CTO Newsletter

Main headlines from this issue

EU Study: “Credibility of directive 2009/81/EC is at stake” - “Illegal” offsets are commonplace

A study commissioned by the European Parliament into the implementation of the Defence Procurement Directive 2009/81/EC has found that EU member states continue to use offsets in the European Union despite their prohibition. The study suggests that the European Commission is backing away from further prosecution in its dispute with the Netherlands and Denmark, and calls for greater enforcement.

Australian patrol vessel audit: Content targets “largely effective”

An audit by the Australian National Audit Office (NAO) of the SEA 1180 Phase 1 Offshore Patrol Vessel (OPV) program has found that the Australian Industry Capability (AIC) program achieved industry content targets. There is evidence that the OPV program is contributing to the wider naval shipbuilding enterprise, with the effective transfer of shipbuilding expertise.

IPAC members dodge hard questions during GICA webinar on Canada

Representatives of the Industrial Participation Association of Canada (IPAC) responded well to arcane questions on Canada’s highly structured industrial participation regulations. They also evaded candid replies to questions whose answers might have upset Innovation, Science and Economic Development Canada (ISED).

South Africa accuses white companies of B-BBEE misrepresentation

The South African Department of Trade, Industry and Competition has accused white-owned South African companies of “fronting and misrepresentation” in their use of Broad-Based Black Economic Empowerment (B-BBEE) status. Obligors are said to have used non-compliant entities aided by consultants or advisors.

Local partnerships form as foreign contractors compete for U.S. OMFV

Foreign contractors are forming partnerships with U.S.-based companies in preparation for bids for the U.S. Army’s Optionally Manned Fighting Vehicle (OMFV) competition. Rheinmetall has partnered with Textron Systems, and BAE Systems has teamed up with Elbit Systems of America....

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India’s DAP 2020 – “indigenous content” is the new buzzword

India has published the final version of its Defence Acquisition Procedure (DAP) 2020. The new DAP trims the requirement for offsets and discards the Buy and Make procurement category. India will no longer demand offsets for government-to-government defence deals such as FMS and single-vendor contracts. It remains highly complex but gives preference to the domestic manufacture of complete defence products over components.

DOMW clarifies credit banking discontinuance

DAP 2020 makes no mention of credit banking. India’s Defence Offsets Management Wing (DOMW) has released new guidance to explain the discontinuation of the practice.

DAP 2020 damned with faint praise

India’s defence industry has praised the country’s DAP 2020. Analysts have voiced concerns over its aims. The Confederation of Indian Industry gushed that DAP-2020 has established pragmatic avenues for foreign OEMs to manufacture in India on their own and in collaboration with Indian industry. An analyst said is too complex, with 11 procurement categories, and reminded readers that similar glee accompanied the promulgation of DPP 2016.

Swiss fighter scrapes home in referendum

Swiss citizens have approved in a referendum a multi-billion dollar purchase of new fighter jets. The proposal passed with a vote of 50.1 percent, a difference of just 9,000 votes out of about 3 million. Voters in German-speaking regions supported the procurement while those in Italian and French-speaking regions...

Romania releases Defence White Paper – wants joint ventures, doesn’t mention offsets

Romania’s MoD has released a White Paper that prioritises boosting the domestic defence industry. The government will pay special attention to bilateral cooperation projects aimed at encouraging cooperation in the production and modernisation of military equipment through industrial partnerships and cooperation.

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Australia to strengthen AIC enforcement – annual audit

The Australian Department of Defence has announced that it will implement “significant improvements” to the Australian Industrial Capability (AIC) program. The aim is to ensure that contractors meet their industrial cooperation obligations. Obligors will face rigorous contractual enforcement. Audits will start in Q4 2020...

Australia’s CDIC review highlights sovereign capability concerns

Australia’s Centre for Defence Industry Capability (CDIC) has recommended that the government update its role and purpose to reflect an increased focus on the Australian Industry Capability (AIC) program. The review highlighted several problems with the Global Supply Chain program. Many businesses and industry associations reported frustration that the government was not holding primes strictly to account for delivering on their responsibilities.

