As global and national security challenges grow, companies and investment funds are increasingly aligning in the defence sector, focusing on materials and technology development to support security needs. At the same time, states are raising defence and security spending. These procurements, essential for state sovereignty and security, are governed by Finland’s Act on Public Procurement in the Fields of Defence and Security and the EU Defence and Security Procurement Directive, alongside with Article 346 of the TFEU. While Article 346(1)(b) TFEU permits direct procurement for essential security interests, bypassing competition may mean missing the efficiency and cost benefits that open tendering provides.
As the international and national security environment becomes more complex, groups of companies and funds investing in the defence industry are increasingly forming around both the materials and the development of technical capabilities needed to defend and maintain security. At the same time, states are increasing their spending on defence and security. In Finland, the Ministry of Defence set the policy on materials and manages key defence material procurements. The aim of the defence administration’s long-term policy on materials is to maintain and develop military capabilities and to ensure security of supply in all situations. In general, defence and security procurements are considered essential for safeguarding the external sovereignty of the state and for maintaining and ensuring internal security.
While it may be tempting to justify and use different approaches in the name of national security and security of supply, defence procurements must comply with existing national procurement legislation and EU public procurement provisions. The Act on Public Procurement in the Fields of Defence and Security (1531/2011, as amended, the so-called “Putu Act”) applies to defence and security procurement. The Putu Act implements the EU Defence and Security Procurement Directive (2009/81/EC). In addition to these key legal provisions, Article 346 of the Treaty on the Functioning of the European Union (TFEU) should also be taken into account. According to the Putu Act, the contracting entity must take advantage of existing conditions of competition, treat participants in the procurement procedure in a fair and non-discriminatory manner and act in a transparent and proportionate manner, unless essential state security interests (as defined in Article 346(1)(b) TFEU) require otherwise.
Public procurement procedure places particular emphasis on transparency and the equal treatment of tenderers. However, if the procurement involves an essential security interest within the meaning of Article 346(1)(b) TFEU, the procurement procedure may be disregarded, and the procurement may be carried out as a direct procurement. The threshold for applying Article 346(1)(b) TFEU should be high, as applying this article would result in the disapplication of community legislation, which is an extreme measure. The burden of proof that the conditions are met lies with the Member State. If the conditions of Article 346(1)(b) TFEU are not fulfilled, the procurement must be put out to tender in accordance with the legal framework on defence procurement.
Defence and security procurement contracts fall under the EU’s internal market rules and, especially in the current geopolitical situation, are at the heart of the European community and are of major political importance. Therefore, it is not irrelevant whether the Finnish State seeks to carry out defence and security procurement in accordance with the general rule of competitive tendering or whether it seeks to rely on Article 346(1)(b) TFEU and procure defence and security material directly without competitive tendering. Unfortunately, there is already an example of this. The Finnish Defence Forces purchased assault rifles from an European arms manufacturing group without competitive tendering, even though similar purchases have been subject to competitive tendering in other Member States.
If Finland increasingly chooses not to tender in order to identify the best price-quality ratio, the advantages of genuine competition will not be achieved. The fundamental principle at the EU is that obliging Member States to openly tender their defence and security procurement will make markets work more efficiently, improve competition and, especially in the long term, create cost reductions for states. A functioning market and the fact that Member States, as a general rule, put their defence and security procurement out to competition is also of vital importance for the European defence industry and the development of Finnish practice in this area will be closely monitored.
