is  fully  consistent  with 
initiatives taken at Union level in the context of the Common Foreign and Security Policy. In 
particular, it is consistent with the 2016 Global Strategy's "Implementation Plan on Security 
and Defence", which provides the basis for the new Union level of ambition endorsed by the 
European Council1 together with actions to fulfil it. The Programme is also linked to the July 
2016  "EU-NATO  Joint  Declaration"  signed  by  the  President  of  the  European  Council,  the 
President  of  the  Commission  and  the  Secretary-General  of  NATO.  The  Commission  will 
ensure  that  other  security  policies  such  as  Cybersecurity  strategy  are  consistent  with  the 
programme.   

The proposed Programme encourages collaboration between undertakings in the development 
of  products  and  technologies,  taking  into  account  the capability  priorities  commonly  agreed 
by Member States within the Union through the Union Capability Development Plan. It will 
thus ultimately enhance the Union security and defence interests. 

The proposed Programme also takes into account that actions could take place in the context 
of the Permanent Structured Cooperation. By allowing for higher co-financing rates for such 
actions,  the  Programme  will  ultimately  incentivise  participation  in  this  more  advanced 
European framework for defence cooperation. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The draft Regulation proposes measures concerning the Union defence industry. Article 173 
of  the  Treaty  on  the  Functioning  of  the  European  Union  is  the  legal  basis  of  this  proposal. 
This  is  in  line  with  the  objective  of  the  draft  Regulation  which  is  to  enhance  the 
competitiveness  of  the  Union  Defence  Industry  by  fostering  better  exploitation  of  the 
industrial  potential  of  innovation  and  technological  development  by  means  of  cooperation 
between undertakings across the Member States. 

• 

Subsidiarity 

Fostering better exploitation of the results of defence research, innovation and technological 
development,  by  leveraging  the  cooperation  between  undertakings  established  in  different 
Member  States,  is  an  action  inherently  characterised  by  its  transnational  nature.  It  affects 
more than one Member State at the same time and in this sense, cannot be dealt with in a fully 
satisfactory manner by the individual Member States.  

Indeed,  the  challenges  the  Union  defence  industry  faces  today  clearly  point  at  the  need  for 
coordinated actions.  The  European  defence  sector  is  suffering  from  low  level  of  investment 
and  is  characterised  by  fragmentation  along  national  borders  leading  to  persistent 
duplications.  Besides,  a  look  at  the  defence  industries  available  in  the  Union  uncovers 
growing  shortfalls,  ageing  technologies  and  a  lack  of  new  programmes,  especially 
collaborative programmes.  

Cross-border cooperation can help to better capture scale effects by reducing duplications and 
allowing for the development of the products and technologies needed. However, it remains 
too limited and the prevalence of non-coordinated national policies of Member States in this 

1 

Foreign Affairs Council Conclusions, 15.11.2016.   

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area2 negatively impacts on the competitiveness and innovation capacity of the Union defence 
industry. 

Action  at  Union  level  will  provide  added-value  by  means  of  further  stimulating  industrial 
defence  cooperation  through  positive  incentives  and  targeting  projects  in  the  development 
phase that cannot be undertaken successfully at purely national level in view of the costs and 
associated risks. 

• 

Proportionality 

The proposal complies with the proportionality principle for the following reason: 

Proportionality of the Union intervention is ensured by focusing on the area with the highest 
impact on the competitiveness of the sector  i.e. providing financial support to actions at the 
development phase. In light of the fact that the development phase appears to be one of the 
riskiest phases and thus one of the most important bottlenecks in the chain of  technological 
advancements  in  a  project,  the  Union  will  contribute  in  part  to  the  development  costs  of 
defence products and technologies with a view to unlock cooperative development projects.  

Moreover,  only  actions  concerning  undertakings  established  in  different  Member  States 
represent  cases  eligible  for  financial  support  as  they  have  a  clear  value  by  fostering 
cooperation across national borders. 

At the same time, the Union intervention does not undermine or prejudice in any manner the 
support  of  actions  carried  out  at  national  level.  It  only  provides  additional  incentives  to 
accomplish the most challenging phase of certain of those actions by offering Union support, 
where most needed. 

• 

Choice of the instrument 

The Commission  proposes  a Regulation  in  order to  set up the Programme. This  is  the most 
suitable  legal  instrument  as  only  a  Regulation,  with  its  directly  applicable  legal  provisions, 
can provide the necessary degree of uniformity needed for the establishment and operation of 
an Union funding programme aiming at supporting an industrial sector across Europe. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

There  is  no  prior  existing  legislation  covering  or  pertaining  to  this  specific  action  as  there 
were - to date - no other Union legislative initiatives aiming at enhancing the competitiveness 
of  the  defence  industry  targeting  specifically  the  development  phase  of  an  action  for  the 
defence sector. Therefore, there is no previous ex-post evaluation or fitness check of existing 
legislation that may have taken place for such legislative initiative.  

• 

Stakeholder consultations 

Member States were consulted throughout the preparation of the proposal by means of regular 
meetings.  Other  stakeholders  have  also  been  consulted  accordingly  and  were  properly 
informed about the Commission's intention to prepare such a legislative proposal. 

2 

Please see also page 12 of the Staff Working Document accompanying the Regulation 

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• 

Collection and use of expertise 

A preparatory study on the possible budget for the Programme has been commissioned by the 
European Commission. The study elaborates on the existing bottlenecks for establishing co-
operations for development programmes and provides reflection elements to take into account 
for achieving optimal Union intervention. 

• 

Impact assessment 

The proposal relies on an accompanying Staff Working Document which offers the necessary 
elements in order to analyse the impediments that hinder the competitiveness of the sector and 
to assess the anticipated impact of the proposal. Due to the urgency of the proposal, in light of 
the European Council of 15 December 2016 inviting the Commission "to make proposals in 
the  first  semester  of  2017  for  the  establishment  of  a  European  Defence  Fund  including  a 
window on the joint development of capabilities commonly agreed by the Member States"3, 
the present Commission proposal is submitted without an impact assessment.  

• 

Regulatory fitness and simplification 

This  proposal  is  not  part  of  the  REFIT  programme  and  is  not  expected  to  increase  the 
administrative burden. 

• 

Fundamental rights 

The proposal is in line with the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

The  impact  of  the  proposal  on  the  Union  budget  is  presented  in  the  financial  statement 
accompanying the proposal and will be met within available resources. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The  Commission  should  regularly  monitor  its  actions,  review  progress  made  towards 
delivering the expected results as well as examine synergies with other complementary Union 
programmes  or  with  national  programmes  co-funded  by  the  Union.  Additionally,  it  is 
provided that the Commission may also have independent external evaluations to evaluate the 
impact  and  effectiveness  of  its  actions  under  this  Programme,  where  appropriate.  The 
Commission should draw up an evaluation report for the Programme and communicate it to 
the European Parliament and to the Council. This report will notably assess the progress made 
towards the achievement of the objectives set in the proposal and will analyse the cross border 
participation of SMEs in projects under the Programme as well as the participation of SMEs 
to the global value chain. 

The  accompanying  Staff  Working  Document  proposes  more  extended  monitoring  and 
evaluation activities based on the data which are already collected and published by various 
organisations active in the European defence sector.  

• 

Detailed explanation of the specific provisions of the proposal 

The  Programme  will  be  set  up  on  the  basis  of  the  provisions  of  Article  173  TFEU  and  its 
general objective will be to contribute to the competitiveness and innovative capacity of the 

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Foreign Affairs Council Conclusions, 15.11.2016 

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Union defence policy by supporting actions in their development phase. Beneficiaries will be 
undertakings  established  in  the  Union.  The  Programme  shall  be  established,  covering  the 
period from 1 January 2019 to 31 December 2020. 

