New locations, new structure: Who benefits from the major BAAINBw reform – and who loses out?

Too few personnel, exploding costs: Why the German Armed Forces' Office of Armaments is now pulling the emergency brake

Germany's defense industry is undergoing a transformation: Why Koblenz alone is no longer sufficient for the Bundeswehr

The so-called "turning point" is flooding the German defense budget with record sums – but money alone doesn't buy security. The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) faces the massive problem that its bureaucratic structures, which have grown over decades, can no longer keep pace with the breathtaking speed of modern arms procurement. Thousands of vacant positions, exploding arms prices, and procurement cycles inherited from the Cold War threaten the operational readiness of the armed forces. Defense Minister Boris Pistorius has therefore initiated an unprecedented reform agenda: away from rigid departments, towards agile matrix structures, new technology hubs across the country, and consistent European networking. But can one of Germany's largest and most expensive agencies make the leap into modernity while maintaining operations? A deep look into a transformation that goes far beyond mere administrative modernization and is becoming a strategic question of the nation's destiny.

The BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) is the central procurement, development, and technology authority of the German Armed Forces. It can be thought of as the economic and technical backbone of the Bundeswehr.

What is the BAAINBw used for? (Its tasks)

• Procurement (purchasing): It buys absolutely everything the German Armed Forces need – from combat boots and bandages to IT networks, Leopard tanks, F-35 fighter jets or submarines.
• Research & Development: If a required weapon system does not yet exist, the BAAINBw commissions and supports the defense industry in its development.
• Information technology (IT): It builds and secures the complete digital infrastructure and radio technology of the troops (cybersecurity, command and control systems).
• Use & Maintenance: The office not only takes care of the purchase, but also ensures that the material is repaired, modernized and finally disposed of properly over decades.

Why is it so important? (Its significance)

• A fundamental prerequisite for operational readiness: Without the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support), no soldier has a weapon, no pilot an aircraft, and no ship can set sail. The agency ensures that the armed forces can fulfill their mission (national and collective defense).
• Protection of soldiers: In an emergency, the quality of the equipment tested and procured by the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) determines the life and survival of soldiers in action.
• Managing billions in budgets: The BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) concludes complex contracts with industry and manages one of the largest items in the federal budget (including the €100 billion special fund). It is responsible for ensuring that taxpayers' money is invested legally and effectively in security.

The troops are fighting, but the BAAINBw provides them with the tools to do so. Especially in the current security situation (a “turning point”), functioning, rapid, and modern equipment provided by the BAAINBw is crucial for the security of Germany and NATO.

Why one of the most expensive government agencies in the country needs to reinvent itself – and whether it will succeed

An authority at its limit

The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support – BAAINBw for short – has been the central technical service provider and the most important public procurement agency in the German defense apparatus since its founding in October 2012. What was initially conceived as a streamlining merger of two predecessor agencies is now under pressure that has far exceeded its original purpose. Since the so-called turning point of 2022, Germany has increased its defense spending at a breathtaking pace: Around €86.5 billion was budgeted for 2025, and already €108.2 billion for 2026 – another record high since the end of the Cold War. Military procurement alone is estimated to account for €47.88 billion in 2026. The gap between the available funds and the capacity to spend them wisely has become the real problem.

What follows is not an abstract administrative problem. If the country's most important procurement agency is structurally incapable of efficiently converting the funds allocated to it into equipment, the operational capability of the Bundeswehr (German Armed Forces) suffers directly. Defense Minister Boris Pistorius recognized this and presented his reform agenda to the Defense Committee of the German Bundestag on May 20, 2026. The core message: The BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) needs a new structure, new locations, and a new way of thinking – or it will be overwhelmed by the demands.

The structural legacy: Why Koblenz alone is no longer enough

To understand why the reform is necessary, one must first understand the initial situation. The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) is headquartered in Koblenz and has additional locations in Bonn, Lahnstein, Dresden, and numerous subordinate offices both domestically and abroad, including Meppen, Erding, and even Reston in the USA. The organizational area comprises a total of 116 locations. At the same time, according to the agency's latest figures, around 1,800 of its approximately 11,800 positions were vacant – that's more than one in seven. The IT sector is particularly affected, precisely where the Bundeswehr urgently needs expertise given the growing importance of cyber operations. The vacancy rate has consistently ranged between 13 and 19 percent since 2015 – a systemic failure that could not be remedied with short-term measures.

