CTO Newsletter

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Contractors give hostile reception to DAPA’S policy shift

Contractors have expressed dismay that Korea’s Defence Acquisition Programme Administration is “walking back” some of the policy pledges announced at the GOCA conference in April. DAPA introduced plans for revised guidelines at a two-and-a-half hour industry seminar in Seoul in late June. One concerned party described those plans as “rapacious”, an opinion that DAPA does not accept. The June seminar heard that a so-called 'demerit table'……

Australia: New template “demands more than ever before” from defence companies

Australia’s Department of Defence is adopting new procurement policies to demand more Australian involvement in defence projects. The Minister for Defence Industry, Christopher Pyne, announced new arrangements that change the process companies need to follow when responding to tenders for defence equipment. He said the move sends a clear signal to large overseas contractors.....

Australian industry demands tougher submarine terms

The Australian Industry and Defence Network-Victoria has welcomed the stand taken by Victorian Government Minister Wade Noonan to call for stronger commitments on Australian industry involvement in the submarine programme. He called for tougher contractual obligations on the prime contractors.

UK’s Defence Secretary warns U.S. against closing its defence markets

Michael Fallon, U.K. Secretary of State for Defence, said at a Centre for Strategic and International Studiesroundtable in Washington that the UK has been buying a huge amount of high-end kit from the U.S. Britain, he noted, expects a fair return.

CETA agreement between European Union and Canada bans commercial offsets except for aboriginal businesses

The Canadian government has delayed an announcement to provisionally apply the Comprehensive Economic and Trade Agreement, most likely by at least two months.

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Israel’s ICA chief blames previous Directors General for “mess”

Ziva Eger, Director General of Israel’s Industrial Cooperation Authority, began her presentation a Stuttgart offset conference with an outspoken attack on her predecessors. Ms Eger accused them of work processes that were not clear, were not being used consistently, and were unequally enforced. “Actually, to tell you the truth it was a kind of a mess,” she declared.

Australian senator fears DCNS’s local content will have Australians assembling IKEA flat packs

After speculation in the Australian media about the percentage of Australian industry involvement in the country`s largest ever defence procurement, South Australian Senator Nick Xenophon has warned of falling participation. Damning evidence presented at a Senate hearing, he said, suggests that DCNS has backed away from its initial local build and assembly commitment to Australia’s Future Submarines.

Australian trade association calls for tough consequences for non-delivery of local content

The Australian Industry and Defence Network, an association for SMEs in the defence and security sectors, has called for additional requirements to be levied against contractors that fail to deliver Australian content of at least seventy-five percent of the value of their Australian Industry Capability projects.

Norwegian defence industrial strategy to be defined by the submarine programme

Norway has selected Germany as its strategic partner for new submarines, making Thyssenkrupp Marine Systems the likely supplier. An MoU between the two nations will cover co-operation. There is no contract yet but the offset obligation will be for 100 percent of procurement contract value.

Dutch wind will be a new industry for Russia

A Dutch company, Lagerwey, has agreed to provide the Russian state nuclear corporation, Rosatom, with technology transfers on wind turbine production. Lagerwey will also have to localize wind equipment production in Russia for at least 65 percent of sales contract value.

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Kuwait’s nighttime lecture has obligors shaking heads and nodding off

Contractors summoned to a nightfall offset conference at the premises of the Kuwait Direct Investment Authority encountered more than one bad dream. Some of the 30 to 40 participants were asked to sign a note acknowledging their outstanding obligations. …. KDIPA introduced the new strategy for implementing them.

Obligors end Romanian stand-off with a draw

Rivalry between Romania’s state-owned and private sector defence companies for the execution of offset benefits has ended in stalemate. The offsets are linked to a contract for Aerospike anti-tank missiles. The companies have agreed to implement some of the five separate projects in the private sector. However, Patromil, the defence trade association, believes it has been short-changed.

Japan relaxes rules to lure foreign defence technologies

Japan’s Acquisition Technology and Logistics Agency (ATLA) will allow entities headed by foreign nationals to apply for subsidies for defence technology research. …. the aim is to further Japanese acquisition of next-generation military technologies from overseas.

Finland confirms IP requirement for battle system

Finland’s Defence Minister, Jussi Niinistö, has confirmed that industrial participation will be integral to the procurement of a battle system for the Finnish Defence Forces’ Logistics Command. A preliminary invitation to tender has been sent to three supplier candidates for the Squadron 2020 project.

