Advanced Contractual Designs For Resilient Und Cost Effective Armament Procurement From View Of EU and European Armed Forces Presented by: Dr. Gimmler Date: 12 June 2024 Introduction - General definition of resilient solutions: • There are two specifications:  The current view: all known relevant risks are considered in the sourcing contract. o Resilience, i.e. assertiveness against all known relevant risks  The future view: unknown risk capacities o Ability to adapt to unknown risks, e. g. in this respect resilience = "unknown future adaptiveness" - Working definition of "contractual resilience" in armaments and logistics procurement • Ability of contractual systems to ensure the unconditional availability of military equipment on the one hand, and on the other hand to achieve the necessary modifications and adaptations of the military equipment in future. • Disclaimer: Procurement law • Not dealt with here: Procurement law, but must always be examined during introduction and application. - The possible contractual types sourcing armor • Two possible contractual sourcing types, which do not strongly differ: • The purchase contract/sales agreement • Leasing or comparable contract, e.g. installment purchase contract • Of course, actually purchase contracts are not thinkable without simultaneously concluded spare parts supply - and (EVTL.) service contract to be concluded for the "eternity". • - Ammunition? Of course: amour sourcing is to be viewed as a holistic system Eternal truths as principles of optimized amour sourcing • All amour is becoming obsolete. • Law of obsolescence. • Both contract of types must show solutions for that. • Basis:  A contract life cycle analysis. o Tiger tank o T-55 in Ukraine - Life cycle armor analysis – the facts: • Surprisingly, the service life of many battle systems equipment is extremely long today, examples:  Fighter aircraft 30 to 50 years  B-52 of the USA:72 years! (that means countless upgrades)  German MG 42: 82 years! (only four upgrades)  Leopard 2 main battle tank: 45 years!  Armored personnel carrier "Marder": 50 years! - Constantly decreasing of combat value (that means: remedy against obsolescence is constantly upgrading!) - Contractual consequence: An "eternal" adaptive contract for decades! - Exception to life cycle analysis: disruptive developments • = complete devaluation of previous armaments through new technical developments • Examples: • Obsolescence of the steel armor tank due to shaped-charge projectiles (Panzerfaust/Bazooka) • 1863: with the first steel warship (Monitor, CSA) the wooden ship naves marines became obsolete at a stroke - • Obsolescence of propeller-driven combat aircraft due to jet propulsion in 1944 • Consequence: Contractual exit must be possible. Universal core objectives (and thus core risks) of military procurement and so core objectives, to become content of the sourcing contacts: • 1. a) Reliable availability of military equipment (core objective) = current resilience • 1. b) At the desired quality level ("PBS") • 2. sustainable future supply / armament = future resilience • 3. Reasonable costs = good quality at the best price Reliable Availability Of Armour - Current resilience: • Special features for supply and service for military equipment:  The service must be available at all times and under all circumstances.  The armor must be absolutely guaranteed. • Dual system of risk management to secure the availability  Contractual law system (civil law)  Public law (not dealt here) o For Example in German "Bundesleistungsgesetz"= federal defense service law - Selected contractual "design tools" = special clauses for reliable availability • Comprehensive and emergency running or emergency service • Performance-related provisions, in particular exclusion of war, terror as not leading to release from liability (exclusion of special regulations force majeure provisions) • Exclusion of liens and rights of retention, in particular on the service (advance performance obligation of the service provider) • Enforcement techniques • Exclusion of extraordinary rights of termination • Call-off-system for execution-contracts • Experience has shown that a principle of success for the enforcement of farreaching legal restrictions is the idea of financial advantage - the "golden handshake". • - “Accept it and take the money.” Future fitness means that the contract must also enable solutions for the "fog of the future" (Clausewitz). - - 2 Characteristics: • Known situations, but not yet taken into contract account • Unknown, newly emerging situations Examples: • The danger of drones for tanks has been known since ca. 2020 at the latest (Armenia/Azerbaijan), but only became virulent with the war in Ukraine. • "Back to the future:" • In 2027, a new hyper-velocity ammunition is invented that requires adjustments to the armor, or...? - Contractual solutions - Unsuitability of the classic "change request" - A contractual agreement actually means: • - "Anyone can say no". The solution: • Unilateral contractual adjustment rights, in Germany very extensively codified by § 262 BGB and §§ 315 ff. BGB (German Civil Code). • Here too: "The golden handshake" as well as the contractual appropriateness and specific contractual adequacy of the changes, i.e. the change must fall within the typical and reasonable scope of duties of such a contract. - Selected contractual "design tools" = special clauses for adaptivity • For long term spare part, supply and service contracts: "Eternal term". Necessary basic clauses:  For leasing or installment purchase Procurement: o Extensive exclusion of termination rights in the case of longterm supply or even just spare parts supply contracts, there is also the possibility of largely excluding or restricting the lessor's rights in this respect. o M&A and insolvency - protection clauses Cost-Effective Armament Procurement - Cost-effectiveness is also a mandatory requirement under budgetary and public procurement law. - Contractual supplementary options for optimizing remuneration - Linking best practice and best market with expense reimbursement • Breakdown of the fee rates into individual components (e.g. group allocation, actual profit mark-up) • GMP introduction • Combination with budget cap and savings incentive systems (gain sharing)