Q72.

What level of competition are offset contracts subject to?

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SCORE: 0/100

Assessor Explanation

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As has been answered in previous questions, no information specific to offset contracts could be found. Art. 9 of the 2006 Anti-Corruption Law states that public procurement procedures have to be based on transparency, fair competition and objective criteria (1). However, as has been noted in the country’s last assessment (2), the lack of evidence suggests that there is likely no competition. Tenders published on the website of the Ministry of Defence also did not include any offset contracts (3). Algeria signed a Memorandum of Understanding with an Italian company to build a factory to build helicopters in Algeria in 2016. No justification or explanations from the Algerian government could be found in newspaper articles (4), (5).

IIt needs to be noted that the offset contract legislation and respective policy is very recent and depends on the equally recent rules for public procurement, with all its known weaknesses in implementation and oversight. That said, it is too early to assess its impact in practice.

The lack of legislation, specific policies or procedures organizing offset contracts, makes it difficult to ascertain whether they are open to competition. However, the practice of offset contracts is recurrent, as the “government does not apply “offset” requirements, obliging procurement authorities to approved bids from foreign companies only if they invest in manufacturing, research and development, or service facilities in areas related to the items being procured” (1). Moreover, despite most defence procurement contracts being single-sourced (2), it is hard to assess whether offset contracts accommodate better than single-source contracts. The key issue with offset contracts lies in foreign ‘investment’. Though, according to the US Department of State, “all investment specific incentives deriving from such contracts are outlined in the revised investment code, act number 007-2010/AN” (1). Of course, these incentives apply the same way to both national and international investors. No other requirement is imposed on contractors of offset contracts. For example, the government does not impose the purchase of local materials or export of a certain amount whatsoever (3).

It is not known whether Cameroon utilises offset contracts. This is unsurprising given the level of secrecy surrounding defence and security procurement in Cameroon [1]. This lack of information has not changed since 2015.

The 2009 Code of Public Procurement does not contain any provisions regarding offset contracts or evoking the use of this type of legal arrangement. It is not part of standard legal practice in Côte d’Ivoire (1).

Offset contracts in the defence sector, just like normal contracts, are most likely to be single-sourced and secret according to legal exemptions provided in procurement-related laws (1), (2) which allow defence sector procurements to be single-sourced and secret. This means that there is no open competition for offset contracts in defence procurement.

In the absence of a formal policy or regulations on offset contracts, this indicator is scored as zero.

Iraq has no developed framework for regulating offset contracts or upholding suppliers accountable for their contractual responsibilities. There is little evidence to imply that these contracts are regulated any differently when compared other defence deals.

The Government does not reveal information about defence contracting procedures. There is no possible way to assess the level of competition over offset contracts, as no information or regulations around them exist. In fact, there is no evidence of the existence of offset contracts at all [1, 2,3,4].

There is no reason to believe that offset agreements (like all other defence agreements which are conducted in almost complete secrecy) are struck after an open and fair contest, an auditor and analysts said (1, 2 and 3).

The overwhelming majority of Kuwait’s procurement deals are with the US, which doesn’t suggest that non-US contractors are treated fairly. It is also important to note that all these agreements are not subject to the scrutiny of the PTA, according to article 2 of Law no. 49 of 2016 for public tenders (4).

Defence purchases, according to the Government guide of doing business in Kuwait, include all weapons, communications and monitoring systems related to defence and security. There are internal policies regulating these purchases but the Government admits that they are “more flexible” than the ones applied by the PTA and not available to the public (5).

Offsets are requirements by governments to foreign selling entities to compensate and return a portion of the money spent directly or indirectly invested (1). Since Lebanon does not purchase military equipment due to a lack of resources from the defence budget (2) offsets are not applicable.

The assessor found no evidence that Malian law contains any provision for the use of offset agreements.¹ ² The Procurement Code makes no reference to the concept of an offset agreement, making it unclear whether such a deal would be legal or illegal in the country. Indeed, it is highly possible that such a deal would fall foul of article 29 of the Code, which states that:
“Offers and submissions must contain a commitment by the candidate or tenderer to:
– neither grant nor promise to grant to any person involved in the process of awarding a contract an improper advantage, financial or otherwise, directly or via an intermediary, with the intention of securing the contract.
– inform the contracting authority of any payment, advantage or privilege accorded to the benefit of any person, acting as an intermediary or an agent, to recompense them for any service provided.
– to respect, in general, legal provisions, notably those outlawing acts of passive corruption or trading of favours or any constituting offences of this nature”.¹
What is clear is that were the Malian government to negotiate an offset contract, the contract would not be subject to any special or additional scrutiny under the existing law. An offset contract would be subject to the normal levels of anticorruption oversight for public procurement contracts, as carried out by the ARMDS and the CRD (see Q59).
The assessor found no evidence of the Malian government contemplating, signing or expressing a desire for an offset agreement. Google searches reveal that the only reference to an “accord de compensation” in connection with Mali concerns a media article about Moroccan-Malian economic ties. The author speculates hypothetically whether it would be wise for IBK to negotiate such a deal with Moroccan companies in the event of them finding vast reserves of natural resources in Mali.³

The assessor found no formal policies or procedures that outline the reporting and delivery obligations for offset contracts in the case of Niger (1, 2).

