Occasional Paper n°69 - Europa

Lessons learned from Europeandefence equipment programmes

Jean-Pierre Darnis, Giovanni Gasparini,Christoph Grams, Daniel Keohane,Fabio Liberti, Jean-Pierre Maulnyand May-Britt Stumbaum

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Occasional Paper

n°69October 2007

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Lessons learned from Europeandefence equipment programmes

Research Group:Jean-Pierre Maulny and Fabio Liberti (Institut de Relationsinternationales et stratégiques)Daniel Keohane (EUISS, formerly of the Centre for EuropeanReform)Christoph Grams and May-Britt Stumbaum (Deutsche Gesell-schaft für Auswärtige Politik)Giovanni Gasparini and Jean-Pierre Darnis (Istituto Affari Inter-nazionali)

This Occasional Paper is based on a study performed by a Consortium comprising the Institut de Relations internationales et stratégiques (IRIS), the Centre for European Reform(CER), the Deutsche Gesellschaft für Auswärtige Politik (DGAP) and Istituto Affari Inter-nazionali (IAI), under a contract financed by the European Defence Agency (EDA). Theopinions and statements in this study are not necessarily endorsed by the EDA.This paper was published under the aegis of the EUISS under the supervision of Research Fellow Daniel Keohane.

Occasional Paper

n°69October 2007

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Contents

Executive Summary 3

Key recommendations 5

1. Requirements 5

2. Research and Technology 5

3. Industrial cooperation 6

4. Budgets 6

5. Project management 7

Introduction 9

1.1 Objectives of the study 9

1.2 Methodology 9

1.3 Outline of this Occasional Paper 10

Why European governments collaborate 11

2.1 Parameters of success 11

2.2 The reasons why European governments collaborate 12

Challenges for European armaments cooperation 15

3.1 Strategy, doctrine and capabilities 15

3.2 Budgets, programmes and co-ordinating demand 17

3.3 Common requirements and the scope of cooperative programmes 19

3.4 Differences in national procurement processes 21

3.5 Multilateral project management 22

3.6 Government-industry relations 23

3.7 Research and Technology 26

Cooperative lessons learned 29

4.1 Requirements 29

4.2 Research and Technology 30

4.3 Industrial cooperation 31

4.4 Budgets 32

4.5 Project management 33

Annex 37

Abbreviations 37

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Executive Summary Lessons learned from European defence equipment programmes

This Occasional Paper explores the issue of European armaments cooperation. Suchcooperation between countries has often been difficult. Even so, European governmentscontinue to collaborate on multinational equipment programmes for a number of rea-sons, and successful multinational programmes have manifold benefits. These benefitsinclude, for instance, the possibility of meeting a capability requirement at an affordableprice. Collaborative programmes allow greater economies of scale because of the largerorder books. These savings also allow European governments to contemplate acquiringmore advanced equipment (and share development costs), despite static defence budgets.Another advantage is the fact that common equipment can help countries work togetheron international missions: such interoperability is vital for the success of military coali-tions. Also, governments gain political benefits from cooperation, and are perceived to beconstructive EU partners. Moreover, multinational procurement encourages greaterconvergence of thinking about international security among EU governments, and thishelps foster a common European strategic culture. Other positive side effects include tech-nology sharing, technology development, common standards, integrated logistics and suc-cessful exports.

This paper also discusses the challenges facing European arms cooperation , especiallyin the fields of juste retour, industrial consolidation and static defence budgets, research,technology and redundant industrial skills. Different national defence industrial policiesmake it difficult to develop common approaches to armaments cooperation. In particu-lar, government protection of national defence industries has been one of the main prob-lems in past cooperative programmes. Work-share arrangements, known as justeretour, guarantee that a national defence industry must receive work worth the fullamount of its government’s financial contribution to a programme. Experience showsthat the more governments and industrial interests are involved, the more difficult thecooperation. Governments also have vastly different types and sizes of defence industries.Six countries (France, Germany, Italy, Spain, Sweden and the UK) account for morethan 90 percent of defence equipment production in the EU. Most governments, there-fore, are primarily consumers rather than producers - although many smaller countriesare major sub-contractors and component suppliers.

Some parts of Europe’s defence industry have consolidated across borders (aerospace,IT). But the industry must consolidate further if Europe wants to play a significant role inthe global defence industry. EU governments collectively spend roughly €190 billion ondefence each year, but national defence budgets are either static or falling. Plus the gov-ernments only spend roughly €40 billion each year on procurement, research and devel-opment. Static defence budgets and low equipment spending means that a competitivedefence industry is not sustainable on a national basis anymore.

Slow progress in cross-border industrial consolidation also means that there arenumerous redundant industrial skills across Europe. Some governments waste scarce

procurement and development money on sustaining certain defence technologies nation-ally, which are usually too small or unsophisticated to be internationally competitive -thereby aggravating the problem of over-capacity. In sum, EU governments have littlechoice but to collaborate more on equipments programmes, and to manage those pro-grammes more efficiently.

Lessons learned from European Defence equipment programmes

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Key recommendations

1. RequirementsEstablish a common requirements process

EU governments have agreed on a number ofcapability goals (Headline Goal 2010) andestablished a ‘Capability Development Mecha-nism’. The governments need a commonrequirements process to complement these ini-tiatives. Governments can draw on the com-mon requirements methodology already usedby the six governments that signed the Letter ofIntent (LoI) in 1998. The EDA should organisethis inter-governmental exchange on sharedrequirements, working closely with the EU Mil-itary Committee and NATO.

Promote convergence of elements of mili-tary doctrine of the participating MemberStates (pMS)

A common military doctrine would be themost efficient way to achieve common require-ments, but this seems unlikely for the foresee-able future. However, as the EU is carrying outmore operations each year, over time govern-ments are likely to agree on some elements of aEuropean military doctrine in line with thePetersberg Tasks.

Involve industry from the beginningDefence ministries and military staffs shouldfocus mainly on the functional/militaryrequirements and mainly encourage indus-trial players to propose different technicalsolutions (especially for more sophisticatedsystems). Industry should be involved in the

requirements definition process from thebeginning. Not only can industry provideexpertise on technical requirements, but theycan also advise on delivery timelines. Plusindustry can help develop shared require-ments by proposing the same solutions(including ‘off-the-shelf ’ solutions) for dif-ferent national needs.

Apply a ‘through-life’ approachIncreasingly, governments plan cooperativeprogrammes under a ‘through-life-approach’,including maintenance, training, logistics andoperational use and disposal. This is necessarybecause the in-service cycle usually costs atleast half as much as the acquisition cost.‘Through-life’ is also important to help ensurefuture interoperability on joint EU missions.

2. Research and TechnologyExchange information on R&T planning

Closer European cooperation on militaryresearch can only help strengthen procure-ment cooperation, because successful researchprogrammes are likely to lead to successful pro-curement programmes. Governments need toexchange more information about their exist-ing research projects and their future researchplans to avoid duplication. The EDA shouldfacilitate this information exchange and link itto the capabilities Headline Goal process andits efforts to map European industrial andtechnological capabilities.

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The following are the principal recommendations that emerged from this survey of European defenceequipment programmes, covering five key areas.

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Establish an R&T ‘Headline Goal’EU governments already have a Headline Goalof capability targets they are supposed to meetby 2010. They should develop a similar ‘Head-line Goal’ for European defence research, a listof targets that governments should meet by2020. This would provide much needed guid-ance to industry and encourage more cross-border collaboration on joint research proj-ects.

Boost European defence research pro-grammes

Given their limited research budgets, andpotential economies of scale, governmentsshould cooperate more on joint research proj-ects. The governments should boost the EDA’sresearch budget (currently €3 million), multi-plying it exponentially so that it can – with pMSapproval – initiate pilot projects on a broaderrange of technologies. The EDA should alsowork closely with the European Commission,because some of the projects that will befunded by the Commission’s ‘security research’budget (under the 7th Framework Programme)may have military uses as well (‘dual-use’ tech-nologies).

3. Industrial cooperationPhase out juste retour within 10 years

Juste retour is the single biggest obstacle tosmoother cooperation on joint European pro-grammes, but it would be difficult for govern-ments to scrap juste retour arrangements in theshort term – even if the OCCAR ‘global balance’system is an improvement on previous arrange-ments. But EU governments cannot afford justeretour on limited defence budgets, plusEurope’s defence industry is increasingly cross-border. Governments should gradually phaseout juste retour arrangements for future cooper-ative programmes within 10 years. This wouldencourage much greater industrial consolida-

tion and technology specialisation acrossEurope, and focus procurement on choosingthe best company with the best product for theright price.

Extend security-of-supply agreementsOne reason governments have kept juste retouris to ensure the security of their defence equip-ment supply. Thus, before phasing out of justeretour, governments would rightly want assur-ances about their security of supply. The gov-ernments, therefore, should agree to extend theexisting LoI security-of-supply agreement(signed by 6 governments) to all the EDA par-ticipating Member States (pMS).

Extend the procurement code of conductto multinational programmes by 2010

Governments could encourage further indus-trial consolidation by extending the EDA’s vol-untary procurement code of conduct to futuremultinational programmes (they are currentlyexempt) by 2010. This would help increase thetransparency of the tender procedure for multi-national programmes and encourage morejoint tenders and competition for contracts,which should help keep prices down.

4. Budgets Exchange information on national budgetprocedures

Budget procedures differ greatly from countryto country. To help co-ordinate national bud-gets for cooperative programmes, the EDAshould facilitate an inter-governmental infor-mation exchange on different national proce-dures.

Use multi-annual programme budgetsTo overcome the persistent difficulties involvedin using national budget procedures – such astimescale and procedural differences – whichoften lead to budget shortfalls during pro-


grammes, governments should create a collec-tive multi-annual project budget for each futurecooperative programme. Integrated projectteams (see next section) should manage at leastsome of the money in this budget, and each gov-ernment would contribute according to itsdegree of involvement in the programmes.

