EDTA comments on the launching of the European Defence Fund

posted 12 Aug 2017, 03:14 by Jan Wind   [ updated 14 Aug 2017, 13:39 ]
On 7 June 2017 the European Commission publicised a Communication launching the European Defence Fund. This Fund aims to provide the necessary incentives for capability development and procurement at each stage of the industrial cycle. The communication describes the goals and intended means of the Fund in more detail than the previous European Defence Action Plan.

1. General comments
The Federation of European Defence Technology Associations (EDTA) welcomes the launching of the Fund, as it is another important step towards deepened European cooperation and integration in Defence.

EDTA already placed a few remarks when the Fund was announced in the European Defence Action Plan. We are glad that most, if not all, of these comments have been resolved. Some additional comments based on this more detailed Communication are given below.

2. Need for harmonisation of requirements and planning
Joint requirements, joint acquisition, budget coordination and synchronisation1 over long periods will be crucial for the fund to be successful. For most Member States this will be the most important change in their attitude. National variants like in the NH90 or budget shifts to suit the needs of a new elected parliament will not be possible anymore. Neither will it be possible any more to support a national technological and industry base.

The need for harmonisation, coordination and synchronisation is also mentioned in the description of scenario B of the reflection paper. This intention is however difficult to realise as long as investment decisions and definitions of needs and priorities remain in the hands of the Member States (see page 3). The successful examples mentioned have taken (many) years to achieve and are just a small percentage of potential cooperation.

To stimulate harmonisation and synchronisation it is recommended to establish a “European Requirements and Synchronisation Evaluation Office or board”.

This entity should review requirements before submission in a public tender and provide recommendations for harmonisation2 and synchronisation3. Recommendations could include potential cost savings. Options for common life cycle support could be evaluated too.
Follow-up of Member States to these recommendations would be voluntary, but could be an element of rating for EU funding from the European Defence Fund in the future.

3. Defence Technology spin-off
The paragraph on page 8 regarding spin-off is very important to understand the importance of the European Defence Technological and Industrial Base. The EDTIB is not only relevant for the defence sector, but also for spin-off to other sectors of the economy. When designed effectively, many technology development projects could lead to immediate spin-off into the wider economy.

Private funding could leverage government funds when potentially profitable dual-use or spin-off is taken into account from the early start of development.

4. Financial incentive for capability development
Although only mentioned in the accompanying pamphlets of the Communication a financial incentive for cooperation is promised. A budget perspective 500 M€ European Commission funding for capability development attracts the interest of many programmes, even while considerable (on average 90%) contributions by the Member States remain necessary in the current concept.
Capability development is however a process of many phases and increasing costs. Starting with project definition followed by design, development and finally industrialisation phases.
In the first project-definition phase, decisions with the most impact on the costs and capabilities of the final product are taken. In this phase also the opportunities for future cooperation become clear. This is the least costly phase with the highest financial risk.
In the following design- development- and industrialisation phases the initial decisions will be used, often by many contractors and subcontractors, until the systems and subsystems are ready for production.

To stimulate European cooperation it would be effective to focus EC funding on the first phase of each project. The lower cost of this stage of a project would allow for more projects to be supported and for a higher contribution percentage.

5. Financial Toolbox
The toolbox mentioned on page 12 with standardised templates and tools for financing is an interesting initiative. A fixed toolbox based on assumptions could however be counterproductive. Financing of technology and capabilities other than through regular government funding is a very complex matter, has many options and depends on even more parameters. Particularly when private funds are involved. It is impossible to fit these all in templates, procedures and standards.

We recommend establishing a support office capable to advise Member States and companies on cooperative and private financial matters based on knowledge and experience gained in member states and in the financial sector.

6. Summary
The most important EDTA comments to the Communication on the European Defence Fund are as follows: 
  1. Harmonisation and synchronization of capability development projects is deemed necessary for the effectiveness of the fund. To stimulate this we recommend establishing a “European Requirements and Synchronisation Evaluation Office or board”.
  2. Technology spin-off into the wider economy is a very important element of defence research and capability development. When considering potentially profitable spin-off from the early start of development, private funding could also participate. Consequently, the need to use defence budget would be less. 

  3. The most important technical and cooperation decisions of a major capability development project are taken in the early stages. This is also the least costly phase of capability development. As the EC contribution is still limited, we recommend focusing EC funding on the first phase of each project. This would allow supporting more projects and a higher contribution percentage. 

  4. A financial toolbox with templates and tools will be developed for funding of capability development projects. Financing of technology and capabilities other than through regular single government funding is however a very complex matter. We recommend establishing a knowledge office capable to provide advice on cooperative and private financial matters. 
The Hague, 17 August 2017 
Questions? Please contact EDTA president Jan Wind at E: jw@fedta.eu or T: +31 6 2350 2003 

[1] Private bridge financing (see page 13) may help to overcome budget synchronisation gaps, but only on a temporary basis.
[2] It should be noted that full harmonization is often not necessary. Harmonisation at subsystem level is often just as effective.
[3] Private bridge financing (see page 13) will help to overcome budget synchronisation gaps, but only on a temporary basis.

Disclaimer: Facts and opinions in this document are based on open sources and on the knowledge and experience of individual members of EDTA member-associations. This is not an official view of any of the member associations. The federation accepts no legal responsibility for what has been put forward by their members.

Jan Wind,
12 Aug 2017, 03:25