Following a year-long and at times politically turbulent ratification procedure, Finland officially became the long-awaited 31st member of the North Atlantic Treaty Organization (NATO) on 4 April 2023. Whereas the accession’s main thrust lies in the increased security credentials for Finland’s sovereignty, joining NATO as a full-blown member state also brings with it novel and potentially quite lucrative business opportunities for Finnish companies in relation to procurements undertaken by various organisations and agencies within NATO.
What can make things complicated for potential bidders, however, is that NATO does not have a central procurement authority nor a single set of procurement rules applicable across all NATO procurements. Instead, NATO procurements are usually undertaken more or less separately by the various agencies and bodies within the organisation, following a myriad of procurement regulations and procedures existing outside the more familiar legal space of the EU procurement rules.
Nevertheless, certain NATO agencies and regulations stand out as particularly relevant for Finnish companies interested in getting involved with NATO procurements. To that end, this legal alert will provide you with a brief outline of some of the key aspects of the NATO procurement landscape, while Borenius’ experienced procurement lawyers stand by to assist you in navigating the regulatory and procedural details of any and all NATO procurement opportunities that your company may find interesting in terms of your business.
Key agencies in NATO procurements
To be clear, NATO procurements are usually not geared for defence materiel in the strict sense, such as military-purpose vessels, aircraft, tanks, weapon systems or soldiers’ personal gear, since by default, the NATO member states are responsible for procuring their national defence materiel under applicable national or EU procurement legislation, and subsequently committing to the utilisation of their national defence resources to the collective protection of their NATO allies.
For other than strictly defence materiel procurements, two of the most important NATO agencies to look for business opportunities are the NATO Support and Procurement Agency (NSPA) and the NATO Communications and Information Agency (NCIA), both of which regularly invite bids in multimillion procurements under the rubric of Future Business Opportunities (FBO).
The NSPA, headquartered in Luxembourg, is responsible for providing logistics, maintenance and operational support services for NATO operations, including organising common procurements, and consequently amounts to the closest thing that NATO currently has for a common procurement authority. The NSPA has been involved in the procurement of a wide variety of materials and services, such as spare parts and components for military and civilian vehicles, consulting services for fuel planning and management information systems, repair and maintenance services as well as commercial off-the-shelf products.
The NCIA, headquartered in Brussels, houses NATO’s technology and cyber experts and is responsible for providing so-called C4ISR services (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance services) for NATO. Procurements undertaken by NCIA vary from readily available ITC products to major complex systems with advanced and innovative technological solutions.
Key procurement procedures in NATO procurements
The NSPA’s standard procurement procedure is an International Competitive Bidding (ICB) procedure, whereby the most economical prices for materiel and services meeting the technical and contractual requirements stipulated in the Request for Proposals (RFP) is chosen. In the context of ICB, the “most economical” does not necessarily mean the lowest-priced and technically compliant bid, instead being determined on the basis of a weighted combination of the price and other relevant factors. The NSPA’s ICB procurements are normally limited to companies located within NATO member states, but in exceptional cases, the procurements may be sourced outside NATO member states when, for instance, the only known available source of materiel or service is located in a particular state without a NATO membership.
The NSPA may alternatively opt for a Competitive Dialogue procedure in procurements involving particularly complex acquisition contracts for new major systems, where the NSPA is not objectively able to define the technical means of satisfying its needs or of assessing what the market can offer in the way of technical solutions. With this procedure, the NSPA normally invites all qualified companies registered in its source file to express their interest in participating. The NSPA then conducts a dialogue with those candidates selected to take part in the procedure on the basis of their initial submissions in response to the NSPA’s description of general requirements, with the aim of developing one or more suitable alternatives that are capable of meeting its requirements.
The NSPA may also, albeit only in special circumstances, opt for a Non-Competitive Procurement procedure. The circumstances where ICB is not strictly followed include (i) “Sole Source” situations, where there is only one source that is capable of providing the materiel or service required; (ii) “Single Source” situations, where e.g. security requirements prohibit or limit the distribution of the RFP; and (iii) “Commonality of Equipment” situations, where for the reasons of training and maintenance the equipment to be procured must be from the same manufacturer as the equipment already in inventory.
A novel feature in NSPA procurements is the so-called Balancing of Production principle, whereby the NSPA will balance the distribution of production among the NATO member nations based on their industrial return position calculated via a special ratio. It follows that while the most economical and technically compliant bid will usually be chosen, the member states’ position in terms of industrial return will also be taken into consideration when making the financial comparison of offers.
In line with NSPA procurements, the NCIA standard procurement procedure is the International Competitive Bidding (ICB) procedure. NCIA procurements following the ICB procedure are formally announced via Notifications of Intent (NOI) posted on the NCIA’s business opportunities page. However, company eligibility for receiving Invitations for Bid (IFB) requires prior proceedings with national NATO delegations, which have the power to nominate a given company for inclusion in the NCIA’s Bidders List.
The NCIA may alternatively opt for a Basic Ordering Agreement (BOA)procedure for the procurement of commercial-off-the-shelf items. Participation is limited to eligible companies holding an active BOA with the NCIA. However, a more inclusive variety of the procedure also exists, the so-called BOA+, which seeks to maximise the participation of interested companies by forming the Bidders List from current BOA holder companies as well as non-BOA holder companies nominated by the NATO delegations via the so-called Declaration of Eligibility (DoE). In case of smaller procurements (falling under EUR 160,000), the NCIA will normally follow Simplified Procurement procedures wherein qualified companies, which are previously known to the NCIA, are directly solicited.
Key dispute procedures in NATO procurements
Essentially, NATO is an international organisation that, according to the Ottawa Convention (1951) and the Paris Protocol (1952), enjoys immunities and privileges. This entails that by default NATO is not within the jurisdiction of any state, which means in practice that the legal recourse for disputes relating to NATO’s procurement processes may not be brought successfully to any national court. Instead, disputes in procurement processes are handled internally by an applicable NATO agency.
For instance, according to the NSPA’s Procurement Operating Instructions, certain disputes relating to procurement are first subject to an amicable negotiation period, after which, if the dispute is still unresolved, the matter will be submitted to the Board of Arbitrators, which consists of the NSPA’s Competition Advocate and other staff members. The decision of the Board is final, binding and there is no possibility of appeal.
However, the situation will change when the actual agreement has been signed between the relevant NATO agency and the bidder, as the agreement itself may specify a dispute resolution mechanism for disputes relating to the agreement, such as arbitration. For instance, the NSPA’s General Provisions for Fixed-Price Contracts (Materiel) (2021) provides arbitration as the dispute resolution mechanism that will issue the final and unappealable award.
While NATO has a lot to offer to Finland, we also believe that Finnish companies can return the favour. We are happy to assist your company in taking your expertise to the benefit of the transatlantic alliance.
If you have any questions about NATO procurements or other related topics, please contact the undersigned or your regular Borenius contact.