Source: EURLEX
Language: en
Format: md

**Council of the**
**European Union**

**Interinstitutional File:**

**2018/0254(COD)**

**LEGISLATIVE ACTS AND OTHER INSTRUMENTS**

**Brussels, 18 March 2021**
**(OR. en)**

**6748/1/20**
**REV 1**

**POLMIL 24**
**COMPET 113**
**RECH 96**
**CFSP/PESC 229**
**CSDP/PSDC 141**
**COPS 80**
**EUMC 41**
**ECOFIN 180**
**IND 31**
**MI 70**
**EMPL 120**
**EDUC 95**
**CADREFIN 31**
**CODEC 175**
**PARLNAT 151**

Subject: Position of the Council at first reading with a view to the adoption of a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL establishing the European Defence Fund and repealing
Regulation (EU) 2018/1092

          - Adopted by the Council on 16 March 2021

6748/1/20 REV 1

# **EN**

**REGULATION (EU) 2021/...**

**OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL**

**of …**

**establishing the European Defence Fund**

**and repealing Regulation (EU) 2018/1092**

**(Text with EEA relevance)**

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(3), Article 182(4), Article 183 and the second paragraph of Article 188 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 Committee **[1]**,

Acting in accordance with the ordinary legislative procedure **[2]**,

**1** OJ C 110, 22.3.2019, p. 75.
**2** Position of the European Parliament of 18 April 2019 (not yet published in the Official
Journal) and position of the Council at first reading of 16 March 2021 (not yet published in
the Official Journal). Position of the European Parliament of … (not yet published in the
Official Journal).

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# **EN**

Whereas:

(1) The Union's geopolitical context has changed dramatically in the last decade. The situation

in Europe's neighbouring regions is unstable and the Union faces a complex and

challenging environment, combining the emergence of new threats, such as hybrid attacks

and cyber attacks, and the return of more conventional challenges. Given that context, both

European citizens and their political leaders share the view that more has to be done

collectively in the area of defence.

(2) The defence sector is characterised by increasing costs of defence equipment and by high

research and development (R&D) costs that limit the launch of new defence programmes

and have a direct impact on the competitiveness and innovation capacity of the European

defence technological and industrial base (EDTIB). In view of this cost escalation, the

development of a new generation of major defence systems and of new defence

technologies should be supported at Union level in order to increase cooperation between

Member States with regard to defence equipment investments.

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# **EN**

(3) In its communication of 30 November 2016 'European Defence Action Plan', the

Commission undertook to complement, leverage and consolidate collaborative efforts by

Member States in developing defence technological and industrial capabilities to respond

to security challenges, as well as to foster a competitive, innovative and efficient European

defence industry throughout the Union and beyond. Moreover, the Commission committed

itself to supporting the creation of a more integrated defence market in the Union and

fostering the uptake of European defence products and technologies in the internal market,

thus increasing the non-dependency on non-Union sources. The Commission proposed in

particular to launch a European Defence Fund to support investments in joint research and

the joint development of defence products and technologies, thereby fostering synergies

and cost-effectiveness, and to promote the Member States' joint purchase and maintenance

of defence equipment. The European Defence Fund should complement national funding

already used for that purpose, act as an incentive for Member States to cooperate and

invest more in defence and support cooperation during the whole life cycle of defence

products and technologies.

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# **EN**

(4) The European Defence Fund should contribute to a strong, competitive and innovative

EDTIB and complement the Union's initiatives towards a more integrated European

defence market and, in particular, Directives 2009/43/EC **[1]** and 2009/81/EC **[2]** of the

European Parliament and of the Council on Union transfers and procurement in the

defence sector adopted in 2009.

**1** 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 (OJ L 146, 10.6.2009, p. 1).
**2** 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/EC (OJ L 216, 20.8.2009, p. 76).

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# **EN**

(5) In order to contribute to the enhancement of the competitiveness and innovation capacity

of the Union's defence industry, a European Defence Fund (the 'Fund') should be

established for a period of seven years to align its duration with that of the multiannual

financial framework 2021-2027 (MFF 2021-2027) laid down in Council Regulation (EU,

Euratom) 2020/2093 **[1]** on the basis of an integrated approach. The aim of the Fund is to

enhance the competitiveness, innovation, efficiency and technological autonomy of the

Union's defence industry, thereby contributing to the Union's strategic autonomy by

supporting the cross-border cooperation between Member States as well as cooperation

between enterprises, research centres, national administrations, international organisations

and universities throughout the Union, both in the research and in the development phases

of defence products and technologies. To achieve more innovative solutions and to foster

an open internal market, the Fund should support and facilitate the widening of

cross-border cooperation of small- and medium-sized enterprises (SMEs) and middle

capitalisation companies (mid-caps) in the defence sector. Within the Union, common

defence capability shortfalls are identified within the framework of the Common Security

and Defence Policy, in particular through the Capability Development Plan (CDP), while

the Overarching Strategic Research Agenda (OSRA) also identifies common defence

research objectives.

**1** Council Regulation (EU, Euratom) 2020/2093 of 17 December 2020 laying down the
multiannual financial framework for the years 2021 to 2027 (OJ L 433I, 22.12.2020, p. 11).

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# **EN**

Other Union processes such as the Coordinated Annual Review on Defence (CARD) and

Permanent Structured Cooperation (PESCO) have the purpose of supporting the

implementation of relevant priorities by identifying and taking up opportunities for

enhanced cooperation with a view to fulfilling the Union's level of ambition in the area of

security and defence. Where appropriate, regional and international priorities, including

those in the North Atlantic Treaty Organization context, may also be taken into account if

they are in line with Union priorities and do not prevent any Member State or associated

country from participating, while seeking to avoid unnecessary duplication.

(6) The research phase linked to the development of defence capabilities is crucial, as it

underpins the capacity and the autonomy of the European industry to develop defence

products and the independence of Member States as the end-users of such products. The

research phase may include significant risks, in particular in relation to the low level of

maturity and the disruptive nature of technologies. The development phase, which usually

follows the research phase, also entails significant risks and costs that hamper the further

exploitation of the results of research and have an adverse impact on the competitiveness

and innovation of the Union's defence industry. The Fund should thus foster the link

between the research and the development phases.

(7) The Fund does not support basic research, which should instead be supported through other

funding programmes, but its support may include defence-oriented fundamental research

likely to form the basis of the solution to recognised or expected problems or to create new

possibilities.

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# **EN**

(8) The Fund could support actions pertaining to both new defence products and technologies

and the upgrade of existing defence products and technologies, including the

interoperability thereof. Actions for the upgrade of existing defence products and

technologies should be eligible only where pre-existing information needed to carry out the

action is not subject to any restriction by a non-associated third country or a non-associated

third-country entity in such a way that the action cannot be carried out. When applying for

Union funding, legal entities should be required to provide the relevant information to

establish the absence of restrictions. In the absence of such information, there should be no

Union funding.

(9) The Fund should support actions that are conducive to developing disruptive technologies

for defence. As disruptive technologies can be based on concepts or ideas originating from

non-traditional defence actors, the Fund should allow for sufficient flexibility with regard

to the consultation of stakeholders and the carrying out such actions.

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# **EN**

(10) In order to ensure that, in the implementation of this Regulation, the international

obligations of the Union and its Member States are respected, actions relating to products

or technologies the use, development or production of which is prohibited by international

law should not be supported by the Fund. In that respect, the eligibility of actions related to

new defence products or technologies should also be subject to developments in

international law. Moreover, actions for the development of lethal autonomous weapons

without the possibility for meaningful human control over selection and engagement

decisions when carrying out strikes against humans should not be eligible for support from

the Fund, without prejudice to the possibility of providing funding for actions for the

development of early warning systems and countermeasures for defensive purposes.

(11) The fact that it is difficult to agree on harmonised defence capability requirements and

common technical specifications or standards hampers cross-border collaboration between

Member States and between legal entities established in different Member States. The

absence of such requirements, specifications and standards has led to increased

fragmentation of the defence sector, technical complexity, delays, inflated costs,

unnecessary duplication as well as decreased interoperability. The agreement on common

technical specifications should be a prerequisite for actions involving a higher level of

technological readiness. Activities leading to harmonised defence capability requirements

as well as activities aiming to support the creation of a common definition of technical

specifications or standards should also be eligible for support from the Fund, in particular

where they foster interoperability.

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# **EN**

(12) As the objective of the Fund is to support the competitiveness, efficiency and innovation of

the Union's defence industry by leveraging and complementing collaborative defence

research and technology activities and de-risking the development phase of cooperative

projects, actions related to the research and the development phases of a defence product or

technology should be eligible for support from the Fund.

(13) Given that the aim of the Fund is, in particular, to enhance cooperation between legal

entities and Member States across the Union, an action should be eligible for funding only

if it is to be carried out by legal entities cooperating within a consortium of at least three

eligible legal entities which are established in at least three different Member States or

associated countries. At least three of those eligible legal entities established in at least two

different Member States or associated countries should not, during the entire period in

which the action is carried out, be controlled, directly or indirectly, by the same legal entity

and should not control each other. In that context, control should be understood to be the

ability to exercise a decisive influence on a legal entity directly, or indirectly through one

or more intermediate legal entities. Taking into account the specificities of disruptive

technologies for defence, as well as of studies, the actions could be carried out by a single

legal entity. In order to boost cooperation between Member States, it should also be

possible for the Fund to support joint pre-commercial procurement.

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# **EN**

(14) Pursuant to Council Decision 2013/755/EU **[1]**, entities established in overseas countries or

territories are eligible for funding subject to the rules and objectives of the Fund and to

possible arrangements applicable to the Member State to which the relevant overseas

country or territory is linked.

**1** Council Decision 2013/755/EU of 25 November 2013 on the association of the overseas
countries and territories with the European Union ('Overseas Association Decision')
(OJ L 344, 19.12.2013, p. 1).

