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Volume 2021
Main headlines from this issue
Malaysia re-assesses industrial collaboration policy, remodels penalties
Malaysia’s Technology Depository Agency (TDA), the body responsible for implementing the country’s Industrial Collaboration Programme (ICP), is changing the way it oversees projects. The changes come partly in response to Covid, and partly as a result of the country’s political turmoil.
India threatens obligors even as fulfilment increases
India’s MoD has threatened to ban one U.S. company and put as many as 11 others on a watchlist for failing to fulfil their offset obligations. The country is considering for penalties all offset projects agreed more than three years ago. “OEMs might have deductions taken from their performance bank guarantees in other contracts”.
U.S. Congressmen call for end of drone technology transfers to Turkey
A bipartisan group of U.S. congressmen has written to Secretary of State Antony Blinken to call for an immediate suspension of export permits to Turkey for U.S. drone technology. The 27 lawmakers claim that Turkey’s armed UAV programme has destabilised multiple regions of the globe and threatens U.S. interests, allies, and partners.
Indonesia says every purchase of defence equipment must bring local benefits
Indonesian Defence Minister Prabowo Subianto has reiterated the country’s aspiration for a long-term strategic plan to raise local content levels in the defence sector. Every purchase of defence and security equipment from abroad must consider trade balances and involve local content, offsets, and technology transfer, he declared.
U.S. OIRA clears Trump’s proposed rules regarding domestic content
The Office of Information and Regulatory Affairs (OIRA), an office within the Office of Management and Budget, has cleared a proposed Defence Federal Acquisition Regulation Supplement (DFARS) rule implementing Executive Order 13881. The Order, issued by the previous administration, raises the threshold for domestic content to 55 percent.
Main headlines from this issue
Israel’s Economy Ministry beats Finance Ministry in battle to impose metro offsets
Israel’s Ministry of Economy and Industry has defeated the Finance Ministry in a dispute about imposing offsets on the country’s metro project. A reciprocal procurement policy is ineffective, the Finance Ministry insisted.
Indonesia concedes it does not monitor offset fulfilment
A member of Indonesia’s National Committee for Economy and Industry (KEIN) has confirmed an open secret. The Komite Kebijakan Industri Pertahanan (KKIP), or Defence Industry Policy Committee, lacks personnel to monitor whether foreign suppliers discharge obligations. Instead it relies on the Secretariat at the MoD...
Five NATO allies tempt Greece with rusty frigates
The Times has reported that the UK will give Greece HMS Monmouth and HMS Montrose, two Type 23 Frigates vessels, as part of efforts to “sweeten a deal” to sell the Greek Navy the Type 31 design. The “aged and retiring warships” are to be offered to the Hellenic Navy to help Babcock International win a multibillion-pound deal to build new frigates and upgrade the Hellenic fleet.
Annual BIS offset report: total volume of offsets higher than average despite lowest number of offset contracts and transactions
The 25th 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 2019 was above the historic average. The number of offset contracts and transactions, however, was the lowest ever collected.
Lockheed Martin reveals sanctions impact on Turkish obligations - force majeure notices applied to Utility Helicopter Programme
Lockheed Martin’s quarterly report has shown the effect of U.S. sanctions on Turkish suppliers: they continue to produce components for the F-35 programme, some of which are single-sourced... Lockheed also has a number of contracts with Turkish industry for the Turkish Utility Helicopter Programme. “We...provided force majeure notices under certain contracts related to TUHP.”
Main headlines from this issue
Poland: Abrams tanks procurement ignites firestorm with unions
Trade unions in Poland have expressed anger following an announcement by the Polish defence minister that the country will buy 250 M1A2 Abrams tanks from the U.S. The announcement did not mention an industrial participation package. The unions warned that the deal could result in the loss of thousands of Polish jobs.
NAPMO’S evasion of offset ban “returns investment to contributing nations”
Member nations contributing to NATO’s Airborne Early Warning and Control Programme Management Organisation (NAPMO) are receiving compensation through direct and indirect transactions. The indirect transactions can be defence-related or commercial. NAPMO contributors insist on industrial returns in recognition of their contributions to the programme.
Thyssenkrupp agrees offset plan with Israel, avoids blacklist
ThyssenKrupp Marine Systems (TKMS) has agreed a new offset schedule with Israel’s Industrial Co-operation Authority (ICA). The plan will see TKMS spend more than €300m in Israel over the next five years.
