In late October, the French Ministry of Defence (MoD) held a convention in the PACA region in the South of France, related to the Defence SME Pact. The meeting was reported to have attracted over 80 companies in the region. The defence SME pact has increasingly become an important strategy for France and has also started receiving international coverage. Most notably, in January 2014, Dassault Aviation signed onto the SME pact by saying that it reflected the company’s support to
SMEs, which cater to the defence industry.
The convention in Toulon was aimed at giving SMEs a better understanding of the MoD’s procurement procedures and payment systems that support the Defence SME Pact. During the meeting, it was highlighted that the purchases for 2014 were mostly linked to operational maintenance for naval, land, and aerospace sectors through the major contracts from OEMs such as Airbus Helicopters, CNIM, CNN, Dassault Aviation DCNS, Thales, etc.
The PACA region has hogged the limelight of the Defence SME Pact owing to the importance of maintenance contracts for the sectors. The PACA region is the 3rd biggest arms and aerospace manufacturing area in France, after Ile-de-France (Paris area) and Rhône-Alpes (Lyon area). Over 200 SME companies have subcontracting assignments for the defence industry in the area, and the MoD wants to further develop these partnerships. A good example is the shipbuilder DCNS, the Var department’s biggest employer (3300 employees). Two thirds of their revenue goes to over 60 subcontracting partnerships with local SMEs and the MoD would like to see that proportion increase and spread to all the industry’s blue chips (Thales, Safran etc).
What is the SME Pact?
In 2013, the French government implemented the Defence SME
Pact with the intention of offsetting the effects of frozen or reduced military spending budgets on employment. There are two main feature of the SME pact: the PLR (Plan Local de Redynamisation) which focuses on job-creation and technology investments in a region; and the
CRSD (Contrat de Redynamisation de Site de Défense) which focuses on converting existing or recently closed military installations into economically viable industrial zones.
The government also set up two funding channels to allocate resources required to enforce the SME pact: the FRED and the FNADT. The FRED (Fonds Restructuration pour la Défense) is dedicated to military spending/upgrading; and the FNADT (Fonds National d’Aménagement et de Développement du Territoire) is orientated towards infrastructure development and facilities upgrades. Usually, the amounts allocated by FRED + FNADT in PLR and CRSD contracts never surpass 50% of the total contract budget (PLR or CRSD). The average since 2008 has been roughly 22% and the remaining 78% is covered by the General and Regional councils. The need for a Defence SME Pact Austerity measures were put in place in France after the economic crisis of 2008 and the following Eurozone crisis. In 2008, the French government decided on a series of budget freezes and reductions. The defence sector was relatively spared from cuts, but its credits were frozen in most industries, with a slight reduction in the army (especially the number of army infantry regiments) and a slight increase in the air force. Many bases, both army and air force, were shut down to reduce maintenance and operational costs. Seven bases were shut down in 2009, nine in 2010, and over 30 were planned to shut as of 2010. As these bases are mostly located in rural areas, the economic impact was to be huge, especially in those regions where almost the whole local economy was dependant on military personnel spending and/or agriculture. For those areas (mostly in central France such as Auvergne and Burgundy), the economic future seemed uncertain at best.
The MoD is France’s biggest public purchaser of goods & services and over 90% of its 190,000 annual contracts are awarded to SMEs. France de