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# **EN**

(15) As the Fund aims to enhance the competitiveness and efficiency of the Union's defence

industry, only legal entities which are established in the Union or in associated countries

and are not subject to control by non-associated third countries or by non-associated third

country entities should, in principle, be eligible for support. In this context, control should

be understood to be the ability to exercise a decisive influence on a legal entity directly, or

indirectly through one or more intermediate legal entities. Additionally, in order to ensure

the protection of essential security and defence interests of the Union and its

Member States, the infrastructure, facilities, assets and resources of the recipients and

subcontractors involved in an action supported by the Fund should be located on the

territory of a Member State or of an associated country for the entire duration of an action,

and the recipients and subcontractors involved in an action should have their executive

management structures in the Union or in an associated country. Accordingly, a legal

entity which is established in a non-associated third country or a legal entity which is

established in the Union or in an associated country but which has its executive

management structures in a non-associated third country should not be eligible to be a

recipient or subcontractor involved in an action. In order to safeguard the essential security

and defence interests of the Union and its Member States, those eligibility criteria should

also apply to funding provided through procurement, by way of derogation from Article

176 of the Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the

Council **[1]** (the 'Financial Regulation').

**1** Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of
18 July 2018 on the financial rules applicable to the general budget of the Union, amending
Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013,
(EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014,
(EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom)
No 966/2012 (OJ L 193, 30.7.2018, p. 1).

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# **EN**

(16) In certain circumstances, it should be possible to derogate from the principle that recipients

and subcontractors involved in an action supported by the Fund are not subject to control

by non-associated third countries or non-associated third-country entities. In that context,

legal entities established in the Union or in an associated country that are controlled by a

non-associated third country or a non-associated third-country entity should be eligible to

be recipients or subcontractors involved in an action provided that strict conditions relating

to the security and defence interests of the Union and its Member States are fulfilled. The

participation of such legal entities should not contravene the objectives of the Fund.

Applicants should provide all relevant information about the infrastructure, facilities, assets

and resources to be used in the action. Member States' concerns regarding security of

supply should also be taken into account in that respect.

(17) In the framework of the Union's restrictive measures, adopted on the basis of Article 29 of

the Treaty on European Union (TEU) and 215(2) of the Treaty on the Functioning of the

European Union (TFEU), no funds or economic resources may be made available, directly

or indirectly, to or for the benefit of designated legal persons, entities or bodies. Such

designated entities, and entities owned or controlled by them, therefore cannot be

supported by the Fund.

6748/1/20 REV 1 12

# **EN**

(18) Union funding should be granted following competitive calls for proposals issued in

accordance with the Financial Regulation. However, in certain duly substantiated and

exceptional circumstances, it should also be possible for Union funding to be granted

without a call for proposals in accordance with point (e) of the first paragraph of Article

195 of the Financial Regulation. As the award of funding in accordance with point (e) of

the first paragraph of Article 195 of the Financial Regulation constitutes a derogation from

the general rule that funding is to be granted following competitive calls for proposals,

those exceptional circumstances should be interpreted strictly. In that context, for a grant to

be awarded without a call for proposals, the degree to which the proposed action

corresponds to the objectives of the Fund with respect to cross-border industrial

collaboration and competition throughout the supply chain should be assessed by the

Commission, with the assistance of a committee of Member States (the 'committee').

(19) If a consortium wishes to participate in an eligible action and the Union support is to take

the form of a grant, the consortium should appoint one of its members as a coordinator.

The coordinator should be the principal point of contact for the purpose of the consortium's

relations with the Commission.

6748/1/20 REV 1 13

# **EN**

(20) Where an action supported by the Fund is managed by a project manager appointed by

Member States or associated countries, the Commission should consult the project

manager on progress made with regard to the action prior to executing the payment to the

recipients, so that the project manager can ensure that the time-frames are respected by the

recipients. The project manager should provide the Commission with observations on

progress made with regard to the action so that the Commission can determine whether the

conditions for proceeding with the payment have been fulfilled.

(21) The Fund should be implemented under direct management so as to maximise the

effectiveness and efficiency of the delivery and to ensure full consistency with other Union

initiatives. Therefore, the Commission should remain responsible for the selection and

award procedures, including as regards ethics screening and assessment. In substantiated

cases, however, the Commission should be able to entrust budget implementation tasks for

specific actions supported by the Fund to bodies as referred to in point (c) of the first

subparagraph of Article 62(1) of the Financial Regulation, for example where a project

manager has been appointed by Member States co-financing an action, provided that the

requirements of the Financial Regulation are met. Such entrusting of budget

implementation tasks would help to streamline the management of co-financed actions and

ensure smooth coordination between the financing agreement and the contract signed by

the consortium and the project manager appointed by Member States which co-finance the

action.

6748/1/20 REV 1 14

# **EN**

(22) In order to ensure that the funded development actions are financially viable, it is

necessary that the applicants demonstrate that the costs of the action not covered by Union

funding are covered by other means of financing.

(23) Different types of financial arrangements should be at the disposal of Member States for

the joint development and acquisition of defence capabilities. The Commission could

provide different types of arrangements that Member States could use on a voluntary basis

to address challenges for collaborative development and procurement from a financing

perspective. The use of such financial arrangements could further foster the launch of

collaborative and cross-border defence projects and increase the efficiency of defence

spending, including for projects supported by the Fund.

(24) Given the specificities of the defence industry, where demand comes almost exclusively

from Member States and associated countries, which also control all acquisition of

defence-related products and technologies, including exports, the functioning of the

defence sector does not follow the conventional rules and business models that govern

more traditional markets. Industry therefore cannot undertake substantial self-funded

defence R&D projects, and Member States and associated countries often fully fund all

R&D costs. To achieve the objectives of the Fund, in particular to foster cooperation

between legal entities from different Member States and associated countries, and taking

into account the specificities of the defence sector, up to the totality of the eligible costs

should be covered for actions that take place before the prototype phase.

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# **EN**

(25) The prototype phase is a crucial phase where Member States or associated countries

usually decide on their consolidated investment and start the acquisition process of their

future defence products or technologies. This is the reason why, at this specific stage,

Member States and associated countries agree on the necessary commitments, including

cost-sharing and ownership of the project. To ensure the credibility of their commitment,

support from the Fund should, in normal cases, not exceed 20 % of the eligible costs.

(26) For actions beyond the prototype phase, funding up to 80 % should be provided for. Such

actions, which are closer to product and technology finalisation, may still involve

substantial costs.

(27) Stakeholders in the defence sector face specific indirect costs, such as with regard to

security. Furthermore, stakeholders work in a specific market where they – absent demand

on the buyers' side – cannot recover the R&D costs in the same manner as those in the

civilian sector. Therefore, it is appropriate to allow a flat rate of 25 % of the total direct

eligible costs of the action as well as the possibility to charge indirect eligible costs

determined in accordance with the usual cost accounting practices of the recipients if those

practices are accepted by their national authorities for comparable activities in the defence

domain and if they have been communicated to the Commission by the recipient.

6748/1/20 REV 1 16

# **EN**

(28) Actions comprising the participation of cross-border SMEs and mid-caps support the

opening-up of supply chains and contribute to the objectives of the Fund. Such actions

should therefore be eligible for an increased rate of funding that benefits all participating

legal entities.

(29) In order to ensure that the funded actions will contribute to the competitiveness and

efficiency of the European defence industry, it is important that Member States intend to

jointly procure the final product or use the technology, in particular through joint cross

border procurement, where Member States jointly organise their procurement procedures

in particular through a central purchasing body.

(30) In order to ensure that the actions supported by the Fund contribute to the competitiveness

and efficiency of the European defence industry, they should be market-oriented, demand

driven and commercially viable in the medium-to-long term. The eligibility criteria for

development actions should therefore take into account the fact that Member States intend,

including through a memorandum of understanding or a letter of intent, to procure the final

product, or use the technology, in a coordinated manner. The award criteria for

development actions should in addition take into account the fact that Member States have

undertaken, politically or legally, to jointly use, own or maintain the final product or

technology in a coordinated manner.

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# **EN**

(31) The promotion of innovation and technological development in the Union's defence

industry should take place in a manner consistent with the security and defence interests of

the Union. Accordingly, the contributions of actions to those interests and to the defence

research and capability priorities commonly agreed by Member States should serve as an

award criterion.

(32) Eligible actions developed in the context of PESCO projects in the institutional framework

of the Union should ensure enhanced cooperation between legal entities in the different

Member States on a continuous basis and should thus directly contribute to the objectives

of the Fund. If selected, such actions should therefore be eligible for an increased funding

rate.

–
(33) The Commission will take into account other activities financed under Horizon Europe

the Framework Programme for Research and Innovation established by Regulation

(EU) 2021/... of the European Parliament and of the Council **[1]** [] – in order to avoid

unnecessary duplication and ensure cross-fertilisation and synergies between civil and

defence research.

**1** Regulation (EU) 2021/... of the European Parliament and of the Council of ... establishing

–
Horizon Europe the Framework Programme for Research and Innovation, laying down its
rules for participation and dissemination, and repealing Regulations (EU) No 1290/2013 and
(EU) No 1291/2013 (OJ ...).
 OJ: Please insert in the text the number of the Regulation contained in document
ST 7064/20 (2018/0224(COD)) and insert the number, date, title and OJ reference of that
Regulation in the footnote.

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# **EN**

(34) Cybersecurity and cyber defence are increasingly important challenges and the

Commission and the High Representative of the Union for Foreign Affairs and Security

Policy recognised the need to establish synergies between cyber-defence actions within the

scope of this Regulation and Union initiatives in the field of cybersecurity, such as those

announced in the joint communication of the Commission of 13 September 2017

'Resilience, Deterrence and Defence: Building strong cybersecurity for the EU'. In

particular, stakeholders should seek synergies between the civilian and defence dimensions

of cybersecurity, with a view to increasing cyber resilience.

6748/1/20 REV 1 19

# **EN**

(35) An integrated approach should be ensured by bringing together activities covered by the

Preparatory Action on Defence Research (PADR), launched by the Commission in

accordance with point (b) of Article 58(2) of the Financial Regulation and the European

Defence Industrial Development Programme (EDIDP) established by Regulation (EU)

2018/1092 of the European Parliament and of the Council **[1]**, as well as by harmonising the

conditions for participation. Such an integrated approach should create a more coherent set

of instruments and increase the innovative, collaborative and economic impact of the Fund,

while avoiding unnecessary duplication and fragmentation. It would also ensure that the

Fund contributes to the better exploitation of the results of defence research, covering the

gap between the research and the development phases taking into account the specificities

of the defence sector, and promoting all forms of innovation, including disruptive

technologies for defence. Moreover, positive spillover effects to the civilian sector can also

be expected, where applicable.

