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A French View on European Defence Procurement Policy

A French View on European Defence Procurement Policy

Address by François Lureau, French Acquisition Director at the Royal United Services Institute for Defence and Security studies (RUSI). London,  November 19, 2004. Source: DGA, Paris, December 8, 2004.

My Lords,
Ladies and gentlemen,

It is for me a great honour to be present today at such a prestigious Conference to celebrate the centenary of the entente cordiale. When I received the invitation to speak in that conference I must confess I was rather taken aback.

  • What about Franco-British acquisition?

It lead me to think about an anecdote related to two diplomats, a British one and a French one, who were living a long time ago. Those two diplomats were involved in very tough negotiations, perhaps about the terms and conditions of the Entente Cordiale we are commemorating this year. After hours of discussions, the British diplomat said to his French counterpart : « The problem with you French is that you never give anything ». The answer came immediately : « You’re wrong : we give lessons ». And he added : « And we give them free! ».

If you allow me to do so, far from giving any lessons, I will at least give some ideas on what could or even should be a European defence procurement policy regarding our common experience in that field.

Looking back over those past 20 years or so, one can measure to what extent we have moved ahead on both side of the channel in the defence procurement domain. The setting up of the European Defence Agency is breaking new grounds by the day and provides for new opportunities in procurement. To take full advantage of those opportunities, I would like first to point out what are the main drivers in Europe : the European defence Agency and the industrial baseline, then to present the new procurement policy of the French MoD and compare it to the British “Defence industrial policy paper” presented at this conference 2 years ago, and finally to sketch out a few potential ways ahead in support of a common approach.

  • What are the main drivers

Cooperation between the United-Kingdom and France is nothing new. It stands as an evidence for our two countries sharing intricate history, having similar ambitions and defence policies, and having comparable technological and industrial basis as well as defence budgets. Past records show bright successes in cooperation: the Lynx helicopter, the Concorde, the Jaguar, the storm shadow. We have also launched promising ones: the Meteor missile, the transport aircraft A400M. I will not say much more on those programmes since Peter Spencer will address them.

I will only add that alongside those successes, some other attempts to promote cross procurement between our two countries proved less successful showing that good will or political will however present are not sufficient to create success. It is clear that the setting up of new initiatives relies to a large extent on a proper combination of : a shared collective defence policy ; political will ; industry initiatives ; a strong technological and industrial European base and modern and economically efficient procurement policy.

  • So What is new?

As we have seen, the political will has not been absent from previous attempts. The emergence of the European Policy on Security and Defence with the decisive impulse from the St Malo Summit, the decision to sustain Petersberg missions and the willingness of the European nations to provide operational capabilities through the European Capabilities Action Plan has provided a new impulse as well as the missing link between Defence activities and the building up of Europe.

The PSC (Political and Security Committee) the EUMC (European Union Military Committee), the European Defence Agency have sketched out this new political picture. It paves the way for a shared political vision in the armament domain and provides the proper intergovernmental backing in support of negotiations with the European Commission to further consolidate the construction. The remarkable achievements of Nick Witney’s team in a very short timeframe sets the standard for future activities of the Agency.

The Agency is going to take shape with the nominations of its chief executive, his deputy and directors of the four divisions already achieved. In that respect, keeping the momentum rather than sheer speed seems to be the main challenge. We are dedicated to support it to the best of our abilities and I will come back to that part later.

The industrial base has also gone through major evolutions and is not specific to Europe. The launching of large programmes such as the A400M aircraft, supported by an industrial initiative, combined the benefit of satisfying an operational requirement with the support to a major restructuring of the aeronautical domain. It also showed the importance of the market forces which is new for France. It indeed proved successful.

But we must not forget that industry has its own rational. It is essential in a highly competitive environment to give it the ability to increase its competitiveness.

It means drastic changes in nature of the control exercised by the French government on companies. The government held the majority of shares but now prefers to exercise a strategic control through golden shares or share holders agreements at least for main security sensitive companies.

The government ownership is no longer a policy in France. In parallel, the complexity of our defence system makes it essential for companies to be able to embrace the whole scope of technologies and to be of a financial strength large enough to contract with governments on large systems.

The aeronautical domain has lead the way with successes such as EADS, MBDA. In the electronic industry, Thales UK is becoming the second player in the UK defence market.

Concurrently, recognizing the importance of the development of the defence industrial and technological base at the national and European level, the French Ministry of Defence implements a new procurement policy based on the principle of competitive autonomy. It is built around two complementary goals. The first one is to optimise the economic efficiency of investments made by the ministry of defence to meet Armed Forces’ requirements. The second one is to guarantee access to the industrial and technological capabilities on which the long-term fulfilment of these requirements depends, to make it short: the security of supply issue.

To obtain the best return on investments in terms of the national defence system’s efficiency, priority shall be given to market rules and competitive biddings. The Ministry of Defence must therefore seek to maintain and develop an industrial and technological base which degree of autonomy at the national and European levels should guarantee secure supply sources for the Armed forces, unrestricted use of equipment procured and the possibility of exporting arms to friendly nations and allies.

The way in which the competitive autonomy principle is applied depends on the type of equipment considered. We identify three categories.

