21.10.2013
The Directive 2009/81/EC on the Award of Contracts in the Fields of Defence and Security
On the 29th of August 2009, the new European directive on the award of contracts in the fields of defence and security has been published in the Official Journal of European Union.
This directive 2009/81/EC "constitutes the cornerstone of a truly European Defence Equipment Market. Up until the adoption of the Directive, defence markets in the European Union have remained fragmented along national lines. This has led to a lack of openness and competition, with negative effects on the efficiency of public spending and the competitiveness of European industry. The new Directive introduces at the European level fait and transparent rules for defence procurement, which make it much easier for defence companies to access defence markets of other Member States for the benefit of industries, armed forces and taxpayers"[1].
The contracts that come under the Directive are 2009/81/EC are the ones implying arms, munitions and war material. In principle all military agreements on the list of 1958 come under the directive[2].
The principles of the Directive[3]
"The directive 2009/81/EC is the legal instrument intended to secure respect for these basic provisions of The Treaty in the specific field of defence and sensitive security procurement. The directive does not directly address the issue of the offsets, but it contains a number of provisions that are intended to ensure that contract award procedures and all the requirements put on candidates"[4].
The article 4 of the Directive sets out the principle of non discrimination of candidates and tenderers in contract award procedures: "contracting authorities/entities shall treat economic operators equally and in a non-discriminatory manner and shall act in a transparent way". It means that all measures which imply a discrimination against participants in a procedure, for instance, by providing compensation obligations only for tenderers from abroad.
Selection criteria[5]
Articles 38 to 42 include provisions on criteria for qualitative selection of candidates and tenderers, shall be transparent. The non-discriminatory criteria shall be then indicated and used by the contracting authorities for the selection of competitors.
Also, the article 38 points out that the extent of the information to be provided by candidates and tenderers and the minimum levels of ability required for a specific contract "must be related and proportionate to the subject-matter of the contract.
Selection criteria may not lead to direct or indirect discrimination against candidates and tenderers. They cannot refer to capacities, abilities or other elements that are not related to the subject-matter of the contract to be awarded.
Contract performance conditions
Article 20 on conditions for performance of contracts, states that contracting authorities may lay down special conditions relating to the performance of a contract, provided that these are compatible with Community law. This clearly excludes any requirements that are contrary to primary European law.
Recital 41 confirms this specifying again that contract performance conditions are compatible with this directive provided that they are not directly or indirectly discriminatory".
Contract award criteria[6]
According to article 47, the contracting authorities decide whether they want to award the contract to the tender offering the lowest price or to the most economically advantageous tender. When the award is made to the most economically advantageous tender, the contracting authority may determine "various criteria linked to the subject matter of the contract" to assess the tenders to determine which offers the best value for money.
However there is a limitation. Supplies, services, investments or other aspects that are not directly related to the subject-matter of the contract, must not be taken into account in the award decision.
The limitation to criteria linked to the subject-matter of the contract results from ECJ case-
Consequences for offsets[7]
Offset requirement and directive 2009/81/EC
Whether they are civil or military, direct or indirect in nature, and whatever their legal connection with the main contract is, offset requirements are restrictive measures which go against the basic principles of the Treaty, because they discriminate against the basic principles of the Treaty, because they discriminate against economic operators, goods and services from other Member State and impede the free movement of goods and services. Since they violate basic rules and principles of primary EU law, the Directive cannot allow, tolerate or regulate them.
Consequently, contracting authorities may not require or induce, whatever means candidates, tenderers or successful tenderers to commit themselves to:
- purchase goods or services from economic operators located in a specific Member State,
- award sub-contracts to operator located in a specific Member State,
- make investments in a specific Member State,
- generate value on the territory of a specific Member State.
Offset requirements and Article 346 TFEU[8]
According to settled ECJ case-law, the derogation under Article 346 TFUE is limited to exceptional and clearly defined cases, and the measures taken must not go beyond the limits of such cases. Like any other derogation from fundamental freedoms, it has to be interpreted strictly and the burden of proof that the derogation is justified lies with the Member State which invokes it.
If a Member State intends to rely on Article 346 TFEU to make requirements such as those mentioned above under point 2.1, it must be able and ready to demonstrate that these requirements are necessary to protect its essential security interests. More specifically, the Member State in question must be prepared to specify the essential security interest that makes the specific requirement necessary, to demonstrate that this requirement is inappropriate means to protect that interest, and to explain why it is not possible to achieve the same objective by less restrictive means to do away with offset obligations taken in the past, with regard to future offset arrangements.
Economic considerations are not accepted as grounds for justifying restrictions to the freedoms guaranteed by the Treaty. Measures liable to infringe the prohibition of discrimination on the basis of nationality can be permitted only if they are justified on one of the non-economic grounds listed in the article 36, 51, 52, 62 and 346 TFEU. This means that the restrictive measure in question must be necessary for security interests, not for economic or employment-related interests.
Any decision to use the Article 346 TFEU needs to be based on a case-by-case assessment which identifies the essential security interest at stake and evaluates the necessity of the concrete measure, taking into account the principle of proportionality and the need for a strict interpretation of the Article 346 TFEU.
Any legislation or policy which makes offset requirements mandatory for all or certain defence or security procurement contracts is considered as a breach of the Treaty.
EDA Code of Conduct on offsets[9]
A code of Conduct on Offsets administrated by the European Defence Agency was adopted, but is a non-legally binding intergovernmental instrument, which sets out overarching principle and guidelines for the use of offsets in defence procurement.
This Code is part of the Intergovernmental Regime on Defence Procurement. The application of the Code does not itself make offset requirements compatible with UE law. In every award procedure, contracting authorities have to ensure that all their requirements comply with the provisions of the Treaty and/or the directive. Then, they may decide to apply the Code on offsets, provided that this does not put award procedure in conflict with the Treaty and or the Directive.
Att. Sophia BENAZOUZ
Legal Counsel
Sources:
Directorate General Internal Markets and Services, Guidance Note Offsets, Directive 2009/81/EC on the award of contracts in the fields of defence and security.
FAQ, Defence procurement- Frequently asked questions, Brussels, 28 August 2009.
[1] FAQ, Defence procurement- Frequently asked questions, Brussels, 28 August 2009.
[2] FAQ, Defence procurement- Frequently asked questions, Brussels, 28 August 2009.
[4] Ibidem.
[5] Directorate General Internal Markets and Services, Guidance Note Offsets, Directive 2009/81/EC on the award of contracts in the fields of defence and security.
[6] Directorate General Internal Markets and Services, Guidance Note Offsets, Directive 2009/81/EC on the award of contracts in the fields of defence and security.
[7] Directorate General Internal Markets and Services, Guidance Note Offsets, Directive 2009/81/EC on the award of contracts in the fields of defence and security
[8] Ibidem.
[9] Ibidem.
