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Volume 2021
Main headlines from this issue
UK resets its defence industrial participation policy – with dual use and weighted indirects
The UK government is to introduce a revised industrial participation policy for defence procurements. The MoD will ask companies to set “voluntary targets” for UK content and to articulate, before signing the contract, their plans for opening opportunities for the UK supply chain. The government will then provide “support” to deliver on the plans. A minimum of 10 percent of the tender evaluation weighting must be allocated to...
UK to demand “significant proportion” of local build and assembly for Fleet Solid Support ships
The British government is reopening a competition to build Fleet Solid Support ships. It also expects that the winner will not be an overseas company and will have to carry out much of the work locally.
Taiwan’s offset programme to promote integration of civil and military equipment
Taiwan won’t publish its new offset regulations for another year but it’s already becoming clear that the island plans to emphasise benefits for its defence industry, preferably with dual use. A recently published Quadrennial Defence Review cites the value of offsets in a section discussing supply and maintenance of defence materiel.
India will accept Malaysia’s palm oil as payment for railway project
Ircon International, India’s state-owned rail construction company, is talking to Malaysia about a barter deal. The company would engineer, procure, and construct a railway project on the western side of Malaysia, starting near Kuala Lumpur...70 percent of the payment would take the form of palm oil.
Mozambique: Local content rules will cover commercial sectors
The government of Mozambique is in the process of revising its Local Content Law. The new law aims to increase local participation in projects covering energy, agriculture, tourism, construction, and mining by enforcing a minimum percentage requirement.
Main headlines from this issue
Japan’s former Defence Minister: “A Japanese offset policy is essential”
Gen Nakatani, the former Director General of the Japan Defence Agency, has called on Prime Minister Suga Yoshihide to introduce offset obligations on military purchases. Such agreements are common among countries around the world, he said, and Japan is exceptional in not applying them. He provided examples of the deals that Japan could demand...
Global defence offsets to reach $371bn by 2026 but bring $229bn of benefits
Avascent, a management consulting firm for government-driven industries, predicts the value of global defence offsets to reach almost $400bn over the next five years. However, after taking the ability of local defence industrial bases into account, Avascent believes that only about $229bn will actually be retired...
Lockheed adds $2.4bn of outstanding offsets in 2020, drops $100m in penalty liabilities
Lockheed Martin ended 2020 with outstanding offset agreements worth about $17.5bn. Most of the obligations extend through 2049. The company is also liable for about $1.8bn in offset penalties should it fail to fulfill its obligations.
European Parliament’s Committee on the Internal Market condemns systematic use of Article 346 TFEU
The European Parliament’s Committee on the Internal Market has produced an 8,500-word study of the implementation of Directive 2009/81/EC. The study reveals an ongoing state in which there has been neither motion nor development towards the elimination of offsets by member states.
Transparency International calls for legal offset framework in West Africa
Transparency International has called for countries in West Africa to establish a regulatory legal framework for offsets. The call comes in a report entitled “The Missing Element: Addressing Corruption Through Security Sector Reform in West Africa” published by TI’s Defence and Security unit.
Main headlines from this issue
Spain asks for national content, ideally around 70 percent, rarely gets it
Continental projects are building a true European defence industry, and Spain is at the forefront. Pesco, an EU mechanism to promote strategic autonomy, has 47 projects, with most of the backing coming from Spain, Germany, and France. Spain is participating in 24 of the projects and leads two. The question is how much European support can make up for the lack of demand for industrial participation?
UAE: Lockheed Martin and EDGE to establish joint working groups to identify industrial partnership opportunities
Saudi Arabia demands foreign companies build “major headquarters”
Saudi Arabia is incentivising foreign companies to establish their regional headquarters in the country. The companies will not have to abide by the country’s Saudization rules. The decision will pose a challenge to companies who are currently based in the UAE.