A first category groups together equipment that can be acquired through cooperation with partner nations or allies. This provides the reference framework for an increasing number of equipment. Equipment in that category can be procured on the European market or manufactured through European cooperation. It implicitly leads to stronger ties between Member states within a framework of mutually accepted interdependence, drawing on widely accepted centres of excellence (such as the agreement being negotiated with Sweden and Finland on explosives).

The second category of equipment concerns areas involving the notion of sovereignty where the nation’s vital interests are at stake. Nuclear deterrence is one such area.

The third category groups equipment for which the ministry of defence turns to the global marketplace (5.56mm ammunitions, camouflage systems, or specific product to be procured in very limited quantities, etc.).

As part of this process, the government intends to proceed with a controlled sale of its holdings in defence companies to allow them more freedom of action and promote European consolidation. The UK is already involved in half of the investments projects in France. The recent acquisition of the French company SAFT by British Doughty&Hanson seems to be a success. The creation of Roxel in February 2003, by merging the activities of Celerg and Royal Ordnance Rocket Motors is an other example of a successful common joint venture.

It hence appears that the UK policy paper and the French one have many things in common. Both are looking for the best efficiency of the MoD investment made in order to provide the Armed Forces with the equipment which they require, both are promoting competition as the bedrock of their procurement policy.

However, whereas France put the emphasis on the development of a strong European industrial and technological base, the UK is putting the emphasis on a open competitive market while looking for the development of a high value technologically skilled industrial base consistent with the British manufacturing strategy. Those two approaches are not exclusive.

  • Where do we go?

As I stated earlier, the European Defence Agency raises great expectations. One however need to be pragmatic. The agency will have a limited workforce to start with and also in the long term. Accordingly, the majority of projects will still be managed by existing national entities such as DPA, DGA or existing entities such as OCCAR.

However, I think the agency is pivotal in bringing our partner European nations to sustain a more efficient effort in defence budgets and more specifically in the Research and Technology area in which the UK and France have so far been the main players. Early cooperation in R&T is essential.

To do so, the European Defence Agency should have a common budget made available to her to launch R&T programmes. That budget could be funded by all EDA 24 nations through appropriate apportionment rules and should be large enough, with a few hundred of Million Euros, to support significant research programmes and to make the existence of the defence R&T effort a reality when compared to research programmes launched by the European Commission.

The credibility of the European defence R&T is at stake as well as our ability to coordinate research activities with the European Commission on a comparable footing. That common budget should be supplemented by funds provided by nations in support of specific ad’hoc research programmes for another few hundred millions Euros. I think that apportioned between the EDA member states, the common budget will represent a limited burden per nation as a supplement to existing budgets.

In parallel, and I should have started with that, we consider that capabilities essential for enforcing ESDP should be dealt within the Agency, thus the Agency should be leading initiatives in as many as possible areas such as :UAVs/ISTAR : technology demonstration work on long-endurance UAVs, in the context of development of a wider ISTAR architecture. It should investigate the scope for “adding value” in areas such as Air to Air refuelling to Review European capability needs, national requirements and programmes, interoperability issues and potential for collaboration, or A 400 M to review the scope for common approaches to all aspects of A 400 M operations (including logistics, configuration control, etc.).

The Agency should be involved in the space issues that are already considered and prepared by the European Commission. It is essential to master Space technologies to ensure the European decision autonomy. The Headline Goal 2010 consider thus the development of an European space policy as a clear and key objective.

Having said all that, it still falls short of a Franco-British approach to acquisition which needs to go beyond individual contracts or R&T. The emergence of a European Defence, in return, triggers an increased interest paid by the European Commission to strengthening the European defence industry and to the defence market, the “green paper” being a clear signal.

This of course, overlooks the political issue that underpins defence acquisition activities but this is a clear incentive to look for an harmonised Franco-British approach to acquisition in defence.

Where do we need to stand between the two extremes that would be either a fully regulated market and a fully non regulated one. I am not in a position to provide a definite answer apart that both extremes seem to be equally problematic. Capitalizing on our experience through a code of good conduct is a starter to address that issue. It is an incentive towards the promotion of effective competition on an European basis. I am also convinced that we need to go further to withstand the art. 296 issue as raised by the EU. The code of good conduct should in that respect should allow us to shape out what future rules should be in support art.296 application.

Finally, I am convinced that the European Defence Agency should be tasked to prepare in partnership with the European Commission a response to the “Green Paper” issues ; this response, agreed by the Steering Committee, should also be the first step of the Agency’s work in the field of market and DTIB matters.

I am afraid I have been rather long and it is probably high time to conclude since I do recognize that we are on a Friday evening. I must say that as Peter said we were rather anxious to see whether we would have an audience at all. I am very happy to have one so I will be kind to it and stop now.

Considering what we are aiming at, it appears that we are trying to do the opposite to what the Entente cordiale agreement was about. Whereas, the Landsdowne/Cambon agreement that started the entente cordiale was rather cynical in nature carving spheres of influence in the world for both countries, I am convinced that we are now setting a new standard of entente cordiale in the acquisition domain to a point where we are even celebrating Trafalgar together. Much depends on a common understanding supported by a shared sense of urgency.

Thank you for your attention.

 


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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).

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