Make upfront investments and establish‘risk budgets’

The governments should also invest an ade-quate amount of their programme budget – asa rule of thumb between 10-15 percent – at thefront-end of the programme, during thedemonstration and development phase. Test-ing technology thoroughly at the start of a pro-gramme can help save money later, and allowgovernments to be firmer about delivery datesand in-service planning. Governments shouldalso set aside a collective ‘risk budget’ (theamount would depend on the complexity ofthe programme), to cover any unforeseen emer-gency costs during the production phase of aprogramme.

5. Project managementUse integrated project teams (IPTs)

The most successful project management isconducted by an ‘integrated project team’. Thisteam should integrate national experts and bepermanently based at one venue. IPTs shouldbe given authority for day-to-day decisionsalthough national capitals should keepauthority over strategic decisions. The projectteams should be experienced and represent arange of backgrounds (i.e. technology, indus-trial, finance, legal, logistics).

Focus contracts on deliveryThe traditional focus of programme contractshas been on meeting ‘phases’ of programmes,rather than on final delivery. If industry isinvolved in the requirements definition phase

from the beginning and governments are pre-pared to invest more money upfront in theresearch and development phase, then thefocus of contracts should shift from predomi-nantly meeting phases to final delivery of theproduct.

Prefer prime contractors and ensure trans-parency for sub-contractors

Prime contractors are generally preferable tojoint ventures because it should make it easierto clarify the allocation of risk between a groupof governments and one company (rather thana group of companies). However, prime con-tractors must also be clear about allocating riskwith their sub-contractors. Governments needto build on the EDA’s Code on Best Practice(which forms part of the procurement code ofconduct) and reach an inter-governmentalagreement to guarantee transparency throughthe whole supply chain both from industry andthe governments and fair access to second tiercompanies.

A European patent-style system fordefence intellectual property rights

Intellectual property rights (IPR) often compli-cate cooperative programmes, because it is notalways clear who owns the IPR. Governmentsshould set up a secure Europe-wide patent-style system for defence IPR, covering bothattribution and transfer of IPR, which wouldhelp foster a common market for defence tech-nology ideas and innovation and takes intoaccount the sensitivities of defence IPR (whichdoes not come under normal commercial IPRpatent rules, i.e. the European Patent Office).These rules should simultaneously take intoaccount three aspects: the governments’ needto control the spread of technology and guar-antee security of supply; the incentives forprime contractors to innovate and adapt differ-ent technologies; and the imperative for sub-contractors to protect their niche capabilities.

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Key recommendations

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Introduction

1.1 Objectives of the study

At the end of May 2006, the European DefenceAgency asked a consortium led by the IRIS(Institut de Relations internationales etstratégiques) in Paris and including the Cen-tre for European Reform (CER) in London,the Deutsche Gesellschaft für AuswärtigePolitik (DGAP) in Berlin and the IstitutoAffari internazionali (IAI) in Rome, to con-duct a study on ‘Cooperative lessons learnedand best practice: how to launch a successfulcooperative programme’. The objective of thestudy was to:

Identify the successes and failures of pastEuropean defence cooperation programmesand recommend how to improve futurecooperation.

Produce a concise guide on ‘how to launch asuccessful cooperative defence programme’that could be used by both Government andIndustry.

Produce a Study Summary Report and anoverall Study Report.

The essential aim of the study was to iden-tify best practice for cooperative programmesand to make a number of recommendationsto improve European armaments coopera-tion.

1.2 Methodology

The study methodology was based on person-ally-conducted interviews, seminars held on anational basis and questionnaires sent out toparticipating Member States (pMS). The initialquestionnaire, agreed with the EuropeanDefence Agency (EDA), was used as a guidelinefor the interviews and the seminars to gain com-parable results.

The study is based on four focus areas:RequirementsBudgetsManagementIndustrial Cooperation.

The authors conducted an initial review oftheir mid-term results with representativesfrom the pMS and industry on 5 July 2006 at theEDA, with a general discussion and individualworkshops on the four focus areas. A secondreview with representatives from the pMS andindustry, with a presentation of drafts results,was held at the EDA on 14 September 2006.

The authors agreed on a list of ‘case studies’to conduct in-depth analysis of lessons learnedwith the EDA. It includes a full range of cooper-ative programmes covering land, sea and airenvironments, and also considers a range ofproject phases from those successful in therequirement definition phases to those unsuc-cessful in the requirement definition phase, tothose continuing into the in-service phase.1

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1 The list contains the following programmes: (i) A400M; (ii) Storm Shadow/Scalp; (iii) Horizon (including PAAMS); (iv) Cobra; (v)Eurofighter; (vi) Trigat MP; (vii) MRAV-GTK; (viii) NATO satellite communications; (ix) Nordic NH transport helicopter; (x) nEUROnDemonstrator; (xi) FREMM; (xii) Future Aircraft Carrier / PA2; (xiii) Meteor; (xiv) FSAF; (xv) Aster; (xvi) Tiger Helicopter; (xvii) APA RadarSystem for F-124 and LCF; (xviii) Case Telescoped Ammunition (CTA) 40 mm.

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As agreed with the EDA, a series of interviewswere conducted with defence ministry officialsacross Europe. 114 interviews were held in France,Germany, Italy, Sweden and the UK; 4 seminarswere conducted in France, Germany, Italy and theUK; and a questionnaire was sent to the 24 pMS –9 of which (excluding the ones where we con-ducted interviews) sent back answers.

The people interviewed included: MoD offi-cials (including procurement agencies, logisticorganisations, military staff); representatives ofindustry; academics and think tank experts. Thelevel of persons interviewed was a mix of senior-level (policy officials and industrial executives)and working-level (project managers). The studywas completed in December 2006.

1.3 Outline of this OccasionalPaperThis Occasional Paper, based on the overallstudy report, is divided into three chapters.The first explains the reasons why Europeangovernments cooperate on major armamentsprogrammes. The second chapter focuses onthe key challenges for European armamentscooperation. The third chapter contains aseries of recommendations, based on the les-sons learned from past cooperative pro-grammes, to be applied to future cooperativeprogrammes.

Lessons learned from European defence equipment programmes

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Why European governments collaborate

European armaments cooperation has oftenbeen very difficult. But the results of our

interviews with project managers and defenceofficials across Europe show a broad consensusthat, for procuring many types of defence equip-ment, there is no alternative to European coop-eration. The cooperative programmes analysedin this study have had varying degrees of success.The good news is that over the last 20 years Euro-pean cooperative programmes have slowlybecome better managed, and some of the lessonsfrom earlier programmes are being applied tomore recent programmes. But there is still muchroom for improvement, in particular in themanagement and execution of cooperative programmes. First, it is important to considerwhat the parameters for success are.

2.1 Parameters of success

In principle, the basic parameters of success fordefence programmes should be to deliver a capa-bility on time and to budget. However, as manynational studies have shown, national defenceprocurement can be difficult, and national pro-grammes are often delayed and run overbudget.2 It is hardly surprising, therefore, thatcooperative programmes, which involve a num-ber of countries, also often encounter similardifficulties to national programmes. Thus, it isprobably more realistic to consider relative suc-cess rather than absolute success whenanalysing cooperative programmes. For exam-ple, the Franco-German-Spanish Tiger pro-gramme was a relative success, despite delays,due to its innovative use of a through-lifeapproach, whereby countries cooperated on in-

service use as well as development and procure-ment. But the four-country Eurofighter projectwas less of a relative success in terms of itsbudget overruns and delays in delivery(although it has been a relative success in termsof its export ability). Part of the problem hasbeen that European governments do not havecommon analytical tools to measure the successand failure of cooperative programmes.

In addition, the parameters of success differaccording to the characteristics of the pro-gramme. Basically, the more advanced, innova-tive and sophisticated the technology, thehigher the risk that there will there will be prob-lems. For instance, the complexities of manned-aerospace programmes, and their ever-increas-ing costs, mean that there are a decreasing num-ber of programmes – although this rule may notapply in the case of future unmanned aerial vehi-cles (UAVs), which are currently less complexthan manned airplanes, and satellite pro-grammes, which are often ‘dual-use’, meaningthey have both military and civil uses. Thus,there are currently three fighter jet programmesin Europe (Eurofighter, Rafale and Gripen), plusthe transatlantic programme, the Joint-Strike-Fighter (JSF). In contrast, multinational co-operation has been less needed for land systemsbecause the technology has been relatively inex-pensive; for instance there are 23 armouredfighting vehicle programmes across Europe.

Naval systems are becoming more complex,split between mature platforms (which can bebuilt nationally) and advanced systems (whichincreasingly can only be acquired multi-nation-ally). Currently there are over 20 naval pro-grammes across Europe. The shift from tradi-tional platform acquisition (ships, tanks,

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2 For example, see the UK National Audit Office report, ‘Ministry of Defence, Major Projects Report 2006’, 24 November 2006, or the FrenchComité des Prix de Revient des Fabrications d’Armement, 25ème rapport, Ministère de la Défense, Paris, avril 2003.

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planes) to systems acquisition and integration(precision-guided munitions, communica-tions) means that different programmes oftenrequire the same technology.

In sum, it is important to remember that alllarge and complex engineering projects are diffi-cult to manage, and not only defence projects.Major civilian projects of similar complexity,such as the Airbus-built A380, Wembley Sta-dium in the UK and the toll system project forGerman motorways have all encountered delaysand budget over-runs due to poor managementand/or other difficulties. Seen in that light, anddespite all difficulties, there is a positive trendtowards increasing efficiency in European coop-erative defence programmes.

2.2 The reasons why Europeangovernments collaborate European governments collaborate on multina-tional equipment programmes for a number ofreasons. Defence budgets across Europe arestatic, while the cost of equipment is rising, so itmakes sense for governments to share the cost ofdeveloping and procuring defence capabilities.However, different European countries partici-pate in collaborative programmes for differentreasons, and some governments do not partici-pate in any. This is because a number of factorsgo into the decision to participate in a collabora-tive programme, such as military cooperationwith other countries, the need for a capability,cost (including potential savings), political ben-efits, and industrial benefits. The importance ofthese factors varies greatly from country tocountry, and while some governments have sim-ilar procurement interests, others have no inter-est because they cannot afford to participateand/or see no prospect of industrial participa-tion. In those cases, non-participating govern-ments generally prefer to buy their defenceproducts ‘off-the-shelf ’.

