UUCePP Advisory Report: EU Law allows for strategic cooperation between Ministry of Defence and high-tech industry

In the recently published Defensienota (Defence White Paper 2024), the Dutch government announced to structurally invest an additional €2.4 billion in the armed forces. It highlights the importance of closer cooperation with Dutch industry and of building innovative ecosystems for the development and maintenance of new equipment – in particular for the development of unmanned systems such as drones and unmanned ground vehicles. A key legal concern for the Defence Ministry is, what room the European public procurement rules leave to enter into such a dynamic and sustainable cooperation with industry. In their recent academic advisory report to the Ministry of Defence, Elisabetta Manunza and Nathan Meershoek – both affiliated with the Utrecht University Centre for Public Procurement (UUCePP) – offer perspective: public procurement law obligations are less strict in the case of national security interests than is often assumed.

In the context of changing geopolitical relations and technological innovations in warfare, the Ministry of Defence faces major challenges. Rising threats and technological innovations call for new actions to ensure the peace and security of the Netherlands and its citizens. The Russian invasion of Ukraine in 2022 has underlined the importance of technological innovations on the battlefield. Unmanned systems are playing an increasing role in military strategy. Preserving peace and protecting freedom requires both the innovative power of the Dutch Ministry of Defence and that of the Dutch defence industry to be optimally utilized and stimulated.

Public Procurement law often perceived as obstacle to innovation

EU internal market law requires EU member states to act in accordance with the principle of non-discrimination when awarding public contracts to private companies. According to EU public procurement legislation, such companies should be selected through open and transparent public procurement procedures, including where it concerns innovation oriented partnerships. However, this would mean in practice selection primarily based on economic factors, while ignoring the military-strategic factors which are crucial for the effectiveness of public-private cooperation with a military purpose.

In the Netherlands, public procurement law is therefore often assumed to hinder the realization of such crucial societal tasks, wiping away the innovative mindset needed for fostering innovation and unnecessarily delaying the achievement of societal goals. It therefore means that projects sometimes do not even get off the ground; take an unnecessarily long(er) time to set up; and contain clauses and agreements that are neither positive for the government nor for the industry.

But is this assumption correct?

Limited by this assumption, governments in the Netherlands currently often look for what they call ‘the boundaries of the Public procurement Act’, hoping to find new ways to still achieve their objectives. But where exactly do those boundaries lie? Within the Dutch Public procurement Act? The EU Directives? Or in the broader EU Defense and Security legal system? According to UUCePP researchers Elisabetta Manunza and Nathan Meershoek, in the field of defence industries, these boundaries are more flexible than often assumed. In their view, establishing ‘dynamic and sustainable’ forms of cooperation between Defence and industry in the field of unmanned systems requires an equally ‘dynamic-functional’ application of public procurement law. By applying an innovative research method that builds on fundamental research they applied in their respective PhD theses, Manunza and Meershoek illustrate in their report how the Netherlands can establish such dynamic and sustainable forms of cooperation within the current legal framework. The researchers conclude that EU internal market law, on which the public procurement rules are based, insufficiently ensures the military security interests of the Dutch Armed Forces. This is the reason why derogation from these rules can be justified. What emerges is that public procurement law is often wrongly seen as an obstacle to build knowledge and innovation oriented ecosystems.

Broader application of Article 346 TFEU possible

In their report, presented to the Ministry of Defence on 18 July 2024, Manunza and Meershoek illustrate why Article 346 TFEU (see box below) can be applied more broadly than is often assumed in the Netherlands. The report follows years of study into the relationship between primary EU law, the public procurement directives and their implementation and application in the Netherlands in the field of security and strategic autonomy, and builds on an earlier research report on setting up a military-logistics cooperation with industry.