Defence Procurement Law in Germany: VSVgV, Article 346 TFEU and the BwBBG

The framework for defence procurement in Germany

Defence procurement in Germany sits at the intersection of EU internal market law and national security. The EU's Defence and Security Procurement Directive (Directive 2009/81/EC) created specific rules for sensitive contracts, transposed in Germany through Part 4 of the Act against Restraints of Competition (GWB) and the Procurement Ordinance for Defence and Security (Vergabeverordnung Verteidigung und Sicherheit, VSVgV).

At the same time, Article 346 of the Treaty on the Functioning of the European Union (TFEU) allows Member States to take measures necessary to protect their essential security interests connected with the production of or trade in arms, munitions and war material – including by exempting contracts from procurement law.

Since 2022, the political focus on Bundeswehr readiness has produced a series of acceleration laws. The latest, the Bundeswehr Procurement Acceleration Act (Bundeswehrbeschaffungsbeschleunigungsgesetz, BwBBG) of 10 February 2026, replaced the 2022 act, entered into force on 14 February 2026 and will expire at the end of 31 December 2035 (§ 20 BwBBG). It significantly modifies the general rules for contracts to meet the needs of the Bundeswehr.

This article explains the three layers – the VSVgV regime, the security exemptions and the BwBBG – and what they mean for suppliers and investors in the defence sector.

Defence and security contracts under the VSVgV

Under § 104(1) GWB, defence or security-specific public contracts are contracts whose subject matter includes at least one of the following: the supply of military equipment, including parts and components; the supply of equipment in the context of a classified contract; supplies, works and services directly related to such equipment during its life cycle; or works and services specifically for military purposes or awarded in the context of a classified contract. Military equipment is equipment specifically designed or adapted for military purposes and intended for use as arms, munitions or war material (§ 104(2) GWB).

Such contracts are awarded under the VSVgV when they exceed the relevant thresholds. Key features of the regime include:

• Procedures: supply and service contracts are awarded in the restricted procedure or the negotiated procedure with a call for competition; the negotiated procedure without a call for competition and the competitive dialogue are permitted only in justified exceptional cases (§ 11 VSVgV). The open procedure is not a standard option.
• Security of information: for classified contracts, contracting authorities must specify the measures, requirements and conditions bidders must meet to protect classified information according to its classification level (§ 7 VSVgV), including security clearances.
• Security of supply: authorities can require commitments ensuring supply in crisis situations, including export licences and capacity commitments.
• Subcontracting: authorities can require transparency on subcontracting and, in some cases, competitive subcontracting.

Review of VSVgV procedures follows the general procurement review rules before the procurement chambers, modified by the BwBBG for Bundeswehr contracts.

Security exemptions: Article 346 TFEU and § 107(2) GWB

The most important question in defence procurement is often whether procurement law applies at all. Under § 107(2) GWB, Part 4 of the GWB does not apply to contracts where its application would force the contracting authority to disclose information whose disclosure it considers contrary to Germany's essential security interests within the meaning of Article 346(1)(a) TFEU, or to contracts that fall under Article 346(1)(b) TFEU, i.e. the production of or trade in arms, munitions and war material where measures are necessary to protect essential security interests.

The Court of Justice has consistently held that Article 346 TFEU is an exception to be interpreted strictly, and that a Member State invoking it must show that the derogation is necessary to protect its essential security interests. The BwBBG now guides that assessment for Bundeswehr contracts. Under § 2(1) BwBBG, § 107(2) GWB in conjunction with Article 346 TFEU is to be applied on the basis that:

1. procurement to achieve European defence readiness or that of the North Atlantic Alliance in principle affects Germany's essential security interests;
2. security of supply through the production of weapons, munitions and war material, including the necessary infrastructure and production capacities, is as a rule an essential security interest when located in Germany, and can be one when located elsewhere in the EU or NATO;
3. essential security interests can also be affected where joint procurement affects the security interests of another Member State, the EU or a NATO party; and
4. essential security interests can in particular be affected where the contract concerns key defence technologies in Germany or strengthens technological sovereignty in the security and defence industry.

In addition, the GWB's procurement rules do not apply in the exceptional situations referred to in Article 347 TFEU (§ 2(3) BwBBG). These provisions are national interpretations of EU primary law; whether a particular exemption holds up remains a question of EU law, which the CJEU ultimately decides. Contracting authorities should still document the security reasoning for each exempted contract, and competitors who consider an exemption unjustified can challenge a direct award before the procurement chamber, subject to the extended complaint duty in § 15(2) BwBBG.