In general terms, those countries with a sig-nificant defence industry, ‘producer’ countries,are much more likely to participate in a coopera-tive programme than those countries which donot have significant defence industries – ‘con-

sumer’ countries. However, the growing use ofnew technologies by defence ministries, espe-cially software, which are increasingly adaptedfrom civil technology for military use (known as‘dual-use’ technologies), means that there arelikely to be more opportunities for ‘consumer’countries to participate in future cooperativeprogrammes. The trend towards network-cen-tric warfare creates many new opportunities forcountries with sophisticated civil technologyindustries, i.e. software and electronics, to par-ticipate in ongoing and future programmes. Inaddition, further opportunities for ‘consumercountries’ are created by the increasing adop-tion by defence ministries of the ‘through-life’approach to multinational programmes, coop-erating on maintenance, training, logistics aswell as development and procurement. TheEDA’s ‘Cooperative Mechanism’ should help toidentify the full range of opportunities for theEDA’s 26 participating Member States (pMS).

Successful cooperative programmes havemanifold benefits:

Meeting a capability requirement at anaffordable price. Collaborative programmesallow greater economies of scale because ofthe larger order books. These savings alsoallow European governments to contem-plate acquiring more advanced equipment(and share development costs), despite staticdefence budgets. For instance, while theFrench national Rafale programme was lessexpensive than the four-country Eurofighterin development costs, the price of theEurofighter per unit is cheaper than theRafale. Common equipment can help countrieswork together on international missions.Most EU Member States will only carry outmilitary operations as part of a multina-tional coalition, and such ‘interoperability’ isvital for the success of military coalitions. Governments gain political benefits, and areperceived to be a constructive EU partner, andcontributor to EU defence. This is importantsince the EU’s role in international security isgrowing. Moreover, multinational procure-ment encourages greater convergence of


thinking about international security amongEU governments, which helps foster a com-mon European strategic culture. Cooperative programmes help to maintainthe European defence industrial and tech-nology base, and can help ensure security ofsupply. Defence industrial strength and poli-cies differ from country to country. Nationaldefence industrial autonomy used to be themain goal of European governments’defence industrial policy, but it is no longersustainable on a national basis because ofstatic defence budgets and rising equipmentcosts. However, the idea of European defenceindustrial autonomy is unrealistic for thetime being since large parts of the Europeandefence industry remain fragmented, whileother parts of the industry are increasingly‘globalising’ their supply chains. The benefitfor industry can be to develop competitiveproducts, such as Eurocopter. Positive side effects such as technology shar-ing, technology development, common stan-dards, integrated logistics and successfulexports. For instance, the six-country nEUROn unmanned-combat-aerial-vehicle(UCAV) prototype programme is a goodexample of shared technology development.In addition, a cooperative programme canhave more chance of being exported to non-EU countries than a national programme,because it typically has more sophisticatedtechnology – usually at a competitive price

due to large order books from participatingcountries – and collective lobbying. Themultinational Eurofighter, for example, hashad more export success than the Frenchnational Rafale fighter jet. But cooperativeprogrammes do not always guarantee exportsuccess, and general export difficultiesremain, sometimes because participatingcountries cannot agree on common exportpolicies.

All the advantages of cooperative pro-grammes depend on how well or poorly they aremanaged and the use (or not) of best practice. Apoorly-run multinational programme can haveworse results than a poorly-run national pro-gramme – because of its size it can have greaterdelays and budget-overruns than national pro-grammes. In the same way that success can bemanifold through a cooperative programme, socan the problems when things go wrong. Forinstance, the Trigat MP programme is a goodexample of how a cooperative programmeshould not be run, as the five participating gov-ernments signed six separate Memorandums ofUnderstanding (MoUs), resulting in 114months of delays, and in the end the programmewas cancelled. In contrast, the Franco-British-Italian Aster family of surface-to-air anti-missilemissiles show the benefits of cooperative pro-grammes when they are well managed: althoughthere were some delays these programmes havedelivered top-of-the-range capabilities.

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Why European governments collaborate

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Challenges for European armaments cooperation

T here are many challenges for Europeanarmaments cooperation. This section looks

at seven of these challenges: strategy, doctrine and capabilities; budgets, programmes and co-ordinatingdemand; common requirements and the scope ofmultinational programmes; differences in national procurementprocesses; multilateral project management; government-industry relations; research and technology.

3.1 Strategy, doctrine andcapabilities There is a real need for Europeans to think morecreatively about what kind of defence capabilitythey want. What sorts of missions do they envis-age undertaking – and how do they expect theirforces to operate in future? Europeans govern-ments need to make a searching assessment ofthe kinds of additional tasks they want theirarmies to perform, alongside traditional peace-keeping. The European Security Strategy (ESS),prepared by the EU High Representative, JavierSolana, provides a good basis for thinking aboutfuture EU missions.3 The ESS outlines five keythreats to European security: terrorism; prolif-eration of WMD; regional conflicts; state fail-ure; and organised crime. The ESS points outthat none of these challenges are purely military;nor can they be addressed by purely militarymeans. But there is a real need for Europeans to

think more creatively about what kind ofdefence capability they want. Since its first mili-tary operation in 2003, the EU has completedand/or is undertaking eighteen ESDP missions(not all are military operations). This trend sug-gests that the EU will undertake more militaryoperations in the future.

While EU Member States have a securitystrategy, and are undertaking more operationstogether, a lack of common doctrine does hin-der the development of common requirements,which in turn can slow down the progress ofcooperative programmes. It is true that EU gov-ernments have very different military strengths,and diverse attitudes towards the use of militaryforce. However, an increasing number of EUmissions each year are likely to encourage EUdefence ministries to develop some shared ideason military doctrine. A type of ‘partial doctrine’will likely develop on an ad hoc and case-by-casebasis between the national defence ministries,rather than directed through the EU institu-tions in Brussels – although the EU MilitaryStaff is helping the Member States to developsome ideas on shared doctrine for ESDP mis-sions through its ‘ESDP concepts’, such as its‘Rapid Response Air Initiative’ and its studies onthe future role of maritime forces in ESDP oper-ations.

Obviously, European countries have very dis-parate military traditions, and they have greatdifficulties finding money for new defenceequipment. According to the European DefenceAgency (EDA), twenty-five EU governments col-lectively spent approximately €193 billion ondefence in 2005,4 which means that, collectively,

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3 European European Council, ‘A secure Europe in a better world – European Security Strategy’, Brussels, 12 December 2003. Availableonline at: http://www.iss.europa.eu/solana/solanae.html.4 European Defence Agency, ‘European Defence Expenditure in 2005’, Brussels, November 2006. Available online at:eda.europa.eu/WebUtils/downloadfile.aspx?fileid=220.

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the EU governments are the world’s secondbiggest defence spenders after the US. Thatamount of money should be enough to coverEurope’s defence needs. But despite these heftyfinancial resources, Europeans do not havenearly enough useful military equipmentbecause they spend their defence money verypoorly.

The Europeans spend approximately halfwhat the US spends on defence, but they havenowhere near half of the US capability becausetoo much of European defence money is wastedon duplication of programmes, as well as con-script troops and outdated equipment whichare useless for foreign missions. For example,the US has over 200 long-range transport planesthat can carry the heaviest loads. The Euro-peans, in contrast, have only established interimsolutions – the UK is currently leasing four C17sfrom the US, while 15 European countries havesigned up to the Strategic Airlift Interim Solu-tion (SALIS) to lease two Ukrainian Antonov A-124-100 based in Leipzig and four planes basedin Ukraine. Even allowing for the fact that Euro-peans do not have nearly so many global com-mitments as the US, that ratio is unacceptablylow. No European country can afford to buy ordevelop every conceivable category of weaponry.Governments, therefore, often have to combinetheir resources to develop and procure majornew capabilities.

Lessons from missions and the shift fromplatforms to capabilitiesThe definition of required capabilities has beenone of the main topics that have driven militaryand political discussions within both the EUand NATO in recent years. Spurred by theirexperiences in the first Gulf War in 1991 and inthe Balkans later in the 1990s, European coun-tries have shifted their military force planningfrom conventional territorial defence to expedi-tionary missions. However, with the exceptionof the British and French armed forces, whohave conducted national expeditionary mis-sions in recent years, nearly all other Europeanarmed forces have lacked the essential capabili-

ties to carry out expeditionary operations. Asmost EU countries only envisage participatingin military operations as part of an internationalcoalition, it is in their interest to develop sharedideas on capabilities.

Capability categoriesCapability categories differ from country tocountry. Also not every country wants to investin every category (i.e. strategic transport). Plusdifferent countries have different timelines forcapabilities and their capability planning. TheUK and France think 30 years ahead for theirR&T planning, while Italy’s so-called ‘strategicvision’ looks 15 years ahead. Generally we canidentify six categories (they are also mirrored inthe Headline Goal 2010 and in NATO’s PragueCapabilities Commitments):

mobility and deployability;sustainability;engagement;strategic transport;command, control and communications;intelligence and surveillance.

However, despite a common recognition ofrequired capabilities, national specifications forrequirements can hamper cooperative pro-grammes. For example, although the UK andFrance have discussed cooperating on procur-ing aircraft carriers, there remain differences innational specifications which could hinder theirinteroperability.

Capability processesEuropean governments have already signed upto several initiatives to improve their militarycapabilities in NATO and the EU contexts,according to what is in essence a Europeanmodel of military ‘transformation’.

EU initiatives to improve defence capabilitiesinclude:

Helsinki Headline Goal: established in1999.European Capabilities Action Plan(ECAP): this was established in 2001 with


19 capability groups, but has made relatively slow progress.Headline Goal 2010: established in 2003.European Defence Agency (EDA): estab-lished in 2004. It has taken over elevenECAP groups, and the ‘Capability Develop-ment Mechanism’, which was establishedin 2003 to assist the ECAP process.

