Reforming European defence procurement to boost military innovation and startups

The war in Ukraine has demonstrated how battlefields are evolving rapidly, with new technologies shaping military strategy and tactics. Increasingly, these new technologies are being provided by startup firms, rather than by established contractors. To incorporate these new firms into the defence ecosystem, European procurement practices need to be adapted. Global conflicts, including the United States/Israel war against Iran, further highlight the importance of strengthening Europe's defence industrial capacity. We show that defence procurement in selected European countries is primarily directed at the top-ten companies, with typically less than 30 percent of total order volume going to other firms. This contrasts with the United States, where the top-ten companies take up a substantially smaller share of the market. Israel and Ukraine also have robust policies in place to ensure the inclusion of young, innovative firms in military procurement. European defence ministries must show greater willingness to enter into contractual arrangements with new players, as only contracts can lead to the necessary growth and scaling up of new technologies and the competition that is needed to reduce prices for defence products. Four steps should be taken: Innovative firms need to be brought into the early phases of the defence acquisition process. The US Defense Innovation Unit and Germany's defence innovation centre are examples of how to facilitate the interaction between procurement offices and new firms. Multiple companies should be involved in the development of innovative weapons technologies. While this means upfront development costs would be higher, competition in the deployment phase will reduce costs and increase technological leadership. Requiring the inclusion of several companies of different sizes in framework contracts builds in competition and allows small players to grow. Procurement decentralisation for small-scale and fast-developing technologies and public seed funding have been effective tools for accelerating technological innovation and giving fast access to new technology to commanding officers, who must otherwise wait for slow bureaucratic processes to play out.