The Directive on Defence and Security Contracts: Introduction Jonathan Davey, Partner 8 June 2011

Historical Position EU Treaty excludes “measures… necessary for the protection of the essential interests of its security which are connected with the production or trade in arms, munitions and war material.”(Art 346) 1958 List Broadly interpreted by Member States but some pushback from Commission (Italian Helicopters; Czech APC’s) New approach (effectively) moving away from perceived over-reliance on Art 346

Directive on Defence and Security Contracts (2009/81/EC) Context Article 296 EC (now Article 346 TFEU) Commission Package 5 December 2007:  procurement directive  directive on intra-EU arms transfers  recommendations to foster competitiveness Directive adopted: 13 July 2009 Deadline for implementation: 20 August 2011 MOD charged with UK implementation Two full written consultations:  (1) approach (commenced December 2009)  (2) draft regulations Guidance notes expected from UK MOD

MoD’s view of likely change in approach BeforeAfter

Some key issues Security of Information Security of Supply “Offset” arrangements/subcontracting Are these new issues? No OP; use of NP without restriction; oddity re CD! Implications for defence clients and their in-house teams

Second consultation took place December 2010 with Regulations laid before Parliament June/July 2011 Coverage:  Military/sensitive equipment and related works, goods or services  Works/services for military/sensitive purposes “Military Equipment” means “equipment specifically designed or adapted for military purposes and intended for use as an arm, munitions or war material” [echoing Art 346 and 1958 List] “Sensitive” means involving, requiring and/or containing classified information Directive on Defence and Security Contracts (2009/81/EC)

Defence Directive: key features (1) Broadly follows “Classic” Directive; but more flexible (NB useful comparator tables attached to MoD Consultation Document, Dec 2009) Defence industry view of the Defence Directive vs reality Some key differences:  Free use of RP, NP (no OP; CD circumscribed) (Art 25)  Frameworks – 7 years rather than 4  Security of Information, Security of Supply and Offsets  Specific duties of confidentiality (Arts 6,27(3))

Defence Directive: key features (2) Key differences(continued):  Thresholds:  Supply and services: EUR 412,000  Works: EUR 5,150,000  Additional grounds for exclusion at Selection stage:  Terrorist offences  Infringements of defence export rules  Previous breach of SoS/SoI requirements, amounting to grave professional misconduct  Known national security risk

Defence Directive: key features (3) Key differences(continued):  Reclassification of certain Part B services as Part A:  Investigation and security services  Training (and simulation)  New Part A services:  Foreign military aid-related services  Defence, military defence and civil defence services  New ground for NP without advertisement: crisis  RP – minimum number of participants – reduced from 5 to 3  Remedies adaptations relevant to defence and security

Exclusions Contracts awarded pursuant to international rules Contracts relating to intelligence activities or which would oblige disclosure of information contrary to essential security interests Local purchases for operations outside the EU Multi-Member State R&D and later phases of product lifecycle Government-to-government contracts

Conclusion

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