European governments are rearming at pace. EU spending is on track to be more than 75% higher this year than it was five years ago, according to European Council data. Across the European members of Nato, military spending rose by 14% in 2025, faster than at any point since 1953, according to the Stockholm International Peace Research Institute. The European Defence Agency expects EU spending to reach €547bn by 2029, some 31% above the 2025 level.
US pressure on European allies to shoulder more of their own defence, along with worries over Russian ambitions, has reinforced the European push for greater defence autonomy. Germany’s chancellor Friedrich Merz has said his ‘absolute priority’ is to strengthen Europe so it can achieve ‘independence’ from the US. European governments have turned on the fiscal taps to fund this drive. The next task is to ensure the extra spending delivers more equipment rather than just driving up prices.
For finance teams, faster purchasing decisions still need a defensible price
‘For the last 30 years, there was a lot of time and little money. Now it’s the reverse,’ says Matthias Wittenburg, senior executive adviser at PwC’s strategy consulting arm. Procurement used to be ‘very formal and bureaucratic, time-consuming and often inefficient’, he says, but ‘this has changed dramatically’. Germany’s defence ministry and its senior generals now want to move towards an 80% standard – ‘speed over perfect fit’, as Wittenburg puts it.
The 80% standard refers to accepting equipment that meets most of the requirements now rather than waiting for a perfectly complete solution. For finance teams, however, a faster purchasing decision still needs a defensible price. Where equipment is still being developed, assessing that price also means examining estimates of work yet to be done.
Fair value
‘Money does not scale,’ says Manfred Hader, senior partner at global consultancy Roland Berger. A budget line becomes capability only after passing through procurement, production capacity, skilled labour and a working supply chain. Uncertainty about orders can make equipment more expensive even before production begins. A government may say it wants 3,000 tanks but commit only to 100, so the manufacturer cannot then price in the economies of scale the larger number implies, which in Hader’s view raises the risk that the government will overpay.
Defence equipment is often built to national specifications, leaving buyers without a competing bid against which to judge the price. Germany has ‘a strong standard with a well-established methodology of auditing prices’, says Stefan Hefter, partner and head of defence for Europe, the Middle East and Africa at KPMG. Its price regulation legislation for public contracts sets out how prices are determined and how they may be audited. If a contractor cannot produce documentation for the price review authority (and it must retain records for 10 years), then it may find costs estimated to its detriment. ‘I’m not aware of anything like this in other countries,’ Hefter says.
The assumptions underlying a bid may come under scrutiny years later
For suppliers’ finance teams, the work therefore extends beyond agreeing the price and securing the order. They must be able to substantiate the costs behind it, with records that remain accessible long after delivery. The assumptions used to prepare a bid may come under scrutiny years after the contract was signed.
Hefter thinks the regime works. ‘As it dates back to 1953, it needs to be adapted (and will be) to current procurements,’ he says, particularly for defence technology, projects with substantial research and development, and innovation. Such work makes the pricing task harder: the cost of developing a new product is less certain than the cost of producing an established one. Accountants need to examine how those development costs have been estimated, as well as the expected production costs. Hefter says Germany’s defence procurement agency is looking into changes.
Pressure to deliver
Faster procurement also raises questions about how much risk buyers are prepared to accept. ‘One of the biggest inhibitors to efficient execution is overregulation,’ Hader says. ‘People are so afraid to make mistakes that they will just not decide, or will go for even more documentation, even more qualification.’
He argues for public acceptance of an 80/20 approach: paying more for equipment that arrives now, instead of a programme running three years longer so that every check can be completed. In his view, the problem lies partly in the incentives facing procurement staff. ‘You only make a career if you don’t make mistakes,’ he says.
Many businesses are looking for advice on entering the defence market
The pressure extends to prime contractors, the lead businesses that hold the government contract and manage the suppliers beneath them. They have less time to qualify newcomers than they once did. A prime contractor taking on a new supplier ‘would probably ask for less, to be honest’, Hader says.
The expansion is also changing what companies ask of professional services firms. Many businesses outside the traditional defence sector are looking for ways to enter the market and seeking advice on their go-to-market strategy, Hader says. Hefter sees growing demand for help with production itself. Asked what his practice is being asked to do that it was not two years ago, he says: ‘The whole area of consulting for manufacturing is really new and will grow.’
Securing supply
Expanding production also forces companies to manage the conflict between keeping costs down and factories supplied. Supply chain resilience – including dual-sourcing, stress-testing and the indicators used to track them – usually sits with industrial procurement. Its traditional mandate to drive down costs ‘more or less directly collides’ with securing supply, Hefter says. He argues that managers responsible for delivering the equipment should share responsibility for securing supplies, working with a team that can take decisions across the company and overrule the purchasing department when necessary.
The potential cost of delays also needs to be accounted for
For finance teams, that means examining what lies behind the saving. A cheaper component may leave a manufacturer dependent on one supplier; a second source may cost more but reduce the risk of disruption. The financial case needs to account for the potential cost of delays as well as the purchase price.
The increased spending gives accountants and advisers familiar work under more demanding conditions. Prices must be justified even where products are still being developed and plans to expand production depend on orders and suppliers that can be relied on. Their assessments can help programme leaders decide where extra spending is warranted. The test is whether it helps deliver the capability for which governments are paying.
