Norwegian Parliament approves long-term defense funding plan

The long-term plan aims to rectify the weaknesses in today's defence and then invest in new capabilities, including five new frigates, six new submarines, and an enhancement of air defense. The consensus means that an additional NOK 611 billion will be spent on the defence of Norway over the next 12 years.

In addition, the following decisions were made:

• Two long-range air defence systems will be acquired to protect the central eastern region, including the Oslo capital area, against ballistic missiles.
• The number of conscripts drafted for mandatory service and the number of employees and reservists will be increased.
• The Army will be developed into three brigades, from the current single brigade, and the Home Guard will be increased with more forces.
• The Army is also being strengthened with long-range precision fire, additional combat vehicles, air defence, and helicopters for the Army and the special forces.
• The Navy will receive a minimum of five new frigates equipped with anti-submarine helicopters, new submarines, and a standardized vessel class with up to ten large and eighteen smaller vessels.
• A new arrangement for annual reporting to the Parliament on the status, progress, challenges, and risks associated with the implementation of the long-term plan for the defence sector is being introduced. The reporting will take place in an annual parliamentary report that is presented and processed during the spring session.

Guidelines

For potential suppliers to the Norwegian Armed Forces, it will be of paramount importance to understand how these investments and acquisitions take place:

1. The Ministry of Defence ("MoD") annually issues the "Future Procurements for the Defence Sector" ("FAF") report, detailing upcoming but not yet approved defence procurements. The latest FAS spans 2023 – 2030. (https://www.regjeringen.no/no/dokumenter/faf/id2909662/) The defence agencies, such as the Armed Forces, propose project ideas to the MoD. If accepted, the project advance through several faces – from the concept phase to a concept selection study, before a central steering document is prepared for final approval. The Parliament must approve major projects over NOK 500 million, while the MoD approves smaller ones. Construction projects over NOK 200 million and digitalization projects over NOK 300 million also require parliamentary approval.
2. The major investments and acquisitions described above will be carried out by the Norwegian Defence Materiel Agency ("NDMA") while the Norwegian Defence Logistics Organization ("NDLO") will be responsible for agreements for maintenance and consumable materials, such as ammunition.
3. All military procurements shall whether instigated by NDMA or NDLO, in principle, be in compliance with the Norwegian Act on Public Procurement (2016) (“PPA”) and the Norwegian Regulation on Public Procurement (2016) (“PPR”) or the Regulation on Procurement in the fields of Defence and Security (“DSPR”) – implementing the EU directives 2014/24/EU and 2009/81/EC.
4. Procurements of defence- and security materials shall follow the rules in the DSPR. If the procurement exceeds the EEA threshold value, the rules for procurement are harmonised within the EU/EEA, with some rules being specific to Norway. In most cases, large material acquisitions will have a contract value that exceeds the EEA threshold value.
5. However, some defence- and security procurements will be exempted from the public procurement legislation pursuant to the exception on military equipment in article 123 in the EEA agreement. Such procurements will not have to follow the procedures in the procurement regulations. In practice, the Norwegian Defence apply the exception rule to a large extent. On this basis, the Ministry of Defence has developed an internal set of rules – military procurement rules (“ARF”) which provide rules on how military procurements shall be executed – with various rules for procurements that are subject to the procurement regulations, and procurements that are exempt from the procurement regulations pursuant to the EEA agreement. ARF is only meant as an internal instruction for the contracting authorities within the Norwegian defence sector, and does not grant any rights to suppliers.
6. ARF part 5 describes the requirements for the procurement process where the procurement is exempted pursuant to article 123 in the EEA Agreement. A main rule for all procurements is that they should be subject to competition. However, pursuant to ARF section 34-1, the defence sector shall use the procurement procedure that will provide the most advantageous acquisition for the defence sector. There is no requirement for public announcement. The choice of procurement procedure can, for example, be a competition with or without negotiation, and with or without prequalification. When the procurement authority chooses to announce a procurement that falls under the EEA Agreement Article 123, it must be justified in the procurement protocol why the procurement cannot be carried out in accordance with the PPR or the DSPR, and it must be made absolutely clear to the supplier, for example in the competition basis or other tender documents, that the procurement does not follow the PPR or DSPR.
7. Despite the fact that the ARF stipulates competition even for procurements exempt from the procurement regulations, our experience is that this is carried out only to a certain extent. When competitions are conducted by NDMA, following the ARF and exemption under article 123, we have seen examples of procurements where the winner of the competition was not awarded the contract, as the Government's overall foreign policy prevailed when determining the choice of supplier.[1] NDMA generally has a wide discretion in the design and execution of such competitions. This is something to be aware of when considering whether to submit a bid in such competitions.
8. As a general rule, the MoD is required to enter into industrial cooperation agreements (offset agreements) for all procurements from foreign suppliers of equipment, as well as goods and services related to the equipment and its lifespan. These provisions also apply when the supplier is registered in Norway but significant parts of the delivery are produced abroad. A foreign supplier that has entered into an offset agreement commits to carrying out projects with Norwegian industry (R&D environments or the Norwegian Armed Forces) to contribute to Norwegian value creation equivalent to up to 100% of the contract sum. The offset agreement is negotiated concurrently with the contract negotiations by the procurement authority. A contract with the supplier is not signed until the offset agreement has been negotiated and signed with the relevant foreign supplier.
   
   However, offset agreements are not entered into if the procurement is carried out according to PPR or DSPR, and the supplier (along with its main subcontractors) is domiciled in the EEA. As a general rule, offset agreements are also not entered into for contracts with a contract sum below NOK 50 million.

Thommessen has a long and extensive experience with assisting foreign and Norwegian suppliers to the defence sector. If you need further information or require assistance, please do not hesitate to contact any of us.