Huge increase in defence spending and new equipment for Germany’s armed forces (Bundeswehr)

In response to the Russian Federation’s attack on Ukraine, Germany’s Chancellor Olaf Scholz issued a government declaration on 27 February 2022 announcing a huge increase in German defence spending. The Bundeswehr is to receive €100 billion from the federal budget for investment and armament projects via a special fund.

According to initial plans, most of the special fund (about €68 billion) is to go towards major national projects. Media reports citing an internal list from Germany’s Ministry of Defence mention a planned €15 billion for the successor to the air force’s Tornado fleet, €5 billion for new transport helicopters, €3 billion for digitalising troops (for example, modernising communication systems with new radios) and €20 billion for new munitions.

In this context, the Chair of the Defence Committee, Marie-Agnes Strack-Zimmermann, stated that the poor state of troops was not only a matter of money, but also one of organisation and efficient leadership. She demanded that “the Bundeswehr’s procurement system must urgently become leaner and more effective. The Bundeswehr should switch over to significantly more direct procurement – from clothing to helicopters to speedboats.”

Implementing this ambitious project raises complex legal issues of both constitutional law and public procurement law.

Constitutional aspects of establishing a special fund

The plan is to set up a special fund for the huge increase in defence spending. This is not a completely new financing tool, as the federal government has already applied it in the past, including in connection with the energy and climate fund and most recently in the context of the Covid-19 pandemic. In principle, it is possible to set up a special fund for the Bundeswehr both through ordinary (non-constitutional) law and based on a constitutional amendment with a two-thirds majority in the German Bundestag. For legal and political reasons, the federal government is currently planning to secure the establishment of the special fund in constitutional law. Following an amendment to the German constitution (Grundgesetz), an implementing law would probably be enacted to govern the details of borrowing and repayment.

From the perspective of constitutional law, the main argument in favour of this is that a special fund established only by ordinary law could be seen as an inadmissible circumvention of the “debt brake” enshrined in the constitution. The debt brake allows total annual new debt of 0.35% of economic output. This limit may only be exceeded if natural disasters or extraordinary emergency situations occur that are beyond the control of the state and significantly affect the state’s financial situation. Whether Russian troops invading Ukraine and the resulting need to strengthen Germany’s defence capability constitutes such an emergency situation would be debatable at least. But a special fund secured by the German constitution could be designed as a special fund that is not subject to the debt brake.

For political reasons, a constitutional basis would have the advantage of ensuring the resources are actually allocated to the purpose of defence and security, since a “reallocation” of the funds would only be possible via another constitutional amendment.

Under European law, setting up a special fund would probably also be admissible, since the provisions of the Stability and Growth Pact 2022, which contain a “debt brake” under European law, have been suspended due to the Covid-19 pandemic. According to the EU Commission’s guidance paper now published, this suspension is to be kept in place for 2023, not least due to the uncertainties caused by the Ukraine crisis. A final decision will be made in the spring of 2022.

Public procurement law aspects as well as opportunities and limits of “lean” procurement

From the perspective of public procurement law, the initial focus is likely to be on tools for “lean” procurement in order to avoid lengthy procedures and to implement the planned modernisation of the Bundeswehr soon.

Exemptions from the tendering requirement for defence and security-related public contracts

Most of the procurement measures now planned are likely to be defence and security-related public contracts pursuant to section 104(1) of the German Act against Restraints of Competition (GWB). This includes the supply of military equipment and related components. Such procurement measures are generally subject to public procurement law and must therefore be put out to public tender, usually on a pan-European basis.

However, German and European law recognise special exceptions to the obligation to tender in the field of defence and security. Section 107(2) GWB is of particular importance in the defence sector. This contains two exceptions for certain contracts for military equipment: firstly, if the contracting authority would thereby be forced to provide information the disclosure of which would be contrary to essential security interests within the meaning of Article 346(1)(a) TFEU, or secondly, if the public contracts or concessions are subject to the scope of Article 346(1)(b) TFEU. The second case in particular is likely to be especially important for the planned projects.