The  proposed  intervention  strategies  would  take  place  through  financial  assistance.  The 
funding  provided  under  the  Programme  would  take  the  form  of  grants  and  financial 
instruments  or  via  public  procurement.  More  precisely,  the  Programme  would  support  the 
design, definition of common technical specifications, prototyping, testing, qualification and 
certification of defence products, tangible or intangible components and technologies. Support 
can  also  be  provided  for  studies,  feasibility  assessments  and  other  support  activities.  The 
support will aim at actions in the development phase covering both new and the upgrade of 
existing products and technologies. 

The  action  should  be  undertaken  by  a  cooperation  of  at  least  3  undertakings  which  are 
established in at least 2 Member States. 

The  proposed  funding  rate  will  be  limited  to  20  %  of  the  total  cost  of  the  action.  Member 
States  will  need  to  contribute  for  the  remaining  costs  through  pooling  of  national 
contributions. The Union budget will be used to support the competitiveness of the sector by 
leveraging  the  right  amount  of  Member  States’  contributions  to  initiate  the  cooperation  and 
will  act  as  enabler  for  cooperation,  unblocking  potential  collaborative  development 
programmes.  Beneficiaries  developing  an  action  in  the  context  of  Permanent  Structured 
Cooperation  will  be  eligible  for  an  increased  funding.  The  supported  projects  should 
contribute  to  the  capability  priorities  as  jointly  agreed  by  Member  States  within  the  Union 
through  the  Union  Capability  Development  Plan,  as  well  as  bearing  in  mind  regional  and 
international  cooperation,  as  appropriate.  The  proposals  submitted  in  view  of  obtaining 
support under the Programme will be evaluated on the basis of award criteria which will be 
based  on  the  contribution  to  the  innovation  and  technological  development  of  defence 
industries as well as to the security and defence interests of the Union by enhancing defence 
technologies,  which  contribute  to  capability  priorities  commonly  agreed  by  Member  States 
within the Union, on the viability of the action as well as on the ability of the beneficiaries to 
demonstrate that there is a commitment by Member States to jointly produce and procure the 
final  product  or  technology  in  a  coordinated  way,  including  joint  procurement  where 
applicable. 

The Commission will  be responsible for the execution and the management structure of the 
Programme.  It  may  however  entrust  part  of  the  implementation  to  another  entity,  in 
accordance  with  the requirements of the Financial  Regulation. Additionally,  a proportion of 
the overall budget should benefit actions enabling the cross-border participation of SMEs.  

The proposed budget of the Programme would be 500 million  euro. 

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2017/0125 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing the European Defence Industrial Development Programme aiming at 
supporting the competitiveness and innovative capacity of the EU defence industry 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 173 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Economic and Social Committee4,  
Having regard to the opinion of the Committee of the Regions5,  

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

In  the  European  Defence  Action  Plan,  adopted  on  30  November  2016,  the 
Commission committed to complement, leverage and consolidate collaborative efforts 
by Member States in developing defence capabilities to respond to security challenges, 
as  well  as  to  foster  a  competitive  and  innovative  European  defence  industry.  It 
proposed  in  particular  to  launch  a  European  Defence  Fund  to  support  investment  in 
joint research and the joint development of defence equipment and technologies. The 
Fund  would  support  cooperation  during  the  whole  cycle  of  defence  product  and 
technology development. 

In  order  to  contribute  to  the  enhancement  of  the  competitiveness  and  innovation 
capacity of the Union's defence industry, a European Defence Industrial Development 
Programme  (hereinafter  referred  to  as  the  Programme)  should  be  established.  The 
Programme  should  aim  at  enhancing  the  competitiveness  of  the  Union's  defence 
industry inter alia cyber defence by supporting the cooperation between undertakings 
in  the  development  phase  of  defence  products  and  technologies.  The  development 
phase, which follows the research and technology phase, entails significant risks and 
costs  that  hamper  the  further  exploitation  of  the  results  of  research  and  adversely 
impact  the  competitiveness  of  the  Union's  defence  industry.  By  supporting  the 
development  phase,  the  Programme  would  contribute  to  a  better  exploitation  of  the 
results  of  defence  research  and  it  would  help  to  cover  the  gap  between research  and 
production  as  well  as  to  promote  all  forms  of  innovation.  The  Programme  should 
complement activities carried out in accordance with Article 182 TFEU and it does not 
cover the production of defence products and technologies.  

4 
5 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

To  better  exploit  economies  of  scale  in  the  defence  industry,  the  Programme  should 
support the cooperation between undertakings in the development of defence products 
and technologies.  

The Programme should cover a two year period from 1 January 2019 to 31 December 
2020  whereas  the  amount  for  the  implementation  of  the  Programme  should  be 
determined for this period.  

The  Programme  should  be  implemented  in  full  compliance  with  Regulation  (EU, 
Euratom) No 966/2012 of the European Parliament and of the Council6. Funding may 
take in particular the form of grants. Financial instruments or public procurement may 
be used where appropriate.  

The Commission may entrust part of the implementation of the programme to entities 
referred to in Article 58(1) (c) of Regulation (EU, Euratom) N°966/2012. In view of 
its expertise, the Commission may entrust the European Defence Agency with such a 
role.  

In view of the specificities of the sector, in practice no collaborative project between 
undertakings  will  be  launched  if  the  Member  States  have  not  first  agreed  to  support 
such  projects.  After  having  defined  common  defence  capability  priorities  at  Union-
level  and  also  taking  into  account  where  appropriate  collaborative  initiatives  on  a 
regional  basis,  Member  States  identify  and  consolidate  military  requirements  and 
define  the  technical  specifications  of  the  project.  They  may  also  appoint  a  project 
manager  in charge  of leading the work  related to the  development of a collaborative 
project.  

In  case  an  action  supported  by  the  Programme  is  managed  by  a  project  manager 
appointed by Member States, the Commission should inform the project manager prior 
to  executing  the  payment  to  the  beneficiary  of  the  eligible  action  so  that  the  project 
manager can ensure that the time-frames are respected by the beneficiaries.  

The  Union  financial  support  should  not  affect  the  export  of  products,  equipment  or 
technologies, and it should not affect the discretion of Member States regarding policy 
on  the  export  of  defence  related  products.  The  Union  financial  support  should  not 
affect Member States' export policies on defence related products.   

(10)  As  the  objective  of  the  Programme  is  to  support  the  competitiveness  of  the  Union 
defence industry by de-risking the development phase of cooperative projects, actions 
related  to  the  development  of  a  defence  product  or  technology,  namely  definition  of 
common 
testing,  qualification, 
certification  as  well  feasibility  studies  and  other  supporting  measures,  should  be 
eligible  to  benefit  from  it.  This  will  also  apply  to  the  upgrade  of  existing  defence 
products and technologies. 

technical  specifications,  design,  prototyping, 

(11)  Given  that  the  Programme  aims  particularly  at  enhancing  cooperation  between 
undertakings across Member States, an action should be eligible for funding under the 
Programme  only  if  it  is  undertaken  by  a  cooperation  of  at  least  three  undertakings 
based in at least two different Member States.  

(12)  Cross-border  collaboration  in  the  development  of  defence  products  and  technologies 
has  often  been  hampered  by  the  difficulty  to  agree  on  common  technical 

6 

Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 
2012  on  the  financial  rules  applicable  to  the  general  budget  of  the  Union  and  repealing  Council 
Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1). 

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specifications. The absence or limited level of common technical specifications have 
led to increased complexity, delays and inflated costs in the development phase. The 
agreement  on  common  technical  specifications  should  be  a  condition  in  order  to 
benefit from the Union's support under this Programme. Actions aiming at supporting 
the creation of a common definition of technical specifications should also be eligible 
for support under the Programme. 