**1** Regulation (EU) 2018/1092 of the European Parliament and of the Council of 18 July 2018
establishing the European Defence Industrial Development Programme aiming at supporting
the competitiveness and innovation capacity of the Union's defence industry (OJ L 200,
7.8.2018, p. 30).

6748/1/20 REV 1 20

# **EN**

(36) Where appropriate in view of the specificities of the action, the objectives of the Fund

should also be addressed through financial instruments and budgetary guarantees under the

InvestEU Fund established by Regulation (EU) 2021/... of the European Parliament and of

the Council **[1]** [] .

(37) Support from the Fund should be used to address market failures or sub-optimal

investment situations in a proportionate manner, and actions should not duplicate or crowd

out private financing or distort competition in the internal market. Actions should have a

clear added value for the Union.

(38) The forms of Union funding and the methods of implementation of the Fund should 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 expected risk of non-compliance. That choice should include the

consideration of the use of lump sums, flat-rate financing and unit costs, as well as

financing not linked to costs as referred to in Article 125(1) of the Financial Regulation.

**1** Regulation (EU) 2021/... of the European Parliament and of the Council of … establishing
the InvestEU Programme and amending Regulation (EU) 2015/1017 (OJ L …, …, p. …).
 OJ: Please insert in the text the number of the Regulation contained in document
PE-CONS 74/20 (2020/0108(COD)) and insert the number, date and OJ reference of that
Regulation in the footnote.

6748/1/20 REV 1 21

# **EN**

(39) The Commission should, by means of implementing acts, adopt annual work programmes

in line with the objectives of the Fund, and taking into account the initial lessons learned

from the EDIDP and the PADR. The Commission should be assisted in the establishment

of the work programmes by the committee. The Commission should endeavour to find

solutions which command the widest possible support within the committee. In that

context, the committee should be able to meet in the configuration of national defence and

security experts to provide specific assistance to the Commission, including advice with

regard to the protection of classified information in the framework of the actions. It is for

the Member States to designate their respective representatives on that committee.

Committee members should be given early and effective opportunities to examine the draft

implementing acts and express their views.

(40) The categories set out in the work programmes should contain functional requirements

where appropriate in order to clarify for industry what functionalities and tasks are to be

carried out by the capabilities which are to be developed. Such requirements should give a

clear indication of the expected performance but should not be directed towards specific

solutions or specific legal entities and should not prevent competition at the level of calls

for proposals.

6748/1/20 REV 1 22

# **EN**

(41) During the development of the work programmes, the Commission should also ensure,

through the appropriate consultation of the committee, that the proposed research actions

or development actions avoid unnecessary duplication. In that context, the Commission

may carry out a prior assessment of possible duplication cases with existing capabilities or

already funded research or development projects within the Union.

(42) The Commission should ensure the coherence of the work programmes throughout the

industrial life cycle of defence products and technologies.

(43) The work programmes should also ensure that a credible proportion of the overall budget

benefits actions enabling the cross-border participation of SMEs.

(44) In order to benefit from its expertise in the defence sector, the European Defence Agency

should have observer status within the committee. Given the specificities of the defence

area, the European External Action Service should also assist in the committee.

6748/1/20 REV 1 23

# **EN**

(45) In order to ensure the effectiveness of this Regulation, the power to adopt acts in

accordance with Article 290 TFEU should be delegated to the Commission in order to

amend the Annex to this Regulation with regard to the indicators where considered to be

necessary as well as to supplement this Regulation with provisions on the establishment of

a monitoring and evaluation framework. It is of particular importance that the Commission

carry out appropriate consultations during its preparatory work, including at expert level,

and that those consultations be conducted in accordance with the principles laid down in

the Interinstitutional Agreement of 13 April 2016 on Better Law-Making **[1]** . In particular, to

ensure equal participation in the preparation of delegated acts, the European Parliament

and the Council receive all documents at the same time as Member States' experts, and

their experts systematically have access to meetings of Commission expert groups dealing

with the preparation of delegated acts.

**1** OJ L 123, 12.5.2016, p. 1.

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# **EN**

(46) In order to ensure uniform conditions for the implementation of this Regulation,

implementing powers should be conferred on the Commission as regards the adoption of

work programmes and the award of funding to selected research and development actions.

In particular, while carrying out research and development actions, the specificities of the

defence sector, in particular the responsibility of Member States, associated countries or

both for the planning and acquisition process, should be taken into account. Those powers

should be exercised in accordance with Regulation (EU) No 182/2011 of the European

Parliament and of the Council **[1]** .

(47) The Commission should establish a list of independent experts. The security credentials of

those independent experts should be validated by the relevant Member States. That list

should not be made public. The independent experts should be chosen on the basis of their

skills, experience and knowledge, taking account of the tasks to be assigned to them. As far

as possible, when appointing the independent experts, the Commission should take

appropriate measures to seek a balanced composition within the independent expert groups

and evaluation panels in terms of variety of skills, experience, knowledge, geographical

diversity and gender, taking into account the situation in the field of the action. An

appropriate rotation of the independent experts and appropriate private-public sector

balance should also be sought.

**1** 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 Member States of the Commission's exercise of implementing powers (OJ L 55,
28.2.2011, p. 13).

6748/1/20 REV 1 25

# **EN**

(48) The independent experts should not evaluate, advise or assist on matters with regard to

which they have any conflicts of interest, in particular as regards their position at the time

of the evaluation. In particular, they should not be in a position where they could use the

information received to the detriment of the consortium that they evaluate.

(49) After evaluation of the proposals with the help of independent experts, the Commission

should select the actions to be supported by the Fund. Member States should be informed

of the evaluation results with the ranking list of selected actions and of progress of the

funded actions.

(50) When proposing new defence products or technologies or the upgrade of existing defence

products and technologies, applicants should undertake to comply with ethical principles,

such as those relating to the welfare of human beings and the protection of the human

genome, reflected also in relevant Union, national and international law, including the

Charter of Fundamental Rights of the European Union and the European Convention for

the Protection of Human Rights and Fundamental Freedoms and, where relevant, the

protocols thereto. The Commission should screen the proposals systematically in order to

identify those that raise serious ethical issues. Where appropriate, such proposals should be

subject to an ethics assessment.

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(51) In order to support an open internal market, the participation of cross-border SMEs and

mid-caps, as members of consortia, subcontractors or other legal entities in the supply

chain, should be encouraged.

(52) The Commission should endeavour to maintain a dialogue with Member States and

industry to ensure the success of the Fund. As co-legislator and a key stakeholder, the

European Parliament should also be engaged in that regard.

(53) This Regulation lays down a financial envelope for the Fund, which is to constitute the

prime reference amount, within the meaning of point 18 of the Inter-institutional

Agreement of 16 December 2020 between the European Parliament, the Council and the

European Commission on budgetary discipline, on cooperation in budgetary matters and

on sound financial management, as well as on new own resources, including a roadmap

towards the introduction of new own resources **[1]** (Interinstitutional Agreement of

16 December 2020), for the European Parliament and for the Council during the annual

budgetary procedure. The Commission should ensure that administrative procedures are

kept as simple as possible and incur a minimum amount of additional expenses.

(54) The Financial Regulation applies to the Fund, unless otherwise specified. The Financial

Regulation lays down rules on the implementation of the Union budget, including the rules

on grants, prizes, procurement, indirect management, financial instruments, budgetary

guarantees and financial assistance.

**1** OJ L 433I, 22.12.2020, p. 28.

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# **EN**

(55) Horizontal financial rules adopted by the European Parliament and by the Council on the

basis of Article 322 TFEU apply to this Regulation. Those rules are laid down in the

Financial Regulation and determine in particular the procedure for establishing and

implementing the budget through grants, prizes, procurement, indirect implementation, and

provide for checks on the responsibility of financial actors. Rules adopted on the basis of

Article 322 TFEU also include a general regime of conditionality for the protection of the

Union budget.

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# **EN**

(56) In accordance with the Financial Regulation, Regulation (EU, Euratom) No 883/2013 of

the European Parliament and of the Council **[1]** and Council Regulations (EC, Euratom) No

2988/95 **[2]**, (Euratom, EC) No 2185/96 **[3]** and (EU) 2017/1939 **[4]**, the financial interests of the

Union are to be protected by means of proportionate measures, including measures relating

to the prevention, detection, correction and investigation of irregularities, including fraud,

to the recovery of funds lost, wrongly paid or incorrectly used, and, where appropriate, to

the imposition of administrative penalties. In particular, in accordance with Regulations

(Euratom, EC) No 2185/96 and (EU, Euratom) No 883/2013, the European Anti-Fraud

Office (OLAF) has the power to carry out administrative investigations, including

on-the-spot checks and inspections, with a view to establishing whether there has been

fraud, corruption or any other illegal activity affecting the financial interests of the Union.

**1** 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).
**2** Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of
the European Communities financial interests (OJ L 312, 23.12.1995, p. 1).
**3** 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).
**4** Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced
cooperation on the establishment of the European Public Prosecutor's Office ('the EPPO')
(OJ L 283, 31.10.2017, p. 1).

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The European Public Prosecutor's Office (EPPO) is empowered, in accordance with

Regulation (EU) 2017/1939, to investigate and prosecute criminal offences affecting the

financial interests of the Union as provided for in Directive (EU) 2017/1371 of the

European Parliament and of the Council **[1]** . In accordance with the Financial Regulation, any

person or entity receiving Union funds is to fully cooperate in the protection of the

financial interests of the Union, grant the necessary rights and access to the Commission,

OLAF, the Court of Auditors and, in respect of those Member States participating in

enhanced cooperation pursuant to Regulation (EU) 2017/1939, the EPPO, and ensure that

any third parties involved in the implementation of Union funds grant equivalent rights.

(57) Third countries which are members of the European Economic Area (EEA) may

participate in Union programmes in the framework of the cooperation established under the

Agreement on the European Economic Area **[2]**, which provides for the implementation of

the programmes on the basis of a decision adopted under that Agreement. A specific

provision should be introduced in this Regulation requiring those third countries to grant

the necessary rights and access required for the authorising officer responsible, OLAF and

the Court of Auditors to comprehensively exercise their respective competences.

**1** Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on
the fight against fraud to the Union's financial interests by means of criminal law (OJ L 198,
28.7.2017, p. 29).
**2** OJ L 1, 3.1.1994, p. 3.

