Germany: Market Opportunities for Automotive Suppliers in the Defence Industry

The prospect of significant investment in the procurement of military equipment and technology creates an opportunity for automotive suppliers to enter the defence industry. Companies should involve legal experts at an early stage when considering entry into the defence industry.

This opportunity arises in particular in light of the fact that the politically intended increase in defence capabilities in Europe is expected to be achieved within a short time frame and requires a massive expansion of industrial capacities. Companies from the automotive supply industry can leverage their existing expertise and resources to tap into new business areas that offer stable growth.

Below are examples of three legally relevant aspects to consider when evaluating strategic options:

1.    Formal Procurement Process

In the defence industry, every project begins with a formal procurement process, either in accordance with European procurement law or national budgetary law. 

The special features of this process and the authorities' procurement practices often continue to impact the relevant supply chain. Under procurement, civil, and pricing law, it can be advisable for Tier 2 suppliers to agree with the actual main contractor on a form of early involvement in the procurement process. This allows them to influence, at least indirectly, both the subject matter of the procurement and the legal framework.

2.    Quality Management & Certification

In terms of quality management, companies are generally required to obtain certification in accordance with EN 9100. This standard is based on the quality management system requirements of EN/ISO 9001 and includes additional requirements for the aviation, aerospace, and defence industries. 

Additionally, there may be further quality management requirements from NATO's Allied Quality Assurance Publications (AQAP). These requirements must also typically be passed on to the company's suppliers.

3.    Business Case & Contractual Protections

Even in series production, quantities in the defence industry are generally significantly lower than in the automotive sector. Suppliers must consider this when analysing and designing their business cases and establish suitable contractual protections, unless procurement law stipulates the contractual conditions.

We have extensive experience in the defence sector, from assisting with procurement processes to representing clients in subsequent contract disputes before arbitration tribunals. If you are considering expanding your business activities into this sector, we stand ready to support you with our legal expertise.