Argentina sets up defence fund – emphasises import substitution, allocates 80 percent for domestic production

The Argentine Senate has passed a law to establish a National Defence Fund (FONDEF) to finance military re-equipment and boost local production. The fund will be used to increase the country’s sovereignty in defence production across the armed forces. One of the conditions for the fund’s use is that 80 percent will finance the manufacture of military equipment in the country by SMEs.

India’s 74 percent FDI uplift conditionally approved—“may make little impact”

India’s Department for the Promotion of Industry and Trade has approved an increase to the country’s defence foreign direct investment (FDI) cap from 49 percent to 74 percent. The increase was announced in May. The department has conditioned the rise on a “national security” clause.

India’s Auditor General derides Dassault and the offset policy

India’s Comptroller and Auditor General (CAG) has criticised the country’s offset policy and the deal to procure 36 Rafael jets from Dassault Aviation. The report noted that Dassault and weapons-supplier MBDA have not confirmed the transfer of technology to the Defence Research and Development Organisation (DRDO).

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Bahrain launches formal offset policy, copies UAE

Bahrain has established formal offset guidelines for the first time. The guidelines are almost entirely a replica of the policy published by the UAE. Large parts of the document are copy-pasted, with the words “Bahrain” and “BDF” (Bahrain Defence Force) replacing “UAE” and “Tawazun.” The quotas, multipliers, penalties, project categories and performance periods are identical. Bahrain has set a lower threshold...

Pakistan is preparing another offset policy – but will anyone take any notice?

Pakistan’s Ministry of Defence Production is formulating a defence offset policy. According to the ministry’s biennial performance report, a draft of the policy is already in circulation to “all concerned” for input before approval. The meaning of “all concerned” is not clear. A new policy for defence production is also under way.

Poland: PGZ President explains hard stance on offset negotiations with U.S. primes

The President of Polska Grupa Zbrojeniowa (PGZ), Andrzej Kensbok, has rejected accusations that his company is trying “to change the rules of the game” in its negotiations for offsets with U.S. primes. He only wants “detailed arrangements,” he said.

Lockheed’s Polish subsidiary offers IP to Romania’s Romaero

Lockheed Martin’s Polish subsidiary, PZL Mielec, will establish an MRO facility for civil and military Black Hawk helicopters in Romania. PZL Mielec will provide highly skilled jobs, technology-based educational programs, research and development opportunities, and benefits to wider Romanian industry, the company said.

Malaysia: Appointment of new TDA chief still ongoing

Malaysia’s Technology Depository Agency (TDA) expects to complete the process of acquiring a new CEO by October. The search began in June, a senior official told CTO, but was delayed by the COVID-19 pandemic.

Main headlines from this issue

Oman gives its offset agency a short, sharp shock

Oman’s offset policy may, or may not, be gone. Royal Decree 110 of 2020, issued without warning, has “cancelled” the Public Authority for Privatisation and Partnership (PAPP). The decree did away with the PAPP’s Board of Directors and transferred its assets to the Ministry of Finance as of August 18, the day of publication. Oman also reshuffled the cabinet on August 18, appointing Sultan bin Salem bin Saeed Al Habsi Minister of Finance.

Revised Australian procurement rules require assessment of “economic benefits” in procurements

The Australian Department of Finance has released an update to the Commonwealth Procurement Rules introduced in 2017. The rules now require the government to consider broader domestic economic benefits in all government procurements, commercial and defence. Officials will need to gather information on economic benefits as part of the decision-making process and document how the economic benefit has been considered as part of the overall value-for-money evaluation.

Annual BIS offset report - only eight non-EU countries demanded offsets in 2018; EU obligations mount; directs beat indirects

The 24th Annual Report to Congress on the impact of offsets in the defence trade shows that the total volume of offsets involving U.S. defence companies during 2018 increased significantly. The number of offset contracts and transactions, however, declined.

