ESA, an intergovernmental customer

Funding of ESA activities

ESA programmes are based on countries sharing interests and complementing their individual resources. They address objectives of common interests but difficult to attain, or out of reach, for a single country. ESA member states interested in an ESA objective contribute to the implementing programme and expect to be involved in the project's activities in proportion to their contribution.

Contributions are not only financial but can be technological or industrial. Activities may be related to advanced research, project-related technology developments, production, operations, support, and services. ESA aims to make maximum use of the industrial and research potential and capabilities available in each Member State, whilst supporting the Member State interests and priorities.

ESA funding has three main sources:

• Mandatory activities, for which each Member State contribution is a fixed percentage of its gross domestic product (GDP). They amount to about 20% of the funding ESA receives from its Member State. The Science programme is the main mandatory activity, and gets most of that funding. The Basic Technology Research Programme (TRP), basic infrastructure and general services are also part of the mandatory funding.
• Optional programmes, for which each Member State contributes in proportion to its interest in each constituent project. Optional programmes receive about 80% of the contributions by Member States to ESA. Space Transportation, Earth observation, Telecommunications and Integrated Applications, manned flights and the International Space Station are optional programmes.  
• Third party activities, where organisations such as the European Union or Eumetsat fund ESA to manage space related activities on their behalf. Examples are Galileo, parts of Copernicus, recurrent Meteosat and Metop satellites. The industrial participation in these activities is regulated by each respective agreement.  

For both mandatory and optional projects the industrial activity in each Member State must be commensurate with the Member State funding of each project. In this sense, programmes are independent of each other, and excess activities in one may not be compensated with a low (with respect to the funding) participation in another.

ESA’s Industrial Policy

ESA’s industrial policy is designed, among other objectives, to ensure that all Member States participate in an equitable manner, with regard to their financial contribution, in implementing the European space programme and in the associated development of space technology. In particular the Agency shall, for the execution of its programmes, grant preference to the fullest extent possible to industry in all Member States, which shall be given the maximum opportunity to participate in the work of technological interest undertaken for the Agency.

In order to be able to monitor and, where appropriate, adapt the Agency’s industrial policy, ESA permanently reviews the industrial potential and industrial structure in relation to the Agency’s activities, and in particular:

a. the general structure of industry, and industrial groupings;

b. the degree of specialisation desirable in industry and methods of achieving it;

c. the coordination of relevant national industrial policies;

d. interaction with any relevant industrial policies of other international bodies;

e. the relationship between industrial production capacity and potential markets;

f. the organisation of contacts with industry.

The geographical return principle

The geographical distribution of all the Agency’s contracts is governed by the following general rules:

- a Member State’s overall return coefficient is the ratio between its percentage share of the total value of all contracts awarded among all Member States and its total percentage contributions

- for the purpose of calculating return coefficients, weighting factors are applied to the value of contracts on the basis of their technological interest

- ideally the distribution of contracts placed by the Agency should result in all countries having an overall return coefficient of 1

Geographical  return is computed for each of the ESA programmes, in addition to the overall return coefficient. Limits have been fixed for the minimum return to be achieved in each category of programmes. 

Teaming to prepare a proposal to ESA

Implications of geographical return
As a consequence of the geographical return principle, when configuring an industrial team in the process of preparing a proposal the participating companies have to give due consideration to their nationalities and shares in the activities, in order to achieve a balanced geographical structure, proportionate to the participating Member State contributions to the project. An important factor is the locations where the different activities related to the contract will be conducted.

ESA letters of invitation to tender often include specific requirements on the nationality of the companies allowed to bid. In these cases, consortia shall include companies only from the specified countries. 

Other ESA industrial policy requirements
The letter of invitation to tender, or the special conditions of tender, may include specific requirements to implement ESA’s industrial policy. A typical example are the clauses C1 to C4, which aim to limit the participation of large systems integrators in certain types of activities and foster the participation of independent companies and small and medium-sized enterprises (SMEs). 

ESA control of contracts – Nationality audits

ESA regularly inspects companies in order to determine that the work is performed according to the contract conditions. In addition to regular meetings covering technical and quality aspects, other controls address financial and managerial aspects.

ESA audits companies to assess nationality for geographical return purposes, paying particular attention to companies in under-returned States and to subsidiaries.

Whether a company should be considered to belong to one of the Member States for a specific activity, and to which one, is settled in the light of the following criteria: location of the enterprise’s registered office, decision-making centres and research centres, and territory on which the work is to be carried out. Paramount importance is given to value-adding aspects, both to the activity and to the company.