NATO initiatives include:Defence Capabilities Initiative (DCI):established in 1999 at the NATO summitin Washington, D.C. It consisted of 58 cat-egories but had little real success.Prague Capabilities Commitment (PCC):established in 2002 at the NATO summitin Prague as a follow-up to DCI. It focuseson four main areas.

However, none of these initiatives have yetled to major increases in new military hardware,mainly due to the slow pace of procurementinvestments.

3.2 Budgets, programmes andco-ordinating demandIn general, defence budget comparisons are dif-ficult in Europe, because the collection ofnational data follow different national stan-dards. For example, in France the cost of para-military constabulary forces (the Gendarmerie)forms part of the data in the defence budget, inother countries the cost of comparable forcesdoes not appear in the defence budget data. Fur-thermore, the UK and France maintain anexpensive nuclear force while the other Euro-pean states do not, which can complicate thecomparison of defence expenditure trends.

Specific to cooperative programmes,another basic problem is the lack of coordina-tion of investments. For instance, on theFREMM programme, France paid on behalf ofItaly for 6 months, between November 2005 andApril 2006, because Italy could not find the

money during that period. Likewise, during thetransatlantic MEADS programme, the US paidfor Germany between September 2004 andMarch 2005. Thus, not only is it difficult to com-pare national data on defence budgets, but gov-ernments also have difficulty coordinating theirinvestments in cooperative programmes.

Trends in defence budgetsAt present, the 27 states of the European Uniondevote approximately €193 billion to defence.The five biggest spenders are the UK, France,Germany, Italy and Spain. If one comparesdefence expenditure as a percentage of grossdomestic product (GDP) huge differencesoccur: France and the UK invested heavily in2004, Germany and Spain did not, while Italy issomewhere in between – for example, accordingto the International Institute for Strategic Stud-ies, France spent 2.6% of its GDP on defence in2004, and the UK invested 2.3%, in contrast withGermany (1.4%), Italy (2.0%) and Spain (1.3%).5This general trend with France and the UK onone side and the rest of the main Europeanarmaments states on the other stretches backabout 15 years.

These divergent budgets reflect differentstrategic orientations about the use of armedforces. These differences in strategic orientationexplain the capability shortfalls of many Euro-pean armed forces, because Europe does notdefine itself as a global power that needs corre-sponding military means. Instead, national gov-ernments define their own needs on a nationalbasis. France and the UK differentiate them-selves from the other European states, becausethey have a similar approach to the use of forceand are prepared to command national expedi-tionary operations. Nevertheless, most EUMember States are participating in interna-tional coalitions (whether the EU, NATO or theUN), and have signed up to the EU’s generalcapability plans (i.e. Headline Goal 2010).

The problem is not how much the EU Mem-ber States spend on defence, some €193 billion,

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5 International Institute for Strategic Studies, The Military Balance 2006 (London: Routledge-IISS, 2006).

Source: European Commission, UNISYS, Final report of the study: Evaluation of the Common Initiative in the context of the Intra-EU Transfers of DefenceGoods, Brussels, February 2005.

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which is a significant amount of money. Theissue is the capability that the EU governmentscan deliver with that amount of money. The EU-27 governments have close to two million per-sonnel in their armed forces, but they can barelydeploy 100,000 soldiers around the globe. Thisamounts to 5% of EU armed forces, a ratio that isten times worse than the US, which can deployhalf of its armed forces. Presently, EU govern-ments are close to overstretch – the EDA pMShad 74,000 soldiers deployed on operations in2005, which amounts to 4% of their armedforces.6 This European lack of military muscle ispartly due to a shortage of professional soldiers(there are still close to 400,000 conscripts in theEU), but also because most EU governmentslack the equipment to carry out these missionsadequately, such as transport planes, precision-guided-munitions and communications equip-ment.

European defence programmesNational, rather than European, priorities arereflected not only in budgets, but also in pro-curement programmes. In 2005, the EU Mem-ber States spent approximately €26 billion oninvestments in procurement. 82% of this moneyis invested in national programmes. The resultof this national fragmentation is a duplicationof development and production and differentstandards of equipment. This fragmentationalso aggravates common logistic support sys-tems and diminishes military interoperability.

Another problem is the lack of economies ofscale, with too many small procurement pro-grammes for essentially the same capability. Thefollowing table compares US and European pro-curement programmes and demonstratesEurope’s huge inefficiencies – some 89 pro-grammes on much lower defence procurementbudgets:


System Europe United States of America

Land Systems- Main battle tanks 4 1- Armoured fight. vehicles 16 3- 155 mm Howitzer 3 1Air Systems- Fighter-strike 7 5- Ground attack-trainer 6 1- Attack helicopter 7 5- Anti-ship-missiles 9 3- Air-to-air-missiles 8 4Sea Systems- Main surface combatant ships 11 2- Diesel submarine 7 0- Anti-submarine torpedo 9 2- Nuclear-powered submarine 2 1 Total 89 27

Defence Programmes in Europe and the US

6 See European Defence Agency, op. cit. in note 4.

One prominent example of this redundantspending in large systems is in the field of MainBattle Tanks (MBT): while Germany producesthe internationally successful Leopard-2 family,France (Leclerc), Italy (Ariete) and the UK (Chal-lenger) procure their own systems, thereby wast-ing money on duplicating R&T and limitinginteroperability.

Another striking example is combat air-crafts. Despite heavy competition from the US,Europe has developed three parallel types,namely the Swedish Gripen, the French Rafaleand the German-British-Italian-Spanish-builtEurofighter. A global market of approximately3,000 units is predicted for the new US CombatAircraft, the Joint-Strike-Fighter (JSF), but theorder book for the European types is muchlower: Gripen (204), Rafale (294) andEurofighter (620). Furthermore, the collectiveR&D costs of the three European airplanes arecomparable to the more advanced JSF:Eurofighter cost €19.48 billion, Gripen €1.84billion and Rafale €8.61 billion – the cumulatedR&D costs of the three European combat air-craft was €29.93 billion, with 1,118 units in finalproduction. R&D for the JSF is estimated at €31billion and the market forecast is for productionof 3,000 units.

Co-ordinating the demand side The number of different programmes in Europeshows that European governments do not yetco-ordinate much of their demand for defenceproducts, despite their shared capability goals.The task for European governments in thefuture is to coordinate more of their demandand to spend their defence budgets more effi-ciently, if they wish to acquire the full range ofrequired capabilities. The challenge is thatnational procurement processes are alreadycomplex, and adding another country can com-plicate and slow down a joint project if it is tomeet the needs of all the customers – in this casethe governments. For example, governmentsoften have different timelines for the delivery of

their capability. During the 1980s France andGermany discussed jointly developing a newtank together. However, Germany wanted thetank as soon as possible, whereas France wasplanning for a decade later. Thus, the Germanspursued their own programme which becamethe Leopard-2 programme, and France devel-oped its own Leclerc project. European defenceministries have discussed coordinating theirdemand for defence products for many decades,and a number of institutions and agreementshave been created to support this process:

European Headline Goal 2010 (EHG 2010): alist of military capability goals, that MemberStates aim to achieve by 2010. European Capabilities Action Plan (ECAP):identification of shortfalls, improvement ofcapabilities for European armed forces. Letter of Intent/Framework Agreement:effort to implement a common understand-ing of industrial restructuring between themost important armaments states aboutsecurity of supply, security of information,research and technology, export regulationsand harmonisation of military require-ments.European Commission Green Paper: look-ing at ways to open up the European defencemarket and to curb national fragmentationand protectionism. European Defence Agency Code of Conduct:increase transparency, and therefore compe-tition, in European defence procurement.

3.3 Common requirementsand the scope of cooperativeprogrammes

For many of the officials interviewed, clearly-defined shared requirements are a fundamentalprerequisite for a successful cooperative pro-gramme. For others shared requirements aremerely ‘missing the wood for the trees’, meaningtwo things:

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1. The definition of a requirement can be away to favour national industry. Govern-ments sometimes define their require-ments in a way that would allow theirindustries to play a larger role in the pro-gramme, thereby supporting their ownnational interests, or it can be a means tochoose national sub-systems;

2. The definition of a requirement can be away to avoid participating in a coopera-tive programme if a country has alreadydecided to have a national programmeinstead.

Because requirements can be easily manipu-lated, the language used to define commonrequirements has a great impact on the successor failure of a cooperative programme.

Operational and technical requirementsGovernments should mainly define theirrequirements in operational terms rather thanin technical terms. The lessons from past pro-grammes show that when requirements aredefined in technical terms it is more difficult toreconcile the demands of participating govern-ments.

The choice of certain technologies canpotentially favour one country’s industryover another; The logic of the capability process is todefine an operational capability (i.e.destroy a certain number of targets in a cer-tain amount of time) and not to define pre-cisely how you attain this result. So focus-ing on technical aspects is not the best wayto define a precise requirement;Highly technical definitions of require-ments tend to take longer to agree andmake the process more complex, whichmakes compromise between governmentsmore difficult.

For instance, the problem of using highlytechnical specifications became evident duringthe Horizon frigate programme during the

1990s. The choice of radar systems caused a riftbetween the United Kingdom and France andItaly. Italy and France chose to purchase theEmpar radar provided by Thales and Alenia andthe United Kingdom purchased the Sampsonradar provided by BAE systems.