The reason isn't solely due to poor personnel planning. Koblenz isn't a metropolis. Highly specialized IT professionals, engineers, and economists, who also need to be familiar with procurement law, defense technology, and international procurement procedures, aren't exactly plentiful in the Middle Rhine region. Competitors from technology companies, consulting firms, and the defense industry itself offer higher salaries and can lure candidates with more attractive living environments. Pistorius addressed this problem openly: the goal is to establish new locations where the brightest and most capable minds can be found – the agency needs to expand its presence. Decentralization is therefore primarily a recruitment strategy and only secondarily an administrative efficiency measure.

Added to this is the problem of the outdated internal organization. The classic, rigid division into sections and departments had historically proven its worth when it came to planning large-scale projects with decades of lead time. Fighter jets, frigates, and tank systems were developed in project groups that worked consistently across legislative terms. This culture is fundamentally incompatible with the demand for rapid, modular, and technologically agile procurement, as demonstrated daily by the modern conflict in Ukraine. Drones, electronics, and cyber capabilities require procurement cycles of months, not decades.

The matrix structure: Organizational theory meets bureaucratic reality

The centerpiece of the reform is the transformation of the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) into a so-called matrix organization. The traditional hierarchical organization based on departments is to be dissolved and replaced by a flexible matrix structure that reflects the four operational military dimensions: land, air, sea, and cyber/space. In practice, this means that, depending on the specific procurement project, interdisciplinary, agile expert groups will be formed that can make rapid decisions without having to navigate vertical hierarchical levels. At the same time, internal capability centers will pool specific specialist expertise – for example, for ammunition, artillery, or guided missiles – and make this expertise available more efficiently across projects.

In theory, matrix organizations are a proven tool from business administration, used for decades in large technology companies, consulting firms, and international organizations. They allow for the simultaneous handling of multiple projects with shared resources and avoid the departmental thinking of traditional hierarchical bureaucracies. In practice, however, they also entail increased coordination costs, potential conflicts of competence, and significant demands on leadership skills at middle management levels. In a federal agency with civil service law, collective bargaining agreements, and established channels of communication, this restructuring is not a technical project, but a profound cultural shift.

The reform agenda also envisions categorizing all procurement processes into three groups: the Fast Track for urgent and commercially available products, the Innovation Path for future-oriented and disruptive technologies, and the Complex Path for large-scale, structured projects such as fighter jets or frigates. This differentiation makes economic sense because it minimizes opportunity costs: If a battalion urgently needs drone defense systems that are available on the market, the procurement process should not be the same as for the construction of a new type of submarine. The question, however, is who decides in practice which category applies to which project – and whether this classification itself will not become a new product of bureaucracy.

The new location map: symbolic politics or strategic necessity?

The geographical expansion of the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) is one of the most striking elements of the reform agenda and, at the same time, the most politically ambivalent. On May 20, 2026, Pistorius presented a clear map of the locations: The headquarters in Koblenz will remain unchanged. Dresden will be expanded and will focus primarily on IT and the cyber domain. Bremen will receive a new representative office focusing on space and maritime operations. A representative office will be established in Brussels to network with EU institutions and NATO. A second innovation center, modeled on the one opened in Erding in February 2026, will be set up in Kiel, with a focus on maritime technology.

Each of these locations has its own distinct industrial and strategic logic. Dresden boasts a dense technology landscape with strong university and medium-sized IT expertise – an echo of the former "Silicon Saxony" cluster. Bremen is home to Airbus Defence & Space, OHB, and numerous suppliers for aerospace and naval technology. Kiel is traditionally Germany's most important location for naval shipbuilding and electronics. The innovation centers in Erding and Kiel are intended to be more than mere branch offices; they are meant to be active interfaces between the government, startups, universities, and industry – a model that has proven successful, for example, with the American Defense Innovation Unit and the British Defence and Security Accelerator.

