On 7 June, the Ministry of Defence sent an "Action Agenda on Production and Security of Supply of Ammunition and Defence Equipment" to the House of Representatives. Our Politics and Defence Technology working group offered 16 suggested questions on this to the Permanent Committee on Defence in the Lower House.
The Defence and Security Department's Politics and Defence Technology working group analyses current political developments in the defence sector. It provides independent facts and interpretation from the technological knowledge and experience of engineers. The working group has the following comments and suggested questions on the "Action Agenda on Production and Security of Supply of Ammunition and Defence Equipment" by the State Secretary of Defence dated 7 June 2024
The working group is pleased that the Production and Security of Supply Task Force, after thorough preparation, is presenting this plan and can now already present some preliminary results. The breakthrough in Europe of joint procurement is definitely a step in the right direction of the much-needed acceleration of procurement. Although the letter indicates a 62% increase in the NL DTIB's turnover by 2023, this does not yet seem to have led to an actual solution for many bottlenecks, such as munitions and drones.
The working group therefore suggests some further questions on this letter.
1. Role of Defence
- How is Defence's need for new resources linked to this action agenda?
The letter deals mainly with actions t.v. renewal, innovation and scale-up in the industry. However, increasing production does not come without buyers. After all, growth in production without a business goal is not effective for companies. Therefore, a close connection with the budget and orders based on it is necessary. Industry must then also want to fulfil these orders. In short, only if Defence invests purposefully and in close consultation with industry can this action agenda be a success.
2. Role of industry
- How will industry be structurally involved?
In the round-table discussion in the Lower House on 12 June, almost all speakers asked for better cooperation with Defence, so that they can be more responsive. Apparently, the role of EZ/CMP and the NIDV is not sufficient for this. Only in proper consultation of Defence with specific industries can this action agenda be a success.
3. Innovation-oriented procurement (page 2)
- Is the innovation partnership methodology added to the Procurement Act in 2015 being applied for "innovation-oriented procurement"?
4. Manufacturing partners (pg. 2)
- To what extent is the ambition of companies examined and taken into account in these partnerships?
Some companies are known to be very reluctant towards products for Defence, while others are very interested in contributing to the defence of the Netherlands, Europe and NATO countries.
5. SecFund (page 3)
- Does the SecFund take shares in the relevant companies, issue loans or enter into innovation agreements based on the innovation partnership methodology?
The SecFund is a government fund, filled from the Defence budget. That has different possibilities and limitations than a private investment fund.
- Is it the Secretary of State's intention for the SecFund to grow rapidly?
After all, the €25M now made available for 5 companies is only very small in terms of size, when it comes to a strong scale-up of the entire Defence industry and development of entirely new weapon systems, such as drones on land, on and under water and in the air.
5. Fragmentation of the European Defence Industry (p. 3)
- What does the State Secretary think of the proposal by KIVI and EurodefenseClusteringthe EDTIB?
This proposal for the formation of R&D and product development clusters and strategic spreading of (licensed) production across Europe was presented to the European authorities and the European Parliament, among others, in June. See also www.eurodefense.nl at news (29.5.24).
7. Partnerships with companies, knowledge institutions and financial institutions (page 4, 3rd paragraph)
- What would such a partnership look like?
Will these partnerships have an informal or contractual status? Or will they be structural development or supply agreements?
8. EIB and dual use (page 5)
- What will be the new definition of dual-use at the EIB?
Among other things, the EIB still requires dual-use capabilities after the policy change. The definition of at least 50% revenues from civilian use is said to have changed, but it is unclear what the new definition is.
9. Growing industry turnover (pages 2 and 7)
- Who are the customers or end-users of the 62% higher turnover in Dutch industry?
On page 2, it is stated that the turnover of the NL DTIB will have increased by €3bn to €7.7bn by 2023. What percentage of this concerns direct or indirect supplies to Dutch Defence?
10. Focus on 5 technology areas (page 8)
- Isn't the technology area "maritime" missing here, in line with the Maritime Manufacturing Industry agenda MMI ?
- Why focus on "unmanned" systems if this is not in the list of focus technologies?
Especially in the field of drones, commitment to development is a prerequisite to stay ahead of adversaries.
11. Active in the supply chain (page 8)
- What exactly is meant by "cooperation in the supply chain"?
Defence always advocates a major role for Dutch companies as suppliers to foreign OEMs. For example in the replacement of submarines and recently in the informal European Foreign Affairs Council (RBZ).
However, it is questionable whether a focus on the supply chain is effective for Defence and industry. Where OEMs (will) get long-term certainty, that will not apply to suppliers. On the contrary, there will be intensified competition. Furthermore, a component supplier has a very limited role in the end product, whereas Defence itself wants to give direction to innovation.
12. War economy (page 11)
- What is the definition of a "war economy"?
- In what time frame do you expect this situation to occur?
In the common definition, "war economy" is a situation in which almost unlimited monetary financing is available. Companies are nationalised or governance taken over by the government. Commercial interests are sidelined.
13. Abandoning the principle of "the best product for the best price"? (page 11)
- By what principle will this procurement strategy be replaced?
The greater role for strategic autonomy and security of supply mentioned in the letter is somewhat diffuse. A difficult issue with large and complex projects is that not all details can be known at the start and therefore not the criteria, which can be used in a tender. Greater flexibility is therefore necessary.
14. Financing (page 12)
- To what extent does Defence take into account the European and national legal requirements on capital providers, the requirements of the ECB and DNB, and societal pressure on financial institutions?
- How will Defence cooperate with specialists from the sector to create appropriate solutions?
The sentence "....de bottlenecks should not a priori be sought only with capital providers..." nevertheless gives the impression of blaming the financial sector. However, financial parties have limited room for manoeuvre due to laws, regulations, etc. A solution can only be achieved on the basis of dialogue and a joint understanding of the issues.
In seminars of pension fund managers with (then) director DMO VADM Arie-Jan de Waard and a seminar organised at KIVI with ADM Rob Bauer, it became clear that there is a fair degree of willingness to think and invest in Defence. This also requires dialogue and mutual understanding. This was also indicated by all parties during the round table on 12 June.
15. Sectoral Defence Bill (page 13)
- To what extent does this bill place additional uncertainties on companies or, on the contrary, limit them?
Uncertainty about export licences, security of sales for the long(er) term and other requirements greatly hamper the willingness of companies and investors to start their own activities at their own expense and risk. Both for R&D and production. For this action agenda to succeed, reliable certainty at the earliest possible stage is necessary.
16. Raw materials (page 14)
- Are the raw materials and semi-finished products mentioned as examples critical for the Netherlands or for Europe?
Among other things, our working group is not aware of any examples of military missiles being fueled in the Netherlands.
- Why are a national observatory and public-private round tables the most effective solution for identifying and solving potential shortages?
Would it not be wiser to tackle this issue Europe-wide?
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The Hague, 24 June 2024
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Illustration: Roy Harryman via Pixabay