Diverse requirementsIt would be easy to compromise if each countryexpressed their needs and the cooperative pro-gramme was able to meet each specification.However, the diversity of demands would createa ‘lamb with five legs’, to quote one official: theresulting system would be very expensive andcomplex and would effectively be counter-pro-ductive to the idea behind a cooperative initia-tive. A perfect example of this is the Tiger Heli-copter Programme, launched during the 1980s.In the end, two different helicopters had to beproduced, one to meet the requirements ofFrance and one to meet the requirements of Ger-many. Likewise one reason France left theEurofighter programme was because it wanted amulti-role fighter, whereas the UK wanted aground attack jet, and Italy preferred an inter-ception jet. France, therefore, pursued its ownnational Rafale programme instead. Similarly,one reason the UK left the Horizon frigate pro-ject in 1999, was because it could not agree onshared requirements with France and Italy, anddecided to pursue its own programme, the Type45 (although it has continued with a collabora-tive naval missile project with France and Italyknown as PAAMs, which will be used on both theFranco-Italian and British ships).

The first step to a successful cooperative pro-gramme is to carefully determine which specifi-cations are common to all parties and whichspecifications must be left to the responsibilityof individual Member States. However, there arethree prerequisites:

A strong integrated multinational teamwhich is able to combine and synthesisenational requirements into a cohesive andcommon objective;An understanding that beginning the


process of negotiations will require anextensive period of time, and that opencommunication is fundamental in order toavoid misunderstandings between part-ners; Clear expression of each country’s essentialrequirements and a willingness to foregounnecessary demands in a spirit of cooper-ation. Plus the more governments definetheir requirements in operational termsthe better.

In-service supportA programme does not end once equipment isdelivered and put into service. The duration of aprogramme continues until the end of theequipment’s useful life cycle (including its dis-posal). The cost of in-service life support canamount to over twice the acquisition cost of aprogramme. For example, a study from theFrench Comité des Prix de Revient des Fabricationsd’Armement shows that the cost of the Frenchaircraft carrier Charles de Gaulle was €3.1 bil-lion to render into service, but cost €7.7 billionover the period of its useful life.7

Defence equipment evolves over its life cycle.Without collaboration and cooperation over thecourse of this evolution, the interoperability ofarmaments becomes impossible. This was thecase with the Transall cooperative programmeduring the 1960s. The Transall was a joint effortof France and Germany, but once the Transallwas put into service cooperation ended. It is nowimpossible to exchange a French with a GermanTransall because the spare parts are no longerthe same and the operational function of eachhas evolved in different ways.

Most of the governments of the EDA pMShave vocally supported the extension of supportto the end of the in-service life, yet in practicetwo realities make this difficult:

Governments tend to choose nationalsolutions to provide support for the in-service life of a cooperative programme. Itis a way to give work to the national indus-trial base, to maintain employment and so

on. More and more support services havebeen sub-contracted to private industryeven if it is necessary to involve militarystaff as well;In theory, support services require a long-term contract, as the life of a piece of equip-ment could be as long as 30 or even 40 years.But some countries are not able, for eco-nomic or legal reasons, to uphold suchlong-term contracts. For example, Franceis only able to propose a support contractfor the A400M covering a few years due toFrench financial rules.

Shared support of cooperative programmesthroughout their life cycle, therefore, requiresvery strong political will on the part of govern-ments. For the moment, this through-life serv-ice approach appears to be easier to organise fortraining but more difficult for logistics and sup-port services. However, the record of shared in-service support is mixed. The governments par-ticipating in the Tiger programme have recentlysigned an MoU to establish a common structurefor in-service support. But the governmentsinvolved in the A400M have made less progress,and seem to be heading for primarily nationalin-service support.

3.4 Differences in nationalprocurement processes

National procurement processes in Europediverge greatly. Several countries have used Arti-cle 296 of the Treaty on European Union (TEU)to justify their protectionist policies within theirprocurement processes. The first problem is alack of transparency within national procure-ment processes. Article 296 permits states torestrict their defence equipment tenders tonational providers and allows governments tofavour national ‘champions’ in order to pro-mote their own technological and industrialdevelopment. Moreover, procurement agenciesare required to explain their choices to nationalparliaments who sometimes apply pressure tofavour national industry.

7 Comité des Prix de Revient des Fabrications d’Armement, 25ème rapport, Ministère de la Défense, Paris, avril 2003.

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The first step to improve the transparency ofnational procurement processes is the EDA’sCode of Conduct on Defence Procurement(launched in 2006). The Code of Conduct wasconceived with the intention of having greatertransparency on national procurement proce-dures. If successfully implemented, it willgreatly contribute to the creation of a more openEuropean defence equipment market. Competi-tion within the European market shouldimprove and create pressure for lower prices andmore efficient spending of defence budgets. Theflatness of European defence budgets, com-bined with the fragmentation of national pro-curement processes, has favoured protection-ism and greatly reduced the efficiency of defenceprocurement spending.

An additional problem is that tender proce-dures are structured differently in each country.Usually the difference is such that foreign com-panies must use local agents to formalise theirbids. The different phases of a programme (pre-definition, design, development, production)can also differ in each country.

Another factor which has sometimes greatlycomplicated cooperative programmes is differ-ent parliamentary approval processes for pro-gramme budgets. Each Member State has itsown parliamentary procedures, and they areimpossible to coordinate given the national pol-itics involved in such decisions. For instance, theparliamentary approval process for the A400Mprogramme in Germany took two years. SinceGermany had the largest slice of the order bookfor the A400M (60 planes) the other partnershad no choice but to wait until 2003 when theGerman parliament had finally approved theGerman budget contribution.

3.5 Multilateral projectmanagement All past cooperative programmes show thatthere is a strong correlation between the level ofintegration within project teams (both on thecustomer side as well as on the supplier side) andthe success of cooperative programmes. How-ever, it is not an instinctive impulse for national

defence ministries to act in such an integratedway, because the more project management isintegrated, the less likely ministries will be ableto exert full control of a cooperative pro-gramme.

All the lessons learned from the cooperativeprogrammes during the 1980s show that thequestions that governments could not reachagreement on during an MoU negotiation werediscussed by the multinational project team.But these multinational project teams had nodecision-making powers. Each national repre-sentative in multinational project teams alwayshad to ask their governments what position theyshould take when the project team did not agreeon a question, even if it was a minor issue.

For example, during the Trigat MP pro-gramme (ultimately cancelled in 2000) therewas a problem with the security lock whichblocked during testing. In the programme officenational representatives were not able to reachagreement on a solution. The question was thenreferred to the national procurement adminis-trations. France wanted a 10,000 bump test andthe UK wanted a new security lock with a 5micron-thick Teflon component. In the end,they were unable to agree, so they decided to addboth solutions, the 10,000 test and 5-micron-thick Teflon component. Reaching this decisiontook up a lot of time with the added cost of twosolutions rather than one.

For cooperative programmes initiated in the1990s, the lesson was to use a permanent inte-grated project team (IPT). The first IPT was an adhoc team within the Horizon Joint Project Office(HJPO) created in 1992, for the Horizon frigateproject and based in London. In the Horizonproject office the officials involved did not sim-ply represent their national governments butworked in a truly integrated team. They had thepower to manage the programme and to con-clude contracts and used British procurementmethods since the project team was located inLondon. Over time, however, the HJPO had lessand less power as disagreement between thepartner defence ministries arose. However, itwas the HJPO structure that governments usedas a role model when OCCAR (Organisationconjointe de Coopération en matière d’arme-


ment) was created in 1996, and OCCAR nowmanages the Franco-British-Italian PAAMs mis-sile programme that will be used on Horizonships.

Changing procurement practicesThe practice of defence procurement hasevolved over the last decade. First there is thetendency to have fewer phases (usually onlythree) in a programme. The first phase now con-sists of the predefinition phase, the secondphase encompasses development/design, dur-ing which technological risks are evaluated, andwhich currently lasts longer than in past pro-grammes. The third phase is the productionphase. In more complex programmes (NATOAGS, MEADS) sometimes there is a fourthphase between the definition and developmentphase, essentially the risk reduction phase (forsimulations and pre-tests). The UK introducedthis practice in its so-called ‘Smart Procure-ment’ reforms in 1998, and France later adoptedthe same methodology, while Germany has beenfollowing the same concept in principle since2001.

For cooperative programmes it is a betterapproach to reduce the number of phases. In thepast governments had to negotiate a differentcontractual document for each phase of the pro-gramme, causing major delays since each govern-ment had to approve the contract. During the Tri-gat MP programme, no less than six MoUs cover-ing six phases were signed for the programme,requiring all five participating governments toapprove each MoU, thereby delaying the pro-gramme by approximately five and a half years.

The second tendency is to have a clearerunderstanding of allocating responsibilitiesbetween the customer and the provider. Themore the predefinition and design phases havebeen well organised the easier it is to define clearallocation of responsibility between customerand supplier. This sharing of responsibility has aclear objective: to define as precisely as possiblethe cost of a programme and the timescale ofdelivery. Since most of the risk should bereduced during the predefinition phase, itshould be easier to delegate more risk to indus-

try for budget or timeline overruns, known asthe ‘commercial approach’ to programme man-agement.

The approach the governments choose alsodepends on the complexity of the system theywish to procure. For more complex systems, likethe Future Aircraft Carrier, the UK has intro-duced a new system with both industry and thedefence ministry taking part in the decisionprocess, and the MoD participates actively in theindustrial consortium. The idea is to share riskbetween the defence ministry and the industry –in the aircraft carrier example the companies areThales, BAE Systems and Kellogg Brand Root.Thus, the risk is shared between customer andsupplier. That means there is no strict fixed costand the defence ministry pays the market priceto get involved with the defence company’s workat any time during the programme.

For less complex systems it is the oppositemodel. It is possible to have one contract fromthe beginning where the government defines afixed cost and the number of items demanded,plus the unit price and the time of delivery for allthe items. If these conditions are not satisfied,industry takes on all risk. Industry has to deter-mine its risks and include those in its financialpropositions to defence ministries. If industryunder-evaluates the risk, it will be charged extracosts: this is the principle behind the commer-cial approach used for the A400M.

