Defence Readiness Omnibus – the next step towards European defense capability

The Omnibus proposal on amending Directive 2009/81/EC on procurement in the fields of defense and security (“Defence Procurement Directive”) brings substantial changes to defense procurement.

• In particular, for the award of supply and service contracts the threshold is to be raised from EUR 443,000 to EUR 900,000. The Commission estimates that this change will significantly simplify around 25% of all procurement procedures currently falling under EU defense procurement rules. Doubling the threshold amounts will allow Member States to focus their resources on large contracts, while easing the administrative burden on the industry. This will not conflict with the World Trade Organisation’s Agreement on Government Procurement because its lower thresholds do not apply to the defense contracts for arms, ammunition or war materials covered by the increased thresholds.
• There are also plans to expand the range of available procedures, with Member States also to have access to the open procedure, the dynamic purchasing system and the innovation partnership procedure as tools in defense procurement.
• A simplified procedure is also to be introduced for the direct procurement of innovative products or services resulting from competitive parallel research and development projects.
• To continue to cover acute needs and rapidly replenish stocks, Member States are to be able to make immediate purchases of available military equipment as part of common procurements using a negotiated procedure, which bypasses the usual requirement for prior publication of a contract notice. This temporary derogation will only apply to procurements of identical or only slightly modified defense products by at least three Member States completed prior to 1 January 2031.
• In addition, the maximum duration of framework agreements is to be extended from 7 to 10 years, allowing Member States to build longer-term partnerships with industry and increase procurement planning certainty.
• Finally, statistical reporting requirements for defense procurement are to be scaled back to reduce the administrative burden on Member States.
• The proposal also expands the exclusion under Article 13(c) Defence Procurement Directive forcooperative research and development programmes conducted jointly by at least two EU Member States. In essence, the extension simply enacts the non-binding guidance already contained in the 2019 Commission notice on guidance on cooperative procurement in the field of defense and security, clarifying with legally binding effect that the sector exclusion covers not only contracts for the development of new products but also contracts that simply lead to substantial changes or improvements of an existing product. Member States will now have a codified option to participate in such programmes and benefit from the exclusion even after the R&D phase has concluded. The equal treatment of research and development projects managed by Union institutions or bodies and financed from the Union budget and cooperation programs carried out jointly by at least two Member States is also to be adopted.This will particularly affect contracts in projects financed by the European Defence Fund (EDF).
• It is remarkable that the Omnibus contains no further exclusions from public procurement and does not expand existing exclusions under Article 13 Defence Procurement Directive.
• Also surprising – given the growing tendency among Member States to invoke the primary law exception in Article 346 TFEU to protect essential interests of security – is that the Omnibus clarifies that in areas other than State aid, the use of Article 346 TFEU will continue to be closely scrutinized and that relevant findings in State aid procedures are without prejudice to the applicability of Article 346 TFEU to defense procurement. According to the Omnibus, a case-by-case review of the necessity and proportionality of national measures under Article 346 TFEU – having regard to their context and effects – will continue to be required.
• The Commission furthermore calls on Member States to urgently review their procurement rules to remove additional national requirements in public procurement procedures (“gold plating”).

The Commission proposes to simplify intra-EU transfers of defense products by amending Directive 2009/43/EC (“Defence Transfers Directive”). The aim here is to simplify and accelerate transfers of defense products to the armed forces of Member States, transfers through supply chains and transfers within EU-funded projects. Various measures are to be introduced:

• One key step is to enable Member States to introduce further exemptions to prior authorization requirements by extending the list of cases in which they may exempt, in particular, transfers for the implementation of Union defense programmes, transfers within the framework of structured cross-border industrial partnerships, transfers to Union institutions or bodies or the European Defence Agency, and transfers in a crisis situation or in the context of military assistance.
• Member States are also called on not to make the use of general or individual transfer licences more difficult by imposing irrelevant criteria and to ensure that the requirements for the use of licences are directly relevant to complying with legislation in the field of transfer and export control.
• The area covered by general transfer licences is also to be expanded and harmonized. In future, existing general transfer licences will not only apply to transfers to certified European defense undertakings but also to transfers by certified undertakings. In addition, a new general transfer licence for projects under EU programmes such as the EDF is to be introduced, covering all defence equipment and all transfers necessary for the implementation of EU projects. The Member States are also to be obliged to provide for the possibility of introducing further general authorizations.
• Reporting obligations for technology transfers and obligations to submit end user certificates are to be simplified and reduced.
• The Commission is to be empowered to adopt delegated acts to further develop the legal framework for the transfer of defense goods.

• European Defence Fund (“EDF”)
  The Commission proposes an amendment to Regulation (EU) 2021/697 establishing the European Defence Fund which is aimed at providing clarity, simplifying procedures and introducing flexibility to facilitate implementation of the fund.

  To achieve this, the award criteria are to be simplified, direct procurement rules clarified and indirect administration of funds management made more flexible. The amendment also aims to make it possible to fund tests conducted outside EU territory (e.g. in Ukraine). 