According to Article 346(1)(b) TFEU, each Member State may take “such measures as it considers necessary for the protection of the essential interests of its security” insofar as they concern the procurement of (exclusively) military equipment. The list of military equipment covered by the regulation was constitutively and finally decided by the European Council on 15 April 1958. Although the list has not been revised since then, it can be applied to modern military equipment through a dynamic interpretation. In the Act on Accelerated Procurement in the Field of Defence and Security and on the Optimisation of Procurement Statistics of 25 March 2020, the legislator has added standard examples of when essential security interests are affected in section 107(2) sentence 2 GWB. According to this, essential security interests are affected in particular if the public contract or concession involves key defence-industry technologies. What counts as a key technology was set out in the strategy paper on strengthening the security and defence industry and includes submarines, armoured vehicles and naval surface shipbuilding. With regard to the prerequisites of Article 346(1)(b) TFEU, the Member States have a wide margin of discretion. Nevertheless, each procurement transaction must be examined individually and the Member State bears the burden of proof that the actual conditions for the exception have been met.

In recent years, the European Court of Justice has limited the scope of the exception in Article 346 TFEU to cases in which only the security interests of states are relevant and not other interests, such as those of an economic or industrial policy nature. Nevertheless, in the practice of the Member States, there are significant opposing trends that aim to expand the Member States’ scope of action in view of Article 346 TFEU, as reflected in the addition of the aforementioned standard examples by the German legislator. It remains to be seen how this tense situation will evolve in the future.

Exemptions from the obligation to tender in the case of other contracts

Section 117 of the GWB provides for exemptions from the obligation to tender in the case of non-military goods, too, if essential security interests are affected, for example. This includes procurement measures by the Bundeswehr that do not relate to a defence-specific object or to the procurement of equipment for non-military security purposes, such as the procurement of information technology or telecommunications systems.

Accelerated contract-award procedure for urgent reasons

Furthermore, public procurement law also offers options for accelerating or dispensing with open competition in certain situations, such as in the case of “urgent reasons in connection with a crisis” in section 12(1) no. 1 b) aa) of the German Defence and Security Procurement Regulation. Such a crisis usually exists in the case of armed conflicts and wars, as is currently the case in Ukraine.

As part of the Act on Accelerated Procurement in the Field of Defence and Security and on the Optimisation of Procurement Statistics of 25 March 2020, further cases were included in the Regulation. Thus, an urgent reason “usually” exists if mandated foreign missions or mission-equivalent obligations of the Bundeswehr (no. 1) or peacekeeping measures (no. 2) require new procurement at short notice or increase existing procurement needs. Depending on the specific situation, an accelerated procedure is now conceivable with regard to the events in Ukraine, for example on the basis of a deployment-equivalent obligation of the Bundeswehr or also as a peacekeeping measure.

Accelerated review proceedings

Also worth mentioning in this context is the option of accelerating the review proceedings, especially since the principle of acceleration in section 167(1) GWB does not apply in the appeal court and the proceedings before the Higher Regional Courts can take much longer. Therefore, the public contracting authority is free to file an urgent application before the Public Procurement Senate or the Public Procurement Division (section 169(2) and section 176(1) GWB). In its decision, the court will weigh up whether the contracting authority’s interest in acceleration outweighs the claimant’s interest. In the event of a crisis (no. 1), a mandated deployment of the Bundeswehr (no. 2) or an alliance obligation (no. 4), the interest of the contracting authority is to “prevail as a rule”.

Possible approaches for reforming procurement

In the wake of recent events, Defence Minister Christine Lambrecht, in coordination with Justice Minister Marco Buschmann, therefore announced further simplifications of procurement law in order to make procurement more efficient. Suggestions for improvements and reforms were already proposed by a resolution of the FDP parliamentary group last year, which emphasised, among other things, that lawsuits continue to be a factor of uncertainty in procurement and that the exceptions provided for must be better used. Furthermore, it was suggested that greater use be made of the option of granting advance permission to award a contract on the grounds of special defence and security interests under section 169(2) GWB.

All efforts to accelerate and in some cases dispense with public procurement procedures must comply with the European legislation. Public procurement law also offers many options, including with regard to public tenders. Tenders remain an important instrument for using budget funds as economically and thriftily as possible. This must also be taken into account in the current debate.