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(58) Pursuant to paragraphs 22 and 23 of the Interinstitutional Agreement of 13 April 2016 on

Better Law-Making, the Fund should be evaluated on the basis of information collected in

accordance with specific monitoring requirements, while avoiding an administrative

burden, in particular on Member States, and overregulation. Those requirements, where

appropriate, should include measurable indicators as a basis for evaluating the effects of

the Fund on the ground. The Commission should carry out an interim evaluation no later

than four years after the start of the implementation period of the Fund, including with a

view to submitting proposals for any appropriate amendments to this Regulation. The

Commission should also carry out a final evaluation at the end of the implementation

period of the Fund, examining the financial activities in terms of financial implementation

results and to the extent possible at that point in time, results of implementation and impact

of the Fund. In that context, the final evaluation report should also help identify where the

Union is dependent on third countries for the development of defence products and

technologies. The final report should also analyse the cross-border participation of SMEs

and mid-caps in projects supported by the Fund as well as the participation of SMEs and

mid-caps to the global value chain, and the contribution of the Fund to addressing the

shortfalls identified in the CDP, and should include information on the countries of origin

of the recipients, the number of Member States and associated countries involved in

individual actions and the distribution of the generated intellectual property rights (IPRs).

The Commission may also propose amendments to this Regulation to react to possible

developments during the implementation of the Fund.

6748/1/20 REV 1 31

# **EN**

(59) The Commission should monitor the implementation of the Fund on a regular basis and

should submit an annual report on progress made, including how lessons identified and

lessons learned from the EDIDP and the PADR are taken into account in the

implementation of the Fund, to the European Parliament and to the Council. To that end,

the Commission should put in place necessary monitoring arrangements. The report should

not contain sensitive information.

(60) Reflecting the importance of tackling climate change in line with the Union's commitments

to implement the Paris Agreement adopted under the United Nations Framework

Convention on Climate Change **[1]** and the United Nations Sustainable Development Goals,

the Fund contributes to the mainstreaming of climate actions in Union policies and to the

achievement of an overall target of 30 % of the Union budget expenditure supporting

climate objectives. Relevant actions will be identified during the Fund's preparation and

implementation, and reassessed in the context of its interim evaluation.

(61) Reflecting the importance of tackling the dramatic loss of biodiversity, this Regulation

contributes to the mainstreaming of biodiversity action in Union policies and to the

achievement of the overall ambition of providing 7,5 % of annual spending under the MFF

2021-2027 to biodiversity objectives in 2024 and 10 % thereof in 2026 and 2027, while

considering the existing overlaps between climate and biodiversity goals in accordance

with the Interinstitutional Agreement of 16 December 2020.

**1** OJ L 282, 19.10.2016, p. 4.

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(62) As the Fund should support only the research and the development phases of defence

products and technologies, the Union should not, in principle, have ownership of or IPRs

in the defence products or technologies resulting from the funded actions unless the Union

support is provided through public procurement. However, for research actions, interested

Member States and associated countries should be able to use the results of funded actions

to participate in follow-up cooperative development.

(63) The Union's support should not affect the transfer of defence-related products within the

Union, in accordance with Directive 2009/43/EC, or the export of products, equipment or

technologies. The export of military equipment and technologies by the Member States is

regulated by Council Common Position 2008/944/CFSP **[1]** .

(64) The use of sensitive background information, including data, know-how or information,

generated before or outside the operation of the Fund, or access by unauthorised

individuals to results generated in connection to actions supported by the Fund could have

an adverse impact on the interests of the Union or of one or more of the Member States.

The handling of sensitive information should therefore be governed by relevant Union and

national law.

**1** Council Common Position 2008/944/CFSP of 8 December 2008 defining common rules
governing control of exports of military technology and equipment (OJ L 335, 13.12.2008,
p. 99).

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# **EN**

(65) In order to ensure the security of classified information at the requisite level, the minimum

standards on industrial security should be complied with when signing classified funding

and financing agreements. To that end, and in accordance with Commission Decision (EU,

Euratom) 2015/444 **[1]**, the Commission is to communicate the Programme Security

Instructions, including the Security Classification Guide, for advice to the independent

experts designated by Member States.

(66) Since the objectives of this Regulation cannot be sufficiently achieved by the Member

States but can rather be better achieved at Union level, the Union may adopt measures, in

accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance

with the principle of proportionality as set out in that Article, this Regulation does not go

beyond what is necessary in order to achieve those objectives.

(67) The Commission should manage the Fund while having due regard to the requirements of

confidentiality and security, in particular those relating to sensitive information including

classified information.

**1** Commission Decision (EU, Euratom) 2015/444 of 13 March 2015 on the security rules for
protecting EU classified information (OJ L 72, 17.3.2015, p. 53).

6748/1/20 REV 1 34

# **EN**

(68) In order to ensure continuity in providing support in the relevant policy area and to allow

implementation to start from the beginning of the MFF 2021-2027, this Regulation should

enter into force as a matter of urgency and should apply, with retroactive effect, from

1 January 2021.

(69) Regulation (EU) 2018/1092 should therefore be repealed,

HAVE ADOPTED THIS REGULATION:

6748/1/20 REV 1 35

# **EN**

## **TITLE I** **COMMON PROVISIONS** **APPLICABLE FOR RESEARCH AND DEVELOPMENT**

_Article 1_

_Subject matter_

This Regulation establishes the European Defence Fund (the 'Fund'), as set out in point (c) of

Article 1(2) of Regulation (EU) 2021/… [], for the period from 1 January 2021 to

31 December 2027. The duration of the Fund is aligned with the duration of the MFF 2021-2027.

This Regulation lays down the objectives of the Fund, its budget for the period from 1 January 2021

to 31 December 2027, the forms of Union funding and the rules for providing such funding.

 OJ: Please insert in the text the number of the Regulation contained in document
ST 7064/20 (2018/0224COD)).

6748/1/20 REV 1 36

# **EN**

_Article 2_

_Definitions_

For the purposes of this Regulation, the following definitions apply:

(1) 'legal entity' means a legal person created and recognised as such under Union, national or

international law, which has legal personality and the capacity to act in its own name,

exercise rights and be subject to obligations, or an entity which does not have legal

personality as referred to in point (c) of Article 197(2) of the Financial Regulation;

(2) 'applicant' means a legal entity that submits an application for support from the Fund after

a call for proposals or in accordance with point (e) of the first paragraph of Article 195 of

the Financial Regulation;

(3) 'recipient' means a legal entity with which a funding or financing agreement has been

signed or to which a funding or financing decision has been notified;

(4) 'consortium' means a collaborative grouping of applicants or recipients that is subject to an

agreement and constituted for the purpose of carrying out an action under the Fund;

(5) 'coordinator' means a legal entity which is a member of a consortium and has been

appointed by all the members of the consortium to be the principal point of contact for the

purpose of the consortium's relations with the Commission;

6748/1/20 REV 1 37

# **EN**

(6) 'control' means the ability to exercise a decisive influence on a legal entity directly, or

indirectly through one or more intermediate legal entities;

(7) 'executive management structure' means a body of a legal entity, appointed in accordance

with national law, and, where applicable, reporting to the chief executive officer, which is

empowered to establish the legal entity's strategy, objectives and overall direction, and

which oversees and monitors management decision-making;

(8) 'system prototype' means a model of a product or technology that can demonstrate

performance in an operational environment;

(9) 'qualification' means the entire process of demonstrating that the design of a defence

product, tangible or intangible component or technology meets the specified requirements,

providing objective evidence by which particular requirements of a design are

demonstrated to have been met;

(10) 'certification' means the process by which a national authority certifies that the defence

product, tangible or intangible component or technology complies with the applicable

regulations;

(11) 'research action' means an action consisting primarily of research activities, in particular

applied research and where necessary fundamental research, with the aim of acquiring new

knowledge and with an exclusive focus on defence applications;

6748/1/20 REV 1 38

# **EN**

(12) 'development action' means an action consisting of defence-oriented activities primarily in

the development phase, covering new defence products or technologies or the upgrading of

existing ones, excluding the production or use of weapons;

(13) 'disruptive technology for defence' means an enhanced or completely new technology that

brings about a radical change, including a paradigm shift in the concept and conduct of

defence affairs such as by replacing existing defence technologies or rendering them

obsolete;

(14) 'small and medium-sized enterprise' or 'SME' means small or medium-sized enterprise as

defined in Article 2 of the Annex to Commission Recommendation 2003/361/EC **[1]** ;

(15) 'middle capitalisation company' or 'mid-cap' means an enterprise that is not a SME and that

employs a maximum of 3 000 persons, where the headcount of staff is calculated in

accordance with Articles 3 to 6 of the Annex to Recommendation 2003/361/EC;

(16) 'blending operation' means an action supported by the Union budget, including within a

blending facility or platform as defined in point (6) of Article 2 of the Financial

Regulation, that combines non-repayable forms of support or financial instruments from

the Union budget with repayable forms of support from development or other public

finance institutions as well as from commercial finance institutions and investors;

**1** Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of
micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).

6748/1/20 REV 1 39

# **EN**

(17) 'pre-commercial procurement' means the procurement of research and development

services involving risk-benefit sharing under market conditions, and competitive

development in phases, where there is a clear separation of the research and development

services procured from the deployment of commercial volumes of end-products;

(18) 'project manager' means a contracting authority established in a Member State or an

associated country, appointed by a Member State or an associated country or a group of

Member States or associated countries to manage multinational armament projects on an

on-going or ad-hoc basis;

(19) 'results' means any tangible or intangible effect of a given action, such as data, knowhow or

information, whatever its form or nature and whether or not it can be protected, as well as

any rights attached to it, including IPRs;

(20) 'foreground information' means data, know-how or information generated in the operation

of the Fund, whatever its form or nature;

6748/1/20 REV 1 40

# **EN**

(21) 'classified information' means information or material, in any form, the unauthorised

disclosure of which could cause varying degrees of prejudice to the interests of the Union,

or of one or more of the Member States, and which bears an EU classification marking or a

corresponding classification marking, as established in the Agreement between the

Member States of the European Union, meeting within the Council, regarding the

protection of classified information exchanged in the interests of the European Union **[1]** ;

(22) 'sensitive information' means information and data, including classified information, that is

to be protected from unauthorised access or disclosure because of obligations laid down in

Union or national law or in order to safeguard the privacy or security of a natural or legal

person;

(23) 'special report' means a specific deliverable of a research action summarising its results,

providing extensive information on the basic principles, the aims, the outcomes, the basic

properties, the tests performed, the potential benefits, the potential defence applications

and the expected exploitation path of the research towards development, including

information on the ownership of IPRs but not requiring the inclusion of IPR information;

(24) 'non-associated third-country entity' means a legal entity that is established in a

non-associated third country or, where it is established in the Union or in an associated

country, that has its executive management structures in a non-associated third country.