(13)  As  the  Programme  aims  at  enhancing  the  competitiveness  of  the  Union's  defence 
industry, only entities established in the Union and effectively controlled by Member 
States or their nationals should be eligible for support. Additionally, in order to ensure 
the  protection  of  essential  security interests  of  the  Union  and  its  Member  States,  the 
infrastructure,  facilities,  assets  and  resources  used  by 
the  beneficiaries  and 
subcontractors  in  actions  funded  under  the  Programme,  shall  not  be  located  on  the 
territory of non-Member States. 

(14)  Eligible actions developed in the context of Permanent Structured Cooperation in the 
institutional  framework  of  the  Union  would  ensure  enhanced  cooperation  between 
undertakings  in  the  different  Member  States  on  a  continuous  basis  and  thus  directly 
contribute to the aims of the Programme. Such projects should thus be eligible for an 
increased funding rate.  

(15) 

If  a  consortium  of  undertakings  wishes  to  participate  in  an  eligible  action  under  the 
Programme  and  financial  assistance  of  the  Union  is  to  take  form  of  a  grant,  the 
consortium  should  appoint  one  of  its  members  as  a  coordinator  who  will  be  the 
principle point of contact with the Commission.   

(16)  The  promotion  of  innovation  and  technological  development  in  the  Union  defence 
industry  should  take  place  in  a  manner  coherent  with  the  security  interests  of  the 
Union.  Accordingly,  the  action's  contribution  to  those  interests  and  to  the  defence 
capability  priorities  commonly  agreed  by  Member  States  should  serve  as  an  award 
criterion.  Within  the  Union,  common  defence  capability  priorities  are  identified 
notably through the Capability Development Plan. Other Union processes such as the 
Coordinated  Annual  Review  on  Defence  (CARD)  and  the  Permanent  Structured 
Cooperation  will  support  the  implementation  of  relevant  priorities  through  enhanced 
cooperation.  Where appropriate regional or  international cooperative initiatives, such 
as in the NATO context, and serving the Union security and defence interest, may also 
be taken into account.  

(17) 

(18) 

In order to ensure that the funded actions are viable, the Member States commitment 
to effectively contribute to the financing of the action should be an award criterion for 
such actions.  

In order to ensure that the funded actions will contribute to the competitiveness of the 
European  defence  industry,  they  should  be  market-oriented  and  demand  driven. 
Therefore, the fact that Member States have already committed to jointly produce and 
procure  the  final  product  or  technology,  possibly  in  a  coordinated  way,  should  be 
taken into account in the award criteria.  

(19)  The financial assistance of the Union under the Programme should not exceed 20% of 
the  total  eligible  cost  of  the  action  when  it  relates  to  prototyping  which  is  often  the 
most costly action in the development phase. The totality of the eligible costs should 
however be covered for other actions in the development phase.  

(20)  As  the  Union  support  aims  at  enhancing  the  competitiveness  of  the  sector  and 
concerns  only  the  specific  development  phase,  the  Commission  should  not  have 

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ownership  or  intellectual  property  rights  over  the  products  or  technologies  resulting 
from  the  funded  actions.  The  applicable  intellectual  property  rights  regime  will  be 
defined contractually by the beneficiaries. 

(21)  The  Commission  should  establish  a  multiannual  work  programme  in  line  with  the 
objectives of the Programme. The Commission should be assisted in the establishment 
of the work programme by a committee of Member States (hereinafter referred to as 
Programme  Committee).  In  light  of  the  Union  policy  on  Small  and  Medium 
Enterprises (SMEs) as key to ensuring economic growth, innovation, job creation, and 
social  integration  in  the  Union  and  the  fact  that  the  supported  actions  will  typically 
require trans-national collaboration, it is of importance that the work programme will 
reflect  and  enable  such  cross-border  participation  of  SMEs  and  that  therefore  a 
proportion of the overall budget will benefit such action. 

(22) 

In  order  to  benefit  from  its  expertise  in  the  defence  sector,  the  European  Defence 
Agency  will  be  given  the  status  of  an  observer  in  the  committee  of  Member  States. 
The European External Action Service should also assist in the committee of Member 
States.  

(23)  For  the  selection  of  actions  to  be  funded  by  the  Programme,  the  Commission  or  the 
entities  referred  to  in  Article  58(1)(c)  of  Regulation  N°966/2012  should  organise 
competitive calls as provided for by Regulation No 966/2012.  After evaluation of the 
received  proposals  with  the  help  of  independent  experts,  the  Commission  will  select 
the actions to be funded under the Programme. In order to ensure uniform conditions 
for  the  implementation  of  this  Regulation  implementing  powers  should  be  conferred 
on  the  Commission  as  regards  the  adoption  and  the  implementation  of  the  work 
programme,  as  well  as  for  awarding  the  funding  to  selected  actions.  Those  powers 
should be exercised in accordance with Regulation (EU) No 182/2011 of the European 
Parliament and of the Council7. 

(24)  The  examination  procedure  should  be  used  for  the  adoption  of  the  above-mentioned 
implementing  acts  taking  into  account  their  substantial  implications  for  the 
implementation of the basic act. 

(25)  The  Commission  should  draw  up  an  implementation  report  at  the  end  of  the 
Programme,  examining  the  financial  activities  in  terms  of  financial  implementation 
results  and  where  possible,  impact.  This  report  should  also  analyse  the  cross  border 
participation of SMEs in projects under the Programme as well as the participation of 
SMEs to the global value chain.  

HAVE ADOPTED THIS REGULATION: 

A  European  Defence  Industrial  Development  Programme  (hereinafter  referred  to  as  the 
Programme)  for  Union  action  covering  the  period  from  1st  January  2019  to  31  December 
2020 is hereby established. 

Article 1 

Article 2 

Objectives 

7 

Regulation  (EU)  No  182/2011  of  the  European  Parliament  and  of  the  Council  of  16  February  2011 
laying down the rules and general principles concerning mechanisms for control by the Member States 
of the Commission's exercise of implementing powers 

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10 

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The Programme shall have the following objectives: 

(a) 

(b) 

to  foster  the  competitiveness  and  innovation  capacity  of  the  Union  defence 
industry by supporting actions in their development phase; 

to support and leverage the cooperation between undertakings, including small 
and medium-sized enterprises, in the development of technologies or products 
in line with defence capability priorities commonly agreed by Member States 
within the Union; 

(c)  To foster better exploitation of the results of defence research and contribute to 

closing the gaps between research and development. 

Article 3 

Budget 

The amount for the implementation of the Programme for the period 2019-2020 is set at EUR 
500 million in current prices. 

Article 4 

General financing provisions 

1. 

The  Union's  financial  assistance  may  be  provided  through  the  types  of  financing 
envisaged by Regulation (EU, Euratom) No 966/2012, and in particular: 

(a) grants; 

(b) financial instruments; 

(c) public procurement.  

2. 

3. 

4. 

1. 

The types of financing referred to in paragraph 1 of this Article and the methods of 
implementation,  shall be chosen on the basis  of their ability to achieve the  specific 
objectives of the actions and to deliver results, taking into account, in particular, the 
costs of controls, the administrative burden and the risk of conflict of interests. 

The  Union's  financial  assistance  shall  be  implemented  by  the  Commission  as 
provided  for  by  Regulation  (EU,  Euratom)  No  966/2012  directly  or  indirectly  by 
entrusting  budget  implementation  tasks  to  the  entities  listed  in  Article  58(1)  (c)  of 
that Regulation. 

In  case  a  project  manager  is  appointed  by  Member  States,  the  Commission  shall 
execute the payment to the eligible beneficiaries after informing the project manager. 

Article 5 

Types of financial instruments 

Financial  instruments  set  up  in  accordance  with  Title  VIII  of  Regulation  (EU, 
Euratom)  No  966/2012  may  be  used  to  facilitate  access  to  finance  by  entities 
implementing actions in accordance with Article 6. 

2. 