South Africa: New Black Economic Empowerment requirements affect obligors - send mining companies diving

South Africa’s Broad-Based Black Economic Empowerment Commission has declared that from June 9th, 2017 the threshold value for major B-BBEE transactions to qualify for registration is R25m ($2m). All major B-BBEE transactions must be registered within fifteen days of being concluded.

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South Africa puts local content provisions in draft procurement law - obligors seek exit through penalties

South Africa’s National Treasury is working on a broad Public Procurement Bill that could cover both commercial and defence industrial participation policies. The draft bill is intended to create instruments to enforce compliance in the specification, advertising, evaluation, adjudication and awarding of tenders to leverage industrial development.

Saudi Arabia to introduce tiered approach to mandatory domestic spare parts production

Defence contractors to Saudi Arabia may be required to prepare and define a programme for achieving local spare parts manufacturing. Opportunities for foreign military contractors have so far been restricted, but the restrictions are about to change.

India: Foreign suppliers relegated to second place for all government procurements

India’s Finance Ministry has issued an enabling provision to the General Financial Rules that favours domestic industry over foreign companies in government procurement contracts. The policy initiative is meant to support the government’s ‘Make in India’ programme.

Will Germany give Boeing preference for investing in Cotesa?

Boeing is sending a message to the Bundeswehr by expanding its supplier base in Germany. Cooperation could influence the Bundeswehr’s order for the next heavy-load helicopter of the German Armed Forces for which the company is competing with Sikorsky.

Australian MoD: “Protectionist measures always bring only illusionary gains – so we have the Australian Capability Programme”

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UAE’S NEW POLICY - How EDIC will generate output credits: “It’s a big change for everybody, a new direction”

Plans are well under way and contracts are already in place with some contractors for the Emirates Defence Industries Company to take control of joint ventures and transferred technologies. We were startled to be told the changes are taking place in an atmosphere of peaceful coexistence.....

India: Details of Defence Ministry’s “strategic partner” policy for defence production

India’s MoD has reached a decision on the long-delayed policy for identifying “strategic partners” (SPs). The MoD had not released details of the new policy as we went to press, but three individuals present at the department’s meeting told India’s Business Standard the new policy’s scope, the criteria and the procedures for selecting SPs and the foreign OEMs they would partner.....

Saudis tighten up on local content

Prince Mohammed bin Salman has declared that the Saudi government has reached the unanimous decision that any industry benefitting from a government purchase must be linked to the government's local content requirements. In some industries, suppliers have refused to transfer technologies. The Kingdom will now require them to use materials made in Saudi Arabia.

Former SSM chief says failure of U.S. and Europe to offer offsets has led Turkey towards China and Russia

A blogger understood to be SSM’s former Undersecretary for Defence Industry, Murad Bayar, said that Turkey is giving preference in defence procurement to Russia and China because those countries are ready to offer offsets that NATO members refused to consider.

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Kuwait gives obligors three enigmatic choices

An official document circulating among Kuwaiti ministries details new procedures for the follow-through and execution of offset projects. Civil and defence contractors with obligations are now being summoned to the Kuwait Direct Investment Promotion Authority to discuss how they will discharge commitments made under contracts with the National Offset Company before the NOC was shut down. Any option selected will receive a multiplier of.....

Israel threatens 28 delinquent obligors with blacklisting

Israel’s (Industrial Cooperation Authority has sent warning letters to 28 foreign companies asking them to explain why they have not undertaken all of their reciprocal purchases. The companies have been told they face blacklisting. They are said to collectively owe more than $1bn of purchasing commitments.

OECD publishes paper on offsets, sees bribery as commonplace

A paper published by the Organisation for Economic Co-operation and Development (OECD) says that indirect offsets requiring longer-term commitments are becoming more prevalent in developing countries. Many countries, it says, require joint ventures or the transfer of actual design and production capabilities instead of foreign direct investment in a wholly-owned subsidiary. The paper also takes the customary swipe at offsets for being a potential avenue for corruption.

Canada: Leadership contender on the stump offers offset credits

Canada’s leadership hopeful for the opposition Conservative Party, Erin O’Toole, has offered to give offset credits for water infrastructure projects whose systems need repair through Public Private Partnerships. The projects would be a top priority in his plan to improve the relationship between the government and indigenous communities, he said.

Australia’s Submarine Programme: committee calls for report on securing intellectual property ownership

The independent Australian technology developer Defence Materials Technology Centre and the French shipbuilder DCNS have announced the signing of an Australian industry participation agreement……A joint standing committee report into Australia’s Future Submarine Programme with France has raised concerns about intellectual property ownership. The committee requests that the Department of Defence provides a report to the committee during the 2018 winter sittings of parliament.

