Why pooling of demand? At the recent Steering Board of the European Defence Agency (EDA) on 30 November 2011, European Ministers of Defence had an intense discussion on Pooling & Sharing, an EU flagship initiative aiming at increasing further multinational cooperation among European Union Member States. Pooling & Sharing can take various forms, like common training, common logistic support solutions or combining transport capacities, but all have one thing in common: the aim to use decreasing resources in a more efficient and effective way through collaboration and prevention of redundancies.
It goes without saying that procurement is an area very well-suited to the increase in the effectiveness of military spending. This is also reflected in the EDA’s mandate as laid down in Art 45 of the Treaty on European Union which tasks the Agency, among other things, to promote the adoption of effective procurement methods as well as to contribute to identifying and, if necessary, implementing any useful measure for strengthening the technological and industrial base of the defence sector and for improving the effectiveness of military expenditure.
Accordingly, the Ministers of Defence, during the previous Steering Board in May this year, called upon the EDA to explore new opportunities for more effective procurement methods through developing practical and innovative ways for more cooperative action, including common military and commercial off-the-shelf procurement and to develop guidelines and best practices facilitating bi- and multilateral collaborative procurement.
In the current economic climate, implementing these tasks becomes even more pressing to ensure the continuous support of our Armed Forces by getting best value for money at the same time. In some instances and for some EU Member States pooling demand could actually be the only way to grant access to a specific capability.
Pooling demand should automatically lead to more consolidation and more standardisation on the buyers’ side of the European Defence Equipment Market, which in turn should contribute to an improvement of interoperability and permit industries to attain bigger production lots with better planning, again reducing unit cost and therefore prices. By the same token, pooled and consolidated demand could be an incentive for the defence industries of EU countries to intensify their cross-border cooperation and consolidation.
Identifying existing common demand. Now it is up to the EDA to translate this strategic mandate into concrete action, and we are doing it through a newly introduced work strand called Effective Procurement Methods (EPM). In principle, EPM can cover all areas of procurement, including procurement of R&T services, development programmes and off-the-shelf procurement of the entire range of defence equipment, materiel and services. However, given the fact that there are already processes in place to cover specifically co-operative R&T and development programmes, for the time being, we focus with this new initiative on common off-the-shelf procurement. This will also help us to circumvent the “trouble zones” of defence cooperation – which is often the common development phase – and to make the benefits for Member States more evident. As this initiative at this time is not about developing or generating common demand, the most crucial, but also most challenging, element of EPM is the identification of existing common demand. Trying to do this for a group of 26 EDA participating Member States is impossible of course, so we focus on identifying common requirements of smaller groups of Member States.
We have already identified that this requires a very active role of the Agency. We must not put any additional burden on Member States who, in many cases, do already have to cope with personnel reduction while their tasks do not shrink but often expand. This is why it is of utmost importance that we rely on existing data sources for the identification of common demand. The EDA has a number of such sources already, like the Collaborative Data Base (CoDaBa) or the various Integrated Development Teams (IDTs). Now we have to search actively for potential matches in these data sources and liaise with the Member States concerned on a bi- and multilateral basis to understand their readiness for common action.
The feed-back from Member States so far is very encouraging. Not only smaller Member States but also bigger nations seem more and more to accept that sustaining their national Armed Forces entirely through national solutions is not always a viable approach in the long run. This change of attitude has only recently been manifested in a data collecting exercise on Pooling & Sharing conducted by the European Union Military Committee the outcome of which was presented to the Council of the European Union in November this year.
In this exercise Member States named procurement as their preferred option for Pooling & Sharing for a number of areas including Transport and Logistic Support (Medevac, deployable medical structures, medical support, helicopter availability, basic logistics – food, water, fuel – and camp construction), Education and Training (CBRN training, logistics staff training, pilot training, helicopter training and flight simulator training), Vehicles (multi-lift, soft-skin vehicles, wheeled armoured personal carriers as well as heavy and light wheeled vehicles), Ammunition, Weapons and Individual Equipment (rocket launcher, auxiliary equipment field artillery, non-guided ammunition, light weapons, mines and explosive devices) and Communications.
This comprehensive list does not only reflect the increasing preparedness of Member States for common procurement but also represents a good starting point for us in the EDA to identify the products and services eligible for pooling off-the-shelf demand and so to decide where we should focus our efforts on. If we, on top of that, concentrate at first on highly standardised products, this will reduce the desire for national solutions and so overcome one of the chief obstacles to cooperation.
Translating Common Demand into Common Action. In essence, EPM is not about developing something new, it is about using existing tools in a better way. Therefore we are developing this initiative along with Member States and relevant inter-governmental organisations as well as industry with the aim to learn from best practices and expand them to a greater group of users. The EDA, with its unique structure linking Capability Development, Defence Research & Technology, Armaments and Industry & Market elements, is a natural place for such an exercise and will facilitate the identification of pilot cases to prove and refine the concept over time.
Additionally, the EDA’s legal framework, reinforced through its Council Decision 2011/411/CFSP, provides for a sound basis for multinational ad hoc cooperation which is exactly what is needed to launch real common procurement cases. EPM will bring together smaller groups of Member States which makes it an “à la carte” concept. Such intergovernmental cooperation within the EDA is typically based on the provisions of so-called ad hoc Category B projects. This procedure is widely acknowledged and used in the areas of R&T and Development programmes. It basically offers the possibility to Member States to propose to the EDA Steering Board an ad hoc cooperation combined with an opt-in phase for other Member States to join. If not rejected by the Steering Board this ad hoc cooperation becomes an EDA Category B project enabling the contributing Member States to use the services of the Agency.
For EPM cases, such Category B projects could be used to develop common technical requirements on the basis of pre-identified common demand. It would establish some general rules on how to organise the intergovernmental cooperation and it would identify who would act as the common contracting body.
In this regard, we have a number of different options. A Lead Nation option is perhaps the most prominent one. In such case, a lead nation would procure on behalf of a group of Member States or simply include in its national contract an option for other interested countries. Another possible option is that a group of Member States identifies and shapes their common demand within an EDA Category B project but then decides to have the actual procurement done by another international body.
In any of these cases we have to make sure that the procurement processes and models are as flexible as possible when meeting the different requirements of the Member States and at the same time ensuring transparency and competition. To avoid upfront commitment of Member States and to cope with different budgetary cycles, Framework Agreements stretching over a certain period of time seem to be a worthwhile option. This would not only be beneficial to the Member States contributing to a specific common procurement case but would also allow industry to better utilise their production lines.
We are still at the starting point but the interest and feedback from Member States is encouraging and are proof that we are on the right track. One by one, pilot cases will show the benefits and more and more Member States will acknowledge the advantages of European cooperation. This will further reduce fragmentation to the point where we create a real European Defence Equipment Market and a genuine European Defence Technological and Industrial Base.
by Reinhard Marak, EDA’s Senior Officer for Defence Market.
This article was published by Defence Procurement International.