South Africa: B-BBEE Commission clarifies reporting obligations
South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) Commission has issued a clarification to help businesses with their reporting requirements. The reporting obligations are increasingly onerous and often unclear. The policy plays an important role in the DTI’s civil offset prospectus, the National Industrial Participation (NIP) programme.
British tier 3 subcontractor to provide technology transfer and sovereign capability under Canada’s ITB policy
Ultra Group may consider Canadian companies suppliers following a contract to commence work on the S2150-C Hull-Mounted Sonar (HMS) system for the Canadian Surface Combatant (CSC) programme. Ultra is committed to provide technology transfer and sovereign capability.
Main headlines from this issue
Transparency International relegates most defence contractors to band F for “lack of commitment” to tackling corruption associated with offsets
Transparency International Defence and Security reports that nearly three-quarters of the world’s largest defence companies show little to no commitment to tackling corruption. Offsets, the organisation says, represent one of their most opaque practices. Only one contractor, Bechtel Corporation, widely regarded as a construction company, is in its top-ranking Band A under the offset section.
Israel gives Boeing an umbrella, offers China carrots
Noemi Liebermann, the acting head of Israel’s ICA, described first an ideal, long-term, offset relationship, then explained the long and difficult path to creating one. Boeing has performed its obligations so well and is so interested in expanding its “umbrella of investment”... Many of the Chinese companies, though, struggled to find suppliers; they lacked experience working with local companies; and they also often misunderstood their obligations.
U.S. sanctions force Turkish courts to wrestle with force majeure
Covid-19 has forced contractors and buyers around the world to take another look at their contracts. In April last year, Turkey recognised the epidemic as grounds for contractors delaying deliveries. Suppliers could apply for extensions of four to five months to their delivery times. Now, though, contractors in Turkey are facing a new kind of force majeure: the effect of sanctions—and this time, Turkey might not be so forgiving...
India gets suggestions to improve DAP 2020
It’s been little more than four months since India’s Defence Acquisition Procedure 2020 (DAP 2020) came into force and already experts are suggesting improvements. KPMG urges the Indian government to reconsider the “impact of a dwindling offset market on the Indian industry.”
Thailand offers “privileges” to foreign investors
The government of Thailand will allow the country’s Defence Technology Institute to form joint ventures with private companies. “Privileges will help attract foreign investors to establish factories in the new defence industrial estate,”
Main headlines from this issue
UAE consolidates, obligors co-operate, suppliers relocate
How do suppliers meet offset obligations in regions with growing budgets but limited local industry? It’s a perennial problem for big obligors selling to small countries. Speakers at the virtual GICA conference described two solutions available in the United Arab Emirates...“It is worth noting that the offset policy in the UAE has evolved in response to challenges that have become a barrier to progress,”
Malaysia raises local content requirement to beat covid
As countries around the world roll out stimulus plans to cure the economic effects of COVID 19, Malaysia believes that it might have found a superpill. The country is turning to industrial participation as one way to deliver support for the government’s economic recovery plan.
India: “There are no offsets… but you have to engage with Indian industry”
In their discussion of India’s changing IP guidelines at the GICA virtual conference, Mayank Patel, Managing Director of Tri Polus Ltd. and Salil Gupte, President of Boeing India, had some good news for the country’s foreign suppliers: spending is up; foreign ownership is in; and offsets are off. The reality though, as suppliers to India have long known, is more complex...
Morocco looks to U.S. for defence industry cooperation – trade association demands formal offset policy
Morocco has held discussions with the U.S. about co-operation to develop the North African country’s defence industry. The General Confederation of Moroccan Enterprises (CGEM) has appointed a lobbyist to encourage the government to establish a formal commercial offset policy.
Kuwait unchained five obligors from bank guarantees in 2020
The Kuwait Direct Investment Promotion Authority (KDIPA) released the bank guarantees of five offset obligors last year following completion of their projects. Seven bank guarantees were reduced following partial implementation.
