Efficient materiel procurements in the Norwegian Armed Forces – is the share of off-the-shelf procurements increasing?

In 2019, the Norwegian Defence Materiel Agency (NDMA) delivered materiel to the Armed Forces to a value of NOK 13.4 billion. Annual materiel investment payments are planned to increase in the time period 2014–2024, with expected payments in the magnitude of NOK 15–20 billion per year. Hence, materiel investments constitute a considerable share of the defence budget, and it is important to ensure that resources are used efficiently. Investment projects can procure materiel that is available in the market, modify existing materiel to meet the demands and requirements of the Armed Forces, or develop new products. The National defence industrial strategy points out that off-the-shelf procurements should be pursued where this is the most cost-effective option. At the same time, existing products and technologies may not always satisfy the demands and requirements of the Armed Forces. In addition, there are areas in which it is important to maintain national control of competency, technology and industry for instance to ensure political freedom of action and national sovereignty. The Norwegian Ministry of Defence has defined an ambition to increase the share of off-the-shelf procurements in both the current and the previous long-term plan, and the Norwegian Defence Research Establishment (FFI) has previously identified a potential for economic savings by doing so. In light of the ambition to increase the off-the-shelf share, this report seeks to investigate the procurement form of projects in the investment plan from 2019. We study how the shares in 2019 compares to the shares in the investment plan from 2015, to evaluate in which direction the investment portfolio is heading. On an aggregate level the share of off-the-shelf projects, measured in terms of number of projects, is slightly lower in 2019 than in 2015. Furthermore, it has been a reduction in the share of modified off-the-shelf projects. This may indicate that it has become more difficult to modify existing products and technology to meet the demands and requirements of the Armed Forces, so that development of new materiel may be necessary. It may also indicate that there are more products available in the market that satisfy the demands and requirements. We find an increase in the share of development projects from 2015 to 2019. This is the case for projects within all domains and both small and large projects. However, the increase is primarily among projects with status planned or possible project, rather than among approved projects currently in the procurement phase. Since the increase is caused by “planned development”, the procurement form in these projects may change before entering into contracts. Furthermore, there is room for changing the investment portfolio towards a larger off-the-shelf share by making changes in projects where contracts have not yet been signed. We identify some important areas for further studies. First, we point out how the method for classifying projects may be developed further, including to agree upon common definitions. Second, it may be relevant to study in greater detail the possibilities for procuring off-the-shelf products in projects from different domains. Finally, we recommend repeating this analysis in 2– 4 years to evaluate the trends in a longer time perspective.