What is remarkable is the absence of Bonn on the site plan shown in the appendix: Bonn does not appear explicitly as a new location. This requires explanation, as Bonn is already an established BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) location, and the Federal Ministry of Defence has its headquarters between Bonn and Berlin. In the overall structure, Bonn thus remains an existing location without a new, independent function in terms of the reform agenda – it is neither highlighted as a new location nor as an innovation center because it is already part of the basic administrative framework. This explains its lack of emphasis on the reform map: Bonn is an existing structure, not a new project.

The Brussels Representation: Between European Cooperation and National Interest

The planned representation in Brussels is the most internationally noticed and, at the same time, the most politically sensitive part of the reform. Pistorius justified it with the need for better networking with the institutions of the European Union and NATO. In theory, this is correct: with the European Defence Fund, the European Defence Industrial Strategy, and the ReArm package, Europe is building a substantial common defense architecture for the first time. Anyone wishing to participate in this needs a permanent presence in the relevant Brussels bodies.

The critical question, however, is whether this office will serve as a genuine bridge to European cooperation or merely as a lobby for the German arms industry. This distinction is not merely academic: European defense policy is shaped by national industrial interests. France protects its own defense industry with considerable political finesse, Poland preferentially builds its domestic capacity using South Korean technology, and smaller NATO partners often feel marginalized. If the German BAAINBw office in Brussels systematically works to channel European procurement funds to German companies, this would benefit German industry in the short term, but in the medium to long term, it would undermine confidence in joint European defense projects. Genuine European added value will only arise if Germany is truly prepared to relinquish sovereignty in procurement decisions and also support projects whose industrial focus lies in France, Sweden, or Spain.

Government-to-government deals: The new dimension of arms exports

Another element of the reform, which has received little discussion so far, is the strengthening of government-to-government (G2G) transactions in Berlin. The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) will establish a department in Berlin to support the German government's arms sales to other countries. Pistorius clarified that this applies not only to NATO members but also to states with equivalent status – a significant expansion of the existing framework.

Government-to-government (G2G) deals are an established practice in international arms trade, where a government acts as an intermediary between its domestic defense companies and the foreign buyer. They offer the buyer guarantees regarding product quality and delivery reliability that a purely commercial contract could not provide, and give the selling country strategic leverage in the bilateral relationship. The US, France, and the UK have professionally developed G2G structures for decades. Germany, on the other hand, has traditionally been more reserved in this area, not least because of societal sensitivity surrounding arms exports.

The creation of a dedicated G2G (German Armed Forces-to-Ground Defense) department within the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) marks a new level of quality in this policy. It sends a clear signal that Germany is prepared to professionalize its arms export policy and use it as a foreign policy instrument. Economically, this is understandable: German defense spending has catapulted the domestic arms industry into a phase of massive capacity expansion. Rheinmetall, KNDS Deutschland, Hensoldt, and others have invested heavily. To recoup these investments and realize economies of scale, the industry needs exports – and the state can act as a facilitator. At the same time, arms exports always carry the risk of being drawn into conflicts or creating perverse incentives for autocratic buyers. The question of to whom Germany will sell weapons in the future and under what conditions will become significantly more politically charged.

Hub for Security and Defense - Image: Xpert.Digital

The Security and Defence Hub offers expert advice and up-to-date information to effectively support companies and organizations in strengthening their role in European security and defence policy. Working closely with the SME Connect Defence Working Group, it particularly promotes small and medium-sized enterprises (SMEs) that wish to further develop their innovative capacity and competitiveness in the defence sector. As a central point of contact, the Hub thus creates a crucial bridge between SMEs and European defence strategy.

Related to this:

• The SME Connect Defence Working Group – Strengthening SMEs in European Defence

Arms inflation: The unresolved problem of cost control

From special fund to cost trap: The fiscal side of rearmament

One of the most economically significant elements of the reform agenda is the announced strengthening of price controls. The reform agenda envisions stricter price controls throughout the entire procurement process. The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) is to become the central authority for market and technology expertise and intensify market monitoring, with a particular focus on controlling suppliers and supply chains.