Offset contracts are secretive and not openly discussed in the media. Off-set agreements may be discussed where there is some particular benefit such as a technological transfer to be gained by the government and there exists some political capital to be gained out of such disclosure. These contracts are outside the requirements of open competition. Although the PPA 2007 requires that there is open competitive bidding in procurement, there are exceptions even within the Act where the items can only be sourced from a limited number of contractors or where the cost of open bidding is disproportionate to the cost of the items. Single sourced acquisitions, like pre-selected bids, are treated as anomalous exceptions to the Act which requires adequate and substantial justification within the exception categories. “Abubakar said Comp Air Aviation was selected from three US companies that responded to Nigeria’s call for collaboration.” News reports indicate a call was made, but it is unclear if it was an open call or restricted call with pre-selected companies (1).

The whole polity and policies of Oman are based on non-justification in general in almost every aspect of the country. This includes the justification of offset contracts, military purchases, and others. Our resources confirmed that there is no competition over single-sourced offset contracts (1), (2). Research has revealed that there is no competition regulation over offset contracts (3), (4). There is no evidence that offset contracts are subject to competition regulation, therefore it is not clear whether contracts are competed for, in the first place or whether they are granted to single-suppliers. There is also no evidence of open competition on defence-related institutional websites or in domestic media outlets (5), (6), (7), (8).

Offset contracts are generally conducted outside the law as they have no defined policies and no regulations to manage them (1). Single source contracts are often conducted without clear justification (1).

As the country does not have a mechanism of public deliberation, it is hard to justify offset contracts. [1] Additionally, offset contracts are granted to a single source and there is no competition. [2,3]

According to our sources, there is no competition with regards to offset contracts. All offset contracts are single-sourced and suppliers are invited by the Tender Board and the MoD. Offset contracts of strategic purchases such as multi-billion deals are not managed by the MoD, but the Office of the Crown Prince and therefore, they are not part of the general procurement. The offset contacts discussed here have a maximum value of 10 million in purchases (1), (2).

There is no indication that the offset contracts Saudi have pursued with various foreign defence firms since the 1980s, including with the US, UK and French governments, have involved open competition. This is especially the case given that defence procurement decisions in Saudi Arabia are often made based on political objectives rather than solely based on quantified requirements. This includes long-term security and protection arrangements with allies such as the US, and the wider goal of cementing and ensuring the continuation of alliances with Western powers. Evidence shows that Saudi defence policy, as it relates to its offset programme, is continuing along this path, for example, the announcement of a US-Saudi USD 110 billion arms deal in June 2017, which included industrial participation agreements with the various partners involved including Lockheed Martin, General Dynamics and Raytheon. It is unlikely that this deal was subject to open competition; industry analysts suggest that factors such as access to the US government likely drive countries like Saudi Arabia to continue to award such deals to US-based defence conglomerates (3).

The Saudi government looks set to expand the application of direct offsets and “multipliers” in defence contracts, the latter being investment incentives where firms are granted additional credit towards satisfying offset obligations in exchange for collaborating in particular sectors). This is in line with Crown Prince Mohammed bin Salman’s Vision 2030 reform programme, one of the goals of which is to localise 50% of defence procurement from Saudi companies by the year 2030. Saudi Arabian Military Industries (SAMI), a military industry body created in May 2017 to increase local defence manufacturing, is reportedly tasked with managing new projects related to offset contracts and has launched several joint ventures and partnerships with foreign defence firms as part of these plans (4), (5). The General Authority for Military Industries is a complementary industry regulatory body, was launched in August 2017, it regulates and manages any kind of military and defence-related or security-related procurements, as well as monitoring the military industry sector in general (6). However, it is unclear whether these new developments will lead to more open competition or regulation in Saudi offset contracts, and there is still no transparency surrounding the tender or procurement process.

According to our sources, the Tunisian MoD and armed forces have not had a policy of offset contracts or regulations for a long time (1,2).

There is no competition concerning offset contracts. The offset contracts are managed by the Office of the Crown Prince, and therefore, the suppliers are usually targeted (approached by the office) without advertising contracts to the public (1), (2), (3).

Country Sort by Country 72. Sort By Subindicator
Algeria 0 / 100
Angola NEI
Burkina Faso 0 / 100
Cameroon 0 / 100
Cote d'Ivoire 0 / 100
Egypt 0 / 100
Ghana 0 / 100
Iraq 0 / 100
Jordan 0 / 100
Kuwait 0 / 100
Lebanon 0 / 100
Mali 0 / 100
Morocco
Niger 0 / 100
Nigeria 25 / 100
Oman 0 / 100
Palestine 0 / 100
Qatar 0 / 100
Saudi Arabia 0 / 100
Tunisia 0 / 100
United Arab Emirates 0 / 100

With thanks for support from the UK Department for International Development and the Dutch Ministry of Foreign Affairs who have contributed to the Government Defence Integrity Index.

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