**1** Agreement between the Member States of the European Union, meeting within the Council,
regarding the protection of classified information exchanged in the interests of the European
Union (OJ C 202, 8.7.2011, p. 13).

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# **EN**

_Article 3_

_Objectives_

1. The general objective of the Fund is to foster the competitiveness, efficiency and

innovation capacity of the European defence technological and industrial base (EDTIB)

throughout the Union, which contributes to the Union strategic autonomy and its freedom

of action, by supporting collaborative actions and cross-border cooperation between legal

entities throughout the Union, in particular SMEs and mid-caps, as well as by

strengthening and improving the agility of both defence supply and value chains, widening

cross-border cooperation between legal entities and fostering the better exploitation of the

industrial potential of innovation, research and technological development, at each stage of

the industrial life cycle of defence products and technologies.

2. The Fund shall have the following specific objectives:

(a) to support collaborative research that could significantly boost the performance of

future capabilities throughout the Union, aiming to maximise innovation and

introduce new defence products and technologies, including disruptive technologies

for defence, and aiming to make the most efficient use of defence research spending

in the Union;

6748/1/20 REV 1 42

# **EN**

(b) to support the collaborative development of defence products and technologies, thus

contributing to the greater efficiency of defence spending within the Union,

achieving greater economies of scale, reducing the risk of unnecessary duplication

and thereby fostering the market uptake of European defence products and

technologies and reducing the fragmentation of defence products and technologies

throughout the Union, ultimately leading to an increase in the standardisation of

defence systems and a greater interoperability between Member States' capabilities.

Such collaboration shall be consistent with defence capability priorities commonly agreed

by Member States within the framework of the Common Foreign and Security Policy

(CFSP) and in particular in the context of the CDP.

In this regard, regional and international priorities, when they serve the security and

defence interests of the Union as determined under the CFSP, and taking into account the

need to avoid unnecessary duplication, may also be taken into account, where appropriate,

where they do not exclude the possibility of participation of any Member State or

associated country.

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# **EN**

_Article 4_

_Budget_

1. In accordance with Article 12(1) of Regulation (EU) 2021/… [], the financial envelope for

the implementation of the Fund for the period from 1 January 2021 to 31 December 2027

shall be EUR 7 953 000 000 in current prices.

2. The distribution of the amount referred to in paragraph 1 shall be:

(a) EUR 2 651 000 000 for research actions;

(b) EUR 5 302 000 000 for development actions.

In order to respond to unforeseen situations or to new developments and needs, the

Commission may reallocate the amount allocated to research or development actions, by

up to a maximum of 20 %.

3. The amount referred to in paragraph 1 may also be used for technical and administrative

assistance for the implementation of the Fund, such as preparatory, monitoring, control,

audit and evaluation activities, including the design, set up, operation and maintenance of

corporate information technology systems.

 OJ: Please insert in the text the number of the Regulation contained in document
ST 7064/20 (2018/0224(COD)).

6748/1/20 REV 1 44

# **EN**

4. At least 4 % and up to 8 % of the financial envelope referred to in paragraph 1 shall be

allocated to calls for proposals or awards of funding supporting disruptive technologies for

defence.

_Article 5_

_Associated countries_

The Fund shall be open to the participation of members of the European Free Trade Association

which are members of the EEA, in accordance with the conditions laid down in the Agreement on

the European Economic Area (associated countries).

_Article 6_

_Support for disruptive technologies for defence_

1. The Commission shall, by means of implementing acts, award funding following open and

public consultations on disruptive technologies for defence in the areas of intervention

defined in the work programmes referred to in Article 24. Those implementing acts shall

be adopted in accordance with the examination procedure referred to in Article 34(2).

2. The work programmes shall lay down the most appropriate forms of funding for disruptive

technologies for defence.

6748/1/20 REV 1 45

# **EN**

_Article 7_

_Ethics_

1. Actions carried out under the Fund shall comply with relevant Union, national and

international law, including the Charter of Fundamental Rights of the European Union.

Moreover, those actions shall comply with ethical principles also reflected in relevant

Union, national and international law.

2. Before the signature of a funding agreement, proposals shall be screened by the

Commission on the basis of an ethics self-assessment prepared by the consortium, in order

to identify those that raise serious ethical issues, including with regard to conditions under

which the activities are to be carried out. Where appropriate, such proposals shall be

subject to an ethics assessment.

Ethics screening and assessment shall be carried out by the Commission with the support

of independent experts appointed in accordance with Article 26. Those independent experts

shall have a variety of backgrounds, in particular recognised expertise in defence ethics,

and shall be nationals of as broad a range of Member States as possible.

The conditions under which the activities with ethically sensitive issues are to be carried

out shall be specified in the funding agreement.

6748/1/20 REV 1 46

# **EN**

The Commission shall ensure that the ethics procedures are as transparent as possible and

shall include them in its interim evaluation report in accordance with Article 29.

3. Legal entities participating in the action shall obtain all relevant approvals, or other

documents required by national or local ethics committees and other bodies such as data

protection authorities, before the start of the relevant activities. Those approvals and other

documents shall be kept and provided to the Commission upon request.

4. Proposals which are considered not to be ethically acceptable shall be rejected.

_Article 8_

_Implementation and forms of Union funding_

1. The Fund shall be implemented under direct management in accordance with the Financial

Regulation.

2. By way of derogation from paragraph 1 of this Article, specific actions may, in

substantiated cases, be carried out under indirect management by bodies as referred to in

point (c) of Article 62(1) of the Financial Regulation. This shall not include the selection

and award procedure referred to in Article 11 of this Regulation.

6748/1/20 REV 1 47

# **EN**

3. The Fund may provide funding in accordance with the Financial Regulation, through

grants, prizes and procurement, and, where appropriate in view of the specificities of the

action, financial instruments within blending operations.

4. Blending operations shall be carried out in accordance with Title X of the Financial

Regulation and Regulation (EU) 2021/... [] .

5. Financial instruments shall be strictly directed only to the recipients.

_Article 9_

_Eligible legal entities_

1. Recipients and subcontractors involved in an action shall be established in the Union or in

an associated country.

2. The infrastructure, facilities, assets and resources of the recipients and subcontractors

involved in an action which are used for the purposes of an action supported by the Fund

shall be located on the territory of a Member State or of an associated country for the entire

duration of an action, and their executive management structures shall be established in the

Union or in an associated country.

 OJ: Please insert in the text the number of the Regulation contained in document
PE-CONS 74/20 (2020/0108(COD)).

6748/1/20 REV 1 48

# **EN**

3. For the purposes of an action supported by the Fund, the recipients and subcontractors

involved in an action shall not be subject to control by a non-associated thirdcountry or by

a non-associated third-country entity.

4. By way of derogation from paragraph 3, a legal entity established in the Union or in an

associated country and controlled by a non-associated third country or a non-associated

third-country entity shall be eligible to be a recipient or subcontractor involved in an action

only if guarantees approved by the Member State or the associated country in which it is

established in accordance with its national procedures are made available to the

Commission. Those guarantees may refer to the legal entity's executive management

structure established in the Union or in an associated country. If considered to be

appropriate by the Member State or associated country in which the legal entity is

established, those guarantees may also refer to specific governmental rights in the control

over the legal entity.

6748/1/20 REV 1 49

# **EN**

The guarantees shall provide assurances that the involvement in an action of such a legal

entity would not contravene the security and defence interests of the Union and its Member

States as established in the framework of the CFSP pursuant to Title V of the TEU, or the

objectives set out in Article 3 of this Regulation. The guarantees shall also comply with

Articles 20 and 23 of this Regulation. The guarantees shall in particular substantiate that,

for the purposes of an action, measures are in place to ensure that:

(a) control over the legal entity is not exercised in a manner that restrains or restricts its

ability to carry out the action and to deliver results, that imposes restrictions

concerning its infrastructure, facilities, assets, resources, intellectual property or

know-how needed for the purposes of the action, or that undermines its capabilities

and standards necessary to carry out the action;

(b) access by a non-associated third country or by a non-associated third-country entity

to sensitive information relating to the action is prevented and the employees or other

persons involved in the action have national security clearance issued by a Member

State or an associated country, where appropriate;

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# **EN**

(c) ownership of the intellectual property arising from, and the results of, the action

remain within the recipient during and after completion of the action, are not subject

to control or restriction by a non-associated third country or by a non-associated

third-country entity, and are neither exported outside the Union or outside associated

countries nor accessible from outside the Union or outside associated countries

without the approval of the Member State or the associated country in which the

legal entity is established and in accordance with the objectives set out in Article 3.

If considered to be appropriate by the Member State or the associated country in which the

legal entity is established, additional guarantees may be provided.

The Commission shall inform the committee referred to in Article 34 of any legal entity

considered to be eligible in accordance with this paragraph.

5. Where no competitive substitutes are readily available in the Union or in an associated

country, recipients and subcontractors involved in an action may use their assets,

infrastructure, facilities and resources located or held outside the territory of the

Member States or of the associated countries provided that such use does not contravene

the security and defence interests of the Union and its Member States, is consistent with

the objectives set out in Article 3 and complies with Articles 20 and 23.

The costs related to those activities shall not be eligible for support from the Fund.

6748/1/20 REV 1 51

# **EN**

6. When carrying out an eligible action, recipients and subcontractors involved in an action

may also cooperate with legal entities established outside the territory of the Member

States or of associated countries, or controlled by a non-associated third country or by a

non-associated third-country entity, including by using the assets, infrastructure, facilities

and resources of such legal entities, provided that this does not contravene the security and

defence interests of the Union and its Member States. Such cooperation shall be consistent

with the objectives set out in Article 3 and shall comply with Articles 20 and 23.

There shall be no unauthorised access by a non-associated third country or other

non-associated third-country entity to classified information relating to the carrying out of

the action and potential negative effects over security of supply of inputs critical to the

action shall be avoided.