India’s atmanirbharta policy is “expensive and unachievable”- targets reached by “clever accounting”
India’s “atmanirbharta” policy, an attempt to increase self-reliance in defence production by demanding local content in procurements, has come under withering attack. Writing in India’s Financial Express, Amit Cowshish, a former Financial Advisor (Acquisition), at the MoD, described the policy’s goal as “nebulous” and criticised the expense and waste of trying and failing to achieve it.
Australia conducts review of its global supply chain programme
Australia is conducting an independent review of its Global Supply Chain Programme. The review started work last month and is led Lisa Paul, a former government official. The GSCP aims to increase the number of Australian companies and academic institutions in the supply chains of multinational defence contractors.
Main headlines from this issue
Switzerland: Armasuisse issues new offset guidelines, focuses on security technology
Armasuisse has released new offset guidelines. The guidelines introduce significant changes to the industrial sectors eligible for offsets, refine the multipliers, and introduce a threshold. The aim is to support the “security-relevant technology and industry base” (STIB). Indirect benefits for both the defence and commercial sectors are expected to remain viable.
Switzerland: F-35s did not score well for offset
Switzerland’s new offset policy will apply to its procurement of 36 Lockheed Martin F-35As. That was the prediction of Albert Gaide, leader of the Swiss Aeronautical Industries Group of Swissmem, an association of mechanical and electrical engineering industries for German-speaking cantons. “Offsets are there to help the Swiss industry and not Switzerland’s armed forces. The industry needs offsets badly!” he told CTO.
South Korea launches domestic component registration system to increase indigenisation
South Korea’s Defence Acquisition Program Administration (DAPA) has launched a registration system for local companies supplying parts for weapons systems. DAPA now requires foreign contractors to review the availability of local parts. CTO asked DAPA what happens to the bids of companies that don't use parts on the registry. DAPA acknowledged the question but declined to answer.
India: Helicopter urgency forces choice between indigenisation and supply
India’s armed forces are pressuring the government to fast-track the acquisition of Russian helicopters, despite disagreement between the two countries over the level of indigenous content.
France opens judicial probe into India-Dassault deal
France has appointed a judge to lead an investigation into corruption allegations concerning Dassault Aviation. The allegations focus on the sale in 2016 of 36 Rafale fighter aircraft to India and the true value of Dassault’s Indian spend under its offset agreement. Lieutenant General Prakash Katoch (ret’d.) said it is certain that, beyond mudslinging among political parties, nothing will happen in India.
Main headlines from this issue
New Zealand to stress “quality employment opportunities” in new government procurement rules
The government of New Zealand has introduced two new rules to its procurement regulations. Rule 18A requires government procurement agencies to consider job creation when buying goods, services, or works. Mandated agencies must consider “quality employment opportunities for New Zealanders,” particularly displaced workers and groups with traditionally high rates of unemployment or low labour force participation... will also apply to defence procurements.
Airbus and Lockheed try to strike out Blenheim’s conspiracy lawsuit
Counsel for Airbus Defence and Space and Lockheed Martin have filed separate motions to dismiss a lawsuit from Blenheim. The suit alleges conspiracy between those parties together with South Korea’s DAPA and the South Korean government, to cut Blenheim out of an F-35 fighter jet offset deal with DAPA. Airbus accuses Blenheim of filing “a fantasy-based complaint” in a court that “lacks subject matter jurisdiction” and relies on antitrust claims that are time-barred.
Australia: Submarine local content gets picked apart in senate committee hearing
A duck-and-dive Q&A in Australia during a Foreign Affairs, Defence and Trade Legislation Committee hearing last month produced an important confession. Penny Wong, the Leader of the Opposition in the Senate, forced Greg Sammut, the Defence Ministry’s General Manager, Submarines, to concede that the government has not yet agreed local content levels for each vessel in the Naval Group submarine programme.
UK government backs Babcock’s Ukrainian naval projects
Babcock International Group has signed a so-called tripartite Memorandum of Implementation (MoI) agreement in Odessa with the Ukrainian MoD and the UK government. The two nations will now push forward a major programme of Ukrainian naval projects, with Babcock as their designated prime industrial partner.