3.6 Government-industryrelationsStatic defence budgets and low equipment-spending means that a competitive defenceindustry is not sustainable on a national basisanymore. In the past decade, some sectors of theEuropean defence industrial base have consoli-dated across borders. This is particularly true forthe aerospace and defence electronics business.However, the process is far from having reachedan optimal situation – even in those sectorswhere it is more advanced – and further consolidation is desirable. The industry mustconsolidate further if Europe wants to play a sig-nificant role in the global defence industry, able

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to cooperate and compete as an equal player.Moreover, certain areas of defence productionhave been almost completely excluded from theconsolidation process; this is particularly truefor naval platforms and land armaments in gen-eral, where most of the European industrial baseis still structured around small- and medium-sized national champions (exceptions are thesubsidiaries of General Dynamics, such as SantaBarbara Sistemas, MOWAG and Steyr Spezial-fahrzeuge). In addition, cooperative pro-grammes do not automatically lead towards fur-ther industrial consolidation. For instance thePANAVIA consortium that built the Tornadoaircraft did not lead to consolidation betweenthe participating defence companies.

Differences in government-industryrelationships Different national defence industrial policiesmake it difficult to develop common procure-ment approaches. A government’s attitudetowards a programme is sometimes linked withthe ‘special relationship’ it has with its ‘national’industry – the depth of connection between themilitary and the industrial players varies enor-mously from country to country and sector tosector. This explains why different governmentshave different attitudes, and sometimes take amore or less nationalistic posture when decid-ing if and how to enter a cooperative pro-gramme. Generally speaking, the lower theinterconnection between the military and theindustry, the more competitive the defence mar-ket. Across Europe, there are essentially four dif-ferent attitudes to government-industry rela-tions:

1. Countries which pursue a special rela-tionship with national championsincluding ownership (i.e. Italy andFrance).

2. Countries which have a strong nationalpresence in the defence industry, butwhere the government is more open tocompetition and not a shareholder, butwants to preserve employment anddesires ownership of technology ratherthan industry (the UK and Germany did

favour this approach but now seem to bemoving towards the approach favouredby Italy and France).

3. Countries which have niche capabilitiesand pursue a policy of protecting thosecapabilities, and even though they need tocooperate with other governments theytry to preserve their niche capabilities(Spain, Czech Republic).

4. Countries which have few or no defenceindustrial capabilities, and thereforefocus on off-the-shelf purchases. Some-times they have dual-use capabilities thatcan be integrated into cooperative pro-grammes (Estonia).

Redundant industrial skillsSlow progress in cross-border industrial consol-idation also means that there are numerousredundant industrial skills across Europe. Somegovernments waste scarce procurement anddevelopment money on sustaining certaindefence technologies nationally, which are usu-ally too small or unsophisticated to be interna-tionally competitive – thereby aggravating theproblem of over-capacity.

Schematically, two paths towards technolog-ical and industrial consolidation are possible.The first one is government-led, as the govern-ment takes charge of identifying strongholdsand weaknesses of the different producers andselects the best ones, cutting funds to the others.The second is business-led, as the different com-panies are allowed by governments to act freelyand select partners and competitors, thus mar-ket forces select the best producers.

The danger is that further consolidationleads to less competition, thus there is a realneed for governments to strike a balancebetween consolidation and competition. Fur-ther defence industrial consolidation also needsto guarantee that small but good technologyproviders can survive in a market in which theplayers tend to become bigger and bigger. Inother words, in a very similar way to how theEuropean Commission polices the single mar-ket for non-defence goods to prevent monopo-lies of technology, one key question for the


defence market in Europe is how to ensure that avariety of niche capability companies survivemoves towards greater consolidation.

Juste retourWork-share arrangements, known as justeretour, guarantee that a national defence indus-try must receive work worth the full amount ofits government’s financial contribution to aprogramme. Experience shows that the moregovernments and industrial interests involved,the more difficult the cooperation. Juste retouris possibly the single biggest obstacle tosmoother cooperation on joint European pro-grammes, but it would be difficult for govern-ments to scrap juste retour arrangements in theshort term – although the OCCAR ‘global bal-ance’ system is an improvement on previousarrangements.

But EU governments cannot afford justeretour on limited defence budgets, plus Europe’sdefence industry is increasingly cross-border.There is little that is just about juste retour, sinceit distorts competition and causes duplicationof technologies. Ideally governments shouldsimply scrap juste retour arrangements – thiswould encourage much greater industrial con-solidation and technology specialisation acrossEurope, and focus procurement on choosingthe best company with the best product for theright price. But this is politically unrealistic,partly for industrial policy reasons, but alsobecause governments have kept juste retour toensure the security of their defence equipmentsupply.

Governments used to decide their justeretour arrangements on an ad hoc programme-by-programme basis, for example in the Hori-zon and Eurofighter projects. In the TrigatMP programme, the manufacture of one partof the missile – the junction case/interfacebox, which cost roughly €1,500 to make – hadto be split between four out of the five partici-pating countries because of juste retourarrangements. Today, most of the main pro-ducer countries in the EU use a systematicapproach to juste retour, namely the OCCAR‘global balance’ system. In principle, this is a

welcome modification of the traditional justeretour principle, which greatly hamperedEuropean cooperation in the past.

Under present OCCAR rules, the defenceindustry of a Member State must receive workworth at least 66 percent of its government’sfinancial contribution to programmes calcu-lated over a number of years (the so-called‘global balance’ arrangement). In theory, this isprogress compared with traditional juste retourpractice, under which a national industryreceived work equivalent to the full amount ofits government’s financial contribution. Theproblem is that there are no concrete examplesof how the OCCAR system works in practice, asnot enough programmes have been agreedbased on OCCAR rules. In addition, theOCCAR system appears to mainly benefit thelarger producer countries – since they can par-ticipate in more programmes and their largedefence industries can win significant contracts– with few incentives for smaller niche capabil-ity or consumer countries. In essence, there aretwo reasons why governments want to keepsome form of juste retour for cooperative pro-grammes: employment and control of technol-ogy.

Intellectual property rights Intellectual property rights (IPR) often compli-cate cooperative programmes, because it is notalways clear who owns the defence technologyIPR. When it comes to IPR, defence companiesand governments do not always share the sameinterests, plus there are differences betweenthose countries which have significant defenceindustries and those which do not. The problemis that, unlike for civil technology, there is noEurope-wide equivalent of the European PatentOffice for defence IPR, covering both attribu-tion and transfer of IPR, which would help fos-ter a common market for defence technologyideas and innovation. This is because such ruleswould simultaneously have to take into accountthree aspects:

1. The governments’ need to control thespread of technology and guarantee secu-rity of supply;

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8 European Defence Agency, ‘European Defence Expenditure in 2005’, Brussels, November 2006. Available online at:eda.europa.eu/WebUtils/downloadfile.aspx?fileid=220.

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2. The incentives for prime contractors toinnovate and adapt different technolo-gies;

3. The imperative for sub-contractors toprotect their niche capabilities.

Another factor is that, depending on the pro-gramme, different distributions of IPR occur.The more strategic and sophisticated the tech-nology, the more governments want to pay for itand control it, but the more mature the technol-ogy, the more industry controls the IPR. Forinstance, on the German-Italian-US MEADSprogramme, the defence ministries own the IPR.For the nEUROn programme, each companykeeps their IPR even if each of them has full useof the prototype. For example, the French DGAand Dassault have no access to the Italian firmAlenia’s know-how on the internal bay of theUCAV. Alenia should only share informationwith the other partners when it is necessary forthe coherence of the whole programme.

In addition, IPR issues can adversely affectexports, as non-EU governments may not buythe product if the IPR restrictions are too strict.Plus sometimes different EU governments havedifferent ideas on how restrictive they should bewith IPR, and while one country may sell adefence product to a non-EU country, anotherEU country may not sell the same product forIPR reasons.

It is a difficult endeavour to strike the rightbalance between all these different concerns.IPR provisions are usually agreed in the MoUsand then cascaded into the contract. The prob-lem is that they are agreed on an ad hoc pro-gramme-by-programme basis, with no setmodel or systematic approach. This can wastetime, as negotiating several MoUs means ad hocnegotiations on IPR each time. In addition, theMoUs for defence IPR are not publicly avail-able, although officials interviewed for the pur-poses of this report stressed the difficultiesinvolved with defence IPR. The definition ofsome common guidelines would represent a

big step forward towards the consolidation of acommon market and further cooperative programmes.

3.7 Research and Technology

EU governments spend roughly €35.4 billioneach year on procurement, research and devel-opment, of which about €9 billion is spent ondefence R&D.8 France and the UK alone accountfor about 75 percent of that figure. Add in Ger-many and Sweden, and those four account forclose to 90 percent of EU military R&D. Moresignificantly, France and the UK each spendroughly 13 percent of their defence budgets onR&D, which compares well with the US (15 per-cent). The EU average, however, is only sevenpercent. In fact – aside from the UK and France –only six of the remaining EU governments (theCzech Republic, Germany, Italy, Poland, Spainand Sweden) spend over two percent of theirentire defence budgets on R&D.

In a similar way as happens with Europeanprocurement spending, duplication and nega-tive economies of scale reduce the effectivenessof this limited amount of money. For instance,for the MILAN-HOT missile project, France andGermany carried out two separate nationalresearch projects for the same technology andshared the results afterwards, rather than pooltheir resources. Given their limited researchbudgets, and potential economies of scale, gov-ernments should cooperate more on jointresearch projects. Moreover, closer Europeancooperation on military research can only helpstrengthen procurement co-operation, becausesuccessful research programmes are more likelyto lead to successful procurement programmes.The Brussels-based Western European Arma-ments Organisation (WEAO), which was linkedto the Western European Armaments Group(WEAG), had 19 Member States, and tried topromote cross-border R&T projects. However,WEAO did not made much impact on cross-


border research cooperation, mainly becausegovernments gave very little funding to WEAOcross-border programmes. Its projects receivedless than one percent of the total spent each yearon defence R&T in the EU (partly because thegovernments had difficulties agreeing on IPRarrangements).