The following types of financial instruments may be used: 

(a) Equity or quasi-equity investments; 

(b) Loans or guarantees; 

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(c) Risk sharing instruments. 

Article 6 

Eligible actions 

1. 

The Programme shall provide support for actions by beneficiaries in the development 
phase covering  both  new and the upgrade of existing products and technologies, in 
relation to: 

(a) 

(b) 

(c) 

(d) 

(e) 

the  design  of  a  defence  product,  tangible  or  intangible  component  or 
technology  as  well  as  the  technical  specifications  on  which  such  design  has 
been developed; 

the  prototyping  of  a  defence  product,  tangible  or  intangible  component  or 
technology.  A  prototype  is  a  model  of  a  product  or  technology  that  can 
demonstrate the element's performance in an operational environment; 

the  testing  of  a  defence  product,  tangible  or  intangible  component  or 
technology; 

the  qualification  of  a  defence  product,  tangible  or  intangible  component  or 
technology; qualification is the entire process of demonstrating that the design 
of  a  product/component/technology  meets  the  specified  requirements.  This 
process  provides  objective  evidence  by  which  particular  requirements  of  a 
design are demonstrated to have been achieved; 

the certification of a defence product or technology. Certification is the process 
according 
the 
that 
national 
product/component/technology complies with the applicable regulations; 

to  which 

authority 

certifies 

a 

2. 

3. 

4. 

1. 

(f) 

studies such as feasibility studies and other accompanying measures. 

The action shall be undertaken in a cooperation of at least three undertakings which 
are established in at least two different Member States. The undertakings which are 
beneficiaries  shall  not  effectively  be  controlled,  directly  or  indirectly,  by  the  same 
entity or shall not control each other. 

For the purposes of paragraph 2, 'effective control' means a relationship constituted 
by rights, contracts or any other means which, either separately or jointly and having 
regard to the considerations of fact or law involved, confer the possibility of directly 
or indirectly exercising a decisive influence on an undertaking, in particular by: 

(a) 

(b) 

the right to use all or part of the assets of an undertaking; 

rights or contracts which confer a decisive influence on the composition, voting 
or  decisions  of  the  bodies  of  an  undertaking  or  otherwise  confer  a  decisive 
influence on the running of the business of the undertaking.  

When  it  relates  to  actions  defined  under  point  (b)  to  (f)  of  the  first  paragraph,  the 
action must be based on common technical specifications. 

Article 7 

Eligible Entities 

Beneficiaries shall be undertakings established in the Union, in which Member States 
and/or  nationals  of  Member  States  own  more  than  50%  of  the  undertaking  and 

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12 

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effectively  control  it  within  the  meaning  of  Article  6(3),  whether  directly  or 
indirectly  through  one  or  more  intermediate  undertakings.  In  addition,  all 
infrastructure,  facilities,  assets  and  resources  used  by  the  participants,  including 
subcontractors and other third parties, in actions funded under the Programme shall 
not be located on the territory of non-Member States during the entire duration of the 
action. 

2. 

If the beneficiary, as  defined in  paragraph 1, is developing an  action,  as  defined in 
Article 6, in the context of Permanent Structured Cooperation, it shall be eligible for 
the increased funding referred to in Article 11(2) in respect of that action. 

Article 8 

Declaration by applicants 

Each applicant shall declare, by written statement, that it is fully aware of and compliant with 
applicable national and Union legislation and regulations relating to activities in the domain 
of defence. 

1. 

2. 

Article 9 

Consortium 

Where the Union’s financial assistance is provided through a grant, the members of 
any consortium wishing to participate in an action shall appoint one of them to act as 
coordinator, which shall be identified in the grant agreement. The coordinator shall 
be the principal point of contact between the members of the consortium in relations 
with the Commission or the relevant funding body, unless specified otherwise in the 
grant  agreement  or  in  the  event  of  non-compliance  with  its  obligations  under  the 
grant agreement. 

The  members  of  a  consortium  participating  in  an  action  shall  conclude  an  internal 
agreement  establishing 
the 
implementation  of  the  action  (in  compliance  with  the  grant  agreement),  except  in 
duly justified cases provided for in the work programme or call for proposals. 

rights  and  obligations  with 

respect 

their 

to 

Article 10 

Award criteria 

Actions  proposed  for  funding  under  the  Programme  shall  be  evaluated  on  the  basis  of  the 
following cumulative criteria: 

(a) 

(b) 

(c) 

(d) 

excellence 

contribution  to  the  innovation  and  technological  development  of  defence  industries 
and  thus  to  fostering  the  industrial  autonomy  of  the  Union  in  the  field  of  defence 
technologies; and, 

contribution to the security and defence interests of the Union by enhancing defence 
technologies which contribute to implement defence capability priorities commonly 
agreed by Member States within the Union; and, 

viability notably via a demonstration by the beneficiaries that the remaining costs of 
the eligible action are covered by other means of financing such as Member States’ 
contributions; and 

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13 

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(e) 

1. 

2. 

for  actions  described  in  points  (b)  to  (e)  of  Article  6(1),  the  contribution  to  the 
competitiveness of the European defence industry through the demonstration by the 
beneficiaries that Member States have committed to jointly produce and procure the 
final product or technology in a coordinated way, including joint procurement where 
applicable.  

Article 11 

Funding rates 

The financial assistance of the Union provided under the Programme may not exceed 
20%  of  the  total  cost  of  the  action  where  it  relates  to  prototyping.  In  all  the  other 
cases, the assistance may cover up to the total cost of the action. 

An action developed by a beneficiary referred to in Article 7 paragraph 2 may benefit 
from a funding rate increased by an additional 10 percentage points. 

Article 12 

Ownership and Intellectual Property rights 

The  Commission  shall  not  own  the  products  or  technologies  resulting  from  the  action  nor 
shall it have any IPR claim pertaining to the action.  

Article 13 

Work programme 

The Commission, by means of an implementing act, shall adopt  multiannual a work 
programme  for  the  duration  of  the  Programme.  This  implementing  act  shall  be 
adopted in accordance with the examination procedure referred to in in Article 16(2). 
This work programme shall be in line with the objectives set out in Article 2; 

The  work  programme  shall  set  out  in  detail  the  categories  of  projects  to  be  funded 
under the Programme; 

The  work  programme  shall  ensure  that  a  credible  proportion  of  the  overall  budget 
will benefit actions enabling the cross-border participation of SMEs. 

Article 14 

Award procedure 

In the implementation of the Programme, Union funding shall be granted following 
competitive calls issued in accordance with Regulation (EU, Euratom) No 966/2012 
and Commission Delegated Regulation (EU) No 1268/128. 

The  proposals  submitted  following  the  call  for  proposals  shall  be  evaluated  by  the 
Commission  assisted  by  independent  experts  on  the  basis  of  the  award  criteria  of 
Article 10.  

Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 on the rules of application 
of  Regulation  (EU,  Euratom)  No  966/2012  of  the  European  Parliament  and  of  the  Council  on  the 
financial rules applicable to the general budget of the Union (OJ L 362, 31.12.2012, p. 1). 

1. 

2. 

3. 

1. 

2. 

8 

EN 

14 

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3. 

The  Commission  shall  award,  after  each  call,  the  funding  for  selected  actions,  by 
means  of  an  implementing  act.  Those  implementing  acts  shall  be  adopted  in 
accordance with the examination procedure referred to in Article 16(2).  

The Commission may divide budgetary commitments into annual instalments. 

Article 15 

Annual instalments 

1. 

2. 

1. 

2. 

1. 

2. 

Article 16 

Committee 

The  Commission  shall  be  assisted  by  a  committee.  That  committee  shall  be  a 
committee  within  the  meaning  of  Regulation  (EU)  No  182/2011.  The  European 
Defence Agency shall be invited as observer. 