U.S. Navy promises to invest in Greek shipbuilding industry
The U.S. Navy has stressed its commitment to Greece’s shipbuilding industry. The statement came as the Hellenic Navy considers an offer from Lockheed Martin for four Freedom-class Littoral Combat Ships.
Main headlines from this issue
Blenheim sues Lockheed Martin, Airbus Defence and Space, the Republic of Korea, and DAPA
Grant Rogan’s offset vehicles, Blenheim Capital Holdings and Blenheim Capital Partners, have filed civil conspiracy allegations in the District Court of Virginia. The allegations relate to offsets associated with the sale of F-35 fighter jets to South Korea. The claim could be worth more than $500m.
Blenheim: ‘Project Archer’ lays bare the anatomy of a $3.5bn offset project
Rogan is asking for a trial by jury. The F-35 contract was worth $7bn. DAPA required Lockheed to “offset” fifty percent of the cost. “My role is essentially as chief witness,” Rogan told CTO. “Having worked with both Lockheed and with Airbus, I expect them to take their best shot. And we will take our best shot. Read full details in CTO 12.
Korea’s Hanwha Defense in talks for “made in the UK” howitzers
South Korea’s Hanwha Defense has opened discussions with British companies to create a “Made in the UK” version of its K9 self-propelled Howitzer. Hanwha will offer the K9 for the UK’s Mobile Fires Platform programme.
Indonesia’s defence industry “must have a vision to increase domestic content”
Indonesia’s Deputy Minister of Defence, Muhammad Herindra, has called on the local defence industry to create a vision to increase domestic content levels. “The Ministry of Defence and the Defence Industry Policy Committee continue to encourage the domestic defence industry to develop and be independent,” Herindra told a defence policy meeting in Jarkarta.
Netherlands submarine purchase will “safeguard the national security interest and strategic autonomy”
The Dutch MoD has given the House of Representatives a “basic report” on the progress of the Walrus-class submarines replacement programme. It’s not going well.
Main headlines from this issue
Procurement officers suffer from “offset fatigue”
GICA Presentation: For contractors pitching to customers, offset requirements can look like obstacles that must be overcome to complete a transaction. If they can just find the right local suppliers, they’ll be able to check all the boxes and land all the credits. Sometimes the match between the offset demands and the procurement policy doesn’t work...
Damages should be “compensatory, not punitive”
Penalties are painful things that offset practitioners usually try to avoid. A legal discussion at the GICA virtual conference took participants through an unmissable tour of different countries’ approaches towards unfulfilled obligations.
European Parliament criticises Poland and Romania for using Article 346 to buy American instead of supporting PESCO
The European Parliament has published a document analysing defence industry cooperation in the European Union. The analysis takes issue with the “de facto application” of internal market rules. It blames Article 346(1) TFEU, the frequently used offset escape route, for frequently “restraining” the defence equipment market.
Indonesia aims for 40 percent offset quota in defence procurements
Indonesia’s Defence Minister, Prabowo Subianto, has called for defence purchases to be treated as investments in local industry. “We have to find out how to implement trade returns, local content, offsets, transfer of technology, and details of defence investment in every procurement of defence and security from abroad,” he said.
“Future Combat Air Programme” to drive skills development right across the UK
An independent report produced by professional services firm PwC has confirmed the economic impact of the Tempest programme. The programme will affect every region of the UK, supporting an average of 21,000 jobs a year, with 70 percent of the programme’s value generated in the North West, South West and East of England, according to BAE Systems.
Main headlines from this issue
Australia: Primes that don’t meet AIC commitments will face “consequences”
In the annual address to the Defence Connect Budget Lunch, Australia’s Minister for Defence Industry, Melissa Price, laid out a hard line for contractors who fail to meet their Australia Industry Capability (AIC) commitments. “I have and will continue to hold the primes to account on their AIC commitments,” Price declared. “It’s not enough to say you’re going to do something...”
Naval Group runs into more heavy seas in Australia submarine project
It’s been little more than a month since Naval Group signed up for a 60 percent industrial participation commitment for Australia’s submarine programme, and already the project is taking criticism. Rex Patrick, an independent senator for South Australia, launched a blistering attack on the procurement.