The Bundeswehr Procurement Acceleration Act 2026

Beyond the exemptions, the BwBBG modifies the procurement procedure for contracts above the thresholds awarded to meet Bundeswehr needs – by the Federal Ministry of Defence and its agencies, majority federally owned companies, certain state construction administrations, the Federal Office for Building and Regional Planning and the Federal Institute for Real Estate – and for needs of the armed forces of other EU or EEA states where awarded by German contracting authorities (§ 1 BwBBG). Key elements include:

The Act also contains provisions on market availability and readiness for award, contract amendments and extensions of framework agreements, joint European procurement, central purchasing bodies and innovative procurement. Several of its provisions on lots and climate-friendly procurement also apply below the thresholds (§ 1(2) BwBBG).

Defence procurement in practice: suppliers and investors

For suppliers, the acceleration laws mean faster procedures, larger packages and fewer review opportunities. Contracts may be awarded under exemptions without any formal procedure, so access depends on relationships with the procurement agencies and on qualifying for security clearances. When procedures do take place, bidders must respond quickly and should expect negotiations on security of supply, capacity reservations and intellectual property rights in technical data.

Contractual terms in defence contracts follow public law price regulations and standard federal contract terms. Price review under the public procurement price rules can apply where no market price exists, which gives the authority audit rights over the supplier's costs. Suppliers should understand these rules before agreeing cost-based prices.

For investors, defence procurement law intersects with foreign investment control: acquisitions of companies producing or developing military equipment and key defence technologies are subject to sector-specific screening by the Federal Ministry for Economic Affairs and Energy, with low thresholds and mandatory filings. Export control under the War Weapons Control Act and the Foreign Trade and Payments Act adds another layer. Our pages on foreign investment control and export control and sanctions explain these regimes.

Defence procurement contracts: key terms

Winning a defence contract is only the start. Defence procurement contracts typically run for many years, combine development, production and in-service support, and contain terms that differ from ordinary commercial practice. Points that suppliers should prepare for include:

• Rights in technical data and software: the authority often requires broad usage rights to maintain, modify and have equipment maintained by third parties. Suppliers should define background and foreground IP carefully and negotiate field-of-use limitations.
• Security of supply: commitments to maintain capacity, prioritise orders in crises and keep stocks of spare parts, which have become more demanding since 2022.
• Price review: where cost-based prices are agreed, the public procurement price rules allow audits of the supplier's calculation; suppliers need cost accounting that can withstand review.
• Delay and performance: liquidated damages, milestone payments and acceptance procedures, often with extensive testing.
• Export and end-use: obligations relating to export licences and re-export restrictions, particularly in multinational programmes.

Multinational procurement through European or NATO agencies, or joint procurement with other Member States, adds further rules on work share and applicable procedures. The BwBBG expressly addresses joint European procurement and central purchasing bodies, which is relevant for suppliers participating in collaborative programmes. Subcontractors should ensure that flow-down provisions from the prime contract are proportionate to their role, especially regarding liability, security requirements and audit rights.

Security-related procurement outside the Bundeswehr

Not all security procurement is defence procurement. Police, intelligence services, civil protection and critical infrastructure operators also buy sensitive equipment and services. Where contracts are classified within the meaning of § 104(3) GWB, the VSVgV can apply. According to the Federal Government, the general procurement acceleration reform of 2026 also allows combined awards for the needs of security authorities related to civil-military defence, with exceptions possible until 2030. Suppliers to these authorities should check whether the BwBBG, the VSVgV or the general procurement rules apply, because the procedure, thresholds and review rights differ. Our article on the procurement acceleration reform covers the general changes.

How TRW & Co helps with defence procurement

We advise defence and security suppliers, investors and contracting authorities on defence procurement in Germany. We assess whether contracts fall under the VSVgV, the BwBBG or a security exemption, support bidders in negotiated procedures, advise on security of supply and classified information requirements, negotiate contract terms and price review issues, and represent clients before the procurement chambers. We also advise on related foreign investment, export control and sanctions questions. Our work connects with our defence and space sector team and our public procurement practice. Please contact us. This article is general information and not legal advice.