First Day in Court for the EU’s Defence Industrial Policy

Introduction 

On 18 September 2024, the General Court rendered its judgment in Case T-617/22, concerning French aicraft engine maker Safran’s request to annul a decision by which the European Commission rejected its bid to carry out a project under the European Defence Fund (EDF). It is the first time the Court has heard a case relating to the EU’s defence industrial policy. This blogpost examines the judgement and identifies some of its lessons for the ongoing legislative work on the European Defence Industry Programme (EDIP). Whereas this case is hardly remarkable from a legal point of view, I argue below that the fact that EDF cases are finding their way to Luxemburg shows that the EU’s defence industrial policy requires better governance if the EU is to be trusted with a bigger defence budget. 

Background 

Before addressing the Court’s reasoning, it is useful to briefly review how EDF projects are selected. 

Regulation 2021/697 establishing the EDF (EDF Regulation) allots an annual budget of about 1 billion EUR to support research and development carried out by the European defence industry, with the ultimate aim of boosting the defence capabilities of EU Member States. Each year, the European Commission issues a work programme containing calls for proposals for several projects and, following a competitive procedure, selects proposals which are awarded grants from the EDF.  

Because armament policy is a national competence, the EDF Regulation reserves an important role for EU Member States in deciding the work programme and awarding grants. The Commission may only adopt implementing decisions containing the work programme and the winning bids if it obtains the approval of EU Member States. Articles 24(2) and 11(2) of the EDF Regulation require that, in principle, a qualified majority of Member States must approve such decisions. 

In Safran’s case, on 30 June 2021, the Commission issued a work programme containing a call for proposals to develop alternative propulsion and energy systems (PES) for next-generation combat aircraft. Safran submitted a proposal as the lead entity of a consortium. However, the Commission rejected the consortium’s proposal because an expert panel determined that Safran had failed to reach the minimum qualitative threshold. Safran challenged the Commission’s decision. 

Judgment 

Before the General Court, Safran presented two main arguments. First, it challenged the classification of the PES call as a development action, arguing that the Commission should have classified the PES call as a research action. This distinction is important under the EDF Regulation because it impacts the applicable elgibility rules, the funding rate, and restrictions on ownership of results. Safran argued that because the activities to be carried out in the PES project exclusively consisted of “studies” referred to in Article 10(3) of the EDF Regulation, the action was a research action. The Court rejected this argument, noting that the definition of a development action is not limited by specific types of activities listed under Article 10(3) and that the studies at issue to be carried out as part of the development of technological building blocks. In the Court’s view, this broader context justified the classification of the studies envisaged under the PES call as a development action. 

The Court also dismissed Safran’s related arguments that the the correction of an earlier version of the work programme, in which the Commission had listed the PES call as a research action, without individually informing Safran, placed it in an unequal position compared to other bidders. The Court clarified that the principles of transparency and equal treatment under EU procurement law apply also to procedures for awarding grants under the EDF. However, it found that the Commission did not breach these principles, because its misclassification in the earlier version could be qualified a clerical error. The Court also found that the correction, through the publication of an updated version of the work programme, had been made available to all interested operators before the call was opened to applications. Therefore, it did not place Safran in an unequal position compared to other bidders. 

Safran’s second main argument focused on the Commission’s reasons for rejecting its proposal. It argued that the expert summary report (ESR) supporting the rejection decision was insufficiently detailed because the comments justifying the proposal’s score for each of the eight award criteria were not linked to subcriteria listed for each criterion. Applying its procurement case-law, the Court noted that Article 296 TFEU and the principle of transparency required a quantified evaluation for each weighted (sub-)criterion where the procurement documents contain quantified weightings attached to such criteria. Finding that the relevant documents required scores to be given only at the award-criterion level and that the comments justified the relevant scores, the Court rejected Safran’s argument. 

Painfully for the applicant, the Court examined in detail the comments included in the ESR, highlighting the proposal’s severe shortcomings. Adressing Safran’s final claim that the expert panel made manifest errors of assessment, the Court restated it’s established case law that it will review decisions based on complex factual assessments only if that assessment is rendered implausible by the evidence shown by the applicant. Reviewing in detail the expert assessment, the Court found that this threshold was not met. The Court noted that the evaluators assessed the proposal against each award criteria, even where Safran had failed to provide any information at all or the information had been presented in a “disorderly and incomplete manner”.  

Lessons 

On the substance, the General Court’s first judgment conerning the EU’s defence industrial policy presents few surprises. A plain reading of the decision reveals that Safran’s bid was deficient and the Commission acted appropriately by rejecting it. Nonetheless, the ruling holds some lessons for the EU’s urgent and ongoing efforts to reinforce its defence industrial base. 

The first point is that a precedent has been set. The Safran judgment confirms that EU procurement law principles apply to defence industrial funding instruments and thereby offers a roadmap for others willing to challenge award decisions. This is true especially where large amounts are at stake (in the case at hand, the winning consortium received a grant of up to 49 million EUR). On the other hand, applicants should heed the Court’s warning that the Commission enjoys a broad margin of discretion in evaluating proposals, placing a high bar for those seeking the annulment of award decisions. 

The judgement also highlights the importance of clear award criteria. The EU attempts to steer the development of EU defence technology through the award criteria set out in the EDF Regulation, and is emulating this method elsewhere, including the European Defence Industry Programme (EDIP). In this case, the Court was able to refute Safran’s claims of arbitrariness because the experts’ comments could be linked to the distinct (and relatively clear) award criteria found in the EDF Regulation. Those drafting new instruments should take note and strive for simplicity and clarity in award criteria. 

Finally, this case demonstrates that the involvement of EU Member States through the comitology procedure does not guarantee national industries’ acceptance of the process. Given the sensitivity and urgency of the matter, EDF award decisions should be fully backed by all Member States. If this cannot be achieved at the level of expert representatives assembled in the EDF Committee, a higher level of representation should be consulted as part of the process. Improving the coordination between the intergovernmental level, which sets capability priorities with the assistance of the European Defence Agency, and the Commission’s defence industrial policy, will be crucial if Member States are to trust the EU to handle a bigger defence budget under the next Multiannual Financial Framework.