Leasing in defence procurement

From 23 April 2022, or from the date of entry into force of the Homeland Defence Act, it became possible to acquire military equipment for the Armed Forces in the form of leasing. This solution, at least in theory, may contribute to making the forms of acquisition of military equipment by the army more flexible.

The possibility of leasing military equipment has long been postulated by the Ministry of National Defence, which looked with a certain amount of envy at similar solutions existing in other countries, including our southern neighbours. Until now, Polish law did not provide for such a possibility. This has changed with the entry into force of the Homeland Defence Act. The issue of leasing military equipment occupies only two articles (Articles 51 and 52) and was treated quite vaguely, but it allows us to get an idea of what the mechanism will look like.

Above all, the Act allowed companies of industrial defence potential, the Industrial Development Agency, the Polish Development Fund, executive agencies and other state legal entities to acquire military equipment. The purpose of such acquisition is leasing to the Armed Forces. Thus, these entities will act as a lessor within the meaning of the Civil Code. Therefore, the possibility of direct leasing has been excluded.

In this case, the remuneration in the form of leasing instalments will be covered either from the state budget or from the Armed Forces Support Fund established at Bank Gospodarstwa Krajowego. In the first case, the acquisition of equipment, the amount and dates of repayment of leasing instalments will be approved by the Minister of National Defence.

Scheme of operation

Importantly, the acquisition of military equipment on the basis of an international agreement (G2G), i.e. for example the acquisition of weapon systems under the American FMS (Foreign Military Sales) program, may also take the form of leasing.

An interesting, but logical and desirable solution is the legal fiction adopted in the Act, according to which it is assumed that military equipment obtained in the form of leasing is the property of the Armed Forces. This is intended to facilitate (enable) all procedures and proceedings to ensure the proper operation of the equipment, e.g. registration of vehicles and aircrafts, permission to move on public roads (in airspace), organization of maintenance work, etc.

The Act enables public entities specified in the Public Procurement Law to take up shares in companies of industrial defence potential and to make payments and donations (including treasury securities and bonds of the State Treasury) to executive agencies and other legal entities acquiring military equipment in order to lease it to the Armed Forces.

Interestingly, the Homeland Defence Act does not specify a maximum duration of leasing. Thus, the parties to the leasing agreement will have a lot of freedom in specifying it in the contract.

Author:

Piotr Dudek
Director of the New Technologies Department, Defence & Aerospace
TGC Corporate Lawyers

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