Alstom to increase local content in Ukraine to 35 percent for supply of electric locomotives
Alstom, a French multinational rolling stock manufacturer, is ready to increase the level of local content in its contract for the supply of electric locomotives to Ukraine, French Finance and Economy Minister Bruno Le Maire has said.
$3.7BN and growing – The value of India’s defence offsets
India is continuing to increase the value of its defence offsets. The cumulative value of defence offsets in India reached just over $3.7bn on May 11, 2021, an increase of $467.7m since October 8, 2020. The value of obligations approved as discharged also increased significantly.
IAI to establish a Boeing 777 conversion facility in South Korea
Israel Aerospace Industries' Aviation Group has signed a Memorandum of Agreement with the Incheon International Airport and Sharp Technics to build an aircraft conversion site in South Korea. The facility will specialise in converting Boeing 777-ERSF planes from passenger to freighter. “IAI has transferred production of business jet wings, main frame, and parts of the tail to Korean companies...”
Main headlines from this issue
Finland’s HX programme: “We are calculating what the true value to us is” Saab presents final local assembly offer as bidding closes
Saab has presented its best and final offer for the €9bn HX Programme to Finland. The Eurofighter consortium and Lockheed Martin also made their final pitches, stressing the volume of their proposed work packages. Boeing made a short statement and Dassault was silent. Programme Director Lauri Puranen informed CTO that “Most companies think the value of their projects is very high, [but] we are calculating what the true value to us is.”
Malaysia to match local companies to OEMS for rail development
Malaysia is hoping to increase local content in its rail industry by 45 percent by 2030. Launching the Rail Industry Development Programme (RIDP), a project under the Strategic Industries and High Performance SME Improvement Programme, Transport Minister Datuk Seri Dr Wee Ka Siong said that the Malaysian government would match foreign OEMs with local businesses to increase their capacity.
Naval Group plans return to Egypt—and to Egyptian shipyards
France’s Naval Group is back to bidding for projects in Egypt, two years after a rupture in diplomatic relations led Cairo to boycott French defence companies. It now appears that relations are on the mend and deals, including offset deals, are in the offing.
Pratt & Whitney: “We’ve replaced 75 percent of Turkey’s F135 engine parts”
Pratt & Whitney has now qualified three-quarters of parts previously produced by Turkey for the F135 engine. The directed removal of Turkey from the programme will increase engine costs by 3 percent.
680 local companies battle to supply Canada’s shipbuilding programme
More than 680 businesses took part in a recent virtual industry day run by Irving Shipbuilding. The company organised the event to find potential suppliers for the Canadian Surface Combatants. So far the government has signed 45 contracts with Canadian suppliers.
Main headlines from this issue
U.S. congressional panel hears call to stop China’s forced technology transfer
The U.S. has to take a results-oriented approach towards China that holds Beijing to specific goals that include a lowering of its “forced technology transfer and IP theft”, and the opening of its digital markets. Those are the recommendations of Nigel Cory, Associate Director of Trade Policy at the Information Technology and Innovation Foundation. The rules are deliberately “restrictive” and “ambiguous”...
Poland seeks local build with foreign “know how” on Miecznik frigate programme
Poland expects foreign contractors on the country’s “Miecznik” naval programme to build three frigate-class warships in the country. The government will send public procurement notices about the acquisition of the vessels to the Polish defence industry but local companies will receive support from the foreign partner to join the construction of the ships.
Greece: Industry CEO calls on government to implement 30 percent quota for new frigate requirement
The CEO of Intracom Defense, a leading Greek defence electronics and communications company, has called on the Greek government to demand industrial participation for at least 30 percent of purchase contract value for the new frigate requirement. He said the procurement presents golden opportunities for local companies to acquire knowledge in areas including...
Iran struggles to barter oil and gas for Chinese jets
China is reported to be balking at Iran’s request to pay with oil and gas for China’s J-10C lightweight fighter jets. Tehran has expressed an interest in purchasing the aircraft since the lifting of a UN arms embargo in October 2020.
UK and India “should collaborate on aerospace and naval technology”
A report from the UK-India Business Council calls for the two countries to collaborate on technology and development in aerospace platforms and naval vessels. The council said that it had made 34 recommendations to India’s Defence Acquisition Procedure (DAP) 2020, including 22 “related to the important aspect of offsets.”
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.