Australia releases next SICP implementation plan

The Australian Department of Defence has detailed the Sovereign Industrial Capability Priority Implementation Plan for Land Combat and Protected Vehicles. The plan contains a new set of Critical Industrial Capabilities which must be included in the Australian Industry Capability (AIC) program.

ISED Canada is managing 101 industrial and technological benefit projects

Innovation, Science and Economic Development (ISED) Canada’s 2020 Annual Report states that the country has 101 active Industrial and Technological Benefit projects. Prime contractors have yet to identify CAD$ 5.3bn in the value of obligations.

Main headlines from this issue

India: Draft DAP 2020 released but name change doesn’t make DPP 2020 simpler

India has re-released its Defence Procurement Procedure (DPP) 2020. Now renamed the Defence Acquisition Procedure (DAP) 2020, the draft document is 57 pages shorter than the 746-page draft published in March. The usual complexities remain. The Dept of Defence Production has also released a draft version of its new Defence Production and Export Promotion Policy, adding to the confusion over offset multipliers.

India’s former MoD acquisition expert calls for offsets to end

Amit Cowshish, a consultant and former Indian Financial Advisor (Acquisition) at the MoD, has called for India to discontinue its offset policy. Changes proposed in the draft Defence Acquisition Procedure (DAP) 2020 have significantly reduced the number of procurements to which offsets will apply, he notes.

Spain agrees to political support for Airbus and military aircraft deals in exchange for industrial benefits

The Spanish government has committed to buying additional military aircraft from Airbus and to lend the company political support in exchange for industrial benefits. Airbus, which is 4 percent owned by the Spanish government, had said it will lay off about 900 workers in Spain as part of 15,000 job cuts worldwide, prompting large protests outside its factories.

Israel: ICA receives offset support at Knesset meeting - Ministry of Finance ready to compromise

Israel’s Industrial Cooperation Authority (ICA), together with the Ministry of Economy, to which it reports, has found support for the use of offsets during a meeting of the Knesset’s Economics Committee. The Knesset meeting follows a long-running dispute between the MoE and the Ministry of Finance over the use of offsets, with the former supporting its use, and the latter opposing it.

Indonesian Eurofighter purchase without offsets raises spectre of corruption

The House of Representatives Commission overseeing Indonesia’s defence, foreign affairs, and information agencies has warned that a plan to purchase second-hand Eurofighter Typhoon jets from Austria could violate the law requiring foreign acquisitions to include countertrade, local content, and offset provisions equivalent to 85 percent of the acquisition price.

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Indonesia elevates use of barter payment terms

The Indonesian Ministry of Trade is considering the use of countertrade as a payment mechanism. The payment method will be used in co-operation with the MoD in deals with several “trading partner countries.” The minister said countertrade accelerates the transfer of technology and knowledge, increases production, and expands employment opportunities.

Japanese defence White Paper promotes industrial cooperation

Shinzo Abe’s government has published a defence white paper calling for four “lines of effort” to strengthen the country’s defence industrial base. The four “lines” provide for further participation in the sustainment and maintenance of imported defence equipment, and aim to promote the transfer of defence equipment under a new principle-based framework.

India: Trade Department calls for DPP 2020 changes to offset fulfilment periods / India backtracks, DOMW suspends move to abolish credit banking

A draft industrial policy document prepared by India’s Department for Promotion of Industry and Internal Trade (DPIIT) calls for a hold on changes to the Defence Procurement Procedure 2016 (DPP 2016).

Korea: Satellite launch closes contentious Lockheed offset undertaking

SpaceX, the private rocket company belonging to Elon Musk, has launched South Korea’s first dedicated military communications satellite. The launch brings to a protracted close Lockheed Martin’s satellite commitment to DAPA as part of an offset package into the purchase of 40 F-35 combat aircraft. The satellite has been the focus of a feud between Lockheed and...

Main headlines from this issue

India publishes offset guidelines but delays DPP 2020

India’s Defence Offsets Management Wing uploaded its new Defence Offset Guidelines on July 7, 2020. The guidelines form Appendix D to Chapter II of the 746-page Defence Production Policy (DPP) 2020. The DPP came into force on April 1, although the Department of Defence, a different MoD department, is yet to release a final version. The customary inconsistencies are maintained.