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Finland forestalls EC intervention with policy statement supporting offsets

Finland’s MoD has issued a lengthy statement about its industrial participation policy for defence procurements. The statement precedes two major procurement projects for new fighter aircraft and new naval ships, and pre-empts possible criticism from the EC regarding the application of Article 346 TFEU.

DAPA responds to GOCA’s policy requests – guidelines to be changed

Trade organisations often ask government authorities to make policy changes on behalf of their members. Much rarer are government authorities that publicly agree to many of those changes. Korea’s Defence Acquisition Programme Administration therefore caught GOCA, and conference delegates, by surprise when the Deputy Director of its offset division, Lieutenant Colonel Kim Dongwoo, provided straightforward answers to questions put to it and agreed to make improvements in a number of important areas.....

Australia’s IP policy now focused on defence export strategy

“Our circumstances are changing,” Matt Ramage, Assistant Secretary, Defence Industry, told GOCA conference delegates. The focus will now be on sovereign industry capabilities and on developing, for the first time, a defence export strategy. That strategy is not in Australia’s DNA “but we’re changing the way we think.”

How offsets determined the winner for Canada’s search and rescue aircraft requirement

Navdeep Bains, Canada’s Minister of Innovation, Science and Economic Development (ISED), has explained that Airbus won the competition for fixed-wing search and rescue aircraft in large part because of its ‘value propositions.’ The VPs included strong partnerships with Canadian industry, he said, and opportunities for Canadian companies in the Airbus Defence and Space supply chain were also critical to the successful bid.

Britain pledges “cutting-edge” military technology to India for co-production

British Secretary of State for Defence, Michael Fallon, will offer cutting-edge military technology to India for co-production of weapon systems. They would together become \world beaters\" in arms exports he told his counterpart Arun Jaitley during a visit to Delhi."

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Malaysia’s programme over-achieves

Malaysia’s offset programme continues to develop strongly. Deputy Finance Minister Datuk Seri Johari bin Abdul Ghani informed delegates at an offset conference that each dollar spent on procurement achieved a multiple of between three and four by way of job creation, technology transfer, and qualitative investment.....

Indonesia: MoD tightens grip on KKIP

The Director General of Defence Potential for Indonesia, Dr Sutrimo Sumarlan, confirmed that the MoD has assumed control of the country’s Defence Industry Policy Committee, known as KKIP. Competing factions had made responsibility for implementing the offset policy unclear.

Belgium decides on offsets for the Air Combat Capability Programme

Belgium’s Council of Ministers has settled its internal political difficulties and released an RfP that invokes Article 346 TFEU….Offsets will qualify for a weighting of ten percent in the bid evaluation process, significantly more than the allocation for operational and technical support; ‘employability and deployability’; and ‘growth and evolution potential.’

Philippines expected to make offsets for defence procurement mandatory

The Philippines International Trading Corporation is awaiting the formal approval of its president and CEO, Dave M. Almarinez, to structure an offset policy. The new policy will compel the military to engage in offsets instead of requesting offsets on a “best efforts” basis. In practice the military doesn’t ask.

Pakistan’s offset law is a paper tiger

Pakistan’s formal offset regulation sits on the online portal of the Directorate General for Defence Purchase. The regulation states that offset is mandatory for defence procurements over $15m and provides policy details consistent with well-considered and conventional offset principles. But Pakistan does not appear to have required any foreign defence contractor to follow them.....

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Israel’s offset division divides into three, applies penalty provisions

Israel’s Ministry of Economy has divided its management agency for offsets, the Industrial Cooperation Authority (ICA), into three departments. The foreign investment division remains separate. The ministry has also revised the obligors’ undertaking document and introduced non-performance penalties.

Romanian decree puts offsets back in the spotlight, retains regulations

Romania has enacted a decree regulating the national defence industry. The decree, in part, focuses on the application of Article 346 TFEU and is structured to bolster the domestic defence industry. However, the law is not yet in force and the prevailing offset regulations will not be replaced.

DKF runs for cover as TV station chases “Club for crooks”

The DKF was forced to move its Bremen conference to a hotel after a German TV station door-stopped delegates and questioned them about corruption in offsets. The interviews became somewhat farcical.....

Turkish public faces medicine shortage as Health Ministry commences offset campaign

Turkey’s Health Ministry has become the country’s first civil procurement agency to take advantage of an amendment to the February 2015 Public Procurement Law. The ministry published offset guidelines for its ‘Health Industry Partnership Programme’ in January 2016. Now it is putting the guidelines into practice.

