The full-scale war in Ukraine is bringing about a significant change on the battlefield. Traditional approaches based on heavy artillery and mass forces, including tanks, are giving way to modern solutions. A particular role in the ongoing conflict is associated with the use of modern technologies, including sensor systems, network-centric warfare, robotics, and dual-use technologies. Artificial Intelligence plays a key role, including in the conduct of electronic warfare. A visible sign of this new reality is the use of various types of drones, including strike drones, marine drones, and ground robotic systems. FPV (First Person View) drones also play a special role. These inexpensive, commercial drones, equipped with explosives, can destroy vehicles worth millions of dollars.

The use of modern solutions, combined with older technologies, has led to situations in Ukraine in which trench warfare—reminiscent of battles fought during World War I—is intertwined with robotic warfare, creating a new image of 21st-century warfare. Much of this innovation comes from small, adaptable suppliers rather than the large defence contractors who are currently favored under defence procurement. The new EU defence procurement reforms would help small and medium-sized enterprises (SMEs) compete for military contracts, if the same law didn’t also hand member states a broad exemption to ignore these rules.

Why Are SMEs Now Driving Battlefield Innovation?

War in Ukraine reveals that heavily institutionalized defence corporations lack the agility required to adapt to rapid technological advancements. Instead, the momentum of frontline innovation is being sustained by adaptable, smaller enterprises and tech-driven startups. Adapting to the demands of the battlefield, Ukraine’s SME sector is now responsible for the mass production of unmanned systems. Instead of building a single expensive tank, hundreds of small workshops are producing thousands of low-cost FPV drones, modifying their software practically every week. The lightning-fast innovation cycle is of key importance.

Ukrainian SMEs have reduced the time from identifying a problem on the front lines to implementing a solution from years to just a few days or weeks.¹ This is a change that would have been unimaginable during peacetime. Adapting to the needs of the battlefield required radical and rapid changes in Ukraine’s approach to military procurement, achieved through decentralization and support for innovative solutions.² Ukraine has shifted from a rigid, state-owned R&D model to an agile, decentralized system fueled by the commercial tech sector. Faced with urgent frontline needs, the government now acts as an enabler, slashing bureaucratic red tape and shortening procurement timelines from years to mere weeks.

By leveraging commercial, off-the-shelf technologies and empowering civilian engineers, Ukraine avoids the high costs and long cycles of traditional defence manufacturing. Market competition provides multiple private options, allowing fighters to select the best tools. There are no restrictions on defence-related AI development, which accelerates technological breakthroughs.

Decentralized budgets allow local units to procure equipment directly to meet specific frontline needs. Finally, collaborative platforms such as joint hackathons and cross-ministerial initiatives align new technology directly with battlefield reality. This flexible ecosystem proves that adapting private innovation to real-time combat data can be faster and more effective than traditional top-down military planning.³

Where do EU countries stand in this process of change?

Changes on the battlefield that have become apparent during recent conflicts are currently influencing how other countries are reorganizing their armaments, particularly in EU countries, where Russia’s aggressive policy is especially evident.⁴ The specter of future conflicts, as well as efforts to prevent them through the effective implementation of a deterrence doctrine, requires a reorganization of the defence and security procurement market. Meanwhile, the current solutions adopted in most EU countries are based on an outdated model. They are associated with sluggish innovation, protracted procedures, excessive bureaucracy, and preferential treatment of large companies.⁵

On 23 June 2026 at the 2-day final conference for the PurpLE Project, Public Procurement & Contracts: Navigating Today, Designing Tomorrow, Professor Martin Trybus discussed issues regarding the current status of SMEs in the defence and security procurement market during the Contracts in the Defence and Security Sector panel.

What Can the EU Learn from Australia’s SME Procurement Model?

Solutions to support SME access are the subject of intense debate in Australia. Australia supports defence SMEs to build sovereign industrial capability through targeted initiatives. The Office of Defence Industry Support (ODIS) guides small businesses into military supply chains, while the Defence Industry Development Grants Program co-funds exports, skilling, and security upgrades. Instead of formally dividing large government tenders into lots, Australia utilizes a layered approach, shifting procurement division to the supply chain. Through Australian Industry Capability (AIC) mandates, international prime contractors must break down mega-projects into smaller subcontracting work packages for domestic suppliers.

According to a strategic analysis by the Australian Strategic Policy Institute (ASPI), Australia’s defence strategy explicitly focuses on cutting red tape and mandating local procurement quotas to help SMEs capture value.⁶ Additionally, as highlighted ahead of the Defence Connect Accelerator Summit, specialized procurement panels group niche SMEs, allowing them to navigate complex barriers and collectively bid for partitioned commercial and IT services without facing risky individual contracts.⁷

We learnt about some of the above and more on the issue of supporting innovative SMEs from Professor Colette Langos, who was also a panelist on the Contracts in the Defence and Security Sector panel at the PurpLE Conference.

