Written by Jacob B. Pankowski and Stephen C. Tupper

As a general rule, high-value government contracts in the EU must not be awarded by public authorities without first complying with the detailed EU procurement rules designed to ensure non-discriminatory access to such contracting opportunities and “value-for-money” for public authorities and, ultimately, EU taxpayers. However, due to national sensitivities in the EU Member States, the defence procurement market was traditionally largely exempt from the EU public procurement regime. That position changed in August 2011 when the EU’s newly liberalised defence procurement regime officially opened for business.

It is still too early to judge whether the reforms are having the desired effect-namely to increase the level and intensity of international competition for the EU’s estimated annual defence spend of over €170 billion. Ultimately the success of the initiative will depend on the confluence of two phenomena: (i) total commitment on the part of national contract authorities to look beyond their “national champions” to the better deals being offered by foreign suppliers; and (ii) enthusiastic engagement by foreign suppliers in the new market(s). Should either fail to materialise then the market opening will almost certainly be deemed a damp squib.

On the latter score, opportunities would appear to be opening up in the UK. The UK government, keen to find defence budget savings in the current macro-economic climate, recently announced plans to reduce regular forces numbers from 102,000 to 82,000. To fill the resulting capability deficit the UK government is planning to plug gaps by contracting out more to the private sector. Among the outsourcing projects being considered is a $22 billion tender for the provision of procurement and support service functions. The overwhelming majority of such contracts will have to be let via the EU’s general procurement system described above.

This system is, for the most part, open to contractors based outside of the EU. GT has a full-service EU “government contracts” team based in its London office. Should US-based GT clients be interested in finding out more about defence contract opportunities within the EU, and in the UK in particular, and the public procurement rules that apply, they should feel free to contact their local GT shareholder contacts with a view to obtaining an introduction to the London office.