12 June 2014

Horten focuses on the paradigm shift for industrial cooperation and off-set

On 3 June 2014, the Center for Defence, Space & Security (CenSec) and Horten hosted an event on the future for industrial cooperation within the defence industry.

The event successfully launched the Network for Industrial Cooperation with the participation of Danish and international companies and educational institutions.

Censecs industrial cooperation network

Executive officers Klaus Bolving and Anton Villadsen presented CenSec's objectives as to the Network's dissemination of experience concerning in-dustrial cooperation and specific "matchmaking" for the purpose of com-panies profiting from the system and each other. CenSec will include dual-purpose-products more systematically to optimize the results of the industrial cooperation for Denmark and Danish companies.

Presentation by Norwegian ammunition company

Frank Stølan from Nammo Raufoss AS (the Norwegian ammunition company) talked about the business community's experience with the industrial cooperation as an enabler of innovation and productive cooperation and explained Nammo Raufoss' expectations for the future regime concerning the industrial cooperation in Denmark. 

Legal practice of industrial cooperation and counter-purchases

Attorney Poul Hvilsted from Horten talked about the status in relation to the new regime of the industrial cooperation, while attorney Thomas Grønkjær from Horten gave an overview of the procurement regulation of defence contracts (the Defence and Security Procurement Directive) and the relevant forms of cooperation when submitting tenders for defence contracts.

New act abolishes previous rules on counter-purchase obligation

In brief, the status of the new regime is that there is presently no regime. 

The industrial cooperation refers to an arrangement according to which it is a condition in connection with purchase of defence and security equipment by the Danish Armed Forces from a foreign supplier that the supplier purchases goods and services from Danish companies (a so-called off-set obligation). The purpose is to protect Danish security interests. So far, off-set obligations have been regulated by the Danish Act on trade and industry development, an executive order and administrative practice. 

From an EU perspective, the arrangement has been problematic, and on 2 April 2014, Denmark sought to solve this problem by abolishing the section in the Act on trade and industry development which warranted the requirement for off-set obligations. 

As Denmark still wishes to mandate off-set purchases in specific procure-ment contracts, an option which remains under article 346 of the EUF, a draft set of rules was presented in connection with the introduction of the bill to abolish to the mandatory requirement of off-set obligations. 

Under the new regime, the Ministry of Defence may demand based on a specific assessment that the supplier accepts an off-set obligation. It is im-portant to note that this option only applies to tender procedures of values exceeding DKK 50 million. The Ministry of Defence must prove that this condition is necessary in order to safeguard important Danish security in-terests arising out of the purchase. These security interests are expected to be described in detail in a memo from the Ministry of Business and Growth. 

If the Ministry of Defence believes that industrial cooperation is required in the specific situation, meaning that an off-set obligation is necessary to protect specific and important Danish security interests, the Ministry of Business and Growth must in each situation assess whether the requirement is consistent with EU law.

It appeared from the consultation memorandum that the relevant drafts would become subject to many important changes. 

New rules in the pipeline

The rules of the new regime, will also apply to already existing off-set obli-gations in terms of discharge mechanisms, 

The latest rumour says that the guidelines enacting the new regime will be presented by the Ministry of Business and Growth mid-June. 

Horten will continue to follow the development closely in order to provide optimal advice to Danish and international clients.

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