Defence Contracts Are Changing: What International Arbitration Must Learn from the New Security Environment

IBA Annual Conference Copenhagen 2026 · Session recap by Lighthouse Legal Advisory

Defence contracting is undergoing a structural shift. What used to be treated as a specialised corner of public procurement is becoming a much wider legal ecosystem, shaped by national security, sanctions, export controls, classified information, technology, data, cybersecurity, supply-chain resilience and geopolitical risk.

These issues were at the centre of “Arbitration of disputes in the defence sector: benefits and challenges”, a session led by the IBA Arbitration Committee on 6 October 2026 at the IBA Annual Conference in Copenhagen. The question on the table: is traditional international arbitration equipped for disputes arising from increasingly complex defence contracts?

The panel brought together perspectives from NATO, the defence industry, Ukraine, Denmark and the international arbitration community:

Chair: Giedrė Aukštuolienė, Ellex Valiunas (Vilnius), Co-Chair of the IBA Arbitration Guidelines and Rules Subcommittee
Mia Thulstrup Gedbjerg, Kromann Reumert (Copenhagen)
Markiyan Malskyy, Arzinger (Kyiv)
Dirk Pulkowski, NATO (Brussels)
Emilie Vingtoft Rye-Andersen, Weibel Scientific A/S (Allerød)

Security is no longer a clause. It runs through the whole contract

A central theme was that national security itself has expanded. Defence is no longer limited to a physical weapons system. Modern security projects combine hardware, software, data, cloud infrastructure, cyber capabilities, critical minerals and suppliers spread across several jurisdictions.

As a result, legal restrictions once considered peripheral to a commercial contract can now affect every stage of the relationship. Export-control requirements, sanctions, licensing obligations, security rules, the nationality of participants and access to classified information can determine not only whether a contract can be performed, but also who may learn about it and under what conditions.

Dirk Pulkowski of NATO brought the institutional perspective. Classified contracts may carry dedicated security annexes, and representations and warranties can require contractors to hold licences, comply with export-control regimes and confirm that relevant entities and officers are not under sanctions. For companies, the key point is that compliance does not end at signature: mandatory national rules keep applying during performance, and classified information can remain restricted throughout any later dispute.

Confidentiality helps arbitration, but classified evidence changes the equation

At first sight, arbitration looks well suited to defence disputes. It offers confidentiality, procedural flexibility and a neutral forum for cross-border relationships, which matters when a defence company contracts with a foreign government or another participant in an international supply chain.

Emilie Vingtoft Rye-Andersen of Weibel Scientific brought the industry view: dispute-resolution architecture is not a boilerplate clause added at the end of negotiations. For international defence companies it is part of the strategic structure of the deal, not least because parties often prefer not to submit to the national courts of their counterparty.

Yet defence arbitration faces a problem ordinary commercial arbitration rarely meets: the evidence itself may be classified. A technically critical document may exist, but not every member of the tribunal, counsel team or expert group is entitled to see it. The panel discussed security clearances and the need-to-know principle, under which even an appropriate clearance does not create an automatic right of access to a specific document. That sits uneasily with a foundation of dispute resolution: both sides’ ability to see and challenge the evidence.

Practical tools discussed to reconcile security and fairness included sequencing or bifurcating issues, special procedural orders, structured document-review mechanisms, redactions and independent document masters.

The Ukrainian perspective: in wartime, speed becomes a substantive issue

Markiyan Malskyy of Arzinger addressed defence contracting from the perspective of a country at war, bringing the discussion back from arbitration theory to procurement reality. When a state urgently needs equipment, the central question may not be whether damages can eventually be recovered, but whether the equipment arrives at all. An award delivered two years later can be legally sound and still of little practical value to a government that needed delivery during the conflict.

This changes contract drafting. Defence agreements need to anticipate situations that are elsewhere dismissed as exceptional: partial or delayed delivery, failure of performance, maintenance obligations, disrupted logistics, destroyed infrastructure, supply-chain interruption and changing operational specifications. Malskyy also stressed careful force-majeure drafting that distinguishes the general existence of war from the specific circumstances that genuinely prevent performance.

The broader principle: in the defence sector, a dispute-resolution mechanism must be not only legally valid but operationally useful.

Long-term defence programmes need mechanisms for change

Mia Thulstrup Gedbjerg of Kromann Reumert spoke to the Nordic and Danish contracting environment. Arbitration clauses in major defence contracts can themselves be fairly conventional; the difficulty lies in applying them to a sector of restricted information, long timelines and fast-changing circumstances. Programmes run for years, during which technology moves on, requirements change and costs shift, creating fertile ground for disputes over price, delay and contract adaptation. Hence the case for escalation structures and fast interim mechanisms built into the contract, rather than relying solely on a final arbitration years later.

Relationships have to survive the dispute

Defence is not a purely transactional market. A limited number of governments, prime contractors and specialised suppliers often need to keep working together for many years. Emilie Vingtoft Rye-Andersen therefore emphasised preventing disputes from escalating to full arbitration where possible. The goal is not only to establish liability but to preserve the ability to deliver, through adjustment mechanisms, structured management dialogue and escalation procedures that work while the project is still running.

The same logic applies to limitation-of-liability provisions. For companies managing several high-value contracts, liability caps and clearly defined categories of recoverable loss are central to understanding and managing aggregate corporate risk.

Arbitration can work, but the framework must evolve

The panel did not suggest arbitration is unsuited to defence disputes. The conclusion was the opposite: arbitration can resolve highly complex security-related disputes, provided the process is designed around the sector’s characteristics. The IBA programme framed the question directly: with the growth of private military contracting and advanced cyber-defence technologies, including AI, is arbitration equipped to handle sensitive national-security information, or does the sector need special protocols and frameworks?

Increasingly, the answer lies in procedural design. From the outset, parties and counsel should consider how classified evidence will be handled, whether issues can be separated, who needs security clearance, which law applies, which mandatory rules may intervene and how quickly an interim commercial problem must be solved.

The Lighthouse perspective: draft for the moment circumstances change

For Lighthouse Legal Advisory, the key lesson from Copenhagen goes beyond arbitration. Defence contracts should not only allocate liability after something goes wrong; they should keep critical projects running when something goes wrong.

This is especially relevant for projects involving Ukraine, where a single defence or security transaction can engage Ukrainian law, the law of the supplier’s jurisdiction, sanctions and export controls, public procurement rules, donor or allied-country requirements, classified-information regimes and cross-border dispute mechanisms at the same time. The legal architecture has to work as one system.

So the questions to ask at the contracting stage go beyond “who bears the risk?”:

What happens if delivery is delayed?
What happens if the technology changes?
What happens if export rules change?
What happens if a supplier in the chain can no longer perform?
Who can see the evidence if the dispute concerns classified material?
How quickly can the parties get an answer that lets the project continue?

For international companies entering Ukraine’s defence, reconstruction or critical-infrastructure markets, these questions belong at the drafting stage, not after a dispute begins. The message from IBA Copenhagen is clear: national security is reshaping commercial law, and contract design must evolve with it.