There are sound industrial and military rea-sons why governments should try to improveEurope’s defence research performance. If theEuropeans continue to invest too little in R&T,Europe will not be able to sustain a competitiveand indigenous defence industry in the longterm. Europe is already having difficulties sus-taining its fighter jet industry in the face of com-petition from more advanced American prod-ucts like the Joint-Strike-Fighter. The threefighter jets currently produced in Europe(Eurofighter, Rafale, Gripen) are all effective air-craft but their technologies are ageing, com-pared with the latest developments in the US. Inthe near term, the Europeans lack the resourcesto develop a European competitor to the JSF.

And on present spending trends, the same willhold true for future defence systems, such assophisticated Unmanned-Combat-Aerial-Vehi-cles (UCAV).

The second reason for EU governments tocooperate more closely on R&T is a militaryone. A good way to ensure that armies can workeffectively together on the ground is fornational defence ministries to ensure that theirequipment is compatible to help their inter-operability. This does not mean Europeandefence ministries all have to buy the exact sameproducts made by one company. But it doesmean that, for example, soldiers with differentcommunications systems should be able to talkto each other. During the NATO stabilisationmission that followed the 1999 Kosovo war,American soldiers had secure communicationsequipment, but many of their European coun-terparts did not. Some European soldiers hadto use ordinary mobile phones to talk to eachother, which could be easily intercepted by theenemy.

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Cooperative lessons learned

The recommendations in this section arebased on the lessons learned from past coop-

erative programmes, and are broken down intofive sections: programme requirements;research and technology (R&T); industrialcooperation; programme budgets; and projectmanagement.

4.1 Requirements

Establish a common requirementsprocessEU governments have agreed on a number ofcapability goals (Helsinki Headline Goal and theHeadline Goal 2010) and established a ‘Capabil-ity Development Mechanism’. A more compre-hensive capabilities development process is nec-essary where governments discuss their com-mon requirements process to complement theseinitiatives. Governments can draw on the com-mon requirements methodology already usedby the six governments that signed the Letter ofIntent (LoI) – known as the Harmonisation ofMilitary Requirements process (HMR). Theadvantages of using the HMR process are:

Countries come together to discuss com-mon staff targets.Countries do this by exchanging informa-tion on their military planning (capability,timelines, national specifications on thediscussed programme).This could potentially lead to a decision oncommon staff requirements.

Provided all the pMS agreed, the EDA shouldorganise this intergovernmental exchange onshared requirements, linking it to the ‘CapabilityDevelopment Mechanism’ and working closelywith the EU Military Committee and NATO.

Promote convergence of elements of pMSmilitary doctrine A common military doctrine would be the mostefficient way to achieve common requirements,but this seems unlikely for the foreseeablefuture. However, as the EU is carrying out moreoperations each year, over time governments arelikely to agree on some elements of a Europeanmilitary doctrine in line with the PetersbergTasks, drawing on the ‘ESDP concepts’ workcarried out by the EU Military Committee andthe EU Military Staff. This in turn will help gov-ernments to agree on shared requirements andtherefore enhance cooperative programmes. Tohelp this process, ‘lessons learned’ studiesshould be undertaken to assess the experiencesof completed EU missions (i.e. the EU operationin Bunia in Congo in 2003).

Involve industry from the beginningDefence ministries’ and military staffs shouldfocus mainly on the functional/militaryrequirements and largely encourage industrialplayers to propose different technical solutions(especially for more sophisticated systems).Industry should be involved in the requirementsdefinition process from the beginning (involv-ing industry early also matters for project man-agement – see project management section onpage 33). Not only can industry provide expert-ise on technical requirements, but they can alsoadvise on delivery timelines. Plus industry canhelp develop shared requirements by proposingthe same solutions (including ‘off-the-shelf ’solutions) for different national needs. How-ever, it is important to have competition for theprototype/demonstrator phase of a programme– especially for complex ‘hybrid’ programmes –as governments have done for the JSF, FutureAircraft Carrier and NATO AGS programmes.

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Apply a ‘through-life’ approach Increasingly, governments plan cooperativeprogrammes under a ‘through-life’ approach,including maintenance, training, logistics andoperational use and disposal. This is necessarybecause the in-service cycle costs at least asmuch – and sometimes much more, dependingon the programme – as the acquisition cost.‘Through-life’ is also important to help ensurefuture interoperability on joint EU missions.For example, on the Eurofighter programmecountries have tried to share some of the costs ofsimulators. A through-life approach can alsooffer an incentive for smaller countries to partic-ipate in a cooperative programme where justeretour applies, since they may be able to competeto supply aspects of in-life support, such asflight training, even if they cannot win any largeindustrial contracts. Finally, through-life alsohelps to build flexibility into a programme –since equipment regularly needs to be updatedor modified – especially platforms that are oftenused for 30 or more years. Assessing these typesof ‘modularity’ from the beginning of the devel-opment and procurement cycle to the end of in-life use helps to build flexibility into the pro-gramme.

4.2 Research and Technology

Exchange information on R&T planningCloser European cooperation on defenceresearch can only help strengthen procurementcooperation, because successful research pro-grammes are likely to lead to successful procure-ment programmes. Governments need toexchange more information about their existingresearch projects and their future research plansto avoid duplication. The EDA should facilitatethis information exchange and link it to thecapabilities Headline Goal process and itsefforts to map European industrial and techno-logical capabilities. The quality of informationexchange will depend in the case of some gov-ernments on their relationships with theirindustry. Establishing a European patent-style

system for defence IPR would also help to buildconfidence to share information (see projectmanagement section on page 33). Ultimately itshould not matter whether cross-border defenceresearch projects happen on the bilateral, multi-lateral or EU level, as long as intergovernmentalcoordination improves.

Establish an R&T ‘Headline Goal’EU governments already have a Headline Goalof capability targets they are supposed to meetby 2010. They should develop a similar ‘Head-line Goal’ for European defence research, a list oftargets that governments should meet by 2020.This would provide much-needed guidance toindustry and encourage more cross-border col-laboration on joint research projects.

Boost European defence researchprogrammesThere is only a limited number of countrieswho actually spend significant amounts ofmoney on R&T. Given their limited researchbudgets, and the potential economies of scale,it is obviously in governments’ interests tocooperate more on joint research projects.Only 12.4% of the collective national R&Tbudgets of the EDA pMS is spent on multina-tional cooperative programmes. Three quar-ters of that 12.4% is spent on European proj-ects, while the remainder is spent on coopera-tive R&T programmes with other non-Euro-pean partners such as the US. The governmentsshould boost their spending on bilateral andmultilateral programmes to remain relevant inthe field of security and defence in ten yearstime. In time, they should also encourage theEDA to initiate pilot projects on a broaderrange of technologies. The EDA should alsowork closely with the European Commissionin particular on exchanging information,because some of the projects that will befunded by the Commission’s ‘security research’budget (under the 7th Framework Programme)may have defence uses as well (‘dual-use’ tech-nologies).


4.3 Industrial cooperation

Phase out juste retour within 10 yearsJuste retour is the single biggest obstacle tosmoother cooperation on joint European pro-grammes, but it would be difficult for govern-ments to scrap juste retour arrangements in theshort term – even if the OCCAR ‘global balance’system seems to be an improvement on previousarrangements. But EU governments cannotafford juste retour on limited defence budgets,plus Europe’s defence industry is increasinglycross-border. Governments should graduallyphase out juste retour arrangements for futurecooperative programmes within 10 years. Thiswould encourage much greater industrial con-solidation and technology specialisation acrossEurope, and focus procurement on choosingthe best company with the best product for theright price. The competitiveness of the Euro-pean Defence Technology and Industrial Baserequires the phasing out of juste retour within tenyears. This can be achieved by two different waysor a third way of combining elements of the firsttwo:

A government-led approach: a EuropeanDefence Industrial Policy will lead to moretechnology specialisation across Europe,including maintaining some niche capabil-ities in smaller countries (based on indus-trial and technological excellence criteria).A regulated market-driven approach: pMSagree to phase out all juste retour arrange-ments, starting from more mature technol-ogy and progressively expanding the Non-Juste-Retour (NJR) area to more sophisti-cated technology; this will generate incen-tives to select technology investmentaccording to technology strength.A combination of the two strategies is themost likely strategy and also the most recommendable as it draws on marketforces, but also takes into account govern-ments’ concerns about protecting sensitiveareas.

Governments can continue to pursue theirown industrial and R&T policy as ‘phasing out’

does not apply to national policy, but onlyapplies to cooperative programmes. Plus manyof the officials we interviewed said they did notsee any large cooperative programmes on thehorizon for the foreseeable future, of the size ofEurofighter for example. But the point of phas-ing out juste retour is to prevent duplication. Forinstance, Spain used juste retour to justify dupli-cating carbon-fibre-reinforced-plastic (knownas CFK) manufacturing on its soil for all Airbusprogrammes, including the A400M pro-gramme, as they perceive this to be a key tech-nology. The desirable end-game should be a lim-itation of redundancy, while at the same timeguaranteeing for most sectors the presence oftwo alternative sources of capabilities in thelong run, to avoid creating dangerous monopo-lies. The criteria for determining juste retour inthe interim should be based on two factors: thesize of the contract – i.e. it should only apply tovery large programmes and not smaller ones likethe Trigat MP – and technology. The moremature the technology, the more competitionshould prevail over security aspects; conversely,the more sophisticated and strategic the tech-nology, the more juste retour is justifiable from asecurity perspective – the nEUROn prototypeproject is a good example of smart juste retourbased on national skills.

Extend security of supply agreements One reason governments have kept juste retour isto ensure the security of their defence equip-ment supply. Thus, before phasing out of justeretour, governments would rightly want assur-ances about their security of supply. The ‘Frame-work Arrangement for Security of Supplybetween Subscribing Member States in Circum-stance of Operational Urgency’ proposed by theEDA is a step in the right direction. For peace-times, the governments should agree to extendthe other aspects of the existing LoI security-of-supply agreement (signed by six governments)to all the EDA participating Member Statesdepending on the outcome of LoI countries’ current negotiations on the so-calledcontractual conditions. The reality is that

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Europe needs a different legal framework whichwould guarantee both security of supply and asmoother cross-border transfer of defencegoods.