Main headlines from this issue
Slovakia: Defence minister launches new policy – first procurement demands 35 percent IP
The Slovak government has approved the purchase of 17 radar systems produced by Israel Aerospace Industries (IAI). The government-to-government contract, worth €148.2m, is subject to a requirement that 35 percent of the cost is invested in the Slovak defence sector. “That was one of the most important conditions,” an informed source told us.
Boeing asks India to send its obligations into space
Surendra Ahuja, the Managing Director of Boeing Defence India, has asked the Indian government to broaden the avenues for meeting offset obligations, including through space programmes. Ahuja called on the MoD to return to the wider scope for discharging obligations available in Defence Procurement Procedure 2016. “This allows for a holistic development of the Indian A&D sector since there are synergies between defence and commercial aviation,” he said.
France offers India Rafale and Panther assembly lines under “Make in India”
France has offered to move the entire assembly line of the Panther medium utility helicopter and 70 percent of the Rafale fighter plane assembly line to India. According to Hindustan Times, the offer, which also includes technology transfer, came from Emmanuel Bonne, diplomatic advisor to French president Emmanuel Macron.
‘Congressional Research Service’ outlines India’s “forced” localisation practices
The Congressional Research Service, a nonpartisan public policy research institute of Congress, has published a report on U.S.-India Trade Relations. The report focuses on what the U.S. sees as Indian trade barriers. The report notes that the U.S. continues to press India to address its “forced” localisation practices, such as in-country data storage, domestic content, and domestic testing requirements.
Oman prepares to implement flurry of offset projects
Oman’s 2021 State Budget has revealed a list of new projects under the country’s Partnership for Development programme. The programme manages Oman’s offsets. The budget also outlines a number of Public Private Privatisation (PPP) initiatives.
Main headlines from this issue
Greece “must learn from Netherlands and use IP to develop local industry”
Greece is “activating” its defence industry. The country has a unique opportunity to strengthen its defence industrial base and “all the relevant actors, political leadership, industry, universities and research centres must seize the moment.” The country should use industrial participation to help local companies join the global supply chains of defence primes...
Saudi Arabia gives defence companies “investment permits in 15 days, allows 100 percent ownership”
Saudi Arabia’s General Authority for Military Industries (GAMI) now issues operating permits to investors in little more than two weeks. It also says that it no longer requires international defence companies to look for local partners. Mohamed Al-Athel, GAMI’s Deputy Governor for Military Acquisition, conceded that the organisation had met with some scepticism from investors.
Indonesia: Placement politics drives clean sweep at KKIP
The Indonesian Defence Minister, Prabowo Subianto, has appointed Lieutenant General TNI (Ret.) Johannes Suryo Prabowo as Secretary of the Defence Industry Policy Committee (KKIP) Executive Team at the MoD. Suryo joins a number of retired generals and other MoD officials. The appointment has raised eyebrows in Jakarta...
Australia releases more SICP implementation plans
The Australian Department of Defence has released three more Sovereign Industrial Capability Priority (SICP) Implementation Plans. The plans focus on testing and certification; surveillance and intelligence, and signal processing.
EVENT DIARY 2021 – see CTO 1
Volume 2020
Main headlines from this issue
Israeli minister calls for Thyssenkrupp blacklisting
Israel’s Minister of Economy, Amir Peretz, has called for the government to blacklist Thyssenkrupp Marine Systems. Peretz claims that the company has failed to discharge offset obligations derived from the sale of three submarines and from Israel’s activation of an option to buy four ships. The submarine purchase is politically sensitive and has been the subject of controversy in Israel, with allegations of high-level corruption.
Australia’s policy: “Harder than traditional offsets
David Peckham, a Thales Industry Engagement Manager, has described the Australian Industry Capability (AIC) and Global Supply Chain (GSC) programs as “possibly even harder than traditional offsets.” For contractors confronted by the procedure for the first time, listening to his comments would have been a harrowing experience...
