A Directive’s Effect on Offset : Directive 2009/81/EC and its Effects on Offset Agreements in the Defence Sector

Abstract: The public procurement of defence materiel was previously regulated in Directive 2004/18/EC but due to the special character of the defence market, a new Directive has been issued; Directive 2009/81/EC. The purpose of this Directive is to be better suited for the special features of the defence market. Directive 2009/81/EC will now regulate most of the contracts that, due to their sensitive and secret character, were earlier exempted from the rules of the Treaties on the basis of Article 346 TFEU and from Directive 2004/18/EC on the basis of its Article 14. It is, however, still possible to exempt some contracts on the basis of these Articles. Directive 2009/81/EC regulates the procedure for contract awarding and affects the possibilities of the Member State to choose a tender with Offset agreement over one without and thereforethe Directive affects the offering company as well.Earlier a company has been free to shape its contracts concerning public procurement of defence material with little regard to the regulations of the Internal Market. With the implementation of the new directive, the situation has become uncertain. In particular the state of law concerningOffset agreements, commonly offered as a part of a tender in contracts concerning defenceprocurement, has become uncertain. This as Offset is not explicitly mentioned in Directive2009/81/EC but several bodies of the European Union have expressed opinions regarding the legality of Offset and whether or not it is a discriminating measure.We have found that Offset agreements, both related and un-related to the subject matter of the contract, can be exempted on the basis of Article 346 TFEU if they support essential security interest. However, that the procurement concerns the defence sector is not enough for contracts to be exempted if these contracts only support other interests, e.g. industrial or economical, rather than those of essential security. This as the exemption of these contracts would have adistorting effect on the trade on other markets than the one related to defence procurement.Even though Offset is not mentioned as a criterion for awarding of contracts in Article 47.1(a) Directive 2009/81/EC, this does not exclude the possibility that it could be. If Offset is to be used as an award criterion, it cannot be of significant weight when determining the economically most advantageous tender and can in no case be discriminating. Also, a differencebetween direct and indirect Offset must be made since indirect Offset agreements do not fulfill the requirements, in 47.1(a) Directive 2009/81/EC, in order to be considered asan award criterion. It is therefore only possible to use direct Offset agreements as an award criterion according to Directive 2009/81/EC if this is done in a non-discriminating way.