The costs related to those activities shall not be eligible for support from the Fund.

7. Applicants shall provide all relevant information necessary for the assessment of the

eligibility criteria. In the event of a change during the carrying out of an action which

might put into question the fulfilment of the eligibility criteria, the relevant legal entity

shall inform the Commission, which shall assess whether these eligibility criteria continue

to be met and shall address the potential impact of that change on the funding of the action.

6748/1/20 REV 1 52

# **EN**

8. For the purposes of this Article, 'subcontractors involved in an action' refers to

subcontractors with a direct contractual relationship to a recipient, other subcontractors to

which at least 10 % of the total eligible costs of the action is allocated, and subcontractors

which may require access to classified information in order to carry out the action.

Subcontractors involved in an action are not members of the consortium.

_Article 10_

_Eligible actions_

1. Only actions implementing the objectives set out in Article 3 shall be eligible for funding.

2. The Fund shall provide support for actions covering new defence products and

technologies and the upgrade of existing defence products and technologies provided that

the use of pre-existing information needed to carry out the action for the upgrade is not

subject to a restriction by a non-associated third country or a non-associated third-country

entity directly, or indirectly through one or more intermediary legal entities, in such a way

that the action cannot be carried out.

3. An eligible action shall relate to one or more of the following activities:

(a) activities that aim to create, underpin and improve knowledge, products and

technologies, including disruptive technologies for defence, which can achieve

significant effects in the area of defence;

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(b) activities that aim to increase interoperability and resilience, including secured

production and exchange of data, to master critical defence technologies, to

strengthen the security of supply or to enable the effective exploitation of results for

defence products and technologies;

(c) studies, such as feasibility studies to explore the feasibility of new or upgraded

products, technologies, processes, services and solutions;

(d) the design of a defence product, tangible or intangible component or technology as

well as the definition of the technical specifications on which such a design has been

developed, including any partial tests for risk reduction in an industrial or

representative environment;

(e) the system prototyping of a defence product, tangible or intangible component or

technology;

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

(g) the qualification of a defence product, tangible or intangible component or

technology;

(h) the certification of a defence product, tangible or intangible component or

technology;

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(i) the development of technologies or assets increasing efficiency across the life cycle

of defence products and technologies.

4. The action shall be carried out by legal entities cooperating within a consortium of at least

three eligible legal entities which are established in at least three different Member States

or associated countries. At least three of those eligible legal entities established in at least

two different Member States or associated countries shall not, during the entire period in

which the action is carried out, be controlled, directly or indirectly, by the same legal entity

and shall not control each other.

5. Paragraph 4 shall not apply to actions relating to disruptive technologies for defence or to

activities referred to in point (c) of paragraph 3.

6. Actions for the development of products and technologies the use, development or

production of which is prohibited by applicable international law shall not be eligible for

support from the Fund.

Moreover, actions for the development of lethal autonomous weapons without the

possibility for meaningful human control over selection and engagement decisions when

carrying out strikes against humans shall not be eligible for support from the Fund, without

prejudice to the possibility of providing funding for actions for the development of early

warning systems and countermeasures for defensive purposes.

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_Article 11_

_Selection and award procedure_

1. Union funding shall be granted following competitive calls for proposals issued in

accordance with the Financial Regulation.

In certain duly substantiated and exceptional circumstances, Union funding may also be

granted without a call for proposals in accordance with point (e) of the first paragraph of

Article 195 of the Financial Regulation.

2. The Commission shall, by means of implementing acts, award the funding referred to in

paragraph 1 of this Article. Those implementing acts shall be adopted in accordance with

the examination procedure referred to in Article 34(2).

_Article 12_

_Award criteria_

Each proposal shall be assessed on the basis of the following criteria:

(a) its contribution to excellence or potential of disruption in the defence domain, in particular

by showing that the expected results of the proposed action present significant advantages

over existing defence products or technologies;

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(b) its contribution to the innovation and technological development of the European defence

industry, in particular by showing that the proposed action includes ground-breaking or

novel concepts and approaches, new promising future technological improvements or the

application of technologies or concepts previously not applied in defence sector, while

avoiding unnecessary duplication;

(c) its contribution to the competitiveness of the European defence industry by showing that

the proposed action is a demonstrably positive balance of cost-efficiency and effectiveness

thus creating new market opportunities across the Union and beyond and accelerating the

growth of companies throughout the Union;

(d) its contribution to the autonomy of the EDTIB, including by increasing the non

dependency on non-Union sources and strengthening security of supply, and to the security

and defence interests of the Union in line with the priorities referred to in Article 3;

(e) its contribution to the creation of new cross-border cooperation between legal entities

established in Member States or associated countries, in particular SMEs and mid-caps

with a substantial participation in the action, as recipients, subcontractors or as other legal

entities in the supply chain, and which are established in Member States or associated

countries other than those where the legal entities cooperating within a consortium which

are not SMEs or mid-caps are established;

(f) the quality and efficiency of the carrying out the action.

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_Article 13_

_Co-financing rate_

1. The Fund shall finance up to 100 % of the eligible costs of an activity referred to in Article

10(3) of this Regulation without prejudice to Article 190 of the Financial Regulation.

2. By way of derogation from paragraph 1 of this Article:

(a) for activities referred to in point (e) of Article 10(3), support from the Fund shall not

exceed 20 % of the eligible costs;

(b) for activities referred to in points (f), (g) and (h) of Article 10(3), support from the

Fund shall not exceed 80 % of the eligible costs.

3. For development actions, the funding rates shall be increased in the following cases:

(a) an action developed in the context of a project of PESCO, as established by Council

Decision (CFSP) 2017/2315 **[1]**, may benefit from a funding rate increased by an

additional 10 percentage points;

**1** Council Decision (CFSP) 2017/2315 of 11 December 2017 establishing permanent
structured cooperation (PESCO) and determining the list of participating Member States
(OJ L 331, 14.12.2017, p. 57).

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(b) an activity may benefit from an increased funding rate, as referred to in this point,

where at least 10 % of the total eligible costs of the activity are allocated to SMEs

established in Member States or in associated countries and which participate in the

activity as recipients, subcontractors or other legal entities in the supply chain.

The funding rate may be increased by percentage points equivalent to the percentage

of the total eligible costs of the activity allocated to SMEs established in Member

States or in associated countries in which recipients that are not SMEs are established

and which participate in the activity as recipients, subcontractors or other legal

entities in the supply chain, up to an additional 5 percentage points.

The funding rate may be increased by percentage points equivalent to twice the

percentage of the total eligible costs of the activity allocated to SMEs established in

Member States or in associated countries other than those in which recipients that are

not SMEs are established and which participate in the activity as recipients,

subcontractors or other legal entities in the supply chain;

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(c) an activity may benefit from a funding rate increased by an additional 10 percentage

points where at least 15 % of the total eligible costs of the activity are allocated to

mid-caps established in Member States or in associated countries.

The overall increase in the funding rate of an activity following the application of

points (a), (b) and (c) shall not exceed 35 percentage points.

Support from the Fund, including increased funding rates, shall not cover more than 100 %

of the eligible costs of the action.

_Article 14_

_Financial capacity_

1. Notwithstanding Article 198(5) of the Financial Regulation, only the financial capacity of

a coordinator shall be verified and only where the requested funding from the Union is at

least EUR 500 000.

However, where there are grounds to doubt the financial capacity of one of the applicants

or of the coordinator, the Commission shall also verify the financial capacity of all of the

applicants and of the coordinator where the requested funding from the Union is below

EUR 500 000.

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2. Financial capacity shall not be verified in respect of legal entities whose viability is

guaranteed by Member States' relevant authorities.

3. If financial capacity is structurally guaranteed by another legal entity, the financial

capacity of that other legal entity shall be verified.

_Article 15_

_Indirect costs_

1. By way of derogation from Article 181(6) of the Financial Regulation, indirect eligible

costs shall be determined by applying a flat rate of 25 % of the total direct eligible costs of

the action, excluding direct eligible costs of subcontracting and support to third parties and

any unit costs or lump sums which include indirect costs.

2. As an alternative, indirect eligible costs may be determined in accordance with the

recipient's usual cost accounting practices on the basis of actual indirect costs provided that

those cost accounting practices are accepted by national authorities for comparable

activities in the defence domain, in accordance with Article 185 of the Financial

Regulation, and that they have been communicated to the Commission by the recipient.

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_Article 16_

_Use of contribution not linked to costs or single lump sum_

Where the Union grant co-finances less than 50 % of the total costs of the action, the Commission

may use either:

(a) a contribution not linked to costs referred to in Article 180(3) of the Financial Regulation

and based on the achievement of results measured by reference to previous set milestones

or through performance indicators; or

(b) a single lump sum referred to in Article 182 of the Financial Regulation and based on the

provisional budget of the action already endorsed by the national authorities of the co

financing Member States and associated countries.

Indirect costs shall be included in the lump sum referred to in point (b) of the first paragraph.

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_Article 17_

_Pre-commercial procurement_

1. The Union may support pre-commercial procurement by awarding a grant to contracting

authorities or contracting entities as defined in Directives 2014/24/EU **[1]** and 2014/25/EU **[2]**

of the European Parliament and of the Council which jointly procure defence research and

development services or coordinate their procurement procedures.

2. The procurement procedures referred to in paragraph 1:

(a) shall comply with this Regulation;

(b) may authorise the award of multiple contracts within the same procedure (multiple

sourcing);

(c) shall provide for the award of the contracts to the tender(s) offering best value for

money while ensuring the absence of conflicts of interest.

**1** Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014
on public procurement and repealing Directive 2004/18/EC (OJ L 94, 28.03.2014, p. 65).
**2** Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014
on procurement by entities operating in the water, energy, transport and postal services
sectors and repealing Directive 2004/17/EC (OJ L 94, 28.03.2014, p. 243).

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_Article 18_

_Guarantee Fund_

Contributions to a mutual insurance mechanism may cover the risk associated with the recovery of

sums due by recipients and shall be considered to be a sufficient guarantee under the Financial

Regulation. Article 37 of Regulation (EU) 2021/... [] shall apply.

_Article 19_

_Eligibility criteria for procurement and prizes_

1. Articles 9 and 10 shall apply _mutatis mutandis_ to prizes.

2. By way of derogation from Article 176 of the Financial Regulation, Article 9 of this

Regulation as well as Article 10 of this Regulation shall apply _mutatis mutandis_ for the

procurement of studies referred to in point (c) of Article 10(3) of this Regulation.