New Directions in the Amended EU Defence Directive?

In a decisive move to bolster regional security, the European Union has launched critical revisions to its EU Defence Directive⁸ as part of the Defence Readiness Omnibus.⁹ The goal of this framework is to reduce bureaucracy, expedite procurement procedures, and facilitate the cross-border movement of military equipment in response to dynamic geopolitical changes. The application of these measures will be limited primarily by the exemptions under Article 346 TFEU, which allows Member States to bypass normal EU procurement rules entirely for contracts touching their essential security interests, and the planned increase in the thresholds for applying the Defence Directive. Amended Article 8 doubles the financial thresholds to EUR 900,000 for supplies and services, and EUR 7 million for works.

Early on in the Contracts in the Defence and Security Sector panel discussion, Professor Trybus spoke about exemptions from the Defence Directive’s application.

Furthermore, Professor Trybus pointed to the application of Article 346 TFEU following the outbreak of the war in Ukraine.

Nevertheless, it is worth noting some of the solutions introduced. Despite their limited practical application, they may serve as important inspiration for national legislators.

The project introduces important changes for smaller suppliers. To prevent large companies from monopolizing entire budgets, Article 9a introduces a strict “divide or explain” rule. Procurement agencies will have to break large tenders into smaller technological or logistical lots. If they wish to bundle everything into a single mega-contract, they must formally justify it. This allows SMEs to bid directly for specific components such as software or sensors.

The update also removes the unrealistic financial barriers in Section 2. Financial turnover requirements are now strictly capped at twice the estimated contract value. This prevents procurement offices from using excessive revenue requirements to weed out innovative startups.

For standard equipment, Article 27a introduces the Dynamic Purchasing System (DPS). Unlike traditional tenders with a single, rigid deadline, this electronic pool remains open. Companies can join the network whenever their products or certifications are ready, ensuring they do not miss out on future contracts.

Finally, the new de minimis framework provides a safety net for multi-year projects. If supply chains break down or raw material prices spike, companies can adjust contract pricing mid-stream without facing automatic terminations or heavy fines.

The amendment of the Directive is scheduled for the end of 2026.

The modern battlefield requires greater involvement from innovative SMEs capable of quickly and effectively delivering the solutions the military requires. Making this scenario a reality requires a change in the approach to military procurement. The current situation in most EU countries is unsatisfactory. Signs of change are emerging in the draft amendment to the EU Defence Directive. However, reforms to national procurement systems in the defence and security sector will be of key importance, both due to the raised thresholds for applying the Defence Directive and its numerous exemptions and the derogation provided for in Article 346 TFEU. The Ukrainian model could serve as a guide for member states. Interesting solutions are also in place in Australia.

Resources

1. See, S. Kuzan, Pick and Mix: Ukraine Opens an Amazon for Weaponry, Pick and Mix: Ukraine Opens an Amazon for Weaponry – CEPA ↩︎
2. See, K. Bondar, How Ukraine Rebuilt Its Military Acquisition System Around Commercial Technology, How Ukraine Rebuilt Its Military Acquisition System Around Commercial Technology ↩︎
3. Same as Footnote 2 above ↩︎
4. See, J. W. Davidson, Elite perceptions of the US’ commitment to NATO after Russia’s invasion of Ukraine: ‘the direction of travel is clear’, Journal of Transatlantic Studies, 2026, Vol. 24 (1), https://doi.org/10.1057/s42738-026-00165-x. ↩︎
5. See, E. B. Kapstein, J. Ospital, G. B. Wolff, Reforming European Defence Procurement to Boost Military Innovation and Startups, Reforming European Defence Procurement to Boost Military Innovation and Startups – Intereconomics ↩︎
6. See e.g., M. Johnson, For a self-reliant defence industry, make life easier for Australian enterprise, For a self-reliant defence industry, make life easier for Australian enterprise | The Strategist ↩︎
7. See, S. Writer, Australian Defence Industry Accelerator Summit 2026: Everything SMEs need to know about financing and supply chain access, Australian Defence Industry Accelerator Summit 2026: Everything SMEs need to know about financing and supply chain access – Defence Connect ↩︎
8. Directive 2009/81/EC of July 13, 2009, on the coordination of procedures for the award of certain works contracts, supply contracts, and service contracts by contracting authorities or entities in the fields of defense and security. See the proposal: Proposal-for-a-directive_defence-simplification.pdf ↩︎
9. See more, Defence Readiness Omnibus – Defence Industry and Space ↩︎