Where  reference  is  made  to  this  paragraph,  Article  5  of  Regulation  (EU)  No 
182/2011 shall apply. 

Article 17 

Monitoring and reporting 

The Commission shall regularly monitor the implementation of the programme and 
annually  report  on  the  progress  made  in  accordance  with  Article  38(3)(e)  of 
Regulation  966/2012.  To  this  end,  the  Commission  shall  put  in  place  necessary 
monitoring arrangements. 

To  support  greater  efficiency  and  effectiveness  of  future  Union  policy  actions,  the 
Commission  shall  draw  up  a  retrospective  evaluation  report  and  send  it  to  the 
European  Parliament  and  to  the  Council.  The  report  -  building  on  relevant 
consultations  of  Member  States  and  key  stakeholders  -  shall  notably  assess  the 
progress made towards the achievement of objectives set out in Article 2. It shall also 
analyse  cross  border  participation  of  SMEs  in  projects  implemented  under  the 
programme as well as the participation of SMEs to the global value chain. 

Article 18 

Protection of Union financial interests 

The  Commission  shall  take  appropriate  measures  to  ensure  that,  when  actions 
financed under this Regulation are implemented, the financial interests of the Union 
are protected by the application of preventive measures against fraud, corruption and 
any other illegal activities, by effective checks and, if irregularities are detected, by 
the recovery or, where appropriate, the restitution of the amounts wrongly paid and, 
where  appropriate,  by  effective,  proportionate  and  dissuasive  administrative  and 
financial penalties. 

The Commission and the Court of Auditors shall have the power of audit or, in the 
case  of  international  organisations,  the  power  of  verification  in  accordance  with 
agreements reached with them, on the basis of documents and on the spot, over all 
grant  beneficiaries,  contractors  and  subcontractors  who  have  received  Union  funds 
under this Regulation. 

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15 

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3. 

The European Anti-Fraud Office (OLAF) may carry out investigations, including on-
the-spot  checks  and  inspections,  in  accordance  with  the  provisions  and  procedures 
laid down in Regulation (EU, Euratom) No 883/2013 of the European Parliament and 
of the Council9 and Council Regulation (Euratom, EC) No 2185/9610 , with a view to 
establishing  whether  there  has  been  fraud,  corruption  or  any  other  illegal  activity 
affecting the financial interests of the Union in connection with a grant agreement or 
grant decision or a contract funded under this Regulation. 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 19 

This Regulation is binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

9 

10 

Regulation  (EU,  Euratom)  No  883/2013  of  the  European  Parliament  and  of  the  Council  of  11 
September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and 
repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council and Council 
Regulation (Euratom) No 1074/1999 (OJ L 248, 18.9.2013, p. 1). 
Council  Regulation  (Euratom,  EC)  No  2185/96  of  11  November  1996  concerning  on-the-spot  checks 
and inspections carried out by the Commission in order to protect the European Communities' financial 
interests against fraud and other irregularities (OJ L 292, 15.11.1996, p. 2).  

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1.  Title of the proposal/initiative  

1.2.  Policy area(s) concerned in the ABM/ABB structure 

1.3.  Nature of the proposal/initiative  

1.4.  Objective(s)  

1.5.  Grounds for the proposal/initiative  

1.6.  Duration and financial impact  

1.7.  Management mode(s) planned  

2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

2.2.  Management and control system  

2.3.  Measures to prevent fraud and irregularities  

3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

3.1.  Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget 
line(s) affected  

3.2.  Estimated impact on expenditure  

3.2.1. Summary of estimated impact on expenditure  

3.2.2. Estimated impact on operational appropriations  

3.2.3. Estimated impact on appropriations of an administrative nature 

3.2.4. Compatibility with the current multiannual financial framework 

3.2.5. Third-party contributions  

3.3.  Estimated impact on revenue

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1. 

Title of the proposal/initiative  

Regulation of the European Parliament and of the Council establishing the European 
Defence 
the 
competitiveness and innovative capacity of the EU defence industry. 

Industrial  Development  Programme 

supporting 

aiming 

at 

1.2. 

Policy area(s) concerned  

Title 02 – Internal Market, Industry, Entrepreneurship and SMEs 

Chapter 02.07: European Defence Industrial Development Programme 

1.3. 

Nature of the proposal/initiative  

 The proposal/initiative relates to a new action  

  The  proposal/initiative 
project/preparatory action11  

relates 

to  a  new  action 

following  a  pilot 

 The proposal/initiative relates to the extension of an existing action  

 The proposal/initiative relates to an action redirected towards a new action  

1.4. 

Objective(s) 

1.4.1.  The  Commission's  multiannual 

strategic  objective(s) 

targeted  by 

the 

proposal/initiative  

The Defence industry is a major element of the Economy of the European Union and 
the  European  Defence  Industrial  Development  Programme  aims  at  enhancing  its 
competitiveness and its innovation capability. 

1.4.2. 

Specific objective(s) 

Specific Objective No 1 

To foster the competitiveness of the defence industry 

Specific Objective No 2 

To  support  and  leverage  cooperation  between  undertakings  in  the  development  of 
defence products and technologies 

Specific Objective No 3  

To  cover  the  gap  between  research  and  innovation  and  promote  all  forms  of 
innovation. 

11 

As referred to in Article 54(2)(a) or (b) of the Financial Regulation. 

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1.4.3.  Expected result(s) and impact 

Specify the effects which the proposal/initiative should have on the beneficiaries/groups targeted. 

Expected results: 

The programme will help create a collaborative approach between defence industrial 
players of the Member States. The financial contribution of the EU should contribute 
to  unlock  a  number  of  development  projects  which  otherwise  would  not  be  started 
considering their financing needs or the technological risks involved and should lead 
to additional collaborative defence development projects. 

The  increased  cooperation  is  expected  to  reduce  wasteful  duplications,  dispersions 
and  create  economies  of  scale.  This  will  eventually  lead  to  lower  unit  costs, 
benefiting to the Member States and having a positive effect on exports. 

Expected impacts: 

The  development  of  defence  projects  directly  or  indirectly  supported  by  the 
programme is expected to have a positive impact on the European Economy. Studies 
show  that  investments  in  the  defence  sector  have  significant  positive  multiplier 
effects on GDP, tax and employment, comparable to those of other key categories of 
public  spending  (transport,  education,  health).  Research  and  Development  in  the 
defence  sector  is  also  at  the  origin  of  important  spin-offs  that  benefit  both  the 
defence and the civil sectors. 

The  supply  chain  of  the  defence  sector  is  widely  made  of  SMEs’  in  particular 
through the supply chain of the main system integrators. The progressive blurring of 
the  border  between  the defence  and  the  civil  sectors  will  also  allow  SMEs  that  are 
not traditionally active in the defence sector, to participate in particular in the field of 
electronics and software. 

On a longer term, it is expected that defence projects bring benefits as regards jobs 
creations and skills.  

1.4.4. 

Indicators of results and impact  

Specify the indicators for monitoring implementation of the proposal/initiative. 

Taking into consideration the short period of implementation, the results and impacts 
of  the  programme  will  be  assessed  under  retrospective  evaluation  at  the  end  of  the 
programme implementation. 

The Commission will ensure that the necessary indicators used for the monitoring of 
programme  implementation  will  be  put  in  place  by  the  entity  entrusted  with  the 
programme implementation. These will include: 

- number of cooperative projects implemented 

- total value of cooperative projects implemented and co-financing level 

- number of companies involved as consortium members and their size (to monitor 
the SMEs’ participation) 

- number of Member States involved  

- number of SMEs involved in projects under the programme 

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1.5. 

Grounds for the proposal/initiative  

1.5.1.  Requirement(s) to be met in the short or long term  

The  tasks  of  this  proposal  to  be  carried  out  will  require  the  set-up  of  a  consortium 
through  an  internal  agreement  as  per  article  9  of  this  Regulation  together  with  the 
appointment of one member of this consortium as a coordinator. 