  Under the current legal framework of the EDF, the participating Member States do not have sufficient access to the results of the development projects. The Commission wants to change this and grant a right of access to the results at fair conditions. The Commission likewise hopes that this will streamline negotiations between Member States and the industry, accelerating the approval of financial aid.

• To achieve this, the award criteria are to be simplified, direct procurement rules clarified and indirect administration of funds management made more flexible. The amendment also aims to make it possible to fund tests conducted outside EU territory (e.g. in Ukraine).
• InvestEU Fund
  The Commission further suggests revising the investment guidelines for the InvestEU Fund. The InvestEU Fund, which was established in 2021 to accelerate the economic recovery following the COVID-19 crisis, strengthen the EU’s competitiveness and support the achievement of climate targets as well as scientific and technological progress, has already been used to invest in defense technologies and products defined in the European Defence Fund’s annual work programme. However, as the work programme is constantly evolving, the Commission considerss this regulation to be unnecessarily complex, leading to legal uncertainty. To make the definition clearer and more practical, the Commission proposes revising the Annex of Delegated Regulation (EU) 2021/1078. In addition, various provisions are to be adapted and restrictions lifted.

• The Commission first emphasizes that EU competition law applies to the defense sector. The defense readiness of European industry critically depends on competitive markets that can deliver cutting-edge technology and innovation as well as sufficient and flexible production capacity, it says.

  The Commission also refers to the key primary law provision in Article 346(1)(b) TFEU, which creates a rather broad exemption for the protection of Member States’ interests in national defense and security matters. The provision allows each Member State to “take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material”. However, the prohibition of cross-subsidisation applies, which stipulates that “such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes”. In addition, Member States must not make improper use of the exemption. The Commission can have this reviewed by the ECJ (Article 348(2) TFEU). The provision is likely to become relevant in future, particularly in State aid matters – and for this reason, the Commission addresses the provision in detail. However, it cannot be ruled out that Member States will, by means of certain measures, also legitimize private restrictions of competition within the scope of Article 346.

• In practice, this means that Member States could override EU merger control by means of sovereign measures – at least for the military part of a transaction – if they are able to invoke Article 346(1)(b) TFEU. The Commission would then have to limit its review to the non-military part.

  It is encouraging that the Commission is committed to ensuring EU competition law does not hinder the urgently needed expansion of the defense sector and the defense capabilities of the Member States. Although the Omnibus does not yet contain any specific statements on the amendment and enforcement of competition law in the defense sector, the changed defense and security environment is to be taken into consideration as part of the ongoing revision of EU merger guidelines. In particular, the intention appears to be to factor in potential improvements to the defense and security situation and to assess their efficiency. The public consultation on the amendment of the merger guidelines ends on 3 September 2025, and the Commission is currently planning to publish new guidelines in the 4th quarter of 2027.

  When the EU merger guidelines are revised, safe harbours should be clearly defined for transactions that do not pose any issues under competition law. The resulting legal certainty will allow defense companies to focus on their core business, i.e. expanding production and strengthening the defense capabilities of the Member States.

• However, Article 346(1)(b) TFEU goes considerably further and can, where a measure taken by a Member State meets certain conditions, justify an exemption from all Treaty provisions, including the prohibition of cartels pursuant to Article 101 TFEU. Fortunately, the Commission indicates in the paper that it is willing to take a favourable view of cooperation projects in the defense sector that do not fall under Article 346(1)(b) TFEU. In particular, this will be the case where cooperation is necessary to scale up production or where individual companies would otherwise be unable to develop or manufacture products on their own, or where raw materials or inputs are to be procured jointly. When assessing such cooperations, the Commission also intends to take into account the resulting efficiency gains – for example, positive effects in terms of defense readiness or resilience of defense supply chains.

  With regard to the antitrust assessment of cooperations, clearly defined safe harbours or generally applicable assessment principles for cooperations in the defense sector would also be desirable in addition to the case-by-case guidance envisaged by the Commission.

• For EU State aid law, the Commission explicitly refers to the central defense exemption in Article 346(1)(b) TFEU. This provision is of considerable importance in the context of State aid law, as it ultimately permits the subsidisation of the Member States’ defense industry without the strict requirements of Article 107 et seq. TFEU and the extensive “soft law” issued in this regard. The Commission and the EU courts have always respected this discretion, which ultimately stems from the treaties’ division of competences, and have often interpreted it quite broadly.

  It is encouraging that the Commission has now reiterated its commitment to this and, in addition, has emphasized that it will also be generous and flexible in its assessment of projects that are no longer covered by Article 346(1)(b) TFEU. EU State aid rules should therefore not fundamentally obstruct increased defense efforts. The Commission wants to positively assess, in particular, State aid that serves the objective of “reaching defense readiness by 2030”, the “resilience needs of the Union”, the “interoperability and security of supply of defense products or inputs thereof across the Union” and the “reduction of dependencies on third countries”.