 OJ: Please insert in the text the number of the Regulation contained in document
ST 7064/20 (2018/0224COD)).

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## **TITLE II** **SPECIFIC PROVISIONS** **APPLICABLE FOR RESEARCH ACTIONS**

_Article 20_

_Ownership of results of research actions_

1. The results of research actions that are supported by the Fund shall be owned by the

recipients generating them. Where legal entities generate results jointly and where their

respective contributions cannot be ascertained, or where it is not possible to separate such

joint results, the legal entities shall have joint ownership of the results. Joint owners shall

enter into an agreement regarding the allocation of their shares and the terms of exercise of

their joint ownership in accordance with their obligations under the grant agreement.

2. By way of derogation from paragraph 1, where Union support is provided in the form of

public procurement, results of research actions supported by the Fund shall be owned by

the Union. Member States and associated countries shall enjoy access rights to the results,

free of charge, upon written request.

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3. The results of research actions supported by the Fund shall not be subject to any control or

restriction by a non-associated third country or by a non-associated third-country entity,

directly, or indirectly through one or more intermediate legal entities, including in terms of

technology transfer.

4. With regard to results generated by recipients through research actions supported by the

Fund and without prejudice to paragraph 9 of this Article, the Commission shall be notified

prior to any transfer of ownership or granting of an exclusive licence to a non-associated

third country or to a non-associated third-country entity. Where such transfer of ownership

or granting of an exclusive licence contravenes the security and defence interests of the

Union and its Member States or the objectives set out in Article 3, the support provided

from the Fund shall be reimbursed.

5. The national authorities of Member States and associated countries shall enjoy access

rights to the special reports. Such access rights shall be granted on a royalty-free basis and

transferred by the Commission to the Member States and associated countries after the

Commission has ensured that appropriate confidentiality obligations are in place.

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6. The national authorities of Member States and associated countries shall use the special

report solely for purposes related to the use by or for their armed forces, or security or

intelligence forces, including within the framework of their cooperative programmes. Such

use shall include study, evaluation, assessment, research, design, product acceptance and

certification, operation, training and disposal, as well as the assessment and drafting of

technical requirements for procurement.

7. The recipients shall grant access rights to the results of research actions supported by the

Fund on a royalty-free basis to the Union institutions, bodies, offices or agencies, for the

duly substantiated purpose of developing, implementing and monitoring existing Union

policies or programmes in the fields of its competence. Such access rights shall be limited

to non-commercial and non-competitive use.

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8. Specific provisions regarding ownership, access rights and licensing shall be laid down in

the funding agreements and the contracts regarding pre-commercial procurement to ensure

maximum uptake of the results and to avoid any unfair advantage. The contracting

authorities shall enjoy at least royalty-free access rights to the results for their own use and

the right to grant, or to require the recipients to grant, non-exclusive licences to third

parties to exploit the results under fair and reasonable conditions without any right to

sublicense. All Member States and associated countries shall have royalty-free access to

the special report. Where a contractor fails to exploit the results commercially within a

given period after the pre-commercial procurement as identified in the contract, it shall

transfer any ownership of the results to the contracting authorities.

9. This Regulation shall not affect the export of products, equipment or technologies

integrating results of research actions supported by the Fund, and shall not affect the

Member States' discretion as regards their policy on the export of defence-related products.

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10. Where two or more Member States or associated countries have, multilaterally or within

the framework of the Union, jointly concluded one or several contracts with one or more

recipients to further develop together results of research actions supported by the Fund,

they shall enjoy access rights to those results insofar as they are owned by such recipients

and are necessary for the execution of the contract or contracts. Such access rights shall be

granted on a royalty-free basis and under specific conditions aiming to ensure that those

rights are used only for the purposes of the contract or contracts and that appropriate

confidentiality obligations are put in place.

## **TITLE III** **SPECIFIC PROVISIONS** **APPLICABLE FOR DEVELOPMENT ACTIONS**

_Article 21_

_Additional eligibility criteria for development actions_

1. The consortium shall demonstrate that the costs of an action that are not covered by Union

support are to be covered by other means of financing, such as by Member States' or

associated countries' contributions or co-financing from legal entities.

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2. Activities referred to in point (d) of Article 10(3) shall be based on harmonised defence

capability requirements jointly agreed by at least two Member States or associated

countries.

3. With regard to activities referred to in points (e) to (h) of Article 10(3), the consortium

shall demonstrate by means of documents issued by national authorities that:

(a) at least two Member States or associated countries intend to procure the final product

or use the technology in a coordinated manner, including through joint procurement

where applicable;

(b) the activity is based on common technical specifications jointly agreed by the

Member States or associated countries that are to co-finance the action or that intend

to jointly procure the final product or to jointly use the technology.

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_Article 22_

_Additional award criteria for development actions_

In addition to the award criteria referred to in Article 12, the work programme shall also take into

consideration:

(a) the contribution to increasing efficiency across the life cycle of defence products and

technologies, including cost-effectiveness and the potential for synergies in the

procurement, maintenance and disposal processes;

(b) the contribution to the further integration of the European defence industry throughout the

Union through the demonstration by the recipients that Member States have undertaken to

jointly use, own or maintain the final product or technology in a coordinated manner.

_Article 23_

_Ownership of results of development actions_

1. The Union shall neither own the defence products or technologies resulting from

development actions supported by the Fund, nor have any IPRs claim pertaining to those

actions.

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2. The results of development actions supported by the Fund shall not be subject to any

control or restriction by non-associated third countries or by non-associated third-country

entities, directly, or indirectly through one or more intermediate legal entities, including in

terms of technology transfer.

3. This Regulation shall not affect the Member States' discretion as regards their policy on the

export of defence-related products.

4. With regard to results generated by recipients through development actions supported by

the Fund, and without prejudice to paragraph 3 of this Article, the Commission shall be

notified prior to any transfer of ownership to a non-associated third country or to a non

associated third-country entity. Where such a transfer of ownership contravenes the

security and defence interests of the Union and its Member States or the objectives set out

in Article 3, the support provided from the Fund shall be reimbursed.

5. Where Union support is provided in the form of the public procurement of a study, all

Member States or associated countries shall have the right, free of charge, to a non

exclusive licence for the use of the study upon written request.

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## **TITLE IV** **GOVERNANCE, MONITORING,** **EVALUATION AND CONTROL**

_Article 24_

_Work programmes_

1. The Fund shall be implemented by means of annual work programmes as referred to in

Article 110(2) of the Financial Regulation. Work programmes shall set out, where

applicable, the overall amount reserved for blending operations. Work programmes shall

set out the overall budget benefiting the cross-border participation of SMEs.

2. The Commission shall, by means of implementing acts, adopt the work programmes

referred to in paragraph 1 of this Article. Those implementing acts shall be adopted in

accordance with the examination procedure referred to in Article 34(2).

3. The work programmes shall set out in detail the research topics and the categories of

actions to be supported by the Fund. Those categories shall be in line with the defence

priorities referred to in Article 3.

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With the exception of the part of the work programme dedicated to disruptive technologies

for defence, the research topics and categories of actions referred to in the first

subparagraph shall cover defence products and technologies in the fields of:

(a) preparation, protection, deployment and sustainability;

(b) information management and superiority, and command, control, communication,

computers, intelligence, surveillance and reconnaissance (C4ISR), cyber defence and

cybersecurity; and

(c) engagement and effectors.

4. The work programmes shall contain functional requirements where appropriate and shall

specify the form of Union funding under Article 8, while not preventing competition at the

level of calls for proposals.

The transition of results of research actions demonstrating added value already supported

by the Fund into the development phase may also be taken into consideration in the work

programmes.

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_Article 25_

_Consultation of the project manager_

Where a project manager is appointed, the Commission shall consult the project manager on

progress made with regard to the action before the payment is executed.

_Article 26_

_Independent experts_

1. The Commission shall appoint independent experts to assist in the ethics screening and

assessment as referred to in Article 7 of this Regulation and in the evaluation of proposals

pursuant to Article 237 of the Financial Regulation.

2. The independent experts referred to in paragraph 1 of this Article shall be nationals of as

broad a range of Member States as possible and shall be selected on the basis of calls for

expressions of interest addressed to ministries of defence and subordinated agencies, other

relevant governmental bodies, research institutes, universities, business associations or

enterprises of the defence sector with a view to establishing a list of independent experts.

By way of derogation from Article 237 of the Financial Regulation, the list of independent

experts shall not be made public.

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3. The security credentials of appointed independent experts shall be validated by the relevant

Member State.

4. The committee referred to in Article 34 shall be informed of the list of independent

experts, in order to be transparent as to their security credentials, on an annual basis. The

Commission shall ensure that independent experts do not evaluate, advise or assist on

matters with regard to which they have any conflicts of interest.

5. The independent experts shall be chosen on the basis of their skills, experience and

knowledge relevant to the tasks to be assigned to them.

_Article 27_

_Application of the rules on classified information_

1. Within the scope of this Regulation:

(a) each Member State shall ensure that it offers a degree of protection of EU classified

information equivalent to that provided by the security rules of the Council set out in

Council Decision 2013/488/EU **[1]** ;

(b) the Commission shall protect classified information in accordance with the security

rules set out in Decision (EU, Euratom) 2015/444;

**1** Council Decision 2013/488/EU of 23 September 2013 on the security rules for protecting
EU classified information (OJ L 274, 15.10.2013, p. 1).

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(c) natural persons who are resident in and legal persons that are established in a third

country may handle EU classified information regarding the Fund only where they

are subject, in those countries, to security regulations ensuring a degree of protection

at least equivalent to that provided by the security rules of the Commission and of the

Council, as set out in Decision (EU, Euratom) 2015/444 and Decision 2013/488/EU,

respectively;

(d) the equivalence of the security regulations applied in a third country or by an

international organisation shall be laid down in a security of information agreement,

including industrial security matters if relevant, concluded or to be concluded

between the Union and that third country or international organisation in accordance

with the procedure provided for in Article 218 TFEU and taking into account Article

13 of Decision 2013/488/EU; and

(e) without prejudice to Article 13 of Decision 2013/488/EU and to the rules governing

the field of industrial security set out in Decision (EU, Euratom) 2015/444, a natural

or legal person, third country or international organisation may be given access to

EU classified information where considered to be necessary on a case-by-case basis,

according to the nature and content of such information, the recipient's need to know

and the degree of advantage to the Union.