The  members  of  the  consortium  will  need  to  prove  their  technical  capacity  to 
effectively  manage  the  actions  they  are  given,  in  particular  due  to  the  limited 
duration (2 years) of the programme. 

The  implementing  body  will  need  to  be  staffed  with  the  appropriate  technical, 
financial and legal experts to prepare the selection of grants, manage their follow-up, 
control  the  outsourced  activities  and  prepare  a  high  quality  reporting  to  the 
management of the Commission. 

The Commission will also need to be staffed with the appropriate experts in order to 
monitor effectively the work of the implementing body. 

1.5.2.  Added  value  of  Union  involvement  (it  may  result  from  different  factors,  e.g. 
coordination gains, legal certainty, greater effectiveness or complementarities). For 
the purposes of this point 'added value of Union involvement' is the value resulting 
from  Union  intervention  which  is  additional  to  the  value  that  would  have  been 
otherwise created by Member States alone. 

The EU right to act on is based on article 173 of the Treaty on the functioning of the 
European Union. 

The defence industry projects are managed at a national level and the development 
phase is the most risky one. The European defence sector is suffering from low level 
of investment and is characterised by fragmentation along national borders leading to 
persistent duplications. Besides, a look at the defence industries available in the EU 
uncovers  growing  shortfalls,  ageing  technologies  and  a  lack  of  new  programmes, 
especially  collaborative  programmes.  Cross  border  cooperation  can  help  to  better 
capture  scale  effects  by  reducing  duplications  and  allowing  for  the  development  of 
the needed products and technologies. 

Also the lack of coordination and coherence between Member States is a source of 
competitive disadvantage for the European defence industry vis-a-vis its international 
counterparts  whilst  it  remains  a  major  source  of  costs  for  the  national  budget  and 
constitutes a significant impediment for the implementation of the Common Security 
and Defence Policy (CSDP). 

Action  at  EU  level  will  provide  added-value  by  means  of  further  stimulating 
industrial  defence  cooperation  through  positive  incentives,  targeting  projects  in  the 
development phase of defence products and technologies that cannot be undertaken 
at national level in view of the costs and risks associated. 

The  support  of  the  European  Union  will  allow  the  defence  industry  to  allocate  the 
necessary  funding  to  projects  which  are  frequently  beyond  the  means  of  a  single 
country: the nature of these projects and their costs make a trans-national cooperation 
necessary. 

The common technical specifications that will be legally required by the regulation 
will drive the Member States and their defence industry towards common standards, 
leading to a better and more efficient collaboration. 

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1.5.3.  Lessons learned from similar experiences in the past 

The Pilot project and the Preparatory Action on Defence Research with the EDA are 
programmes  that  can  be  considered  similar:  the  return  of  experience  on  these 
programmes,  in  particular  on  the  governance  mode,  will  be  used  to  define  the 
management  and  follow-up  of  the  European  Defence  Industrial  Development 
Programme.  

1.5.4.  Compatibility and possible synergy with other appropriate instruments 

Synergies  are  possible  with  other  current  defence  project  (for  example  the 
Preparatory Action with the European Defence Agency). 

Synergies  shall  also  be  sought  within  the  other  directorates  of  the  European 
Commission  regarding  research  and  innovation.  The  projects  to  be  financed  in 
support  of  the  European  Defence  Industrial  Development  Programme  may  have, 
amongst others, an impact on transport, communications, and energy domains. 

It is important to ensure that research and innovation programmes are coordinated by 
the Commission to maximise the return on investment.  

1.6. 

Duration and financial impact  

 Proposal/initiative of limited duration  

–    Proposal/initiative in effect from 1/01/2019 to 31/12/2020  

–   Financial impact from 1/01/2018 to 31/12/2023 

 Proposal/initiative of unlimited duration 

–  Implementation with a start-up period from YYYY to YYYY, 

–  followed by full-scale operation. 
1.7.  Management mode(s) planned12  

 Direct management by the Commission 

–   by its departments, including by its staff in the Union delegations;  

–    by the executive agencies  

 Shared management with the Member States  

 Indirect management by entrusting budget implementation tasks to: 

–   third countries or the bodies they have designated; 

–   international organisations and their agencies (to be specified); 

–  the EIB and the European Investment Fund; 

–   bodies referred to in Articles 208 and 209 of the Financial Regulation; 

–   public law bodies; 

–   bodies governed by private law with a public service mission to the extent that 

they provide adequate financial guarantees; 

12 

Details of management modes and references to the Financial Regulation may be found on the 
BudgWeb site: 
https://myintracomm.ec.europa.eu/budgweb/EN/man/budgmanag/Pages/budgmanag.aspx  

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–   bodies governed by the private law of a Member State that are entrusted with 
the  implementation  of  a  public-private  partnership  and  that  provide  adequate 
financial guarantees; 

–    persons  entrusted  with  the  implementation  of  specific  actions  in  the  CFSP 

pursuant to Title V of the TEU, and identified in the relevant basic act. 

– 

If more than one management mode is indicated, please provide details in the ‘Comments’ section. 

Comments  

The  mode  of  indirect  management  is  preferred  in  order  to  maximise  the  flexibility  of  the 
programme  whilst  giving  the  European  Commission  all  means  to  control  and  monitor  the 
programme and the use of funds. 

2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

Specify frequency and conditions. 

In  accordance  with  article  17  of  the  European  Defence  Industrial  Development 
Programme regulation the Commission will regularly monitor the implementation of 
the programme and annually report on the progress made by examining the financial 
activities and assess achieved results.  

To this end, the Commission will put in place necessary monitoring arrangements to 
ensure that relevant data from entities entrusted with the programme implementation, 
Member States or third parties are collected reliably and smoothly.  

For  task  implemented  under  indirect  management  the  Commission  will  ensure  that 
efficient  and  effective  monitoring  and  reporting  procedures  are  embedded  in  the 
Delegation agreement and in the contracts/agreements signed by the entrusted entity 
with the selected beneficiaires.  

The collected data should enable the Commission to report on the progress made in 
accordance  with  Article  38(3)(e)  of  Regulation  966/2012  and  by  reference  to  the 
specifc objectives refered to in point 1.4.2 above. 

2.2.  Management and control system  

2.2.1.  Risk(s) identified  

The identified risks are: 

Timetable Risk:  Schedule issue, delays in implementation 

Governance  risk:    Lack  of  cooperation  between  Member  States  and/or  national 
industry 

Financial risk:  Cost management,  Low absorption (delays), ineligible costs, etc. 

Technical  risks:  Difficulties  in  specific  development;  Technical  issues;  Lower 
performance level 

2.2.2. 

Information concerning the internal control system set up 

The funds will be managed indirectly via a Delegation Agreement. 

Most of the funds are allocated via grants (second layer). 

EN 

22 

   EN 

 
The  implementing  body  will  link  the  attribution  of  these  grants  to  a  periodic 
compulsory reporting to be provided by the beneficiaries through the coordinator of 
the consortium (article 9 of the regulation). 

The contract or agreements that will be signed with the coordinator of the consortium 
will  detail  the  obligations  of  the  consortium  and  in  particular  the  right  for  the 
Commission,  in  case  of  lack  of  or  inadequate  implementation  of  the  actions  or 
delays, to reduce, withhold or terminate its financial contribution. 

The  Commission  will  agree  through  the  Delegation  Agreement  on  the  nature  and 
frequency of this reporting: 

- Compulsory reporting by the beneficiaries 

- Desk checks on expenses 

- Participation in periodic monitoring meetings (technical and management) 

If need be, assistance of external technical experts will be requested when monitoring 
the  implementation  of  the  programmes.  On  the  basis  of  the  results  of  on-the-spot 
checks, the Commission will ensure that, if necessary, the scale or the conditions of 
allocation of the financial contribution originally approved and also the timetable for 
payments are adjusted. 

