The Code of Conduct on defence procurement

The new European Defence Equipment Market, launched on 1 July 2006 by 22 EU Member States, is operated on the basis of the "Code of Conduct on Defence Procurement", a voluntary, inter-governmental regime covering defence equipment purchases which do not follow the ordinary competition rules of the EU single market.

ACT

The Code of Conduct on defence procurement of the EU Member States participating in the European Defence Agency. Brussels, 21 November 2005 [Not published in the Official Journal].

The Code of best practice in the supply chain, approved by ASD on 27 April 2006 and agreed by the EU Member states participating in the European Defence Agency [Not published in the Official Journal].

SUMMARY

The creation of a European Defence Equipment Market (EDEM) is considered strategic to the strengthening of the European Defence Technological and Industrial Base (EDTIB). With this overall aim in mind, on 1 July 2006 the European Defence Agency's participating Member States (22 countries, EU Member States minus Bulgaria, Denmark, Romania, Hungary and Spain) decided to launch the new European Defence Equipment Market.

The market is operated on the basis of the Code of Conduct on defence procurement, a voluntary, non-binding intergovernmental regime that aims to inject transparency and competition into defence procurement. Only subscribing Member States will benefit from the regime, which is limited to suppliers having a technological and/or industrial base in each others' territories and to all defence procurement opportunities of 1 million or more (excluding VAT) where the conditions for application of Art. 296 are met.

Exclusion is provided for some areas:

procurement of research and technology;
collaborative procurements;
procurements of nuclear weapons and nuclear propulsion systems, chemical, bacteriological and radiological goods and services, and cryptographic equipment.

In exceptional cases (urgency, follow-on works, reasons of national security), once an explanation is provided to the EDA, Member States can undertake specific procurements without competition.

Key principles of the regime

A voluntary, non-binding approach. Member States join the regime voluntarily and are free to cancel their participation in the regime at any time. In all cases, the final authority for contract awards remains with MS national authorities ;
Fair and equal treatment of suppliers. In order to maximise opportunities for all suppliers based on each others' territories and enhance transparency and equality of information, all relevant new defence procurement opportunities offered by MS will be notified on a single portal. Fair and equal treatment will be assured in (1) selection criteria, (2) specifications and statements of requirements, (3) award criteria (most economically advantageous solution) and (4) debriefing ;
Mutual transparency and accountability. To review comprehensive data on the impact of the new regime on defence procurement practices, EDA will adopt an effective monitoring and reporting system with regular reports to the Agency Steering Board. Member States will have to communicate any use of Art. 296 in relation to the award of state aid or in mergers and acquisitions issues ;
Mutual support. Fully effective operation of the regime will be dependent on strong mutual confidence and interdependence. Member States subscribing to the Code will therefore do their utmost to assist and expedite each others' contracted defence requirements, and will ease transfers and transits of defence goods and technologies between them ;
Mutual benefit. This regime will prosper only if all signataries derive benefit from it: for this the expansion of opportunities for small- and medium-sized national companies to sell into a continental-scale market is considered essential. The "Code of best practice in the supply chain" is geared towards this aim.

The Code of Best Practice in the Supply Chain

The "Code of Best Practice in the Supply Chain" ("CoBPSC") represents an integral part of the "Code of Conduct". Its overall aim is to encourage increased competition and fair opportunities for all suppliers right down the supply chain and thus focusing on small and medium-sized enterprises (SMEs).

The "CoBPSC" will promote transparency and fair competition at the contractual and sub-contractual level by influencing behaviour in the supply chain. In this respect, the role of relevant national administrations, Prime Contractors and other Buyers in adopting good practices is considered pivotal.

The "CoBPSC"'s objectives are :

to encourage the evaluation and selection of suppliers on a fair and equitable basis;
to deliver improvements in quality, efficiency, timeliness and consistency in supply chain relationships;
to encourage a co-operative approach by all stakeholders in setting the terms for the supply and to use best practice to achieve shared goals.

In terms of principles to uphold, the relevant administrations of the Member States and their suppliers must share common values of professionalism, impartiality and fairness.

Within the supply chain, the CoBPSC will take account of :

the relationship between buyers and their suppliers ;
the conduct expected of all buyers and suppliers, large and small ;
transparent and fair conduct of competition and suppliers selection by buyers.

Where the conditions are favourable, the CoBPSC encourages qualified and competent suppliers, including SMEs, to participate in competitions. Without regard to the procurement method adopted, parties will strive for transparency, clarity and certainty. Monitoring arrangements, based on information provided by prime contractors, will be established to evaluate the application of the CoBPSC.

Context

A significant proportion of EU Member States defence procurement takes place outside EU internal market rules, on the basis of Article 296 of the Treaty establishing the European Community. In order to enhance intra-European competition for this defence equipment, the EDA Steering Board decided, at its meeting of 21 November 2005, to implement, from 1 July 2006, a regime to be operated on the basis of the principles and practices set out in the "Code of Conduct". It also decided to develop a single portal for the announcement of all new contracting opportunities, to develop a Code of best practice in the supply chain, to focus on security of supply and harmonisation of offset requirements at European level and to explore the introduction of greater intra-European competition within R&T.

The efforts undertaken by the EU in clarifying the existing legal framework (COM(2006) 779) represent a necessary step towards greater openness of European defense markets and are complementary with the Code of Conduct administered regime.

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The Code of Conduct on defence procurement

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