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2. When actions involve, require or contain classified information, the relevant funding body

shall specify in the documents concerning the call for proposals or tenders the measures

and requirements necessary to ensure the security of such information at the requisite level.

3. The Commission shall set up a secured exchange system in order to facilitate the exchange

of sensitive information, including classified information, between the Commission and the

Member States and associated countries and, where appropriate, with the applicants and

the recipients. That system shall take into account the Member States' national security

regulations.

4. The originatorship of classified foreground information generated in carrying out a

research or development action shall be decided upon by the Member States on whose

territory the recipients are established. To that end, those Member States may decide on a

specific security framework for the protection and handling of classified information

relating to the action and shall inform the Commission thereof. Such a security framework

shall be without prejudice to the possibility for the Commission to have access to the

necessary information for carrying out the research or development action.

If no such specific security framework is set up by those Member States, the Commission

shall set up the security framework for the action in accordance with the Decision (EU,

Euratom) 2015/444.

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The applicable security framework for the action shall in any event be put in place before

the signature of the funding agreement or the contract.

_Article 28_

_Monitoring and reporting_

1. Indicators to report on the progress of the Fund towards the achievement of the specific

objectives laid down in Article 3(2) are set out in the Annex.

2. To ensure the effective assessment of the Fund's progress towards the achievement of its

objectives, the Commission is empowered to adopt delegated acts, in accordance with

Article 33, to amend the Annex with regard to the indicators where considered to be

necessary as well as to supplement this Regulation with provisions on the establishment of

a monitoring and evaluation framework.

3. The Commission shall monitor the implementation of the Fund on a regular basis and shall

report annually on progress made, including how lessons identified and lessons learned

from the EDIDP and the PADR are taken into account in the implementation of the Fund,

to the European Parliament and to the Council. To that end, the Commission shall put in

place necessary monitoring arrangements.

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4. The performance reporting system shall ensure that data for monitoring the implementation

and the results of the Fund are collected efficiently, effectively and in a timely manner.

To that end, proportionate reporting requirements shall be imposed on recipients of Union

funds and, where appropriate, on Member States.

_Article 29_

_Evaluation of the Fund_

1. Evaluations of the Fund shall be carried out to feed into the decision-making process in a

timely manner.

2. The interim evaluation of the Fund shall be carried out once there is sufficient information

available about its implementation, but no later than four years after the start of the

implementation period of the Fund.

The interim evaluation report covering the period until 31 July 2024, shall include in

particular:

(a) an assessment of the governance of the Fund, including as regards:

(i) the provisions related to independent experts;

(ii) the implementation of the ethics procedures set out to in Article 7 of this

Regulation;

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(b) the lessons learned from the EDIDP and the PADR;

(c) the implementation rates;

(d) the project award results, including the level of involvement of SMEs and mid-caps

and the degree of their cross-border participation;

(e) the rates of reimbursement of indirect costs as set out in Article 15 of this

Regulation;

(f) the amounts allocated to disruptive technologies for defence in calls for proposals;

and

(g) funding granted in accordance with Article 195 of the Financial Regulation.

The interim evaluation shall also contain information on the countries of origin of the

recipients, the number of countries involved in individual projects and, where possible, the

distribution of the generated IPRs. The Commission may submit proposals for any

appropriate amendments to this Regulation.

3. At the end of the implementation period but no later than 31 December 2031, the

Commission shall carry out a final evaluation and prepare a report on the implementation

of the Fund.

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The final evaluation report shall:

(a) include the results of the implementation and, to the extent possible, the impact of

the Fund;

(b) build on relevant consultations of Member States and associated countries and key

stakeholders and shall in particular assess progress made towards the achievement of

the objectives set out in Article 3;

(c) help to identify where the Union is dependent on third countries for the development

of defence products and technologies;

(d) analyse cross-border participation, including of SMEs and mid-caps, in actions

carried out under the Fund as well as the integration of SMEs and mid-caps in the

global value chain and the contribution of the Fund to addressing the shortfalls

identified in the CDP; and

(e) contain information on the countries of origin of the recipients and, where possible,

the distribution of the generated IPRs.

4. The Commission shall communicate the conclusions of the evaluations, accompanied by

its observations, to the European Parliament, to the Council, to the European Economic

and Social Committee and to the Committee of the Regions.

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_Article 30_

_Audits_

Audits on the use of the Union contribution carried out by persons or entities, including by other

than those mandated by the Union institutions, bodies, offices or agencies, shall form the basis of

the overall assurance pursuant to Article 127 of the Financial Regulation. The Court of Auditors

shall examine the accounts of all revenue and expenditure of the Union in accordance with

Article 287 TFEU.

_Article 31_

_Protection of the financial interests of the Union_

Where a third country participates in the Fund by means of a decision adopted pursuant to an

international agreement or on the basis of any other legal instrument, the third country shall grant

the necessary rights and access required for the authorising officer responsible, OLAF and the Court

of Auditors to comprehensively exercise their respective competences. In the case of OLAF, such

rights shall include the right to carry out investigations, including on-the-spot checks and

inspections, as provided for in Regulation (EU, Euratom) No 883/2013.

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_Article 32_

_Information, communication and publicity_

1. The recipients of Union funding shall acknowledge the origin of those funds and ensure the

visibility of the Union funding, in particular when promoting the actions and their results,

by providing coherent, effective and proportionate targeted information to multiple

audiences, including the media and the public. The funding or financing agreement shall

contain provisions regulating the possibility to publish academic papers based on the

results of research actions.

2. The Commission shall implement information and communication actions relating to the

Fund, to actions taken pursuant to the Fund and to the results obtained.

Financial resources allocated to the Fund shall also contribute to the corporate

communication of the political priorities of the Union, insofar as those priorities are related

to the objectives referred to in Article 3.

3. Financial resources allocated to the Fund may also contribute to the organisation of

dissemination activities, match-making events and awareness-raising activities, in

particular aiming at opening up supply chains to foster the cross-border participation of

SMEs.

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# **EN**

## **TITLE V** **DELEGATED ACTS, IMPLEMENTING ACTS,** **TRANSITIONAL AND FINAL PROVISIONS**

_Article 33_

_Exercise of the delegation_

1. The power to adopt delegated acts is conferred on the Commission subject to the

conditions laid down in this Article.

2. The power to adopt delegated acts referred to in Article 28 shall be conferred on the

Commission for an indeterminate period of time from ... [date of entry into force of this

Regulation].

3. The delegation of power referred to in Article 28 may be revoked at any time by the

European Parliament or by the Council. A decision to revoke shall put an end to the

delegation of the power specified in that decision. It shall take effect the day following the

publication of the decision in the _Official Journal of the European Union_ or at a later date

specified therein. It shall not affect the validity of any delegated acts already in force.

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# **EN**

4. Before adopting a delegated act, the Commission shall consult experts designated by each

Member State in accordance with the principles laid down in the Interinstitutional

Agreement of 13 April 2016 on Better Law-Making.

5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the

European Parliament and to the Council.

6. A delegated act adopted pursuant to Article 28 shall enter into force only if no objection

has been expressed either by the European Parliament or the Council within a period of

two months of notification of that act to the European Parliament and the Council or if,

before the expiry of that period, the European Parliament and the Council have both

informed the Commission that they will not object. That period shall be extended by two

months at the initiative of the European Parliament or of the Council.

_Article 34_

_Committee procedure_

1. 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 to provide its views and expertise to the

committee as an observer. The European External Action Service shall also be invited to

assist in the committee.

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# **EN**

The committee shall also meet in special configurations, including in order to discuss

defence and security aspects relating to actions carried out under the Fund.

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

apply.

Where the committee delivers no opinion, the Commission shall not adopt the draft

implementing act and the third subparagraph of Article 5(4) of Regulation (EU)

No 182/2011 shall apply.

_Article 35_

_Repeal_

Regulation (EU) 2018/1092 is repealed with effect from 1 January 2021.

_Article 36_

_Transitional provisions_

1. This Regulation shall not affect the continuation of or modification of actions initiated

pursuant to Regulation (EU) 2018/1092 or the PADR, which shall continue to apply to

those actions until their closure as well as to their results.

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# **EN**

2. The financial envelope for the Fund may also cover the technical and administrative

assistance expenses necessary to ensure the transition between the Fund and the measures

adopted pursuant to Regulation (EU) 2018/1092 and the PADR.

3. If necessary, appropriations may be entered in the Union budget beyond 31 December

2027 to cover the expenses provided for in Article 4(4), to enable the management of

actions not completed by the end of the duration of the Fund.

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# **EN**

_Article 37_

_Entry into force and application_

This Regulation shall enter into force on the day of its publication in the _Official Journal of the_

_European Union_ .

It shall apply from 1 January 2021.

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

Done at …,

_For the European Parliament_ _For the Council_

_The President_ _The President_

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# **EN**

**ANNEX**

INDICATORS TO REPORT ON THE PROGRESS OF THE FUND TOWARDS THE

ACHIEVEMENT OF ITS SPECIFIC OBJECTIVES

Specific objective set out in point (a) of Article 3(2):

Indicator 1: participants

Measured by: number of legal entities involved (subdivided by size, type and

country of establishment)

Indicator 2: collaborative research

Measured by:

2.1 number and value of funded projects

2.2 cross-border collaboration: share of contracts awarded to SMEs and mid-caps,

with value of contracts to cross-border collaboration

2.3 share of recipients that did not carry out research activities with defence

applications before ... [date of entry into force of this Regulation]

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# ANNEX EN

Indicator 3: innovation products

Measured by:

3.1 number of new patents deriving from projects supported by the Fund

3.2 aggregated distribution of patents among SMEs, mid-caps and legal entities

that are neither SMEs nor mid-caps

3.3 aggregated distribution of patents per Member State

Specific objective set out in point (b) of Article 3(2):

Indicator 4: collaborative capability development

Measured by: number and value of funded actions that address the capability

shortfalls identified in the CDP

Indicator 5: continuous support throughout the full R&D cycle

Measured by: the presence in the background of IPRs or results generated in

previously supported actions

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# ANNEX EN

Indicator 6: job creation/support

Measured by: number of supported defence R&D employees per Member State

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# ANNEX EN