Moreover, an audit strategy will be implemented to closely monitor the costs of the 
project.  

2.2.3.  Estimate of the costs and benefits of the controls and assessment of the expected level 

of risk of error  

The  staff  included  under  point  3.2.3.2  should  be  sufficient  to  control  the 
implementation of the funds. 

2.3.  Measures to prevent fraud and irregularities  

Specify existing or envisaged prevention and protection measures. 

Article  18  of  the  proposal  clarifies  the  competence  of  the  European  Anti-Fraud 
Office  (OLAF)  to  carry  out  investigations  on  operations  supported  under  this 
initiative.  

Agreements  resulting  from  this  Regulation,  including  agreements  concluded  with 
participating  third  countries  and  international  organisations,  shall  provide  for 
supervision  and  financial  control  by  the  Commission,  or  any  representative 
authorised by it, and audits by the Court of Auditors or OLAF, if necessary on-the-
spot. 

3. 

3.1. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget 
line(s) affected  

  Existing budget lines  

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of  
expenditure 

Contribution  

Diff./Non-

from 

from 

from third 

within the 

23 

   EN 

Heading of 
multiannual 
financial 
framework 

EN 

 
diff.

13 

Diff 

Non-diff. 

EFTA 
countries
14 

YES/N
O 

YES/N
O 

candidate 
15 
countries

countries 

meaning of 
Article 21(2)(b) of 
the Financial 
Regulation  

YES/NO 

YES/NO 

YES/N
O 

YES/N
O 

YES/NO 

YES/NO 

Heading of 
multiannual 
financial 
framework 

  New budget lines requested 

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of 
expenditure 

Contribution  

Diff./Non-
diff. 

from 
EFTA 
countries 

from 
candidate 
countries 

from third 
countries 

within the 
meaning of 
Article 21(2)(b) of 
the Financial 
Regulation  

Diff 

NO 

NO 

NO 

NO 

Non-diff. 

NO 

NO 

NO 

NO 

02.0701  European  Defence  Industrial 
Development Programme 

02.010405 – Support expenditure for 
European Defence Industrial 
Development Programme 

13 
14 
15 

Diff. = Differentiated appropriations / Non-diff. = Non-differentiated appropriations. 
EFTA: European Free Trade Association.  
Candidate countries and, where applicable, potential candidates from the Western Balkans. 

EN 

24 

   EN 

 
 
 
 
 
 
 
 
 
 
                                                 
3.2. 

Estimated impact on expenditure  

The proposal will not increase the total level of expenditure programmed under Heading 1a of the Multiannual Financial Framework 
2014-2020,  as  the  envelopes  of  the  Connecting  Europe  Facility,  the  European  Satellite  Navigation  Programmes,  the  European  Earth 
Observation  Programme,  the  ITER  Programme  and  the  unallocated  margin  will  be  reduced  to  finance  the  contribution  from  the  EU 
Budget to the European Defence Industrial Development Programme. 

Sources  of  financing  for  the  European  Defence  Industrial 
Development Programme 

2019 

2020 

Total 

EUR million (to three decimal places) 

CONNECTING EUROPE FACILITY, of which 

32.020101  –  Further  integration  of  the  internal  energy 
market  and  the  interoperability  of  electricity  and  gas 
borders 
across 
networks 

32.020102 - Enhancing Union security of energy supply 

32.020103  -  Contributing  to  sustainable  development  and 
protection 

environment   

the 

of 

09.0303 - Promoting interoperability, sustainable 
deployment, operation and upgrading of trans-European 
digital service infrastructures, as well as coordination at 
European level 

EUROPEAN  SATELLITE  NAVIGATION  PROGRAMMES 
(EGNOS and Galileo) 
, of which 

02.0501  –  Developing  and  providing  global  satellite-based 
radio  navigation  infrastructures  and  services  (Galileo)  by 
2020  

02.0502  -  Providing  satellite-based  services  improving  the 
performance of GPS to gradually cover the whole European 
Civil  Aviation  Conference  (ECAC)  region  by  2020 

20 

20 

20 

10 

20 

20 

20 

15 

145 

40 

40 

40 

25 

135 

80 

50 

130 

5 

5 

EN 

25 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(EGNOS) 

EUROPEAN  EARTH  OBSERVATION  PROGRAMME, 
of which 

02.0601  Delivering  operational  services  relying  on  space-
borne observations and in-situ data (Copernicus) 

10 

5 

ITER, of which 

32.050102  Construction,  operation  and  exploitation  of  the 
ITER  facilities  –  European  Joint  Undertaking  for  ITER  — 
Fusion for Energy (F4E) 

30 

50 

Unallocated margin, of which 

Unallocated Margin  

55 

70 

15 

15 

80 

80 

125 

125 

3.2.1. 

Summary of estimated impact on expenditure  

EUR million (to three decimal places) 

Heading of multiannual financial  
framework  

1A 

Competitiveness for growth and jobs 

DG: GROW 

 Operational appropriations  

02.07 01 

2019 

2020 

2021 

2022 

2023 

TOTAL 

Commitments 

Payments 

(1) 

(2) 

244.7 
146.7 

254.5 
201.5 

100 

51 

p.m 

499.2 
499.2 

 Appropriations of an administrative nature financed from the 
envelope of specific programmes16 

16 

EN 

Technical and/or administrative assistance and expenditure in support of the implementation of EU programmes and/or actions (former ‘BA’ lines), indirect research, 
direct research. 

26 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
02.01 04 05 

TOTAL appropriations 
for DG GROW 

 TOTAL operational appropriations  

Commitments 

Payments 

Commitments 

Payments 

  TOTAL  appropriations  of  an  administrative  nature 
financed from the envelope for specific programmes  

(3) 

=1+1a 
+3 

=2+2a 

+3 

(4) 

(5) 

(6) 

0.3 

245 

0.5 

255 

147 

202 

100 

51 

p.m 

244.7 

146.7 

254.5 

201.5 

0.3 

0.5 

100 

51 

p.m 

TOTAL appropriations  
under HEADING 1 
of the multiannual financial framework 

Commitments 

=4+ 6 

245 

255 

Payments 

=5+ 6 

147 

202 

100 

51 

p.m 

0.8 

500 

500 

499.2 

499.2 

0.8 

500 

500 

If more than one heading is affected by the proposal / initiative: 

 TOTAL operational appropriations  

Commitments 

Payments 

  TOTAL  appropriations  of  an  administrative  nature 
financed from the envelope for specific programmes  

(4) 

(5) 

(6) 

TOTAL appropriations  
under HEADINGS 1 to 4 
of the multiannual financial framework 
(Reference amount) 

Commitments 

=4+ 6 

Payments 

=5+ 6 

Heading of multiannual financial  
framework  

5 

‘Administrative expenditure’ 

EUR million (to three decimal places) 

EN 

27 

EN 

 
  
 
 
 
 
 
 
 
 
  
  
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 

2019 

2020 

2021 

2022 

2023 

TOTAL 

DG: GROW 

 Human resources  
 Other administrative expenditure  

0.966 

0.199 

0.985 

0.249 

1.005 

0.249 

TOTAL DG GROW 

Appropriations  

1.165 

1.234 

1.254 

TOTAL appropriations 
under HEADING 5 
of the multiannual financial framework  

(Total  commitments  = 
Total payments) 

1.165 

1.234 

1.254 

2.956 

0.697 

3.653 

3.653 

2018 

2019 

2020 

2021 

2022 

2023 

TOTAL 

EUR million (to three decimal places) 

TOTAL appropriations  
under HEADINGS 1 to 5 
of the multiannual financial framework  