PESCO pits 21 EC member states against the four “superstates”

Countries with less-developed defence sectors, like Poland, favour the use of Permanent Structured Cooperation (PESCO) to develop their Defence Technology and Industrial Base (DTIB). Larger players such as France and Germany, with more developed sectors, prefer developing EU capabilities. The difference has led to friction among competing contributors wanting their share of industrial projects...

Australian local content controversy spreads from subs to frigates

Controversy regarding the level of Australian defence industry involvement in major naval procurements has spread from submarines to the AUD35bn ($24.29bn) Hunter-class frigate program...

Boeing details its positive economic impact in Canada

An economic impact assessment commissioned by Boeing and carried out by Ottawa-based consulting firm Doyletech Corporation has provided details of the company’s industrial cooperation footprint in Canada. The study found that in 2019 Boeing spent CAD2.3bn ($1.7bn) in Canada, creating 11,000 jobs directly.

Dynamit Nobel Defence tempts Poland with tech transfer

The German chemical and armaments company Dynamit Nobel Defence is offering to transfer to Poland technology and other forms of industrial cooperation as part of a bid to sell its Recoilless Grenade Weapon (RGW) systems. Poland is seeking anti-tank grenade launchers for its army as part of the “GROT” project.

Main headlines from this issue

India ignores petitions to change draft DPP 2020

India’s Department of Defence Production has rejected most of the requested changes to the draft Defence Production Policy (DPP) 2020. Defence contractors and other concerned parties had asked the DPP to change a number of provisions, including those concerning penalties, multipliers, and eligible projects. Contrary to media reports, the DDP has not confirmed plans to discontinue offset credit banking provisions. Their discontinuation though does remain likely...

Saudi government has awarded British government no “Al Yamamah” offset credits for 34 years

A breakthrough is at last conceivable in a long dispute between Saudi Arabia and the UK regarding offset credits under the historic Al Yamamah offset program. The government of Saudi Arabia had refused to acknowledge any offset credits for thirty years, despite submissions by the UK MoD. A Freedom of Information request by CTO reveals that the UK MoD has submitted a claim but has not received a counter offer...

India: Local content bid preferences now more bureaucratic

India’s Ministry of Commerce and Industry has revised its 2017 Public Procurement (Preference to Make in India) Order, adding new forms of procurement preferencing. The new order introduces a three-tiered local content system that applies to all government ministries, including the MoD.

Naval Group documents show Australia gets “sloppy seconds”

Documents obtained through a Freedom of Information request by the Australian Labor Party (ALP) show that Naval Group has identified further problems in achieving its Australian Industry Capability (AIC) targets. The company appears not to be prioritising local workshare.

Saudi Arabia: GAMI grants licences to eighteen new firms

Saudi Arabia’s General Authority for Military Industries (GAMI) has announced that it has granted licences to eighteen new companies to work in the defence industry. The move is in line with GAMI’s strategy to localise more than 50 percent of the kingdom’s spending on military equipment and services, said a statement from the authority.

Main headlines from this issue

French report highlights rising offset demands but fewer sales

A French annual report on arms exports has highlighted the rising demand for offsets and industrial cooperation in the local defence industry’s international arms deals. The demand came even as orders for French defence equipment declined in 2019. The report notes that industrial cooperation and technology transfers are “usually not enough” and that other sellers must often look for activities outside the defence industry...

No changes planned to Malaysian policy following leadership shake-up

Malaysia is not planning to revise its Industrial Collaboration Program policy anytime soon, despite a leadership change at the Technology Depository Agency (TDA). The government removed CEO Dato' Zailani Safari in April.

Thales STUDY vindicates Australian industrial cooperation policy

A study prepared by economic analysis firm AlphaBeta Advisers on behalf of Thales Australia has found that the defence company spent AUD$1.3bn ($900m) with Australian suppliers between 2017 and 2019. More than 60 percent went to SMEs. Australia’s Minister for Defence Industry has hailed the study as evidence of the success of the country’s industrial cooperation policies.