Initial framework contract places Airbus at the heart of Spanish program
Spanish industry has secured the initial framework contract of the Future Combat Air System’s (FCAS) demonstrator phase. Airbus will take a primary role at the heart of Spain’s participation, working directly with European partners and wider industry in support of Spain’s contribution to the program.
Saudi Aramco expands flagship commercial localisation program
The state oil company Saudi Aramco has announced the expansion of its flagship program to increase local content and boost domestic supply chains. The expansion includes plans for new international partnerships and establishing companies through an Industrial Investment Program linked to the development of Aramco's business.
Lockheed Martin releases rosy report on its Australian industrial cooperation
Lockheed Martin Australia has released a review of the company’s economic impact across the Australian economy. The review, conducted by advisory firm AlphaBeta, part of Accenture, found the company’s impact to be significant. Every AUD$1 of direct output generates an additional AUD$1.70 of indirect economic impact.
Main headlines from this issue
European Commission capitulates, closes case against the Netherlands
The European Commission has closed a case against the Netherlands concerning an alleged breach of Defence Directive 2009/81. The Ministry of Economic Affairs hoisted the Dutch national flag in celebration. The Commission’s case against Denmark remains ongoing...
Australia releases fifth SICP implementation plan
The Australian Department of Defence has released yet another Sovereign Industrial Capability Priority (SICP) Implementation Plan, its fifth. The new SICP focuses on radar capabilities. SICP plans are integral to the country’s Australian Industry Capability (AIC) program.
Nissan to establish assembly facility in Ghana with Japan Motors
Nissan has appointed Japan Motors Trading as its local partner in a new vehicle assembly facility in Accra, Ghana. The appointment complies with the Ghanaian government’s policy to aid the development of a domestic automotive manufacturing industry.
IP proposals submitted for Swiss Air 2030 Fighter Program
Contractors have submitted their final bids for Switzerland’s Air 2030 $6.5bn fighter program. The bids include industrial participation proposals. Four companies are competing: Lockheed Martin is offering the F-35A, Boeing the F/A-18 Super Hornet, Eurofighter the Typhoon, and Saab the Gripen jet. The selected contractor must place orders worth 60 percent of the purchase contract value with local industry.
Germany to build Dutch combat system
Thales and Holland’s Damen Schelde Naval Shipbuilding have signed a contract for the delivery and full integration of Thales’s Mission and Combat System for four MKS 180 class frigates contracted by the German Navy. Damen will design the system but German shipyards will build it under Damen’s project management.
Main headlines from this issue
Greece prepares new legislation for industrial participation
The Greek government is preparing new legislation to regulate defence procurement. The government plans a flexible approach, with industrial participation arrangements playing a significant role. A bill is currently at the consultative stage. The new regulations will include a reference to the Article 346 TFEU exception.
Omani offset policy emerges from limbo
Oman’s offset policy has emerged from limbo following the dissolution of its parent body in August. The policy will now continue as before under the direct control of the Ministry of Finance. The offset authority’s former employees will be transferred to the ministry.
Maria Laine relinquishes GICA chair - difficult choices ahead as covid takes a toll
Nominations have closed for election to the Global Industrial Cooperation Association (GICA) board. Among the departures is Maria Laine, GICA’s Chairwoman, who is stepping down following her promotion as VP of International at Boeing. A number of board members are also stepping down...
ECCO webinar causes confusion for speakers and DKF
Plans for an offset “webinar” by the European Club for Countertrade and Offset (ECCO) are in disarray after multiple speakers told CTO they were not aware of their role. The five-day event was announced by email at short notice and remains scheduled for November 30 through to December 4.
Australia: new SICP implementation plan for aerospace maintenance puts more pressure on global supply chains
The Australian Department of Defence has released a new Sovereign Industrial Capability Priority (SICP) Implementation Plan. The plan aims to boost capability in aerospace maintenance so that SMEs can qualify for participation in global supply chains.
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....
Main headlines from this issue
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.