Commitments 

1.165 

246.234 

256.254 

Payments 

1.165 

148.234 

203.254 

100 

51 

503.653 

503.653 

EN 

28 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2.2.  Estimated impact on operational appropriations  

–    The proposal/initiative does not require the use of operational appropriations  

–    The proposal/initiative requires the use of operational appropriations, as explained below: 

Commitment appropriations in EUR million (to three decimal places) 

Indicate 
objectives and 
outputs  

2019 

2020 

TOTAL 

OUTPUTS 

 

Type
17

Avera
ge 
cost 

o
N

Cost  N

o

Cost 

Total 
No 

Total 
cost 

SPECIFIC OBJECTIVES

18

1- To foster the competitiveness of the defence industry 
2- To support and leverage cooperation between undertakings in the development of defence 
products and technologies 
3- To cover the gap between research and innovation and promote all forms of innovation 

- Output 

Subtotal for specific objective No 1 

TOTAL COST 

2 

2 

2 

244.7 

244.7 

244.7 

1 

1 

1 

254.5 

254.5 

254.5 

3 

3 

3 

499.2 

499.2 

499.2 

17 
18 

Outputs are products and services to be supplied (e.g.: number of student exchanges financed, number of km of roads built, etc.). 
As described in point 1.4.2. ‘Specific objective(s)…’  

EN 

29 

EN 

 
  
 
 
 
 
 
 
 
  
 
 
                                                 
3.2.3.  Estimated impact on appropriations of an administrative nature 

3.2.3.1.  Summary  

–    The  proposal/initiative  does  not  require  the  use  of  appropriations  of  an 

administrative nature  

–    The proposal/initiative requires the use of appropriations of an administrative 

nature, as explained below: 

EUR million (to three decimal places) 

2018 

2019 

2020 

2021 

2022 

2023 

TOTAL 

HEADING 5 
of the multiannual 
financial framework 

Human resources  

0.966 

0.985 

1.005 

0.199 

0.249 

0.249 

1.165 

1.234 

1.254 

Other administrative 
expenditure  

Subtotal HEADING 5 
of the multiannual 
financial framework  

19

Outside HEADING 5
of the multiannual 
financial framework  

Human resources  

Other expenditure  
of an administrative 
nature 

Subtotal  
outside HEADING 5 
of the multiannual 
financial framework  

2.956 

0.697 

3.653 

TOTAL 

1.165 

1.234 

1.254 

3.653 

The  appropriations  required  for  human  resources  and  other  expenditure  of  an  administrative  nature  will  be  met  by 
appropriations from the DG that are already assigned to management of the action and/or have been redeployed within the 
DG,  together  if  necessary  with  any  additional  allocation  which  may  be  granted  to  the  managing  DG  under  the  annual 
allocation procedure and in the light of budgetary constraints. 

19 

Technical  and/or  administrative  assistance  and  expenditure  in  support  of  the  implementation  of 
EU programmes and/or actions (former ‘BA’ lines), indirect research, direct research. 

EN 

30 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.2.3.2.  Estimated requirements of human resources 

–    The proposal/initiative does not require the use of human resources.  

–    The  proposal/initiative  requires  the  use  of  human  resources,  as  explained 

below: 

Estimate to be expressed in full time equivalent units 

2018 

2019 

2020 

2021 

2022 

2023 

 Establishment plan posts (officials and temporary staff) 

02 01 01 01 (Headquarters and Commission’s 
Representation Offices) 

7 

7 

7 

XX 01 01 02 (Delegations) 

XX 01 05 01 (Indirect research) 

10 01 05 01 (Direct research) 

 External staff (in Full Time Equivalent unit: FTE)

20

XX 01 02 01 (AC, END, INT from the ‘global 
envelope’) 

XX 01 02 02 (AC, AL, END, INT and JED in the 
delegations) 

XX 01 04 yy 

21

- at Headquarters 

- in Delegations  

XX 01 05 02 (AC, END, INT - Indirect research) 

10 01 05 02 (AC, END, INT - Direct research) 

Other budget lines (specify) 

TOTAL 

7 

7 

7 

XX is the policy area or budget title concerned. 

The human resources required will be met by staff from the DG who are already assigned to management of the 
action  and/or  have  been  redeployed  within  the  DG,  together  if  necessary  with  any  additional  allocation  which 
may  be  granted  to  the  managing  DG  under  the  annual  allocation  procedure  and  in  the  light  of  budgetary 
constraints. 

Description of tasks to be carried out: 

Officials and temporary staff 

To define the needs and conceptually functional proposals 

To ensure security classification of data, set up and manage the necessary systems for 
handling confidential information 

To  ensure  the  necessary  legal  drafting,  prepare  necessary  impact  assessments, 
programme proposals and Commission decisions 

To  ensure  the  sound  management  of  the  programme  and  preparation  of  work 
programmes  

To support the evaluation and selection of grants 

To ensure sound financial monitoring and analysis of expenditures 

To monitor the action and analyse the technical progress 

To participate to major project meetings 

To report to management 

20 

21 

AC=  Contract  Staff;  AL  =  Local  Staff;  END=  Seconded  National  Expert;  INT  =  agency  staff; 
JED= Junior Experts in Delegations.  
Sub-ceiling for external staff covered by operational appropriations (former ‘BA’ lines). 

EN 

31 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
External staff 

EN 

32 

   EN 

 
 
3.2.4.  Compatibility with the current multiannual financial framework  

–    The  proposal/initiative  is  compatible  the  current  multiannual  financial 

framework. 

–    The proposal/initiative will entail reprogramming of the relevant heading in the 

multiannual financial framework. 

The proposal will be funded from the specific budget lines: 

02.0501 Developing and providing global satellite-based radio navigation infrastructures and services 
(Galileo) by 2020 

02.0502 Providing satellite-based services improving the performance of GPS to gradually cover the 
whole European Civil Aviation Conference (ECAC) region by 2020 (EGNOS) 

02.0601  Delivering  operational  services  relying  on  space-borne  observations  and  in-situ  data 
(Copernicus) 

32.050102  Construction,  operation  and  exploitation  of  the  ITER  facilities  —  European  Joint 
Undertaking for ITER — Fusion for Energy (F4E) 

32.020101  –  Further  integration  of  the  internal  energy  market  and  the  interoperability  of  electricity 
and gas networks across borders 

32.020102 - Enhancing Union security of energy supply 

32.020103 - Contributing to sustainable development and protection of the environment   

09.0303  -  Promoting  interoperability,  sustainable  deployment,  operation  and  upgrading  of  trans-
European digital service infrastructures, as well as coordination at European level  

Unallocated Margin 

–    The  proposal/initiative  requires  application  of  the  flexibility  instrument  or 

revision of the multiannual financial framework. 

3.2.5.  Third-party contributions  

–   The proposal/initiative does not provide for co-financing by third parties.  

–   The proposal/initiative provides for the co-financing estimated below: 

Appropriations in EUR million (to three decimal places) 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary 
to show the duration of the 
impact (see point 1.6) 

Total 

Specify  the  co-financing 
body  

TOTAL appropriations 
co-financed  

EN 

33 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3. 

Estimated impact on revenue  

–    The proposal/initiative has no financial impact on revenue. 

–    The proposal/initiative has the following financial impact: 

– 

– 

 

 

on own resources  

on miscellaneous revenue  

Appropriations 
available for the 
current 
financial year 

Budget revenue line: 

Article …………. 

EUR million (to three decimal places) 

Impact of the proposal/initiative

22

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to show 
the duration of the impact (see point 1.6) 

For miscellaneous ‘assigned’ revenue, specify the budget expenditure line(s) affected. 

Specify the method for calculating the impact on revenue. 

22 

As regards traditional own resources (customs duties, sugar levies), the amounts indicated must be net 
amounts, i.e. gross amounts after deduction of 25 % for collection costs. 

EN 

34 

   EN