Czechia to procure French artillery with mandated industrial cooperation

The Czech MoD has announced that it will buy artillery pieces from Nexter. The purchase will include significant local industry involvement. The deal has not yet been signed... The 50 percent local participation may represent a contractual obligation or merely an aspiration.

Colombia’s offset policy is under review

Colombia’s Ministry of National Defence has informed CTO that it is reviewing the country’s offset policy and intends to make changes. Evaluation is ongoing with various actors and institutions. The focus is expected to shift towards...

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Spain signals new approach: stipulates 70 percent quota, cites Article 346

The Spanish MoD has signalled a new approach to defence procurement. The move is intended to overcome EU legislation on competition laws. The MoD will incorporate Indra Sistemas, Sapa Placencia, Escribano Mechanical & Engineering, and Santa Bárbara Sistemas into a joint venture. The ministry will then require bidders for the Wheeled Combat Vehicle 8x8 program to allocate at least 70 percent work share to the joint venture, which will also be the VCR design authority...

The Brexit Effect: Navantia teams with Northern Irish shipyard for UK tender – offers civil applications

Spanish shipbuilder Navantia has entered into an exclusive teaming agreement with Harland & Wolff, a Northern Ireland shipyard, to support the company’s bid for the UK’s forthcoming Fleet Solid Support (FSS) tender. The companies pledged to inject “significant investment” into ship design and construction across the UK if their bid is successful.

U.S. GAO reports on IP chain pressure for F-35s - Trump hints at bringing overseas production to U.S.

A report by the U.S. Government Accountability Office into the F-35 fighter program has found ongoing problems with the aircraft’s supply chain. Turkey’s removal from the industrial participation program has exacerbated the issue... Trump called for F-35 manufacturing to be brought back to the U.S., noting that having it carried out overseas is an example of “stupidity.”

Turkey: SSB claims no legal basis for removal from F-35 program

Dr İsmail Demir, President of Turkey’s Presidency of Defence Industries (SSB), has questioned the legal basis for removing his country from the F-35 program. “Unilateral decisions related to the partnership have no legal basis, and are not logical or reasonable,” he said.

Main headlines from this issue

Transparency International’s Government Defence Index gives Middle East an “F” for offsets. UAE and Saudi Arabia score zero

Transparency International Defence and Security (TI) has awarded the majority of governments in the Middle Eastern and African regions who participated in its survey an ‘F’ grade on metrics related to offsets. F means fail, big time. Data on European countries is due for release in November/December.

CSIS Contrasts UAE and Saudi defence industry development – “Generals are not immune to the temptation of bribes”

A review by the Centre for Strategic and International Studies notes that offsets have played an “extremely important” role in the development of both the UAE and Saudi Arabia’s domestic defence industries. Retired military officers have often served as front men in the UAE, often representing members of the ruling family...MBS’s localisation policies are “somewhat unaligned with reality”.

GOCA IS GONE - GICA IS BORN

The Global Offset and Countertrade Association (GOCA) has announced that the group will now be called the Global Industrial Cooperation Association (GICA). The reason for the name change, we are told, is to reflect the changing industry and mission of the group. The new name “captures the need to connect more than ever and aligns focus on the changing trends of the industry.” It includes a redesigned logo with the tagline “Transforming Partnerships.”

Austrian court closes Eurofighter investigation — Finance Procurator to appeal

The Vienna District Court for Criminal Matters has closed an investigation into alleged fraud by Airbus and Eurofighter Jagdflugzeug GmbH. The so-called “Eurofighter Affair” relates to allegations that the company paid bribes to win the contract, and that the offsets were poorly implemented. An appeal against the decision is expected. Christina Salzborn, a spokeswoman and judge at the District Court, told CTO....

Australian discussion paper seeks defence industry feedback

The Australian Department of Defence’s Centre for Defence Industry Capability has released a new discussion paper. The paper seeks comment from stakeholders on support programs and is part of a review process initiated by the Minister for Defence Industries, Melissa Price.