EU complains of Chinese pressure to release advanced technology in exchange for market access

The European Union Chamber of Commerce in Beijing has published a lengthy report complaining that European business is facing intense pressure to turn over advanced technology in exchange for near-term market access.

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Eliminating offsets may be counterproductive, argues U.S. Air Force Colonel

A senior officer in the U.S. Air Force Judge Advocate General Corps is taking up arms in defence of offsets. He says that because offsets create complicated supply chains, they may foster interdependence and deter aggression.

Norway’s focus shifts to jobs as Germany agrees to buy Kongsberg’s missiles

The Norwegian government has signalled a significant offset policy shift by making job security equal to access to foreign markets and security of supply. Jobs have not previously featured as an important consideration in industrial participation programmes.

Delayed Strategic Partnerships plan continues to frustrate the ‘Make in India’ plan

Strategic partnerships pave the way for joint ventures between Indian and foreign defence firms, but slow decision-making in the defence ministry which hands out the contracts is holding up progress. The file has now been sent to the Finance Ministry for another opinion.....

Oman has more than 30 obligors - eleven new projects under consideration

No fewer than 38 government and governmental organisations are now working with Oman’s Authority for Partnership for Development (PFD), the sultanate’s offset management agency, on the country’s procurement contracts.

Airbus agrees terms for industrial partnerships with Japan

Japan’s trade ministry will seek to expand the domestic aircraft industry by advancing its ties with Airbus. Both sides would hold regular meetings so that Japanese companies can assist the development of next-generation models.

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UAE: EDIC demands full control of joint ventures and technology transfers

The Emirates Defence Industry Company plans to develop an independent military sustainment approach for the UAE. By amending the structure of joint ventures and installing exclusive UAE management, EDIC will have full command of the offset. Obligors will be spooked by the implications.

“Dassault will not transfer technology to India for only 36 Rafale fighters”

Dassault Aviation has complained that the order for 36 Rafale fighters was “a bit small.” CEO Eric Trappier said a bigger order would ensure the transfer of technology that would position the country as a high-end manufacturing hub under the ‘Make in India’ initiative.

An abnormally positive appraisal finds that South Africa’s DIP policy has tripled GDP

A restructured evaluation of South Africa’s defence industrial participation policy discusses “the perceived non-achievement of the 1997 DIP objectives and the reality of its manifestations.” The authors argue that the DIP tripled the gross national product and improved the economy through.....

Saab offers India “more than ‘Make in India’”

Saab has pledged to build an advanced aircraft production facility in India if it wins the contract for the supply of single-engine fighter jets. Officials said the company has finalised a blueprint for the hub, which will manufacture Gripen Es for India and the global market.

Austria sues Eurofighter consortium for €1.1bn over 200 percent offset demand

The Austrian government has launched a €1.1bn lawsuit against the makers of the Eurofighter. The offset requirement in the RfP for the fighter jets was a mandatory 204.2 percent.

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Blenheim gets tangled in the African bush

Grant Rogan, CEO of the Blenheim Group, says that assertions made in an anonymous letter to CTO are ill-conceived and intended to cause mischief. The letter described the disposal of share capital in Blenheim Capital Services Ltd. (BCSL) to a Nigerian bank. Mr Rogan says that an agreement was reached concerning a joint venture with Heritage Bank to establish an offset programme for Nigeria.....

Avascent analyses the impact of the Trump administration’s domestic labour policies

Avascent, the strategy and management consulting firm, suggests that political pushback against sharing labour on future programmes would put U.S. firms at a disadvantage in upcoming foreign deals. Current offset obligations could become a liability in the eyes of the White House.

Malaysia’s industrial cooperation programmes are worth $9bn in economic returns

The CEO of Malaysia’s Technology Depository Agency, Datuk Zailani Safari, said that his agency was optimistic that it would meet its projection for collaborative high-impact projects, especially for the commercial and defence sectors. Two local companies were summoned by a special committee for failing to implement the projects that had been planned.

Denel slows Malaysian IP pending payment

Denel Land Systems’ contract to deliver turrets for Malaysia’s fleet of DefTech AV8 8x8 armoured fighting vehicles has been delayed by two years because of the country’s economic situation. The contract mandates industrial participation in Malaysia.

UK signals “buy national” approach to government procurement after Brexit

The British government has published a 132-page strategy green paper—a consultation document—titled ‘Building our Industrial Strategy.’ The green paper addresses the governments’ contracting approach after Brexit and makes clear that the UK will favour local firms. Currently, European Union public procurement rules outlaw “buy national” policies.