Latest developments in EU and German defence procurement: Defence procurement panel overview and key takeaways

On 21 May 2025, Bird & Bird hosted it’s 2025 Annual Aviation & Defence Conference. This year the conference’s main theme was how the aviation and defence sectors continue to be revolutionised by geopolitical tensions, the transformative potential of AI and the ongoing transition to net zero.

Context

The turbulence and instability of the geopolitical context hardly needs any emphasis. The war in Ukraine, the situation in Gaza, continued rivalry between the US and China, particularly over Taiwan, tensions with Iran and North Korea and the policies of the Trump administration are creating something of a perfect storm for European governments. This is creating a greater sense of insecurity (and a perceived greater fear of war) than we have seen for many years, compounded by the uncertainty surrounding the US’s commitment to NATO.

It will be interesting to see whether the impact of geopolitical shifts, the uncertainty around tariffs, and the disruption within supply chains, might intensify the impetus to buy local and onshore capability in certain strategic areas. There are already distinct signs of such an approach in the EU with the third country restrictions set out in the Security Action for Europe through the reinforcement of European defence industry Instrument (“SAFE”)

EU developments: Directive reforms and the SAFE Regulation

Kevin Munungu outlined the EU’s impending reform of the Defence & Security Directive (Directive 2009/81). Kevin underscored how the EU aims to align its defence procurement regulations more closely with broader procurement directives (such as Directive 2014/24) and to bolster strategic autonomy within the EU market.

Kevin discussed the EU’s ReArm Europe (Readiness 2030) initiative, which consists of investment of over €800 billion in defence spending within the EU through:

• National Escape Clause Activation: Enabling increased national defence budgets within EU Member States.
• Security Action for Europe (SAFE) Instrument: A new EU financial instrument driving investments in European defence capabilities. 

For more information, please see our recent article The summary of the ReArm Europe Plan/Readiness 2030.

There was a particular focus on the SAFE Instrument. In summary:

• The SAFE Instrument provides up to €150 billion in loans to Member States for defence investments.
• Common procurement is a procurement procedure of defence products or other products for defence purpose and the resulting contracts, carried out by at least one Member State receiving financial assistance under the SAFE Instrument and one additional Member State or one Member of the European Free Trade Association which are members of the European Economic Area (“EEA EFTA States”) or Ukraine. 
• Common procurements can use the negotiated procedure without publication of a contract notice, accelerating the process (if the condition of urgency is deemed satisfied)

There are various procurement participation conditions that the SAFE Instrument imposes on States in order for in-scope States (i.e. EU Member States, EEA EFTA States, or Ukraine) to tender common procurements financed by the €150 billion loans. These conditions will affect all companies involved in supplying products for these procurements.

For example, contractors and subcontractors involved in a common procurement shall be established and have their executive management structures in the EU Member States, EEA EFTA States, or Ukraine, subject to other conditions and exemptions (e.g. the EU may conclude bilateral or multilateral agreements with third countries to enable access by suppliers based in that third country).

In addition, suppliers must not be controlled by a third country (other than Ukraine or an EEA EFTA State) or by a third-country entity not established in the Union, Ukraine, or an EEA EFTA State, unless the contractor or subcontractor involved in the common procurement:

• has been subject to screening under the FDI Regulation (Regulation (EU) 2019/452); or
• has provided certain guarantees (including the ability to fulfil orders and deliver outcomes) that have been verified by the Member State in which it is established.

Furthermore, the infrastructure, facilities, assets, and resources of the contractors and subcontractors used for the common procurement must be located in the territory of a Member State, an EEA EFTA State, or Ukraine, subject to specified exceptions.

Finally, at least 65% of the estimated cost of the end product must originate from the Union, the EEA EFTA States, or Ukraine; and no component may be sourced from a third country that contradicts the security and defence interests of the Union or its Member States.

What about the UK?

At present, suppliers located in the UK will not have direct access to common procurements financed under the SAFE Instrument because they generally fail to meet certain participation conditions (primarily requiring that contractors and subcontractors be established and have their executive management in EU Member States, EEA EFTA States, or Ukraine). Their subsidiaries within the European Union will only be able to participate if they undergo screening under the FDI Regulation or furnish verifiable guarantees of compliance. Although components from outside these in-scope states (such as the UK) might still be used, relying on them could hinder compliance with the mandatory 65% threshold. 

Nonetheless, with the EU-UK Security and defence partnership being a step in the right direction it is hoped that the UK will soon come to an agreement, which will allow UK suppliers some form of access to common procurements. It is very much a space to watch.

Defence Procurement in Germany

Offering insights from the German market, Martin Conrads highlighted how federal defence agencies (such as the BAAINBw, BAIUDBw, Marinearsenal, Planungsamt, etc.) often rely on exemptions from the EU public procurement regime to seek to expedite purchasing processes in the defence sector. Whilst these exemptions intend to deliver pressing defence needs more swiftly, there is little evidence that this is the case.

Martin also discussed that Germany, like the rest of the EU, is attempting to urgently procure more of “everything” to achieve defence readiness by 2029 due to geopolitical changes (specifically following the full-scale war in Ukraine). Trends in terms of what is being procured include AI, combat cloud, unmanned systems (air, land, and sea), loitering ammunition, and cyber and electronic warfare systems.

To support this, Germany has established an initial special fund of €100 billion and an extended debt brake exemption, leading to a projected €500 billion additional spending over the next years.

Get in Contact

If you have any queries related to any of the above, please get in contact with Martin Conrads and Kevin Munungu, and visit our Defence & Security Procurement Hub for a comprehensive view of the defence procurement regimes in 8 European countries and Australia.