The underlying issue is worrying. Since 2022, Germany and its allies have increased their defense budgets so dramatically that the arms industry can barely keep pace with demand. This supply inelasticity is leading to significant price increases. Economist Guntram Wolff of the Brussels-based think tank Bruegel has publicly warned that high government demand and the decoupling of defense spending from the debt brake are fueling inflation in the arms industry. Concrete examples illustrate the problem: At the end of 2022, the German government ordered 140 BvS10 all-terrain vehicles for around €2.9 million each – just a few months later, the same vehicle cost over €4 million per unit, an increase of almost 40 percent. The opposite was true for artillery ammunition: Despite a significantly increased order volume, the price fell by almost 30 percent within six months. This suggests that arms inflation is not a law of nature, but results primarily from a lack of competition and uncoordinated individual orders.

The Federal Court of Auditors had already criticized direct awards without tendering in December, arguing that they fueled defense spending inflation. The new price control measures at the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) address precisely this issue: Central contracting authorities who systematically monitor the market, solicit multiple bids, and compare prices based on time and volume effects have a stronger negotiating position with suppliers. Germany will spend almost €48 billion on procurement alone in 2026 – even small percentage efficiency gains translate into billions in savings or, more effectively, higher-quality equipment for the same price.

The fiscal dimension: Germany's new defense budget and its challenges

The fiscal context of the reform is dramatic. According to SIPRI, Germany's defense spending rose by 24 percent, adjusted for inflation, to $114 billion by the end of 2025. This made it the fourth-largest military spender in the world and marked the first time since 1990 that the country had exceeded NATO's target of two percent of gross domestic product. The German government plans to increase this figure to 3.5 percent of GDP by 2029 – a project that carries considerable fiscal risks given Germany's stagnant economy.

These sums are only possible thanks to the €100 billion special fund created in 2022 and the constitutional amendment passed in 2025, which removes defense spending from the scope of the debt brake. This is a massive fiscal shift that will affect generations to come. The federal government is thus taking on debt to buy weapons – with the implicit promise that the security situation justifies these expenditures. For the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw), this means that the agency is suddenly responsible for spending budgets that, in a different era, would have covered the entire social infrastructure of a federal state. This task cannot be adequately fulfilled without structural capacity expansion.

At the same time, procurement suffers from a fundamental paradox: more money doesn't automatically create more capacity. When 1,800 positions are vacant, when tendering processes are excessively complex, and when industry can't keep up with demand, a large portion of the budget simply remains unspent or is diverted to expensive external consulting services. This is precisely where the reform comes in – with the aim of making the agency not only larger, but above all, more efficient.

Bonn as a silent anchor: The missing location in the picture

A glance at the attached map from the Federal Ministry of Defence (source: BMVg) raises a question: Where is Bonn? Indeed, Bonn is missing from the map of new and planned locations. This is not an oversight, but rather a deliberate strategy: Bonn is already an existing branch location of the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw), not a newly planned location, and therefore not highlighted in the reform presentation, which focuses on new elements. The BAAINBw has its headquarters in Koblenz, and the Ministry of Defence has its second headquarters in Bonn. Bonn thus functions as an administrative hub between the Ministry and the procurement office, without playing an independent operational role within the framework of the reform agenda.

What is striking, however, is that the reform map shows only locations with new or expanded functions – Brussels (representation for European cooperation), Berlin (G2G business), Bremen (maritime and space), Dresden (IT), Kiel (innovation center), and Erding (existing innovation center). The existing Bonn location, although present and functional, has not been assigned a new task in the reform concept. This can be interpreted as an indication that the reform is indeed aimed at developing new talent markets and new skills in specific regions – and not merely at a redistribution or expansion of existing administrative structures.

The political economy of reform: Who wins, who loses?