Extend EDA procurement code ofconduct to multinational programmeswithin ten years Governments could encourage further indus-trial consolidation by extending the EDA’s vol-untary procurement code of conduct to futuremultinational programmes (they are currentlyexempt) within ten years. This would helpincrease the transparency of the tender proce-dure for multinational programmes andencourage more joint tenders and competitionfor contracts, which should help keep pricesdown.

4.4 Budgets

Exchange information on national budgetapproval procedures The process of approving budgets for coopera-tive programmes differs greatly from country tocountry. In the past, a lack of information hasoften slowed down the decision-making process(e.g. A400M, FREMM). Harmonisation ofbudget procedures would be extremely difficultdue to the sovereignty of national parliaments.Governments could help overcome these proce-dural difficulties by increasing the amount ofinformation they share with each other abouttheir different approval processes. Before start-ing a programme, the governments should beclear about the different conditions for budgetapproval in the participating countries andshould provide an agenda on the approvalprocesses. In order to help co-ordinate nationalbudgets for cooperative programmes, the EDAshould facilitate an inter-governmental infor-mation exchange on different national proce-dures.

Use multi-annual programme budgetsBudgets for cooperative programmes have beendogged by inefficiencies. This is for two reasons.First, some countries have no money available ata particular time for the cooperative pro-gramme, or have different timescales for pro-curement. This can lead to delays, as in the caseof the A400M, or even withdrawal of a countryfrom a programme (e.g. the Brevel drone). Some-times the scope of the cooperative programme islimited in order to hedge the financial risk. Forinstance, five of the six governments involved inthe Meteor programme are financially commit-ted only for the development phase. The moreambitious the financial engagement and thehigher the number of countries involved, thegreater the financial risk becomes. The secondproblem is that the budget approval in nationalparliaments often depends on the national poli-tics of the moment, and sometimes budgetapprovals, and therefore programmes, aredelayed for reasons which have nothing to dowith the merit of the programme itself.

The objective of a common, multi-annualfund is to lessen the risk of budgetary shortfallsand the adverse effects of one government’sdeficits on the other countries involved. Thesefunds should be managed by OCCAR, since thisorganisation is the main management body formany current cooperative programmes withinEurope. Plus OCCAR will most likely managemost future cooperative programmes. However,for multi-annual programme budgets to work,they need to be based on five rules:(1) The contribution to the fund has to be

approved by each parliament and has to beallocated in each national budget. Parlia-mentary authorisation would give a firmcommitment for the first year and provi-sional commitment for the following threeyears.

(2) If the priorities of the programme changeand a government wishes to withdraw, it hasthe right to withdraw money committed forfuture years on a specific programme. Thisdoes not imply a reduction of penalties.


(3) Governments contributing to multi-annualbudgets would approve the budget each yearon a programme-by-programme basis.

(4) The IPT should have access to the budget,which would be banked according toOCCAR rules.

(5) Each country’s contribution to the fund iscalculated according to the annual needs ofOCCAR for the management of cooperativeprogrammes.

Setting up multi-annual funds wouldslightly modify current practice, giving OCCARand the IPT more flexibility for managing theproject with better financial planning.

Make upfront investments and establish‘risk budgets’ The governments should also invest an adequate amount of their programme budget –as a rule of thumb between 10 and 15 percent –in the front-end of the programme, during thedemonstration and development phase. Testingtechnology thoroughly at the start of a pro-gramme can help save money later, and allowgovernments to be firmer about delivery datesand in-service planning. Governments shouldalso set aside a collective ‘risk budget’ (theamount would depend on the complexity of theprogramme), to cover any unforeseen emer-gency costs during the production phase of aprogramme. Integrated project teams (see proj-ect management section below) should manageat least some of the money in these budgets.

4.5 Project management

Use integrated project teams (IPTs) The most successful project management isconducted by an ‘integrated project team’. Thisteam should integrate national experts and bepermanently based at one venue. One of themain lessons from past cooperative pro-grammes is that IPTs work best if they have apermanent location. This doesn’t mean that all

IPTs (whether OCCAR or not) have to be in thesame location. The Tiger IPT is located in Bonn,the FREMM and FSAF IPT are located in Issy-les-Moulineaux in France, and A400M is locatedin Toulouse. Most of the time the IPT is locatedin the country which is the principal customerof the programme, or within the country whichis more or less the leading nation, or located nearthe place where the prime contractor or leadconsortium has their main production factoryor design headquarters.

The major advantage of IPTs is that the project team members are not representatives oftheir national governments. An IPT should havethe power to manage a programme, which wasnot the case in the past with multilateral projectoffices. IPTs should be given authority for day-to-day decisions (including some financial deci-sions) although national capitals should keepauthority over strategic decisions. The organisa-tion of IPTs should be more hierarchical thanprevious multilateral project offices. As IPTsmanage the programmes and conclude con-tracts with industry, each IPT needs a lot of dif-ferent skill sets: operational (with the help ofmilitary staff), technological (with the help ofengineers), financial, legal, industrial, logisticsand so on.

Currently IPTs begin their work after theMoU is signed – defining the principal coopera-tive rules and the principal contract between thegovernments and industry. Sometimes thetimeline between the two is very short, as was thecase in the FREMM project. In fact the pro-gramme was transferred to OCCAR the sameday the governments signed both the MoU andcontracts with industry. But many officialsinterviewed for the purposes of this report saidthat an IPT should be involved as soon as thegovernments begin to elaborate the MoU andthe contract.

Focus contracts on deliveryThe traditional focus of programme contractshas been on meeting ‘phases’ of programmes,rather than on final delivery. If industry isinvolved in the requirements definition phase

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from the beginning and governments are pre-pared to invest more money upfront in theresearch and development phase, then the focusof contracts should shift from predominantlymeeting phases (process) to final delivery of theproduct.

Why has the traditional focus on meetingphases been a problem? Multiple phases multi-plied contract negotiations, thereby causingdelays, and MoUs were needed for each phase,for example the Trigat MP had six MoUs. How-ever, even when reducing the number of phasesand MoUs, necessary milestones will still needto be met by industry and governments (such asbudget payments, and R&T demonstration ontime). Changing mindsets does not mean thatall phases are eliminated, but the focus shiftsfrom the process of the programme to deliveryof the final product.

Prefer prime contractors and ensuretransparency for sub-contractorsPrime contractors are generally preferable tojoint ventures because it should make it easier toclarify the allocation of risk between a group ofgovernments and one company (rather than agroup of companies). However, prime contrac-tors must also be clear about allocating risk withtheir sub-contractors. Governments need tobuild on the EDA’s Code on Best Practice in thesupply chain (which forms part of the procure-ment code of conduct) and reach an inter-governmental agreement to guarantee trans-parency through the whole supply chain bothfrom industry and the governments, and fairaccess to second-tier companies.

A European patent-style system fordefence intellectual property rightsIntellectual property rights (IPR) often compli-cate cooperative programmes, because it is notalways clear who owns the IPR. Governmentsshould set up a secure Europe-wide patent-stylesystem for defence IPR, covering both attribu-tion and transfer of IPR, which would help fos-ter a common market for defence technology

ideas and innovation and take into account thesensitivities of defence IPR (which does notcome under normal commercial IPR patentrules, i.e. as laid down by the European PatentOffice), and protect the know-how of compa-nies to avoid technology duplication and/or dis-tortion. These rules should simultaneously takeinto account three aspects: the governments’need to control the spread of technology andguarantee security of supply; the incentives forprime contractors to innovate and adapt differ-ent technologies; and the imperative for sub-contractors to protect their niche capabilities. AEurope-wide patent-style system would providesome common guidelines and clarity, but sinceeach cooperative programme is unique, specificinter-governmental MoUs and agreements withindustry will still be required in each case.

Coordinating national procurementprocesses While it is difficult to harmonise national pro-curement processes, because of the political andlegal obstacles involved, European governmentscould better co-ordinate the way they organisetenders and contracts for cooperative pro-grammes. In particular they should pay atten-tion to the following aspects:

Develop a common cost-benefit analysis inorder to determine which cooperative pro-grammes should be launched. This analysisshould take into account all budgetaryeffects, as well as the programme’s ability toachieve all desired capabilities goals. Thiscommon cost-benefit analysis should have apositive impact to harmonise national pro-curement processes as it would be based onperformance.Member States should avoid multiplicationof national tenders when they choose a coop-erative programme for their equipment. Inthis case, the EDA or ad hoc multinationalteams should organise the competition.The OCCAR system of standard contractshould be used for cooperative programmes;The EDA’s code of conduct, if applied tocooperative programmes, would help


increase the transparency of the tender pro-cedures and encourage more joint tendersand competition for contracts. This wouldalso help the cost-effectiveness of a pro-gramme.If a government withdraws or downsizes itscommitment to a cooperative programme,

they should pay a strong financial penalty toboth industry and their partner govern-ments.The coordination of procurement cycles isalso essential. The EDA should facilitate aninformation exchange on national procure-ment cycle planning.

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Annex Abbreviations

DCI Defence Capabilities Initiative

ECAP European Capabilities Action Plan

EDA European Defence Agency

ESDP European Security and Defence Policy

ESS European Security Strategy

GDP Gross Domestic Product

HJPO Horizon Joint Project Office

HMR Harmonisation of Military Requirements

IPT (i) Intellectual Property Rights (ii) Integrated Project Team

JSF Joint-Strike-Fighter

LOI Letter of Intent

MoD Ministry of Defence

MoU Memorandum of Understanding

NATO North Atlantic Treaty Organisation

OCCAR Organisation conjointe de Coopération en matière d’Armement

PAAMS Principal Anti-Air Missile System

pMS Participating Member States

R&D Research and Development

R&T Research and Technology

TEU Treaty on European Union

UCAV Unmanned Combat Aerial Vehicle

UN United Nations

WEAG Western European Armaments Group

WEAO Western European Armaments Organisation

WMD Weapons of Mass Destruction

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