Challenges of defence procurement

Defence procurement deals with products that are highly differentiated and its regulation is extremely complex. The 'defence organisation' and 'industry' are the two principal parties involved in procurement transactions. Domestic sourcing of defence materiel has long been encouraged in most countries in the name of 'self-reliance'. Thus, defence planners must determine not only their materiel requirements but also defence-related manufacturing and service capabilities needed in-country. But how much 'self-reliance' is feasible and desirable, especially in smaller countries? This paper provides an overview of issues and policy tools in defence procurement that reflect the experience of a number of small and medium size countries. Issues addressed include: changing user requirements, make-or-buy decisions, contracting, source selection, organisational structure, and international collaboration. These issues are reviewed against the background of global trends in defence spending, industry and trade.