Every reform has winners and losers – this one included. The most obvious winners are the local and state politicians in Bremen, Dresden, Kiel, and Erding, who can count on new federal agency jobs in their regions. In Germany, such location decisions are always also federal acts: They create permanent jobs with attractive collective bargaining agreements, retain university graduates in the region, and boost local tax revenue.

Less obvious, but more economically significant, are the winners in industry. Those located near a new BAAINBw site or innovation center have closer ties to procurement decisions, can more easily initiate pilot projects with the agency, and can jointly recruit specialists. For defense technology startups, innovation centers are often the crucial first step into the public market.

The potential losers are less easily identifiable, but structurally significant. Large, established arms companies that benefited from the sluggish bureaucracy and lengthy tendering processes—because they were the only ones capable of meeting the requirements—are losing out due to more agile procurement structures and increased competition. Stricter price controls are impacting suppliers who have previously profited from the government's lack of market oversight. And if G2G sales are now institutionally strengthened, conflicts of interest could arise between government actions as buyer and seller—with implications for price neutrality and procurement transparency.

Reform implementation under operational pressure: The real challenge

Pistorius emphasized that the reform should be implemented gradually and explicitly during ongoing operations, so as not to jeopardize the Bundeswehr's current material growth at any time. This sounds pragmatic and responsible – yet it is precisely at the point where most bureaucratic reforms fail. Structural change under full load means that the same employees who are supposed to learn new processes are simultaneously managing ongoing multi-billion-euro projects. The margin for error is small, and learning curve effects become costly.

The reform was developed within a few months, incorporating external expertise from academia and industry, as well as some 600 modernization proposals from the agency's own staff – explicitly without external consulting contracts, representing a remarkable break with previous practice. The involvement of employee representatives will follow directly after the public presentation, and detailed planning is set to begin immediately so that phased implementation can commence in the summer of 2026.

The reform concept has historical precedents that are sobering. The founding of the BAAINBw itself in 2012 was a merger reform intended to leverage synergies – yet the vacancy rate remained constant at 13 to 19 percent for over a decade. The modernization initiative launched in 2017 brought some improvements but failed to resolve the underlying structural problems. The current reform is more ambitious and is taking place in a significantly different fiscal and geopolitical environment – ​​but it is subject to the same institutional constraints. Matrix organizations only function if managers are willing to constructively resolve power struggles between vertical functional and horizontal project hierarchies. This requires a leadership culture that still needs to prove itself in German federal agencies.

Strategic change as a necessity: A sober assessment

The reform of the BAAINBw (Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support) is not a luxury project or a ministerial posturing exercise. It is a strategic necessity arising from the convergence of several megatrends: the dramatic increase in defense budgets, the technological acceleration of warfare, the exacerbated demographic shortage of skilled workers, and the geopolitical pressure for faster and more autonomous operational capability.

The reform addresses these challenges with a coherent package of measures: decentralization to attract talent, a matrix structure to increase agility, price controls to ensure spending discipline, expansion of G2G cooperation to enhance foreign policy capabilities, and European networking to achieve strategic autonomy. All of these are appropriate responses to real problems. Whether they are sufficient depends on the quality of implementation – and that lies not within the ministry, but in the hands of managers and staff of an agency that has had to cope with chronic understaffing for decades.

Germany will spend more on defense in 2026 than at any time since the end of the Cold War. SIPRI figures confirm this: Germany is the world's fourth-largest arms spender. With this ranking comes responsibility – responsibility to the taxpayers who provide this funding, to the soldiers waiting for equipment, and to European partners who depend on a reliable and capable Germany in defense cooperation. The Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) is the instrument through which this responsibility is fulfilled. Reforming this agency is therefore not merely administrative modernization – it is a security policy imperative, the success of which will strengthen Germany and the failure of which would have significant strategic costs.

Markus Becker

I would be happy to serve as your personal advisor.

Head of Business Development

Chairman SME Connect Defense Working Group

LinkedIn

Konrad Wolfenstein

I would be happy to serve as your personal advisor.

me at wolfenstein∂xpert.digital contact

Just call me on +49 7348 4088 965 .

LinkedIn