The Politics and DV Engineering working group analyses current political developments in the defence sector. It provides independent facts and interpretation from engineers' technological knowledge and experience.
The Politics and DV Engineering working group has the following comments and questions on the Defence Industry Strategy (DIS 2018) of 14 November 2018, in which the Minister of Defence sets out her policy for cooperation with Dutch defence-related industry. The comments were prepared based on publicly available information and defence technology knowledge and experience. The comments and questions refer to the DIS2018 and concern technological or related aspects only.
Page 3 - Engagement level Smart Developer and co-develop
In the knowledge areas highlighted in red, the desired capabilities are not available in the market. That is where Defence will direct its own development for its own needs, the memo states.
So the starting point is that this technology does not yet exist. With a few exceptions, this means that the technology developed at the behest of Defence is (or may be) of interest to other sectors of the economy.
This can be promoted by encouraging companies to do so. If this is done effectively, the development also becomes economically interesting and can be financed in whole or in part by private capital. Defence then only has to give direction to the development and not finance it in whole or in part.
Page 4 - Desired industrial capabilities.
The Netherlands' ambition to design and produce certain military capabilities itself is stated on this page. However, when implementing this policy intention, invoking Article 346 TFEU on the basis of these arguments does not seem legally permissible. Even then, procurement rules determine who may design and supply the product.
Page 5 - Careful procurement
Defence works intensively with the knowledge sector in its various knowledge and innovation (K&I) departments, challenging it to generate and develop new ideas. A recurring complaint from our network is that a company or organisation that has developed such an idea - often at its own expense - together with Defence, is subsequently excluded from the tender due to insider information or (potential) conflicts of interest. This applies to both large companies and SMEs and results in experienced companies becoming increasingly cautious about sharing their ideas with Defence.
Page 15 - COTS/MOTS policy
The working group highly welcomes the abandonment of the COTS/MOTS policy in parts. Particularly also the argumentation used in this regard. However, the argumentation used of "national involvement" is possibly in conflict with procurement regulations.
It is unclear in which areas exactly this will be abandoned and what consequences this will have for the DMO, knowledge institutes and industry
Page 18 - Pragmatic considerations
At the bottom of this paragraph, reference is made to the Dutch size, which means that the impact of the policy will be different in some technology areas than in others. No reference is made to the difference in industrial approaches in the economy. Ships worldwide are mostly prototypes or very small series, where the customer always directs the construction of each one. Aircraft, on the other hand, are highly standardised and built in large series. This also affects the outcome in the different domains.
In addition to the "Dutch size", the minister should also consider the technological and economic differences in approach between the domains.
Page 19/20 Platforms and systems integration
The working group stresses the importance of the presence of systems integrators in Dutch industry in general and thus also in the Dutch defence industry. The importance for Defence is that through orders to such a system integrator, Defence can have weapon systems tailored to Dutch needs. When exporting systems developed, and possibly further developed, in the Netherlands, the Netherlands acquires influence with the foreign countries concerned. From an industrial/economic point of view, the importance of a system integrator lies in the network of suppliers such a company gathers around itself. In it, knowledge and capacity is developed that then benefits the Dutch economy as a whole. This concerns not only products, but also (development) methods and processes. The Netherlands still has few such companies and should be sparing with those that remain. It is recommended to assign strategic value to this system development capacity.
Page 22. Training and education
The coalition agreement states that training and education will be pursued more in a European context. In contrast, this paragraph indicates that it is precisely this policy that the minister wants to anchor nationally.
It is precisely joint basic and continuing training that promotes European integration in the longer term. Moreover, simulation systems are becoming increasingly realistic, complex and also expensive, so European cooperation can bring significant cost savings.
Page 26 - Startups
Startups are small new companies, often with bright and new ideas and grand plans, most of which fail. That is the tragedy of this market segment. Defence can make a positive contribution to potential success, but even then a startup is a small company, which can almost never be expected to deliver large numbers of solid products and comply with defence regulations such as ABDO in the foreseeable future. The eco-system so characteristic of startups in the pharmaceutical and automotive sectors is lacking in the Dutch defence sector.
Collaboration with startups is not necessarily out of the question for a large organisation like Defence, but it does require tailor-made risk hedging on a case-by-case basis. Both for the company and for Defence.
Focus of policy on startups therefore inevitably leads to failure if scale-up opportunities, external private funding, launching customer guarantees and potential takeover by an OEM are not embedded in the ecosystem. Fieldlabs and industry associations are of minor importance here.
Page 27 - The golden triangle
The golden triangle focuses heavily on the existing network of knowledge institutes and NIDV member companies, which develop and build capabilities on behalf of Defence. It is a closed triangle, where entry is difficult. The golden triangle does not usually look at other sectors of the economy, where a particular technology is already in use. However, for new technology areas, it is very important to join the sectors, where this technology is already known and in use. Cyber and new energy systems are examples, but not the only areas where this is important. The golden triangle should also open the shutters.
Page 28 - Procurement law
A new procurement law came into force in 2016, which includes the innovation partnership important for launchingcustomership. As far as we know, Defence has never applied this innovation partnership. This is disappointing, as the innovation partnership is meant to solve complex problems requiring new technology or products in close cooperation with industry. This is very much in line with Defence's ambition for innovation.
Page 28 - Procurement and price control
The thresholds above which procurement rules must be applied are €144,000 for central government in 2019 according to Directive 2009/81/EC and as much as €443,000 excluding VAT for Defence. However, Defence (DMO) applies a limit of €50,000, including VAT, as far as is known.
Objection to procurement above the threshold amount is a lengthy procurement procedure of six months or more. Especially now that the armed forces need to be put in order, this limitation therefore seems to be prohibitive. Instead of competitive tendering, Defence as a client can choose other forms of price control to obtain a good product for a reasonable price.
Specifically for non-regularly available equipment, innovation and development contracts, the working group seems wise to use the figures of the EU directive.
Page 31 - Further development of industrial participation policy
When it comes to cooperation on an industrial level between Dutch and foreign companies, a good Dutch technological knowledge base is a necessary condition for a strong negotiating position with other member states. Here, it is essential to strive to develop knowledge that is complementary to that of the potential partner(s). This is in keeping with a commitment to European cooperation and interdependence. It should be noted that such an aim differs from current practice, where industrial participation projects often involve knowledge transfer. This eventually leads to fragmentation and duplication of knowledge and industrial capacities in Europe.
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The Hague, 9 January 2019
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Disclaimer: The facts and opinions given are based on open sources and on the knowledge and experience of working group members.
As part of the professional association KIVI, the working group is independent of political parties, governments and companies.
This is not an official position of KIVI. The association accepts no liability for anything put forward by the working group or its members.
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