GETTING THROUGH THE DEAL Defence & Security Procurement Defence & Security Procurement Defence Contributing editor Mark J Nackman 2017 2017 © Law Business Research 2017 Defence & Security Procurement 2017 Contributing editor Mark J Nackman Jenner & Block LLP Publisher Law The information provided in this publication is Gideon Roberton general and may not apply in a specific situation. [email protected] Business Legal advice should always be sought before taking Research any legal action based on the information provided. Subscriptions This information is not intended to create, nor does Sophie Pallier Published by receipt of it constitute, a lawyer–client relationship. [email protected] Law Business Research Ltd The publishers and authors accept no responsibility 87 Lancaster Road for any acts or omissions contained herein. The Senior business development managers London, W11 1QQ, UK information provided was verified between Alan Lee Tel: +44 20 3708 4199 January and February 2017. Be advised that this is a [email protected] Fax: +44 20 7229 6910 developing area. Adam Sargent © Law Business Research Ltd 2017 [email protected] No photocopying without a CLA licence. Printed and distributed by First published 2017 Encompass Print Solutions Dan White ISSN 2513-9924 Tel: 0844 2480 112 [email protected] © Law Business Research 2017 CONTENTS Global overview 5 Norway 41 Mark J Nackman Christian Bendiksen and Alexander Mollan Jenner & Block LLP Brækhus Advokatfirma DA Australia 6 Poland 47 Anne Petterd, Geoff Wood and Matthew Dempsey Maciej Zalewski and Maciej Szymański Baker McKenzie White & Case Qatar 54 Germany 11 Arnaud Depierrefeu Wolfram Krohn and Tobias Schneider Simmons & Simmons Middle East LLP Dentons Europe LLP Sweden 59 India 17 Max Florenius Sunil Seth and Vasanth Rajasekaran Advokatfirman Lyxell Florenius KB Seth Dua & Associates Turkey 64 Italy 22 Şafak Herdem Anna Masutti Herdem Attorneys at Law LS LexJus Sinacta – Avvocati e Commercialisti United Kingdom 68 Japan 27 Elizabeth Reid, Simon Phippard, Brian Mulier, Michael Stocks, Lucy England and Victoria Moorcroft Kohei Masuda, Ryuichi Nozaki, Yuri Suzuki and Bird & Bird LLP Yuko Nihonmatsu Atsumi & Sakai United States 74 Matthew L Haws, Mark J Nackman, Grant B Schweikert, Korea 35 Marc A Van Allen and Carla J Weiss Wonil Kim, Sang-Hyun Ahn, Jin Kee Jung and Sung Duk Kim Jenner & Block LLP Yoon & Yang LLC 2 Getting the Deal Through – Defence & Security Procurement 2017 © Law Business Research 2017 PREFACE Preface Defence & Security Procurement 2017 First edition Getting the Deal Through is delighted to publish the first edition of Defence & Security Procurement, which is available in print, as an e-book and online at www.gettingthedealthrough.com. Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com. Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers. Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to Mark J Nackman of Jenner & Block LLP, the contributing editor, for his assistance in devising and editing this volume. London February 2017 www.gettingthedealthrough.com 3 © Law Business Research 2017 Jenner & Block LLP GLOBAL OVERVIEW Global overview Mark J Nackman Jenner & Block LLP Defence and security procurement spending was an estimated country making the procurement and the country providing the defence US$1,676 billion in 2015. The figure was up about 1 per cent from the and security items and services –and, unfortunately, the defence and previous year and was the first increase since 2011, and that was with security sector does not have a shortage of incidents of corruption. modest declines in North American and Western Europe. One need only Other phenomena common in international defence and security scan the headlines to understand why. With tensions rising between procurements are collaborative procurements. Countries with com- NATO and Russia and between the Pacific states and China, asym- mon enemies or defence concerns often collaborate in the procure- metrical terrorist threats continuing to be very active in North Africa ment of major systems, such as the F-35 Joint Strike Fighter, which is and the Middle East as well as Western Europe and North America, new driving significant international cooperation among some of the biggest countries continuing to push to enter the ranks of the nuclear powers, defence and security consumers and defence contractors in the world. and the proliferation of both state-sponsored and ideologically driven These types of procurements bring international politics and diplomacy advanced persistent threats in cyberspace, nations are attempting to directly into the procurement process, and are among the most complex keep pace with these ever-increasing threats. The recent decline in oil deals in the world. Another common practice in the defence and secu- prices has also had a significant impact, simultaneously weakening rity procurement world is for larger countries to provide aid money such economies depending on oil sales while creating further destabilisation as United States Foreign Military Financing to smaller countries, or for in some of the world’s most volatile regions. the more sophisticated defence consumers to assist or even run the pro- The values of some of these defence procurements are also stag- curement process for the smaller country, as seen in the United States gering: US$50 billion for submarines in Australia, US$10 billion for Foreign Military Sales programme. armoured vehicles in Saudi Arabia, US$17.6 billion for additional The procurement systems in each of the countries in this book are United States nuclear attack submarines, US$2.3 billion for attack heli- very different. Conducting due diligence can be difficult and expensive; copters in the United Kingdom and a potential US$25 billion deal for where do you start and who can you trust? As defence budgets shrink or new fighter jets in India. Nor does it appear that this trend will abate in stagnate in one market, a very common practice is to look internation- the near future. In NATO, for example, presently only the United States, ally in an attempt to make up for the lack of domestic growth. However, United Kingdom and Estonia expend at least 2 per cent of their GDP this is problematic from the start because international expansion is on defence, as all 28 NATO members are supposed to be doing by 2024 being pursued as a short-term solution to an immediate problem, and – so spending will only continue to increase. In 2015, the 15 countries not as a long-term strategic objective. Contractors frequently mis- spending the highest totals on defence and security were: Australia, calculate how long international procurements take, the logistics and Brazil, China, France, Germany, India, Israel, Italy, Japan, Russia, Saudi expenses involved and how much advanced work and planning must be Arabia, South Korea, the United Arab Emirates, the United Kingdom done. This frequently causes them to include estimates and projections and the United States, representing US$1,350 billion total or just over in their financial models that fail to adequately account for risk and the 80 per cent of the total global defence and security economy. potential for significant delays that are part of international defence For many nations, defence and security spending is one of the larg- procurements. This can then lead to desperation and poor decisions. est portions of government procurement expenditures. In many coun- Contractors attempting to access these markets should tread carefully. tries the rules for defence and security procurements are different from Defence and security contractors therefore need an initial refer- the rest of the government procurement system, sometimes dramati- ence to understand the basics of what it will take to complete a deal for a cally so. These types of procurements go right to the heart of a nation’s defence and security procurement in various jurisdictions. To this end, ability to defend its people and maintain its sovereignty. In addition, we present the inaugural edition of Getting the Deal Through – Defence these procurements can frequently be controversial, both for the and Security Procurement. www.gettingthedealthrough.com 5 © Law Business Research 2017 AUSTRALIA Baker McKenzie Australia Anne Petterd, Geoff Wood and Matthew Dempsey Baker McKenzie Legal framework also exempt from several free trade agreements. For example, certain Defence procurements are excluded from Chapter 15 of the Australian– 1 What statutes or regulations govern procurement of defence US Free Trade Agreement, the objective of which is to provide non- and security articles? discriminatory access to the procurement framework of each country.