• The Commission proposes amending Regulation (EU) No 1907/2006 (“REACH”) to align it with defense readiness objectives and to clarify the defense exemption. Other legal acts on chemical substances, namely Regulation (EC) No 1272/2008 on the classification, labelling and packaging of substances and mixtures and Regulation (EU) No 528/2012 on biocidal products are to be similarly amended.
• With respect to Regulation (EU) 2019/1021 on persistent organic pollutants, the Commission proposes allowing Member States to grant exemptions from reporting requirements under Article 13(1) to protect sensitive information about the use of chemical substances.
• In its accompanying communication, the Commission also encourages Member States to make use of existing exemptions in EU legislation. It not only focuses on explicit exemptions for military purposes, but clarifies that Member States may take defense readiness aspects into account when applying exemptions for “overriding public interests” and “public security”. This also includes industrial and public investment in defense and defense readiness. For example, the Environmental Impact Assessment Directive provides for an explicit exemption for defense projects. This can be used for projects and activities for strengthening defense readiness.

• In its “Commission Notice on the application of the sustainable finance framework and the Corporate Sustainability Due Diligence Directive to the defense sector”, the Commission provides guidance on how the application of different sustainability provisions affects the defense industry. This is intended to help market operators comply with their obligations, including in connection with defense projects. The Notice also aims to clarify that the EU’s sustainable finance rules do not conflict with investments in the defense sector.

  Protection of sensitive information

• Regarding ESG due diligence under Directive (EU) 2024/1760 on corporate sustainability due diligence (Corporate Sustainability Due Diligence Directive “CSDDD”), the Commission points out that Article 3(1)(g)(ii) CSDDD exempts companies from due diligence downstream activities involving weapons, munitions or war materials and dual-use items if their export has been approved by an EU Member State.

• The Commission’s reference to the reporting obligation under Directive (EU) 2022/2464 on corporate sustainability reporting (Corporate Sustainability Reporting Directive, “CSRD”) also has important implications for companies. According to the CSRD, companies must generally disclose sustainability information, but can withhold classified information or sensitive information, even if such information is considered material (Delegated Regulation (EU) 2023/2772 on sustainability reporting standards, Annex I, ESRS 1, no. 105). The Commission expects this option will be used more frequently in the defense industry. Companies in the defense sector can also benefit from the proposed simplifications of the EU Commission’s February 2025 Omnibus-I-initiative, which aims to simplify sustainability requirements – particularly through the “Stop the Clock” Directive, which delays CSRD reporting obligations by two years.

  Standardized definition of prohibited weapons

• In its draft Delegated Regulation amending Delegated Regulation (EU) 2020/1818 (“PAB and CTB Regulation”), the Commission suggests replacing the term “controversial weapons” in Article 12(1), letter (a) PAB and CTB Regulation with “prohibited weapons”. The current definition of “controversial weapons” makes broad reference to those cited in international treaties and conventions, United Nations principles and national legislation. However, these international conventions and treaties do not define “controversial weapons”, but refer to “prohibited weapons” instead. To ensure legal certainty, the Commission therefore considers it necessary to amend the definition accordingly. This will refer exclusively to anti-personnel mines, cluster munitions and biological and chemical weapons, the use, possession, development, transfer, manufacture, and stockpiling of which are expressly prohibited by the international arms conventions – as listed in the Annex – to which the majority of Member States are parties. Unlike the current definition, the new wording clearly shows that nuclear weapons are not included. This ensures consistency with the term “controversial weapons” as used in Delegated Regulation (EU) 2022/1288 (supplementing Regulation (EU) 2019/2088 with regulatory technical standards), which is relevant in the context of Regulation (EU) 2019/2088 on sustainability disclosures in the financial services sector (“EU Disclosure Regulation”, also “SFDR”) and also excludes nuclear weapons.
• The amendments to the Annex must be seen in the context of Regulation (EU) 2016/1011 (“EU Benchmarks Regulation”, also “BMR”), since the Commission’s Delegated Regulation amending the PAB and CTB Regulation effectively supplements the BMR by providing specific requirements for labelled climate benchmarks. 
• As regards the EU Taxonomy under Regulation (EU) 2020/852 (“EU Taxonomy Regulation”), the Commission makes it clear in its Notice that undertakings involved in defense activities are also entitled to claim that eligible horizontal investments are taxonomy aligned. The “do no significant harm” principle, as defined in Article 2, point (17) SFDR and referenced in Article 18(2) EU Taxonomy Regulation, means that the rules on controversial weapons also apply to the EU Taxonomy. Companies must avoid any actual or potential exposure to the manufacture or sale of controversial weapons so as not to significantly compromize their social sustainability goals.
• The Commission also mentions Directive 2014/65/EU (the EU’s second Markets in Financial Instruments Directive, “MiFID II”), which states that investment firms must consider clients’ sustainability preferences. Because MiFID II refers (via Delegated Regulation (EU) 2017/565, as amended by Delegated Regulation (EU) 2021/1253) to “sustainable investments” under Article 2, point (17) SFDR and to “environmentally sustainable investments” as defined in the EU Taxonomy, the implication is that operators must consider the principle of minimum safeguards under the EU Taxonomy Regulation and the precautionary principle of “do no significant harm” under the SFDR when assessing whether the product they distribute satisfies sustainability requirements. The Commission makes it clear, though, that there is no provision requiring undertakings to consider that investments in the defense sector have adverse impacts simply because they can be attributed to that sector.