Danish Industrial Cooperation Requirements in Defence Procurement

Danish Rearmament

Denmark is responding to geopolitical threats with substantial rearmament decisions and a significant boost in defence budgets. Defence investment spending on hardware capacities is increased and will most likely increase significantly in the coming years.

Normally such investments lead to tedious and often complex tender procedures. However, the need for – rapidly - enhanced capacities to mitigate external security threats against Denmark has been a persuasive reason to invoke the possibility granted in art. 346 of the TFEU to suspend EU-procurement rules due to national security interests. So, some supply contracts are awarded directly to suppliers without tender procedures.

By the same logic security interests now more than ever justify the Danish system called Industrial Cooperation, which is based on a TFEU art. 346 exemption assumption. No matter if there is a tender procedure or not, the Danish MoD and MoB will continue to include provisions on industrial cooperation obligations in defence contracts.

What Is Industrial Cooperation?

Industrial Cooperation is an obligation imposed on foreign suppliers to "return" the value of a defence contract to Denmark and its military industrial capabilities.

The purpose is to ensure that Denmark will have or develop an appropriate industrial capacity and competence in the defence segment. The logic is that Denmark as a small nation will never be able to rely solely on Danish industry to provide what is necessary to cover the need for defence products and capability.

But having some level of industrial capacity in the defence segment is pivotal in terms of Denmark's ability to understand, assess and – together with other countries – to react to global threats. Having an industrial security capacity is eo ipso serving national security interests.

An ICC therefore ensures that Danish undertakings can support Denmark's national security interests. The ICC forces foreign suppliers to collaborate with Danish companies as a condition for being awarded public defence contracts. This can involve activities such as subcontracting work or capacities to Danish defence firms, investing in Danish technology development projects, or forming strategic partnerships with local companies.

When Is ICC Required or Justified?

For each defence procurement, the Danish Ministry of Defence (MoD) considers whether industrial cooperation is necessary to ensure a defence industrial effect that will protect Denmark's essential security interests. This evaluation — known as the "346-assessment" identifies the national security interests associated with the procurement and determines whether these interests require a defence industrial cooperation.

The "effect" of such cooperation must support the development or maintenance of industrial capacity within Denmark. In practice, this means the cooperation must create tangible value within the Danish defence sector, such as capability development, innovation, or strategic supply assurance.

Danish Guidelines (2021)

In 2021, the Danish government introduced updated guidelines to align its defence procurement practices with Article 346 of the TFEU following a letter of formal notice from the EU Commission. These guidelines apply to contracts exceeding DKK 50 million and reaffirm Denmark’s use of industrial cooperation obligations as a tool to safeguard national security interests while remaining consistent with EU internal market rules.

The 346-assessment defines the scope of defence-related goods, services, and technologies eligible for industrial cooperation. By aligning cooperation efforts with this framework, the Danish government ensures that foreign suppliers contribute meaningfully to Denmark’s defence capabilities and industrial resilience.

Legal Assessments: Necessity, Proportionality, and Competition

If the MoD finds that industrial cooperation is necessary, it must also assess whether such a requirement is legally justified and proportionate. It must be demonstrated that the obligation represents the most effective means of achieving the national security objectives with minimal impact on trade.

Additionally, the MoD must consider whether the cooperation requirement poses a risk of distorting competition within the EU internal market, particularly for non-military goods and services. This ensures that industrial cooperation obligations remain targeted, justified, and compliant with broader EU-trade principles.

Implementation and Execution

When a cooperation obligation is imposed, it must be clearly stated in the procurement documents and included in the acquisition contract with the foreign supplier. Prior to participating in the tender, suppliers must accept the terms of an Industrial Cooperation Contract (ICC). These terms are non-negotiable and non-appealable.

Discharge of ICC obligations

To fulfil the industrial cooperation requirement, suppliers may engage in direct purchases from Danish defence companies or participate in development projects with Danish firms. The execution of these obligations must be completed within a timeframe approved by the MoB.

Denmark’s industrial cooperation framework ensures that foreign defence suppliers not only deliver products or services but also invest in the development and sustainability of Denmark’s strategic industrial capabilities. For foreign suppliers, understanding and planning for these obligations is essential for successful participation in Danish defence tenders.

The MoB may assign factors to various forms of industrial cooperation based on their effectiveness in protecting national security, e.g.:

• Technology transfer: Factor 7
• Capital transfer for development: Factor 5
• Adviser services: Factor 5
• Provision of facilities: Factor 3.

Discharge by establishing a Danish subsidiary

Horten has more than 30 years of experience advising suppliers and sub-suppliers to the Danish Army and Royal Danish Navy on industrial cooperation and discharge of the obligations. We have also concurrently advised Danish industrial actors in the context of procurement contracts and ICC contracts with foreign suppliers.

The Horten code for ICC's is that the obligations are real money. The ICC cooperation shall make sense both for the supplier, whose financial obligations are discharged, and for the Danish target, who should not only ensure discharge, but develop real commercial assets.

The ICC between the foreign supplier and the Danish industrial partner should be the beginning of a long-term commercial relationship with reciprocal benefits that are over and beyond the discharge of the obligation. The foreign supplier may benefit from the innovative competence of the Danish partner.

An aspect that may stimulate such mutually beneficial partnerships is the possibility that foreign suppliers may establish wholly or partly owned Danish LLC subsidiaries with whom the discharge operation is organised. This entails the possibility of executing for instance a technology transfer to discharge industrial cooperation obligation and remain the ultimate sole owner of the IP.